A review of academic research in collaboration with INSEAD Professor Michaël Bikard, with practice-based commentary from Jeremy Basset, Founder of Co:Cubed, the Corporate Innovation Consultancy.

By Alice Grierson & Laurens Spethmann, INSEAD MBA Candidates

Why ‘Corporate Innovation’ Is Europe’s missed growth lever

Corporate inertia is a leading cause of European stagnation and remains a key obstacle to restoring European Competitiveness. Many European corporations are overly focused on maintaining their core business at the expense of investing in next-generation capabilities, a time when disruptive technologies are increasingly transforming economies. Take, for example, the German car industry, which, for the most part, initially ignored e-mobility as a critical technology of the future, only to now plunge much of the traditional car industry, along with its extensive European supply chain, into an existential crisis. To solve this, European corporates must take the lead by embedding innovation into their core business strategies, freeing exploratory innovation where appropriate, rethinking how they engage with ecosystems, and building internal capacity to utilise emerging technologies effectively.

As MBA students preparing to launch our careers in Europe, we were drawn to this subject as we spent much of this year discussing the continent’s economic prospects, sharing concerns and hopes. Many of our discussions hinged on the Draghi report (2024), in which Mario Draghi paints a sobering picture of European stagnation, warning of sluggish growth, underinvestment, and a widening gap in technological competitiveness.

In these conversations, it was all too easy to identify structural and regulatory barriers as the primary bottleneck to innovation, and therefore, the primary solution to growth. Nearly all the writing on European competitiveness focuses on policy and regulatory levers as solutions to the status quo; however, there is remarkably little coverage of the role that large firms should play. As a result, we pushed ourselves to investigate how corporations can lead innovation from within, where this approach has been successful, and what would enable it to flourish in Europe. In turn, this would allow corporations to push the regulatory frontier, rather than trail behind it.

To address this topic, we conducted a comprehensive review of the literature on ‘Corporate Innovation’, focused explicitly on Europe. With the help of three LLMs – OpenAI, Google’s NotebookLM, and ThesisAI – we analysed more than 30 academic and practitioner sources to extract the themes emerging from scholarly research. Next, we interviewed Jeremy Basset, former head of Unilever’s Foundry and Founder of Innovation Consultancy Co:cubed, to understand how academic learnings pair with his experience advising some of the world’s largest enterprises on growth and innovation.  Simply put, our goal was to cut through the hype and figure out how companies have innovated in ways that drive real, sustainable growth.

We have summarised this into two key findings that we believe corporate leaders must grapple with, and then assessed how these might change in the face of artificial intelligence. 

Finding 1 )
Firm strategy is both an obstacle and a potential catalyst to firm-level innovation in Europe

The academic literature suggests that innovation efforts that are not strategically embedded rarely yield a significant impact (Bigault de Casanove et al., 2020; Martielli, 2024). However, aligning innovation with strategy is not a one-size-fits-all.

Favour incremental innovation? Embed it and disseminate it

For innovation that improves the core, known as “exploitation” (Kötting & Kuckertz, 2019), tight alignment with business strategy is essential. According to Jeremy Basset, this means innovation teams shouldn’t operate in isolation. Instead, they should act as enablers: “The innovation team should enable everyone to innovate and not do the innovation. If they try to own it, they become the bottleneck.”

Practically, this means embedding innovation capabilities across business units and building a shared language between strategy and innovation. One of Basset’s most effective tools was a “pay-to-play” model: “We required core business units to co-fund innovation projects. It forced strategic alignment. No one was going to pay unless it mattered to their goals.”

This approach has been championed by corporates across Europe e.g. Bayer’s LifeHub and Enel’s Innovation Hubs offer successful models of embedding incremental innovation within line-of-business challenges (Martielli, 2024; Bigault de Casanove et al., 2020).

But while this approach works well for process improvements, margin enhancement, or adjacent product development, it breaks down when we shift to more radical, disruptive forms of innovation.

Favour radical innovation? Free it, but reward it

For innovation at the edge, known as “exploration” (Kötting & Kuckertz, 2019), tight alignment with strategy is constraining. These initiatives require a different governance model and, crucially, different incentive structures. This is particularly necessary for Horizon 3-type initiatives where business model innovation occurs.

“The reality is that most corporate innovation teams don’t have the upside to make risk worthwhile,” Basset noted. Radical innovation needs startup-like conditions: speed, autonomy, and meaningful upside. Yet most corporations still treat these initiatives as “pet projects,” lacking senior buy-in and often used to reward tenure rather than ambition.

As McKinsey (2024) and Danneels (2023) argue, firms must go beyond conventional HR frameworks and rethink incentives entirely. This can look like innovation-specific KPIs, internal venture equity, or off-balance sheet vehicles.

One challenge in creating this environment is stakeholder resistance. Even incremental innovation requires new forms of co-ownership, but radical innovation requires something more: protection. Leaders must carve out sheltered spaces where failure is expected, not punished. 

In the context of the Draghi report, Europe will likely need to develop new, or frontier-level, industries, technologies, and business models to become competitive with the US and China. Based on our findings, if corporate leaders are to be successful in this endeavour, they must develop distinct governance and incentive structures to facilitate this type of exploration within their organisations.

Finding 2)
Corporations will never benefit from innovations in the European ecosystem unless they make internal changes

Even with the appropriate strategic alignment, innovation stalls without the structures and systems that allow it to scale. This is especially true when it depends on external collaboration through Open Innovation.

Open Innovation is increasingly present, but structurally challenged 

Given the challenges associated with driving successful, “commercialisable” innovation from within, European firms have increasingly entertained “outside-in” models to bring innovation happening in the broader ecosystem into their organisation. Europe has made significant strides towards open innovation by partnering with startups, universities, and ecosystems to introduce new ideas. But as many firms have learned the hard way, external innovation is only as effective as the internal organisation built to absorb it.

As Bigault de Casanove et al. (2020) argue, successful open innovation is not just about sourcing great ideas; rather, it is about preparing the organisation to adopt them, with clear governance, shared risk, and business line participation. For instance, Basset shared that Unilever Foundry required corporate business units to pay a “retainer” to be introduced to an ecosystem of startups to solve their challenges. This set the correct incentives for BUs to ensure success in the following partnerships. Firms like Bosch have also demonstrated that this approach is practical when combined with governance structures that facilitate risk-sharing, co-ownership, and cross-functional execution (McKinsey, 2024; Martielli, 2024).

CVC remains a popular idea, but with implementation challenges

These challenges are exemplified by Corporate Venture Capital (CVC), a highly popularised open innovation technique. 

According to the literature, CVC is often cited as a failure (Danneels, 2023; McKinsey, 2024). Crucially, however, the jury is still out on whether this is due to their inherent ineffectiveness or to the fact that most initiatives are not given sufficient time to prove themselves. With the median lifetime of a CVC being just four years, this is far too short to realise returns. Basset echoed this challenge, pointing out, “If a normal VC fund shut down after four years, it would be seen as a failure.” 

One reason for this, he explained, is that many of these initiatives fall prey to shifting leadership agendas or lack the independence and focus typically found in traditional venture capital firms. “Most of the time [corporates] don’t set it up properly. When we at Co:cubed consult for clients on this, we say: follow a VC model and put a corporate name in front of it. That means VC incentives, VC timeframes, VC balance sheet structures, and—most importantly—VC-type commitment from your LP.”

Co:Cubed’s Mark Janes, further explained that CVCs “lack a clear either financial return-led or strategic mandate”, which creates confusion around how to measure their success. Positioned awkwardly between strategy and finance, they frequently fall into a no man’s land – too commercially distant to drive core business outcomes, yet too strategically diffuse to justify on purely financial terms. This ambiguity makes it difficult for stakeholders to assess performance, leading to inconsistent support and premature shutdowns. As a result, even promising initiatives can struggle to gain internal credibility or secure the long-term backing required to thrive.

Siemens’ Next47 and Novartis’ NVF offer case studies in getting this right: long-term timelines, professionalised governance, and integration with core strategy (AI and Corporate Innovation, 2023; Martielli, 2024). These examples show that when structural enablement is in place, external innovation can become a real engine of growth. 

AI represents the best opportunity for European firms to catch up

Artificial intelligence (AI) has rapidly become a cornerstone of next-generation innovation. In our own work, we’ve used LLMs to accelerate thematic analysis and streamline research. For European firms, AI could be a disruptive equaliser, one that levels the playing field with faster-moving US and Asian rivals (BCG, 2023; The Economist, 2023).

Professor Michaël Bikard summed it up: “AI presents an opportunity to reinvent many industries… It levels the playing field. One can conceive of a scenario whereby Europe seizes this opportunity to catch up and reclaim its role at the innovation frontier.”

But adoption remains slow. According to Bahoo (2023), hesitation stems from cybersecurity concerns, regulatory complexity, and cultural inertia. Echoing this, Basset warned: “The biggest risk is being too slow. There’s so much fear… the lights are being put up before the roads are even built.”

His solution? Decentralisation. Much like for other forms of innovation, rather than wait for a top-down AI strategy, companies should adopt a modular approach. “Make it a bunch of small projects—owned by teams, fast to move, and easy to learn from.”

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