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Section II – Analysis of Program Activities

2.0 Strategic Outcome

Significant structural changes in the economy often follow major economic crises. These changes are generally good opportunities to foster innovation. In the context of the recent world economic upheaval, Canadian businesses and research centres need support to create these opportunities in the short term. By virtue of its competencies, infrastructure, national and international networks and partnerships, NRC is the Government's key R&D instrument to address national issues of importance and to bridge academia and industry to support knowledge creation and its commercialization for positive economic impact. Given the recent economic stresses on small- and medium-sized businesses, NRC played an even more important role in helping sustain Canadian innovative activity to support economic recovery.

Through an extensive econometric study carried out with Statistics Canada, NRC met its performance target of establishing a baseline for quantifying its impact on growth of private sector client capacity for innovation. In addition, preliminary results of the study revealed a positive, statistically-significant growth (in terms of R&D expenditures, employment of R&D personnel, and sales revenue) of NRC client firms relative to matched non-client firms selected by Statistics Canada. The analysis was based on a study of over 10,000 clients during the 10 years leading to 2009. These results are undergoing a rigorous validation process with Statistics Canada.

NRC's Technology Clusters
When several innovative companies come together and concentrate in a region, known as clusters, they attract others with technological and business expertise, and an interest in sharing the risks and benefits of collaborative research. A cluster benefits strongly from the presence of a local science and technology anchor – a prominent research organization or university – that can work with local companies to transfer technology and spin off new enterprises. This is the role that NRC has played in Canada's Technology Clusters. Technology Cluster Initiatives (TCIs) are an example of a partnership approach that supports the federal S&T Strategy, directed at accelerating the commercialization of new technologies, products, processes and services, and furthering S&T capacity in key sectors and regions. Building on 10 years of experience in the field, the investment in technology clusters has led to the establishment of centres across the country with core attributes focused on increasing Canadian productivity and competitiveness. Working with Statistics Canada in 2009-2010, NRC quantified the early-stage outcomes in its developing and growing technology cluster. These include the following results that have been validated and approved by Statistics Canada for release.

• Growth in the number of private sector firms participating in clusters – In 2009, there were 2,356 private sector firms, not including ancillary firms, identified as participating within NRC's portfolio of technology cluster initiatives. Total sales by cluster firms grew from $23 B in 2003 to $43 B in 2009.
• Growth in private sector investment in R&D – The cluster firms invested $3.2 B in R&D in 2009, which is up from $1.0 B in 2003. This represents between 18% to 21% of the total industrial R&D investment in Canada in 2009. This has grown from 7% of the total R&D investment in 2003².
• Total number of R&D employees of private sector firms participating in the technology area of focus of the clusters – The total number of R&D employees of private sector firms participating in the technology area of focus of the cluster is estimated at 23,500 in 2009 as compared to 10,500 in 2003.

In addition, a 2009 evaluation of the TCIs found that $342 M in NRC funds attracted an additional $330 M from other sources from inception through 2007-2008.

NRC: A Valued Research Partner
The value and relevance of NRC's research and supporting activities is evidenced by partner investments in collaborative projects. In 2009-2010, NRC had a total of 1245 active collaborative research agreements with 1184 Canadian and 414 international partners from industries, universities, and governments. NRC's portfolio of active collaborations increased in value from $415 M in 2001-2002 to a high of $831 M in 2009-2010 including $207 M leveraged from foreign sources. There has been an upward trend in the number of Canadian collaborators during this period.

Source: NRC Business Intelligence System
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2.1.1 Benefits to Canadians

Although the socio-economic benefits from scientific research can often take years to be visible, investment today is critical for future innovation and sustained global competitiveness. NRC contributes to the research continuum in Canada, from basic research to commercialization. These activities have long-term impacts on many segments of the economy. The following are examples of achievements and milestones in longer-term efforts demonstrating NRC's benefit to Canadians. NRC scientists and engineers have contributed to major advances in:

• non-invasive medical devices and techniques for early diagnosis, improved treatment and prognosis of such neurodegenerative diseases as Alzheimer's and Parkinson's;
• innovative molecular-level strategies, vaccine technologies and immunotherapies to help prevent and treat infectious diseases;
• marine-based bioactive compounds to treat neurological and obesity-related disorders, control infection and increase immunity;
• developing new crop platforms for the production of biofuels and industrial bioproducts;
• developing synthetic biological approaches to produce high-quality pharmaceuticals, natural products, and industrial bioproducts;
• developing protein-based targeting agents as prospective therapeutics for treatment of cancer;
• lithium-ion batteries and solid oxide fuel cells for portable power sources;
• developing solar cells on lightweight flexible substrates that can be incorporated into fabrics, window coverings, built into architectural structures or integrated into portable electronic devices;
• better construction materials, such as ultra high-performance concrete, and designs that protect critical public infrastructure against extreme shocks;
• flight safety, conducting icing experiments to modify winter flight operation regulations; and
• improving maritime safety in the performance and survivability of a lifeboat in ice and winter conditions.

2.1.2 Performance Analysis

One of the first tangible outputs of an investment in R&D is a publication in a scientific or engineering journal. Publication activity is a good predictor of the immediate outcome from NRC research and can be used to benchmark NRC's performance against the rest of the world. In 2009-2010, NRC's publications in refereed journals and in refereed conference proceedings declined in number by 5.0% and 20.3%, respectively, from 2008-2009. This can be explained by a greater focus on applied research and by restricted funding for travel to conferences. The reported number of technical reports has increased significantly since 2007-2008. This is due to an improved system for counting calibration reports and certificates of chemical analysis.

NRC's research output is high and cited more than the world average – A 2009⁵ bibliometric analysis of NRC's research output between the years 1997 and 2008 revealed that the contribution of NRC research (publications with NRC authors) remains high at 2.6% relative to the overall Canadian publications productivity. Citations are a measure of the potential use and impact of a researcher's work by fellow researchers. The report stated qualitatively that NRC's research output is cited more than the world average and that NRC's papers are published in journals that are cited more frequently than the world average. This is consistent with an earlier report⁶ stating that NRC remained approximately 40% ahead of the world average and ahead of the Canadian and federal government averages for the previous 26 years.

Impact of NRC Licensing – Licensing statistics are impact or outcome indicators pertaining to NRC's successes in attracting industries to bring NRC innovations to market. They are indicative of industry confidence in the commercial value of NRC innovations.

During 2009-2010, NRC increased the flow of technologies into high-impact and emerging sectors of the economy by introducing 85 unique product and process innovations to industry. NRC filed 206 patents, and 51 patents were issued. Issued licenses increased by 22% to 135.

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NRC licensing activity has generally increased during the decade as NRC increased its focus on applied, market-driven research. The number of issued licenses almost doubled from 78 in 1999-2000 to a high of 135 in 2009-2010. Intellectual Property (IP) revenue increased from $1.1 M in 1999-2000 to a high of $9.3 M in 2009-2010. The number of products and processes transferred to industry⁷ almost tripled from 29 in 1999-2000 to 85 in 2009-2010. The rise in license revenue in 2002-2003 is attributed mainly to NRC's Meningitis-C Vaccine, which had recently been approved for use in Canada. The top licenses, in terms of IP revenue received in 2009-2010, are diversified across the industries and national priority areas of health, bioproducts, information technology, transportation, manufacturing, aerospace, and construction, with a specific strength in immunology.

NRC's increased focus on solutions-oriented research is also reflected in improved license efficiency. For every patent awarded to NRC in 2009-2010, NRC issued 2.6 licenses contributing to Canadian companies' growth. This is more than double the efficiency of 1.1 licenses per patent realised in 1999-2000.

Exploring NRC's R&D Contributions – In 2009-2010, guided by the federal S&T Strategy, NRC focused strategically in areas that are of national interest from a social and economic perspective and contributed to:

• The global competitiveness of Canadian industry in key sectors and to the economic viability of communities (sector specific and applied research and technology development that contributes now and in the future to a growing and sustainable economy).
• Canada's S&T priority areas critical to Canada's future (longer term innovative research that brings about scientific discoveries for the public good). These include environmental science and technologies; natural resources and energy; health and related life sciences and technologies; and information and communications technologies.
• Strengthening Canada's Innovation System and S&T infrastructure (development of critical technology platforms, knowledge dissemination, major S&T infrastructure, codes and standards, etc.).

These areas can be explored in much greater detail on NRC's Web site.

2.1.3 Lessons Learned

Lacking a central process for compiling and managing business-related performance data, NRC gathers such information from the diverse management systems of its individual institutes. Recognizing the inefficiencies and potential for errors of such diffused processes, NRC launched its business intelligence (BI) information system that is expandable to collecting performance data centrally on a transaction basis. This includes data for licensing, collaborative agreements, and client feedback. The BI system is still a work in progress with various modules still to be developed to capture real-time data. When fully integrated, this will lead to more effective management of organizational R&D performance with increased efficiency and reliability.

NRC's Industry Partnership Facilities (IPFs) are unique workplaces in over 15 NRC facilities across Canada where firms are co-located and incubated to develop their technology and business opportunities in a supportive and cooperative environment. With over 10 years of operating experience at these facilities, NRC understands the extended timeline for typical start-up technology companies to reach the launch point. It is also apparent that for many of the current cohort of university graduates, the immediate reward of an interesting job is more attractive than the risky future reward of running one's own company. NRC has learned to seek "old entrepreneurs" to complement "young" ones. An established company that already has market traction and knowledge can have greater chance of success in selling a new technology product than an unknown start-up. This knowledge is being applied on a trial basis in the operation of an IPF.

2.2.1 Canada's Economic Action Plan

Under Canada's Economic Action Plan (see Section 1.6 for details), NRC received a total of $200 M over two years to enable it to temporarily expand its existing initiatives under NRC-IRAP for SMEs. This included $170 M to double the Program's contribution to firms, and $30 M to help companies hire new post-secondary graduates under its Youth Employment Program. For 2009-2010, this amounted to $90 M in contributions to firms and $10 M for youth projects.

Budget 2009 also provided NRC-IRAP with an additional $27.5 M from the new Federal Economic Development Agency for Southern Ontario Development Plan (FedDev Ontario). These funds were provided to NRC through agreements with Industry Canada to support economic and community development of SMEs in Southern Ontario. With these resources, NRC-IRAP funded 387 innovation projects that supported 1,402 jobs.

Canada's Economic Action Plan Risk Management
For NRC, the capacity of the field delivery staff to ensure effective and efficient movement of the stimulus funding, which doubled NRC-IRAP's national budget and quadrupled NRC-IRAP Ontario's budget, was a major risk to achieving expected results. NRC-IRAP was able to deliver by readjusting resources to expand staff capacity, implementing program delivery improvements, and reducing the amount of advisory services provided. The extra funding also allowed NRC-IRAP to more effectively meet the demand for larger innovation projects.

2.2.2 Benefits to Canadians

NRC supported Canadian wealth generation through the funding of specifically identified industry projects. NRC's Industrial Research Assistance Program (NRC-IRAP) strengthened the Canadian innovation system by supporting regional and national research and development organizations, assisting individual firms with improving their own innovation capacity through specialized advisory services and providing relevant and challenging work experience for recent university graduates contributing to develop the next generation of highly qualified research and development personnel. The social well-being of Canadians was also enhanced through NRC's support of its clients' products, many of which fell within the federal government's key strategic areas of health, environment, energy, and information and communications technologies.

NRC's Canada Institute for Scientific and Technical Information (NRC-CISTI) provided Canada's research community with tools and services for accelerated discovery, innovation and commercialization. The national science library program ensured the availability of the world's scientific information to Canadian researchers. As Canada's leading science publisher, the NRC Research Press provided a platform for disseminating the best in research articles in key areas of interest to Canadians.

2.2.3 Performance Analysis

NRC's Industrial Research Assistance Program (NRC-IRAP) switched the emphasis of its offerings to meet the immediate and emerging needs of the SMEs today and to help them prepare for the future. In stable economic times, SMEs need linkages to sources of assistance, technical and business advisory services and financial support. In turbulent times, these needs are even greater.

Providing comprehensive commercialization support, including technology transfer, intellectual property management, licensing, and entrepreneurship – As part of NRC's continuous efforts to effectively move technology from the lab to the marketplace, NRC established technology transfer-oriented services related to Intellectual Property (IP), the negotiation of complex business agreements, and the development of tools and services to serve external clients. With the deployment of these services in 2009-2010, NRC:

• filed 206 patent applications. The decision to file was made after a rigorous disclosure review process, which assessed new technologies for patentability and marketability. NRC concentrated on patents with defined market potential; and
• was granted 51 patents.

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Building innovation capacity of SMEs – NRC ensured that more new firms benefited from the Program's financial and non-financial support, thereby increasing SME access to needed services and building effective regional/community innovation system relationships and services that benefit all SMEs. With the help of Canada's Economic Action Plan, NRC expanded its outreach by providing funds and advice to over 1,700 new clients. This was a four-fold increase over the number of new funded clients in the previous year.

Helping industry manage risks as new products are developed and marketed and as new processes and practices are integrated into their operations – In addition to the risk sharing that the NRC undertakes with SMEs through its financial support to Canadian firms' technology projects, NRC helped industry reduce or manage the risk in developing new products and processes. This included arming firms with comprehensive market intelligence before they embark on the adoption, adaptation or development of new technologies or process, and helping SMEs become "investment ready".

Providing S&T information and intelligence services – NRC provided access to global S&T information to all Canadians. Increased information access for researchers in six Federal Science eLibrary partner departments was achieved, along with significant cost savings, through the successful negotiations of the Federal Science eLibrary consortium with Springer, a major scientific publisher. Information analysis and market intelligence to support commercialization decisions were provided to Canadian industry. Interviews with selected SMEs who benefited from these services indicated that they valued the analyses provided to help identify new markets and make investment and product development decisions with confidence. A service delivery partnership was formed with Health Canada for introducing shared services that leverage the expertise of each organization and that reduces costs. Two initiatives to ensure the visibility and accessibility of Canadian research results came to fruition: The NRC Publications Archive (NPArC) and PubMed Central Canada both implemented publicly available Web-based search services. NPArC now contains over 50,000 publication records, including 5,000 full-text publications by NRC researchers.

More information on the Technology and Industry Support Program Activity can be found on NRC's Web site.

2.2.4 Lessons Learned

To deliver on the temporary additional funds received through Canada's Economic Action Plan, staff capacity was enhanced through the implementation of Standard Operating Procedures as well as implementation of an exhaustive Field Manual to streamline program delivery across the country. This major initiative, combined with risk management activities, resulted in a decreased administrative burden on clients for small projects, reduced time for new field staff to become effective, and increased efficient management of the program. The capacity to deliver non-funded advisory services, however, was unavoidably diminished. Nonetheless, advisory services, such as business, technical and market assistance, continued to be provided to funded clients to help ensure the success of their projects.

2.3.1 Canada's Economic Action Plan

NRC received funding for two initiatives under Canada's Economic Action Plan that were managed through the Internal Services Program Activity. See Section 1.6 for further details.

Modernizing Federal Laboratories (MFL) – Under this initiative NRC received a total of $19.07 M ($8.7 M in 2009-2010 and $10.36 M in 2010-2011) to address deferred maintenance issues and modernize NRC facilities across Canada that support research in areas of national importance such as health and wellness, sustainable energy, manufacturing, and metrology. By the end of March 2010, a total of 54 projects were completed, with a total value of $8.7 M. This represents approximately 67,000 hours of construction labour.

Accelerated Federal Contaminated Site Action Plan (FCSAP) – Under this initiative, NRC received $4.84 M of infrastructure stimulus to remediate contaminated areas in an effort to clean up the environment and improve safety. Works associated with this initiative commenced in 2009 and will continue into 2010-2011. The majority of this funding is allocated to soil remediation projects at sites in Montréal and Penticton. The balance of the funds will be used to conduct contaminated site assessments and risk management work at the site in Montréal, three sites in Ottawa, and at sites in Penticton, Victoria, St. John's and Chicoutimi. Phase I of this work has been completed. Phase II is currently on schedule without any manifestation of identified risks.

Canada's Economic Action Plan Risk Management
A comprehensive risk mitigation strategy was developed for this 2-year program in May 2009, and updated on a regular basis throughout the year. A major risk identified was the capacity to manage the additional workload. This risk was successfully mitigated with the effective use of in-house resources, supplemented by private sector resources from the consulting engineering community when required. Risks associated with unclear project definition and associated cost estimates were also identified and managed with diligent tracking of prices, refinement of scope, and project substitution or addition where necessary, to effectively make use of the funding provided. All well-established processes and procedures for contracting were adhered to, simply at a higher volume than normal.

2.3.2 Benefits to Canadians

Effective governance supports NRC's ability to deliver on its value proposition: "To provide integrated science and technology solutions in areas of critical importance to Canada". Examples of NRC's results in this regard can be found on NRC's Web site.

2.3.3 Performance Analysis

Integrated Structure and Governance Model – NRC clarified the role of the NRC Council. This included means to challenge management decisions in a manner that is integrated with the annual planning and reporting process, as well as the work of the NRC Senior Executive Committee.

Integrated Business and Client Services – NRC conducted a project to implement practices and software to facilitate performance management and sharing of information about clients and coordinate client interactions. A pilot Client Relationship Management (CRM) program was successfully tested, but work ceased as funding issues prevented its implementation across NRC. Resources were instead focused on designing an innovative online business training and orientation program to assist staff in sharing business knowledge and client management.

Integrated Ethics Framework – NRC developed an Integrated Ethics Framework that unites public service and business ethics policies and practices with those related to scientific research around NRC corporate values.

Human, Capital, IT & Financial Resources fully aligned with priorities – NRC continued to improve performance efficiency and effectiveness, and management performance. Efforts focused on reducing overhead costs and improving management practices, such as strengthening the ability to demonstrate achievement of results. For example, NRC responded to the government's Policy on Investment Planning – Assets and Acquired Services and the Policy on Management of Projects by establishing a project management office to manage the transition to the new policies. A readiness assessment on this transition was completed to position NRC for implementation of a new integrated investment planning process and associated governance structure in 2010-2011. This new approach ranks and approves investment projects on an NRC-wide basis and more clearly integrates investments with Government and NRC strategic priorities.

NRC implemented a new integrated HR planning and HR performance management process that resulted in more effective capturing and accessing of relevant resource performance information for better planning and decision-making, and alignment of staff efforts with organizational priorities.

To foster a workforce that is agile, highly engaged and contributes to NRC's sustainable competitive advantage, NRC:

• focused on building leadership capacity and on implementing a leadership development roadmap;
• developed a comprehensive succession planning framework to address succession challenges within key areas of vulnerability;
• began the implementation of a revised employee performance management system that supports NRC's Strategy 2011; and
• reviewed NRC's staffing policies and practices with a view to increasing NRC's ability to facilitate both the entry and mobility of its workforce.

Although planned, NRC did not:

• develop and implement a learning strategy to address priority learning needs in implementing NRC's organizational strategy. Knowing the effort required in creating a learning strategy and recognizing the need to prioritize limited learning resources, NRC instead focussed on building leadership management capacity.
• design and implement a recruitment initiative including a branding strategy to assist the organization in attracting new talent. NRC introduced a hiring moratorium to allow external recruitment to occur only on an exception basis. The branding strategy was also put on hold, allowing resources to be allocated to other priorities. NRC improved its recruitment Web site and commissioned an analysis of best practices for recruitment advertising.

More information on the Internal Services can be found on NRC's Web site.

2.3.4 Lessons Learned

The current methodology for planning Full Time Equivalent (FTE) utilization does not necessarily permit comparison with actual utilization. Future year FTE utilization is roughly estimated using a calculation based upon salary appropriation divided by an average salary. This methodology involves several assumptions including constant average salary throughout the year. NRC has learned that these assumptions do not hold for 2009-2010. This renders planned FTE values incomparable to the actual values determined by actual usage. To correct the situation, NRC invested in developing its existing systems to include future year forecasting functionality and expects to have it available for the 2012-2013 reporting cycle.

NRC conducted an organization-wide review of its business planning processes. Through this review, NRC identified opportunities for continuous improvement in areas such as aligning the timing of planning-dependent activities (such as priority planning), clarifying objectives of planning, and obtaining engagement at all levels. NRC addressed these issues by developing a streamlined three-year planning cycle. Full implementation was delayed by immediate executive needs pertaining to identified financial risks. One consequence of this is that performance targets and target dates were not reviewed and revised as is normally done through the business planning process. NRC still recognizes that integrated planning is a work in progress – evolving, developing and improving with each cycle. As such, NRC will continue to work on continuous improvement and implementation in 2010-2011. Outdated performance targets will be replaced with growth or trend targets in the interim.

NRC made significant progress in the design and development of various HR policies and programs that will have large impacts. NRC learned that almost without exception, these initiatives involve a change management aspect that needs to be addressed. Implementation depends on focusing more in managing change and paying attention to the organization's capacity to undergo and absorb these changes.

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