Why are European companies less innovative than the American or Asian ones?

According to Boston Consulting Group’s yearly list of most innovative companies in the world – the BCG Report for 2021 that has recently been published^[1], 75% of organizations have declared innovation as their top 3 priority – the ‘largest year-to-year increase in our 15 years of research’, as BCG states it (the BCG Report on innovation has been published yearly since 2004.

Between the 2020 report and the 2021 report, there is a reported 15% difference for the number of companies that have committed to making innovation one of their top 3 priority. Quite a big gap. What happened? Well, the pandemic came with all that it has entailed and the companies realized that to stay relevant and on top innovation must really be a priority – not only on a declarative level, but also by allocating the appropriate funding, people and dedicated time and effort.

So, let’s have a look at the 2020 and the 2021 charts.

2020

2021

As one can easily see, in the BCG report 2020 there are 15 European companies included as compared to 25 American companies. Moreover, the top ranking innovative European company on the chart is at number 21 – Siemens, followed by Philips at 23, SAP at 27 and Adidas at 28.

In the 2021 BCG chart, while European innovation seems to have mostly slowed down during the pandemic, the American and Chinese companies seem to have thrived. So, from the European side we find Siemens at 11 (up 10 places), followed by Bosch at 30. And, there are only 11 European companies in the list, compared to 15 in the 2020 BCG report.

Therefore, what seems to create this innovation gap between European and American & Asian companies then?

In an interview^[1] with Konstantinos Apostolatos, a BCG managing director and one of the authors of the report, he seems to think that it is mostly about money: “Europe ranks significantly behind in R&D spend. European CEOs are also less committed to innovation than their US and Chinese counterparts. They are more conservative and experiment less with new startups.”. So, although on the declarative side innovation is one of the priorities, the commitment and funding are not there yet. Mr. Apostolatos also believes that European companies should stick to innovating in the areas in which they are best, such as “retail and luxury goods, agritech and some parts of the pharma industry”, since the innovation in software and artificial intelligence seems to be well taken care of by the American and Asian companies.

Also, European companies should look more closely at the new business models that are surging with the pandemic – e.g. online sales, bringing different teams together for a limited time to solve a specific problem or working closely with startups or hiring those people who seem to be social misfits but prove to come up with brilliantly different ways of looking at things^[3] – as these seem to be working so well for giants such as Amazon or Google. Especially since, as the same report also shows it, when European companies innovate, they appear to get higher profits on that innovation and therefore can cause a higher disruptive impact in their respective industries.

Source: https://pixabay.com/photos/triangle-quality-time-cost-3125882/

[1] Europe is falling far behind on innovation spending, by Maija Palmer, 20^th of April 2021, available online at https://sifted.eu/articles/europe-behind-innovation-spending/

[2] Companies fire employees for these personality traits, but maybe they should be getting bonuses, Fast Company, 11^th of June 2021, available online at: https://www.fastcompany.com/90645863/companies-fire-employees-for-these-personality-traits-but-maybe-they-should-be-getting-bonuses

[3] https://www.bcg.com/publications/2021/most-innovative-companies-overview