European firms lag behind the US in R&D investment and the adoption of digital technologies. Using firm-level data from 2019, this column finds that larger firms have higher rates of digital adoption than do their smaller peers, and that digital firms have better management practices and show more dynamism. European policymakers looking to close the innovation gap should address structural barriers to investment in digitalisation, remove disincentives to grow, and reduce market fragmentation, particularly in the service sector.