Category Archives: Technology engine

Advantage of the Small But Nimble Player in Question

By Peter Lindfield, published in the Telegraph-Journal 1st June 2012

Any discussion about jobs and prosperity inevitably raises the subject of the government’s role in economic development. The ensuing arguments usually revolve around two main groups of thought. The first group is of the view that markets know best and building profitable companies is achieved in the absence of government interference. Regulations, subsidies and excessive rules tend to introduce market distortions and are to be avoided. Their take on Darwin is that he espouses the view of “survival of the fittest”, so it is inevitable that many companies will perish in the heat of competition. This particular version of laissez faire capitalism has become closely associated in the U.S. with the Republican Party ideologies of the Tea Party but has received a warm reception in some quarters in Canada as well. Creating jobs and generating competitiveness are the product but not the goals of profitable companies. In this world, government has no business picking winners and losers.

The second group holds the view that fragile companies need protection. This group also thinks that job creation and competitiveness intrinsically are government objectives. Their rationale is that capital, entrepreneurship and market know-how are often in short supply and may never develop if they are not carefully nurtured by government. In the right context and under controlled conditions, subjecting local industries to external competition is important. However, this requires that the industries have been sufficiently developed so that they do not succumb to the initial blast of foreign competition. This is particularly important since any local firms are likely to be small with few financial resources compared with the multinationals against which they have to compete.

Ironically, both of these perspectives are founded on theoretical models in which governments design finely-tuned optimal interventions and practical considerations. The theoretical language is remarkably similar although the results differ substantially. Both assume government is susceptible to being held hostage by special interests.

For society that has made investments, there is little value in exposing local firms to greater competition if they are most likely to be eliminated and if alternative sources of employment are not available. It is naive to demand market changes designed to produce a so-called level local playing field when competitors are tilting theirs in their own favor.

But at what point does government protection no longer make sense? Do start-ups, small firms and companies in transition merit the subsidies, incentives, inducements and grants that governments lay on every year? Are taxpayers realizing a good return on their investment when they support private corporations? Are we protecting infant industries when they are in their maturity and should either be standing on their own or falling to creative destruction?

Part of the challenge associated with these questions revolves around the mythology of the smaller but more nimble corporation. Laissez faire capitalists contend that small firms can thrive with the right characteristics of management, innovation, strategy and leadership. The objective is to effectively wield that innovation to grow in scope and scale.

Others hold that government must support start-ups. Recent academic research has thrown a spotlight on the critical importance of size and deep pockets in corporate portfolio development. Large multinationals can in fact move very quickly with new models of organization design. Whether economies of scale really matter depends on the industry type, degree of competition among firms, the length and complexity of the supply chain and the maturity of the market. The competitive advantage of the small but nimble player may no longer exist. The key question today is how long companies should huddle under the umbrella of government protection and what return taxpayers are receiving for this protection.

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Universities are the Lifeblood of Innovation

Published in the Telegraph-Journal 13th April 2012

The effectiveness of university-industry research and development (R&D) partnerships is at the core of the drive to supercharge Canada’s innovation engine. There is incontrovertible evidence that this push is built on substantial success. Countless university-industry partnerships have supported the successful commercialization of university research. They have resulted in the creation of many competitive spin-off companies, the development of innovative product and service portfolios for existing firms and the generation of thousands of jobs in industries across the entire spectrum of economic activity. It is not an overstatement to say that in Canada university research has been a cornerstone of innovation in every growth industry over the last 60 years.

That is not to say that universities are without their critics. Those industries that rely on university research complain that the processes of technology transfer, commercialization and invention management are fundamentally flawed by universities’ insufficient attention to the need for rapid progress in making innovation marketable.

Governments fund universities without setting their explicit research objectives and universities are left to determine their own research agenda, generally autonomously at the level of individual departments. There has been criticism of this approach by some in industry who would prefer that universities focus on practical research and that government provide guidance to that end. Industry lobbyists increasingly are pressuring government to support economic growth and job creation by encouraging universities to shorten their research timelines to reflect the near term by shifting their focus – and funding – from basic to practical research and commercialization.

This presents a profound challenge to universities. It is with basic research where breakthrough discoveries and technologies are most likely to occur, although if they are frequently distantly removed from being commercial products. It is precisely because the lead time to generate marketable products is often so long that many firms in the private sector effectively have abandoned basic research. From manufacturing to mining to the life sciences industry, industry has dramatically downsized its investments in basic research in favour of collaborating with universities.

The immediate beneficiaries of technology transfer and commercialization is the university itself rather than industry. This is counterintuitive and may appear unproductive to the private sector. However, it may require many years for university basic research to translate into viable inventions and even longer for inventions to reach the market. Even successful, patentable discoveries are not likely to achieve a significant return on investment in the short term. If university researchers capitulate to the demands of industry to trade long term basic research for a focus on developing practical inventions, commercialization may only involve picking the lowest hanging fruit. Long shot breakthrough innovations in industries such as biotechnology will be less attractive if decades are required for commercial products to reach the marketing stage. Under the pressure of short term results, and without the benefit of hindsight, the most promising research may never be undertaken at all.

In the race to capture the benefits of innovation, the rest of the world is not standing still. China has redoubled its effort to increase basic research funding although it is too early to determine the results of this investment, or even its trajectory. Other nations are making ambitious investments in R&D, reflecting the recognition that the critical function of basic research should not be placed at risk, even if there appears no immediate practical application of that research.

None of this is to suggest that a focus on the commercialization of innovation should not be better funded or that universities should not support industry by engineering a more efficient and productive technology management and commercialization platform. But as other nations are discovering, and as Canada’s record has already demonstrated, successful university innovation involves focusing on basic research while effectively supporting commercialization, not substituting the former for the latter.

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Innovation Networks Are Crucial To Business Development

Published in the Telegraph-Journal 14th February 2012

Clusters are among the most popular of economic development policies. A host of magazines, journals and online sites are dedicated to focusing on the cluster phenomenon. Every day there is news of a new initiative trumpeting a new cluster strategy. It would be difficult today to find a country, region, or city that is not actively attempting to develop a network of complementary and competitive firms. Not all economic activity centers are actually clusters but the term has become a synonym for creative innovation networks. The political appeal is immediately obvious, particularly now that the global financial crisis has put a laser focus on innovation to support growth and job creation. However, the challenge lies in turning a newly created science park or knowledge corridor into a genuinely competitive center for innovation.

But what were key business attraction features only a few years ago are bog standard today. This has made it more difficult for smaller centers to add advantages to compensate. But many of the practices and ideas being used by innovation networks around the world have common features. Virtually all successful innovation networks have government playing a crucial role and it is clear that many innovation networks have succeeded by dint of government involvement. What is challenging to get right is the scope and scale of support; while hyperactive intervention can stifle progress, too little can lead to a lack of vital support.

Innovation networks have collaboration at their foundation, so success involves more than just locating firms in the same region. Although innovation networks are increasingly globalized, almost all experts agree that ideas, innovation and commercialization flow fastest in a local community. A critical element of innovation network development is fostering this collaboration, especially where this has not been an integral part of the local business culture.

Talent management has become the single most important factor in developing successful innovation networks. The overarching objective of government in the most advanced innovation networks is developing a continuous supply of talent with world-class skills. Ottawa’s tech cluster success is in no small measure owing to its long-term efforts to develop the quality of its workforce where its two universities play a significant role. Since not all world-class talent can be grown at home, a related focus should be on encouraging the inward migration of specialized personnel from around the world.

Governments need to work to promote a culture of innovation and entrepreneurship. This is especially critical where government organizations are seen as the primary pathways to success. This means government must act as a model user for promising innovative products and services, a role that governments are not intrinsically comfortable playing.

Innovation networks work best when they are focused and can compete. The Ontario Technology Triangle region accelerated its growth to support the development of RIM’s rapidly expanding physical and intellectual campus. Ottawa’s tech community evolved around Nortel, Corel, Mitel and Newbridge. Universities were supportive sponsors in both locations and integral to their success.

Governments can do much to create an attractive business environment. This not only involves easing planning rules, making the tax code transparent, removing penalties for failure and smoothing immigration processes but focuses on the critical importance of ensuring a good quality of life for prospective employees and support efforts to attract and retain talent.

These factors frame the New Brunswick challenge to support innovation networks to supercharge growth and job creation. Since government is at the center of the success of innovation networks, a key strategy will be to ensure that its near-term restructuring does not overlook the importance of innovation support in its quest to stabilize budgets.

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Innovation Policy at a Crossroads

Published in the Telegraph-Journal 13th January 2012

One of the challenges of Canada’s tech industries is becoming big enough to achieve the objectives that its entrepreneurs, venture capitalists and policymakers envisage. This means not just producing brilliant ideas, but converting them into profitable commercial reality, creating jobs and yielding the sorts of innovations that revolutionize old industries and spawn new ones.

For more than forty years, policymakers and researchers have agreed that at the root of this challenge is how government can most effectively and efficiently play its role. It’s not simply a money issue. Past recommendations from organizations as varied as the Economic Council to the Science Council to the National Advisory Board on Science and Technology have ranged from a national industrial strategy to an innovation extension policy.

Today, the Canadian Advanced Technology Alliance (CATA) is calling on governments at the federal, provincial and municipal levels to formulate and issue comprehensive innovation plans that together will effectively foster the creation, retention and growth of innovation and entrepreneurship so that Canadians can receive the full benefits of this country’s investment.

Canada’s largest technology association, CATA has called for the federal government to play a critical role by rationalizing its programs supporting business innovation, including the Scientific Research and Experimental Development Program (SR&ED), and rolling them up under a dedicated organization accountable for the successful closure of Canada’s innovation and commercialization gap. Among its immediate action priorities, CATA urges the federal government to focus on creating an environment that successfully commercializes Canadian innovations, long recognized as an impediment to Canadian competitiveness. CATA advocates funding commercialization through the reallocation of a portion of existing SR&ED tax credit expenditures and focusing on Canada’s “Priority Strengths” defined by the Council of Canadian Academies and the Science, Technology and Innovation Council.

This approach would address the funding shortfall for early stage businesses and the financing of growth opportunities in established businesses. It would also promote the rationalization of a currently unnecessarily complex regulatory climate that places a drag on innovation.

Another recommendation is changing the ratio of indirect tax measures to direct support for R&D intensive companies by permitting all companies to qualify for refundable tax credits, regardless of ownership. This would provide incentives for Canadian and American companies to continue R&D in Canada and would involve establishing a pre-commercialization tax credit for product development work beyond purely R&D which would be administered through NRC’s Industrial Research Assistance program (IRAP). A controversy has emerged over whether it is appropriate for Canadian taxpayers to fund R&D projects in which the ownership of some of the corporations may not be Canadian-owned. But the funding for IRAP support of young tech company R&D work is frequently challenging without the range of expertise and investment required to complete the project. Supporting the full range of research for technological innovation if it is undertaken in Canada makes far more sense than some Canadian firms being unable to complete critical R&D or pre-commercialization projects at all. This is of particular importance in smaller provincial and municipal jurisdictions where the number of qualified players may be more limited.

Those involved in the increasingly integrated development environment required by Canadian firms to effectively respond to today’s rapidly changing market opportunities agree that the status quo is unacceptable. The problem is not that substantially more funding is required. Instead we need a coherent and collaborative policy framework that will encourage Canadians to lead as creators, innovators and adapters of next generation technologies. In Canada, we don’t need to reinvent the wheel to achieve our planning goals.  We already have much of the necessary road maps, blueprints and strategies to begin our travel to this destination.

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Government Must Support the Tech Sector

Published in the Telegraph-Journal 9th January 2012

A confounding paradox exists in the tech sector. Over the last twenty years, the combination of exponentially greater computing power, the decreasing cost of application development and a greater recognition of the value of information technologies has supported a steady demand for technology software and hardware. For users both corporate and consumer, the rewards have been greater agility, speed and efficiency over a wide range of products such as telecommunications, automotive and productivity-enhancing applications. Consumer electronics have greatly increased in functionality while prices have come down across the board. Corporations have marshaled improvements in enterprise resource planning, data mining and quality management to reduce overall costs and speed to market.

But at the same time, major challenges have created an uncertain future in many of Canada’s high-tech communities. In 2007, Ottawa-Gatineau’s tech sector employed more than 70,000 according to Statistics Canada data. But by 2011, the number of high-tech jobs in that region had declined to below 44,000, a fall of almost 40 per cent. It’s true that the Kitchener-Waterloo Technology Triangle region experienced an employment boom in recent years, but that hiring binge has ground to a halt with the instability at Research In Motion. Hiring forecasts have become more conservative in Toronto, Montreal, Calgary and Vancouver. The troubling downturn in tech futures is mirrored in the U.S. where large firms continue to perform well but where the good news increasingly is a reflection of their off-shore holdings.

The global credit crisis did not help. Beginning in 2007, the financial crisis stifled borrowing and equity financing; a shortfall of sufficient investment to finance ambitious growth is a recognized factor in the lackluster expansion in the sector. The high-flying Canadian dollar has not been helpful for many export-oriented firms. Many of the jobs that have been lost have been transferred to lower cost locations such as China, India, Brazil and Korea. In the last ten years, these countries have also significantly ramped up capabilities in design, architecture and engineering so that they essentially have become equal to all but the most sophisticated. Capabilities have become ubiquitous.

Outsourcing has become a common practice among tech companies and many of the manufacturing and basic engineering jobs that have been sent overseas are unlikely to return. So even in the event that the sector regains momentum, it may not be able to create jobs in Canada in the same numbers as before.

New models of competition are beginning to emerge on the horizon in which the biggest unknown variable is the role of government. These models are based on the recognition that, for many companies in the tech sector, it’s becoming more difficult for many companies to produce proprietary products. Large companies such as IBM, HP and Microsoft are a few of a dwindling number that can afford the total development cost of their product line, including process research and development. Increasingly, the new models of competition recognize that the total cost of development can be so great that support from government is required to ensure a stable environment for the participants. One of the critical factors of success of the tech sector in China is the role of government in promoting infrastructural stability, even if that support frequently has been crude. However, in Canada and the U.S., there is only a dim awareness of the fundamental conditions that make the interdependence between corporations and government necessary.

In the face of mounting challenges, the tech sector is at a crossroads. To succeed, we will need to answer the question of the role that government must play in fostering the retention and growth of the industry such that Canadians obtain the full benefits of the country’s investment.

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Students are not blind to markets

IT industry analysts have argued that firms increasingly are finding it difficult to recruit cross-trained professionals who are skilled in technology and possess business expertise. This is due in part to an almost 40 percent drop in computer science enrollment in the U.S. since 2002, according to industry analysts and in part that the entire market crashed in 2008 because of the financial crisis and has still to recover.

Universities, corporations and government should not expect students to be ignorant of the market. If the industry collapsed contributing to a decline in enrollment a year later, that is not a problem for students. But it would be a problem if students continued to enroll without any jobs on the horizon. Corporate recruiters say they want cross-trained professionals who understand IT, business and markets. However, would they really want to recruit individuals who make their life career decision without taking the employment market into account?

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