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Innovation: What’s good for the economy is also good for the company

Research and development scientist at Interface Biologics, Ian Parrag, works on development of an innovative drug delivery system in the lab in Toronto.

Kevin Van Paassen/The Globe and Mail

Here's one thing economists can manage to agree on: It takes innovation to make economies grow. It takes other things too, things like entrepreneurship and capital and a somewhat supportive tax structure, but at the end of the day, you need sparkly new ideas to move the global economy forward.

That's how it has gone for a few centuries now: From the invention of the steam engine through to the development of the Internet, the generation of new ideas and processes has allowed the world to house and feed more people and produce more than anyone could have imagined a measly couple of hundred years ago.

Thing is, as much as we know that innovation is good in a broader sense, it has never been as clear that it benefits individuals companies. Yes, the Apples of the world come up with great ideas and it shows up in the bottom line, but the relationship between innovation and profits is not always as crystal clear.

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These days, with the pressure to produce great earnings, quarter after quarter, companies can sometimes be fearful of putting time and money into things like research and development that might mess up earnings per share. The fear of being pummelled in the financial markets is sometimes enough to make a lot of companies hesitant about making efforts that might only pay off down the line, if ever.

A new study by PricewaterhouseCoopers, however, may encourage corporations to step up the innovation. According to the study, released though the World Economic Forum, there is a direct correlation between innovation and superior revenue growth. The top 20 per cent of corporate innovators worldwide say their growth rate over the coming five years will be double the global average, and three times that of the least innovative companies.

And it is not just the technology companies where the link is being observed. PwC surveyed companies across 25 countries and 30 sectors and found that innovation is considered a growth driver across the board. The study found that the most innovative companies treat innovation the same way that they do any other management process, devoting significant efforts to make it happen.

In a world where the ghosts of recessions past are still haunting us and where the spectre of aging populations will slow things in future, it is comforting to think that at least some companies and countries are innovation-focused. The bad news, however, is that few of those companies seem to be in Canada.

Canada ranked 14th in innovation out of 148 countries measured in a recent report by the World Economic Forum . That represents a fall of five places in the rankings since 2009. Another report by the WEF found that Canadian business leaders see inefficient government bureaucracy and a lack of innovation as the main obstacles to doing business in Canada.

Innovation makes both good economic sense and good business sense – two things that do not always go together. Here's hoping that Canadian companies have the good sense to jump on the innovation bandwagon.

Linda Nazareth is the principal of Relentless Economics Inc. and a senior fellow at the Macdonald Laurier Institute.

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