Global innovation and economic value

Equallyimportant has been the creation of societal value of innovation decreased infantmortality due to new medicines, for example and economic value such as increase in per capita incom

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Vijay Kumar R.P Sundarraj

Global Innovation and Economic Value

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The task seemed daunting The world outlays billions of dollars on innovation, butthere has been no holistic assessment of its outcome Do we have the answer to thequestion: have investments in innovation paid off? Outlays are not outcomes Thisbook is a study aimed at providing a comprehensive asses sment of the impact ofinnovation and should count as a pioneering effort.

How does this book provide a wholesome appraisal of value created by vation? It captures the societal value that innovation delivers to humanity, theeconomic value that it endows to nations and thefinancial value that it provides toinnovatingfirms Each of these values must be positive to conclude that innovationpays The book has a truly global canvas and accentuates innovation in theTechnology and Pharmaceutical sectors, the two largest bastions of innovation Bigdata and analytics underpin the development of the material used Datasets include

inno-86 million patent records and 8 millionfinancial records This is one of the largestdatasets analysed for developing a book Such rich data drawn globally, annullsregion-specific idiosyncracies and make the findings robust

Anecdotal examples of innovation point to value accrual America spends themost on innovation which partly explains why it is the wealthiest nation in theworld IBM’s IP licensing is worth more than $1 billion TI fully exploited the DSLpatents that they acquired almost three decades ago The Gillette shaver protected

by a fortress of 57 patents has a dominant 75% market share Apple’s recent designpatents have enabled them to become the most valuable company in the world.With cumulative sales of more than $120 billion, Pfizer’s IP protected Lipitor wasthe biggest selling branded drug ever; when the patents expired in November 2011,sales dropped a whopping 42% the next month The ‘One-click-ordering’ patentcatapulted Amazon to become a leading e-commerce company A whole newindustry was born when Xerox patented the photocopying technology Equallyimportant has been the creation of societal value of innovation (decreased infantmortality due to new medicines, for example) and economic value (such as increase

in per capita income and productivity due to innovation) The book is replete withreal-world examples of innovation creating value, a recurring theme that runsthrough the book The book is developed in the backdrop of the period 1990–2016,

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a period of frenzied innovation and economic distress which saw the disruptiveadvent of Internet, an upsurge in mobile communication and a paradigm shift inpersonal computing.

Chapter 1 deals with the various facets of Innovation The evolving globalinnovation theme over the last 25 years bring in useful insights Innovation as acreator of intangible assets and its ability to create value are discussed The twobastions of innovation, Technology and Pharmacy, are profiled, while we take apeek into innovation at the Silicon Valley Chapter2 is focused on the economicimpact of innovation Studies have established that innovation-intensive industriescreate highly skilled jobs, have higher wages, are more productive, lead exports andenhance competitiveness through thick and thin of business cycles The linkbetween innovation and economic growth and the effect of innovation on pro-ductivity and income has always been under intense gaze The raging debate on theimpact of automation on employment is discussed Chapter3is an analysis at thefirm level That innovation impacts firm performance is not widely disputed.Several examples of successful IP deployment strategies adopted by global com-panies point to wealth creation The paradox of India, while being low on inno-vation but high on firm performance, is seemingly counter-intuitive The vitalsocietal value created by pharmaceutical innovation is discussed in Chap.4 Druginnovation has had a profound effect on human life The impact of new medicines

on mortality and the control of endemic diseases and their attendant economic gainbuttresses the gains from medical innovation The impact of disruptive innovations(Internet, Social media, Internet of Things, Autonomous driving) in the digitalworld is discussed in Chap.5 The consumer surplus generated by the ubiquitousmobile phones in the connected world is staggering, while the social media plat-form has become a way of life The overwhelming impact of IoT to connect allinanimate things (and human beings) has become truly transformative Finally, thedisruptive nature of autonomous vehicles and their ability to create social upheaval

is examined Chapter6 is devoted to an empirical study of value created by theprocess of Schumpeterian creative destruction The study examines whether inno-vation patterns explainfirm performance and investigates whether innovating firmsare better in withstanding economic stress Given the turbulent business environ-ment that is here to stay, the moot point is whether innovatingfirms can cope betterwith adversarial business periods

I must mention people who helped me in the preparation of this book Prof.Krishna Sundar of IIM-Bangalore helped me with research material which hasclearly enriched the book that much more I am grateful to Vasanta Kottapalli, asenior professional in the Silicon Valley, who had the difficult task of reviewing theraw version of the book I am deeply indebted to her I am equally thankful toVinayak who also went through thefirst version of the book and helped me clean

up the contents My wife Rekha and daughter Malavika watched me banging on mylaptop with trepidation, wondering aloud whether I would everfinish the book (ithas taken 2 years), but shared my joy when the book was completed

Writing a book on innovation is a double-edged sword; while one admittedlydeals in cutting edge, the canvas is so large that one faces the risk of being pilloriedfor not covering specific aspects of innovation In my humble defense, I submit thatthis book is focused on answering the question: has it been worth it (investing oninnovation)?

1 Facets of Innovation 1

The Idea of Innovation 4

The Value of Innovation 5

The Spark of Innovation 6

Global Innovation 10

Who’s Spending on Innovation? 15

Innovation Trends 19

The Dominance of Technology Innovation 23

Innovation in the US 29

A Special Place—The Silicon Valley 36

Chinese Innovation 41

References 44

2 The Economic Impact of Innovation 49

The Economics of Innovation 53

Innovation and Productivity 57

Income Rises with Innovation 64

Innovation Improves Standard of Living 70

Impact of Automation on Employment 74

Is the Impact of Innovation Waning? 84

References 89

3 Monetizing Innovation 95

The Rise of Intangibles 97

Patenting and Value Creation 100

Extracting Value from IP 109

Are Patents Detrimental for Innovation? 121

R&D and Value Creation 123

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Innovation Pays Off at Apple 126

The Curious Case of India—Low on Innovation, but High on Performance 130

References 141

4 The Societal Value of Pharmaceutical Innovation 147

Societal Value of Medical Innovation 156

Infectious Diseases 157

Chronic Diseases 162

Economic Impact of Pharmaceutical Innovation 170

Life Expectancy Is Correlated with Income 173

Has Pharmaceutical Innovation Been Financially Remunerative? 176

The Evolving European Pharmaceutical Innovation 181

References 183

5 The Value of Disruptive Innovations 189

The Internet 191

The Economic Impact of the Internet 192

The Consumer Surplus Generated by the Internet 198

Sectoral Impact of the Internet 201

The Value of Mobile Internet 205

The Oligopoly in the Internet 211

Social Technologies 213

Facebook 220

Internet of Things (IOT) 223

The Economic Impact of IOT 224

The IOT Landscape 229

Autonomous Vehicles 236

The World of Driverless Vehicle 237

Fewer Accidents, Saving Lives 242

Collateral Impact of Autonomous Vehicles 244

The Economic Impact of Autonomous Vehicles 247

References 251

6 The Economics of Creative Destruction 257

Is Creative Destruction a Better Value Creator? 261

Preceding Studies 263

Theory and Hypotheses 265

Firm Performance Measures 265

The Link Between Innovation and Firm Performance 267

Schumpeterian Patterns and Innovation-Firm Performance Models 270

Coping with Turbulent Times 272

Data 274

Selection of Schumpeterian Firms 274

Knowledge Base 276

Consistency of Innovation 277

Concentration of Innovation 277

Churn Among Innovators 281

Panel Regression Procedures 284

Methodology 285

Results, Analysis and Interpretation 288

Additional Validation for H4a–H4c (M-I, M-II Firm Performances Are Different) 293

Additional Validation for H6a–6c (Economic Stress Analysis) 297

Implications of the Findings 298

Research Implications 298

Managerial Implications 299

Conclusions 300

References 301

Vijay Kumar is an IT corporate professional turned researcher He has had asuccessful 25-year corporate tenure of building and managing world-class tech-nology companies in India He was the Corporate Product Marketing Manager atWipro, one of the top Indian ITfirms Subsequently, he was the India Center Head

of Tektronix Engineering, a wholly owned subsidiary of Tektronix, USA He laterbecame COO of Raffles Software, a global software firm and CEO of Mindteck, alisted software company promoted by a global investment bank As M.D ofManystreams, a US-based video streaming product company, and as M.D of CitecIndia, a subsidiary of Citec Finland, he led the formation and growth of thesecompanies in India As President of IP consulting at Bizworth, an IntellectualCapital and Valuation advisory, he advised companies on IP strategy and patentvaluation He currently holds the position of Professor and Dean of Faculty ofManagement Studies at PES University, Bangalore Dr Kumar’s interests are ininvestigating the financial and economic outcomes of innovation He is anElectronics Engineer with an MBA from Rensselaer Polytechnic Institute, USA Heobtained his Ph.D from Indian Institute of Technology Madras, India

Email: vijay.kumar@pes.edu

R.P Sundarraj is currently Professor of Information Systems at the IndianInstitute of Technology Madras in India He has over 25 years of internationalacademic experience, including stints at Qatar University in Doha, as well astenured faculty positions at the University of Waterloo, Canada and ClarkUniversity, USA Professor Sundarraj obtained his Bachelors in ElectricalEngineering from the Regional Engineering College, Trichy, and his M.S andPh.D in Management Science from the University of Tennessee, Knoxville, USA.Professor Sundarraj has guided several doctoral and master’s students, and hasauthored/co-authored over 70 research works in leading international conferences,

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and published in journals such as Mathematical Programming, European Journal

of Operational Research, Decision Support Systems, and various IEEE/ACMTransactions In addition, he has wide industry-consulting experience in providinge-commerce solutions for marketing and inventory-management problems arising

in Fortune 100 companies

Facets of Innovation

The role of innovation in today’s world, it’s profound impact, and its ability to createwealth forfirms and nations are discussed Creation of diverse values (Economic,Financial, Social) and the evolving global innovation theme over the last 25 yearsare portrayed Spatial and sectoral innovations are profiled The US dominance inelectronics and software and Asia’s supremacy in semiconductors are now estab-lished themes The two bastions of innovation, Technology and Pharmacy dominatethe patenting space A peek into innovation at Silicon Valley rounds off the chapter

If Norman Borlaug had not introduced the disease-resistant wheat seeds in 1965,then yields in the developing world would have been 17% lower It would have alsomeant 37 million more malnourished children and people in developing nationswould have consumed 13% fewer calories An area of the size of Oregon state wouldhave been additionally needed for farming just to main current food productionlevels [1] Since 1970, world’s population has doubled, with 3.7 billion additionalpeople to be fed During this same period, the acreage for agriculture has increased

by only 5% Thanks to agriculture innovation and genetic engineering, what couldhave been a catastrophic global famine has been avoided (in fact, 33 per capitaconsumption of food has gone up) The world grows many times more food per acre

of land compared to 50 years ago, especially staple grains Rice, corn, and wheatyields per acre have doubled since then [2] The significant innovation in 1960, thepill, allowed women to delay marriages and invest in their education leading tohigher women employment rates and better careers A Harvard study found that thepill (oral contraceptive) had a singularly profound effect in promoting women’seconomic freedom [1] Longevity in the US is currently increasing by 3 months peryear which is expected to accelerate to one-year increase per year by 2036 Thanks tomedical innovation, life spans of more than 100 years is in the realm of possibility[3] Solar energy will become incredibly cheap and a source of clean energy In

2015, more solar energy was installed than fossil energy There is a real possibilitythat use of coal might be discontinued in a decade With cheaper energy source,desalination becomes economically viable leading to widespread availability ofdrinking water [3] The synthetic veal produced in a petri dish will become cheaper

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than the real one by 2018 disrupting the diary business and a significant reduction inthe need for agricultural land (30% of farm land is used for cattle rearing) [3].Innovation permits us to use resources more frugally and efficiently and is a keydriver of productivity and a crucial engine of growth The function of innovation isnot just economic growth and producing more; it is eventually about improvingquality of life, it is about improving communication and making the worldflat, it isabout clean energy keeping the world healthier Innovation and wealth creation gohand in hand: high marks in innovation standings are strongly associated with highlevels of per capita incomes Technological innovation together with commensurateaccumulation of intangible capital in the US explained more than half of theincrease in productivity over the last few decades [4] Beyond the world of sterileeconomic metrics, innovation is a source of elixir In the 45 years from 1947 to

1992, the Japanese life span grew 20 years and it is estimated at least half of thisgrowth was due to newly developed patent-protected pharmaceuticals [5].High-frequency traders look for arbitrage deals and leverages on tiny difference inprices on two different exchanges Traders are placing microwave antennas close tofutures exchange data centres to shave a microsecond from network latency:enough to separate a winning from a losing bid [6] Air traffic control towers neednot be located at the airports In Sweden, one ATC controls 32 airports through thecreation of virtual images of the airports The development of innovative analyticstools to mine large datasets has yielded stupefying results In the world of big data,the three dimensions of data, the 3V (Volume, Variety, Velocity) are exponentiallyincreasing A fully deployed self-driving car generates data at the rate of 100 GBper sec Innovative Artificial Intelligence techniques extract enhanced value fromthe mined data Predictive analytics tool can predict when a person is ready to buy,forecast a maintenance schedule for a jet engine or can draw the risk profile of aperson likely to contract a disease Industrial giants such as Siemens and GE nowposition themselves as datafirms [7] Uber, the taxi-hailing company is valued at

$68 billion, the highest among the Unicorns This stratospheric valuation is partlybecause it generates and owns the biggest pool of data about supply (cab drivers)and demand (clients) for personal transportation [8]

In the realm of AI, new inventions in facial recognition are galloping Some ofthe heady applications include tracking worshippers’ attendance in churches,spotting shoplifters, catching suspects trying to enter public events, establishingidentity of raid-hailing customers and automating tourist entry into attractions.Facial recognition technology can also be threatening Stanford researchers haveproved that facial recognition algorithms when exposed to a gay man and a straightone could correctly call out his sexuality 81% of the time Humans could do it only61% of the time In prudent societies, this could cause enormous social tension [9].The famed researcher Joseph Schumpeterfirst implied ‘innovation’ in 1939 tomean commercializing and introducing novel products to the market This specificconnotation of innovation diffused slowly that too only in niche journals of

economics and business The widespread usage of the word‘innovation’ began topercolate beyond niche works in the 90s and became a household word at the turn

of the century [6] One yardstick of the popularity of the word was that between

2011 and 2014, The New Yorker, Time, Forbes, Times Magazine, and evenGardens and Better Homes brought out special ‘innovation’ issues, originallyknown as‘sketches of men of progress’ a 100 years back [10]

Innovation results in economic performance at different levels; at the individuallevel (increased longevity), at thefirm level (better profits, increased market capi-talization) at the industry level (better employment, capital investments), at theconsumer level (generating consumer surplus) and at the nation level (GDP growth,increase in per capita income) The introduction of the newly invented mode oftransport, the railroad had a stunning economic effect in India Between 1853 and

1930, the British Raj laid 67,000 km of railroad across India Real annual incomesrose by 16% compared to an average 0.4% per year between 1870 and 1930 [11] Inrecent times, the bullet trains provide a good example of innovation reshaping anation’s economy Less than a decade ago, there were no bullet trains in China.Today, 20,000 km of high-speed rail lines dot the country, more than the rest of theworld combined Equally astounding is urban growth alongside the tracks In thethickest parts of China, high-speed rail has been a boon: it has facilitated the creation

of a deeply connected economy [12] Little wonder: house prices in satellite townsand cities have become much cheaper, as much as 70% Bullet trains have thrown upoptions for people to stay in suburbs and escape the high costs of large towns likeShanghai There are now 75 m people residing within an hour of Shanghai byhigh-speed rail The fallout is that these trains are expanding the labour pool andconsumers around China’s most industrious cities, while guiding investment andtechnology to poorer ones ‘Bullet trains are becoming just like buses,’ is thecommon refrain The World Bank says the gains of high-speed rail could potentiallyboost the productivity of businesses in China’s coastal regions by 10% [7].Firm-level innovations aggregate resulting in economic gains to a nation

A rising body of studies demonstrate the link between innovation and economicgains Empirical studies have largely pointed to the better performance of inno-vative firms compared to the non-innovative ones [13] Innovations make it pos-sible for a firm to offer a larger portfolio of products leading to better firmperformance [14] Innovation typically increases customer value [15] and is critical

tofirm’s well-being or even to its survival [16,17] Countries such as the US whichhouses a large body of innovating firms have better economic outputs As firmsgrapple with a rapidly changing global economy, innovating companies are likely

to survive and even dominate the market place Notwithstanding the current moil, firms in highly innovation-centric countries like the US, Japan, Korea andTaiwan have continued to make great strides Innovating firms invest relentlesslyregardless of the economic conditions and there is evidence that innovatingfirmsinvest more on innovation in times of economic turmoil During periods of eco-nomic distress, the top-100 global innovators enhanced shareholder value to theirstakeholders and their nations [18]

tur-In fact, higher R&D investments induce higher economic output United States

is the biggest spender on innovation in the world with its R&D budget larger thanthe combined economies of Argentina, Denmark, Greece and Taiwan Investment

in innovation was primarily responsible for the secular growth in several industriesnot only in the US, but also in emerging economies as well [19] During 1960–

2007, the U.S spent an average 9% of its GDP a year on R&D helping its economy

to grow at 3.3% annually resulting in significant economic gain [20] In China, newproduct innovation yielded 12% return which are about three times the returnsobtained on fixed-production assets [21] In fact, studies have concluded thatinvesting around 2.5% of gross domestic expenditure on R&D maximizes pro-ductivity growth [22]

The Idea of Innovation

Innovation is broadly defined as ‘a new idea, method, process, or device that creates

a higher level of performance for the adopting user’ [23] Yet, there is no unanimity

on the precise definition of innovation in the engineering, marketing and agement communities Innovative activity is‘any incremental or radical change intechnology embodied in product and process.’ [24] OECD has an overarching

man-definition that captures the spirit of innovation: Innovation is an iterative processinitiated by the perception of a new market and/or new service opportunity for atechnology based invention which leads to development, production, and marketingtasks striving for the commercial success of the invention [25]

Often, the terms innovation and invention are used interchangeably There is,however, a subtle difference between the two When an idea is tangibly realized, itbecomes an invention while market introduction of the invention is termed inno-vation [26] Thus, innovation process is a two-step process that stretches fromconception to market introduction Companies protect their innovation legallythrough patents Most of the value appropriation of innovation happens throughpatent-protected inventions

In many cases, the idea behind one revolutionary invention leads to a series ofsimilar inventions The two-part pricing model adopted by replaceable razor blade

allows users to pay for the razor and pay later for the consumable blades.Subsequently, this model was successfully deployed in the case of printers andcartridges, espresso machines and coffee refills and many more [27].

The Value of Innovation

The key output of innovation is intellectual capital (or intangibles) which isresponsible for creating value Intellectual capital could manifest as patents and/orenhance the existing knowledge capital Intellectual capital is defined as an assetthat is not physical orfinancial Much of the intellectual capital is tacit knowledgethat resides in the minds of people Intellectual capital is ephemeral and must becaptured, preserved, catalogued and legally protected to make it secure asIntellectual Property Intellectual capital is non-additive, meaning that use ofintellectual capital does not diminish the intrinsic value of the asset For example, ifpatents are licensed to multiple companies concurrently, the intrinsic value ofpatents will not diminish On the other hand, afinancial asset like cash is additive innature; any expense will decrease the cash balance The new generation ofknowledge companies have almost no physical assets and the only asset that theypossibly hold will be in the form of intangibles Several airlines do not own even asingle plane; the revenue generator in most cases is the landing rights that theseairlines own [28] Uber has become the biggest taxi company without owning anyvehicle, while Airbnb has no property of its own Apple, one of the most iconicnames in the world is bereft of any factory of its own Facebook does not create anycontent nor does Alibaba, the largest retailer in the world, own any inventory Moststart-ups have only intangible assets on their balance sheet, usually in the form ofpatents, often used as collateral to raise funding With intangible assets nowaccounting for more than 80% of the S&P 500 market value, intangibles, rather thanphysical assets, have become critical value drivers

What kind of value does innovation create? Innovative products and processesgenerate increased ‘value’ That innovation creates value is now reasonablyunderstood Value realized through innovation can be stratified into three layers—Societal, Economic (including Consumer Surplus) and Financial The societalimpact of innovation (for example, improved infant mortality due to new medici-nes) is perhaps the most important output of innovation Second, the ability of

innovation to endow economic value to nations (increase in per capita income andproductivity of innovation-centric countries) largely explains the heterogeneity inthe relative prosperity of countries An offshoot of the economic value is thegeneration of consumer surplus, a benefit that the consumer enjoys due to inno-vation Finally, innovation is the key reason for improvedfinancial performance offirms (the link between patenting intensity of a firm and its market value is wellestablished).

Innovation brings value to all the participating players Innovation delivers betterquality of life to customers through improved products coupled with enhancedservice Happy customers result in profitable companies To customers, innovationimplies products of better quality and better service, which together mean a betterquality of life For the businesses, innovation means greater profitability and sus-tainable growth For the employees, innovation can mean a more intellectuallychallenging job and higher pay From the aspect of the economy, innovationtranslates to improved productivity and prosperity [29] Innovation usually results

in novel, wholesome and more optimized production processes, translating tovalue-driving business models The absence of concerted innovation can be dev-astating leading to dormant business activity and severe unemployment Innovation

is key to a healthier environment, reducing carbon footprint and lowering wastediscernibly [30] And innovation need not be driven within the organization Thetop generator of new ideas at IBM are its employees, business partners and throughcollaborations with clients; in fact, its own R&D is ranked a poor eighth when itcomes to creation of new ideas [24]

The Spark of Innovation

Historically, Thomas Edison would have to rank as one of the greatest innovators ofall time His contribution to the world: the lightbulb, the movie camera, the disc andcylinder phonograph, highly developedfluoroscopy, a commercial stock ticker (still

in vogue, but now electronic) and a vote aggregator For sheer number of vations, Edison is way ahead of illustrious names like Graham Bell, Leonardo daVinci, Steve Jobs and Einstein Edison also had 1093 patents to his credit! [31]Edison’s country, the US, has clearly led the global innovation efforts during thetwentieth century borne by the sheer number of innovations that came of thecountry (the airplane, the telephone, the zipper, the PC, the modern automobile, theoil well, the Internet, the motorcycle, the laser, the smoke detector) While there isrecognition that the last century belonged to the US, the next century may notbelong solely to the US; Japan, China, India and S Korea will join the bandwagon

inno-of innovation aggressively [31] However, predicting the likely path of innovation

is akin to double guessing man’s creativity Twenty years ago, the world did notknow Internet, but now Internet rules the world Sixty years ago, man had neverheard of DNA: now that knowledge is the prime mover for medical progress

Given the frenetic pace of innovation in the last few decades, it is easy to takethe modern-day digital edifice for granted and forget that the human incumbents ofour planet stand on‘the shoulders of giants’, tellingly exemplified by Bell Labs Inthe last century, Bell Labs was a company nonpareil In 1947, it gave us thetransistor, the crux of all digital products in use today Millions of transistors go intomaking microchips that reside in the hearts of mobile phones and PCs Since theadvent of transistors, a deluge of innovations has followed—the silicon solar cell,thefirst functioning laser beam, digital communication theory, satellites, the cellularnetwork, UNIX and C—the most essential computer operating system and languageeven today During its golden period, more than 25,000 people worked in BellLabs, including some 3,300 Ph.D.s Today, if the world is driven by mobile phonesand the Internet is made possible through seamless computer networks, thanks totwo men who invented the transistor in a suburban New Jersey lab during the icywinter of 1947 Or that in 1971 a group of Bell Labs scientists were driving in acamperfilled with sensitive radio equipment through Philadelphia for many endlessnights, trying to establish thefirst working cellular network [32].

Yet, there is a danger of oversimplifying yesteryear innovations As thewell-known innovation guru Hargadon said ‘Many people still believe a bettermousetrap is all it takes But of the 2000+ mousetraps patented, only two have soldwell, and they were both designed in the 19th century A good idea doesn’t sellitself although most‘lone inventors’ make the mistake of thinking it will.’ [33] To

be sure, the industry has also its share of innovation-sceptics who feel that theglobal innovation efforts are overblown and their payoffs are, at best, dubious.Innovation in the US is ‘somewhere between dire straits and dead’ echoed PeterThiel, co-founder of PayPal While a time traveller from circa 1900 appearing in

1950 would be astounded by the radical innovations like electricity, phones, planes,cars, fridges, radio, TV, penicillin, a similar traveller from 1950 to present daywould find little to stun him beyond the Internet, mobile phones, PCs, except towonder how old technologies had become markedly more reliable Technologicaldevelopments of the past 50 years could not have presented benefits akin to whatwashing machines and vacuum cleaners did to unshackle housewives from drud-gery In some ways, we have retreated: since Concorde was phased out, the speed

of air travel has slowed and is no better than when Boeing launched its 707 in thelate 50s [34]

However, history is also replete with instances of breakthrough innovations notbeing spotted In 1895, Charles Duell, the Director of USPTO purportedly said‘….everything that can be invented has been invented’ When Television was invented,New York Times wrote it off and said:‘Television will never be a serious competitorfor radio, because people must sit and keep their eyes glued on a screen; theaverage American family hasn’t time for it’ AT&T concluded in 1999 that themobile subscriber base will not go beyond one million And this was their inven-tion! The prophecy went horribly wrong with the subscriber base exceeding 70million in that year itself and crossing 3 billion 20 years later [35] Ford and GMlobbied against airbags in the 70s citing lack of consumer interest and that theywere not practicable or appropriate In a telling rebuttal to their forecast, 3.3 million

bags werefitted in the cars just in the US during the 90s resulting in 7000 livesbeing saved with hundreds of traffic related accidents averted In WW I, the USmilitary lost nearly seven million days of active duty to sexually transmitted dis-eases because condoms were not know at that time During WW II, the armymandated the stores on its bases to stock them [36].

What are the greatest inventions ever? To come up with such a list can be, atbest, a hazardous task A Time poll listed The Wheel, Internet and Electricity as themost important inventions ever What about the most useful inventions of all time?Seventy-one percent of people polled voted the cell phone as the most importantinvention in human history [26]—something the unknown inventors of the wheeland fire may very well disagree (Figure source: Time [26]) The next best: TheDisposable Diaper

The relentless innovation over the last few decades has made world’s hunger forcomputing power gargantuan It is estimated business and consumers added 40exaflops (1018flops) in 2014, up from 5 exaflops in 2008 and 20 in 2012 Equally,the world seems to be packed with communication power Twenty years ago, only3% of world’s population had a mobile phone and just 1% of the population hadaccess to the Internet Half of India’s population had never made any telephone call.Today, the picture has dramatically changed: two-thirds of world’s population have

a mobile phone and the world has become more connected, with one-third ofhuman population having access to the Internet Soon, nearly every living personwill have at least one mobile phone and there would be very few places whereInternet would not be available [37]

The colossal impact of innovation has decisively changed the status quo, andcontinues to do so at an accelerated pace At crucial periods, innovation has beendisruptive: from the invention of the spinning jenny in the eighteenth century whichaltered the landscape of the textile mills, to the factories that facilitated mass man-ufacturing and to the most disruptive invention (probably of all time), the harnessing

of electricity In recent times, the design and manufacture of ultra-dense ductor chips, the pervasive Internet and the indispensable mobile phone havecompletely transformed the economic performance of businesses and nations.Because it is a connected world, the difference today is the sheer ubiquity of inno-vation in and the sheer speed of transformation.‘There have been slightly more thanthirty-two doublings of performance since thefirst programmable computers wereinvented during World War II’ futurist Raymond Kurzweil has noted Facebook sawenormous intrinsic value in WhatsApp, a company barelyfive years old and withfewer than 400 employees, and acquired it for a stunning $19 billion [38]

semicon-With advances in technology, the need for human involvement in making has been coming down thereby reducing human error The number ofpatients who die due to misdiagnosis exceed 40,000 each year in the US, rivallingthe number of fatalities due to breast cancer Taken together with other diagnosticerrors, the cost per malpractice claim is more than $300,000 resulting in higherhealthcare expenses Big data and analytics will result in reduced costs, enhancemedical efficiency and improve patient care by reducing subjectivity in the diag-nosis It is predicted that computers will eventually replace 80% of what the doctors

decision-do, while amplifying their skills A transition to big data based decision-making hasalready happened in other areas, too, where human judgment was thought imper-ative Almost all commercial flying is now carried out by auto-pilot, not by thecaptain Most stock market volume is now driven by algorithmic high-frequencytrading In the US, Google’s autonomous car has had a flawless record with zeroaccidents driving 300,000 miles on normal roads [39] (Thefirst fatal accident tookplace in 2016 with a semi-autonomous Tesla car.)

There are several reasons why innovation is critical to most businesses forlong-term sustainability [25] First, markets have become more open (notwith-standing the recent rhetoric of protectionism) Businesses get new opportunities toexpand trade which allows them to optimize their manufacturing/delivery locationsthereby creating a more level-playing field However, well-established firms indeveloped countries face severe pressure from low-wage economies Second, theprecipitous drop in the costs of communication and transportation have allowed newmarkets toflourish Sea freight charges have fallen by more than 67% since 1920 andair cargo expenses have dropped by more than 80% since 1930 Phone calls on theInternet are free [40] The world has truly become‘flat’ Faster and cheaper globalcommunications mean that the customers are up on the latest fashions and trends.Companies which keep pace with this rapidly changing world and are in tune withthe customers’ demanding needs will not only survive but flourish as well Third,advances in science and technology allow firms to leverage on their skill and

knowledge to go up the value chain New industries like biotechnology are takingshape while the traditional ones like telecommunication are being morphed Sinceinnovating industries bank on knowledge and skills, high cost developed economiescan nullify wage arbitrage of low-cost economies Finally, services which accountsfor more than 70% of the economy is now almost completely technology intensive.Technology savvy services are now being deployed to reengineer business work-flows, and in customer-centric areas such as retail, hospitality and banking services.Many high technology manufacturers like IBM nowfind services more lucrativethan products [41] In thefiercely competitive business environment, innovation hasbecome a strategic imperative As a decisive prime mover of growth and competi-tiveness and as a creator of shareholder value, innovation is central to companies’success And innovation drives macro-benefits as well, with advanced nationsexperiencing higher incomes and better quality of life and the less robust nationsenjoying higher standard of life [42].

become an innovation powerhouse is due to Silicon Valley in California That theSilicon Valley in the US houses the very best technology companies is a knownfact It also has the highest per capita GDP in the US at $74,815, 30% more thanLondon and 70% more than Singapore In the global GDP pecking order, San Josehas the third highest per capita GDP of $77,440, behind only Zurich and Oslo [14].

A significant reason for China’s faint appearance in the top-100 innovators isbecause most of its innovation endeavours are inward looking and therefore fails toimpact worldwide; just 6% of China’s innovation efforts is legally protected andcommercialized outside China and only a sliver of its domestic patents is granted atthe USPTO [14]

The seeds of globalization of innovation started when US firms establishedoffshore R&D units and manufacturing hubs in China and other Asian countries.The most important trend due to US offshore investments has been the growth ofinnovative competencies in China, India, Taiwan, and South Korea, none of whichwas on global R&D radar in 1960s and 1970s And in these countries, the increase

in the innovation intensity has largely been led by key technology hubs such asBangalore, Shanghai, and Hsinchu in India, China, and Taiwan respectively (muchlike the Silicon Valley, Dallas, Seattle and Boston in the US) These strategicactions helped the growth of foreign competitors in automobiles and semiconduc-tors whose innovative output and superior-quality products threatened the veryviability of US firms The US no longer is the undisputed leader in innovation,although it continues to be the largest R&D spender in the world [43] The centre ofgravity of core microchip innovation, the bedrock of today’s knowledge economyhowever, has remained steadfast in the US [39]

An increasingly sophisticated Asian user and a faster market growth have beenresponsible in critical R&D activities moving away from the US in high technologyareas (software, semiconductors and PCs) Demand for mobile communication anddigital devices in South Korea with more advanced features is outstripping thedemand in the US New and advanced products are now routinely developed andreleased in Asia and in other developed economies concurrently [44] In severalareas, innovation and manufacturing seem mutually exclusive; while one part of theworld innovates (mostly US), another part of the world manufactures (mostly Asia).Vertical specialization has had a profound impact on locating R&D activities Inpharmaceutical industry, while drug discovery happens usually in the US, Asia isinvolved in clinical trials, post-approval marketing and manufacturing The designand development of semiconductor components (mostly in the US) is almostde-coupled from manufacturing (mostly in Asia) Similarly, the systems architec-ture, electronics, and the OS for electronic products are almost exclusively designed

in the United States, but the factories to produce such products are in Asia.Industries likeflat displays, semiconductors and PCs have thus intensified inno-vation in one place (primarily US) leaving manufacturing to another (mostly Asia)

The global advances in the last 150 years is captured in the patenting trends inthe US It is said‘Innovation without protection is philanthropy’ [45] By and large,the economic benefit of innovation is realized only if the innovation is protectedthrough patents For more than a century, patenting has kept pace with techno-logical breakthroughs Since 1870, US patenting activity has risen in sharp bursts intandem with radical innovations in telegraphy, electricity, automobiles, airplanes,synthetics, aerospace and more recently, high tech sectors including computers,computer software and Internet [46] When measured against previous patent cycles

in US history, it is remarkable how unremarkable the current patenting stampedehas been (Figure source: [42]) The first rush of patents occurred during in the1880s, when Edison and Graham Bell came up with life-changing inventions Thenumber of new patents that were granted rose sharply each year by nearly 60% andtouched 20,000 [47] The subsequent patent bursts coincided with swift advances indeploying steam engines for mass transport, the usage of wireline telegraphy andtelephony and the harnessing of electric power, heralding the era of rapid indus-trialization of the US The advent of automobiles and airplanes saw a concomitantupsurge in patenting, followed by intense innovations in plastics and computing inthe 60s The mid-1980s saw the dawn of personal computer beginning to power the

US economy and propelling the world steadily toward the age of Internet [43]

Global innovation in the digital world is being driven by young innovators.With US taking the lead among innovators over Europe, this heterogeneity amonginnovators is touted as a reason for the failure of EU to close its productivity gapwith the United States Economists have long related the long-term growth totechnological advances, but how technology advanced remained a black box [48].More recently, there is a general acceptance that the economy’s growth rate isconnected to its innovation rate [49] Europe does not stint on R&D and yet why isthat one does notfind Apples and Googles in Sweden, Germany and Finland? Oneanswer is demographic; the European inventors are relatively old and therefore stick

to old economy sectors (Figure source: World Bank [50]) Compared to Europe, USand Asia have a much higher proportion of young innovators resulting in thevibrant innovation taking place in new sectors like ICT and Biotechnologies [46].The argument linking productivity and innovation to moderating factors like age,size and sectoral structure of an economy has obtained empirical support [51] Theworld, it appears, is dominated by young innovators In the R&D scoreboard ofleading innovatingfirms of 2007 [52], more than half are young (born after 1975) inthe United States—exemplified by Microsoft, Cisco, Amgen, Oracle, Google,Qualcomm, Apple and eBay Thefigure is even higher and is more than 60% inAsia, indicating the vibrant innovation that is taking place in countries like China,India and Korea By contrast, in Europe, only one in five leading innovators areyoung, suggesting the widening disparity of between Europe on the one hand andthe US and Asia on the other The situation in Japan is far worse; the country hasalmost no youngfirm among its leading innovators reflecting the ageing population

of the country that is battling negative birth rates

Innovation is not elitist and is not restricted to the developed world or to theemerging nations In Africa, while the least developed continent, from education toenergy, and from banking to agriculture, innovation is happening In Africa, access

to electricity is still a luxury, battery sustenance and energy-saving applicationsbecome key for survival The photo infigure (Courtesy: NASA [50]) is the satellitephoto of the earth exposing the scale of Africa’s electricity deficit And yet, despitemounting odds, mobile-based innovation is booming in this energy-starved conti-nent Africa and the mobile device appear seemingly inseparable and most inno-vation revolves around the mobile device and wireless technology As recent as in

2000, only 1% of Africa’s population had mobile phones In 2014, an astonishing

600 million subscribers (56% of the population) existed in Africa and still climbing.Farmers regularly check market prices for their produce and are better preparedagainst predatory exploiters Nurses and doctors deliver patient care servicesremotely, dramatically improving the lives of people The upshot is that Africa hasseen rapid transformation in their economic lives, thanks to the introduction ofadvanced mobile technologies [50]

But the most dramatic impact on the economic life of Africa has come from themobile payment platform Kenya’s mobile payment system, launched barely 10years ago, handled $12 billion transactions in 2014, accounting for 35% of itsGDP Such digital payment systems leave behind audit trails helping the govern-ment to detect tax evasion apprehendfirms committing fraud [50] Kenya is nowoffering sovereign bonds to be sold only via mobile phones, afirst anywhere in theworld With the denominations of the bond as low as $29, the idea is to make bondbuying/selling easy and spread the bond culture among retail investors [53] InNigeria, the most populous country in the continent, the Internet is available to 42%

of the population resulting in the Internet contributing 8% of the GDP The country

is aiming to achieve 30% broadband penetration by 2017 with the expectation that

if the broadband connectivity increases by 10%, the national GDP will go up by1.3% [54]

The innovation landscape has been morphing since the 1990s The discerniblechanges in the global innovation landscape since 1990s can be summarized as fourmajor trends

1 a more secular growth of innovative capabilities, especially in the Asianeconomies;

2 the growing complexity of manufacturing and services activities in theseemerging economies;

3 high demand for IT products outside the US; and

4 increasing‘vertical specialization’ in several knowledge-intensive businesses.The last 25 years has seen the emergence of innovation powerhouses in Asia,notably South Korea, Taiwan, China and India In the technology space, semi-conductor innovation (mostly memory) and manufacture have been almost theexclusive preserve of Asia, while innovation of solid-state active devices continues

to be the stronghold of the US In pharmaceuticals, the development of new drugshas become more equitable While Europe and US continue to lead pharma inno-vation, India and China are rapidly catching up, apart from being strong bases forgeneric drugs

The stimulus for innovation comes from the Research and Development (R&D)spending The underlying change in the innovation landscape has also impactedR&D spending patterns [55] It is forecasted that for 2016, global R&D willincrease by 3.5% to nearly $2 trillion, with China recording one of the largestincreases by 6.3% The centre of gravity of R&D continues to shift towards Asia,which now accounts for more than 40% of world’s R&D spend [56] Nations withhigh R&D intensities (R&D as a share of GDP) also have high per capitaresearchers (number of researchers per million population) Countries such as Israel,

S Korea, Finland, Denmark, Sweden and Japan lead the pack on this score Rapidlyadvancing countries such as India, China and Brazil admittedly have low R&D andper capita researchers, but their contribution to the knowledge base is swiftlyincreasing, largely due to the sheer quantum of investments in R&D However, UScontinues be the largest R&D spender, albeit growing slowly (Figure source: WorldBank [57]) China is on track to overtake the US in R&D spending by 2026 and willwiden the gap thereafter The Scandinavian countries are intellectually very rich;they have the highest number of scientists/researchers per million people Thegrowth in R&D spending by the top 1000 globalfirms (1,000 global public com-panies that spent the most on R&D during 2014) seems to be decelerating but stillaccount for 40% of all R&D investments [58]

R&D investments in the last ten years has shown unabated growth Even theglobal recession contracted R&D investments only modestly, far less compared tocapital outlays or revenues In fact, the bar to enter the top R&D spenders has onlybecome higher To entry criteria to be one of the top 1000 R&D spenders went up to

$83 million in 2014, up from $37 million in 2005 To break into the top 20 ranking,firms had to spend more than $5.9 billion in 2014, up from $4.1 billion in 2005 [59]

US, Europe and Japan still lead, but with stagnant global share (Figure source:Bloomberg data, Capital IQ data, Strategy&) The last decade has seen Europestagnate at 30%, America declining to 40% from 42% and Japan’s share sharplydropping from 24 to 18% All this amidst galloping China’s R&D outlays [60]

At thefirm level, the R&D intensity (R&D investment as a percentage of revenue)has also been declining as can be seen in (Figure source: Bloomberg data, Capital IQdata, Strategy&, USPTO), largely because firms have been improving R&D effi-ciency—getting more output for the same input Global patenting has been going updespite decelerating R&D intensity Essentially, the unit R&D cost per patent hasbeen decreasing in a steadfast manner A well-orchestrated R&D program results ingood-quality patents and/or creation of intellectual capital, both having a positiveimpact on the profitability of the firm Fortune magazine quoting Steve Jobs put itmore succinctly:‘Innovation has nothing to do with how many R&D dollars youhave When Apple came up with the Mac, IBM was spending at least 100 times more

on R&D It’s not about money It’s about the people you have, how you’re led, andhow much you get it.’ Apple spent a paltry 2.6% of its revenue on R&D in 2014amounting to $4.5 billion and was ranked 32 on the R&D spenders list And yetApple today is the most valuable company in the world without having a large patentportfolio to boast of, unlike its competitors Samsung or IBM Apple believes in theadage 'less is more' and beats any otherfirm in extracting value from its IP assets

The dominance of the four sectors—computing and electronics, health care, autoand software and Internet is evident from the profile of top 20 R&D spenders(Figure source: Fortune [61]) The Automotive industry is one of the four largestR&D spenders in the world Volkswagen presently spends more on R&D than anyother company worldwide, outdoing the likes of Samsung and Microsoft, whoselifeline is technological innovation The auto industry’s innovation has spawnedmore than 50 models of hybrid engines today, up from only 2 in 2001; more than15% of cars in Japan have hybrid engines After a century of only gasoline anddiesel powering the vehicles, significant investments are going into electricity,natural gas, hydrogen, next-generation biofuels, and fuel cell technologies asalternatives Also, a critical factor driving automotive innovation is the increasingnumber of software-driven electronic components to make reliable self-drivenautomobiles The resulting innovation in auto-electronics is likely to render thevehicle a commodity with the electronics and the embedded-software becoming thedifferentiator A typical premium-class car has more than 100 microchips runningmore than 100 million lines of software code-more than a Boeing 787 The cost ofall the electronics and the attendant software will be more than 50% of the car in thenext few years [62].

The elite club of the top innovators has also shown remarkable consistency overthe last decade Thirteen companies have been permanentfixtures every year: GlaxoSmith-Kline, Honda, IBM, Intel, Johnson & Johnson, Microsoft, Novartis, Pfizer,Roche, Samsung, Sanofi, Toyota and Volkswagen Two-thirds of R&D investments

in 2014 came from three sectors: IT and electronics, Pharma and Autos, althoughthe software and the Internet areas showed the highest growth This is not sur-prising, given the frenetic action that is taking place in Internet In fact, the growth

in R&D investments in the non-IT sectors such as auto, defence and aerospace haslargely been because of higher outlays on software within those sectors The netresult is the increasing predominance of software in their products as well as in theshopfloor automation, now increasingly deployed across factories There has beenand continues to be massive innovation taking place outside Silicon Valley andother tech clusters [53]

Firms in mobile’s core technologies were the biggest spenders—as percentage ofrevenue—on R&D at 21%, compared to any other sector (except Biotechnology).Almost all the R&D and infrastructure investments in the mobile technology camefrom private sector and amounted to $1.8 trillion from 2009 through 2013 Goingforward, to extract maximum value from Fifth Generation (5G) networks, theindustry needs to spend $4 trillion in R&D and capital outlays by 2020 [63]

Innovation Trends

Innovation is carried out by two classes of inventors: individuals and firms/corporations Innovation from individuals stems primarily from small firms orindividual innovators These independent innovators could be a‘small entity’ or a

‘micro entity’ Small entities are small businesses having no more than a fewhundred employees, while micro-entities are applicants whose gross income is lessthan three times the median household income USPTO charges a much lower feefor patent application from these entities with the goal of providing a break forsmaller companies and independent inventors and to encourage innovation at thegrassroot level The independent innovators have been active except for thefirstdecade of the current century when the dot com bust happened During that decade,there was a steep decline in patenting It has picked up since then, although indi-vidual patents as a share of total patents has been coming down over the last 25years from 20% to less than 5% in 2014 (Figure source: USPTO [64] below).Organized (firms, corporations) patenting has been clipping at a much higher ratethan individual innovators

The innovation themes of small and micro-enterprises (and individual assignees)have also been changing over the last 25 years.1A major theme of innovation has

1 Based on the number of USPTO patents granted.

been Static Structures It included on-site erected structures such as shelter, ing, buildings or masts generally identified with civil engineering and public works.

hous-It also included the related components such as panels, beams, columns, etc In civilengineering, the small enterprises innovated lot more than the corporatefirms did.Another dominant and consistent theme of innovation has been in Vehicles, an area

in which small enterprises again outdid the corporatefirms Innovations here relate

to adaptations to land-based passenger- or freight vehicles such as automobiles,locomotives, traction engines and tractors The lastfifteen years have seen smallenterprises innovating actively in the Communication space in keeping with theexplosive growth of mobile communication Small and micro enterprises have alsobeen innovating in Business Method Processing (BMP) after US allowed BMPs to

be patented following an explosive growth in eCommerce (US is the only country

Corporate innovation is driven by companies rather than individuals account fornearly 95% of all patents As a thumb rule, the wealthier nations spend a significantamount on R&D and reap the benefits of innovation Outside Europe, the US, Japanand Korea take the lead in R&D investments The spatial distribution of innovation

is considerably starker across Europe Scandinavian countries, southern UK andCentral Europe are more R&D-intensive regions There is also a strong East–Westdichotomy, with the eastern region showing lesser propensity for innovationcompared to their western counterparts [66] In terms of pecking order, USAremains the number one innovation country US does more patenting than Asia andEurope combined Japan is the next largest innovator, but its patenting intensity isless than half of the US, but is twice that of all of Europe combined Although the

US remains a dominant player, innovation is becoming more globally distributed,primarily due to the explosive growth of patenting in Asia Since 2005, the rest ofthe world has been patenting more than the US (Figure source: USPTO [64])

Corporate innovation has been happening at a blistering pace and the themes ofinnovation have also radically changed At the turn of the twentieth century and upuntil the 1930s, the predominant theme of invention was Chemicals The advent of

WW II saw a spurt of invention in Electronics (hardware) and Communications.The transistor, the most important technology breakthrough of the previous century,was invented in the 1940s and continues to be vital to the digital world even today.The 80s saw Pharmaceutical innovation being a dominant theme The last 30 yearshas seen the Information Communications and Technology (ICT) dominatethe innovation landscape [67] The last 20 years of innovation has seen the dom-ination of five themes: Pharmaceutical, Chemical Compounds, SemiconductorManufacturing, Solid State Electronics and Communications (Figure source:USPTO [64]) Bulk of the patents are awarded in the technology sector The growth

in mobile phones, a world driven by solid-state electronics and an imperative toimprove yields in semiconductor manufacturing have been the key drivers oftechnology patenting Pharmaceutical innovation has been secular, with healthydistribution across the US, Europe and Asia, although the latter has become agenerics hub

Global innovation has consistently centred around two dominant themes:Technology and Pharmaceuticals [9] (Figure source: USPTO [64]), although thesheer number of patents in the ICT sector far outweigh that of pharmaceuticals Theworld has shifted from a Pharma-centric innovation in the 1990s to a more balancedinnovation spread consisting of pharma and technology in recent years Pharmapatents are fewer, but each one, in general, has more value Tech patents are farhigher, as it usually takes a large number of patents to achieve effective legalprotection.

The Dominance of Technology Innovation

The intensity of innovation in the technology sector is nonpareil For severalreasons, the period since 1990 has been a defining period for the tech industry.First, the economic conditions of the last 25 years saw the highs of economicgrowth and troughs of market turbulence Second, the realization that patents werehighly leverageable valuable assets came about at the beginning of the millennium.This resulted in a discernible increase in patentfilings during the last decade and infact, one can observe two distinct periods—a period of staid IP growth (the 90s) and

a period of explosive growth (post 2000) Third, the period saw far-reachingdevelopments in the tech sector (Figure) including the disruptive advent of internet,

an upsurge in mobile communication and a paradigm shift in personal computing[68] Fourth, two sharp economic stress periods were witnessed One was soon afterthe dotcom bust in 2000 and the other (more recent) during 2008 because offinancial crist The technology sector itself was not immune to these twin-stressperiods During the dotcom crash, the S&P tech index fell from a peak of 814 in

2000 to 249 in 3 years, an erosion of more than 70% value of shareholders’ wealth.The more recent globalfinancial crisis in 2008 saw the index falling again by 30%(Figure source: Thomson Reuters)

Regardless of turbulent times, innovation in the tech sector has been relentless; infact, key tech innovations in recent times have paid off in quick time The figure(Figure Source: Thomson Reuters) shows time taken by several tech companies toreach the $150 billion market capitalization after their IPO Fewer than 30 compa-nies in the world have market capitalization of over $150 billion The time taken toreach thisfigure has been coming down progressively While IBM took 83 years andIntel 27 years, the new generation companies like Google took only 3 years to reachthis covetedfigure Facebook was just about the fastest and took only 1.8 years; eventhis record was broken by Alibaba which had a valuation of $225 billion on the day itwas listed! [69] (valuation of Alibaba has subsequently comedown).

Information technology (IT) is a vital segment of the technology sector and is akey enabler of the twenty-first century IT has transformed all facets of the globaleconomy: trade, financial services, manufacturing, healthcare, national security,education, telecom, employment, entertainment, clean energy, transportation,research, engineering and government The impact of IT on the economy continues

to grow in magnitude and significance The IT sector accounts for 5% of US’s GDPand showed a healthy growth of 16% in 2011 [70] This is notwithstanding verylow public R&D funding in IT amounting to $4.3 billion, or just 0.03% of GDP[71] The Internet-related businesses in 2009 contributed a significant 3.8% to the

US GDP [72] These substantial contributions of IT are directly attributable to IT,apart from the collateral spinoffs of IT that accrue to the economy

NAP [73] sums up the ubiquity and the indispensability of IT as:‘To appreciatethe magnitude and breadth of its achievements, imagine spending a day without IT.This would be a day without the Internet and all that it enables A day without

diagnostic medical imaging A day during which automobiles lacked electronicignition, antilock brakes, and electronic stability control A day without digitalmedia-without wireless telephones, high-definition televisions, MP3 audio, cable-

or Internet-delivered video, computer animation, and video games A day duringwhich aircraft could notfly, travellers had to navigate without benefit of the GlobalPositioning System (GPS), weather forecasters had no models, banks and mer-chants could not transfer funds electronically, and factory automation ceased tofunction It would be a day in which the U.S military lacked precision munitions,did not have the capabilities for network-centric warfare, and did not enjoy tech-nological supremacy It would be, for most people in the United States and the rest

of the developed world, a“day the earth stood still.”’

One easily measurable impact of IT R&D investments can be seen in the mation of new technologyfirms in the US with annual revenues of more than $1billion [74] These techfirms have become household names with their productsand services buttressing the digital economy, more broadly influencing nationaleconomies The technology industry is the largest among all sectors with combinedrevenues more than $1 trillion There are several examples how fundamentalresearch in IT, led by both the industry and universities, has resulted in the launch

for-of wholly new product and solution streams which went on to become billion-dollarenterprises Research in Computer Architecture led to the development and theeventual indispensability of microprocessors to everyday life, while research innetworking led to the world being driven by Internet

Software products rules the roost in the USfirms while the epicentre of softwareservices has shifted elsewhere Chief non-U.S suppliers of software services aresituated in India (software services), Ireland (localization, software logistics, anddevelopment) and Israel (R&D and product development) These countries havemaintained their leadership position for more than 20 years, primarily driven bylower labour costs and high-quality manpower Innovative software development(as measured by patents), however, continuous to be the stronghold of the US It isincreasingly becoming clear that industrial products are getting commoditized andthe key differentiator will be the software embedded in them In the case of cars,currently software drives 80% of auto innovation, from crash-avoidance to enter-tainment systems An high end car has more software code than a Boeing 787 plane[75] In fact, GE CEO Immelt predicted thus: ‘We believe that every industrialcompany will become a software company.’ [76]

That the modern-day car is driven by software is known and is the single mostdifferentiator among all modes of transport For example, the F-22 Raptor, the U.S.Air Force leading war plane, has 1.7 million lines of software code And Boeing’snew 787 Dreamliner has 6.5 million lines of software code embedded in the plane.All these codes pale in comparison to the software that goes in a premium-classcar-100 million lines of code! And software in cars is only going to swell in bothquantity and complexity With increasing complexity of automobiles, cars willrequire 200–300 million lines of software code in a few years’ time, according to

Frost & Sullivan Within 10 years, it is predicted that the cost of electronics plussoftware will rise to 50% of the total cost for conventional vehicles and 80% in case

of hybrids With the cost of development of a line of code conservatively estimated

to be $10, the software alone represents a billion-dollar investment accentuating thecriticality of software in automobiles [70]

Software innovation has been intensifying over the last 25 years (Figure source:USPTO [64]) The share of software patents issued at USPTO has been going upsteadily and stood at 16% in 2015, next only to semiconductors In fact, the growth

in software patenting is the highest among all classes The largest category ofsoftware innovation is in multicomputer data transferring, a class which providesfor an electrical computer or digital data processing system or corresponding dataprocessing method between a multitude of computers [64] The steep growth in thiscategory signifies the astonishing growth of computer networks and Internetcommunication Equally strong growth is seen in the DBMS category which coversthe area of computerized data processing systems and corresponding methods forthe retrieval of records stored in a database or as computerfiles [72] High-intensityinnovation in this area is reflective of the massive growth seen in the use of largedatabases and their analytics for decision-making With the advent of Internet, theneed for positional data has become an imperative in most real-time applications,like automated vehicles This is manifested in the intense innovation seen incomputational procedures related to positional data especially of vehicular traffic.Innovation in this area is focused on calculating computer functions to indicate acondition of a vehicle, to regulate the movement of a vehicle, to monitor theoperation of a vehicle, or to solve a diagnostic problem with the vehicle [72]