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I'm going to call to order the 10th meeting of the Standing Committee on Government Operations and Estimates in the 41st Parliament.
Today we are gathering to study the effectiveness of the Office of Small and Medium Enterprises and of the Canadian innovation commercialization program.
We have witnesses before us. From the AMITA Corporation we have Monica Preston, president. Good afternoon.
From Bubble Technology Industries, Inc. we have Lianne Ing, vice-president, who perhaps is not quite with us yet. But we do have Mr. Karna Gupta, the president and CEO of the Information Technology Association of Canada. Welcome, Mr. Gupta.
Before we start, Mr. McCallum, you have a question.
I think you know, Mr. McCallum, that a notice of motion is not debatable in any way, so we'll simply file that for future reference.
Hello, Ms. Lianne Ing. It's a pleasure to have you with us here as well. We were just about to begin the opening comments from the witnesses, and then we'll have rounds of questions.
Is there an order in which you'd like to go? Perhaps we have first in line AMITA Corporation's president, Monica Preston. That would be a place to start.
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Sure, that's no problem.
Hello, everyone, and good afternoon. My name is Monica Preston. I am the president of AMITA Corporation and one of three owners of AMITA and WorldReach Software, which is a subsidiary of AMITA Corporation.
I would first like to thank the committee for inviting me here today. It is an honour to appear in front of all of you and to provide my assistance in any way possible.
AMITA Corporation is a public safety and emergency management solutions company, offering innovative commercialized software solutions, information technology services, and expertise in research and development programs.
AMITA is a Canadian company, started in 1991 with three staff. It has grown over the years. I'm proud to say that we have more than 85 staff at AMITA. AMITA has been able to achieve its international success with a strong vision and hard-working Canadians.
Assistance from the Government of Canada is essential, not only to our business but to all small and medium-sized businesses. My company's experience with the Office of Small and Medium Enterprises and the Canadian innovation commercialization program has been positive. At this time we are completing contracting related to our CICP “call one” selection, and our experience with the application and procurement processes has also been a positive experience.
The CICP process is straightforward. It provides a clear statement of what is expected from companies. It has provided us also with a direct incentive to bring a new product to the market.
Something that I would like the committee to consider in this effectiveness study is how big an impact the endorsement from the Government of Canada can have on a small to medium enterprise. AMITA is proof of this.
In 1998 our company began to commercialize a product for consular management. It was built for the Department of Foreign Affairs and International Trade, and this solution was deployed in Canada and today is used in all of the Canadian embassies and missions around the world.
We were very fortunate at that time that our sponsor and champion at DFAIT gave us support and endorsement when other countries inquired about our company and about our products. Seven countries now use our WorldReach products.
A company like AMITA has numerous innovations that are in the pre-commercialization phase. To move to commercialization, a key element to future sales is a strong reference from the Government of Canada. In the situation with the Department of Foreign Affairs and International Trade, they gave us that support and in doing so helped us further and expand our business and create more jobs for Canadians, which in turn strengthens the Canadian economy.
In my opinion, small and medium-sized enterprises are a large part of a healthy economy. Direct government support of small to medium business through government programs and offices like CICP and the Office of Small and Medium Enterprises will ultimately contribute to a healthier and more sustainable Canadian economy.
Thanks very much.
Good afternoon, Mr. Chairman and members of the committee. Thank you for inviting me here today to speak about our company's experience with the Canadian innovation commercialization program.
I'll begin with a few words about our company. Bubble Technology Industries was founded in 1988 and is located in the rural area of Chalk River, Ontario, which is about two hours west of Ottawa.
We are a rather unique, 50-person company, fully Canadian-owned, and we provide products, services, and research primarily in the areas of radiation detection and explosives detection.
Although we are a small company, we have a big footprint. We have more than 400 customers in 25 different countries and have conducted more than 100 research programs for customers around the world and here at home. Our technology has been used to protect people and infrastructure at many major events, including the U.S. presidential inauguration, the Super Bowl, the World Series, and the Olympics. Our radiation detectors were used in Japan to protect workers in the recent Fukushima power plant recovery efforts. Our technology has flown on more than a dozen space missions to support research aimed at protecting astronauts from radiation hazards and is equally used to protect nuclear submariners when they are deployed undersea.
These achievements are made possible by an outstanding team of people with whom I have the privilege to work. Our staff is highly trained and highly skilled, with multi-disciplinary expertise in science, engineering, and manufacturing. Our ability to generate a spark of an idea and then carry that idea through all the stages of research, development, production, and deployment is the foundation of our success.
We became aware of the CICP pilot program in September 2010 when the Office of Small and Medium Enterprises launched the initiative. We assessed our technology portfolio at the time and submitted a proposal in November 2010 for an innovative radiation-detecting speed bump that had been developed through internal company investment but had not yet been brought to the commercial market. In particular, the technology addressed the CICP priority area of "safety and security" by providing authorities with a simple-to-use, effective method of screening vehicles for radioactive materials. In February 2011 we were notified that our submission had been selected as a pre-qualified proposal.
As you have previously heard, an innovation selected by CICP must then be matched with a federal test department, which represents a potential end user of the innovation. We were fortunate, in that several federal departments expressed their interest in the technology. Ultimately, we were matched with the RCMP as the test department. At present, we have worked through the necessary contract discussions with PWGSC and are anticipating the contract award shortly.
The project itself will be 15 months in duration and includes testing of initial prototypes by the RCMP in order to solicit some early end-user feedback on the technology. We will use this feedback to identify and drive modifications to the design as necessary, and the RCMP will then have the opportunity to assess the prototypes through a second round of testing to ensure that the technology meets their operational needs.
As a company that essentially makes its living through innovation and technology exploitation, we have recognized for many years that there is a funding gap in Canada between research and commercialization. Canada has a number of programs that encourage and incentivize research; however, the mandate of many of these programs ends before the technology has actually been commercially exploited, and more importantly, before the technology has actually been transferred to the users who need it.
In our particular industry, which is geared towards defence and security applications, the lack of funding programs to carry the technology that last leg of the journey means that there are first responders and military personnel who are not receiving the benefit of the latest technological advancements as quickly as they could.
In addition, this funding gap means that Canada is not reaping the full economic benefits of technology commercialization, including the creation of high-quality jobs and the benefits associated with strong commercial exports.
From our perspective, the creation of the Canadian innovation commercialization program is a step in the right direction. It recognizes the value of carrying innovations all the way to market and it connects companies with federal departments, who can provide useful feedback on an emerging product and can potentially serve as reference buyers to support international sales efforts.
We sincerely hope that CICP will have an opportunity to continue and to expand. At the moment, the demand for the program appears to far outstrip the available resources. Even a relatively small company like ours will typically have several technologies at any given time whose commercial exploitation could be accelerated if the resources were available.
As the program evolves, there are three key considerations to bear in mind: innovation does take time; commercialization also takes time; but the faster you can do both, the greater the competitive advantage.
Rapid time to market is critical if we want to compete effectively on the world stage, and time to market can be accelerated when companies can leverage efficient, stable, multi-year funding programs supporting technology exploitation.
Thank you for the opportunity to share our thoughts on the program. I'm happy to answer any questions the committee may have.
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Thank you, Mr. Chair and honourable members, for extending to ITAC the opportunity to meet with you this afternoon and to participate in the study of the effectiveness of the Office of Small and Medium Enterprises and the Canadian innovation and commercialization program.
At the outset, I would like to communicate that ITAC is in support of both of these initiatives.
If you don't know ITAC, it is the national association of technology companies. Our members are 300-plus companies in Canada. They're as large as CGI, RIM, OpenText, and Rogers, but the vast majority of our members are small and medium-sized businesses. These companies, we believe, are vitally important to our industry in many respects. They represent the future of ICT.
ITAC's mandate has always been to promote the public policy environment, to conduct the effective growth of the industry, as well as to grow the knowledge-based sector in general. Our primary mandate has been to provide a strong, innovative, competitive ICT industry; more accelerated use of productivity-enhancing ICT tools; a fair, progressive public sector business regime in Canada; advancement of e-health; a smart regulatory regime in Canada; and a robust, competitive ICT talent pool for the country.
I hope today I will be able to demonstrate that both OSME and CICP advance all of these causes and the promotion of a strong, innovative ICT industry in Canada while supporting the need for a fair, progressive public sector business regime.
With respect to OSME, in 2005 the office was a major contributor to the important dialogue between the ICT vendor community and the federal government through ITAC public sector business committees. They also participated in various other programs and panels we ran throughout the year.
It supports our core belief that Canada's public sector procurement regime must play a strategic role in the promotion of Canadian ingenuity among the small and emerging businesses. In our view, it plays an essential role in ensuring that the $7-billion public sector ICT market is accessible to all. With respect to CICP, it is the key instrument of fulfillment of its role in the Canadian innovation and commercialization program in the budget of 2010.
ITAC has been in discussion with government, from as early as 2005, about the need for a program. When CICP was announced, it was clearly framed as a policy instrument for the support of innovation rather than a procurement instrument.
To our knowledge, several companies have participated through this process and benefited from it. We fully endorsed the announcement in July, the second call for expression of interest, and actively encouraged our members to participate in this program.
I would be remiss if I didn't comment following yesterday's Jenkins report.
Ladies and gentlemen, it was outlined that the commercialization process leads to new innovation. First, of course, you start with the idea. Then you apply the knowledge of a robust talent pool to develop a prototype and have a trial customer. Then you take the learning from this trial and start the commercialization process. At this stage, you need the infusion of capital to keep the lights on and the process growing. And finally, you do need access to both the local and global markets.
The Canadian government's willingness to play a central role in this process through an organized program is critical to small business. It is also wise public policy.
I cannot overstate ITAC's support for CICP. The only recommendation I can make for its improvement is to make it a permanent part of the Canadian innovation policy.
In this regard, we agree with the expert panel that reported yesterday. Their support for CICP and their suggestions on how to strengthen this program are worth repeating here.
ITAC values its relationship with OSME. Last year we ran an ingenious program looking at various small businesses. To that extent, buyandsell.gc.ca, the government program, became one of the finalists in the event. It sets the best practice for small to mid-sized enterprises who are planning their own web-based program looking outside, “facing” portals.
In conclusion, I simply want to restate the strong support from the ITAC industry for the Office of Small and Medium Enterprises. We're committed to providing any support it may need with its program and, if required, active consultation to further improve its effectiveness.
Thank you, Mr. Chairman.
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Thank you very much, Mr. Chairman. I also thank our witnesses for being here.
I must say right from the outset, Ms. Ing, that if you contribute in any way whatsoever to the success of the Super Bowl, you already have all of my esteem and admiration. I also want to say that I am very happy for the success of your small business. I think that that success has something to do with your presence here today.
I'd like to take a few minutes to provide a broader picture of innovation and research and development in Canada. According to OECD figures, in 2008-2009, Canada was the OECD class dunce with regard to direct investment in research and development. Our businesses come dead last in the rankings. This has consequences such as the fact that we are lagging behind when it comes to registering patents, as compared to our OECD competitors, as we are in the number of doctorates awarded.
I would also like to give you a broader overview, one which goes beyond what the Office of Small and Medium Enterprises can do, and we applaud what they do do, of course. Indeed, the investments made by businesses themselves in research and development has been stagnating since 2000. It was approximately 1% of GDP in 2000 before it went up a bit to 1.3% in 2001. Afterwards, it went back down to 1% in 2009.
What do you think the government could do? Could it not better support businesses, do more to help them to invest in research and development, and support them better through direct subsidies to research and development, since our country is the poorest performer in that respect among OECD countries?
Thank you to our witnesses.
First of all, congratulations on being accepted into the Canadian innovation commercialization program, otherwise known as CICP. It's something that's long overdue for Canadian entrepreneurs. We have the year of entrepreneurs and we also celebrate small business week. We congratulate all small-business owners. As my colleague alluded, they are the economic engine that drives our economy.
I had the opportunity to be in business, and I know what it's like to realize that sometimes there's more month left than money and to try to figure out how to make the payroll. And you celebrate when things go well. It's kind of like taking that dream and making it a reality. I applaud you for your innovation and creativity.
One of the challenges that has been alluded to is that in Canada we haven't been as successful as we should be with taking the concept to commercialization or taking something from patent to product to profit. That's one of the reasons for our own study--to try to find ways we can help small and medium-sized businesses flourish.
So from your experience working with the OSME and the CICP project, first of all, how did you find out about the project and the program? Was the application process cumbersome the first time?
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I believe in continuous improvement for all programs, so I think there's always an opportunity to continue to refine the program. I think the approach that was taken here was a good one. Rather than trying to plan every last detail, in theory, I think it's a good idea to get a pilot program launched and try it, and then refine and tweak that program as you see the results coming back from it.
In terms of specific improvement, as I mentioned, the proposal process for us was quite transparent and straightforward. As Ms. Preston has also mentioned, the focus area, not only for this program but also across the board, would always be to try to streamline and accelerate that contracting process once the program has been accepted.
From our perspective, it is an innovative technology. We'd like to get that technology to market before others have an opportunity to do so, so the more quickly we can get the work started, the better.
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Maybe I could add to my comments just from a bit of a different perspective. I don't know all of the details of the program. What I do know are things that would help us, and maybe I could articulate those and then you can determine whether the program can in fact address them or not.
One of the things in the last year that I've seen with program review and the strategic review is that it's more difficult to get departments to engage in innovations when they already have such a full plate of things to do. If there were some incentive for government DGs, directors, to get involved in supporting some of this innovation, it would be very helpful. That goes towards trying to find a testing department, of course, that will test the products and give you feedback because they also have priorities in terms of their work that they have to do day to day. If we can somehow provide some incentives there, that would be very useful.
I would like to see some clarification of intellectual property policies, Treasury Board policies, made to people at the working level in government, because there's a lot of confusion about intellectual property. In the context of CICP this becomes important. I'd like to see government staff more broadly at the director and DG level understand intellectual property, really what it means, and understand the Treasury Board policies around this.
We talked about the procurement processes and trying to streamline those as much as possible. I guess the other thing I could add is if government can understand what capabilities small and medium companies have to offer. You often see large programs involve large companies. The government feels they need to have large companies front and centre because there's a lot of money at stake. I think if government also knew what small and medium companies had in terms of capabilities, perhaps there would be a better way to integrate them in that work.
I can't answer about the program specifically because I don't know all the details about it, but I can offer some of the things we'd like to see fixed, and perhaps the program could address some of those.
And thank you to all three of you for being with us today.
Congratulations to Ms. Preston and Ms. Ing on your entrepreneurship, and also the entrepreneurship of your many members, Mr. Gupta.
Nobody in this room, to my knowledge, thinks that either of these two programs is doing a bad job, but my impression is that they are both tiny in relation to the scale of the challenges that Canada faces.
I remember when one of the officials involved with the Office of Small and Medium Enterprises was here, he or she said that the U.S. equivalent has 40, 50, 100 times more employees, I don't remember the exact number. And Ms. Ing, I think you said there were way more people wanting the financing than could get it and there were a couple of dozen examples. Well, this is nice, but it's really small potatoes compared with the challenges we face, the very low R and D levels that my colleague referred to and the huge financing troubles.
This report from the task force yesterday said, and let me just quote a bit:
Innovative Canadian companies face real challenges in getting start-up funding and late-stage risk capital financing. In many cases, the gap is filled by foreign investors, which means that too many commercial benefits and intellectual property end up leaving the country. Directing the BDC to work with angel investor groups and develop late-stage risk capital/growth equity funds will pay dividends.
My impression from this task force is they were told not to spend any more money in total, but I think they're saying spend less money on SR&ED grants, tax credits, and more focused direct loans or investments through agencies like BDC. The SR&ED thing is too complicated, it's a shotgun approach. Other countries have been more successful with this more direct approach, through BDC in our case.
I'd like to ask each of you whether you agree with this proposal to redirect more of the available funding into direct action through BDC.
Perhaps Mr. Gupta....
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Thank you for coming in today.
I have a few questions about the evolution of a product life cycle. There is some basic blue-sky research that companies do; then there's sometimes a patent; then there's a product development effort.
Could you describe the process of how you worked with CICP? It sounds as though you didn't have a final product, necessarily, or there was a high-level set of requirements given to you in each of your examples, with the Department of Foreign Affairs and then also when it came to radiation detection and so on, and that there was further work that CICP did with you to refine the product.
Could you describe how that works? It doesn't sound as though there was a final set of requirements given to you in each of these cases; it was basically a question of responding to a request for proposals.
Could you describe that working relationship? And where within your product and service evolution did CICP intervene, and how did that help you?
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The CICP program is structured somewhat differently from a traditional call for proposals, because in a traditional case there will often be a government department that identifies a specific need and therefore a specific set of requirements for the technology.
In the case of CICP, they were not prescribing what sort of technology they were willing to fund. They basically went out to small and medium enterprises and asked, what technologies do you have that meet a minimum level of technology maturity but that you have not yet brought across the commercialization line?
From our perspective, when the call for proposals came out we basically looked at our technology portfolio and identified which technologies were sufficiently mature to go into testing with a government department but had not yet been sold commercially. That's how we narrowed down the list of technologies for submission, ultimately to one particular technology, which we submitted.
I think there's some merit in that approach, if the intent of the program is to try to jump-start the ability of small and medium enterprises to commercialize the activity, because it allows a very broad cross-section of enterprises to respond with whatever technology they feel is most promising and whatever technology they feel will have the greatest impact and return for their company.
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At AMITA we had an early-stage solution for early outbreak management. It is based on the SARS commission report and the ability to manage information during that time, when there was an outbreak and nobody really knew what it was. People were concerned, some people died, and of course it really affected the economy at the time. This was a capability gap that we had a solution for, and that's the one we went forward with.
It is complex, in that it has to be integrated in the health system. Being able to test it with a federal department and then have some way of getting some other involvement from provinces and municipalities potentially becomes really interesting for us—being able to get it tested and really assess the effectiveness of it.
For example, it could be that there is a vessel of interest coming with refugees or something; or we have C. difficile outbreaks that are moving, and this has been recently reported. There are all kinds of things like that.
So that's the one we decided to submit under the program. It is in the early stage because it's not contracted, so the test is still yet to be done. The effectiveness will come after we see how this goes.
If I think back to our consular solution, we had to repackage it to sell it. Countries weren't interested in buying this whole, huge solution. They wanted to buy pieces of it depending on what they needed. So we also, as we're selling, have to change our business models. We have to think about what makes it more attractive to the buyer and that kind of thing. There are a lot of things going out throughout this product management cycle that you're talking about: about the product itself and where to go; what the best way to sell it is; what the best business model is to sell it in.
As time passes in the technology area.... You talked about the fact that this has a huge impact on us because we get new devices coming towards us. We get people using iPads in the hospital now. If we're not fast in getting this out the door, then we are always trying to retrofit the stuff into what we're doing.
I don't know whether that answers your question.
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It truly varies by sector, so I'll give you an example.
If you're in a mobilities phase--and I'll be talking to our membership--developing applications, the rapid prototyping is the quickest way to get to market. As you commercialize, you need to quickly do a prototype test with a customer. If it sticks, then you move forward. Otherwise, you get to the next one.
If we talk of some our other client bases, which are developing more products and solutions that are more permanent in nature and elaborate, with bigger ERP solutions, then you need a longer cycle. Prototyping would take longer. The commercialization process would take longer.
So it very much varies by the type of products you are talking about, and also by the sectors. Then you have the software and hardware differences. In the software case, the prototyping could move a lot faster than hardware. Hardware requires the manufacturing process, including prototyping and testing.
All of these processes need some help for early adoption. The quickest way, at least in my personal experience in this field, has been that if you can't get to try it on a smart customer, the idea stays at the idea stage for a very long time. Funding aside, somebody needs to use the product. It truly needs to solve a business problem. Then you can move it forward.
So the early prototype leads to very quick commercialization. It truly varies by sector. It is not a universal answer for various sectors.
Mr. Denis Blanchette: Merci.
To Mr. Gupta, ITAC is a very diverse organization, as you've described. It includes some very large organizations—CGI, Rogers, RIM, and OpenText, for example—and also a number of smaller entities.
I am wondering, from a public policy perspective, whether 50 jobs get created in a large company in Canada or 50 jobs get created in a small company, is there a fundamental reason why CICP should steer business towards some of the smaller members of your organization versus steering it towards larger ones? What is the benefit to Canada to having those jobs within small and medium enterprises?
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They were the initial department we worked on the solution with, and then we commercialized it from that solution. We own the intellectual property.
Talking to another country in that community, and it's small.... When the U.K. were looking at purchasing it, it was very easy for them to find out by asking: “What do you think of this product? Canada, you're using it. It's in Canada House here in London. Can we go take a look at it? We'd like to know what your people think about it.”
Of course it was a good product. We were pretty confident that they would be able to say good things about the use of it. They supported that, so that became important. If they would not have had any reference and were the first user of it, or, even worse, if we had to say that the Government of Canada isn't interested in using this, I think it does say something to that international community that probably isn't all that positive in terms of supporting Canadian business.
Is there a concern here that you're trying to get to, just in your question?
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For your question, it's important when we talk about how to measure success to separate the processes of innovation and commercialization.
In the process of innovation, in which you're conducting research, there has to be a willingness on the part of the government to fund research without necessarily having a guarantee that the research will produce the desired outcome. That is the nature of research; there is technical risk, and understanding what doesn't work has merit in terms of research value.
As for the commercialization aspect of it, at that stage of maturity the technology has an intended end use and intended application. In the CICP, in matching the technology with a test department, one of the measures of success can be whether that test department actually adopts that technology and moves forward with it over the subsequent years after the initial testing activity.
From my perspective, the value of having the CICP funding is in the opportunity to introduce a new technology to an end user. But I don't wish that the end user stop at that point; the intent here, of course, is to use this as a launching point for further product sales. I think the uptake of the technology is a good measure of success.
I'd like to return to what I was talking about earlier but with perhaps a bit more clarity in the question. I think this report that came out yesterday did a number of things, but I'll just focus on three, and I'd ask each of you if you agree with it or not.
The government currently spends about $7 billion a year in these areas and they had to keep that level constant, so it was a question of reallocation. Given our challenges, you could argue that we should spend more, but in today's fiscal climate one might be lucky just to keep what we have.
Point number one is the SR&EDs now account for about a half, $3.5 billion out of $7 billion, and this makes Canada an outlier in terms of a very heavy dependence on indirect tax incentives versus direct spending. They propose to reduce over time the refundability of SR&ED, which would produce savings that they would then shift over to BDC for direct grants or expenditures or investments on late-stage risk capital financing and start-up funding. I think if you're a pure market person, you might not like that, because in a way it might involve some public agency choosing winners and losers, as opposed to the tax system, which is neutral. But the tax system, on the other hand, could be arguably not terribly effective and a shotgun approach.
Finally, I think everyone here would agree that they propose that CICP be made permanent and larger. Given what we've been saying, I think you would all agree with that.
My question, then, is do you agree, philosophically or in terms of your experience, with the proposal to reduce somewhat the money spent on SR&ED and to use those savings to do more through BDC on late-stage and start-up funding?
Mr. Gupta.