Category: Round Tables

1FINANCIAL SERVICE CLUSTERS IN CANADA

A well-functioning financial services sector is vital because it serves critical functions in our society. The sector is also economically important in its own right, directly employing 780,000 Canadians and accounting for 6.8 per cent of Canadian GDP in 2014, according to data from the Conference Board of Canada. By far the largest cluster of financial services firms is in the Toronto area, and they account for 32.3 per cent of Canada’s financial services employment. Nearly one worker in twelve in the metro Toronto area is directly employed by the financial services industry, which accounts for 13.2 per cent of the area’s GDP. Typically, Toronto is included in Top 10 rankings of global financial centres, with the Global Financial Centres Index ranking the city eighth in the world.¹ Toronto’s financial sector also has substantial links to Waterloo’s tech sector, and the two are often considered part of the same GTA-KW nance ecosystem.² Financial Technology (known as fintech) investments are growing rapidly in Canada, with OMERS Ventures reporting that 100 fintech start-ups in Canada have collectively raised more than $1 billion in funding since 2010.³

2INNOVATION IN THE FINANCIAL SERVICES INDUSTRY

The term “innovation” has mixed connotations in the financial services industry. While innovation can boost productivity and living standards, financial innovations, such as loan securitization, tranched securities and credit default swaps, are seen as having played a role in the U.S. financial crisis of 2007-2008.⁴ Beck et. al. found that while increased financial innovation is correlated with higher GDP growth, it is also correlated with economic volatility and bank fragility.⁵ As such, there is a stronger link between innovation and regulation than in most industries. Regulators need to ensure an environment is created in which beneficial innovations are not being stifled while at the same time consumers are protected and systemic macroeconomic risk is guarded against.

3PAST STUDIES OF CANADIAN FINANCIAL SERVICES INNOVATION

We are not the first researchers to examine the state of innovation in Canada’s financial services industry. Past Canadian examinations include:
Conference Board of Canada (2015): The Conference Board found that despite strong financial performance relative to its international peers, the Canadian financial sector was a productivity laggard. While Canadian financial companies scored quite well on input-based measures of innovation, these inputs were not manifesting themselves in labour productivity growth.

McDonald-Laurier (2014): The report discusses the number of different regulators in Canada that financial rms must answer to and raises worries about a lack of policy coherence between regulators. The authors recommend that the federal government create a “world-class Financial Innovation Institute whose mandate would be to identify, back and promote the adoption of the ‘new’ and put Canada at the forefront of 21st-century financial institutional leadership.”

Munk (2011): There are some issues around the linkages between the financial sector and the Information and Communications Technology (ICT) sector highlighted by this study. Concerns are raised that Canadian financial institutions are not protecting their intellectual property to the same degree as their American counterparts and that the U.S. Patriot Act is causing issues for Canada’s financial sector. Not all is gloomy, however, as the report discusses some comparative advantages the Toronto cluster has over international competitors, including “strong physical infrastructure in terms of the transportation network and a first-rate airport … as well as a competitive research infrastructure in terms of the presence of world-class universities and community colleges.”

Munk (2015): A three-sentence paragraph of the report does an excellent job of summarizing the ndings of the paper: “While the GTA has all the necessary components for a dynamic and thriving ntech ecosystem, they are weakly linked. The consequence is that the parts do not currently add up to an e ective ecosystem. In short: we have many of the essential parts, but are missing the system.” The reasons cited for the lack of an e ective ecosystem include the need to go to the U.S. for an adequate level of funding for ntech rms to scale up, the lack of a national securities regulator, di culty getting regulatory approval in every province and the lack of inexpensive incubator centres. One interviewee cited coordination as being a problem: “There are few forums to connect. There are lots of products, campuses, financial institutions, and start-ups in the GTA, but it is hard to see a forum for all these people to come together.”⁶

4WHAT OUR ROUNDTABLE TOLD US

Canada 2020 made its way to Bay Street in Toronto and assembled a group of financial industry experts, from government, non-governmental organizations, big banks and ntech startups. Some themes emerged in our two-hour conversation.
Market structure and incentives: When asked, “What is the biggest barrier to innovation in Cana- da’s financial sector?” a common answer was the structure of the industry and the incentives that it creates. Canada’s financial sector is dominated by six big banks. Due to the oligopolistic nature of the industry (caused, in part, by high barriers to entry), Canada’s Big Six are more pro table than similarly sized banks in other countries. Combined, Canada’s six largest banks earned $35 billion in pro t last year.⁷ In the view of some start-ups, this creates an incentive for the banks to ght disruptive innova- tions, as those disruptions put oligopolistic pro ts at risk. However, the counter-argument was given that the banks recognize that these innovations are inevitable, so the banks have an incentive to be active participants, rather than facing challenges from outside, such as from global players like Google and Apple.

Stability versus innovation: Innovation is a tricky concept in the financial services industry since innovations are seen as playing a role in the financial crisis of 2008. The roundtable unanimously recognized that regulators have an important role in protecting consumers as well as in protecting the integrity of the financial system from systemic risks. It was recognized that regulators have the near-impossible task of nding a way to protect the system while not sti ing useful innovations and keeping abreast of rapidly changing technologies.

A concern was raised that regulators are judged solely on their ability to prevent “bad things from happening,” which comes at a cost of innovation. One participant gave an analogy of judging road-safety regulatory bodies solely on the number of crashes, saying their response would be to “[make] all roads ve miles per hour.” A suggestion was made that financial industry regulators be given a dual mandate of consumer protection and innovation development.

“LOOKING BACK, WE WERE VERY LUCKY WE RAISED MONEY BEFORE WE HAD WRITTEN CODE …
WE SPENT THREE TIMES AS MUCH ON LEGAL AND REGULATORY COMPLIANCE AS WE DID ON IT.”

The bulk of industry regulation applies equally to big banks and financial start-ups. Some members of the roundtable questioned whether this is always appropriate, given that the failure of small players does not create the systemic risk that the failure of a big bank would. The idea of a “regulatory sand- box,” a tool used from Singapore to the United Kingdom, was discussed. The sandbox would allow ntech companies that remained under a speci ed size to face a reduced set of regulations. Given that one of our ntech participants spent three times the amount of money on regulatory research as on writing html code, and another spent their first $25,000 entirely on researching regulations, such an idea has a natural appeal. One participant was concerned that the sandbox could create a wall that would prevent rms from growing past a certain size, and might deter venture capital investment if the venture capitalists thought there was a chance the rm would not be able to one day “play outside the sandbox.”

Cultural barriers to innovation: A concern was raised that Canadian investors and managers may be too risk averse to be full participants in a highly innovative industry. As one participant put it, “[In Canadian MBA programs] there’s not a lot on how to take risk … . In [New York], the mentality of grads out of the U.S. is to take risks. There’s an acceptance that if you do that and fail that’s OK. In Cana- da, there’s stigma around failure.” A suggestion was made that foreign investors from countries with higher appetites for risk, such as China, may be able to ll some of the financial (but not necessarily managerial) gaps.

Immigration issues: If there are talent (or cultural) gaps in the system, immigration might o er an answer. However, one roundtable participant noted that it takes so long to bring executive-level talent into Canada under the Temporary Foreign Worker Program that a candidate will have typically moved on to other opportunities by the time their application is approved.

Access-to-capital gaps: Members of the roundtable stressed the importance of looking at the entire life-cycle of a ntech company when discussing possible gaps in access to capital. The consensus was that seed funding for good ideas was available through angel investors and family members; as one participant put it, “There’s no shortage of people willing to write $50,000 cheques.” The bigger chal- lenge appears to be nding enough money to reach scale, with our ntech roundtable reporting that
it is more di cult to nd second-round funding than it is first. Canadian venture capitalists were seen as requiring higher rates of return or lower risk than their U.S. and Chinese counterparts, and there was a perceived talent gap between the quality of Canadian and American venture capitalists. Fintech companies partnering with banks was seen as an option, though there were concerns that accessing capital this way would come with too many restrictions. As one ntech start-up put it, “The challenge is allowing ntech to ourish while you’re in the hug of a big bank. The problem is I’d be dead in a year because I couldn’t go as fast as I need to go.”

Collaboration: Members of our roundtable saw increased collaboration as a way to increase innova- tion in the sector. One participant felt that there were tighter ties between the investment and ntech start-up communities in the United States, which allowed for information sharing and the building of trust and stated, “Interaction, sharing ideas among startups, isn’t something you get a sense of in Canada. We need a safe spot for founder-to-founder, investor-to-investor interactions.” Increasing interactions was seen as a way to identify gaps in the industry’s ecosystem and help match startups with investors. Some members of the roundtable felt that interactions between regulators and ntech start-ups were vital, while others believed that there was “no upside for [us] to talk to regulators.”

One participant called their interactions with regulators “unsatisfactory,” and described a typical interaction: They receive a letter from a regulator asking for information to determine whether or not they are compliance with a certain rule or regulation. A lawyer drafts a reply, at a cost of $5,000. The regulator determines the startup is in compliance, but doesn’t bother to let them know. Conversely, if the regulator determines the startup is not in compliance, they receive another letter, hire the lawyer to write a reply, and wait to nd out whether the regulator’s response will be silence or another letter.” One recommendation for an improved industry-to-regulator relationship is increased collaboration be- tween companies, which would allow them to speak in a single voice through the publishing of industry letters, white papers and other means. As one regulator described the current situation, “Government hears so many voices and has to prioritize.”

“IF REGULATORY BARRIERS AND OTHER INNOVATION ROADBLOCKS ARE IGNORED, THERE’S GOING TO BE LESS CAPITAL IN THE SYSTEM. IF THE MESSAGE BROADLY TO THE INVESTMENT COMMUNITY IS, WE DON’T WANT TO… HELP ENTREPRENEURS BUILD UP THEIR BUSINESSES OR WE WANT TO PUT REGULATORY ROADBLOCKS IN THE WAY, [INVESTORS WILL WONDER HOW THEY CAN INVEST IN A BUSINESS THAT CAN’T SUCCEED IN THIS COUNTRY.”

Final thoughts: Overall, the roundtable saw fantastic innovation potential in Toronto’s financial services industry thanks to banks that compete on the international stage and a critical mass of skilled graduates between Waterloo and Toronto. Increased innovation would bene t consumers, by giving them additional choices, more convenience, greater access to capital and lower costs when choosing financial products. A failure to innovate would see the pro table parts of the industry swallowed up by large U.S. players, with Canadian banks largely becoming commodity producers.

1 All data from the Conference Board report: Financial Services – an Engine for Growth 2015
2 One such example is the Munk School report Current State of Financial Technology Innovation.
3 Remarks by Carolyn Wilkins, Deputy Governor of the Bank of Canada
4 Financial Innovation and the Financial Crisis of 2007-2008 http://jerrydwyer.com/pdf/innovation.pdf
5 Financial Innovation: The Bright and the Dark Sides http://www.efa2012.org/papers/t1d2.pdf
6 Munk School – Current State of Financial Technology Innovation, page 16
7 http://www.cbc.ca/news/business/bank-pro ts-rise-1.3348661

1CULTURAL AND DIGITAL CREATIVE CLUSTERS IN CANADA

Creative industries, such as the arts and video-game manufacturing, have become an important sector of the economy in Canada and globally.

Action Canada, a national fellowship program with a focus on Canadian public policy, notes that the cultural sector in Canada was worth more than $84 billion in 2007, which was more than the insurance industry, the hotel and restaurant industry, or the agriculture, forestry, hunting and shing industries combined¹. There are more than in 1.1 million jobs in this sector².

Industries and organizations that make up Canada’s creative sector include: advertising, architecture, craft, design, fashion, television, information technology, software, publishing, museums, galleries, libraries, plus the performing and visual arts. Canadian brands in many of these industries are very strong and globally known³.

2INNOVATION IN THE CULTURAL AND DIGITAL CREATIVE INDUSTRY

Action Canada notes that Canadian innovation policy generally focuses on innovation in the hard sci- ences. Given the importance of the creative industries, it calls for an innovation policy that focuses on innovation within the creative industries.

Edgar Cowan noted in the Globe and Mail that Canada’s creative industries could be “an ideal gateway to a long-term strategy for improving our competitiveness and our capacity for innovation, leading to a more certain, sustainable future economy.⁴” The Ontario Innovation Agenda unveiled in 2008 included a focus on innovation in the creative industries in an attempt to “foster innovation, create good jobs and address the persistent challenge of lagging productivity.⁵”

The publishing industry has struggled with innovation in some areas, but has been successful in others. For example, it has “embraced digital technology for internal work ow processes, for supply chain systems and processes, and for marketing and sales.⁶”

3PAST STUDIES OF CULTURAL AND DIGITAL CREATIVE INNOVATION

There are a few examinations of innovation in the Canadian creative industries:

Action Canada (2014): This report asked the question, “How can we better leverage the competitive strengths of our creative industries to create a more prosperous nation?” The authors noted that the creative industries are important components of the Canadian economy and that Canada needs to develop policies on innovation within the creative industries to keep pace. The authors recommended the creation of a Canadian Council for Creativity that would promote creativity in business, public poli- cy and education in order to encourage all sectors to embrace creative skills. They also recommended the creation of a Year of Creativity in Canada to encourage people to see the role of creativity in innovation.

Hilchie (2006): Jayson Hilchie noted in an article for the Hu ngton Post that video-game development in Canada contributes $3 billion to the GDP. Canadians in video-game development have pushed the boundaries of interactive digital entertainment through innovations in “computational and techno- logical power, the complexity of level design, the rendering of 3D graphics and the immersion of the gameplay experience.” He calls for Canada to focus on talent development and retention, including leveraging both education and immigration to allow the seamless and e cient movement of highly skilled workers in the technology elds.

Castledale (2008): This report on the book publishing industry in Ontario noted the inability of the province’s (Canada’s?) Industry to take advantage of economies of scale as occurs in the U.S. At the time, Canada published about 16,000 new English language titles a year while the U.S. published some 300,000. The report, commissioned by the Ontario Media Development Corporation Book Industry Advisory Committee, noted the dramatic changes that digital technology was triggering in book publishing. The report also noted that the industry needed help both in terms of capital and technical expertise to participate and innovate while becoming more competitive.

Newman (2008): The Ontario Ministry of Tourism and Culture commissioned a report examining what Ontario public libraries will look like and the service they will o er in 2020. They reported that public libraries are very innovative in terms of how they “respond to a new social, technological and economic environment.” Libraries and librarians use innovative practices and services, such as o ering digital access to books, partnering with provincial and federal governments to o er programs, and hosting maker-spaces within their buildings, to meet the changing needs of their patrons and communities. This report highlighted the role libraries have in helping communities access and create innovations.

4WHAT OUR ROUNDTABLE TOLD US

The Canada 2020 team headed east to Halifax and assembled a roundtable of some of the best arts and creative minds in the Maritimes. Our meeting at the Nova Scotia College of Art and Design’s Port Campus at Pier 21 brought together stakeholders in the lm, music, publishing and gaming industries, along with representatives from NGOs and government. Here is what they told us:

Importance of cross-sector collaboration: Many members of our roundtable talked about the importance of having writers, musicians, animators, programmers and lmmakers all within the same ecosystem, as it takes dozens of di erent skills to develop a product. One participant indicated that if one of those areas becomes weak, the whole ecosystem “falls apart.” But our stakeholders felt there was the need for further collaboration. One member suggested the importance of business graduates and artists speaking the same language, and felt there was bene t from business students taking arts courses and arts students taking business courses. Another added that Canadian postsecondary institutions we need to “bring arts, science and digital media together. You can’t be in silos all the time. We talk about STEM – it should really be STEAM (including Arts).”

Talent retention: Getting talented young people to stay in Halifax was seen as an issue, with one participant stating that “we don’t have a problem attracting people to our universities, the problem
is getting them to stay.” Roundtable participants believed that students left Halifax not because they were looking for more money, but they were rather looking for more excitement. As one stakeholder described it, “We have to remember that a 22-year-old wants excitement, not job security and a health-care system … What they think about is, ‘Where can I go that’s sexy, cool and exciting?’” Improving Halifax’s image and quality of life was seen as the way to retain additional young workers. Another participant said young people had a misleading picture of the Halifax economy because when the economic data they were presented with related to the province as a whole. In fact, economic growth in the city substantially exceeds that of the rest of the province. However, one participant indicated that job prospects were uneven in the arts sector, with some portions of the ecosystem featuring limited job prospects and high unemployment.

Quality of life: Good infrastructure and good government policy decisions were seen as important to generating the quality of life needed to retain talent. As one roundtable participant described it, “Young people say, ‘I won’t live here without bike lanes,’ or a train. It is easy for government to talk about industrial innovation, harder to keep in mind the creative end. I feel like the freeze in arts funding is hurting us. We cannot lose sight of things like co-op art galleries and the like, because they create marketability. This is the stu that people miss when they move to a smaller city.” Others indicated that there were bene ts to being in a smaller centre, adding, “It is important to think about the scrappiness and DIY factor in Halifax. When we grow, we will lose part of that.” Finally, one participant felt Halifax should ensure it not enact policies that would make the cluster too homogenized, adding, “We’ve worked to support our aboriginal community, our African-Canadian community and our Gaelic community. How do you create a policy discussion without losing sight of that quilt-work?”

Immigration and talent attraction: Some components of the ecosystem, particularly gaming, need to rely on immigration to ll roles. But as one participant put it, immigration can add jobs to the local ecosystem instead of taking jobs from it: “Our struggle is in nding talent. We’ve been lucky nding people locally, but each time we recruit for speci c positions, it’s a struggle. We have to rely on immigration, but understanding and applying Canada’s immigration programs require resources. Innovation brings value to individuals or business, but it also gives brings value back to the community.”

Some roundtable members said they were hesitant to hire foreign graduates of local schools, con- cerned the federal government would not allow them to remain in the country when their Post-Grad- uation Work Permit expired. The organizations did not want to hire and train workers if they did not believe they had a reasonable chance of retaining them.

As one participant described it, “International talent wants to stay. The immigration paperwork is di cult for international recent graduates, and a lot of employers are nervous about work visas. There is a lot of misunderstanding about immigration and work visas, and a lot of paperwork. People want to stay, but there is a lot of red tape.”

Navigating the immigration system was seen as an issue for small- and medium-sized businesses in Halifax, which does not have the network of experienced immigration lawyers that a larger centre like Toronto has. Finally, one participant indicated that the issue was not just young workers, and the barriers are as much cultural as they are regulatory: “There is a lot of focus on youth, but we are looking also for mid-level and senior staff. Jobseekers are looking for more opportunities. Attitude and quality of place is de nitely part of it.”

Final thoughts: Given the size of the Halifax market, it was not surprising to see roundtable participants emphasize “brain drain” more than those in some of our other roundtables. In general, roundtable participants placed a great deal of emphasis on the di culty of navigating funding and regulatory systems and the lack of resources to assist them in the local ecosystem. In particular, the lack of stable program funding was cited as a particular irritant, as it made it di cult for organizations to make long-term plans. Despite all of this, the mood of the roundtable was upbeat, and there was a great deal of energy in the room and substantial optimism about the future of the local cluster.

“WE SHOULD SEE CULTURE AS A FOURTH PILLAR OF SUSTAINABILITY – AS WELL AS SOCIAL, ENVIRONMENT AND ECONOMIC SUSTAINABILITY. WHEN WE TALK ABOUT INNOVATION, WE DEFAULT TO IT AS AN ECONOMIC ISSUE, BUT IT’S ALSO IMPORTANT TO LOOK AT SOCIAL INNOVATION, ENGAGING CITIZENS. THERE IS A TWO-WAY RELATIONSHIP – HOW DO WE LEVERAGE INDUSTRIES, AND HOW DO WE ENSURE ARTS, CULTURE AND CREATIVE ORGANIZATIONS CAN LEVERAGE THE POTENTIAL OF BROAD SECTORS.”

1 (Action Canada, 2014) Creativity Unleashed: Taking innovation out of the laboratory and into the labour force
2 (Cowan, Edgar, 2015) The Global and Mail, Canada’s creative industries can lead the economic challenge, http://www.theglobeandmail.com/report-on-business/rob-commentary/canadas-creative-industries-can-lead-the-economic-charge/article25236146/
3 (Cowan, Edgar, 2015) The Global and Mail, Canada’s creative industries can lead the economic challenge
4 (Cowan, Edgar, 2015) The Global and Mail, Canada’s creative industries can lead the economic challenge
5 (Castledale, 2008) Ontario Media Development Corporation Book Industry Advisory Committee, A Strategic Study for the Book Publishing Industry in Ontario
6 (Castledale, 2008) Ontario Media Development Corporation Book Industry Advisory Committee, A Strategic Study for the Book Publishing Industry in Ontario

1AGRICULTURE AND AGRI-FOOD CLUSTERS IN CANADA

The Canadian agriculture and agri-food sector plays an important role in the Canadian economy and cannot be ignored when we investigate innovation opportunities. The combination of continued population growth, climate change and changing demands from the marketplace make this economic sector rich with possibilities.²¹ The agriculture and agri-food sector generated $103.5 billion in 2012, which accounted for 6.7 per cent of GDP. Overall, an estimated half of all primary production in the Canadian agriculture and agri-food sector is sold for export, making Canada the world’s fifth-largest exporter.²² Canada is a world leader when it comes to agriculture, as it has nearly 70 million hectares of farmland and seven per cent of the world’s renewable fresh water resources. Even as the consolidation of farms continues, Canada’s average farm size is now larger than the U.S.’s and Brazil’s. Farming has become steadily more capital intensive.²³

The Cluster Atlas identifies nineteen separate geographic agricultural clusters across Canada; only the construction industry, at 22, has more clusters across the country.²⁴ Nearly half of the country’s agricultural clusters are found in Ontario, with Brantford, Centre Wellington, Chatham-Kent, Guelph, Kawartha Lakes, Kitchener-Waterloo, Leamington, Norfolk and St. Catharines-Niagara all cited as having active agriculture clusters, with Kitchener-Waterloo’s being the largest with 9,449 people employed in 2011. The remaining clusters are equally split between Quebec (Drummondville, Granby, Saint-Hyacinthe, Saint-Jean-sur-Richelieu and Victoriaville) and Western Canada (Abbotsford-Mission, Brandon, Chilliwack, Lethbridge and Saskatoon).

The food and beverage processing portion of the agri-food sector is the country’s largest manufacturing sector by employment, with more than 245,000 people employed in it in 2013. In 2013, capital investments in this sector rose seven per cent to $1.8 billion.²⁵ The Cluster Atlas identifies fifteen distinct food and beverage clusters across Canada, with two in Eastern Canada (Moncton and St. John’s), four in Quebec (Granby, Montreal, Saint-Hyacinthe and Saint-Jean-sur-Richelieu), six in Ontario (Belleville, Brantford, Hamilton, Kitchener-Waterloo, London and Toronto) and three in Western Canada (Abbotsford-Mission, Lethbridge and Vancouver). The Atlas breaks down the food and beverage processing industry into twelve sub-industries, as shown below.

2Innovation in the Agri-food Industry

The June 2014 Senate report on agriculture noted the importance of innovation in the agriculture and agri-food sector in Canada: “Despite Canada’s wealth of arable land and water, Canadian farmers today can produce more food with fewer resources. This productivity is made possible by the discovery and adoption of research-driven new technologies and processes.”²⁶

At the same time, chronic unprofitability within the agriculture sector in Canada,²⁷ combined with increased international competition and a lack of innovation, has many calling for rethinking how the Canadian agriculture and agri-food sector is approached. This project started with an analysis of several high-profile reports into the Canadian agriculture and agri-food sector.

3Past Studies of Agri-food Innovation

We are not the first researchers to examine the state of innovation in Canada’s Agriculture and Agri-food sector. Past Canadian examinations include:

Standing Senate Committee on Agriculture and Forestry (2014): This committee investigated the state of research and innovation in the Canadian agriculture and agri-food sector. They called for an emphasis on both quality agri-food products and product differentiation. While they note the successful role of the government in creating an environment that encourages innovation in Canada, they highlight several areas of concern. First, they note that the government needs to strengthen and improve the regulatory framework within Canada to strengthen the approval process for new products, modernize animal health and disease control regulations, bolster IP protection and harmonize regulations at an international level. Second, they call for the government to adopt a long-term vision with government support for research and innovation work. Third, they call for an increase in partnerships and collaboration within the industry and an elimination of barriers at both the national and international levels in relation to innovation partnerships. Fourth, they call for the professional development of workers in agriculture and agri-food sectors to allow these workers and the public to take full advantage of innovation opportunities.

Agriculture and Agri-food Canada (2015): The report discusses the current trends and emerging opportunities for innovation available to the food processing industry. The piece highlights changes in consumer preferences due to shifting demographics, environmental concerns, a desire for more information and a need for convenience foods. It then discusses the resulting opportunities for innovation, including the use of innovative ingredients, and emerging technologies, including food processing and preservation technologies and technologies related to food quality and safety. The piece ends by calling for further research and analysis of the opportunities.

Ashton, Richards and Woods (2015): Innovation in food processing companies is examined in this report. It uses three cases to investigate the type of innovations occurring in these firms, the involvement in the innovation throughout the supply chain, the length of time for the innovation to be realized and the nature of growth that resulted from the innovation. They found that all three companies investigated had seven or more innovations in various states of completion. These innovations were primarily product innovations and process innovations. All three companies used supply chain partners outside of their companies to aid in the development of their innovations. The innovations were divided, almost equally, between being short and intense and long and continuous. Six types of growth were identified in these three cases, including growth as an increasing share of the existing market or expanding the size of the market, growth as remaining competitive or increasing efficiency and growth as creating new companies or increasing employment.

Canadian Agri-Food Policy Institute (2011): This report starts with the premise that “Canada is not realizing the full potential of a major strategic asset – the country’s agri-food sector.” It calls for a united approach throughout the country with short-term goals strategically created to meet the long-term goal of becoming “the world’s leading producer of nutritious and safe foods produced in a sustainable, profitable manner.” They call for a systems-based approach in which all agri-food stakeholders work together. They propose a five-part solution including a centre for good food citizenship, food system smart innovation, food system risk management, leadership in sustainability, and enabling regulatory change.

4What Our Roundtable Told Us

The day after our Kitchener technology industry roundtable, we headed northeast on Highway 7 to Guelph, Ont., where we met some of Canada’s leading experts in the agriculture and agri-food industry. Here is what they told us:

Efficacy requirements: The need, in some cases, to prove not just the safety of a product but its efficacy was seen by some at the roundtable as a barrier to innovation. One roundtable participant described the barriers created by efficacy requirements: “In some cases, Ontario agri-technology start-ups are launching their products in the United States instead of Canada since it is faster and the markets are bigger. These companies are enjoying millions in sales and Canadian farmers do not have access to the technology, even though Canadian taxpayers helped fund the innovations through various grants and loans over several years. We could solve this problem by harmonizing regulations with the U.S.A. and realizing we are too small to demand sovereignty in everything. There is no evidence to suggest the U.S. regulatory system is vastly inferior to ours. As was mentioned by others today, our onerous efficacy requirement is parental in nature and means that commercializing these innovations can take about three years longer in Canada. We have already harmonized important areas like human and environmental safety. Getting rid of the efficacy requirement does not seem to be too much to ask.”

Regulatory coherence: Roundtable participants discussed the incredible complexity of the agriculture and agri-food regulatory environment and said how difficult it can be for small- and medium-sized companies to navigate. They felt that agri-food manufacturers have a particularly difficult time navigating the system, because they have feet in both the agricultural and industrial worlds. One roundtable participant gave an anecdote of an agri-food manufacturer looking for government assistance to commercialize a potentially breakthrough innovation. “We don’t deal with manufacturing, you need to talk to industry,” they were told by agriculture regulators. Industry regulators offered a similar response, saying, “We don’t deal with agriculture.”

Regulatory mindset: A few members of our roundtable felt that to be the biggest regulatory barrier was the goal of regulators. As one participant put it, “The government needs to shift out of its parental mindset. The mindset is protectionist, slow and safe. It is problem-oriented, rather than potentialoriented. If we want to be the most trusted system in the world, then the way we create policy needs to change.”

Provincial barriers to innovation: One roundtable participant described the challenges as follows: “In one program, we are required to use a provincial body to be our agent to access funds from the federal government, so innovation becomes parochial. We must always try to force-fit innovation into an Ontario scenario. True innovation knows no borders. The vast majority of possible innovations in agriculture will serve the interests of all provinces and ideally multiple countries. If they can’t, then it is unlikely any will be of a size that matters. And yet, one of the filters we use to assess if we can take on an innovation is whether it will mainly benefit Ontario agriculture. This occurs while at the same time the federal government is encouraging us to expand nationally outside of Ontario. In other words, we are funded by federal money administered by a province and the province wants innovation to be provincially-focused while the feds wants us to expand nationally.”

Funding gaps: Funding issues, beyond provincialism, were also identified. One participant suggested that Canada should take lessons from Israel, where government programs ensure funding for companies at every single lifecycle stage and there are active supports to help innovators navigate commercialization. Another suggested that the way that funds are allocated for multi-year projects needs to be more flexible; the money is allocated equally each year in some programs, but companies typically have much greater needs in a project’s middle years than in the early and later years. On average, roundtable members supported funding models that put decision-making at the local level. Infrastructure gaps: The lack of rural access to broadband internet was seen as a hindrance to innovation for farmers and small agri-food companies: It impedes the adoption of the “internet of things” technologies, the acquisition of new techniques and methods, and access to foreign markets. One roundtable member suggested that Canada does not do enough to learn from best practices around the world.

Final thoughts: Overall, the roundtable’s consensus was that agri-food needs to be recognized as a strategic sector for the country. The global challenges of a rising world population and climate change create a world of opportunities for Canadian agriculture and agri-food companies. But Canada will only fully capitalize on its potential if we have innovative, entrepreneurial companies, embrace the changes brought on by a big data revolution and get the regulatory regime right.

21 Agriculture and Agri-food Canada, 2015
22 Global Investment Attraction Group, 2014
23 Global Investment Attraction Group, 2014
24 Spencer, 2014. Automotive is tied with agriculture with 19.
25 Global Investment Attraction Group, 2014
26 Standing Senate Committee on Agriculture and Forestry, 2014
27 Canadian Agri-Food Policy Institute, 2011

1LIFE SCIENCES CLUSTERS IN CANADA

There are some life sciences clusters across the country, with roughly half residing in Ontario. A 2003 report by Simon Fraser University’s Centre for Policy Research on Science and Technology identifies Halifax, London, Montreal, Ottawa, Saskatoon, Toronto and Vancouver as the seven communities with life sciences clusters in Canada.¹¹ Other communities have emerging life sciences sectors as well; a 2014 report by the Hamilton Chamber of Commerce makes a compelling argument that their city has all the necessary ingredients for a sustainable life sciences ecosystem.¹² Life Sciences Ontario has estimated that, in 2014, 83,000 Ontarians worked for life sciences firms (under one definition of “life sciences”), generating more than $40 billion in revenue for Ontario’s life sciences industry.¹³ The Cluster Atlas of Canada identifies seven metropolitan areas as having life sciences clusters (Hamilton, Kitchener-Cambridge-Waterloo, Montreal, Quebec City, Toronto, Vancouver and Winnipeg), with Toronto’s cluster of 43,810 workers (in 2011) being the largest in terms of employment. The report author’s definition of the life sciences includes the map of the ecosystem seen below:¹⁴

2INNOVATION IN THE LIFE SCIENCES INDUSTRY

Concerns about the pace of innovation in the life sciences industry have made their way to the mainstreammedia, with one 2015 Globe and Mail headline going as far as asking, “Why is Canada’s life sciences sector flatlining?”¹⁵ The Globe piece indicates that while by many input measures, such as peer-reviewed research papers, Toronto’s cluster is doing quite well, this does not manifest itself in a significant number of large publicly traded companies. Eric Reguly, the author of the Globe piece, believes that this is due, in part, to advantages commodity industries have over the life sciences, and argues that the flow-through shares model used in many commodity industries should be allowed in the life sciences.

The Expert Panel on Innovation also notes the disproportionately large number of small- and medium- sized enterprises in Canada’s life sciences ecosystem. It does note that Canada’s sector scores very well on many dimensions, as the nation is a top-10 competitor in pharmaceuticals and a top-5 in biotechnology. In the generic pharmaceutical industry, both Montreal and Toronto are significant players on the global stage. Similar to the Globe and Mail article, the expert panel notes that although in many areas research has been successful, much of the commercial exploitation takes place outside of Canada.

3PAST STUDIES OF CANADIAN LIFE SCIENCES INNOVATION

Recent studies of innovation in Canada’s life sciences industry include:

Advisory Panel on Healthcare Innovation (2015): Although this comprehensive study focuses on the larger issue of health care, there are some recommendations applicable to the life sciences industry, which include:

1. Federal-provincial collaboration in identifying and accelerating the adoption of potentially disruptive technologies that benefit patients and provide value for money.
2. Support the spread and scale-up measures to improve procurement through the Healthcare Innovation Agency of Canada.
3. Develop a federal strategy for the sector, which would aid companies in the commercialization of products, attract foreign investment to the field, use procurement to aid “high-impact innovations” and encourage the greater availability of capital.
4. Accelerate regulatory harmonization with the U.S. and provide advice and a road map of government policies to assist small- and medium-sized enterprises.

BIOTECanada (2013): The highlight of BIOTECanada’s 2013 paper is that access to capital is the “missing ingredient” to the success of Canada’s life sciences clusters. Their respondents advocate that governments “facilitate access to risk capital” for the life sciences sectors. Due to the difficulty of accessing capital, firms are looking to licensing agreements or mergers and acquisitions as a way to grow, rather than growing through firm-level investments.

Council of Canadian Academies (2009): As part of its Expert Panel on Business Innovation, the council examines the life sciences as a case study and provides four broad conclusions:

1. While government research and development funding may be a necessary condition for success in the life sciences, it is not a sufficient one, as other factors play a role.
2. Government policies in the life sciences must be coherent between various public sector actors.
3. Given the long time frame between the discovery of a product and the introduction of that product to market, investors in the life sciences, private or public, must show unusually high levels of patience as well as “deep industry knowledge.”
4. There is a role for public policies to increase links between industry participants given the high level of specialization in the life sciences ecosystem. They give the examples of linking companies with universities and research centres that have “great ideas, but few links to the marketplace.”

Gertler and Vinodrai (2009): In a study published in European Planning Studies, Gertler and Vinodrai examine the life sciences clusters in Canada’s three largest metropolitan areas (Montreal,  Toronto and Vancouver) and three mid-sized centres (Ottawa, Saskatoon and Halifax) to determine how life sciences clusters emerge. There are some common themes in their analysis:

1. Path-dependency is critical and life sciences clusters emerged with the help of pre-existing strengths (and are not created out of whole cloth).
2. The “dominant actor leading the process of cluster emergence and dependence” differed from cluster to cluster. As such, there does not appear to be a “one-size-fits-all” model of cluster development in the life sciences.
3. Diverse life sciences clusters have lower levels of volatility than clusters that are concentrated in a small subset of the life sciences.
4. Public policies influence the success of the life sciences through some different mechanisms, including investments in research labs, provincial health-care expenditures and local economic development and technology transfer offices.
5. Universities and colleges do not always play the leading role in the formation and growth of life sciences clusters, despite the conventional wisdom to the contrary. Gertler and Vinodrai highlight the critically important roles that these institutions play in the development and attraction of life sciences talent to the local labour market.

Life Sciences Ontario (2014): In this “state-of-the-nation” paper, four challenges are identified for Ontario’s life sciences industry. First is the small size of Ontario’s life sciences firms, with only four per cent of companies employing more than 100 people. Second, access to capital is limited for growing life sciences companies. Third is Ontario’s below-average research-and-development expenditures relative to the Organisation for Economic Co-operation and Development. Fourth is Ontario’s surprisingly high unemployment rate for 20- to 24-year-old science graduates (18.9 per cent). The paper argues for the need for a “coordinated strategic plan to grow Ontario’s Life Sciences sector.”

4WHAT OUR ROUNDTABLE TOLD US

The day after our financial services roundtable, Canada 2020 ventured to the MaRS Discovery District in Toronto. After a tour of Johnson & Johnson’s JLABS, we sat down in a MaRS boardroom with a group of industry leaders, NGOs and regulators to discuss innovation in the life sciences. Here is some of what they told us.

Defining the life sciences: When Canada 2020 started researching the life sciences industry, we did not have a precise definition of the sector. It turns out, we weren’t alone. Our panel discussed how “life sciences” was an umbrella term for many different areas, including pharmaceuticals, medical devices and (depending on whom you ask), health care, and how there was no standardized definition. Breaking life sciences down into different areas is important, as market structures and policy challenges often differ greatly between areas.

Market structure: The domination of the Canadian non-generic pharmaceutical industry by foreign firms was also a concern. The panel noted that Canada risks having a “branch-plant” sector with the truly innovative work happening in the home markets. The sheer size of multinational players in the area creates a barrier to entry to new firms, but also offers funding opportunities for smaller firms with innovative ideas. Other parts of the life sciences ecosystem, such as medical devices, are seen as having lower barriers to entry.

Funding: Some participants saw obtaining early-stage funding in Canada as difficult , with later-stage funding somewhat easier to find. Israel was cited as a country that successfully addressed this problem through a seed funding program with the government contributing 15 per cent of the capital. Others described large bottlenecks on the path to commercialization, , with one roundtable member stating, “We have great ideas, but we’re not developing them so they can survive the component that comes after them.” Engagement with multinational enterprises and the health-care system was cited as a potential solution to the problem of commercializing innovation. commercialization problem.

The role of the Health-care System: Canada’s single-payer health-care system was seen as acompetitive advantage, as it creates enormous purchasers of life sciences products that can use their buying power to effect change. Procurement policies in the health-care system would need to change to make this happen. The focus would need to be less on obtaining the lowest cost and more on driving innovation with outcome-based metrics for success, or, as one participant described, it, “running public services with private-sector discipline.”

Collaboration: One participant talked about the need for the sector to speak in a focused and unified voice, which includes “senior political involvement.” Australia was cited as a country that does this well, and concerns were raised about Canada’s ability to compete on the international stage and win global mandates without a unified national strategy. A second participant felt that Canada was at a disadvantage because this country does not have as many economic development officers in foreign jurisdictions as its competitors do; a cluster in Catalonia (Spain) was cited for being particularly effective at attracting foreign direct investment using this strategy. Finally, another member of the roundtable noted that Toronto’s life sciences ecosystem was not well understood, as research groups had never worked together to map it out, as has been done in some U.S. cities. Roundtable members believed that such a mapping would be of value, as it would identify potential gaps in the system, as well the existing strengths of the sector.

One concern was that while Canada excels at academic research in the life sciences, the country lag behind on commercialization. One participant felt that universities and individual researchers lacked the proper incentives to drive innovation and that the idea of “selling out” creates a cultural barrier to scientists working on commercializing their findings.

“CANADIAN RESEARCHERS TEND TO BE TOO HUMBLE ABOUT THEIR STRENGTHS, THEY DON’T SPEAK TO HOW STRONG THEY ARE SCIENTIFICALLY. THE GLOBAL SCIENTIFIC COMMUNITY IS SEEING VERY IMPORTANT PAPERS AND VERY IMPORTANT WORK COMING OUT OF CANADA, ESPECIALLY BEING DONE IN NEUROSCIENCE, BUT OVERALL THERE IS AN AVERSION TO EMBRACING, TO WORKING WITH INDUSTRY, SO THE NOTION OF COMMERCIALIZING, THE NOTION OF SELLING OUT IS STILL THERE.”

Final thoughts: Participants in the roundtable were highly optimistic that an innovative life sciences sector would benefit all Canadians. The development of new medical devices and pharmaceuticals make the lives of Canadians better. Furthermore, innovation can be in how Canadians access their health data, which would allow Canadians to make more informed health and lifestyle decisions. In the words of one roundtable participant, enhanced innovation will result in “benefits to patients, to the economy through reduced health-care costs, and through job creation.”

Strong life sciences clusters can help, but there was recognition that governments have tough choices to make. As one participant put it, “We are good at some things, not good at others, and we need to put our money where can generate the best returns … . The money can’t be everywhere.” Another added , “We can’t have 10 of everything.” Finally, there was a recognition that trying to recreate the Silicon Valley and Boston life sciences clusters would be a recipe for failure; Toronto’s cluster would have to play to Toronto’s unique strengths.

11 http://www.sfu.ca/sfublogs-archive/departments/cprost/uploads/2012/06/0306.pdf
12 http://www.lifesciencesontario.ca/_files/file.php?fileid=fileOfQuhTMjbF&filename=file_LifeScience10ClusterReport2014Final.pdf
13 Life Sciences Ontario Report 2015 report
14 https://localideas.files.wordpress.com/2014/05/cluster-atlas.pdf
15 http://www.theglobeandmail.com/report-on-business/rob-magazine/why-is-canadas-life-sciences-sector-flatlining/article24030375/

1CLEANTECH AND RENEWABLES CLUSTERS IN CANADA

Canada is one of the world’s leaders in the production and use of renewable energy. In 2012, renewable energy represented 17 per cent of Canada’s total energy supply. This was a dramatic increase from a decade earlier. Wind and solar energy are some of the fastest-growing sources of electricity in Canada yet Canada has also started to produce energy from both biomass and tidal sources.³⁴

In addition to supplying Canadians with electricity, renewables play an important role in our trade with the U.S. Several provinces are net exporters of hydro-generated electricity to the U.S.

2INNOVATION IN THE CLEANTECH AND RENEWABLES INDUSTRY

Canada’s renewable electricity generating capacity has increased greatly since 2002 and continues to increase as the sector continues to innovate. Collaborative work by all levels of government on both policies and programs has helped to drive and support this innovation.

3PAST STUDIES OF CLEANTECH AND RENEWABLES INNOVATION

Innovation PEI (2016): This organization’s website focuses on the goals of wind power in P.E.I. At the moment, more than 30 per cent of P.E.I.’s electricity is supplied by “a combination of provincially owned and private wind developments.”

The site, which represents an organization with members of government, post-secondary institutions and industry leaders, states that P.E.I. has always been at the forefront of wind energy development. P.E.I. is, according to the authors, attempting to diversify in the green energy field by not just focusing on the next generation of wind developments but also by investigating hydro and biomass and biofuel opportunities. In addition to exploring different types of green energy, P.E.I. is focusing on “attracting new renewable energy research and development and commercialization activity.”

MaRS Advanced Energy Centre (2014): The Canadian Energy Innovation Summit report focuses on themes and ideas that emerged from a summit hosted by the Government of Ontario and the MaRS Discovery District.

This report starts with a focus on how Canada can become “a global leader in energy innovation” with demand-driven innovation that allows for rapid action, a tolerance for risk and the ability to learn from failure. They note that many of the energy innovations are in high-tech sectors that could help the traditional Canadian energy sector diversify. This diversification could help create new jobs and reduce Canada’s sensitivity to traditional energy costs.

The first of the five ideas that emerged was to encourage greater collaboration in Canada to identify common goals and interests for the country’s natural energy assets. The second was to create more private-public partnerships to allow the private sector to play a larger role in technology innovation. The third idea was to encourage energy innovation already being developed in Canada and export it worldwide. The fourth idea was to ensure that Canadian clean technology companies could access risk capital and early stage financing. The final idea was to emphasize the social and economic benefits that are linked to clean

Natural Resources Canada (2013): The Canada – A Global Leader in Renewable Energy report focuses on the need for all jurisdictions in Canada to continue both collaborating and sharing information on renewable energy. It also noted the importance of the federal government sharing information from its research, development and demonstration projects. The final recommendation was to investigate opportunities to share information on policies and best practices through Canada’s participation in the activities of the Renewable Energy Technology Deployment technology collaboration program of the International Energy Agency (IEA-RETD).

4WHAT OUR ROUNDTABLE TOLD US

The day after our extractives roundtable in Calgary, we headed west to Vancouver’s TELUS Gardens and met with some leaders in the cleantech and renewables sector. Here is what we heard:

Funding gaps: One participant felt that government financing programs were quite useful for the early stages of product development, but not for obtaining financing for commercialization. He said that “Sustainable Development Technology Canada is terrific for early stage innovation,” and cited government support through the Scientific Research and Experimental Development Tax Incentive, the National Research Council Canada, the Industrial Research Assistance Program, and others. “There’s a lot of baked-in support before it gets to commercialization. There is help from the public sector to get across the ‘valley of death.’” he said. Then he added, “But when you get to the first market entrant, there is not a lot of debt financing or private capital. These companies are light on assets, so banks won’t lend to them. So companies, even if they do make it across the ‘valley of death,’ do not have the necessary assets or financing to commercialize.”

Another roundtable member cited investor hesitancy to invest in companies that make physical goods, stating “most angel investors invest in digital, not ‘stuff.’ There is a belief that if you produce things, produce hardware, the Chinese will just beat you to it, so these companies do not get the angel funds that tech companies do.”

Finally, a roundtable member suggested that the flow-through shares model used in the extractive industry be extended to cleantech.

Political risk: Several roundtable participants cited political risk, particularly with uncertain or changing regulations. One cited uncertainty around the future of bioenergy regulations as scaring away investment. Another said government regulatory clauses stating that programs, such as EcoENERGY, are “subject to change” frighten away international investors despite the fact they are rarely used. Finally, one roundtable participant believed companies were simply playing wait-and-see, stating “new climate and energy policies in government across Canada will take a while to become real, so the private sector is sitting back, particularly in the energy space. Policy uncertainty matters.”

Need to pick winners: As with many of our other roundtables, some members felt that government policies covered too many areas, and instead should be focused on a few key priorities. One participant forcefully argued for the need for large-scale reform, stating: “We need to make some big changes to the innovation ecosystem. We need to rip the Band-Aid off. We have been trying the same strategies for 20 years. The Canadian market is too small for mass adoption, so we need to look at other markets. We need more winners abroad. We need to be more ‘American.’”

Another suggested the use of innovation councils to pick winners on technologies.

A third cited the U.S. Defense Advanced Research Projects Agency (DARPA) as providing funding in priority areas that align with U.S. goals and noted that Canada lacked an equivalent. However, one member cautioned that if the government is picking winners, they are leaving people out: “There is a lot of opportunity for creativity if more people get at a shot at it. If the government picks winners, who gets left out?”

Regulation as a driver of innovation: Several of our roundtable members noted that strong regulations could both make society better off and spur the need for innovation. As one put it, “Being able to tie innovation to broader societal problems works. We need to get more traction with that.” Another added that “if we had stronger water-quality regulations, we would have more innovation in Canada. Water-treatment technologies are being sold down south, but, largely, not here.”

The importance of government procurement: Some roundtable participants suggested that governments should place a greater emphasis on innovation during the procurement process. One member gave a way of doing so, stating, “When government writes RPFs (request for proposals), they can embed ‘innovation.’

“They can give points to early stage demonstrations or points for first customers. Using the government’s infrastructure funds, they can incent innovation; they can find a mechanism. As well, the innovation process is a full life-cycle, so if governments are willing to fund something up front, they should be willing to fund it the entire way.”

In so doing, the government should not ignore the value of adopting innovative technologies not developed in Canada, with a participant noting, “It is frustrating that what is interesting to the government is only stuff that was developed here. While we all understand there is pressure to create jobs here, ‘CanCon’ requirements in funding rounds often ignore the benefits of global knowledge. We could be tapping into expertise from around the world.”

Need for coherence and collaboration: A common theme of this roundtable was the need for policy coherence and “systems thinking.” One member suggested that higher education could be a catalyst for this: “In Canada, we’re big, we’re provincial. What about what other countries are doing? What about the Swedish model? There, universities specialize in different areas. Think of the Horizon 2020 programs in Europe. There’s knowledge-sharing in their various innovation clusters. Canada is not part of these clusters. We may indirectly make use of them, but we don’t have a plan.”

Another added, “Systems thinking is essential. Distributive energy is a good model for Canada. It allows us to become global experts because it involves more than one system. There’s a strong digital aspect to the grid, too. But it’s hard to commercialize; it needs partners, but this is a place where the government can play a role.” Finally, one member noted that coherence would require alignment of provincial policies and priorities, stating, “Energy is not a federal responsibility. So instead we need maybe a systems- approach that’s regionally focused, but aligned.”

Final thoughts: Although Calgary’s extractives cluster and Vancouver’s cleantech and renewables cluster would appear to have little in common, many of the same themes emerged. In both roundtables, we heard that outcomes-based regulations could drive innovation. We heard about gaps in funding and about the barriers to commercialization. Finally, we heard about the need for governments to “pick winners” and avoid spreading themselves too thinly. Perhaps the two clusters are not so different after all.

WHY DO WE FALTER AT THE ADOPTION PHASE? THAT’S IMPORTANT FOR GOVERNMENT TO CONSIDER.

34 The ideas in this section are based on Natural Resources Canada’s 2013 report, A Global Leader in Renewable Energy.

1TECHNOLOGY CLUSTERS IN CANADA

As with the life sciences, just defining the technology or “tech” industry can be a bit of a challenge. In The State of Canada’s Tech Sector, 2016, Creig Lamb and Matthew Seddon advocate moving beyond the “information and communications” (ICT) industry and using a more broad-based definition that includes 22 different industries, including 10 in manufacturing and six in “information and cultural industries.” Using this definition, they find that the technology sector generated $117 billion, or 7.1 per cent of Canada’s GDP, and employed 864,165 people in 2015.¹⁶

Using a more traditional definition of the technology industry, Lucas et. al. identify seven ICT clusters in Canada (Calgary, Cape Breton, New Brunswick, Ottawa, Toronto, Waterloo and Vancouver), with 11,615 people employed in ICT services and another 7,165 employed in ICT manufacturing in 2006.¹⁷

2INNOVATION IN THE TECHNOLOGY INDUSTRY

Canada’s technology clusters deliver as many innovations as any in the world. Part of the reason for that may be the high quality of life that Canadian technology hubs offer. In 2016, consulting firm Expert Market ranked the top technology hubs in the world, using four “work factors” and four “life factors.”¹⁸ Three Canadian clusters made the top 20, with Toronto achieving a third-place ranking, Montreal finishing ninth and Vancouver 13th. The report found it was a particularly attractive time to start a business in Canadian cities, with Toronto, Montreal and Vancouver tying for first place on the “time to start a business” factor. Not all is necessarily well, however. The ranking of Canadian cities was diminished somewhat by the difficulty of achieving seed funding and lower start-up outputs and average salaries than elsewhere. As well, the Centre for Digital Entrepreneurship and Economic Performance (DEEP Centre) notes Canada’s relative lack of high-growth technology firms relative to the country’s global competitors, a sign of gaps in Canadian innovation.¹⁹

3PAST STUDIES OF TECHNOLOGY INDUSTRY INNOVATION

Recent studies of innovation in Canada’s technology industry include:

Cukier, Yap, Holmes and Rodrigues (2009): “Skills shortages” will be a primary focus of any discussion about the state of Canada’s tech sector. In Diversity and the Skills Shortage in the Canadian Information and Communications Technology Sector, Cukier et. al. study the skills shortage issue through five questions:

1. What is the public discourse regarding the ICT labour market shortage in Canada?
2. What is the empirical evidence regarding the labour market shortage?
3. What is the participation of women in the ICT sector?
4. What are the barriers to participation by women in the ICT sector in Canada?
5. What strategies may be employed to increase the “pipelines” to the sector?

The study notes that there are a wide variety of positions in the ICT sector, “from highly technical roles to hybrid roles, such as business analysts, in which the ability to bridge technology and business functions is essential.” Given the broad nature of the ICT sector, it is crucial to not over-generalize when discussing skills shortages. Cukier et. al. find that “the skill sets in short supply are not primarily the core technology skills, but business skills and communication skills.” To increase the participation of women and under-represented groups in the sector, one must consider both “overt forms of discrimination” and “systemic barriers.” One such barrier is the “chilly climate” female engineering and computer science students can find in post-secondary institutions. They note that the “assumption that a degree in computer science or engineering is a prerequisite for a position in project management” may reduce the full participation of women in the industry. Stereotypes, the absence of female role models and work-life balance issues can also play a role.

DEEP Centre (2015): Building Resilience: Innovation Ecosystems as the Foundations for Growth in the 21st Century is a summary of the 2015 Waterloo Innovation Summit, which brought together “over 280 senior public- and private-sector decision-makers and leaders to discuss the development of effective innovation ecosystems.” The summit focused on three key themes: Foundations for Growth, Scaling Up and Embracing Risk and Disruption. One participant provided this succinct summary of the  Waterloo ecosystem’s challenges: “Focus on whether you are content to be the ‘farm team’ that sends talented people and companies to Silicon Valley.

What will it take to create an environment where the same players can hit home runs at home?” The report ends with the following seven broad recommendations to build an innovation ecosystem:

1. Invest in necessary infrastructure and connectivity.
2. Move beyond startups to scaleups.
3. Extract better ecosystem data.
4. Take a more aggressive approach to the recruitment of high-tech management talent.
5. Better enable and support industry-academic partnerships.
6. Focus on building effective research and development support systems.
7. Pursue disruption.

Lucas, Sands and Wolfe (2009): The authors examine eight ICT clusters in Canada by asking the following questions:

• What are the critical factors that contributed to the emergence and development of the individual clusters in their specific locations?
• What is the relative importance of local versus non-local factors in supporting the overall dynamism of the clusters?
• What are the most important factors that contribute to the ongoing competitiveness of the clusters?

The study takes issue with Porter, whose 1998 report concludes that governments “cannot create clusters by fiat” and finds that governments do play a vital role “in creating the antecedent conditions for cluster emergence.” They advocate that governments invest in higher education and in “cuttingedge” research in the social sciences, the hard sciences and engineering. They find that successful firms in an ICT cluster have “early and successful access to external markets” and that both local and non-local dynamics are critical to ensuring this success. Thriving clusters must ensure that both private and public initiatives “complement each other and (build) on existing regional strengths,” and local civic associations are cited as having a pivotal role to play.

Wolfe D. A. (2016): In A Policy Agenda for the Digital Economy, Wolfe lays out a set of policy recommendations with a focus on, “building on and supporting Canadian strengths in software” and scaling them more effectively. The recommendations include the following:

1. Creation of a technology development agency: Wolfe argues that “what is lacking in the Canadian system is a focused and autonomous agency charged with the mission of stimulating radical innovations that are close to the technological frontier.” He cites the U.S., Israel, Finland and Ireland as successful adopters of this model. In his view, these agencies are successful when they are “effectively insulated from short-term political pressures to produce results” and are relatively inexpensive, with budgets typically ranging from $300 million to $400 million per year.
2. Development of a federal strategy for the sector: The purpose of the strategy would be to identify existing strengths and “make strategic decisions about the areas where we could achieve maximum leverage in the shortest time frame with the minimum amount of additional federal spending.” Wolfe stresses that the process of developing this strategy needs to be iterative, given the constantly changing nature of the sector.
3. Increase availability of risk capital: Wolfe advocates Canada adapt the U.S. Small Business Incentive Research program, whereby federal agencies must set aside a portion of their research and development budgets to assist small enterprises with technological innovation. Adoption would not involve simply copying the U.S. program, as the program would need to be tailored to Canada’s circumstances.
4. Policies to build firms to global scale: The paper advocates for a new program that would identify Canada’s most promising start-ups and “provide them with resources in strategy, revenue generation, talent management and growth capital to help them scale up” and serve global markets, not just continental ones.
5. Local and regional strategies for digital innovation: Wolfe notes that the local context is important when considering the challenges that firms and ecosystems faces. He cites The Action Plan for Prosperity and summarizes a set of policies designed to strengthen clusters at the regional and local levels. There needs to be alignment between academia (universities, colleges and research institutions) and the private sector, he concludes, particularly when it comes to research and training. Furthermore, the report advocates “the creation of a national network to share know-how and best practices on how to improve cluster competitiveness and reinforce cluster development.”

4WHAT OUR ROUNDTABLE TOLD US

At the beginning of August, we headed to Communitech in Kitchener, Ont., and met with a group of two dozen representatives from start-ups, established technology firms and government and asked them to identify the biggest bottlenecks to innovation in the technology sector. Here is what they told us.

Technical skill gaps: As with past roundtables and reports, skills shortages and technical skills gaps were cited as the No. 1 issue facing technology firms. In the view of the participants, there were simply not enough trained workers to fill the technical jobs generated by firms, though they were encouraged by expansions to the University of Waterloo and Western University’s co-op programs.

Despite these skills shortages, roundtable members recognized that there are communities that are largely locked out of the technology sector. One participant noted how Canada, unlike the U.S., lacks quality data on the participation rates of women and visible minorities in the sector. Despite the fact (according to one roundtable member) that in many cases that visible minorities are disproportionately more likely to use technologies such as Twitter, they are largely excluded from the development of those technologies. Over-reliance on “paper” credentials was seen as an issue, and roundtable participants noted that, despite skills shortages, many firms were unwilling to hire from non-traditional sources. There appeared to be universal agreement that companies, governments, universities, colleges and high-schools all need to do more to increase the technical skills of underrepresented communities, for both human-rights reasons and as a practical way to fill technical skills gaps. Infrastructure also plays a role, with access to low-cost broadband in community housing cited as one way to bridge the digital divide. A number of roundtable members lamented that the task of skills development is too often left to underfunded, or unfunded, community organizations.

Business skill gaps, commercialization and scaling up: Many members of the roundtable expressed concern that talent shortages in the tech sector are frequently thought of only in terms of science, technology, engineering and math (STEM) skills. A number of participants noted a lack of managerial talent in Canada, particularly for helping high-growth firms scale-up. Gaps were identified in business school curriculums, and there was a general feeling that business schools train their students to be managers in traditional, slower-growth industries and that high-growth firms require a different skill set. The Canadian pool of experienced managers, particularly product managers, for high-growth firms was seen as too small for Canada’s current needs, and only immigration was cited as a short-term fix. The low rate of commercialization in the sector was a related issue cited, and this could be linked to a lack of managerial talent. Participants noted that while many useful innovations were being generated, they were not being sufficiently commercialized. One roundtable member felt that this was, in part, due to a far greater focus on measuring the inputs of innovation than the outputs. Another suggested that non-tariff-based trade barriers make it difficult for Canadian companies to export to key markets, and that Canadian trade negotiators focus too much on the export of physical goods, such as cars and oil, and not enough on the export of digital goods and services.

Talent retention: Retention was cited as one of the biggest issues plaguing the Kitchener-Waterloo cluster, with more than one roundtable member lamenting the high number of technology workers and University of Waterloo graduates that migrate to Silicon Valley in California. The roundtable was largely in agreement that smart, ambitious young people migrated because they wanted to be “where the action was.” A few roundtable members felt that the Kitchener-Waterloo cluster suffered from a branding and marketing problem: Canadians were simply too polite to celebrate their successes, and so they suffered a shortage of “evangelists” for the local cluster. The participants believed that the more publicly visible visionaries there were for the cluster, the more the talent would see it as a place “where the action was.”

It was noted by several members of the roundtable that solely in terms of disposable income, technology workers were better off in the Waterloo cluster owing to the exceedingly high cost of living in the San Francisco area. It was noted that improving both intercity and intracity transit would help retain workers, as it would allow the technology sector’s workers to get around the city and get to the big city amenities of Toronto without having to pay the considerable expense of a car.

Improved talent attraction was seen as a way of also increasing talent retention, as smart, ambitious people want to be around other smart, ambitious people and it would increase the overall number of opportunities in the cluster. Finally, one participant felt that we should not see people going to the U.S. to work as wholly negative, as those technology workers are often “brand ambassadors” for Canada and create valuable links between the Silicon Valley and Kitchener-Waterloo ecosystems.

Talent attraction: There was considerable consensus around the table that Canada’s immigration and foreign-worker programs were ill-suited to the needs of the technology sector and participants were cautiously optimistic about coming reforms. Roundtable participants reported that application processes can take six months or more, a length of time unworkable for high-growth industries. Roundtable participants believe there is a global war for tech talent, and that we are losing to jurisdictions with more responsive immigration and foreign-worker programs.

Access to capital: A lack of access to capital was seen as one reason why talent migrates to Silicon Valley, though some roundtable participants felt there was reasonable access to private venture capital in Canada. One participant felt the biggest gap between Canadian and American venture capital access was the lack of appetite for “moonshots” in Canada; it was felt that very high-risk but potentially high-reward companies would likely need to go to the U.S. for funding.

Funding program coherence: Several of our roundtable participants talked about the “alphabet soup” of government funding programs, many of which have overlapping mandates. One member cited the findings of the Jenkins Report and said that the “excessive compliance costs for claimants” creates a barrier to access. Another advocated that the application process be streamlined and noted that an application process that takes six months or more is incompatible with a fast-moving industry like the tech industry. One participant suggested that the federal government could do a better job of providing “tailored advice” to help small- and medium-sized businesses navigate the system. Building on that comment, another member cited Mexico’s ProMexico as best-in-class.²⁰

Final thoughts: At the beginning of the roundtable, one participant simply said, “Three things worry me. Access to talent, access to markets and access to capital.” Those themes permeated the discussion. It was not largely centered on what governments should be doing more of, but rather on what they can be doing better (or occasionally less of). Coherence was an over-arching theme of the two-hour discussion; it was felt that government policies, whether they be on training, infrastructure, research and development or immigration are often overly complicated or at odds with the stated priorities of those governments.

16 The State of Canada’s Tech Sector, 2016 http://brookfieldinstitute.ca/research-analysis/the-state-of-canadas-tech-sector-2016/
17 [source?]
18 Brant, 2016
19 DEEP Centre, 2015
20 These sentiments are echoed in Boothe, 2016.

1EXTRACTIVES CLUSTERS IN CANADA

Extractive industries compose a major sector in Canada, the fifth-largest producer of oil and natural gas in the world as of 2013²⁸, with more than 75 per cent of the world’s mining and exploration companies calling the country home²⁹. All of the Canadian extractives companies (oil and gas, utility, mining and water companies) are experiencing challenges as they attempt to remain competitive in the global economy. These challenges include lower commodity prices, reduced profit margins and rising costs.

The Cluster Atlas of Canada lists 16 different mining clusters across Canada and an additional 13 oil and gas clusters³⁰. Mining clusters exist in eight of 10 provinces, with only Newfoundland and Labrador and P.E.I. lacking established clusters. Ontario leads the way with four mining clusters (Greater Sudbury, North Bay, Thunder Bay, Timmins) and Quebec is next with three (Rouyn-Noranda, Sept-Îles, Val-d’Or).³¹

Oil and gas clusters are less geographically dispersed, with 10 of 13 clusters found in the province of Alberta.³² The three remaining clusters are located in Sarnia (Ontario), Regina (Saskatchewan) and Fort St. John (British Columbia). Activities in the cluster include transportation and manufacturing activities in addition to extraction, as the Cluster Atlas below shows:

2INNOVATION IN THE EXTRACTIVES INDUSTRY

Innovation in the extractives sector has focused on minimizing costs by improving the upstream processes and improving the management, transportation, transformation and use of extractives.³³

Collaboration via private- and public-sector partnership is seen as key to ongoing innovation in this field because of the cost and complexity of technology development.

Companies working in this sector have expressed concerns that recent lower commodity prices and reduced profit margins will make innovation more difficult and yet more important.

Canada has several research and development tax incentive programs in Canada to stimulate investment in innovation. Many of these programs are aimed at the extractives sector.

3PAST STUDIES OF EXTRACTIVES INNOVATION

Natural Resources Canada (2015): In Innovating for a Strong Canadian Energy Sector, Natural Resources Canada presents an overview of innovation in Canada’s energy and minerals and metals sectors. The report highlights the importance of innovation to maintaining Canada’s competitive edge in these sectors and the ongoing need for collaboration in technology development and use within this sector because of the high level of complexity of this field. The report calls for ongoing partnerships across the private and public sectors to ensure continued innovation. The report notes that as harderto- access resources are needed and companies around the world face pressure to safeguard the environment, innovation will become ever more important.

Mining Association of Canada (2013): The brief report Energy Investments and Innovation in the Canadian Mining Sector focuses on the research and development and innovation investments that Mining Association of Canada member companies have made to both improve energy efficiency and reduce emissions, which totalled $677 million in 2013. Examples such as the use of wind and liquefied natural gas to fuel both mobile and on-site power are highlighted. The need for innovation in technology that will allow more efficient energy use at remoe mining sites, including improvements in provincial and territorial power grids, is also highlighted.

Monitor Deloitte (2016): Innovation in Oil and Gas in Canada 2016 examines current perspectives on innovation in the oil and gas industry in Canada. It highlights a complex set of issues, including rising costs, multiplying risks, environmental concerns and shrinking margins. The report notes that while innovation in this environment is imperative, most companies in the sector “do not have the resources, capabilities or leadership commitment to innovate to the degree they know they should.” Through the study of 10 companies, the report authors found that this sector has begun to innovate, but the innovations are not well co-ordinated and are limited by a focus on using technology to either reduce costs or develop better extraction methods.

The report also states that driving innovation beyond the technological requires organizations to mobilize outside the technical and R&D groups in the organization. It is here that traditional structures can work against oil and gas companies. This report calls for companies in the sector to expand their innovation to include areas outside of technology and to develop an environment in which companies collaborate with both oil and gas technology providers, other sectors and stakeholders and the federal and provincial governments.

Deloitte (2015): Gaining ground in the sands 2015: Pipeline 2020 examined the role of innovation for pipeline companies. It notes the difficult situation pipeline companies find themselves in across North America. The debate over the safety of pipelines and the need for investment to keep old infrastructure safe and functional has been difficult for the sector. The authors of this report call for the industry to see these challenges as opportunities to invest in technology that can make their sector safer and more productive. Their recommendations include using big data, smart connectivity and new sensor technologies to allow for real-time evidence-based decision making. They conclude by highlighting the need for companies to begin to make budget and R&D decisions now to ensure they are competitive in 2020.

4WHAT OUR ROUNDTABLE TOLD US

The Canada 2020 team headed to the offices of Bennett Jones in Calgary, Alta., where we assembled a group of private- and public-sector leaders in the oil, gas and mining sectors. Here is just some of what we heard in our two-hour session:

Willingness to innovate: Many roundtable participants thought that other industries could take lessons from Alberta’s oil industry. They pointed to the sector’s willingness to take big risks and a lower fear of failure than seen in other industries. One participant believed that taking a risk that led to bankruptcy was seen as a black mark in most Canadian cities, but that Calgary was more open to second and third chances. Another believed that this was out of necessity, stating “without innovation, we would not have been able to turn the oilsands into a profitable industry that creates wealth for Canada.”

Another roundtable participant added that “to be competitive we have to innovate or we do not survive. Being out west, a lot of us our rural-based. That is an innovative culture baked into you, people who do not accept the status quo.” Roundtable participants felt that despite this, there was still room for a culture-shift in the sector toward a willingness to innovate.

The mining sector was seen somewhat differently, with one participant noting:

“We need to distinguish between three kinds of innovation. Core innovations are day-to-day things you do in your operations. Adjacent innovations are things that are transferred from one industry to another. Transformational innovations are technologies that create whole new industries or whole new ways of doing things. In mining, we are good at core innovations, but not good at adjacent or transformative ones. We are ‘first to be second.’ It comes down to risk, and the Canadian industry is risk-averse. When we are forced to make our operations profitable, we find a way. But when a mine is in production, we tend not to make improvements. We fine-tune, but we don’t take the next step and find significant improvements.”

Need to collaborate with other sectors: Many roundtable participants noted the need for the cluster to work with other sectors, to obtain and adopt adjacent innovations. Several noted that the cluster is both a user and a developer of high-tech innovations, particularly around the internet of things. Another gave examples of MRI technology that is used for medical innovations and for monitoring pipeline health. One participant mentioned the difficulties in collaborating with institutes of higher education, noting that universities tend to be insulated from market pressures. He noted that “part of the Canadian problem is that some guy at a university in a lab coat may think he’s developing innovations, but the output may only be theoretical or on a longer time horizon. The real innovation in Calgary is people chasing money and chasing their goals. If we spend money on innovating in a university environment, it won’t get done or be real.”

A final participant added the need for government to work directly with the sector, rather than through intermediaries like universities that do not understand the market pressures facing the industry.

Brownfield challenges to innovation: Roundtable participants felt that it was not hard to incorporate innovative technologies and processes when designing new facilities, but incorporating them into existing operations was difficult. As one participant put it, “one of the other defining features of our industry is the size of the capital investments involved. If something goes wrong, such as an unplanned outage, the impact is enormous. That impacts whether you pursue innovation, as well as what kinds of innovation you pursue. So changing something fundamental to your technology or your processes could be really risky.”

Perception consequences: Many participants made a point of noting that labour or environmental troubles at one company reflect badly on the industry as a whole meaning one firm’s poor performance imposes a negative consequence on all other firms in the industry.

“Yes, firms in the industry are competing with one another. But when it comes to the environment, we realize that this sector is competing not against each other, but against other fuels. So we are only as strong environmentally as our weakest performer,” said one roundtable participant.

The Syncrude tailings pond incident was an example cited by another participant, who stated: “When that incident happened, a negative perception was placed on every firm in our industry. Even companies without tailings ponds got labelled poor environmental stewards.”

Talent shortages: Some roundtable participants believed that these perceptions make it difficult for the sector to attract young innovators.

“We are one of the most vilified sectors in Canada and around the world. It impacts our ability to attract talent. We need creative people, and they often choose other sectors. There’s a lot of competition for innovators – why would they want to work on a problem for one of the most vilified sectors in Canada when they can work on something that instead makes them feel good?”

Another noted that these perceptions spill over to government policies, as negative public perceptions make governments disinterested in working with the cluster.

Small-business challenges: Two roundtable members noted that small- and medium-sized enterprises (SMEs) face uphill challenges when it comes to commercializing innovations, despite these companies being well-positioned to be innovative. One roundtable member noted that “SMEs face huge problems, but lots of the technological innovation comes from SMEs. Much of the problem is that they are not business savvy, they are not market savvy, and they do not know how to work the regulatory and granting systems. The IRAP [Industrial Research Assistance Program] can help these companies, but there is a limit.”

Another participant noted that “there is a bias in how innovative ideas and projects get funded. There is a place where we get stuck if we are not big enough but also not small enough to just be considered a start-up. The big guys are interested in reducing costs. The little guys are innovating and going after the gold rush. We get stuck at $2 million of capitalization.”

Access to capital: Feelings were mixed about the ability of firms to access capital. One participant noted that “Calgary is one of the easiest places to get capital and support. It is innovation-central, not because of the ideas, but because you can form capital very quickly. If you can speak about it and sell it competently, you can get money.”

Others disagreed, with one stating, “Capital is not all that available, you do have to work hard for it. It is called ‘the valley of death’ for a reason, and it exists in our industry.”

All participants agreed that the size of capital investments and the length of time it takes to put a project together creates challenges that other industries do not have. Several roundtable participants cited Sustainable Development Technology Canada as a funding partner that understands the needs of industry.

Pressures to innovate: Roundtable participants largely felt that innovation was driven by “necessity,” and without that necessity, it would be easy to get complacent. Falling commodity prices, in the view of many members, create a need for innovation. Participants felt that Governments can also create that need through their policy decisions. Several felt that prescriptive regulations that require the use of certain technologies were harmful to innovation.

Outcomes-based regulations, by which governments require companies to hit certain targets but do not force the use of particular technologies, give companies incentives to create innovative technologies and to do so at the lowest possible cost, the participants said.

Finally, roundtable participants believed that government can also create pressures to innovate through “moonshots,” such as John F. Kennedy’s promise to put a man on the moon by the end of the 1960s, or Alberta premier Peter Lougheed’s creation of the Alberta Oil Sands Technology and Research Authority (AOSTRA) and his tasking it with developing technologies to make production in the oilsands economically viable. There was a consensus that governments at all levels were trying to do too much and that they should instead focus on “picking winners” that had the potential to produce significant returns on investment.

Final thoughts: Despite the challenges the cluster has faced, from falling commodity prices to the Fort McMurray wildfires, the mood in the room was remarkably upbeat. People in the extractive industry, while recognizing the pressures they face, also believe the current situation has given them a need and an opportunity to become more innovative.

“AS AN INDUSTRY, WE KNOW EACH OTHER. WE KNOW WHO WE COMPETE WITH. IN A CAPITAL-CONSTRAINED ENVIRONMENT LIKE WE ARE IN NOW, YOU WILL LIKELY SEE US WORK TOGETHER MORE. IT WILL FORCE US TO WORK TOGETHER MORE. WHAT’S UNIQUE THOUGH, IS THAT WE HAVE FIGURED THAT OUT, BECAUSE WE KNOW ONE ANOTHER, WE TRUST ONE ANOTHER.”

28 (Global Affairs Canada, 2015), Oil and Gas Industry: Canada’s competitive advantages
29 (Mattner, 2012), Institute for the Study of International Development, The Development Impact of Extractive Industries: Policy Options for CIDA
30 (Spencer, 2014), Cluster Atlas of Canada
31 The remaining clusters are in Bathurst, N.B.; Calgary, Alta.; Cape Breton, N.S.; Edmonton, Alta.; Kamloops, B.C.; Prince George, B.C.; Regina, Sask.; Saskatoon, Sask.; Thompson, Man.
32 Specifically, Calgary, Cold Lake, Edmonton, Grande Prairie, Lloydminster, Medicine Hat, Okotoks, Red Deer, Sylvan Lake and Wood Buffalo.
33 The ideas in this section are based on Natural Resources Canada’s 2015 report, Innovating for a Strong Canadian Energy Sector.

The eight clusters we studied all have some unique innovation opportunities and threats. While there are many obvious differences between the clusters, a number of common themes emerged in the roundtables that affect the ability of firms in each cluster to achieve scale and become more innovative.

Access to capital: In almost every roundtable, at least one participant would describe funding gaps in their cluster. In our financial services roundtable, we were told that “there’s no shortage of people willing to write $50,000 cheques,” but there were funding gaps in later rounds, with companies often needing to seek financing from outside of Canada. The consensus in our technology industry cluster was that access to capital has improved over the past decade, but there was still little appetite in Canada to fund high-risk but potentially very high-reward “moonshots.” There was less consensus in our extractives roundtable, with some members stating that capital was easy to come by, but another participant stating “capital is not all that available, you do have to work hard for it. It’s called ‘the valley of death’ for a reason, and it exists in our industry.”

Attracting and retaining talent: The ongoing struggle of ensuring firms have access to enough skilled workers was raised in many of the roundtables. Concerns were raised about the lengthy and complicated immigration system in the financial services industry roundtable; technical skills gaps in the tech industry roundtable; negative perceptions of the extractives sector and talent retention in the culture and digital creative industry roundtable. The consensus in our tech roundtable in Kitchener- Waterloo was that attracting and retaining talent in Canada was difficult because of the appeal of Silicon Valley. Similarly, in our digital creative roundtable, participants stated that young talented workers left Halifax for more exciting cities. While not identical concerns, there was an underlying theme of needing to find new ways to compete globally to attract and keep people with valuable skills.

Risk tolerance: The ability to take risks plays a vital role in being innovative and was highlighted in three of the roundtables. In the financial services industry roundtable, this took the form of concerns about needing to balance financial regulations to protect consumers from risk with allowing the financial services industry to take the risks necessary to be innovative. In the tech industry, we heard how Canadian venture capitalists are slow to invest in “moonshots” and take high risk for high-rewards. The cleantech and renewables participants spoke of a lack of investment in the industry because of uncertain and changing policies and regulations. While not identical concerns, the underlying theme is of a need to create spaces for risk within innovation throughout the sectors.

Regulatory barriers and coherence: Working within incredibly complex regulatory environments was a theme raised by participants in several of the roundtables. For the agricultural and agri-food sector, this took the form of concerns about a complex and difficult-to-navigate regulatory environment – especially for small and medium-sized businesses. In comparison, the cleantech and renewables cluster saw regulatory coherence as a way to spur innovation by aligning priorities, policies and regulations throughout Canada. For example, one participant noted, “If we had stronger water-quality regulations, we would have more innovation in Canada.” Within the financial services industry, concerns were raised that regulations designed for large companies were inappropriate for start-ups and act as barrier to innovation. There was an underlying theme of needing to find coherence within policies in order to not just allow innovation, but to encourage it. Overly complex or incoherent regulations acted to stifle innovation, in the view of our roundtable participants.

Picking winners: Roundtable participants largely believed that governments need to focus on a few key priorities and are currently spreading funding and attention too thinly across many priorities. This theme was identified within the roundtables as a need for the government to “pick winners.” In our cleantech and renewables roundtable, several participants felt that the Canadian government needs to pick areas of innovation to fund and not to try to fund every area. However, there was not total consensus as another member pointed out that by picking winners the government would be leaving out some areas that could have been very successful. Members of our life sciences roundtable also felt that the government needed to make some tough choices and focus funding on the strengths of Toronto’s cluster. For example, one participant noted “the money can’t be everywhere,” and another stated, “We can’t have 10 of everything”