Ripping the Cover Off Innovation - Part II

By Dr Alan B Cornford

In the first article (R$, October 27/03) we exposed a few myths that surround innovation. Here we provide diagnostic evidence of our regional status leading to a prescription for some of the medicine Canada should take to regain healthy innovative competitiveness. But first, what is it? The innovation lexicon is perplexing at best – confusing at worst.

The innovation and commercialization process is a dynamic continuum ranging from awareness and networking to basic research and dissemination of research ideas (or adaptation and adoption of ideas from elsewhere), applied research, proof of concept, prototype development, through entrepreneurial and business development and mentorship to market and product development, production, marketing, sales and distribution. The earlier stages require public partnership investment whereas lower risk in latter stages permits private pre-seed, seed and venture capital investments for “well packaged” opportunities.

Innovation and commercialization also depend on underlying thematic investments that enable the process: the strength of the education system, human resource skills, effective infrastructure (telecommunications, transportation, research facilities …) but most of all – investment in people. The effectiveness of a system of innovation depends on the strength of each element as well as the strength of the interactions among the elements to generate local economic growth and prosperity. All major innovation frameworks embody three components: (i) common (policy) infrastructure, (ii) linkages, and (iii) local industry (receptor capacity) – or “clusters” in present jargon.

RESOLVING THE MYTHS

First, there is no universal prescription that may be generally applied to all economies since there are many complex issues to economic development. Second, indicators of innovative capacity and competitiveness are many and varied. There is little consistency for provinces, states and nations in the literature. Third, there is little that any single agency can do to influence the whole process. However, there are a few major “influence drivers” that far outweigh most others that overall structural policies may address.

R&D RATIOS & INNOVATIVE CAPACITY INDEX

Region Private/Public R&D Ratio Innovative Capacity Index Atlantic Canada 1/2 1/4 Manitoba/Saskatchewan 1/2 1/4 Alberta /British Columbia 1/1 1 Ontario/Quebec 2/1 4 Canada (90% Ont/Que) 2/1 4 Germany 3/1 9 USA 4/1 16

The first myth alluded to the wrong mix and balance of R&D investment in three of four Canadian regions. This hinders regional economic development. In excess of four independent, reputable sources (US Council on Competitiveness, and Porter; Mansfield, AUTM statistics, and venture capital investors) all indicate the right mix for influencing innovative capacity:

• General R&D (GERD) “innovation” influence is 10%
• Science, Technology and Engineering workforce influence is 100%
• Business/private industry R&D “commercialization” influence is 150%

Hence, highly qualified people, both business and technical – are paramount. Also, the private sector presently leverages 15 times more innovative capacity returns from their R&D expenditures than the public sector. Only 5% of all new products (in the US) emanate directly from university R&D. Most venture investors place 70% of investment decision making on management (people), 25% on markets and 5% on technology. Good people are essential and the value of markets (commercialization) is the square of the value of technology/ideas (innovation). In the leading more innovative countries -—Sweden, Finland, USA, Germany — the private (commercialization) to public (innovation) R&D investment ratio is 3/1 to 4/1. Their comparative innovative capacity index (in the US Council of Competitiveness Index) approximates 9 to16 — the square of that ratio. There is a strong common message here. The diagnosis is clear.

This is not to say that jurisdictions should diminish public R&D. They should not. But it does suggest that harvesting outputs of public research results and the local commercial relevance of public research are exceedingly important. It also suggests incremental innovation-related investment should favour PPP (public private partnership), idea partnering, local commercial relevance and a 3/1-4/1 private/public R& D ratio. And this cannot only be a “win/win” situation — it can be a “win/win/win/win” for universities, governments, industry and community. Where local SME (small and medium enterprise) R&D receptor capacity is limited (as in most of Canada), the universities, polytechnics and colleges can conduct applied R&D for local SME industry and therefore benefit from these increased R&D investments, while community SME innovative capacity grows.

It is quite clear then that even if the highly qualified people (HQP) component of each of these economies is generally comparable, the comparative innovative competitiveness of two Canadian regions is 1/64 that of the US, a third is 1/16 that of the US and the most innovative (Ontario/Quebec) portion of Canada is still only 1/4 as competitive as the US. The R&D ratio in New Brunswick is 1/2; it is 2/1 in Maine right next door. As the US and other countries increase their innovative capacity, we tend to accelerate in reverse in terms of competitive advantage under the current mix of R&D expenditure. Not healthy.

You don’t have to be much of an innovation doctor based on this diagnosis to guess what the next “Prescriptive” and “Policy” piece is going to say.

Dr Alan Cornford is a Vancouver-based technology entrepreneur. He previously served in the BC government as ADM for S&T and was president/CEO of Simon Fraser Univ’s SF Universities Corp.