Underinvestment in business growth contributing to productivity gap: Report

More than one-third of Canadian firms overconfident in investments
|hrreporter.com|Last Updated: 06/13/2013

Canadian businesses that think they’re investing enough in their own growth, but are actually underinvesting compared to their peers, are a significant cause of Canada’s persistent and growing productivity gap with the rest of the world, according to a report by Deloitte.

The report, The Future of Productivity: A Wake-up Call for Canadian Companies, overturns a long-held assumption about the cause of Canada’s lagging productivity. While it has been suggested that many companies are complacent and don’t want to grow, Deloitte found that these “static” companies make up just 14 per cent of Canadian firms. The rest are eager to grow and willing to take risks, but 36 per cent of them are “overconfident” — they are completely unaware that they are investing significantly less than their counterparts.

As a result, they have failed to take advantage of the many productivity improvement policies and incentives put in place by governments in recent decades to grow their businesses. The report suggests that changing the behaviour of these companies through better competitive intelligence offers the best opportunity to start reversing the decline in relative productivity performance that has seen Canada fall to 13th among 16 peer countries.

“This is not a case of governments in Canada failing to do enough to help companies innovate and boost productivity, nor are these companies reluctant to invest,” said Bill Currie, Deloitte’s managing director for the Americas and co-author of the report. “These overconfident firms need to realize that they aren’t investing enough in research and development, machinery and equipment, and information and communication technology compared to their competitors. For most of them, it’s a case of solving a problem they aren’t even aware exists.”

The report praised Canadian businesses that invest above the median for their size and sector and are helping to drive growth through their productivity-enhancing investments. It also noted that overconfident firms share many traits with these dynamic, growth-oriented companies. If overconfident firms had a better understanding of how their investments compare with those of their competitors, they would change their behaviour and live up to how they see themselves — as risk-taking, highly competitive innovators, said Deloitte.

“With better information, overconfident firms could be motivated to increase their investment levels, which could decrease Canada’s spending disparity with the United States by 29 per cent,” said Currie. “Many businesses are still unaware of how such information could help benchmark their investment and strategic decisions, or the importance of understanding how their investment levels compare to their peers.”

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