Industry Committee on June 6th, 2013

[Bogdan Ciobanu]

We are one of the four operational divisions of the NRC. There are three R and D divisions in IRAP—life sciences, emerging technologies, and engineering.

The interaction is at different levels. First of all, IRAP has 210 field staff, people who have a very strong understanding of the industrial sectors and the businesses, who provide input to the R and D programs when the programs and projects are being designed, so that they are as close as possible to the needs of the industry. There's a very strong interaction at the early stages of the development of the NRC programs.

There is a strong interaction with our clients who need very specific and deep scientific or engineering knowledge. We bring NRC scientists into our client's shop. They can spend half a day, a day—short interactions. These interactions can develop into longer-term relationships. Actually, we do this type of linkage between small businesses in Canada and the players in the innovation system on a very wide basis. We have in excess of 120 contribution agreements with universities, colleges, and research labs across Canada—provincial, federal, and others—as well as incubators, accelerators, all kinds of sources of expertise in management, marketing, and science. They bring those resources to our clients. This is one of the major contributions that IRAP brings to this innovation network.

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

The reason I asked about the interaction is that you didn't mention it in your presentation. You mentioned universities, research labs, and colleges. I was wondering if that's because of the changes that are happening in the NRC. It's moving away from scientists and researchers and that kind of personnel and moving more towards business personnel. I was wondering if that was affecting your ability, whether now you're looking at outside sources, or are you still able to draw from NRC internal resources?

[Bogdan Ciobanu]

We look to the best resource available, whether this resource is within a university, college, government lab or private company, or the NRC. We make sure the company gets, without bias, the best resource available in their region. Some resources are probably too far away from where they are, because we have clients everywhere. Whether they are with the NRC or with another organization, the most important thing is that it is the best for what the company needs.

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

Has the NRC reorganization, which has been fairly massive, affected your program, or has yours been mostly left on its own, besides the influx of money that you mentioned?

[Bogdan Ciobanu]

IRAP has grown considerably.

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

Has the style of it changed, though? It seems you have mainly business advisers, your field staff. Is that maintained through this—

[Bogdan Ciobanu]

We maintain the same structure that has been considered appropriate and successful to combine financial support with very strong advisory services. The business model of IRAP was kept intact.

Rather than being one among 21 institutes, we're now one division among four operational divisions of the NRC. The market intelligence, the understanding of the business that our field staff can bring to the NRC, is of major importance right now. It's very much valued.

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

Thanks very much.

[The Chair, Conservative, David Sweet]

Thank you.

We now go to Mr. Carmichael for seven minutes.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you, Mr. Chair, and thank you to our witnesses today.

Mr. Cousens and Mr. Kratz, I'm going to ask a couple of questions of the folks at IRAP first, but I do have a couple for you, so I don't want you to think you're out there on your own.

Mr. Ciobanu, as you talked about the barriers to adoption, you talked about the lack of resources, the process and organization, and lack of financial resources. As I understand IRAP...and I'm hoping you can clarify, because I'd like to understand better the relationship between it and DTAPP. When you go into an SME, you take some SMEs that are well established with these barriers. You're in universities dealing with digital hubs and all types of research initiatives, etc., and are able to assist them in their ventures.

How does it actually work? How much of your business is tied to SMEs that are established versus start-ups where you see an opportunity? At what point does DTAPP kick in, and can the two be operating at the same time?

[Bogdan Ciobanu]

Absolutely. The traditional IRAP provides support for product development and service development, so innovative new products and services to be developed and commercialized by a company. DTAPP is more specific to bringing into the company digital knowledge and digital technologies, which are very much complementary.

Actually a company can become more competitive by improving its productivity, lowering costs, increasing production, and bringing new and innovative products onto the market.

They are complementary. I don't think they play against each other or in separate fields. They are complementary.

In terms of what they have in common, I have some numbers on the size of our clients. Of our clients, 8% have between one and nine employees; 14% have between 10 and 20 employees; 12% have between 20 and 30 employees; 17% have between 30 and 50 employees; and so on. The majority of our clients with DTAPP are small businesses. We have very few that have more than 200 employees. Those represent just under 10%.

[John Carmichael, Conservative, Don Valley West, ON]

I think I understand the purpose as you enter into a relationship with an SME. Are these organizations already commercialized? Are their products commercialized, or do you merely help them to accelerate the process within their organizations?

[Bogdan Ciobanu]

There are all kinds.

[John Carmichael, Conservative, Don Valley West, ON]

There are all shapes and sizes.

[Bogdan Ciobanu]

There are all shapes and sizes at different stages of development. There are very early stage companies that are just starting up. Actually IRAP starts the relationship with a company sometimes even before it incorporates, when it has just one, two, or three founders with ideas, with an understanding of some market needs, who want to build a company around a market need. We help them to establish themselves. Sometimes we work for years before there is a first dollar invested in those companies by providing them with advisory services, linking them with different resources, helping them build an advisory committee, for example, or a board, or by bringing angel investors into the company, helping them structure their team, their business plan, and so on.

A lot of work is done before the first dollar is—

[John Carmichael, Conservative, Don Valley West, ON]

I guess functionally they would lack the sophistication to know how to do it themselves, and that could include BDC—

[Bogdan Ciobanu]

Exactly, that includes BDC and a lot of other players in the Canadian innovation system. There are companies, as you mentioned, that are established. They have a strong management team. They have a research and development team and plan, but they need some support with the financial part of their business. They want to develop a product that is too risky for their normal way of doing business, so sometimes we convince them to do a little more to be more risk averse, and we help them financially to take this additional risk so that if the project is successful, the rewards will be commensurate with the investment.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you.

I'll now switch to Mr. Cousens and Mr. Kratz.

Some of your numbers are alarming, obviously. I look at the growth in the U.S. How would you look at success in Canada relative to that in the U.S.? When you look at the U.S. numbers and the productivity and all of the scale attached to the U.S., how would those numbers translate with regard to where Canada is today?

[John Cousens]

Canada is always translated as being a 10% average, from what I see, so that would be a starting point. In my mind, any time I look at a market analysis in my business, I look at Canada as a 10% representation of the U.S. We have the same trappings they do as far as defence and foreign affairs go, so I would obviously see government in that light.

[John Carmichael, Conservative, Don Valley West, ON]

In terms of some of your metrics, you've given us this chart on Canada's imperative. How do we factor into that? When I look at it, I take it the 10% has already been factored in or quantified against the rest of the global competitors on a relative basis. Is that correct?

[John Cousens]

I would say there's incredible savings and incredible opportunity at hand for Canada.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Carmichael.

Now on to Mr. Regan for seven minutes.

Before we do that, Mr. Ciobanu, you let me know that in your first testimony to Mr. Braid you mentioned IRAP but you meant DTAPP.

Is that correct?

[Bogdan Ciobanu]

Yes. DTAPP was launched in November 2011.

[The Chair, Conservative, David Sweet]

I just want to make sure that's reflected in the blues.

Mr. Regan, go ahead, for seven minutes.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chair.

Thanks to the witnesses for coming before us today.

My first question is for Mr. Cousens or Mr. Kratz, whoever wants to answer this.

You talked about the U.K.'s g-cloud model. I've received some e-mails about that, including from John Reid of the Canadian Advanced Technology Alliance, urging Canada to follow the U.K.'s lead on that.

What would be included in a cloud-first policy, as you would see it? Why are we lagging in this area, and what are the consequences?