Canada urgently needs innovating on innovation support
November 8, 2023
By Ron Freedman
Ron Freedman (photo at right) is the CEO of Toronto-based Research Infosource Inc., Canada’s Source of R&D Intelligence.
Forests have been felled to publish reports bemoaning Canada’s industrial research under-performance. If one believes the supporting data, the international comparisons, the analytical findings and the expert reports, there is one inescapable conclusion: public policy has failed.
Despite the annual billions of tax dollars being spent directly (grants, contributions and contracts) or indirectly (tax credits) it must be blindingly apparent by now that the ecosystem of programs is not achieving desired outcomes, even if parts might be.
Sure, we can blame business owners and managers for not understanding what policymakers suppose to be in their best interests – more research – or we can call out the vast, fragmented and impenetrable system of industrial research support that seems not to have moved the gauge. What’s wrong?
Two things are wrong. We have the wrong innovation paradigm. And we have an illogical and inefficient system of innovation support.
To start, innovation policy misunderstands or misrepresents what companies need to grow and prosper. Policy assumes that corporate growth is based on the lab-to-marketplace (or innovation chain) model of progress. In other words, a world where corporate and economic growth start with basic research and then lead to applied research, to product development, to sales, to profits and growth.
Indeed, for a very small segment of firms – let us call them R&D-heavy firms – it may be true that basic or applied research are the foundation for success. Particularly, for instance, firms in the biosciences or other industries that rely on the outputs of laboratory research.
Canada’s premiere research support program – Scientific Research and Experimental Development (SR&ED), which provides more than $3 billion annual in tax credits – is based on this preconception. In fact, SR&ED demands: “The [eligible] work must be conducted for the advancement of scientific knowledge or for the purpose of achieving a technological advancement,” and that: “The work must be a systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis.” Is that what most firms really need? No.
Simply, firms need cost-, price- and feature-competitive goods and services that give them a leg up versus their competitors. Mostly, they need incremental improvements, though sometimes substantial improvements or entirely new products or services.
Where do the ideas for these new and improved goods and services come from? Primarily from their own staff, then from customers, competitors and suppliers. At the distant end of the innovation chain are university labs, followed by government labs.
So, here’s the problem: the innovation activities that are of least apparent use to the vast majority of firms – basic and applied research – are the ones that are most heavily supported financially by the policy/program ecosystem. A disconnect? You bet.
Furthermore, innovation activities that might be new to the firm or even to the industry do not qualify for SR&ED support. Only activities that are new to “scientific knowledge” or “technological advancement” qualify. In fairness, such activities might garner support from other government programs, such as the Industrial Research Assistance Program.
Our business innovation paradigm is broken
It is absolutely true that radical discoveries from basic research, translated through applied research to new products and processes, have fostered entirely new industries and have changed or will soon change the world. Think antibiotics, semiconductors, lasers, genomics and artificial intelligence.
But those blockbusters or breakthroughs are the exception, not the rule. It is vital for society to invest in them, but completely inappropriate for policymakers to expect the vast majority of firms to do so. And yet, that’s where much of the government money is – betting on blockbuster outcomes. So, many firms exaggerate their real innovation work in the hope of a grant or tax credit.
What then do most firms need? Their technology needs can be divided into two groups. The first is what we would term “technology pull” – pulling technology into the firm. By far, firms’ most important requirement is for technology adoption – integrating the latest available off-the-shelf technology into their existing business.
Next there is technology adaptation – adapting available technology to fit their specific needs, or combining different technologies so the firm can offer unique goods or services, reduced costs, or other competitive advantages.
Third is technology development – developing original technology that is not already available in the marketplace. Technology development may well require some research and development, but not of the type recognized or rewarded by major government programs such as SR&ED.
The second group of needs can be termed technology push: pushing discoveries into the market. This is where the lab-to-marketplace paradigm takes hold. Applied research takes the outputs of basic research and translates them into material forms – prototypes, breadboards, etc., which are not products or services themselves, but upon which real goods or services can be based.
Basic research or curiosity-oriented research explores the nature of things; its main product is simply knowledge with no immediate or practical effect.
So, our business innovation paradigm is broken; lab-to-market should be replaced by market-from-lab.
In our innovation programming, technology and research push must be replaced by technology and research market pull, drawing from available applied research primarily and basic research where necessary, to fuel business innovation.
Bewildering array of government research funding programs
Next, there is the matter of the bewildering array of government research funding programs that operate in isolation – by granting organization, by region, by industry sector, by technology or science, by stage of research, by company size.
Surely these could be consolidated into a single program, easily accessible (and understandable) to business owners and managers, and that concentrate on each of the five key business needs: technology adoption, technology adaptation, technology development, applied research or basic research. Each of these would receive a different level or type of support depending on its risk profile.
It should not matter that a firm’s technology adoption needs are in manufacturing, biotechnology, natural resources, environment, or whatever. A technology need is a technology need and should be addressed in the same way, whatever the industry sector. Each type of need can be funded differently, using available tools: grants, contracts, advisory services, direct investment, contributions, tax credits, and research credits with postsecondary institutions.
What interferes with this approach is that governments allocate innovation monies to individual ministers, departments, agencies and Crown corporations, each with its own programs and modus operandi.
At present there is no simple way to cross these fiscal boundaries, but that should not be beyond the wit of human beings to overcome. Successive government and expert reports have identified the problem but have been unable to move forward with solutions. Nothing changes, so from a programming perspective we’re stuck in the past. It’s a policy and programming Groundhog Day.
Practically speaking there are only four organizations capable of eliminating the gridlock: Innovation, Science and Economic Development Canada, Treasury Board, Department of Finance and the Privy Council Office. Regrettably, they’re all AWOL.
So, blame business owners and managers for not understanding what we suppose is in their best interests (more research). Ignore issues with the accuracy or relevance of the data on BERD (Business Enterprise Research and Development) that yield inappropriate policy conclusions. Rely on inappropriate innovation paradigms. Ignore the dysfunctional innovation programming ecosystem. Add more high-level expert panels. Just don’t expect things to improve.