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Innovation Union: An integrated innovation strategy for growth and jobs

Peter Dröll

The Innovation Union is one of several flagship initiatives which support Europe 2020, the EU's growth strategy until the end of the decade. Peter Dröll, head of the Innovation Policy Unit at the Directorate-General for Research and Innovation, explains how SMEs can contribute significantly to achieving the objectives of this initiative by generating growth and creating jobs.

‘We need SMEs in our drive to become a more competitive, sustainable and inclusive economy. We also need SME's ingenuity to address societal challenges,’ underlines Dr Dröll. European SMEs are key players, considering their 85% contribution to total employment growth, while accounting for 67% of jobs. ‘It is impressive that SMEs create more new jobs than their actual share in the economy. They are a job-creation machine!’

Easing the path from idea to market

The Innovation Union intends to tap the full potential of SMEs through a strategic approach which integrates research and innovation instruments and actors. To reach this potential, favourable framework conditions need to be put in place. Dr Dröll discusses how patent protection, public procurement, standardisation and smart regulation measures can help to create a single European market for innovation which would attract innovative companies and businesses, as well as remove remaining barriers in bringing ideas to market.

The absence of a European patent leads to a much higher cost of patenting in Europe (20 times more expensive than in the United States), and this is especially problematic for SMEs. The European Legislator has taken action. ‘We are very close to introducing a unified patent and reducing patenting costs by 80%,’ he says. With regard to public procurement, it comprises almost 20% of the EU’s GDP, with SMEs carrying out the majority of procurements. In spite of this, very little goes to innovation. ‘If we can steer procurers to buy innovation, we would create a win-win situation for SMEs and innovation. Following a proposal from the European Commission, a change in the procurement laws is near adoption by the Parliament, which will render innovation a selection criterion, introduce an innovation procedure and simplify joint procurement across European borders.’ A new European regulation on standard setting accelerates, simplifies and modernises standardisation procedures. This allows, according to Dr Dröll, SMEs to scale up innovation. He maintains that smart regulation - a simple, understandable, effective and enforceable regulatory environment - can influence the competitiveness of SMEs and their ability to grow and create jobs.

The Innovation Union also aims to stimulate private sector investment and proposes to increase European venture capital investments which are currently at a quarter of the level in the United States. ‘The European Commission has put forward a regulatory measure for the creation of a European venture capital passport which, under certain conditions, enables a venture capital fund to invest and to draw investment from any Member State without having to go through the various national procedures,’ stresses Dr Dröll. ‘Through the financial instruments of EU research and competitiveness programmes, we give loan guarantees in equity funding to venture capital funds and allow companies access to finance. It is our intent to provide public funding to leverage private investment.’

As of 2014, Europe will have a single funding programme for research and innovation, Horizon 2020. This financial instrument aims to cover the whole value creation chain and contain tailor-made funding opportunities for SMEs.

Strengthening innovation capacities

The EU is advancing towards its objective of raising R&D investments to 3% of its GDP, but there is a widening gap between Europe and its world competitors, mainly due to weaker business R&D investment. Investment in research and innovation is therefore seen as crucial, especially in accelerating the development and adoption of innovative business models by SMEs. Some of the ways in which the Innovation Union is addressing innovation skills shortages are: training sufficient numbers of researchers to meet their national R&D targets and to promote attractive employment conditions in public research institutions; developing and promoting e-skills for innovation and competitiveness; supporting an independent multi-dimensional international ranking system to benchmark university performance.

Dr Dröll emphasises that the Innovation Union is primarily about bringing actors together and involving them in the innovation cycle, since SMEs innovate in collaboration with other stakeholders, and not independently: ‘It is this cooperation with big companies in which innovation occurs and SMEs flourish.’ He continues by saying that a broad concept of innovation underpins the Innovation Union - it does not necessarily have to be about high-tech innovation or high-tech SMEs; it also concerns everyone smart enough to combine existing knowledge so that it creates value.

Dr Dröll envisions an Innovation Union where fast-growing SMEs take an active part in creating high added value jobs and innovation supplies products, and which offers solutions that respond to society: ‘Our message for SMEs is very clear - Europe is serious about innovation, we are counting on you.’

Facts and Figures

The proportion of Cooperation programme funding going to SMEs continues to rise

Fragkiskos Archontakis

The ninth SME progress report, published on 25 October, reveals that SMEs have received 16.3% of Cooperation programme research funding as of the end of September 2012, up from 15.2% in January. The primary reason for this increase is the SME-friendly measures that were applied in 2011 and 2012.

The aim of these biannual progress reports is to monitor the participation of SMEs in the Cooperation programme (2007-2012), which is part of the Seventh Framework Programme (FP7). The figure of 16.3%, which equates to about EUR 3 billion, demonstrates that the 15% formal target that was set for FP7 in a Council decision has now been significantly surpassed.

Fragkiskos Archontakis, Policy Officer at Directorate-General for Research and Innovation, emphasises: ‘As innovative SMEs are an important engine of job creation and economic growth in the EU, it was important to recognise their merits and give them more chances to benefit from EU funding, especially given the challenging economic context. Since last year, SMEs have increasingly benefited from the Cooperation programme, which is for us confirmation that we support those who need it most. The 16.3% figure shows that when the right conditions are in place, there are SMEs out there interested in programmes connected to research and innovation.’

The impact of strengthening measures

The increase of the proportion of funding going to SMEs is due primarily to the implementation of strengthening measures in the calls for the 2011 and 2012 work programmes (WP 2011 and WP 2012). These measures were designed to create an environment which would enable more SMEs to take part in RTD projects, and SMEs have responded well to them.

Before the measures were implemented, it was not certain to what extent the response would be positive. Mr Archontakis explains: ‘We have seen important surges in SME participation to FP7 since the start of the implementation of WP 2011. Recent figures show that SMEs active in the field of certain FP7 thematic priorities have benefited from more than double the funding that they had before.’

In WP 2011 some 50 specific research topics were presented in order to increase the participation of SMEs, and in WP 2012 there were more than 90 research topics that specifically addressed SMEs. Graph 1 below plots the difference between the periods before and after the implementation of the WP 2011, for each of the thematic priorities (themes). The increase is significant, especially for the themes HEALTH, KBBE (food, agriculture, fisheries and biotechnology) and ENV (environment research).

Graph 1

Graph 1: Share of EU contribution going to SMEs, for each theme within the Cooperation programme (2007-2012), as of 30 September 2012

Theme acronymTheme description
HEALTHHealth research
KBBEFood, agriculture, fisheries and biotechnology
ICTInformation and communication technologies
NMPNanosciences, nanotechnologies, materials and production technologies
ENERGYEnergy research
ENVEnvironment research (including climate change)
TPTTransport research (including aeronautics)
SSHSocio-economic sciences and humanities research
SPASpace research
SECSecurity research

The implemented strengthening measures were of various types. These types included: calls with broad and/or SME-friendly topics; streamlined application processes; making modest-sized consortia more eligible for funding; placing greater stress on ‘close-to-market’ or demonstration activities (which are important given SMEs’ need for quick return on investment); and the inclusion of specific criteria in calls, such as explicitly stipulating SME participation or SME coordination in projects, and output for the benefit of the participating SMEs. In addition, ring-fenced budgets for SMEs allocated a minimum share of the budget to participating SMEs. All these measures managed to lower the threshold for SMEs to be involved in FP7 projects. A typical example of a call that was launched to trigger more important SME participation was the 'FP7-Health-2012-Innovation-2'-call, which boasted a budget of € 86.57 million under WP 2012.

The particular strengthening measures implemented vary from one theme to another. The identification of the themes which required such measures, and of the strength of measures required, was importantly informed by the monitoring of the levels of SME funding, most particularly in the bi-annual progress reports. The degree of detail described, especially in providing statistics for each of the themes, was particularly important. In this way, the monitoring has made a major contribution to achieving and exceeding the 15% target.

Mr Archontakis says: ‘What I would like to stress is that the publishing of the report twice a year over recent years contributed greatly to achieving the 15% and further increasing SME participation. Even though the 15% refers to the Cooperation programme as a whole, the fact that our unit regularly publishes a report that shows clearly the figures on SME participation in the different themes, contributed to steps being taken to increase SME participation where there was still room and a good case for it.’

Other notable statistics

The report also presents further indicators of SME participation in FP7. Notably, SMEs participate in the great majority of Cooperation programme projects. At least one SME is involved in 74.5 % of all signed grant agreements, and this figure is high across all the themes except SSH, ranging from 67 to 87%, with TPT top at 87.7%. Many SMEs also participate in more than one project – indeed the average is 1.6 projects.

SMEs do not merely contribute to the project, of course, since many actually coordinate it. The report reveals that 11.1% of the FP7 projects are now coordinated by an SME, which is a significant increase on the 10% figure of the previous report (January 2012).

Future developments

Horizon 2020, the framework programme for research set to follow FP7, will incorporate a special instrument for SMEs. This new instrument, which draws inspiration from the US Small Business Innovation Research (SBIR) programme, will encourage all types of innovative SMEs to put forward inventive ideas which demonstrate a clear EU dimension and strong market-orientation. It will have three seamlessly connected phases – a feasibility phase, a development phase and a commercialisation phase.

Mr Archontakis explains: ‘The positive response to the special SME strengthening measures in FP7 shows that we are on the right track, and also with view to promoting the participation of SMEs in Horizon 2020.’

News & Events

Final call for Demonstration Activity under 2013 Work Programme

As part of the 2013 Work Programme (WP 2013), the specific Seventh Framework Programme (FP7) initiative supporting SMEs, the 2013 call for Demonstration Activity proposals has been announced. This is the third and final call for these funding packages, and is worth EUR 27 million. An online web briefing has been provided by the Research Executive Agency (REA) to assist applications. The deadline for submissions is set at 15 November 2012.

The Demonstration Activity helps SMEs to bridge the gap between developing a product or service and exploiting it on the market. Applicants must have already participated in a successful project under the FP7 Capacities work programmes 'Research for the benefit of SMEs' or ‘Research for the benefit of SME Associations’. The demonstration follow-up aims to prove the viability of a new solution produced in this project which offers a potential economic advantage but which cannot yet be commercialised because some further technological or other development is required.

‘The great thing about the Demonstration Activity is that it provides the type of fund which can facilitate the transformation of a prototype into an innovative product with genuine market potential,’ says Giorgio Costantino, Project Officer at the REA. ‘So the most important reason for providing this funding to the SMEs is to complement the good work done on the research project, and to support the effort which is still required to bring the new product, service or process to the end user or customer.’

The value of demonstration

Demonstration projects can comprise up to three different types of activities (demonstration, management and other) but research and development activities are not covered. Demonstration activities cover not only the testing of the prototypes and verifying their performance, but also activities such as scaling up, market studies and developing business plans.

Mr Costantino explains: ‘SMEs also benefit from demonstration projects because within the project they can develop a focused business strategy – they can have as a partner or sub-contractor companies which specialise in the examination and exploitation of results. This is a relationship which can be very valuable for SMEs planning to launch a new product on the market.’

The WaterBee smart irrigation project is funded as one of the first demonstration projects from the 2011 call. Dr John O’Flaherty, the technical director of Ireland’s National Microelectronics Applications Centre, the SME coordinating WaterBee, believes that the scheme has made an invaluable contribution to the project’s progress: ‘The EU funding of the demonstration trials has been essential in allowing the consortium to work together, to scale-up, validate and demonstrate this very innovative smart irrigation system. The funding has enabled the gap from the previous research project prototype to be bridged to a scaled-up fully reliable operational field prototype service, and enable the WaterBee SMEs to address a significant market opportunity, which is estimated to be worth EUR 1.7 billion by 2020. Once the current project is complete, the consortium partners plan to collaborate in finalising the system for commercialisation and deployment to the market.’ Dr O’Flaherty adds that without the funding, it would have either not been possible to achieve the same progress, or else it would have taken much longer.

The application trail

One notable feature of the scheme is that their success rate is relatively high. In the previous two calls this rate was 50%. The main reason for this high rate is that the target beneficiaries are a small and defined group.

Applicants can maximise their chance of success by avoiding various pitfalls. In previous calls some incorrectly assumed that the assessors were already acquainted with their research project, and so failed to properly describe it. Every proposal is evaluated on its own merit and must be self-sustaining. 'It is up to the applicants to describe the results and how successful the previous project was,’ Mr Costantino says. ‘It is important to take care in describing the state of the art of the demonstration proposal – which is what has been developed in the previous project.’

In the application, it is also essential to describe the expected economic impact of the demonstration project on the participating SMEs, such as the impact on turnover, employment, target markets, increase of market share, time to market, foreseen and/or existing patent applications and licence agreements. Mr Costantino explains: ‘This is not a standard FP7 project in which the core element is its S&T excellence. Innovation and competitiveness are the key words for this type of project. With the Demonstration Activity, the most important criterion to fulfil in the proposal is the impact. The REA expressly assigns independent experts with business backgrounds in order to properly evaluate the impact section of the DEMO proposals. Thus, it is essential that the business case is well presented and documented (including the estimated return on the investment) – you need to present it as a company would to a private investor. This is not always well done in the proposal, and this can cause the proposal to fail.’

Mr Costantino concludes: ‘In a time of crisis more than ever innovation is the key to sustainable growth. SMEs benefit from the Demonstration Activity because they get the financial support to innovation which is not easy to come by these days. If SMEs have good results for their projects, then they should not miss this opportunity.’

Dr O’Flaherty concurs: ‘Our advice to other SMEs would be to get involved in demonstration actions, as they provide an ideal path to commercialising technology and working with partners to get it to a Europe-wide market.’

Success Story – WaterBee

Smart irrigation technology set to reduce costs and save water

Due in large part to inefficient water irrigation systems, the agriculture industry wastes 60% of the water it uses each year, or 70% of the world’s freshwater. WaterBee has developed a smart irrigation system to reduce this wastage, thereby saving money and increasing both crop quality and yield.

‘The widespread take-up of this intelligent irrigation system could have a profound impact on water usage and its efficient management, which is a global environmental need with major implications for Europe,’ says Dr John O’Flaherty, the technical director of Ireland’s National Microelectronics Applications Centre, the SME coordinating the two-year project which ends in mid 2013.

The consortium gathers SMEs and RTD performers from eight countries and has received nearly EUR 1.14 million in grant funding as a Demonstration Action under the Seventh Framework Programme (FP7) 'Research for the benefit of SMEs' theme, out of a total project cost of approximately EUR 2 million. Dr O’Flaherty says that funding has been essential in allowing the consortium to work together, scale-up, validate and demonstrate this innovative system, as well as to bridge the gap from WaterBee’s previous research project prototype. ‘Without this aid, and the collaboration of the consortium partners, this would have taken much longer, if it would be possible at all, with the SMEs working alone.’

Tackling environmental and productivity challenges in agriculture

‘The WaterBee system goes well beyond the state-of-art, with its unique Soil-Moisture Model for optimal water use, continuously self-adapting to each user’s situation and business objectives,’ indicates Dr O’Flaherty. ‘Growers optimise their use of water by irrigating only where and when it is needed, as well as enhancing plant growth and quality.’

The system consists of a series of sensors planted across a field to measure soil water presence, environmental parameters and indicators of crop development for different areas of the field or fields that have diverse water requirements. These sensors then send readings through a wireless network and the Internet to an intelligent software application which selectively activates irrigation nodes to deliver the necessary amount of water only when it is required. Real-time data is presented to growers on easy-to-use smartphone and web apps. The WaterBee plug-and-play units are easy to install, and the user interface is very intuitive.

Dr O’Flaherty stresses the expected impact of the WaterBee project for its end users and the agricultural industry. Growers will benefit by getting greater control over the irrigation of their crops, thus earning more profit per hectare through the efficient use of water and other inputs. The system provides accurate and complete real-time information on crop and field conditions, assuring greater yields and higher quality crops. He states that this quality is ensured also by reducing the leaching of nutrients into the groundwater, and that WaterBee-monitored plants prove to be more disease-resistant since overwatered plants are more vulnerable to diseases.

Specifically, about 40% of irrigation water used today will be saved and irrigation events will be reduced by 50%. Time spent planning irrigations will be reduced by 50%. Plant health will be improved by 5%, while growers can expect to experience 10% higher profitability. 'The world is facing environmental challenges and water management has to evolve from today's model to a new smart one that includes water consumption reduction in accordance with scarce natural resources,’ emphasises Dr O’Flaherty.

The main beneficiaries of the WaterBee system will include: commercial growers of salad, fruit and vegetable crops; vineyards for monitoring the growing of grapes for consumption and wine production; golf course irrigation for optimum water usage and course performance; and landscape managers. The project consortium SMEs, who are set to commercialise all or parts of the WaterBee system, will also benefit from the WaterBee solution, which aims to meet the markets’ current needs.

Harnessing technological advances to revolutionise irrigation

Dr O’Flaherty explains the product’s added value and competitive advantage: 'Unlike existing systems, WaterBee is the first irrigation system to have a unique soil moisture model that optimises the use of water for individual crops in specific locations.’ He adds: ‘Regardless of such technological improvement, it’s affordable and the ownership cost is very low, with communications costs being no more than a few euro each month.’

‘WaterBee systems use the latest technologies and will be comparable in price with current systems, but with much greater functionality and value-added benefits for the beneficiaries,’ Dr O’Flaherty claims. ‘Existing water management and irrigation systems can be expensive, difficult to use and not very effective, while WaterBee provides accurate and complete real-time information on crop and field conditions.’

WaterBee has tremendous commercial potential due to a growing demand for food. Today, 40% of the world’s food is produced by irrigated agriculture. Of the 255 million hectares irrigated worldwide, 16 million are irrigated in 12 million holdings in Europe alone. The 255 million hectares are real market opportunities for implementing the WaterBee system, as exploitation rights cover all global markets. Europe is a key strategic market since commercialisation can often be easier and more accessible. Europe potentially accounts for EUR 500 million in smart irrigation systems. Overall, smart irrigation is estimated to be a EUR 1.7 billion global market by 2020.

The consortium partners plan to collaborate in the commercial exploitation of the WaterBee systems once the project ends, says Dr O’Flaherty. The project is disseminating the WaterBee service to potential customers and business partners through various media and key events, such as the highly influential EIMA 2012 (International Agricultural and Gardening Machinery Exhibition) in November.