Europe Needs to Innovate Itself out of Economic Slump

5 min read

Europe is in the midst of economic recovery that is not going anywhere. Even though Europe has declared the recession is over, the economy continues to halt recovery.

Hovering at 0.1% of annual growth rate of GDP in 2013, the economic and financial crisis has eradicated years of economic and social progress. Its weak infrastructure has been exposed and exploited. Years of social and economic advancement have stalled. European nations are losing its competitive edge against other countries. General and youth unemployment rate are devastatingly high especially in countries like Spain and Italy.

With the situation becoming increasingly more volatile, uncertain, complex and ambiguous, the challenges European nations are facing to regenerate economic growth is a systemic one.

There are many ways to accelerate economic growth. One of them is through innovation. Traditionally, Europe has been establishing itself as leaders in product innovation through technology-led development that has largely contributed to the economic growth and competitiveness.

In the new age that is shifting to the east, emerging competitors are closing in on technology, and have found ways to produce the same output more efficiently and cheaper than its European counterparts. European nations can no longer depend on technology-led innovation, low production costs and market proximity as their core competencies.

At the same time, organizations are sitting on top of substantial amount of cash from the return-on-investment in technology-led innovation that got them here in the first place. However, what got them where they are now won’t get them where they desire to be in the future. The complex economic and social challenges call for new approach.

This is ironic as organizations are cash-rich but are failing to invest in innovations that nurture growth. This is because capital investment in innovation has been spent on communication and product innovation (level 1 and 2 design), creating an over-reliance of product innovation and a legacy system based on traditional mindset, processes and regulations.

Developing product innovation as the core capability of organization is not enough.

Market leaders like Nespresso did not win by designing coffee machines alone, but with both product and service innovations to reinvent the coffee experience, and building a global business around the coffee experience through its business model.

Similarly, organizations in Europe need to revitalize their competitive edge by moving up the value chain of design from level 1 and 2 to level 3 and 4, where businesses are designed to enable continuous stream of innovations. 

To do so, organizations need to invest in building innovation capability through design for long-term profitability and growth that typically pays off in 5 to 10 years, even if it is through acquisition of startups and SMEs.

Decision-makers in organizations need to be able to balance short-term demands from shareholders and long-term growth that can only be achieved by tapping on the true potential of design as a catalyst for innovation in organizations.

Designing businesses involves designing management systems, business models, culture and policies for organizations to continuously create and deliver values to foster a continuous cycle of product and service innovations that leads to growth. 

Currently, we are seeing the transition of organizations moving to design services and interactions on top of product innovation layer. Going beyond product allows organizations to develop ecosystems of products and services that create new competitive advantage. This drives growth, and eventually market leadership that enables organizations in Europe to compete globally.

Business growth also creates new jobs internally, and particularly externally with organizations in the supply chain or partners in which innovations help to build new platforms. 

Government plays an important role in facilitating organizations to innovate. Whether through subsidies, grants or tax breaks, European organizations are encouraged and benefited to invest in building the organizational innovation capability. 

Building innovation capability through business design not only enables organizations to continuously innovate, but also improve living standards of European citizens, create new jobs, enhance the skills of the workforce and improving productivity. Organizations need to collectively design themselves to create iterative waves of innovations and alter their business models, compete to win globally, and drive economic growth back to the way Europe was.