Archived — Capacity to Innovate Using Digital Technologies

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Context

Success in the 21st century for an economy, a government, a business or an individual will require the intelligent use of digital technologies. Digital technologies are tools, capacities or knowledge assets that can be embedded in business processes, products and services to help firms and individuals in all sectors of the economy become more productive, innovative and competitive. As part of the March 2010 Speech from the Throne, the Government of Canada highlighted the importance of adopting new technologies across the entire Canadian economy to create jobs, foster growth and create new opportunities for Canadians.

The Internet, and the content and services provided online, are important elements of the digital economy. The online marketplace needs to be a safe and reliable environment that encourages citizens, content providers, governments and businesses to engage in online transactions and electronic commerce. The Canadian online marketplace accounted for $62.7 billion in sales in 2007, and the global e-commerce market grew from $23 million in 1998 to $7.3 trillion in 2008. Policy and legislative tools to protect personal information and ensure secure transactions are key to building and maintaining trust and confidence in the online marketplace.

It is important that Canadian industry sectors, and in particular small and medium-sized enterprises (SMEs), be more focused on adopting, using and continuously updating their use of digital technologies in order to sustain strategic competitive advantage throughout entire value chains. Canadian companies cannot hope to lead in any industry sector or global value chain without strategic investments in digital technologies and strategies. Yet Canadian firms have been slower to invest than firms in other countries, and this underinvestment in ICT has been linked to Canada's slower productivity growth.1 In 2007, Canada ranked 11th among 21 Organisation for Economic Co-operation and Development (OECD) countries in total economic investment in ICT, down from 10th in 2005 and 9th in 2004.2

Enhancing our productivity and capacity to innovate is of paramount importance in today's increasingly digital world. The private sector has the primary role to play, but all sectors, including manufacturing, resources, service, aerospace, pharmaceutical and public sectors, must better integrate digital technologies into their business operations and value chains to innovate and become more competitive or more cost-effective. Certain key information gaps persist with regards to adoption and use of digital technologies across different sectors. This analysis is necessary to develop targeted sectoral strategies that will encourage greater adoption of digital technologies. Collaboration among companies, research centres and universities is key to driving innovation and building a digital advantage for Canada.

Governments have a role to play by ensuring that the right legal and regulatory frameworks are in place to protect consumers and businesses in the online marketplace and to make Canada a favoured location for work and business investments, as well as using digital technologies to streamline operations, improve services and cut costs. For example, the Government of Canada's NetFile and Record of Employment on the Web applications allow Canadians to file their tax returns online and businesses to share employment information accurately and efficiently. Governments must continue to employ digital technologies in innovative ways.

Public sector services such as health care and education would also benefit from greater adoption and use of digital technologies. Understanding this, as part of the Economic Action Plan, the Government of Canada allocated $500 million to Canada Health Infoway to support the goal of having 50 % of Canadians with an electronic health record by 2010 and to speed up the implementation of electronic medical record systems for physicians. Budget 2010 confirmed that the government will move forward with this important transfer. Expanded use of advanced technologies to create electronic health records, mobile health applications, sensors for monitoring chronic disease and online and interactive educational tools would mean better and more efficient public services for our citizens, and new global market opportunities for innovative and entrepreneurial Canadian businesses.

Intelligent adoption of digital technologies will play a key role in addressing some current economic, social and environmental challenges. For example, ICT industry studies have estimated that the application of ICTs to create smart electricity grids, buildings, logistics and production processes could result in a 15 % reduction in greenhouse gas emissions by 2020.3 ICT adoption is increasingly playing an enabling role in the national strategies of other countries like the United States, which is investing in areas such as smart grids, e-health, educational software and electric cars as part of their Strategy for American Innovation.4 Other national digital strategies actively support adoption and use of advanced ICT, including among SMEs. Australia's Small Business Online program, equips small businesses to go online and engage in e-business to help reduce their costs and improve their market opportunities and the United Kingdom's Regional Development Agencies assist SMEs to exploit advanced ICT to transform their business processes. Many OECD countries have strategies to encourage business investment in ICT, including tax incentives, ICT grants and subsidies, technology vouchers and special ICT-boosting infrastructure programs.5

Canada has also been active. Through Canada's Economic Action Plan, the federal government is helping businesses in all sectors of the economy by providing a temporary 100 % capital cost allowance rate on new computer hardware and systems software acquired before February 1, 2011. Although, as indicated in Budget 2010, the stimulus measures in the Economic Action Plan will be phased out as planned in order to ensure a return to balanced budgets, this temporary 100 % capital cost allowance rate increase is providing timely support to the economy by encouraging businesses to accelerate their investment in computers.

The Economic Action Plan also committed an additional $200 million to the Industrial Research Assistance Program (IRAP), part of which will support the adoption of advanced digital technologies by SMEs. Similarly, the federal and Ontario governments are investing in the Southern Ontario Development Program for the Canadian Manufacturers and Exporters (CME) SMART program to help small and medium-sized manufacturers increase their productivity and competitiveness, by funding projects focused on lean design and manufacturing, quality improvement, energy efficiency, information technology best practices and environmental impact reduction.

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Challenges

Overcoming Underinvestment in Information and Communications Technologies

On average, Canadian firms consistently invest less in ICT than their competitors in the United States and other advanced economies. Smart technology adoption is a complex process involving more than just investment in technology; it also requires changes to business processes, new digital skills, and technology management expertise. This is a challenge facing all companies, whatever their size, in all sectors. Similar challenges are faced by government agencies and public institutions as well.

Recent work done by the Council of Canadian Academies (CCA) suggests that Canada lacks a culture of innovation with respect to ICT adoption. "Canadian businesses on the whole — but always with notable exceptions — are technology followers, not leaders, and are reluctant to adopt new practices until they have been well proven south of the border." 6 The Centre for the Study of Living Standards (CSLS), has conducted several studies on Canada's underinvestment in ICT, especially in comparison to the United States, and estimated that the average ICT investment per worker in Canada is only 60 % of that in the United States.7 This underinvestment in ICT has been linked to Canada's weak productivity growth over the last several years. From 1996 to 2006, labour productivity grew at an average annual rate of 1.8 % in Canada, as opposed to 2.9 % in the United States.8

In addition, the CSLS also looked at investment by industry. Overall, the business sector increased its investment in ICT, but there are some sectors that showed large declines, including mining, oil and gas extraction (-16.7 %) and health care and social assistance (-10.3 %).9

The aforementioned reports and others also suggest that Canada's underinvestment in digital technologies is part of a broader problem in innovation performance, which is largely due to a lack of business and managerial skills.10 Complementary investments in labour, organizational design, digital skills and other areas are required to realize the full potential of general purpose technologies such as ICT. The 2006 Telecommunications Policy Review Panel estimated that the cost of these complementary investments in innovation may be as much as ten times the cost of technology investment.11 The CCA report also highlighted that firms that are better managed are more likely to invest in leading-edge equipment and methods.12 Canadian businesses will need both business and IT skills to be innovative and compete to win. Developing, educating, training and attracting professionals with both skill sets will be important to Canada's success in the digital economy.

There is also evidence that smaller firms are adopting less rapidly than larger ones when it comes to more advanced ICT applications. Running a small business is challenging. Investment decisions have huge consequences, but new technologies can be a key competitive advantage. In 2007, the Canadian Federation of Independent Business (CFIB) commissioned a report to better understand the role of SMEs, especially micro businesses, and the productivity lag. The study concluded that SMEs see value in ICT and are adopting them, however, as the applications become more complex, their adoption rates slow down. It is not clear whether some SMEs do not adopt more complex applications because they do not see value in adopting them, or rather, whether it is because the ICT solutions already in the marketplace do not serve SME needs.13 Cost may also be a factor and some observers suggest that cloud computing may help increase SME adoption rates. It is important to support Canada's SMEs — they create new jobs for Canadians. In this vein, the 2010 Speech from the Throne, committed to support SMEs by continuing to identify and remove unnecessary, job-killing regulation and barriers to growth.

Going forward, it will be essential that firms and industry sectors examine where their respective opportunities to innovate using ICT are greatest, and develop strategies to take advantage of these opportunities. Governments must support these actions by ensuring that current programming and policy frameworks are aligned to support ICT investment across key industry sectors. The Government of Canada will examine its current program and policy regime to ensure that they are aligned to support business-led sectoral strategies and are well suited to the global nature of the digital environment.

Governments as Model Users

Governments are large buyers and users of digital technologies. Public procurement decisions can help drive smart ICT adoption in the private sector. For example, the Government of Canada is working with major stakeholders to plan its own adoption of IPv6 solutions, which will accelerate a wider Canadian adoption of this new Internet protocol. There are many other opportunities for governments to adopt ICT in the context of making government more efficient and effective. For example, increasing the use of advanced video conferencing technologies can reduce travel time and costs. The greater integration of social media, which the Government of Canada has begun to use, will serve to improve communication and collaboration within and among governments, recruit the next generation of public servants and better engage Canadians. Likewise, cloud computing solutions could further improve government operations and public service delivery. Governments can play an important role in acting as model users of ICT and leading by example.

Governments can help by making publicly-funded research data more readily available to Canadian researchers and businesses. Open access is consistent with many national strategies and holds great economic potential for Canadians to add value to machine-readable data, while ensuring that privacy rights are protected. In many cases, data are already available but are difficult to locate. Consistent methods of access will be reinforced.

Protecting the Online Marketplace

One of the greatest benefits of the Internet is the ability to collect, store and transfer large quantities of information. However, it can also facilitate the ability to steal and traffic personal information and copyrighted material for fraudulent purposes. A well-functioning marketplace governed by appropriate legislation and regulation is essential to increasing the take-up and use of digital technologies. If Canadians and firms do not feel secure using the Internet, we cannot expect them to adopt digital technologies that are connected to the Internet.

Copyright laws that give creators and consumers the tools they need to engage with trust and confidence in the digital marketplace are critical to a successful digital economy. In July 2009, the government launched a national consultation to solicit Canadians' opinions on copyright reform, including whether and how legislation needs to be revised to give Canadian creators and consumers the tools they need to thrive in the digital marketplace. The consultation closed on September 13, 2009, and submissions are now being reviewed with a view to updating the Copyright Act. An updated copyright framework that is forward-looking, principles based, flexible enough to accommodate technological development and effectively balances the interests of the various economic actors, whether they are creators, innovators, consumers, or intermediaries will help maximize creativity, innovation and economic growth.

The Government of Canada is putting in place a modern and efficient legal framework to protect the online marketplace and better protect Canadians from cybercrime with the reintroduction of anti-spam legislation, aimed at deterring the most damaging and deceptive forms of spam and related online threats from occurring in Canada, and with the creation of three new Criminal Code offences under An Act to Amend the Criminal Code, which came into force on January 8, 2010, providing police and justice officials with important new tools in the fight against identity theft. In addition, two complementary legislative initiatives aimed at enhancing law enforcement's ability to combat cyber-facilitated crime and modernizing investigative techniques, along with actions to better protect children from Internet luring and cyber abuse remain priorities of the federal government.

Canada's federal private sector privacy law will be amended to enhance privacy in the digital age by better protecting and empowering consumers, clarifying and streamlining rules for business, and enabling effective law enforcement. Once completed, the amendments will ensure Canadian privacy legislation continues to be a world-class model of privacy law.

Some emerging technologies and online applications raise new questions about the protection of personal information. Current concerns include third party use of personal information mined by search engine operators and collected through social networking sites, as well as the personal tracking capabilities of geo-location technologies. New privacy and security challenges are also posed by the development of web-based services and cloud computing (which replace dedicated ICT equipment and software under the direct control of individual consumers and business users with shared facilities managed by third party service providers). The Government of Canada tracks emerging issues and participates in domestic and international fora to ensure its policy and legislative regimes are up-to-date and promote the growth of the online marketplace.

There is a need for increased cyber security awareness in Canada. Businesses and industry associations have a key role to ensure that security practices that relate to the handling of personal information and confidential business information are able to meet the challenge. Canadians need to be aware of what they must do to protect their personal information in online transactions. All stakeholders need to collaborate to promote the use of best practices and educate online communities. The Government of Canada is also committed to working with provinces, territories and the private sector, to implement a cyber security strategy to protect our digital infrastructure, as stated in the March 2010 Speech from the Throne.

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Discussion Questions

Growing Canada's digital advantage in order to generate wealth, ensure future economic growth and productivity, create new jobs and maintain a high standard of living for Canadians will require an increase in ICT-enabled innovation across all sectors of the economy. Canada must become a country of technology leaders.

Private sector will play the primary role, but governments can assist by refocusing and realigning existing programs and policy levers to support the adoption of digital technologies across all sectors, while also protecting the online marketplace. Both public and private sector leaders need to define what they can do to encourage greater adoption and use of digital technologies within their sectors.

  • Should Canada focus on increasing innovation in some key sectors or focus on providing the foundation for innovation across the economy?
  • Which conditions best incent and promote adoption of ICT by Canadian businesses and public sectors?
  • What would a successful digital strategy look like for your firm or sector? What are the barriers to implementation?
  • Once anti-spam legislation, and privacy and copyright amendments are in place, are there new legislative or policy changes needed to deal with emerging technologies and new threats to the online marketplace?
  • How can Canada use its regulatory and policy regime to promote Canada as a favourable environment for e-commerce?
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Notice

The public consultation period ended on July 13, 2010, at which time this website was closed to additional comments and submissions.

Between May 10 and July 13, more than 2010 Canadian individuals and organizations registered to share their ideas and submissions. You can read their contributions—and the comments from other users—in the Submissions Area and the Idea Forum.