Innovation Canada: A Call to Action

Innovation Canada: A Call to ActionBox 2.1 Types of Innovation andTheir Support by GovernmentThe Oslo Manual (OECD and Eurostat 2005) defines innovation broadly to encompass product,process, organization and market innovation. This four-part typology is elaborated upon by Lynchand Sheikh (2011) as follows.Product innovation. New products (whether goods or services) that move up the value-addedchain or are first to market typically carry higher profit margins because they face less costcompetition than standardized products. New information and communication technologydevices and software or new (pre-generic) pharmaceuticals are typical examples. Productinnovation can be the result of R&D and/or of aggregating existing leading technologies in anew way that better meets customer demands, as illustrated, for example, by the “smartphone” (wireless telephony, GPS, email, camera, etc.).Process innovation. The objective is to change how products are produced and delivered toreduce cost and/or to increase convenience for users. Topical examples include development ofglobal supply chains, and Internet-based shopping. Many Canadian manufacturers have provento be adept “plant floor” process innovators — for example, Canadian auto plants are regularlyrated among the most productive in North America. Innovation by Canadian natural resourcescompanies — in oil and gas, mining and forest products — has also focussed mainly onprocesses as distinct from the development of advanced machinery for resources production orleading-edge products derived from natural resources. A spectacular example of Canadianprocess innovation is the “steam-assisted gravity drainage” (SAGD) method for bitumenrecovery from oil sands.Organization innovation. The capacity to convert creativity, technology and knowledge aboutcustomers into marketable innovations requires a corporate focus on how to best organize andmanage for innovation. Successful business innovation requires the integration of humancapital management and training, technology management and strategic management intostructures that are “innovation supportive.”Market innovation. Examples include entering a new geographical market (e.g., a high-growthemerging market like China, India or Brazil), or addressing a market in an entirely new way(e.g., via the Internet or a smart phone channel). This can shift a firm from fighting for marketshare in existing markets to a temporary “monopoly” position for its particular product in thenew market.Innovations in product, process and market will usually require complementary innovationin organizational form and behaviour in order to be fully effective. While all four types ofbusiness innovation are potentially mutually reinforcing, most government programs thatsupport business innovation address directly product and process innovation and, morespecifically, R&D and related investment in appropriately trained people, as well as risksharing for investment in innovative early-stage companies. (The latter are usually builtaround a novel product or process.)Organizational innovation is highly specific to an individual firm and therefore does not lenditself to direct support by government programs, although such innovation may be fosteredindirectly by any policy or program that encourages business innovation generally. Marketinnovation is also usually firm specific, although there is scope here for government programsupport, particularly to facilitate access to important new geographic markets.2-2