Strategy Session: A column on productivity you’ll actually enjoy reading
Marzena Czarnecka is a Calgary-based business writer. She can be reached at firstname.lastname@example.org
by Marzena Czarnecka
All right, boys and girls, CEOs of all ages, VPs seasoned and snot-nosed alike, folks looking to break out of middle management and … are the mailroom clerks here? Get them in here, please, ASAP. We need everyone in on this. What we’re talking about today is productivity and upping it at our company and within our provincial and national economy and … Excuse me, madam, are you yawning? And you, there, giggling? Is the spectre of a decreasing national standard of living something to yawn or smirk about?
Illustration Joel Kimmel
I think not, ladies and gentlemen, and this is why you are all here.
Now, first, let me tell you the one thing I do not want any of you to do when you leave this session. Under no circumstances are any of you, upon leaving this room, to go out and work longer hours. That’s not productive. That’s stupid, and we are not stupid, are we, ladies and gentlemen? We are the crème de la crème of Alberta’s business community, and if we can’t increase the productivity of our province’s economic engine, well, no one can.
A few things stand in our way, though, and the first of these is that too many of us don’t really understand what productivity is. We’re all about hard work, sure we are, and we have this idea that if we work harder, we’re more productive. Wrong. That’s misconception number one. Productivity, as Trevor Nakka, a senior practice partner at Deloitte, patiently explains to us, is properly defined as “the average value produced per hour worked.” So if you’re working, say, 12 hours a day to deliver a value to your company (and the local and global economy) and I’m working four hours a day to deliver that same value, which one of us is more productive?
Simple math, right? Yes, the clever boys in the back row are rolling their eyes at me – you knew all this, of course. You, you’re anxious to tell me and your peers, are as productive as possible under the circumstances. But the trouble is, and this is the reason the U.S. – even in its season of economic decline – is kicking your productivity stats in the backside, that your businesses are too small and in the wrong sectors to match those U.S. growth numbers. Is that what you wanted to say?
Well, you’re wrong, wrong, wrong. Canadians love these myths, because, to put it bluntly, they absolve them from responsibility for the national productivity lag. Boo-hoo-hoo, we have too many small businesses. Boo-hoo-hoo, we are too dominated by the natural resources sectors. Guess what? The most current and reliable research shows that a) size doesn’t matter and b) sector composition doesn’t matter either.
Drop the excuses, boys and girls. Own the problem, and let’s do something about it.
A question over there in the far right corner, yes? What? Am I saying economies of scale don’t matter? Let’s get Andrew Sharpe, the executive director at the Centre for the Study of Living Standards – and the man who’s trying to ensure your grandchildren have it as good or better, instead of worse, than you – to field that one. Dr. Sharpe? “You can definitely get productivity gains from economies of scale, but that’s not a major factor,” he says. The real drivers of productivity are human capital, investment and innovation. And while it may seem that some of these are easier to achieve in larger organizations, that’s about as accurate as saying Ontario or Quebec are more likely to be more productive than Alberta because they’re, you know, bigger. We know how true that is, don’t we?
Now, where was I before I descended into regional barb-trading? Right – the real deal on productivity. Size doesn’t matter. Sector composition? Pshaw. What matters, boys and girls (and this sounds like a “deceptively simple solution,” as Nakka puts it, but in this case, it’s true), what really matters at the end of the day is growth. That’s it. Growth companies are more productive.
Again, not rocket science, right? You knew this, intuitively, even if you didn’t know the data, which overwhelmingly supports this assertion. Some 43 per cent of new jobs in Canada come from the fastest growing five per cent of companies. These high-growth firms post “significantly higher productivity levels than other firms in every size and sector category,” according to Deloitte’s The Future of Productivity study. Ponder that for half a second, and then answer this: Why are these high-growth firms so productive?
A hint: sometimes, a deceptively simple answer is what you need to go for. Anyone? The gentleman snoozing in the third row, perhaps, hoping the same business strategies and technologies that served his grandfather will see him through whatever changes the future holds? The lady over there who has a hard time thinking of investment in capital as anything other than debt?
No one? We’ll give the floor to Nakka again. High-growth firms grow, and are productive, because “they have a greater propensity to innovate and leverage capital,” he says. In other words – can someone poke that gentleman in row four who’s drooling onto last quarter’s financials? Thank you – they take risks and they spend money. And, thus, they grow and expand.
You know this. You’re here, at this session, at this particular juncture in your career, because you’ve rolled the dice once or twice in your life. But there’s a bit of a Canadian national tendency towards risk-aversion, and it’s hard to come down on this inclination, especially post-2008. Let’s face it: being boring and stable and afraid of over-leverage can be the right game plan.
But the cost of that tendency is less invention and less innovation – and, in the final analysis, lower productivity. As Nakka explains, “Canadian businesses tend to spend less money on research and development than their U.S. counterparts.” They also make lower capital investments. And, although individual examples to the contrary abound, as a group, they are less aggressive when it comes to expanding – nationally and internationally. (An exception to this Canadian trend: Alberta’s oil patch, and in particular the oil sands sector, where capital investment and innovation have been immense, which has resulted in apparent lower short-term productivity numbers but has set the stage for an explosion in productivity growth for years to come. So, yes, well done on that front, folks.) And all of those actions and strategies are what drive individual company – and, in the aggregate, provincial and national – productivity.
Incidentally, expansion drives up productivity not because of economies of scale. I see you there, waving your hand – you want to say, “Oh, so size does matter after all!” Nope. Expansion is absolutely at the heart of productivity, but growth isn’t about getting bigger.
It’s about increasing your absolute output, and if you do it properly, expansion drives that by giving you access to more markets, yes, but also by forcing you to compete with different companies in different markets and thus, hopefully, get more efficient and creative. Intensified competition is great for productivity. Just look at Canada’s retail sector, which is one of the outliers in
Canadian productivity gains. And, as Nakka stresses, its productivity gains are the result of having to respond to the intensified competition from a two-decade-plus long assault by new players, from Walmart to Target.
OK, OK, your time is limited, and we want to make sure you’re as productive as possible with it, so let’s wrap up with these two points. First, Canada’s productivity lag is of concern to the federal government, and Alberta’s government is pretty serious about ramping up provincial performance too. But … how do we put it diplomatically? Let’s let Sharpe do it. “The key issue is whether government can affect business productivity,” he says. And he’s not convinced that it can. “The government can’t tell business what do to,” he says. At best, governments can only create incentives. Which means, boys and girls? Precisely: it has to be the businesses that take responsibility. That means you.
And as Nakka stresses, “Productivity does not mean working more hours and making people work more hours.” Working harder and working longer is not what being more productive is all about. It’s about leveraging your human capital and your financial capital or, as he puts it, “arming people with tools so that they are more productive in the time that they spend.” Investing. In training, in equipment, in new technologies – in research and development. In your future. In our future.
Visit the Productivity Alberta website for useful tools and services.
Productivity and Competitiveness: Challenges for Canada and Alberta by Andrew Sharpe, executive director, Centre for the Study of Living Standards, prepared for Imagining Alberta: A Symposium on Alberta’s Economic Future (October 14, 2011)
The Future of Productivity: Clear Choices for a Competitive Canada by Bill Currie, Lawrence W. Scott, and Andrew W. Dunn (Deloitte, 2011)