Canadian firms aren’t using the best innovation strategies: report

If you think that, globally speaking, Canadian firms are lagging in innovation, you might be right.  And a new report from the Conference Board of Canada shows why: few of them focus on the most effective innovation strategies.

The Ottawa research firm says Canadian companies that focus on expanding into competitive global 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 them focus on competing in international markets, 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 –rather than competing in international markets.”

The report notes this 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.

The types of innovations pursued the most are product (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 challenges for innovation include lack of funding, organizational culture, poor innovation training, fear of risk, lack of executive focus, and lack of innovation measurement.
• Internal cash is the source of innovation funding most used by Canadian firms. Government financing is the second most frequently used source of funds, 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 Canadian firms surveyed pursue a user needs-driven innovation strategy, in which they obtain new ideas stemming from customers’ needs as the basis for developing products and services.
• About one-third of responding firms adopted a technology-driven innovation strategy that relies on exploiting advances in technology to gain a competitive edge.
• 14% made territorial expansion the focus of their innovation strategy.

Funding for firm-level innovation was identified as a challenge among survey respondents. Internal cash – from within an operation or obtained from the headquarters of the corporation – is the most frequently used source of funds, followed by government funding.

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 do firms with user- or technology-driven innovation strategies.

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

A copy of the report is available at this link.