William Coderre

Commercialization needs an active industrial research & development strategy

By William Coderre

The current government push on commercialization of the results of publicly funded research, while appropriate to a degree, addresses only one half of the equation. Work is also needed on the other half. Technology transfer and subsequent commercialization need energetic and intelligent catchers as much as effective pitchers. Commercialization needs as much pull (if not more) as push.

Rarely are public sector research results market-ready. When technology is transferred out of a government or university lab, the next stage in its commercialization is a significant effort in industrial research and development (IR&D). Canada has a strong public research sector, based on world-comparative terms, but our industrial R&D (and therefore innovation) base is perhaps two times too small. The “market” for university and federal lab technology transfer agents is 20 times smaller than that served by their US homologues.

It appears that the new federal government emphasis is going to be “competitiveness” (wasn’t that the hot button back in 1992?). The key for a competitive industry is to have a good number of firms able to develop, adapt or adopt leading edge technologies and this demands strong industrial R&D capability.

The National Research Council (NRC) used to have an industrial research assistance program aimed at strengthening industrial R&D through major projects in relatively large firms. This was the original IRAP program (1962-86). They also ran a $45-million per annum multi-departmental public sector technology transfer program (PILP 1975-89).

Both of these programs inspired, encouraged and assisted firms to take on challenging and potentially lucrative research-based innovations by supporting selected industrial R&D (ad)ventures at the highest risk phase. They provided only 35%-50% contributions to projects to assure that the firm’s management had a strong commitment to the project. They worked with firms that had a significant research capability and wanted to extend and augment that capability.

Some of the major successes of these programs were the early innovations of such companies as CAE Electronics, Pratt and Whitney Canada, Sciex, Lumonics, CREO, Geac, Dalsa, and Nortel’s fibre-optics, digital switching and GaAs high-speed circuitry programs. The keys to these programs were the IRAP staff who were experienced engineers and scientists with a good knowledge of the research and commercialization processes, and the active advice and support of experts in university and government labs. They worked with firms, identifying the best knowledge resources and technologies to reduce industrial risk to manageable levels. Often their advice and the connections they built were as important to the firm as the contribution funding.

Another effective program from the 1980’s was the Source Development Program which encouraged federal departments to be the first purchasers or the beta test sites of new innovative Canadian products.

These approaches were abandoned under a combination of attacks from the right (government can’t pick winners), from the left (corporate welfare bums) and from industry itself (Give us tax breaks and stay out of our way). Now we have few effective tools for encouraging innovative R&D in Canadian firms. IRAP now can assist only SMEs. Technology Partnerships Canada (TPC) provides re-payable funding in selected sectors, working primarily in later stages of the development process, and the Business Development Bank comes in even further downstream.

CURRENT INDUSTRIAL R&D STRATEGY PASSIVE

Today, Canada has an essentially passive industrial R&D strategy based on the idea that if we make R&D cheap enough through SR&EDs, industry will become innovative. Our low and declining levels of industrial R&D investments in recent years prove that making R&D less expensive for firms, while desirable to them, is not sufficient to stimulate truly innovative risk-taking in industrial R&D. Providing a reward to the accountant a year or two after the fact does not provide leverage for the daring industrial R&D manager who wants to tackle a high risk, high potential opportunity today.

In the early years of optical communications, the then president of Northern Telecom, John Lobb, tried to cancel the fibre-optics effort at Bell-Northern Research saying it was too high-risk. He allowed it to continue only because half of the R&D funds were provided by NRC. The American government understands the need for a dynamic industrial research strategy and has several tools to stimulate intrinsically risky industrial R&D (often under the guise of defense). US direct federal support of industrial R&D is four times that of Canada as a percentage of GDP, while the governments of Germany and France spend three times as much as Canada.

Canada needs effective partnerships between the government and the private sector in high-potential technology areas, selected and proposed by dynamic firms. This is the approach used by Finland. The Finns understand government can’t pick winners. Instead, they base their industrial innovation policies on the conviction that government, in partnership with dynamic firms, can and should back winners.

An effective competitiveness strategy must start with an effective industrial R&D strengthening strategy. This strategy has to encourage and support high-risk, high-potential adventures where a Canadian firm has the potential to rise to a world-leading technological edge. Only these firms can be price-setters as opposed to price-takers. Only these firms can be innovators and not merely sellers of commodities where we can undercut the lowest cost producers.

The danger to government with this approach is, of course, that not all such adventures will succeed. Not every explorer returns to port, but that is no excuse to cease all exploration. To continue with an essentially passive industrial R&D approach is to abandon the future to those who are willing to dream big, to work hard and to dare to take necessary risks.

William Coderre is director of corporate development at Science and Engineering Research Canada (NSERC). The views and opinions in this article are those of its author and do not purport to convey the views of any organization.