The future role of government series

The disruptions that have been challenging world leaders over the past few years—from economic and geopolitical crises to climate change and growing social inequity—are not showing any signs of abating. These forces are instead compelling governments to rethink how they prepare for the future, and many are already adopting resilience-building practices and approaches powered by innovation.

But in Canada, limitations caused by a lack of policy, programs, and funding opportunities are hindering the innovation sector, and we risk slipping ever further behind our peer nations. How can Canada get its innovation burners going?

Over the past few months, Deloitte leaders have come together to redefine the future role of government with regard to innovation. We believe the federal government can reshape the way it supports the sector to better serve the country for years to come. Our collective aspiration for Canada’s future state is to be:

• A catalyst for transformative societal and economic advancement. By spearheading the integration of cutting-edge technologies and processes to improve governmental effectiveness, Canada maintains a state wherein the outcomes of government decisions optimally benefit the country and all who live there.
• A global leader that consistently raises the bar on international innovation standards. This is realized by fostering groundbreaking ventures that are driven by robust incentives for research and development, a dynamic startup culture facilitated by incubators, and active international collaborations through strategic IP frameworks. Supported by tactically developed innovation clusters and a progressive regulatory framework, Canada is a magnet for visionary businesses and talent, solidifying its position through promotion and the cohesion of key elements.

This article is part of Deloitte’s future role of government article series, which examines the trends that are provoking governments to act and seeks to provide bold ideas to help Canada address the underlying issues. Read our introductory report, The future role of government: Society is evolving. So must the way it is governed, for more context.

Government-supported innovation in Canada can be traced back to the creation of the Department of Trade and Commerce in 1887, whose purpose included promoting, supporting, and developing the young nation’s economy and business community. Known today as Innovation, Science and Economic Development Canada (ISED), its function is to enhance the Canadian economy through innovation policy, market regulation, competition, and research and development (R&D).

Canadian inventions that have led to international recognition include: the Jolly Jumper, invented by Indigenous mother Olivia Poole in the 1950s; the electron microscope; the Canadarm; the first internet search engine (Archie); and the global game-changing BlackBerry Limited, founded by Mike Lazaridis and Doug Fregin.¹ Today, there’s both disruptive innovation—which creates entirely new products, services, and offerings that reshape industries—and incremental innovation, which modifies existing technologies to meet current needs. One example of the latter: the use of blue light technology to disinfect phones during the peak of the COVID-19 pandemic.

In this era marked by environmental, economic, and social volatility, Canada finds itself at a crucial juncture that calls for thoughtful reflection on its current state of innovation. It needs to rekindle the drive for a forward-looking, all-encompassing plan for the future, with innovation as a core component because of its potential to have a direct and profound positive impact on the economy. It’s an opportune moment for Canada to strategically position itself for resilience and progress by fortifying its commitment to innovation as a cornerstone of national development.

The current state

The state of innovation in Canada today is marked by shortcomings that are hindering government's ability to foster a cohesive and forward-thinking internal innovation ecosystem. The lack of strategic investments in service delivery compromises the effectiveness of government functions, contributing to a disjointed and suboptimal operational environment. The risk-averse culture stifles the exploration of ideas and solutions, inhibiting the potential for transformative change. The fragmented landscape of internal operations and communication—characterized by the lack of integration of services, data-sharing, communication, and more—prevents the acceleration of innovation.

On the economic front, the state of innovation reflects the challenges in retaining innovative initiatives. Regulatory barriers deter the seamless progression of such ventures. While ideation is present, limited awareness of these initiatives reduces the distribution of innovative concepts across sectors and detracts from their full potential, which in turn delays innovation.

We’ve identified four key themes that Canadian governments should address:

• Service delivery

All tiers of government share an inherent commitment to providing high-quality services for their citizens. Initiatives such as creation of the Canada’s Minister of Citizens' Services are instrumental in advancing the pursuit of excellence. Until they bear fruit, however, the present state of service delivery for numerous government services will remain less than optimal. Challenges stem from backlogs due to outdated technology, suboptimal user experiences, non-human-centred processes, and restricted interoperability, among other factors. Few Canadian organizations are harnessing cloud-based technologies as a foundation for innovation.² The limited adoption of such technology within the government is a barrier to realizing the full potential of solutions like cloud data storage, and delays the positive impact it can have on service delivery initiatives.

• Unified approach

The lack of cohesiveness and efficiency in the innovation landscape is evident through inadequate data integration, complex funding models, cumbersome procurement processes, and fragmented communication across different levels of the public sector. These issues have bred inefficiencies that extend upstream to impact government decision-making processes and downstream into the broader Canadian innovation market.

This disjointed nature is a double-edged challenge. Internally, it hampers the smooth functioning of government operations. Externally, it acts as a barrier to the organic growth and evolution of the wider innovation ecosystem. Not only does this situation restrict the potential for optimal performance, but it also obstructs the realization of the full spectrum of benefits that a more integrated and streamlined government approach could offer.

• Risk appetite

Government tends to be responsive rather than proactive due to fiscal pressures, procurement policy, public oversight, and siloed operating models. With a low appetite for risk, there are structures within the public sector that limit what is already a highly uncertain innovation environment. The current culture of government in Canada has resulted in an inability to quickly and safely adopt innovation, thus delaying the implementation of new technologies and innovative ideas that could improve the delivery of services to citizens.

• Investment and awareness

The data available to support growth and innovation is limited. The enterprise gaps caused by a lack of awareness of various initiatives has led to the underutilization of resources and talent, resulting in outcomes that contradict the goals of innovation. In 2019, over 50% of Canadian businesses reported facing obstacles to innovation, naming uncertainty about the innovation landscape as one of the biggest (29%).³ The federal government's Business Benefits Finder portal aims to promote cohesion among public and private sector interest holders and provide valuable resources to businesses. However, without proper exposure and awareness of this and other existing tools, their maximum value cannot be reached.

Furthermore, even though Canada has focused on providing tax credits through the Scientific Research and Experimental Development (SR&ED) program,⁴ R&D has continued to decline across the country. Other jurisdictions have recognized the benefit of diverting spending to directly support programs for businesses, which has yielded more innovation and R&D activity. Canada has yet to strike a balance between tax support and program funding.

Recommendations

We’ve developed targeted recommendations that governments can take to address these areas, organized through four levers: people and leadership; policy and processes; technology; and collaboration.

People and leadership

How can individuals and leaders in government shape the future of innovation in Canada?

1. Set the tone for innovation
   
   Government innovation programs and initiatives often arise in response to temporary mandates or service delivery challenges. Such a piecemeal approach lacks the consistency and sustained focus needed to achieve continual improvements and solutions to persistent problems. Compounding this issue, few departments and agencies—such as National Defence and the Canadian Space Agency—seem inclined to embrace emerging technologies,⁵ which has the effect of concentrating activity in certain areas rather than promoting an inclusive, continual culture of innovation.
   
   To address this inconsistency, a central role or department could be introduced—a Chief Innovation Officer, for example—to support the Minister of Innovation. This new entity could be tasked with adopting emerging technologies and setting a national tone by underscoring the importance of innovation. These responsibilities would extend beyond encouraging innovation to overseeing its implementation. The United Arab Emirates government, for example, has a dedicated Minister of State for Artificial Intelligence.⁶ There are many other areas of innovation that could be included in the mandate of this role or department. By assigning a designated role to champion this cause, the government can enhance its ability to focus on innovation initiatives and departments, exemplified by entities like ISED. This would facilitate continual improvement in the direction and vision of innovation efforts, ensuring coherent, impactful progress.
   
   The integrity of Canada’s innovation framework should also be considered. Reports of mismanagement of funds and fraud involving Sustainable Development Technology Canada (SDTC), a program funded and overseen by ISED,⁷ illustrate the need for a critical examination of the foundational principles and the overarching tone set for innovation. While this may be an isolated occurrence, it raises pertinent questions about the efficacy and integrity of the current framework. Answering them will help to boost confidence and ensure the credibility of the broader innovation ecosystem.
   
   
2. Seek diversity of thought
   
   The future of innovation in Canada will require greater diversity of thought and a comprehensive approach to the decision-making process within the public sector. Active inclusion of a wide range of perspectives and expertise encourages innovation through the exploration of new ideas and strategies that can lead to unconventional solutions to pressing issues. Diversity of thought in innovation will foster a more inclusive, innovative public service that rewards creativity and bold ideas. Concentrating hiring efforts to include intermediate rather than only advanced proficiency in various domains of technology, service delivery, and innovation would be beneficial for bringing in new perspectives. Redefining recruitment and retention strategies to attract and develop innovation leaders should be a priority, including boosting ethnolinguistic and cultural diversity throughout the public sector.
   
   Increased diversity will result in positive innovation outcomes, new perspectives, and overall productive growth. Having diversity of thought from government will positively influence the Canadian job market, whether it’s from the adoption of innovative technologies that require skilled workers, an increase in research-related funding that gives companies more bandwidth for R&D, or a stronger emphasis on global partnerships that open more possibilities for citizens. In summary, diverse thought will bolster Canada’s innovation opportunities and help address the talent gap.
   
   
3. Embrace measured risk

By its nature, innovation is highly unpredictable; organizations must be aware of and willing to take on the risk to pursue it. The public sector is typically a follower of new technologies rather than an inventor due to the traditional command-and-control models that cautiously aim to maintain stability and predictability.

Creating a culture of healthy risk tolerance matches the nature of innovation. This means building a procurement culture or managing risk through hubs focused on piloting government innovation in controlled environments. Initiatives like this encourage governments to build up their risk tolerance and participate with comfort in innovation.

Cultivating a risk-tolerant culture through leadership transformation and forward-looking models for managing risk and getting feedback from citizens will ultimately result in better public service in Canada.

Policy and processes

What policy adjustments and procedural frameworks are necessary to reach Canada's innovative future?

1. Ensure funding consistency and flexibility
   
   The fragmented funding and governance structure for public sector initiatives across multi-tiered jurisdictions has resulted in R&D gaps in innovation and a lack of scaling opportunities. The inconsistency can be seen in the federal government’s recent decision to significantly reduce funding to Innovative Solutions Canada (ISC), which enables government departments to support innovation and buy from startups. It requires 21 federal departments and agencies to spend 1% of their annual procurement and R&D budgets to fund the development of fixes for the government’s problems by startups.⁸ Ottawa will reduce ISC’s annual $113.8-million budget by $28.2 million in the 2024–25 fiscal year and then limit it to $70 million from 2025–26 onward. The decision to scale back this investment reflects a lack of risk-taking that will stunt future growth and innovation.
   
   Canada should instead consider revising and aligning its structures in light of the highly uncertain nature of innovation by:
   
   • Introducing more funding flexibility for budget holders and relaxing input controls as part of budget reform. This will allow leaders to reallocate funds across line items after appropriations are received, carry over unused funds, and combine different funding sources (provincial and federal).
   • Revising access to funding through an outcomes-based funding model. This will allow leaders to focus on a vision and create an incentive to demonstrate real progress.
   • Addressing funding for underrepresented communities and those that have traditionally been underserved by government programs, such as Indigenous communities. Policies that support targeted grants and outreach can ensure that access to innovation funding is equitable so that all Canadians can partake in the innovation ecosystem.
     
     
2. Promote awareness of offerings
   
   Despite Canada's expertise in ideation and technology, it has trouble commercializing technologies for global consumption. This is primarily due to a lack of awareness about available grant, data, and program resources, which hinders the speed at which innovation can occur. Implementing a go-global engagement strategy and policies will facilitate the acceleration of innovation in Canada’s economy. They could include increasing awareness of available support programs and policies, and equipping businesses with the necessary tools for structuring their operations.
   
   As Myra Tawfik, an IP expert and law professor at Windsor University explains it, “There is a fault line in Canada’s innovation capacity that is often overlooked by policymakers and yet is a contributing factor to this country’s lagging performance in global innovation competitiveness.”
   
   “This gap relates to weak intellectual property (IP) literacy among Canadian innovators and their inability to access affordable and timely IP legal services, including IP strategic advice, especially at the earliest stages of the business venture. This results in underdeveloped or non-existent IP commercialization strategies that inhibit—or, indeed, entirely undermine—business growth, scale-up and global competitiveness.⁹
   
   Policymakers must invest more in raising awareness, through such options as incentivizing marketing strategies and implementing technologies like centralized portals for navigation of policies, grants, data, and programs.
   
   
3. Embrace responsive procurement processes
   
   Despite being the largest purchaser of goods and services in Canada, the public sector has yet to realize its potential to drive innovation through its purchases. The current procurement culture prioritizes the lowest cost options and follows outdated policies and regulations.
   
   Shifting toward an outcome-based approach would help unlock the transformative power of procurement. For instance, a micro-purchase platform could be leveraged as an automated online auction system specifically tailored for software development. This would not only streamline procurement, but also foster a more dynamic and innovative marketplace. Embedding Generative AI (GenAI) solutions across applicable areas can accelerate innovation by augmenting various procurement processes to better inform decisions, optimize resource allocation, and drive operational excellence.
   
   Additionally, the establishment of "right to challenge" forums and platforms is crucial. These platforms empower leadership to seek exemptions from existing rules and regulations that may act as barriers to progression, and enable decision-makers to adapt and respond swiftly to the evolving landscape of innovation.
   
   By transitioning to a procurement culture centred on outcomes rather than cost, the public sector can create incentives that drive innovation. This approach allows for greater ease and flexibility for both existing and emerging players in the market, fostering a more competitive and responsive environment. To address gaps and accelerate prototyping, a venture-client unit within government could provide a forum for rapidly scaling innovations in the ecosystem.

Technology

How can technological advancements be adopted or developed to ensure Canada's future progress in innovation?

1. Narrow the public-private delivery gap
   
   Legacy systems and processes have created backlogs and long wait times for certain public services, and they’re so entrenched that slow service is now widely accepted as the norm rather than the exception. The private sector responds more quickly, setting an expectation for service delivery that the public sector cannot match. This gap has negatively impacted the population’s satisfaction and trust in the public sector. Furthermore, public servants and citizens often have unsatisfactory experiences with existing technology, resulting in governments being perceived as technologically behind.
    
   To address this, government leaders need to identify high-volume and high-impact services whose processes can be automated and streamlined, and to use AI to automate redundant and transactional processes so that skilled workers can focus on high-value activities. In other words, the work of humans and machines in government needs to be redefined.
   
   Ultimately, increasing the quality of service by improving the technology will increase public trust and enable a better experience for the people using digital services, both the public looking for certain services and the employees delivering them. This can be achieved through technology re-design that increases end-user usage, efficiencies, and user satisfaction. Automating these back-office operations and administrative processes will also allow talent to focus more on problem-solving and operational improvements.
   
   
2. Boost security, compliance, and information safety
   
   Compliance and security have been a consistent challenge for the public sector in navigating the push to harness technology to be more agile and scalable. This has resulted in delays in implementing innovative solutions and undermined the public’s confidence in technology. Further, with data leaks and other privacy breaches in both the public and private sectors, citizens are rightfully wary of how their information is stored and used—and there’s little awareness of the theories, principles, and practices of archival (record-keeping) science in the blockchain community.¹⁰
   
   To protect data and increase confidence in technology, it's essential to explore and implement sovereign cloud platforms. They’re built, operated, and secured by the state, which can enhance their security and thus the level of citizen trust. Moreover, interdisciplinary collaboration and blockchain technology are imperative for managing information in a way that mitigates concerns about data privacy. Interdisciplinary research into blockchain record-keeping—including legal, archival, forensic, economic, and other researchers—will help ensure this technology is used to its full potential for Canadians.
   
   Sovereign cloud platforms as the standard for data protection would enable governments to operate in a more agile manner and to easily scale their programs and services. Implementing blockchains would create an efficient, secure data privacy system that optimizes technology and earns trust.
   
   
3. Use Generative AI
   
   As GenAI continues to gain prominence, governments in Canada should explore how it can be used to drive innovation both within their organizations and across the broader economy. GenAI tools can be used to unleash new possibilities for creativity and problem-solving in government, leading to more effective service delivery. They can also be used to boost productivity gains, automate routine tasks, and assist with data analysis so governments can make better, more data-driven decisions and identify trends that may have otherwise gone unnoticed. Some organizations have already begun to apply GenAI to a wide range of applications, including content creation, policy development, text analysis, and general assistance.
   
   Around the world, jurisdictions are using GenAI to enhance their efforts. The Indian Ministry of Electronics and IT, for example, launched a GenAI-enabled WhatsApp chatbot that responds to queries with a built-in language model that can recognize and respond to local and native language dialects, enabling citizens to submit voice queries and receive accurate information.¹¹ Similar tools are being piloted in other public service areas, including health care, transportation, and smart cities.
   
   The Canadian government should boost investment in GenAI R&D to gain a better understanding of its potential applications and risks, as well as the technological infrastructure and capabilities required to properly implement GenAI tools and reap the maximum benefits.

Collaboration

What kinds of collaborative effort are necessary to drive Canada to its future in innovation?

1. Share knowledge
   
   The multi-layered delivery system that is used to make technological progress is doing so in an uncoordinated fashion within areas that require continual funding, such as innovation hubs, universities, Ontario Centre of Innovation, and the federal Networks of Centres of Excellence.¹²  The vertical funding architecture has created challenges for local actors in Canada’s innovation ecosystem.
   
   Rectifying this is important, since the “alignment of R&D activities within a spatially integrated framework of knowledge-generation, dissemination, and commercialization is crucial to the competitiveness of innovation hubs,” according to the Institute of Public Administration of Canada (IPAC).¹³
   
   In a vibrant ecosystem, funding recipients can readily collaborate, make decisions, draw from interconnection, and focus investments. Canada’s collaborative AI ecosystem—with centres clustered in Edmonton, Montreal, and Toronto—eases the transfer of knowledge and opens channels to share ideas and resources through the integrated command cities that focus on innovation. Standing up and facilitating more systems like these will foster nation-wide collaboration, innovation, and alignment, which will in turn benefit the economy and therefore all Canadians.
   
   
2. Increase intergovernmental and private sector collaboration
   
   Canada’s federal system of government divides areas of jurisdiction between federal, provincial/territorial, municipal, and Indigenous governments. While this allows for greater focus on designated areas, it can also lead to inefficiencies in innovation, particularly with adoption, scale, and pace.
   
   Establishing an open and transparent cross-government system to coordinate innovation adoption, share best practices, and facilitate general knowledge-sharing can lead to more modern, advanced governing.
   
   Though data and innovative processes exist within the public sector, their power is diminished due to a lack of communication and information-sharing. There are opportunities to increase the sharing of information and decrease replication in innovation across the multi-tiered jurisdictions of government.
   
   Establishing a network of single contact points for innovation in all departments/levels would provide public sector organizations with fast, practical, and low-cost assistance in the development of new solutions through a peer-led process.
   
   There’s also room for regular engagement among public and private sector leaders to close the technology gap between the sectors. The establishment of an advisory council between government and industry leaders would promote mutual understanding and a more refined, goals-based relationship. It would also enable more formal public-private partnerships focused on Canada’s economic development goals, allowing leaders with diverse skill sets and data to contribute to public sector innovation.

Embracing these recommendations would result in a modern, effective governing system. By using the latest technologies and boosting collaboration across departments, levels of government, and the public sector, government operations can be streamlined, better services can be delivered to citizens, and public trust can be increased, positioning Canada as a global leader in innovation.

Conclusion

Canada’s rich history of innovative breakthroughs—from the Jolly Jumper to the BlackBerry—underscores the country’s immense potential. The urgency of the present moment adds necessity to the aspiration to prime the innovation pump again and highlights the need for a progressive and strategic approach to innovation. Through its evolving role, government has the capacity to reshape and bolster the innovation sector amid a volatile global landscape and to harness these changes to efficiently serve Canadians.

As our vision suggests, the country can prepare for the future by transforming internal government functions and positioning itself as a global leader in innovation. This involves fostering a dynamic startup culture, encouraging research and development, and facilitating greater collaboration. Canada can rekindle its drive with a forward-looking, inclusive, and comprehensive plan for the future, where innovation serves as a cornerstone of national development and a catalyst for economic growth and societal advancement.

In our future state aspiration…

• Canada prioritizes the support and encouragement of startups in an environment with clear funding structures, accessible mentorship programs and resources, and increased risk tolerance. It establishes and supports incubators and accelerators to help entrepreneurs turn their ideas into successful businesses that attract international investment and lead in innovation.
• The government actively funds cutting-edge research and development initiatives in key sectors such as technology, health care, defence, natural resources, Indigenous reconciliation, and sustainability. It also establishes robust grants and tax incentives to encourage businesses to invest in R&D.
• There’s active engagement in partnerships and collaborations to share knowledge, resources, and best practices. For example, cross-border innovation is fostered through the establishment of exchange programs for researchers and entrepreneurs. Canada supports a range of joint research projects with international partners to tackle global challenges such as climate change or public health.
• Canada can ensure that the benefits of innovation are accessible to all segments of society. There’s a strong focus on developing innovative solutions that address societal challenges, such as affordable housing and sustainable transportation. There’s also a range of well-funded, accessible, and comprehensive digital literacy programs to bridge the digital divide and provide equal opportunities for all citizens.

Endnotes

Thank you to our key contributors, Aparna Ashokumar and Sebastian Voermann.