Measuring Innovation

 

To assess innovation statistically company by company across the entire economy, we have used the Growth Index -- a tool created at Cognetics Inc. to measure employment growth in a meaningful way. Companies whose index is greater than 20, which means their employment growth is extremely fast, we consider "innovative." Why? Because after much experimentation we found that innovation is most accurately measured by what it enables a company to do -- namely, to employ more workers. Innovative businesses are those that improve existing products or create new ones, spurring demand and requiring companies to hire people to meet that demand.

Meaningful measurement of employment growth is itself difficult. Focusing on actual employment gains -- new hires -- overemphasizes the significance of larger plants that regularly hire or lay off hundreds of people. If, in contrast, percentage growth is the measure, too much emphasis falls on small companies that expand by, say, 300% when they grow from one employee to four.

To avoid these problems, we've created in the Growth Index a size-neutral measure: we multiply a company's percentage employment growth times its actual employment increase. A company that adds 100 employees and, in the process, grows by 20% would have a Growth Index of 20 (100 X 0.2 = 20), which signals very rapid expansion.