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Innovation Canada: A Call to Action

5. Program Effectiveness (continued)

Recommendation 1

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.

The Vision of the Panel

Federal programs to foster business innovation must play the central role in the government's strategy to boost Canada's lagging productivity growth so as to ensure ongoing prosperity for Canadians. Programs to promote business innovation should be designed to address a specific problem for which a government initiative is needed as part of the solution. They should have a scale appropriate for the problem at hand, be well known to business, be easy and timely to access and use, be delivered in coordination with other federal and provincial initiatives, and have clear performance measures to track progress and success.

Getting There

To realize this vision, the Panel recommends the following.

1.1 Industrial Research and Innovation Council (IRIC) — Create an arm's-length funding and delivery agency — IRIC — with a clear and sharply focussed mission to support business innovation. IRIC should become the common service platform for all appropriate federal business innovation support programs. Over time, it should take on at least the following industry-facing activities, as further elaborated in Recommendations 1.2 through 1.4:

  • delivery of the Industrial Research Assistance Program (IRAP) and a commercialization vouchers pilot program (1.2)
  • delivery of a national concierge service and related web portal (1.3)
  • development of a federal business innovation talent strategy (1.4).

In addition, the IRIC could take on the following activities: (i) in partnership with the federal granting agencies, joint oversight of appropriate business-facing programs administered by those agencies, (ii) technical assessment of the innovation element of project proposals submitted to the regional development agencies and (iii) oversight of federal support for business-oriented collaborative research institutes (see Recommendation 4, Chapter 7).

Industrial Research and Innovation Council

Stakeholders consulted by the Panel complained about the fragmentation of the system of federal innovation programming and suggested a streamlined approach whereby programs are overseen and/or delivered by a single entity. Other jurisdictions, including the UK, Australia and New Zealand, have benefited from using common delivery agents for suites of business-facing programs. For example, the UK delivers its innovation programming through a central point — the Technology Strategy Board (TSB) — which reports to the Department for Business, Innovation and Skills. The TSB operates at arm's length from government, sets national priorities, and invests in programs and projects. The Confederation of British Industry told the Panel that British businesses are pleased with the one-stop-shop approach. It is also notable that previous expert panels in Canada — specifically, the Expert Panel on Commercialization and the Competition Policy Review Panel — have recommended increased coordination at the federal level, suggesting it could be brought about through creation of a body mandated to oversee and provide advice from a whole-of-government perspective (see Annex B).

In view of the foregoing, the Panel recommends the creation of the IRIC, an arm's-length funding and delivery agency reporting to Parliament through the minister responsible for innovation (see Chapter 8). The IRIC would drive a change in the governance of industry-facing programs, providing an integrated and responsive entity to foster business innovation and competitiveness. The Panel envisages IRIC as a national delivery agency for federal business innovation programming. It would be demand driven, with clear performance metrics, a whole-of-government orientation and a strong ethos of partnership with the provinces and territories as well as with the existing federal granting agencies — namely, the Natural Sciences and Engineering Research Council (NSERC), the Canadian Institutes of Health Research (CIHR) and the Social Sciences and Humanities Research Council (SSHRC). The IRIC, subject to a performance review every five years, should also be expected to operate according to a number of fundamental principles ensuring a commitment to quality, cooperation and transparency in program design and delivery (Box 5.1).

Box 5.1 Operating Principles of the Proposed Industrial Research and Innovation Council

  1. Be mandated to stimulate Canadian economic growth and to foster a culture of innovation by encouraging and supporting business innovation in Canada through an optimal mix of programs.
  2. Provide a single point of contact for Canadian businesses seeking to undertake R&D/innovation activities, and guide business "clients" to the program and service providers that best meet the timelines and supports that the industry client needs. This will reduce the confusion of multiple points of entry.
  3. Be industry sector agnostic and emphasize that innovation occurs in all sectors of the economy, in urban and rural areas, and within micro, small, medium and large Canadian companies, and that innovation can be enabled by talent from a range of service providers.
  4. Work collaboratively with businesses, the federal and provincial governments as well as the Canadian research community to design new programs and remove existing barriers and impediments in order to improve Canada's commercialization outputs, competitiveness and productivity. Encourage, as appropriate, cross-sector, cross-platform, cross-disciplinary collaboration.
  5. Use common definitions, a common program/project application form, and offer clear and consistent advice to Canadian business from coast to coast.
  6. Enable and encourage novel program design and delivery. Where appropriate, solicit outside program delivery agents through a competitive process designed to maximize program outcomes. In such cases, IRIC must ensure clear lines of accountability with these delivery agents, allowing them to compete and avoidng any conflict of interest in which IRIC competes with delivery agents for program funding.
  7. Require that businesses put "skin in the game" for programs/projects commensurate with the level of return to the partner. Generally, as projects are further downstream toward the market in the innovation chain, businesses must be required to increase the proportion of their own investment.
  8. Maintain an uncompromising focus on quality. Where appropriate, peer review should be used to determine research funding to ensure that the right problem and audience are being targeted with the right methodology.
  9. Respect stakeholder timelines and commitments. For example, peer review processes must be designed to ensure against protracted delays in either starting projects or releasing business contributions.
  10. Track, measure and report to the proposed Innovation Advisory Committee (IAC, described in Chapter 8) and the public on outcomes and indicators for all business-facing R&D programs offered by the Government of Canada. Where needed, develop new metrics, approved by the IAC, and keep a scorecard of performance. Create lines of accountability to the IAC for program outcomes and delivery.

Over time, IRIC would become the common service platform for all appropriate business innovation support programs of the federal government. Eventually, and with increased industry participation and contribution to these programs, IRIC would play a lead role in developing new initiatives that directly assist firms with their business innovation needs, including joint initiatives with the provinces and territories, where warranted. The key distinction between programs administered by IRIC and those administered by NSERC and other existing granting councils is that the former would focus on demand-driven support — typically in response to initiatives from, or directly related to, businesses — while the latter would continue to focus on supply-push support — for example, funding for commercially oriented projects initiated within academic institutions. In this regard, there is also a need to distinguish between (i) the support by NSERC and CIHR of solution-driven research and (ii) their support of basic discovery research, ensuring that both receive adequate funding and are evaluated using appropriate and relevant metrics.2

Given IRIC's central role for federal initiatives supporting business innovation, it should be involved in a substantive and strategic way with the risk capital and procurement programming set out in Chapter 7. That said, the legal and financial responsibility for delivery and financial management should remain with the Business Development Bank of Canada and Public Works and Government Services Canada, respectively. The IRIC should also assume responsibility for the technical assessment of all proposals submitted to regional development agency (RDA) programs that support business innovation.3

In fulfilling its role, the IRIC would need to adopt an overall portfolio view of its suite of programs, consolidate similar programs, identify gaps, set clear outcomes for each program and monitor programs to ensure they are meeting objectives. The IRIC would ensure that intended program outcomes are relevant and responsive to program users. Moreover, a commitment to federal–provincial collaboration would be a constant feature of all of the IRIC's operations.

While ongoing costs for the IRIC would be partly offset through the transfer of existing employees from other organizations, its creation would take time and entail up-front incremental cost, arising from both the transfer of the range of programs and the set-up of the new organization itself. Creation of this new organization and the transfer of existing programs to the IRIC framework should be staged to minimize stakeholder and program disruption.

Industrial Research Assistance Program and Commercialization Vouchers

As noted, the Panel's consultations revealed that IRAP is widely regarded as an effective, well-run initiative that facilitates R&D and commercialization activity by small and medium-sized enterprises (SMEs). This finding is corroborated by evidence collected through the Council of Canadian Academies' 2006 assessment of Canada's strengths and weaknesses in science and technology. A survey conducted as part of that assessment found that IRAP was considered to be the federal government's strongest program of direct support for the commercialization or translation of research into applications that benefit the economy or society (CCA 2006).

The Panel's consultations further revealed that many stakeholders believe the federal portfolio of business innovation support places an emphasis on R&D and that there is an ensuing need to provide complementary assistance for non-R&D activities along the path from idea to market success, particularly those related to commercialization. The Panel was also frequently told that many companies, especially SMEs, lack awareness of the range of post-secondary education, government, non-profit and other commercialization facilities, assets and skilled personnel available across the country. It was suggested that such issues could be addressed through the introduction of a "vouchers" program — that is, government funding support would be delivered via vouchers provided to qualifying businesses and used to defray part of the cost of acquiring approved commercialization services from approved providers. A vouchers approach has already been adopted by other jurisdictions (e.g., the Netherlands, Hungary, the UK and Ireland) as well as by provincial governments, including Alberta, Newfoundland and Labrador, and Nova Scotia. Vouchers are a relatively new form of delivering direct assistance to firms. Their underlying objective is to help build relationships between SMEs and innovation partners by eliminating obstacles that have traditionally been barriers to such relationships — for example, the relatively high fixed costs required for SMEs to identify a suitable partner.

Recognizing that IRAP plays a central role in enabling SMEs to conduct R&D and to innovate, and that vouchers would help SMEs better connect to commercialization partners, the Panel recommends the following.

1.2 Resources for IRAP and commercialization vouchers — Increase IRAP's budget to enable it to build on its proven track record of facilitating innovation by SMEs throughout Canada, and create a national commercialization vouchers pilot program, delivered within the suite of existing support mechanisms offered through IRAP, to help SMEs connect with approved providers of commercialization services in post-secondary, government, non-profit and private organizations.

Funded IRAP projects must have strong commercialization potential and represent significant contributions to the development and use of leading-edge technologies. In view of IRAP's well-known and respected "brand," it is also important for the program to retain its identity under the IRIC umbrella.

The national commercialization vouchers program should be established as a five-year pilot initiative and delivered collaboratively with provinces in cases where there is provincial interest. Clear principles, common definitions and consistent outcome indicators should be put in place for this pilot program. The business beneficiary of a voucher-related project should be required to contribute as well in order to demonstrate commitment to the project.

Concierge Service

Canada's landscape of programs that support business innovation is densely populated by initiatives spanning many departments and agencies at both the federal and provincial levels. This leaves many businesses bewildered by the array of choices. A corollary is that many programs are not as well known to businesses as they should be. The Panel therefore recommends the following.

1.3 Innovation concierge service — Establish a national "concierge" service and associated comprehensive web portal to provide companies with high-quality, timely advice to help identify and access the most appropriate business innovation assistance and programs for the individual firm.

The concierge service would serve the dual purpose of (i) providing a single access point for businesses to obtain individualized assistance in navigating the complex program landscape through well-informed guidance on the most appropriate programs and (ii) generating awareness of programs by directing clients to initiatives they might not have otherwise identified.

In order to ensure that businesses benefit from high-quality, personalized assistance on a case-by-case basis, client service personnel in the concierge offices should be appropriately trained to provide services ranging from initial client referrals to specialized sectoral advice, drawing on all Government of Canada resources as well as relevant provincial programs. The associated web portal should be developed in collaboration with the provinces to constitute a "one-stop" online orientation to the full range of government programs in support of business innovation. The new concierge service should build on the existing capacity of Canada Business, which provides access to information and tools for Canadian businesses and entrepreneurs through service centres and an online delivery channel.

Talent

A talented and adaptable workforce is at the heart of innovative economies. Every part of the economy therefore has a stake in educating, training and effectively integrating highly qualified and skilled Canadians into the workforce, and in attracting and retaining talented individuals to Canada. While the development of talent is the responsibility of the provinces, the Government of Canada plays an important role through the granting councils and can have a particular focus on the deployment of talent in support of business innovation. Unfortunately, federal efforts are unorganized, and federal programs are subscale and uncoordinated. The Panel therefore recommends the following.

1.4 Talent — IRIC should lead the development of a federal business innovation talent strategy, working closely with the provinces and relevant federal departments and agencies, focussed on increasing business access to, and use of, highly qualified and skilled personnel.

Guided by this strategy, IRIC should work with federal partners to consolidate federal industrial internship and youth employment programs, creating a larger, more flexible program open to all senior undergraduate and graduate students and post-doctoral fellows from across our post-secondary educational institutions. The strategy should address gaps in the current suite of business-oriented talent programs, such as creating opportunities for entrepreneurship mentoring, addressing Canada's underperformance in deploying our most highly skilled and highly trained PhD graduates, and developing the full range of industrially relevant research, development and commercialization skills for trainees, including both technical and professional "soft" skills.

The strategy should be designed to meet clearly defined objectives, over time, centring on the increased use by business of highly qualified and skilled personnel. The Panel also recommends that the strategy make use of proactive and flexible delivery mechanisms by engaging stakeholders and civil society in the design and delivery of its talent initiatives, where appropriate.

Figure 5.5 Direct Spending Portion of the Envelope, by Activity Supported, 2010–11a
Figure 5.5 Direct Spending Portion of the Envelope, by Activity Supported, 2010–11

a Within each activity supported, programs are ordered according to the size of their expenditures, starting from the largest at the bottom and progressing through to the smallest at the top. Expenditures for each program are roughly proportional to the area of the rectangles representing the program. Some programs (for example, IRAP) are present in more than one activity. Three percent of direct expenditures within the review envelope are unclassified and are not represented in this figure. See Annex A for the full name of programs represented by acronyms.

(Return to reference a)

Program Consolidation

As documented in Chapter 3, there are many small-scale business R&D and commercially oriented R&D programs in the federal suite. (Figure 5.5 portrays the portfolio of direct expenditure programs by activity supported.) Recent work by the OECD suggests that ". . . the policy mix needs to avoid inefficiencies arising from operating too many schemes at too small a scale. This is a real concern, since instruments can develop constituencies of support and a degree of autonomy, making them less amenable to change or cancellation, even where this would be sensible. In some cases, there may be ways to streamline the range of instruments and programmes, reduce complexity, enhance transparency and lower administration costs" (OECD forthcoming, p. 9).

Internationally, jurisdictions such as Finland and the UK, and domestically both Alberta and Ontario, have reduced the number of business innovation programs offered and have rationalized their program suites into a set of mutually exclusive programs, thus providing coverage for areas of government intervention in the innovation system. The UK government has consolidated its business support programs, reducing their number very substantially in the new Solutions for Business program launched in April 2011. The Panel believes that the government must seize opportunities for program consolidation, and therefore recommends the following.

1.5 Program consolidation — Over time, consolidate business innovation programs focussed on similar outcome areas into a smaller number of larger, more flexible programs open to a broader range of applicants and approaches.

Through a more streamlined suite of programs, the government could reduce overhead costs, increase impact, enhance client awareness and improve the usability of business innovation programs.

Comparative Program Evaluation

The Panel was asked to provide advice on which federal programs in support of business innovation are most effective. However, as noted earlier, the tools needed to assess comparative effectiveness have not yet been developed — there is no agreed-upon definition, framework or methodology for comparative evaluation, no common performance indicators and no common database of the programs. Management of $1.5 billion in direct program spending requires better management tools to be put in place, together with a process to apply these tools in a comprehensive, consistent and ongoing way. A common, outcomes-focussed framework for performance management and public evaluation of business and commercially relevant R&D programs would improve comparability among programs and inform decisions to reallocate funding strategically within the overall portfolio. It would make Canada a leader in managing for results. Accordingly, the Panel recommends the following.

1.6 Program evaluation — Build a federal capacity to assess the effectiveness of new and existing business innovation programs to enable comparative performance evaluation and to guide resource allocation going forward.

To this end, it is possible to conceive of a whole-of-government evaluation approach whereby sets of "intermediate outcomes" are applied as performance measures to categories of like forms of support, regardless of the department or agency providing that support. A schematic example of this approach is illustrated in Figure 5.6, which could potentially serve as a basis for discussion between the IRIC and the federal evaluation community, working with the Treasury Board Secretariat.

Figure 5.6 Performance Indicators for Comparison of Categories of Like Forms of R&D Support
Category of Support Program Outcomes Possible Indicator(s)
A Firm R&D and commercialization Increased business investment in innovation, including R&D
  • Increased firm expenditures on R&D
  • Increased firm expenditures on intangibles (e.g., intellectual property)
Increased ability to perform and manage R&D
  • Increased number of R&D managers
Improved firm performance
  • Increased profits from cost savings resulting from productivity improvements
  • Increased profits from sales/revenues of new products and services
B R&D partnerships Increased adoption of knowledge and technology by firms
  • Percentage of projects resulting in technology transfer
  • Number of new firms entering R&D activity/number of repeat firms
Strengthened networks and linkages
  • Increase in SME clients served by post-secondary education service providers
  • Increase in co-publications
  • Increase in the intensity of collaboration (value of private sector R&D expenditures on contracts with the public sector)
C Commercially oriented R&D Advancement of technology/knowledge
  • Increased number of prototypes
  • Increased number of patents, licences and disclosures
  • Increased number of publications
Increased commercialization of public research
  • Number of spin-off companies
  • Spin-off company revenues and R&D expenditures
D Training in industry Increased supply of talented people
  • Increase in number of students/researchers with industry experience prior to graduation
  • Increased retention rates of highly qualified and skilled personnel in Canadian enterprises

2 In an opinion piece published in Nature, Dr. Indira Samarasekera, President of the University of Alberta, argues the need for a new social contract that "would involve establishing a review, approval and funding process for solution-driven research that sits parallel to processes for basic research, and has the nimbleness and urgency desired in the outcomes, without compromising the cautions that validate and protect the quality of the work" (Samarasekera 2009, p. 161). (Return to reference 2)

3 The assessment of proposals to support innovation should be based on broad criteria of commercial success, taking into account the overall competitive landscape both nationally and globally. This requires expertise and specific skills that are difficult to maintain across a variety of small programs and delivery organizations. Consolidating assessment of the innovativeness and commercial potential of business innovation projects in the IRIC, as a "back office" function provided for the RDAs, would allow IRIC to develop common definitions, standards and assessment processes across Canada to ensure consistently high standards. The IRIC should also facilitate the sharing of best practices among RDAs and work with them on partnering more effectively with provincial governments. (Return to reference 3)