[su_pullquote align=”right”]By Victor DOS SANTOS PAULINO and Najoua TAHRI[/su_pullquote]
Innovation as the key driver of economic growth is nothing new. However, France, with the rest of Europe, continues to face significant challenges in stimulating innovation in its economy and maintaining its competitive edge.
In a study investigating what discourages French firms from innovating, we find that the biggest barriers to innovation are financial or market-related, and not technological. Financial constraints, lack of competent personnel and a perceived pointlessness of innovating are some of the main culprits behind this lag in innovation. Surprisingly, very few firms cited technological barriers, and similar results have been observed in other parts of the world.
The right skill-mix
Taking a closer look, we observe that many of the obstacles can be traced back to a shortage of managers with the relevant skill set. Various innovation studies point out that innovation success requires the effective combination of different expertise, both technical and commercial. However, managers with both attributes are rare, especially in France. And the absence of versatile managers can result in conflicting viewpoints between technical managers who tend to be preoccupied with technological performances and commercial managers who tend to be focused on market concerns. This in turn can lead to a communication breakdown and cooperation failure, impeding the innovation process.
Add to this, the prevalent culture of “technology push” innovation in France, where by innovation processes are spearheaded by R&D in new technologies but are plagued by a poor understanding of the market. This not only reinforces market barriers to innovation but also leads to financial constraints. Substantial resources end up being pumped into and prolonging the R&D phase, blurring the distinction between inventing something, innovation and achieving innovation success. The development of the Concorde is a good illustration of this. To date there are ongoing debates on whether the supersonic airliner was an innovation success or not. For some, the technological breakthroughs overshadow the fact that only 14 units were sold to two clients. In short, firms are discouraged from innovating because innovation, from their perspective, necessitates considerable resources to cover the excessive costs of invention.
Impact of government support
In Europe and notably in France, public authorities are wrapped up with technological progress leaving little room for commercial expertise in the innovation process. Inventions and discontinuous technologies are favored, often out of sync with market dynamics, and very costly. Too often public funding programs, for instance in the aerospace sector, push firms to undertake projects that are not always economically viable. Thus, firms tend to orientate their strategies on technological advances, to the detriment of market objectives, essential for anticipating returns on investment.
Breaking down the obstacles by industry, the aerospace industry faces the highest obstacles, followed by the manufacturing and service industries. This is expected as aerospace companies are more likely to be innovative, face high productions costs and heavily rely on public investment. In contrast, firms in the service industry experience the fewest obstacles. The development of new-to-world products is rare in the service industry, where the intangibility of products allows for easy imitation by rival firms and thus raises a serious problem in convincing investors to fund new ventures. Service orientated firms therefore tend to adopt a market pull strategy with focus on continuous innovations, marginally enhancing or upgrading the service offering, and at a much lower cost. It is therefore not surprising that firms in this sector face the lowest financial barriers to innovation.
Overcoming barriers to innovation
As a starting point, firms should accommodate market research in their innovation processes. This is easier said than done as technical managers sometimes first need to move away from the idea that if you don’t know how to make a product, you won’t know how to sell it. Technical managers need to recognize the importance of bringing in the market perspective on board the innovation process. To combat the shortage of managers with both technical and business skills, firms could offer on-the-job training to develop deficient competencies (e.g. granting MBA opportunities to technical managers). Moreover, to tackle the root of the problem, higher learning institutions offering scientific degrees should integrate a strong element of social sciences in their programs. This would not only ensure a commercial dimension in the innovation process but may also go a long way to solving communication issues between technical and commercial teams, and add legitimacy to marketing insights.
However, this is not a substitute for involving commercial managers directly in the innovation process. Ideally, firms should go a step further and create a business intelligence unit to provide information on the market, to work side by side and complement the work of the technological team. The weight accorded to commercial competencies in the innovation process will vary according to the characteristics of the activity sector.
A fundamental change will also have to come from the public authorities who need to redirect their funding to support successful innovations rather than novel technologies, and allow firms to focus on continuous innovation – the natural course for most. By prioritizing downstream innovation processes, such as innovation commercialization, firms will face lower market barriers and innovation costs. To this end, public authorities need to make more room for firms in defining the strategic orientation of public support policies.
Innovation is a powerful means by which to ensure long-term survival. Without innovation, it is extremely difficult to adapt to a changing environment. Although new product failure is high, innovation without any failure is impossible. In a nutshell, successful innovation requires not only a change in the mindset and innovation culture of firms but also shifts in the public institutional framework to be more in favor of continuous innovation. Firms, government agencies, higher education institutions all have a role to play in overcoming barriers to innovation and creating an enabling environment for innovation.
This article is based on the study entitled, “Les obstacles à l’innovation en France : analyse et recommandations ”, co-authored by Victor Dos Santos Paulino and Najoua Tahri, published in Management & Avenir, 2014/3, no. 69, p. 70 – 88, available here
[su_spoiler title=”Méthodologie”]The study, conducted in 2014, is based on the results from the 4th Community Innovation Survey (CIS 4) carried out in France between 2002 and 2004 and published by Eurostat. 175,533 firms in France participated in the survey, indicating if they have experienced any of 11 obstacles to innovation. For the purposes of our study, we then divided the obstacles into four categories: knowledge, market, financial and external obstacles, and analyzed the obstacles by nature of the firm and by sector (manufacturing, services and aerospace, the latter being a key industry in France). [/su_spoiler]
Any company faced with a radical innovation in its sector of activity will hesitate between indifference and reaction, because of the impossibility of foreseeing whether the innovation is a radical breakthrough or a product that is doomed to fail. To resolve this dilemma, the solution might be to identify potentially disruptive innovations and assess their risk for established stakeholders, as illustrated by the case of the satellite industry.
The miniaturisation of satellites has affected space industry markets over the last 20 years. On the offer side, new manufacturers have emerged, marketing small satellites at a lower cost; on the demand side, there are new clients that see this innovation as an opportunity. Quite logically, the well-established manufacturers, positioned in the segment of traditional large-size satellites, are wondering whether they should consider these radically new technological choices as a threat?
Disruptive innovation is difficult to observe until it’s happened
Our research, conducted in the framework of the Sirius chair (http://chaire-sirius.eu), aims to answer this question, which first involves clarifying the concept of ‘disruptive innovation’. This is necessary because the expression, which is widely used and sometimes mistakenly, makes established players in the sector anxious, while fascinating and intriguing them, without it being entirely clear what exactly we are talking about.
A disruptive innovation is a particular case of radical innovation which modifies the structure of an industrial sector and whose effects may lead to existing companies being replaced by new competitors. The difficulty is that it is only possible to be certain that it is a disruptive innovation in the long run, a posteriori, once it has staked out its place or even driven out the oldest technologies and the companies that marketed them. In the short term it appears rather to be a less efficient product or service, aimed at a marginal clientele, an immature technology proposed by small companies with limited resources, less know-how and less knowledge of the market.
Because of these characteristics, it is very difficult to distinguish between a real disruptive innovation which has just been introduced and so requires that existing companies react, and an innovation destined to fail, that they can comfortably ignore. This creates uncertainty about what they should do, which is known as the innovator’s dilemma, since existing companies should promptly assess the danger and possibly invest in the new market while the disruptive innovation is not yet a threat, if they are to limit the consequences. If they wait too long, it might be too late.
A classification for anticipating the threat
What matters to company executives is to be able to anticipate trends and thus, if possible, to be able to use forecasting tools. Since it is not possible to affirm at an early stage that an innovation is disruptive, the solution is to try and determine in the short term whether it has the typical characteristics, in other words whether it is a potentially disruptive innovation and if so what type of threat it is likely to pose to well established stakeholders.
Not all disruptive innovations have the same consequences: some lead to complete substitution of the old technology by the new one and thus pose an extreme threat, the typical case being that of silver-based, emulsion film photography wiped out by digital photography; other innovations do not entirely replace the initial products. This is the case in air transport, for which low-cost companies have captured only some of the clientele of traditional companies, and in telephony, where landline technology continues to coexist with mobile technology. These examples are characteristic of three types of disruptive innovation for which only the first is associated with a high risk of the pre-existing market disappearing. In the two other cases, the threat appears to be lower for established companies.
Small satellites, a limited threat
What then is the situation for the space industry? Given this conceptual framework, how should well established stakeholders react to the development of small satellites? According to the parameters chosen for our theoretical model, small satellites have most of the characteristics of potentially disruptive innovation: lower technological performance with respect to the requirements of the traditional main customers; they are less complex; they either cost less or on the contrary cost much more, for instance in the case of constellations of small satellites; they offer the perspective of introducing new performance criteria such as the possibility of designing, building and launching a new satellite in a very short time or again the improvements offered by constellations in low Earth orbit.
However, an analysis of the demand for these new satellites shows that they are intended mainly for new customers, which means that we can exclude the hypothesis of a disruptive innovation affecting an existing market, which is really the main risk case for manufacturers. Those who buy them can be divided into institutional customers from emerging countries, which do not have sufficient resources to launch conventional satellites, and private top-of-the-market customers with new needs for low orbit constellations, which conventional satellites do not meet.
Thus, small satellites are indeed a potentially disruptive innovation but they only pose a slight threat to well established stakeholders. Despite the structural changes they might lead to for this industry, there is not much risk that they will entirely replace conventional satellites. This in no way determines either their ultimate success or failure.
[su_spoiler title=”Methodology”]This study was conducted by Victor dos Santos Paulino (TBS) and Gaël Le Hir (TBS) in the framework of the Sirius chair, on a topic proposed by the chair’s industrial partners. For the theoretical part, the authors reviewed the existing literature on the theory of disruptive innovation, which enabled them to draw up a table classifying the characteristics of potentially disruptive innovations. They then applied this model to the satellite industry while referring to several sources of information (information published by manufacturers, sectoral information, interviews with experts, databases). The study was published in the Journal of Innovation Economics & Management in February 2016 under the title “Industry structure and disruptive innovations: the satellite industry”.[/su_spoiler]
The case of innovation in the space industry
Innovation is one of the major themes in management. The capacity to innovate is considered to be critical for businesses to succeed. However, if we look at the space industry, we can see that innovation should be bridled with caution if a strategy is to succeed.
Conventional wisdom claims that the rapid adoption of new technologies improves the performance and survival of companies. Already at the beginning of the 20th century, Joseph Schumpeter had demonstrated the link between innovation and industrial success. In the 1990s, other scholars, such as Joel Mokyr, followed suit while explaining the inertia (the slow adoption of new technology) as being due to the phobic and irrational attitudes of managers. Against this backdrop, the space industry provides an interesting, and even paradoxical, example: this highly technological sector is a symbol of innovation, yet it considers it necessary to adopt a cautious approach. This is a requirement for telecommunications satellite operators, for whom reliability is more important than novelty, a factor that entails risk.
Uncertainty in the space industry
Innovation is a complex phenomenon that does not automatically guarantee success, progress and profits. For example, it has been demonstrated that over 60% of innovations led to failures. In addition, many companies legitimately postpone the adoption of innovations in several cases: for example, when an innovation would cannibalize an existing product or make it obsolete, or when the costs turn out to be too high compared with the expected profits. Do these factors explain the inertia-based strategy observed in the space industry?
By its very nature, the use of new technology by the space industry entails a risk: ground testing of a component, even under conditions that simulate space, may not accurately predict its behaviour in flight. It may perform perfectly, or prove faulty and no-one can be sure ahead of time! The result is that satellite manufacturers tend to favour an inertia-based strategy with which technological changes are adopted in an extremely cautious manner. Only tried and tested innovations are implemented. The cost of failure makes both manufacturers and their customers behave cautiously.
Reliability is a source of competitive advantage in space telecoms
Caution features strongly in the space telecommunications sector, because the reliability of satellites is a major competitive advantage. To ensure the greatest reliability, manufacturers have set up perfectly tuned organisations and processes. This is why the cycle of design, development and manufacture of satellites is broken down – and must continue to be so, into successive phases: Phase 0 > Mission analysis; Phase A > Feasibility study; Phase B > Preliminary design; Phase C > Detailed design; Phase D > Manufacturing and testing; Phase E > Exploitation; Phase F > Decommissioning. While this approach helps ensure high levels of reliability, it also brings with it considerable structural inertia.
This need for reliability and stability leads space manufacturers to adopt information and communications technologies that have the least impact on the organization. However, it also leads them to not question technological choices for space telecommunications, choices that increase reliability, but do not allow any savings in production costs. Serge Potteck, a specialist in space project management, emphasises, for example, that to transmit a signal, engineers prefer to design antennas with a diameter of 60 cm in order to guard against possible malfunctions, whereas a less costly 55 cm antenna would suffice.
Differences between segments in the space sector
This analysis, however, needs to be refined for each of the different segments that make up the space sector. They can be classified into three groups. The first consists of telecommunications satellites and rockets (launchers). In this segment, the cost of failure would be very high. It would penalize the manufacturer, who would have produced a non-functioning satellite as well as the company that operates the launchers and markets launch services, but, also, all the players involved in the business plan. A failure can cause a delay of several years in the marketing of new telecommunications services to be delivered by satellite.
The second group consists of spacecraft built for scientific or demonstration purposes, and as always, the rockets used to launch them. The governments or space agencies that commission them are not subject to the usual profitability requirements. Here, disruptive technology and its associated risks are part and parcel of a project.
The last group overlaps the space industry and other industries. It encompasses, for example, the tools to operate the geolocation capabilities of the Galileo constellation or the distribution of digital content. In this segment, stability is seen as detrimental to the development of new markets.
An inertia-based strategy… but only at first sight
While the particular environment in which the space sector operates tends to dampen its ability to experiment, it does not entirely prevent innovation. Inertia-based strategies are, in fact, largely an appearance. What we refer to as “inertia” is, in fact, a genuine innovation-dynamic: any new technology will be studied carefully before being tested, or not, on a new spacecraft, and before its possible subsequent integration. Could such a strategy, therefore, ensure the survival of a market in certain cases? To consider it as a failure to be countered would be a mistake!
The space industry would probably not innovate much if its only clients were commercial satellite operators. However, space agencies are willing to finance experimental spacecraft, thus accepting the financial risk associated with possible failure. It is thanks to them that the manufacturers of commercial satellites are able to validate the technological choices available to them, since they have proven their reliability.
[su_note note_color=”#f8f8f8″]From my publications, ” Innovation: quand la prudence est la bonne stratégie [Innovation: when caution is the right strategy]”, published in TBSearch magazine, No. 6, July 2014, and ” Le paradoxe du retard de l’industrie spatiale dans ses formes organisationnelles et dans l’usage des TIC [The paradox of the delay of the space industry in its organizational forms and in the use of ICT],” published in Gérer et comprendre [Managing and understanding], December 2006, No. 86[/su_note]
[su_spoiler title=”Methodology”]The analysis of the organizational and technological paradox that characterizes the space industry is based on several types of information: the theoretical literature available (Hannan and Freeman, 1984; Jeantet, Tiger, Vinck and Tichkiewitch, 1996); the work done by engineers in the sector (Potteck, 1999); and field observations made between 2003 and 2007 at one of the leading European prime contractors manufacturing satellites and space probes.[/su_spoiler]