Many Canadian business leaders are unwittingly under-investing in their business to boost productivity.
For nearly half a century, Canadian workers have consistently underperformed compared with their U.S. counterparts. And the gap in labour productivity – the amount of economic output (GDP) generated per worker – has grown in the past decade. The issue is increasingly concerning because productivity growth will dictate the direction of Canada’s standard of living as more baby boomers retire and the country’s population ages.
But the cause of the productivity gap isn’t the worker. It’s the employer.
According to Deloitte’s third annual productivity study released last week, more than a third (36%) of Canadian CEOs don’t realize they’re not investing enough in their business.
The study found a huge gap between countries in terms of who is investing in research and development (R&D), machinery and equipment (M&E) and information and communications technology (ICT).
Private-sector R&D spending is only 1% of Canadian GDP. That places Canada at the bottom of the OECD (Organisation for Economic Co-operation and Development). In 2010, for every dollar U.S. firms invested in M&E, Canadian firms spent $0.65. Canadian firms spent only half of what U.S. firms spent on ICT.
The top 50% of Canadian firms that invested in their business contribute to 84% of the country’s business investment. The bottom 50% contributed the remaining 16%. Nearly two-thirds (72%) under the median investment level were unaware they were under-investing in their business. The remaining companies were consciously under-investing.
The results were surprising to Bill Currie, Deloitte’s managing director for the Americas and co-author of the study.
“It looks like these leaders are risk-takers, innovators. They take advantage of [government] programs; they are thoughtful,” said Currie. “They think like dynamic companies. They just don’t spend like dynamic companies.”
The study suggested that if these businesses increased their investment to at least to the median level for their size and sector, they would help reduce the productivity gap between Canada and the U.S. by more than 30%. That would be a significant boost to Canada’s economy.
According to the OECD, Canadian workers produced US$49 of GDP per hour compared with US$53 per hour in 2011 (see line chart, right).
Various studies over the years have suggested Canada’s relatively low level of business investment stems from complacency and a lower level of competition compared with comparable markets. But Currie said a lack of industry-specific investment data is part of the problem.
He added that Industry Canada and other business associations can play a greater role in providing benchmarking investment data in key areas that boost labour productivity. By the fall, Deloitte aims to launch an interactive tool based on the study’s results to help companies gauge their investment levels.
“Often businesses look at themselves,” said Currie. “They benchmark against their prior year or their own history when what they should be doing is looking at their competitors [to determine what they are] doing from an investment point of view to figure out if they are at competitive parity or better.”
Ultimately, a better-informed business leader may be what it takes to secure Canada’s standard of living.
“People think that this is just about getting people to work harder for the same amount of money, but that’s not true,” said Currie. “[Our productivity level] is not because Canadian workers are lazy; it’s not because of unionization. It’s because businesses haven’t invested enough to give their employees the tools and training to produce more. When employees become more productive, they can earn more money and it creates a whole bunch of good things for the Canadian economy.”
