The data on this page are current as of September 2015.
- Ontario is the top-performing province in the overall innovation report card, scoring a “B” and ranking 5th overall, after Sweden, Denmark, Finland, and the United States.
- Quebec and B.C. also fare relatively well, earning “B”s and ranking 8th and 10th, respectively, overall.
- P.E.I. and New Brunswick, the worst-ranked provinces, score “D–” grades for placing below the worst-ranking peer country, Ireland.
- Canada ranks 9th of 16 peer countries and earns a “C” on innovation. Performance on a few indicators has improved, but there are signs of emerging and persistent weakness on a number of others.
Putting innovation in context
What is innovation? The Conference Board defines innovation as a process through which economic or social value is extracted from knowledge—by creating, diffusing, and transforming ideas—to produce new or improved products, services, and processes.
Although attention is often focused on radical innovation—such as breakthrough technologies (e.g., 3-D printing, quantum computing), new products (e.g., smartphones), or services (e.g., Uber)—incremental innovation is just as important. For example, substantial productivity gains can be achieved through the adoption and use (rather than creation) of new information and communication technologies (ICTs) or by implementing a more efficient approach to knowledge management. These sorts of incremental process innovations benefit firms and economies without necessarily being on the global frontier of radical innovation.
Innovation is important not only to the success of firms and other organizations but also to the economic and social well-being of communities, regions, and countries. Firms that innovate successfully enhance their competitiveness and position themselves for growth. Countries and provinces with robust and successful innovation activity see improvements in productivity, economic growth, and job creation and have more resources available to support spending in education, health, infrastructure, and other areas. As the Council of Canadian Academies’ Expert Panel on Business Innovation writes, “innovation drives an economy’s ability to create more economic value from an hour of work, thereby increasing economic output per capita. The resulting productivity growth creates potential for rising wages and incomes, and thus for a higher standard of living.”1
How is innovation performance measured?
To measure innovation performance, we evaluate Canada, its provinces, and 15 peer countries2 on the following 10 report card indicators: public R&D, researchers engaged in R&D, connectivity, scientific articles, entrepreneurial ambition, venture capital investment, business enterprise R&D (BERD), ICT investment, patents, and labour productivity. We also evaluate the performance of the provinces on enterprise entry rates; unfortunately, there are no comparable international data for this indicator.
We also calculate an overall innovation grade for each of the comparator regions, based on the aggregate performance on the 10 indicators for which international data are available (enterprise entry rate is not included in the calculation). For more details on how the grades are calculated, please visit the Methodology page.
Data for the territories on most of the indicators were unavailable or, in some cases, were available but grouped the territories together rather than distinguishing between Yukon, Northwest Territories, and Nunavut. In some cases, data for the territories are available, but for too few indicators to provide a reasonable picture of their overall innovation performance.
The indicator choice was guided by the Conference Board’s definition of innovation, the need to cover each of three dimensions of innovation (capacity, activity, and results), a desire to be as consistent as possible with our previous international innovation report cards, and the need for indicators that make sense at the provincial level. For example, previous How Canada Performs international innovation reports included a set of indicators that compared the export market shares of peer countries in aerospace, electronics, office machinery and computers, pharmaceuticals, and instruments. Although these make sense when comparing countries, they make less sense in the provincial innovation report card given the tendency of sub-national regions to focus more narrowly on a few key areas. The choice of indicators was also limited by the availability of comparable data for both provincial and international jurisdictions.
Ideally, metrics on innovation activities and results would be obtained from firms—including data on the proportion (and size) of firms pursuing product, service, process, marketing, and other innovation, as well as their resulting performance in terms of revenues, operating costs, and market share. Although data on firm-level innovation activity is collected and compared internationally, sufficient data have not been collected by Statistics Canada to allow for province-level analysis. Moreover, to the best of our knowledge, complete and comparable international and provincial data
that directly measure firm-level innovation (product, process, or service innovation) and its results are not collected. Consequently, we rely primarily on a set of economy-level indicators of innovation capacity, activity, and results.
Public R&D (i.e., R&D performed by the government and higher education sectors), researchers engaged in R&D, and connectivity are indicators of innovation capacity—that is, resources and expertise required to provide a strong foundation for scientific progress and the exchange of ideas. The capacity category also includes a measure of the productivity of the scientific community—i.e., scientific articles. The most recent How Canada Performs international innovation report card included an ease of entrepreneurship index (an indicator of the extent to which the business and policy environments support new ventures) and a top-cited papers index (which provides a sense of the quality and utility of scientific articles to the wider science, technology, and innovation community). Unfortunately, comparable data for the provinces are not available for these indicators.
Entrepreneurial ambition (i.e., the proportion of the population aged 18–64 who report early-stage entrepreneurial activity, including attempts to establish, or own and manage, a new business), venture capital investment, BERD, and ICT investment are indicators of innovation activity—that is, investments made by business and other investors to further develop ideas and implement productivity-enhancing technologies, as well as early steps taken by entrepreneurs to start new ventures.
Patents and enterprise entry rates are indicators of innovation results—that is, signals that the innovation process has resulted in products, services, or processes worth protecting and new ventures worth starting. Previous international iterations of the innovation report card have included trademarks, but comparable data for the provinces and international peers are not available.
Finally, labour productivity is an overarching indicator of innovation performance. Improvements in labour productivity are the result of a number of factors, but innovation plays an important role. As a measure of the efficiency in converting inputs (e.g., expertise, technology, processes) into useful outputs in the production, marketing, or delivery of goods and services, productivity captures the gains of innovation. For example, while ICT investment should contribute to efficiency gains, whether firms actually succeed in implementing and effectively using ICT is not guaranteed. Changes in productivity are one way to measure, albeit indirectly, the aggregate benefits of a range of innovations.
What does the provincial innovation report card look like?
What does Canada’s overall innovation report card look like?
Overall, Canada earns a “C” on the innovation report card, and ranks 9th among 16 peer countries. This is an improvement over the “D” grade and 13th-place ranking Canada received in the last innovation report card. To be sure, the set of indicators used in this iteration of the innovation report card is different from the set used in the past, so the results are not perfectly comparable. However, there is enough overlap to allow for some comparison. Moreover, if we examine older data for the current set of indicators, it appears that Canada’s performance overall has improved in recent years, although movement on individual indicators varies.
Canada has improved dramatically on the venture capital indicator, moving from a 14th-place showing and a “D” grade in 2009 to 2nd place and a “B” grade in 2013 (the latest year for which data are available). Canada has also made some improvement on connectivity and makes a strong showing on the new entrepreneurial ambition indicator.
While Canada has performed better on a few indicators, there has been a worsening of the country’s already very weak performance on BERD and patents, and a poor showing on researchers engaged in R&D. Furthermore, there has also been a small decline in Canada's public R&D as a share of GDP.
Which provinces are top-ranked on innovation?
Canada’s three most populous provinces do best on the overall innovation report card. Ontario, Quebec, and British Columbia are the top-rated provinces and each earns a “B” grade overall. Not only do they rank highest within Canada, all three rank in the top 10 among all the comparator regions. Ontario ranks 5th—behind only Sweden, Denmark, Finland, and the United States—while Quebec and B.C. rank 8th and 10th, respectively. These three provinces perform relatively well on innovation, largely thanks to strength in entrepreneurial ambition, venture capital investment, scientific articles and, in the case of Ontario and Quebec, high shares of public R&D.
Ontario, the top-ranked province, earns a “B” overall and places fifth, with “A”s on 2 of the 11 indicators. With public R&D of 1.02 per cent as a share of GDP, Ontario is among the top-ranked in the world. Ontario also gets an “A” for entrepreneurial ambition—an indicator on which all provinces score especially well relative to international peers. The province earns “B” grades on five indicators: scientific articles, ICT investment, venture capital, connectivity, and enterprise entry. Ontario’s “D”s on BERD and on two of the innovation results indicators—patents and labour productivity—suggest the province might be facing challenges commercializing and reaping the larger benefits of innovation.
Quebec ranks 8th among all comparator jurisdictions, earning a “B” grade overall. Quebec scores “A”s on two indicators: venture capital investment and public R&D. With venture capital investment of 0.14 per cent of GDP, Quebec ranks third among comparator jurisdictions, behind only the U.S. and B.C. The province ranks fifth overall on public R&D, largely thanks to its very strong higher-education R&D spending—the third-highest among comparator jurisdictions. Quebec earns “B” grades on two indicators—scientific articles and entrepreneurial ambition—and “C” grades on four indicators: researchers, connectivity, BERD, and ICT investment. With “D”s on patents, enterprise entry, and labour productivity, Quebec is similar to Ontario in facing challenges related to commercialization and capitalizing on innovation.
B.C. also earns a “B” overall and ranks 10th among comparator jurisdictions. The province does particularly well on indicators related to entrepreneurialism. It ranks second among all comparator jurisdictions on both entrepreneurial ambition (earning an “A+”) and venture capital investment (“A”), and it scores a “B” on enterprise entry. B.C. also scores “B”s on scientific articles and connectivity. B.C. gets “C”s on ICT investment and public R&D; “D”s on patents, researchers, and labour productivity; and a “D–” on BERD. Thus, while the province makes the top 10 overall, there is significant room for improvement across a range of indicators.
As shown in the chart, although Ontario and Quebec do not outperform the top-performing peer country on any individual indicator, both perform very well on at least two and reasonably well on a few others. B.C. manages to outperform the top-performing countries on entrepreneurial ambition and has a strong showing in a few other indicators, but performs worse than the poorest-performing country on BERD. All in all, Ontario, Quebec, and B.C. perform well enough on a good subset of the innovation indicators to allow for top-10 rankings.
How does the other most populous province, Alberta, do?
Alberta places 15th among the 26 comparator jurisdictions and earns a “C” grade on the overall innovation report card. With more than 18 per cent of Albertans reporting some kind of early-stage entrepreneurial activity, the province places first and scores an “A+” for entrepreneurial ambition. It also earns an “A” and ranks first among the provinces for enterprise entries, reinforcing perceptions of Alberta as a province of self-starting entrepreneurs. The province earns “B” grades for scientific articles, connectivity, and labour productivity; however, its grade on labour productivity may be more the result of its resource-intensive economy (with resource riches contributing to its higher GDP per hour worked) than its innovation performance as such. Alberta earns a “C” on ICT investment but receives “D”s on 3 of the 11 indicators—patents, venture capital investment, and public R&D—and “D–” grades on researchers and BERD.
How do other provinces do?
Of the remaining six provinces, four perform poorly on innovation, while two perform very poorly overall. Nova Scotia, Saskatchewan, Newfoundland and Labrador, and Manitoba all get “D” grades on the overall innovation report card and outperform only Ireland among the international peers. P.E.I. and New Brunswick each earn a “D–” and rank second-last and last, respectively, among all comparator jurisdictions.
Nova Scotia earns a “D” and ranks 20th among the 26 comparator jurisdictions—the highest ranking among the Atlantic provinces. The province receives a “C” on ICT investment and four “D”s, for venture capital investment, connectivity, enterprise entry, and labour productivity. Nova Scotia earns its lowest grades—“D–”s—on researchers, BERD, and patents. In fact, the province ranks last among all comparator jurisdictions on BERD—an indicator on which Canada as a whole ranks last among international peers. Nova Scotia does well on a couple of indicators. With public R&D of 1.12 per cent of GDP, the province leads all jurisdictions and earns an “A+” on that indicator. Nova Scotia earns an “A” and places second on scientific articles. Nova Scotia’s higher-education sector provides a good foundation for science and innovation potential—the province is top-ranked among all 26 comparator regions on higher-education R&D.
Saskatchewan performs well on the entrepreneurship indicators in the innovation report card, earning an “A+” and ranking third among international peers on entrepreneurial ambition and scoring an “A” and ranking fourth among provinces on enterprise entry. However, mediocre to poor scores on nearly all other indicators earn the province a “D” and 21st spot overall on the innovation report card. Saskatchewan earns a “B” for scientific articles and “C”s for connectivity and labour productivity. The province is weak in terms of spending and attracting capital for innovation, scoring “D” grades for ICT investment, venture capital investment, and public R&D, and a “D–” on BERD. Saskatchewan also scores “D–”s for patents and researchers. As Saskatchewan’s experience reveals, entrepreneurial spirit and enterprise entries alone are not sufficient to lift a region’s performance on the innovation scorecard. Other investments and activities should be explored.
Newfoundland and Labrador earns a “D” grade and ranks 22nd overall. Like Nova Scotia, the province earns “D–” grades on researchers, business R&D, and patents. The province earns a “D” on ICT investment and “C”s on scientific articles, venture capital, public R&D, and connectivity. Newfoundland and Labrador’s highest grade is the “A” it earns for its enterprise entry rate of nearly 16 per cent—the third-best rate among the provinces. Newfoundland and Labrador fares reasonably well on two other indicators, earning “B”s on entrepreneurial ambition and labour productivity. However, like Alberta, Newfoundland and Labrador’s “B” on labour productivity likely has more to do with having a resource-intensive economy than an innovative one as such.
Manitoba earns a “D” and ranks 23rd overall on innovation. It gets an “A” for entrepreneurial ambition and earns “B”s for enterprise entry, public R&D, and scientific articles. Aside from one “C” for ICT investment, however, it scores “D”s and “D–”s on all other indicators. With connectivity of only 70 per cent, Manitoba is the least connected province in Canada and earns a “D”—although it fares just as well as France and better than the U.S., Ireland, and Japan. Manitoba earns four “D–” grades for performance weaker than the worst-performing international peers on patents, venture capital, BERD, and researchers.
Which are the worst-ranking provinces on innovation?
Two provinces—P.E.I. and New Brunswick—perform especially poorly on innovation relative to international peers. With average overall scores below that of the worst-performing country, Ireland, both provinces earn “D–” grades on the overall innovation report card and rank second-last and last, respectively, among comparator jurisdictions.
Although P.E.I. earns “A”s for enterprise entry and public R&D and “B”s for ICT investment and connectivity, the “D–” grades it earns for performing below the weakest international peer on five indicators pull its overall grade and ranking down significantly. The province scores poorly on indicators related to innovation activities—earning a “C” on scientific articles and a “D–” on BERD—and on innovation results indicators—scoring “D–” on patents and labour productivity. Given the province’s size, it is unlikely to be on the global frontier of innovation. However, P.E.I. may be on the right track in terms of adopting innovations to improve processes and efficiency, earning a “B” on ICT investment, ranking first among provinces and 9th among international peers. The province also earns a “B” on connectivity, ranking third among provinces and 11th among international peers. Still, P.E.I.’s weakness across a range of indicators, including labour productivity, suggests it has a long road ahead to become even an early innovation adopter, let alone a first mover.
New Brunswick ranks last among all provinces and international peers, and holds the unfortunate distinction of being the only jurisdiction that fails to earn an “A” or “B” on any indicator. The province earns three “C”s, three “D”s, and four “D–” grades, revealing weaknesses in all three innovation performance categories—capacity, activity, and results. In terms of innovation capacity, New Brunswick has mediocre public R&D (earning a "C"), attracts little venture capital (earning a "D"), and has very few researchers engaged in R&D (earning a “D–”). In the innovation activity category, New Brunswick scores “D”s for scientific articles and ICT investment, and ranks second-last among all comparator jurisdiction on business R&D with spending of only 0.22 per cent of GDP—more than 10 times less than Japan as a per cent of GDP. The province also earns “D–”s on patents and labour productivity and a “C” on enterprise entry.
Is Canada turning a corner on innovation?
Canada earns a “C” grade on innovation and ranks 9th among 16 international peers. This is an improvement over years of “D” grades and a ranking of 13th on the last innovation report card—although somewhat different sets of indicators have been used over the years. As the foregoing analysis reveals, performance differs significantly across provinces, both overall and on individual indicators. This complicates efforts to provide a single overarching assessment of Canada’s performance. Ontario, for example, emerges as a strong jurisdiction on innovation, albeit with room for improvement, while New Brunswick is revealed as the weakest performer, both within Canada and among international comparators.
While Canada’s overall performance is better, this improvement masks diverging trends on a few indicators. Canada’s recent improvement is largely the result of a dramatic increase in venture capital investment—allowing Canada to move from a “D” to a “B” and from third-worst to second-best among international peers—and a very strong showing on the entrepreneurial ambition indicator, on which Canada earns an “A” and ranks third among international peers. These two indicators together suggest that a healthier start-up and entrepreneurial environment may be emerging while peers in Europe struggle in these areas.
Canada also improved somewhat on connectivity—moving from a “D” to a “C” and from 14th to 9th in the rankings. On ICT investment, Canada’s grade improved from a “D” to a “C,” but it dropped from 8th to 12th place as a few countries leapfrogged Canada in a tighter field.
At the same time, however, Canada’s performance on some foundational elements of its innovation ecosystem has fallen, raising concerns about how well the country can sustain recent improvements in overall innovation performance. Already a laggard on BERD, Canada has dropped from 15th to last place among international peers. Not only has spending as a share of GDP decreased, so has total business R&D spending. While most international peers have increased BERD in recent years, Canada is moving in the opposite direction. Moreover, Canada’s public R&D has slipped in recent years—pushing the country from 8th to 9th place among international peers, albeit retaining a “B” grade. Although Canada produced more patents per capita than ever, because international peers are patenting at a much faster rate, Canada has dropped to last place on this indicator. Finally, on the new researchers indicator, Canada debuts with a “D” and ranks 9th among international peers.
In short, there are reasons for both optimism and concern about Canada’s innovation performance. While early-stage entrepreneurial activities and investments are on the rise, there are signs of incremental and persistent declines in some foundational elements of Canada’s innovation capacity that could undermine future performance.
Canadian Businesses’ Innovation Complacency Is Unsustainable
Canada’s lagging innovation performance is, in large part, a story of business inaction on innovation—particularly, poor commercialization efforts. For nearly two decades, governments at the federal and provincial levels have made substantial investments in education, research, and venture capital, and have reformed tax and other policies to support and stimulate innovation. On these research and innovation inputs, Canada performs relatively well.
But as the Council of Canadian Academies has pointed out, historically, Canadian businesses have been only as “innovative as they have needed to be” and no more.3 Insulation from competition, high resource prices, generally good trade with the U.S., and other conditions have meant that Canadian businesses have not had to innovate as much as businesses in other countries in order to be profitable. Overall, Canada has been able to maintain a high standard of living despite relatively weak business innovation performance.
But a low innovation, high standard of living equilibrium is increasingly unsustainable. Rapidly changing conditions—including more volatile resource prices, shifting global trade patterns, and a growing wave of retirements in the workforce—are raising the bar on how innovative Canadian businesses will need to be in coming years. After years of simply getting by, Canadian businesses will need to make better use of the inputs that governments have provided and improve their innovation game in a much more competitive environment.
Are there different paths to innovation success?
Countries with the highest overall scores have successfully developed distinct national strategies around innovation, giving them a substantial lead over their peers in one or more areas. Sweden, Denmark, and the United States have consistently performed well on a range of indicators that measure innovation capacity and performance—though they exhibit two different paths to success.
Public science path
Despite weaknesses in entrepreneurial ambition and venture capital investment, Sweden is a strong investor in both public and business R&D, has a well-connected population, and has leading rates of ICT investment. Not surprisingly, then, it also ranks among the top three countries on scientific articles, researchers, and patents. A similar pattern emphasizing R&D investment, scientific articles, researchers, and patents is seen in the two other leading countries—Denmark and Finland. The approach to innovation strength that these countries take could be called a “public science” path.
The long-term risk for countries pursuing this path, however, may be in weak commercialization, which in turn could hurt efforts to improve labour productivity. That is, although these countries perform well on capacity and two of the activity indicators of innovation performance, their performance on entrepreneurship-related indicators—i.e., entrepreneurial ambition and venture capital investment—is weak relative to international peers. Moreover, their labour productivity grades are weak, with Denmark and Sweden scoring “C”s and Finland earning a “D.”
Entrepreneurship and business investment path
By contrast, while the U.S. is a middling to poor performer on public R&D, researchers, and scientific articles, it leads all peer countries on entrepreneurial ambition and venture capital investment and performs very well on ICT investment and business R&D. The U.S. approach could thus be coined the “entrepreneurship and business investment” path, which appears to produce strong results on labour productivity. The U.S. earns an “A” and ranks second among international peers on labour productivity.
The long-term risk for the U.S., however, is that while its businesses are oriented to innovation, the foundation of science and researcher education and training on which it rests is lagging. To be sure, U.S. has some very strong universities and a track record of scientific excellence, relative to international peers, but opportunities to conduct science and develop research skills are concentrated, rather than broadly distributed, across the population.
A hybrid model?
Canada exhibits some elements of both paths. Canada has good universities, engineering schools, teaching hospitals, and technical institutes and produces science that is well respected around the world. It receives “B” grades for public R&D and scientific articles. In these respects, it mimics some elements of the “public science” path to innovation success. At the same time, Canada and many of the provinces do well on entrepreneurial ambition and venture capital investment relative to international peers, thus exhibiting some features of the “entrepreneurship and business investment” path.
But, with some exceptions, Canada does not take the steps that other countries take to ensure research can be successfully commercialized and used as a source of advantage for innovative companies. Canadian companies are rarely at the leading edge of new technology and too often find themselves trailing global leaders. Also, with signs of emerging weakness in public R&D and persistent weakness on BERD, patents, ICT investment, and productivity, Canada’s innovation performance—although improving overall—rests on a precarious foundation.
What will it take for Canada and the provinces to be top performers?
The provinces’ industrial structures, higher-education systems, and policy and business environments differ substantially. So too does their performance across the range of innovation indicators. As a result, strategies to improve innovation performance will be as different as the provinces and their current circumstances. Indeed, while some provinces have opportunities to be on the global frontier of innovation in certain industries, others would be better advised to concentrate on adopting innovations and technologies developed elsewhere to improve the efficiency and productivity of their existing industries. Nevertheless, there are some general principles and approaches that Canada and all provinces should pursue to enhance innovation.
Increase innovation-related spending
Both governments and businesses should find ways to stimulate spending on innovation—including public and business R&D, ICT investment, and venture capital, where appropriate. Canada and many of the provinces have performed well on public R&D in the past, but spending as a share of GDP has slipped slightly over the past five years. This could have consequences for scientific research and its foundational role in economic and social innovation, and for educating and training future researchers to contribute to innovation through roles in academia, business, and government. Although Canada and the provinces may be placing lower priority on public R&D in the face of competing health and infrastructure priorities, reducing funding for research could hinder Canada’s ability to address the health, social, environmental, and other challenges it faces.
With respect to BERD and ICT investment, policy-makers should investigate whether the current mix of tax incentives and direct support actually stimulates spending and investment, examine how structural features of national and provincial economies affect BERD and ICT spending, and explore new ways to improve both—including looking at practices in top-performing countries.
Implement and effectively use technology
ICT investment is important to innovation in that it provides the digital infrastructure for the exchange of ideas and data essential to the development, commercialization, and marketing of new and improved products and services. At the same time, the adoption and use of ICTs constitute a process innovation at the firm level that contributes to efficiency gains and productivity growth. The potential gains to individual firms, as well as the economy and society more broadly, provide a good reason to enhance technology adoption.
Recognizing that some structural factors that hinder technology adoption—such as industry structure, firm size, and labour-to-capital cost ratios—cannot be changed easily, improving performance should focus on a range of contextual factors and firm-level decision-making. More competition in the ICT sector could lead to lower costs for many firms, as well as stronger incentives to improve productivity and competitiveness through ICT investment among firms exposed to greater competition.
Create a healthy business climate
Canadians exhibit world-leading levels of entrepreneurial ambition. Ultimately, however, what matters for innovation performance is whether entrepreneurs and innovators are willing and able to act on that ambition—that is, to start and grow new ventures. Canadian entrepreneurs need a healthy climate for new ventures, including adequate market demand and access; strong and reliable supply chains, transportation, and communication infrastructure; favourable tax rates and tax regime clarity; appropriate regulation; and access to capital and expertise. Policy-makers have levers to address some, though not all, of these factors.
Enhance management skills and expertise
Canadian entrepreneurs sometimes lack the management skills and experience to effectively address challenges and opportunities, implement technology, and pursue, manage, and benefit from innovation strategies and activities. Compared with the U.S.—which has a better track record on innovation and ICT investment—Canadian companies face a managerial deficit. Between 1997 and 2004, while 48 per cent of managers in the U.S. had a bachelor’s or advanced degree, only 32 per cent of Canadian managers held such degrees.4 By 2011, the number of Canadian managers with such degrees had climbed to only 35 per cent.5
If weak management capacity explains, in part, why Canadian firms lag on innovation, then firms should take steps to enlist expertise where possible, while policy-makers should explore ways to enhance management education and skills training for innovation. Efforts to improve the management capacity of Canadian firms—by educating and training more and better managers and by providing firms (especially small and medium-sized enterprises) with management advice and support—could also help to improve the adoption and effective use of ICT.6