Canada is lagging behind the rest of the world when it comes to business innovation, a trend that could undermine efforts to strengthen the country's economy in the long term, according to a report issued Wednesday.

"Too few Canadian businesses and entrepreneurs choose strategies that emphasize innovation," said Robert Brown, the chair of a panel assembled by the Council of Canadian Academies to study the link between productivity and innovation.

The report defines innovation broadly to include not only research and development, but also new business processes and new forms of organization.

"Innovation is new or better ways of doing valued things. An 'invention' is not an innovation until it has been implemented to a meaningful extent," says the abridged version of the report, published Wednesday. The full report will be published in June.

The group found productivity in Canada has been falling behind the U.S. and other comparable countries in the last 25 years.

This poor growth was not due to any problems with the labour force or capital spending, but instead due to a number of factors connected with innovation, they said.

Relative to other countries, Canadian businesses relied on outdated business models, were slow to incorporate new technology, tended to follow the lead of other countries and didn't get the same payoff from research spending, the report found.

IT spending trails U.S.

One of the key indicators of this lack of innovation, the report says, is information and communications technology (ICT) spending. While capital spending in other areas is in line with other countries, Canadian businesses spent an average of 40 per cent less on ICT per worker than the U.S. in 2007.

"The ICT investment picture is consistent with the view that Canadian businesses on the whole — but always with notable exceptions — are technology followers, not leaders," the report found.

The findings echo a United Nations report published in March that ranked Canada 19th out of 154 countries in how advanced its use of information and communications technology is, a drop of 10 places from ninth in 2002.

Some of the reasons why Canadian businesses are more timid innovators include a lack of competition to spur innovation, a business climate that doesn't encourage new ventures, and a lack of entrepreneurial aggressiveness, the report says.

The report suggests the government take a number of measures to spur innovation, including enhancing competition, encouraging investment in ICT and improving early stage financing for private sector spinoffs of university research.

The report was commissioned by the federal government. The Council of Canadian Academies is a not-for-profit think-tank established in 2006.

Industry Minister Tony Clement said the report is part of the government's plan to improve Canada's competitiveness as part of their science and technology strategy.

"This report will help governments and the science and technology community better understand Canadian business investment and innovation and will help identify areas for improvement," Clement said in a statement.