BDC finds clue to the missing piece in Canada’s productivity puzzle
Montreal, June 26, 2024 – Amidst endless talk about Canada’s productivity crisis and the widening gap with the U.S. and the G7, a new BDC analysis finds which sectors have bucked the trend and may hold the key to understanding why our businesses struggle so much with improving efficiency.
In Canada’s productivity puzzle: Solutions for entrepreneurs, BDC looks at Canada’s average annual labour productivity growth by industry between 2009-19 and 2019-23 and finds that the hardest hit sectors during the pandemic registered the highest productivity improvement.
Of the sectors analyzed in the report, only three succeeded in improving efficiency since 2019: arts, entertainment and recreation (+ 100%), accommodation and food services (+ 50%) as well as retail trade (+ 18%). ICT integration seems to have played a key role in the retail sectors’ GDP, growing faster than the number of hours worked. Productivity growth in these three industries translated into better efficiency in roughly 1 business out of 4 (23%) at a time when average productivity growth stayed flat or even declined. Why?
"There is something to be said about embracing change in a time of crisis," says Pierre Cléroux, VP Research and Chief Economist at BDC. "Entrepreneurs in these sectors have had no choice but to invest in digitization and quickly adapt their business model to deal more effectively with an ever-changing reality and new consumer behavior. Perhaps a part of the solution to the productivity puzzle is to help entrepreneurs get comfortable with discomfort, whether it's investing heavily in a new technology, automation or robotics or integrating AI, and the leap towards next-generation innovation isn’t far behind.” suggests Cléroux.
Unsurprisingly, BDC’s analysis shows that machinery and technology investments are driving growth, regardless of industry or size, and the most productive companies invest almost twice as much in ICT per employee. And yet many businesses don’t make that investment. The success of entrepreneurs in three hard hit industries puts overall productivity declines into perspective: if they invested in machinery and technology in times of hardship, and made considerable gains, why aren’t we seeing more of these investments on a broader level today?
BDC believes there may be a path towards greater investment by bringing productivity problems down to the daily difficulties each business faces. This is why the report presents real entrepreneur testimonials to illustrate, concretely, how investing for productivity can pay off:
- The reorganization of T.J.L. Construction began in 2022. To regain the profit margin it had in 2020, the owners had to invest in advisory services, recruitment services, and in software and implementation. By 2023, the construction company had reached its goal. "You have to be prepared to invest," says Tommy Labbé, co-owner, T.J.L. Construction. "But when you believe in it and really put your mind to it, you soon see results."
- E. Hofmann Plastics Inc. is a plastics manufacturing business in southern Ontario. The company is now experiencing a dramatic surge in productivity because of shifts that began four years ago, when its owner, Paul Kalia, decided to make a significant investment in automation. “We started analyzing the whole business and asking: How can we improve shipping? How can we improve production? How can we improve scheduling? And then with digitization, it just spread like wildfire.”
Entrepreneurs will want to move forward if they see how investing in simple tools can help. The bank's free Workforce Efficiency Benchmarking Tool compares annual revenues and profits per employee with those of other companies in the same sector. It’s a great starting point for entrepreneurs looking to better understand efficiency and, more importantly, how to improve it.
BDC’s report offers practical solutions to fight lethargy around productivity and help each business solve its own productivity puzzle.
About BDC
As Canada’s bank for entrepreneurs, BDC is a partner of choice for all entrepreneurs looking to access the financing and advice they need to build their businesses and tackle the big challenges of our time. Our investment arm, BDC Capital, offers a wide range of risk capital solutions to help grow the country’s most innovative firms. We are one of Canada’s Top 100 Employers and Canada’s Best Diversity Employers. BDC was the first financial institution in Canada to receive the B Corp certification in 2013 and it is the B Corp movement’s national partner in Canada. For more information on BDC’s products and services and to consult free tools, templates and articles, visit bdc.ca or join BDC on social media.
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