Adrian Shellard, for the Haskayne School of Business
June 22, 2021
Resource-based industries get bad rap on innovation
Resource based industries — including oil and gas, mining and agriculture — are often considered to be “low technology” sectors because of how they perform on standard innovation indicators, such as the number of patents filed and their investments in research and development.
This poor reputation for innovating can “send the wrong signals” to the markets, policy-makers, even potential employees, says Chad Saunders, assistant professor of entrepreneurship and innovation in the Haskayne School of Business. He’s one of the authors of a study published in Resources Policy, Reconsidering the dynamics of innovation in the natural resource industries, that shows natural resource-based industries are indeed highly innovative, but the way they innovate is not captured by the usual metrics.
“Most of their innovation is learning by doing,” says Saunders. “On the front lines, these industries have these problems that they need to solve. They're usually very big problems and solving them has a huge impact on business. But it's often unique to their particular business.”
Working on the ground, natural resource companies are “going to be doing more the D, the development, then they would do the R, the research,” says Saunders. “And of course, what gets the attention is whether you've filed patents and whether you've spent money on R and D.”
Saunders and his colleagues Dr. Hossein MahdaviMazdeh, a Haskayne PhD alumnus, Richard Hawkins, professor in the Science, Technology and Society Program in the Faculty of Arts, and Dr. Jim Dewald, dean of the Haskayne School of Business, analyzed a unique dataset from Statistics Canada.
Businesses in different sectors across the country are required to provide the information for the Survey of Innovation and Business Strategy (SIBS). Analyzing this data, the researchers found “natural resource firms are leaders in the use of advanced technologies, rely less on intellectual property protection and R&D in favor of quasi-integration with suppliers as a source of innovation that is often fuelled by regulatory compliance.”
Rather than innovating their products, commodities such as a bushel of wheat or barrel of oil, resource companies tend to focus on process and organizational innovation. “They're innovative, but in their own way,” says Saunders. “The innovation might be different. And it might accumulate in different parts of the value chain, but it's there. We're probably getting a lot more benefits from those industries than they have been given credit for.”
Examining firms’ supply chains, the researchers identified that natural resource companies are huge adopters of technology. Instead of developing innovations, companies in the capital-intensive resource industries rely on their supply chain partners to “bring that innovation to the table and integrate it and adapt it for that particular industry.”
While the tech sector and biomedical industries, for example, build things from the ground up, natural resource industries are more “acquirers and adapters” of advanced technologies from other industries.
“It doesn't really make a lot of sense for resource companies to be directing a lot of effort into developing things from scratch,” says Saunders. “It makes a lot more sense for them to partner with organizations that have moved the innovation a certain distance. They are often the first client. For some of these innovative partners the sectors are the first big customer that they get. That's a pretty critical role that resource firms are playing in that innovation space.”
To truly understand innovation in natural resource industries and provide accurate information to policy-makers, investors, entrepreneurs and potential employees, different metrics are required. The entire value chain must be considered along with the wide breadth of suppliers that are integrated into resource industries’ operations, furthering their innovation.
“If you talk to any of the folks that are in these industries and you told them the findings from the study, they'd be, ‘well obviously,’” says Saunders. “This study is showing empirically across industries, what they know from practice to be true in their firm.”