Alan Cornford

Canadian R&D innovative competitiveness in free fall — a new recipe is required

By Alan Cornford

We're on a downward spiral in terms of innovative competitiveness. We pour billions of dollars into education and research. Yet we continue to accelerate in reverse. Once seventh, then 12th, now at 18th place, according to the Business Competitiveness Index developed by Michael Porter. We're a world leader in the funding of public research and currently sit at number one. But study after study confirms the continuing slide and none can explain what to do about it.

Well… there are a few simple truths here. First, innovation requires change. Second, it requires understanding R&D processes and interdependencies. And third, it requires research collaboration — but performed differently from how we do it in Canada today.

A Need to Change

Canada has never really had to change. We continue to rely on natural resources that have always driven our prosperity. Finland, on the other hand, with almost the same population as BC and a similar forestry resource economy, is now at the top of the innovation mountain by almost all accounts and metrics.

How did that happen? Twenty-five years ago, Finland was very similar to Canada in terms of the number of researchers per thousand in the workforce, R&D commercialization and technology outputs. But continuous disruption before, during and after the Second World War forced the Fins to evolve. Finland now makes 15% of the world's fine paper and 40% of the world's pulp and paper and forestry machinery. Meanwhile in Canada, having never been exposed to similar threats, we have not pushed outside our comfort zone.

Both countries have the four major ingredients needed: public R&D, private R&D, highly qualified people (HQP) and risk capital. But just like making a cake, having the right ingredients is only the first step. The key is getting the right proportions and mixing them in the correct order. Finland has it right. We do not. Canada has never had to use technology to gain or regain competitiveness as have the northern European nations. As a result, we have settled into a non-competitive trend.

The Winning Recipe

The good news is that Canada has the right ingredients — they just need re-juggling. This can happen at no downside or incremental expense to any of the current stakeholders. A real win.

First, public R&D produces HQP and new ideas. HQP create productivity. Next, private R&D produces innovative capacity — a continuous stream of local, commercially relevant new product opportunities. Lastly, collaborative R&D leverages both public and private R&D assets.

When all three are mixed together, innovative competitiveness is achieved. But to optimize competitiveness, we need to find the right balance among these ingredients to produce the most value per unit of innovation R&D investment.

The optimal ratio for private R&D to public R&D is in the range of 3:1. This means that for every combined R&D dollar spent, 25% develops HQP while 75% develops new product opportunities. Meanwhile, Canada has a 1:1 ratio that does not produce the same level of new product opportunities or local jobs for our graduates.

The Finnish 3:1 recipe provides more productivity, move innovative capacity and more leverage which combine to produce more competitiveness. Canada, on the other hand, will continue to slide backwards unless we adjust our ratio to match.

The Payoff

If the public R&D domain can markedly improve collaboration driven by local commercial needs, the innovative capacity generated from public R&D can be equivalent to (or greater than) private R&D.

For non-contract work at universities, Finland has more than 66% local commercial relevance, while Canada has less than 5% local relevance. By increasing our percentage, we can get eight times the patent output and 15 times the new product opportunity output for the same dollars invested .

This locally relevant collaborative R&D also holds potential to transfer our HQP — our university graduates — to local industry so they remain in the local community. Rather than focusing on public researcher interests and using them as the prime basis for industry collaboration, we should instead ask ourselves: What are local industry pain points?

Eli Lilly, Proctor and Gamble, 3M and many others post their research needs on-line and have universities submit proposals for commercially relevant R&D solutions. We don't do this in Canada for non-contract public research dollars, preferring to have idea serendipity and peer review decide the placement of funding from the Natural Sciences and Engineering Research Council and other public funding sources.

If local industry could post its R&D needs and create matches from outside the public R&D system, we can achieve a 15 times higher return on investment and extend the NSERC mandate to erase the deficit, with no new dollars needed.

Maximizing ROI for Taxpayers

Public investment cannot stop with doing research, followed by scholarly publication, then talking about it to get more investment. Instead, those dollars must come from competitive value generated from industry's new products. Otherwise, our innovative competitiveness runs a deficit.

The university industry liaison offices and incubator systems (like BC's Discovery Parks) are an essential element of R&D investment. By excluding them from the public R&D budget in Canada, we are severely limiting public R&D dissemination and generating poor R&D performance by any standard.

Canada can reverse its continuing drop in competitiveness. We have the right ingredients and the winning recipe. But, do we have the will to innovate and change?

Alan Cornford (abcornford@shaw.ca) is a former Assistant DM of Science and Technology for BC. He develops startup companies and is developing applications that facilitate understanding ecosystems and process value streams. This article was edited by Neil Malik. A longer three-part PDF version is available here.