Stop me if you’ve heard this: a man walks into a business, looks around and says, “I’m from the government and I’m here to help.” Bogdan Ciobanu isn’t laughing. As director general of the National Research Council’s (NRC) Industrial Research Assistance Program (IRAP), he insists he is actually here to help Canadian businesses go digital, and he’s got more than 210 agents and $197.5 million to devote to that goal.
And it’s badly needed help. Last spring, the World Economic Forum ranked Canada 35th in digital economy leadership out of 138 countries, down from 26th place in 2010. For government prioritization of ICT, Canada sits at 31st.
This is not good. The goal of both government and industry was to make Canada a digitally driven innovation economy by 2017, and it isn’t happening. So, what to do? More government funding, more tax breaks? No, say leaders like Tom Jenkins, CEO of OpenText, who chaired and delivered a review of federal support for research and development last fall.
“Government needs to do a better job helping our innovative SMEs grow larger,” Jenkins said in tabling the report. “What we found was a funding system that is unnecessarily complicated and confusing to navigate.”
We need to move quickly, because as Jenkins wrote last year in a paper on public policy: “We are at the dislocation point between an old economic order and a new one that may last for decades, if not centuries. Innovation is the wealth creator in this new order, and we would be wise to structure our economy to optimize our ability to innovate and thus compete globally.”
Money itself isn’t the issue. There is approximately $7 billion in federal funding alone and hundreds of millions more in provincial programs. But the application process can be so tortuous and rife with hidden qualifiers and disqualifiers, many shy away or are unaware of whether they even qualify.
Programs, said Jenkins, must be more visible and accessible, and driven by results. Start-ups and existing companies looking to grow need access to capital and to new markets, and they need to recruit and retain key people. His panel’s report made six simple suggestions:
- create an Industrial Research and Innovation Council with a clear business innovation mandate as the centerpiece to all government programs
- simplify the successful $3.6 billion Scientific Research and Experimental Development (SR&ED) program by basing the tax credit for SMEs on labour-related costs
- use the government’s substantial purchasing power to buy innovative products and demand leading-edge goods, services and technologies from Canadian suppliers
- restructure the National Research Council to create a business-driven collaborative agency separate from public policy research
- help high-growth, innovative firms access the risk capital they need through the establishment of new funds where gaps exist through the Business Development Bank of Canada (BDC) in collaboration with the private sector
- establish a clear voice for innovation, with an Innovation Advisory Council of external experts, and engage in a dialogue with the provinces to improve co-ordination and impact.
How may I help you?
Knowing where to look for support is key, said Jenkins, arguing for the creation of a service—a concierge—that can guide companies to relevant federal and provincial programs.
Perhaps surprisingly, the feds reacted immediately; in the spring budget, the government initiated the concierge concept under Ciobanu’s NRC-IRAP program and rolled it into the Digital Technology Adoption Pilot Program (DTAPP). It launched last fall and is in the process of cutting cheques to 431 companies to help them adopt digital technology. Another 200 will likely be added when the funding wraps up in 2014.
DTAPP is an extension of what IRAP has done for 60 years, Ciobanu said. IRAP has 210 Industrial Technology Advisors (ITAs) who consult with business leaders and provide funding from an $87.5-million budget for technology and training to help businesses be more productive and competitive.
Those ITAs—and more are coming—will match SMEs to DTAPP and to other programs where there may be a good fit, such as IRAP, SR&EDs or provincial funds.
Like Ciobanu, the bulk of their experience is not as civil servants, but in industry. “They’re professionals with strong engineering, science and manufacturing background working in communities, most with 20 or 25 years of managerial experience,” Ciobanu said. “They know what programs are applicable or they can link them with university researchers or venture capital investors.”
The first step is to audit the business, look at whether it is ready to incorporate digital technology into its model, and then advise what would work and what training is required. If all goes well, DTAPP cuts a cheque, up to $99,999.99.
“It could be any type of business,” he said. “A farm looking to install digital sensors to control watering, food service, automation, robot assembly and welding [is valid].”
Retailers could get a hand in moving their businesses online. The challenge facing Canadian retailers is prototypical, said Chris Hauca, vice-president transaction management at Acquity Group, an e-commerce consultation that has just opened shop in Ottawa. “Part of the problem is the size of the market in Canada; it’s a lot smaller so it takes a long time to get a return on investment,” he said. “Most retailers think in terms of three-year ROI, but they should think five or seven years.”
Given the volume of sales, however, and competition from the U.S. where retailers are much more aggressive online, Canadian retailers often shy away. A financial boost might help them get in the game.
Kevin Tuer, managing director of the Canadian Digital Media Network and vice-president of digital media at Waterloo-based start-up incubator Communitech, said education is the prime tool to breaking down that ignorance: “One aspect of the education process is how do you help an SME decide whether to go global or not? They don’t know what they don’t know.”
Canada is also behind in areas such as crowdsourcing, and the dearth of VC funding only makes that more difficult, said John Reid, president and CEO of the Canadian Advanced Technology Alliance. The issue is that government “doesn’t move at the speed of light” and is too often behind trends in the real world where businesses must compete.
“We need strong leadership here to show how we can transition to be an innovation nation,” he said. “We’re always playing catch up but we need to lead to maintain the standard of living here.”
Still, the puzzle is why Canadians lag at all, given our strong schools and intellectual resources, said Paul Salvini, chief technology officer at Christie Digital, a projection display and visualization company based in Kitchener, Ont. By default, he said, we have untapped potential to be at the cutting edge in many digital applications, such as remote health care and distance learning.
“To participate globally, though, will require access to the right tools and knowledge and the right infrastructure and the mindset,” he said, citing incubators like Communitech in the Tech Triangle and MaRS in Toronto as vital to creating an innovation culture. “If there’s fear it’s a fear of the unknown, but I think we’re in decent shape with our investments in education.”
While Jenkins’ panel looked at R&D, the recommendations resonate across the innovation landscape. In reaction, the feds have moved on many of Jenkins’ recommendations, committing in principal at least to drive innovation. So far, SR&EDs have been tweaked, a Western Innovation Program aimed at SMEs is being created, $400 million is set aside for venture capital, the BDC is getting $100 million for more venture capital action, and the Canadian Innovation Commercialization Program will get $95 million over three years to connect innovative SMEs to federal departments through procurement.
It’s a step in the right direction, but experts all argue that Canadian SMEs are still a long way behind the rest of the world.
Government must lead on e-commerce
Canadian businesses have a cash flow problem and unless this changes, “Canadians will be unable to fully engage in the digital economy of the 21st Century,” a federal task force recently reported.
The issue is electronic payments, the digital process of electronic transactions.
Currently, those transactions are controlled by financial institutions and increasingly by wireless companies that, along with Google and PayPal, are vying for a slice of every buck exchanging hands on the Web.
Retailers have built the cost of debit and credit card transactions into their pricing for decades, and consumers wince and pay the $1.50 online e-transfer fee most banks charge.
But when you’re a small- or medium-sized enterprise (SME), the setup and commissions related to electronic transfer add up quickly and are another deterrent to online business, said Doug Bruce, vice-president of research at the Canadian Federation of Independent Business.
In a 2011 survey of 8,209 SMEs, the group found the cost of implementing an e-commerce platform was the biggest obstacle to accepting electronic payments, and the money that went to the banks was chief among those complaints.
“It’s not B2C (business to consumer) that’s a problem, it’s the B2B part where we’re lagging,” he said. “Even in mobile payments, there are parts of the world where they don’t have access to bricks and mortar banking so they’ve gone straight to mobile payments.
“There are something like 100 different types of fees on electronic transactions...including things like ‘a global processing fee,’” Bruce said, noting the system is skewed to paper because the banking sector has a vested interest in the status quo. “They’ve invested a lot in the infrastructure to process cheques.”
About one billion cheques are written annually, with 60 per cent issued by government, large corporations and small- and medium-sized enterprises, and 40 per cent by consumers.
The Task Force on Payment System Review, chaired by Patricia Meredith, a financial services and technology consultant and a lecturer at both York University and the University of Toronto, tabled its report last December and concurred on many of the same points.
The Task Force report even put a price tag on it: “A modernized payments system could save the Canadian economy as much as two per cent of GDP in productivity gains‚ equivalent to $32 billion in annual savings for Canada.”
Within five to seven years, businesses in 27 European Union countries expect to save the equivalent of 1.98 per cent of GDP, about €243 billion per year in increased productivity, while reducing invoicing by 60 to 80 per cent by moving from paper to digital processes.
The solution? Government must lead the way, kick-starting the digital changeover in payments by implementing electronic invoicing and payments (EIP) for all government suppliers and benefit recipients, while partnering with the private sector to create a mobile ecosystem, the report said.
It also argued that the Canadian Payments Act should be overhauled, reviewing the model and the powers of the Canadian Payments Association to ensure standards exist to bring e-payment protocols into the modern age.
Even banks will save money. The report cited Finland’s Nordea Bank, which reduced costs and created new revenue streams by leaning to digital first. “Some estimates show that financial institutions will save $600 million a year in cheque-handling-related cost savings by 2020 under a digital payments system, because cheques are inefficient,” the report said.
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