Stable funding provides National Optics Institute with flexibility to expand nationally

Increase external revenues

The National Optics Institute (NOI) has successfully renewed its funding agreements with the federal and Quebec governments as it begins to execute a new strategic plan that aims to transform the Quebec City-based applied research facility into a truly national organization. The 23-year-old NOI has opened offices in Hamilton, Edmonton and Montreal, targeting niche regional requirements in the areas of optics and photonics. It plans to boost its external revenues to 60% of total funding by 2016.

The federal government announced last month that it was providing NOI with $45 million in non-repayable funding over five years through Canada Economic Development for the Quebec Regions (CED) regional agency, bringing federal support for NOI since 2006 to $90 million. A funding agreement with the Quebec government has also been completed and will be announced in May. NOI was singled out in the 2010 Quebec Research and Innovation Strategy as one of four strategic technology areas that will receive a total of $119 million.

NOI currently has a staff of 230, with 80% devoted to scientific and technical services and the remainder spread over market researchers, analysts and human resources and information technology.

For the previous five years, federal support was somewhat ad hoc. While the 2006-2011 total is equal to the latest funding, it was provided in the form of $18 million from CED in 2008, $15 million through Industry Canada and the Centres of Excellence for Commercialization and Research and $12 million in extension funding in 2009 from CED. Between 2006 and 2011, the provincial government provided NOI with $7 million annually, augmented with $12 million for the purchase of specialized equipment.

"This government (federal) understands long-term financial plan and provides it. The five-year funding period is very important for long-term projects, especially in the life sciences," says Jean-Yves Roy, NOI's president and CEO. "We have a Canadian mandate and our intent is to exploit it as such … Our mandate is not to just create value-add in the Quebec City region but to do it wherever it's important."

Despite the comfort afforded by long-term funding, Roy says the base support provided by Ottawa and Quebec City isn't enough to cover increases in salaries or expansion of activities to take advantage of emerging opportunities. To that end, NOI plans to increase the percentage of funding it receives from external revenues (primarily research contracts) from the current 50% to 60% by 2016 (averaging 56% over the next five years). "It's critical to increase external revenues. We have no choice," says Roy. "We can't freeze researcher salaries for five years."

Much of that increase is likely to come from a greater volume of contracts in the Quebec-Ontario corridor by increasing its applied research activity in the areas of automotive, aerospace and life sciences. For FY09-10, 35% of external revenues came from Ontario. That year, those outside earnings totaled $14.7 million, a 12% increase over the previous year.

weathered downturn

Roy says the jump in income last year is all the more impressive considering the shock to industry delivered by the economic downturn, prompting NOI to change the conditions of research contracts with several hard-pressed firms.

"The last two years have been difficult because of the financial crisis as most of our (client) companies are SMEs and many are short of cash," he says. "We decided to take more risk if their business cases were good by changing cash contracts into royalty or shared-cost contracts. It affected our short-term external revenues."

NOI's bread and butter comes from its extensive internal research program, which provides leading-edge technological and entrepreneurial services to a wide range of companies. The research program is broken into 10 technology-specific teams. Roy says the manager of each team is required to travel one week each month to keep abreast of industry's technology requirements and the market environment.

"We're an applied research centre and we have to be connected to the market. We're positioned in the valley of death so being quick to market is essential," says Roy. "Our big concern is to see where we can have the best value-added even as the external market changes. We have to adapt technology to this and be very proactive. Our strategic focus is to go at the speed of industry and be quick as the entrepreneur himself."

Firms engaged in defense and public safety contracts provide one third of external income, followed by transport (22%), aerospace (18%), optics and photonics (12%), health and life sciences (11%) and industrial processes (3%). Those ratios are likely to change as NOI ramps up its activities in other regions of Canada. But the single largest source of its research contracts is likely to remain the Quebec City region, which has vibrant industry clusters in defense and photonics and is anchored by Lava Unit, which has the largest concentrate of photonics and optics research in Canada.

Roy compares the NOI model to Germany's Fraunhofer Society, a network of 60 research institutes that derive 70% of their income from contracts with industry and government.

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