Another way to develop innovation policy? Blog #12

17, October, 2017 – BLOG #12

Another way to develop innovation policy?

At a meeting I was at recently, Gandeephan Ganeshalingam, the Chief Innovation Officer for GE Canada, described their view of the business environment using the acronym “VUCA”.  This stands for volatile, uncertain, complex, and ambiguous. This is clearly a very challenging environment in which to operate.

Now think about how innovation policy has traditionally been developed.  Often there is a commission (such as the Jenkins Report, that studied Federal support for research and development) that studies an issue, and issues a report with recommendation.  This is often followed by extensive period of consultation with various stakeholders.  Then a policy is announced, sometimes legislation is proposed, and then the policy is implemented.  This process often takes many months if not years.

So how likely is it that an innovation policy will work for a company in a VUCA world? Good question!

There is another way to develop innovation policy. In recent years a movement has started (particularly in the UK) to use an experimental approach based on small randomized controlled trials.  The approach is straightforward:

  • Set up pilots to experiment with new programs. One randomly selected group gets the new program, another randomly selected group doesn’t.
  • Evaluate them using rigorous methods.
  • Scale up those that work, stop those that don’t work.

Randomized controlled trials (RCTs) have been used in a number of policy areas such as development (by the World Bank), education and social policy. They are the gold standard for evaluating new drugs and medical procedures. In all of these areas the link between an intervention and desired outcomes is uncertain because no adequate theory exists. RCT’s provide empirical evidence whether an intervention actually works or not, and provide a strong evidence base for a new policy.  As one of the reports says, it replaces reliance on ‘eminence, charisma, and personal experience’ with evidence of what actually works.

RCTs haven’t been used much for developing innovation or entrepreneurship policy, but there is a large potential for exploring its use in those fields.

RCTs, like all new tools, have their strengths and limitations, and require expertise to be used effectively. They won’t be used across the board, just in a few selected areas. A key strength is that they can provide empirical evidence for a new policy, and minimize influences of ideology or history.  One weakness is that they don’t explain why an intervention works, only if it does or not.

It is interesting to note that when randomized controlled trials were introduced in medicine, they were strongly opposed by some clinicians, many of whom believed that their personal expert judgement was sufficient to decide whether a particular treatment was effective or not.  However randomized controlled trials are now regarded as the gold standard for medical evaluations.

Nesta – a UK charity that supports innovation – has developed an introductory guide for using randomized controlled trials. It is available at http://www.nesta.org.uk/publications/running-randomised-controlled-trials-innovation-entrepreneurship-and-growth

Governments at all levels in Canada spend a great deal of money supporting innovation and entrepreneurship. Randomized controlled trials can be another tool in the tool kit to make sure that we get the best possible outcomes. There is very significant expertise in the medical community to draw on to assist this endeavor.

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

 

 


Entrepreneurship in Alberta – Blog 11

26, September, 2017 – BLOG #11

Entrepreneurship in Alberta

Entrepreneurship is alive and well in Alberta, according to the latest GEM (Global Entrepreneurship Monitor) report, just issued by THECIS.  Over 17% of the adult population is engaged in early stage entrepreneurship, a higher rate than in the US, Australia and all other advanced countries.  Women are very active in early stage entrepreneurship, at 80% of the men’s rate, also higher than the US.

Consumer services is the most popular field, with just more than  50% of ventures, followed  by business oriented services at 30% and manufacturing at 20%. Age is an important determinant of entrepreneurial activity, with higher rates in the 18-24 and 25-34 age groups. Overall, however, about half of new ventures are led by people aged 18-34, and half by those aged 35-64. Above age 65 the rate drops off, but still 4% of older Albertans are active as entrepreneurs.

Education is also a key determinant of entrepreneurship. As people acquire more education they become more entrepreneurial.  The highest rate of entrepreneurship is found among those with post graduate education.

The Alberta population is very supportive of entrepreneurship, with  60%–70% of respondents believe that entrepreneurship is a good career choice that successful entrepreneurs have high social status, and that media provide favorable coverage of entrepreneurship.

About 15% of startups are highly innovative, having no direct competitors.  About 40% of startups are in sectors with many competitors.

Experts were asked to evaluate the Alberta ecosystem by rating nine relevant factors. The five with the best scores were: physical infrastructure, commercial infrastructure, social and cultural norms, government programs, and government policy at neutral.  The lower five in decreasing order were post-secondary education at neutral, R&D transfer (to small and growing firms), internal market dynamics, finance, and primary and secondary education. The experts were also asked to rate to biggest constraints and fostering factors. The most mentioned constraints were finance as the top priority with capacity for entrepreneurship and government policy as next areas of priority.

The most mentioned fostering factors were  cultural and social norms as highest priority with the economic climate and, surprisingly, the low rated question of education and training as second and third areas of priority.

The report had five recommendations:

  1. Creative government programs are needed to support entrepreneurship that has promise to create new directions. This needs to involve all departments of governments, not only those with responsibility for small business.
  2. School systems need to examine the opportunities to promote entrepreneurial thinking in the context of education aimed at encouraging independence and creativity.
  3. Despite the evidence that entrepreneurship by women in Alberta is stronger than in other parts of the country or in other developed countries, a gap remains and attitude and motivation data indicate that women still have less confidence in skills and  knowledge and women entrepreneurs have more complex motivations. Information programs and mentorship for women remain a priority.
  4. With the low rate of seniors’ entrepreneurship and the expected increase in size of this demographic in better health in the future, consider targeting entrepreneurship programs at older Albertans.
  5. Data show rates of entrepreneurship rise with increase of educational experience. Education for entrepreneurial thinking should be promoted across all types of secondary and post-secondary programs.

The full report is available at www.gemcanada.org

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca


Report cover for GEM Canada 2016

GEM Canada 2016 report summary

25, June, 2017 – BLOG #9

GEM Canada Report 2016

GEM (Global Entrepreneurship Monitor) is the largest study of entrepreneurship in the world.  THECIS manages the GEM project in Canada.  The latest GEM report for Canada has just been issued.  It is available at http://thecis.ca/index.php/gem-2016/       It shows that there is a very strong entrepreneurship culture in Canada, and the rate of early stage entrepreneurship (TEA -Total Early stage Activity) is the highest in the developed world.  GEM data is widely used as evidence for evidence based policy by such groups as the UN, OECD, World Bank and World Economic Forum.

Some of the highlights from the report are:

  • Almost 60% of the adult population see good opportunities to start a business in the next six months;
  • Over 50% also have confidence in their skills and knowledge to start a business;
  • No more than 44% are inhibited by fear of failure.
  • 7% of the adult population is involved in early stage entrepreneurship, the highest rate in the developed world, ahead of Australia and the US.
  • 8% of the adult population in Canada is involved in an established business (one more than 42 months old), a lower rate than in Australia or the US.
  • In terms of intrapreneurship (entrepreneurship in large organizations) Canada’s rate is 6.5%, that ranks us 12th among developed countries.
  • A significant number of startups have major growth plans. Twenty percent expect to create 20 or more jobs within five years.
  • In common with most other developed countries, the largest sector for entrepreneurship (48%) is consumer services, closely followed by business services.
  • A significant minority of startups export. 20% of them project from 25% to 75% of revenue from export, and 13% anticipate more than 75% of revenue from export.
  • A significant minority of startups offer innovative products or services (9%-14% depending upon the questions asked.
  • 17% of startups use technology available only in the least year, an indicator of innovativeness.
  • The age group with the highest TEA was the 25 – 34 age group, at 22.3%.
  • The rates decline sequentially for the 35 – 44 group, the 45 – 54 group, and the 55 – 64 age group. The TEA rates decline reaches 10.7% among the 55 – 64 cohort.
  • Approximately 50% of total startup activity is in the 18-40 age group.
  • The rate of women’s entrepreneurship is about two-thirds the male rate, which is comparable to other comparison countries.
  • The rate of entrepreneurship increase steadily with education, being highest among those with some post graduate experience.
  • The rate of entrepreneurship increases across Canada from east to central Canada, and is similar across the west.
  • The strongest aspect of the Canadian ecosystem is physical infrastructure, commercial infrastructure, and the relevant social and cultural norms.
  • The weakest aspects are the lack of education for entrepreneurship at primary and secondary levels, and availability of finance.

The report made the following recommendations:

  1. Provide more targeted assistance to young and growing firms.
  2. Provide more education and mentoring to potential women entrepreneurs.
  3. Expand entrepreneurship training in entrepreneurship in post-secondary institutions.
  4. Provide targeted resources for senior entrepreneurs.
  5. Support entrepreneurs who want to export.
  6. Encourage firms to develop strategy utilizing more intrapreneurship.

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

 

 


How to get more innovation?

12 June, 2017 – Blog #8

How to get more innovation?

In an earlier blog, I asked if we had too much innovation or not enough.  The answer was that some areas had too much and some too little.  Which raises the question what can be done to increase innovation.  In fact, there are quite a number of proven approaches to increasing innovation.  Here is a short list:

  1. Competition. This is one of the effective ways of getting innovation as it uses the ingenuity of large numbers of people who want to make a profit. The economist Willian J. Baumol captures this well in the title of one of his books – “The free market Innovation Machine.”  Baumol goes on to explain that “the prime weapon of competition is not price but innovation.  As a result, firms cannot afford to leave innovation to chance.  Rather, managements are forced by market pressures to support innovative activities systematically and substantially…  The end result is a ferocious arms race among firms in the most rapidly evolving sectors of the economy.”
  2. Prizes. Cash prizes have a long history of stimulating innovation. One of the earliest examples is the Longitude prize, offered by the British government in 1714 to anyone who could determine longitude accurately.  That prize was eventually won by John Harrison, for an accurate clock.  The XPrize is a more recent example, which was set up to bring about “radical breakthroughs for the benefit of humanity”.  The XPrize has stimulated numerous other prizes, including one in Alberta run by the Climate Change and Emissions Management Corporation (CCEMC) to find commercially viable applications for waste gas.
  3. Military spending. This is a very wasteful way of generating innovations, but it can produce very significant results.  Mariana Mazzucato has shown that many of the technologies in the iPhone were originally developed and used by the US military before being “re-purposed” and incorporated into the iPhone.  The internet is another example, which was originally funded by DARPA (Defense Advanced Research Projects Agency) in the US.
  4. Government funded megaprojects. There are a few examples of megaprojects that have developed significant innovations. One is the man on the moon project in the 1960’s.  This was a political, not scientific project that occurred at the height of the cold war.  NASA considers Landsat satellite imagery to be a direct result of this megaproject.  However this is a very wasteful way of getting innovations.  Another example might be the Chinese government’s initiative – the Belt and Road project – to spend significant resources to enhance trade across Eurasia.

Because of the magnitude of resources required, this will always be a very minor contribution to overall innovation.

  1. Surprisingly, regulation can sometimes stimulate innovation.  A classic example is the role of the California Air Resources Board (CARB), which imposed stringent fuel economy standards for all automobiles sold in California, in 1967.  This led automakers to develop innovations to significantly improve fuel economy, not only for cars sold in California but everywhere else as well.  There have been numerous other similar examples.  Carbon taxes and cap and trade systems are intended to stimulate innovation by the same mechanism.  Nobody wants to pay taxes and people and companies work to reduce emissions and so pay less tax.
  2. Sometimes innovations just happen without any apparent motivation. The “learning by doing”, “experience curve” or “learning curve” effects are based on a series of often very small changes which cumulatively have a powerful effect.  When a routine task is repeated, each cumulative doubling of repetitions typically leads to a reduction of 10-20 % in cost per unit.
  3. New Technology. The classic example of a new technology stimulating innovation in the old technology it aims to replace is the sailing ship. In the 30 years after the introduction of the steam power in the 19th century, sailing technology improved more than it had in the previous 300 years.  This is termed the “Sailing Ship effect”, which has been well documented in numerous other cases.

None of these approaches include current hot topics such as research and development spending, venture capital, crowdfunding, tax credits or other popular ideas.  This is not at all to say that these approached don’t work, but just to remind us that there are many paths to innovation.

 

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

 


Losing jobs to machines: is it different this time?

29 May 2017 – Blog #7

Losing jobs to machines: is it different this time?

A number of recent studies have described the jobs that will be lost to automation in the next few years.  The World Economic Forum estimated that 5 million jobs will be lost to robots in the next five years, globally.  The Brookfield Institute for Innovation and Entrepreneurship at Ryerson University issued a report that found that nearly 42 percent of the Canadian labour force is at a high risk of being affected by automation in the next decade or two.  They found that the top five jobs at risk of automation were: retail salesperson, administrative assistant, food counter attendant, cashiers and transport truck drivers.

This report is consistent with other long-term trends in the economy.  For example, a report in the Economist looked at employment growth in routine vs. non-routine jobs, and found that non-routine tasks grew much faster in the last 30 years.

Blog 7 -think

The impact of automation and artificial intelligence seem so far-reaching that some people suggest it will permanently reduce the number of jobs needed in the economy.  A recent study by the National Bureau of Economic Research in the US found that each new robot added to the workforce meant the loss of between 3 and 5.6 jobs in the local commuting area.

Meanwhile, for each new robot added per 1,000 workers, wages in the surrounding area would fall between 0.25 and 0.5 percent.

Fear of changing technology is noting new.  A hundred years ago the Luddites destroyed weaving machinery they believed was threatening their jobs.

However, there are strong views saying that we shouldn’t worry about automation. In  a poll of Canadians Abacus Research found that 89% of Canadians agreed that technological change has been good for the world. And 76% felt it had been good for their own economic well being. They may be on to something. According to the Global Entrepreneurship Monitor study of  entrepreneurship, Canada is the most entrepreneurial country among the advanced countries.  Entrepreneurship is basically creating new jobs by following opportunities, whatever the rest of the economy is doing.

There is heavy weight evidence to back up this view.  Joel Mokyr, an economic historian, points out : “We can’t predict what jobs will be created in the future, but it’s always been like that.  Imagine trying to tell someone a century ago that her great-grandchildren would be video-game designers or cybersecurity specialists.  These are jobs that nobody in the past would have predicted.”

Carolyn Wilkins from the Bank of Canada points out that technological change has been part of the Canadian economy since Canada was founded 150 years ago.  100 years ago one third of jobs were in agriculture, today fewer than 2% are.

So there are optimists and pessimists. Who is right? And is it different this time?

While history supports the view that new jobs will be created to replace the jobs lost, we can’t be sure of that. So what should we do, given that uncertainty? It seems to me that we need to consider three actions:

  • Expand adult re-training. It is pretty clear that many people are going to loose their jobs, and will need to find new ones.
  • Update the education system to increase the focus on preparing people for the non-routine jobs that seem likely to dominate the economy in the next 50 years.
  • Experiment with novel social programs that may be needed if the pessimists are right. A good example of this is the basic income experiments being carried out in many places round the world, including California, Finland,Italy, the Netherlands and in Ontario.

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca


Do we have too much or too little innovation?

4 May 2017 – Blog #6

Do we have too much or too little innovation?

We are surrounded by talk about innovation, in the media and in government pronouncements.  But do we really have too much, or too little of it?  Before we can answer this question, we need to establish a framework:

  1. What is our definition of innovation? There are hundreds if not thousands of definitions to choose from.  One widely used is from the OECD (Organization for Economic Cooperation and Development), which see four different types of innovation: product innovation (e.g. a new iPhone), process innovation (e.g. lean manufacturing), marketing innovation (e.g. Amazon) and organizational innovation (e.g. outsourcing).  This definition is helpful for commercial innovations but does not capture broader aspects of innovation such as social innovation and public sector innovation including regulatory innovation.
  2. What role does innovation play in the economy? The economist William J. Baumol sees innovation as the principal weapon of competition in the free market economy, and entrepreneurship as the vehicle for bring innovations into existence. So innovation is the lifeblood of our economy.  He sees three main roles for entrepreneurship: productive entrepreneurship (a useful new product or service); non-productive entrepreneurship (for example, exploiting a monopoly or a tariff wall) and destructive entrepreneurship (criminal behaviour).
  3. Risk and uncertainty. One aspect of innovation that is not apparent from the definitions above is the inherent risk of an innovation. The whole nature of innovation is to “suck it and see”.  When a new product or process is launched, it faces a whole range of risks some of which can be predicted in advance, but many of which cannot.  So trying new things is inherently risky and uncertain.
  4. Life cycle. Another aspect not apparent from the definitions above is that innovations have a life cycle.  New things get commercialized and are welcomed as innovations;  more and more of them get sold and new competitors entre the market and eventually the “new “ thing becomes communized and is replaced in turn by something else.

 

Having set up a framework, we can see that innovations are just solutions to problems.  Quite often, the problems have not been recognized before the innovation comes along.  Henry Ford is reputed to have said that if he had asked his customers what they wanted they would have said “faster horses”.

 

So we can re-frame the question to ask what are the big problems needing solutions today?  The answer is straightforward, and jumps out from the headlines of the newspapers and TV news:

  • Inequality
  • Global warming
  • Trade protectionism
  • Oil sands emissions and costs
  • Terrorism
  • The impact of automation on jobs

This list can obviously be extended.  However, it does give a clue to where we do not yet have enough innovation.

Where do we have plenty of innovation?  Again, we can look to the headlines:

  • Self driving cars
  • Artificial intelligence
  • Drones
  • Robotics
  • Blockchain
  • Quantum computing

This list can also be extended.  So there are clearly areas where innovation is alive and very well.  This list also include some public sector innovations.  For example, the experiment in Ontario with a Basic Income, to provide a level of income for selected households for a three-year period and evaluate the impact.  This experimental approach to government policy making is a new development that is staring to emerge around the world.

To return to our initial question: do we have too much or too little innovation?  It depends where you look.  We are woefully short of innovations is some areas, while other areas are doing just fine.

Peter Josty

p.josty@thecis.ca
403-249-0191
www.thecis.ca

#innovation  #entrepreneurship  #THECIS


Entrepreneurship at the University of Calgary

24 April 2017 – Blog #5

Entrepreneurship at the University of Calgary

C_Langford;C._Saunders

C. Langford                        C. Saunders

The Centre for Innovation Studies (THECIS) has just completed a report on entrepreneurship at the University of Calgary using the Global Entrepreneurship Monitor methodology. This is the first time the GEM methodology has been used at a university. The report shows very high levels of entrepreneurship and also shows that the startups have significant competitive advantages as measured by their use of up to date technology and the number of competitors they have. The full report is available here.

Peter Josty

www.thecis.ca

403-249-0191
p.josty@thecis.ca