PANEL 3—Established companies must ‘disrupt ourselves’ to be innovative and stay ahead

For global players, ‘not investing in innovation may be the biggest risk a company takes’

Canada Growth Summit Panel 3 | Established Innovators: Becoming and Remaining a Global Champion

Opening remarks: 
Kevin Lynch, Vice-Chair, BMO Financial Group

Panelists: 
Alain Bellemare, President & CEO Bombardier
Elaine Campbell, Interim President, Innovative Medicines Canada
Stephen Carlisle, President & Managing Director, GM Canada
Lorraine Mitchelmore, former President Shell Canada

Moderator:
Suzanne Fortier, Principal and Vice-Chancellor, McGill University

Session Recap

By Carl Meyer

Established industry players and watchers in Canada broadcasted a key message to businesses that are hoping to evolve in the current landscape: There can be no innovation without risk.

“Not investing in innovation may be the biggest risk a company takes,” said Kevin Lynch, vice-chair of BMO Financial Group, in opening remarks to a panel, “Established Innovators: Becoming and Remaining a Global Champion” at the Public Policy Forum’s Oct. 12 Growth Summit in Ottawa.

The panel, moderated by McGill University principal and vice-chancellor Suzanne Fortier, looked at mature companies and their effort to stay at the top of the heap and continue innovating.

Continuing to push the envelope means playing the game differently, the speakers said. More importantly, not doing so means Canadian growth is in peril. Spending on research and development in Canada is at very low percentages and dropping, said Lynch.

The country’s ranking on innovation at the World Economic Forum is bad, as is its rankings on productivity. There is an innovation gap of 70 per cent with the US, translating to a $11,000 income gap per Canadian.

The only way to change the country’s growth path is innovation, but the state of innovation in the country, “despite pockets of excellence,” is not good, he admitted.

“Innovation is not about developing new technologies,” noted Lynch. “Innovation is about solving problems” — about putting together problem-identifiers and problem-solvers.

Bombardier’s recent history speaks to Lynch’s point that innovation doesn’t come without risk, said president and CEO Alain Bellemare.

Over the last five to seven years the company has “been investing massively in new products” in order to compete for the long term. In aviation, “innovation is not an option, innovation is absolutely critical.” Bombardier must compete not only with long-established competitors like Boeing, but also new players in China and elsewhere.

“We’re seeing the Chinese becoming a significant player outside the Chinese market,” he said.

Bellemare said Bombardier spends about $2 billion a year on R&D—adding up to $10 billion in the last five years — and that has put “tremendous pressure on the business.”

The energy industry is also being globally disrupted, said Lorraine Mitchelmore, former president of Shell Canada. A surplus of global supply meant a price crash and the quick outflow of capital, she said. In addition, new technology like social media has allowed global attention to be focused on business operations in a way that is unprecedented, leaning to agile, rapidly deployed mass movements and protests.

Innovation in the energy industry means reframing this challenge into an opportunity, said Mitchelmore — entering into the global competition to be the cleanest energy producer. One example she cited was the Canadian Oil Sands Innovation Alliance, a 13-member organization where firms share technologies in order to push environmental performance forward.

The auto industry is similarly being turned on its head. Changes in the industry are being driven by multiple vectors, said Stephen Carlisle, president and managing director of GM Canada, including increasing urbanization, environmentalism, autonomous driving and internet-connected vehicles.

As a mature business in a mature industry, “our role is to disrupt ourselves,” he said. The car itself is being re-imagined as a “personal mobility system” that’s connected, all-electric and autonomous. GM, which first launched its OnStar system in the mid-1990s and has seen over a billion presses of the OnStar button, is now moving to a 4G LTE standard.

Elaine Campbell, interim president of Innovative Medicines Canada, said there has been a shift in the industry away from a more laboratory-focused approach to one of collaboration, “recognizing when our medicines work best” and who they work best for.

In the past, the industry leaned on credits from the Scientific Research and Experimental Development Tax Incentive Program, or SR&ED (commonly pronounced “shred”), a tax relief program for firms that conduct scientific research and experiments.

But the program is potentially no longer as much use, said Campbell, as there are other tax instruments around the world. Canada’s regulatory environment could be served by a “renewal process,” she said.

On the flip side, the dollar exchange rate is at the point where a surge of research can be brought back into Canada, Campbell noted.

Bellemare agreed Canada has access to “phenomenal talent” but the challenge is addressing the country’s small market, at least in the space Bombardier plays in. Canada’s defence industry is relatively limited compared to the $600 billion per year US defence budget and a large European market as well. Emerging players like China and Japan are establishing aerospace as a national priority, he said.

That different “cultural mindset” shows up in the data, said Campbell. For every molecule developed in Canada, there are 28 developed in the US, even though the population proportion is 10 to one.