INSIGHT: Patent Asset Index helps identify research effectiveness

13 October 2009 12:32  [Source: ICIS news]

By Nigel Davis

AMSTERDAM (ICIS news)--Measuring research and development (R&D) output is difficult. Trying to determine research spending efficiency even more so. But the world’s two largest publicly traded chemical companies, BASF and Dow, think they have found a measure that might help them get closer to an answer.

Both companies are supporting the new Patent Asset Index developed by Professor Holger Ernst of the WHU – Otto Beisheim School of Management.

The Patent Asset Index, they say, is a science-based metric that overcomes the main limitations of current patent analytics. It looks at patent applications globally and over time, while current measures tend to be restricted to patents in national jurisdictions.

The new index is made up of sub-components which help to measure the overall strength of a patent portfolio. It is based on two factors: ‘portfolio size’, which looks at the number of worldwide patent families; and ‘competitive impact’, looking at citations and market coverage.

“The Patent Asset Index offers a more detailed, accurate and robust perspective than current methodologies used to measure innovation strength,” the companies say.

Ernst believes his index is an “important indicator for the sustainability of innovative strength”. He has looked at the large, global chemical companies and wants to apply the methodology in other sectors.

Chemical companies could do with some validation of their research effort and better measures to help assess that effort in relation to their peers.

Billions of dollars are spent on research in chemicals. And companies rightly believe that effective R&D is the lifeblood of the business, or certainly is for those players intending to stick around in chemicals.

The business school’s ‘overall competitive impact’ index places BASF clearly in the lead among a group of international chemical majors: Bayer (with the data including pharmaceuticals), DuPont, Dow, Sumitomo Chemical, Mitsubishi Chemical, DSM, Solvay, Syngenta and AkzoNobel are on the list.

These firms are all particularly committed to both product and longer-range research in chemistry and related sciences.

BASF spent $1.9bn on R&D in 2008, according to company data collected for the ICIS Top 100 listing of the world’s chemical companies.

Dow, Sumitomo Chemical and Mitsubishi Chemical spent $1.3bn each and DuPont $1.4bn.

Solvay’s, DSM’s and AkzoNobel’s placing in the business school’s rankings appear impressive when related to their actual R&D spending outlays of $164m, $555m and $498m respectively.

Each of the companies in the listing is laying the groundwork for products and processes that will help drive future revenues and profits.

Chemical companies are not great spenders on R&D relative to sales, sometimes called the measure of research ‘intensity’.

BASF’s R&D to sales ratio, for instance, in 2008 was 2.2, 8.7% lower than in 2007; Dow’s ratio was 2.3, 6.6% down.

Research intensity overall in the sector has been declining for a number of years.

Some companies aim to invest, relatively, a great deal more in research. DuPont’s R&D to sales ratio in 2008 was 4.6 and almost flat with 2007. And some spend, relatively, somewhat less: Solvay’s R&D to sales ratio in 2008 was 1.7, 3.8% lower than in the prior year. Any measure that adds more understanding to effectiveness of research in the sector has to be welcomed.

BASF and Dow, in putting their support behind the index, say they are among the most innovative companies in the chemical industry.

Both are driving hard downstream, aiming to get closer to the customer and derive more sales and profits in closely targeted markets.

The companies remain major spenders in the industry, and particularly so since the acquisition by Dow last year of materials specialist Rohm and Haas and BASF’s acquisition of specialties maker Ciba.

The WHU – Otto Beisheim School of Management says that peer review of a scientific publication looking at the theoretical foundations of its work, as well as the implementation and validation of the index, is under way.

To discuss issues facing the chemical industry go to ICIS connect

By: Nigel Davis
+44 20 8652 3214

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