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I3 UPDATE / ENTOVATION International News - Special Edition:
September 1998

Innovation Action For Europe

An Introductory Euro-Primer
Europe's Innovation Paradox
The Contribution of SMEs
Three Areas For Action
Reactions To The Green Paper
Current Status


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.

I3 UPDATE is also available by email. See the administrative information page.

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.

An Introductory Euro-Primer (useful for our non European readers)

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:


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).

Europe's Innovation Paradox

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.

The Contribution of SMEs (Small to Medium sized Enterprises)

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.

A. Three Areas For Action

'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:

  1. To foster an innovation culture
  2. To establish a framework conducive for innovation
  3. To better articulate research and innovation.

1. Fostering a Genuine Innovation Culture - Actions Proposed:

  • 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).

2. Setting up a Legal, Regulatory and Financial Framework Conducive to Innovation

"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.

3. Gearing Research more Closely to Innovation

"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.

B. Reactions To Green Paper

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.


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.

C. Current Status

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:

  1. Protection of Intellectual Property Rights
  2. Financing Innovation - most notably EASDAQ
  3. Administrative Simplification
  4. Education and Training - including the innovation process
  5. Gearing Research to Innovation
  6. 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.

  1. Improving the quality of life and the management of living resources
  2. Creating a user-friendly information society
  3. Promoting competitive and sustainable growth
  4. 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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