Communication from the Commission to the Council and the European Parliament - Innovation in a knowledge-driven economy
Date: 2000-09-20
Institutions: European Commission
Subjects: business policy, economic policy, innovation, investment, research policy

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 20.9.2000
COM(2000) 567 final

COMMUNICATION FROM THE COMMISSION
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

Innovation in a knowledge-driven economy

TABLE OF CONTENTS

1. Introduction ......................................................................................................... 4

1.1.

1.2

1.3

Innovation is a key factor in enterprise policy............................................... 4

Need for the Communication........................................................................ 5

Content of the Communication ..................................................................... 6

2. Trends in European innovation policy................................................................ 6

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

Progress since the 1996 Innovation Action Plan............................................ 6

All Member States have innovation policies ................................................. 7

Reform of the patent system is progressing................................................... 9

The administrative and regulatory environment is still too complex.............. 9

Investment in innovation is being encouraged............................................... 9

Promoting research that feeds into innovation............................................. 10

Technology absorption by enterprises is enhanced...................................... 10

Technology valleys are created................................................................... 11

Technology-based start-ups are a growing priority...................................... 11

3. Innovation performances in the Union ............................................................. 12

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

Insufficient capacity to launch new products and services........................... 12

Globalisation and innovation ...................................................................... 12

Not enough graduates and students with relevant qualifications .................. 13

Innovation will benefit from strengthened research in the Union................. 13

Technology diffusion to be improved ......................................................... 13

The innovative capacity of traditional industries needs to be reinforced ...... 14

The growing importance of the service sector............................................. 14

Innovation and environmental protection.................................................... 14

2

4. Five objectives .................................................................................................... 15

Objective 1 Coherence of innovation policies .......................................................... 16

Objective 2 A regulatory framework conducive to innovation.................................. 18

Objective 3 Encourage the creation and growth of innovative enterprises ................ 19

Objective 4 Improve key interfaces in the innovation system................................... 21

Objective 5 A society open to innovation................................................................. 23

5. Summary ............................................................................................................ 24

ANNEX: European innovation scoreboard ........................................................................... 27

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1.

INTRODUCTION

The objective of this Communication is to set the broad policy lines for enhancing innovation
in the Union.

The importance of innovation was highlighted by the March 2000 European Council in
Lisbon. As a response to the challenges of globalisation and the new knowledge-driven
economy, the European Council called for a challenging programme for building knowledge
infrastructures, enhancing innovation and economic reform, and modernising social welfare
and education systems. This is encapsulated in the strategic goal set at Lisbon for the next
decade: the Union to become the most competitive and dynamic knowledge-based economy
in the world, capable of sustainable economic growth with more and better jobs and greater
social cohesion.

Innovation must permeate our economy and be embraced by society for the Lisbon goal to be
achieved. Innovation is essential for European enterprises to be competitive, and is therefore a
major component of enterprise policy, as well as one of the main objectives of research
policy.

The Lisbon European Council endorsed the objectives in the European Commission’s
Communication “Towards a European Research Area”1 to enhance the efficiency and
innovative impact of Europe’s research effort, and called for concrete steps towards their
implementation. Enterprise and research policies are mutually enriching, notably where
technology-based innovation is concerned2.

This present Communication reviews progress made in the Union to stimulate innovation by
enterprises, explores what the new priorities should be, and defines broad policy lines for the
next four years.

1.1.

Innovation is a key factor in enterprise policy

The Conclusions of the Lisbon European Council draw attention to two requirements:

–

–

extract the maximum innovative benefit from the national and Union-level research
effort,

create a friendly environment for starting up and developing innovative businesses.

These priorities reflect, firstly, technological innovation’s importance as the generator of new
products, services and processes, and the specific obstacles to this kind of innovation, and,
secondly, the need for innovation (whether technology-based or not) to percolate from the
“first movers” to invigorate the entire economic and social fabric.

Primarily it is up to European enterprises to pick up the challenge of innovation, to show their
creativity, and use it to conquer new markets. The Commission has recently published a

1

2

COM(2000) 6.
The European Commission’s 1995 Green Paper on Innovation stated that “innovation is the renewal
and enlargement of the range of products and services and the associated markets; the establishment of
new methods of production, supply and distribution; the introduction of changes in management, work
organization, and the working conditions and skills of the workforce” (Bulletin of the European Union,
Supplement 5/95).

4

Communication3 setting out the requirements if all enterprises, whatever their size, legal
form, sector or location, are to have the potential to grow and develop so as to contribute to
the overall goal.

To survive in the new competitive environment, no enterprise can afford to stand still. All
have to be open to new ideas, new ways of working, new tools and equipment, and be able to
absorb and benefit from them. A policy to enhance innovation must be present in a modern
enterprise policy as one of its main components. This means buttressing enterprise policy by
measures specifically directed at encouraging the emergence and growth of “first mover”
firms, and the flow of innovation from them into the enterprise sector as a whole.

This process thus requires additional conditions that are specifically conducive to the creation
and growth of highly innovative ventures (often based on advanced technologies), to the
circulation of new ideas and technologies, and to an environment in which enterprises are able
to absorb them and profit from them.

Ensuring the existence of these conditions is the aim of innovation policy, the subject of this
Communication.

1.2

Need for the Communication

The European Commission drew attention to Europe’s “innovation deficit” in the 1995 Green
Paper on Innovation4. The subsequent First Action Plan for Innovation in Europe5 (1996)
indicated lines of action for implementation by the Member States and the Commission.

Since then, the trend towards globalisation and the knowledge-driven economy, exemplified
by the rise of the Internet, has accelerated. As recognised by the Lisbon European Council, it
is more critical than ever for European enterprises to have a mastery of innovation so as to
succeed in an increasingly competitive environment.

Significant progress has been made since the 1996 Action Plan, and is summarised in
Chapter 2 of this Communication. A rich variety of innovation-fostering policies and
measures has been introduced by Member States at both national and regional levels. The
Commission has acted by adjusting its programmes in line with the Action Plan’s objectives,
and by taking innovation into account in the Community-level rules for doing business, in
particular the rules for competition, intellectual property rights, and the internal market.

In spite of these efforts, the overall innovation performance of the Union has not improved
relative to our main competitors.

The Lisbon European Council called for
the introduction of a European innovation
scoreboard. This Communication presents the first outline of the scoreboard (see Annex),
based on the statistics that are currently available. This is the first time an exercise of this type
has been undertaken at Union level. From the outline, and other data6, it appears that although
the innovation performance of several Member States is already on a level with – or even
better than – Europe’s most successful competitors, most Member States must further
increase their efforts.

3

4

5

6

Challenges for enterprise policy in the knowledge-driven economy, COM(2000) 256 final.
COM(95) 688 final.
COM(96) 589 final.
See Commission staff working paper, SEC -[ reference to be added].

5

An “innovation divide”, separating regions according to whether or not they are able to
benefit from and thrive in the new economy, is an emerging danger. To combat this, there is
considerable scope for raising innovation performance by learning from “good practices”.
Among enterprises, there are also clear gaps between those able to adapt and those finding it
difficult to overcome resistance to change and structural obstacles to innovation.

There continues to be a lack of cohesion in the sense of wide differences in the performance
of Member States and regions. The full benefit of the internal market will not be realised in
this situation of persistent fragmentation of the European innovation system (exemplified by
the relative weakness in technological alliances between European firms). It is therefore
necessary to renew the message of the First Action Plan for Innovation in Europe: innovation
in the Union is being held back, and Member State and Union-level efforts must be combined
to remedy the situation if the Lisbon goal is to be achieved. This is the objective of this
Communication.

1.3

Content of the Communication

Five priority objectives are proposed for public action in order to encourage an effective pan-
European innovation system:

– Coherence of innovation policies
– A regulatory framework conducive to innovation
– Encourage the creation and growth of innovative enterprises
– Improve key interfaces in the innovation system
– A society open to innovation

Chapter 2 reviews trends in European innovation policy and Chapter 3 examines the present
innovation performances in the Union. The five objectives are presented in Chapter 4, stating
what should be done to progress towards the objectives and the target dates. Chapter 5
summarises the main lines of action.

2.

TRENDS IN EUROPEAN INNOVATION POLICY

Many policies and measures to foster innovation have been introduced, at both Member State
and European level, since the 1996 Innovation Action Plan. The Commission is collecting and
analysing information on innovation policies in the Union through the “Trend chart on
innovation in Europe” project launched in 1999. From this analysis, the first of its kind in the
area of innovation policy, various trends can be discerned and are summarised in this
chapter7, together with developments at EU-level.

Progress is evidently being made, although in most cases it is too early to draw reliable
conclusions.

2.1

Progress since the 1996 Innovation Action Plan

The Action Plan was firmly based on the “systemic” view, in which innovation is seen as
arising
and
environmental factors, rather than as a linear trajectory from new knowledge to new product.
Support for this view has deepened in recent years.

between many

from complex

organisations

individuals,

interactions

7

More details are provided in SEC [reference to be added].

6

Innovation was reinforced as a fundamental objective in the Fifth RTD (Research and
Technological Development) Framework Programme8, adopted in 1998. Innovation cells
have been established in all its thematic programmes to ensure exploitation and transfer of
technologies. Evaluation criteria as well as the rules applying to exploitation and
dissemination of the research results have been adapted with the same aim. Each research
project includes a “Technology Implementation Plan” which allows the use made of the
results to be followed up and their social and economic impact to be assessed.

The Fifth RTD Framework Programme includes a “horizontal” programme for “Promotion of
innovation and encouragement of participation by SMEs”, which undertakes a range of
stimulation and policy-development measures, as well as specific measures benefiting SMEs.

The experience gained from the thematic and horizontal programmes as regards research and
innovation will feed into debate on the Commission’s proposals for progress towards a
European Research Area, and into design of future EU actions in the field of research,
including Framework Programmes.

The promotion of research and innovation capacities in an integrated manner has been
incorporated as a priority in all fields of intervention of the Structural Funds.

together with responsibility for

The 1999 reorganisation of the Commission saw innovation policy allocated to the new
Enterprise DG,
implementation of the “promotion of
innovation” horizontal programme of
the Fifth RTD Framework Programme. This
positioning, together with the inclusion of innovation as an objective of research policy,
makes a bridge between research, industry and entrepreneurship, while recognising that the
most difficult obstacles encountered by innovators are usually of a non-technical nature.

Innovation policy plays a vital role in the Community’s commitment to strengthen economic
performance through structural policy and structural reform. The Broad Economic Policy
Guidelines 2000 recommend the pursuit of policy measures to foster the development of a
knowledge-driven economy in Europe, notably through the provision of adequate framework
conditions, increasing the involvement of the private sector, promoting R&D partnerships and
high-tech start-ups, and improving the functioning of risk capital markets.

A broad strategy is therefore required, with firm links to other Commission initiatives having
a bearing on innovation, notably enterprise, R&D and regional policies as well as other
initiatives in implementation of the Lisbon strategy. For example, the Business Environment
Simplification Task Force (BEST – see section 2.4) led to the identification of good practice
and has evolved into the “BEST Procedure”, described in the Commission’s recent
Communication on enterprise policy. The European Charter for Small Enterprises, welcomed
by the Feira European Council in June 2000, sets out the principles and lines of action in
order to have the best possible environment for small business and entrepreneurship. On-
going reviews of Community financial instruments and new regulatory initiatives also have a
bearing on innovation, as do many elements of the Commission’s recent eLearning initiative
for education and training in a knowledge society and of the European Employment Strategy.

2.2

All Member States have innovation policies

Innovation policy has become a new horizontal policy linking traditional areas such as
economic, industrial and research policies. All Member States have invested considerable

8

Decision no. 182/1999/EC of 22.12.1998.

7

effort in developing new structures and tools for innovation policy. Three main aspects can be
discerned:

–

–

–

new administrative structures, based on the “system” nature of innovation,

building awareness of the needs of innovation, and promoting a more intense
dialogue between science, industry and the general public,

developing a strategic vision, and innovation foresight.

The 1999 French Law on Innovation and Research, for example, comprises a bundle of
integrated measures to encourage the transfer of technologies from public research into the
economy, and the founding of innovative enterprises.

Many countries have created “innovation councils” or extended the role of their traditional
“science councils” towards innovation. Countries with a successful
innovation record
consider the long-standing existence of such high-level coordination structures to be crucial,
so as to overcome fruitless struggling and “territorial thinking” among ministries. Some
countries have initiated major re-definitions of ministerial competencies or even created
ministries whose innovation fostering objectives are clear from their title.

Innovation policy trends in Member States

For some time now, Member States have been pursuing initiatives for:

Stimulating research carried out by companies,
Improving innovation financing,
Promoting technology absorption and innovation management by SMEs.

More recently, additional priorities have emerged:

Intensifying the cooperation between research, universities and companies,
Promoting “clustering” and other forms of cooperation among enterprises and other organisations
involved in the innovation process,
Encouraging the start-up of technology-based companies.

There is increasing interest in three further themes:

Simplifying the administrative procedures faced by innovative enterprises,
Use of taxation and other indirect methods to encourage innovation and research,
Developing a strategic vision of innovation and research, and raising the awareness of the wider
public.

Finally, several general trends may be discerned:

System approach to innovation policy,
Increasing the complementarity of national and regional policies,
New forms of public/private partnerships,
New roles for public policy as a facilitator of innovation,
Tackling globalisation.

8

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-
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2.3

Reform of the patent system is progressing

The drawbacks of the current European patent system are well known. The Commission
published a Green Paper on the Community patent9 in 1997. The follow-up Communication10
adopted in 1999 included a proposal for a regulation on the Community patent. This would
guarantee greater legal certainty and coherence of the jurisprudence, and have significant
benefits in terms of costs and simplification of the procedures. The Lisbon European Council
asked for the Community patent to be available by the end of 2001, and the Commission
adopted the proposal for a Regulation on the Community patent on 5 July 2000.

The importance of intellectual property issues is being brought to the attention of researchers
and entrepreneurs. The Commission has established information and assistance services,
especially targeted at participants in EU-funded research. Close cooperation between the
Commission and the European Patent Office (EPO) led to launch of the esp@cenet
information service on patents by the EPO.

2.4

The administrative and regulatory environment is still too complex

The complexity of administrative and regulatory procedures continues to be a serious obstacle
to the creation of new businesses and to entrepreneurship. It also affects their capacity to
innovate: over-regulation, for example in approval procedures for new products, raises
development costs and increases time to market.

At the request of the Amsterdam European Council in June 1997, the Commission set up a
group of independent experts (the BEST Task Force11) charged with drawing up concrete
proposals in this area. On the basis of their recommendations, the Commission submitted to
the Industry Council of November 1998 a series of proposals for simplifying administrative
procedures coming under its own responsibility or that of Member States. Progress will be
measured by regular reports.

2.5

Investment in innovation is being encouraged

€

The last three years have seen a marked improvement
in the conditions for innovation
financing through risk capital in the Union. Recent statistics12 confirm a trend which bodes
well: compared to 1998, total funds raised by the European private equity industry in 1999
25.4 billion, with total investment up 74 % from
increased by 25 % from
€
6.8 billion of that (up 70 %),
5.2 billion as venture capital13. Still, this good performance has to be contrasted
of which
with the fact that in 1999 the United States invested over three times the amount invested in
technology venture capital in Europe, and that
the corresponding growth rate over the
previous year in the United States was 108 %.

25.1 billion. Technology investments took

20.3 billion to

14.5 billion to

€

€

€

€

Most Member States are increasingly promoting private innovation financing, mainly directed
at the early stages of the innovation process. Several initiatives are implemented under the
RTD Framework Programme. In particular, the I-TEC pilot project, in collaboration with the
European Investment Fund (EIF), fosters venture capital investment in technology sectors and

9

10

11

12

13

COM(97) 314 final.
COM(99) 42 final.
The Business Environment Simplification Task Force.
European Venture Capital Association, and “Money for Growth: The European Technology Investment
Report 1999” (PricewaterhouseCoopers).
Seed, start-up/other early stage, and expansion stage investment.

9

in the start-up phases of innovative enterprises; a help-desk (LIFT) has been set up to assist in
the search for finance for exploitation of the results of EU-funded research; and actions to
promote interfacing between would-be entrepreneurs, SMEs and investors are implemented
by EU research programmes14. The lessons learned from these actions are disseminated by
networking investors, and by providing training and tools.

Following the Amsterdam European Council, which called for a programme of financial
assistance for innovative SMEs, a series of measures was adopted in May 1998 by the
Commission, and the European Investment Bank (EIB) launched its “Amsterdam Special
Action Plan”, as well as the “European Technology Facility”, in co-operation with the EIF15.

Strengthening these actions, in June 2000 the EIB launched its “Innovation 2000 Initiative”,
whilst reinforcing its links with the EIF. Cooperation links will ensure complementarity and
synergy between the Framework Programme and the EIB initiative.

2.6

Promoting research that feeds into innovation

R&D by private businesses is an important indicator of national innovation capacity, and
Member States apply various approaches to improve their performance. Countries where
business R&D is weak tend to adopt general programmes and tax incentives, while countries
with relatively strong business R&D often implement measures that apply to certain types of
companies (such as start-ups, SMEs, or fast-growing or highly research-intensive firms), to
specific sectors and “key technologies”, or
to specific objectives (such as increased
employment of researchers). For example, employers in the Netherlands, who are responsible
for deducting income tax and social security payments from their employees’ gross salaries,
may reduce the amount they pay to the authorities in the case of R&D staff,
thereby
alleviating the wage burden of R&D.

Cohesion countries invest considerable amounts towards overcoming their structural
weaknesses in business R&D. Large multi-year umbrella programmes under the Structural
Funds still play an important role, but the programme approach is increasingly complemented
by fiscal measures to stimulate business investment in R&D. These are well established or
being introduced in several Member States.

Because much of the EU research effort is performed in research institutes and the higher
education sector, it is important to pursue and strengthen their interaction with industry. This
should include promotion of technology transfer to industry and spin-offs from public
research organisations, in order to enhance the innovation impact of their research.

2.7

Technology absorption by enterprises is enhanced

Enhancing technology transfer to SMEs and their capacity to absorb technology is a
the transfer of “tacit”
traditional pillar of innovation policy. A demand-led approach,
innovation know-how, and physical proximity to the source of the technology are seen as
critical factors for success. Methods used include science parks, regional technology centres,
liaison offices in academic and research organisations, and demonstration projects. The

14

15

For example, the Biotechnology and Finance Forum, set up jointly by the “Life Sciences” thematic
research programme and the European Association of Securities Dealers.
See “Growth and Employment Initiative Measures on financial assistance for innovative and job
creating Small-and Medium-Sized Enterprises (SMEs)”, COM(2000) 266 final.

10

Swedish TUFF16 scheme, for example, enables SMEs to band together to have the strength to
become a customer of public R&D technology providers.

Policy-makers are increasingly rejecting the dichotomy between upstream “stimulation of
R&D” and downstream “technology absorption”. Under the “system” view, the underlying
barriers to innovation arise from differences of a mainly cultural or managerial nature
between the performers of research in the public sector and those who take up the results in
the private sector. The increased emphasis on the private sector in its double role of
technology user and “translator” of market needs into research problems has led to the
emergence of a new policy goal of “improving the research/industry interface”. In the
Teaching Company Scheme in the United Kingdom, for example, highly qualified recent
graduates work in a company for two years on a project central to the company’s needs, under
the joint supervision of academics and company staff. SMEs make up 90 % of the company
participants.

2.8

Technology valleys are created

In several countries, mobility schemes are being reshaped and R&D subsidy schemes
redesigned to intensify collaboration between the various actors:
research centres,
universities, groups of enterprises and individual companies.

Two trends can be distinguished:
“competence networks” that
geographically are nation-wide, and region-based “technology valley” concepts, spurred by
the success of Silicon Valley. Shifting from single company support to supporting groupings
or “clusters” is a general trend in most Member States.

technology-specific

In Belgium, the Flemish government currently supports 11 clusters, defined as networks of
cooperating enterprises which may also collaborate with research organisations. At the end of
1998, the government announced it would act as a catalyser for the creation of technology
valleys, which would be clusters comprising knowledge-intensive, high-tech enterprises and
including a leading research institute and at least one high-tech firm with a successful product
on the international market. In comparison with other clusters, technology valleys are more
oriented towards advanced technologies, and will often include more enterprises in the start-
up or growth phase.

2.9

Technology-based start-ups are a growing priority

In 1997 the Commission initiated consultations on how to provide would-be entrepreneurs
with the best possible environment for founding innovative businesses and benefiting fully
from the European market. The process led to the First European Forum for Innovative
Enterprises, which took place in Vienna in November 1998.

€

Based on the Forum’s conclusions, in 1999 the Commission launched a pilot action with a
budget of
15 million to encourage mechanisms supporting the start-up and development of
innovative enterprises. The major objective is to identify and network areas of excellence
providing the best environments for the launch and growth of start-up and spin-off companies.
The selected areas will form a “European innovation showcase”, with a substantial impact and
knock-on effect for all regions, encouraging them to implement similar initiatives adapted to
their local environment.

16

TUFF: Teknikutbyte För Företag.

11

3.

INNOVATION PERFORMANCES IN THE UNION

This Communication contains the first outline of a European innovation scoreboard (Annex).
Together with additional statistical information17, this provides the elements for an assessment
of the innovation performance of the Union and its Member States.

The overall result is not optimistic. Most Member States must increase efforts at all levels to
get rid of obstacles and rigidities and change attitudes which prevent full advantage being
taken of the opportunities and challenges of the knowledge-driven economy.

3.1

Insufficient capacity to launch new products and services

Progress towards completion of the internal market, and the sound monetary and fiscal
policies required by economic and monetary union and the launch of the euro, are improving
the climate for enterprise in general. There is the potential for enterprises to take advantage of
the favourable macro-economic outlook and use the single internal market as a springboard to
world markets.

Nevertheless, there are still relatively few enterprises in the Union who are building on
innovative products, services and processes to grow into major commercial forces on the
world stage. This indicates that some critical factors for innovation are not yet sufficiently
developed.

On average 51 % of EU firms in the manufacturing sector and 40 % in the service sector,
when asked, consider themselves as innovative. Yet products new to the market make up only
7 % of the turnover of European manufacturing companies. These figures show that although
awareness of the importance of innovation is widespread among enterprises, the contribution
of innovation to the competitiveness of European industry remains fragile, reflected in
insufficient capacity to launch new products and services on world markets, and to react
rapidly to changes in demand.

Moving from traditional to more sustainable industrial production systems is an important
challenge for European industry, which should be encouraged to adopt research and
innovation strategies integrating competitiveness with sustainability objectives18.

3.2

Globalisation and innovation

Globalisation has raised the stakes for European firms and for the Union as a whole. The
EU’s technology balance is negative, while the corresponding figures for the United States
and Japan are increasingly positive. For companies everywhere, both the rewards for
successful innovation and the penalties for failing to innovate are larger and swifter than they
have ever been. EU companies are capable of reaping rich rewards, as success in the field of
mobile telephony has shown. But in too many sectors and regions innovation bottlenecks
remain, encouraging frustrated European scientists, entrepreneurs and investors to try their
luck elsewhere – most commonly in the United States.

17

18

Presented in SEC [reference to be added].
The EU research programme on “Competitive and Sustainable Growth” is precisely aimed at
encouraging such innovation strategies.

12

3.3

Not enough graduates and students with relevant qualifications

Innovation and enterprise require that education and advanced training systems in Member
States are capable of delivering the right skills and attitudes to their students. The number of
schoolchildren studying innovation-linked subjects (science, for example) are too low. In
science subjects generally, EU pupils seem to do less well in standardised tests than pupils in
the USA or Japan. In higher education too, the numbers of science and technology students
are lower than in the USA or Japan. Further development of the links with business are
required in higher education, together with a positive attitude towards innovation in the
learning process as a whole. Equally important for the future will be provision of lifelong
learning opportunities, especially in view of the ageing of the labour force and the increasing
pace of innovation and change.

3.4

Innovation will benefit from strengthened research in the Union

A good flow of ideas with commercial potential emerging from research is a key contributor
to innovation. The EU’s gross expenditure on R&D as a percentage of gross domestic product
in 1997 was low in comparison with the USA and Japan. What is particularly serious for
innovation is that the differences are largely due to a much reduced industrial research effort
in the EU: R&D by business in the Union is only 60 % of the level in the United States.

The relative weakness of private R&D in Europe also largely explains why the EU has fewer
researchers in the labour force (5.0 per 1 000) than either the United States (7.4) or Japan
(9.6). The number of researchers in firms is only 2.4 per 1 000 (labour force) in the EU
compared with 5.9 in the United States and 6.3 in Japan19. Although these figures hide
considerable variation across countries, regions, firms and sectors, there is no doubt that
private research and employment of researchers by firms should be strongly stimulated.

The Commission Communication “Towards a European Research Area” proposes ways to
improve coordination and networking to maximise output from the currently fragmented
national R&D systems and unleash Europe’s R&D potential.

3.5

Technology diffusion to be improved

Although technology diffusion and absorption by SMEs have, for some time now, been a
priority of national innovation policies, there is still room for significant
improvement.
Cooperation between firms and universities or research institutes is still not very well
developed in most Member States. On average, only 13 % of firms cooperate with bodies
forming the European R&D and innovation infrastructure.

Available statistics suggest that when (mostly large) European firms and institutions make
technology links outside their own national borders,
to do so with
counterparts in the United States, rather than in other European countries. The number of
strategic technological agreements between US and European companies grew during the
early 1990s, while the number of such alliances between European firms fell.

they still prefer

The internal flows of European technology need further encouragement, in ways ensuring that
SMEs may also benefit.

19

EU data for 1997, United States data for 1993, Japan data for 1998.

13

3.6

The innovative capacity of traditional industries needs to be reinforced

One of the features of the modern knowledge economy is the increased breadth of the
knowledge base in all industrial sectors. Today, a low R&D industry may well be a major user
of knowledge generated elsewhere. In the developed economies, traditional industry will be
able to compete only by becoming more knowledge intensive. Knowledge intensification in
traditional sectors seems as likely to generate employment and wealth as the emergence of
entirely new industries.

In many industries conventionally regarded as low-tech, many firms are “buying-in”
innovation in the form of plant and equipment. New technology does not reach them directly
from the academic knowledge base or from in-house research, but percolates through
suppliers and advisory services.

The knowledge society opens the opportunity for all sectors and firms to be bearers of
innovation. The most obvious example is the inclusion of computer electronics (and software)
in an increasing variety of products. From this viewpoint, the gap between the United States,
Japan and the European Union concerning incorporation of information and communication
technologies in products (“ICT intensity”) remains a preoccupation.

3.7

The growing importance of the service sector

Insufficient attention has been given to innovation in the service sector, in spite of this
sector’s potential for significant growth in employment and output.

It is composed of a rather heterogeneous collection of industries. There are significant
differences in attitudes towards innovation between, for example, ICT (information and
communication technology) services and more traditional sectors such as transport or trade.
As enabling technologies, ICTs are far more important than any other modern technology
throughout the service sector, and their diffusion is essential in improving the sector’s
innovative capacity.

Service industries (apart from ICT-related services) spend less than manufacturing industries
on R&D. Human capital replaces R&D as the main input of innovation. Education and
training, along with the diffusion of new technologies, are therefore the main components of
an innovation policy in the service sector. Efforts should be made to remedy skills shortages
and to implement training schemes to help the less well qualified workers.

3.8

Innovation and environmental protection

The challenge to decouple economic growth from the accentuation of environmental
problems opens opportunities for innovation. Sensitivity to the natural environment is leading
to a growing demand for new products and services which improve efficiency in the use of
resources, aid environmental protection, and reduce impact on the climate. As well as helping
to secure sustainable development, innovation contributes to the lasting business and job
prospects emerging in this area.

The conditions under which innovations are created and disseminated are thus shaped by the
increasing attention paid to our environment, and the increasing intervention of public
authorities in this specific field to complement general innovation policies.

14

4.

FIVE OBJECTIVES

Although a richness of experience is being built up in Member States, its impact is not yet
sufficient. Efforts by Member States and at Union level to offer an environment supportive of
innovation should be intensified.

Awareness of the importance of innovation policy, and its “horizontal” nature, have often
been late in developing in Member States. The unsuitability of the linear model of innovation
has meant that isolated measures have not proved successful, and that broader strategies are
required in order to reduce the innovation deficit. In particular,
the relevance of the
regulatory, administrative and financial environment
to innovation has often been
underestimated.

Today, awareness is more general and good practices are beginning to be identified, but
resistance is still encountered to the changes needed to arrive at a more innovation-enhancing
environment, often based on cultural or institutional factors. The five objectives presented in
this Communication contribute to strengthening Member States’ capacity to overcome these
obstacles, so as to lead to the dynamic conditions, and hence growth and quality jobs, that
innovation can bring.

The general climate for innovation in Member States is conditioned by national and regional
innovation policies (Objective 1), by the regulatory framework (Objective 2), and by the
degree of openness of society to innovation (Objective 5). To these general conditions, which
alone are not sufficient to generate innovation, should be added two more targeted objectives:
to focus on the creation and growth of innovative enterprises which, in the context of the
knowledge-driven economy, have a decisive importance (Objective 3), and to build on the
systemic model of innovation by optimising the workings of key interfaces between actors in
the innovation process (Objective 4).

The main features of these objectives are:

Objective 1: Coherence of innovation policies. The Union should capitalise on measures
and schemes at regional and national levels through coordination for the benchmarking of
national policies and for spreading good practice. A regularly updated European innovation
scoreboard will draw attention to progress towards the goal of improving innovation
performance.

Objective 2: A regulatory framework conducive to innovation. Regulation is necessary,
innovative enterprises in
but over-regulation hinders the development of enterprises,
particular. There is increasing awareness of the benefits of lowering the costs of doing
business and reducing red tape.

Objective 3: Encourage the creation and growth of innovative enterprises. Europe needs
an improved environment for high technology start-ups and for starting up and developing
innovative businesses in general. Such firms invigorate the economy by being the “first
movers” who introduce new ideas, and from their number will emerge the expanding
businesses of the future. But the obstacles to their creation and growth continue to be more
severe in Europe than in Europe’s competitors.

Objective 4: Improving key interfaces in the innovation system. Every business sector,
whether in manufacturing or in services, in traditional or “new economy” sectors, should aim
to benefit from innovation. For this to happen, enterprises need access to knowledge, skills,
financial backing, sources of advice, and market information. While not losing sight of the

15

“system” view of innovation, the operation of some of the interfaces between enterprises and
other innovation players needs to be improved by action targeted at these interfaces. The
Lisbon conclusions specifically draw attention to the interfaces between companies and
financial markets, R&D and training institutions, advisory services and technological markets.
Objective 4 focuses on the effective operation of these interfaces so that innovation may
permeate the entire economic and social fabric.

Objective 5: A society open to innovation. Innovation is a human activity. Each citizen is a
potential creator, implementer and user of innovation. The preceding objectives will not be
fully achieved without an open attitude to innovation, based on an awareness of the nature of
the opportunities, and the risks. This can only be brought about by a free dialogue between
research, enterprise, government, interest groups and the general public.

The five objectives reflect current priorities for enhancing innovation in Europe, and are in
line with the consensus on broad policy orientations arrived at by the Lisbon European
Council.

OBJECTIVE 1 COHERENCE OF INNOVATION POLICIES

European diversity can be an advantage, if the handicap of the fragmentation of the European
innovation system is overcome.

The Lisbon European Council called for the development of a new open method of
coordination for benchmarking national policies,
including introduction of a European
innovation scoreboard. The process of establishing the innovation scoreboard should in this
sense be consistent with the exercise of benchmarking research policies, e.g. the indicators
and data used should be consistent with each other. This open method is a means of spreading
best practice and achieving greater convergence to the main EU goals. It is designed to help
Member States to develop their own policies, and involves:

–

–

–

–

Fixing guidelines for the Union combined with specific timetables for achieving the
goals which they set in the short, medium and long terms,

indicators and
Establishing, where appropriate, quantitative and qualitative
benchmarks against the best in the world and tailored to the needs of different
Member States and sectors as a means of comparing best practice,

Translating these European guidelines into national and regional policies by setting
specific targets and adopting measures, taking into account national and regional
differences,

Periodic monitoring, evaluation and peer review organised as a mutual learning
process.

16

Actions by Member States

National and regional innovation policies should take account of “best practices”
and adapt them to their specific environment

Ensure that coordination mechanisms are in place between national and regional
levels, and between different departments responsible for matters relevant
to
innovation, so as to guarantee a coherent approach to innovation policy

Implement periodic target-setting, monitoring, evaluation and peer review of
regional and national programmes for enhancing innovation and of the bodies which
implement them

To be
reviewed in:

2002

2001

2001

At the Union level, the Commission should act as a catalyst and contribute to enhancing the
activities of Member States. The targets are to:

–

–

–

Examine and benchmark innovation policies and performances of Member States,
and compare them with their main competitors: the United States and Japan,

Establish the European innovation scoreboard (see the first exercise to produce such
a scoreboard, using currently available statistics, in the Annex),

Publish a periodic report on Europe’s innovation performance, including updating of
the scoreboard,

using methods such as:

–

–

–

–

Development of a framework for dialogue on innovation policies in the Union, and
their coordination,

Work to improve the availability of statistics relating to innovation,

Organisation of “peer reviews” on topics of common interest, as a contribution to
evaluation of innovation-fostering measures and identification of “best practices”,

Analysis and follow-up of important developments elsewhere in the world, and
studies on specific themes linked to innovation.

To undertake this work, the Commission intends to extend the scope of the analysis and
benchmarking initiated in the Fifth RTD Framework Programme, by reinforcing the provision
to this end and by placing the European innovation scoreboard within the overall framework
of enterprise policy.

Actions by the European Commission

Implement a framework for dialogue, coordination and benchmarking of
Member State innovation policies and performances

Establish the European innovation scoreboard, as a component of the analysis and
benchmarking activities of enterprise policy

Timing

Early 2001

Early 2001

17

OBJECTIVE 2 A REGULATORY FRAMEWORK CONDUCIVE TO INNOVATION

Regulations are useful, but over-regulation is counterproductive for enterprises, innovative
enterprises in particular. The regulatory and administrative obstacles to innovation remain too
great, and further efforts are required to lower the costs of doing business and to remove
unnecessary red tape. This was also stated in the conclusions of the Lisbon European Council,
which refer to the need for a regulatory climate conducive to innovation.

To establish such a climate, public action in this area should combine moderation with
ambition and efficacity:

–

–

–

Moderation, because the pace of
technological, economic and social change
encourages new approaches, based on consensus-building and self-regulation by
enterprises which must cooperate in working out norms and regulations respecting
consumer and environmental interests,

regulatory framework must always be the
Ambition, because the overall
responsibility of the legislator (e-commerce legislation is a good example of the
division of roles between enterprises, administrations and the legislative power),

Efficacity, because legislation should have just the desired result, with negative side-
effects, such as distortion of competition, reduced to a minimum. To this end, the
necessary administrative structures should be put in place to ensure that the needs of
innovation are taken into account in evaluating the trade-offs in devising legislation.

Whatever is good for enterprise policy is generally good for innovation, and vice versa. This
applies in particular to legislative and administrative measures designed to facilitate, and
perhaps even encourage (via fiscal measures), risk-taking and the creation of enterprises.
There are however several topics under this heading which have an especially strong
influence on innovation. These are:

–

–

–

–

–

Intellectual and industrial property rights: this refers to the forthcoming availability
of the Community patent and also, more generally, to legal developments in IPR
(intellectual property rights) relating to new technologies (information technologies,
biotechnologies, etc),

Obstacles, in the form of rules and statutes, to the diffusion and exploitation of
research results obtained with the support of public funding (including obstacles in
the form of the terms of employment of researchers in the public service),

Unnecessary regulation (“over-regulation”) which slows down the introduction of
new products and services on the market,

Measures to incite innovation such as direct or indirect State aids in accordance with
Articles 87 and 88 of the Treaty (fiscal measures, for example),

Adaptation of traditional methods for
intangible assets.

reporting and documenting companies’

In these areas, Member States and the Commission should work together to create a legal and
regulatory climate more conducive to innovation, while taking other objectives, such as the
global reduction of State aid, into consideration.

18

In addition to the simplification and harmonisation of their legislative and administrative
rules, Member States should particularly concentrate on fiscality, on the modalities for
dissemination of knowledge and on the statutes of researchers in the public service, in order to
remove obstacles to knowledge diffusion, its exploitation and the creation of knowledge-
based enterprises.

Actions by Member States

Adapt the rules for the diffusion of research results from publicly-funded
research (licensing, access to foreground knowledge, etc), to encourage exploitation
and transfer of results so as to foster innovation

Timing

Ongoing

Put in place fiscal measures, in accordance with Articles 87 and 88 of the Treaty, to
encourage private investment
in research and innovation and employment of
researchers by the private sector

To be
reviewed in
2002

At Union level, the Commission will examine what aspects of the legal and regulatory
environment falling within its competences may be improved to enhance innovation, focusing
on, for example:

–

–

–

Rules providing researchers and enterprises with effective means for the protection
and exploitation of research results,

Norms, standards and assessment methods for products as tools to promote
innovation,

European accounting standards,

and will undertake studies to examine “good practices” emerging from Member State actions,
in research and
particularly those concerning fiscal measures to encourage investment
innovation, including stock options, and access to the results of publicly-funded research.

Actions by the European Commission

Identify and promote the use of good practices and, where appropriate, formulate
rules for adapting existing regulatory environments to make them more
favourable for innovation (in the above-mentioned areas, for example)

Timing

End 2001

Contribute to regular reporting on progress in improving the legal and
regulatory framework, and on the remaining obstacles, at European and Member
State levels, from the point of view of facilitating innovation

First report:
mid 2002

OBJECTIVE 3 ENCOURAGE THE CREATION AND GROWTH OF INNOVATIVE ENTERPRISES

Many familiar business names were innovative start-ups not so long ago. The creation and
growth of innovative enterprises, defined as technology-based firms, active in the most
promising markets, should be encouraged. From among their number will emerge the
successful businesses of tomorrow, providing high quality jobs and acting as vectors of
innovation into traditional sectors.

19

The Lisbon European Council called for a better environment for high technology start-ups,
and for starting up and developing innovative enterprises generally.

Such an environment includes access to new technologies, know-how, venture capital and
seed funds, mentoring schemes and support structures such as incubators and hatcheries, as
well as a spirit of enterprise. This is the thinking behind the “technology valley” concept
which is receiving increasing support in Europe. Member States should continue to pursue
efforts to create a legal, fiscal and financial environment favourable to the creation and
development of start-ups.

The interface between companies and financial markets requires attention since financial
constraints, including lack of appropriate sources of finance, continue to figure among the
most cited obstacles to innovation. Availability of seed and early-stage venture capital has
been a major concern in the development of high growth,
technologically innovative,
enterprises. Although business angels and local seed capital funds may be helpful in the
establishment of an enterprise, their financial capacity is insufficient to provide for rapid
growth. In spite of recent progress, the Union continues to lag the United States, not only in
the number of venture capital operators active in the market, but also in the proportion of
overall investment dedicated to early-stage financing and to technology investment.

The management of high-tech start-ups requires a broad range of skills, as well as special
skills in business support services offering help. Entrepreneurship should become a discipline
taught
in universities and other institutes of higher education. Role models should be
available, to encourage young people to consider setting up a business as one of the options in
looking for a job. Member States should encourage education, training and support schemes
in entrepreneurship and innovation management, according to their structures for education
and training.

Actions by Member States

Pursue efforts to create a legal, fiscal and financial environment favourable to the
creation and development of start-ups

Foster, at regional level,
services and structures such as incubators, etc.

the creation or reinforcement of adequate support

Timing

Ongoing

Ongoing

Set up education and training schemes in entrepreneurship and innovation
management, where these do not exist,
in higher-education establishments and
business schools, and disseminate good practice in this area

To be
reviewed mid
2001

At the Union level, Member State activities will benefit from networking initiatives, from the
addition of a European dimension to regional business support services, by development of
instruments such as a European electronic directory of innovative start-ups (as already
usefully exists in the United States), and by dissemination of good practices.

The Commission can also apply measures to facilitate access by start-ups to public tendering
procedures and to Community programmes such as the research Framework Programme as
well as to other schemes such as the “Innovation 2000 Initiative” of the EIB. Young
enterprises may be reluctant to compete because of the disproportionate cost to the enterprise
of the preparation of tenders and proposals.

20

Actions by the European Commission

Encourage networking activities such as the network of regions of excellence for
the creation of enterprises, the networks for training and support services (incubators,
seed funds, etc.); development of a European electronic directory of innovative
start-ups

Reinforce support services with a European dimension, such as the LIFT help-
desk on innovation financing (web portal, online tool box) and investment fora to
facilitate interfacing between researchers, enterprises and investors; contribute to
the development of methods for evaluating enterprises’ intangible resources, in
particular to value portfolios of IPR

Facilitate access by start-ups to public tendering, to Community programmes
(and their results) and to the “Innovation 2000 Initiative” of the European Investment
Bank (EIB)

Timing

2001

2002

2001

OBJECTIVE 4 IMPROVE KEY INTERFACES IN THE INNOVATION SYSTEM

including the traditional

Innovative activity is not a matter just for research, high-tech industry and individual
entrepreneurship. Every business sector, in manufacturing and in services, is concerned by
innovation,
industries. E-commerce is a prime example of an
innovation is not directly
innovative development affecting all sectors. For these firms,
founded on research, but on new management methods, new business models built on
information and communication technologies, investment in new equipment and new skills,
and networking. Thus, as the understanding of innovation has become broader, developing
into a key element of economic development policy, so has the importance of the regional
dimension in innovation policy. Many actions are most effectively conceived at a regional
level, since it is at this level that the needs of enterprises and the environment in which they
operate can best be assessed.

Innovation policy must therefore act to encourage innovation to permeate the economic and
social fabric: traditional as well as new industries, small firms as well as large, in all regions.
Innovation in the Union must become an inclusive phenomenon.

The Lisbon Conclusions identify a need for specific action to encourage the key interfaces in
innovation networks: interfaces between companies and financial markets, R&D and training
institutions, advisory services and technological markets. Their effectiveness contributes to a
better assimilation of knowledge and diffusion of innovation throughout the Union.

In accordance with the “system” view of innovation, the interfaces cannot be treated in
isolation from each other. Advisory services, for example, should be able to direct enterprises
to sources of finance and to R&D resources. Since it is at the regional level that support for
innovation is most effectively delivered, Member States should integrate a coherent approach
for the strengthening of these interfaces in their regional innovation strategies.

It is not only high-tech start-ups that benefit from a more effective interface with R&D and
training institutions. Enterprises in traditional sectors, SMEs in particular, can make
profitable use of technology transfer and the introduction of new management techniques.

Traditional approaches to the production and use of knowledge should be adapted to the
systemic vision of the innovation process. To this end, new relationships should be

21

established between public research facilities, universities and enterprises. In addition to their
traditional roles in education and research, universities should develop a third mission:
promoting the diffusion of knowledge and technologies, especially towards their local
business environment. Large public research organisations and programmes should be
encouraged to benchmark their activities in technology transfer and partnerships with
enterprises, including those run at Community level.

As shortages of skills and qualified staff emerge as a major obstacle to innovation, Member
States should give more attention to lifelong learning to facilitate the assimilation of new
technologies20. Training institutions have an important role in remedying weaknesses, for
example by providing ICT training for employees in the service sector.

There should be more coherent career structures for researchers throughout their working
lives.
the geographic and intersectoral (universities, public laboratories,
industry) mobility of researchers should be encouraged through explicit pathways.

In particular,

Regional structures must be capable of encouraging innovation and providing support to
innovators and would-be innovators, through the interface with advisory services and
technological markets. The strengthening and professionalisation of business support
structures, as well as the dissemination of information on technological markets (economic
intelligence), must be encouraged. There must also be effective linkages between regions, in
order to learn from one another’s experience, to provide their “client” enterprises with access
to the European dimension as a step in enterprise growth, and generally to reduce the
“innovation divide”.

Building on experience already gained in this field, notably through the Structural Funds and
the RITTS/RIS21 actions, regional and local authorities should include and strengthen
innovation-enhancing measures in their development strategies so as to organise, at their own
level, the right environment for a strong regional innovation capacity.

Actions by Member States

To be
reviewed in:

Stimulate and co-ordinate regional initiatives and regional actors to devise and
implement integrated research and innovation programmes at regional level

Facilitate the implementation of lifelong learning programmes to improve the
general assimilation of new technologies and remedy shortages of skills

Encourage universities to give particular attention, in addition to the traditional
missions of education and research, to promotion of the diffusion of knowledge
and technologies

Encourage large public research facilities to benchmark their activities in
technology transfer and partnerships with enterprises

2002

2002

2002

2001

At the Union level, a more cohesive approach is required and networking activities should
partnerships,
continue

transnational

encouraged

technology

promote

be

to

to

20

21

In order to contribute to the development of lifelong learning opportunities, the Commission has just
adopted the eLearning initiative which in turn seeks to support innovative learning techniques.
Regional Innovation and Technology Transfer Strategies/Regional Innovation Strategies.

22

professionalisation of innovation support structures and the diffusion of “good practices”.
This is particularly the case as concerns technology transfer from European universities and
public research centres, which in general have been less open to relationships with business
than their counterparts in the United States. For this reason it is proposed to assist European
universities to set up a network or association to promote knowledge diffusion and best
practices in technology transfer.

Innovation without research also deserves specific attention, as an important source of
technical advance. It is proposed to encourage the testing of methodologies for assisting
enterprises to assimilate knowledge, add a European dimension as a step toward global
markets and upgrade their innovation management methods.

Actions by the European Commission

Assist European universities and public research centres
network/association to promote knowledge diffusion and best practices
technology transfer

to set up a
in

Measures to encourage diffusion of “good practice” and transnational co-
operation among regions regarding research and innovation policies

Support EU-level
to
facilitate transnational technology partnerships, as well as the diffusion of non-
technological innovation, in particular for SMEs

initiatives, such as networking and pilot experiments,

Timing

2001

2001

2001

OBJECTIVE 5 A SOCIETY OPEN TO INNOVATION

Society has often been reticent about innovation. The advantages, and disadvantages, of
innovation are not always distributed equitably, especially when an innovation is first
introduced. It may take time for the benefits of change and innovation to be appreciated. The
media are important as a source of information on progress in research and innovation: they
also draw attention to the balance of advantage and disadvantage.

We need to make both the opportunities and risks of new technologies as transparent as
possible in a broad dialogue with science, business and the general public, taking account of
the potential economic and social costs of “non-innovation” (for example, in the area of
technological innovations to reduce pollution and enhance eco-efficiency). That is the only
way to boost public confidence in innovation.

The new generation must be taught how to thrive in a world becoming increasingly complex
and subject to change. The challenge is for each Member State to face, notably through their
education systems. Efforts must be made to ensure that the disadvantaged in society are not
excluded.

Enterprises must play their part in ensuring that the knowledge and skills of their staff are
regularly updated. The importance of the working life means that particular attention should
be given to innovation at the workplace and how it is introduced. Enterprises also have a
major role to play in establishing confidence through consensus, self-regulation and quality
standards.

23

The aim must be a well-informed European society, capable of mature debate on innovative
developments, and not handicapped in discussing innovation, or in applying innovative
developments, by a weak understanding of science, technology and change.

It is noticeable that countries with a strongly consensual approach, supporting quality debate
on innovation issues, also produce strong figures for innovation-related indicators.

Member State administrations, through their public procurement, are major consumers of
goods and service: by appropriate purchasing policies they can be a force that stimulates the
demand for innovation.

Actions by Member States

Encourage comprehensive “stakeholder” debates on innovation involving
scientists, industry, consumers and public authorities

Stimulate public demand for innovation by dynamic purchasing policies in public
administrations

To be
reviewed in:

2002

2003

At the Union level, linkages can usefully be made between Member States’ measures to
improve the provision of information to the public, to foster public debate, and to take
account of the public’s views. These would be in the interest of broadening the horizons of
national activities,
facilitating a European “consensus”, and ultimately arriving at a
specifically European vision of science and innovation. To this end, technology foresight
exercises, along the line defined in the Communication on the European Research Area, can
be used to discuss and share views of how the opportunities and impacts of science and
innovation influence the future of Europe. Specific events will also be held and, to measure
attitudes to innovation in the EU, an “innobarometer” section will be added to the
“Eurobarometer” public opinion surveys.

5.

SUMMARY

Innovation and research policies can contribute significantly to improving the business
environment for innovation. Combined efforts at European, national and regional level should
be intensified.

It is however mainly at national or regional level that public action to enhance innovation
should take place. The recommendations contained in this Communication addressed to
Member States are listed in the following table:

24

Main recommendations to Member States

1. National and regional innovation policies should take account of “best practices” in other

Member States and adapt them to their specific environment.

2. Ensure that coordination mechanisms are in place between national and regional levels, and
between different departments responsible for matters relevant to innovation, so as to guarantee a
coherent approach to innovation policy.

3.

Implement periodic target-setting, monitoring, evaluation and peer review of regional and
national programmes for enhancing innovation and of the bodies which implement them.

4. Adapt the rules for the diffusion of research results from publicly-funded research, to
encourage exploitation and transfer of results, and encourage large public research facilities to
benchmark their activities in technology transfer and partnerships with enterprises.

5.

6.

7.

Pursue efforts to create, in accordance with the State aid rules, a legal, fiscal and financial
environment favourable to the creation and development of start-ups.

Foster, at regional level, the creation or reinforcement of adequate support services and
structures such as incubators, etc; stimulate and co-ordinate regional initiatives and regional
actors to devise and implement integrated innovation programmes at regional level.

Set up education and training schemes in entrepreneurship and innovation management in
higher-education establishments and business schools; encourage universities to give particular
attention, in addition to the traditional missions of education and research, to promotion of the
diffusion of knowledge and technologies.

8. Promote investment in research and employment of researchers by enterprises through
incentives in accordance with Articles 87 and 88 of the Treaty, and facilitate the
fiscal
implementation of lifelong learning programmes to improve the general assimilation of new
technologies and remedy shortages of skills.

9. Encourage comprehensive “stakeholder” debates on innovation involving scientists, industry,

consumers and public authorities.

10. Stimulate public demand for

innovation by dynamic purchasing policies

in public

administrations.

Main activities to be implemented by the Commission

The Commission will act as a catalyst to enhance Member State measures and policies, by
benchmarking innovation performance and policies, contributing to improving the regulatory
environment, and promoting networking and dissemination of good practice at European
level.

The promotion of innovation will be embodied in the overall framework of enterprise policy
while continuing to be one of the main overall objectives to be systematically pursued in the
RTD framework programmes, contributing to the competitiveness of European enterprises.

The main activities of the Commission will be:

1.

2.

To promote dialogue, coordination and benchmarking of Member State innovation
policies and performance, and on the European innovation scoreboard (see
Objective 1: Coherence of innovation policies).

To continue studies on topics relevant to innovation. These will notably focus on the
regulatory environment, in order to contribute to its adaptation to render it more

25

3.

4.

5.

favourable to innovation and to regular reporting on progress in improving this
environment (see Objective 2: A regulatory framework conducive to innovation).

To continue and extend activities to encourage support for networking and advisory
services with a European dimension, such as the help-desk on innovation financing
(LIFT), activities to facilitate interfacing at European level between researchers,
industry and investors, the existing network of regions of excellence for the creation
of enterprises, new networks of European universities and public research centres to
promote knowledge diffusion and best practices in technology transfer, and
development of a European electronic directory of
innovative start-ups (see
Objective 3: Encourage the creation and growth of innovative enterprises, and
Objective 4: Improve key interfaces in the innovation system).

To contribute to the development of methods for evaluating the intangible resources
of young innovative enterprises, and measures to facilitate their access to
Community programmes and results, as well as to the “Innovation 2000 Initiative” of
the EIB (see Objective 3: Encourage the creation and growth of innovative
enterprises).

To continue and reinforce transnational cooperation among regions regarding
innovation policies, exchange of good practices and pilot experiments to facilitate
transnational
technology partnerships as well as diffusion of non-technological
aspects of innovation, particularly for SMEs (see Objective 4: Improve key interfaces
in the innovation system).

_______________________

26

ANNEX: European innovation scoreboard

The “European Innovation Scoreboard” compiles a set of indicators which together give an
assessment of Europe’s innovation performance.
is one component of a much broader
benchmarking exercise of the Enterprise Directorate-General covering European enterprise policy
and competitiveness as a whole. This Annex presents the results of a first exercise to produce the
European innovation scoreboard, using the statistics that are currently available.

It

The innovation scoreboard allows relative strengths and weaknesses of the innovation performances
of the Member States to be assessed and, for a limited number of indicators for which the relevant
statistical data is available, to compare the performances of the European Union with those of the
United States and Japan.

The scoreboard is designed to capture the main drivers of a knowledge-based economy plus
several measures of innovation outputs. The indicators are grouped into four categories:

• Human resources

• Creation of new knowledge

• Transmission and application of knowledge

• Innovation finance, output and markets

The indicators of the scoreboard are derived from official statistics (e.g. Eurostat, OECD). Reliable
private statistics are used when official sources are not available.

The scoreboard includes both ‘traditional’ indicators based on R&D and patent statistics and
indicators derived from recent surveys. An important data source is the “Community Innovation
Survey” (CIS). This survey was developed between 1991 and 1993 by the European Commission in
co-operation with the OECD. It is implemented by all Member States in a harmonised way and has
become the innovation statistics instrument of the Community and a model for non-Member States
such as Canada and Australia. At present, the survey is carried out only every four years which
explains the fact that the available data dates back to 1996.

A cross-country comparison of the innovation indicators can help identify national strengths,
and areas of weaknesses that are amenable to public and private intervention. However, it is
important to keep in mind that innovation is a complex activity that is driven by a wide range
of factors. An innovation scoreboard can only provide a broad outline of the strengths and
weaknesses of national innovation capabilities.

Causal relationships between policies and improvements in the performance of the national
innovation system will,
remain speculative. The scoreboard is therefore
complemented by a series of “peer reviews” looking at the identification of more qualitative
benchmarks and the exchange of good practices in innovation policy.

in most cases,

The current draft version of the scoreboard is shown in Table 1.

27

N°

1.

1.1

1.2

1.3

1.4

2.

2.1

2.2

2.3

3.

3.1

3.2

3.3

4.
4.1

4.2
4.3
4.4
4.5
4.6

22

23

24

Table 1: European Innovation Scoreboard (indicators, sources and years)

Short description of indicator

Source

Human resources

Share of S&T graduates among all post-secondary graduates

EUROSTAT, Education statistics

Percent of workforce with a tertiary education
Percent of total employment in medium-high and hi-tech22 manufacturing
Percent of total employment in high-tech22 services

OECD

EUROSTAT, R&D statistics, based on Labour Force Survey data

EUROSTAT, R&D statistics, based on Labour Force Survey data

Knowledge creation

Government R&D funding as % of GDP (GOVERD + HERD)

EUROSTAT, R&D statistics, OECD

Business expenditures on R&D as a percentage of GDP (BERD)

EUROSTAT, R&D statistics, OECD

Number of patent applications in high tech classes per million population

EUROSTAT, R&D statistics, based on EPO data

Transmission and application of knowledge

Percent of manufacturing SMEs that innovate in-house

EUROSTAT, Community Innovation Survey

Percent of manufacturing SMEs involved in co-operative innovation

EUROSTAT, Community Innovation Survey

Total innovation expenditures in the manufacturing sector as a percent of total turnover EUROSTAT, Community Innovation Survey

Innovation finance, output and markets
Venture capital investment in technology24 firms as a percent of GDP
Capitalisation of new (new, parallel, secondary) markets as a percent of GDP
Sales share of products new to the market in the manufacturing sector
Internet users per 100 inhabitants
Share of ICT markets as a percent of GDP
Change in share of total OECD production in hi-tech sectors (1992-96)

European Technology Investment Report 1999, based on EVCA data

International Federation of Stock Exchanges
EUROSTAT, Community Innovation Survey
EUROSTAT, based on International Telecommunication Union data
European Information Technology Observatory
OECD

Year

1997

1996

1998

1998

199823
199823
1998

1996

1996

1996

1999

1999
1996
1999
1997
1996

The medium-high and high technology sectors include chemicals NACE (24), office equipment (NACE 30), electrical equipment (NACE 31), telecom equipment (NACE 32), precision instruments (NACE 33),
automobiles (NACE 34), and aerospace and other transport (NACE 35). The total workforce includes all manufacturing and service sectors.
The data is for 1998 for Denmark, Germany, France, Italy, Finland, UK, US, and Japan and for 1997 for all other countries, with the exception of Austria, for which the most recent data is for 1993
The technology sectors include: communication hardware, communication carriers, internet, computer hardware, software, services, and semi-conductors; other electronics ; medical ; and biotechnology.

28

Human resources

The scale and quality of human resources are major determinants of both innovation (creation
of new knowledge) and diffusion (spread of knowledge throughout the economy). For the
former, a critical factor is the available pool of scientists and engineers which is included
within indicator 1.2.

For diffusion, and subsequently for productivity, what matters is the skill-level of the
workforce involved in operating new equipment, including office software and Advanced
Manufacturing Technology (AMTs) in production. These intermediate technical skills are
often obtained through post-secondary diploma courses. They are partly captured in indicator
1.1, but relevant skills obtained through secondary education and via on-the-job training are
not covered by the available indicators. The result is that the scoreboard provides good
coverage of the human resource requirements related to innovation but is weaker on those
related to diffusion.

Indicators 1.3 and 1.4 are not, strictly speaking, indicators of human resources for innovation,
but are rather the effect of innovation on employment. They are also indicators of the
structure of the economy.

Creation of new knowledge

The three indicators for the creation of knowledge measure inventive activity, which is the
source of all of the benefits of innovation. All three are based on traditional innovation
statistics. Other methods of innovation creation, such as the adaptation of new equipment to a
firm’s production and service systems, are indirectly covered under the transmission and
application of knowledge.

Transmission and application of new knowledge

inventive activity, covered under knowledge creation,

is only one aspect of
Formal
innovation. Firms also innovate by adopting innovations developed by other firms or
institutions and adapting them to their own needs. Furthermore, firms can obtain ideas and
technical information from external sources that they then use to develop innovations in-
house or in cooperation with others. This section includes three indicators, all derived from
the second Community Innovation Survey (CIS-2), that measure different aspects of the
transmission of knowledge.

Two of the indicators are limited to small and medium-sized enterprises (SMEs) with between
20 and 249 employees. There are two reasons for this limitation. First, SMEs play a vital role
in innovation, both as intermediaries between the public research infrastructure and large
firms, as in biotechnology, and as developers of new ideas. The CIS provides several
measures of the percentage of innovative SMEs that is not based on formal R&D (where large
firms do better). Second, almost all large firms are involved in the innovative activities
captured by these three indicators. This means that the results will be dominated by SMEs
anyway, since SMEs make up the largest fraction of manufacturing firms in all EU countries.

All of the CIS-2 indicators suffer from differences in response rates by country, varying from
less than 30 % in Germany to 85 % in France, a problem typical to surveys. The main
problem with low response rates is that the firms that choose to respond could be less or more
innovative, on average, than the non-respondents. These and other lessons will be taken into

29

account for the next CIS round. At present, there is no viable alternative to using the CIS
which remains Europe’s most important source of innovation data.

Innovation finance, output and markets

This group includes six indicators that cover a range of issues: the supply of venture capital,
(two indicators), sales of innovations, internet use, ICT investment, and economic activity in
advanced sectors.

The data sources for these indicators include both data collected by private firms and public
data. Little is known about the reliability or quality of the former. Nevertheless, several
indicators are based on this data because of a lack of equivalent public data for several
indicators of high policy interest, such as the supply of venture capital.

Summary of results

Table 2 summarises the innovation indicators for each country. Overall, the picture confirms
the existence of disparities in innovation performance in Europe. Certain countries,
in
particularly some of the smaller ones, score quite high and sometimes even better than the US.
The country with the highest score is Sweden, with above average figures for 12 of the 16
indicators, followed by Finland (8), Denmark and Germany (both 7)

The most innovative of the larger economies is Germany, which is particularly strong in
knowledge creation. Italy and Spain are less innovative in this group, with France and the UK
exhibiting a mixed picture of a few strengths and a few weaknesses.

The fact that the smaller economies such as Ireland, the Netherlands, Finland and Sweden
appear to be the most innovative could be misleading. Small economies often have an
industrial distribution which is concentrated in a few sectors, while larger economies are more
diverse, spanning all sectors from low to high technology. This can shift the scores towards
the mean for many innovation indicators in large economies, while small economies can
exhibit either a high or low innovative capacity, depending on the sectors that dominate the
economy. This is apparent in the high innovative capacity of Sweden, Finland and Ireland and
the low innovative capacity of Greece and Portugal. Of course, this shift towards high or low
technology sectors is not accidental, but can reflect both public and private institutions
seeking out areas of comparative advantage and high profitability.

Finland’s SMEs have a below average performance on the majority of SME indicators. This
suggests that Finland’s innovative strengths lie within large firms, which could be of concern
for the future. Conversely, Denmark' SMEs have an average or above average innovative
capability, although this could partly be due to the industrial structure of Denmark, which has
few large firms.

The US exhibit above average scores for most
percentage share of high-tech production is borderline, at a 1 % increase.

innovation indicators. Its score for the

30

Table 2: Summary of innovation indicators by country

No

Indicator

1.1 S&T graduate share

1.2 % workforce with tertiary grade

1.3 % employment
manufacturing

in

high-tech

1.4 % employment in high-tech

services

2.1 Government expenditure on

R&D / GDP

2.2 Business expenditure on

R&D / GDP

EU

37

13

B

26

11

DK

32

15

D

48

13

EL

38

12

E

32

13

F

31

10

IRL

39

11

I

32

8

L

NL

30

23

11

A

33

6

P

28

7

FIN

58

12

S

47

13

UK

US

JP

37

13

26

7,7

7,2

6,8

11,0

2,4

5,5

7,0

7,4

7,5

1,6

4,8

6,5

3,5

7,2

8,6

7,8

3,0

3,5

4,2

2,6

1,5

1,9

3,6

2,4

2,6

2,5

3,3

2,5

1,4

4,6

4,4

3,7

0,70

0,42

0,72

0,82

0,22

0,36

0,90

0,32

0,53

0,83

0,72

0,44

0,90

0,97

0,58

0,78

0,59

1,20

1,31

1,26

1,53

0,13

0,49

1,38

1,03

0,55

1,11

0,83

0,14

2,06

2,77

1,21

2,04

2,18

2.3 High-tech patents / population

14,9

12,5

19,3

23,9

0,3

1,7

16,3

0,9

4,2

1,9

26,8

9,1

0,0

69,6

41,7

15,0

19,7

9,4

3.1 % SMEs innovating in-house

44,0

29,4

59,0

58,7

36,0

3.2 % SMEs innovation co-operation

11,2

8,9

37,4

14,7

4,6

12,0

62,2

23,2

3.3 % innovation expenditure /

total sales

3,7

2,1

4,8

4,1

1,8

3,9

3,3

4,7

2,6

44,4

24,5

51,0

9,6

14,6

59,1

12,9

21,8

27,4

44,8

35,8

4,5

19,9

27,5

15,7

3,8

3,5

1,7

4,3

7,0

3,2

4.1 % venture capital / GDP

0,06

0,16

0,02

0,06

0,01

0,02

0,07

0,08

0,02

0,11

0,01

0,01

0,05

0,15

0,10

4.2 % new market capitalisation /GDP

4.3 % sales of new-to-market products

3,4

6,5

0,1

2,6

5,1

3,7

3,8

4.4 Internet users per 100 inhabitants

14,9

13,7

28,2

19,4

4.5 % ICT markets / GDP

5,0

5,1

5,5

4,5

17,5

7,1

4,4

9,5

7,2

3,9

4,7

7,9

9,7

5,0

0,4

8,4

11,8

5,7

1,1

13,5

8,7

4,1

0,3

6,6

0,5

5,6

17,4

19,0

10,5

5,9

4,3

0,2

7,2

7,0

4,9

2,3

7,3

31,2

6,9

1,5

6,7

57,3

32,3

41,4

21,0

39,8

14,5

5,3

6,5

6,4

7,6

4,4

4.6 % change, high-tech share

(1992-96)

9

-19

-36

4

-15

-12

-7

150

86

-9

1

-7

Note: Results that are more than 20 % above or below the EU average are highlighted in bold or italics respectively. For indicator 4.6, countries are ranked on the basis of showing an increase or a

decrease in their share.

31