Outcome and Impacts: SRC’s Impact Audit Process, A...

CONFIDENTIAL Confidential and Copyright © SRC 2013

Outcome and Impacts: SRC’s Impact Audit Process, A Case Study Laurier L. Schramm and Wanda Nyirfa

Presented at: 4th I-CAN Innovation School™ Toronto, ON Oct. 22 – 24, 2013

Confidential and Copyright © SRC 2013 2

“There are many inputs to innovation. Creativity, intellectual property, entrepreneurship, research, business skills. Those are all inputs. Innovation is the creation and delivery of new customer value in the marketplace with sufficient value for those who are producing it ... It has to be new customer value or it’s not an innovation … The tricky phrase in there is customer value.”

Curt Carlson, CEO, SRI International Co-author of "Innovation" (2006) Quoted in Innovation America, Aug./Sept., 2010

Innovation is the conversion of ideas and knowledge into commercially successful products and services.

What is Innovation?


Why Do Governments Care About Innovation?

Source: Fagerberg, 2005 Oxford Handbook of Innovation

The function of innovation is to introduce novelty into the economic sphere. Without it the economy stagnates. Innovation is needed for long-term economic growth

Industries that innovate tend to grow more rapidly. The capacity to undertake change (absorptive capacity) is essential to creating and benefitting from innovation

Those that innovate tend to prosper at the expense of their less able competitors. This applies to companies, regions, and countries


We are helping the people of Saskatchewan and Canada: Grow our economy in a socially and environmentally

responsible manner, through the responsible application of science and technology

How? WE ENABLE INNOVATION We take industry’s identified challenges and do the applied

research, development, design, scale-up, demonstration, testing, and commercialization of smart science solutions

Innovation is when we’ve helped industry convert new ideas and knowledge into commercially successful products and services

SRC: An Innovation Enabler


Mining & Minerals

Energy

Agriculture/Biotechnology

Alternative Energy

Manufacturing

Environment

Forestry

Strategic Sectors


Wealth, Health, Safety, and Sustainability

Developing natural resources Increasing productivity Creating new products Creating/maintaining jobs Improving sustainability Safeguarding air, water & soil Protecting the environment

from problems … to solutions … to practices

SRC-Enabled Innovations


through smart science solutions™

65 years of making good things happen …

here,

Since 1947


1947 – 1956 1956 – 1972 1973 – 1984 1985 - 2000 2001 – 2010 2011 - 2020

• Shareholder-needs driven – granting agency

• Shareholder-needs driven

– added fully-funded research

• Becoming client-needs driven – increasing contract work; diversified

• Client and contracts driven

– but not owner-needs driven

• Balanced client- and owner-needs driven, – innovation continuum diversification – increasingly entrepreneurial – increased visibility and profile

• Balanced drivers, broader engagement,

– continued diversification – national/international visibility and profile

SRC History 1947-2011


Since 2001 SRC has focused on balancing shareholder and client/market needs, leading to increased confidence in SRC from both government and markets

The markets have responded extremely well to SRC’s focus on providing science-based advanced technology solutions for real-world industry problems

This has enabled SRC to quadruple its revenues over the past 10 years

In 2012/13 SRC served ~1,800 clients highly satisfied clients

Current Positioning

2012/13 Client Satisfaction Survey results: Clients that would return to SRC: 99% Clients that would refer SRC to others: 99% Satisfaction with overall quality: 97%


Employee numbers

Revenues

Current Positioning


Since 2001 SRC has focused on balancing shareholder and client/market needs, leading to increased confidence in SRC from both government and markets

The markets have responded extremely well to SRC’s focus on providing science-based advanced technology solutions for real-world industry problems

This has enabled SRC to quadruple its revenues over the past 10 years

In 2012/13 SRC served ~1,800 clients highly satisfied clients

How Did We Get Here?


“It is difficult to assess the return on money invested in research; certainly no attempt will be made to arrive at an estimate in this report. It may be observed, however, that a relatively small proportion of the provincial income is spent upon research. A successful conclusion to almost any of the projects listed above will offer the people of this province a potential return far beyond the amounts invested.”

SRC Annual Report, 1949

We Hadn’t Been Trying to Measure Our Impacts in the Economy


Some Organizations Were Measuring Inputs

Numbers of students entering Numbers of faculty /

researchers / staff joining Number of new buildings built Number / size of large new

instruments purchased Size of federal / provincial

grants Number / size of contracts Numbers of “Chairs,” “Centres

of Excellence,” etc. established


Some Organizations Were Measuring Activities

Clarity of organizational goals

Kinds of projects underway Degree of coherence and focus of

major programs underway Relevance of the projects to Mission /

Strategy Quality of the science

Effectiveness / efficiency of program

management Effectiveness of user facilities (uptake,

etc.)

See: Cox, Gummett and Barker (Eds.),1999 Government Laboratories: Transition and Transformation


Some Organizations Were Measuring Outputs

Students graduated Papers presented / published Projects / contracts completed Patents applied for/granted Technologies licensed or sold


“SRC has not carried out a specific study to further estimate the economic impact of its work on its clients. However, based on the work of others, some reasonable and conservative assumptions can be made about SRC’s impact on Saskatchewan ...”

SRC’s Role in the Development of Saskatchewan’s Economy

Presented to Cabinet, December 2001

We Started Making our First Rough Estimates in 2001/02

The “others:” University of Saskatchewan, 2000/01 Alberta Research Council, 1997-1999


We Started Developing a Better Process in 2002

We decided we needed our own process: Quantitative Unbiased Defensible

We hired the guru from the former ARC as 3rd party independent expert

Review by business consultants and statistician from Royal Roads University


Success means having positive economic and other beneficial impacts

SRC Impacts


Lag Time in Impacts of R&D

Time

Yearly Cumulative

Cas

h fl

ow

-

+

Source: John W. Kramers, 1999


smart science impacts™ Economic Impact Audit Tool

Three key categories within economic measures: Historical Projects Economic activity beyond the

timeframe of work Current Projects An audit selection of past projects is

made each year The “voice of the customer” is used

to provide inputs SRC Activity SRC’s own revenue and jobs


Current Projects in depth

Client Interview Conducted by the SRC internal

economic impact lead Not the project leader

Confidentiality imperative

Prevents utilizing a third party for client interviews


Current Projects in depth

Key measures: sales and other revenues increased productivity, cost savings,

margin increases job creations and/or savings, etc. Conservative elements: Despite what clients indicate, we only

claim 15% attribution and use this reduced number for extrapolation

We only keep projects within the cycle for a maximum of 5 years

No claims included of outside of Saskatchewan impacts

Only direct impacts included


Encana – Weyburn CO2

1986 Multi-Client Project – modeling and PVT data for reservoir simulation

Encana Field Test in October 2000 2.4 million tonnes CO2 injection

“Without the work SRC did we could not have gone to field. We needed the fundamental laboratory data to justify the capital expenditure of a commercial stage oil field operation”.

Andrew Graham, Reservoir Engineer EnCana Resources

0

1000

2000

3000

4000

5000

6000

7000

8000

Jan-

54

Jan-

58

Jan-

62

Jan-

66

Jan-

70

Jan-

74

Jan-

78

Jan-

82

Jan-

86

Jan-

90

Jan-

94

Jan-

98

Jan-

02

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06

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14

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18

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22

Jan-

26

Jan-

30

(m3/

day)

Base Waterflood Infill verticals Horizontals CO2EOR

Additional oil recovery enabled by SRC’s work: 120 million bbl


smart science impacts™ Economic Impact Audit Tool

Impact Audit Reports are developed for each client: the work the benefits to the client the economic results

A senior executive/manager from the client organization authenticates and signs-off

Confidential and Copyright © SRC 2013

Environmental and Social Impacts

Greenhouse gas reduction

Improving air quality Improving water

resources Enhancing

sustainable ecosystems

Increasing energy conservation

Production/utilization of renewable energy

Positive social impacts

Health and Safety

In 2006-07 expanded process to measure environmental and/or social impacts


SRC’s Impacts in 2012/13

Economic: Impact in Saskatchewan: > $559 million Mandate effectiveness: > 29 Value of job creation/savings: >$169 million

Social, Environmental, and Sustainability:

Assisted ~1,200 Saskatchewan clients (total ~1,800) Job creation/savings: >2,700 Environmental impact projects: >$18 million Societal impact projects: > $18 million Energy savings: > 44 million kWh/yr GHG emission reduction/prevention: > 22,000 tonnes/yr … and many others


Cumulative SRC Impacts in Saskatchewan

0

100

200

300

400

500

600

700

800

Jobs ImpactEconomic Impact

∑ = $5.2 billion over the past ten years


Benefits

Communicate our value to our shareholder and the people of Saskatchewan

Internally, helps project managers with project development and selection

Interaction with clients by non-project managers

Resonates with prospective funders: We deliver results

“SRC’s 2010-11 economic impact assessment shows just how valuable the role the SRC plays in Saskatchewan’s growing innovation sector. During that year, the SRC provided more than $527 million in direct economic benefit to the province, and about 1,200 jobs created or maintained in the province due to the good work of the SRC. This means that for every dollar invested in SRC by the provincial government, a 32-times return was achieved. As well we saw significant contributions to the provincial GDP.”

Hon. Rob Norris Minister Responsible for SRC 27th Legislature, May 1, 2012


Where are we now?


The Details Have Been Published

SRC has developed an economic and socio-environmental impact audit process

enables a research and technology organization (RTO) to use solid, verifiable data to provide a realistic indication of the direct impacts of its research and development (R&D) work

the audit methodology has high credibility as the data come directly from the clients, who are the direct users of the organization's services

the audit methodology has now been peer-reviewed and published

the audit methodology, and/or variations of it, are now being adopted and the impacts reported by other organizations (e.g., AITF, CLS)


People Are Starting to Notice

Confidential and Copyright © SRC 2013 Confidential and Copyright © SRC 2013 32

*AI-TF PI of $109.2M = $93.99M cash + $15.23M accomm’s

Others Are Starting to Adopt Organization Economic

Impact (2011/12)

Government Investment

Impact Effectiveness

Government cost for $100 in

impact

Notes

Saskatchewan Research Council

> $656 million $18.1 million > 36 : 1 < $2.8 Methodology public since 2011

Alberta Innovates – Technology Futures

$ 1,600 million $109.2 million* 13 : 1 $7.7 Methodology not public but similar

to SRC’s

NRC – IRAP Program (Federal)

$ 133 million

$ 11.1 million

12 : 1 $8.3 Methodology not public but similar

to SRC’s

Communities of Tomorrow (SK)

$14 million $2 million 7 : 1 $14.3 Methodology same as SRC

Canadian Light Source (SK)

$90 million $26.3 million 3.4 : 1 $29.4 Methodology not public; includes

indirect and one-time impacts

Centre for Commercialization

of Research (Ontario)

$42 million (four years)

$12.9 million (four years)

3.3 : 1

$30.7

Methodology not public but similar

to SRC’s


SRC is Leading in This Area

The current best practices for impact reporting for RTOs, as recently reviewed and assessed by the Council of Canadian Academies (2013) are:

“Indicator-based frameworks” and “Case studies”

For economic impacts we are a level ahead of this recommendation, by including our best attempts to conservatively estimate our actual incremental economic impacts. For socio-environmental impacts we are at the best practice level, as we currently only use an indicator-based framework and case studies.


Continuous Improvement

In 2011-12 and 2012-13 prepared audit reports for a few national and international clients

Have recently completed an external review by a 3rd party Meyers Norris Penney and are implementing recommendations

“SRC is still recognized as the world standard lab for potash. It still enjoys that reputation around the world. And Saskatchewan is the potash capital of the world, so what better place to have the lab”

Dr. Peter MacLean, Senior Vice President of Exploration

Allana Potash, Toronto, Ontario


Economic Impact Assurance


The Challenge

No generally accepted assurance standard for

economic impact to report against


The Challenge

An Example for Comparison:

Although CSR reports are much more common, minimal assurance available - Many CSR assurance providers will only provide limited or

negative assurance (review level) - Study conducted showed out of 90 CSR reports, only 14%

provided positive assurance


Mitigation

• Aggregation and Segregation – Client interview conducted by the SRC internal economic impact lead,

not the project leader – Finance supplies internal numbers (not EI lead or project leader) – Management oversight of the process

• Engagement of Third Party Expert (2002 – ongoing) • Awareness of material (not audit) by provincial auditor • Peer Review by an economist through publishing (2012) • Presented at I-CAN Innovation School (2011, 2012, 2013) • Meyers Norris Penny review & recommendations (2013) • Periodically changing internal leads with ranging

backgrounds conducting process: Finance major, MBAs, CSR Masters, Chartered Accountant (2002 – ongoing)

Given that there is no standard for economic impact, SRC has implemented numerous checks over the years:


The Economic Impact Audit Process helps us to demonstrate how SRC is generating positive impacts to our shareholder and stakeholders


The Impact Audit Process helps us to demonstrate how: SRC is generating positive impacts:

Helping the people of Saskatchewan develop a viable economy with quality jobs and a secure, sustainable environment

Helping Saskatchewan continue to be the best place in Canada to live and work

Helping Canada grow its economy and its global competitiveness Helping international companies and governments with some of the

best and most up-to-date technologies in the world

By enabling INNOVATION applied research, development, demonstration, testing, and

commercialization of smart science solutions™

Conclusion


“SRC is like the MIT of Canada”

Mark Coles, Rentech Inc. (USA) Summary provided to Minister Norris December, 2010

Internationally Recognized and Valued

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