Conquering Canada’s R&D challenge: Canada lags in R&D Spending. Tell me something I don’t know.

Clean 15 Series

Our last Clean 15 Series article discussing Canada being the Next Big Thing was extremely well received, however we got some feedback from folks who accurately pointed out that Canada is not spending enough on R&D to keep up with other knowledge based powerhouses around the world. Over the past few decades it has been documented over and over again that Canada spends less than other G7 countries in R&D. As a matter of fact, between 2006 and 2008 the share of R&D as a percentage of GDP dropped from two per cent to just over 1.8 per cent. A study done by The Science, Technology and Innovation Council reported that the current level of effort by all sectors was not sufficient to bring Canada’s R&D expenditures up to other G7 countries.

This leads to an out-of-the-box question. Does increasing spending in R&D have a direct relationship to being a market leader? In Canada, the top R&D spenders in 2009 were the embattled RIM, at No. 1, and the imploded Nortel at No. 2. Also of interest is the fact that in the No. 8 spot was Atomic Energy of Canada Limited. AECL spent a whopping $393 million on R&D, while its revenues were $387 million. This means that R&D as a percentage of revenue was 101 per cent.

Globally, the top 4 R&D spenders were Roche Holding, Microsoft, Nokia and Toyota according to a report done by Booz and Co. However, the company ranked most innovative by its peers was Apple. They were number 81 for R&D spending in the Top 100 list. The second most innovative was Google, who was at number 44 on the Top 100 for R&D, and the third most innovative was 3M, who was at number 84 on the Top 100 and forth was GE, who was at No. 35 on the list of top innovators. Clearly R&D is extremely important but there is more to market leadership than just an increase in R&D spending. At this intersection is where we see Canada’s big opportunity to leap frog its competitors.

Laser focused

At a leadership roundtable discussion held by Rick Wolfe and Associates it was mentioned that when facing a possible crisis the person, organization or entity must focus on their strengths and capabilities versus trying to bring up their weaknesses. This theme seems to be echoed by other smart entities and organizations. A report done by Accenture appropriately titled “A Matter of Focus” stated that what matters is a clear and decisive focus. “The challenge is to decide just what sort of innovator you are – A leader, spending heavily on R&D to break new ground or a follower, spending less on R&D but nonetheless gaining the necessary know-how by partnering.”

The report goes on to say that being an innovation follower can be just as effective as taking the lead. A paper written by John Marsden a mining industry thought leader noted the same findings.

“The fast follower gains the benefit of the first mover experience with the implementation of a new technology. The fast follower or adapter has lower risk compared with the first mover, but risk may still be high because some aspects of the technology may not be fully proven. There may be some potential for the fast follower to leverage the technology and gain significant competitive advantage. In some cases, there may be an ability to gain greater competitive advantage than the first mover as a result of lessons learned.”

If you are struggling for a real world example of this, think of Apple versus Nokia, think of Xerox versus Microsoft (Xerox reportedly created the graphic user interface that dominates the personal computer industry) think of George Washington Carver versus Thomas Edison.

Proudly Canadian

Canada should place its focus not on trying to reverse 30 years of a conservative R&D culture but rather on its strengths. Canada has unparalleled post secondary brain trust among the G7. The Science, Technology and Innovation Council Report, mentioned in the first part of this article discussed our lack luster performance in R&D spending in general, however it also went on to say that Canada was ranked No. 1 out of seven when it came to R&D spent as a percentage of GDP on research and development in colleges, universities and affiliated teaching hospitals.

Canada is the most sought after country by highly skilled immigrants because of its reputation for being inclusive and social systems. The researchers found that Canada was the top choice of skilled immigrants and top ranked foreign students. These two components along with the fact that Canada’s students were reportedly better at reading, math and science provides a very significant potential for Canada to be one of the fastest adopters of global technology. I should also mention Canada is a Triple A rated country. (At the time of writing this article there were only nine other countries with that standing and five of them were at risk of losing it).

The key to our success will be to leverage our current R&D spending with our highly ranked brain trust to adopt and improve upon global first mover technologies. Doing this will require clear strategy around open innovation and social media. In Wikipedia “The term Social Media refers to the use of web-based and mobile technologies to turn communication into an interactive dialogue.“ Open innovation on the other hand is the idea that organizations and entities use external ideas as well as internal ideas to advance technological challenges. The ability to refine and adapt global technologies quickly will come from a convergence of these two concepts and will rapidly build the expertise needed to drive the creation of innovative global companies.

Clear social media and an open innovation strategy will allow companies to leverage the untapped knowledge networks of the skilled immigrants that Canada attracts. Building the Canadian brand as a hub where novel technologies can come to be perfected in a collaborative manner is well within our country profile, based on the tools we have in our cultural toolbox. We can also tap the networks for those top foreign students that do decide to return to their countries of origin. Many times these students will come from emerging economies and it is here we will find growth market opportunities and the need to build new partnerships. It will also allow Canadian companies to reach out and connect with smaller companies that have already shared the risk of new innovations and partner with them to bring the technologies to diverse markets.

I believe that once we reframe the Canadian R&D challenge, we see that it is actually a significant opportunity for us to refocus our strategy around strengths and capabilities and “fast follow” our way to global leadership.

Dwayne Matthews is the Managing Director of Clean 15, Open Innovation Leader in Canada.

by Dwayne Matthews