By Denzil Doyle
Politicians and policy makers are bombarded with messages from both industry and academia on a daily basis saying that we need more of it, even though our incentives for doing it are already among the best in the world. And everyone in the debate is frustrated because they know that we are not getting the appropriate economic results from the R&D we are doing.
As evidence, they point out that our economy is still too dependent on the sale of raw materials like lumber and minerals and that most of the technology that is developed for those activities tends to get developed elsewhere. They argue that if we were better at innovating, economic diversification would be automatic. And there is a broad consensus that R&D is the engine of innovation.
But a closer look at those incentives will reveal that they may be a little too focused on R&D and not enough on other things that go into the commercialization mix, like marketing (and particularly market research), selling, raising risk capital, and product management. The country’s two most popular incentive programs are NRC's IRAP and SR&ED, but in order to use them effectively, a company must have a pool of its own cash to perform the other functions. And that money is hard to come by.
Unfortunately, many entrepreneurs and their financial backers believe that they can use the money from R&D programs to finance those other functions and they keep on doing R&D when they should be out selling their products and services. They might be referred to as “R&D junkies.” They may even engage in contract research for companies and establishments that do significant amounts of R&D and are comfortable with contracting some of it out. As a result, they never do get around to developing the products and services that the original R&D was intended to produce. But so long as they are doing R&D, the R&D money will flow to them.
The fact of the matter is that contract R&D can be a very lucrative business, particularly if it is done for a foreign customer where sales taxes do not apply and the R&D money goes toward reducing the cost of sales. Also, it is an activity that requires very little selling and marketing effort because Canadian R&D is usually of a very high calibre and tends to sell itself.
The way to keep companies on their original paths is to provide them with enough money to perform all functions adequately and have them report on such expenditures to their investors on a regular basis. Many parties must play a role in the transition process, including our trade associations, which are too quick to join in the chorus for more R&D incentives.
Denzil Doyle’s involvement in Ottawa’s high technology industry goes back to the early 1960s. After establishing a sales office for Digital Equipment Corp. and growing its Canadian sales to more than $160 million, Mr. Doyle built a consulting and investment company, Doyletech Corp. He was awarded an honorary doctorate in engineering by Carleton University in 1981 and a membership in the Order of Canada in 1995.
This article is part of a continuing series examining the state of the ecosystem necessary to successfully bring technology to market and looking at what is working and what can be improved in the go-to-market ecosystem. It first appeared on Francis-Moran.com.
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