Quantifies the value of public support for R&D and technology commercialization activities. It has been used, for example, to measure the impact of the Canadian Space Station Program and Technology Partnerships Canada.
MODEL OVERVIEW
The HAL Technology Impact Model is concerned with the quantification of the downstream benefits from the public support of R&D and the development of technology.
In the HAL Technology Impact Model, we define public support of R&D and technology development as Sponsored Activity. Such Sponsored Activity leads to Spin-Off Activity within the firms or organizations under contract to the sponsoring agency. This Spin-Off Activity results from the expertise and capabilities attained through their involvement in the Sponsored Activity. Possession of a skilled and experienced labour force, production facilities, technological and project management expertise, and so on, will make a significant contribution to the competitiveness of the industrial team in both Canadian and world markets.
Sponsored Activity, Spin-off Activity, and Diffused Activity
Spin-offs are considered to occur only within a firm that has performed Sponsored Activity. Technology that is developed during this activity, and related technology that is developed by research laboratories, will be diffused throughout the industrial sectors in Canada. Thus, Diffused Technology Activity results in technology-producing firms other than firms who have undertaken Sponsored Activity.
The HAL Technology Impact Model incorporates the following features:
- Stages of development of the R&D process from basic research through market development to commercialization;
- Assessments of increased R&D activity induced by the sponsored activity (the budget enhancement effect);
- Assessments of incrementality whereby what did happen is compared to what would have happened in the absence of the sponsored activity;
- Assessments of attribution whereby other contributions to the succes of R&D are explicitly recognized so that the sponsoring program is not attributed all the benefits;
- Spin-off activity (implementation of R&D results) in organizations that engage in sponsored R&D activity;
- Diffusion of technology, innovations and information that extends the impacts of the results of R&D beyond the program participating organizations; and
- Time response of implementation or commercial sales from different stages of R&D and engineering activity.
Inputs to the HAL Technology Impact Model include:
- Expenditures: Total expenditures of the activity that generate spin-off benefits. This includes both public and private sector investments.
- Type of activity: The nature of the activity funded. Speculative activity with a large research component will have larger spin-offs than a contract for a deliverable (eg. hardware) which requires little or no new technology development.
- Incrementality and attribution: Incrementality refers to the difference in impacts and effects in Canada between what would have happened without the sponsored activity and what did (or will) happen with the activity. An attribution factor determines what portion of the total economic activity is justifiably attributable to the sponsored activity (ie. accounts for the other contributing factors). Only using the incremental and attributable activity to estimate the economic impacts of the sponsored activity results in lower, but more realistic and credible, impact estimates than in many other approaches to economic analysis.
- Other model parameters: Include import content, number and size of firms in the sector, and sponsorship.
The Model does not account for:
- Consumer surplus benefits;
- Benefits to users of new technologies (spin-offs);
- Induced economic impacts; or
- Qualitative benefits.
Consumer surplus benefits result from valuing goods and services (usually those resulting from the investment under review) on a ‘value to the user’ or ‘willingness-to-pay’ basis rather than the market price. These benefits have not been included for reasons of lack of data and information.
Benefits from the use and application of spin-off technologies in Canada, other than for the firms that produce and sell those technologies, are very difficult to estimate. The benefits that accrue are often in the form of improved product quality or lower cost production in the field of application. Such improvements improve the competitiveness of Canadian firms and result in economic development benefits. It is recognized, however, that many such new technologies would likely be developed even without public support within some timeframe and in some country. The only benefits that can legitimately be counted here are those resulting from the advanced timeliness of such developments for Canadian firms because of the development in Canada of the spin-off technologies.
Including induced economic impacts will increase the overall economic benefits from the sponsoring program but will not affect the relative assessment when comparing programs. Induced economic impacts can be calculated separately using tools such as Statistics Canada’s Input/Output model of the Canadian economy.
Qualitative benefits should be taken into account separately.
TIME RESPONSE COMPONENT
The Spin-off component of the HAL Technology Impact Model calculates the total spin-off and diffused sales resulting from the total sponsored expenditures. It makes no distinction about when either the expenditures or sales occur. The distribution of benefits over time, however, is important since a benefit is preferred sooner to later. The Time Response component of the HAL Model translates the stream of sponsored expenditures into a stream of spin-off and diffused sales so that later benefits can be appropriately discounted in value.
The essential feature of the Time Response component is the concept of a chain of stages of development activities that an innovation process passes through from the early stages of R&D to commercialization. The average time required to proceed from stage to stage, or from any stage to commercialization, has been studied and quantified. As well, the technical risk for the successful development of innovations to commercialization has been defined (see the section titled ‘Innovation Adoption Process’).
Distribution of Spin-off and Diffusion Sales
Spin-off sales are attributed to a particular year in the same proportion as the sponsored expenditures that occur in that year. For example, if 10% of sponsored expenditures are to be spent in 1999, then 10% of the spin-off sales are attributed to 1999. These sales are then distributed over time from that year forward.
When the sales will occur depends on the stage of development of the program. The HAL Model considers four stages of development. Research, Development, Engineering, and Market. Typically, a sponsored program will have technologies in a number of these stages. The time response of each stage is modelled separately and the proportion of the program at each stage is used as an input.
Sales can only occur once a technology is brought to market. Each stage of development will have a delay, during which there will be no sales, and then sales will occur over time. The delay is greatest at the research stage and least at the market stage. The delay for each stage is an input to the HAL Model.
Once sales begin, they are assumed to increase quickly, reach a maximum, and then decline slowly. This behaviour is modelled using a Weibull distribution. The shape of the distribution is defined by two parameters that are inputs to the HAL Model. They are determined empirically and are the same for all stages of development.
The total distribution over time of spin-off sales attributed to a particular year’s sponsored expenditures is calculated as the sum of these four delayed and scaled distributions, one for each stage of development. The Time Response component of the HAL Model is illustrated below. In this example, the Base Year is considered to be year 0. Spin-off Sales of $1M are attributed to year 10.
The portfolio of projects responsible for these sales is distributed among the stages of development as follows: Research 0.3, Development 0.4, Engineering 0.2, Market 0.1. Sales from projects in the Market Stage begin immediately. Sales from Engineering Stage projects are delayed three years, Development Stage projects are delayed five years and Research projects are delayed 12 years. In each case, sales are distributed over time according to a Weibull distribution. The Total Sales over time are shown by the dotted line.
The distribution of diffused sales is calculated in a manner similar to the calculation of the spin-off sales. The difference is that Diffused Sales are considered to be driven by Spin-off Sales, which themselves have a complex distribution over time.
Spin-off Sales Distribution
ANALYSIS OF UNCERTAINTY
An important aspect of any analysis is the requirement to specify the degree of confidence in the results. It is our experience from reviewing many studies that too seldom is the level of confidence or the range of results specified in the documentation.
The HAL approach not only specifies the level of confidence of the results, but incorporates the analysis of uncertainty of key factors. This approach comprises:
- Identification of the key factors which are uncertain;
- Quantification of this uncertainty using expert input; and
- Combining these assessments of uncertainty within a rigorous framework of applied probability theory.
For more information on the HAL uncertainty analysis process, click here.