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Observations at the European Innovation Conference

Innovation in Europe suffers from adverse attitudes to risk that are embedded in the outmoded hierarchical structures common within European corporations and government.

by Allan Martel
President and founder of Allan Martel Consulting, USA

December 8th, 2011

A Contrast in Cultures

During the European Innovation Convention that took place in Brussels on December 5-6, 2011, several speakers referred to structural impediments in Europe that hinder or prevent innovation. The chief among these was the hierarchical structure of tightly-bound corporations and government as these structures were seen as anathema to creating a culture of innovation. Several presenters said that hierarchies simply don’t work in a multi-polar world where innovation is sparked by highly-educated mobile work forces.

Furthermore, as transaction costs plummet and Internet-enabled collaboration blossoms, the boundaries of the firm are breaking down with open innovation as only the first indicator of the virtual firms (individuals or SMEs – the so-called micro multi-nationals) that may well be at the heart of future innovations and that are driving North American breakthroughs.

A Culture of Innovation

There are clearly different views out there on what constitutes innovation. Sir Leszek Borysiewicz of the University of Cambridge stated that academia is at the heart of innovation and that one must have basic research to generate innovation.

I suspect that Jean Paul Agon, CEO L’Oreal might agree to at least some extent with this view of innovation since chemical – based R&D is at the heart of many of his firm’s products. I suspect, however that he would also add that innovation in the clothing lines that form part of the L’Oreal family of firms is less about science and more akin to the process at Fendi as described below.

For Sylvia Ventourin Fendi, innovation is all about risk taking and developing whole new product lines every 6 months in a collaborative, meritocracy-based environment where the average staff age is 23 and where (through some “suffering”) innovation emerges primarily from the creativity of individuals who are never satisfied.

Ben Verwaayen, CEO Alcatel-Lucent decried the spending of around $80 Billion in the upcoming Horizons 2020 program without any plan when results to date from such expenditures are highly questionable since Europe is not growing while the rest of the world is. In his view, Europe needs (in priority order) the following:

  1. Talented people
  2. Infrastructure within which talented people can flourish
  3. Bold new Proposals, and only then
  4. Money.

He states that innovation in Europe is primarily an “attitude” problem and that Europe must invest massively in innovation instead of “tying itself into knots”. He argues (persuasively, in my view) that Europe is at risk of losing a whole generation of meaningful sustainable employment and that the EU must have output as opposed to input measures. He suggests that Europe choose one priority and act on it.

Kiran Mazumdar Shaw of Bio Con from India described Europe as insular and inward-looking compared to a much more open and resilient USA.

Eric Schmidt, CEO Google, speaks of a multipolar world with different approaches to problem-solving from different societies. He speaks of turning “noise” into data and then into research, claiming that if you interconnect disparate agents, they will use the platform to innovate. He recommends that Europe overinvest in technology, networking, and connectedness to enable, for example, anyone to set up a firm in one day and to start doing Internet-based business the same day.

He sees education as the key to winning the race to conquer the network opportunities that are emerging and he wonders why Europe and the USA train Asian students and then don’t allow them to remain in Europe or the US to contribute to European innovation efforts, instead sending them back to their countries of origin where they drive Asian growth.

Finally, he decries the tone in the EU as pessimistic – an EU “Winter Gloom” and argues that Europe must shift from its hierarchical corporate and government structures to meritocracies since hierarchies simply don’t work with highly educated and mobile work forces.

From Symphony Orchestras to Jazz Combos

In her inspiring book Leadership and the New Science: Discovering Order in a Chaotic World, Margaret Wheatley uses a metaphor to describe differing organisational models contrasting a symphony orchestra with a jazz combo. The metaphor is largely self-explanatory with innovation at the heart of the combo whose every rendition of Sweet Georgia Brown will contain different improvisations. Can European firms emulate the example of Google and so many other US examples and begin to operate more as combos and less as orchestras?

Are we entering a period of history where industrial policy needs a complete rethink and overhaul and where vested interests are comfortably in bed with policy makers in an unfruitful union?

Don Tapscott, author of Wikinomics and keynote conference speaker would seem to think so. He believes that we are at a turning point in history where the transaction costs of doing business inside a firm are no longer cheaper than operating outside the traditional firm boundaries. This transformation is leading to substantial uptake in “open innovation” in the USA (less so in Europe?) and is leading to a revolutionary redesign of the firms themselves as described in more detail below.

His five principles of innovation are:

  1. Collaboration
  2. Openness and Transparency
  3. Sharing a Portfolio of IP – some shared, some not.
  4. Interdependence among the state, private sector, civil society and individuals, and
  5. Integrity which includes honesty, consideration and accountability.

He argues that the services (including substantial market access) available formerly only to multi-nationals are now available to all, including start-ups, a theme echoed in the session described below.

He also argues that fundamental change is coming to many institutions from firms to financial institutions and to governments who must now all rethink the way that they serve their customers in an increasingly interconnected world.

In yet another conference session, these themes were again evident in a session focused on a new paper recently released by the Lisbon Council, The Rise of the Micro Multi-National. These new mini-firms are small and want to stay that way to remain agile. They are also global, and technology-intensive.

Prezi, a Hungarian example of such a firm, offers free access to its presentation software for public use, and paid access for private use. Prezi felt obliged to open an office in San Francisco to assure its success, and, since doing so, is growing rapidly. European policy makers should ask why this micro-firm felt compelled to have a US presence in order to attract VC capital.

Most job creation is now taking place within firms less than 5-years old (as per OECD research data - OECD, “How Do Industry, Firm and Worker Characteristics Shape Job and Worker Flows”, Employment Outlook 2009Tackling the Jobs Crisis (Paris: OECD, 2009). These firms accounted for 20% of job creation while accounting for only 3% of total US employment from 1980-2005. Job creation now seems to be declining with firm age.

The Lisbon Council presentation also described the “talent-as-a-service” model. This model is attractive to employers who can get access to valuable skills on-demand, and to freelancers, who can build reputations as reliable service providers and earn money from the comforts of their homes. On the upside, these freelancers represent a potentially significant pool of latent job creators that could be activated if equipped with the training, mentorship, resources and incentives they need to grow their businesses.

What’s It All about Alfie?

If these folks are right, (and I think they are) we are already in a rapidly changing world where government industrial policies still rooted in a 1970s view of the world predominate. The European Commission is quite distant from these start-up firms and from this burgeoning group of contractor-entrepreneurs offering their services via extended networks to these emerging firms.

How will start-ups or individual contractors ever participate in EC funded programming that is substantially led by a group of proposal development cartels? There is some emerging evidence of increased sensitivity to the needs of SMEs and the proposals for Horizon 2020 are a step forward but the whole program is still based upon funding effort and not necessarily outputs. It remains competitive pitting one MNE-led cartel against another and losing the benefits of a more extensive collaboration.

Do we really expect substantial job creation for the current generation of unemployed youth through these vehicles based upon their past performance and their continuing efforts to shed employment to become more productive? Additionally, the MNEs continue to shift employment – no longer for cheap labour, but around market access to rapidly-growing developing economies.

Is the proposed unfunded SBIR anything more than paying lip-service to SMEs?

Who speaks within government circles for, or even cares about, these individual contractors who have no benefits packages, no medical coverage, and who incur huge risks of failure, but who are essential to the services offerings required on an outsourced basis by the start-up firms?

Are we headed into a world where ad hoc, self-organised teams come together (as in the motion picture business) to accomplish specialised tasks as the Lisbon Council paper suggests?

How will Europe cope with its vested interests in this emerging environment?

  1. Powerful universities continue to insist on a narrow and self-serving definition of innovation as being founded in invention stemming from basic research. This is only one element of innovation but, too often, universities control a disproportionate share of innovation support funding.
  2. The EC has recently implemented the PPP system within some of its Framework programs and, by so doing, has increased industrial leadership of the projects as well as industrial participation. This is a good first step, but even this might not be enough.
  3. Powerful Multi-National Firms have built proposal development machines that may well resist fundamental and radical changes to EC Innovation Funding programs such as a competition-based system with prizes awarded for the best solutions offered as opposed to the best proposals to discover a solution.
  4. Can governments find the resolve to “bet the farm” on fledgling entrepreneurs as the best chance to create sustainable, technology-intensive employment.

These are some of the questions with which I wrestle in considering the vast quantity of interesting material delivered at the conference. I feel very privileged to have been able to attend the event and I hope that this blog will initiate further discussion around some or all of these important and controversial topics.