Left unchecked, Canada’s productivity performance could put both our global competitiveness and our Canadian standard of living at risk. But we can avoid this disconcerting future by taking action now to close our productivity gap. The key? Innovation.
Our productivity gap is real and broad-based. Our annualized productivity growth has been stuck in the bottom quartile of the OECD for the past decade. As of 2011, output per worker in Canada was only 78% of U.S. workers. Deloitte’s 2012 report on productivity shows that regardless of size, sector, business type or location, Canada’s productivity performance lags that of the U.S. in virtually every case — with the notable exception of retail.
"Collaborate with other organizations, leveraging each other’s experience." - Terry Stuart
There are many reasons for this. Canadian executives are highly risk averse. Canada’s strength in basic research is offset by our dismal performance in producing new patents, which suggests we are failing to commercialize our research. Private-sector R&D spending was 1% of GDP in 2008 — the lowest ratio of business R&D per dollar of government support among the OECD nations. Canada has continued to underinvest in machinery and equipment (M&E) and information and communication technology (ICT), despite very favourable conditions for M&E and ICT investment here in recent years.
The time to act on innovation is now
Innovation is key to closing the productivity gap. In our work on productivity, Deloitte called on Canadian business, governments and academia to work together to define a national vision for innovation. We outlined eight key actions to drive a transformational shift in the Canadian economy. These included ensuring our education system fosters an innovative, entrepreneurial spirit in the next generation; encouraging businesses, governments and universities to “cluster” in order to innovate more rapidly; and urging businesses to compete on the international stage.
In our 2012 report, we have built on these recommendations and suggested several ways business, government and academia can move forward. These actions will take time, but we are confident that they will make Canada more innovative, entrepreneurial and productive.
But as a Canadian business executive, there’s no reason to wait. You can take personal action now to foster innovation within your own organization. Here are several recommendations, based on our research and my experience working on innovation with leading Canadian and international companies.
1. Build national and international businesses
Firms that have successfully launched operations across — and outside — Canada tend to enjoy higher growth, more innovation and better prospects than businesses that stay local. The increased competitive intensity they’ve experienced is a key driver of their success.
2. Connect with Canadian incubators and accelerators
Canadian universities create a lot of new start-ups with great ideas. But all too often, they fail to commercialize those ideas. Connect with your local incubators, like Communitech, MARS, Ryerson’s Digital Media Zone and Wavefront to find out about new companies doing work relevant to you. Buy Canadian — work with new innovative Canadian companies to help them bring their ideas to the market in your organization.
3. Support entrepreneurship and innovation in Canada’s educational system
Business can make a key contribution to fostering the innovative spirit in our educational system. Find ways to get involved with local primary, secondary and postsecondary schools and help the next generation of Canadian employees and business leaders find new ways to do things, create new businesses and take intelligent risks. The Canadian Coalition for ICT (CCICT) is focused on helping to drive change in this area.
4. Don’t accept the status quo
Canadian businesses can’t afford to be complacent. The status quo is what worked yesterday — not what will work tomorrow. Continually evaluate your existing processes and practices, technology, skills and other aspects of your business and look for opportunities to improve them — large or small. What are the best companies in the world doing? Could you compete with them? Remember: taking no action because you want to avoid risk will only expose your company to more serious (and less visible) risks over the long term.
5. Take a fresh approach to product and service development — explore “Design Thinking”
Too often, companies focus their innovation on what’s technologically feasible and financially viable. Design thinking, in contrast, begins by asking an all-important but commonly neglected question: what do people desire — what do they want and need? This approach can fundamentally change the way new products and services are designed. It also helps organizations test products in the market through experimentation, which in turn helps them avoid the challenges of “build it and they will come.”
6. Build out your innovation ecosystem
"Don’t innovate to secure a tax credit, innovate to secure your business’ future." - Terry Stuart
You can’t do it alone. Relationships are essential in the modern business environment. Together, your company’s relationships form an innovation ecosystem — a mutually supportive network that can achieve more together than separately. Develop and nurture your ecosystem. Partner and collaborate with other organizations, leveraging each other’s experience, skills, information and best practices.
7. Focus your innovation efforts
Don’t innovate to secure a tax credit — innovate to secure your business’ future. Focus your company’s resources on ideas that can create real business value. Pursue those ideas that can improve productivity or open up a new revenue stream or market. Invest in new M&E and ICT that can enable huge improvements through process innovation. Experiment, iterate, fail, learn and try again.
Innovation matters to Deloitte. Over the years we’ve invested a great deal in developing a culture of innovation that has generated real value for our firm. Today we help clients build their own innovation programs to help them compete in an ever more demanding marketplace. To learn more, and to read our research into how productivity impacts the future of Canada, please visit www.productivity.deloitte.ca.
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