Innovation School Module 1 Innovation Overview

1. Innovation SchoolModule 1Innovation Overview October 19, 2011 Charlottetown, PEI

2. Innovation System OVERVIEW Conceptual Framework

3. Purpose • Build - common understanding and language with respect to the Canadian innovation system and its components. • Engage - in a provocative dialogue to explore key issues, perceptions and challenges. • Explore - options for policy development and assessment that will stimulate more commerce. Presentation, Exploration and Discussion

4. Historical Context A Short History ofNearly Everything RAILWAYS MICRO-PROCESSOR BIO/NANO STEEL & ELECTRICITY AUTO, PETROL, ROADS Energy/Transport INDUSTRIAL REVOLUTION LONG WAVES Communication Computing Biology Sputnik TECHNOLOGYACHIEVEMENTS Moon Landing Nuclear Energy Automobile Powered flight First Cloned Mammal Linear Map of Genes Virus Genome Sequenced Human Genome Sequenced Mendel Laws of Genetics Electric Power, Int Combust Babbage Difference Engine Electro-magnetic Induction Automatic Tel Exchange Wind and Water Power Hudson Bay Co estab Synthetic Life Commercial Radio ENIAC Computer Integrated Circuits Paper Developed PC introduced Printing Press Steam Engine ARPANET Telegraphy Transistor Wireless Cellular Internet 1400 1600 1800 1900 1950 2000

5. Innovation often occurs long after the invention Kondratieff cycles In 1980, Marchetti analyzed invention and innovation over 250 years. He found they tend to appear as highly structured waves. He predicted that the 4th wave would reach its maximum momentum around 1990.

6. 4th Wave - Post War Era • Major driving forces heavy and chemical industries: • Automobiles and the internal combustion engine • Petrochemicals and plastics • Consumer durable goods • Petroleum energy a critical component due to its availability at low real costs and its role as both fuel and feedstock.

7. Technology in the 4th Wave • Technological system was enabled by the social and institutional framework: • Spread of specialized research and development departments of large corporations. • Large scale state involvement in military research. • Oligopolistic competition in key industries. • Hierarchical control of functionally specialized workers. • Emergence of a middle-income class which supported large markets for homogeneous consumer products. • Public service spending and income redistribution (enabling mass consumption thru disposable income).

8. 5th Kondratieff Wave • New factors emerged as critical driving forces: • Micro-processors • System integration • Flexibility • Quality • Environmental compatibility • Value and information intensive • Just-in-time, high turn-around, low inventory • Economy of scope rather than economy of scale

9. Technology in the 5th Wave • Social and institutional framework evolved: • Decline of R&D departments in large corporations. • Rise of large scale state (academic) involvement in research emphasizing generic technologies and industry-university collaboration. • Globalization of industries, specialization of economies. • Empowerment of workers. • Middle class support for sustainability. • Customized consumer products. • Reduced public service spending in favour of increased reliance on market forces.

10. Getting Ready for the 6th Wave • Driving Forces • Technology convergence • Nano, Bio, Cogno, Materials • Real time, ubiquitous information • Complex intelligent systems • Decision agents, visualization/inspection devices, etc. • Low cost, high reliability • Social/Institutional framework • R&D – generic distributed, strategic tightly controlled • Custom(er) oriented • Decoupling of production and distribution • Global, flexible, reconfigurable

11. Conclusions • Paradigm shifts take time • Fundamental changes in technology require system changes as well • Technology can change faster than most people are willing to accept • Clusters emerge when people are ready for them – businesses emerge in response to needs

12. Innovation Defined Innovation, as it applies to business enterprises, is the “production, diffusion and translation of technical knowledge into (commercially successful) new products and new production methods”.Farina and Preissl (1999) “Innovation is about commerce – meeting or creating market needs.”

13. Product/Process Development Map Addition to Product Family Next Generation New Product Derivatives and Enhancements New Core Process Breakthrough Projects Platform Projects Next Generation Incremental Change Derivative Projects Upgrade

14. Business Innovation Model per Doug Barber Revenues Shareholders Debt Debt Costs Pricing Operate Manufacture Sales & Distribution Fulfill Need Customer Needs Ideas for Solutions R&D Innovation Commercialization Feedback

15. Importance of innovation to industry success Source: Conference Board of Canada

16. Key Elements of a High Performing Innovation System • Skills - high quality, accessible education and training system. • Supportive environment - policy, regulation and tax structure. • Access to capital – governments, companies, not-for-profit agencies, venture capitalists, angel investors, etc. • An efficient communications infrastructure. • R&D performers – High quality universities, provincial and federal agencies, private companies, other research organizations. • Clusters of innovators – start-up companies, established firms, individuals, entrepreneurs. • Culture – leadership, entrepreneurship, risk tolerance. • Markets - customers • Organizations and networks that facilitate knowledge and technology transfer and services related to innovation and technology commercialization.

17. Defining Innovation • A problem? • Something users want to deal with or satisfy • An invention? • Solution to a problem • A business concept? • Idea for commercializing an invention • Innovation • Technological possibilities matched with market needs • Successfully commercialized invention

18. Basic ResearchApplied Research: original investigation directed toward a practical aim or objectiveExperimental Development: systematic work directed toward producing new or improved products and processes, including pilots, prototypes and demonstrationsTechnology Commercialization:transmission and use of an invention (product or process) in the marketTechnology Adoption:includes purchasing off the shelf, licensing and /or customizing technologies Technology diffusion Innovation Process definitions

20. Example – Sherritt Gordon

21. Technology Development Applied Research Technology Development (Product & Process Engineering) Consulting Technology Transfer Manufacturing Testing & Analysis Technology Commercialization Innovation Activities • Discovery and Knowledge • Basic research • Applied research

22. Innovation Defined • conversion of ideas and knowledge into commercially successful products and services. • “Successful” means meeting the needs of customers, whether government or industry, in a way that encourages them to take up the new approach and have it diffuse through the market • Invention is the first occurrence of an idea or concept for a new product or process, while innovation is the first attempt to carry it out into practise

23. Innovation Theory

24. Types of innovation T E C H N O L O G Y T R A N S F ER T E C H N O L O G Y T R A N S F ER

25. Fundamentals • The 3 forms of innovation are fundamentally different businesses • Timeframe – determines who plays • Culture – align focus and motivating elements • Impact – ranges from outputs (“knowledge and HQP”) to outcomes (“gross margins”) • Technology transfer – effectiveness and difficulty depends on focus • Balance – necessary across the system • “Most university research yields raw technology, results that cannot be directly commercialized because it is circuits, processes, components, etc. Usually further investment is required for scale-up, packaging, clinical studies, prototypes, testing, demonstration, etc.”

26. Capturing value – a road map COST MECHANISM SOURCE OF RETURN Operating Company Dividends, Capital gain Product License, margins Where the challenge is Technology License Ideation Expertise Consulting Knowledge

27. Schumpeter • “Business Cycles” - 1939 • technological innovation leads to economic instability • Radical innovation results in clustering of related innovation • Innovations cannot be decomposed into infinitesimal steps • “Capitalism, Socialism and Democracy” – 1942 • Value of innovation - “perennial gales of creative destruction sweeping away old industries producing old products”

28. Product/Process Life Cycle Market Introduction Market Growth Market Maturity Sales Decline Technology Push Market Pull Industry sales + Industry profit $ 0 Time - Where innovators make money Where academics work

29. Push versus Pull • PUSH – • Researchers seek money to explore areas of interest • Innovation is driven by invention • Advances in technology • More solutions available • PULL – • Industry seeks technology to solve problems • Innovation is driven by market need

30. Linear Model of InnovationVannevar Bush - 1945 More innovation is needed to reap the benefits from the increase in (academic) R&D. that, in turn, means learning to do more and better commercialization of (academic) research results Tom Brzustowski– former President, NSERC

31. Crossing the Chasm(Linear View of Innovation) DEPLOY Transform Use Diffuse DISCOVER Create DEVELOP, DESIGN and DEMONSTRATE Invent Adopt Adapt Commercialization Gap

32. Revenues Innovation Model per Doug Barber Shareholders Debt Costs Rosenberg Black Box Pricing Operate Manufacture Sales & Distribution Fulfill Need Customer Needs Ideas for Solutions R&D Innovation Commercialization Feedback

33. Factors to Consider • Innovation starts with research but the commercial pay-off is so uncertain, that a profit oriented enterprise finds it difficult to justify the investment. • Result is public finance dominates early research • Connecting investment in research with the benefits of innovation is difficult to assess with any degree of precision. • Black box of activities and players between research and benefits • Lots of data and buzzwords • Different role players use different indicators • (University, NRC, ARC, 3M)

34. The changing nature of innovation OLD VIEW • Innovation is a specific thing, a mechanistic input • Research  Concept  Prototype  Production • Innovation is research NEW VIEW • Innovation is an integrating process for solving complex problems – business, technical, and cultural • Innovation is enhanced through social exchange --dialogue aimed at relationship building

35. Evolutionary System of Innovation Source: David Wolfe, University of Toronto

36. Innovation System Competitiveness Policy Knowledge People Finance/Risk Capital Innovation R&D

37. Innovation Actors

38. Innovation System Components • Key Players • Universities • Industry - in the US, 70% of researchers (750,000 people) work in 15,000 corporate labs. Ref: Robert Buderi, Engines of Tomorrow • Government Labs • Not for Profit Organizations - e.g. Fraunhofer in Germany, SRI and Batelle in the US, ITRI in Taiwan, TNO in Holland, NRC in Canada • Funding • Successful innovative economies spend from 2-4% of total GDP on R&D with industry providing the largest proportion of funding.

39. Canadian R&D Performers

40. Professional Service Firms Technology Networks Research Institutes Venture Capitalists TechnoPark Members Economic Development Agencies Commercialization organizations Industry Consortiums Some of the Actors Private Sector Labs Individual companies Educational Institutions Network Centres of Excellence National Trade Teams Provincial Research Organizations Engineering Companies Commodity Groups

41. An organization’s role is not determined by its activities, but by what it delivers • Applied research – activity can occur in many places (Universities, Research Institutes, Companies) • A primary nickel producer is not evaluated based on the performance of jet engines using its material. It is evaluated based on its ability to deliver nickel. • Who drives the delivery of key innovation units?

42. Observations • Key actors have a dominant unit focus and value add forward. • Success of value added is heavily influenced by ability of downstream actors to receive a transfer. • These interfaces between units can be significant challenges and frequently use “Champions” and “Facilitators” to break through. • University professors often (try to) become entrepreneurs in absence of critical receptor capacity

43. Key Actors and Sources of Funding

44. The Role of Universities • Most research intensive universities operate around the science driven linear model of innovation now recognized for limited role in innovation process. • The role of science in innovation varies between sectors. • Basic science research most relevant for chemicals, drugs, instruments and electronic equipment. • Less relevant for machinery and equipment, and most elements of Canada’s upstream and downstream value chain. •  Economic impact of basic research is generally capacity to solve complex technological problems rather than usable information. Primary role of basic research is generation of people with skills and know-how. • Large firms develop the majority of new technology mainly diffused through people with skills and know-how who leave those organizations to start up their own firms. • D. Olivastro, 1995. CHI Research Inc.

45. “It’s OK for university researchers to pursue wild dreams, but not industrial scientists”Wolf-Ekkehard Blanz, Siemens Research Companies have to produce something that works failure to achieve = bankruptcy

46. Where Innovation comes from

47. Reality Successful innovation is driven 80% or more by markets and firms. “Strong innovative companies move beyond the simple dichotomy of ‘market pull’ versus ‘technology push’ to embrace both sides of the equation.” Conference Board of Canada

48. Where Innovation Comes from • Most new ideas are market pull – customer and/or application driven • Velcro fastener (space program) • Some are luck • 3M post it notes (failed adhesive) • Some are brand new technology • Instant photography, digital photography

49. The Source of Innovation • Fewer than 3 in 100 innovations can be traced to university research. • Science push typically plays a minor direct role in a region’s economic success because commercialization occurs primarily through firms. • “Project Hindsight” since 1945 US military systems technology • 0.3% from basic research • 7.7% from applied research. • 92% from needs-driven, creative engineering • split between industry (49%), government laboratories (39%) and universities and other agencies (12%). • Pharma and health innovations often come from universities because researchers live in teaching hospitals that give them market information. No other sectors look at universities for technology in that way.

50. Where Innovation Comes from • Improvements to existing products (26%) • Additions to existing product lines (26%) • New (to company) product lines (20%) • Cost reductions through modification (11%) • New to world (10%) • Repositioning (new applications for existing products) (7%) Market-Pull (79% of successful innovation) The most successful products (profit wise) are new to firm and new to world. Technology-Push (21% of successful innovation) Source: Robert Cooper, Winning at New Products