Canadian Innovation on the Decline

By Angus Gillespie

As Canadians, we fancy portraying ourselves as residing at the top-end of the intellectual spectrum with other developed industrialized nations regarding business success, opportunities and innovation that all help lay the groundwork for our economic success and the career paths we choose. But according to recent statistics, Canada is falling down the list of most innovative countries and it is definitely cause for concern.

At its core, innovation refers to methodologies that produce more effective and efficient means of achieving business-related and marketplace requirements. Nations that tend to lead the way in innovative practices are those with commitments from government bodies, educational institutions and public and private enterprise. Basic linear models of innovation are most often adapted through succinct technological, procedural and manufacturing protocols. Another source of innovation, only now becoming widely recognized, is that of the end-user variety.

Innovation is the melding of what comes out of the intellectual and creative human mind that allows it to push the boundaries of what is real and what is fantasy. Quite simply, innovation is what feeds enterprise and allows businesses to thrive and expand. Canadian businesses, however, are lagging behind a number of other developed nations, including the United States.

According to the World Economic Forum’s (WEF) most recent global competitiveness rankings, Canada is losing ground in comparison to other industrialized nations. Ranking 15th out of 144 countries, Canada’s current position has reached its lowest point on the annual index since 2006. The analysis seems to suggest that Canada’s inability to conquer the innovation barrier is holding us back. Is this really the critical success factor affecting global competitiveness? Does Canada have a chronic innovation problem? If so, what should be done to reverse the downward trend?

A panel of experts gathered together to discuss this conundrum at the Xerox Research Centre of Canada in Mississauga. The session was moderated by Dr. Daniel Muzyka, President and CEO, The Conference Board of Canada.

“We live in a time where life is more complex, so if you’re feeling that, it’s good,” Muzyka begins. “We live in a world that is hugely competitive.”

Living on a planet with a population of about 7 billion humans; Canada is relatively small with its 35 million. To put it in perspective, ours is about the population of the state of California or Greater Shanghai, China. But it’s not the government or state’s responsibility to innovate – that responsibility rests largely on the shoulders of business enterprise.

“What we need to do is build on the assets we have – build on best practice,” Muzyka continues. “Government redistributes wealth to create services but we need to be competitive to create the wealth that is going to provide the social services and that is a formula we all need to internalize.”

In recent years, Muzyka says Canada has become less and less competitive. According to figures from The Conference Board of Canada, in 2010 our country ranked 10th in the world for innovation, but that has dropped to 15th this year. For a relatively small but industrialized nation that depends largely on exports, the decline is cause for concern in some circles. Perhaps exasperating the situation further is the fact the United States has begun moving in the opposite direction, and we all know how Canadians like to compare themselves to the Americans, if for no other reason than to see how we stack up against the largest economy in the world. After taking a hard hit during the 2008 recession, the Americans have effectively remobilized and gotten themselves going again and they haven’t turned back.

Muzyka says there are three basic components to competitiveness. One is the foundational elements, such as higher education and healthcare. The next is having the tools to be competitive, and according to the stats, Canada ranks 6th in this category. So, while it appears we have the necessary materials, when it comes to the big race we tend stall coming off the starting line. According to the most recent figures, Canada plummets to 24th in innovation in business sophistication.
“We’re not using the tools we have to create a more competitive country,” Muzyka bluntly states.

The common complaints for the dearth in innovation are well known other countries as well, such as a lack of access to proper funding, high tax rates and inefficiencies caused by government bureaucracy. The latter is especially true here in Canada regarding interprovincial trade barriers and there’s no doubt we are one of the higher taxed countries in the developed world.

“I can tell you that there are elements of the Canada-Europe Free Trade deal that will make it easier for people in Ontario to work with people in the European Union than people in Saskatchewan because of interprovincial trade barriers,” Muzyka laments.

It appears this country is projecting an insufficient capacity to innovate. About 450 companies from across Canada responded to a competitiveness survey conducted by The Conference Board of Canada with emphasis on corporate performance and corporate structure. The companies that said they manage innovation finished higher on yearly revenues and year-over-year gains than those companies who really didn’t put much thought or effort into innovation techniques.

“Xerox is a company that has been innovative for many decades,” says Dr. Sophie Vandebroek, President, Xerox Innovation Group and Global CTO, Xerox Corp. “It’s only innovation if it makes an impact for our clients. Innovation starts with people who can be very creative and entrepreneurial.”

The speed with which technologies in all business sectors are advancing, Vandebroek believes that another key to success is developing corporate partnerships with other like-minded enterprises or educational centres. It’s becoming much more difficult for companies to handle one large project on their own. Sharing the chore of developing innovation means it will also get out to the rest of the world much faster if resources are shared.

The question now is how does Canada rebound and once again become a more relevant player in the innovation arena.

“It’s a team effort; you have to have many people involved and you have to be willing to make a break from the past,” opines Marty Toomajian, President, Battelle Memorial Institute. “For a company that has been around for a while you have to have a culture that will permit advancement, and that is not easy for some companies who have become set in their ways.”

Another aspect that Toomajian believes is essential for corporate success is to listen to what the younger generation of employees are saying. Their input will form the basis of many company initiatives in the future and many of them already hold important corporate responsibilities.

“It’s amazing what you can get out of your emerging class of folks, but you need to be a company that is going to nurture that and get it growing,” he says. “Give them just a bit of rope and you can watch them run.”

Another expert on the panel was Scott Crump, Chairman of Stratasys Ltd., a manufacturer of 3D printers and 3D production systems for digital office-based solutions.
“You can partner and do mergers and acquisitions but you can also inherit engineering problems,” he says. “I think there is still a gap between having our innovation proven and moving away from the legacy methods that people have become comfortable with.”

Crump also says it’s important to conduct testing on some of the more outlandish ideas, because as time goes on, much of what was fantasy not long ago is now a reality. In other words, don’t take anything for granted.

Dr. Peter Nicholson, Founding President of Canadian Council of Academies began with a reflective quote from the late British Prime Minister, Sir. Winston Churchill: “The further you look back, the farther you can see ahead.”

Nicholson believes the central paradox of Canada’s innovation weakness is something that has actually been with us for decades – centuries in fact – our geographic location and shared culture with the United States.

“Looking at the macro puzzle, we’re not ranked where we think we ought to be in the league we’re playing in,” Nicholson says. “We’re playing in a pretty tough league, so we shouldn’t be too down on ourselves.”

Nicholson maintains it’s vital to understand this current low innovation equilibrium perception has actually existed in Canada across virtually every sector for prolonged periods of time and yet we are still a prosperous, thriving nation with one of the most successful economies on earth.

“To say that an entire country has gotten its strategy wrong for 100 years – well, I’m sorry, but there’s a little puzzle to be unraveled here,” Nicholson remarks. “I think the unraveling is simply this unique relationship we have with the United States.”

The behaviour of Canadian business as a whole with respect to innovation is not going to change unless the conditions maintaining the equilibrium changes significantly. It is Nicholson’s opinion that there are three megatrends that are challenging this equilibrium, the first being the global shift of the economic centre of gravity to the Far East and specifically Asia and the Chinese market.

“That’s been good for Canada in one sense in that it’s opened up resources markets for Canada and prices have boomed,” Nicholson offers. “But in terms of being able to expand and grow our market, the growth is happening where we’ve not had such a tremendous advantage. The U.S. is focusing more and more on resources. If we want to get into those new markets, we’re going to have to innovate a whole lot more.”

“We call ourselves a trading nation – we are not a trading nation,” he asserts. “We are an exporting nation that ships a lot of stuff south of the border in global value chains, often within corporate structures.”

The second megatrend Nicholson identifies is the many platform technologies that are revolutionizing business models.

“These are platforms of enormous disruption,” he says. “Unfortunately, in the case of IT in particular, the investment in information technology per worker in Canada is severely lagging behind the U.S., particularly in software, which is a shame because that’s where most of the leading edge innovation happens to be.”

The third megatrend Nicholson foresees is within the resources sector, which faces numerous international challenges. The first obstacle is the growing environmental issue and the second deals with expense, making the sector vulnerable to substitution. China has already found a way to replace the quality of nickel in a particular alloy from 50% down to about 10%. These types of things are going to continue to crop up as time goes by.

“Canada’s resources are not going to be the fallback source of wealth unless we’re constantly innovating and adding value,” he says.

These global megatrends will only continue as time goes on, meaning Canadian business will need to respond – or else. But the flipside is that there are enormous opportunities.

The question is will Canadian companies respond quickly enough to stay at the leading edge, or be left behind? Governments set policies but it’s up to the business sector to take the lead and promote greater efforts for innovation.

“Successive Canadian governments have had the same game-plan,” Muzyka adds. “They have supported research, including funding for the universities. But government has used most all its levers and it cannot dictate what companies do. One of the most telling things out of Conference Board research is that one of the largest gaps we have is a lack of innovation skills. We’ve identified a lot of the micro skills that you need and there’s a real gap.”

Oftentimes innovation is based on necessity for survival. There is no better case than the United States. After World War Two, the Americans became much more advanced in their manufacturing.

“Helping small companies to know where to go to get research done is going to be what helps to drive solving the necessity to innovate,” Toomajian states.

The bottom line is that when asked, each of the panelists said they are optimistic Canada will remain competitive and not be left languishing behind. In fact, Nicholson explained even further about some misconceptions about Canadian innovation.

“Historically, we’ve bounced back time and time again,” he begins. “The country has the fundamental elements to continue to succeed and adapt. Those are basically the highly diverse, tolerant, educated population with very solid institutions. At the end of the day that is what really matters. If you were to look at the failures around the world, I would say 100% of them are due to rotten politics.”

Canada has a successful society, and because of that Nicholson feels we have the basic elements of the ecosystem that is required, much like the U.S. has as well. There is enormous diversity and vitality that exudes from that model.

“One of the reasons Canadian companies are not as rich in innovation skills is because it hasn’t been their primary objective,” Nicholson remarks. “It certainly has not been job No.1.”

There was a golden age of government innovation policy that ended in the early 1980s. That was a time when it was decided governments had been over reaching and promising more than they could deliver.

“Since that time until now, the Canadian government really took this medicine enthusiastically,” Nicholson recalls. “Our biggest innovation support program is the scientific research and experimental and development tax credit, which is $4 billion a year; I call that innovation policy on auto pilot. If you look back at the period from the mid ‘50s to the early ‘80s there were really a number of government initiatives that had enormously successful consequences.”

Business executives and other such decision makers need to ask themselves whether their company has a robust strategy in place that effectively maps out detailed, well-planned major new product initiatives and when and where such initiatives are most likely to succeed in the marketplace. Becoming more outward looking and determining the wants and needs of the international business community is essential and from there, the ability to prioritize and focus on the right projects is at the core of a successful innovation program.