Applying “Cost of Innovation” to Technology Planning

Abstract

The cost of innovation is a measure of the level of R&D investment necessary to generate inventions in a particular industry or industry segment. It can be used as a technology planning tool, particularly in support of the decision by technology-driven companies to expand into new areas. As an illustration, an analysis of the historical trends in the cost of innovation in the chemical and pharmaceutical industries reveals a significant difference between them: relatively low and constant for the chemical industry, higher and increasing rapidly for the pharmaceutical industry. This helps to explain why it has become increasingly difficult for chemical companies to expand into pharmaceutical applications. Within a single industry or industry segment, the cost of innovation concept can also be used to benchmark the effectiveness of an R&D operation.