Europe’s companies often need a kick-start for innovation – Prof. Luke Georghiou

You advised on the EU report The Economic Rationale for Public R&I Funding and its Impact. The report states that public research funding should be used to kick-start market-creating innovation, but is there any evidence that this works?

‘Arguably only public funding can meet that need, in the sense that most fundamental technologies have originated in publicly funded programmes. It still needs the entrepreneurial insights of firms to match those to market opportunities.’

Can you give an example?

‘People would give the arch example of a company innovation to be the iPhone, but as the economist Mariana Mazzucato has shown, at the core of that are technologies developed in the public sector, for example touchscreens and GPS. Another big example, of course, is the World Wide Web originating in CERN (European Organization for Nuclear Research). We could (also) look at Magnetic Resonance Imaging scanners, core to hospital diagnosis, which began as scientific instruments in labs developed by researchers.’

All of which are based on money coming from governments?

‘Yes. So the underpinning knowledge base is largely coming from government programmes, but … the entrepreneurial insight to configure these to match market needs, or public needs, is generally coming from business.’

Europe is great at generating research, but lags behind other regions of the world when it comes to successful new companies. What needs to be done?

‘Quite often, the case is that we simply don’t have enough companies with what we call absorptive capacity. That is one of the key words in the report. We have of course very many companies, but if the companies are to use this knowledge, they need to have the capability to be able to take it and apply it to what they are doing. That means typically companies that are employing graduates, or people with doctorates, who in turn are in networks with knowledge creators both in their own firms and in other companies.

‘I was responsible for an ERAC (European Research Area and Innovation Committee) peer review of the Spanish research and innovation system, and one of our conclusions there was that for Spain to progress they would have to bring more companies into the innovation ecosystem.’

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‘We have a strong science base, so the real challenge is one of scale-up and growth.’

When you say bring companies into an ‘innovation ecosystem’, what does that mean?

‘Let us think of a company that is currently simply using off-the-shelf technologies, equipment, business models, not innovating. That is often because it is cut off from the knowledge supply. So, what you might do is have a scheme which subsidises a doctoral researcher to go and work on a company problem. You create a job for them, but you also give that company the capability not only of what that person is doing for them, but all the networks that they bring with them. Helping them to develop links with key customers for their innovations, public or private, is also important.’

Why don’t market forces cause companies to take on such a researcher anyway?

‘There are blockages in the system, through lack of the diffusion of the business knowledge that is needed to recognise that opportunity. Small firms particularly have to deal with pressing day-to-day challenges and can get locked in to their present business models. The public policy job is to pump prime change, to demonstrate the benefit. In the UK, we have a very successful scheme called Knowledge Transfer Partnerships, KTP, which does that. It puts somebody in a company to work on a problem, and almost always they are then kept on.’

In order to bring companies into these ‘innovation ecosystems’, to stimulate the development of these market-creating firms, what does Europe need to do?

‘One of the problems (to date) was that there were a number of measures but they were all separate from each other and not seen as a concerted effort. So I believe that brigading them under the brand of the European Innovation Council (a proposal to reform how breakthrough innovation is supported) is an important first step. I would expect that whole area to be evolving, but in the second half of Horizon 2020 (the EU’s funding programme for research and innovation) and beyond it.’

What evolution do you foresee?

‘One of the measures being proposed is direct support for innovators on a grant funding basis, but also seeking to develop synergies with investors and co-funding with venture capital. While most innovation policies require an element of local delivery, there are also measures to make Europe a more friendly place for innovation more broadly.

‘A great deal can be achieved through creating a friendlier market for innovation. Our firms tend to be disadvantaged by the size of national markets. So the more they can be seen to be launching in a bigger market, with clearer standards, common procurement requirements, the more valuable their innovation becomes, and therefore the more likely they are to attract investment. There are virtuous circles to be created.’

Where are we now, how innovative is Europe, how much progress has been made?

‘All over Europe there are really exciting things going on. We have hubs particularly in cities which are being brilliantly innovative. We have a strong science base, so the real challenge is one of scale-up and growth. Allowing what we have, that is good to grow to dominant positions.

‘One of the key differentiations from the US and China is that our most successful companies have all been around a long time, whereas in those countries, they are in a much greater state of flux because of the growth of new firms who challenge the status quo. We need an attention shift. We are doing pretty well on starting things and innovating, so the key question is how to put the system around them that allows them to scale up very fast and become global players.’

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