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Donald Lenihan

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Making Business Accountable for Research and Development

Posted: 07/21/11 02:06 PM ET

Remember when the Blackberry first appeared? Canada's RIM had a great idea, got it to market, and we all benefitted. That's how business works, right?

Well, not quite. Some people say RIM's best-before date may have passed, which raises the question, what's next?

Whatever happens to RIM, the point is that we can't just assume there's another one around the corner. Maintaining Canada's competitive edge takes more than strong markets, good intentions, or even hard work. It takes a constant stream of new and innovative products delivered in a timely way, which, in turn, takes real investment in research and development (R&D). And that's a problem.

In 2007, Canadian business ranked 14th among OECD countries in R&D expenditures as a percentage of GDP. Their overall spending was only 1 per cent of GDP, well below the OECD average of 1.6 per cent, roughly half of what U.S. business spends, and about a third compared to Sweden, Finland and Korea.

So if you think businesses will automatically do what they must to stay competitive, think again. Businesses, it turns out, are a lot like people: even when they know what is best for them, they may not do it. When it comes to R&D, Canadian businesses are laggards.

What, if anything, can governments do about this?

Experts across the country agree that governments should launch a national innovation strategy, but there is a sea change underway in how they conceive this. Ten years ago, an innovation strategy meant using tools like tax cuts or subsidies to stimulate R&D. These days, policy-makers are calling for a different kind of effort -- one based on collaboration.

A successful strategy, we are told, must get the private sector, universities, hospitals, municipalities and NGOs to connect and work together in new ways. To make this happen, governments must assume a very different role.

Rather than being the principal problem-solver, governments must act more as a convener and facilitator. Their job is to help these players align around a common goal. If this sounds far-fetched, it's really not. The key conditions for success are mutual interest, trust and collective accountability, and they are pretty much there.

Consider: because the players all have a key role in keeping Canada competitive, they have a reason to work together (mutual interest). If government can get them all to sit down and work through their respective roles, an action plan could be formed where each player promises to do their part, if the others do (trust). Finally, as the plan is being implemented, they could meet regularly to report on their progress, and to hold one another to account for it (collective accountability).

How will this get business spending more on R&D?

If such a process were launched, business leaders could be counted on to agree that they should take steps to stay competitive. This is Management 101 and no CEO would publicly disagree with it. They could therefore also be expected to declare that business should invest in R&D. Once they agreed to this, however, it would be very hard to avoid making some kind of commitment to R&D in the action plan, if the other partners also committed to their roles.

Of course, such a public commitment would be no guarantee that businesses would deliver on it, but it would be an important first step. It would help focus attention on the task and create real pressure on business leaders to perform. Those who failed to meet these commitments would have to explain themselves to their innovation partners, as well as to their peers and shareholders.

The bald truth is that business leaders have failed to pull their weight on this file for three decades and nothing governments have done so far has changed that -- not tax breaks, subsidies or public pleas. A collaborative approach gives us a new way of coming at this problem. It is a way of moving the yardsticks on accountability for performance. The old approach let business leaders off the hook by pinning all the responsibility and accountability onto governments.

This must change. There is too much at stake not to take action. Economists have been warning us for a decade that Canadians can't maintain our lifestyle without real increases in our productivity, and everyone now agrees that innovation is the key to this. Creating new accountability on R&D is therefore in everyone's interest, including business.

The ball is in federal and provincial governments' court. They should launch a national process on innovation to transfer some of the responsibility and accountability for innovation back to business leaders, where it belongs, and to encourage their peers in the innovation process, including universities, hospitals and NGOs, to take on a new role in holding each other to account.

Now that would be innovation!