Category Archives: Growth

Canadian SME Growth Numbers

The annual Canadian Small business statistics for 2012 were recently published by Industry Canada. In 2012 Small business (1-99 staff) made up 98.2% of all firms, medium firms (100-499 staff) made up 1.6% of all firms with the remainder large firms (>500 staff). Looking at high growth SME statistics, innovation, and export activity which reflect small business growth performance some of the main results are summarized.

High Growth SMEs

The highest concentrations of high growth SMEs (Annualized growth rate > 20%, over a three year period, with 10 or more employees) between 2006-2009 were:

  • Construction (4.9% of all firms).
  • Business, building, and other support services (4.6% of all firms).
  • Professional, scientific and technical services (4.5% of all firms).
  • 7.4% of service producing SMEs expect to grow more than 20% and 13.7% grow 11-20% between 2012-2014.
  • 9.0% of manufacturing SMEs expect to grow more than 20% and 19% grow 11-20% between 2012-2014.
  • Observation was made that high growth firms are not restricted to high technology firms.

Innovation

In terms of innovation:

  • In 2009 small businesses performed 31% of R&D ($4.8B), 18% medium firms performed R&D ($2.8B), and 51% of large firms performed R&D ($7.7B).
  • Between 2009-2011 SMEs that innovated between 2009-2001 were found in manufacturing (58.1%), knowledge-based industries (50%), and professional, scientific, and technical services (43.5%).
  • 38% of small businesses and 56% of medium business made at least one innovation between 2009 and 2011.

Exports

In terms of export activity in 2011:

  • 90% of exporters were small businesses (compared with 85% in 2008) but only 10.2% small firms exported.
  • 34.4% medium firms exported.
  • Total exports were $374B (increasing $48B over 2010) with 23.9% by small firms, 16.2% medium firms, and 59.9% large firms.
  • Exports account for 30% of GDP down from 34% prior to 2008 and has not reached pre-recession levels yet.
  • SME export destinations were US (89.3%), Europe (32.1%), Latin America (11.9%), China (11.6%), Other Asia (11.6%), and Others (15.4%).

Innovation Diffusion From University R&D

R&D in Canada is conducted primarily in universities as opposed to industry. In fact Canada is an outlier in OECD countries in this respect. Canadian industry on the other hand is below average on R&D spending. This situation has created a significant up hill battle to move investments in university R&D to industry supply chains delaying economic benefits years into the future. Canada’s time to market performance commercializing new technology is far too long. Why is this and what are the implications for Canada?

Industry Supply Chain Innovation Diffusion

Outcomes from university R&D moves through two slow innovation diffusion processes: research commercialization (measured by Technology Readiness Levels); and industry supply chain adoption. Both innovation diffusion processes can be illustrated by this diagram:

Industry Cluster Innovation

From an industry supply chain perspective products purchased and used by consumers, businesses, or governments are sold by the Original Equipment Manufacturer (OEM) at the “system level” in the top right. Whether they be cars, aircraft, smart phones, refrigerators, the product is an assembly of parts purchased from a supply chain (into the diagram) and constructed in a unique way by the OEM to satisfy customer needs. The assembly of parts are based on building blocks starting with materials, components, subsystems, up to the complete system (seen as series of steps in the diagram). Software may be embedded at the component, subsystem, and/or system level. New technology can be leveraged for competitive advantage in all levels of the product hierarchy in an industry.

Industry Supply Chain Adoption

Product industries led by competing OEMs are supported by supply chains typically composed of four tiers below the OEM: Tier 1 major system integrators; Tier 2 components & sub assembly suppliers; Tier 3 machine shop service providers; and Tier 4 materials & special process service providers. Assembly and integration is performed at each level in a value adding process starting with basic materials. Examples of industry supply chains include aerospace, automotive, ships, and consumer electronics.

Product development, process/manufacturing development, and continuous improvement is performed at each level in support of business strategy and competitive forces. New technologies compete with existing proven technologies to demonstrate improved performance, quality, reduced cost, and time savings. Each tier therefore presents an adoption period before new technologies are accepted into high volume production and customer use. Customers in this case not only means the end user of the product but also each successive tier as the customer for the next lower tier. Supply chain adoption time is therefore based on development, sales, demonstration, and qualification, and experience from in-service use stages lasting 3-5 years at each tier on average although the adoption time can be much longer in conservative industries and shorter in hyper competitive industries.

Supply chains today are global with some national or regional industry clusters where local supply chains have agglomerated at several levels in the past. Canada’s industry supply chains are largely fractured except in certain industries where the country has invested heavily and developed world class “system level” product companies that can exert market pull to the develop local supply chain. Leading examples are Bombardier for commercial aircraft and rail or Blackberry for mobile devices. Unfortunately Canada also has difficulty maintaining a lead as world class “system level” product companies fall from grace such as Nortel or as Blackberry slips.

Research Commercialization

Any part that makes up the end product is based on existing technology with occasional introduction of new technology in hopes of achieving a competitive advantage. Improved product performance, quality, or cost can be achieved through technology advances for any tier in the supply chain. Firms at any level of the supply chain can secure sustained competitive advantage if they take steps to protect their new technology by patents.

Technology advances in Canada are primarily based on research conducted in universities and follows a long road to commercialization as it passes through a series of readiness levels such as the technology readiness level scale illustrated below:

Technology Readiness Levels

The technology readiness scale reflects the notion that the earlier stages are big “R” with small “d” with the emphasis moving to small “r” and big “D” in the latter stages. New technology is formulated and validated in the research lab before moving to prototyping in simulated environments and the real world.  Uncertainty and risk is reduced at each level until ultimately the technology is proven in the real world.

New technology can take 8-10 years to move through the technology readiness scale. Technology complexity and novelty can add time to this time delay. There are few short-cuts although firms that perform more of the steps internally have better control of the commercialization process, with fewer changes of hands, and achieve faster outcomes. Unfortunately the trend in most developed economies is that firms did perform much of the process internally are outsourcing the earlier research steps.

Research Commercialization Chasm

Lab researchers are unfortunately often far from the market pull of the product end user particularly in today’s global economic structure leading to a “commercialization chasm” as illustrated below:

Commercialization Chasm

University research focuses on lab work which is effective in bringing ideas to proof-of-concept stage. In today’s complex, fast changing world the jump to the real world is very large where lab prototypes are far from ready particularly for demanding operating environments or discerning/fickle consumer markets.

A key problem today is that Canadian universities are highly disconnected with industry except in a few rare cases. While geographic separation from Canadian industry clusters or international supply chains is a major source of commercialization delay the leading delay remains due to the commercialization chasm.

Implications For Canada

The implications of long diffusion time from university research commercialization and supply chain adoption are significant for Canada and the leading reasons behind the countries poor return on R&D investment. Should Canada’s economic growth begin to stagnate renewed focus on commercialization performance will take center stage as it is today in Europe and US.

As a resource based economy new technology in materials research is an obvious choice to drive growth. Unfortunately material research has the longest path to travel to commercialization because it must progress through both the technology maturity scale and be adopted by industry supply chains in Canadian clusters and global supply chains. The “bottom up” approach to commercialization will not yield timely return in investment to support economic growth.

A “top down” approach could be taken but Canada has few “system level” product world leaders to pull from Canada’s university R&D investments and bring alignment to fractured supply chains / clusters. While there is a strong desire for Canadian suppliers to access global supply chains a coherent and integrated industrial strategy amongst the levels of government and plethora of funding programs does not appear to exist. Canada’s small domestic market size and regional politics continue to hinder supply chain efficiency and effectiveness sufficient to align with a dispersed university R&D approach. Canada must get better at developing industrial strategy to maximize return on investments in developing competitive supply chains even if the top supply chain levels are foreign. The National Shipbuilding Procurement Strategy (NSPS) and national energy strategy debate are attempts at forming several new coherent and aligned strategies where none exist today but other industries would benefit such as agriculture, food processing, pharmaceuticals, medical devices, and clean energy. The importance of leveraging national industrial strategy to export trade for a country that depends on exports for its prosperity cannot afford to be lost in the regional political debate.

Canada’s university spin-off performance could be better. Simulation technology has advanced dramatically in recent years and pilot prototype facilities are increasingly available the cost for these stages are often not included in Canadian R&D funding programs. University spin-offs and start-ups often cannot obtain funding for these stages which is a leading reason underlying the “valley of death” barrier experienced by many Canadian start-ups.  This simulation/prototyping shortfall therefore presents a major barrier or “commercialization chasm” further delaying adoption by industry supply chains. Recent restructuring and repurposing of Canada’s National Research Council is directed at solving this problem but Canada remains weak in developing clear industry strategy to align all the players for better economic outcomes.

Canada’s Business Leadership Crisis

In our current age of turbulence and rapid global change the growth challenge for developed economies, including Canada, may be due in large part to a business leadership crisis. For several decades Canadian businesses were protected from the ravages of intense competition previously by the low dollar and now resource revenues. The influence of global competition are increasing as Canada is set to sign several new trade deals. As non-renewable resource revenues wane what will sustain Canada’s prosperity in the long run?

Two Leadership Tendencies

In leadership and strategy studies the propensity of leaders to tend towards either “juice squeezers” or “innovators” poses some interesting perspectives on SME growth in Canada and possibly other economies. The tendency was observed by Gary Hamel in his book Leading the Revolution published in 2000 at the height of the dot.com bubble and is worth a relook today.

Hamel identified two leadership tendencies:

Value Squeezers – extract as much profits from the current business model.

Revolutionaries – created new value propositions and businesses.

In comparing the two leadership tendencies Hamel noted that value squeezers will eat away at profits of their existing business model until they finally die whereas revolutionaries look for ways to change their existing business model. Hamel’s central theses is that business leaders should evaluate new business models, challenge and if necessary destroy their old business models to avoid profitably going out of business.

Essentially Hamel was saying that value squeezers focused predominantly on value capture to the extreme while revolutionaries focused predominantly on value creation. In a previous post on delivery / innovation looking at Michael Raynor and Mumtaz Ahmed recent article in Harvard Business Review describing Three Rules For Making a Company Truly Great it is perhaps more important to be able to balance both tendencies in the long run or avoid always defaulting to the extreme of juice squeezing.

Leadership Tendency Holding Back Growth

When interpreting Deloitte’s observations that Canadian SME growth tends to slow after the first five years of rapid growth combined with the modest number of Canadian global leaders and the mystery of vanishing medium firms in Canada one might conclude that Canada may have too many juice squeezers and not enough innovators. Indeed the propensity for business leaders to not adopt innovation as a strategy was thoroughly explored by the Council of Canadian Academies in their 2009 report Innovation and Business Strategy: Why Canada Falls Short.

The juice squeezer likely view their leadership tendency is just fine for a market that has changed little over the last several decades and for now is not directly threatened by globalization or major change. Perhaps their market is protected or they have found a nice niche that supports their lifestyle. Risk averse, preference for lifestyle support, and comfortable that their business model is good enough for their existing geographical market and customers are juice squeezer behaviours. If they take any strategic step to grow it is to use their profits in excess of their own or their company’s needs to grow through acquisition. The acquisition will likely be of a similarly positioned firm in the same market.  By acquiring an existing firm risk is low but no real new value has been created in the process. In all likelihood value has been destroyed from the transaction cost and cultural mismatch during integration. A juice squeezer would certainly not see the need to invest in R&D, collaborate with research organizations, diversify their markets, or export.

In the mind of the juice squeezer they likely rationalize that their leadership style got them this far so why change. The problem is that the juice squeezer leadership behaviours may be harming the economy in the long run since the world has fundamentally changed. With all the drive for change to squeeze more profits out the existing businesses in the name of efficiencies have business leaders forgot to look in the mirror and ask themselves if they need to change?

Engaged, purpose driven employees have a good sense whether they see their leaders are juice squeezers or innovators. The question is are boards challenging business leadership or are business leaders themselves self reflecting whether their own leadership tendency is appropriate for today’s turbulent markets?

Role of Demographics

Canada’s and the developed world changing demographics may be our opportunity for leadership change. The current business leadership tendency towards juice squeezing should be seen as “old school’ or applicable for the pre-financial crisis world but not for the post-structural break reality of a global economy where first world nations economic superiority no longer stands. As baby boomers retire with their lifestyle wealth the next generation of Canadian SME business leaders should look towards innovation leadership, purpose driven value creation, and adopting innovation as a strategy.

Leading For Growth Through Innovative

How can a new generation of Canadian business leaders adopt a new set of behaviours to drive growth going forward? How can a new generation of Canadian business leaders create new sources of value rather than shuffling around existing aging value sources? Hamel’s book provides a good working framework.

Hamel proposed some rules for enabling a more innovative organization:

  1. Set unreasonable expectations
  2. Maintain an elastic business definition (or business model)
  3. Create a cause, not a business
  4. Listen to revolutionary voices
  5. Create an open market for ideas
  6. Create an open market for capital
  7. Create an open market for talent
  8. Encourage low-risk experiments
  9. Grow by cellular division
  10. Share the wealth

Many of these behaviours have matured in the decade since the book was first published. Elastic business definitions executed through business model canvas and business model pivots. Creating a cause is central to social innovation. Open innovation has become main stream through crown sourcing. Low risk experiments through creaction, little bets, and the learn-build-measure cycle.

In reflecting on this post if you hope to be in a leadership role in the coming years what kind of leader do you want to be? Canada’s future prosperity depends on it.

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?

Adaptability

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.