Connecting the dots between Blackberry and Canadian R&D

Yesterday I was all set to do an interview on CTV's Power Play with Don Martin as part of "a discussion on research and development in Canada in terms of how Canada seems to be falling behind the rest of the world in this area. RIM seems to be Canada’s most successful technological company but even they are struggling." Miced and on stand by in the studio here in Toronto, we encountered technical difficulties that prevented the audio connection, and so I was not able to join the discussion. Too bad, as Minister of State for Science and Technology the Honourable Gary Goodyear was on right before me talking about what the federal government has been doing to promote more business investment in R&D - referring to the Jenkins Panel and other measures being taken as an output of this work. Minister Goodyear spoke enthusiastically about the new Blackberry - it was big news after all - and what it means for the state of Canadian private sector R&D. Here are a few points I would have added to the conversation:

At issue is the fact that firms in Canada do not invest in R&D to the rate of our international counterparts. We consistently lag in BERD (in 16th place in the OECD) whereas we are 4th in the OECD for HERD. This is a significant gap. But as Ken Doyle, Director of Policy for Polytechnics Canada has pointed out to me, there is about $900M of annual R&D spending by firms that takes place in academic institutions. However, this gets counted as HERD not BERD through a quirk of accounting (the performed of the R&D dictates if it is counted as public or private). Regardless, firms are still not investing enough.

The Toronto Next survey that George Brown College released last last year offers some insights into the issue. We found that that, while firms value highly productivity, they do not value the innovation inputs to productivity: investing in new technology and equipment, skills training for employees and R&D partnerships with academic institutions. This is the key point: public+ private R&D (P3RD) partnerships create value, for firms and for those engaged in the R&D pursuit. When firms partner with a polytechnic on applied research, we help them not only to get new products to market, but we do so while training the next generation of innovators.

Innovation is about adding value, to products and services. And innovation intermediaries like polytechnics and colleges offer value-added services to industry partners seeking to create value in the economy. As Minister Goodyear states in his Power Play interview, the goals of research are to create knowledge, but also to exploit that knowledge. Key here is understanding what the customer wants.

Connecting the dots between Canadian private sector R&D performance and Blackberry is analogous to the point I've made before about basic research and our resource extraction economy. In a resource extraction economy we are simply price takers. When ideas are seen as just another raw resource to be exported without adding value, we risk losing intellectual capital - and market share - to those who add value. RIM's signal achievement was email on a smartphone, but when email on a smartphone became the basic commodity - when it was ubiquitous - it ceased to add value. Apple and Android offered users an ecosystem of apps and context for the smartphone. This context is what the consumer wants, and companies that understand this, and innovate to create value based on the basic platform, are destined to succeed. This context is the exploitation of the commodity: adding value to the idea.

So while firms like Blackberry are performing R&D in Canada, they need to do more to understand what the customer wants, and how to create value based on these preferences. It's not a very complicated argument. The success of the Blackberry is contingent on the ability of the company to meet (and perhaps exceed) consumer demand for a world beyond the basics. I for one hope they succeed.

Changes to SR&ED welcome, but not enough

The Canada Revenue Agency announced changes to the Scientific Research and Experimental Development (SR&ED) program. As the Globe reports in Ottawa moves to streamline R&D tax-credit program, this is part of the effort to improve the system following last year's Budget. The changes should be welcome news fro firms investing in R&D, and for tax payers who want to see more accountability in the program. We also need to see more business investment in R&D. These changes however do not go far enough. Part of the issue with the SR&ED program is that it focuses too much on the SR and not enough on the ED.

The OECD's Frascati Manual defines three forms of research: basic research, applied research and experimental development. Here is the exact definition from the Frascati Manual:

Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundation of phenomena and observable facts, without any particular application or use in view. Applied research is also original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific practical aim or objective. Experimental development is systematic work, drawing on existing knowledge gained from research and/or practical experience, which is directed to producing new materials, products or devices, to installing new processes, systems and services, or to improving substantially those already produced or installed. (2.1.64)

Here is how CRA defines the three under What work qualifies for SR&ED tax incentives?:

“scientific research and experimental development” means systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis and that is
(a) basic research, namely, work undertaken for the advancement of scientific knowledge without a specific practical application in view,
(b) applied research, namely, work undertaken for the advancement of scientific knowledge with a specific practical application in view, or
(c) experimental development, namely, work undertaken for the purpose of achieving technological advancement for the purpose of creating new, or improving existing, materials, devices, products or processes, including incremental improvements thereto,
and, in applying this definition in respect of a taxpayer, includes
(d) work undertaken by or on behalf of the taxpayer with respect to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing or psychological research, where the work is commensurate with the needs, and directly in support, of work described in paragraph (a), (b), or (c) that is undertaken in Canada by or on behalf of the taxpayer,
but does not include work with respect to
(e) market research or sales promotion,
(f) quality control or routine testing of materials, devices, products or processes,
(g) research in the social sciences or the humanities,
(h) prospecting, exploring or drilling for, or producing, minerals, petroleum or natural gas,
(i) the commercial production of a new or improved material, device or product or the commercial use of a new or improved process,
(j) style changes, or
(k) routine data collection;

SR&ED does not consider key components outlined in Frascati: things like installing and improving for example - that is, putting into practice incremental innovation. In short, SR&ED is biased toward basic research and ignores the very important aspects of actually getting R&D into markets. Now, one may say we have to draw the line somewhere because we don't want just anything to be eligible as this would be prohibitively expensive. Fair comment. But Canada is a country with  one of the highest per capita spends on HERD, has world leading basic research, yet a lackluster BERD where firms lag our international counterparts. This is compounded by a need to focus our inventions on innovation - on how we get innovations to market. Without supports for actual market entry, we are doomed to repeat the failures of the past: giving away our inventions for other countries to commercialize for us and, ultimately, to sell back to us. It`s time we moved incentives to where they are needed: upstream, as in the form of innovation vouchers to let the market decide where to access P3RD support, and supports for activities that actually relate to the market, understanding customers, and incremental innovation. We have a 19th Century view of research, when we need a 21st Century approach to innovation. It`s time we focused on "adoptation" and market entry for our research, and on commercialization inventions. That would be money well spent.

Ontario moving forward on innovation vouchers

The Ontario government yesterday announced that they are implementing two key recommendations from the Jobs and Prosperity Report. The Global Exporter Forums is a positive step toward realizing export markets for Ontario firms, and an excellent link to the concept of how innovation intermediaries like polytechnics and universities can leverage our education partnerships for soft landings in international markets. The Commercialization and Innovation Voucher follows the success of programs in Alberta and Nova Scotia, and is a key recommendation of the Jenkins Panel and Polytechnics Canada as well. These are both good steps forward in reorienting Ontario firms toward innovation.

Fostering firm innovation: TO Next and the Conference Board Business Innovation Summit

The George Brown College study Toronto Next: Return on Innovation launched late last year offered some important insights as to the state of innovation in Toronto firms. In early December I was interviewed for the GTA Construction Report, which has been published in the January 2013 issue. Construction industry attitude more innovative than other sectors (page 3), by Anja Karadeglija, goes over some of the points emergent from our analysis of the results of the TO Next study.

And speaking of business innovation, The Conference Board of Canada is convening Business Innovation Summit 2013: Innovation for the Corporation in Toronto on 19-20 February 2013. It looks to be an excellent agenda. I'll be speaking on the second day of the conference on How Colleges Support Business Innovation and Commercialization.

Innovation literacy, skilled trades, and the economy

Happy new year!

The Ontario Jobs and Prosperity Council last month released "Advantage Ontario," a comprehensive report outlining how Ontario can "become more competitive and seize opportunities in the new global economy or our prosperity will decline, " according to the press release, which goes on to say that "The report identifies five key areas for action: going global; driving productivity growth; unleashing innovation and entrepreneurship; capitalizing on strength in talent and delivering smart, efficient government."

Today's Academica outlines the report's focus on the skilled trades and experiential learning. Both of these are important facets of our economy. Canada currently faces a real need for more skilled trades, and ensuring we can produce the trades we need, along with other knowledge workers, is key to our future prosperity. The Ontario Jobs and Prosperity Council report contains some good recommendations, key among these are "Introducing a business-led commercialization voucher to better link research to business needs." The SME voucher system has been proposed by Polytechnics Canada in their Statement to the House of Commons Industry, Science and Technology Committee and Statement to the Standing Committee on Finance's 2012 Pre-Budget Consultation. Such vouchers work well in other provinces, and implementing these here in Ontario will go a long way to encouraging firms to innovate. The vouchers let the market decide where to get help with applied research needs. polytechnics, colleges, universities  even private R&D labs, can all collaborate to compete together to serve the needs of innovative firms looking to get new products and services to market. Letting firms decide who can best serve their needs is a good way to ensure that the needs of firms are put first in the applied research endeavour.

At George Brown College, we are focused on preparing students for employment success. When we engage students in applied research, they gain innovation literacy skills while helping firms innovate. Our focus is on firm success, who can then hire our graduates to further their innovation goals. A key area of applied research for us is the Green Building Centre, funding for which was announced last year. FEDDEV Ontario has provided funding for the Green Building Centre which will enable us to link the training of the skilled trades to applied research in the green building area. Linking innovation  innovation literacy, and applied research with the skilled trades is a signal advantage of George Brown College and the Green Building Centre. We will be posting more information on this innovative and unique approach to education and applied research throughout the year as we continue to build the physical infrastructure we are using to support our partner firms.

On this note, it is important to point out the Polytechnics Canada Statement to the House of Commons Committee on Human Resources, Skills and Social Development and the Status of Persons with Disabilities, in which Polytechnics Canada Director of Policy Ken Doyle outlines key ideas for addressing Canada's skilled trades and apprenticeship needs. This is required reading for anyone interested in Canada's future prosperity. As he points out, the skilled trades have literally built the knowledge economy. It's time we focused on building on our foundation of basic science excellence, and capitalizing on the trend emergent of making stuff. I've written here before about this trend - and the latest issue of Wired Magazine has an excellent article (about robots) on how the future of manufacturing will be focused on proximity; this is the re-shoring of manufacturing. It's coming, and our graduates are at the forefront of this change.