2 August 2024
Iliana Portugues
In June, the International Energy Agency published its latest R&D report. In the rapidly evolving landscape of research and development (R&D), the results demonstrated how, whilst delivering in line with China and North America, European organisations face significant challenges. These challenges range from bureaucratic hurdles to the need for more agile and collaborative approaches. But why is Europe slowly falling behind in this space?
In this piece I’m going to look at the complexities of Europe's R&D landscape through the lens of personal experience and professional insight. With a focus on sustainable energy and technological advancements, I’m going to examine the strategies necessary to overcome these barriers and enhance Europe's competitive edge in global innovation.
By drawing comparisons with leading nations such as China and highlighting successful models of innovation, this piece aims to offer a comprehensive overview of the current state and my opinion on what the future direction of European R&D should be.
My personal innovation journey
My journey in the field of innovation began with a robust academic foundation, deeply rooted in a desire to address global sustainability challenges and global stewardship.
Pursuing higher education with a focus on engineering, I completed my Ph.D. in the UK. At the time, the process was linear. The first year I focused on a literature review and preliminary software modelling and laboratory set-up development. The second year I performed software simulations, built hardware, tested the hardware, improved the hardware, performed more simulations. The third, more of the same, scale-up and take it to a real-life environment and write my thesis. The mantra at the time which I still remember was that software is there to support the perfect hardware; software cannot fix inherent inadequacies in the hardware.
The Ph.D. was not just a scholarly pursuit but a stepping stone into the world of commercial innovation. This trait has defined my career. I successfully spun out my Ph.D. project into a startup, showcasing my entrepreneurial spirit and commitment to bringing academic research to real-world applications that resulted in an innovation that was taken on by over 14 energy providers globally.
Science develops knowledge, and engineering uses science to create technologies. Innovation then uses these technologies to shape the future. At the same time, innovation guides engineering to develop new technologies, which in turn uncover gaps in knowledge and understanding for science to investigate.
These beginnings are reflected in my approach to problem-solving. I strongly believe in the creative process, the scientific process, but also in the importance of a collaborative and iterative process in R&D; advocating for a model that encourages discipline, constant learning and adaptation.
This understanding and approach has been key to my success in developing innovative solutions that are both practical and scalable.
The economic impact of evolving R&D and successful innovation programmes
This year, Apple (founded in 1976) made history as the world’s first +$3 trillion company. Its market capitalisation is larger than 96% of country GDPs, including those of Italy, Brazil, Canada, and Russia. The technology sector’s influence on the market has been significant for decades, yet its current dominance is unprecedented. Today, tech firms occupy seven of the top ten positions by market value, with Microsoft (founded a year earlier in 1975) being the only company to feature in the top ten lists of both 2000 and 2023.
On a regional scale, with the global R&D landscape continually shifting, the narrative mirrors this trend. China has recently emerged as a powerhouse in innovation, challenging established norms. Conversely, Europe, and to a lesser extent North America, are grappling with substantial bureaucratic, process and geopolitical hurdles that must be overcome to remain competitive.
These developments underscore the significant influence that robust R&D practices can have on the financial health of its players. They also highlight the critical nature of innovation strategies and methodologies. In an era marked by continual change and disruption, neglecting to adapt strategies, processes, and methods can swiftly undermine years of progress. The reliance on tools and paradigms designed for more stable times has, in today’s rapidly evolving world, precipitated a swift decline from positions of global prominence for many organisations.
Microsoft’s journey to remain a global R&D lead
Founded in 1975 by Bill Gates and Paul Allen, Microsoft initially capitalised on the personal computing era by developing software for the Altair 8800. A significant milestone was its 1980 partnership with IBM, which propelled Microsoft to the forefront of software development and established MS-DOS as a standard in the burgeoning PC industry. Through partnerships with IBM and others, Microsoft expanded quickly throughout the 90s, developing software solutions for businesses and becoming a global leader.
However, Microsoft’s innovation leadership began to falter during the early 2000s. Its strategy of dominating through “stickiness” and sheer numbers, rather than creating superior products, proved to be a liability as it failed to understand the shifting consumer market. Competitors emerged with fundamentally better products, while Microsoft’s innovation was limited to upgrading its existing offerings. It was rich-enough, with a sufficient market share, to be a fast follower, playing defence through continuous upgrade of its Windows platform, but too big and bureaucratic to lead in any market, struggling to keep up with the rapidly transforming market.
The belief that one can innovate by numbers works in stable times. Times where the past could be used to predict the future. In these sorts of times, right and wrong answers exist, and obtaining the right answer is what is most important. These sort of innovation concepts, lead to overcomplicated processes, to more management meetings, more meetings lead to more memos and emails, and more red tape to less innovation. That’s why innovation slows down.
In 2013, Microsoft reviewed its innovation practices and published, Microsoft’s Innovation Management Framework which you can view here. And a new CEO in February 2014, cemented the change in culture and processes.
Today, with ongoing innovations and strategic acquisitions, Microsoft is as relevant as ever and its journey is clearly far from over. As it steers into future territories like AI together with OpenAI, it remains a central figure in global technology, continuing to influence lives and businesses worldwide. This story of growth and adaptation not only charts the rise of a corporate titan but also mirrors the ascent of the digital age itself.
China’s journey to becoming a global R&D lead
Over the past few decades, China has transformed its innovation landscape, achieving significant milestones and establishing itself as a powerhouse in R&D. Government policies and programmes backed by significant funding, balancing government steering and private business interests, have played a crucial role in fostering innovation in China.
According to the World Economic Forum, China's unique innovation ecosystem results from coordinated efforts between the government, industry, and academia. Instead of following the traditional linear technology readiness level model, China adopts a trial-and-error approach. This method emphasises rapid prototyping, iterative development, and large-scale implementation. Supported by smart manufacturing, this approach enables the translation of complex designs into mass production with remarkable precision, speed, and cost efficiency.
These models have enabled China to accelerate its innovation processes and bring new technologies to market quickly. The emphasis on collaboration and the integration of advanced technologies such as AI and IoT has further strengthened China's position in the global innovation landscape.
China's performance in key innovation metrics underscores its leadership in R&D. The Global Innovation Index 2023 ranks China among the top innovators globally, highlighting its strengths in various areas, including human capital, research, and infrastructure. Comparing China's metrics with those of other leading countries reveals the effectiveness of its R&D strategies and the need for Europe to address its own challenges to remain competitive.
Keeping relevant through Innovation
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From both Microsoft and China, we learn that to compete in today’s world through innovation, where rapid technological advancements and immense interconnectivity cause customer requirements and preferences to change quickly and sometimes unpredictably, time-to-market is crucial. This is also true for the energy sector, where uncertainties have highlighted the need for transitional technologies and reduced demand for long product cycles.
To reduce time to market whilst maintaining high standards of product quality and relevance, adequate testing and evolving market needs need to be considered for which one needs to ensure an adequate balance of product excellence and market fit.
This is an area where we in Europe are particularly weak. While a report analysing nearly 3,000 companies globally found that European companies outperform their peers in sustainability, talent, liquidity, and cost management, they lag significantly in growing sales, innovating with emerging technologies, and using technology to boost top-line growth.
My current hypothesis is that we can no longer treat technological innovation as a linear process. For example, market size does not directly determine customer willingness to buy, and technology validation in a specific environment does not necessarily lead to a successful system, either technologically or commercially.
In Europe, government funding in R&D often precedes or significantly accompanies private sector investment in technology developments. This public investment mitigates risks associated with new knowledge production and fosters a skilled talent pool, but it does little to support market-readiness or commercial productization. As the saying goes, "knowledge without action is futile." While European grant funding is characterized by high risk, long lead times, patience, and bureaucracy, the private sector is increasingly driven by short-termism, influenced by corporate governance structures and macroeconomic conditions.
The private sector requires the development of new and novel competitive supply chain and manufacturing techniques to realize the competitive advantage of technology. This includes faster system-wide testing of technologies, necessitating funding for both system testing (TRL 7 and 8) and technology validation (TRL 3-5) simultaneously. In today’s world, validating a technology or system is pointless without a supply chain that meets commercialisation needs and a manufacturing process that meets customer standards and price expectations. To achieve competitive times to market, we need to parallelise innovation efforts.
Promoting Market Readiness at regional level
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Promoting market readiness and adoption is essential for ensuring that new technologies are embraced by the market. Nations globally have employed various strategies to overcome obstacles that hinder these.
One effective approach is streamlining bureaucracy. Countries like Singapore have successfully reduced bureaucratic hurdles by implementing streamlined regulatory processes and providing clear guidelines for innovators. This approach has created a more conducive environment for R&D.
Increasing funding and investment is another crucial strategy. The United States, through initiatives like the Inflation Reduction Act, has significantly boosted funding for R&D in key sectors. By providing substantial financial support, the government has spurred innovation and helped bridge funding gaps.
Building strong innovation ecosystems is vital for fostering R&D. Israel’s success in innovation is largely attributed to its robust ecosystem, which includes strong government support, vibrant venture capital, and a culture of entrepreneurship. By fostering an environment where startups can thrive, Israel has become a global leader in tech innovation.
Enhancing collaboration between different sectors is also key. Germany's Fraunhofer Society exemplifies effective collaboration between research institutions and industry. By facilitating applied research and technology transfer, the Fraunhofer model has accelerated the commercialisation of innovative solutions.
Japan has focused on building infrastructure and creating market conditions that are favourable for adopting new technologies. This includes investing in public awareness campaigns and incentives for early adopters to ensure that innovations are quickly embraced by the market. Ensuring that consumers are informed and excited about new technologies can significantly enhance adoption rates.
By adopting and adapting these and other strategies, Europe can address its R&D challenges and enhance its position in the global innovation landscape.
How companies can innovate for the future
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The future of R&D in Europe depends on its ability to address current challenges and adopt more effective innovation strategies that drive bottom-line value and nurture successful, fast-growing organisations.
I believe there are three key focus areas that Europe must concentrate on to enhance its competitive edge and drive sustainable growth.
Firstly, it is essential to reduce assessment-by-numbers and streamline corporate and governmental bureaucratic processes. The current complexity and lengthy approval processes stifle innovation and slow down the development and implementation of new technologies in existing markets and the exploitation of new markets and verticals. By simplifying these processes and improve decision-making in the face of uncertainty and risk, Europe can create a more conducive environment for R&D, allowing innovations to reach the market faster and more efficiently.
Secondly, Europe must increase collaboration across different sectors. For me, one of Europe’s key strengths is in partnerships, consensus and collaboration across a diverse set of actors with various viewpoints, perspectives and experiences. Effective collaboration between academia, industry, and government is therefore crucial for us to foster a world-class culture of innovation. Breaking down silos and promoting open communication, effectively and without compromising on urgency and speed, can ensure that knowledge and resources are shared effectively.
Thirdly, it is imperative to promote agile and iterative R&D processes. The traditional linear approach to R&D, characterised by distinct phases of modelling, testing, and commercialisation, is no longer competitive in the fast-paced global landscape. Adopting agile methodologies that emphasise rapid prototyping, iterative development, and real-time feedback can accelerate innovation and bring new technologies to market more quickly.
By focusing on these three areas, European organisations can make significant headway in overcoming its R&D challenges and continue to compete in global innovation. It is not only crucial that policymakers, industry leaders, and researchers collaborate to create a more agile, efficient, and innovative R&D landscape, but also that we continuously challenge ourselves as to how we can be faster and whether potentially sacrificing some of our most valuable R&D philosophies of the past are indeed the best way to move forwards into the future.
Through these efforts, organisations can drive sustainable growth and make a meaningful impact on the global and economic stage and become a global leader on the R&D and innovation stage.
Sources
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https://www.cambridge.org/core/books/chinas-path-to-innovation/BB5C1F46DEF627AD7FC9A8C23F5A127C
https://www.foreignaffairs.com/articles/china/2022-04-21/chinese-way-innovation
https://hbr.org/2021/05/chinas-new-innovation-advantage
https://www.countrynavigator.com/blog/blog/top-10-innovative-countries-in-the-world
https://www.weforum.org/agenda/2023/10/innovation-technology-wipo-countries-ranking/
https://www.visualcapitalist.com/most-innovative-countries-in-2023/