How Canada can nurture growth through tech and innovation

DAN HERMAN AND DAVID FRANSEN

Special to The Globe and Mail

Published Thursday, Oct. 22, 2015 3:35PM EDT

Last updated Thursday, Oct. 22, 2015 3:57PM EDT

http://www.theglobeandmail.com/report-on-business/rob-commentary/how-canada-can-nurture-growth-through-tech-and-innovation/article26930666/

Dan Herman is executive director and co-founder of the Waterloo-based Centre for Digital Entrepreneurship and Economic Performance. David Fransen is chair of the Waterloo Innovation Summit and executive in residence with Ontario Centres of Excellence. He previously served as Canada’s consul-general in Los Angeles, executive director of the Institute for Quantum Computing at the University of Waterloo and assistant deputy minister (policy) at Industry Canada.

Returning to 24 Sussex Drive on the promise of real change, prime-minister-designate Justin Trudeau will be under pressure to deliver quickly. On the economy, this means implementing immediate and meaningful changes to Canada’s economic and innovation strategies. To overcome the realities of slow growth, depressed resource prices and a generally lethargic business environment, he cannot rely on infrastructure spending and tax cuts alone.

Canada’s innovation policy approach cannot merely match what our competitors are doing; it must exceed them. One area in particular has proven critical. Globally, countries and communities that develop regionally based innovation ecosystems are the ones that are winning. By nurturing the proliferation of startups, and supporting their transformation into high-growth firms, these regions are enjoying disproportionate job and income growth.

Unfortunately, on this front, Canada is not just lagging, but falling behind.

The recent Waterloo Innovation Summit gathered 280 leaders to focus on one question: What are the best ways to nurture high growth through innovation ecosystems? The following are seven themes, or recommended areas for action, that emerged during three days of discussion.

Invest in necessary infrastructure and connectivity

Fully developing a region’s innovation ecosystem means prioritizing the rapid, instinctive movement of talent, capital and ideas. The dramatic need for improved connectivity in the Toronto-Waterloo Region corridor is just one example of where demonstrated economic potential requires more investment.

Expand the focus beyond startups to scale-ups

Recognizing the significant contribution that high-growth companies make to employment and economic prosperity, jurisdictions around the world are focusing increasing attention on the “art of scale.” Canada, a clear underachiever, must concentrate resources, mentorship and programming in this area as a necessary next step in the evolution of its innovation ecosystem.

Extract better ecosystem data

There isn’t enough consistent, standardized data related to significant public investment in startup-assistance organizations, venture-capital funds and other systems of public support, and that undermines our ability to manage these areas intelligently. This gap needs to be addressed through massive reinvestment in data collection and analysis.

Recruit and develop high-tech management talent

Among the most significant challenges facing high-growth firms is a dearth of talented managers who have experience in dealing with the challenges of global scale. While developing this talent organically is a must, firms that currently demonstrate the clear potential to become global powerhouses cannot afford to wait. Canada’s private- and public-sector leaders must consider how this talent can best be identified and recruited.

Build effective research-and-development support systems

If regionally based innovation ecosystems are where the most important economic growth happens, policy-makers must move quickly to retool their R&D support policies. Canada’s chronic underperformance with respect to business expenditure on R&D and gross expenditure on R&D means we need to refocus our incentives on outcomes.

Better enable and support industry-academic partnerships

Large incumbent firms have easy access to university-based research partnerships. Small- and medium-sized enterprises, on the other hand, struggle to gain similar access. Funding for industry-relevant problem labs structured akin to InnoCentive’s crowd-sourced problem-solving platform is a necessary next step.

Pursue disruption

Initiatives such as Peter Diamandis’s X-Prize Foundation and Elon Musk’s Hyperloop are examples of how the world’s best and brightest can be induced to take on seemingly impossible challenges. The dynamics set in train by these competitions generate teams and technologies that simply would not have existed otherwise.

How can Canada’s public and private sectors work together to generate sufficient scale to create this type of aspirational culture?

These are some ideas; there are certainly others. Developing a next generation of internationally literate graduates who understand global growth markets is one of them. So, too, is the incentivization of more angel-investor activity. And finally, better co-ordination across levels of government is a necessity for the above recommendations to take hold in a meaningful fashion.

Canadians proudly remember the Vancouver Olympics, where our athletes succeeded to an unprecedented degree under the uncharacteristically bold Own the Podium program. Can we own the podium in innovation and competitiveness? Potentially, yes. Canada has enormous resources – physical, intellectual, human, financial. Whether they are marshalled to provide world-class performance depends on one quality more than any other: leadership.

The decade under Stephen Harper’s Conservatives represented the promise and delivery of lower taxes and less government. Expectations were lowered and results followed accordingly.

Mr. Trudeau’s mantra of real change is a welcome start, but it requires immediate action. The world won’t wait. Neither should we.

WATERLOO — A slow-growth economy does not have to be Canada's destiny, and with the right plan this country can outperform the rest of the world, Navdeep Bains, the federal minister of innovation, science and economic development, says.

"In the past we relied on increased trade and high commodity prices to boost our economy, and we also relied on more people joining the workforce as well," Bains said Thursday during a keynote speech at the Waterloo Innovation Summit.

"But those options are no longer enough," Bains said in the speech at the University of Waterloo. "Today our economy faces new pressures."

Global companies are now local competitors as technology transforms work, play and education, he said. And the number of working-age people is shrinking and climate change demands different ways of meeting energy needs, he said.

"In the face of these challenges, low growth does not have to be our destiny," Bains said. "We do not have to accept these pressures as limitations. We can see them as opportunities and seize the future."

In the coming months, the Liberals will ask for expressions of interest from technology leaders for funding for strategic investments. Ottawa will be looking for the best opportunities for investments that drive innovation across different industries, Bains said.

"We have heard from Canadians that targeted, high-value investments will have greater impacts," he said. "That means we need to make strategic choices and we need to be guided by leaders like you."

Canada's economy is now ranked 22nd for business spending on research and development among the world's 34 advanced nations. With the right plan, one the Liberal government calls The Innovation Agenda, Bains said Canada can do better than any other country.

"Our vision is to make Canada a global centre for innovation, and our mission is to create good paying jobs that will grow the middle class," Bains said. "That's because Canada only thrives when the middle class thrives."

After winning the seat for Mississauga-Malton last year, Bains was appointed the country's first federal minister of innovation. The former adjunct lecturer at the University of Waterloo held 28 roundtable consultations across the country this summer to help prepare the government's Innovation Agenda.

"In total, we received more than 1,300 ideas on how to make Canada a global leader in innovation," Bains said.

Some of those ideas will make their way into the 2017 budget, he said.

The government identified three themes during its consultations — talent, financial support for promising startups that can scale, and diversity.

On talent, more people are needed in science-technology-engineering-math (STEM) programs, Bains said. More women, young people and indigenous people need to participate in the innovation economy.

"No country can afford to leave half of its brain power on the sidelines, it just makes no sense," Bains said. "And yet today, less than one in three computing and engineering graduates is a woman. That is just not good enough."

Promising startups need to scale into global markets because the Canadian market alone is not big enough, Bains said. He said the federal government can help by buying products and services from those startups.

"We can set aside a portion of our resources for startups with the most innovative solutions," he said. "We can provide these high-potential companies with the testing ground they need to refine their products and services."

Governments can a play a key role in driving innovation, he said. Nanotechnology, biotechnology and renewable energy exist today because government funded early stage research, he said.

Since taking power last fall, the Liberals say they have invested $2 billion in college and university campuses, and $900 million in support of cutting-edge research.

"One of those projects is right here at this university, our investment of $76 million will allow a prototype of a quantum computer to be built," Bains said, referring to the recent announcement of funding for research at the Mike & Ophelia Lazaridis-Quantum-Nano Centre.

Quantum computing could upend the science of computing and be a direct pipeline to the next, big breakthrough in technology, he said. "It could even plant the seeds for the next great companies to come right here from this region."

From 1961 to 2000, the economies of advanced countries expanded by an average of 2.5 per cent. Since 2000, growth has slumped to one per cent or less, David Fransen, chair of the Waterloo Innovation Summit, said in his welcoming remarks.

"It is a real problem and it is one that does not seem to be going away very quickly," Fransen said.

The Waterloo Innovation Summit is a partnership between UW and Communitech.

John Manley

John Manley left politics in 2004, but he didn’t stop shaping Canadian policy.

First elected as an MP in 1988, Manley held the portfolios of Industry, Foreign Affairs and Finance in the Liberals governments that ruled from 1993 to 2003. He also served as Deputy Prime Minister and chaired the Cabinet Committee on Public Security and Anti-terrorism following the September 11, 2001 attacks in the United States.

Today, he is president and chief executive officer of the Business Council of Canada, a 150-member organization whose membership includes the leaders of some of the country's biggest companies. On issues ranging from tax reform to post-secondary education — issues that have considerable sway in the Canadian economy — the Council usually has something to say.

And governments tend to lean in and listen.

On September 16, Manley will moderate a fireside chat involving Wealthsimple’s Michael Katchen and Power Corp.’s Paul Desmarais III at the Waterloo Innovation Summit.

Manley offered some thoughts as the Summit draws near.

Q: The theme for this year’s Summit is Innovation: The Growth Imperative. On a scale of 1-5, where would you rank Canada’s progress on developing an agile, idea-driven economy?

It’s probably about a three . . . One of things Canadians do well is start companies. Canada doesn’t have a startup problem; we have a scale-up problem. Part of that reflects the size of our market, and part of that reflects the fact that we have not done a good job of ensuring that as companies grow, they get the kind of patient investment capital, mentoring and network support they may need to become global businesses.

Too many of our successful entrepreneurs resort to taking their companies to Silicon Valley, or elsewhere in the U.S., in order to grow successfully.

Q: So what needs to change?

There are a couple of things we need to work on.

First up are initiatives like the Waterloo Innovation Summit, which are critical to bringing together all different parts of an innovation ecosystem.

Secondly, sometimes government creates obstacles. They make it difficult for Canadian early-stage companies to sell their products to the Canadian government. They reward small businesses for their small size and don’t give them support to scale up.

For example, if you need investment, and IPO your early-stage technology company, as soon as you are public company, your tax rate goes up on any profit, and you lose the “refundability” of your investment tax credits . . . If you accept the premise that our problem is scaling up, a tax system that rewards staying small is not what you want. Both on the procurement side and the tax-policy side, there are important things the government can do.

Q: Can you elaborate on the procurement issue?

I have had companies tell me they have spoken to (government) officials who say, “I have no mandate to help Canadian companies. I just buy what I know is not going to get me in trouble. I’m not going to try something new, just because it is made by a Canadian company.” Meanwhile, the Americans have whole programs around procurement that enable them to support early-stage companies.

If you’re trying to sell abroad, the first question is, “Has your government bought it?” If the answer is no, it suggests the product can’t be that good if you’re not even selling it to your own government.

Q: Companies have long talked about shortages of certain frontline skills. What about management?

What I hear from CEOs is that the challenge is finding Canadians who have international experience, and who are willing to get international experience by leaving the country. (Canada) measures up on many levels; we don’t equal up on people who have global experience. Canada is not a bad place to live and raise your family. But that also means we tend to be a little bit insular. So getting managers with global experience, and who are willing to live in China or Thailand or even Europe, has been a challenge.

Q: On the flip side, what role can Canadian immigration policy play in keeping pace with the needs of our innovation economy?

We’re doing a good job of bringing foreign students into our universities; but then one would ask why we don’t make it really easy for these foreign students to stay in Canada. They’ve got a Canadian credential. They are obviously smart. They are obviously risk-takers, because they have left home to come to a country far away.

Aren’t they the kind of people we’d like to have? So why not make it easy for them . . . We should be more open to skilled people coming into Canada, and get the point system up to modern standards. Once they’ve gone through (the current) system, they’ve lost interest in coming to Canada because it can take two or three years.

Q: How is the Business Council of Canada engaging with smaller, fast-rising entrepreneurs?

In the last couple years, we’ve begun to invite next-generation entrepreneurs to become members of the Council. It puts them in the company of the most senior, experienced business leaders in Canada, and they find mentors, supporters and even customers. For our regular membership, it gives the some exposure on the cutting edge of innovation and entrepreneurship.

We also founded an organization – the Business/Higher Education Roundtable – to encourage more collaboration between post-secondary institutions and the private sector. Too often, we’re talking about the same issues, but in complete isolation. Having the heads of universities, college and major private sector companies sitting around the same table to discuss things like research partnerships, encouraging entrepreneurship, and work-integrated learning is all part of building a more agile, innovative economy.