Investing €200 billion in R&D won’t make Europe a global AI leader
Exactly 20 years ago (2005), consultants at Booz Allen Hamilton (now part of PwC) published a landmark study that challenged a deeply-entrenched (and wrong) belief among CEOs and policy-makers.
This erroneous belief can be summed up as:
“MORE R&D INVESTMENT = MORE INNOVATION + MORE GROWTH”
The Booz Allen Hamilton study of the world’s 1,000 biggest R&D spenders demonstrated that R&D spending has little or no impact on any of the following key indicators of business success: profitability, growth, market capitalization growth, sales growth, and total shareholder return.
The study noted that the most successful companies have effective “innovation processes” that are customer-centric, open, and agile.
The most innovative firms have the right leadership to foster a risk-taking, market-facing corporate culture.
High-performing firms use the right strategy and business model(s) to extract maximum value from every R&D dollar they spend.
In 2005, I was working as a senior analyst at Forrester (Cambridge, MA) focused on R&D and innovation.
This study inspired me to write a Forrester report in 2006 titled “Transforming R&D Culture” in which I argued:
“The industrial era corporate R&D model — with its insular and unresponsive culture — is dead.
Firms must transform their R&D culture to drive not just technical innovations, but also business model innovations that cannot be replicated by competitors.
Today’s digital era firms need a flexible, market-focused, corporate R&D function anchored by partner-friendly processes that span corporate and geographic boundaries.”
I also cited this seminal Booz Allen study in our books Jugaad Innovation (2012) and Frugal Innovation (2015) to urge Western firms and nations to replace their “more with more” innovation model with a “better with less” approach pioneered in emerging economies like India and China.
With DeepSeek AI, China has showed the world how to innovate frugally and produce “Better AI with Less R&D”
I hope the European Union — which plans to invest €200 billion in AI R&D — will heed this message.
Otherwise, in 2030, dejected EU officials will be wearing a T-shirt as depicted above.
