Canada needs a more comprehensive innovation framework
November 14, 2019
Focus Area—Innovation & Technology
This Op-Ed was originally published by The Hill Times of Ottawa on November 11, 2019. It was written by Harry Sharma and Mike Burt of the Conference Board of Canada.
Canada has an innovation challenge. For decades, growth in our productivity, or what we are able to produce with our available resources, has lagged behind that of most developed countries, and innovation is a key driver of productivity growth. This poor performance matters, as it limits our competitiveness and our ability raise living standards over time. It is also an indication that our policies designed to improve innovation have not been effective. As such, there is a strong need for a new approach.
We broadly define innovation as a process which extracts socio-economic value from knowledge. It is widely accepted among policy makers, business executives and researchers that innovation is important to the success of firms and well-being of communities, regions, and countries. Firms that innovate successfully enhance their competitiveness. Countries and provinces with robust innovation ecosystems see improvements in productivity, economic growth, and job creation.
Many reasons have been suggested for Canada’s below-par innovation performance. For example, Peter Nicholson proposed that we are in a “low-innovation equilibrium,” where Canada’s upstream role in North American value chains have allowed us to maintain a high standard of living despite our poor innovation performance. Another commonly cited reason is a general lack of a “culture of innovation”. The CBoC’s latest Innovation Report Card gives Canada a “C” grade and ranks it 12th among 16 international peers.
“We believe that a systematic application of our updated framework will shed light on previously unidentified gaps on the demand side of innovation—where firms use innovation to gain competitive advantage.”
In our analysis over the years, we have observed that Canada’s innovation challenges stem from a mediocre “handover” performance—while Canada performs well on publicly-funded research and education indicators, it needs to do much better in turning research into globally successful products/services and sustainable growth. The latter has been Canada’s “bigger” weakness. While we produce almost 4% of the world’s research output and rank relatively high on creation of start-ups, Canada has had a mixed record on sustaining successful innovative companies. For example, Canada has a disproportionally low number of “unicorns”—companies that are valued at $1B or more—compared to other leading jurisdictions.
A more comprehensive framework
To better understand this underlying Canadian innovation challenge, the CBoC is updating its innovation assessment framework by integrating the OECD’s recent recommendations on capturing “business capabilities for innovation”. Our framework will continue to measure input (e.g. investments in R&D) and output (e.g. patents) measures, but we will additionally begin to incorporate an ecosystem’s (and firms’) capabilities for innovation and sustaining growth.
Capabilities to be included in our framework are management, human resources, skills, technological, sales, and access to core markets. These capabilities form the core of a firm’s competitive advantage as they represent a firms’ competitive strategy and its organizational and managerial capabilities to implement the strategy. For example, the human resources capability includes talent management that considers if a firm has recruitment processes to emphasize finding individuals with creative skills and retaining them through incentives and career development opportunities. Research has consistently demonstrated that talent management practices significantly influence a firm’s ability to maintain its growth momentum.
We are working with public, private and academic sectors to develop appropriate indicators to represent the required capabilities.
New levers for decision makers
We believe that a systematic application of our updated framework will shed light on previously unidentified gaps on the demand side of innovation—where firms use innovation to gain competitive advantage. Canada has, correctly, relied on trade diversification and international market access as key demand-side innovation policy levers. We must, now, look deeper and consider internal capabilities of Canadian firms to ensure that they are able to fully benefit from increased market access.
Our plan is to conduct an annual, country-wide assessment of Canadian organizations based on our updated framework. This will help establish a baseline and allow us to track Canada’s capabilities to sustain the growth of its companies by industry, jurisdiction, firm size, and age. The updated framework will also be internationally compatible and enable Canadian jurisdictions and firms to benchmark themselves against leading global innovation performers.
As a country, we must effectively leverage our research and skills strengths into an innovation advantage. We believe that incorporation of internal firm capabilities in the assessment framework will helps us expand the lens and better understand Canada’s innovation challenges. Newly identified challenges will lead to development and implementation of new policies, programs and networks and improve Canada’s lagging innovation performance and make it a more globally competitive economy.