Category Archives: Growth

Facing and Overcoming Innovation Uncertainty and Risk

Business growth requires leaders to identify opportunities, evaluate their potential and risks, decide amongst the most promising, and executing for results. Growth strategy options include: organic growth, growth through acquisition, or growth through alliances.  Growth can be achieved through product / market choice (concentrated, vertical/horizontal, diversification), white space, or incremental/substantial/breakthrough innovation.

Uncertainty and risk associated with innovation opportunities are often cited as barriers to growth. The inability to overcome uncertainty and risk when innovating was cited as the leading reason for slow Canadian SME growth as confirmed by the 2009 SIBS study and recently by Deloitte.

The 2009 SIBS study reported uncertainty and risk as the largest obstacle (47% of firms) to innovation regardless of the type of firm. Steps taken to overcome uncertainty and risk as an obstacle were also reported to be one of the least effective (38% of firms reporting uncertainty as an obstacle).

The Deloitte study reported that “Canadian business leaders were substantially more risk averse than U.S. leaders, and more reliant on government assistance to pursue new projects” and that Canadian firms “seem unable to deal with these factors successfully” moreover “as Canadian firms mature, they become less likely to engage in the kind of activities that contribute to rapid growth”. The Deloitte study suggests that to deal with risk “firms have the power to mitigate these obstacles by hedging and compensation tactics”. The study also reported that low R&D spending, poor export intensity, lack of market diversification, low access to market diversification, and attitudinal preferences were also major inhibitors to growth.

Innovation though is a non-linear process where the value of success can be much higher than the cost of failure. Global markets are increasingly uncertain.  What approaches beyond hedging and compensation tactics can be used to deal with uncertainty to improve Canadian business leaders confidence?


An interesting view of how to grow in the face of uncertainty comes from Max McKeown who wrote Adaptability: The Art of Winning in an Age of Uncertainty. In this book the author identifies a number of rules for winning in the face of uncertainty.  Chief among these applicable to Canada is that stability is a dangerous illusion. He defines failure as the failure to adapt and success as successful adaptation to cope or win – defining degrees of adaptation outcomes being collapse, survival, thriving, and transcendence.

The author observes that there are three steps to adaptability:

  1. Recognizing The Need To Adapt – The ability to feel or know something is wrong, timeframe of change depends on the situation and can be long or extremely fast, and some find out too late by missing signals or are simply complacent.
  2. Understand The Adaptation Required – Observing that there is often no agreement on adaption requires, culture/rules/tradition can be barriers, learn what works from failure, imagination is needed to see alternatives.
  3. Do What Is Necessary To Adapt – Sometimes adaption must be provoked, strong action to overcome barriers, need to focus on changing the nature of the game, and build influence to make changes.

The rules for winning in the face of uncertainty organized by the three stages as suggested by the author are:

Recognize The Need to Adapt

  • Play your own game – If losing find a way to change the game – no one way to win
  • All failure is a failure to adapt – didn’t recognize it, didn’t understand what adaption required, did not do what was necessary to adapt.
  • Embrace unacceptable wisdom – speaking opposite to the prevailing wisdom creates opportunities.
  • Know when to break the rules – rules contain knowledge & experience, rules also contain prejudice or mistaken beliefs, rules may no longer be applicable.
  • Stability is a dangerous illusion.
  • Stupid survives until smart succeeds – ‘we were wrong’, biases to remain on course of action.

Understand Necessary Adaption

  • Learning fast is better than failing fast.
  • Plan B matters most – adaptability doesn’t kick in automatically.
  • Free radicals – radicals influence the group – stir the pot – counter complacency.
  • Think better together – collective support important.
  • Get a strong partner – diverse skills and talents increases adaption effectiveness.

Adapt as Necessary

  • Never Grow up – organizations get old, grow up, and lose edginess – remain curiosity driven.
  • Hierarchy is fossil fuel – Locks people in boxes, resists learning, and institutionalizes self-interested behaviours.
  • Keep the Ball – reduce the game down to its fundamental components that captures the most important features of the system to improve – compete outside the game.
  • Swerve and swarm – Combining swerving, avoiding dominance of the obvious idea, and swarming, to bring mass participation to finding non-obvious answers is powerful.
  • Get Ambition on – the future gives direction and unlimited energy to change – ambition is a way of seeing the future – ambition gets us started.
  • Always the beginning – Advantage from adapting first, winners acquire resources and knowledge.

Creaction Method

The creaction (short for creative action) method to move forward in the face of uncertainty was proposed by Leonard Schlesinger, Charles Kiefer, and Paul Brown in Just Start: Take Action, Embrace Uncertainty, and Create The Future. These authors observed that most business leaders have worked in a world where the world was predictable and that the future could be forecasted, plans made, resources gathered, and then execute the plan to make it happen.  The core assumptions being that the future will behave like the past so plans can extrapolate current reality moving forward. The authors suggest that the world that is changing fast will become increasingly unpredictable so business leaders need a new way of thinking to drive business growth.

Borrowing from entrepreneurial behaviours, the authors propose the creaction method to succeed when markets are unpredictable. The creaction method is:

  • Act (with a modest goal as a guide);
  • Learn (from the action); and
  • Build (off learning) and then act again.

Creaction starts with a desire to achieve a goal with a purpose no necessarily a passion. The authors suggest acting quickly with the resources have at hand and never more than you can afford to lose if things don’t work out defined as an acceptable loss. A small bet rather than betting the firm. When considering acceptable loss the authors suggest assets at risk are: money, time, professional reputation, personal reputation, and missed opportunities and bounding the investment so that if the option fails it fails cheaply. Enlist the support of other like minded people who share interest in the goal and purpose. When learning from the results of the small step the authors note that “creation is all about exploiting the contingencies and leveraging the uncertainty by treating unexpected events as an opportunity….treating surprises as a gift….running headlong into a problem and then solving it can give you a barrier to the competition”. The book provides useful implementation advice.

Implications For Canada

Max McKeown’s observations on adaptability are particularly poignant for Canada as many SMEs that have stopped growing may have not recognized the need to adapt given the predominance of the resource industries in the overall economy. The implication being that stability is not only a dangerous illusion but that the voices that oppose the prevailing wisdom are potentially being ignored. SME business leaders should stress test their business assumptions and consider potential avenues for change and adaptation. The creaction method provides a means for SME business leaders to take small steps, learn, and adapt to develop growth strategy. Future posts will explore other approaches to overcome risk and uncertainty.

Improving Canada’s International Business Skills

A report describing Canada’s international business experience gaps and a strategy to address the weaknesses was recently released by the Forum for International Trade Training.  The report is worth reading and also does a good job describing the concept of integrative trade.

From my experience international marketing is not a problem for large Canadian firms but it is a challenge for the 98% of Canadian firms that are SMEs.  Perhaps the largest impediment is the fact that international marketing is very expensive and Canadian SMEs lack the confidence and resources to put investments into prospecting trips at risk to develop this experience.   The second impediment to building international business experience is the lack of ambition of Canada’s SMEs to look for opportunities beyond the US or to even grow at all.  At the moment the risk return difference between opportunities closer to home versus far afield remain in favour of regional opportunities.   There are simply too few business leaders with sufficient risk tolerance.

For a country with a diverse multicultural population Canada needs to find ways of leveraging this strength to grow international business connections.  The strategy if funded will expand the support systems available to Canadian SMEs but the next step will be up to SME leadership to take small steps.

Canada’s Low Innovation Performance – Time For Clear & Aligned Industrial Strategies

The Conference Board of Canada recently released its annual innovation report card for Canada where the country remains near the bottom when compared with 16 peer countries with a grade of D and a ranking of 13th.   Unfortunately Canada’s ranking remains largely unchanged from recent annual grades of D/2011, D/2009, and D/2007 suggesting that Canada’s current innovation activity has essentially plateaued.

Notwithstanding the impact of resource windfall to Canada, the importance of innovation to economic growth remains key to the country’s long-term sustained prosperity.  To make tangible innovation improvements over the long-term Canada needs clear industrial strategies aligned with agreed national strengths.

What Canada Does Well

The authors note that Canada is above average in: top-cited papers, ease of entrepreneurship, government online services, new firm density, scientific articles, and aerospace exports.  The authors also note that Canada is average in public R&D spending but below average in the remainder.

Why Canada Does Not Perform Well

The view of the authors is that it is still not clear why Canadian innovation does not perform well. The authors note that leading opinions attribute the low innovation performance to public policies such as taxation, heavy reliance R&D tax credits rather than direct R&D funding, regulations, or market structural issues.   Also lack of sufficient risk capital, scientists, engineers, or qualified business managers are also mentioned.   The lack of industry leaders risk taking propensity or lack of willingness to build globally competitive large corporations.   The Council of Canadian Academies prepared an excellent paper on Canada’s weak innovation and business strategy performance that explores these entrepreneurial problems deeper.

Is The Innovation Measurement System Right

The grading system has been continuously evolving and this year improved with the addition of 11 new indicators of innovation performance organized within a structure of creation, diffusion, and transformation of ideas based on the Conference board’s definition of innovation – “innovation as process through which economic or social value is extracted from knowledge – through the creating, diffusing, and transforming of ideas – to produce new or improved products, services, or processes”.

Although improved, the grading system is still not clearly aligned with Canada’s economic and industrial strengths particularly with respect to export trade.  For example, the emphasis on export market share in aerospace, electronics, office machinery and computers, and pharmaceuticals is somewhat optimized more for clusters that matured in the 1980s and 90s in Ontario and Quebec.  These indicators also reflect the notion that innovation=’high-tech’ whereas we understand today that innovation covers product, service, marketing, and business model innovation not necessarily in ‘high-tech’ sectors.  The indicators ignore other strengths where significant innovation is occurring in other regions of the country.

As a result the report card is not particularly useful to drive effective action and decision-making.  To really improve innovation performance there needs to be a clear ’cause-and-effect’ relation drawn between innovation activity / investments and economic performance aligned with Canada’s economic strengths defined in terms of industrial sectors.  Today the picture remains diffuse, opaque, and unsuitable for defining clear action.

Lack of Industrial Strategy

Canada lacks coherent and comprehensive industrial strategies for key sectors that reflects the structure and strengths of the economy.  To do this Canada needs to agree on what are and what will be Canada’s economic strengths going forward.

The authors speak of the need for coherence across all the innovation indicators to score well on the report card.  The problem with the innovation indicators is that they are measured as an aggregate evaluation of the Canadian economy as a whole and do not go deep enough to understand how the innovation performance aligns with Canada’s economic and industry strengths sufficient for political and industrial leaders to develop coherent and comprehensive industrial strategies.

Canada’s Export Trade Mix Has Changed Dramatically

Furthermore, over the last twenty years the nature & mix of Canada’s exports has changed dramatically.   There is a misalignment in the innovation export ratings between the limited set of ‘high/medium tech’ export indicators with the actual economic structure of the economy.  Canada’s top 5 exports in 1992 were Autos & parts, computers & electronics, oil & gas, paper, and primary metals.  By 2008 had changed to oil & gas, reduced autos & parts, chemicals, primary metals and machinery.  Was this because of a coherent and comprehensive industrial strategy or is Canada simply drifting in the global economy?  Canada appears to be struggling with a view of economic strategy set in the 1980s and 1990s with the traditional ‘hewers of wood and drawers of water’ economic view as well as how the knowledge economy fits in an integrated picture.

Part of the problem is that Canadian political and business leaders can’t clarify and define where Canada needs to focus its strengths with recent debates on energy strategy, importance of clean tech, and challenges of the automotive industry.  Regional and provincial politics confuses this debate as does the shifting economic power within the country.

Agreement needs to be reached on what are Canada’s top economic strengths, key industries, and how the federal and provincial economic development strategies should be aligned to maximize the outcomes from these strengths/industries.  No more drifting, Canada needs then to develop comprehensive industrial strategies that build on its strengths and clarify how Canada’s unique R&D infrastructure (universities included) align to support these strategies.  The report card should then be aligned with the structure and strengths of the Canadian economy to be more useful to public and industry decision makers.

Innovation Stuck in Universities

How university research is aligned with national industrial strategies is relevant to innovation performance because Canada is an outlier in the volume of research conducted in universities as opposed to innovation performed in industries.  Canadian industry either can’t or won’t perform R&D and universities traditionally have been better able of performing R&D given the structure of the Canadian economy (98% small and medium enterprises who perform little R&D and few large corporations that do perform R&D).

A long-standing issue remains that although idea creation is happening in the universities, the ideas remain stuck in the universities and the economic benefit from commercialization of the ideas is not happening.  There are many reasons for this issue such as the distinction between pure and applied science, misalignment between university researcher priorities and commercialization, IP ownership, political jurisdictional power struggle between federal research funding and provincial responsibility for post secondary education, and weak academic/industrial relations to name a few.  Politicians are beginning to drive change, as in Alberta recently, but university researchers continue to resist in the name of academic freedoms. Fundamentally relying on universities to conduct applied research that can be commercialized and how this activity is aligned with industry strategy must be resolved.  Various incubators and technology transfer organizations across Canada are trying to solve this problem at local levels but outcomes remain minimal in economic terms.

Weak Product Development

With the lack of industrial strategies Canada is not investing wisely in starting and growing enough high quality product firms that can create/design new or improved products with their long-term cash flow generation potential driving sustainable economic potential aligned with Canada’s strengths.

Most economic debate focusses on the decline of manufacturing and fails to clearly communicate the importance of design in an integrated product design/build model to growing companies into world players.  Product firms that reach global competitive size such as Bombardier and Blackberry are rare in Canada.  The strategic importance of the ability to create new or improved products is under emphasized.   While supply chains have gone global and the build function has moved off shore significant innovation occurs in the product design/build development capability.   The product design/build development capability is crucial for economic development, anchoring businesses and their headquarters, and enabling the growth of small firms into large multinationals over several decades.  Reframing the manufacturing debate was recently well articulated in the context of the US economy in an MIT study of production in the innovation economy (PIE).

The new Canadian start-up visa is a positive step to drive more innovation through new product development but how will candidates be selected and do their ideas align with Canadian strengths. What are the priority industries and how was this determined? Will they become frustrated if Canada’s small venture capital market does not support their ideas?

Importance of Innovation To Restart Economic Growth

The debate on the importance of innovation in driving economic growth is front and center in leading diversified advanced economies like the US, as the MIT study demonstrates, as well as in the UK.  The importance of encouraging innovation and R&D investments in strategic industries for sustainable growth is understood to be a long-term national strategic matter.  For example, the UK has identified eight priority technology areas with significant funds investments and suggestions for catalysts such as “grand challenges” and ” demonstrators” are proposed.  In the UK, there is a clear national alignment between industrial sectors, industrial R&D, university based technology development with overall economic development which provides a model for Canada’s economic innovation strategy.

Canada has some work to do to improve innovation performance.  To deliver tangible gains Canada needs to agree on what are and what will be Canada’s economic strengths going forward particularly in the knowledge economy.   With a solid definition of Canada’s strengths industrial strategies can be developed in a collaborative manner between the various levels of government and industry leaders.  With clear ’cause and effect’ investment and effort decisions can be more effectively aligned through long-term industrial strategies.   Only then will Canada see improvements in innovation performance.

Engineering for Growth – Royal Academy of Engineering

The Royal Academy of Engineering has launched a campaign to show the value of engineering to the UK economy and society called Engineering For Growth.

The roles that engineering plays in all facets of our lives is often hidden behind product marketing and the media.  The results of engineering are often taken for granted.  The Royal Academy of Engineering summary does a wonderful job highlighting engineering contributions.

With economic growth slow in most developed countries the need for leveraging engineering talent is never more critical.