Dr Margaret Dalziel

A New Approach to Government "Help"

By Dr Margaret Dalziel

The more things change, the more they stay the same. The fact that we have a new government doesn't change the fact that Canadian firms must continue to innovate to survive in today's highly competitive global markets. But how does a government that's committed to non-interventionism "help" firms innovate? It turns out that firms themselves have designed the solution.

When companies need to organize themselves to get things done, they create non-profit organizations ranging from 4th pillar organizations (e.g. CMC Microsystems, MaRS, Paprican) to industry associations to economic development organizations - sometimes with government assistance and sometimes without it. Non-profit organizations facilitate knowledge sharing and joint action, and they connect companies to resources and opportunities outside their immediate purview.

Non-profit organizations have impact but our federal government has thus far failed to recognize or fully leverage their unique capabilities. I suggest that a strategic and systematic approach to funding innovation-enabling, non-profit organizations will allow the federal government to promote innovation, productivity, and competitiveness across a diverse range of industries and geographic regions.

In terms of impact, Statistics Canada data show that innovative firms turn to nonprofit industry associations for ideas up to 9.5 times more frequently than they turn to federal government research institutes and up to 4.4 times more frequently than they turn to universities. Statistics Canada didn't ask about economic development organizations and 4th pillar organizations are too few in number to show up in the data.

One explanation for these surprising numbers is that, since something like 99% of Canadian firms don't conduct research, they can hardly be expected to turn to universities and federal government research institutes for ideas. But it turns out that the pattern is the same, even for firms that do conduct research. Firms with R&D personnel cite industry associations as important sources of ideas an average of 6 times more frequently than they cite federal government research institutes, and an average of 2.4 times more frequently than they cite universities.

The real explanation for why firms turn to industry associations for important ideas is that industry associations bring them together with their peers to address their problems in their timeframes. That is, industry associations can contribute unique value to Canadian firms by virtue of their being designed by and for them. The same is true of other types of innovation-enabling non-profits. Despite their intentions to be industrially relevant, universities and federal government research institutes are necessarily driven by their own important agendas.

INNOVATION FOUNDATION FOR NON-PROFITS REQUIRED

In view of the unique abilities of non-profits to contribute to innovation, a strategic and systematic approach to their funding is in order. This can be achieved through a national, competitive, peer-reviewed pro-cess that provides funding to non-profits on the basis of excellence. It would be a nonprofit innovation foundation, modeled after the research granting councils for university researchers, and it would solicit program proposals and fund the best ones. Programs would run for between two and five years, and government contributions might range from the tens of thousands for modest regional initiatives, to the tens of millions for strategic national initiatives. Matching contributions from industry would likely be a requirement.

The primary benefit of a national strategic approach to funding non-profit innovation enablers is that it will recognize and legitimize their unique capabilities, empowering them to contribute more strongly to Canadian firms.

A second benefit is that by making the funding process competitive, the best organizations will get increased resources while less able organizations will be motivated to adapt. Competition is what drives firms to innovate and the same principle will apply to non-profit organizations. The population of non-profit organizations will not necessarily increase in size, but its evolution will be accelerated.

A third benefit is efficiency. Non-profits are small, resource-strapped organizations. Last year, BC Biotech, the industry association responsible for the promotion of Vancouver's burgeoning biotechnology industry, had to raise funds from 28 different organizations to fund its participation at Bio 2005 in Philadelphia. This four-person organization, with no annual government operational support, had to raise funds from 15 private sector firms and 13 other organizations including PEMD (International Trade Canada's Program for Export Market Development), Industry Canada, Western Economic Diversification, British Columbia's provincial government and the Vancouver Economic Development Commission. Isn't there a better way for such an organization to spend its time?

Such an initiative would not require new government funds, as the federal government already distributes hundreds of millions of dollars to non-profits each year. Much of the funding is awarded through the regional economic development agencies such as the Atlantic Canada Opportunities Agency (ACOA) and Canada Economic Development for Quebec Regions (CED-Q), but many other government departments and agencies are also involved.

But the current approach is resource intensive and unpredictable for the non-profit organizations. Taxpayers should be concerned by the lack of transparency, the inefficiency, and by the fact that there are no mechanisms in place to allow the various funding programs to learn from one another. Most importantly, we have no way of knowing if the most effective organizations are getting funded because the process is not competitive on a national level.

For our economy to be as innovative as possible, all players must contribute according to their abilities. But non-profit organizations have been unduly overlooked as important contributors. By developing a strategic and systematic approach to funding non-profit innovation enablers, the federal government can promote innovation in a way that is industry-driven, transparent, and efficient.

Dr Margaret Dalziel is an assistant professor in the School of Management at the University of Ottawa. Her research focuses on interorganizational relations in technology intensive industries.