NORTHERN ONTARIO TECHNOLOGY ASSOCIATION

Notes for a Speech by Gaylen Duncan, President & CEO, ITAC
To the Northern Ontario Technology Association
October 29, 2002 - Thunder Bay, Ontario
 

Hello, everyone. Thank you for inviting me to join you today to bring you up to date on some of the activities currently pre-occupying us at ITAC. It is always a pleasure to visit affiliate organizations, especially those that are "Superior by nature".

It goes without saying that the major pre-occupation for us at the moment is the poor health of the IT industry in Canada and all around the world. Everybody wants to know when our troubles will end. This isn't surprising. Given the low stock market valuations of some very excellent companies, everyone is watching, hoping to catch the wave as it begins to build back to prosperity.

Things are bad, but not so bad that we should dismiss the ICT industry as a flash in the pan. Does anyone really believe that we've sold our last micro-chip or laid our last mile of fibre?

ICT is indisputably experiencing one of the toughest periods in its history. Nevertheless it continues to grow at a rate that significantly outpaces the whole Canadian economy. ICT output growth in the second quarter of 2002 (arguably the worst quarter in our history) was 1.3 per cent. The whole Canadian economy grew by 1.1 per cent. The robustness of the sector is even more evident if we take the long view. Since the first quarter of 1997, ICT has grown by 84 per cent – four times faster than the total Canadian economy. In the midst of the doom and gloom, facts like this put the importance and potential of our sector into proper perspective.

While it's the worst of times economically, it is, ironically, the best of times from a public policy perspective. ITAC has advocated for the need to prepare Canada to meet the demands of the knowledge economy since 1993. We welcomed the Speech from the Throne to open the 37th Parliament and, in October of 2001, prepared our own white paper on what Canada needs to do to expand its capacity for innovation.

The seven recommendations we made in "Toward a Culture of Innovation" are:

  • invest strategically in innovation;
  • accelerate the deployment of productivity enhancing technology through all sectors of the economy;
  • foster the appropriate management skills to maximize the benefits of technology;
  • improve access to capital
  • invest in broadband and GOL
  • reform the business tax regime; and
  • effectively brand Canada

In February the Government issued a challenge to Canadians in all walks of life to do whatever they can to advance our nation into the top tier among the innovative, knowledge-creating nations in the world. A nation-wide consultation, begun in May and ending next month, will help map the course to achieve this goal.
For many members of my board of directors, this challenge stirred great passion.

The IT industry sees itself, in many respects, as a bellwether for the knowledge economy. We have been innovation-drive throughout our history. Everyone who works in IT, whether they're making micro-chips, designing software or manufacturing super-computers knows we're only as good as our next release. We compete in a high stakes, global marketplace that takes no prisoners. And everyone who runs an IT company knows we're only as good as the men and women we can find to create the innovations that keep us in business.

Our industry has had fifty years of this. We think this has taught us a bit about the elusive nature of innovation. We think we know something about how to foster it. So we wanted to ensure that our experience and recommendations were captured in these consultations. ITAC struck a committee of the board to review and respond to the government's innovation strategy.

Generally speaking, we thought the government had a pretty good plan. In September at Softworld, Industry Minister Allan Rock acknowledged that basically his department had derived many of its ideas from our white paper. Certainly when we compared our proposals with their strategy, we only encountered one or two gaps.

We were concerned, for example, that the innovation strategy overlooked the vital role that government could play as a model user of productivity enhancing technology and management principles. We were also concerned that the strategy contained virtually no reference to or understanding of the global marketplace. So we set out to fill these and other gaps with a series of six white papers. Our hope was to add new knowledge and a higher awareness of these issues to the discourse on innovation.

One of our key concerns was with the innovation strategy's keen enthusiasm for clusters. The strategy set the target to "by 2010 develop at least 10 internationally recognized technology clusters".

We were alarmed that the government felt that it could "develop" clusters. And we also thought that the number 10 appeared arbitrary and sprang from political considerations than from a clear understanding of the elements that contribute to cluster formation. So we decided to chart the evolution of Canada's most established high tech cluster as a way of showing what makes clusters happen.

The paper is called "Silicon Valley North: The Formation of the Ottawa Innovation Cluster". Copies are available on our web site. Since we released it last month, it has generated a great deal of interest particularly in communities, like yours, that are anxious to understand this formula and replicate it in their own communities.

So I thought it would be worthwhile to spend the balance of my time with you today discussing what the paper taught us.

In the Ottawa experience we identified five elements crucial to the formation of a high tech cluster. They are:

  • Access to technology and technical know-how.
  • Availability of highly qualified people.
  • Visionary entrepreneurship.
  • Access to venture capital, and
  • Networks and linkages.

So let's look at how these elements manifested themselves. As I'm relating the Ottawa experience, I would challenge you to think about each of these elements and their state of evolution in your own community.

On terms of access to technology and technical know-how, Ottawa was highly favoured among all Canadian cities. After the atomic conclusion of World War II, public scientific research labs such as the National Research Council, the Defence Research Establishment and the Communications Research Council took on a new importance. This factor helped to establish Ottawa as a strong community of research scientists.

This factor was no doubt a stimulus in the decision taken by Nortel and Bell Canada to locate their primary research institutions, Bell Northern Research and Microsystems International, in the capital in the late fifties. It is not an exaggeration to say that all high tech companies in Ottawa can trace their roots back to these two ancestors. They were integral to the cluster formation.

But important linkages were also established between these research institutions and the education sector. Carleton University, for example, is credited with influencing the start-up of some 50 firms through the research and training functions of its engineering and science faculties.

And Carleton and its sister institutions, like the University of Ottawa, Université du Québec à Hull and Algonquin College, have been an important source of the supply of highly qualified people.

Ottawa's workforce has become the most educated in Canada. Of the population aged 25-64, close to 30% had a university degree, compared to the national average of 17%. In 2000, 7% of the population was comprised of scientists and engineers, compared to 3% nationally. Managerial talent also began to fourish in the dynamic environment of Silicon Valley North.

The opportunity to develop skills in a variety of both successful and less successful high-tech businesses developed CEOs with experience and battle scars, making them more able to provide the strategic focus, cash consciousness, customer orientation and pragmatism needed to lead and run start-ups.

Ottawa's highly educated and talented labour pool had also become a saleable commodity in the attraction of new investment. In explaining, for example, why California-based Premisys Communications had chosen Ottawa in 1997 over several other cities as the location for a new R&D operation, the Senior VP of Engineering observed that a critical mass of workers meant lower risk for start-ups and for expanding companies.

Other sites in Canada and the U.S. did not have "a high enough concentration" of talent. Ottawa's cadre of highly qualified people has become an important competitive advantage.

But this vast resource of smart people might never have coalesced into a high tech cluster if one or two of them had not – apart from being smart and well-educated – also been visionary entrepreneurs. In fact, Ottawa still might be nothing more than a civil service town if it hadn't been for the day when "Terry met Mike". I'm talking of course about Terry Matthews and Mike Cowpland.

These two émigrés from the United Kingdom first encountered each other at Microsystems International, the semi-conductor arm of the Bell/Nortel research establishment. Together they created Mike and Terry's Lawnmower Company. They never did sell any lawn mowers, but under the shortened name Mitel, they became a major force in microprocessor-controlled PABX's for the telecommunications industry. Their vision and determination grew Mitel from a start-up to a major force in telecom in a little over a decade. They sold their stake in Mitel in the early eighties.

Entrepreneurs with vision don't rest on their past achievements. In 1984, Cowpland went on to start Corel.

A year later, Matthews had begun Newbridge. The importance of these two legendary entrepreneurs cannot be overstated. They along with others such as Michael Potter, the founder of Cognos, Rod Bryden, who founded Systemhouse and Josef Strauss of JDS, had an inspirational impact on their community. The power of technology driven enterprise was apparent in the success of their companies and in the jobs and wealth they created. These visionary entrepreneurs created a new model of success for a generation of Ottawans. This was vital for a community who used to assess status by how close you came to making deputy minister. Ottawa is quite simply not the same city anymore.

The vision and determination of these business leaders was helpful in more ways than one. It also helped to ensure that Ottawa could overcome a major deficiency in the path toward becoming a high tech cluster.

The basic formula for creating a knowledge based enterprise is innovation plus smart people plus capital. Ottawa had the first two. But unlike the original Silicon Valley or the Alley around the Boston area, Ottawa in the seventies and eighties could not boast a strong supply of progressive venture capitalists. And institutional investors were still to be persuaded of the potential of high tech start-ups. Capital is essential.

The visionary entrepreneurs knew this, so they formulated their own strategies for capitalization – they assisted one another! They took positions in one another's companies, mentored and funded start-ups and risked their own fortunes to help build the kind of community they knew Ottawa could be.

The evidence shows that Ottawa's high tech entrepreneurial community had already taken shape before the availability of early stage institutional financing. In Ottawa the entrepreneurs were out in front of the financiers – and stayed there well into the nineties. The cluster is a testament to their courage.

Of course if you've got an interest in a wide number of companies around, you're inclined to keep pretty close tabs on them. This certainly helped to build the large and robust network of linkages that underpin the Ottawa cluster today. A tremendous local capacity for and dedicated commitment to collaboration is something that Ottawa clearly has in common with its California role model.

As the fledging Ottawa high tech sector developed in the late 1970s, leaders from the business, university and federal research communities began to see a need to formalize the collaborative research and commercialization effort. In 1983, the community founded OCRI, the Ottawa Carleton Research Institute.

OCRI developed as a grassroots organization. It served as a facilitator of important, cost shared initiatives such as OCRINet. This research partnership was key in developing the local R&D infrastructure by electronically connecting the community's high tech companies with universities and federal labs. OCRI became a rallying point for the overt development of Ottawa's technology culture. This culture encouraged a collective shift toward a more self-consciously entrepreneurial and knowledge-based community.

It is impossible to overstate the importance of the impact of OCRI. In spite of the present downturn, OCRI events from its monthly Technology Executive Breakfasts to its annual Tech Rocks battle-of-the-bands demonstrate the power of a vigorous, smart and optimistic business community. It is at the heart of the cluster's resiliency. Ottawa has lost 25,000 jobs in the last 18 months. That impact in the auto sector would turn Windsor or Oakville into a ghost town. But Ottawa has simply gone out and created new jobs, 23,000 of them so far. That's the power of a mature, self-confident cluster. That's why everyone wants to be one!

The real question is can the Ottawa experience be replicated elsewhere? Can it be replicated in nine other centers? And I guess the question you want to ask yourselves is can it be replicated in Thunder Bay?

Or maybe the really pointed question is – if the Government wants to see ten world-class clusters by 2010, what kind of chance does Thunder Bay have to become a contender?

ITAC's key concern is that cluster development may become simply a facade for yet another experiment in regional economic development. That's why we wrote the paper.

We figure if we can understand the elements that build successful clusters we will be less inclined to force-fit them into places where they have little chance of success. If we assume that Ottawa and the emerging cluster of Kitchener-Waterloo will count for two of the ten, what does that mean for other Ontario cities? Likely they will be competing against other more or less favourably situated communities from Newfoundland to British Columbia.

We believe that clusters cannot be created. The best the government can hope to do is to refine a clear understanding of cluster fundamentals. This will equip them to honestly assess where the best possibilities for cluster formation exist.

And if the results of that assessment are that we can have a realistic shot at only five clusters in only three provinces, the government must demonstrate the political courage to make that decision. Otherwise we are simply wasting scarce resources in what is an increasingly competitive global race for new economy leadership.

To be a contender, smart communities like yours must also understand the elements of cluster development. They must perform a clear-eyed, disciplined analysis of strengths and weaknesses and unite the business community will to overcome the obstacles and maximize the assets.

Overcoming the obstacles in Ottawa meant finding alternative solutions to the dearth of venture capital. In Waterloo, the University of Waterloo has served as the R&D center for that cluster pretty much single-handed. There is no major federal research presence in that city. But one of Waterloo's visionary entrepreneurs, Mike Lazaridis, the founder of RIM, addressed this by creating the Perimeter Institute for theoretical physics. PI aims to be on a par with Princeton's Institute for Advanced Study and CERN. Lazaridis is convinced that theoretical physics will provide the solutions to the problems currently facing humanity. He believes it so strongly that he invested over $100 million of his own money to make it happen. That's the kind of bold investment that builds clusters.

You have to ask yourselves what does Thunder Bay have in the asset column. The wilderness at your doorstep and your strong heritage in the resource economy would probably count in your favour. Your relations with and support for Lakehead University and your community colleges would be another. And then you must ask yourself what can we do here that no one else in the world can do better. That gives you at least the foundation of a strategy for cluster development.

It's important above all to have the tenacity to hold your vision and strategy for a long period of time. One of the most revealing observations from our study of the Ottawa cluster teaches us to look carefully at overnight successes.

Ottawa, which blazed like a comet in the eighties and nineties, took over fifty years to develop as a high tech cluster! There are no magic beans.

As business leaders you owe it to your community and to your descendants to figure these questions out now. This community has tremendous resources in terms of a smart workforce and good business networks. But only you, individually, can assess if it has the visionary entrepreneurial leadership that is so essential to successful high tech clusters.