Can $17 Investment Double $15B R&D Budget?
“The engine of research comes from ideas” — Fabiola Gianotti, Director-General of CERN, the European Organization for Nuclear Research
And if you’re still skeptical on above and not buying-in, remember this: “Great minds discuss ideas; average minds discuss events; small minds discuss people” — Eleanor Roosevelt
BROAD STROKES GIVEAWAY
Innovation is a process through which economic or social value is extracted from transforming ideas — to produce new or improved products and/or services.
Regardless of how we define innovation, Research & Development (R&D) plays an ever-increasing role in all advanced economies.
To put Canada’s R&D spending in perspective, one must remember that US spends on R&D $463B per year. According to Statistics Canada, “Canada’s gross domestic expenditures on research and development (GERD) fell from $34.5 billion in 2014 to $33.9 billion in 2015. Regardless of the actual numbers, even $35B is still only 7.5% of US spending!
The conclusion: IT’S NOT EASY! Canada is competing for the same R&D talent with the entire world! And each of the 140 countries from The Global Competitiveness Index (GCI) by World Economic Forum could use the same virtuous & noble objectives, as Canada does.
And when government R&D spending remains flat, or decreases, and corporate spending is on the rise — global competition intensifies. In other words: A classic red ocean environment described so elegantly at: https://www.blueoceanstrategy.com/.
To do more for less, Canada Foundation for Innovation, and other government agencies, must deliver more value by leveraging industrial contributions — significantly. And when industry spends more on R&D, it creates more high-paying jobs — an ultimate societal benefit. Here is how…
PROBLEM
The definition of innovation by Merriam-Webster dictionary is quite succinct:
1) : the introduction of something new
2) : a new idea, method, or device
To put more meat on a bone — one may consider Business Dictionary which reads:
“The process of translating an idea or invention into a good or service that creates value or for which customers will pay. To be called an innovation, an idea must be replicable at an economical cost and must satisfy a specific need.
Innovation involves deliberate application of information, imagination and initiative in deriving greater or different values from resources, and includes all processes by which new ideas are generated and converted into useful products.
In business, innovation often results when ideas are applied by the company in order to further satisfy the needs and expectations of the customers. Innovation is synonymous with risk-taking and organizations that create revolutionary products or technologies take on the greatest risk because they create new markets”
Regardless of how we define innovation, R&D plays an ever-increasing role in all advanced economies. In turn, economic growth and job creation is tightly linked to industrial competitiveness. This leads to substantial investments in R&D by companies, governments, universities & nonprofit organizations all around the world.
Therefore, it’s not surprising that countries, states/provinces, and even individual companies are being closely monitored, and their R&D expenditures benchmarked, and compared. In most cases, the ranking is either based on the actual $ amounts spent, or the ratio of country’s gross domestic expenditures on research and development (GERD) to its gross domestic product (GDP). Such percentage is considered an indicator of the country’s degree of R&D intensity.
Global Innovation
The following charts from Visual Capitalist are indicative of above ratios, and the amounts spent:
A breakdown of R&D spending by GDP of select G20 countries:
On a company basis, the top five R&D spenders today are mostly technology companies:
Canadian Innovation Perspective — Eh?
Recently, I had a number of interactions with The Canada Foundation for Innovation (CFI) , a non-profit corporation created by the Government of Canada in 1997. Its mission is to benefit Canadians by strengthening the capacity of Canadian universities, colleges, research hospitals and non-profit research institutions to carry out world-class research and technology development. It’s an impressive organization with a solid track record of 20 years!
“The CFI maximizes the funding it receives from the Government of Canada by contributing up to 40 percent of a project’s research infrastructure costs. Institutions secure the remaining 60 percent through partnerships with provincial governments and other public, private and non-profit organizations. This means the more than $7 billion invested by the Government of Canada through the CFI has been leveraged into a total investment of close to $17.5 billion in research infrastructure in Canadian institutions since the CFI was created”
To put Canada’s R&D spending in perspective, one must remember that US spends on R&D $463B per year. According to Statistics Canada, “Canada’s gross domestic expenditures on research and development (GERD) fell from $34.5 billion in 2014 to $33.9 billion in 2015. Intentions for 2016 show that gross domestic expenditures are anticipated to remain virtually unchanged from 2015 estimates.
The business enterprise sector was also the largest funder of R&D expenditures, providing $15.8 billion or 46% of total gross domestic expenditures. Far behind this sector were the higher education sector and the federal government sector, each making up about 18% of total expenditures”
Regardless of the actual numbers, even $35B is still only 7.5% of US spending!
To measure Canadian innovation performance even further, The Conference Board of Canada, evaluates Canada on the following 10 report card indicators: public R&D, researchers engaged in R&D, connectivity, scientific articles, entrepreneurial ambition, venture capital investment, business enterprise R&D (BERD), ICT investment, patents, and labour productivity. According to their recent report, Canada ranks 9th of 16 peer countries, and earns a “C” on innovation.
The conclusion: IT’S NOT EASY! Canada is competing for the same R&D talent with the entire world! And each of the 140 countries from The Global Competitiveness Index (GCI) by World Economic Forum could use the same virtuous and noble objectives, such as:
· Increase XXX’s capability to carry out important world-class scientific research and technology development;
· Support economic growth and job creation, as well as health and environmental quality through innovation;
· Expand research and job opportunities by providing support through research infrastructure for the development of highly qualified personnel;
· Promote productive networks and collaboration among XXX universities, colleges, research hospitals, non-profit research institutions and the private sector
And when government R&D spending remains flat, or decreases, and corporate spending is on the rise — global competition intensifies. In other words: A classic red ocean environment described so elegantly at: https://www.blueoceanstrategy.com/.
As per Blue Ocean Strategy’s (BOS) Value Innovation recommendations, IMHO, to do more for less — CFI and other government agencies must deliver more value by leveraging industrial contributions, significantly. And when industry spends more on R&D, it creates more high-paying jobs — an ultimate societal benefit.
“We use the terms red and blue oceans to describe the market universe. Red oceans are all the industries in existence today — the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the red ocean bloody. Hence the term red oceans.
Blue oceans, in contrast, denote all the industries not in existence today — the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored. Like the ―blue ocean, it is vast, deep, powerful, in terms of profitable growth, and infinite”
SOLUTION
I used Artificial Intelligence (AI) in Technology, Finance, & Renewable Energy for 30 years. Now, I help Corporate VCs, BODs, and Advisory Boards — launch new ventures that work! You can find many of my comments on Technology, IoT and Artificial Intelligence at our website, linkedin, or twitter, including:
The point I’m trying to make is quite simple: when you spend 30 years on pattern recognition and analyze data to detect: money laundering, banking fraud, cancer, heart disease, handwriting authentication, speech recognition, optimal renewable energy generation, electric grid’s load balancing, and more — you’re about to see patterns, whether you like it, or not.
Often, a skilled outsider observing emerging patterns with fresh eyes — can see challenges and opportunities far better than vested executives. No, I don’t have 6th sense, but my acquired pattern recognition abilities, allow me to see the applicability of Blue Ocean Strategy to solve the innovation problem. Hence my first recommendation: BUY THE BOOK! Your cost: $17 — and it can become the best investment you’ve ever made!
I also believe that combining 30 years of R&D knowledge, experience and practical know-how — turns it into …wisdom. As they say: “Knowledge is knowing that tomato is a fruit, wisdom is not putting it in a fruit salad” ― Miles Kington
So, years ago, one of my startups: International Neural Machines Inc. (INM) — was the ONLY, product-oriented neural network AI company in Canada! Back in 1990s, I also used to be an Associate Professor at The University of Waterloo, School of Optometry — and helped graduate students, become proficient at advanced image processing.
For over 10 years at INM, I’ve been involved with both: the funding and the receiving end of entrepreneurship. Such included taking a tiny start-up and turning it into a $125MM Market Cap — by merging with a publicly trading company on Toronto Stock Exchange, and employing 150 people. Not only did we gain invaluable AI experience in Insurance, FinTech, Healthcare, Imaging and Speech — but also in award-winning product development and distribution channels!
At that time, I raised over $12M (CDN) — to cover INM’s R&D costs. My interactions with Canadian/US Governments included: managing significant grants from National Research Council (NRC), Department of National Defence (DND), Canadian Police Research Centre (CPRC), Ontario Rehabilitation Technologies Consortium (ORTC) — and work with University of Waterloo, University of Guelph, University of Toronto, and more.
In addition, I’m also extremely proud of the work I did at Microelectronics and Computer Consortium (MCC) in Austin, Texas. MCC was the first, and — at one time — one of the largest, computer industry research and development consortia in the United States, headed by Navy Admiral, Bobby Inman. At its peak, MCC housed over 400 PhDs under one roof and I was supervising for 3 years a large group of world’s brightest neural network and Artificial Intelligence researchers — on behalf of $7B NCR Corporation.
Industry to the Rescue
Since business enterprise is already the largest funder of R&D expenditures (providing $15.8 billion or 46% of total gross domestic expenditures) — we can call it a “low-hanging fruit”, a “Bright Spot”. And all Bright Spots should be replicated, as soon as you can!
But instead of simply competing for existing business enterprise wallets (existing enterprise customers), my recommendation is to bring noncustomers to the table, and help them embrace innovation, too!
Noncustomers do exist, and tapping into such group provides expanding growth opportunity. As per BOS recommendations, the noncustomers can be divided into three tiers:
- First-Tier Noncustomers — all enterprise business who would curtail their R&D spending at the first sign of economic slowdown. They may require government policy changes and tax cuts — to stay motivated
- Second-Tier Noncustomers — all mid-size business who consciously thought about R&D spending, but then rejected it because it’s beyond their means
- Third-Tier Noncustomers — all small business who never even considered investing in R&D, consciously — but could use it, or benefit from it. They always rejected it because existing government policy made it unfeasible and unattractive
You may ask: how big is the noncustomer base, anyway? As per Key Small Business Statistics:
· As of December 2015, the Canadian economy totaled 1.17 million employer businesses. Of these, 1.14 million (97.9 percent) were small businesses, 21,415 (1.8 percent) were medium-sized businesses and 2,933 (0.3 percent) were large businesses
· Small businesses employed over 8.2 million individuals in Canada, or 70.5 percent of the total private labour force. By comparison, medium-sized businesses accounted for 19.8 percent (2.3 million individuals) and large businesses accounted for 9.7 percent (1.1 million individuals) of the private sector workforce.
And this is very SIGNIFICANT growth opportunity, indeed!
CVC to the Rescue
But how do you help Small Business embark on R&D journey? I have repeatedly described CVC’s potential to become a partner of choice for startups and small businesses. You can find the details in my posts:
· How To Turn Corporate Venture Capital Into A Magnet For Raising SEED CAPITAL
· Corporate Venture Capital — The Most Underutilized Factor Endowment Of Corporate Giants
And yet, the number of existing CVCs pales in comparison to the number of active VCs in Canada. I am convinced that with specific government policies in place, we can encourage CVC formation. As a result — R&D spending could grow by an order of magnitude. You can find additional details about my recommended policy changes in:
IN CONCLUSION
As CFI so elegantly asks:
· “How can Canada set itself on the right path for fostering a strong research and innovation system? It’s a pressing question — one that occupies countless boardroom discussions and newspaper columns, and has given rise to the development of a new innovation agenda for this country and a review of federal funding for fundamental science.
· But even as we scrutinize the mechanisms by which we support research and innovation in Canada, we should take the time to reflect on the ways innovation touches all our lives. In this knowledge era, innovation is integral to nation building and there is almost no limit to what research can teach us. In the broadest sense, both research and innovation are driven by the desire to make things better”
Good points! This is my reflection. What’s yours?
Oleg Feldgajer is President & CEO of Canada Green ESCO Inc. Oleg is positioning the company to become a leader in financing AI enhanced green energy projects and ventures. CGE’s mission is to guide DISRUPTIVE businesses in ENERGY & TRANSPORTATION toward profitable business models. Oleg is passionate about such mission, and firmly believes that without AI based innovation, we will all prematurely choke on polluted air and dirty water. CGE delivers 100% financing (levered and unlevered) to its clients — and utilizes large equity pools, and non-recourse debt. Oleg offers creative, fresh ideas to open-minded businesses — that embrace both: logic AND opportunistic intuition. CGE stands against mediocrity & its modus operandi is quite simple: If CGE is not invited to join your BOD, or Advisory Board — we failed!
