The search for innovation’s secret ingredient

As Peter Drucker, that great management guru, once remarked, any business that fails to innovate will age and decline, and the faster the change around it the quicker will be that decline. The same can be said of any nation, and indeed of the EU.

Europe as a whole has an innovation problem. On almost every measure of innovation, we Europeans lag behind the U.S. and increasingly behind some parts of Asia. Europe produces its fair share of new patents, but struggles to turn these into commercial opportunities. European businesses are slow to adopt new technologies and processes, and that is reflected in lower productivity growth.

Yet although there has been no European equivalent of a Facebook, Google or Apple, the EU is far from an innovation wasteland. Skype was developed in Europe, and as almost every parent on the planet knows, so was the hugely successful game Minecraft.

When people think of innovation, they tend to think of research and development, people in white lab coats or computer geeks busy with new inventions. But that is only part of the story. Nine-tenths of innovations stem from incremental change. Sam Walton, founder in the U.S. of Walmart, one of the world’s most innovative retailers, replied when asked where Walmart got its ideas, “Our best ideas come from clerks and stockboys”. Innovation is often not a top-down research-driven process and more often results from improvements suggested by workers and managers with practical knowledge and consumer insights. It is a hugely complex non-linear process, so crafting workable and effective innovation policies is far from easy. There is widespread agreement amongst researchers and businesses that innovation is a good thing, but that’s where agreement ends; stakeholders tend to have very different, or seemingly different, priorities.

In Ireland, we have of late been working with these questions as we strive to create a new national science strategy to form the core of our innovation policy. It has been a fascinating experience; before politics, my background was in accounting and managing small businesses, so I had to have had an immersion course in science and new technologies. To my surprise, I found my background in economics and finance useful. It taught me the value of time and the need for speed, something policymakers don’t always understand.

At a recent workshop for more than 120 leading scientists, business leaders and policymakers, the three words that summed up our findings were: excellence, impact and talent. Excellence because all research disciplines, whether basic or applied, have to be world-class. R&D is an investment, and like any investment portfolio has to balance high-risk, high-reward basic research against lower risk opportunities like applied research.

As to impact, all research has to deliver a demonstrable return to the economy and/or society, and in post-crash Ireland public investment must be justified to citizens who have borne significant cuts to public services. Then there is talent. Ireland’s R&D investment is really an investment in human capital, building research skills and capabilities not just in academia but also in industry. We need to put in place career structures for researchers to ensure they can move to industry or set up their own business.

These workshop insights apply equally to European innovation. Europe must strive for research excellence  by striking the optimum balance between basic and applied research. And it must deliver impact for society if continued public investment in research is to be justified. Regarding talent, public investment in research is equally about people. Building science and research skills is not enough to spur innovation on its own.

Turning ideas into innovations requires a range of skills, many of which are best learnt by experience, learning by doing. Venture capitalists will tell you that they invest in people rather than ideas, and their ability to identify companies with potential is a skill that can only be learnt on the job.

More investment in skills is needed not just in the research community but in the wider workforce too. It is no accident that German and Swiss companies have a tradition of innovation and leadership in niche markets and both have well-developed apprenticeship systems. Around half of German high-school students undergo dual-system training in one of 344 trades. This tackles youth unemployment and creates a deep pool of talent for companies using continuous innovation to remain the best.

Innovation in turn is also driving Europe’s need for more skilled workers. In the logistics sector, the growth in e-commerce, just-in-time delivery, complex computer management systems and highly-automated warehouses are all leading to greater demand for skilled workers and in Ireland we now plan to double the number of apprenticeship schemes in this sector.

Upskilling has a major societal advantage because it ensures that the balance of power between enterprise and worker doesn’t shift too far from employees to employers. Skilled workers receive a greater share in the benefits of innovation than do the unskilled.

To address Europe’s innovation problems, policymakers need to appreciate how crucial is the link between skills and innovation. That means Europe needs to recalibrate its education systems to incorporate learning by doing. This should be at all levels, from industry work placements for researchers to expanded apprenticeship systems for skilled workers. Innovation doesn’t depend on everyone having a college degree, but it does require a skilled workforce. If we fail to make that investment, we in Europe risk much slower growth and decline that is not only relative to the rest of the world but is absolute.