Dutch businesses face innovation slowdown amid economic headwinds

By Laio

Innovation is on a downward trend for Dutch companies, with explorative activities reaching a record low, indicating a retreat from new products and market exploration. Climate ambitions for 2030 have fallen, yet long-term goals for 2050 see a rise. Cybersecurity emerges as a growing concern, with nearly half of the companies identifying an increase in digital threats, yet one in five acknowledges their unpreparedness.

The Dutch Innovation Monitor 2023 illuminates companies’ challenges in the Netherlands, where economic pressures stifle innovation and sustainability efforts. Over half of the firms report a negative impact from soaring energy costs, whilst labor shortages and raw material scarcity are hindering nearly three-quarters and half of them, respectively. The report, representing Dutch commercial entities, excludes self-employed individuals, providing a comprehensive overview of the current state of entrepreneurial innovation, digitization, and the strategic response to macroeconomic disruptions.

Explorative versus exploitative innovation

The Dutch Innovation Monitor 2023 reveals a troubling dichotomy in innovation. Companies are grappling with an increasingly volatile environment, which has led to a stark contrast in their innovative endeavors. Exploitative innovation, which focuses on refining existing products and services, has seen a marginal uptick. Conversely, explorative innovation, aiming to serve new markets and consumers, has plummeted to its lowest point since the monitor’s inception.

This shift in focus suggests that Dutch companies prioritize immediate stability over long-term growth opportunities. Based on 435 weighted observations, the report highlights the tendency of older organizations to excel in exploitative innovation, while younger, internationally active companies score higher in explorative innovation. These findings underscore businesses’ strategic choices in an uncertain economic landscape.

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Macro-economic disruptions and climate goals

Macroeconomic disruptions, as noted by Professor Henk Volberda, the research leader of the Dutch Innovation Monitor, are putting considerable strain on the climate ambitions of Dutch companies. Firms are struggling to cope with higher energy prices and the growing impact of material shortages. This has led to a decline in radical innovations and a focus on incremental improvements.

The percentage of companies with immediate climate ambitions for 2030 has dipped by nearly four percent, while those targeting 2050 have increased by over six percent. This shift may reflect a recalibration of priorities as businesses deal with immediate economic challenges, pushing longer-term ecological goals to a more distant horizon.

The cyber threat landscape

Amidst the economic turbulence, Dutch businesses are also contending with an intensifying cyber threat landscape. The Innovation Monitor 2023 indicates that nearly half of the companies perceive cybercrime and digital espionage as rapidly expanding threats within their sectors. Yet, a significant portion, almost one in five, admits to being inadequately prepared for these dangers.

This lack of preparedness is particularly concerning given that digital threats have already disrupted the primary business processes of one in fifteen companies. The monitor suggests a significant correlation between organizations that acknowledge the growing cyber threats and those that believe they are sufficiently prepared, indicating a disparity in cybersecurity readiness across the Dutch business spectrum.

Business performance and innovation investments

The Dutch Innovation Monitor 2023 also measures business performance against competitors and recent history. It finds a weighted average performance score of 5.0 out of 7, which decreased in 2023, perhaps attributable to macroeconomic disruptions. Additionally, exploitative innovation strongly correlates with current business performance, implying that companies that excel in incremental improvements tend to fare better in the market.

Investments in ICT, personnel development, and research and development have all increased compared to 2022. However, there is a concern that the cost of these investments may be outpacing revenue growth. Notably, the ICT sector stands out for reinvesting a significant portion of its revenue into developing new products, with only 41% of revenue generated from unchanged goods and services.

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Climate impact and sustainability reporting

Despite economic headwinds, 70% of Dutch companies are measuring their impact on the climate, with a third actively reporting on it. This demonstrates a commitment to sustainability, although the share of companies with robust climate goals has decreased. Those aiming for a negligible ecological footprint by 2030 have decreased, while the number aiming for 2050 has risen.

This trend suggests a complex interplay between immediate economic pressures and longer-term environmental objectives. Companies may be recalibrating their sustainability timelines in response to the current economic climate while focusing on eventual ecological stewardship.