Industry sector innovation indices

Here is a chart from MIT's Technology Review and a junkart version:

These are both great charts.  As always, it's important to marry form with function.  If one wants to read off the sector ranks, the dot chart works better; if one wants to focus on the change in ranks, the line chart works better.  If one wants to track sectors as they change over a longer period of time, the line chart works its magic: we can just stack a bunch of them next to each other.

The headline identifies 6 "improving" sectors.  This is difficult to see in the dot chart because the reader needs to associate orange with 2003 and yellow with 2004, regardless of which color appears on the left.  In the line chart, the improving sectors are the ones with lines going up; I colored them blue for clarity.

Moving from the graphical to the statistical, I have major problems with the creation of this "innovation index".

The Innovation Index is calculated by combining, with equal weights, 2004 R&D spending rank, percent change in R&D spending, absolute change in R&D spending, and R&D spending as a percentage of sales.

It is unclear why those variables (including ranks, percentages and dollars) were combined with equal weights.  And in fact, absolute change in R&D spending probably dominated the ranking since it has the largest and widest scale.

And then, the sector ranking is the average of the ranks (1-150) of the companies in the specified sector.  This is a useless average because it implicitly assumes that the difference between company #2 - company #1 is the same as the difference between company #150 - company #149.  It is an ordinal ranking imposed without justification.  Besides, some sectors consist of only 3 companies while others contain 28.  If I have time, I will illustrate these points with charts.

Reference: "R&D 2005", Technology Review, August 2005.