A new European defense innovation ecosystem

By Kai Balder, Manfred Hader, Rachel Hugo and Eric Kirstetter

Our acclaimed 2025 study “The Defence Imperative” explored how Europe can become a deterrent to ensure its future security in a volatile world. With tensions still rising, this follow-up study goes a step further and looks at how Europe can remain a deterrent. We believe innovation will be key, and so present our vision for a new European defense innovation ecosystem as well as recommendations on how to achieve it.

These are remarkable times. Military risks in Europe's vicinity have increased, while geopolitical shifts have led to greater uncertainty in alliance structures and security responsibilities. Europe's long-term security arrangements and the future role of NATO have become critical priorities.

At the same time, warfare is changing. Alongside evolving hybrid war strategies, a new warfare paradigm born on the battlefields of Ukraine and the Middle East is taking shape, characterized by rapid innovation, smart affordable mass solutions and software-based tools . Europe's defense stakeholders, still geared toward conventional defense strategies, must adjust and adapt to this new environment to ensure the continent becomes – and remains – a deterrent.

Only a strong and responsive European defense innovation ecosystem can achieve this goal. The question is, how can it be built? In this second major annual defense study, we present a way forward, with innovation at its core. We assess today’s defense ecosystem, look at two proven innovation models – Israel and Ukraine – and offer a vision for a new innovation ecosystem based on agility, stakeholder collaboration and strategically aligned financing. Our recommendations outline the parts each stakeholder group – from armed forces and traditional defense “primes” to start-ups and research institutions – can play in fulfilling this vision.

Where Europe is going wrong

Recent wars – most notably in Ukraine and the Middle East – have fundamentally reshaped how modern warfare is conducted. Beyond manpower and platforms, the decisive factor has become the speed at which technologies can be developed, adapted and deployed. Software-defined capabilities, autonomous systems, electronic warfare (EW) and data-driven targeting now evolve in weeks or months rather than years, while mass and affordability have regained strategic importance.

These developments have sharpened the urgency for reform in Europe. Yet the continent’s defense innovation ecosystem remains fragmented, with limited coordination between stakeholders both domestically and internationally. It also suffers from slow, risk-averse procurement and underinvestment. These structural constraints hinder rapid adaptation and scaling of promising technologies, as well as the integration of startups alongside traditional primes.

To highlight the challenges, the study looks in detail at the strengths and weaknesses of Europe’s current defense innovation ecosystem, including around collaboration, talent, feedback cycles, financing, procurement and R&D. It concludes that significant reform is required in each area.

Lessons for Europe

Next, the study looks at what Europe can learn from Israel and Ukraine’s defense innovation models. Israel demonstrates the power of inside-out innovation. Its key strengths lie in leveraging close integration between military, industry and academia, as well as strong support structures for iterative development, a successful export sector and a defense-focused national mindset.

In contrast, Ukraine exemplifies outside-in innovation. Its core strengths include a rapid defense transformation that now enables it to quickly adapt commercial and off-the-shelf technologies under extreme operational pressure to counter emerging threats, a new open platform (Brave1) to accelerate battlefield innovations and a rapid, iterative approach to drone development. All of these strengths are assessed and compared in detail in the full study.

A resilient European defense innovation system

With the lessons from Israel and Ukraine in mind, we outline our vision for a resilient European defense innovation ecosystem. It is built around three pillars: an agile regulatory and procurement framework that tolerates managed risk and accelerates capability delivery; closer collaboration between armed forces, industry, startups and research; and predictable and strategically aligned financing. The study explores each pillar in depth, for example, offering a target state for a coordinated ecosystem and strategies to rethink funding and pool demand to support scale. Such drivers ensure Europe can systematically harness innovation, scale emerging technologies and respond rapidly to evolving threats.

Finally, in the recommendations section, we set out how European stakeholders can achieve the vision and build a sustainable deterrent. Actions include strategies to improve integration, for example, through supra-national innovation hubs; better define operational needs, including by using test units in the armed forces; accelerate procurement, for instance, through spiral development pipelines; and close financing gaps, such as those in AI research. Implemented together, these will allow Europe to out-innovate its adversaries and become a deterrent in an increasingly unstable world.

For more details, please download a copy of the full study or contact one of our experts.

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