Science: The Unlikely Frontier for New Business Ideas
“Fail fast” has become the corporate innovation mantra, but new research suggests that inventions that build on science, with its systematic observation and methodical experiments, may deliver more value to companies.
US patent filings that cite journal articles bring 26 percent—or $8.7 million—more value to companies than patented inventions developed without citing scientific research, says a paper co-authored by Harvard Business School professor Joshua Lev Krieger, University of Munster professor Martin Watzinger, and Monika Schnitzer, a professor at Ludwig Maximilian University Munich. Grounding innovation in science also results in more unique products. For companies with thousands of patents, the value difference quickly adds up.
“If you are willing dive into the frontier of scientific journal articles, the rewards of science-based innovation are really high.”
Companies facing shrinking product lifecycles and rapidly changing technology are under pressure to bring new goods to market faster. Corporate spending on research and development (R&D) in the United States has also been outpacing inflation, raising the stakes for profitable discoveries. The findings suggest an opportunity for the investment pendulum to swing from fast-money ventures to slower, potentially more rewarding endeavors.
“If you are willing dive into the frontier of scientific journal articles, the rewards of science-based innovation are really high,” says Krieger, an assistant professor in the Entrepreneurial Management Unit. “I hope it opens some eyes to the value of hard, risky, in-the-weeds science for commercial innovation, as opposed to ‘let’s just go build the thing and make it work on the fly.’”
What does basing an invention on science look like? Krieger says companies don’t need to run in-house labs to reap the benefits. Referencing the methods and results of formal scientific research is enough to lift a patent’s value.
Defining a product’s ‘science intensity’
Krieger, Watzinger, and Schnitzer categorized some 1.2 million US patents filed between 1980 and 2009 based on their references to scientific studies and other patents. When companies apply for patents, they must cite all of the past technology, research, and products that underpin their proposed inventions.
Applications that directly referred to at least one study received the highest measure of “science intensity,” followed by patent filings that didn’t cite papers but referenced another patent that did. The least science-based products offered no connections to past research in their filings.
“The added uncertainties and costs of tough tech development and commercial exploration require a different approach.”
To estimate a patent’s value, the authors looked at how a company’s stock price fluctuated after receiving approval, comparing filings within the same technology class and year. The most science intensive patents were valued 26 percent more than patents that lacked any connection to past scientific research. Patents that cited other science-based patents had values of 18 percent more.
The group also assessed a patent’s novelty by evaluating word combinations, finding that those rooted in science were more unique, adding to their value. However, the potential rewards of science-based R&D also come with more investment risk. While science-based patents are more likely to have higher values, they are also more likely to be total flops. In efforts to commercialize novel science, R&D teams often fail to replicate the key findings or struggle to turn interesting scientific insights into marketable products, resulting in patents with little or no value.
A tale of two storage systems
All told, the most science intense patents were worth approximately $15.8 million, compared with $8.7 million for inventions not grounded in science.
“I’m not surprised that a patent with a lot of citations to academic articles that’s able to quantify novelty and utility, and results from a methodical, long, risky R&D effort is more valuable,” says Krieger, noting that even a single mention to past research is associated with greater patent value.
To illustrate the difference, Krieger’s study highlights two vastly disparate companies—Coca-Cola and McKesson—that sought patents within the same technology class. The companies proposed devices that used carousel-like storage systems to dispense beverages and medical supplies, respectively. While both applications provided detailed technical drawings of the products’ mechanisms, McKesson’s application also cited 15 scientific articles. Coca-Cola’s filing didn’t refer to any past research.
Even patent applications for some medical devices—arguably, an industry with strong ties to academia—didn’t include scholarly references. For example, some filings for materials that prevent oxidation of medical implants and air filters with the potential to deactivate viruses didn’t cite any studies. Krieger’s findings show that patents in the same technology category that reference scientific articles would, on average, have more value and greater novelty.
Krieger and his colleagues detailed their findings in the working paper Standing on the Shoulders of Science, released in June.
A changing R&D landscape
Over the years, Krieger says, large firms have retreated from in-house R&D, focusing more on buying finished innovations from startups or iterating on existing technology with “me-too” products and short development cycles. He cites an oft-quoted maxim of Facebook’s Mark Zuckerberg to describe the reigning zeitgeist among startups and investors to “move fast and break things.”
As R&D departments look to recharge operations after a year of uncertainty due to COVID-19, Krieger points to the science labs that never stopped—and some that worked overtime, such as companies like Moderna that produced vaccines in record time. He sees lots more organizations trying to support these types of “tough tech” ventures than in recent years, indicating that a shift is potentially already underway.
“The added uncertainties and costs of tough tech development and commercial exploration require a different approach to testing the startup’s hypothesis, raising capital and building teams,” he says.
Hiring the right scholarly expertise
How can companies tap into academic expertise? As a manager, it isn’t always easy to dig into science, Krieger says. Sometimes, the results of studies are difficult to replicate or require additional research to become “translatable” to commercial products. It can be hard to cut through the red tape of academia to negotiate with an institution’s technology licensing department. Knowing where to look for the most interesting scientific advancements and how to filter for reliable studies isn’t every manager’s forte.
“The firm management question is, ‘Where should you look for new innovative ideas?'”
Firms don’t need to necessarily fund their own research, but they should think about hiring some employees well-versed in their field’s scientific landscape to help source, read, and understand the scientific literature in their field. Scholars would do well to consider ways to curate and share knowledge between the corporate and academic worlds better, so that managers don’t have to decipher the ever-expanding corpus of journal articles, Krieger says.
“Managers need more than just a search engine for scientific articles; they need maps and signals about which results and methods are still under development and which appear promising for commercial use,” he says.
“The firm management question is, ‘Where should you look for new innovative ideas?’” says Krieger. “If you really want to be on the frontier, look at science.”
About the Author
Avery Forman is a writer based in the Boston area.
[Image: Unsplash/ThisisEngineering RAEng]
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