I3 UPDATE / ENTOVATION International News - Special Edition:
September 1998
Innovation Action For Europe
Introduction
An Introductory Euro-Primer
Europe's Innovation Paradox
The Contribution of SMEs
Three Areas For Action
Reactions To The Green Paper
Current Status
Editorial
This is a special edition of I3 UPDATE / ENTOVATION International News, a free briefing service on developments in the knowledge economy. Consult theindex for contents of other editions. Archived ENTOVATION International News can be found at http://www.entovation.com.
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David J. Skyrme
Managing Editor
Innovation Action for Europe
Is It Innovative Enough?
David J. Skyrme and Debra M. Amidon
The European Union's Action Plan for Innovation is gaining momentum.
Evolving out of concern for increasing European competitiveness, winning
new markets and creating jobs, as highlighted in the Green Paper on
Innovation in 1995, this action plan focusses on a few priority initiatives
under the banner "innovation for growth and employment". In this special
edition of I3 UPDATE / ENTOVATION International News we summarize the key points of the EU plan, followed by our commentary and analysis. This analysis is based on publicly available written material (see Sources), are the authors' opinions and do
not necessarily represent the views of ENTOVATION Network colleagues. We
are also aware that thinking is moving forward in the European Commission,
ahead of the public record, and that our analysis may not be based on
latest thinking. Our analysis also reflects a European level perspective,
and does not attempt to review national programmes.
Our main conclusion is that the EU innovation vision is not bold enough.
The knowledge economy is fundamentally changing the nature of innovation
and, despite some laudable plans, we believe that the programme as
currently portrayed takes insufficient account of these changes and needs
to be more innovative. Otherwise Europe will fall behind those other parts
of the world which we see as being more in tune with the commercial
exploitation of knowledge.
The grouping of countries, once called the EC or EEC, European Economic
Community is now more frequently called the European Union (EU), though the
word Community is still sometimes used in the central administrative
context. The EU currently comprises 15 nations or Member States - Austria,
Belgium, Denmark, Finland, France, Greece, Germany, Ireland, Italy,
Luxembourg, The Netherlands (Holland), Portugal, Spain, Sweden, United
Kingdom. The aim of the EU is to foster mobility of goods and services,
people and finance. The reality is somewhat different with many national
and cultural differences.
Enlargement is planned on a phased basis to include much of the former
Eastern Europe, though countries like Norway and Switzerland remain
uninterested in joining, but nevertheless have many cooperative
relationships. The so-called candidate countries will enter in two waves -
Cyprus, Hungary, Poland, Estonia, the Czech Republic and Slovenia are the
first. Bulgaria, Latvia, Lithuania, Romania and Slovakia will follow.
Turkey is also in line for future membership.
The European Commission (often referred to as CEC - Commission of the
European Communities) is the administration. It has 20 Commissioners
supported by 15,000 staff is based mostly in Brussels, though some offices
are in Luxembourg. It is "the guardian of the treaties", initiates
proposals for legislation and carries out the detailed implementation of
policies approved by the European Parliament (that meets monthly in
Strasbourg with additional sessions and committees in Brussels). The
Commission is divided into 26 directorates-general (DGs) with an additional
15 or so specialized services. Each DG is headed by a director-general,
reporting to a Commissioner. Edith Cresson is the Commissioner for science
and technology (DG XII) as well as for education, training and youth (DG
XXII) and spearheads the innovation programme. DG III (Industry) and DG
XIII (Telecommunication and Information Markets) are also closely involved
with the programme.
Over 50 per cent of the European Community's budget goes on agricultural
support, although some is allocated to research and development, often on a
50 per cent funding basis to a consortium that must include companies from
three member states. Thus, the Fourth Framework programme (1994-8)
allocated 10.7 B ECU, in programmes that included information and
communications technologies, industrial technologies, environment and energy.
1 ECU (European Currency Unit) is approximately USD 1.2
The currency in the new European Monetary Union (EMU) is the Euro (which
will replace the ECU) . Trading of products and services will start in
Euros in January 1999. It is likely to become overnight the second largest
currency traded after the dollar, and most companies are actively planning
its introduction. Even companies in the UK, which is not among the 11 Euro
countries, are likely to start quoting and invoicing in Euros, since nearly
50 per cent of UK trade is with Euro countries (Germany heads the UK trade
league, just ahead of the USA). Coins and notes will start circulation in
January 2002, and six months later national currencies, such as the German
mark and French franc will be collectors' curiosities.
End of Politics and Economics Lesson!
For further information see the European Union's Web pages:
http://europa.eu.int
and make sure by next year your computer can handle (display/print) the new
Euro symbol (a slanting c with two horizontal lines through the centre).
In the Foreword to the Innovation Action Plan, Edith Cresson, the
Commissioner responsible for Research, Innovation, Education, Training and
Youth writes:
"In the debate about employment currently sweeping Europe, it is only
rarely that the driving force of innovation is highlighted."
Europe invests considerably in R&D. As a percentage of GDP it was 1.91 per
cent in 1995 compared to 2.45 in the US and 2.95 in Japan. However, it does
not seem to gain commensurate returns. It lags far behind in terms of
patents and other output indicators.
Some other reasons for concern:
- Europe's share of GDP devoted to research that is financed by industry is
on average 38 per cent less than that of the USA and 55 per cent less than
Japan.
- Development of new products accounts for less than half of research
expenditure in France and Germany, against more than 60 per cent in USA and
Japan.
- S and Japan have a trade surplus in high technology goods of USD 150
billion, Europe's deficit is USD 25 billion.
Bottom Line - The conversion ratio: beneficial outputs / inputs is low.
Our Analysis
Measures of competitiveness are not just patents. The relationship between
innovation and prosperity is complex and not fully understood. The
IT/productivity paradox has puzzled economists for years. Multiple
variables, the speed of change and non-linear cause and effect (cf. systems
dynamics) make the relationships difficult to track.
All nations, in industrial and developing countries alike, are addressing
this challenge in one way or anther. The knowledge economy is one of
abundance not scarcity. It creates an opportunity to (re)define the very
notion of the innovation process. Competitiveness is an unfortunate term,
since wealth creation in the knowledge economy will depending on creating
viable niches in a global collaborative infrastructure.
Since SMEs represent 99.8 per cent of the number of enterprises in the EU,
two thirds of turnover and business employment, they feature heavily in
Europe's innovation programme.
- Of the 10 million new jobs created in the USA from 1993-6, a third were
created by small and medium-sized high technology businesses
- 78 per cent of income in the computer industry comes from products less
than two years old
- The European biotechnology market is expected to grow from ECU 10 billion
in 1996 to over ECU 80 billion by the year 2000
- Two thirds of the 170,000 SMEs that produce inventions do not apply for
patents.
- Only 10 per cent of SMEs commit enough time to launch new products, and
of those only one in four are a commercial success.
Bottom Line - SMEs are important, but need to do better at innovation.
Our Analysis
Small Enterprises are too broad a group for these broad statements.
Research at Durham University Business School has found that "small" is a
state of mind, rather than number of employees (an SME is defined as less
than 500 employees, still quite a sizeable company). There are tremendous
differences between those that are just small, and those that are small,
yet have global perspectives, with growth and wealth creating motivations.
'Innovation requires first and foremost, a state of mind combining
creativity, entrepreneurship, willingness to take calculated risks and an
acceptance of social, geographical or professional mobility'
While the Commission notes that action for innovation "is in the first
instance the responsibility of citizens, of industry and of national,
regional and local authorities", it identifies three central areas for action:
- To foster an innovation culture
- To establish a framework conducive for innovation
- To better articulate research and innovation.
- Education and training - courses and teaching methods should "stimulate
creativity and a spirit of enterprise" from an early age
- Easier mobility for researchers and engineers - to help with technology
transfer projects
- Demonstrate effective approaches to innovation - by involving citizens,
industry in the debate on technological choices
- Propagate best management and organizational methods - 'agile', reactive
and co-operative links with expertise underpin success
- Stimulate innovation in the public sector and government - through
training or awareness schemes.
Benchmarking activities are proposed, along the lines of UK's R&D
'scorecard', and company visits as part of the TOP schemes in Germany and
Spain. It calls on member states to "support training schemes for
innovation management, especially through the development of European
networks of business schools and their co-operation with industry and SME
support bodies."
Our Analysis
The language is industrial age and based on old models of innovation e.g.
'technology transfer', 'benchmarking', 'best practices'. They are
yesterdays "prescriptions for mediocrity". Truly innovative companies set
the standards that others benchmark and follow. Innovators regard
benchmarking as lost opportunity time. It is therefore not clear whether the
following - necessary for breakthrough innovation - will be achieved:
- developing common language through dialogue
- nurturing Communities of Knowledge Practice
- a shift of emphasis from training to learning
- developing cross-sector, cross boundary processes
- enhancing the value of collaboration (vs. competition).
"The excessive complexity of administrative procedures costs European
industry between 180 and 230 billion ECU annually, thereby damaging its
competitiveness".
The legal and regulatory framework needs to be adapted and simplified.
Areas for improvement include:
- Simplification of European patent system: more accessible, efficient and
less expensive; at the moment there are three patent systems - national,
European and Community
- Business start-up and innovation support must be simplified: the
formalities and delays to start a business must be reduced
- Innovation financing must be made easier (a result has been the creation
of EASDAQ, a European version of NASDAQ)
Our Analysis
Welcome as these actions are, the framework is far too narrow. There are
some good ideas, especially around financing. The 'framework' must go much
further:
- it should cover three key dimensions: technology, behavioural, economics
(of intangibles)
- innovation is a value system, not a value chain
- incubation and business development facilities for SMEs are needed (c.f.
the Danish networking model)
- incentives must be found for the system as a whole and to motivate
individuals
- closer relationships need to be developed between industrial and societal
levels.
While we accept that some of these may be covered in other programmes, only
a cohesive integrated framework can help Europe break through the
innovation paradox.
"In knowledge-based economies, the efficient systems are the ones which
combine the ability to produce knowledge, the mechanisms for disseminating
it as widely as possible and the aptitude of individuals, companies and
organizations concerned to absorb and use it."
The EU suggests that national level activities should include:
- A strategic foresight vision of research and its application
- Strengthened industrial research
- Encouragement of start-up technological companies e.g. campus companies,
spin-offs etc.
- More Intense co-operation between public, university and industrial
research e.g. allow university researchers time to develop companies.
- Strengthen the capacity of SMEs for absorbing new technologies and know-how
In each of these the Commission sees its role as facilitating information
exchange, co-ordination and improving links between various activities.
At the European level, there is a single horizontal framework for
integrating innovation and SMEs within the Fifth Framework programme.
Encouragement will be given to making preparation during the research phase
to exploitation, and to make the programme more accessible to SMEs. Other
Community instruments "will be mobilized to support innovation" e.g. use of
Structural Funds for innovation; creating better links to bodies outside
the EU "where two thirds of world innovations and scientific discoveries
are made" and where "most expanding markets are to be found".
Our Analysis
R&D alone is insufficient for innovation. Foresight and similar programmes
sound too much like formalized planning rather than doing and
experimenting. David Skyrme's submission to consultation on the UK
programme suggests that it perpetuates the old industry boundaries and
actors, not the new cross sector opportunities and entrepreneurs. These
actions are a start, but do they go far enough in:
- recognizing that innovation is more than just R&D; it involves marketing,
service development etc.
- crossing sectors and also linking government, academia and industry
- encouraging entrepreneurship in R&D and innovation
- building on distinctiveness: Europe's roots, heritage, knowledge of
hindsight
- true foresight: developing sustainable future visions vs. merely
projecting forward forecasts?
There are some gems in the various action lines, but they get lost in the
overall picture that is painted.
Having distributed over 40,000 copies of the 1995 Green Paper, opinions
were widely sought. This was done through conferences (which over 5,000
delegates attended) and detailed submissions (over 300 were received), and
official responses from member states, as well as Norway and Hungary.
Generally respondents welcomed the initiative and especially ways of
strengthening links between research and industry. There was a difference
of opinion as to what extent the EU should fund research that goes beyond
the pre-competitive stage. There was unanimous agreement that the
administration of European level funding programmes needs to simplified and
streamlined and more user friendly towards SMEs. (In 1996 the average
length of time taken from proposal to project start was nearly one year).
Some specific comments that we picked out as pertinent on the different
action lines (source of comments in brackets) were:
Research Oriented to Innovation
"Technology watch and technology foresight initiatives create jobs in only
in the science of forecasting and not in businesses" (UEAPME)
"The centralized model for technology foresight is risky" (Oslo)
"Europe does not need more research. It needs correctly applied, effective
and high-quality research" (Birmingham conference)
"Co-operation between less-developed and more-developed regions must be
promoted" (Madrid)
Some manufacturers expressed reservations about the EU co-coordinating
industrial rather, feeling that the efforts would be better spent on
strengthening the cohesion of European Community programmes.
Finance
There was a strong move in favour of a NASDAQ-type European market for the
trading of shares in young growth oriented companies.
Legal and Regulatory Environment
There were many comments on Intellectual Property Rights (IPR), most
notably patents. Access to information on patents was seen as crucial.
Sweden suggested public funding to support an insurance system to help
companies defend their IPR.
National Government Reactions
Comparisons of national reactions were interesting through their emphasis
and variety. The German government highlighted its own national programmes
e.g. Delphi technological foresight initiative; INST
(Innovationsstimulierung der Deutschen Wirtschaft durch
wissenschaftlich-technische Information).
While most welcomed the broad range of initiative, especially the
coordinating activities of the Commission, some had a very narrow view e.g.
the Italian government was primarily concerned with protection of EU
intellectual property. Some smaller countries, like Austria and Finland
provided sizeable and helpful comments. However, there were several
critical comments e.g.
"The Green Paper limits itself to addressing the main obstacle and
challenges to innovation without a proper framework proposal to foster
innovation in the EU" (Spain)
Three that we felt particularly pertinent were:
"The formulation of the 'European paradox' involves a linear and
out-of-date vision of the phenomenon of innovation..... Portugal considers
that the Green Paper tackles, only in a limited way, the problem of links
between innovation, growth and employment. It is not the technologies that
which can solve the problems of organizations, or which create new
opportunities for the companies, but their innovative application,
including the new forms of social and organizational innovation." (Portugal).
"The Swedish Government was concerned at the very technical slant to
innovation that was presented and stresses that innovation influences
every aspect of life.... there are societal needs to be addressed which
will also require very innovative approaches, for example the increasing
numbers of elderly people in the population. Organizational innovations
were also considered lacking". (Sweden)
"Innovation in the service industry should be encouraged." (Finland)
Our Analysis
It should be remembered that national comments are often made by government
officials, without a detailed consultation exercise. Hence they may not
reflect the general views of business in their country. Also, many
governments do not have a strong innovation policy, and if they do, it is
generally based on technology transfer, information services and
competition, and not on innovation, knowledge and collaboration.
In introducing the 1998 booklet 'Innovation for Growth and Employment',
Edith Cresson says:
"By adopting this report at my initiative, The Commission intends to put down a prominent marker to show that it is fully taking into account the importance of the link between innovation, growth and employment, based
notably on the conclusions of the European Councils of Amsterdam and
Luxembourg".
She notes that The Innovation Action Plan is under way. Initial actions
have been taken in protecting intellectual property rights, establishing
finances, and administrative simplification. However, more needs to be done
to increase the plan's impact by mobilizing the member states and to put
more emphasis on developing an innovative culture. The report highlights
six areas of action:
- Protection of Intellectual Property Rights
- Financing Innovation - most notably EASDAQ
- Administrative Simplification
- Education and Training - including the innovation process
- Gearing Research to Innovation
- Strengthened Co-ordination e.g. between RTD and Innovation policies.
In the area of IPR, a help desk is being established. It is to help SMEs
find sources of information on patents, and gain access to best practice.
In finance, EASDAQ, backed by 60 financial institutions listed its first
companies in November 1996 and has already helped the initial public
offering of companies like Autonomy (producers of intelligent search
agents). Other initiatives are I-TEC (Innovation and Technology Equity
Capital) and LIFT (Innovation Financing Help Desk). One proposal to
simplify administration is to promote EEIGs (European Economic Interest
Groupings) - the only legal form of enterprise at European level.
Initiatives in education and training include CAMPUS-VOICE (a multimedia
Internet platform for education and training services), Train-Re-Tech
(Training in Research and Technology Transfer in Businesses), mobility
between universities, research institutes and industry and
From-Inno-Tech, a network to promote training for innovation. In gearing
research to innovation, Framework V plans call for 'Innovation cells' that
would promote innovation in each of its four thematic programmes.
- Improving the quality of life and the management of living resources
- Creating a user-friendly information society
- Promoting competitive and sustainable growth
- Preserving the eco-system.
Further emphasis is placed on demonstrator projects, strengthened
technology transfer and collaboration at the Commission's own Joint
Research Centre (which is actually seven institutes in five member states)
including incubators, virtual technology parks and a technology transfer
fund.
Our Analysis
There are some good specific plans, and the closer involvement between
sectors and between technologists and users are welcomed. However, we
reiterate that the focus needs a visible shift.
© Copyright, 1998. David Skyrme Associates Limited and Authors - All rights reserved.
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