NRC narrows the door for SMEs

Tennis%20August%2016%2C%202009%20057Mugshot400X400.jpg By Tony Patterson

“The President of the National Research Council has declined your request for an interview.”
No surprise. Not a whole lot of people have seen — let alone interviewed — John McDougall since he took control at Canada’s primary pump for science and technology a little over a year ago.

But I won’t say I wasn’t miffed. I’ve been looking at a picture of John on my wall for more than a dozen years.
Fact is, he’s not around Ottawa as much as most. He and his 2-i/c Ian Potter, who has been installed as VP Engineering, commute from Edmonton to Ottawa, where NRC has its headquarters and its history and where billions worth of S&T firepower is housed and maintained by teams that include all manner of Canada’s best and brightest, not excepting rocket scientists. He’s building a big house in the provincial capital, where his family is entrenched in the real estate business.
McDougall%20at%20ARCEdit.jpgHere or there, Mr. McDougall is intent on remaking NRC in an image he’s held in mind for a number of years. It’s an image he pushed toward conclusion on his home turf, until he pushed too hard and got himself turfed out.
Mr. McDougall’s vision is to make NRC a “purposeful outcome based organization” that will “generate significant incremental third party revenues.” The quotes are from an internal memo circulated in March. He intends this will happen by reshaping the organization from 25 research institutes focused on serving emerging technological frontiers (photonics, nanotech, biotech) and the needs and problems of specific industrial sectors (construction, surface transportation, chemical processing), into a handful of “flagship programs” that will target major national challenges.
In essence, human and financial resources that have been allocated in dozens of directions until now will be re-allocated to fewer, larger programs. More decisions will be made by senior management rather than at the level of the institutes. (One director general, Dr. Nils Petersen who led the National Institute for Nanotechnology, based in Edmonton, resigned shortly after the McDougall March memo.)
A primary objective of the re-org is to triple revenues from the private sector to $150 million annually. It’s well understood that accomplishing this must mean winning contracts for work that currently is done for industry in university labs.
Plucking resources from academic researchers is no sin in Mr. McDougall’s philosophy. He’s on record that, “We are investing all our innovation resources on academic or curiosity-driven research which is not wise under any circumstances and particularly misguided when Canada has a huge gap to close to reach even average innovation performance levels. . . There really should be no surprise that there is low, or slow, take up of academic research by the markets when, in most cases, no one asked for the research in the first place.”

Mr. McDougall has brought a template to NRC that is not of his design but was applied at ARC and other provincial research organizations, either with great success or with disastrous unintended consequences, depending on the observer’s point of view. In Ontario, for instance, the drive to refocus the provincially-owned and operated S&T centre into a contract research organization led to its demise. Points of view are thoroughly entangled in debates about the emphasis to be placed on basic as distinct from applied research and how to go about deriving economic benefit from the public investment — $15 billion annually in direct funding and tax credits from the feds — in R&D.
The buzzword is commercialization. But the problem is that R&D is at one end of a long chain that leads to market. In between is everything that is called commercialization, all the stages from product development and design, to IP protection, market research, financing, manufacturing, marketing and sales. These are not all functions that flow naturally and easily from one another. Creative techies who successfully move their own ideas to commercial viability are few and often famous — Bell, Edison, Jobs, Gates leap to mind. Commercialization doesn’t emerge normally from university or government labs. Ideas are generated there. Creativity is cultivated there. But there is no talent or process there to churn the ideas and creativity into products and revenue.
Then along comes John, who was named CEO of the Alberta Research Council in the fall of 1997. This was big news locally. McDougalls have held sway in Edmonton since before it was incorporated, when it was still a junction in the Northwest Territories. Mr. McDougall’s great, great grandfather arrived from Ontario in 1879, made a pile in furs, general trade and real estate, served as mayor twice and a member of the legislative assembly one term, then traveled the world to broaden his education.
Mr. McDougall’s appointment at ARC coincided with the first edition of Silicon Valley NORTH: Alberta, a newspaper covering science and tech in that province, sister to other papers doing the same work in Ottawa, Toronto and B.C. McDougall was on the cover of Vol. 1, No. 1 of SVN Alberta. I was editor at the time. When the papers were sold, I was presented with framed and mounted covers of all four first editions. That’s how he comes to have space on my wall.
One observer with experience at both NRC and ARC, which Mr. McDougall ran from 1998 to 2009, says “he’s trying the same thing here as he did in Alberta, but there’s much less readiness at NRC than there was at ARC.”
ARC, once dubbed a university without students, was set on the road to commercialization in the late 1970s under a distinguished and dynamic Québecois, Gilles Cloutier, who would later become rector of Université de Montréal and a Companion of the Order of Canada. At the time, contract research brought in 5%-10% of ARC’s revenue. Dr. Cloutier and subsequent presidents gradually moved the yardstick forward. By the mid-1990s, ARC was getting 35% of its revenues from contract research. McDougall pushed it to 70%.McDougalls254X150.jpg
This may have seemed hitting the mark to him, but the government wasn’t as impressed. When four provincial R&D initiatives were merged into one under the name Alberta Innovates in January 2010, he was invited out. It might not have come as a shock. Of his appointment he had already noted in a UofA alumnus profile, “I may have seemed an odd choice as president of a research council. I wasn’t a researcher, had never been, and I didn’t have a PhD.”
This deficiency was partly made up by his wife Irene (pictured at right with John). Apart from her day job looking after the family fortune (she runs century-old, very private McDougall & Secord, which has 15 shareholders, primarily family) she’s a doctoral candidate in science and tech policy at a UK university. “Discussion and debates with her over the past few years,” her husband has allowed, “helped me develop a theoretical construct for many of the concepts for innovation I have applied empirically over the past 25 years or so.”
The tech background he did come with was almost accidental. “I did not have a strong desire to do engineering work,” he says, “but I did want to get into business. At that time, most companies were headed by engineers.” So he took a bachelor’s in civil engineering, which is what his father did, and went to work for a big oil company.
Perhaps unsurprisingly, there was a pre-packaged business opportunity just waiting for him on the other side of the ARC exit. A not-for-profit contract research organization was getting underway, name of Innoventures Canada. I-CAN is a network of provincial research agencies intent on “helping to mitigate the policy deficiency” that governments have allowed to develop. I-CAN will recognize and support “key market based demands for innovation based on incremental innovation and problem solving — exactly the places where most innovation opportunities are to be found. I-CAN and its members [follow] a true demand based innovation agenda driven by companies and their needs. I-CAN members have demonstrated the ability to make substantial contributions to innovation with minimal support from government by responding to market requests.”
This gobbledygook camouflages the fact that I-CAN has no staff and only two projects underway, neither of which has reported in over two years. Mr. McDougall moved right in to the paying gig as I-CAN’s first executive director (a role not mentioned in his official bio). He had been its founding chair and president, and had folded his decades-old consulting company, Dalcor Innoventures, into I-CAN. He didn’t have to move very far. I-CAN was incorporated by ARC. I-CAN’s trade mark is owned by ARC. I-CAN’s office was at ARC.
When he was appointed to NRC in April 2011, just four months into his I-CAN job, he basically brought I-CAN with him, promising that he’d get NRC into the network asap. This would make a considerable advance. I-CAN is a network of 10 independent members that together employ 2,400 people and do $500 million worth of business in total. NRC has 4,000 employees and a budget this year of $750 million. He hasn’t managed to bring them together yet, though he’s flown to several I-CAN meetings across the country and last month the location of the I-CAN head office was officially moved to Ottawa.
It remains to be seen the extent to which Mr. McDougall’s commitment to I-CAN skews the agenda at the National Research Council. I-CAN is also a major-project driven organization, somewhat in the mode that the March memo proposes for NRC. One of its primary initiatives involves the recycling of carbon through algae to produce fuel. It’s like a dream come true, running something undesirable (too much CO2) through something essentially useless (algae) to produce something valuable (fuel). Mr. McDougall has actually been envisioning it for years. A project of his Dalcor Innoventures before it became a project of Innoventures Canada, the carbon algae recycling system (CARS) is now proposed as one of the “flagship programs” that the March memo identifies as “NRC poster children” that will be “inspiring, large in scale and provide substantial public benefit.”
[Editor's Note, May 1, 2012: In a letter this date Mr. McDougall claims a number of misrepresentations in this article, and in particular denies that Dalcor Innoventures was ever in the algae game. A complete copy of the president's letter appears above.]
carstoast131X296.jpgAlgae is one of the worst kept secrets of the age, touted as an anti-pollutant and a source of fuel and food, if only it could be taught to act in certain ways. (See John toasting with a glass of the stuff at left.) The last update on I-CAN’s carbon algae recycling program was published July 21, 2009. An NRC institute had been doing some work with algae but hadn’t said boo about it since 2009. Now there’s a release a month on the NRC website.
Leaving apart the propriety of bringing along his pet project, what are the foreseeable consequences of remaking NRC in the fashion Mr. McDougall proposes?
First let’s be clear. Nobody says the new prez should be unduly constrained. It’s no shock that he wants to make some changes. NRC has been somewhat adrift since Dr. Arthur Carty was lured away in 2004 to become National Science Advisor to Prime Minister Martin, only to be discarded peremptorily a few years later, nothing accomplished, by Prime Minister Harper. His unfortunate successor at NRC had to endure the uncertainties and indignities of a minority government — not the one he was appointed by — and was tagged “The Undertaker” in the labs. The work continued. NRC’s impressive roll of successes is easily enough found. But morale was not high through this decade.
NRC is the only research organization boasting both an Academy Award, for computer animation technology, and a Nobel Prize. The Council is enormously proud of its Nobelist Gerhard Herzberg, known as the father of modern spectroscopy, a vital technology used in almost every aspect of science. At least 11 Nobel winners have worked there at some point in their careers. NRC produced the first medical isotopes for use in nuclear medicine.
But the description I like best of what NRC means was penned by Bill Buxton. Dr. Buxton writes about his experience in 1971 as “a motorcycle-riding, mathematically illiterate hippie musician.” In the NRC basement on Sussex Drive was a personal computer that let him enter notes, scroll to specify time and pitch, “proof-listen” to what he wrote and connect to full editing, recording, and printing facilities. (See these user features in action in the short film, The Music Machine.) This was two years before the first Xerox Alto, 11 years before the Xerox Star, and 13 years before the Macintosh. The system was designed from the ground up with technologically naive users in mind. The real objective was to study human-computer interaction, not to make music. The key insight of Ken Pulfer, who spearheaded the project and later became a senior VP of NRC, was that he needed to work with users in some rich and potent application. He realized that music was a perfect candidate. Musicians had specialized skills, were highly creative, what they did could be generalized to other professions, and perhaps most of all — unlike doctors, lawyers and other “serious” professionals — they would be willing to work at all hours of the day and night. Dr. Buxton, who is now principal researcher for Microsoft, writes “I am still striving to be worthy of the folks who gave me this, my first introduction to what has become my career.”
Mr. McDougall’s take on all this is that “history is an anchor that ties us to the past rather than a sail that catches the wind to power us forward.” Change was inevitable at NRC. In many ways, though, going back a long while, change has been the rule. I’ve been talking to NRC presidents since William Schneider and Larkin Kerwin and I can attest to the fact that NRC is always trying to adjust to the times and its needs. Sometimes it changes for the better. Sometimes not.
Back issues of Research Money newsletter — which unfortunately you can’t read unless you pay them quite a bit to subscribe — contain restructuring proposals by people who have credentials and experience to spare. These ideas and more have been given no hearing. Long-standing NRC advisory boards have not been called to meet. Consultation, if it deserves such a name, has been with very few and those unrecognized. The tone of the March memo is very much about doing it his way or taking the Queensway. “Those who are still hesitant will need our help to develop their courage and conviction,” he writes. “We require the right attitude and the right behaviour.”
Mr. McDougall stands as high with this government as any conservative Albertan has a right to. It’s reasonable to assume that whatever stamp he wants to put on NRC will stick. If the strategy looks to be succeeding it will probably crown centennial celebrations for the 95-year-old Council.
But there are considerable reservations about the predictable consequences of this change. The first is that big projects attract big players and big players tend to shoulder out smaller fry. So the outlook for SMEs that want access to NRC’s expertise is not bright. Already smaller companies are finding NRC’s fee schedule and rules of engagement onerous. Fees starting at $200 an hour escalate for ‘overtime’. Royalty rates for IP reach 48% of licensee profits. One recent applicant wanted to take IP that is resting on a shelf unused at NRC and adapt it for a market opportunity the company had identified. The company would have to do further tests to make sure the technology would work in the intended application. NRC’s response was to ask for a $25,000 fee on signing an agreement, with royalties based on sales (not profits as previously) and with minimum annual payments starting at $10,000 in Year 3 and escalating thereafter.
This is of critical moment because NRC has always been the essential provider of science and tech services to small business in Canada. NRC has expertise and equipment far beyond the resources of small companies.
By focusing on flagships, NRC is likely to find itself more and more in a fleet of big carriers from abroad. NRC’s poster programs — apart from CARS, three others are classed as “potential” flagships: resilient wheat, printable electronics and bio-composite materials — will be of a nature and scale to attract interest from just about anywhere in the developed world. There’s a peculiar advantage that many of these foreign behemoths have over their Canadian competitors. Every dollar they spend for R&D at NRC (or other non-profits, including universities) counts for five dollars against their contractual obligation to deliver enough business in Canada to offset the value of what they sell here, including heavy duty stuff like aircraft and military equipment. Basically they can realize the same value as Canadian companies from associating with NRC’s flagships at 20% of the cost.
Of course Mr. McDougall can argue that even if the flagship program discriminates against SMEs, their interests are protected by NRC-IRAP, the government’s industrial research assistance program that the Council runs. IRAP provides tech input to R&D projects as well as limited financing and management to help firms incorporate technologies into products and services that can be sold. Two years ago, IRAP had 8,578 SME clients. More than a third received some form of funding support, to a total of about $200 million. Last year that reached $264 million. This year financial support is plummeting by almost half, to $139 million, a drop attributed to the ending of the government’s economic action plan.
The new NRC hasn’t seen fit to cushion that cutback in any way. Far from it. It plans to slice another $5 million out of IRAP in each of the next two years, yet another warning to SMEs that the salad days at the Council are done. Let them try algae, the house specialty of the guy from big sky country.

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