Companies That Haven’t Reached ‘Digital Maturity’ Are Less Profitable
Atlantic Canadian small and medium-sized businesses are lagging behind when it comes to “digital maturity,” according to a new survey by the Business Development Bank of Canada (BDC).
Only 15 per cent Atlantic Canadian small and medium-sized businesses are considered digitally mature, behind the national average of 19 per cent. British Columbia and the Northwest Territories scored the same as Atlantic Canada.
BDC’s Chief Economist and VP of research, Pierre Cléroux, said it’s difficult to determine exactly why this is the case, but noted some possibilities.
“What we noticed from the report is smaller businesses have a lower rate of adoption. So it could be that in [Atlantic Canada, B.C. and Northwest Territories], businesses are a bit smaller,” he said.
Still, 60 per cent of small and medium-sized companies in Canada have a conservative profile. Cléroux said it may take time before more businesses take the shift towards embracing digital technology.
“What the research is showing is people feel uncomfortable sometimes with technology, especially older entrepreneurs. Or they don’t see the benefit,” he said.
But today, businesses big or small can’t ignore digital technology anymore. BDC’s study says 25 per cent of businesses that didn’t invest in technology have seen sales plummet in the last few years, and have a poor sales outlook going forward.
These are companies with a conservative profile, meaning they don’t make digital technologies a strategic priority. They often still rely on paper for back-office operations or basic digital tools like Microsoft Excel or Word, for instance.
Their teams tend to work in silos and use separate IT systems. The data isn’t collected systematically and when it is collected, the data isn’t shared. Thus, decisions tend to be based on experience or instinct rather than data. The management still prefers a top-down approach and isn’t always responsive to feedback.
Meanwhile, digitally mature companies are more likely to have higher sales growth (62 per cent) and profit growth (52%) in the past three years. They are also more likely to have exported (70 per cent) and innovated (329 per cent).
“Today actually, nobody can afford to be on the sideline. They have to really look very seriously in investing in digital technology,” Cléroux said. “Just think, today, 80 per cent of Canadians, the first thing they go to when they want to buy a product they go online. So if you’re not online today, you’re almost invisible.”
The survey of 2,000 Canadian small and medium-sized businesses and 600 from the U.S. found no digital gap between the neighbouring countries when it comes to that size of firms.
Quebec leads in Canada, with 26 per cent of companies being digitally advanced. This is most likely because there was a lot of awareness about the importance of using digital technology in the past few years, Cléroux said.
Digitally advanced companies not only use various digital technology but also have a strategy on how to use that technology, as well as an internal culture of change and innovation.
“They would have a transactional website, they will use the analysis of data to help themselves understand what clients need, and they also would use that data for marketing, for example,” he said.
Cléroux encourages businesses to embrace and invest in digital technology, starting with creating a plan that fits with the company’s needs and determines what technology is needed.
“The first question to ask yourself is, how can I bring value to my consumer,” he said.
Companies need to also have a culture of change, use data to serve their customers better and continue to innovate.
“Because things have changed. It’s not like in the past, where you buy an equipment and you’ll be okay for five-to-10 years. Technology is evolving all the time. So you have to establish in your business a culture of change, where your employees and yourself will improve all the time on what you already have,” Cléroux said.
The BDC now offers a Digital Maturity Tool, which companies can use for free to compare themselves with other businesses in Canada. The tool also provides advice to businesses on how to improve.
Businesses can also access the Intangible Asset Financing Envelope offered by the bank, which aims to increase digital adoption among Canadian entrepreneurs, among other things.
“We know that investing in technology is a bit more difficult to finance, so that’s the reason why we have a special envelope for $250 million for helping companies who want to invest in technology,” he said.
The study kicked off the BDC’s Small Business Week, which aims to celebrate entrepreneurship across the country. Between October 14 and October 20, nearly 120 events will be held in Atlantic Canada alone, with the theme “Digitize now: Transform your business.”