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What Europe Needs Is an Innovation-Driven Entrepreneurship Ecosystem: Introducing EDIE By Olaf J. Groth Mark Esposito Terence Tse With entrepreneurial and innovation ecosystems appearing in geographic pockets around the world in diverse places and pockets of growth, the call for an entrepreneur-driven innovation ecosystem (EDIE) in Europe is long overdue. Change remains a constant, and traditional industries and mature markets in Europe have left a vacuum in the path to economic growth. The need for a new model is immediate. If Europe is to find itself providing competitive leadership in the global business environment, a new philosophy is necessary to move forward in the twenty-first century. This is the thinking behind the imperative for an EDIE in Europe, which is presented in this article as a result of a long established effort to awaken a European response to an increasingly contracting environment. © 2015 Wiley Periodicals, Inc.

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s Europe struggles to get back in sound economic and social shape, many European countries appear to be deeply involved in efforts to implement change. The combination of generally sluggish

gross domestic product (GDP) growth and the challenges of unemployment, fiscal deficits, public debt, and pressure on exchange rates are merely symptoms that highlight the deep structural deficiencies of Europe’s

Correspondence to: Mark Esposito, Harvard University Extension School, 51 Brattle Street, Cambridge, MA 02138, [email protected]

Published online in Wiley Online Library (wileyonlinelibrary.com) © 2015 Wiley Periodicals, Inc. • DOI: 10.1002/tie.21709

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economy. Underlying those phenomena are the spillover effects of global interdependence and global crises, uncertainty about parts of Europe’s financial system, insufficient levels of competition in the service sector, and fragmented markets in key strategic sectors (Groth, 2013). Of course, numerous other factors have contributed to the stagnation in the European economy. But the question is, what can we do about this now? The adoption of an overly specific, short-term approach to addressing each aspect would leave the economy vulnerable to recurrent shocks and regressions. More importantly, such an approach would fail to address the underlying problems. That is because at the crux of the predicament lies not a lack of regulation, but an outdated European system of economic renewal, a system that is no longer in line with the needs and speed of today’s business landscape. Europe’s productivity infrastructure is in need of an upgrade. Instead of merely new regulations and taxes, innovation, change, and entrepreneurs are required to anchor the economy during business-cycle downturns. Hence, we propose a system that pairs austerity with well-focused spending on a new, structurally sound model for sustainable growth that will initially tackle financial deficits and ultimately create financial stability and act as a motor to pull Europe through future crises. We have dubbed this system an entrepreneur-driven innovation ecosystem (EDIE).

Europe’s productivity infrastructure is in need of an upgrade. Instead of merely new regulations and taxes, innovation, change, and entrepreneurs are required to anchor the economy during business-cycle downturns. Thunderbird International Business Review Vol. 57, No. 4 July/August 2015

Innovation may seem like an outlier in economic development. However, taking a step back to observe the greater trajectory through which innovation can impact every key factor in a market enables us to understand the power of innovation. A recent World Economic Forum report suggests that innovation capabilities in the European Union influence the competitive divide between regions. Countries in the more innovative northern Europe seem to be doing much better than those in the east and south, where innovative capabilities are relatively meager. Enhanced innovation drives economic growth and thereby attracts investments, helps develop resource efficiencies, and generates more opportunities. This general trend has been apparent in the creation and growth of California’s Silicon Valley. The region of innovation currently boasts 46,665 jobs, which exceeds pre-recession levels (Silicon Valley Index, 2014). With a GDP of US$533 billion, Silicon Valley is now the 19th largest economy in the world (Groth, 2013). As in Silicon Valley, innovation can drive growth in European markets that seem outdated by shifting the core understanding of entrepreneurship from an “inside-out” model to a model of dynamic and systemic intervention in which the aggregate benefits of the EDIE system are clearly greater than the sum of its parts. This requires concerted efforts to leverage those innovation elements in development systems that are often hidden in traditional macroeconomic analyses. While traditional entrepreneurs graft business ideas onto existing concepts, EDIE entrepreneurs are willing and able to convert new ideas into innovations. Europe needs this special breed of entrepreneurs, who are driven by disruption and success. The EDIE paradigm addresses the fears and risks of failing that are associated with innovation-driven entrepreneurship by building an ecosystem that serves as a safety net because it combines many different actors and institutions that exchange talent and insights for individuals to transfer, for businesses to pivot, and for the economy to renew. As a result, the development and use of an EDIE in Europe has become imperative for overcoming the shadows of the gloomy economy. The ecosystem provides a platform for growth, enables the exchange of ideas, and introduces the governance mechanisms required to cultivate innovation and unnerve the possibility of failure. In order to create that safety net, EDIEs need a host of investors, public and private supporters, government involvement, and venture capitalists. Innovation is the creative renewal and upgrading of products, services, processes, business models, and organizational structures to serve new needs and

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What Europe Needs Is an Innovation-Driven Entrepreneurship Ecosystem: Introducing EDIE

markets. It satiates demands that consumers are initially unaware they have. As such, it expands the market by introducing new demand. Markets that originate from entrepreneurially driven innovation enhance the sophistication of consumption by introducing novel products that respond to needs and problems in nuanced ways. They also generate additional benefits for the firm, including multiplier effects, spillovers, and a shift toward the higher end of aggregate demand. Entrepreneurs provide a creative impulse for renewal and sow the seed for the next growth cycle while others are still busy harvesting the previous cycle. Therefore, when the economy stalls, as it has over the past five years in Europe, demand is in the pipeline that can stimulate the market. That disruptive innovation pipeline should be diversified, so that the economy gains in both breadth and depth of offerings in different industries and sectors for increased robustness. Sustainable growth will attract domestic, continental, and international investments, all while creating stability in the financial ecosystem.

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The ecosystem may be chartered with a mandate to self-organize and create emergences (rather than “emergencies”) in the form of serendipitous occurrences and developments, including highly desirable ideas, technologies, and solutions.

Building the Ecosystem An ecosystem that supports innovation-driven entrepreneurs orchestrates a diverse set of actors in robust, fluid flows of knowledge and intellectual property (IP), capital, talent, relationship, and trust among multiple stakeholders, such as governments, corporations, startups, private equity, private laboratories, public laboratories, and universities. For any given company, these flows can only occur in the presence of a flat hierarchy with little or no segmentation between employees and their managers. The absence of bureaucratic levels allows for the free exchange of ideas, which creates an environment supportive of disruption and innovation. Similarly, actors within a market should have an open platform that promotes the exchange of ideas and the establishment of networks. The ecosystem may be chartered with a mandate to self-organize and create emergences (rather than “emergencies”) in the form of serendipitous occurrences and developments, including highly desirable ideas, technologies, and solutions. This makes the entire system less fragile, lowers the real and perceived transaction-cost burdens, and allows for continuous upgrades of transactional and economic models. An EDIE is a composition of intrinsic and extrinsic variables that drive the market for change. The elements and dynamics necessary for developing the ecosystem vary from situation to situation. However, a good place to start would be to map all actors’ interests, activities, and interactions with other actors, and then to identify

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gaps and hurdles in order to understand motivations and possible ways to add value. The assessment and evaluation of relevant gaps allows for the creation of a more complete system that addresses all aspects of the ecosystem. An EDIE integrates mental and creative processes—factors that truly drive innovation—and introduce motivations to move beyond simply getting a job done. This highlights the need to establish a European network of forums targeted at entrepreneurs, corporate intrapreneurs, private-equity investors, and academics to allow all sides to convene, explore new modes of interaction, and develop trust. These forums can then evolve and govern themselves according to innovation-focus areas. As with the Silicon Valley Innovation Summit, European committees can collaborate on the exchange of ideas and the creation of networks. In our view, there are at least two straightforward possible ways to move ahead. The first entails the introduction of an “innovation ecosystem think and do tank” to foster and catalyze (a) thought leadership on European-style entrepreneurship and innovation; (b) a European identity for entrepreneurship; (c) entrepreneurs’/ intrapreneurs’ abilities to leverage and manage context, connectedness, and complexity in the ecosystem; (d) momentum in convergent spaces; and (e) the connections between the EU system and the global innovation economy. It can also support the creation of straw-man

Thunderbird International Business Review Vol. 57, No. 4 July/August 2015


designs for a spectrum of career trajectories that are entrepreneurial or intrapreneurial in nature, and do so in collaboration with ecosystem partners. The second involves development of a tool that visualizes the interaction value in the ecosystem, and makes that value more tangible and transparent. Such a tool would allow for the optimization of network dynamics among actors and create incentives to develop more of the right connections. The free flow of ideas among individuals who share nothing more than an ambition for change can serve as the origin of reform of established systems in Europe. Collaboration on various ventures could become the driving force for a group focused on developing an ecosystem for innovation. Thus far, this has not happened because of the dominance of a culture resistant to change. The public appears to believe that European systems are established and are therefore too hard to change, calling to mind Europe’s fragile state after the world wars. Nevertheless, calls for change need to come from the inside. A certain culture needs to be introduced if an EDIE is to be successful—one that promotes change and establishes a cultural view of “fast failing” as an opportunity to learn, iterate, and succeed. If capital is to flow into a country, then that country must not only be ready to receive investments that will provide returns but also to accept the losses it will incur. When the only projects and initiatives pursued are those for which success is guaranteed, there is an assemblage of projects that will never be attempted. In this respect, Europe differs notably from the United States, as the latter is more inclined to accept a financially lucrative, economy-altering project based on a cost-benefit analysis. According to the Global Entrepreneurship Monitor, which compiles comparable data across countries, “early-stage” entrepreneurs made up just 2.3% of Italy’s adult population in 2010. The corresponding figures for Germany and France were 4.2% and 5.8%. In this regard, European countries are easily surpassed by the figure of 7.6% for the United States, as well as China’s 14% and Brazil’s 17% (“Les misérables,” 2012). The United States thrives on risks that offers the possibility for growth, while Europe hesitates to accept this concept for social, economic, and historical reasons. More interestingly, from a social standpoint, we find a certain attitude toward entrepreneurs among Europeans, who are appreciative of their contributions to society but aware of the instability of the profession. In fact, 79% of Europeans tend to agree that entrepreneurs create new products and services that benefit all, and 87% believe they create jobs. However, professionals such


From a social standpoint, we find a certain attitude toward entrepreneurs among Europeans, who are appreciative of their contributions to society but aware of the instability of the profession. as architects, lawyers, doctors, and accountants enjoy more favorable standings from the European perspective (European Commission, 2012). If an EDIE is to be successful in Europe, this mind-set must change. There are game-changers in Europe—successful entrepreneurs who have generated impressive amounts of revenue. In Austria, we find Dietrich Mateschitz, who launched Red Bull. Sweden is home to Ingvar Kamprad, the billionaire founder of IKEA. Skype, a leader in the voice-over-IP market, was founded by Janus Friis from Denmark and Niklas Zennström from Sweden. Europe’s innovators also include a cofounder of the software company SAP AG, Hasso Plattner, a German entrepreneur who started as an engineer for a local company in Bavaria. The promotion of the success of such entrepreneurs might shift the public’s general views on entrepreneurship, which is exactly what an EDIE needs. An ability to view risk as synonymous with opportunity rather than loss will change the lens through which future projects are brought into focus. The successful incorporation of an EDIE means positioning entrepreneurship as the ability to navigate increased complexity, overcome career barriers, and leverage personal strengths rather than as an escape from dependent work. Entrepreneurship can be a means of mobilizing business capabilities, in contrast to the simplistic assumption that its only purpose is to avoid bureaucratic complexity. An EDIE should seek to harvest entrepreneurial skills in Europe in order to generate fastchanging ideas and business plans. However, to be first in a market, entrepreneurs also need fast-adapting investors, as well as quickly responding media and legal systems.

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When Xavier Damman, founder of the online storytelling tool Storify, was asked why he moved from Belgium to the United States to launch his start-up, he replied by saying it was close to impossible to find investors in Belgium (Horizon, 2014). Moreover, he found it unacceptable that he had to submit a full business proposal in order to have his innovation considered by potential European investors—such proposals were not necessary in the United States. Clearly, Europe needs a new system in which the focus on processes is replaced with an ability to capture momentum and build entrepreneurship. In this regard, increasing the resources available to each initiative will decrease the cost of projects and make more opportunities available. This, in turn, should ultimately draw the interests and talents of business-minded stakeholders. Entrepreneurship can be described in many different lights. While we strive to focus this concept on the specific agenda of innovation, we also aim to disassociate ourselves from the assumption that entrepreneurial innovation must follow the Silicon Valley model. A customized European model may include the more systematic reframing of problems, the synthesis of novel solutions from disparate existing parts, and the orchestration of teams

Without dismissing the importance of Silicon Valley’s ability to quickly turn over a new technology or product, we acknowledge that in Europe there is a need to grow the institutional, corporate, and government networks in order to develop a breeding ground for innovation. DOI: 10.1002/tie

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and programs. Furthermore, it is likely to require the development of awareness and knowledge of a new outlook on entrepreneurial innovation. Without dismissing the importance of Silicon Valley’s ability to quickly turn over a new technology or product, we acknowledge that in Europe there is a need to grow the institutional, corporate, and government networks in order to develop a breeding ground for innovation. Moreover, the ideas and driving forces must be supplemented with relatively loose regulations that make it easier to start fresh or to introduce a new product to the market. All forms of interactions among institutions and industry leaders should be encouraged, and entrepreneurs should be greeted with support from all industries—financial, legal, marketing, and accounting, to name a few. Essentially, anything the innovator needs should be easily accessible. All of this is captured in the Silicon Valley model, but Europe’s needs are more expansive. Innovation and entrepreneurship should become a habitat accessible through the EDIE anywhere in Europe without geographical segmentation. In recognition of the importance of innovation, the European Commission established the Europe 2020 Flagship Initiative Innovation Union. This move highlights the commission’s understanding that the only way to get the European economy back on track is through research and innovation, which drive long-term growth. In accordance with an EDIE, EU public policy must shift if European companies are to remain competitive in the global economy. As massive numbers of people leave Europe due to the lack of work, opportunities, and resources, the EDIE agenda is becoming an increasingly attractive concept for ensuring that investors and business developers stay. To fail in Europe is to fail—period. Today, the bankruptcy laws are so tough that investors and entrepreneurs are discouraged from making second attempts. In France, for example, it can take a bankrupted person up to nine years from the end of the liquidation process to be free of debts and other restrictions (“Les misérables,” 2012). There is also a stigma among investors that if you have failed once, you will fail again. Without capital, launching a new project is difficult. Furthermore, the supply of funds for financing is low in Europe in comparison to other developed markets. More importantly, institutional investors generally view venture capital as a high-risk asset class with low growth prospects. In 2008, Europeans invested €6.3 billion in venture capital, but only €3.2 billion in 2012. These numbers, which have continued to shrink, are the loudest cry for reform. One key aspect of building the EDIE is the development of a public-relations program in which



entrepreneurial identity, risk, and opportunity are redefined as desirable and as valued contributors to society. The PR program must also showcase successful European entrepreneurs and intrapreneurs, as well as “fast failing,” and include discussions of what creates value for society. High-school programs can be developed to introduce children to “business and societal innovation,” and encourage them to experiment with ideas and concepts. Such programs should reward them for learning and iterating, rather than for winning. This classroom-based introduction of the mental processes needed to become innovative entrepreneurs will ensure that future generations possess the skills needed to lead the market through innovation. In other words, we can change the future by changing today. Europe’s declining working population, which Eurostat reports will fall by 52 million people by 2050, makes attracting students to business and innovation mandatory. The intrinsic components of the EDIE require the development of a playbook for corporate C-level management that covers (a) establishing, nurturing, rewarding, and publicly recognizing change-agent behavior that fuses outside innovation with inside innovation; and (b) encouraging external entrepreneurs to switch career tracks, at least temporarily, to intrapreneurial roles. It is not easy for employees to carry out innovation while carrying out their regular jobs. However, EDIE showcases the importance of assimilating entrepreneur-driven innovation everywhere, even within the framework of an existing job. For this purpose, a working group of chief human resource officers can be established to develop perspectives on more diverse resumes in order to encourage learning and knowledge building across various disciplines and fields, thereby strengthening the pool of talent that is able to play in new convergence spaces.

The Benefits The rapid cycles of innovation and experimentation in an EDIE ecosystem can generate new growth; bridge lagging growth in other EU industries and sectors; and lead the EU out of crises by upgrading and redeploying talent, changing the terms of competition, absorbing external shocks, and helping large industries move toward new growth horizons. An EDIE propels the mechanisms for the entrepreneur to preserve its entrepreneurial creative tension regardless of external factors. An EDIE ecosystem can create entrepreneurial spinoff learning, opportunities, and mind-set changes across


Stronger ecosystems tend to be more immune to drastic economic shocks and financial bubbles given their innate ability to adapt. Europe. It can enhance the acquisition of information and connections pertaining to grants, the identification of grassroots initiatives, the development of training and incubation programs, assessments of corporate innovation needs, market evolution, role-model development, and open innovation. Stronger ecosystems tend to be more immune to drastic economic shocks and financial bubbles given their innate ability to adapt. “Noise” in such a system can be evidence of latent or nascent opportunities that can be explored when older centers of economic attention come under pressure. The achievement of such an environment requires a combination of a market for innovative goods and services; focused resources; new financial structures; and the mobility of people, money, and organizations. An EDIE also requires significant contributions from political, business, and social leaders. Moreover, changes in regulation, culture, public procurement, and IP need to be fostered. The financial industry must provide greater flexibility, an effective venture capital sector, and new instruments to facilitate the growth of innovation markets. Clearly, Europe needs to offer an internal market for innovation and diminish barriers that make it difficult for linkages to be developed and hinder the free flow of knowledge, resources, and capital. For that, we suggest the adoption of the entrepreneurial-driven innovation ecosystem.

Acknowledgment Special thanks to Harvard Research Aide Mariam Sherzad for research conducted.

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Olaf J. Groth is a global professor and discipline lead for strategy, innovation, and economics at HULT International Business School, based in San Francisco. He is also managing director of Emergent Frontiers Group LLC, which advises executives, investors, and officials on global economic, business, and innovation trends and strategy. For the past 20 years, Dr. Groth has helped qualify and start new initiatives and ventures in 30+ countries. He has been a judge for GE ecomagination, mentor and co-chair for strategy at the Cleantech Open West, contributor to the World Economic Forum project on Europe’s Innovation-Driven Competitiveness 2.0, visiting scholar for innovation at the UC Berkeley Roundtable on the International Economy (BRIE), fellow at the Competitiveness Center at Grenoble Ecôle de Management, and senior fellow for innovation at the Fletcher School’s Center for Emerging Markets Enterprise. He holds PhD, MALD, MAIPS, and BA degrees in international affairs focused on business, economic, and technology relations from the Fletcher School at Tufts University and the Middlebury Institute of International Studies at Monterey. Mark Esposito is a member of the teaching faculty at Harvard University Extension School, an associate professor of business and economics at Grenoble Graduate School of Business in France, and a senior associate at the University of Cambridge–CISL in the United Kingdom. He serves as Institutes Council co-leader, at the Microeconomics of Competitiveness program (MOC) developed by the Institute of Strategy and Competitiveness, at Harvard Business School. Mark is the founding director of the Lab-Center for Competitiveness and the head of the Political Economy and Sustainable Competitiveness Initiative at Grenoble Graduate School of Business. He obtained his doctoral degree from the International School of Management in Paris/New York, in a joint program with St. John’s University. His full profile can be found at www.mark-esposito.com and he tweets as @Exp_Mark. Terence Tse is an associate professor of finance at ESCP Europe and the head of Competitiveness Studies at i7 Institute for Innovation and Competitiveness. In addition to frequent appearance in academic publications, he has been regularly featured on practitioner journals and blogs. Terence has also made appearances on Chinese, French, and Greek television. Before joining academia, he worked in mergers and acquisitions at Schroders and at Lazard Brothers in Montreal and New York. Terence also worked as a consultant for Ernst & Young and served as an independent consultant to a number of companies. He obtained his doctoral degree from the Judge Business School at the University of Cambridge. Follow him on Twitter @terencecmtse, www.terencetse.com, or www .facebook.com/terencetsephd

References European Commission. (2012). Entrepreneurship in the EU and beyond, Flash Barometer 354. Retrieved from http://ec.europa.eu /public_opinion/flash/fl_354_en.pdf Horizon. (2014, February 7). Entrepreneurs need to travel to the centre of their industry—Storify’s Xavier Damman. Retrieved from http:// horizon-magazine.eu/article/entrepreneurs-need-travel-centre-their -industry-storify-s-xavier-damman_en.html

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Groth, O. (2013). Eight ways Europe can boost entrepreneurship. World Economic Forum. Retrieved from http://forumblog.org/2013/12 /eight-ways-europe-can-boost-entrepreneurship/ Les misérables. (2012). The Economist. Retrieved from http://www .economist.com/node/21559618 Silicon Valley Index. (2014). Retrieved from http://www.siliconvalleycf .org/sites/default/files/publications/2014-silicon-valley-index.pdf
