Review of European Institute for Technology and Innovation calls for change at the top

A new independent investigation into the European Institute of Innovation and Technology (EIT) has again called for significant changes to the way the organisation is run and says more public funding will be needed for the Knowledge and Innovation Communities (KICs), which will not meet target dates for becoming self-financing. 

The review is the second root-and-branch investigation of the EU innovation body this year, following a report in April by the European Court of Auditors (ECA) that slammed the institute for swallowing up lots of money and producing few results.

That forced the European Commission - which has funded EIT to the tune of almost €3 billion - to order its own review, published last week. This largely confirms the negative findings of the ECA and is particularly critical of EIT management of the KICs saying, “The board has not been able to build up the capacity to successfully oversee their strategic development.”

As a result, the KICs, which are intended to promote innovation based on university and other publicly-funded research, in fields including climate change, health, food and energy, have largely determined their own strategic direction.

“They have chosen to do so in strikingly different ways, which can be summarised in the contrast between InnoEnergy which shows a strong business development focus and ClimateKIC which emphasises the quality of its climate change policy advice and its social innovation focus with nearly an exclusion of commercial business development,” the report says.

The reviewers see no indication that the EIT governing board, despite having the final say on annual funding for KICs, has had any real role in determining these different paths. Compounding this lack of high level oversight, the EIT’s headquarters in Budapest is chronically understaffed. Each KIC has an annual budget of up to €400 million, but is the responsibility of only one EIT project officer.

“Much of the board’s time is taken up by operational tasks, when it should be actually thinking about future strategy,” said Frans van Vught, professor of higher education policy at the University of Twente who chaired the review.

Instead of acting like a compliance body, the EIT should be providing shared services and legal advice, notably to new KICs, and supporting KIC ventures in accessing capital markets, the report says. The executive should wield more power, with the review recommending the EU’s Joint Technology Initiatives as role models.

The Commission and European Parliament share some of the blame for EIT’s failings, with the review highlighting that the complexity of EIT’s operations stems in part from the original design.

Since its formation in 2008, EIT has been managed by five different directors. The present incumbent, Martin Kern has been acting as interim director since August 2014. Following the ECA report in April, EIT said it was looking for a permanent director.

Responding to the findings, EIT spokeswoman Magdalena Gryszko said, “We very much appreciate the recommendations. Innovation means being constantly open to new solutions.”

EU Education Commissioner Tibor Navracsics, who commissioned the review said, “The set of far-reaching recommendations, once implemented, will help the EIT play this role even more effectively.”

Extend lifeline for KICs

The future solvency of KICs is another problem identified by the review. Up to 2015, the EIT continued to fund close to 90 per cent of the KIC costs, but the rules say KICs are to aim for full financial self-sustainability and are supposed to receive a decreasing level of EIT grant funding.

The first wave KICs set up in 2010 – EIT Digital, InnoEnergy and ClimateKIC – are now entering a phase in which the EIT grant will start decreasing, but the reviewers “found a real lack of clarity as to what should happen.” The likelihood is high that, as the EIT grant starts declining, the KICs' partnerships will be put under pressure and some partners will start leaving.

Further, after year 15, the KICs' non-profitable operations are likely to be shed. “As a result, the KICs may in the end formally achieve the financial sustainability goal, but at the cost of a severely negative effect on their innovation capacities and their knowledge triangle integration mission,” the review says.

The Commission should set aside a portion of its budget to be accessible, on a competitive basis, to the earlier wave KICs. “Regular and increasingly critical evaluations should take place [to determine] which parts of the maturing KIC should continue to be funded and which not”, says the report.

The review also calls for clear evidence on how the KICs’ private sector partners will contribute to their operations and how the KICs will develop strategies to raise income apart from the EIT grant.

Lack of real corporate engagement

EIT has over 800 partners, among them giants like Siemens, Ericsson, Bayer and Philips, but many show only a limited interest in the mission and activities of the EIT and several CEOs interviewed by the reviewers were unaware of their companies' involvement in the EIT.

“It appears that larger business partners view the EIT mainly as just another source of funding for their corporate innovation, and limit their involvement in KICs to the participation of their R&D departments,” the review finds. This is a problem because the KICs do not get access to business units that are closer to the market.

While some major business partners are active in the KICs’ governance structures, there are few signs of innovations within EIT stemming from their involvement, the report says.

“They appear to have adopted a ‘wait and see approach’, observing what emerges from the work of young innovators and the ventures they may start, perhaps providing support through their research departments for testing and lab-based activities”, the report says.

EIT stronger on education  

By contrast, the review finds that the EIT’s innovation education is beginning to bear fruit and the interest in EIT-backed courses, measured by number of applicants, is high.

However, it is not clear if the applicants are attracted by the universities that offer the programmes or by the EIT label itself, which the reviewers say “lacks visibility and credibility”.

The reviewers recommend opening up EIT courses to older students aged 35-45. “By concentrating on education for young people in their 20s, the EIT is missing out on the population segment often identified as being a fertile source of innovative business creation,” the report says.

In addition, there should be benchmarking of the EIT's education offers against what is available for entrepreneurship education elsewhere in Europe and the US.