Europe faces what many economists call the mid-technology trap: Many companies based here are too advanced to compete with emerging markets with low-cost manufacturing, but they have not evolved enough to compete with the high-tech innovations of the US and China.
While many government subsidies and innovation initiatives have been introduced to help bridge the gap in entrepreneurship, many have struggled to make a meaningful impact. For example, Horizon Europe, the EU’s flagship program for research and innovation, has committed almost 100 billion euros by the year 2027, but less than 5% of those funds have led to real “innovation”.
President EMEA at Cognizant.
Although programs like Horizon Europe play an important role in Europe’s technological future, they are not enough on their own. In order to break out of the trap of centralized technology, Europe must develop the strengths it already has, rethink traditional industries such as automobiles, telecommunications and energy through digitalization, sustainability, and AI tools, and update the governance model to reflect the new needs and realities of the digital age.
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Leaders understand both the urgency and the challenge. A recent study found that 85% of senior executives are concerned or very concerned that their existing technology environment will hinder their AI efforts, and 63% said modern complexity will be a major obstacle. Nevertheless, this challenge must be addressed. To that end, I offer a few suggestions.
It coincides with change
The latest CxO Growth Survey from Forbes Research found that digital transformation and innovation were among the most divisive issues among senior leaders today, with 37% citing it as a point of common debate. And therein lies the problem: most leaders probably argue about technology and tactics instead of keeping up with what really matters: strategy, governance, goals and metrics.
For the innovation agenda to be successful, the entire organization needs to be equipped for change, aligning functions such as procurement, legal, and staff development to service an agreed innovation agenda and management model.
Consider buying. Traditionally focused on cost control and supplier management, procurement is now a driver of innovation—AI-driven diagnostic testing, adaptive risk assessment, and sustainable materials strategies that reduce emissions and improve resilience.
By rethinking how it evaluates and partners with suppliers, procurement can open the door to faster, smarter innovation across the business—creating space for legal teams to modernize contracts around data sharing and behavioral AI, and for HR teams to develop employees.
Finding new balance
Organizations tend to fall into one of two camps when it comes to the innovation agenda: those where it’s pushed by a select few—what I call forced innovation—and those where it’s expected of everyone, everywhere, all the time—free-flowing innovation.
In fact, companies need to balance both. High downward pressure will lead to project delays and backlash from middle managers, who doubt the scale, readiness or need for the new technology. On the other hand, leaving positions can create chaos as new ideas are pursued without a clear purpose.
The goal is not to take an always-open approach to innovation, but to always ensure consistency with the innovation strategy, working towards common goals and measuring progress consistently and continuously.
In addition, companies need to remember that “innovative breakthroughs” do not only come from high-tech sectors or fast-paced startups. It can come from rethinking products, services, or traditional processes within established organizations.
Take, for example, financial services. According to the European Banking Authority (EBA), 92% of EU banks are already deploying AI, with common applications including customer profiling, risk management, and automated document summarization.
Deutsche Bank, for example, uses AI to create personalized “next best offers” for wealth management clients, as well as to detect financial crimes such as fraud, money laundering, and tax evasion. Amsterdam-based neobank bunq, which serves more than 17 million users, uses AI to improve fraud detection.
Making goals and metrics current
For innovation to deliver value, initiatives need to focus on key areas that will differentiate the business, such as customer experience, productivity, or revenue enablement. Traditional performance metrics cannot capture the agility, flexibility, and business impact required in an AI-driven environment. Therefore, in order to improve, organizations must move from performance-based goals to results-based governance.
This means building structures around desired outcomes such as sustainability, supply chain optimization, or product innovation, and managing governance across all those dimensions—rather than in functional silos.
For example, the automotive sector, especially in Europe, is under great pressure as prices, increased competition from China, and reduced product cycles have created a perfect storm that few were prepared to weather.
While digital innovation has boomed, many automakers remain tied to rigid structures, legacy controls, and key priorities. Therefore, the innovation strategy cannot simply focus on rolling out AI, IoT or 5G, but rather on delivering broader objectives related to growth, profitability and sustainability.
Reinventing new things through effective governance
Today, only four of the world’s top 50 tech companies are European—and not a single domestic company valued at more than €100 billion was founded from scratch in the last fifty years.
Through these statistics we see a clear need not only for innovation, but for the reinvention of the innovation strategy. Those that cling to legacy models will only fall into the middle of technology, while those that align purpose, governance, and strategy with innovation can define Europe’s next competitive era.
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