Message: Heed market signals when setting R&D priorities and assessing their return

RE$EARCH MONEY Conference

Ensuring and maximizing return on investment (ROI) for R&D does not occur without close and constant between the R&D activity and the customers it’s intended to benefit. That was the dominant message that emerged from the third annual RE$EARCH MONEY conference – R&D Investment: Assessing the Return. Over the course of the day, experts from across Canada and the US collaborated to generate a wealth of good ideas and spirited debate, particularly when the issue of Canadian industry occupied centre stage.

The event was unusual in the mix of perspectives that came together to discuss one of the most pressing issues facing Canada as it moves into the 21st Century. With a strong private sector contingent, debate focussed on how industry can effectively fulfill its role of conducting the majority of Canadian R&D and transforming it into the level of wealth creation necessary to maintain and enhance quality of life.

From the perspective of assessing ROI, it quickly became clear that each of the sectors — including so-called 4th pillar organizations — have very different mandates and approaches. Assessing ROI in the private sector is undertaken to mitigate risk and develop clear (and profitable) pathways between the lab bench and the marketplace. Government’s role is more diverse, but generally breaks down to providing the appropriate atmosphere for growing companies and commercializing products, while conducting R&D that’s deemed to be in the public good. For universities and colleges, the issue is not as clear cut, although most agreed that the most relevant ROI is the development of skilled personnel.

NO R&D, NO FUTURE

There was unanimous agreement on the necessity of conducting R&D. Whether the company was small or a foreign-based multinational, R&D is viewed as a given in a globally competitive environment that values knowledge creation above all else.

“We couldn’t exist if we didn’t put money into R&D,” says David Martin, chairman and CEO of Calgary-based Smart Technologies Inc.

It was a sentiment echoed by Jim Roche, president and CEO of Ottawa-based Tundra Semiconductor Corp. Roche says the high margin nature of the fabless semiconductor business allows for a high level of R&D, which has been 50% of revenue for the past two years.

“It’s not sustainable but we want to surge out of the tech downturn,” he says, adding that government investment tax credits and programs such as Technology Partnerships Canada and the Industrial Research Investment Program have been important contributors to Tundra’s success. “They give us a competitive edge. Government assistance tips the balance in favour of investing in Canada. Government also help us formulate relationships with others on the world stage.”

Roche’s endorsement of government assistance programs was not shared by Martin, who contends that the area where government can be most useful is in developing commercialization vehicles that help companies grow.

“We need policies to encourage this,” said Martin. “If we solve this puzzle, we have a great future.”

For large corporations, assessing ROI is no less critical to future competitiveness and prosperity. In most cases the assessment process has been institutionalized. Large firms tend to look to governments to provide an optimum and fair environment for conducting business, rather than specific programs to help them grow. But governments must also recognize that each industry has its own unique innovation system and tailor policies accordingly.

Merck Frosst Canada president André Marcheterre says that in the case of the pharmaceutical sector, university expertise and regulations defining the business operating environment are critical in determining where his company conducts R&D. As the head of a branch plan operation with one of 11 global R&D centres, Marcheterre says he plays a dual role in encouraging R&D investment. “I look at the case from a local perspective and I become a broker between government and Merck headquarters,” he says. “I work both sides.”

For an applied R&D company like Vancouver-based Creo Inc, universities are not viewed as potential collaborators but as source of talent. Governments should stick to creating the setting and then get out of the way.

“Government should not try and pick winners. They should create a climate for growth where people want to stay and work,” says David Brown, Creo’s VP business strategy.

Brown adds that Creo’s R&D activities ($138.9 million in 2002) is split between Vancouver and Israel. The firm recently repatriated US-based R&D to Canada where it can be conducted for about half the cost.

In the forestry sector, Timbec Inc is arguable the most innovative firm operating in Canada. But Tembec president/CEO Frank Dottori says the contribution of the sector is not properly appreciated.

“Forestry has $42 billion in revenues but it gets little R&D support,” says Dottori, adding that the new Canadian Forest Innovation Council could help to change this. “We want our fair share for the sector. It’s Canada’s most competitive industry globally.”

Throughout the discussions between private sector players, there was little discussion of the role government plays in the innovation system and how to gauge its ROI. That changed with the government panel, particularly with Dr Robert Slater, a former senior S&T official with Environment Can-ada and now a consultant. Describing government as the third leg of the innovation stool, he articulated its importance in Canadian innovation and urged decision makers to broaden its scope and support.

“How can the federal labs serve their primary purpose and then serve the opportunity side of the agenda, which is tantalizingly close but typically outside of their mandate?” he asked. “The third leg on the stool (government) has wood worm. It’s not in very good condition. Capital investment has declined and it’s consuming itself.”

Jeff Parker, executive director of Technology Partnerships Canada, says that although his government agency has a specific, market-oriented mandate, assessing its ROI in monetary terms is inappropriate.

“This is not about financial return on investment. TPC is looking to drive a whole series of public goods and public consequences,” he says. “TPC is a bridge or opportunity between public good and seizing opportunities that lead to the market. “

A complete description of the conference proceedings will soon be posted at www.researchmoneyinc.com.

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