Industry Committee on June 6th, 2013

[The Chair, Conservative, David Sweet]

Good afternoon, ladies and gentlemen. Bonjour à tous. Welcome to the 74th meeting of the Standing Committee on Industry, Science and Technology.

You will see that our agenda says we go from 3:30 to 5:15 p.m. It is my intention to suspend the meeting at 5:10 p.m., because usually everybody wants to greet the witnesses, etc. If we want 15 minutes of actual business, that transition time will be necessary. Also, as I've already mentioned, but just in case you didn't hear, you'll notice that there's about four minutes' difference between the clock on the wall and our BlackBerrys. As usual, we'll be using our BlackBerry time, because that's synchronized among all members.

Now I'll introduce the witnesses who are before us. Here with us on location we have Bogdan Ciobanu, vice-president, industrial research assistance program, National Research Council; also Bryon Drew De Kergommeaux, director of strategic and operations alignment, industrial research assistance program; and Jason Charron, executive director, national office, industrial research assistance program. Also, here with us from the Canadian Cloud Council is John Cousens, director for the public sector, and by video conference is Martin Kratz, chairman of the board of the Canadian Cloud Council.

It's my understanding, Mr. Ciobanu, that you'll be doing the opening remarks for the council. Is that correct?

[Bogdan Ciobanu, Vice-President, Industrial Research Assistance Program, National Research Council Canada]

That's right.

[The Chair, Conservative, David Sweet]

Madam LeBlanc.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

It seems that Mr. Kratz in video conference might have his microphone on. Is that the noise I hear?

[The Chair, Conservative, David Sweet]

Mr. Kratz, if you would just mute that, then when we go to you for a question, you can unmute it and answer the question. That way also we're not hearing everything that happens. I'm certain you'll be more comfortable with that anyway.

We'll go to Mr. Ciobanu for six to seven minutes, please.

[Bogdan Ciobanu]

Good afternoon and thank you for the opportunity to share with you information about the digital technology adoption pilot program.

My name is Bogdan Ciobanu. I am the Vice President of the National Research Council of Canada Industrial Research Assistance Program, more commonly known as IRAP. With me today are my colleagues Jason Charron and Drew De Kergommeaux.

For those of you who are not familiar with our organization, IRAP provides direct services to innovative businesses in all industry sectors and communities across Canada. We work with small and medium-sized businesses to help them develop, adopt, and adapt technologies and incorporate them into competitive products and services to be commercialized in the global marketplace.

Through an extensive network of field staff, IRAP is providing SMEs with a comprehensive suite of innovation-related services and funding. The thousands of clients IRAP serves every year interact directly with our field staff of over 200 industrial technology advisers.

Through IRAP, clients can also access the innovation expertise and infrastructure available in Canadian universities and colleges, research labs, business accelerators, and other organizations active in the innovation system. In addition, clients can receive funding to help them undertake R and D projects with a clear commercial outcome.

IRAP's business model has been considered a successful one by different studies and reports. The most recent evaluation, covering the period from 2007 to 2012, found that IRAP's clients spend more in R and D and grow faster than non-IRAP clients. For every IRAP dollar invested, the clients generated on average $10 in revenue.

Let me now refer more specifically to IRAP's role to support the adoption by SMEs of digital technologies. The digital technology adoption pilot program, DTAPP, was launched in November 2011, with the mandate to increase the productivity and competitiveness of SMEs through the accelerated adoption of digital technologies. In line with IRAP's business model, DTAPP clients receive not only funding, but also advisory services to help them clarify needs, identify solutions, and select the most appropriate technologies and implement them successfully in their businesses.

A few weeks ago an evaluation of DTAPP's first year of activity was finalized. I am very pleased to inform you that the implementation of the program and its capacity to meet objectives were positively reported, and the program is demonstrating a significant and positive impact on firms.

Client firms report that with DTAPP's support they have been able to lower production costs, increase productivity, improve and fully integrate management systems, and improve the quality of products and services. More specifically, 90% of firms report having achieved success with their DTAPP projects, with 71 meeting or exceeding their expectations. Fully 92% indicate that the project had a positive impact on productivity, and 89% of firms have increased their technical capabilities through their DTAPP engagement.

Since the beginning of the program, 731 firms have been participating in DTAPP, 511 of which have received funding. As of today, 111 SMEs have completed the digital adoption project and because of DTAPP, 87% of those firms are more likely to undertake another digital technology adoption project.

We are finding that firms need to adopt digital technologies in order to maintain or increase competitiveness in existing markets, to enter new markets, and because of customer pressure, to improve product quality or price. The biggest challenges they face are the availability of expertise, inadequate business processes, lack of leadership, resistance to change, and the high costs associated with digital technology integration.

In conclusion, DTAPP works with clients and the best experts in the field to identify solutions that are best suited to their productivity issues. If the best solutions include the adoption of a digital technology, the program will help them to select the most appropriate technology and integrate it into their activities.

This concludes my remarks. Thank you very much for your attention. I am happy to take any questions you may have.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Ciobanu.

Now we'll hear from Mr. Cousens, please, for six or seven minutes.

[John Cousens, Director, Public Sector, Canadian Cloud Council]

Thank you very much.

I want to present today a view on cloud computing in Canada. I represent the Canadian Cloud Council. With me via video conference is our chairman of the board, Mr. Martin Kratz.

We've provided a presentation today—you all have a copy of the slides—on a high-level definition of what cloud computing represents. I won't read it to you, but the key takeaway is that it is a business model, not purely an IT or technology model.

First of all, we're seeing three major technology trends worldwide that every major analyst will recognize: social, mobile, and cloud. It's the confluence of these three technology innovations and directions that is driving cloud computing worldwide and changing the way that citizens, as well as consumers, interact with companies and innovate. It's the consumerization of IT that is changing, and it's why I can transfer funds on my iPhone from one bank account to another right now. Why can't we do that with our government?

The next slide is a copy of the World Economic Forum report on cloud computing. In 2011 I believe Minister Clement attended that forum in his role as industry minister at the time.

There are three key highlights that I would take to this committee. First, cloud computing was identified as an innovation platform that creates products and services in enabling new business models faster, with wider information sharing. Second, it dramatically lowers operating costs for businesses and governments worldwide. The final highlight on this particular slide is that they call it a job creation model. It is growing rapidly worldwide, and it is an area that needs to be invested in.

The next slide talks about first movers. There has been government leadership around the world in adopting cloud computing technology. Why, you might ask, at the government level? We've seen executive branch leadership in the United States, starting on December 9, 2010, with what they called a “cloud-first” policy, where IT organizations had to evaluate cloud technology prior to doing anything else in-house. The U.K. government instituted a “g-cloud first” policy in March 2011. New Zealand quickly followed, and just last week Australia launched a national strategy for cloud computing. which was mandated from the prime minister's office.

The next slide talks about Canada's imperative. In 2004 Canada was ranked number one worldwide for e-government. From the most recent rankings, we are now in 12th position. The World Economic Forum evaluated the Government of Canada's ability to procure advanced technology products as 47th in the world.

Why a national cloud strategy? Two specific issues are at hand for the opportunity. The first is operational benefits: better aligning the demand for IT with the consumption of IT; matching that demand with consumption; job creation; as well as providing some form of democratic access to technology.

Cloud computing, as we discussed prior to this, removes the barriers of capital. It allows someone with two people as employees to access technologies that were available only to those in corporate Fortune 500 companies. What it also does is it drives job growth. For enabling small and medium enterprises, cloud services are highly secure and scalable. They allow other entities to create new applications and services much faster than previously done.

The ICTC, the Information and Communications Technology Council of Canada, produced a report about cloud computing in Canada, and recently recommended a government-led adoption policy . IDC also stated that by 2015, 14 million jobs worldwide will be created in this industry, with a compounded annual growth rate of 29%. Those are fairly dramatic numbers.

I've provided a couple of case studies here.

The first one is out of the U.K. It's their g-cloud. One year in, they have 800 suppliers on that g-cloud app store, 80% of which are small and medium enterprises. It absolutely stimulated their small and medium enterprise ITC sector dramatically.

The second slide shows what their benefits were, two of which I would highlight to this committee. The first was transparency with services, prices, and commercial terms all online, which drove massive competition. It disrupted the status quo and it drove down costs. That led to significant savings. Their statement here is that the pay-as-you-go model saved up to 90%. Those are dramatic numbers. There was no need to spend millions of pounds to “keep the lights on”. So transparency and savings were the key takeaways for the U.K.

The next quick case study is the U.K. cloud-first strategy. After two years they have saved up to $5.5 billion annually by moving to cloud services, and have stimulated the economy.

The final slide I have on the discussion is a call to action. Governments should become a model user of cloud services, making a concerted effort to follow other leading economies in adopting a cloud-first policy and bringing along our Canadian small and medium enterprises. I believe they will rise to the challenge.

With that, I conclude our remarks.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Cousens.

Now we'll move to our usual rotation of seven-minute slots, and we'll begin with Mr. Braid.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you very much, Mr. Chair.

Thank you to all of our witnesses for being here this afternoon, and for your presentations.

Mr. Ciobanu, I have a couple of questions to start for the IRAP program, and specifically DTAPP.

I'll begin by providing you with some feedback. As a member of Parliament, I get a lot of positive feedback about various government departments, but perhaps the one I get the most positive feedback about is IRAP. I wanted to share that with you, and if you could pass that along to your colleagues, I would greatly appreciate that.

We have an IRAP office at the Accelerator Centre at the University of Waterloo, the David Johnston Research and Technology Park. It is extremely beneficial to have that in our community.

Could you give us a bit of detail about the DTAPP program, when it was established, how much funding the program has, at what stage the program is? Could you set the high-level context for us, to start?

[Bogdan Ciobanu]

Thank you for your comments and for your question.

IRAP was launched in November 2011. The main purpose of the program is to support small and medium-sized businesses in acquiring digital technologies in the wider sense. Why should they acquire digital technologies? It is to increase productivity and to become more competitive.

Digital technologies include, of course, software and hardware. They include automation, robotics, cloud computing, a very wide array of technologies. There is no clear and narrow definition. It's whatever can help a company increase productivity and competitiveness using software, hardware, electronics equipment, or digital equipment, IRAP and specifically DTAPP, can help with. The budget is $80 million over three years, so this pilot program will end in March 2014.

As I mentioned, there was a mid-term evaluation, which was very positive, and it will probably be used by the government regarding whether or not to renew this program, to make conclusions, and to develop new initiatives to help companies acquire technologies and increase productivity.

How do we do it? We've put together a team of specialists in digital technologies and in implementation of digital technologies. This team joined IRAP in the last year and a half. It has added to the already strong field staff of IRAP. We have 200 people on the floor working with the companies, as you very well know. We have added 10 specialists in digital technologies.

First they look into the company's needs. What are they? They can be very different. To increase productivity they may start with very simple things like a new layout of their manufacturing facility, new processes, or a reviewed process. Then we'll look into digital technologies. Do they apply to the company's needs, or can they improve the company's productivity, and if so, which digital technologies can do that? We'll help the company select them and integrate them into their production and train the personnel for maximum return on their investment.

There's a whole cycle from the very early stages of needs identification, to the selection of the solution, to the implementation, and the training of their staff.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

That's great. Thank you very much.

[Bogdan Ciobanu]

IRAP can provide companies a maximum of $100,000 contribution per project. That is not for the acquisition of the equipment per se. This is to support all the adviser services, the grey cell part, the engineering, the selection of the equipment, training of personnel, changing the processes in the companies, and adapting those technologies to their needs. Just the engineering and the R and D part are necessary to maximize the benefits of acquiring digital technologies.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Excellent.

It sounds as though the DTAPP has been very successful so far.

What lessons do we learn and can we apply with respect to the adoption of digital technology for SMEs writ large across the country, that may or may not be able to take advantage of DTAPP? What lessons can we learn and apply to enhance the adoption?

[Bogdan Ciobanu]

First of all, the main barriers to small businesses adopting digital technologies have been identified as follows. First is the lack of resources, people, and understanding of digital technologies and understanding of their implementation in the company. Second is process and organizational issues, management issues, leadership issues, so things related to the corporation itself. Third is a lack of financial resources. These three have been identified in interviews, discussions, and analyses of hundreds of companies as the main barriers to adoption of digital technology.

Of course, we've tried to work on some of them. We can work more with a company. For example, on resources, if a company does not have the resources in-house, we bring the best experts from colleges, other organizations, or private consultants into the company. If they want to hire, we support them in hiring specialized personnel.

In terms of organizational changes necessary for the company to make before bringing in technologies, we help them too with industrial engineers, with advisory services, to make those necessary changes in the organization.

Of course, for the financial support we have our program. We work with organizations such as the BDC, which can provide loans for the acquisition of the equipment, and other financial organizations.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Ciobanu.

Now we'll move to Mr. Stewart for seven minutes.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Thank you, Mr. Chair.

Welcome to all the guests. Thanks very much for coming today.

I have some questions for you, Mr. Ciobanu.

I'll zoom out a bit from IRAP. With what other programs would you compare yourself internationally? Are there others? Maybe you even partner or talk with them. Could you give us some examples?

[Bogdan Ciobanu]

Internationally there are a few programs that are similar in some ways and different in others from IRAP. Finland has one called Tekes. There is OSEO in France. They are very well known and strong programs internationally. There is a very similar program to IRAP actually, which IRAP helped Thailand implement. It's tailored through IRAP.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

I was going to ask, just as you're going through these, if you could give us a sense of how the budgets compare in terms of the amount of money that's spent by these organizations. Do you have any idea?

[Bogdan Ciobanu]

Yes, the countries are very different in size. France is twice as big as Canada.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Sure. You could do per capita if you want; it would be fast.

[Bogdan Ciobanu]

Finland is probably six times smaller. There are similar programs in Chile.

I don't want to get into all those details of budgets, but they are much bigger. For example, OSEO in France has a budget that is close to one billion euros. The budget for Tekes is about half a billion euros, and Chile's is about $250 million.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

You mentioned some figures here, but what is the budget for IRAP?

[Bogdan Ciobanu]

IRAP's overall budget is $279 million this year.

As you probably know, it was doubled in the 2012 budget—more than doubled, actually—and to the A-base budget, which was $82.5 million prior to 2012, the budget added $110 million. It added DTAPP, which is another $80 million over three years. A new addition to IRAP is the credit notes program that was announced in budget 2013, and of course, the concierge, which is another new addition to IRAP, was included in the previous budget. Overall it's $279 million.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Thanks.

I'm just thinking about the organization. It's interesting you mentioned the concierge. You're part of the NRC, but through your description here it sounds as though you're almost a stand-alone organization or program in some ways.

I'm wondering about how much you actually interact with other NRC programs and personnel.