STIC report finds few improvements in Canada's innovation performance

Significant strides in deepening the knowledge talent pool have done little to offset Canada's declining productivity and innovation capacity, according to the second biannual State of the Nation report issued by the Science, Technology and Innovation Council (STIC). While several indicators reveal that investments in post-secondary skills and research are bolstering Canada's standing among comparator nations, efforts to commercialize publicly funded research have been weak, leading to stagnant innovation performance.

Transferring knowledge from research institutions in universities and government to the marketplace and building a culture of business innovation are singled out as areas of particular concern, as is underinvestment in machinery and equipment (M&E) and information and communications technology (ICT). Unless better connections among players in the innovation system are developed, Canada can see its current status as a mid-ranked innovation nation erode as more aggressive developed and developing nations improve their innovation performances.

"Current best efforts are not getting us where we want to be," concludes the report. "The job of those who partner with industry (including governments and higher education and research institutions) is to enable performance gains by adapting, consolidating and simplifying the policy instruments and mechanisms for collaborating with the private sector on innovation."

Entitled Imagination to Innovation: Building Canadian Paths to Prosperity, the report contains a comprehensive set of benchmarking indicators to gauge national innovation performance in the areas of R&D, business innovation, knowledge development and transfer and talent, including a list of 20 performance indicators identified for ongoing monitoring.

The 2010 report builds on the 2008 version by introducing more detailed indicators on business innovation by industry sector, revealing that some sectors are performing better than others. It also asserts that collaboration should be considered in a clusters context as a means for achieving successful commercialization of research. Companies large and small can access talent and ideas "by building strategic relationships with higher education institutions and with each other", it states.

There has been progress on only some indicators since the 2008 report. Even areas where Canada continues to score well internationally, such as mathematics and science skills, have dropped slightly over the two-year period.

The State of the Nation report makes extensive use of a new 2009 Survey of Innovation and Business Strategy in which 6,233 firms in 67 industries were surveyed. A joint pilot between the Department of Foreign Affairs and International Trade, Industry Canada and Statistics Canada, the survey tracked product, process, marketing and organizational innovation. It revealed that only 19% of companies have a strategic focus of regularly introducing "new or significantly improved goods or services", relying instead on existing products or practices. The survey did not ask specifically about university-industry collaborations, something the report identifies as critical to improving innovation performance. STIC recommends adding the question to future surveys.

One collaborative approach that has seen considerable success in other countries is placing graduate students in smaller companies for extended periods of time.

"Emilia-Romagna is one of the top, if not the top innovation regions in Europe. In the last six or seven years, they've demonstrated growing 925 small- and medium-level companies. Their forte has been to place students in their last year of graduate studies into companies and then they work for the companies paid for the government for the first three years," says STIC chair Dr Howard Alper. "A significant majority of these people remain with the company following these periods of time."

In the area of support for business innovation, the report notes that Canada's balance of indirect and direct support is seriously out of whack compared to other nations.

"The challenge is to deploy talent well, invest in advanced technology, integrate innovation into corporate and country strategies and leverage our efforts to deliver prosperity for all Canadians. This alignment will improve our lagging productivity growth" — State of the Nation 2010

The report cites a 2007 evaluation of the Scientific Research and Experimental Development (SR&ED) tax credit program by Finance Canada which shows 91 cents in value for every dollar in foregone revenue. SR&ED cost the taxpayer more than $3 billion in foregone revenue in 2009, accounting for .22% of GDP — by far the highest level among 23 countries surveyed by the OECD. The same survey shows that Canadian direct support was the third-lowest of the group at .02% of GDP, ahead of Poland and Mexico.

"You need an appropriate balance of direct and indirect measures to stimulate business innovation and research and development," says Alper. "Tax credits have their value and so do other issues such as direct support to industry, access to infrastructure, equipment, machinery and so on."

Advising government on the best approach to stimulating business R&D and innovation falls to the R&D Expert Review Panel — chaired by Open Text Corp executive chairman and chief strategy officer Tom Jenkins — which will be issuing its highly anticipated report this fall.

"We have great interest in what the Jenkins report will say about that (direct vs indirect) and I hope it is one of the centerpieces of the report," says Dr Peter MacKinnon, president of the University of Saskat-chewan, STIC member and head of the subcommittee which produced the State of the Nation report. "It will be a very important analysis."

While the report notes that research talent has made significant progress in recent years, indicators show that Canada is underperforming in moving research knowledge into the marketplace. Declining business R&D, anemic venture capital investment and low use of Internet commerce, particularly by smaller companies, all point to a major challenge in turning around Canada's innovation performance. Relatively new programs designed to boost commercialization such as the Centres of Excellence in Commercialization and Research and the Business-Led Networks of Centres of Excellence have yet to prove their effectiveness.

"The knowledge translation piece is not really in place yet. There's a lot more work to be done and we're still struggling with it," says MacKinnon. "We need better means of collaboration and I think we're making strides there. But we also need — and the report notes this — greater business investment in research and we need to take into account particular portfolios like machinery and equipment and information technology."

Despite the lack of progress on a number of key fronts, Alper says there's room for optimism, particularly in the level of awareness of innovation among the business community.

"Since the first report, one very gratifying development is conversation. There has been a good conversation especially in the business community … To take and mold that into a coherent strategy is the next step. I think that will play a substantive role positioning us better for the future," he says.

The report can be found at: www.stic-csti.ca

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