What hinders innovation?

That innovation is one of the key factors in economic growth is nothing new. However, European countries continue to face significant challenges to stimulate innovation in their economy and maintain their competitive advantage.

In a study on the factors that discourage innovation in European companies, we found that the biggest barriers to innovation were financial or related to the market, and not technology. Financial constraints, lack of competent personnel and a perception that innovation does not make sense are some of the main culprits of this delay in innovation. Surprisingly, very few companies mentioned technological barriers, and similar results have been observed in other parts of the world.

The perfect combination of skills

If we analyse this problem carefully, we observe that many of the obstacles can be traced back to the lack of managers with the relevant competences. Several studies on innovation point out that their success requires an effective combination of different specializations, both technical and commercial. However, few managers have these two attributes. And the lack of polyvalent managers can give rise to conflicting points of view between technical managers and commercial managers. This can lead to a lack of communication and cooperation, thus hindering the innovation process.

Added to this is the prevalence of a technology push innovation culture, in which innovation processes are led by R&D in new technologies but lack a deep knowledge of the market. This situation not only reinforces market barriers to innovation but also entails financial restrictions. A large number of resources are invested and the R&D phase is prolonged, blurring the distinction between inventing something, innovating and achieving innovation success.

The impact of government aid

In Europe, public authorities are so involved with technological progress that they leave little room for commercial experience in innovation processes. Innovations and discontinuous technologies are prioritized which are often not in tune with the dynamics of the market and are very expensive. Frequently, public financing programs push companies to develop projects that do not always turn out to be economically viable. This is why companies tend to focus their strategies on technological advances to the detriment of market objectives, essential to expect a return on investments.

Contextual factors

Breaking down the obstacles by industry, aerospace faces the biggest obstacles, followed by the manufacturing and service industries. This is to be expected since aerospace companies tend to be more innovative, face higher production costs and depend heavily on public investment. In contrast, companies in the service industry suffer fewer obstacles. The development of revolutionary products is rare in the service industry, where the immateriality of the products gives rise to easy imitations by rival companies. Service-oriented companies thus tend to adopt market strategies with a focus on continuous innovations, enhancing or improving the supply of services marginally, and at a much lower cost.

Overcoming barriers to innovation

As a starting point, companies should include market research in their innovation processes. But it’s easier said than done since technical managers should first put aside the idea that if you do not know how to make a product you will not know how to sell it. Technical managers need to recognize the importance of moving the market perspective to the innovation process. Ideally, companies would take a step further and create a business intelligence unit to provide information on the market, to work side by side and complement the work of the technology team. The weight given to the commercial competences in the innovation process would vary according to the characteristics of the activity of the sector.

A fundamental change will also have to be made by the public authorities, who need to redirect their funding to offer aid for successful innovations instead of making inventions. They would make it easier for companies to focus on continuous innovation.

Innovation is a very powerful means to ensure long-term survival. Without innovation, it is very difficult to adapt to an environment in constant evolution. Although the failure of new products is high, innovation without failure is inconceivable. In summary, successful innovations require not only a change in the mentality and culture of innovation of companies but also changes in the institutional public framework to favour continuous innovation.

Víctor Dos Santos Paulino, professor of strategy and innovation management at Toulouse Business School.

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