Figure 1. Strategy initiatives for long-term
The ESA Workshop on 'Innovations for Competitiveness' (held 20-22 March 1997, ESTEC, Noordwijk) elaborated on a number of important considerations for the future of the European space sector. Topics reviewed and discussed included innovative approaches relating to strategy, processes, products and services being explored by space agencies, the European Union, international organisations, industry, financial institutions and research centres. The Workshop also produced recommendations for an 'Action Plan' with specific tasks for the various players in the European space sector.
This Workshop was organised as an initial response to specific recommendations made by the ESA Council, the European Union (EU) and the ESA Long-Term Space Policy Committee (LSPC), for the promotion of competitive and sustainable growth of the European space sector and the related role of innovation with respect to policies, methods, techniques, industrial organisation and financing.
It has been recognised that without a major effort in innovation in industrial practices, organisation and R&D, the European space sector will stagnate and lose its competence as well as its competitiveness in comparison to the continued increase in efficiency and initiatives of, in particular, the USA and Japan. This European effort should include the setting up of strategic poles and should be guided by strategic initiatives for long-term objectives (Fig. 1).
Figure 1. Strategy initiatives for long-term
Europe needs a coordinated, comprehensive, realistic and evolutionary space policy which takes into account public, commercial and defence space activities. Space initiatives are now assuming a global dimension, leading to a balanced responsibility between the public and private sectors.
The Workshop focused on:
Europe needs to devote more effort to thinking 'strategically and innovatively'.
Factors leading to success are core capabilities in organisational, technical and economic domains, and institutional leadership. This implies exploiting those opportunities which manifest themselves and preparing for the future. It is, therefore, important to test the space community's capabilities and help develop demand which will create markets.
Innovation has to be oriented towards successful production, assimilation and exploitation of novelty in the economic and social spheres. Innovation is related to technology, to the definition of related systems and services, their financing and their implementation. Innovation should also contribute to shortened production time and decreased cost as well as to the reduction of risks associated with a given service or activity.
There is a noticeable innovation deficit in Europe, which, in spite of its internationally acknowledged scientific and technical excellence, launches fewer new products, services and applications than its main competitors. The primary contributors to this situation are the relatively low number of researchers and developers, insufficient R&D expenditure, the wide diversity in regulatory and social conditions, the difficulty in mobilising private capital, and the presence of cultural and legal barriers restricting the movement of persons and ideas.
The European Commission has drawn up a 'First Action Plan for Innovation', as the starting point for an ambitious, long-term innovation policy for Europe. The plan identifies three key areas for action: fostering an innovation culture, setting up a regulatory and financial framework, and gearing research more closely to innovation. Space technology is an area specifically identified for such actions.
The new environment for space applications is characterised by definite trends toward internationalisation, globalisation, deregulation and liberalisation, by a growing overlap between the civil and military sectors, and by growth potential in developing markets and potentially related economies of scale.
In this new environment, the most significant commercial space market is in the world-wide telecommunications business for mobile and personal communications, multimedia and broadcasting. The revolutionary approach of semi-autonomously deployed inter-communicating satellites in low Earth orbit (LEO) no longer raises major doubts about its financial viability and the space segment proper is just a minor portion, in comparison with end-user services. The recent decision by the World Trade Organisation to liberalise communications world-wide by 1998 creates an urgent need for industry to become competitive within that time frame. It is expected that European society as a whole will undergo major transformations due to the shift from analogue to digital standards for broadcasting and due to the massive spread of digital technology.
Europe's active participation in future world navigation and transport management systems is both fundamental and urgent for the European space industry.
One thing that is increasingly apparent (long recognised in other industries) is that a change in perception of just who the users are is required. They should be seen not simply as short-term prospects, but rather as long-term prospective markets. End users are interested in services with a certain quality level (such as time lines or cost) and not in raw data or spacecraft per se. In any event, space data still has problems due to its being perceived as expensive and difficult to access. A new culture needs to be fostered which enhances the value of such data and makes it easier for the customer to use. While the means needed to provide the services are important to space industry and space agencies, they are not to users. Furthermore, potential users have to be made aware of the capabilities of space systems, what products are possible and how to use them properly. In addition, they have to get used to those products which might trigger a demand.
The multiplicity of Earth Observation applications ideas in agriculture, land use statistics, urbanisation, regional planning, environment monitoring, risk and disaster management, coastal monitoring, surface water watching, and cartography is affecting a variety of business sectors and will lead to a rapid expansion of the user community.
There is a willingness of industry to co-fund developments in this field and there is also a significant under-exploited military-to-civilian synergy. The return on investment in the Earth Observation market exists, but it is still difficult to quantify. The economic potential of this market is still hindered by a lack of coherent organisation, by the insufficient number of operational services, by conflicts about data policy, as well as by the inability to provide solutions tailored to user requirements (particularly in terms of revisit time, quality, and repeatability). This clearly suggests the need for lower-cost innovative approaches in the space segment.
An impressive potential exists for economic growth and employment in the space business, based on the demands of the developing global information society. The market for space-derived services could expand space industry sales by a factor of ten over the next decade, while government needs are expected to remain at the same level or even decrease (Fig. 2).
Figure 2. Projected market in US Dollars for space-derived services, 1996-2006 (Courtesy of DARA)
Space is also experiencing a new trend towards a 'service-on-demand' type of business, emphasising the early transition of R&D results into practical applications. Turnkey services, based on secure market prospects and featuring profitable returns, are becoming of strategic importance as well as driving company mergers.
Scientific missions and space exploration (including man in space) should motivate major advances in a broad range of frontier technologies which will constitute the backbone of tomorrow's industrial competitiveness. Advanced and leading-edge technology products should be developed for visionary programmes while serving the purpose of winning new users, increasing productivity, decreasing costs and lead times ('Faster, Cheaper, Better' approach), and with more focus on payload instrument technology. Greater use of small satellite solutions may lead to a different mix of long-term and short-term missions from which both industry and scientists would benefit.
R&D should be aimed more and more (although not exclusively) at supporting industry in its commercial enterprises. In the medium term, the space sector would be driven by complex infrastructures of low cost satellites and by the development of cheaper, more efficient launchers and launching policies tailored to small missions.
New relationships in the space business world are leading to the establishment of partnerships in the form of 'extended enterprises', teaming governments and industry, as well as producers and suppliers, together.
In their evolving role, space agencies are expected to provide technical and financial support to industry in a twofold fashion: by sharing risks for the pre-competitive R&D phase, when new technical ground is to be broken, and also by actively promoting emerging and potential applications which could expand the market of space products (e.g. by replacing current Earth-bound services). Space agencies, together with industry and research centres, should play the major role in developing product- and market-oriented R&D strategies aimed at demonstrating the economic and commercial value of emerging applications of space technology and novel services which would not otherwise capture the interest of potential investors. They should do so taking into account the complex dynamic interactions between socio-economic and technological factors.
Partnerships between space agencies and industry should be characterised by long-term commitments until a new service has secured a place in the market, and should entail a financial commitment for all parties. Embryonic proposals put forward in that sense should be formalised in the form of pilot projects. There is also a clear urge, on the part of European industry, to come to an institutionalised and comprehensive consultation mechanism between space agencies and industry in order to correctly focus R&D on areas with the most promising return on investment.
A new kind of institutional leadership is demanded from space agencies in terms of focused vision and strong technology management.
Dispersion of European space development initiatives leads to duplication of effort and scattering of resources. The innovation process should be supported by a framework integrating the contributions of ESA, EU, industry, operators, academia, users, financiers, governmental and public institutions - each with a clearly defined role. This provides the European space industry, ESA and the European Commission with a context in which to optimise the exploitation of the available human capital, capabilities and infrastructure.
In particular, more synergy between programmes, and a more dynamic relationship between the EU and ESA are advocated. A more coherent link between ESA's programmes and those under the EU's Fourth and Fifth Framework Programmes should be achieved. The way in which effective common work in R&D is to be organised practically at programme level still needs to be formalised. It is currently hindered by a set of incompatible rules, about which discussion is ongoing. A positive example is the cooperation between the EU, ESA and Eurocontrol on second-generation navigation systems, as proposed within the Fifth Framework Programme.
The scale of space activities should be expanded by fostering synergy and cooperation with defence and other civilian terrestrial developments. New technical, managerial and financial approaches from outside the space industry have to be considered. Comparisons should be made with best practice in firms which are outside the space sector but which share some common environmental characteristics with space companies. Promoting and facilitating the dual use of technology and two-way technology transfer between the space and non-space fields is regarded as of great importance to increase return on investment in key areas such as high performance materials, electronic components, detection and positioning equipment, advanced mechanical, optical and energy storage systems, software, and computers. Industry is expected to play a major role in promoting and expanding technology transfer.
Non-space industry is often unaware of opportunities offered by space. Also, it may be difficult for newcomers to enter the space business regardless of their technical proficiency. In terms of applications, potential terrestrial users are often deterred from entering the space business by the high cost and long lead times typical of this market. Hence there is a need to ease access to space considerably for all potential new contributors.
A fundamental role which may be played by governments to stimulate innovation is in the domain of regulations and licensing. Judicious regulatory intervention may open new markets (such as in the case of environmental protection). At the same time, a process of deregulation initiated in carefully selected key areas may foster a blossoming of innovative applications (as in the case of GPS).
A broader involvement of small and medium sized enterprises (SMEs) and research centres in space R&D and project predevelopment needs to be envisaged. SMEs must be assisted in the process of absorbing scientific and technical expertise and converting it into practical applications. Research institutions are in need of support in order to be able to market their inventions.
Finally, a clear commitment of agencies to the training process (of their own staff and of industry) is regarded as a paramount contribution to innovation.
Europe can benefit from the anticipated expansion of the commercial space business in the next decade only if the necessary initiatives are taken, first and foremost by the European space industry. Companies should adopt new methods to increase their effectiveness and to be able to provide products and services at the right time and at an affordable price. Space-based services should be initiated by industry as a result of strategic marketing, initial private investment, and sound business planning (Fig. 3).
Figure 3. Business development model (Courtesy of ESYS)
Issues such as industry consolidation, vertical integration, and international cooperation are vital to the industry's global competitiveness. Over the last three years, space industry throughout Europe has been undergoing a very significant restructuring process. The number of large companies that can act as prime contractors has decreased as mergers have taken place. Those same large companies tend to broaden the range of their activities by increasing the vertical integration of their businesses, e.g. by buying into the operator segment. These combined trends are perceived as a potential threat to smaller enterprises.
Preserving the much needed diversification in the industrial sector, by maintaining a correct balance between large prime contractors capable of competing on the world-wide market, subsystem equipment suppliers with unique expertise, and a network of innovative SME businesses, would tend to limit the amount of vertical integration that may be achieved.
The structure of the current European space industry has been largely shaped by the geographical-return constraints which have often characterised past space programme development in Europe, and which are perceived as having hindered competition and as making European industry less effective. In the restructuring process, geographical-return rules should be replaced by service-oriented strategic partnerships, providing long-term chances for survival of smaller firms and expansion on the global market. An 'extended enterprise' arrangement of this kind should be neither the forced mating induced by the need to win a competitive action, nor a loose handshake. Rather, the concept of 'partnership sourcing' should be implemented, focusing on cooperation within the supply chain and with the dual goals of minimising the total value-chain cost and improving quality through information exchange, partner development, and joint problem solving.
Strategic teaming arrangements will be generated by the need to face international market pressure; these may differ from teaming arrangements created by the actions of ESA, acting as a regulator of industrial policy. The trend of industrial groupings spreading their activities over several Member States should help meet the legitimate concern for a fair overall geographical return.
A company's innovative capabilities will determine its future competitive advantage (in time, cost, performance or value) and overall growth potential. To date, no industrial group, and few companies, have established innovation as a competitive advantage. The next round of competitive repositioning will be based on innovative capabilities, since there are definite limits to creating shareholder value through mere cost cutting (such as lowering head counts and increasing efficiency). The strategic perspective must be shifted from the current emphasis on cost-driven enhancements to revenue-driven improvements for growth.
Innovation must be a process that can be counted on to provide repetitive, sustainable, long-term performance improvements. As such, it need not depend on great breakthroughs in technology and concepts, which tend to be rare. Rather, it could be based on bold evolution through the establishment of know-how, application of best practices, process effectiveness and high standards, performance measurement, and attention to customers and professional marketing. The most effective way to improve a company's innovation performance is to address company-specific core activities (market understanding, technology management, product planning, product development) by investing time and resources to implement best practices, and by measuring the increase in innovation performance.
An integrated monitoring system covering the technical, cost and schedule performance aspects of a space project is a prerequisite for effective project management. The concept of 'benchmarking' is a way of assessing the performance of a business by objective measurement against the best practice in the sector. It enables a company to concentrate efforts on improvement in areas of weakness, to monitor progress continually, and to set increasingly higher standards. The use of European benchmarking standards (ECSS) for quality and engineering management is of obvious advantage, and must become routine in this domain.
It is difficult for outsiders to measure the innovative performance of enterprises, since most companies will tend to shroud their most competitive assets under some degree of secrecy, and commercial confidentiality will prevent full disclosure of global study results. However, the innovative power of companies may be generically estimated on the basis of such parameters as the number of international patents filed by each company or, even better, the number of patents per company employee. It is evident from such data that, although European companies are generally in a good position (8 of the first 20 companies in the world in terms of number of patents), space-related enterprises fare much worse. Also, it is evident that innovative power resides essentially with SMEs.
It is generally agreed that a global European system is the only viable framework in which innovation for competitiveness may effectively be developed (hence bridging the gaps between national and European, public and commercial bodies). National agencies in Europe are already taking steps toward innovation. These initiatives show a large amount of commonality even if one observes some important points of divergence. The inevitable deviations need to be taken into account by ESA to achieve harmonisation at European level.
CNES (F) prepared a Strategic Plan in 1996, with the aim of maintaining France as one of the driving forces behind European space activities. CNES intends to develop a partnership with French industry, to support it in strengthening its competitiveness and winning new markets. In the partnership scheme, industry concentrates on production, export and marketing, while CNES draws on its specific capabilities in basic research, advanced studies and system trade-offs, the introduction of innovative technologies, and demonstration in orbit.
ASI (I) has prepared a National Space Plan for 1998-2000, which is substantially in line with the above views and perspectives. ASI's Automation and Robotics Programme is an example of how innovation can be implemented in the 'access to space' process. This makes maximum use of commercial off-the-shelf technology in order to reduce the time to orbit (e.g. car manufacturing robot controllers for the A&R Programme), by involving non-space companies. ASI underlines the role of research centres as being fundamental for triggering innovation.
DARA (D) has reacted to the present competitive environment issues by investigating current status and available options with Germany's major space industries. DARA sees its role as one of supporting the relevant industrial initiatives as far as technical progress, national economic growth and employment are concerned. Support to industry is to be granted through market development. DARA also stresses the need for Europe to focus on sectors which hold the greatest promise for return on investment, rather than trying to compete with the USA across the full spectrum of space activities.
In the UK, BNSC and its largest partner, the Department of Trade and Industry, have placed increasing emphasis and resources, in recent years, on encouraging British industry to improve its competitiveness with initiatives like the 'Inside UK Enterprise' scheme aimed at exchanging best practice know-how between companies (e.g. between novices and experts, small and large firms, space and terrestrial concerns). In particular, the concept of 'partnership sourcing' is being actively promoted across British industry.
NIVR (NL) supports Dutch industries through national space programmes. Innovative products are being developed in the framework of space technology projects, managed by NIVR. In recent years, NIVR has promoted new developments in the areas of informatics, mechanisms, simulation, propulsion and bioprocessing, with potential applications not only in space projects but also in military and civil projects.
Other space agencies have their own specific approaches designed to achieve a more efficient national space industry. For instance Finland, through TEKES, manages an effective scheme of technology transfer from government-sponsored R&D to application by small firms. Since space activities are only marginal in such schemes, benefits stemming from synergies become strikingly evident, with returns 10-20 times the initial investment and numerous jobs created both directly and indirectly.
International competition has undergone profound changes in recent years, with traditional trade no longer following conventional patterns. In addition, regional trading blocks and multinational companies (MNCs) are now shaping global economic activities.
This development has a number of consequences for SMEs which have many difficulties in achieving critical size and an efficient cost structure. In other words, SMEs have problems reaping economies of scale. In an open market regime very often the average yearly turnover of an SME is similar to a typical single order intake. This, in turn, creates economic instability within the company, which is aggravated by the barriers put up by large companies, dominating 2/3 of the global market.
SMEs, therefore, must observe these changes more closely in order to maintain their competitive and innovative potential. Clustering is a promising strategy for achieving this goal, by bundling of economic activities, specific skills, as well as economic and scientific traditions within a region in order to gain competitive advantages. Clustering or networking between SMEs, or SMEs and MNCs, could enable them to gain a competitive edge over large companies This could work to advantage in the space field where:
Because the space market is dominated by large firms, alternative and/or survival strategies have to be developed for SMEs. This has an impact on industrial strategies and on European and national industrial policy as well. On the industrial side, SMEs may either follow a 'niche strategy' (focus on their specific competitiveness factors such as overall speed, specific know-how and technology, tailor-made products, and by being more service oriented than their large rivals) or a 'cooperation strategy' by clustering among SMEs and possibly with MNCs. This would create value chains and areas of competence in addition to the competitive edges in the individual companies and it would also underline the links between a firm's strategies and government policies, thus supporting the integration of the European space industry.
The competitive position of the European economies is linked to their ability to generate technological innovations to counterbalance the lower labour costs of newly industrialised countries.
To remain competitive in space, Europe must improve the efficiency of its R&D base this can be done by improving the relationships between science and industry. However, new interaction between research labs and industrial firms requires a change in attitude on both sides. Research has a central role to play in making innovation possible and knowledge generated through research activities can be considered as an intermediate input to the process cycle. Research is a product with quality determining its usefulness. However, the research sector lacks the capability to market its products, while the industrial sector often lacks the capacity to express its needs. This situation needs to be improved and links between universities and research centres on the one hand and the industrial sector on the other need to be strengthened. EU initiatives which draw industrial firms and research organisations together for specific programmes are a step in the right direction.
Firms must invest in basic research to create the capability to recognise, assimilate and exploit knowledge produced elsewhere. Firms are efficient at generating direct economic effects when they are open to the best basic research teams. One way to get the latter is by creating a network of companies. Networks offer a way to share knowledge between scientific institutions and private firms. The presence of a university in such a networked consortium has a beneficial effect on the generation of economic effects, while increasing participation of research labs in R&D programmes is beneficial to all members of a network, specifically large companies. Technological innovation is often enjoyed locally and thus the physical proximity between research centres and industry favours a rapid interchange of information, knowledge, personnel and know-how.
'Long-term' in space generally refers to mission opportunities being analysed and studied today but which are far from realisation. Typical examples are energy from space and utilisation of the Moon's resources. Among the issues relating to long-term space policy are:
Fundamental points which must be considered include the lack of strategy and the need to identify convincing benefits for major problems of mankind (Fig. 4). For instance, the world's population is expected to double in the coming decades and the most pressing needs of the next century will still be material ones - ranging from the provision of food to energy generation, taking into account human health and the protection of the biosphere. Could space resources eventually be used to help eliminate shortages on Earth and remove biosphere risks?
Figure 4. The global system (Courtesy of GEOSPACE)
One of the main hurdles to the large-scale utilisation of space is the immense cost of today's space launching and transportation systems. Ways to overcome this have to be found. Innovative approaches to low-cost access to space have to be found bearing in mind that recovery of development costs is a major factor in commercial enterprises. For example, a number of international launch operators could share non-recurring costs and thereby reduce the prices of future (re-useable?) launchers.
The ISS (International Space Station) could represent an essential test bed for technologies and project management methods applicable to even bolder and more innovative space initiatives, such as lunar and planetary exploration (both robotic, and manned):
In terms of organisation and management, the likely evolution of the ISS is towards the innovative concept of delegating operations and utilisation to the care of an industrial consortium, thereby allowing the public agencies to concentrate on research and development. Although this will represent only a privatisation stage and may not yet evolve into a truly commercial enterprise, given the potentially limited nature of the market concerned, it will definitely constitute a fundamental model for future enterprises (e.g. re-useable launch vehicle operations and ventures in space resource exploitation).
For the longer term, the central role of the continued presence of humans in space, so much evident in American space programmes, should be restated. Humans play a unique role in space exploration and utilisation by effectively complementing the performance of robotics. Their presence in space reaffirms the striving of mankind for expansion beyond Earth. Last but not least, a manned space programme is most effective in ensuring public support and involvement, including useful incentives to technical and scientific education.
Ultimately, it is hoped that the ISS experience, combined with drastically reduced launch costs, will lead to leapfrog innovations based on mass access to space, enabling such new initiatives as space tourism. A measure of the dramatic amount of advancement which is needed in this domain is given by the fact that jump-starting mass access to space is estimated to require a further reduction of one order of magnitude in launch costs, even from the currently projected operational cost levels for a true, fully re-useable launch vehicle.
Market-oriented applications are still not a dominant component of space activities, with a share of about 30% in Europe and only 10% in the USA. However, commercial growth in the telecommunications, multimedia and navigation markets is likely to ensure parity in Europe within five years, and commercial dominance thereafter. This effect is even more noticeable when full account is taken of the combined applications between space and the home, the car and in business. Small companies and entrepreneurs are able to feed off a rich cocktail of technology developments to attract venture capital and to acquire long-term financial support for potentially well managed, bold programmes. Venture capital is far scarcer in Europe than in the USA and is seldom used to finance technological innovation, a problem which extends into European space programmes. For historical and structural reasons, a significant gap exists between the European space R&D communities and the commercial market, as well as the users of space applications.
Private capital is becoming increasingly more important for financing both application and market-driven space activities in Europe. The emergence of large, commercially funded space projects requires a novel look at how new space initiatives can be funded.
It is clear that the international market for commercial telecommunications can attract investment from corporate and financial investors. The financial 'engineering' needed to take advantage of venture capital at the early stage, and other sources of funding throughout a project's life, are reasonably well understood and frequently used for US projects. Investor confidence focuses particularly on a proven management team and an associated business plan. Investment is primarily targeted at high- growth activities such as satellite telecommunications, but not at public funded and embryo markets - such as Earth observation - where the corresponding growth is not yet assured.
There is no lack of capital for space projects in the international markets, nor a lack of professional financial expertise in Europe. Emphasis should be placed on improving investors' knowledge of space technology and the associated opportunities and risks. Similarly, space entrepreneurs must learn more about the essential characteristics sought by potential investors when looking at high- growth projects.
A proposal to create a venture capital fund in Europe comparable to Space Vest in the USA stimulated considerable debate. It was concluded, however, that financial market makers will readily create such funds when a ready stream of projects emerge which are perceived to meet the needs of public or commercial customers. The potential interest of the European Union in offering financial support through its 'Communication on Space', published in December 1996, has been noted.
In conclusion, ESA, in its role as 'technology' provider, has to keep in mind that:
It appears that there is a lack of 'governmental money' to finance space-based business, but no lack of money on the financial markets per se. However, the space community has yet to learn how to tap it.
In today's competitive environment there is the need to demonstrate the economic and commercial value of emerging applications of space technology and to identify those skills needed to strengthen European industrial competitiveness. Space agencies, industry and research centres should develop research vision and technology strategies targeted to exploring the uncertain dynamics of emerging markets and user communities, anticipating the interaction between socio-economic and technology thrusts. This requires the ability to perform a high-level synthesis of multidisciplinary trends encompassing applications, science, technology, economics, finance, manufacturing processes and industrial organisation.
More effort is needed in terms of:
ESA Bulletin Nr. 91