Measuring technological diversification: identifying the effects of patent scale and patent scope

Although technological diversification is an important strategic decision for both large and small firms alike, the conventional method of measuring such diversification may well introduce significant scale bias against small- and medium-sized firms. We examine this issue in this study using a sample of 73 Taiwanese integrated-circuit (IC) design firms covering the period from 1995 to 2007 and conclude that the conventional measure of technological diversification reflects the spread or distribution amongst technology classes of a company’s current technology portfolio, and does not capture the incremental expansion in technological scope, or the ‘dynamic act of diversification’, as reflected in our alternative scope measure. Our results suggest clear constraints on the applications made under the conventional index, particularly for firms with small patent scale.