Tackling Canada’s Productivity Gap

BDC president and CEO Michael Denham. Image: Submitted

We Canadians, especially those of us in the Maritimes, like to believe we’re fairly productive folk. We know how to get ‘er done, if you will.

But a new study released by the Business Development Bank of Canada (BDC) found that in business, there’s a big gap between Canada and the United States when it comes to productivity.

We chatted with BDC president Michael Denham when he was in Moncton recently about this productivity gap and how the BDC is looking to close it:

What is Canada’s productivity gap exactly?

“At a macro level, if you look at Canada versus the U.S. for example, the productivity of our businesses in  27 per cent below the productivity level of the U.S. business sector. This is growing. It was five per cent back in the 80’s, it was 15 per cent or so in the early 2000’s and now it’s 27 per cent.

Secondly, if you look at the productivity of the small and medium size business sector versus larger companies, small business is less productive. In the U.S. it’s 67 per cent of the weight of large businesses, in Canada it’s only 47 per cent. So Canada has a gap. Our small businesses are less productive than U.S. small businesses. So as a result, we at BDC focus on small business. We’re doing our best to raise awareness and encourage Canadian small businesses to become more productive. If enough of those do that, we’ll close the national level gap.

What’s causing this difference in productivity level between the two countries?

One of the big drivers of this is the relative rates of investment in information technology. On a size-adjusted basis in Canada, we invest half the level that gets invested in the U.S. and as you well know, a well-deployed software information system, etcetera, can take out a lot of cost to productivity.

Secondly, one area where we’re focused on is helping entrepreneurs become aware of the fact that their business is as productive as it could be. So the tool we introduced to the market recently is designed to shine bright lights on the relative productivity of each and every Canadian company. Our sense is once an entrepreneur realizes that his or her business is not productive as it could be, they will take the appropriate steps and make the appropriate investments to close the gap. Awareness is key.

Can you describe the BDC’s new tool and how it will help businesses?

We built a database with Statistics Canada and there were 600,000 Canadian companies in this database, and this tool that we brought to market is literally the first of its kind in Canada and it’s the first of its kind in the world.

As a business leader, you take your tax return and there seven fields of information from your tax return, revenues, total employees, employee cost, capital cost, etc. You type all of those into the tool and the tool compares your productivity levels versus all those companies in your industry. So it’s apples to apples in that sense. You’ll get an email back from us and that will tell you where you stack up versus the competition. It takes three minutes to enter the data, you get the response back from us in real-time. It’s free and 15,000 Canadian entrepreneurs have gone to check out the tool already, so I think we’re on to something.

What impact are these lower productivity levels having on small to medium size businesses in Canada?

Basically, the more productive you are, the more profitable you are. The more profitability you have, the more money you have to invest, the money you have to acquire, the more money to have to hire and the more money you have to innovate. Without profitability, companies can’t improve and can’t grow. Productivity is essential to that.

Besides checking out the BDC tool, do you have any other suggestions for what Canadian businesses can do to start tackling their productivity issues?

The first thing is to become aware of the fact that you have a productivity gap. A lot of entrepreneurs know that already and this tool will help those who are not aware become aware.

Once they’ve done that, I think the key things to do are train your employees so that they can eliminate waste and work smarter. The investments are also key. We encourage employers to invest in software, invest in equipment, invest in robotics. The more you invest, the more your productivity goes up. Thirdly, there are lots of tools, manufacturing-type tools that help eliminate all aspects of waste in a company and we encourage clients to read-up and use that knowledge to eliminate waste in their operations.

Why do you think it’s important for businesses to care about this?

What I’ve seen with the entrepreneurs and clients who have used this tool, even those who say ‘things are fine,’ once they use the tool and they see that they can improve their productivity by 25 per cent, and if that 25 per cent is going to boost their profits by a certain amount, it becomes really important to them to either keep those profits or to reinvest for growth and future improvements.  

All the entrepreneurs I know kind of get it. The more productive you are, the more profitable you are. All the entrepreneurs we work with value that profitability.