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Innovation Canada: A Call to Action

4. Vision and Principles

The preceding chapters provide background information on business innovation and present an overview of the federal programs at the core of this review. With the context thus established, the remainder of this report focusses on the Panel's advice to the Government of Canada.

This advice is shaped by the Panel's ultimate vision of a Canadian business sector that stands shoulder-to-shoulder with the world's innovation leaders. To turn this vision into reality, the Panel believes that Canada must focus its efforts on growing innovative firms into larger enterprises, rooted in Canada but facing outward to the world. This goal is key for Canada's companies to compete with the best. Consequently, it is a primary consideration underpinning the Panel's recommendations.

Achieving the Panel's vision requires public policy action on a number of fronts, including ongoing efforts to refine and enhance marketplace policy and regulatory frameworks that influence the climate for private sector competition and investment. The Panel therefore emphasizes that the impact of its advice depends ultimately on complementary efforts to strengthen those policies — especially as they relate to encouraging the competitive intensity that is a central motivator of innovation.

Guiding Principles

The subsequent chapters set out the Panel's advice to improve the impact of federal programming in support of business innovation. This advice reflects a set of broad principles — essentially a philosophy of program design to promote business innovation — that the Panel has developed as a result of its consultations, research and internal dialogue. These guiding principles are as follows.

Transformative Programs

Federal programs to foster business innovation play an important role in the government's strategy to boost Canada's lagging productivity growth. These programs should focus resources where market forces are unlikely to operate effectively or efficiently and, in that context, should address the full range of business innovation activities, including research, development, commercialization and collaboration with other key actors in the innovation ecosystem — provinces, post- secondary education institutions, civil society organizations and the relevant investor communities. The design and delivery of federal business innovation programs must always strive to result in research activity and commercialization outcomes that meet the highest global standards.

Require Positive Net Benefit

The primary purpose of government programs in support of business innovation is to improve market outcomes to better Canada's economic performance. The total benefit of any given program should be greater than the cost of funding, administering and complying with the program. Support programs should reduce the subsidy amount provided — or move to a repayable basis — the closer the activity being supported is to market, and therefore the more likely it is that the recipient firm will capture most of the benefit for itself. There is also a need for coordination across the full suite of federal innovation programs — and ideally also between programs of the federal and provincial governments — to avoid excessive "stacking" of incentives that may result in subsidies that are higher than needed to achieve policy objectives. Excessive subsidization not only wastes financial resources, but also risks encouraging or sustaining activities that deliver little societal benefit. As set out in Chapter 6, all of these considerations are reflected in the advice regarding improvement of the Scientific Research and Experimental Development (SR&ED) tax credit. The Panel has concluded that the program should be simplified to reduce compliance and administration costs. Moreover, the benefit should be restructured to generate savings for reallocation to other initiatives benefiting small and medium-sized firms.

Favour National Scope and Broad Application

The Panel believes that the foundational core of the federal suite of business innovation programs should be large national programs of broad application — for example, the SR&ED program and Industrial Research Assistance Program (IRAP) — that support business innovation activity generally, empowering firms and entrepreneurs to make market-driven investment decisions according to their own timelines and regardless of sector, technology or region. As set out in Chapter 5, this is among the reasons the Panel believes that funding for IRAP should be increased and that a commercialization vouchers pilot program should be delivered within the suite of existing support mechanisms offered through IRAP.

Build Sector Strategies Collaboratively

Beyond programs of broad application, there is a complementary role for programs tailored to the needs of specific sectors that the government identifies as being of strategic importance. For industry sectors that are concentrated in particular regions, initiatives should be designed and delivered to work collaboratively with the relevant provinces and other local interests. These considerations inform the Panel's recommendation in Chapter 7 to evolve the National Research Council's business-oriented institutes into independent collaborative research organizations, intended to be even more responsive to the needs of sectoral research and innovation strategies. It is also expected that the Panel's recommendation in Chapter 7 to use public procurement to promote development of innovative Canadian suppliers will contribute significantly to enhanced capabilities in several sectors.

Require Commercial Success in Regional Innovation

The Panel is strongly of the view that regionally oriented programs to support business innovation should focus on creating the capacity of firms in the target region to succeed in the arena of global competition. That is why it is essential for regional innovation programs to apply the same high standards of commercial potential as are required by programs of nationwide application. For this reason, the Panel is recommending that the proposed Industrial Research and Innovation Council set out in Chapter 5 — which would be a national delivery agency for federal business innovation programming — should provide the technical assessment of proposals for commercialization and R&D projects submitted to the regional development agencies (RDAs), while serving as a platform for RDAs to share best practices. This would allow for increased cross-country collaboration and for the development of common national standards of success in regional innovation.

Establish Clear Outcome Objectives, Appropriate Scale and a User-Oriented Approach

A program to foster business innovation should be designed to address a specific problem for which a government initiative is needed as part of the solution. The program should have well-defined outcome objectives, be of a scale appropriate for the problem at hand, be well known to its target clientele, and be easy and timely to access and use. These fundamental design principles, which should apply to all programs, have led the Panel to recommend in Chapter 5, for example, consolidation of groups of subscale programs that have common outcome objectives.

Design for Flexibility

Federal innovation programs should themselves be innovative and flexible in their design, setting clear objectives and measurable outcomes, and then allowing program users to propose novel ways of meeting the objectives. For example, where appropriate, programs should invite civil society to make proposals to develop new approaches and to actually deliver programs, rather than relying exclusively on established government delivery mechanisms. This design principle is in evidence in the Panel's recommendations on programs in Chapter 5 and on procurement in Chapter 7, where it is proposed that requests for proposals be based, wherever feasible, on a description of the needs to be met rather than on detailed technical specifications that leave too little opportunity for truly innovative solutions.

Assess Effectiveness

Finally, the Panel is convinced that more extensive performance management information is required to ensure an outcome- driven and user-oriented approach to federal support for business innovation. This entails regular public reporting on the outcomes both of individual programs and of the full suite of federal innovation support. The performance information would inform periodic evaluations, not only against the objectives of individual programs, but also of the programs' relative effectiveness within the overall portfolio. Comparative evaluation of this kind is an extremely challenging task, but it is key to an evidence-based reallocation of resources away from underperforming programs and toward new or redesigned programs that can better serve changing priorities and evolving business needs. To assist the government in this vitally important regard, the Panel proposes improved program evaluation approaches in Chapter 5 and creation of an external Innovation Advisory Committee in Chapter 8, which would in addition provide whole-of-government advice on the goals of innovation policy, on opportunities for new initiatives, and on any other matters arising from the government's innovation agenda.

Approach to the Recommendations

Overall, the advice presented in the next three chapters is organized in response to the Panel's three mandate questions: