Tom Sommerlatte, chairman of the firm's global management consulting business, points out that none of the leading European economies appears in the latest World Economic Forum global competitiveness report. He says top companies need to reactivate their strengths of the past "in the global, knowledge-based and technology-driven environment in which we increasingly operate".
Since the firm owns Innovation Associates, a business which has close links with the management guru Peter Senge, and other proponents of the "learning organisation", it has a special interest in the management of innovation. In particular, it points out that innovation is wider ranging than invention because it can include new ways of doing things. Arthur D Little is working in this area with clients including BP, Coca-Cola, Ford and Procter & Gamble.
Arthur D Little also stresses that rekindling an interest in innovation does not necessarily mean spending more on research and development. The firm claims that in most areas benefits can flow from reducing the spend; the key, as deputy chairman of the UK arm, Tim Simpson, points out, is to "focus on areas that make a difference".
Dr Sommerlatte, who will take his warning to the World Economic Forum's annual meeting in Davos, Switzerland from 30 January to 4 February, is backed up by his colleague, Philip Modiano, European manager for Innovation Associates.
"Europe has the potential to succeed in the global market place, but to succeed, European companies have to be masters, not victims, of change. Learning as an organisation is the only way to make sure that the organisation can change what it does and the way it does it fast enough and well enough to capture the opportunities and overcome the barriers to growth," he says.
He and his colleagues acknowledge that this may often require a fundamental change in attitude. After many years of focusing on cost-cutting, firms can find it hard to come up with new products and services.
An Arthur D Little survey demonstrated that although most business leaders recognise innovation as probably the most challenging issue, they also recognise that they do not know how to do it effectively. Mr Senge has been criticised for being too theoretical, but the firm argues that Innovation Associates puts his concepts into practice.
In particular, it claims to have the techniques and models that help leaders change their own behaviour in order then to change that of the organisations they head.