The Bank of Canada (BoC), Canada’s Central Bank, accelerated its foray into open innovation with its October launch of the Partnerships in Innovation and Technology program (PIVOT). PIVOT aims to deepen the BoC’s knowledge of leading-edge technologies and its engagement with innovators globally through public submissions to Bank posted challenges. Three initial challenges have been posted focused on the need for improved real-time assessment of the Bank’s policy effectiveness, cybersecurity threats, and improving the BoC’s day-to-day operations.
Due to the increasing number of emerging policy challenges, the BoC has recognized that traditional closed-approaches to innovation are insufficient to understand and keep pace with the impact that digitalization, the digital economy and emerging technologies will have on the future of monetary policy decisions and the Canadian economy.
The BoC’s responsibilities as an economic steward mandated with promoting Canada’s economic and financial stability through its application of monetary policy, issuance and distribution of Canada’s bank notes, and its responsibility to act as a fiscal agent for the Government of Canada, limits its tolerance for experimentation risk. The BoC is also very cognizant of reputational risk if its actions result in unfavorable outcomes.
The BoC’s Medium-Term Plan, which outlines the Bank’s 2019-2021 strategic priorities, includes its commitment to creating a culture of innovation, enhancing business innovation and knowledge sharing, and increasing its transparency and communications with stakeholders. Although, the BoC’s innovation agenda is primarily focused internally, it has begun to include outside-in innovation strategies.
PIVOT, the BoC’s main open innovation program, will likely increase the Bank’s collaboration with individuals, start-ups, established companies, educational institutions and other organization both within and outside Canada, and is expected to achieve the following:
- Solution Generation without Resource Commitment: Allows the BoC to manage its resource constraints, generating new solutions without the trade-off of increasing public expenditure or committing internal resources.
- Tap into Global Intelligence: Facilitates access to talent and ideas both inside and outside Canada’s boarders.
- Increase Transparency and Knowledge Sharing: Signals the BoC’s commitment to the Medium-Term Plan by increasing transparency on challenges facing the Bank and improving its business innovation and knowledge sharing processes.
Although PIVOT represents a unique way to pilot open innovation projects among Central Banks, it is not without its challenges. The following are five key challenges that the BoC will need to consider going forward:
- Link to Strategic Objectives: The BoC has no clear criteria through which it selects its topics for collaboration. The Bank may wish to develop a well-established method to maximize the opportunity to focus on meaningful innovation and value capture.
- Success Criteria and Measurement: The measure of expected value versus received value needs to be more clearly defined as there appears to be an insufficient understanding of how to evaluate PIVOT’s success.
- Implementation: Sustaining and capturing the value of innovation will need commitment of BoC resources and will carry a specific risk. Both will provide important inputs to an overall business case for solution implementation. Outlining the business case as an intrinsic part of the innovation stream will need to be performed in collaboration with the external parties involved.
- Value-for-Whom: PIVOT’s value to the BoC is clearly defined, whereas the outside innovator value is not. The BoC may want to strengthen PIVOT’s incentives to encourage submissions to challenges. At present, there are no compensation-based rewards associated with submitting a solution. Successful submissions are rewarded through the prospect of collaboration with the Bank and the opportunity to leverage their partnership to attract potential investors or clients. This creates opportunity for reputation risk, when a participating party tries to leverage information asymmetries or benefit from the perception of having an inside edge.
- Security: Since many challenges are intimately linked to improving and altering how the BoC makes sensitive monetary policy decisions and its internal approach to cybersecurity there is a potential threat of malicious global organizations and individuals using information to pose a threat to Canada’s financial system.
Despite the challenges facing the program, the BoC’s implementation of open innovation through PIVOT has the potential to improve the Bank’s understanding of the Canadian economy, improve timeliness of monetary policy decisions and even increase Canadian’s trust in their Central Bank. Going forward, there are two questions that should be considered as the BoC iterates on and assesses its open innovation program:
- What organizational changes should the BoC implement to help sustain outside-in collaboration and ensure the effective implementation of solutions generated?
- What areas should the BoC focus PIVOT challenges on and what criteria should they use to evaluate the potential value/impact of each area?
 Bank of Canada. Partnerships in Innovation and Technology (PIVOT) Program. https://www.bankofcanada.ca/research/partnerships-in-innovation-and-technology-pivot-program/
 Bank of Canada. Innovation, Central Bank Style. https://www.bankofcanada.ca/2015/11/innovation-central-bank-style/
 Bank of Canada. About the Bank. https://www.bankofcanada.ca/about/#what-the-bank-does
 Bank of Canada. 2019-21 Medium Term Plan: Leading in the New Era. https://www.bankofcanada.ca/about/governance-documents/2019-21-medium-term-plan-leading-new-era/
 Bogers, M., Chesbrough, H., & Moedas, C. (2018). Open Innovation: Research, Practices, and Policies. California Management Review, 60(2), 5–16. https://doi.org/10.1177/0008125617745086
 Sørensen, E., & Torfing, J. (2011). Enhancing Collaborative Innovation in the Public Sector. Administration & Society, 43(8), 842–868. https://doi.org/10.1177/0095399711418768
 Chesbrough, H. , Lettl, C. and Ritter, T. (2018), Value Creation and Value Capture in Open Innovation. J PROD INNOV MANAG, 35: 930-938. doi:10.1111/jpim.12471
Bank of Canada. About the Bank. https://www.bankofcanada.ca/about/#what-the-bank-does
Bank of Canada. Innovation, Central Bank Style. https://www.bankofcanada.ca/2015/11/innovation-central-bank-style/
Bank of Canada. 2019-21 Medium Term Plan: Leading in the New Era. https://www.bankofcanada.ca/about/governance-documents/2019-21-medium-term-plan-leading-new-era/
Bank of Canada. Partnerships in Innovation and Technology (PIVOT) Program. https://www.bankofcanada.ca/research/partnerships-in-innovation-and-technology-pivot-program/
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Chesbrough, H. , Lettl, C. and Ritter, T. (2018), Value Creation and Value Capture in Open Innovation. J PROD INNOV MANAG, 35: 930-938. doi:10.1111/jpim.12471
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Sørensen, E., & Torfing, J. (2011). Enhancing Collaborative Innovation in the Public Sector. Administration & Society, 43(8), 842–868. https://doi.org/10.1177/0095399711418768