Canadian firms that actively work to tackle innovation barriers, such as financial constraints or skills shortages, are significantly more likely to innovate than those that don’t act, according to a new report from the think tank C.D. Howe Institute.
In “Unleashing Innovation: Barriers, Government Support Programs, and What Works Best,” Catherine Beaudry shows that the biggest gains come when internal efforts are paired with targeted government support, though financial constraints remain a persistent challenge, said the Institute.
Firms that combine their own efforts with tools like R&D tax credits or targeted grants see additional gains – some government programs boost the chances of innovation by more than 11 percent. Yet despite this, fewer than half of potentially innovative firms make use of these programs. The application process is often cumbersome, requiring dedicated and costly internal resources, it added.
Catherine Beaudry
Revisiting data at the time of the previous financial crisis, the analysis points to one clear takeaway: a one-size-fits-all approach doesn’t work, according to the Institute.
“Government programs aren’t meant to do the work for businesses,” said Beaudry, an Institute Fellow-in-Residence and Canada Research Chair in Management and Economics of Innovation. “They’re most effective when they help remove specific roadblocks and give firms the room to lead on the innovation front.”
Beaudry recommends a more strategic and coordinated approach to public support. She calls for better alignment across programs and levels of government to eliminate overlap and improve effectiveness. The author also highlights the importance of encouraging firms – especially those not yet using public support – to combine internal innovation efforts with external tools like grants, training, or hiring incentives.
Beaudry also emphasizes the need to focus on programs that have the greatest proven impact and to raise awareness of underused tools, including public procurement opportunities. Finally, she stresses the importance of ongoing evaluation and research to ensure that support is going where it delivers the strongest results.
“A more strategic, targeted approach can help Canada build an innovation ecosystem that’s both resilient and ambitious,” added Beaudry. “The most powerful initiatives come from within firms themselves – but when that drive is matched with the right kind of support, the results can be transformative.”
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Entrepreneur. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 and 2024 as one of the top business journalists in the world by PR News. He was also named by RETHINK to its global list of Top Retail Experts 2024 and 2025.
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