The Future of Productivity: A Wake-up Call for Canadian Companies (part of Deloitte's Future of Canada series)By Bill Currie
Vice-chair, Canada, Deloitte
Despite 30 years of government policy reforms and new incentives, Canadian productivity still isn't growing as fast as it is in the U.S. and many other countries. Canada's output per worker was 78% that of the U.S. in 2011. Canada's 0.7% annualized labour productivity growth (2001–09) puts us in the bottom quartile of the Organisation for Economic Co-operation and Development (OECD). An average U.S. worker generates $13 more per hour than an average Canadian worker. An average Norwegian worker generates $29 more per hour. Yet Canadian companies don't make the innovation and productivity investments theyneed to thrive.
Private-sector firms' research and development (R&D) investments equal just 1% of Canada's Gross domestic product (GDP). That's less than half of what U.S. companies spend on R&D. Per worker, Canadian companies invest 65% as much as U.S. firms on new machinery and equipment and 53% as much on Information and Communication Technology (ICT). We've discovered that 36% of Canadian businesses don't realize they're under-investing.
Our research suggests that firms' attitudes and perceptions are key to understanding why Canada can't seem to close the productivity gap. 36% of Canadian companies are overconfident: They think they're investing more than their peers — but they're not. They're actually investing below the median for their size and sector.
A smaller proportion of Canadian businesses are static: They know they're investing less than many of their peers, and they're okay with that. They often operate in niche, local markets with low competitive pressure. These under-investing firms don't respond to government policies and incentives because they don't believe they're relevant — or necessary.
There are many Canadian firms that knowingly invest more than their peers to improve their productivity.
These dynamic companies are highly optimistic, innovative and willing to take risks. Dynamic firms are keenly aware of their competitive environment and maintain high levels of investment.
Our recommendation: To close the productivity gap, close the perception gap. To spur Canadian companies into action, we need to change their perceptions. To do that, companies need timely, accurate information about their competitive environment and how they compare. Companies need to pay more attention to competitive data. To make smart decisions, companies need to understand how their investments stack up. They should use this data to plan for the future. With proper benchmarking, companies can be more confident that their decisions will help them successfully compete. They should get started now. Companies should perform ongoing competitive intelligence and search for benchmarking opportunities.