Rebooting France with Innovation Networks

Forrester's Radjou says the next President must wire France into fluid, global systems linking R&D with finance and broker services in order to drive growth

The French economy is getting sicker and losing its global competitiveness. In 2006, it grew at a meager 2%, making it Europe's laggard, and posted a record €29 billion ($39 billion) trade deficit.

To shore up France's sagging economic fortunes, Nicolas Sarkozy and Ségolène Royal—the contenders in the May 6 French presidential elections—conjure up one magic word: innovation. Both argue the best way to drive innovation is by investing more in research and development. Sarkozy wants to inject an additional €4 billion ($5.4 billion) into the public R&D budget, while Royal pledges to increase R&D to 3% of France's gross domestic product.

Alas, both candidates' outspoken emphasis on R&D spending risks ushering France into yet another political term with a flawed national innovation agenda that suffers from a view of France as a closed innovation system as well as from confusion between invention and innovation.

Nations Are Not Closed Systems

Politicians fail to realize that the innovation value chain encompasses not just R&D itself but also how inventions are realized in society at large. Detailed analysis by Forrester Research of 26 Organization for Economic Co-operation and Development nations shows that while developed nations like France continue to spend on average, $1,270 per capita per year on R&D, these knowledge investments lead to more patents, but do not generate more jobs or greater wealth.

Indeed, new jobs and economic growth don't actually come from patented inventions themselves, but from their intersection with business practices such as manufacturing and sales.

The biggest flaw in many innovation agendas promoted by policy-makers in developed countries like France is that they look at nations as closed systems, as if they must possess for themselves all the capabilities needed for innovation: to invent, commercialize, finance, deploy, and operate. That's unrealistic and undesirable. In the emerging global market structure—shaped by the huge populations and vast talent reservoirs of emerging nations such as India, China, Brazil, and Poland— global demand for innovation can fluidly match worldwide— not just French—supply.

Poor Marks In Innovation

Forrester believes that France, rather than clinging to an insular innovation approach, can most easily reap the rewards of innovation through a global ecosystem in which companies, universities, non-governmental organizations, and governments collaborate. We call this an innovation network. Within such a global network, nations fluidly weave internally and externally available inventions and innovation resources by taking on one of four specialized roles: inventor, transformer, financier, or broker.

In late 2006, Forrester set out to assess the state and quality of national innovation systems in 26 OECD countries, including France, to see how these nations stacked up against each other in the four complementary innovation network roles. Here is a description of each innovation network role we evaluated, and France's ranking in that role among the 26 OECD nations.

1. Inventor nations are intellectual powerhouses that lead in scientific research and/or design of patentable products and services. France's ranking: Good (#7).

2. Transformer nations convert inputs from inventors into valuable business and societal innovations. They excel in manufacturing and marketing. France's ranking: Abysmal (#20).

3. Financier nations fund innovation network service providers, especially inventors and startup transformers. We therefore look at a nation's provision of venture capital for international innovation. France's ranking: Decent (#9).

4. Broker nations find and connect the other roles, buying and selling or enabling service delivery, both within and among nations. Broker nations boast multiculturalism, workforce diversity, cross-border scientific collaboration, and venture capital funding. France's ranking: Poor (#12).

These rankings clearly indicate not only that French firms struggle to transform, fund, and broker inventions themselves, but they also fail to attract and build links with other nodes in emerging global innovation networks.

Instead of isolating France with nationalistic policies, the next President must support French firms' ability to win in the nascent global innovation network market model. The good news is that leading-edge French firms such as Groupe Danone (DA), France Telecom (FTE), and CNP Assurances are already embracing this networked global innovation agenda. But these pioneering corporate initiatives must be replicated all across the country to competitively position France in an interdependent, global, knowledge economy.

Forrester believes the incoming French President must implement a bold public policy agenda that drives France's success in global innovation networks. Here are key policy recommendations to bolster France's performance across the inventor, transformer, financier, and broker roles:

Recast the industrial inventor role to drive service sector innovation

To make France's services sector—which accounts for 77% of GDP—innovative, the new government must encourage leading French banks, retailers, health-care providers, and infotech providers to finance academic research programs in services and sciences at leading business schools like INSEAD and the Paris School of Economics. This nascent, multi-discipline approach integrates engineering, business, psychology, sociology, and operations (see BW Online, 3/29/07, "Service Innovation: The Next Big Thing").

Shore up the transformer role by accelerating tech transfer to private sector

To speed the invention-to-innovation cycles, the French government must pass a law similar to the U.S. Bayh-Dole Act, which lets U.S. universities and labs license federally-funded research to the private sector. French companies and international firms operating in France must be able to directly partner with French R&D institutions like the Centre National de la Recherche Scientifique (CNRS) without government mediation.

Give tax breaks to financiers investing in small and medium-size entrepreneurs

To encourage innovative small- and medium-sized enterprises (SMEs), including French subsidiaries of foreign corporations, to grow their transformational activities within France, the government must alleviate the tax burden crushing SMEs, which are deserting to tax havens like Britain and Luxembourg. And to encourage large corporations and venture capital firms to invest in high-risk startup transformers in France, capital gain taxes on these short-term investments must be drastically cut.

Decentralize the broker function to individual regions

The government must stop treating international cooperation as a state prerogative. Instead, it must collaborate with the conseils régionaux (regional councils) to empower local academic and R&D clusters, including the blossoming Pôles de Compétitivité. Such agencies should be allowed to directly broker foreign R&D and go-to-market partnerships, in part by tapping into the Invest in France Agency (AFII), a government-funded agency with offices worldwide that channels job-creating foreign investments to France.

Given its insular, R&D-biased innovation system, France seems ill-equipped to win the new global innovation game. The onus is on the incoming French President to implement an innovation network agenda that will strengthen French firms' global competitiveness.

Navi Radjou is a vice-president at Forrester Research. He advises senior executives worldwide on innovation-led growth strategies. The Innovation Networks Study on 26 OECD nations referred to in this article is available on Forrester's Web site (registration required).