In an economy where many millions of social interactions create exciting but often random change, can state bodies credibly set innovation policies that fire the imagination of entrepreneurs – whatever the budget? In the third of our articles on Europe’s Innovation Union we spoke to Ann Mettler, Executive Director of think tank The Lisbon Council and asked for her take on policy and innovation.

What’s your take on the Innovation Union policy?

⎯ In general, the Innovation Union is a formidable effort to articulate for the first time a comprehensive innovation policy at the European level. It is spearheaded by Máire Geoghegan- Quinn, the EU’s first innovation commissioner, who has created a lot of positive energy around this exciting new initiative.

⎯ The realisation that the EU falls short in the commercialisation of inventions is important, so too is the emphasis on bringing new services and products to market. But the challenge is really a management challenge, not a research challenge, and it is not clear how the policy will succeed. There are question marks over the levers that policy makers have at their disposal.

⎯ I like the emphasis on innovation partnerships as innovation comes about at the intersection of different disciplines and relationships, so this is very positive. We need to see how it will translate, but more emphasis on bringing people together is positive. But what will be the involvement of the people who actually do these things in the market – not the professors or experts but entrepreneurs – the people who do innovation, not always only the incumbent companies but also the people who have the potential for a disruptive influence. These will be important for success and credibility.

⎯ I also welcome what I sense is a broadening of our understanding of what constitutes innovation. We see the first mention of the public sector, the transformation of the public sector to facilitate a wider transformation. This is an important step. It is not terribly well articulated except in the area of public procurement. But this is a big lever, as it constitutes some 16% of GDP. Generally speaking I like the broader definition, innovation as a means to address grand policy challenges, such as aging and climate change or mobility and education.

Does it reflect lessons learned from the failures of the Lisbon strategy?

⎯ The Innovation Union is one of the flagship programmes of the Europe 2020 strategy, the successor programme to the Lisbon Agenda. As such, one cannot really compare the Innovation Union to the Lisbon Agenda, which was much broader. But generally speaking, is it an improvement? Yes.
Is it enough? No.

⎯ The EU’s take on innovation continues to be dominated by research and that is in an economy where 70% or more of GDP comes from services. Most services don’t depend on research. Factors like speed to market or first mover advantage can be much more important. Of course research continues to be important in sectors like pharmaceuticals but entrepreneurship is at least as important, if not more of a driver for innovation.

Can a centralised organisation like the EU possibly cater for entrepreneurs though – isn’t there a contradiction there?

⎯ It’s not impossible. The single biggest contribution of the EU is perhaps not through its formal innovation policies but through the single market with its 500 million consumers. The only part of the single market that has truly been completed is the market for products. This is not true for services, digital, and energy, for example. These extremely important parts of the economy continue to be fragmented, meaning that entrepreneurs and companies cannot tap into the potential that such a single market presents.

⎯ What we know about innovation is that competition is the key driver. Yet, no one would look at the single market commissioner and say that department is driving innovation. But that simply shows a real lack of understanding of innovation.

You mean innovation is not adequately addressed in policy?

⎯No. There are drivers of innovation that lead to real innovation but they are not recognised as such. On the other hand, there is policy that reflects the institutional set up of an organisation – so the internal market, education and employment departments are drivers of innovation but these policies are not recognised as important because they are not labeled ‘innovation policy’.

⎯ One needs to distinguish between policy levers and policy drivers such as competition. It is about levers versus drivers. One key here is to look at the money and how the EU chooses to spend. Current spending priorities are the antithesis of innovation. If we continue to spend the largest proportion of the budget on the common agricultural policy we cannot with a straight face claim to prioritise innovation.

So to the bigger picture.

There are many interests that benefit from the EU budget that will oppose change. But this topic is also a matter of international credibility. Our competitors are not standing still. Innovation is seen as an over-riding policy goal for creating new employment and new markets, so what the Europeans are trying to do here with the Innovation Union is not unique in the sense that most other countries are trying to implement similar programmes. And again, to me, a political priority that is not a budgetary priority, is not a political priority, no matter how much lip service we pay.

I also have doubts whether government officials, who are in charge of dispersing innovation funds, have a clear idea of what the next big thing is going to be. A better approach would be to see where current and future demands is, for instance in healthy aging and low-carbon technologies, and channel money into these priority areas.

But change now involves new processes and changes in business models. Lots of our lagging innovation performance can be traced back to management inertia. It is not the lack of R&D. Some of our biggest R&D spenders have lost significant market share not because they didn’t invest in research but because management was too slow to adapt to changing consumer demand. Think of what the iPhone, cloud computing or Skype have done to some European companies that were slow to respond to these disruptive innovations and new technologies.

Management needs to make an effort to listen to employees and users/consumers, to bring them into the innovation process. I wish to pinpoint the larger management challenge as an area where Europe is very weak because the transaction cost of organisational change continues to be prohibitively high.

What can we do about that though – I mean what can policy makers do about it?

⎯ First, we can acknowledge that the management challenge is a serious challenge and as yet there is no realisation of this;

⎯ Second, competition forces management to be better, yet there are markets with insufficient competition and where close relationships and political patronage of certain sectors lead to a kind of inbred relationship between government and companies, leading to lagging performance in terms of international competitiveness;

⎯ Third, there is transparency.

⎯ Transparency in pricing, be it in telecommunications or energy, can be real drivers of innovation. Of course, this is more controversial than pumping money into R&D and pretending that one is doing innovation. We need to create more competitive and transparent markets. There are examples where improvements in the internal market, particularly with regards to transparency and consumer empowerment, led to a dramatically improved performance. One example is when Commissioner Reding capped roaming charges. It created a more competitive roaming market because she also made pricing more transparent. The same battle is now ahead of us for mobile data.

Are the R&D Framework Programmes past their sell-by date?

⎯ I am in favour, broadly speaking, of initiatives with innovation as an objective. But we need an objective assessment of how successful these programmes have really been. We need an impact assessment not to be critical but to improve on them. Doing things the way you’ve always done them, using the same institutional processes, not walking the talk means things don’t change. If you can’t innovate yourself, then you lack the institutional courage to stand back and say how can we spend this money better?

Is there actually a role for policy in innovation, given the typical institutional constraints?

⎯ Policy makers want to feel in charge and have an influence but if innovation arises beyond the levers and responsibilities of policy makers, it is often not recognized as important. For instance, social networking and open innovation, is still a mystery to many policy makers who are ostensibly in charge of innovation, because it’s not anything they have come up with. So to make this perhaps a bit more clear – there is real innovation and there is innovation policy. They are not necessarily the same thing. The OECD, for instance, is trying to address the ‘broadness’ of innovation as follows: its innovation strategy, put forward last year, is spearheaded by the research department but it incorporated many other directorates, such as consumer and regional policy, and recognised that innovation is driven by openness and collaboration. It tries to bring about a synthesis. This was a good effort which in many ways highlighted the shortcomings of policy – many policy makers only have access to one lever but innovation is really the result of many levers, acting in tandem and reinforcing one another.

⎯ The biggest problem, however is that we don’t appear to respect the process of innovation itself in the EU. Innovation is not unidirectional. It does not lead to success nine times out of ten. It is by nature experimental, disruptive and unpredictable. We have no formula for it. We can’t control it top down. And that’s hard to accept, particularly if a lot of money and institutional reputations are at stake. So we create our formulas around R&D, shy away from risk and expect success. But it really doesn’t work that way.

By Haydn Shaughnessy

About Ann Mettler

Ann Mettler is executive director and co-founder of The Lisbon Council, a Brussels-based knowledge economy think tank and innovation policy network. Prior to founding the organisation at age 32, Ann served as director for Europe at the World Economic Forum. She has published articles in key media outlets, such as the Wall Street Journal, Financial Times, Newsweek, and regularly speaks at high-level conferences across Europe. A dual citizen of Germany and Sweden, Ann has lived and worked in Greece, the United States, Switzerland and Belgium.