Task force seeking answers on how to grow high-tech firms in era of global competition

A task force is being assembled to explore ways of countering global trends that threaten to sap growth and investment from Canada’s top high-tech cluster. The Commercialization Task Force (CTF) of Ottawa has lined up 10 area organizations to study the world-wide trend towards outsourcing and examine the apparent inability of area firms to break through the $50-million sales plateau.

The work of the CTF is focused on the industry perspective of commercialization, which has more to do with creating markets for existing products than technology transfer and company creation (the academic perspective). The latest VC data show that, with the downturn in high-tech, Ottawa has descended from the lofty heights it attained in venture capital (VC) investment and high valuations of promising start-ups. Of the 1,400 high-tech firms in the region, the vast majority have just a handful of employees and few have the sales force or market channels required to dominate global niches.

Foreign VC has virtually abandoned the Ottawa market and company worth now is based squarely on actual sales and market traction, causing a precipitous drop in company valuations. The change in market conditions and the inability of Ottawa firms to adapt are promoting fears that the era of Silicon Valley North could draw to a close unless there is drastic action taken by all players in the innovation system.

CTF leaders say Ottawa has become a market throttled community, with only a handful of firms growing beyond small business size to become a medium or large company. The environment that allowed firms like Mitel, Newbridge and SHL Systemhouse to flourish in the 1980s and 1990s is gone. In its place is a truly global competitive environment characterized by universal access to information, an emphasis on branding, marketing and sales costs and the outsourcing of key company functions performed by specialized firms.

CTF chair Eli Fathi, CEO of OrbitIQ, says the CTF will work to quantify and qualify the anecdotal evidence and gut feelings many in the community have about the state of high-tech in Ottawa. It will recommend solutions by the fall.

“The value of companies is so low that whoever puts in most of the money controls it. Three years ago that was not the case when valuations were high. Now you have to add value so when you get money you’re not giving away most of the company,” says Fathi. “There are trends that are happening globally that are forcing this kind of situation. The problem is not individual people but the inability of the region to accept and adapt to this. You can’t fight global trends.”

To better understand the forces at work, the CTF is partnering with the business schools at Ottawa’s two universities (see chart). Their marching orders will be finalized in the new few weeks and they will work over the summer to develop the data required for building a comprehensive set of proposals.

The Ottawa Centre for Research and Innovation (OCRI) is stepping up to take a coordination and leadership role to bring the various regional players together while the Canadian Advanced Technology Alliance (CATA) will take the issues national. OCRI president Jeffrey Dale says the recommendations that emerge from the CTF will inevitably involve government.

“Some of them will deal with access to capital issue, skills issues, market issues, policy issues and on each of those problems there’s probably a government program you need to re-create or re-position,” says Dale. “For tax issues that are long-term, organizations like CATA and ITAC (Information Technology Association of Canada) play a role in helping to change government policies in terms of what’s going to give Canadian companies an unfair advantage. And why not? Why do we always think we just want a fair advantage?”

CTF leaders don’t want to pre-determine its work before the business schools report and before their objectives are better defined. But there’s a sense that organizations like OCRI and Waterloo’s Communitech should emerge with stronger mandates and expanded roles in the commercialization process. Such a scenario could see the creation of publicly funded commercialization centres of excellence using the Ontario Centres of Excellence program as a model.

CTF leaders believe that the timing is right for their initiative, given the state of political flux both in Ottawa and Queen’s Park. By developing sound proposals by the fall backed up with currently unavailable data, much needed action could come as early as the next budget cycle.

“The fact that everybody is jumping on the task force tells us there is a problem. Now the challenge is to ensure that these organizations come up with concrete information. We don’t want a piece of paper at the end of it,” says Fathi. “We believe that there’s a role for government but it’s premature to say what it is. Based on what OCRI is doing in this field, the government and OCRI should do something to address this issue but what it is we don’t know. We will have to quantify it over the next six months.”

Several groups within Industry Canada are working on issues related to commercialization, but without strong input from the private sector, there is concern that the Innovation Strategy could boil commercialization down to technology transfer and risk mitigation.

“They’re keeping it as simple as a re-skilling initiative and an access to capital issue,” says Dale. “We think there are other aspects that the strategy did not address. That’s why this task force is so important now.”

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