Innovation Canada: A Call to Action

The Context of the ReviewInnovation andBusiness StrategyWhat influences the decision of an enterprise tomake innovation the core of its competitivestrategy? What leads some firms and not othersto look constantly for ways to create or enternew markets, to develop new or improvedproducts, to tolerate the disruption ofintroducing more efficient processes andorganization, and to take the (calculated) risksthat innovation always involves? Although thereis no consensus on all the factors that come intoplay, the Panel adopted, as a workinghypothesis, a modified version of the logicmodel developed by the CCA’s Expert Panel onBusiness Innovation (Figure 2.4). According tothis view, a firm’s decision on whether (or not)to adopt an innovation-based strategy dependsprincipally on the following six broad factors,the relative importance of which will vary withthe firm’s specific circumstances.Market opportunities. A successful businessstrategy depends, first and foremost, on anunderstanding of the needs of the customerand the related identification of marketopportunity. Business strategies focussed oninnovation constantly seek better ways tomeet existing customer needs — for example,the overnight courier — or ways to stimulateentirely new sources of demand — forexample, the smart phone.Structural characteristics. Is the firm in asector that is traditionally innovation oriented,such as biotech or computers, or is it involvedin the provision of a more standard productor service? Is the firm a subsidiary of a foreigncompany that conducts most R&D abroad?Does the firm sell its product to the end-user,or does it provide an intermediate input —for example, lightly processed resources —in a global value chain?Competitive intensity. Must the firmcontinuously innovate to survive because itprovides a product or service driven byevolving customer tastes? Is the firm active ina market (domestic or foreign) that is exposedto intense global competition and musttherefore innovate to survive and prosper?Climate for new ventures. Is the firm partof an innovation cluster in which there is areadily available supply of sophisticatedventure financing, cutting-edge knowledge,highly skilled graduates and other firms withcomplementary expertise?Public policies. Are legal and regulatoryframeworks and policies — for example, inareas such as competition, corporate taxation,bankruptcy and intellectual property —conducive, or not, to business innovation?Business ambition. What is the corporateculture of the firm? To what extent is it riskaverse? To what extent is it dedicated toexpansion?It is beyond the scope of this review to addressall of these factors. The Panel’s mandate isfocussed on federal government supportprograms for R&D that is undertaken bybusiness or that is commercially oriented. Theeffectiveness of that support will neverthelessdepend ultimately on the extent to whichbusinesses in Canada are motivated to adoptinnovation-based business strategies thatrequire R&D to be performed. In this regard,competitive intensity provides the strongestmotivation overall. In business, the “necessity”created by competition is often the “mother” ofinnovation. The Panel’s advice in this review willtherefore have much more impact on Canada’seconomic performance if it is complemented bya suite of policies to foster competition asrecommended by the Competition Policy ReviewPanel (2008), also known as the “Wilson panel”(see Annex B). That panel pointed to severalsectors that remain buffered from competitionby various regulations, including restrictive2-9