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The Way Ahead

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Tom Brzustowski

Chapter 7. How University Research Helps

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  • 1 President of the Université de technologie de Compiègne, at convocation at the University of Water (...)

“Students are to ideas, as mosquitoes are to malaria.”—Guy Danielou1

  • 2 “Science and Technology Data—2004,” Innovation Policy Branch, Industry Canada, March 2006. The dat (...)

1It is no coincidence that Canada stands second only to Germany at the top of the G-8 in the proportion of university research that is funded by industry. The numbers are 11% for Germany and 9% for Canada, both well ahead of the UK and US, which place next at 6%.2

2This state of affairs may be surprising, since university-industry partnerships in science and engineering have a history of one and a half centuries in Germany and only about three decades in Canada. However, there are two good reasons for it. First, Canadian university research in science and engineering has achieved high quality, and the academic sector is therefore able to help solve challenging problems for which industry’s own capacity is limited. Second, there are some excellent government-supported programs for university-industry research partnerships.

Three main ways

  • 3 “Science and Technology Data—2005,” Innovation Policy Branch, Industry Canada, March 2007. The dat (...)

3Canadian university research in science and engineering is very good. Its quality is high, and it is kept at world standards by a vigorous international peer-review system. Government investments over the last decade have provided a real boost by attracting talented new people and improving research infrastructure. Canadian researchers are not only good, but also productive. Looking again at the countries with the largest economies, which were compared in Chapter 1, Canada contains just 0.9% of their combined population but produces 4.7% of the world’s research publications.3

4But as already pointed out in Chapter 5, Canadians cannot be content to stay abreast of Canadian research; we must maintain our access to all the world’s new knowledge. Today, having access to research results means not only being able to find the papers, download them from the Internet, and read them, but also being able to understand them, to assess the quality of the research, and to build on the new knowledge reported. To be able to do that, Canadian researchers must work in most of the areas of science and engineering in which advances are being made around the world; they must be good enough to understand what is being done by the world’s best; and they must then make that knowledge available to industry. Fortunately, our researchers have been fulfilling all of these requirements, and that makes our 4.7% of world research an admission ticket to 100%.

5All of this can also be said of health research in Canadian universities and research hospitals. The numbers might be somewhat different, but the conclusions are the same. Substantial differences arise only when we look at the ways in which university research is connected with wealth creation in the economy. We will come back to this point later.

6Canadian university research in science and engineering contributes to wealth creation in our economy in three major ways. These differ in terms of the benefits to be derived form them, the time scale of their contributions, and the risks they involve.

  • 4 Many universities in Canada offer co-operative education, in which students alternate between stud (...)

7The first way is through the education of students who become available for employment upon graduation. Students taught by professors who themselves do research are likely to be aware of modern developments. When hired by industry, they will learn quickly to work with new technologies. They might typically be ready to contribute after a year or less of further training on the job, possibly much less for co-op students4 who previously worked for the same company. In terms of the company’s innovation capacity, such people can most readily contribute to incremental innovation driven by market feedback, but their capabilities can be enhanced with the right experience. The greatest source of risk to the company could well be in the process of recruiting the right people in the first place, and then providing them with appropriate learning opportunities to develop their capabilities. All things considered, many people in industry believe this is by far the most important interaction between university research and wealth creation.

8The second connection between university research and wealth creation in the economy is particularly well developed in Canada. This is project research done in partnership with industry. It is the kind of research that is undertaken when a company has defined a problem that needs solving but cannot be solved with existing knowledge, and when there is no capacity for generating the required knowledge in house. (If the required knowledge existed, the job of solving the problem would likely go to a consultant or a design shop.) Project research must meet two criteria to be useful: the research must be very good, and the project must be very well planned and managed. The benefits are twofold as well: first, a successful project may lead to significant process or product innovations that can be commercialized by the partner company, and second, the graduate students who worked on the research are potential employees who are already familiar with some of the company’s technology challenges and ready to contribute right away. They expand the company’s capacity for innovation by their capability to create and use new knowledge. The risk to the companies is also twofold but not unique to project research: first, the scientific risk always implicit in research, and second, the business risk of putting the results to use successfully. The benefit is obvious: potential commercial advantage from process and product innovations derived from new knowledge that is, at least initially, not available to competitors.

9Thousands of Canadian companies of all sizes in all sectors have profited from such university-industry partnerships over the last two decades, and there are many successful federal and provincial programs that share the cost of such work (e.g., the federal Networks of Centres of Excellence and NSERC University-Industry programs, Ontario’s Centres of Excellence, Alberta’s iCORE). This is an area in which Canada has produced several very successful institutional innovations.

10Two related additional interactions between university research and industry should be added here. Both depend on the expertise of faculty and their knowledge of industrial problems. They are research in areas of particular proprietary interest done under contract between a university and a company, and technical consulting by individual professors. Both contribute to industrial innovation.

11The third major connection between university research and wealth creation is rare, unexpected, and difficult, but potentially very important. It is the occasional successful commercialization of some invention that arises out of the results of basic research—research undertaken only to deal with unanswered questions about nature. But because this process can often be identified with one person or a small group of researchers, because it can be serendipitous or dramatic (e.g., described in words such as “discovery,” “breakthrough,” and the classical “Eureka!”), and most of all because over the years it has produced some enormously important and well-known innovations that have had far-reaching effects on people’s lives (e.g., the laser, nuclear fission, penicillin, etc.), it has become the focus of attention among policy makers, the media, and the public.

12Some would say that the attention it gets is excessive but superficial, and that it leads to unrealistic expectations. In today’s climate of (rightly) seeking fruitful outcomes for the expenditure of public funds, the question “What breakthroughs have you produced for the research money we gave you last year?” is not constructive. It overlooks the first two very important connections between university research and wealth creation discussed above, and it risks undermining the core process of basic research, namely the patient building up of a pyramid of facts from around the world to a major discovery at the apex. The challenge, of course, is to ensure that the apex is reached by Canadian researchers as often as possible.

  • 5 Bruce P. Clayman, then V-P, research of Simon Fraser University, studies of university technology (...)

13That said, the Canadian record for commercializing inventions resulting from basic research is good. Given our low level of industrial R&D, in many cases there is no company that can pick up an unexpected invention and use it. This situation can be described as a low “receptor capacity” of Canadian industry for new research results. That means that in Canada the commercialization of inventions arising out of basic research often requires creating a new venture. Fortunately, we have learned to do that quite well, and we continue to get better at it. Canadian university research leads to more start-ups per dollar of research funding than in the US.5 On the other hand, the revenue collected by universities from existing companies that license their inventions is much less than in the US, for the reason already mentioned.

14Inventions coming out of basic research are already an important source of new ideas and of some innovations that change existing business to the point of being considered disruptive. But in the future they could become even more important. This is because many companies are withdrawing from long-term exploratory research under the market pressure to put more and more of their R&D money into faster and faster development of new products. In effect, industry is leaving long-term thinking to the universities.

15The situation of health research in universities and research hospitals is different in many ways, but essentially the same in some others. It is different because the goal of health research is always to improve people’s health. The new knowledge produced by research can lead to new ways of preventing illness, new tools for diagnosis, new medical instruments and procedures, new therapies, new drugs, new practice protocols, new rehabilitation regimes, new medical devices, etc. Some of these developments are very expensive, particularly because of the high cost of clinical trials, and when they are put to use the spending on health care increases. There is nothing unexpected in that, of course; our need to spend enough to provide good health care for an aging population is one reason why we have to increase and maintain our prosperity.

16Nevertheless, health research in a university or hospital may occasionally lead to an invention that can be commercialized as a new good or service offered in the market. That creates wealth for the producers in the usual way, but if the new products are paid for out of tax revenues, the net effect is to consume more of the public wealth of the nation. However, if that product is marketed successfully in world markets, and the value-added industrial activity takes place in Canada, then we can say that health research has contributed not only to the well-being of Canadians but also to the country’s wealth creation.

17Canada is a relative newcomer to the world of research and wealth creation by science-based industries. As a result, we lack some of the key institutions that have evolved in many of the countries with which we compete, the various public and private institutions that routinely connect research with the market. As a result, we have much to learn, and we need to experiment with new arrangements and institutions designed with our particular needs in view. We have already produced some successful institutional innovations in the organization of research, but we need more. This means that more than just the scientific aspect of university research is important as Canada works to increase and sustain our prosperity in a fast-changing world. We also need competence and imagination in the organization and management of such research, and in the policies and agencies that support it.

18The three ways in which Canadian university research in science and engineering interacts with industry are summarized in Table 7.1.

How the Canadian system works

19In this section, we look at the organization of Canadian university research in science and engineering as a system. It’s a complicated system, so we shall consider it in steps.

20Figure 7.1 shows that the research is of two kinds: basic or project research, with some possibility of overlap. Research of any kind is the process of learning what nobody yet knows. The only goal of basic research is discovery. Basic research is undertaken to discover answers to important unanswered questions about nature, humans, and humans in nature, and to generate new questions in the process. It generally takes the form of a long-term program of investigation that can change direction along the way, as new findings suggest new approaches.

TABLE 7.1 The connections between university research in science and engineering and wealth creation in the economy

TABLE 7.1 The connections between university research in science and engineering and wealth creation in the economy

FIGURE 7.1 University research in science and engineering

21Project research has already been introduced. This is research done when a practical problem—often but not always identified in industry—cannot be solved using existing knowledge. In that case, the research is organized as a planned project with specified objectives, a schedule, a detailed budget, a management structure, reporting of progress, and deliverables. Project research is generally carried out in a partnership formed by the university researchers and the industry people who defined the problem.

22The conventional inputs and outputs of the research system are shown in Figure 7.2. The human inputs are those of the professors who act as Principal Investigators (PI) in the work, the graduate students who do the research as part of their programs of study for advanced degrees, the postdoctoral fellows who engage in research to raise their expertise to a higher level, and the research staff that support the work of all the others.

FIGURE 7.2 Conventional inputs and outputs of the research

  • 6 Natural Sciences and Engineering Research Council of Canada, the federal agency that supports univ (...)

23The financial inputs are the necessary operating and capital funds. The direct costs of research are provided by agencies such as NSERC,6 whose grants are awarded on the basis of

24peer-reviewed competitions. The indirect operating costs come through the universities with both federal and provincial assistance. The most important contribution of the universities to

  • 7 A rough but useful indication of the university contribution of this form is the “1/3-1/3-1/3 rule (...)

25the operating costs of research, of course, is in the form of the salaries of the PIs.7 The capital funds come from the general support of the universities by the provinces, from private gifts, and from other university sources. Specialized research infrastructure has been much improved in the last decade by peer-reviewed grants from the Canada Foundation for Innovation (CFI) that leverage both provincial and private matching.

26The remaining input to the system is the flow of new knowledge from research done around the world, mainly in the form of codified knowledge in publications.

27Two outputs from the research system are shown in Figure 7.2: new knowledge and highly qualified people (HQP). The new knowledge is in the form of publications that emerge mainly from basic research, with some contribution from project research. The HQP are educated in either basic or project research, with the latter group more likely (at least initially) to find employment in industry.

FIGURE 7.3 The Canadian system, showing industrial partnerships

28A relationship that adds two more inputs and a third output is shown in Figure 7.3. This is the main reason why Canada compares so well with Germany in industry’s support of university research. Companies that either do R&D themselves or buy it enter into university-industry partnerships for project research. They bring the research problems and pay a share of the project cost in cash and in kind. In return, they first get the quality control of peer review before they spend any money, and then if the project proposal competes successfully, they leverage some government funding. At the end of the project, they get the solutions to their problems and the opportunity to hire the HQP who were involved in solving them. Important innovations that follow are commercialized by the partner companies. Such relationships are supported by many government programs and agencies, for example, NSERC through its Research Partnership Programs (RPP), the Networks of Centres of Excellence (NCE), and the Ontario Centres of Excellence (OCE).

29An additional output from the research system is shown in Figure 7.4. It is the potential intellectual property (IP) that sometimes emerges from basic research. If it appears to have innovation potential, the first stages of commercialization take place in the university, and the results either are licensed to an existing company or become the basis of a new venture. Any resulting innovations would then come from the licence holder in the first case, and from the start-up in the second.

FIGURE 7.4 The Canadian system, showing potential IP from basic research

30Three key parts of the research system have been labelled in Figure 7.4 (italics in boxes) to show the three different kinds of contributions to innovation and where in the system they come from. They correspond to the three rows of Table 7.1.

Commercializing inventions coming out of basic research

31The commercialization of inventions coming out of basic research is the object of so much attention that it needs to be discussed in greater detail here.

32Commercialization is the core activity of business, but in recent debates and policy discussions about the returns on the public investments in research, it seems to have been given a much narrower meaning. There is much talk about the “commercialization of research,” an ambiguous phrase as it stands, but actually used as shorthand denoting the commercialization of inventions that emerge from the results of basic research.

33Commercializing inventions coming out of basic research is not an easy thing to do. Two difficulties are fundamental. First, an invention arising out of basic research is an unexpected outcome of a process set up to do something entirely different: to help answer one of the unanswered questions about nature. And second, the unexpected invention is then promoted by the inventor who must claim “I’ve got a great idea!,” which is very different from satisfying a customer who says “Help me. I’ve got a great need.” In other words, such commercialization is driven by technology push, not market pull.

34Figure 7.5 provides a more detailed description of the process of commercializing an invention derived from the results of basic research. This diagram is different in shape from Figure 7.4 but closely related to the last part added to it. Note that the “potential IP” is identified by a downward arrow near the bottom of Figure 7.4 and by an upward arrow in the lower right corner of Figure 7.5. Following that arrow in Figure 7.5 takes one through what is labelled “first stages in commercialization” in 7.4.

FIGURE 7.5 How a successful innovation can arise out of basic university research

35The diagram shows commercialization by way of a new venture. To keep the diagram as simple as possible, the many false starts, dead ends, and feedback loops in the commercialization process are all hidden in the narrow vertical rectangle that swallows the IP, feeds on many stages of investment, and eventually produces an innovation.

  • 8 T.A. Brzustowski, “Innovation = Invention + Commercialization: A Systems Perspective, Optimum Onli (...)
  • 9 A criticism frequently levelled in the 1990s at attempts to expand the commercialization of invent (...)

36Conventional wisdom has it that the cost of commercialization greatly exceeds the cost of the research that produced the invention.8 It might range from a low of several hundred thousand dollars for a piece of software to billions of dollars for a new pharmaceutical. The diagram as a whole shows that a research grant to the right person in the right place at the right time can produce an innovation that succeeds in the market, meets needs that had gone unmet, creates new value-added economic activity that pays wages and taxes, and provides good returns for investors. When everything works, a small amount of public money can trigger a huge flow of private capital into the economy. Moreover, the public funds that are given for research are exposed only to scientific risk, and that is kept low by peer review. The private funds invested in commercialization are exposed to commercial risk: that of failing to reach the market or failing to succeed in the market for a whole host of reasons that may have very little to do with the merits of the innovation itself. In light of this reality, it cannot be said that this process takes something that the public has paid for and gives it away to business.9

37The bottlenecks in this process are people and money. It’s not enough to make an important discovery. It’s not even enough to propose an invention on the basis of that discovery. Somebody who understands the science and knows the potential market has to recognize the innovation potential of what is proposed and to demonstrate it to people with money to invest. Then the money must come at the right time and in the right amount, and the investor(s) must have enough patience to give the innovation a fair chance to penetrate the market. And the whole process has to be managed by someone who is expert in the business of managing innovation and commercializing new products. We could use many more of all these people.

38Commercializing the results of basic research performed in government laboratories would be generally similar to the process in universities, but differing in detail as a result of the mandates of the government departments housing the labs and their IP policies. In addition, there are substantial differences in the terms of employment of government scientists and university professors, and in the ways their research is funded. And, of course, another big difference is the involvement in university research of graduate students working for advanced degrees, which has no counterpart in government laboratories.

39How do we measure success in the commercialization of inventions derived from university research? One indicator that is widely used by the universities is their income from licensing their IP. This is shown as the thin horizontal arrow running to the left from halfway up the right side of Figure 7.5. That income has been increasing in the last few years and now stands at over $50 million per year for all Canadian universities. However, there is a cost to managing IP, and the universities have been spending about $35 million on that. The net income is, therefore, a tiny fraction of the $25 billion total cost of the Canadian university system. So if the goal of commercialization is to develop a new source of university income, then success has been very limited.

  • 10 Denzel Doyle, “Cost recovery from publicly funded research,” Opinion Leader, RE$EARCH Money, Vol. (...)
  • 11 My own estimate, see Note 8 above, is more conservative at about 5%, a number close to the proport (...)

40However, I believe that the goal of commercializing inventions arising out of publicly-funded research is different, and on that different scale the success is already substantial. Consider figure 7.5 again, and particularly note the bubble at the upper left: “wealth creation in new value-added economic activity.” This is what really matters; the IP income to the universities is incidental. According to Denzel Doyle,10 the IP income to the universities is only about 2.5% of the new sales generated by products based on it11 That means that the university IP has generated about $2 billion in annual sales in the economy. That’s a very significant number. It is about 2.5 times the amount that NSERC distributes annually in all of its research grants.

41Nobody denies that the universities could use additional income, and use it very well. However, I believe that setting our sights on growing value-added economic activity would be more important in improving the system. Increasing the amount of the new economic activity would be the goal; increases in university income from IP would be incidental. This would entail making technology transfer as user-friendly as possible in order to get the university IP as quickly as possible into the hands of those who could use it to create wealth in Canada. The universities would get eventual returns through the tax system; but more immediate benefits might come if industry found the new approach so attractive that it started putting some returns directly back into the universities to keep new ideas flowing.

42Canada’s performance in innovation will not be improved by expecting researchers to become experts at commercialization. Good researchers should be supported to become the best researchers they can be. Commercialization requires expertise of a very different kind, and if we don’t have enough experts in the business of commercialization and managing innovation, then that’s the shortcoming on which to focus.

43We must also remember that commercialization means different things to different people. Commercialization is the preoccupation of every entrepreneur; it is the essential function of all industry; but it is only an afterthought for the relatively uncommon researcher who is concerned with it at all.

Community colleges

44While the universities have the major role in research-based innovation, another post-secondary entity, the community college system, has an important role to play in innovation that arises much more from current practice and market feedback. Canada’s 150 community colleges have campuses in almost 1,000 communities and provide a local technical resource to many small companies. This makes for a good match because most such companies don’t engage in activities arising from research.

45Most community colleges do not do research as such, although some would claim to be active in “applied research,” an arguably vague description of their activities. However, it is much more important to recognize that community colleges can provide very valuable technical services to local companies, particularly small ones. Community colleges back up the business and technical resources of local small and medium enterprises (SMEs), helping them to solve production problems; adopt and adapt new technologies; design, build, and test prototypes; and develop market intelligence and business plans. When measured by appropriate standards, the best colleges are excellent resources for supporting innovation in business and industry.

46However, there is one other area where the importance of what the colleges can do seems not to be recognized widely enough. This has to do with training. It is well known that community colleges provide many accredited diploma programs. In this they offer supply-driven education, as do the universities. They set the entrance requirements, the course content and emphasis, the format, schedule, location, duration, and graduation requirements. The supplier calls the tune.

47But that’s not all the colleges do. They also offer demand-driven training. They develop and offer programs tailored to meet the needs of specific employers and groups (e.g., “I’ve got seven electrical technicians here who need a course in LED lighting controls. They’re available at the plant for two hours on Thursday afternoons for six weeks starting Thanksgiving. Your Mr. Jones has helped us in the past, and I think he would know exactly what they need. Please give me a proposal by next Friday”). The personal expertise of college faculty does not necessarily limit the range of the training the colleges can provide. They are perfectly able to find and hire university professors part-time to fill out their offerings. It seems to me that the performance of Canadian business and industry in worker training could be much improved if demand-driven training provided by community colleges were much more widely used.

48If the designation “centres of excellence” is fitting for concentrations of what the universities do best, then the designation “centres of expertise” might be equally appropriate for concentrations of what the community colleges do best.

Government laboratories

49Government science, in Canada mainly a function of the federal government, is an important activity in the economy. An industrialized economy needs certain elements of knowledge infrastructure that only the public sector can provide: standards and codes; specialized facilities that industry needs but no single company can afford; windows on emerging areas of science and high-risk technologies; research to provide the basis of public policy in many areas; a range of research, monitoring, and response capabilities in various areas of public safety; research supporting regulatory functions; long-term cataloguing of natural resources; research to understand natural hazards and turn them into manageable risks; rapid response capability in the investigation of accidents of many kinds; services such as weather forecasting and national statistics; and much more.

50There is no wholesale connection between these activities and wealth creation, but many different and important connections exist in specific areas. But has the whole enterprise been looked at as a system meeting the country’s needs? Do we have all the government science that we should have, or are there gaps to be filled? Are we still doing things we no longer need to do? Is the science of the necessary quality? Are its results accessible to all those who need them? Could some of it be done better in other places than those currently used, or in other organizations? Will the science establishment be in good shape tomorrow? Is it being renewed by new people with new ideas? Such important questions are just now starting to be asked. We should hope for thoughtful and comprehensive answers that relate government science to raising Canada’s prosperity and improving the quality of life of Canadians.

Notes

1 President of the Université de technologie de Compiègne, at convocation at the University of Waterloo in 1982.

2 “Science and Technology Data—2004,” Innovation Policy Branch, Industry Canada, March 2006. The data in this case are for 2002. The high for all countries in that year was China at 35.9%.

3 “Science and Technology Data—2005,” Innovation Policy Branch, Industry Canada, March 2007. The data refer to publications in all fields by researchers in all sectors. If the populations of India, China, and Brazil, are left out of this comparison, then Canada produces about 4.7% of the papers with 2.8% of the population.

4 Many universities in Canada offer co-operative education, in which students alternate between study terms on campus and jobs in industry. For example, the University of Waterloo operates in the co-op format in most of its programs, and has the world’s largest co-op enrolment. Industry considers these students particularly valuable because they already know a lot about work in industry when they graduate.

5 Bruce P. Clayman, then V-P, research of Simon Fraser University, studies of university technology transfer and commercialization for the Canada Foundation on Innovation, 1998-2000.

6 Natural Sciences and Engineering Research Council of Canada, the federal agency that supports university research in science and engineering.

7 A rough but useful indication of the university contribution of this form is the “1/3-1/3-1/3 rule,” namely that university professors spend 1/3 of their time in each of teaching, research, and other service.

8 T.A. Brzustowski, “Innovation = Invention + Commercialization: A Systems Perspective, Optimum Online, Vol. 36, Issue 3, Sept. 2006, pp. 1-8.

9 A criticism frequently levelled in the 1990s at attempts to expand the commercialization of inventions emerging from the results of publicly-funded, basic research in Canadian universities. A criticism frequently levelled in the 1990s at attempts to expand the commercialization of inventions emerging from the results of publicly-funded, basic research in Canadian universities.

10 Denzel Doyle, “Cost recovery from publicly funded research,” Opinion Leader, RE$EARCH Money, Vol. 21, No. 1, January 18, 2007.

11 My own estimate, see Note 8 above, is more conservative at about 5%, a number close to the proportion of sales revenue spent on R&D by Canada’s Top 100 R&D performers.

Table des illustrations

Titre TABLE 7.1 The connections between university research in science and engineering and wealth creation in the economy
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Légende FIGURE 7.1 University research in science and engineering
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Légende FIGURE 7.2 Conventional inputs and outputs of the research
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Légende FIGURE 7.3 The Canadian system, showing industrial partnerships
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Légende FIGURE 7.4 The Canadian system, showing potential IP from basic research
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Légende FIGURE 7.5 How a successful innovation can arise out of basic university research
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