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Innovation Canada: A Call to Action

8. Leadership for Innovation

Countries around the world are sustaining and even accelerating their investments in business R&D and innovation, and are continuously improving the programs through which they provide this support in order to achieve more innovative, productive and competitive economies. In a study of innovation policies, the Organisation for Economic Co-operation and Development (OECD forthcoming) identifies a number of international trends regarding the mix of policy instruments being employed to support business innovation.

  • A growing attention to demand-side policies. The increasing focus on demand- side policies (such as innovation-oriented public procurement) reflects a recognition in many OECD countries that their primary innovation challenges lie not in the generation of knowledge and ideas but in their commercial penetration.
  • A growing use of indirect support for innovation, notably R&D tax incentives. Twenty-two OECD member countries now provide some form of R&D tax incentive, up from 12 in 1992 and 18 in 2004.
  • Shifting emphasis in direct support for innovation. Direct support measures are increasingly emphasizing partnerships and collaboration, venture capital and start-up firms.
  • A growing attention to policy evaluation. The need to assess the efficiency and impact of public policies in support of business innovation has become a particularly important focus in the wake of the economic downturn and resulting pressures on public spending.

The Panel believes that it is essential for Canada too to continuously improve how government supports business innovation in order to encourage a more productive and competitive private sector. The recommendations of this review will deliver on this belief and are entirely consistent with the above-noted areas of contemporary emphasis in business innovation policy. In the foregoing chapters, the Panel has made recommendations that address the issues highlighted by the OECD.

  • Create an Industrial Research and Innovation Council (IRIC), with a clear business innovation mandate (including delivery of business-facing innovation programs, development of a business innovation talent strategy, and other duties over time), and enhance the impact of programs through consolidation and improved whole-of-government evaluation.
  • Simplify the Scientific Research and Experimental Development (SR&ED) program by basing the tax credit for small and medium-sized enterprises (SMEs) on labour- related costs. Redeploy funds from the tax credit to a more complete set of direct support initiatives to help SMEs grow into larger competitive firms.
  • Make business innovation one of the core objectives of procurement, with the supporting initiatives to achieve this objective.
  • Transform the institutes of the National Research Council (NRC) into a constellation of large-scale, sectoral collaborative R&D centres involving business, the university sector and the provinces, while transferring NRC public policy-related research activity to the appropriate federal agencies.
  • Help high-growth innovative firms access the risk capital they need through the establishment of new funds where gaps exist.

What a federal government business innovation strategy now needs is the leadership to be the focal point of Canada's innovation system. To date, innovation has been regarded within the federal government primarily as one more "silo," which has in turn been fragmented within many sub-silos in various departments and agencies. While the Minister of Industry and the Minister of State for Science and Technology are regarded as having the lead responsibility for innovation, many others in government also have roles to play (Figure 8.1).

Figure 8.1: The Government of Canada's Innovation Machinery
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Other Ministries with responsibilities

 
  • Agriculture and Agri-Food Portfolio
    • Agriculture and Agri-food Canada
    • Canadian Food Inspection Agency
  • Canadian Heritage Portfolio
    • Canadian S&T Museum Corporation
    • Library and Archives Canada
    • Canadian Museum of Nature
    • Canadian Museum of Civilization
  • Environment Portfolio
    • Environment Canada
    • Parks Canada
  • Fisheries and Oceans Canada
    • Canadian Coast Guard
  • Health Portfolio
    • Health Canada
    • Public Health Agency of Canada
    • Canadian Institutes of Health Research
  • National Defence Portfolio
    • Department of National Defence
    • Defence R&D Canada
  • Natural Resources Portfolio
    • Natural Resources Canada
    • Atomic Energy of Canada Limited
  • Public Safety Portfolio
    • Royal Canadian Mounted Police
    • Canadian Border Services Agency
  • Department of Finance Canada
  • Foreign Affairs and International Trade Canada
  • Human Resources and Skills Development Canada
  • PublicWorks and Government Services Canada
  • Regional Development Agencies
  • Transport, Infrastructure and Communities Portfolio

The appropriate concept of innovation, as the Panel has emphasized in Chapter 2, far transcends science and technology and R&D. Business innovation is the principal source of productivity growth in the long run and thus lies at the heart of Canada's economic prosperity. The responsibility to foster innovation cuts across many functions of government and requires a system-wide perspective. In fact, the plethora of government programs to promote innovation, many of which are subscale and partly overlapping, is in large part due to a growing awareness of the importance of business innovation, but without adequately mandated leadership to develop and oversee a broad strategy. This contrasts with the direction being taken by a number of other jurisdictions, including other federal countries like Australia and some provinces (Box 8.1).

Box 8.1 Innovation Policy Advisory Bodies

International Perspectives

In 2007, Australia established Innovation Australia, an independent statutory body that took over the administration of business innovation and venture capital programs. The organization's board is drawn from business and academic communities and is accountable to the Minister of Innovation, Industry, Science and Research for the programs and their funding. In addition to its role in program delivery, Innovation Australia reviews and provides advice on innovation programs and proposals being developed in the government — for example, on commercialization and tax credits. It also performs a coordinating role among players in the Australian innovation system.

The United Kingdom also in 2007 established the Technology Strategy Board as an executive non-departmental body sponsored by the Department for Business, Innovation and Skills and funded by various departments and agencies. As in Australia, the board's senior management is drawn from business and academia, and it delivers a range of innovation programs.

Views from Canada

At the provincial level in Canada, there are several instances where innovation strategies are being delivered by semi-autonomous, business-led entities. Although governments provide funding and policy direction and oversight, they are not directly involved in case-by-case decision making.

Previous expert panels in Canada have made recommendations concerning the need for increased system coordination at the federal level, suggesting it can be done through the creation of a body mandated to oversee and provide advice from a whole-of-government perspective. For example, the Expert Panel on Commercialization (2006a) recommended the creation of a Commercialization Partnerships Board reporting to the Minister of Industry to make recommendations and serve an oversight role for federal commercialization initiatives. A few years later, the Competition Policy Review Panel (2008) recommended that the federal government establish an independent Canadian Competitiveness Council under the Minister of Industry. Mandated to examine, report on and advocate for measures to improve Canadian competitiveness, the council's board of directors would include a majority of non-governmental members. To date, these recommendations have not been acted upon.

Recommendation 6

Establish a clear federal voice for innovation, and engage in a dialogue with the provinces to improve coordination and impact.

The Vision of the Panel

The Government of Canada must assume a leadership role by establishing business innovation as a whole-of-government priority and consequently restructuring the governance of its business innovation agenda, while developing a shared and cooperative approach with provincial and business leaders.

Getting There

To realize this vision, the Panel recommends the following.

National Leadership

A comprehensive innovation policy must encompass a suite of policies that address research and invention, technology, service sector strategy, financial capital and talent, among other domains. A narrow science and technology policy will not adequately promote innovation by Canadian businesses. Canada needs a whole-of-government innovation policy that encompasses research, development, commercialization and business support strategies. This principle implies the following need.

6.1 Assign responsibility — Identify a lead minister responsible for innovation in the Government of Canada together with a stated mandate to put business innovation at the centre of the government's strategy for improving Canada's economic performance.

The Prime Minister might assign responsibility and accountability to a single minister to lead the challenge function in government for business innovation and to work with provincial and territorial governments to undertake a national innovation dialogue focussed on objectives and guiding principles. The same lead minister should be charged with developing outcome-oriented performance objectives to enable comparisons of program effectiveness across all federal departments. This might be facilitated via a Cabinet committee on innovation, chaired by the lead minister.

In addition, the designated minister could provide leadership in helping clarify mandates for existing and new entities, including the three granting councils — Natural Sciences and Engineering Research Council (NSERC), Social Sciences and Humanities Research Council (SSHRC) and Canadian Institutes of Health Research (CIHR) — and the many related third- party organizations currently being funded by the government to support business innovation. The granting councils have played a pivotal role in developing both talent and ideas for Canada's innovation agenda. Their core raison d'être has been and remains investigator-initiated research of both a basic and applied nature, and each needs to continue to be generously supported. However, there has been mission drift for the granting councils, as they have responded to pressure from government to be more business facing. While some business-facing programs might appropriately be under the aegis of the granting councils going forward, there is a need to clarify their mandates, taking into account the other changes being recommended by the Panel, such as the creation of the IRIC and the evolution of the NRC. In this regard, the designated minister will need to play a leadership role in establishing the IRIC and seeing the NRC through to its recommended end state. Recall that the IRIC, under the purview of the minister responsible for innovation, would have financial authority over the federal contributions to the evolved NRC institutes through management of related funding agreements (Recommendation 4.3 in Chapter 7).

Oversight

The innovation support system implemented by the Government of Canada should have clear objectives, with measurable outcomes and results. Regular whole-of-government evaluation is needed to ensure an outcome- driven approach. This evaluation should ensure that the federal program funding is always able to shift resources from programs that are no longer effective to those that serve new priorities and needs in the innovation system. There should be regular public reports on the outcomes of individual programs and on the system-wide performance of the innovation policies.

To give effect to these principles, the Panel recommends the following.

6.2 Whole-of-government advice — Transform the Science, Technology and Innovation Council (STIC) to become the government's external Innovation Advisory Committee (IAC), with a mandate to provide whole-of-government advice on key goals, measurement and evaluation of policy and program effectiveness, the requirement for new initiatives responding to evolving needs and priorities going forward, and all other matters requiring a focussed external perspective on the government's innovation agenda. The IAC should act though through two standing subcommittees: a Business Innovation Committee (BIC) and a Science and Research Committee (SRC).

At present, the STIC, reporting to the Minister of Industry, provides policy advice to the government on issues related to science, technology and innovation. The Panel proposes to transform and broaden that mandate to encompass whole-of-government advice on innovation goals related to business, science and social innovation, as well as all aspects of business innovation policy and programming — for example, benchmarking, measurement and comparative evaluation of existing policies and programs across federal departments, as well as advice on the need for new programs and new areas of focus for Canadian innovation. Unlike the STIC, whose policy advice is confidential, the new IAC's advice should be made public.

In taking on this broadened mandate, the IAC would be assisted by two standing subcommittees — the SRC, focussed on "supply-push," and the BIC, focussed on "demand-pull." The BIC membership would include a cross-section of business leaders, the granting councils and representatives of the institutes formerly of the NRC, and would draw on the advice of Canadian and international experts on innovation policies. The BIC could play an important role in advising the proposed IRIC on appropriate metrics, indicators and methodologies to guide the IRIC's role as a business-facing, demand-driven national program delivery agency (recall Recommendation 1.1 in Chapter 5). To ensure efficient use of resources, the IAC's subcommittees could co-include existing members of the governing councils of SSHRC, NSERC and CIHR, as well as IRIC, once it is established. Over time, all relevant advisory functions across the government should also be consolidated into the IAC and its two subcommittees to the greatest extent possible.

Federal–Provincial Dialogue

Canada is a federation with two jurisdictions of political and legislative authority. The division of powers between each order of government assigns certain domains exclusively to one order of government, while other domains are shared jurisdictions. In the domain of R&D and innovation, both federal and provincial governments are important players. The existence of two orders of government providing active programming in the same domain creates opportunities for coordination and collaboration. Conversely, it can also create the possibility of overlap and duplication of effort. That is why there is a need for an ongoing national dialogue on innovation. The Panel therefore recommends the following.

6.3 National dialogue on innovation — Through the minister responsible for innovation, engage provincial and business leaders in an ongoing national dialogue to promote better business innovation outcomes through more effective collaboration and coordination in respect of program delivery, talent deployment, sectoral initiatives, public sector procurement, appropriate tax credit levels and the availability of risk capital.

The need for a dialogue of this sort is amplified by the fact that Canada has a small population spread over a large and geographically diverse land mass. It is therefore particularly important to work toward better integration, coordination and unity of effort, while respecting federal and provincial jurisdictions.

In addition to addressing the federal–provincial dimensions of the advice put forward in this report, important objectives of the national dialogue would also include setting new goals and standards, monitoring international benchmarks and best practices, and reducing overlap and duplication in these fiscally constrained times.