Europe's Innovation Agencies Need Radical Reform To Meet Today's Grand Challenges
By Rainer Kattel
Innovation agencies in the EU are no longer fit for purpose. A major overhaul of both the concept of innovation and of institutional structures is urgent.
Europe today faces no shortage of crises. From climate breakdown and geopolitical instability to social fragmentation and digital disruption, the continent is being reshaped by forces that defy easy policy responses. In this increasingly turbulent landscape, innovation is no longer a technocratic pursuit confined to boosting productivity or improving competitiveness, as the consensus of the early twenty-first century prescribed. It has become a political, economic and institutional necessity—one that demands not only new ideas but new ways of organising the public institutions that can turn those ideas into systemic change.
At the heart of this challenge lie innovation agencies. Long the workhorses of science, technology and industrial policy, these agencies—often semi-autonomous and operating at arm's length from ministries—have traditionally focused on supporting firms, facilitating research and distributing grants. Yet over the past decade, their mandates have expanded dramatically. Now tasked with delivering missions such as decarbonising mobility, transforming food systems or building digital sovereignty, innovation agencies are being asked to operate not just as funders or intermediaries but as architects of change across complex socio-technical systems.
This shift is long overdue. In theory, Europe has embraced the logic of mission-oriented innovation. Horizon Europe, the EU's flagship research programme, commits over €50 billion to grand societal challenges. The idea is straightforward: set ambitious, shared goals and allow national and regional actors to develop locally appropriate solutions.
But the reality on the ground is starkly different. At the EU level, implementation remains locked in rigid frameworks of compliance and administrative oversight. At the local and regional level, innovation flourishes—labs, pilots and experiments abound—but rarely scales beyond the project phase. The result is a peculiar imbalance: too much stability at the top, too much agility at the bottom and too little capacity in the middle.
Innovation agencies as enablers of mission-orientation
Innovation agencies typically occupy that crucial middle ground. Many remain trapped in legacy structures, unable to act with the responsiveness or strategic foresight demanded by today's challenges. Others are attempting to reinvent themselves—embedding user-centred design, adopting agile working methods, forging new coalitions—but face limits in mandate, resources or political support.
What's clear is that the institutional infrastructure of European innovation policy is no longer fit for purpose. The question is no longer just what innovation agencies should do, but how they must evolve to do it.
Some agencies have already begun charting a new path. Sweden's Vinnova, for instance, has transformed from a conventional R&D funder into a mission-driven organisation tackling systemic challenges. One such mission focuses on redesigning Sweden's school food system—not merely as a nutritional issue but as a lever for innovation across agriculture, logistics, health and education.
Delivering on this mission has required the agency to engage actors far beyond its traditional orbit, from municipalities, pupils and parents to waste management services and energy providers. It has also meant adopting new internal routines—drawing on strategic design, reframing policy goals and experimenting with iterative delivery models. Vinnova is still early in this transition, but its trajectory points to a broader rethinking of what innovation agencies can and should be.
The UK's Government Digital Service (GDS) offers another instructive case. Created in 2011 to overhaul the British state's digital infrastructure, GDS brought user-centred design and agile development into the heart of government. It didn't just build better websites—it reformed procurement, opened up public contracts to small and medium-sized enterprises (SMEs) and professionalised digital skills across departments. In doing so, GDS transformed the relationship between government and citizen-facing technology, not by acting as a monolith but by embedding new capabilities that gradually diffused across the public sector.
Dynamic capabilities: the new institutional imperative
What both examples share is not a blueprint but a set of evolving capabilities—abilities to scan complex environments, build partnerships, experiment with new solutions and adapt in real time. At the Institute for Innovation and Public Purpose, we've described these as dynamic capabilities: not fixed assets but organisational muscles developed through repeated, contextual practice.
Recent work focused on city governments has helped refine this idea further. Looking across cities like Barcelona, Bogotá and Seattle, we identified five key capabilities: cultivating strategic awareness of emerging issues; adapting focus as priorities evolve; building coalitions with diverse stakeholders; transforming teams and routines internally; and embedding experimentation as a core institutional function.
These capabilities do not develop automatically. They require political commitment, organisational redesign and often a willingness to unlearn. They are also deeply contextual—what works in a central government agency may look very different at the city or regional level. But without these capabilities, innovation agencies will struggle to meet the expectations placed upon them. Missions will remain rhetorical, and public trust in innovation policy—already fragile in many places—will erode further.
The need for capable, adaptive innovation institutions has never been greater. Nowhere is this more evident than in the domain of defence. The war in Ukraine has catapulted questions of strategic autonomy and technological sovereignty to the top of the European agenda. Defence R&D—long underfunded and fragmented in Europe—is suddenly seen as a vital component of resilience. But here too, institutional capacity lags behind ambition. Europe spends roughly 17 times less than the United States on defence R&D and lacks a coherent public infrastructure to coordinate investment, shape markets or steer dual-use innovation.
For years, some have proposed creating a "European DARPA" to emulate the US agency famed for its high-risk, high-reward innovation. But this fundamentally misframes the problem. DARPA's success lies not just in its structure but in its function within a wider system—one that includes strategic procurement, stable political support and a culture of experimentation. Simply replicating its form without its ecosystem is unlikely to succeed.
Instead, Europe should focus on building a distributed network of agencies and programme managers with the capacity to operate in DARPA-like ways—pursuing high-risk projects, engaging diverse partners and working flexibly within clear strategic mandates. This means cultivating a professional cadre of innovation managers, developing support structures to handle legal and procurement complexities, and designing challenge-driven programmes that bridge defence with civilian missions—cybersecurity, green energy, critical infrastructure.
Such an approach is not only relevant in defence but could be replicated around the main EU challenges, specifically around the twin transition.
From silos to ecosystems: redesigning innovation governance
The broader lesson here is that no single institution can deliver transformation alone. What matters is not just agency reform but ecosystem design. Innovation agencies must be embedded in organisational landscapes that allow them to collaborate, learn and adjust. That means creating clarity about who does what—but also allowing overlaps, redundancies and experimentation that enable resilience. Governance should be designed not for neatness but for adaptability.
To get there, we need to rethink how innovation policy is structured and evaluated. Too often, innovation is managed through compliance-heavy cycles that reward predictability over learning. Agencies are incentivised to spend on time, hit targets and avoid controversy. This discourages experimentation, undermines learning and ultimately weakens impact. What is needed instead is a shift toward learning-centred governance—where agencies are encouraged to reflect, adapt and scale what works, even if it means tolerating failure along the way.
Four principles should guide this transition. First, invest in dynamic capabilities by supporting training, creating new career pathways and embedding new professional standards. Second, design institutional ecosystems, not silos—ensuring that mandates align and organisations complement each other's roles. Third, prioritise reflexive learning over compliance—making room for iteration, feedback and adaptation. Fourth, integrate policy domains—recognising that missions like climate resilience or digital sovereignty cross traditional boundaries, and agencies must be able to follow them across sectors.
These principles are not revolutionary. But they do require political commitment—and a reallocation of attention and resources away from abstract strategy toward institutional practice. Europe already has many of the ingredients for a stronger, more effective innovation system. What it needs now is to cultivate the organisational capacity to use them well.
The crises of the last decade—from the pandemic to war and climate emergencies—have shown what public institutions can do when the stakes are high and the constraints are lifted. The challenge ahead is to make that kind of capacity permanent—not as a reaction to crisis but as the foundation of a more resilient, democratic and mission-driven Europe. That begins with building institutions that can learn, adapt and lead. Innovation agencies, if empowered and equipped for the task, can play a pivotal role in that future.