Better days ahead for BERD?

By Eric Cook

Canada's chronically poor BERD rankings, the loss of its largest R&D spender (Nortel Networks) and the struggling fortunes of Nortel's successor as top R&D spender (Blackberry) are cause for concern. However, there is also good reason for optimism.

Innovation reports and assessments have consistently raised concern for Canada's innovation performance, specifically our relatively poor performance in the category of business expenditure on research and development (BERD). Until recently, the response has essentially been to stay the course and allow for more time and more money. This is beginning to change.

Canada's strategy to improve innovation performance has been to address it as a supply issue by increasing the supply of research through the provision of more money that provides for more discovery and knowledge. These investments have helped elevate Canada to be among the best performers of academic research yet our innovation performance continues to lag.

The Council of Canadian Academies (CCA) report, Paradox Lost, Explaining Canada's Research Strengths and Innovation Weaknesses, notes "Canadian firms have been as innovative as they needed to be". Adequate labour supply and favourable exchange rates have allowed many businesses to succeed without significant BERD. This helps to explain why production of discovery research is outpacing business demand.

The second important factor is highlighted both in Paradox Lost and the CCA's report on the State of Industrial R&D in Canada. Most innovation is not a linear process where academic research produces ideas that are commercialized by business. This technology-push approach is one path. But market pull — essentially business-led research — is also critically important. Most agree that it is business that must lead the charge to generate commercial value from research, hence the focus on BERD. So what is changing to influence BERD?

In examining Canada's BERD incentives, OECD, the Jenkins Expert Panel and others have highlighted that Canada is heavily weighted towards indirect incentives, mainly Scientific Research and Experimental Development (SRED) tax credits, and invests little in direct BERD incentives, mainly the Industrial Research Assistance Program (IRAP). Some effort has been made to bring more balance to these direct and indirect incentives. Nations with strong innovation performance tend to have a balance of both direct and indirect BERD incentives.

Changes to NRC signal shift

A significant change to facilitate business-led research is the re-focusing of the National Research Council (NRC). Encouraged by the Jenkin's Expert Panel report — Review of Federal Support to Research and Development — the NRC is shifting its focus to more business-led research and less academic research. Significantly changing a 100-year-old mandate is challenging, but an encouraging recognition of the significance of business-led research and BERD.

There are also positive changes in attitudes. Innovation is beginning to be better understood and, most importantly, differentiated from invention. Roger Miller and Marcel Côté's work in Innovation Reinvented highlights the six games of innovation and their research illuminates the economic impact of each type. Of note is the ‘Mature Market' category that generates 65-70% of economic value. The allure of Eureka! innovation has influenced many innovation incentives but the Miller/Côté research helps highlight that incremental innovation significantly contributes to economies.

Procurement is yet another area highlighted to have the potential to drive BERD. Effective government procurement programs can drive Canadian innovation. The Jenkins Expert Panel report highlighted the Canadian Innovation Commercialization Program, (CICP) and encouraged military procurement to be utilized to drive Canadian innovation. This has been well received by policymakers.

Perhaps of greatest significance to BERD are free trade agreements. Free trade will encourage Canadian business to be more innovative as they address competitive forces and pursue market opportunities. If Canadian business has been as innovative as it needs to be, that need is about to increase.

Time will tell if these policy changes will lead to improved BERD performance but at least there is some effort to change policy and direct some focus to the demand side of the innovation issue. There are those that will resist the change, and those that believe it is inadequate. But the fact that change is happening provides the opportunity for a different result.

Eric Cook, P.Eng, is executive director and CEO of New Brunswick's RPC, an independent contract R&D and technical services organization.