Innovation Canada: A Call to Action

The Context of the Reviewdevelopment incentives may even be sufficientlyattractive to induce a shift over time in abusiness’s strategy toward a greater focus oninnovation.Business Innovation:Beyond R&DInnovation occurs throughout the economy, inall sectors and in firms of all sizes. Consequently,business innovation involves much more thanR&D. This is abundantly clear in the OECD’sdefinition of innovation cited earlier and inBox 2.1. Innovation is found not only, or evenprimarily, in sectors associated with hightechnology, although the effective use oftechnology continues to be a key driver ofinnovation and productivity growth in moderneconomies. Even in sectors where R&D isprevalent, many innovations are developedwithout it. For example, based on survey datafrom 22 countries (including Canada’smanufacturing sector), a recent OECD reportindicates that “a large share of firms developtheir process, product, organizational ormarketing innovations without carrying outany formal R&D. This holds true even fornew-to-market innovators who successfullyintroduce innovations regarded as‘technological’” (OECD 2010a, p. 23).Research and development is nevertheless ofdisproportionate significance for the economy,since it contributes in an essential way toinnovation in many of the most dynamic firmsand sectors that are at the leading edge of globalgrowth and value creation — for example, firmsthat either produce or intensively use pervasivetechnologies like ICT, biotechnology andadvanced materials. There is usually a closerelationship between activities that are heavilyknowledge based and those that require R&D.Business expenditure on R&D also correlatesstrongly with other standard indicators ofinnovation such as patents, exports oftechnology-intensive products and employmentof people with advanced education. Moreover,the economic benefit of R&D spending is rarelyconfined to the R&D performer alone, andinstead “spills over” to other firms, thusamplifying the economic impact. For all of thesereasons, a thorough survey of the literature bythe US Congressional Budget Office concludedthat “a consensus has formed around the viewthat R&D spending has a significantly positiveeffect on productivity growth,” while allowingthat it is difficult to quantify the effect precisely(2005, p. 1).The Panel, consistent with its mandate toaddress business R&D in the larger context ofinnovation, considered not only thosegovernment programs that foster increasedbusiness R&D investment directly, but also thosethat support the key factors that complementR&D in a firm’s innovation strategy. These arecaptured in Figure 2.4 as the four categoriesof enabling inputs needed to implement aninnovation strategy in cases where R&D is akey component. The four complementaryinnovation inputs are:ideas and knowledge that underpininnovationtalented, educated and entrepreneurialpeople whose imagination and energy drivethe development and implementation ofinnovative business strategiesnetworks, collaborations and linkages thatenable innovation partners to pool staff andresources, and to share information, risks andcostscapital and financing that help entrepreneursbuild a bridge between their innovative ideasand commercial viability.This review is focussed on federal initiatives tohelp businesses develop or access each of theseinputs. To set the context for the Panel’s findingsand recommendations in subsequent chapters,what follows is a discussion of the four2-11