How businesses can narrow the innovation gap in an AI-driven digital economy

Canada is pushing the new digital frontiers with cutting-edge artificial intelligence (AI) research. Signs of an unfolding AI-driven digital economy can be seen almost everywhere: from lively labs and hubs with deep-learning researchers and high-tech startups in Toronto, Montréal, and other places, to the growing concentration of animated commentators, data scientists, venture capitalists, and global companies—such as Microsoft, Google, Uber, General Motors, Ford, Thompson Reuters, Amazon, IBM, and Intel. With more than $1-billion already committed to AI Research and Development (R&D), we could be a moment away from a disruptive AI-enabled technology. This is the kind of technology that can dramatically transform existing industries—from manufacturing to banking, healthcare, transportation, and education—and bring about new industries or new product categories. The Uber ride-sharing platform did this in the transportation industry. It is now possible for people to conveniently access on-demand and affordable taxi service from their phones. Furthermore, they can easily switch from being Uber passengers to Uber drivers at any point. Traditional taxi operators didn’t see that coming, and their future continues to hang in the balance. Canadian businesses are rarely so close to what seems like hotbeds for radical innovation and rapid growth. They don’t have to invent something totally new to get ahead. But they have to excel at recombining existing ideas, resources, and capabilities in novel ways that create value. This could mean helping their existing or new customers solve problems and do things better or cheaper—which could require new, or significantly improved, products or services, production processes, organizational practices, or marketing methods. For example, a new security solution could add value by helping small businesses better protect themselves against a ransomware attack. Canadian senior executives can enhance their companies’ innovation potential by appropriately deploying AI-enabled technologies. But a recent Accenture 10-country survey of 305 business leaders reveals that they are adopting such technologies at a slower rate than their peers in the United States and elsewhere. Since Canadian businesses have long lagged behind their U.S. counterparts in terms of R&D spending and productivity, this could mean that the innovation gap between Canadian and American businesses could dramatically widen in the next few years. This, in turn, points to the onset of an even wider productivity gap between them. Consequently, instead of being on track to lead in the emerging AI-driven digital economy, Canadian businesses’ very survival could be at risk. We know that the Liberal government wants to help, and should be commended for its bold commitments and actions. Most notably, it created Innovation Canada—whose programs and initiatives include $950-million in federal funds earmarked for big-idea research under the Innovation Superclusters Initiative, and value-added business services (i.e., funding and expert advice) for technology startups. However, these initiatives are unlikely to slow down the widening innovation gap between Canadian and American businesses without new thinking and heroic actions from Canadian senior executives. As a first step, they need to come to terms with the innovation challenge that all companies now face. That is, low-hanging opportunities for innovation have virtually disappeared; and it is becoming increasingly difficult to generate high returns from R&D investments. Even American companies have been struggling to earn from their R&D investments. According to studies by the National Science Foundation and others, these companies have increased their R&D investments by almost five per cent over the last five decades; yet, the average number of innovations per worker—or R&D productivity—has declined by roughly 10 per cent over the same period. Still, Canadian businesses can fare relatively well if their CEOs and other senior executives do the following basic things well: consistently prioritize innovation (e.g., put innovation at the top of the corporate agenda), create appropriate incentive schemes (e.g., tangibly reward employees for making progress toward long-term strategic goals), and establish organizational structures (e.g., corporate venture funds) that collectively foster a firm-wide entrepreneurial mindset. Such a mindset is manifested in a willingness to explore new ideas, commit resources to uncertain endeavours, and take action based on reasonable expectations about the future. By getting these basic things right, Canadian businesses can begin to capitalize on government support, and chart a more promising path forward in an AI-driven digital economy. Horatio M. Morgan is an associate professor of global management, and a senior research scientist at Ryerson University’s Institute for Innovation and Technology Management at the Ted Rogers School of Management. The Hill Times