05 Nov 2014   |   Viewpoint

Europe must embrace disruptive innovation to produce global tech giants

Incremental innovation won’t do, experts say. At stake is leadership in life sciences, transportation, infrastructure and communications technologies

In 1997, Clayton M. Christensen of Harvard Business School wrote a book titled ‘The Innovator’s Dilemma’ which argued that companies fail not because executives made bad decisions, but because they preferred to make safe decisions instead of taking risks. As Christensen put it, “Doing the right thing is the wrong thing.” Almost two decades have passed since the book was published, and European companies are still playing it safe.

That is limiting their ability to challenge global technology giants. Europe has great science but it has pioneered less disruptive innovation than the US – such as the personal computer – because it remains averse to risk and creative destruction. Radical technology innovations can propel new players to global leadership and they can crush existing players in short order.

Case in point: Finnish mobile phone giant Nokia, a global market leader in mobile communications before Apple and Google introduced new-generation phones with innovative design and new applications.  Nokia “had all the technology, knew what was coming and had access to resources but came up with a product two years too late,” said Hannu Kauppinen, Vice President, Head of Nokia Labs, speaking at the Science|Business Innovation Connection Summit in Berlin on 7 October.

The EU has the scientific bench to produce disruptive technologies and business models, but governments must learn how to embrace and support the ever-changing dynamics of innovation, experts said. In particular, Europe has the potential to produce tech leaders in life sciences, transportation, infrastructure, and connectivity and communication technologies, and it can play a dominating role in these key technologies of the 21st century.

Avoid the pitfalls of subsidies

To get beyond incremental innovation, companies large and small need a bigger appetite for risk-taking – and governments must become embrace radical new technologies and services, even when it means existing players will struggle or fail. Howard Fogt, Partner and Antritrust Lawyer at Foley & Lardner LLP, said that innovative companies need the support of governments, noting the Federal Cartel office in Germany is now publicly supporting Uber’s attempt to implement its innovative taxi service in Germany. “It is that kind of government support and initiative that is needed to promote competition and to avoid the pitfalls of subsidies and industrial policies in Europe” said Fogt.

European companies such as Nokia, know what it means to miss a paradigm shift. By the time Nokia managed to come out with a new generation of mobile communication devices that had large swipe screens and a slew of new applications, companies like Apple and Samsung already had seized market leadership and delivered a crippling blow to Nokia’s revenues and image, casting it in the role of market loser.

Nokia’s rise and fall highlights why technology companies need to embrace disruptive innovation – even when it risks making existing product lines obsolescent, panellists said. Those companies that fail to lead risk being crushed by more audacious rivals.

Streamlining innovation

Of course, Europe has innovative companies, one of which is Renault, said Frank Brown, managing director and chief operating officer at private equity giant General Atlantic. “Carlos Ghosn, CEO of Renault, embraced ‘jugaad innovation’. This concept means to do things the most efficient and quickest way and put it into place where it’s going to have the best effect,” Brown said.

Klarna, a Scandinavian start-up aiming at radically changing the payments business, is another great example of European-based innovation, Brown said.

But what is the best way to support more disruptive innovation?

Fogt said Europe must embrace economies of scale. “In order to increase people’s ability to innovate and to succeed in the global market, Europe needs to unify further its markets and break down the barriers of borders and regulations,” he said.

Improving innovation infrastructures is also vital, said Brown. “There is a huge gap between Europe and US and Asia in terms of the infrastructure. If you go in New York or San Francisco, on every corner you can find an accountant, a lawyer, and a venture capitalist to support your business. It is very rare to find that in Europe,” he added.

Europe needs a more risk-friendly culture as well. The continent’s technical and research universities have produced some innovation champions, “but the problem here is the massive fear of failure,” said Brown. “I think, as we create the infrastructure and the mentality, in time you will find more disruptive innovation coming from Europe”.

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