UK: Why managers need to change the way they work - INNOVATION.

UK: Why managers need to change the way they work - INNOVATION. - The innovation gap in Europe is to do with management not technology.

by Robert Heller.
Last Updated: 31 Aug 2010

The innovation gap in Europe is to do with management not technology.

Everybody in management and politics agrees that innovation is the golden key to the future, that without innovation the future for the firm and the economy will be leaden. If this is the case, Europe has far more to worry about than its currencies: its supposed technological leaders may already have lost the race.

That, at least, is the harsh message of a global innovation league produced in August by CHI Research. It ranked nearly 200 top companies on three counts: the number of US patents awarded in 1991; "high impact" - the relative frequency with which a company's patents get cited; and the median age of its patents. The top 25 firms consist of 11 Japanese (taking the first four places), 11 Americans and only three Europeans: Philips, Siemens and Hoechst, all in the bottom half.

Are there extenuating circumstances? Maybe the Europeans are less concerned with filing for US patent protection, and about seeking patents altogether. A more likely factor is probably to do with sheer weight: the much-lamented fragmentation of European industries means that innovation is spread over more companies. Yet these excuses won't remove the hard reality. Take cars as an example.

Europe's motor industry is no more fragmented than Japan's: each has a handful of world-class competitors. But Japan has three car firms (Nissan, Mazda and Mitsubishi Motors) among the 15 with the highest-impact patents, Europe none. There's a glaringly obvious connection between this innovatory lag and Japanese penetration of Western car markets (which would be far deeper in Europe but for artificial controls).

As for size, neither Mazda nor Mitsubishi is large by European standards - and all three Japanese rank among the 15 companies which, to quote Business Week, are "closest to the cutting edge". That is, their "technology cycle time" is shorter: about four-and-a-half years for the three, against nearly eight for General Motors. The latter, of course, symbolises another aspect of Europe's lag: that many of its key markets have a heavy non-European presence.

Consequently, American technology took the lead and the Japanese have followed suit. Countries with no camera or copier industries are not going to generate much innovation in copying or photography. But that emphasises the real failure: in industry after industry, market after market, Europe has abdicated what were once tenable positions - and this has had an especially grave impact on Britain's economic prospects.

Defenders of the faith could argue that sheer number of patents means little: look at IBM's, they might say. It ranks seventh in "technological strength". Yet the giant has suffered calamitous losses of share in all key markets after disastrous lags in market entry: 11 years in minicomputers, five in engineering workstations and laptops, four in PCs, three in state-of-the-art RISC workstations.

But, before anyone gloats, Europe in general and Britain in particular have no global position worth mentioning in any of those businesses - even though, in computer innovation, Europe's technologists were much quicker off the mark than IBM. The explanation is that its managements were much slower than the technologists. Company after company fell into one of two traps: being either too small and disorganised (Sinclair) or too large and bureaucratic (Philips).

The innovation gap is one of management, not technology. Paradoxically, the Old World is coming to the aid of the New in both hi-and mid-tech industries - not with innovations, but management. Compaq, Apple, Digital, IBM and GM are among US companies that have imported very top management and/or new management models first tested in Europe. Those new models, moreover, are designed to increase creativity and responsiveness - both intrinsic to successful innovation.

If Europe possesses both the technological equipment and the management potential, the missing link must be focus. In customised software and microcircuits, Europe competes on level terms: just as Britain, unable for decades to match its rivals in mass-produced cars, trounces the world with Formula One racers. The Europeans have thought small, with small results.

The answer lies in re-orienting the management ethos of firms away from the tried and trusted towards the new, thrusting and competitive. Fully decentralised operations and flexible teams will result in more creativity. And creativity, according to the Japanese, will be decisive in the next industrial wave.

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