Tag: Entrepreneurship
The world’s biggest report on Entrepreneurship is just out – Blog #23
14, February 2022
The world’s biggest report on Entrepreneurship is just out. Here is how Canada stocks up.
The largest study of entrepreneurship in the world just issued its annual report. Here’s how Canada stacks up.
The Global Entrepreneurship Monitor (GEM) is the largest study of entrepreneurship in the world and in 2021 covered 47 countries. It has been around since 1999 and has a well-tested and validated methodology. It is unique in that it looks at entrepreneurship from the viewpoint of the entrepreneur rather than the business as most reports on entrepreneurship. Canada does very well in these reports. Some highlights:
TEA. The total entrepreneurship activity (TEA) is a measure of what percentage of the adult population is involved in starting up a new business or running one less than 3½ years old. By this measure Canada ranks #1 among rich countries, with 20.1 % of the adult population involved.
Total Early stage Entrepreneurship Activity (TEA)
Source: Global Entrepreneurship Monitor
Established business ownership (EBO). In Canada 8.2% of the adult population is involved in running an established business (one more than 3½ years old). This is middle of the pack compared with the 19 rich countries in the study, and is fairly stable in Canada. It is interesting to compare the TEA with EB rates. The TEA rate is more than twice as high as the EB rate, and that implies that more than half of new startups will fail. This is consistent with Statistics Canada data showing that sixty three percent of new firms survived five years, and 43% survived for ten years. It illustrates how risky startups are.
Finding opportunity in COVID. More Canadians (77%) say they see opportunities arising from COVID-19 that they wish to pursue than in any other country in the study. This is a very significant sign of optimism that bodes well for the recovery.
Motivation. Canadian entrepreneurs are motivated by three main factors in almost equal measure:
- To make a difference in the world (70.4%)
- To build great wealth (68.4%)
- To earn a living (70.7%)
A lesser motivation is to continue a family tradition (50%)
Gender mix. Historically in most countries male entrepreneurs have outnumbered female entrepreneurs by quite a wide margin. In Canada the rate of female entrepreneurship has usually been in the range of 65%-85% of the male rate. In 2021 the ratio was at the low end of that range, at 65%. The ratio for ownership of existing businesses (in business more than 3½ years) was 68%. For comparison, in the US, the female rate for TEA was 85% of the male rate and 75% for EBO. However, the actual TEA rate in Canada was much higher than in the US (20.1 vs. 16.5) so there were actually more female entrepreneurs in Canada as a percentage of the population than in the US (15.8% in Canada and 15.2% in the US).
Entrepreneurial Employee activity (EEA). Innovation and entrepreneurship also takes place in large companies and GEM measures that activity too. In 2021, the entrepreneurial employee rate in Canada was 4.7 % of the adult population. That is middle of the pack among 19 rich countries, slightly ahead of the US (at 4.5%) and well behind Switzerland (7.1%). The significance of the EEA is that it can be regarded as a rough measure of productivity, as it is a measure of change or improvement activity in a large company.
Export Sales. Entrepreneurs in Canada rank very highly for export sales. About 29% of all early stage businesses plan to have 25% or more of their sales coming from outside the country. By this metric Canada ranks # 2 globally. As a rule entrepreneurs in large countries have most of their sales domestically as their home market is so large.
What kind of businesses? According to the GEM data most startups in Canada are involved with consumer services, with a smaller proportion involved in business services. This is typical of almost all GEM countries. In Canada about 52% of startups focus on consumer services and about 25% on business services.
Conclusion. This report paints a very positive picture of entrepreneurship in Canada. But bear in mind that this report is about early stage entrepreneurship. It does not deal with scale up, an area where Canada is not so strong.
Peter Josty
The full report can be found at www.Gemconsortium.org
This Blog originally appeared at www.thecis.ca
2022 will be a great year for entrepreneurs in Alberta – Blog #21
24, January 2022
In this blog we’ll take a look at the prospects for entrepreneurship in Alberta in 2022.
First of all, though, we’ll revisit why startups are important in the economy. Startups can be seen as experiments which introduce new ideas, new technologies and business models to the marketplace. The market then decides which of these succeed and which fail as new entrants compete with existing firms. History shows that most radical ideas come from new players rather than existing companies. For example, it is no surprise that a new entrant (Tesla) led the move for electric cars, rather than incumbents such as Ford or Toyota. Having a consistent supply of new ideas is essential for a dynamic growing economy and startups are a major source of these and the driving force for creative destruction.
So, what can we expect in 2022?
First of all, we can expect a lot of startups. Measuring the number of startups is a tricky business. When does a startup start? Is it when the business is registered? Is it when it hires its first employee? Should we count the number of people involved? What about non-registered businesses? However, by all of these metrics 2022 looks very good for Alberta, building off a strong 2021. Alberta showed 3,930 new business registrations in November (latest available), up 7.7% from 2020. The Global Entrepreneurship Monitor (GEM) showed that 20.1% of the adult population was involved in some form of entrepreneurial activity in 2021, the highest level in rich countries, up 29% from 2020. The US showed similar large increases, with startups increasing by 23% during the first 9 months of the year. We don’t really know why the activity has been so strong. One reason is probably finding new opportunities. The GEM survey showed that 67.1% of Canadian entrepreneurs saw new opportunities as a result of the pandemic, the highest rate among high income countries and a big increase from the previous year. Another might necessity, as so many people lost their jobs in 2021.
Who will the new entrepreneurs be? Based on previous years, the largest age group will be 25-34. They will be highly educated – about 20% will have a degree, and almost a quarter will have graduate experience. About 45% of them will be women. One thing to look out for: will there be older entrepreneurs? Anecdotally many baby boomers have retired early due to COVID and it will be interesting to see if they decide to start something.
What will their new businesses be? Again, based on previous years, they will be in business services (30-35%), consumer services (30-35%), manufacturing (around 25%) and extractive services (around 10%). The tech sector will be very strong. Edmonton was recently named the fastest-growing tech sector in North America. Innovate Edmonton reports that there are more than 930 start ups and scale ups in Edmonton. Calgary is home to roughly 700 tech companies, according to Platform Calgary, and has plans to reach 3,000 by 2031. There have been four unicorns in Calgary in recent years– startups with a market value of $1 billion. These are Benevity, Parvus Therapeutics, Shareworks and Enverus Intelligence Research.
Will they export? According to GEM, 2021 saw a big rise in startups that generated 25% or more of their income from exports.
What motivates entrepreneurs? There have consistently been three main motivations for entrepreneurs in Canada: a desire to change the world, a desire to build great wealth, and the need to earn a living. A lesser motivation is the desire to continue a family tradition.
What challenges will they face? Finding financing is always the biggest concern of startups, but in 2022 it is likely that finding qualified staff will also be a major challenge. According to the Alberta government, by December full time and part time employment was back to pre-pandemic levels. The job vacancy rate was 4.7%, which equates to about unfilled 100,000 jobs in Alberta. It is also likely that supply chain disruptions will also affect many entrepreneurs in 2022.
What can history tell us? During the Spanish flu in 1918/1919 startups boomed from 1919 in the middle of the pandemic onwards. This was very likely for similar reasons we see in the COVID-19 pandemic – entrepreneurs seeing new opportunities.
All of this will be underpinned by robust economic growth. The Conference Board projects Alberta’s GDP will grow by 6.1% in 2022.
So, all the signs are pointing towards an awesome year for entrepreneurs in Alberta in 2022.
Peter Josty
This blog first appeared on www.thecis.ca
GEM Canada 2020
Entrepreneurship in Alberta – Definite signs of the poor economic situation in Alberta. – Blog #19
21, January 2019 – Blog #19
Entrepreneurship in Alberta – Definite signs of the poor economic situation in Alberta
Alberta again has the highest rate of entrepreneurship in Canada, confirming what we have seen for the last five years. The Global Entrepreneurship Monitor (GEM) report on Entrepreneurship in Alberta shows that 19.6% of Albertans aged 18-64 are involved in starting a business. This is higher than the rate for Canada as a whole (18.8%) and higher than all other innovation driven economies including the US, Australia and Israel. Although Alberta has a slightly higher rate of established businesses than Canada as a whole (7.5% vs 6.2%) it is lower than the US or Australia.
Alberta also has a lower rate of intrapreneurship than the Canadian average, 5.7% compared with 6.6%, similar to last years findings. This factor can be linked to a firm’s innovation and productivity strategies.
Who are these entrepreneurs? They are highly educated, with most having a university or college education, many with graduate degrees. The rate of entrepreneurship rises steadily with the amount of education, peaking in those with some post graduate experience. Their ages vary, with entrepreneurship rates peaking in the 25-34 and 55-64 age group. The entrepreneurship rate in the 55-64 age group is two and a half times the Canadian average, and supports a narrative of older workers losing their jobs in the weak economy.
For Established Businesses, the rate increases steadily with age, as expected, but Alberta has a surprisingly high rate in the 18-24 age group.
The rate of women’s entrepreneurship is almost 90% of the male rate, one of the highest ratios in the world. It is much higher than the Canadian average of 66%.
What do they do? Alberta has a very different startup industry profile than Canada. GEM puts businesses into four categories – extractive (oil and gas, mining and agriculture); transformative (manufacturing), business services and consumer services. Alberta has two and a half as many extractive businesses, twice as many transformative business, roughly similar business services, and far fewer consumer oriented businesses than Canada as a whole.
Why do they do it? Most entrepreneurs say they started their business to purse an opportunity, although 23% do so out of necessity, because they had no other economic opportunities. The necessity rate is 50% greater than the Canadian average, and this may reflect poor economic conditions in Alberta. It is worth noting that in 2014 (when the economy was much stronger), the necessity entrepreneurship rate in Alberta was only 8%.
Size and Growth. Startups in Alberta are much smaller than the Canadian average. One third of all Alberta startups have no employees, compared with 22% in Canada. And only 6.7% have 20+ employees, compared with 12.9% for Canada as a whole. However, almost a quarter of Alberta startups plan to have 20 employees in five years’ time.
How innovative are they? 40% of Alberta startups say they have no novelty in their products or services, the highest rate in Canada. This would indicate a low level of innovativeness. This is corroborated by the metric that over 60% of Alberta startups use older technology, also the highest rate in Canada. However, 12% of Alberta startups say they have no competitors, the highest rate in Canada. So it looks as if there are a few very innovative startups among an overall pool of low innovations.
How supportive is the ecosystem? GEM measures ecosystem performance by polling 36 experts in nine separate areas of expertise. By these measures, Alberta is similar to Canada as a whole, except performance is a little lower in most measures. Alberta is equal to or better than Canada in 4 of the 9 measures used in the report.
What constraints do they face? According to the Expert opinion, the main constraints facing Alberta entrepreneurs are:
- Financial support;
- Government Programs and policies;
- Capacity for entrepreneurship.
GEM is the oldest and largest study of entrepreneurship in the world, covering 60+ countries every year.
The report contains the following recommendations:
- Continue to highlight opportunities for entrepreneurs in the province and develop tactics to mediate fears in future training initiatives.
- Consider ways to increase Employee Entrepreneurship?Intrapreneurship within Alberta.
- Aim to close the gender gap completely and investigate further why Alberta is more successful in this area than elsewhere across Canada.
- Provide support for burgeoning entrepreneurs with high growth expectations within the province in order to optimize their impact.
- Follow expert advice and look for improvements in Government Policies, Finance, and Education.
The full report is available at GEM Alberta 2017 Report.
Peter Josty
p.josty@thecis.ca
403-249-0191
www.thecis.ca
Women’s Entrepreneurship in Alberta World-beaters – Blog #18
8, January 2019 – Blog #18
Women’s Entrepreneurship in Alberta – World-beaters
Alberta has the highest rate of women’s entrepreneurship in Canada. The Global Entrepreneurship Monitor report on Women’s Entrepreneurship in Alberta shows that 15.5% of Alberta women aged 18-64 are involved in starting a business. This is higher than the rate for Canada as a whole (13.3%) and higher than all other innovation driven economies including the US, Australia and the UK.
Who are these entrepreneurs? They are highly educated, with most having a university or college education, many with graduate degrees. Their ages vary, with entrepreneurship rates peaking in the 18-34 and 55+ age categories.
What do they do? Most (almost 70%) of their businesses are service based, evenly split between business services and consumer services. The next largest category (at 19%) is “extractive” businesses, such as mining, oil, and gas and agriculture, and the balance is manufacturing. This profile is quite different from that of Canada as a whole, where consumer services is by far the largest sector (at 41%) and extractive businesses are half the Alberta rate. The top six sectors are government/education/health; agriculture; professional services; manufacturing; retail; and finance/insurance/real estate.
Why do they do it? Most women entrepreneurs state that their business is to purse an opportunity, although 25% do so out of necessity. The necessity rate is almost twice the Canadian average. The report also provides detailed information on motivation. The main reasons women start a business are independence, a positive work environment, a flexible schedule, and the ability to work from home.
What impact do they have? Most women led businesses are smaller than businesses led by men. Over one quarter of women entrepreneurs operate as solo entrepreneurs with no employees. 7% of women led businesses have created more than 20 jobs. This compares with 10% of businesses led by men. In terms of future job growth, 17% of women led enterprises expect to create 20 or more jobs in the next five years.
How innovative are they? About 30% of women led businesses in Alberta claim to have a new product, process or new market, compared with 33% of businesses led by men. Both of these numbers are lower than the Canadian average.
Do they export? 26% of women led businesses in Alberta export, compared with about 30% for businesses led by men. Both of these numbers are lower than the Canadian average. Canada as a whole ranks highly by this measure, being #3 globally for exporting.
How satisfied are the entrepreneurs? Most women entrepreneurs in Alberta say they are satisfied with their work. The highest ratings for satisfaction are related to having decision making autonomy over how work is accomplished, and doing work that is personally meaningful. The lowest ratings for satisfaction relate the level of work stress, the growth trajectory of the business, levels of income and work related stress.
What challenges do they face? Women entrepreneurs face a number of challenges in Alberta, despite their overall very positive situation. Many women entrepreneurs report dissatisfaction with the annual growth rate of their businesses, and the degree of innovativeness. Although there are a number of programs aimed at growth oriented women entrepreneurs in Alberta, it would appear that more needs to be done. A quarter or women entrepreneurs are entrepreneurs because they have to be, not because they want to be (i.e. necessity based entrepreneurs). This suggests that other factors are involved, such as a weak labour market, difficulty accessing training, or problems finding flexible job opportunities. Women entrepreneurs are underrepresented in lucrative, innovation sectors such as knowledge intensive business services and scientific and technological sectors.
As report author Karen Hughes notes, in recent years Canada has become increasingly recognized as a leader in women’s entrepreneurship. This report provides plenty of evidence to support that conclusion.
The full report is available at THECIS GEM 2018
Peter Josty
p.josty@thecis.ca
403-249-0191
www.thecis.ca
Youth Entrepreneurship in Canada Blog #17
19, November 2018 – Blog #17
Youth Entrepreneurship in Canada.
Highly educated entrepreneurs see it as a good career choice.
The recently released Global Entrepreneurship Monitor report on Youth Entrepreneurship shows that youth entrepreneurship is alive and well in Canada. The Global Entrepreneurship Monitor (GEM) is the largest study of entrepreneurship in the world.
Highlights from the report include:
- Canadian Youth see entrepreneurship as good career choice and associate it with high status. Over 60% of Canadian youth saw entrepreneurship as a good career choice, and having high status, and three quarters saw it as having high status. Most also saw it portrayed positively in the media.
- They feel confident that they have the skills and experience needed to start a business. More than half felt they had the skills and experience need to start a business, although around 40% expressed a fear of failure. However this is about 10% less than expressed by the 18-64 age group. However, we found in other GEM reports than the experts are quite skeptical of these views.
- They want greater independence. There has been a pronounced shift in the last 4 years to increase the fraction of youth entrepreneurs who seek greater independence, rather than to increase income. More than twice as many of the youth entrepreneurs we interviewed valued independence more than increased income.
- They are highly educated. Over 60% of youth entrepreneurs have a post-secondary degree, while among the youngest youth entrepreneurs (ages 18-24) 16% have post graduate experience. This compares with 54% of the 18-64 age group in Canada who have a post-secondary qualification.
- Consumer services form the largest share of youth entrepreneur’s ventures. It is typical of most reports on entrepreneurship that consumer services are the largest single business category. There are low barriers to entry and frequently a relatively low need for capital to get started. 45% of youth entrepreneurs’ ventures are for consumer services, 32% for business services and 20% for manufacturing.
- Personal savings is the primary source of funding. 58% of youth entrepreneurs funded their ventures with personal savings, 19% by bank loans and 9% from family. The median value of the investment to start their business was $268,214.
- There is a gender gap, as female youth exhibit less confidence and a higher fear of failure than their male counterparts.
- The overall entrepreneurship rate for youth is slightly lower than the Canadian population. In 2016 14.1 % of youth were involved in entrepreneurial activity, compared with 16.7% of the total 18-64 population. This is perhaps not surprising as generally people need to accumulate money and experience before starting a business.
- An increasing number of Youth are running established businesses. In GEM, an established business is one that has been around for 3.5 years. The number of these headed by Youth has risen quite rapidly in the last four years.
- Ontario and Alberta are hubs of youth entrepreneurship. The rate of youth entrepreneurship varies quite a bit across Canada. Highest rates are found in Ontario, Alberta and Quebec, while lower rates are found in Newfoundland, New Brunswick and PEI.
The full report is available at www.gemcanada.org – look under 2017 (when the data was collected).
Peter Josty
p.josty@thecis.ca
403-249-0191
www.thecis.ca
Measuring Entrepreneurship- Lies, damn lies and statistics. Blog #16
7, June 2018 – Blog #16
Measuring Entrepreneurship – Lies, damn lies and statistics.
British Prime Minister Benjamin Disraeli is reputed to have said that there were “three kinds of lies – lies, damn lies and statistics” as a sort of tongue in cheek way of advising caution when interpreting numbers. A case in point is entrepreneurship statistics.
Entrepreneurship is falling
There have been a series of reports in Canada (and around the industrialized world) deploring the decline of entrepreneurship. A recent one from the Fraser Institute compares the rate of entrepreneurship in a number of countries in the periods 2001-2007 and 2008-2014. For Canada the decline was 8.5%, for the US 18.6%, for Britain 7.5% and or Australia 20.3%. A long article in Forbes Magazine has the title ”Why US Entrepreneurship is dying.” It quotes reports from the National Bureau of Economic Research showing that start up activity has been slowing down in the US for three decades. A recent article in Aspire Canada has the title “ Is Canadian Entrepreneurship Vanishing?”
Various explanations for this decline have been put forward. The Forbes article places the blame on large student loans, making potential entrepreneurs more risk averse. A recent article in the Globe and Mail believes that demographics is to blame – the aging of the population and decline of the number of potential entrepreneurs in the prime age group of late 20’s to early 40’s. Another explanation is the lack of equity funding compared with the US.
Entrepreneurship is rising
On the other hand, data from the Global Entrepreneurship Monitor – the world’s largest study of entrepreneurship, tells a different story. In Canada, for example, the rate of entrepreneurship (measured as the TEA Index of total early stage entrepreneurship activity) has increased from an average of 8.6 (for 2002-2006) to 15.1 (for 2013-2017), almost doubling. In the US the numbers have gone from 11.2 (average of 2002-2006) to 12.9 (average of 2013-2017). That’s not such a big increase as Canada, but it’s definitely not a decline. Australia shows a similar increase from 11.9 (average for 2003-2006) to 13.2 (average for 2014-2017).
What’s going on?
The first thing to note is that the two groups are looking at different sources for their data. The “falling” group looks at company registrations, where a new company has been formed. The “rising” group look at actual activities, what percentages of the adult population are actually involved in entrepreneurial activity, whether the activity is part of a registered company or not.
But what could be behind this? A very likely explanation is the gig economy. A report by Randstat Canada (the largest staffing company in Canada) says that 30% of the Canadian workforce is already in “non-traditional” jobs, including part time work, temporary work, contract work, and freelance work, self-employed or unpaid work. This number has increased significantly in recent years, and is expected to rise to 45% by 2020 according to Intuit Canada. A report from Ryerson University found that over 50% of all new Canadian jobs involve “non-standard” work arrangements. Very similar numbers are predicted for the US.
One of the problems with dealing with this issue is the lack of an accepted terminology. Many almost similar terms are used, including gig economy, sharing economy, digital platform economy, and others. The Organization of Economic Cooperation and Development (OECD) has resorted by defining non-traditional work arrangements by what it is NOT – “It is not full time, dependable employment with a contract of indefinite duration.”
There is a theoretical underpinning to this change. Ronald Coase won the Nobel Prize in economics by explaining that firms exist to minimize transaction costs. It was cheaper for General Motors (for example) to assemble all the materials to make a car than to contract with others to do the same thing. That was then. Now the computer revolution has made it much easier and cheaper for firms to do work by contracting with freelancers, and outsourcing significant parts of their activities. Also, it is easier for people to find work using apps such as Uber, Airbnb, Handy and TaskRabbit that trying to find full time employment. And perhaps they value the flexibility as well.
Conclusion
It looks very likely that we will see further increase in entrepreneurial activity in Canada. It remains to be seen how much of this is done through registered companies and how much of it is done on a freelance or sole proprietorship basis.
Women’s entrepreneurship in Canada Blog #14
12, December, 2017 – Blog #14
Women’s entrepreneurship in Canada
Women’s entrepreneurship continues to attract a great deal of attention and interest around the globe, given growing evidence of its economic and social impact. Initiatives such as the World Bank’s Women’s Entrepreneurship Financing Initiative (WE-FI), and Goldman Sachs’ 10,000 Women Program , are just two examples of a growing range of initiatives aimed at supporting and encouraging women-led business. Within this global context, Canada has emerged as a leader in women’s entrepreneurship, with the highest levels of early-stage activity (TEA), and the fifth highest established business ownership (EBO), amongst innovation-based economies.
The GEM Canada Report on Women’s Entrepreneurship highlights the strength of women’s entrepreneurship in Canada. Some highlights from the report:
- In 2016, 13.3% of Canadian women engaged in some form of early stage business activity, involving a business that was 3.5 years old or younger. This was up from 10.0% in 2014, and marked the highest rate of women’s TEA in 2016 amongst comparable innovation-based countries.
- Comparing Canada to other G7 countries—such as the U.K. (5.6%), Germany (3.1%), France (3.4%), and Italy (3.3%)—helps to underline the striking and high level of Canadian women’s participation in early-stage business.
- 6% of Canadian women were engaged in established businesses – those more than 3.5 years old – the fifth highest rate among comparable countries.
- Canadian women entrepreneurs are found across all age groups, though start-up rates are highest among women aged 25-44, while the majority of established business owners fall between 55-64 years of age.
- Women entrepreneurs are highly educated, with 12% having a graduate degree and 53.8% having a college or university degree.
- 82% of women indicated they were motivated to start a new business by opportunities, up notably from 70% in 2014, while only 14.5 % were motivated by necessity.
- Early stage women entrepreneurs are heavily involved in consumer services (54.4%), followed by business services (28.2%) and manufacturing (14.6%)
- For established businesses, the pattern is different and much more evenly distributed between consumer services (41.2%) and business services (41.2%). This greater presence in business services is important and encouraging, given that business services is typically a much more profitable sector, one that is increasingly recognized as driving innovation and business growth according to research on the ‘knowledge-intensive business service’ sector (KIBS). 19.2%)
The Global Entrepreneurship Monitor (GEM) is the world’s largest study of entrepreneurship, and typically covers 60-70 countries each year with a standardized methodology allowing ‘apples to apples’ comparison between countries. In Canada GEM reports are carried out by the Centre for Innovation Studies (THECIS) based in Calgary. This report was written by Karen Hughes a Professor at the Alberta School of Business and the Department of Sociology at the University of Alberta. The full report is available at https://tinyurl.com/y94gxqpn
Peter Josty
p.josty@thecis.ca
403-249-0191
www.thecis.ca
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