Industrial Research and Canada’s Innovation Strategy

How can the performance of Canada’s innovation system be improved?  Increasing our nation’s industrial research capabilities is proposed as a viable means to improve the operation and outcomes of our innovation eco-system.

Sub-par performance in the growth of Canada’s real GDP per capita, labour productivity and trade in advanced industries is acknowledged.  For example, recent comparisons highlight the decline in our national income per capita – we are now ranked below Alabama, the fourth poorest state in the US.  Ongoing and substantial public investments in our innovation system are not yielding the outcomes we seek. 

What do we aspire to accomplish through the operation of an effective innovation system?  In broad terms a fully functional innovation system converts the ideas and concepts derived from scientific inquiry and creative exploration into social, environmental and economic value.  

Canada has proven strengths in generating new and improved ideas, techniques, technologies and processes.  This first stage is the condition precedent of innovation.  An effective innovation system proceeds to enable the transformation of these ideas into products, services and solutions that create value recognized by the market and the social benefits generated by tackling national challenges, such as epidemics, the proliferation of wildfires and insidious cyberattacks.  

It is in this second stage in the innovation process where we need to pull up our socks – the transformation of ideas and concepts into solutions to tangible problems.  This stage of work begins with rigorous market validation, identification of market gaps and definition of ‘product/market fit.’  These efforts are complemented by an evaluation of the social good that is created.  Building upon this foundation, the fundamental work then required to achieve this transformation is in the domain of industrial research. 

What exactly is ‘industrial research?’  It is the category of research or investigation conducted to acquire and apply the knowledge and skills needed to develop new products, processes or services, combined with efforts to significantly improve existing products, processes or services.  Industrial research is systematic and deliberate work undertaken in laboratories or on the shop floor – it is the iterative proto-typing, testing, operational design, system analysis, evaluation and fine tuning that enables the acceleration of product development, de-risking and scaling of production, and integration into existing systems of products, code and processes.  Industrial research converts discoveries and inventions produced by individuals and academic research into commercial grade products and services.  

The bottom line is that successful innovation depends upon execution and industrial research enables effective execution.  

How then can increasing our industrial research capabilities make a difference – contribute to improving the outcomes of our innovation system?  

In Canada, industrial research is undertaken by Research and Technology Organizations, agencies that bridge the gap between the worlds of academe and the private sector.  Working in collaboration with corporate clients and diverse agencies they undertake contracted work and services that generate up to 75% of their funding.  With a mission and market-oriented mandate they focus on delivering economic development outcomes and public good.  They work in the zone that seeks to strike a balance between a bottom-up approach of discovery inspired, scholarly research and a top-down approach that employs targeted, challenge-based research agenda.  In addition, by providing opportunities to corporate partners to leverage their research investments, RTO’s provide incentives to increase research funding by businesses.  The decline of R&D spending as a share of GDP over the past two decades is a trend we need to confront.

RTOs play a crucial role in fostering innovation success as they address targeted agendas, integrate and facilitate the work of industry and universities, and stimulate alignment of funding between collaborators.  In essence they bridge top down and bottom up approaches, the gap in the design of innovation systems that is addressed effectively in other countries such as Germany, Norway and Japan.  Indeed, RTO’s are key components of the innovation strategy of many countries, with recognizable players that include: NASA, DARPA, NIST (USA), Fraunhofer (Germany), VTT (Finland) CEA (France), Catapult Centres (UK), ITRI (Taiwan) and SINTEF (Norway).

Canada has a network of eight Research Technology organizations that span the country.  In 2022, they employed over 5,500 highly qualified scientists, engineers, technologists and administrative staff and provided R&D and technology commercialization services to more than four thousand client companies. Analyses undertaken by these RTO’s show that they generate economic impact in the range of 7 to 12 times the value of their R&D contracts.  This economic impact is complemented by the contribution that enabling the adaptation, adoption and diffusion of new technologies and techniques across the economy makes to improving labour productivity in Canada.

Clearly, RTO’s are viable and constructive players in our innovation eco-system.  How can RTO’s be enabled to make more of a positive impact?

Most Canadian RTO’s are not fully integrated into the national innovation system.  While an important member of the Canadian RTO network, NRC – Canada’s national research laboratories – is in a distinct category.  Other RTO’s receive no core federal funding (unlike counterparts in other countries); they largely have a regional or sectoral focus, derive the bulk of their funding from provincial governments and contracted projects and services to corporate clients and are not explicitly aligned with national priorities.  With a hybrid mandate of improving economic development and generating public good, they are opportunity-driven, strive to work at the pace of the market and are subject to organic ebb and flow of revenues that constrain long-term strategic planning.  Notwithstanding their deep expertise and breadth of industrial connections, for the most part RTO’s are not fully embedded in the architecture of our national innovation strategy

Noted commentators corroborate the importance of invigorating Canada’s industrial research game.  For example, in his 2022 paper, Growth, Innovation and the Organization of Science Policy in Canada, Robert Asselin recommended that, “Canada needs to build industrial research capacity at scale in innovative or advanced industries where it has structural strength; biosciences, energy, agriculture and advanced manufacturing are good examples.”

RTO’s across Canada are working to strengthen our industrial research capabilities and amplify the economic benefits generated.  To this end, they seek to contribute to building a national innovation system that is focused on delivering tangible results in market-relevant timeframes with partners that have identified challenges that need to be solved.  Given the contribution industrial research has made and the promise it offers, the role and work of Research and Technology Organizations needs to be incorporated into any thorough review of Canada’s innovation system.

1. The Economist, September 30, 2024