Why Canada lags

We're not applying the best strategies.

Only one in six companies adopt the most successful strategy: territorial expansion.

There’s a reason Canadian firms are innovation laggards globally. A new report from the Conference Board of Canada shows few of them focus on the most effective innovation strategies.

The Ottawa research firm says Canadian companies that focus on expanding into competitive markets outside of North America – and orient their innovation efforts to compete globally – reap the best bottom-line results, but only about one-sixth of businesses do so, according to its report, The State of Firm-Level Innovation in Canada.

Published by the Conference Board’s Centre for Business Innovation, the report is based on 2012 survey findings from 628 leaders representing small to large firms in many industry sectors.

“Few companies pick the most successful innovation strategy of expanding to provide products and services to new international markets, even though these firms earn between 10% and 30% more net income than their counterparts using other approaches,” said Bruce Good, executive director of the Centre for Business Innovation. “Most Canadian firms prefer to operate within provincial or national borders – or in North America.”

The report notes their lower performance than companies targeting global markets reinforces the observation that Canada doesn’t suffer from an innovation gap, but from a commercialization gap and the marketing that goes with it.

The Conference Board’s 2012 CEO Challenges Survey shows innovation slipping a point in the priority list to seventh place, noting the link to Canada’s poor 14th place showing in the World Economic Forum’s 2012-2013 Global Competitive Report.

Handling innovation

The types of innovations pursued the most are product (by 18%) and customer experience-oriented (17.6%), followed by service (14.5%), technology platform (13.6%) and process (10.8%).

Here are some survey highlights:

• Fewer than 15% of companies adopt a strategy to expand their territory-market even though firms that do often show better financial performance than the companies pursuing other innovation strategies.

• Most prevalent innovation challenges include a lack of funding, organizational culture, poor innovation training, fear of risk, lack of executive focus and a lack of innovation measurement.

• Most Canadian firms use internal cash. Government financing is second, ahead of private equity and bank financing.

• There is a strong correlation between the intensity of innovation efforts and company performance, but only if innovation activities are well managed.

• More than half of the companies pursue a user needs-driven innovation strategy to obtain new ideas that form the basis for developing products and services.

• About one-third of firms adopted a technology-driven strategy that relies on exploiting advances in technology to gain a competitive edge.

• 14% made territorial expansion the focus of their innovation strategy.

The Conference Board says firms that look to expand the size of their markets/territory make more use of internal financing and less use of government funding or private equity than firms with user- or technology-driven innovation strategies.

This report is the second in a series that provides insight into the status of firm-level innovation in Canadian industry.

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This article appears in the July/August 2013 edition of PLANT.