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I-CAN Innoventures Canada
Innovation is Impact
John McDougallPresident and CEO
Alberta Research Council Inc.November 2005
I-CAN Innoventures Canada
Innovation Goals• Jobs and GDP growth
– Grow and strengthen companies– Critical mass attracts and retains internationally
renowned HQP talent
• Efficiency and Productivity– Increased utilization of scarce human and capital
infrastructure– Investment into high priority, state-of-the art, high
impact, people, facilities and equipment
• Innovation culture and expertise
I-CAN Innoventures Canada
Five Myths• More research will make Canada more innovative.• More support to Canadian universities would
substantially increase innovation and commercialization.
• Canadian infrastructure is adequate to transform Canada into a leading innovative global economy.
• Canada is dominated by small companies and so must focus its innovation and commercialization efforts on SME’s. Canada has a host of early stage companies that should be commercial successes.
• There is a shortage of early stage funding in Canada.
I-CAN Innoventures Canada
Myth 1
More research will make Canada more innovative.
I-CAN Innoventures Canada
Where Innovation Comes from• New to world (10%)• New (to company) product lines (20%)• Additions to existing product lines (26%)• Improvements to existing products (26%)• Repositioning (new applications for existing
products) (7%)• Cost reductions through modification (11%).
The most successful products (profit wise) are new to firm and new to world.
(Source: Cooper)
Market-Pull (79% of successful innovation)Technology-Push (21% of successful innovation)
I-CAN Innoventures Canada
Reality 1
Successful innovation is driven 80% or more by markets and firms.
“Strong innovative companies move beyond the simple dichotomy of ‘market pull’ versus ‘technology push’ to embrace both sides of the equation.”
Conference Board of Canada
“Strong innovative companies move beyond the simple dichotomy of ‘market pull’ versus ‘technology push’ to embrace both sides of the equation.”
Conference Board of Canada
“Innovation is about commerce – meeting or creating market needs.”“Innovation is about commerce – meeting or creating market needs.”
I-CAN Innoventures Canada
Myth 2
More support to Canadian universities would substantially
increase innovation and commercialization.
I-CAN Innoventures Canada
Canada Bets on the Universities
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Private Non-profit
Higher Educ
Provl Govt
Federal Govt
I-CAN Innoventures Canada
It’s a High Risk Strategy
• “University research yields raw technology, results that cannot be directly commercialized because it is circuits, processes, components, etc.
• Usually further investment is required for scale-up, packaging, clinical studies, prototypes, testing, demonstration, etc.”
Ron Freedman, The Impact Group
“Canadian universities perform a larger share of national R&D than most G-7 countries and the share of university research funded by industry is also substantially higher than in any other country. Yet, Canadian is one of the weakest countries in generating benefits from innovation.”
New Brunswick Research and Productivity Centre
“Canadian universities perform a larger share of national R&D than most G-7 countries and the share of university research funded by industry is also substantially higher than in any other country. Yet, Canadian is one of the weakest countries in generating benefits from innovation.”
New Brunswick Research and Productivity Centre
I-CAN Innoventures Canada
Critical Differences
• Pharma and health innovation comes from universities because researchers live in teaching hospitals that give them market information.
• No other sectors look at universities for technology in that way.
Industrial R&D Reflects Receptor Capacity.
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ITC exNortel
In Canada, nearly 70% of industry funded R&D in 2002 was in ITC.
Statistics Canada
In Canada, nearly 70% of industry funded R&D in 2002 was in ITC.
Statistics Canada
Nortel
Receptor problem won’t be solved by pushing discovery infrastructure downstream.
I-CAN Innoventures Canada
Causes of failure (Source: Cooper)
• Technology push – 28%– Better mousetrap nobody wants
• No user benefits – 24%– Me-too product meets competitive brick wall
• One-up-man-ship – 13%– Competitor reaction foils launch
• Technical Dog – 15%– Won't work or performance inadequate
• Price Crunch – 13%– Price too high
• Ignorance – 7%
I-CAN Innoventures Canada
Reality 2
Academics will absorb whatever level of resource is provided.
Pushing university professors to become entrepreneurs distracts them from their basic
strengths and role.
I-CAN Innoventures Canada
Myth 3
There is adequate infrastructure to transform Canada into a leading
innovative global economy.
I-CAN Innoventures Canada
National Infrastructure• Universities, CIAR
– Basic & applied research
• NRC - Nutrino, Nint, Steacie, etc.– Big science institutes
• Government Labs – AFC, Env, NRCan, …– Sector specific R&D
• I-CAN – ARC, CRIQ, IRAP, ITC, RPC, SRC– Market based technology & product development
• R&D Intensive Enterprises– Product development and deployment
I-CAN Innoventures Canada
Canada’s Commercialization Gap
DISCOVER DEPLOY
Invent Adapt Adopt
Create Transform Use Diffuse
Commercialization Gap
DEVELOP, DESIGNand DEMONSTRATE
I-CAN Innoventures Canada
Reality 3
Canadian innovation infrastructure lacks critical mass for market
driven design, development and demonstration.
Ratio of industry to public sector investment in R&D in most innovative economies (Finland, Sweden, US) is 3 or 4 to 1.
Canada is currently considerably less at 2:1.
Ratio of industry to public sector investment in R&D in most innovative economies (Finland, Sweden, US) is 3 or 4 to 1.
Canada is currently considerably less at 2:1.
I-CAN Innoventures Canada
Myth 4
Canada is dominated by small companies and so must focus its innovation and commercialization
efforts on SME’s.
“Canada has a host of early stage companies that should be commercial successes.”
Corporate R&D in Canada – 2001R
&D
Exp
endi
ture
$3 M —
121 COMPANIES
Sales: $264 B AV $2.2 B
77.9% of Total
R&D: $1.74 B AV $14.4 M
13.3% of Total
R&D Intensity: 0.66%
120 COMPANIES
Sales: $72.8 B AV $607 M
21.5% of Total
R&D: $10.3 B AV $85.7 M
78.8% of Total
R&D Intensity: 14.1%
141 COMPANIES
Sales: $537 M AV $3.8 M
0.2% of Total
R&D: $903 M AV $6.4 M
6.9% of Total
R&D Intensity: 168.4% 139 COMPANIES
Sales: $1.34 B AV $9.5 M
0.4% of Total
R&D: $139 M AV $1.0 M
1.1% of Total
R&D Intensity: 10.4%
>0% 3% 50%
R&D Intensity (R&D Expenditure/Sales in %)(from Research Infosource Inc.)
“Only 228 firms in Canada currently have the size, R&D intensity and revenue to be R&D leaders.”
ITAC
“Only 228 firms in Canada currently have the size, R&D intensity and revenue to be R&D leaders.”
ITAC
I-CAN Innoventures Canada
Fundamental Challenges• Increasing product development, manufacturing and exports
by globally competitive Canadian enterprises.– Limited number of globally competitive innovative SME and manufacturing
enterprises.– SMEs have a lot to gain from research and innovation but are typically unwilling
to invest in perceived “high cost, low value” research without government help.
• Innovation intensive organizations spend 5-10% of sales on R&D.– $5 million R&D requires $50 – 100 million in new sales.
• SMEs require infrastructure to support innovation.– Innovation infrastructure requires patient capital to build, equip and
sustain it while business evolves to the new higher level of activity.– Thinly distributed innovation infrastructure and lack of critical mass in Canada
limits capacity to transform ideas into commercial reality.
I-CAN Innoventures Canada
Business Factors• Most companies plan to sell or be bought out. VCs
encourage early sale for a “quick exit”.• Government programs support R&D, but offer little marketing
and other business development support at home or abroad.• Working with Canadian regulatory agencies can pose
challenges compared to other countries.• CEOs of many R&D intensive firms lack necessary
knowledge and experience in commerce.• Post-secondary institutions pass on technical and scientific
knowledge, but do not prepare these graduates for human relationship challenges in marketing, sales and management.
I-CAN Innoventures Canada
Reality 4
Canada has a paucity of skilled entrepreneurs capable of transforming new ideas into products
and services that customers want.
For maximum impact, medium and large companies also need to play major roles.
“A narrow focus on the technology side of the enterprise rather than commerce, a shortage of people with management, marketing and sales skills,
and a societal distrust and suspicion towards commerce have created numerous challenges for CEOs of “greenhouse” firms.”
Barber and Crelinsten 2005
“A narrow focus on the technology side of the enterprise rather than commerce, a shortage of people with management, marketing and sales skills,
and a societal distrust and suspicion towards commerce have created numerous challenges for CEOs of “greenhouse” firms.”
Barber and Crelinsten 2005
I-CAN Innoventures Canada
Myth 5
There is a shortage of early stage funding.
Commercialization Elements
Function
Structure
Personnel
Finance
Infrastructure
Knowledge
Individual
Scientists
Grants
University
NBO’s Prototypes Products Markets
Teams Business
Engineers FinanceMarketing
Contracts Seed Venture DebtIRAP
Incubators
Development Labs
Corporation
BDC IPO
Cluster
ProductionSales
Sales
Engineers
Accelerators
Tech Transfer
Discovery Place Innovation Place Market Place
Colleges
PRO’s
I-CAN Innoventures Canada
Access to Capital• Sources of Capital
– Equity, loans, asset sales, cash flow, etc.
• Most R&D firms finance their operations from investors and lenders rather than sales.
• Access to capital is an issue when capital market fails to supply funds at terms acceptable to business borrowers.– The institutional supply of venture capital in Canada grew
dramatically in the 1990s.– It fell off in the past 5 years due to weak returns.
• Failure to provide funds may be legitimate.– Business may not be credit worthy for reasons including ability
to repay; commitment and character of proponents; prospects for the industry sector and availability of collateral.
Public Issues
Commercial BanksNon-Financial Corporations
Later Stage VC
Wealthy Family Funds
Private InvestorsFamily and Friends
Personal Savings
Seed & Early Stage VC
Government Programs
Chart 1.1 - Sources of Capital for Emerging Companies
Stage of Company Development
Stage 1 Stage 2 Stage 3
Knowledge Acquisition
Concept Investigation
BasicDesign
Prototype Building
Market Entry Manufacturing Ramp-up
Perceived Gap
Source: Davitech Consulting Inc., Report on Barriers to Technology Commercialization, July 1996
I-CAN Innoventures Canada
Risk Management Strategies
• New product game puts investment at risk with high levels of uncertainty.
• Risk management strategies poorly understood– High uncertainty limits amount that will be risked– Decreasing uncertainty leads to increased investment– All or nothing decisions often result in nothing– Pay for relevant information to reduce risk– Provide for "bail out" points– Build an experienced management team
• It’s all about building confidence.
I-CAN Innoventures Canada
Reality 5
There is an abundance of capital but it seeks “adequate” returns.
“Canada needs people who do commerce to win in the knowledge economy.” Barber and Crelinsten 2005
“Canada needs people who do commerce to win in the knowledge economy.” Barber and Crelinsten 2005
I-CAN Innoventures Canada
Summary• Innovation is driven 80% or more by markets
and firms.• Pushing professors to be entrepreneurs
distracts them from their basic strengths and role.
• Canada’s innovation infrastructure lacks critical mass for market driven design, development and demonstration.
• Canada has too few entrepreneurs capable of transforming new ideas into products and services that customers want. Medium and large companies will need to play major roles.
• Capital seeks “adequate” returns.
I-CAN Innoventures Canada
Fundamental Conclusions
• System Structure - OK– But pieces not working together
• System Balance – wrong– Subsidize technology for the rest of the world
• Focus – absent or misplaced– Market assessment and capacity to follow thru– Clusters – small scale or driven externally
• Culture - Canada is not the US• Management capacity and skills - weak
– Marketing, entrepreneurial management
• Capital – absent or unwilling?– Deal flow - weak
I-CAN Innoventures Canada
I-CAN will improve Canada’s ability to be a globally competitive
innovative economy.
I-CAN Innoventures Canada
I-CAN will improve the balance
DISCOVER DEPLOY
Invent Adapt Adopt
Create Transform Use Diffuse
Commercialization Gap
DEVELOP, DESIGNand DEMONSTRATE
I-CAN Innoventures Canada
Advanced Materials Manufacturing in Alberta –
Innovation, Invention and Investment
Ron R. Wallace, Ph.D.Vice-Chairman,
Ceramic Protection CorporationInnoWest, November 16, 2005
I-CAN Innoventures Canada
“The realities of the market today – intense international competition, the rapid pace of technological development, and the ease
with which investment and knowledge flow around the world – mean it is more
important than ever for companies to strengthen competitive capabilities based
on productivity and innovation.”Canadian Manufacturers and Exporters, August 1, 2001
I-CAN Innoventures Canada
Outline
• Accomplishments of Ceramic Protection Corporation
• Role of the Alberta Research Council
• Lessons learned
I-CAN Innoventures Canada
Accomplishments
• Ceramic Protection Corporation– Founded in Calgary by venture capital
investors – 1989– TSX-Venture Exchange – 1996– Toronto Stock Exchange – 2005
• Technological innovations in advanced materials manufacturing, focused in wear management and defense markets
I-CAN Innoventures Canada
5.334.13
3.56
6.54 6.32
8.28
11.78
9.36
16.32
13.45
3.995
109
14
12
14
17
24
31
28
33
0
5
10
15
20
25
30
35
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2 moN/D
Q1 Q2
2003 2004 2005
Quarter
Sales (Millions)
Earnings Per Share(cents)
Quarterly Sales & Earnings
I-CAN Innoventures Canada
ARC – Helping Companies Grow
• ARC instrumental in development of advanced ceramic materials technology and manufacturing in Canada:– Entered Joint Research Venture with ARC to
develop technologies, stabilize manufacturing processes and make ballistic tiles and plates
– Developed methodologies for certification of mechanical properties of ballistic ceramics
– Received first and only Canadian acceptance from Canadian Army and other industrial end users for ballistic testing and certification
I-CAN Innoventures Canada
Role of Alberta Research Council
• ARC provided basic research and applied materials testing, allowing material breakthroughs
• Acquisition of highly skilled professionals by ARC was first and most important step in developing a public R&D capability for advanced ceramics in the province
I-CAN Innoventures Canada
Factors in Successful Collaboration• Funding higher education
– Canada not included in world’s top universities – Global competition fierce and growing
• Enhancing innovation by attracting highly-skilled personnel– Canada well placed to succeed
• Policy development in support of enhanced R&D– Include impact of high taxes and judicial and
regulatory factors– May have received less than urgent consideration at
the national level.
I-CAN Innoventures Canada
Lessons Learned
• “Economists now recognize that 80% or more of long-term economic growth is driven by technological innovation.” Josty (2003)
• National Summit on Innovation and Learning (2002) recommended priorities for Government of Canada:– Ensure decision making for new and existing
policies and regulatory priorities– Ensure that Canada’s business taxation regime is
internationally competitive– Brand Canada as a location of choice
I-CAN Innoventures Canada
Myths Surrounding Innovation
• Increasing spending on R&D will increase innovation capacity
• Most innovative ideas emanate from R&D
• Innovation is an investment or ‘input’ game – more money provides more innovation competitiveness
I-CAN Innoventures Canada
Alberta Ahead in Innovation Game
• Experience of CPC, ARC a predictable outcome of the policies for taxation, investment and innovation already at work in Alberta:– Substantial investments in university and government
research sectors– Many highly skilled immigrants making Alberta a
destination of choice– Alberta renowned for its enlightened corporate
taxation and favoured treatment of entrepreneurs
I-CAN Innoventures Canada
Alberta Advantage Working
• As demonstrated by the CPC/ARC case study:– Alberta-based firm achieved material technological
advances in manufacturing for US export market– Acquired a US-based manufacturer – Maintained corporate presence in Canada– Achieved enhanced listing on a Canadian exchange– Provided notable returns to investors
• Pool of venture funds and investment capital has increased in Alberta
I-CAN Innoventures Canada
Canadian Model
• Canadian Chamber of Commerce in September:– Recommended corporate taxation rate be cut
from 21% to 20% in 2006, with a further 1% reduction in each of following three years to attract business
– Noted Canada’s productivity climbed an average of .9% per annum since 2000, as compared with 3.5% in the US
I-CAN Innoventures Canada
Productivity Gap = Income Gap
“As expenditures are increasingly channeled into less and less productive activities, it has a negative impact on economic growth….”
Canadian Chamber of Commerce
I-CAN Innoventures Canada
Local Wealth True Measure of Success
Economic experience of Alberta and agencies like ARC demonstrates the potential outcomes of adopting more enlightened policies for research and innovation
I-CAN Innoventures Canada
Acknowledgements
• Alberta Research Council Inc./Joint Research Venture Program– Dr. Partho Sarkar– Dr. John Zhou– Ms. Karen Beliveau
• National Research Council/Industrial Research Assistance Program (IRAP):– Mr. Roger Woods– Mr. Alex Dixon– Mr. Andy Gilliland
I-CAN Innoventures Canada
Helping Canadian Companies Become Globally Competitive
Trevor Cornell
Chief Operating Officer, Manitoba Industrial Technology Centre
I-CAN Innoventures Canada
Manitoba Manufacturing Sector• Largest industrial sector
• Approximately 13% GDP
• Diverse – aerospace, food, apparel, furniture, buses….
• Approximately 1500 manufacturers
• 85% employ < 50 staff
I-CAN Innoventures Canada
Sector Challenges• Productivity (2002) 7th among
provinces• Productivity growth (10 year
average) ranked 8th in Canada
• Rapid exchange rate change• Increasing offshore
competition• Skills shortages
I-CAN Innoventures Canada
Manitoba’s Imperatives• Improved R&D for
products/processes• Increased product
commercialization• Adoption of new (existing)
technologies• Introduction of best
practices• Improved staff skills at all
levels
I-CAN Innoventures Canada
Initiatives
• Advanced Manufacturing Initiative (AMI)– Managed by CME– Lean training– Establish company consortia– Share best practices– Publish “productivity”
information– Promote careers in
manufacturing
I-CAN Innoventures Canada
Initiatives (cont’d)
• Research and Innovation Fund• Smartpark at
University of Manitoba– TR Labs– Composites Innovation Centre– Industrial Technology Centre
• Product design/development• Prototyping/testing
– Vehicle Technology Centre
I-CAN Innoventures Canada
ITC Services
• Product design/development
• Virtual reality/simulation • Vibration analysis• Noise analysis• Testing• Calibration• Inspection
I-CAN Innoventures Canada
ITC (cont’d)
• SCC and CLAS
accreditation
• ISO 9001 registered
• Manufacturing sector
focus
• Product development
• Process improvements
I-CAN Innoventures Canada
I-CAN• Easier access to technical services across
Western Canada• Better links between service providers• Comprehensive database of services
available across provinces• Seamless and effective network
I-CAN Innoventures Canada
I-CANWill help companies• Improve products/processes• Improve productivity• Become globally competitive
I-CAN Innoventures Canada
Helping Canadian CompaniesBecome Globally Competitive
Laurier L. Schramm, President and CEOSaskatchewan Research Council
“Applied Research – Making Technology Happen”
Laurier L. Schramm
Saskatchewan Research Council
I-CAN Innoventures Canada
• Technology and business evaluations
• Full cycle product development and support
• Rapid prototyping, pilot-testing
• Intellectual property management
• Commercialization
Inventors, Entrepreneurs, SMEs
Laurier L. Schramm
Saskatchewan Research Council
I-CAN Innoventures Canada
Doepker Industries
• SRC services for Doepker:– Manufacturing assessment
studies, – Action plan for improvements,– Development of training
processes,– Management information
systems,– On-going productivity support
• Doepker has now grown and diversified:– Multiple plants (Canada and
US)– Product diversification,– Entry into global markets
Laurier L. Schramm
Saskatchewan Research Council
• Doepker Industries is a leading manufacturer of highway trailers in Western Canada.
I-CAN Innoventures Canada
Impact Audit Reports
Laurier L. Schramm
Saskatchewan Research Council
“SRC’s involvement helped us identify
and implement changes faster than we could have done ourselves – those
changes then allowed us to
weather an industry-wide downturn.”
Dave DoepkerDoepker Industries
I-CAN Innoventures Canada
Manufacturing Sector
• E-Zeewrap 1000 dispenser product
• Product development and design
• Decreased manufacturing costs 75%
• Sold across North America
Laurier L. Schramm
Saskatchewan Research Council
“SRC redesigned the E‑ZEEWRAP
dispenser from metal to injection molded
plastic. This helped decrease our
manufacturing costs by 75 per cent.”
Jim Scharf, PresidentJim Scharf Holdings
I-CAN Innoventures Canada
Manufacturing Sector
Laurier L. Schramm
Saskatchewan Research Council
• Acutec Systems Ltd. • Problem: level detection in
oilfield tanks• Solution: an automated
electromechanical gauge • Public spin-off formed:
– TSX Venture Exchange
– Titan Logix Corp.
• Continuing to work with Acutec on products to convert digital data and analog signals to voice
“SRC is a valuable resource. They took
us from concept through to product development, and
helped us through the whole process.”
John Grimes, President
Acutec Systems Ltd.
I-CAN Innoventures Canada
Larger Company Support
Spanning all key strategic economic sectors:• Agriculture and Biotechnology• Health• Energy and Energy Conservation• Mining and Minerals• Manufacturing and Value-Added
Processing
Collaboration, partnership, consortia,
joint ventures, subsidiaries
Laurier L. Schramm
Saskatchewan Research Council
I-CAN Innoventures Canada
Oil and Gas Sector
• Improved heavy oil recovery process
• Reduced energy and water demands
• Consortium approach coordinated through PTRC and supported by Nexen, Husky, CNRL, and governments
• Synergies and leverage in combining the unique RD&D strengths of SRC and ARC
Laurier L. Schramm
Saskatchewan Research Council
I-CAN Innoventures Canada
Oil and Gas Sector
• Solvent vapour processes are highly field-specific and therefore RD&D intensive
• “Size of the prize” is large:– Heavy oil resource > 26 B
bbls– Incremental recovery of 20%– Avoid over 400 M tonnes of
CO2 emission– Sequester ~175 M tonnes of
CO2– Avoid ~2 B bbls of fresh water
• Collaboration is the key• Exportable Canadian technology
Laurier L. Schramm
Saskatchewan Research Council
I-CAN Innoventures Canada
I-CAN Partners Help Build Competitive Advantage
I-CAN member organizations work with business and industry– Individual inventors and entrepreneurs,– Small and medium size enterprises,– Major enterprises
To provide:– Increased production– Added value– Improved productivity– New products and services– Competitive advantage, globally!
Laurier L. Schramm
Saskatchewan Research Council