Yet tech companies hardly have a monopoly on new ideas, and the success of Europe’s most dynamic businesses suggests the continent can still compete in the second quarter of the 21st century.  

One leading light is global beauty leader L’Oréal, which Fortune recently named Europe’s Most Innovative Company. Although famed for its $1.5bn (€1.3 billion) R&D budget, there is more to its success here than brute scale. As the company’s head of augmented beauty and open innovation, Guive Balooch tells us, it’s the way L’Oréal approaches it that makes the difference. 

“Beauty is at an inflection point, with so many areas of research, science and innovation that are beyond the core expertise of our industry, which up till now has been chemistry-based. Now tech is having major involvement, with beauty devices, diagnostics and digital services, but there are also [trends] like biotech and wellness.  

“All these require us to have an innovation strategy which is inside and outside,” says Balooch, a Californian who joined the French firm 18 years ago after a brief career in academic research. For most of that time, he’s been pioneering this ‘inside and outside’ approach of open innovation, which in practice means that alongside L’Oréal’s extensive pipeline of in-house lab formulations, it also partners with external companies to develop novel products and services that neither could create alone. 

Balooch points to L’Oréal’s Makeup Genius (now Beauty Genius), which in 2014 became the beauty industry’s first use of augmented reality to help consumers visualize how a product would look on their skin before buying. Its utility was obvious—digital makeup mirrors are now commonplace in beauty retail—but its origin was surprising. 

“We collaborated with startups in the animation industry, because they’re the best when it comes to augmented reality, using our use case as a way to inspire them,” Balooch says. L’Oréal later acquired one of these firms, ModiFace, in 2018, after previously investing. 

It’s a similar story for its AirLight Pro hair dryer, developed in partnership with a drone firm (Zuvi), and Cell BioPrint, a tabletop device that analyzes skin types in just five minutes for personalized skincare recommendations, which came from a collaboration with Korean medical diagnostics firm NanoEnTek. 

“We’re constantly looking, but most of these partners are very surprised when we go to them. NanoEnTek were doing [their work] for health, they hadn’t thought of beauty applications,” Balooch says. 

A capacity for ideas 

How does L’Oréal come up with the ideas for innovations in the first place though, before seeking out third parties?  

On the one hand, Balooch says, the company has deep levels of marketing insight that define consumer problems that need solving. Sometimes this can come from analysis of social media data, but on other occasions it comes from firsthand experience.  

L’Oréal Groupe

Balooch points to a marketing staff member who saw that many people were struggling to mix hair colors themselves, and had the idea for a handheld device that would do it for them. They entered it into an internal competition that L’Oréal runs, where it gives a budget to the winner to develop their idea.     

“It came to my team, and seven years later, because it was a hard one to do, we launched Colorsonic,” he says.  

While ideas for innovation can emerge from anywhere, they more commonly originate from a dedicated central team that brings together diverse specialists to look at how trends in consumer behaviour and science might impact beauty.  

L’Oréal Groupe

“We think about future frontiers like longevity or the microbiome, and we have different people in the company come up with ideas. Then we have a pipeline meeting once a year, where we present these ideas to our different brands and divisions, and see the excitement behind them,” Balooch says, adding that there are many impromptu meetings throughout the year as well.  

A key element is team composition, as well as the involvement of senior management, all the way up to the CEO. “It’s the tension between the scientists and the creatives. We sit together… I’m a PhD in biology and I’m running the tech team. You wouldn’t see that in many companies,” Balooch says. 

Determining the return on investment can be difficult, given that it can take years for new products or services to come to fruition, but Balooch says there are targets around the tangible impact of innovations, for example how often partnerships turn into new products. Consumer insight also helps to determine whether customers feel their problems have actually been solved by the new innovation.  

Altogether it’s a multi-faceted approach that has yielded results. L’Oréal’s bevy of new products and services have not only helped it extend its lead at the top of the highly competitive global beauty market, they’ve also earned it plaudits outside the sector, exemplified by CEO Nicolas Hieronimus’s 2024 keynote speech at tech show CES, a first for a beauty brand business. 

Europe as an innovation hub 

The level of innovation is not easy to replicate elsewhere—if it were, L’Oréal wouldn’t still have its lead—but it does still give ambitious European companies in other sectors something to aim for. 

And Europe is increasingly a great place to do innovation, and particularly open innovation, Balooch says. “There are so many great scientists and universities in Europe, a lot of intellectual property, but there’s also a lot of movement now with startups being created. I’ve lived in Europe for a long time, and I see that now much more than I’ve ever seen. You have a lot more support for startups. So it’s a great ecosystem for innovation.” 

The key, however, is for European companies to leverage this alongside the innovation taking place elsewhere. “The world is so much more interconnected today. There were so many more silos in science 20 years ago,” says Balooch, adding that combining different ways of approaching innovation can unlock fresh thinking, even within a company. 

“I send a lot of my French people to the U.S., a lot of my U.S. people to France. It’s incredible to see what happens when you do that.”