Science Advice in the Public Interest INNOVATION AND BUSINESS STRATEGY: WHY CANADA FALLS SHORT The Expert Panel on Business Innovation INNOVATION AND BUSINESS STRATEGY: WHY CANADA FALLS SHORT Report of the Expert Panel on Business Innovation iv Innovation and Business Strategy THE COUNCIL OF CANADIAN ACADEMIES 180 Elgin Street, Ottawa, ON Canada K2P 2K3 NOTICE: The project that is the subject of this report was undertaken with the approval of the Board of Governors of the Council of Canadian Academies. Board members are drawn from the RSC: the Academies of Arts, Humanities and Sciences of Canada, the Canadian Academy of Engineering (CAE) and the Canadian Academy of Health Sciences (CAHS), as well as from the general public. The members of the expert panel responsible for the report were selected by the Council for their special competences and with regard for appropriate balance. This report was prepared for the Government of Canada in response to a request from the Minister of Industry. Any opinions, fi ndings, conclusions or recom- mendations expressed in this publication are those of the authors — the Expert Panel on Business Innovation. Library and Archives Canada Cataloguing in Publication Innovation and business strategy [electronic resource]: why Canada falls short / the Expert Panel on Business Innovation in Canada. Issued also in French under title: Innovation et stratégies d’entreprise. Includes bibliographical references. Electronic monograph in PDF format. Issued also in print format. ISBN 978-1-926558-14-1 1. Business enterprises – Technological innovations – Canada. 2. Technological innovations – Economic aspects – Canada. 3. Industrial productivity – Canada. 4. Competition – Canada. I. Council of Canadian Academies. Expert Panel on Business Innovation in Canada HD45.I66 2009a 338’.0640971 C2009-902174-9 Disclaimer: The Internet data and information referenced in this report were correct, to the best of our knowledge, at the time of publication. Due to the dynamic nature of the Internet, resources that are free and publicly available may subsequently require a fee or restrict access, and the location of items may change as menus and webpages are reorganized. © 2009 Council of Canadian Academies Printed in Ottawa, Canada June 2009 This assessment was made possible with the support of the Government of Canada. vInnovation and Business Strategy The Council of Canadian Academies SCIENCE ADVICE IN THE PUBLIC INTEREST The mandate of the Council of Canadian Academies (the Council) is to perform independent, expert assessments of the science that is relevant to important public issues. Here “science” is interpreted broadly to encompass any knowledge-generating discipline, including the natural, social and health sciences, engineering and the humanities. The Council’s assessments are performed by independent panels of qualifi ed experts from Canada and abroad. Operating at arm’s length from government, but with 10-year funding of $30 million provided in 2005 by the Government of Canada, the Council carries out studies of subjects proposed by the government, and eventually, by non-governmental and private- sector organizations. The Council is governed by a 12-member board, a majority of whom are appointed directly or indirectly by the Council’s three member Academies – the Canadian Academy of Health Sciences, the Canadian Academy of Engineering and the RSC: The Academies of Arts, Humanities and Sciences of Canada. A 16-member scientifi c advisory committee, composed of eminent representatives of the broad science community, advises the Council’s Board with respect to assessment topic selection, terms of reference, selection of expert panels and report review. The founding members of the Council are: RSC: The Academies of Arts, Humanities and Sciences of Canada, is the senior national body of distinguished Canadian scientists, scholars and artists. The RSC consists of approximately 1,800 Fellows: men and women from across the country who are selected by their peers for outstanding contributions to the natural and social sciences and to the arts and humanities. The RSC is a charitable organization incorporated by an Act of Parliament in 1883. The Canadian Academy of Engineering comprises many of the country’s most accomplished engineers, who have expressed their dedication to the application of science and engineering principles in the interests of the country and its enterprises. The Academy is an independent, self-governing and non-profi t organization estab- lished in 1987 to serve the nation in matters of engineering concern. The approximately 440 Fellows of the Academy represent all disciplines of engineering and are drawn from industry, government and academe. The Canadian Academy of Health Sciences encompasses the full breadth of academic health sciences including all of the medical and allied health sciences, ranging from fundamental science to social science and population health. The approximately 300 Fellows are recognized for their leadership, creativity, distinctive competencies and commitment to the advancement of academic health science and for having made signifi cant lifetime contributions to the health of Canadian society. www.scienceadvice.ca vi Innovation and Business Strategy Publications of the Council of Canadian Academies The reports listed below are accessible through the Council’s website (www.scienceadvice.ca): The State of Science and Technology in Canada• Infl uenza and the Role of Personal Protective Respiratory Equipment: • An Assessment of the Evidence Small is Different: A Science Perspective on the Regulatory Challenges • of the Nanoscale Energy from Gas Hydrates: Assessing the Opportunities and Challenges • for Canada Vision for the Canadian Arctic Research Initiative: • Assessing the Opportunities Innovation and Business Strategy: Why Canada Falls Short• The Sustainable Management of Groundwater in Canada• Better Research for Better Business• The reports listed below are in the process of expert panel deliberation: Assessment on Risk Assessment Techniques in Animal Health• Assessment on the Integrated Testing of Pesticides• viiInnovation and Business Strategy Expert Panel on Business Innovation Robert Brown (Chair), C.M. O.Q., President and Chief Executive Offi cer, CAE Inc. (Montréal, QC) Savvas Chamberlain, FCAE, Chairman and Founder, DALSA Corporation (Waterloo, ON) Marcel Côté, Founding Partner, SECOR Inc. (Montréal, QC) Natalie Dakers, Chief Executive Offi cer, Centre for Drug Research and Development, University of British Columbia (Vancouver, BC) Meric Gertler, FRSC, Dean, Faculty of Arts and Science; Professor, Department of Geography and Program Planning; Co-Director, Program on Globalization and Regional Innovation Systems, University of Toronto (Toronto, ON) Bronwyn Hall, Professor, Economics of Technology and Innovation, University of Maastricht (Maastricht, The Netherlands); Professor, Graduate School, University of California at Berkeley (Berkeley, CA) André Marcheterre, Former President, Merck Frosst Canada (Lorraine, QC) Arthur May, O.C., President Emeritus, Memorial University; Chairman of the Advisory Board, Atlantic Innovation Fund (St. John’s, NL) Brian McFadden, President and Chief Operating Offi cer, Prestige Telecom Inc. (Baie d’Urfé, QC) Walter Mlynaryk, Executive Vice-President, Kruger Inc. (Montréal, QC) David Pecaut, Senior Partner and Managing Director, The Boston Consulting Group (Toronto, ON) Jim Roche, Company Director, Former President and Chief Executive Offi cer, CMC Microsystems (Ottawa, ON) Charles Ruigrok, Former Chief Executive Offi cer, Syncrude Canada Ltd. (Calgary, AB) Andrew Sharpe, Executive Director, Centre for the Study of Living Standards (Ottawa, ON) Jim Stanford, Economist, Canadian Auto Workers (Toronto, ON) Guthrie Stewart, Former Partner, Equity Fund, Edgestone Capital Partners (Montréal, QC) Alexandre Taillefer, Co-Founder, Stingray Digital Group Inc (Montréal, QC) John Thompson, Chairman, TD Bank Financial Group (Toronto, ON) viii Innovation and Business Strategy Acknowledgements This project was undertaken in response to a request originating from the federal Minister of Industry asking the Council of Canadian Academies to engage both the private sector and academic experts to deepen the understanding of business innovation in Canada. The study charge led to the appointment of the Expert Panel on Business Innovation. During the course of its deliberations, the panel sought assistance from many people and organizations that provided valuable advice and information for consideration. Special thanks are due to the Centre for the Study of Living Standards (CSLS) and to Statistics Canada for the assistance and time they have given to the panel requests throughout its deliberations. The various databases and publications of the OECD proved invaluable during the course of the panel’s analysis. The panel sought assistance from several individuals who met with subgroups of the panel to share their views and experience in respect of the sector case studies. Others provided input in response to a call for comments via the Council’s website. These contributions are greatfully acknowledged in Annex IV. Robert Brown, Chair Expert Panel on Business Innovation Project Staff of the Council of Canadian Academies Program Lead: Peter Nicholson, President Marie-Noëlle Ip, Program Director Renata Osika, Program Director Christina Stachulak, Program Director With assistance from: Lisa Lambert, Research Associate Tracey McKinlay, Research Associate Wendy Shen, Program Assistant Michelle Dugas, Program Assistant Joseph Rowsell, Economics Intern Bruce Kirby, Consultant Bruce Little, Consultant Clare Walker, Consultant ixInnovation and Business Strategy Report Review This report was reviewed in draft form by the individuals listed below – a group of reviewers selected by the Council of Canadian Academies for their diverse perspectives, areas of expertise and broad representation of academic, business, policy and non-governmental organizations. The reviewers assessed the objectivity and quality of the report. Their submissions – which will remain confi dential – were considered fully by the panel, and most of their suggestions have been incorporated in the report. The reviewers were not asked to endorse the conclusions nor did they see the fi nal draft of the report before its release. Responsibility for the fi nal content of this report rests entirely with the authoring panel and the Council. We thank the following individuals for their reviews: Douglas Barber, O.C., FCAE, Distinguished Professor-in-Residence, Faculty of Engineering, McMaster University (Hamilton, ON) Marcel Boyer, Bell Canada Professor of Industrial Economics, CIRANO, University of Montréal (Montréal, QC) David Dolphin, O.C., FRSC, Emeritus Professor, Department of Chemistry, University of British Columbia (Vancouver, BC) Fred Gault, Visiting Fellow, International Development Research Centre (Ottawa, ON) Elhanan Helpman, Director, Graduate Studies, Department of Economics, Harvard University (Cambridge, MA) Warren Jestin, Senior Vice President and Chief Economist, Scotiabank (Toronto, ON) John Mann, FCAE, Chair, Board of Directors, AUTO21 NCE (Amherstburg, ON) Roger Martin, Dean, Joseph L. Rotman School of Management, University of Toronto (Toronto, ON) Donald McFetridge, Professor, Department of Economics, Carleton University (Ottawa, ON) Pierre Mohnen, Department of Quantitative Economics, University of Maastricht (Maastricht, The Netherlands) Rein Peterson, Emeritus Professor, Entrepreneurship and Family Enterprise, Ted Rogers School of Management, Ryerson University (Toronto, ON) Richard Rémillard, Executive Director, Canada’s Venture Capital & Private Equity Association (Ottawa, ON) x Innovation and Business Strategy Gilles Rhéaume, Vice President, Public Policy, Conference Board of Canada (Ottawa, ON) Andrei Sulzenko, Public Policy Consultant (Ottawa, ON) Val Traversy, Director General (retired), Industry Sector, Competition Bureau, Industry Canada (Clam Bay, NS) The report review procedures were monitored on behalf of the Council’s Board of Governors and Scientifi c Advisory Committee by Dr. Tom Brzustowski. Professor Brzustowski is the RBC Financial Group Professor in the Commercial- ization of Innovation, Telfer School of Management, University of Ottawa. The role of the report review monitor is to ensure that the panel gives full and fair consideration to the submissions of the report reviewers. The Board relies on the advice of the monitor in deciding to authorize release of the expert panel’s report. The Council thanks Dr. Brzustowski for his diligent contribution as review monitor. Peter J. Nicholson, President Council of Canadian Academies [...]... NE S S STR ATEGY Business strategy drives innovative behaviour Explaining business innovation performance in Canada therefore comes down to explaining the business strategy choices of Canadian firms If innovation is good for business, why don’t more businesses in Canada choose to compete on the basis of innovation? To address this question requires a shift of perspective away from innovation activities... counterparts of developments at the leading edge of technology and business practice, and thus less likely to choose business strategies that emphasize innovation 10 Innovation and Business Strategy R&D incentives: The Scientific Research and Experimental Development tax incentive provides by far the largest direct financial support for business innovation in Canada – representing about $4 billion of federal tax... of Canada, 2007, p 28) Specifically, the charge to the Council was the following: • • • • How should the innovation performance of Canadian firms be assessed? How innovative are Canadian firms, and what do we know about their innovation performance at a national, regional and sector level? Why is business demand for innovation inputs (for example, research and development, machinery and equipment, and. .. found that Canada lags global competitors in its ability to innovate (2008) 19 20 Innovation and Business Strategy Chapter 2 – The Nature and Importance of Innovation 21 Chapter 2 – The Nature and Importance of Innovation This chapter defines the concept of innovation used throughout the report It then sets the context for discussing the innovation performance of Canadian business by examining Canada s... measures that are linked to innovative business behaviour, where Canada also tends to lag, there is a presumptive case that the innovation performance of Canadian business is subpar THE C HA R G E T O T H E PANE L The question is why If innovation is good for business, why is Canadian business on the whole apparently less committed to innovation than analysts and policy makers believe it should be?... INNOVATIONS Chapter 2 – The Nature and Importance of Innovation 23 24 Innovation and Business Strategy Box 2 – Business Innovation Dynamics Based on a global survey of 1,000 firms, Miller and Côté (2008a, 2008b) have identified two characteristic innovation market types – “new” and “established”, as described earlier in this chapter – and three categories of innovation that occur within each (see Table 1)... result of Canada s resource endowment and development history as a commodity supplier and technology adopter Canada s upstream position in many continentally integrated value chains limits contact with ultimate end-customers – who are a strong source of motivation and direction for innovation – and shapes the nature of business ambition in many sectors Canada s domestic market is relatively small and geographically... terms Moreover, Canada has tried many of the remedies that economists and policy analysts have recommended to promote innovation and improve productivity, though perhaps not always with sufficient vigour or persistence (OECD, 2003b, 2007c, 2008f) The causes of Canada s innovation deficiency must run deep in the nature of the economy, and perhaps in Canadian society as well 16 Innovation and Business Strategy... underlines the importance of increasing Canada s presence in global export markets for innovation- intensive goods and services Innovation is needed to move from a domestic to a global growth strategy Reciprocally, a heavy investment in innovation usually requires Canadian 8 Innovation and Business Strategy businesses to go for the scale of global markets Canadian businesses, on the whole, have so far... new technology and the payoff from research and development (R&D) and from the insights of entrepreneurs Canada s weak growth of MFP indicates that the country’s lagging productivity growth is largely due to weak business innovation OTHER I N N O VATI ON I NDI CAT ORS Canada s weakness in business innovation is also signalled, more conventionally, by persistently lagging investment in R&D and, more recently, . Interest INNOVATION AND BUSINESS STRATEGY: WHY CANADA FALLS SHORT The Expert Panel on Business Innovation INNOVATION AND BUSINESS STRATEGY: WHY CANADA FALLS SHORT Report. Business Innovation. Library and Archives Canada Cataloguing in Publication Innovation and business strategy [electronic resource]: why Canada falls short