Why Strong Technology Leadership Matters to Europe’s Future Competitiveness

The Right Leadership Can Help Bridge Europe’s Lag in Technology Adoption, R&D, and Patents

By Jean-Marc Ollagnier, Svenja Falk, and Surya Mukherjee

Increasing leaders’ technology quotient is critical for European companies to adapt to a business landscape that is rapidly evolving, driven by technological advances. Embracing a higher technology quotient can help European companies unlock fresh opportunities for adaptability in the face of future challenges and pave a new and dynamic path towards a digital era.

In Brief

• To maintain global competitiveness, European companies must master adopting and absorbing technology by building strong digital leadership.
• Embracing a technology-driven business transformation can help European companies potentially generate an additional revenue of US$3.2 trillion by the end of 2024.
• Managements with adequate technology quotient are likely to be more open to technology implementation.

There is no shortage of innovation and business in Europe today, as exemplified by pioneering companies such as Mercedes Benz in the automotive sector, Airbus in aerospace, AstraZeneca in pharmaceuticals, and L’Oréal in cosmetics. To maintain global competitiveness, European companies must master adopting and absorbing technology by building strong digital leadership, finds Accenture’s latest report, “Innovate or Fade” .

European companies are thriving in productivity enhancement but falling behind their US peers in generating profitable growth. From 2018 to 2022, European companies saw a 10 per cent five-year average margin, placing them ahead of Asia Pacific’s 7.5 per cent but behind North America at 12.5 per cent. Accenture’s January 2023 report titled “Accelerating Europe’s Path to Reinvention” posited that the key factor weighing down the growth prospects of average European businesses was inadequate adoption of technology, also called the “tech deficit”. Fewer than half of European companies stand above the global average for technology penetration and mastery, two measures of technological maturity based on self-assessments in Accenture’s Business Strengths survey.

Accenture’s latest report, “Innovate or Fade” , builds upon that finding and confirms that the tech deficit remains entrenched, risking a return to relatively weak economic growth in the long term. To investigate how best to address Europe’s tech deficit, Accenture assessed where companies are strong and where they are falling short with a survey of 1,000 European executives, the scanning of more than 100,000 patents and 10 in-depth interviews with key decision-makers and thought leaders in the industry (see figure 1).

European companies need to step up investments in technology adoption, R&D, and patent creation

Europe emerges as a leader in several areas such as pervasive skilling programmes, green technology adoption, and open ecosystems, but lags behind in tech investments, R&D investments, and patent creation. These critical areas of lag create a cumulative deficit that is dragging down Europe’s future competitiveness.

The stakes are high. While Europe’s revenue growth forecasts are improving today, closing the technology deficit and embracing a technology-driven business transformation can help European companies potentially generate an additional revenue of US$3.2 trillion by the end of 2024. Bridging the gap is also essential for sustaining and enhancing Europe’s commendable track record in sustainability and inclusion. The establishment of new revenue streams driven by technology would be crucial for companies to fund transition to a sustainable energy system. But any solution designed for Europe must account for Europe’s unique circumstances, addressing workforce decline, high energy costs, regional harmonisation, and aspiration for carbon neutrality.

It’s not just the technology sector that would benefit from this. Technology is central to the future of every industry: in automotive to create mobility services of the future, in oil and gas to accelerate the transition to renewables, in consumer goods and retail to improve consumer experience. Also, to build the industry of the future, which many governments across Europe and the European Commission are fostering, mastering technology such as artificial intelligence (AI), next-generation networks, edge computing, and digital twins will be critical.

Today, all strategies lead to more technology.

The widespread influence of technology across all sectors globally demands that Europe continue to focus on them or risk compromising its traditional strongholds in industries such as chemicals, materials, and fashion. This is accelerated by technologies that cut across multiple domains, such as AI, quantum computing, and cloud.

For example, despite Europe’s current leadership position in the automotive industry, there is a risk of its falling behind when it comes to autonomous vehicles. A key contributing factor is Europe lagging behind in the development and implementation of software technology that is critical for autonomous vehicles, such as AI-based neural networks and deep-learning technology.

The role of decision-makers in creating a strong digital core that enables reinvention

Increasing investment in technology helps, but the wider and more contentious issue is where to invest and how. Exploring new revenue models, building a solid digital core that supports new technologies, R&D, tweaking strategy to embrace new technologies, all play a role. European companies must aim for Total Enterprise Reinvention, which sets new performance frontiers (goals) for companies and, in most cases, the industries in which they operate. Centred around a strong digital core, it helps drive growth and optimise operations.

Take generative AI for instance. Companies that are best positioned to take advantage of this technology are those that already have a strong digital core; otherwise, they will need to leapfrog.

A great way to begin this transformation is to enhance leadership’s tech knowledge, a key first step that sets the stage for other moves like more tech investment, fresh revenue models, a strong digital base, adapting strategies, higher R&D spending, and tech patents commitment.

Decision-makers at the highest level – the board – need to have enough knowledge about technology to gauge, analyse and envision how it can propel the organisation – what we call “technology quotient” or TQ. Managements with adequate TQ are likely to be more open to technology implementation, a trait essential in making investment decisions.

European businesses thriving due to their strategic reliance on technology in recent years have some lessons to offer. One example is IKEA, the Swedish-based global leader in the furniture and home décor industry. A management open to technology steered the company to focus on online retail and e-commerce through a user-friendly website for global customers. The integration of augmented reality (AR) and virtual reality (VR) allows customers to visualise products before purchase, enhancing satisfaction. Additionally, investments in supply chain optimisation streamlined operations, reduced costs, and improved efficiency.

Conversely, companies whose board and management fail to adapt run the risk of extinction. Consider the prominent Europe-based music retailer HMV. It was once a global giant but delayed technology investment meant that it could not compete with the likes of digital downloads and streaming services such as iTunes and Spotify.

IT skills of technology workforce vs. the board

Accenture’s research shows that European companies, on average, tend to have less tech expertise at the board level. Only 14 per cent of board members in major European organisations possess the expertise or background necessary to influence technology-driven business strategies, in contrast to nearly 22 per cent in North America. Similar trends emerge when analysing the experience and expertise of CEOs. Only 11 per cent of European CEOs possess technology experience, compared to 17 per cent of North American CEOs.

On the other hand, European leaders are not as concerned as APAC and the United States about the availability of technology skills among workers within the region. Only 43 per cent expressed concerns, compared to 56 per cent in APAC and 58 per cent in the United States. This indicates that technology skills among the workforce are perhaps less of a concern than those of the board. Companies simply need to tap into their technology-trained talent pool and elevate technology-experienced personnel to have a voice on the board.

The Netherlands leads with the most technologically adept boards at 19.1 per cent, followed closely by Ireland at 18.9 per cent, and the United Kingdom at 18.8 per cent.

Lower TQ can have several long-lasting effects, including a cautious approach to embracing emerging technologies. European companies lack sufficient digital expertise at the executive level, which influences their strategic direction.

A top executive at a European pharma company told us, “[The US] … is where new technologies and new ideas are coming from and then slowly are jumping onto Europe. We’re mostly fast followers and not champions.”

This is clear when looking at technology investment data, where US companies consistently out-invest European companies in foundational technologies such as cloud, big data analytics, and AI. Another indicator is in patents data, a good sign of investment in the future, which also shows that only 60 per cent of the European companies that are likely to file AI patents actually do, compared to 77 per cent of US-based companies and 89 per cent of APAC companies. However, there is good news as well. Europe is accelerating patents in generative AI, with the fastest-growing patent filings (+53 per cent increase between 2016 and 2021), driven by industries such as high tech, software, life sciences, industrial, and mobility. The strong focus on industrial and life sciences (highest share compared to the other regions) is an indicator of Europe’s strength in applying and integrating these new technologies.

How to increase the technology quotient at the top

To reduce the technology deficit, European businesses need to do multiple things, with strong technology leadership and the mindset and expertise to drive innovation. This is not a call for over-representation of deep-tech experts on boards. What is required is an increase in the TQ of the board, which enables organisations to make informed decisions, create value from technology, and remain at the forefront of innovation. It is crucial for enterprises that technology skills are given the required importance, extending beyond IT departments into all functions. How can they go about increasing TQ? There are five things we found leading European companies practising.

• Institutionalise tech advisory in the form of a tech panel or committee
  A tech panel or committee with control and responsibility to ensure that the board is up to date on the latest trends in technology, at the same time ensuring that the use of technology follows the local regulatory framework and privacy laws, could help bridge the tech gap. It is important that the panel be resourceful, accessible to all board members, and diverse in terms of access to a range of perspectives on technology. German multinational software company SAP SE has a 10-member tech panel, called “The Technology and Strategy Committee”, which guides the executive board in setting the company’s strategic direction on matters related to technology development, software and solutions, and product strategy.
• Educate the board on technology
  The executive team and boards can take up technology training to develop a culture of continuous learning and to highlight the importance of technology in the organisation. Additionally, the training will enable the board to understand the risks and benefits of technologies that inspire employees to prioritise their own technology skill development and foster a learning culture across the organisation. Institutes like the International Institute for Management Development, based in Switzerland, provide targeted courses like “Digital Transformation for Boards”. This two-day course equips participants with the knowledge to use technology effectively in achieving their business objectives.
• Set measurable learning goals for all employees
  By setting measurable learning goals and KPIs for all employees, including board members, and through continuous learning initiatives, the organisation can enhance the skill development process. For instance, Accenture offers continuous learning modules to our extensive employee base, using insights from behavioural science and gamification models to engage and motivate learners.
• Increase gender diversity in boards
  As per Accenture’s report “Innovate or Fade”, European businesses currently have 18 per cent women with technology expertise or backgrounds on their boards, whereas North America boasts 26 per cent. Achieving greater gender diversity on boards can help bridge the technology gap. In 2018, IKEA recruited Barbara Martin Coppola as the chief digital officer to lead its digital transformation drive. At the time, she had over 20 years of experience in the technology industry, working for companies such as Samsung, Google, and Texas Instruments. During her tenure with IKEA until 2022, IKEA stores transformed to fulfilment centres. She was instrumental in tripling the company’s e-commerce levels in three years.
• Enable networking among board members interested in technology Networking with other board members who are interested in technology can help board members learn about the latest trends in technology and get advice from other board members who have experience in this area.

Conclusion

The rapidly evolving business landscape calls for European companies and their leaders to prepare for the future and comprehend the potential of emerging technologies. Increasing the technology quotient of leaders is a critical step in that direction. It helps unlock fresh opportunities for adaptability in the face of future challenges. Embracing a higher technology quotient also encourages boards to foster technology inclusivity, which, combined with their valuable expertise and insights, could pave a new and dynamic path towards a digital era.
Companies with the right tech leadership on boards then need to follow a multi-pronged approach involving investment in enterprise-wide technology dissemination, digitisation of operations and supply chains, development of innovative digital services and business models, reconsideration of data strategies, and adoption of generative AI to build new growth. These actions can help create new opportunities, thereby positioning European companies as market leaders in key industries.

About the Authors

Jean-Marc Ollagnier is the Chief Executive Officer of Accenture for Europe, Middle East and Africa, and a member of Accenture’s global management committee.

Svenja Falk is Managing Director and leads Accenture Research, Europe. She is also deputy chairwoman on the Council on Digital Sovereignty in Germany and honorary professor at the Justus Liebig University Giessen.

Surya Mukherjee is a Senior Principal at Accenture and Head of Technology Research in Europe. Surya explores the transformative impact of technologies on industries, companies, and brands.

References

1. Accenture, “Innovate or Fade”, 3 July 2023
2. Source: Accenture, Business Strengths Survey, 2022
   (Oct-Nov). Europe respondents total n=1450. Denmark,
   Finland, Germany, Italy, Netherlands, Norway, Spain,
   Sweden, Switzerland, UK. China respondents n= 250, US n=300
3. Accenture, “Innovate or Fade”, 3 July 2023
4. Harvard Business Review, “Inside IKEA’s Digital Transformation”, 4 June 2021
5. CNN Business, “What’s behind collapse of veteran record store HMV?”, 16 January 2013
6. WirschaftsWoche, “4 Grafiken zeigen, warum Europa den Anschluss an die USA und China verliert”, 3 August 2023
7. SAP, “SAP SE Corporate Governance: Technology and Strategy Committee”
8. IMD, “Digital Transformation for Boards”
9. CNBC, “’Amazon is a threat’ but Ikea’s digital chief says she has a plan”, 21 March 2019