ECON 318 Lecture 52: Econ 318_F2016_Chapter_052_Innovation as a Business Strategy_Short
12 Nov 2016
School
Department
Course
Professor
ECON 318: Canadian Economic Policy & Institutions 2016-2017
Notes for Lecture -- 052
INNOVATION AS A BUSINESS STRATEGY
Canada’s Productivity Record
Canada’s average living standard (GDP per capita) has closely tracked behind that of the U.S. by about
20% below it.
Canada was rapidly closing the labour productivity gap with the U.S. until early 1980s. Since then,
relative labor productivity in Canada’s business sector has fallen from more than 90% of the US level in
1984 to about 76% in 2007.
Although the reasons for this lacklustre performance are not fully understood, four factors seem to be
behind this.
(i) Workers in Canada have less high-tech, high-efficiency equipment with which to work.
(ii) Canada's innovation record has been rather poor, particularly among small- and medium-
sized enterprises.
(iii) Higher prices for oil and natural gas, metals, and minerals reduce productivity in the
commodity-producing sector as they encourage the mining of resources that are harder and
more costly to extract.
(iv) Our economy has undergone structural changes in recent years, especially in the wake of
the 2008-09 recession.
2
The changes implemented after the Great Recession involve significant reallocation of labour and
capital across firms and sectors.
o In the long run, this means more efficient economic specialization and use of production
resources; but
o In the short run, productivity may suffer because it takes time and training for reallocated
workers to become fully productive.
The effect of restructuring should diminish over the medium term, and investment in machinery and
equipment should strengthen, boosting labour productivity.
o The need for improved labour productivity will be critical to our well-being in the future, given
the less-favourable demographic scenario of shrinking of our working population
An environment of low and stable inflation reduces uncertainty about future prices and helps to
prevent "boom-and-bust" cycles in the economy and to keep interest rates low. All of this should
encourage investments in new equipment and technology that enhance productivity.
Definition of Innovation
Innovation is defined as
o the new or better ways of doing valued things
o the manifestation of creativity
o the uniquely human capacity to transform the imagined into the real
The Causality Line
Innovation matters for business because novel products and more efficient processes are the principal
means of making business more competitive
Through innovation, businesses find ways to generate more value from existing resources, therefore,
innovation is the main driver of productivity growth
3
Productivity growth is in turn associated with international competitiveness and commercial
dynamism that is needed for job generation
We need to expand on innovation in Canada in order to face
o The intensification of the global competition
o The need for less dependence on resource-intensive and environment-damaging methods of
production
o The aging of the population
o The continuing revolutionary developments in the transformative technologies of information
and communications
Expert Panel on Business Innovation
Canada’s record on innovation trails that of other developed countries
To assess the situation, the Minister of Industry asked in 2007 the Council of Canadian Academies
(CCA) to canvas the innovation performance of Canadian business, and in particular, to shed light on
Canada’s relatively weak investment among OECD countries in innovation inputs
The CCA established an Expert Panel on Business Innovation in Canada
The Expert Panel on Business Innovation presented its report on June 11, 2009
Expert Panel on Business Innovation in Canada, “Innovation and Business Strategy: Why Canada Falls Short,
Executive Summary”, Council of Canadian Academies
Panel’s Mandate
The Panel on Innovation was asked to answer the following questions:
1. How should the innovation performance of Canadian firms be assessed?
2. How innovative are Canadian firms, and what do we know about their innovation performance at
a national, regional and sector level?
3. Why is business demand for innovation inputs (for example, R&D, machinery and equipment,
and skilled workers) weaker in Canada than in many other OECD countries?
4. What are the contributing factors, and what is the relative importance of these contributing
factors for Canada?
Panel’s Approach
The report addresses the factors that influence the innovation behavior of Canadian businesses
Since innovation is the key driver of labor productivity growth, innovation is approached as an
economic process
The theme is the link between business strategy and innovation activity
The focus is on the long run
The report is primarily diagnostic rather than prescriptive
Document Summary
Econ 318: canadian economic policy & institutions 2016-2017. Canada"s average living standard (gdp per capita) has closely tracked behind that of the u. s. by about. Canada was rapidly closing the labour productivity gap with the u. s. until early 1980s. Since then, relative labor productivity in canada"s business sector has fallen from more than 90% of the us level in. Although the reasons for this lacklustre performance are not fully understood, four factors seem to be behind this. (i) workers in canada have less high-tech, high-efficiency equipment with which to work. (ii) An environment of low and stable inflation reduces uncertainty about future prices and helps to prevent boom-and-bust cycles in the economy and to keep interest rates low. All of this should encourage investments in new equipment and technology that enhance productivity. Innovation is defined as the new or better ways of doing valued things the manifestation of creativity the uniquely human capacity to transform the imagined into the real.
