BBVA - Press Room

• “Companies, universities and the government must work together for Spain to meet the innovation challenges that lie ahead”
• “The recipe for innovation must include: far-reaching public policies, a favorable tax system, appropriate infrastructure to conduct business, and simple and modern corporate legislation”
• “Innovation is one of BBVA's strategic cornerstones; innovation aimed at people and businesses to make their lives easier and their wishes come true”

At the seminar today, Francisco González, Chairman & CEO of BBVA, defended the need to change Spain’s economic model to make the country more competitive, highlighting the pivotal role of innovation in this change. “A change in the economic model is needed” he said “which, without overlooking the need to improve traditional sectors, should be geared more towards productive and higher value-added activities that leverage the opportunities afforded by new technologies.” In the same vein, he said “…to achieve this change, progress must be made in innovation, an area where Spain is especially far behind.” During the opening ceremony of the 2008 Cinco Días-BBVA Seminar: Business Innovation that drives Spanish Enterprise, the BBVA head underscored the Group’s commitment to innovation “…convinced that this is a way to enhance our products and services.”

Mr. González kicked off his speech by referring to Harvard Professor Michael Porter, who in the 1980s argued that innovation was a key means for firms to build a sustainable competitive advantage and that the competitiveness of a nation depends on the ability of its companies to innovate.

“Companies cannot compete on the basis of price alone; instead they must continue to differentiate and improve the quality of their products and services” he affirmed. In this respect, he added "Innovation is the lynchpin that also allows firms to reduce costs, while raising the quality and reliability of the products they launch on the market. In this way, innovation turns the challenge of tapping new customers and markets  the bank’s stiffest challenge- into an opportunity.

He went on to analyze an innovation-driven change in Spain’s economic model. In his opinion, if innovation is a permanent structural requirement of enterprises and nations, then “the international financial and economic crisis makes it even more necessary and urgent.”

He says “Spain is affected by the global situation, but we must be aware that our crisis arises from the weakness of our own economic model, characterized by a high dependence on energy, a steady erosion in competitiveness caused by the inflation gap and a excessive weight of activities with low productivity and scant margin for innovation, such as construction and some services.”

Seizing the opportunities

“This model is vulnerable because it produces a large foreign trade deficit and a heavy dependence on borrowing, and because adjustments to recessions –like now- come at the expense of huge job losses” he explained. In this respect, he championed the need for a new economic model. “The new model should still work to strengthen and improve traditional sectors, but it should be geared more towards productive and higher value-added activities that leverage the opportunities afforded by new technologies. In short, it must make us more competitive.”

He affirmed that to achieve this change in the economic model to make Spain more competitive “progress is needed in innovation, an area where the country is particularly far behind” judging by some data:

• R&D spend in Spain has increased in recent years, but still only amounted to 1.2% of GDP in 2007, compared to an OECD average of 2.3% (2006)
• Spain ranked 29th in the World Economic Forum’s (aka the Davos Forum) Global Competitiveness Index and 31st in the Innovation and Sophistication Factors sub-index.
• The IMD World Competitiveness Center of Lausanne has Spain 33rd on its world competitive scoreboard in 2008 (five positions lower than in 2004).

Looking at these statistics and drawing on some of the conclusions of the COTEC 2008 Report, as many as six factors are undermining innovation in Spain:

1.    Companies allocate limited financial and human resources to innovation
2.    R&D of universities and public research centers is not sufficiently geared towards meeting the technological needs of companies
3.    There is little culture of cooperation among companies or between them and research centers
4.    Domestic demand is not a strong enough driver of innovation
5.    There is limited culture in Spanish financial markets to fund innovation
6.    And, finally, companies in Spain do not hire as many technologists (graduates who have work experience in Spanish or European technology projects) as in other European countries

“As we can see” he said “the problems reside in companies, universities and the government. Therefore, all three need to work together for Spain to meet the innovation challenge that lies ahead.” Along these lines, he emphasized “Companies must innovate in products and services that can compete in a global economy, and in processes and structures that enhance efficiency and productivity. They must invest heavily in technology. They must also innovate in business models. This type of innovation is less intuitive and more radical, but is the kind that can provide a sustainable competitive advantage.”

Appropriate framework for enterprises

In his opinion, the “Educational system in general, and the university system in particular –the system responsible for training today’s professionals to work at the companies and the government of tomorrow- need to be thoroughly overhauled. They must steer efforts towards meeting the needs of business and spearhead the transfer of knowledge and projects between the academic and corporate worlds.”

For the BBVA Chairman and CEO, the government’s role in driving innovation in this country is crucial in two ways. First, as the main investor in R&D, above all in areas where private initiative cannot reach so easily. And second, as an enabler, laying the framework for Spanish and foreign companies to be motivated to undertake investment in research and innovation.

In his opinion, “A suitable framework for innovation should include the following initiatives:

• Far-reaching public policies to promote innovation. Here, Spain’s R&D&I plan, the government’s main instrument of scientific and technological policy, run by the Science and Innovation Ministry, should play a key role.
• A favorable tax system, with clear incentives for investment in R&D.
• The existence of appropriate infrastructure to carry out innovation. This entails basic, technological (e.g. the development of ICTs and a reduction of the digital divide), scientific, educational and healthcare infrastructure.
• Simple, modern corporate legislation that considerably reduces the level of administrative red tape required to start a business.
• And, finally, these measures should be applied as consistently as possible throughout the country. We must avoid having too many local and regional regulations, which can hinder the highly desirable market unity.”
  

Towards the end of his speech, Mr. González explained what BBVA is doing on the innovation front. He pointed out that, alongside its principles and people, innovation is one of the cornerstones of the Group’s strategy. However, he underlined that this was “innovation aimed at people and companies to make their lives easier and their wishes come true through new and better solutions for both their financial and non-financial needs and new and better products and services that meet their aspirations.”

He also highlighted that BBVA has been working on an Innovation and Transformation Plan for several years to “transform our production processes and distribution network, to make them more flexible and efficient so that we can provide better service to both our individual and business customers.” This Plan includes a Group target of achieving a 35% efficiency ratio by 2010, for which it has earmarked €5.6bn for investment.

Solutions for customers

“Throughout the process” he affirmed “the core idea is that technology is a leading ‘enabler’ to improve business undertakings and build new, simple, bespoke customer solutions.”

Mr. González underlined that “digitalization, connectivity and mobility combine to make up the springboard for achieving a major leap forward in our products and services.” Along these lines, he listed some of the projects being carried out by the Bank, such as 'tu cuentas’ (you matter), a personal finance management tool for individuals; the ‘e-conta’ online platform, a one-stop management and accounting, tax and labor consulting service for SMEs and self-employed professionals; the ‘virtual doc’ data hosting service; as well as other initiatives for employees to work together via communication and knowledge sharing.

BBVA also has a Corporate Innovation Committee, to which most of the Group’s Steering Committee members belong, as well as a specific innovation department. Its involvement in this sphere also comes through the BBVA Foundation. In this respect, Mr. González highlighted the BBVA Foundation Frontiers of Knowledge Awards, launched with the support of the Spanish National Research Council (CSIC). The first edition of these singular awards will be held soon.

Mr. González concluded his speech with the following statement: “At BBVA, we are clearly committed to innovation, convinced that this is the way to enhance our products and services, meet the needs of an ever-changing society and make us more competitive.”