Paul Johnston

A Business Plan for Canada

By Paul Johnston

Speaking at the Ontario Economic Leadership Summit on October 25th, Finance minister Jim Flaherty suggested that the government might begin work on a "business plan" for Canada. What would such a plan look like? It would have to be expressed clearly and succinctly and in a way that would have shareholders - taxpayers and foreign investors - saying: "Yes! I want to be part of this. This is where I will put my next dollar."

No long lists of this and that. No elaborate frameworks. No talk of jurisdictions or mandates or coordination. No new theoretical constructs. No assumptions that if a few conditions are right, certain things will "happen". It would be a straight-forward statement, stimulated by opportunity, laying out an aggressive, focused plan to make things happen by targeting resources where modest investments will deliver attractive returns to shareholders.

It would use language such as markets, competition, products, partnerships, investment, leverage, people and priorities. It would recognize with determination that a smart R&D plan - driven by opportunity and vision, not pre-occupied with costs - is essential. It would recognize that to be a market leader, you need to do more, or do better, or do differently, than the competition - that opting for passive frameworks and waiting for cues from the competition are not enough. It would recognize that the success of the business called Canada depends on the decisions of individual people, founded on knowledge, relationships, and confidence about their ability to turn risky propositions into commercial successes.

"The Government will develop a broad-based agenda to promote a more competitive, productive Canada." These words, from the 2006 Federal Budget, raise many questions. What are the elements of a "broad-based agenda"? Knowing increased productivity and competitiveness are built on innovation, how can we stimulate increased business investment in R&D? How can we improve the payoffs from research dollars? How can we grow our high-tech companies and keep them in Canada? If we had one more dollar for innovation, or commercialization, or science and technology, or whatever we choose to call it, how would we invest it? Where would this dollar deliver its broadest impact on industrial R&D and productivity?

A SWOT (strengths, weaknesses, opportunities, and threats) analysis would reveal that the business of Canada is in pretty good shape. But where do we go from here? What targets will our business plan contain? What will Canada look like in 10 years?

We have the fundamentals right. Our social and institutional capital - education system, academic research, social services, and governance - are clear strengths. We need to keep them strong. Some things need improvement, including the intellectual property regimes of universities and government laboratories, and some regulations. Our opportunity is to be among the world leaders in the development and application of advanced technologies. We are threatened by developments elsewhere in the world where others are undercutting us in areas such as labour costs and outpacing us on investment in emerging areas.

We need to improve Canada's industrial "R&D department". Today, in 2006, it comes up short. We are great at pioneering new discoveries and expanding knowledge, but not so great at making the follow-on investments to further develop ideas and turn them into commercial successes.

We have one of the world's most generous R&D tax credit regimes. It contributes positively to the business environment, but there is a chorus of voices calling for improvements. We need to be confident that its design will result in increased private sector R&D investments, beyond simply reducing business costs.

These tax credits are intended, in part, to deal with the well-documented gap between research and the marketplace, referred to by some as the "Valley of Death". This is where public money begins to pull out, because the returns are increasingly appropriated by private interests. But private money is not yet fully committed, and has a tendency to retreat over time, because the risks are very high.

What is needed to get across the Valley? Will business environment measures such as tax policy and regulatory reform, along with continued support for academic research, do the job? They are a first-order priority in our business plan, but are they sufficient?

In fact, tax incentives alone will not help a company that is under performing on R&D to venture into the uncharted territory of the Valley, to overcome "cultural" barriers, or to strike up a productive relationship with a university or college or government laboratory. Nor will they connect companies with top students with relevant skills and create long-term relationships. Will more money for university research cause a company to know that being a market leader requires a level of R&D investment that puts it ahead of the competition, and to see how it can achieve this edge through collaboration with customers, universities, colleges and government laboratories?

International competition, Canada's strengths, recent evidence, and common sense applied in the current environment suggest that the next dollar applied to a business plan for Canada should complement business environment measures by:

* promoting technologies with the broadest impacts;

* allowing market demand to drive investments, with leadership from industry-based technology developers and their customers;

* maximizing leverage through collaboration and sharing;

* offering support to industry that goes beyond just money;

* targeting the Valley of Death; and

* building lasting relationships through organizations that bridge the Valley.

In a business plan for Canada, let's continue to improve the fundamentals. But let's focus more attention on how to ensure those fundamentals work together more efficiently. Let's drive resources - private and public - to the interface among industry and business, universities and colleges, and governments. Let's build bridges - linkages, collaborations and leverage - to pull knowledge and technologies across the Valley. We know how to do this. Let's get on with it.

Paul Johnston is president and CEO, Precarn Inc

Author's Note: While I take full responsibility for the opinions expressed, I must thank the people here at Precarn for their ideas, drafting and editing.