Submission—Canadian Institute for Telecommunications Research

Executive Summary

The following submission by the Canadian Institute for Telecommunications Research (CITR) on Canada's Innovation Strategy advocates sectorally targeted policies for the university research environment. The Government's commitment to double its investments in R&D overall should include an effort to focus additional research resources on sectors of particular strategic interest.

The Information and Communications Technologies (ICT) sector offers strong innovation potential in this context. The factors which underline ICT's salience for the Innovation agenda include its high knowledge intensity and the pervasiveness of its technological output throughout the economy. The sector has accounted for up to 46% of private sector R&D spending in Canada in recent years. Its R&D intensity makes ICT a bright spot in the national R&D balance sheet, as Canada seeks to move upwards from its 15^th place in international R&D rankings.

CITR's suggested priorities for ICT in this regard are:

• A significant increase in ICT faculty numbers, to expand the flow of people and ideas to the sector;
  
• Increased research funding, to support increased faculty numbers and to provide larger average grants;
  
• A sectoral allotment of Fellowships to help meet industry's HQP demand;
  
• A program of large-scale ICT systems research thrusts, with a new funding envelope of $25 Million per year to be made available through NSERC.

Overall, the vision offered is that of an ambitious 'leap-frog' strategy for leadership in ICT research and innovation, starting from a strengthened university base.

Introduction

The Canadian Institute for Telecommunications Research (CITR) is a federally incorporated non-profit research company and a member of the federal government's Networks of Centres of Excellence (NCE) Program. As a university-industry partnership organization whose mission is to support Canada's competitiveness in Information and Communications Technologies (ICT), CITR welcomes the Federal Government's Innovation White Paper initiative and the opportunity to express its views on Canada's innovation challenges. Given our focus on the organization of collaborative, university-based mission-oriented research projects, our submission pertains most directly to the Strategy's Knowledge Performance and Skills Challenges.

Our recommendations are derived from our experience since 1990 in working at the interface between industry and academe, an interface which we believe is crucial for Canada's future innovation outcomes. CITR is currently wrapping up its program after the expiry of its NCE funding. Our main interest lies in helping to facilitate new policy initiatives which will build upon our experience and fulfill Canada's potential as an ICT innovator.

ICT: an innovation priority

The premise upon which CITR's submission is based is that sectorally targeted policies make sense. Targeting interventions to broad sectors is not synonymous with 'picking winners', an approach which has come into disrepute. Rather, broad targeting for entire sectors reflects the reality that a medium-sized power such as Canada cannot be of world-class caliber in all domains, and so must be selective and strategic in its interventions, in search of maximum impact.

One sector which has demonstrably attained world-class caliber from a Canadian base and which offers the potential for large impact is ICT. The importance of ICT as a growth engine for the Canadian economy has been extensively documented and is well-established in federal policy-making. The sector accounted for fully 20% of Canadian GDP growth between 1997 and 2001¹.

The rise to unprecedented international success of Canadian ICT firms during the 1990s was a direct demonstration of the economic impact and potential of Canadian innovation. That the sector's growth curve has leveled off and stock prices have dropped may appear significant now, but in the long run will be viewed as normal consolidation dynamics, rather than the reversal of a trend. Indeed, Industry Canada statistics show that ICT manufacturing is already on the re-bound in Canada, with a 7% jump in output in the first-quarter of 2002 over the fourth quarter of 2001, far in excess of the overall economy's growth of 1.3% for the same period². The drop in year-on-year manufacturing output which characterized the ICT industry's downturn in 2001 nonetheless left output at 104% of 1999 levels, and 149% of 1997 levels. ICT output overall (manufacturing, services and wholesale/retail) expanded from $34B to $58B between 1997 and 2001. In short, it is important to note that the recent sectoral correction simply removed the peak from what was a very sharp growth curve in the latter 1990s. Analysts continue to project a medium-term return to strong growth for the sector, once inventories which were built up during the latter spurt are drawn down or become obsolete³.

The factors which underline ICT's salience for the Innovation Agenda are well-known; notably, its high knowledge intensity, and the pervasiveness of its technological output throughout the economy. The sector has accounted for up to 46% of private sector R&D spending in Canada in recent years, reflecting R&D budgets which are routinely equal to 15-20% of firms' revenues. High levels of R&D spending, in turn, reflect the centrality of innovation for firms' competitiveness in ICT markets which are globalized and subject to rapid technological change. Its R&D intensity makes ICT a bright spot in the national R&D balance sheet, as Canada seeks to move upwards from its 15^th place in international R&D rankings.

The private sector R&D strength of ICT must not be construed to mean that public support can be correspondingly reduced. On the contrary, such strength must be supported, because it is lawful for private parties to concentrate on R&D investments whose benefits they can capture within a reasonable time-frame. This leaves crucial upstream inputs of basic research and HQP training that will be under-provided by the free market, since their benefits are diffuse and likely to "spill over" onto other parties and sectors⁴. Sectors with high spillover potential should attract strong public support of these inputs, so that the innovation process is sustained for the long-term.

ICT is a classic example of a sector with high spillover potential. The technologies which underpin ICT are driving long-run economic change across-the-board. Already, 46% of ICT professionals work in sectors of the economy other than ICT⁵. ICT change increasingly underpins innovation in other spheres of activity, be they commercial or industrial, social, or even cultural. And the Information or Knowledge Revolution, according to most analysts and observers, is yet at a relatively early stage⁶. The transformation of services through e-commerce and other e-applications remains largely potential rather than actual: ICT technological evolution will enable a great deal more productivity growth in the economy and service enhancement than has been seen to date. Even scientific advance itself increasingly depends upon ICT, in cutting-edge fields ranging from molecular biology to astrophysics. In a policy review for the long-term, such as the present Innovation Strategy, these considerations must be taken into account.

^1. Industry Canada, Canadian ICT Sector Profile, April 2002, p.1, at http://strategis.ic.gc.ca/pics/it/sp_04_2002e.pdf
^2. Industry Canada, Quarterly Monitor of the Canadian ICT Sector, June 2002, at http://strategis.ic.gc.ca/SSG/it06100.htmll
^3. See, for example, the Bank of Montreal's Sectoral Outlook: Prospects for Canada's Industries to 2006, March 2002 (http://www.bmo.com/economic), p.10
^4. This argument is developed in a CITR-sponsored paper by Jeremy Leonard, "Assessing the Adequacy of Public Funding of ICT-related R&D in Canada", revised January 2001 (p.6-8)
^5. Source: LFS-Statistics Canada data cited in Industry Canada ICT-SITT presentation, October 16, 2001
^6. See, for example, Peter Drucker's argument that " the new economy isn't here yet " in Managing in the Next Society (St. Martin's Press, New York: July 2002)

University research and innovation: a sectoral view

The Innovation Strategy commits the Government of Canada to ensuring "internationally competitive research opportunities" in the universities as an Innovation priority. This situates the role of universities at an appropriately broad level, since universities are in effect the 'mill-ponds' of the 21^st century Knowledge Economy, creating the forces that generate economic activity - namely people and ideas. There has been a tendency to focus on technology transfer in the policy discussion surrounding university research and innovation, whereas research excellence is a baseline pre-condition for excellence in training, idea generation, and knowledge transfer. The proposal to increase support to the granting councils is encouraging in this regard.

However, in addition to increasing research funding overall, ways must be found to focus additional research resources on sectors of particular strategic importance if the desired innovation impact is to be obtained. The reality is that the University-Innovation dynamic does vary by sector, as CITR has witnessed as part of a national program alongside Networks in other sectors. For example, among the diverse channels which link universities to the economy (highly qualified personnel, technology transfer, research consortia, contracts, professorial consulting, etc…) there are differences in importance of the impacts upon different sectors. The level of receptor capacity in the economy is an important variable in this regard.

Our experience leads us to advocate sectoral approaches to research policy for innovation, as a complement to the existing system. While the university research environment may appear as one sector in policy terms, from an Innovation perspective, each university research community should be viewed as an upstream link in a value chain of sectoral innovation.

CITR's position at the university-industry interface provides it with a good vantage point for observing what is needed from universities in order to generate innovation within the industry. Our presumption is that the government's commitment to double its investments in R&D overall should provide the necessary resources to modulate the investment with peaks in areas of strategic interest. Hence, the following is our list of suggested priorities for such investment, to accelerate ICT innovation via an optimized university contribution, involving:

• A significant increase in ICT faculty numbers, to expand the flow of people and ideas to the sector;
  
  
• Increased research funding, to support increased faculty numbers and to provide larger average grants;
  
  
• A sectoral allotment of Fellowships to help meet industry's HQP demand;
  
  
• A program of large-scale ICT systems research thrusts.

As a whole, what is envisaged here sums to an ambitious 'leap-frog' strategy for leadership in ICT research and innovation, starting from a strengthened university base. Canada can 'punch above its weight' in this sector, as its past successes indicate. A broad vision of all the systemic elements which must fall into place for Canadian leadership in the research and engineering of ICT systems is necessary. Certainly, Canadian university departments involved in ICT research must become - and must be widely perceived to have become - among the very best in the world.

NSERC, as the Government's lead agency within university ICT areas, must play a pivotal role in such a strategy. A distinct policy initiative to make larger R&D investments in strategically important areas will provide NSERC with the opportunity to innovate and operate sectorally. NSERC's Innovation Platform concept is a promising mechanism for this, but resources at critical scale must be made available sectorally for the concept to have significant impacts for the Innovation Agenda.

HQP training: a priority for the ICT sector

Employment in the ICT sector is education intensive: the proportion of ICT workers with university degrees is typically above 40%, more than twice the average for all industries⁷. ICT firms look to universities mainly for HQP supply, including for the recruits necessary to maintain their significant in-house R&D effort. The ICT sector's reliance on a long-term supply of highly qualified personnel as a critical competitiveness variable is well-known and has been extensively argued in Ottawa. The centrality of HQP supply in attracting Knowledge Economy investments - witnessed in regions such as Silicon Valley and 'Route 128' in the Boston area - is also widely accepted. There can be no sectoral ICT strategy without a vital HQP component involving the universities.

Therefore, it is encouraging that the Innovation Strategy gives an appropriately central position to the Skills Challenge, and recognizes the crucial role universities play in generating 'innovators'. The commitment to double federal Master's and Doctoral Fellowships is particularly welcome.

However, to achieve achieve targeted sectoral impacts, the Fellowships initiative should include an element of sectoral prioritization, to address Innovation priorities. A policy initiative to produce HQP for ICT remains essential for the future growth of the sector and of the Knowledge Economy in Canada in general. Given the lead times for substantially impacting HQP supply, this should be undertaken now, so as to anticipate and support the recovery of the sector. Doubling the current pipeline (which now generates ~1000 Master's graduates and ~250 PhD graduates per year⁸) would seem a reasonable goal. This could be further refined in consultation with the industry. An ICT HQP initiative will impact positively on innovation in other sectors, given the large proportion of ICT professionals employed outside of the ICT sector and the importance of ICT as an enabler for innovation in all sectors.

In framing such an initiative, attention should be given to the financial amounts of awards, which should be adjusted upwards according to sectoral realities, to ensure that a meaningful incentive to study is preserved. Since ICT jobs for graduates tend to be relatively high value-high wage jobs, Fellowships at conventional Granting Council rates are unlikely to attract and retain sufficient numbers of good Master's or Doctoral candidates. Likewise, notice of Fellowship awards should be given earlier, preferably a year in advance of graduation, to provide an incentive to continue on to higher studies.

The desired growth in training flow-through requires complementary inputs into the university system which are not mentioned in the Strategy, such as core institutional funding to hire additional faculty (so as to maintain student-teacher ratios and thereby training quality) and facilities. Canada Foundation for Innovation and Canada Research Chairs programs can and have made a positive contribution in this regard. The faculty numbers issue is critically important at this juncture, following a decade which saw little net growth in ICT faculty and given a faculty age distribution which suggests significant (~ 25%) retirements over the coming 5 years⁹. Indeed, faculty growth could be a break-point for the government's entire Innovation strategy objectives, if neglected in the government's planning. Given that the planned increase R&D spending overall in the economy will require thousands of new 'knowledge workers': a valid question is, who will train the R&D specialists who will spend these future R&D dollars ? - Plainly a systemic approach is required. Given the jurisdictions involved, federal-provincial collaboration will plainly be required to successfully implement such an approach.

In the same vein, it is important to underline that university research funding decisions are training decisions, in that the essence of the activity is training graduates through research activities. Adequate research dollars are necessary to pay student salaries and associated costs. The target of increasing postgraduate admissions must be accompanied by research grant increases, in order that the students in the pipeline may participate in excellent research and training.

^7. Industry Canada, Canadian ICT Sector Profile, April 2002, p.2
^8. Degrees awarded in Computer Science and Electrical Engineering, as per the Canadian Association for Graduate Studies, 32^nd Statistical Report, October 2000 at http://www.cags.ca/English/CAGSFrame.html
^9. Source: Industry Canada, ICT-SITT presentation, October 16, 2001

New collaborative networks: systems research a priority

The Innovation Strategy appears to herald an era of improvement in the research funding in Canada. This is both positive and necessary, given the government's objectives, which are themselves expressed in terms of R&D 'intensity' (i.e., spending). But what should the priorities be for increased research spending in the universities? - Certainly increased operating grant allocations are important, especially if significant faculty growth occurs.

However, in addition, it is argued here that there is an opportunity to target increased funding to achieve greater impact, looking for 'sweet spots' where interventions will have maximum Innovation impact. ICT systems research is such an area.

For Canada to retain and enhance its position as a significant player on the world ICT stage, it must focus its efforts to move up the sector's manufacturing value chain, which can be summarized as follows:

Components –> Sub-systems –>Integrated systems

Service providers, such as Bell Canada, build networks with integrated systems to provide services to support a host of applications. Examples of system integration companies would be Nortel, Alcatel and Cisco. Nortel's renowned 'DMS 100' switch, for example, was actually a very successful system, driven by a switching application. Systems research is the value-added which links technologies to innovation by creating a 'pull' from applications.

In the context of university research and training, Canada must develop a strong base of application-driven systems research. ICT research in Canadian universities has traditionally lacked strength in this area, at least in comparison to American universities. However, CITR's experience as a Network organizing top-down research missions of scale in the universities has shown the way for a further development of this approach.

Systems research couples technology to applications, building on design expertise from different sub-disciplines to create architectures, algorithms and protocols of new systems and services. An ICT systems mission typically creates a 'pull' on research in various fields, which may include components and devices, digital signal processing, photonics, communication systems, computer systems and computer science. Disciplinary 'silos' must imperatively be broken down to achieve the necessary synthesis, and an effective way to achieve this fusion is to create a system 'pull' on basic research.

Technological advance calls for up-scaling systems research at this time. ICT research is moving towards delivering 'systems on a chip' with billions of transistors, replicating the functionality of much larger pieces of equipment for target applications. This will require strong system architecture knowledge and will necessitate the bringing together of expertise in diverse fields in the design process.

Large, targeted research missions are the appropriate context for integrating devices, components, and systems research. A necessary corollary to working effectively at the systems level is the need for large-scale research initiatives. They present excellent research challenges and have the necessary scale and context to be relevant to industrial priorities.

Systems research also provides a fertile and unique environment for HQP training, from a qualitative perspective. CITR has found that, by creating certain conditions during post-graduate studies which are comparable to the cross-disciplinary team approach followed in R&D activities in ICT companies, students can experience smoother integration into the workplace and begin making productive contributions for their employer more rapidly. This faster 'ramp-up' is a by-product of participation by the student in a collaborative mission-driven research program, of which his/her research is a building block. The student is exposed to team-work involving collaboration with different specializations and with industry experts in the field. Faster ramp-up within industry, in turn, boosts corporate competitiveness.

Most importantly for innovation, large-scale research missions further the transfer of knowledge and technology out of university labs into industry by threading research strands which would otherwise be more difficult for industrial partners to re-connect across different literatures and different research communities.

Thus, an initiative for ICT systems research can be an excellent tool to support Canadian industry moving up the value chain in a priority area, to generate exciting internationally competitive research which raises Canada's profile as an ICT innovator, and to provide additional HQP with broad-based training in ICT disciplines.

This vision can fit appropriately with the government's undertaking to build more collaborative research networks. It is vital for any such investments to be made at world-class scale, in part to optimize the research management, and to generate momentum and attraction effects.

It is proposed here that a new targeted initiative of ~$25 Million per year should be launched by NSERC from Innovation funds, to support targeted large-scale research initiatives in ICT systems. Such an envelope could fund 5-6 new ICT Networks at the level of $4-5M per year, which would provide necessary scale and critical mass.

These should focus on major challenges which matter to the future of ICT and that encompass a range of technology risk. For example, appropriate topics with a system-level pull could include such areas as Embedded Internet Systems; Broadband Wireless Access; and Bio-Informatics Systems for Genomic Analysis. Each would require experts from a number of academic disciplines, including some from outside of the natural sciences and engineering, such as from medicine or commerce. Strong partnerships with industry will ensure that the defined goals properly point toward ICT innovation.

Conclusion

The Government's Innovation Strategy undertaking to double its investments in R&D by 2010 is to be applauded. It is recommended that this investment be modulated with peaks in sectors of strategic importance. As Canada's premier R&D performer with large established research capacity, ICT is worthy of prioritization in a Strategy aimed at boosting Canada's comparative R&D performance.

CITR's vision of Canadian leadership in ICT innovation is based upon an upscaling of resources in the university system which supplies the sector with highly trained people and technology ideas. Strong universities are increasingly associated with competitiveness in the Knowledge Economy and must figure prominently in Canada's innovation planning. A sectoral view for ICT is recommended.

To enhance the Canadian ICT sector's innovative capability, the HQP supply to the sector must be expanded, and increased research funds and faculty numbers put in place. Through an ambitious program of new systems research networks in ICT, Canada can move up the value chain and develop a significant leadership position internationally in ICT innovation. Given ICT's keystone importance in the Knowledge Economy, the benefits of such a position can have a much wider impact, spilling over into economic, social, and cultural spheres.