Assessing a firm's innovation portfolio is a challenge? Even more difficult is estimating its future value? This paper applies the principles of the Bass model of diffusion of innovation \citep{Bass:1969} to the estimation of forward citations, ``class-match" dampened forward citations, and the newly introduced Patent Rank Scores. The cumulative diffusion will be modeled using a generalized logistic function known as the Richards' curve \citep{Richards:1959}. To estimate the parameters of the the model, the Newton-Raphson method is used. Over 22,000 randomly selected patents from 1976--2008 will be individually modeled, and diffusion patterns will be classified based on the parameters of the model. Valuation of innovation can be objectively assessed, and future valuation can be predicted based on each innovation's specific diffusion pattern.
Innovation is a key driver of entrepreneurial activity. Innovation from an entrepreneurial perspective is conceptually defined using the complementary views of Austrian economists Kirzner and Schumpeter. Incremental innovation is defined as entrepreneurial activity from Kirzner's perspective -- exploitation of awareness of market disequilibrium which appropriates value: market-sensing, customer-linking. Radical innovation is defined as entrepreneurial activity from Schumpeter's perspective -- exploration as a market-disequilibrium "creative destruction" which creates value: market-making, customer-driving. From a firm's perspective, innovation research in marketing addresses three fundamental questions: What is an innovation? What innovations are most valuable to a firm? How do innovations influence the competitive marketplace? From an entreprenuerial perspective, I address these fundamental questions.
Patent data is publicly available, serves as a instrument for doing patent-level and firm-level analysis for both private and public firms, and amidst the modern information age, may be the only way to secure intellectual property. Patent counts or forward-citation counts have been traditionally used to measure the innovation portfolio of a firm. Using network analysis, a variation of Google's PageRank algorithm is introduced to the patent citation network to define an objective measure for radical innovation -- ``Patent Rank". Two model types are considered: simple structure and technology ``class-match" using two temporal forms: cumulative network and five-year moving window. All utility patents from 1976--2009 will be analyzed; over 5.6 million patents and 40 million citations are evaluated to produce 332 million Patent Rank scores. Useful distributional properties are considered and these objective scores are compared to a recent subjective survey performed by PBS to assess the question: What are the most radical innovations of the modern era?
An application of the Patent Rank Score will be used to validate the concept of economic development and firm value. Specifically, it will be shown that the Patent Rank Score will provide improved explanatory power over previous measures of radical innovation and firm performance. \citet{Mizik:2003} described the importance of strategic emphasis and value creation/appropriation on firm performance. In the analysis, firms were grouped into low-, stable-, and high- technology groups. In the first analysis, the firms are objectively grouped based on Patent Rank Scores. Further analysis will model firm performance based on stock returns and strategic emphasis \citep{Mizik:2003}. Mediation of innovation using Patent Rank Scores will also be considered.
Monte J. Shaffer is a fourth-year Ph.D. student and job market candidate (2011) in the Department of Marketing at Washington State University. Monte is currently working on his marketing dissertation in Entrepreneurial Innovations. Prior to joining Washington State University, Monte received a Bachelor in Mathematics / MBA in Marketing from Brigham Young University (BYU) in Provo, UT.
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