By John Hughes
Canada’s dismal productivity performance has confounded our governments and businesses for over a generation.
Despite 30 years of government policy reform and incentives, the best marginal effective tax rates on capital in the G7 and R&D tax support that is among the highest in the OECD, Canadian productivity growth continues to lag. Today, a Canadian hour of work produces $13 less than in the U.S. — and $29 less than in Norway. Canadian businesses continue to underinvest in machinery, equipment, and information and communications technology.
But why? For several years, Deloitte has searched for the reasons behind Canada’s stubborn productivity gap.
Our latest research suggests that firms’ attitudes and perceptions play a significant role. More than one in three companies are overconfident: they believe their productivity investments are keeping pace, but they’re wrong. They’re actually investing less. A smaller proportion of Canadian firms — we call them satisfied firms — know they’re investing less than their peers, and they’re okay with that.
New technologies may enable new ways of working. A new observation may lead to an improvement that no one had previously considered.
However, there are many Canadian firms that “get it.” These dynamic companies are optimistic, innovative risk takers. They stay on top of their competitive environment and make a point of investing more than their peers to improve their productivity.
And we’ve met many of them over the years through our Best Managed program.
Best Managed companies understand how to become more productive
These companies understand that improving productivity is about finding and embracing new ways of working in order to generate more value out of each hour worked. Improving productivity is about challenging and streamlining processes and practices (tweet this). It’s about making smart — and sometimes sizeable — investments in new technology, equipment and training.
In our recent book, Power of the Best, Peter Brown and I look at what sets Canada’s Best Managed companies apart from their peers. In one chapter, we explore how some of these companies have achieved higher productivity — and improved their competitiveness as a result.
One of the stories we share in the book involves a countertop manufacturer that achieved a significant productivity boost by rethinking its processes and investing in technology.
For years, this firm followed standard industry practice. Installers would measure the space for the countertop and create a cardboard template for the countertop. Once a week, these templates would be driven from the sales offices to one of their two manufacturing plants. There, the templates would be digitized and a slab cut. Turnaround time? Ten days at best.
The company realized that it was measuring twice to cut once and wasting time and fuel transporting cardboard. It was obvious that the cardboard templates had to go, but the company went further than that. They digitized the entire process and made a significant investment in mobile technology to directly link their installers to their workshops.
The result? Greater precision and higher productivity. By replacing cardboard templates with on-site digital measurements and connecting installers and plants directly, the company cut opportunities for error in half and reduced turnaround times significantly. Overall, the company reported a 33%-50% productivity improvement as a result of these changes.
Stay informed — and invest
It’s easy for companies to stick with the processes they’ve always known. But while they worked yesterday and may work today, there’s no guarantee they’ll work tomorrow.
Instead, companies should benchmark their processes, practices and performance against others in their industry, and constantly look for ways to improve. New technologies may enable new ways of working. A new observation may lead to an improvement that no one had previously considered.
Canadian companies can’t afford to be too cautious, too comfortable or too complacent. If we’re going to maintain our standard of living over the years to come, it’s essential that we improve our productivity by improving how we work. Leaders like Canada’s Best Managed companies offer an example of how to do that — and how to succeed in today’s incredibly complex, competitive world.
Should your company be recognized as one of Canada’s Best Managed companies? Visit bestmanagedcompanies.ca to learn more about the program, our criteria and the application process.
|John Hughes is National Leader for Canada’s Best Managed Companies and Growth Enterprises.|