Thursday, October 08, 2009

Making Innovation Investments Work

As budget season approaches, universities are once again making the claim that they can be a key part of economic recovery and growth because they are engines of innovation.

Universities are critical vehicles for research activities which, sometimes, produce breakthroughs – penicillin, canola, Gatorade, Google. But their fundamental purpose is the development of highly qualified people who are able to engage in creative problem solving, critical thinking and the pursuit of knowledge. Some of these highly qualified people, graduates of arts and social studies programs as well as science and technology, engage in advanced research. It is important that they do so, since knowledge based economies depend on both commercially attractive research but also on deepening our understanding of science, technology and social and cultural phenomenon.

We need more highly qualified people in our workforce. In comparison with other high performing innovative economies, such as Finland, we have around half the number of people with science and technology degrees as they do and we have significant weaknesses in high qualified managers leading our firms, especially those at an early stage of development.

We also have a low level of private sector spending on research. Our major research companies, recently denuded by the loss of the biggest research driven company in Canada – Nortel - number less than one hundred and twenty five and spend less per capita than most of our international competitors. This shows itself in the continued reduction in spending on R&D by firms but also in the decline in the ratio of private to public spending on R&D. In Finland, which is highly successful as an innovative economy, this ratio is close to 3:1 – in Canada it is closer to 1:1. Several research studies show that it is this ratio is a crucial driver for the commercialization of new products and services derived from research and the higher the ratio of private to public funds, the more commercialization takes place.

Our challenge is simple. Focusing funds on university research, while laudable, does not produce returns on investment which translate into economic growth. What is needed is a refocusing of our understanding of innovation as a commercially driven process, linked to the firms and a jurisdictions innovative capacity and the ability of people to lead, champion and manage change.

Five things need to happen if Canada is to leverage its knowledge based firms and research capacity for economic growth. First, we need to stop believing the rhetoric that research leads to innovation which leads to commercial products. It can be like this, but rarely is. We should accept that research is valuable in its own right and fund it, roughly at the level it is now. We should downplay the commercialization functions attached to universities and encourage them, through incentives, to find new and more engaging ways of working with firms.

Second, Canada needs to do all it can to stimulate R&D in firms. Extending the various tax credits to include marketing and consumer product testing, finding more ways of matching private firms spending and looking at different tax related strategies to encourage angel and venture capital funding of early stage, knowledge intensive firms.

Third, Canada needs to rethink its investments in learning and focus its immigration strategy on a dramatic increase in the number of highly qualified people with strong science and technology backgrounds working in firms. As part of this effort, we should pay attention to the frequent voices of the venture capital and investment community that constantly remind us to strengthen managerial capacity throughout Canadian industry, but especially in knowledge intensive early stage companies.

Fourth, we need to recognize that public service focused innovation – in health, education, social services, eldercare – is different from innovation intended to have direct commercial value. There are different buyers, regulatory requirements, competitive environments and product life cycles for “public good” based innovation versus widgets, sockets and socks. We need to consider what supports are needed by these public good sectors versus others and start to differentiate our support services accordingly.

Finally, we ought to see public policy and regulation as vehicles for stimulating commercialization. To take the “green economy” as one example, the faster Governments regulate a requirement to reduce water use in the oil sands, to reduce CO2 emissions dramatically, to end the production of tailing for the oil sands then the faster innovative technologies will emerge and provide a basis for what one author calls “Green oil”.

Investing more in the usual suspects and expecting different results is likely to lead us to fall further behind our competitors. It is time for a new and fresh thinking.

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