More Flexibility Could Increase the Success of Public Innovation Funding

Every year, the European Union and its Member States spend billions of euros for funding Research and Development (R&D) projects both in companies and public research organisations. The aim is to strengthen Europe’s competitiveness. The success of public funding and the outcome obtained from each euro granted, however, could be increased if the rather rigid pattern of public support, which is currently being employed, would be more flexible. This is the result of a study jointly conducted by the Centre for European Economic Research (ZEW) and Warwick Business School within the framework of the SEEK Research Programme.

On the one hand, increased flexibility would mean to support significantly more R&D and innovation projects than is currently the case. This would considerably increase the range of funded projects. On the other hand, these projects should be evaluated during project execution based on milestones to reconsider if they deserve further public funding. If they proof unsuccessful, public support should be cut. This would clearly break with the existing funding procedures, where a project needs to be approved only once to receive the entire funding for the whole term. Funding of failing projects has rarely been cancelled. The third component of making funding procedures more flexible would be to stop one-time payment and instead release funds gradually. Sequential allocation of funds would permit funding institutions to concentrate funds on more promising projects if less successful projects are cancelled before completion. Increasing the number of projects funded at the initial stage while maintaining the current volume of funds would indeed result in smaller financial volumes per individual project in the beginning. After the cancellation of unsuccessful projects, however, the budget for the remaining projects could be increased significantly.

The proposals for making public support more flexible are based on a careful examination of innovation management practices in more than 1,400 companies, which created product innovations between 2007 and 2009. The analysis revealed that companies that have already employed flexible project funding procedures for a long time were most effective and successful in transferring R&D efforts into innovative products. A pattern for public funding could be based on the positive example of these firms.

In 2000 the EU Member States approved their Lisbon Strategy. They agreed to spend three per cent of the gross national product until 2010 for Research and Development to make Europe the most competitive knowledge-based region worldwide. In their “Europe 2020” strategy, the EU Member States again highlighted the importance of R&D and innovation for growth in Europe. For all these statements, however, it is important to keep in mind that it is not only the quantitative increase of R&D expenditures that counts, but also a most effective use of these funds.

At that point, however, there is reason to doubt. The awarding of funds is currently still inflexible. Due to a strict application and selection procedure, only a relatively small number of R&D projects are being promoted. The volume of funds for the whole term of a project is already fixed at the beginning, and unsuccessful R&D projects have rarely been cancelled. Here, according to the ZEW study, a stronger orientation towards corporate innovation procedures would be helpful.

For further information please contact

Dr. Christian Rammer, Phone +49 621/1235-170, E-mail rammer@zew.de