Alberta Research Council Inc

I-CAN Innoventures Canada

Innovation is Impact

John McDougallPresident and CEO

Alberta Research Council Inc.November 2005


Innovation Goals• Jobs and GDP growth

– Grow and strengthen companies– Critical mass attracts and retains internationally

renowned HQP talent

• Efficiency and Productivity– Increased utilization of scarce human and capital

infrastructure– Investment into high priority, state-of-the art, high

impact, people, facilities and equipment

• Innovation culture and expertise


Five Myths• More research will make Canada more innovative.• More support to Canadian universities would

substantially increase innovation and commercialization.

• Canadian infrastructure is adequate to transform Canada into a leading innovative global economy.

• Canada is dominated by small companies and so must focus its innovation and commercialization efforts on SME’s. Canada has a host of early stage companies that should be commercial successes.

• There is a shortage of early stage funding in Canada.


Myth 1

More research will make Canada more innovative.


Where Innovation Comes from• New to world (10%)• New (to company) product lines (20%)• Additions to existing product lines (26%)• Improvements to existing products (26%)• Repositioning (new applications for existing

products) (7%)• Cost reductions through modification (11%).

The most successful products (profit wise) are new to firm and new to world.

(Source: Cooper)

Market-Pull (79% of successful innovation)Technology-Push (21% of successful innovation)


Reality 1

Successful innovation is driven 80% or more by markets and firms.

“Strong innovative companies move beyond the simple dichotomy of ‘market pull’ versus ‘technology push’ to embrace both sides of the equation.”

Conference Board of Canada

“Strong innovative companies move beyond the simple dichotomy of ‘market pull’ versus ‘technology push’ to embrace both sides of the equation.”

Conference Board of Canada

“Innovation is about commerce – meeting or creating market needs.”“Innovation is about commerce – meeting or creating market needs.”


Myth 2

More support to Canadian universities would substantially

increase innovation and commercialization.


Canada Bets on the Universities

0

2000

4000

6000

8000

10000

12000

91-2

92-3

93-4

94-5

95-6

96-7

97-8

98-9

99-0

00-1

01-2

02-3

FIscal Year

$ M

illi

on

s

Private Non-profit

Higher Educ

Provl Govt

Federal Govt


It’s a High Risk Strategy

• “University research yields raw technology, results that cannot be directly commercialized because it is circuits, processes, components, etc.

• Usually further investment is required for scale-up, packaging, clinical studies, prototypes, testing, demonstration, etc.”

Ron Freedman, The Impact Group

“Canadian universities perform a larger share of national R&D than most G-7 countries and the share of university research funded by industry is also substantially higher than in any other country. Yet, Canadian is one of the weakest countries in generating benefits from innovation.”

New Brunswick Research and Productivity Centre

“Canadian universities perform a larger share of national R&D than most G-7 countries and the share of university research funded by industry is also substantially higher than in any other country. Yet, Canadian is one of the weakest countries in generating benefits from innovation.”

New Brunswick Research and Productivity Centre


Critical Differences

• Pharma and health innovation comes from universities because researchers live in teaching hospitals that give them market information.

• No other sectors look at universities for technology in that way.

Industrial R&D Reflects Receptor Capacity.

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

99 0 1 2 3

LS

Energy

ITC

ITC exNortel

In Canada, nearly 70% of industry funded R&D in 2002 was in ITC.

Statistics Canada

In Canada, nearly 70% of industry funded R&D in 2002 was in ITC.

Statistics Canada

Nortel

Receptor problem won’t be solved by pushing discovery infrastructure downstream.


Causes of failure (Source: Cooper)

• Technology push – 28%– Better mousetrap nobody wants

• No user benefits – 24%– Me-too product meets competitive brick wall

• One-up-man-ship – 13%– Competitor reaction foils launch

• Technical Dog – 15%– Won't work or performance inadequate

• Price Crunch – 13%– Price too high

• Ignorance – 7%


Reality 2

Academics will absorb whatever level of resource is provided.

Pushing university professors to become entrepreneurs distracts them from their basic

strengths and role.


Myth 3

There is adequate infrastructure to transform Canada into a leading

innovative global economy.


National Infrastructure• Universities, CIAR

– Basic & applied research

• NRC - Nutrino, Nint, Steacie, etc.– Big science institutes

• Government Labs – AFC, Env, NRCan, …– Sector specific R&D

• I-CAN – ARC, CRIQ, IRAP, ITC, RPC, SRC– Market based technology & product development

• R&D Intensive Enterprises– Product development and deployment


Canada’s Commercialization Gap

DISCOVER DEPLOY

Invent Adapt Adopt

Create Transform Use Diffuse

Commercialization Gap

DEVELOP, DESIGNand DEMONSTRATE


Reality 3

Canadian innovation infrastructure lacks critical mass for market

driven design, development and demonstration.

Ratio of industry to public sector investment in R&D in most innovative economies (Finland, Sweden, US) is 3 or 4 to 1.

Canada is currently considerably less at 2:1.

Ratio of industry to public sector investment in R&D in most innovative economies (Finland, Sweden, US) is 3 or 4 to 1.

Canada is currently considerably less at 2:1.


Myth 4

Canada is dominated by small companies and so must focus its innovation and commercialization

efforts on SME’s.

“Canada has a host of early stage companies that should be commercial successes.”

Corporate R&D in Canada – 2001R

&D

Exp

endi

ture

$3 M —

121 COMPANIES

Sales: $264 B AV $2.2 B

77.9% of Total

R&D: $1.74 B AV $14.4 M

13.3% of Total

R&D Intensity: 0.66%

120 COMPANIES

Sales: $72.8 B AV $607 M

21.5% of Total

R&D: $10.3 B AV $85.7 M

78.8% of Total


141 COMPANIES

Sales: $537 M AV $3.8 M

0.2% of Total

R&D: $903 M AV $6.4 M

6.9% of Total

R&D Intensity: 168.4% 139 COMPANIES

Sales: $1.34 B AV $9.5 M

0.4% of Total

R&D: $139 M AV $1.0 M

1.1% of Total


>0% 3% 50%

R&D Intensity (R&D Expenditure/Sales in %)(from Research Infosource Inc.)

“Only 228 firms in Canada currently have the size, R&D intensity and revenue to be R&D leaders.”

ITAC

“Only 228 firms in Canada currently have the size, R&D intensity and revenue to be R&D leaders.”

ITAC


Fundamental Challenges• Increasing product development, manufacturing and exports

by globally competitive Canadian enterprises.– Limited number of globally competitive innovative SME and manufacturing

enterprises.– SMEs have a lot to gain from research and innovation but are typically unwilling

to invest in perceived “high cost, low value” research without government help.

• Innovation intensive organizations spend 5-10% of sales on R&D.– $5 million R&D requires $50 – 100 million in new sales.

• SMEs require infrastructure to support innovation.– Innovation infrastructure requires patient capital to build, equip and

sustain it while business evolves to the new higher level of activity.– Thinly distributed innovation infrastructure and lack of critical mass in Canada

limits capacity to transform ideas into commercial reality.


Business Factors• Most companies plan to sell or be bought out. VCs

encourage early sale for a “quick exit”.• Government programs support R&D, but offer little marketing

and other business development support at home or abroad.• Working with Canadian regulatory agencies can pose

challenges compared to other countries.• CEOs of many R&D intensive firms lack necessary

knowledge and experience in commerce.• Post-secondary institutions pass on technical and scientific

knowledge, but do not prepare these graduates for human relationship challenges in marketing, sales and management.


Reality 4

Canada has a paucity of skilled entrepreneurs capable of transforming new ideas into products

and services that customers want.

For maximum impact, medium and large companies also need to play major roles.

“A narrow focus on the technology side of the enterprise rather than commerce, a shortage of people with management, marketing and sales skills,

and a societal distrust and suspicion towards commerce have created numerous challenges for CEOs of “greenhouse” firms.”

Barber and Crelinsten 2005

“A narrow focus on the technology side of the enterprise rather than commerce, a shortage of people with management, marketing and sales skills,

and a societal distrust and suspicion towards commerce have created numerous challenges for CEOs of “greenhouse” firms.”

Barber and Crelinsten 2005


Myth 5

There is a shortage of early stage funding.

Commercialization Elements

Function

Structure

Personnel

Finance

Infrastructure

Knowledge

Individual

Scientists

Grants

University

NBO’s Prototypes Products Markets

Teams Business

Engineers FinanceMarketing

Contracts Seed Venture DebtIRAP

Incubators

Development Labs

Corporation

BDC IPO

Cluster

ProductionSales

Sales

Engineers

Accelerators

Tech Transfer

Discovery Place Innovation Place Market Place

Colleges

PRO’s


Access to Capital• Sources of Capital

– Equity, loans, asset sales, cash flow, etc.

• Most R&D firms finance their operations from investors and lenders rather than sales.

• Access to capital is an issue when capital market fails to supply funds at terms acceptable to business borrowers.– The institutional supply of venture capital in Canada grew

dramatically in the 1990s.– It fell off in the past 5 years due to weak returns.

• Failure to provide funds may be legitimate.– Business may not be credit worthy for reasons including ability

to repay; commitment and character of proponents; prospects for the industry sector and availability of collateral.

Public Issues

Commercial BanksNon-Financial Corporations

Later Stage VC

Wealthy Family Funds

Private InvestorsFamily and Friends

Personal Savings

Seed & Early Stage VC

Government Programs

Chart 1.1 - Sources of Capital for Emerging Companies

Stage of Company Development

Stage 1 Stage 2 Stage 3

Knowledge Acquisition

Concept Investigation

BasicDesign

Prototype Building

Market Entry Manufacturing Ramp-up

Perceived Gap

Source: Davitech Consulting Inc., Report on Barriers to Technology Commercialization, July 1996


Risk Management Strategies

• New product game puts investment at risk with high levels of uncertainty.

• Risk management strategies poorly understood– High uncertainty limits amount that will be risked– Decreasing uncertainty leads to increased investment– All or nothing decisions often result in nothing– Pay for relevant information to reduce risk– Provide for "bail out" points– Build an experienced management team

• It’s all about building confidence.


Reality 5

There is an abundance of capital but it seeks “adequate” returns.

“Canada needs people who do commerce to win in the knowledge economy.” Barber and Crelinsten 2005

“Canada needs people who do commerce to win in the knowledge economy.” Barber and Crelinsten 2005


Summary• Innovation is driven 80% or more by markets

and firms.• Pushing professors to be entrepreneurs

distracts them from their basic strengths and role.

• Canada’s innovation infrastructure lacks critical mass for market driven design, development and demonstration.

• Canada has too few entrepreneurs capable of transforming new ideas into products and services that customers want. Medium and large companies will need to play major roles.

• Capital seeks “adequate” returns.


Fundamental Conclusions

• System Structure - OK– But pieces not working together

• System Balance – wrong– Subsidize technology for the rest of the world

• Focus – absent or misplaced– Market assessment and capacity to follow thru– Clusters – small scale or driven externally

• Culture - Canada is not the US• Management capacity and skills - weak

– Marketing, entrepreneurial management

• Capital – absent or unwilling?– Deal flow - weak


I-CAN will improve Canada’s ability to be a globally competitive

innovative economy.


I-CAN will improve the balance

DISCOVER DEPLOY

Invent Adapt Adopt

Create Transform Use Diffuse

Commercialization Gap

DEVELOP, DESIGNand DEMONSTRATE


Advanced Materials Manufacturing in Alberta –

Innovation, Invention and Investment

Ron R. Wallace, Ph.D.Vice-Chairman,

Ceramic Protection CorporationInnoWest, November 16, 2005


“The realities of the market today – intense international competition, the rapid pace of technological development, and the ease

with which investment and knowledge flow around the world – mean it is more

important than ever for companies to strengthen competitive capabilities based

on productivity and innovation.”Canadian Manufacturers and Exporters, August 1, 2001


Outline

• Accomplishments of Ceramic Protection Corporation

• Role of the Alberta Research Council

• Lessons learned


Accomplishments

• Ceramic Protection Corporation– Founded in Calgary by venture capital

investors – 1989– TSX-Venture Exchange – 1996– Toronto Stock Exchange – 2005

• Technological innovations in advanced materials manufacturing, focused in wear management and defense markets


5.334.13

3.56

6.54 6.32

8.28

11.78

9.36

16.32

13.45

3.995

109

14

12

14

17

24

31

28

33

0

5

10

15

20

25

30

35

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2 moN/D

Q1 Q2

2003 2004 2005

Quarter

Sales (Millions)

Earnings Per Share(cents)

Quarterly Sales & Earnings


ARC – Helping Companies Grow

• ARC instrumental in development of advanced ceramic materials technology and manufacturing in Canada:– Entered Joint Research Venture with ARC to

develop technologies, stabilize manufacturing processes and make ballistic tiles and plates

– Developed methodologies for certification of mechanical properties of ballistic ceramics

– Received first and only Canadian acceptance from Canadian Army and other industrial end users for ballistic testing and certification


Role of Alberta Research Council

• ARC provided basic research and applied materials testing, allowing material breakthroughs

• Acquisition of highly skilled professionals by ARC was first and most important step in developing a public R&D capability for advanced ceramics in the province


Factors in Successful Collaboration• Funding higher education

– Canada not included in world’s top universities – Global competition fierce and growing

• Enhancing innovation by attracting highly-skilled personnel– Canada well placed to succeed

• Policy development in support of enhanced R&D– Include impact of high taxes and judicial and

regulatory factors– May have received less than urgent consideration at

the national level.


Lessons Learned

• “Economists now recognize that 80% or more of long-term economic growth is driven by technological innovation.” Josty (2003)

• National Summit on Innovation and Learning (2002) recommended priorities for Government of Canada:– Ensure decision making for new and existing

policies and regulatory priorities– Ensure that Canada’s business taxation regime is

internationally competitive– Brand Canada as a location of choice


Myths Surrounding Innovation

• Increasing spending on R&D will increase innovation capacity

• Most innovative ideas emanate from R&D

• Innovation is an investment or ‘input’ game – more money provides more innovation competitiveness


Alberta Ahead in Innovation Game

• Experience of CPC, ARC a predictable outcome of the policies for taxation, investment and innovation already at work in Alberta:– Substantial investments in university and government

research sectors– Many highly skilled immigrants making Alberta a

destination of choice– Alberta renowned for its enlightened corporate

taxation and favoured treatment of entrepreneurs


Alberta Advantage Working

• As demonstrated by the CPC/ARC case study:– Alberta-based firm achieved material technological

advances in manufacturing for US export market– Acquired a US-based manufacturer – Maintained corporate presence in Canada– Achieved enhanced listing on a Canadian exchange– Provided notable returns to investors

• Pool of venture funds and investment capital has increased in Alberta


Canadian Model

• Canadian Chamber of Commerce in September:– Recommended corporate taxation rate be cut

from 21% to 20% in 2006, with a further 1% reduction in each of following three years to attract business

– Noted Canada’s productivity climbed an average of .9% per annum since 2000, as compared with 3.5% in the US


Productivity Gap = Income Gap

“As expenditures are increasingly channeled into less and less productive activities, it has a negative impact on economic growth….”

Canadian Chamber of Commerce


Local Wealth True Measure of Success

Economic experience of Alberta and agencies like ARC demonstrates the potential outcomes of adopting more enlightened policies for research and innovation


Acknowledgements

• Alberta Research Council Inc./Joint Research Venture Program– Dr. Partho Sarkar– Dr. John Zhou– Ms. Karen Beliveau

• National Research Council/Industrial Research Assistance Program (IRAP):– Mr. Roger Woods– Mr. Alex Dixon– Mr. Andy Gilliland


Helping Canadian Companies Become Globally Competitive

Trevor Cornell

Chief Operating Officer, Manitoba Industrial Technology Centre


Manitoba Manufacturing Sector• Largest industrial sector

• Approximately 13% GDP

• Diverse – aerospace, food, apparel, furniture, buses….

• Approximately 1500 manufacturers

• 85% employ < 50 staff


Sector Challenges• Productivity (2002) 7th among

provinces• Productivity growth (10 year

average) ranked 8th in Canada

• Rapid exchange rate change• Increasing offshore

competition• Skills shortages


Manitoba’s Imperatives• Improved R&D for

products/processes• Increased product

commercialization• Adoption of new (existing)

technologies• Introduction of best

practices• Improved staff skills at all

levels


Initiatives

• Advanced Manufacturing Initiative (AMI)– Managed by CME– Lean training– Establish company consortia– Share best practices– Publish “productivity”

information– Promote careers in

manufacturing


Initiatives (cont’d)

• Research and Innovation Fund• Smartpark at

University of Manitoba– TR Labs– Composites Innovation Centre– Industrial Technology Centre

• Product design/development• Prototyping/testing

– Vehicle Technology Centre


ITC Services

• Product design/development

• Virtual reality/simulation • Vibration analysis• Noise analysis• Testing• Calibration• Inspection


ITC (cont’d)

• SCC and CLAS

accreditation

• ISO 9001 registered

• Manufacturing sector

focus

• Product development

• Process improvements


I-CAN• Easier access to technical services across

Western Canada• Better links between service providers• Comprehensive database of services

available across provinces• Seamless and effective network


I-CANWill help companies• Improve products/processes• Improve productivity• Become globally competitive


Helping Canadian CompaniesBecome Globally Competitive

Laurier L. Schramm, President and CEOSaskatchewan Research Council

“Applied Research – Making Technology Happen”

Laurier L. Schramm

Saskatchewan Research Council


• Technology and business evaluations

• Full cycle product development and support

• Rapid prototyping, pilot-testing

• Intellectual property management

• Commercialization

Inventors, Entrepreneurs, SMEs

Laurier L. Schramm



Doepker Industries

• SRC services for Doepker:– Manufacturing assessment

studies, – Action plan for improvements,– Development of training

processes,– Management information

systems,– On-going productivity support

• Doepker has now grown and diversified:– Multiple plants (Canada and

US)– Product diversification,– Entry into global markets

Laurier L. Schramm


• Doepker Industries is a leading manufacturer of highway trailers in Western Canada.


Impact Audit Reports

Laurier L. Schramm


“SRC’s involvement helped us identify

and implement changes faster than we could have done ourselves – those

changes then allowed us to

weather an industry-wide downturn.”

Dave DoepkerDoepker Industries


Manufacturing Sector

• E-Zeewrap 1000 dispenser product

• Product development and design

• Decreased manufacturing costs 75%

• Sold across North America

Laurier L. Schramm


“SRC redesigned the E‑ZEEWRAP

dispenser from metal to injection molded

plastic. This helped decrease our

manufacturing costs by 75 per cent.”

Jim Scharf, PresidentJim Scharf Holdings


Manufacturing Sector

Laurier L. Schramm


• Acutec Systems Ltd. • Problem: level detection in

oilfield tanks• Solution: an automated

electromechanical gauge • Public spin-off formed:

– TSX Venture Exchange

– Titan Logix Corp.

• Continuing to work with Acutec on products to convert digital data and analog signals to voice

“SRC is a valuable resource. They took

us from concept through to product development, and

helped us through the whole process.”

John Grimes, President

Acutec Systems Ltd.


Larger Company Support

Spanning all key strategic economic sectors:• Agriculture and Biotechnology• Health• Energy and Energy Conservation• Mining and Minerals• Manufacturing and Value-Added

Processing

Collaboration, partnership, consortia,

joint ventures, subsidiaries

Laurier L. Schramm



Oil and Gas Sector

• Improved heavy oil recovery process

• Reduced energy and water demands

• Consortium approach coordinated through PTRC and supported by Nexen, Husky, CNRL, and governments

• Synergies and leverage in combining the unique RD&D strengths of SRC and ARC

Laurier L. Schramm



Oil and Gas Sector

• Solvent vapour processes are highly field-specific and therefore RD&D intensive

• “Size of the prize” is large:– Heavy oil resource > 26 B

bbls– Incremental recovery of 20%– Avoid over 400 M tonnes of

CO2 emission– Sequester ~175 M tonnes of

CO2– Avoid ~2 B bbls of fresh water

• Collaboration is the key• Exportable Canadian technology

Laurier L. Schramm



I-CAN Partners Help Build Competitive Advantage

I-CAN member organizations work with business and industry– Individual inventors and entrepreneurs,– Small and medium size enterprises,– Major enterprises

To provide:– Increased production– Added value– Improved productivity– New products and services– Competitive advantage, globally!

Laurier L. Schramm
