It is no secret that Canadian businesses have fallen far behind foreign counterparts in competitiveness. Despite ranking ninth in the world in terms of digitization (what Booz & Company calls the mass adoption of connected digital technologies and applications by consumers, enterprises and governments), productivity levels in the private sector are considerably lower than in other OECD countries. High digitization combined with poor productivity almost certainly implies inadequate adoption of technology and a need for increased R&D. High risk aversion contributes to the problem because innovation and risk go hand-in-hand.
Various government programs now exist to encourage investments in information and communication technologies (ICT), R&D and innovation. As a result, it is now time for more private sector enterprises to step up internal efforts to become more productive, not to mention competitive on an international level. Before doing so, however, managers should ensure organizational factors that nurture productivity growth are aligned. This is particularly true for small and medium sized organizations (SMEs).
It is not perfectly clear why Canadian firms have not made greater efforts to improve productivity. But not much literature is available to provide SMEs with a systematic approach to dealing with barriers to increased productivity. As things stand, productivity research typically takes a macroeconomic perspective. And it is often hard to apply macro research findings to individual business settings, particularly for smaller firms. This article offers a framework to help Canadian SMEs effectively tackle the productivity gap.
Managers of small firms often see productivity primarily in terms of employee performance, an area that usually has, at least in isolation, the least potential for productivity improvement. Even many firms that take a holistic approach, which opens executive minds to productivity programs that can yield higher gains, often fail to achieve significant results due to a misalignment of strategy, technology, operations and culture, an organizational state that is almost guaranteed to limit the success of productivity initiatives. To address this issue, I have developed an alignment framework called the Three Pillars of Productivity (3POP). Strategy, operations and technology are the three pillars of the framework, and they stand upon a base comprised of a solid organizational culture.
Strategy is the first pillar in the 3POP model. Most SMEs do not spend much time, if any, discussing strategy. The focus is typically on tactical operations. However, SMEs that follow strategy execution processes almost always outperform the ones that do not. There are many types of strategy. A firm with serious growth aspirations, for example, needs a global strategy that supports export sales. Nevertheless, strategy can be boiled down to two components: degree of differentiation and degree of low-cost leadership. Most companies have some degree of both. But managers must still clarify the mission and vision of the company and perform a strategic analysis that considers alternative options. They must then execute the chosen strategy via operations, the second pillar in the 3POP model, which is more flexible (although flexibility is reduced as firms grow) and should be continuously adjusted to support the strategy.
Strategy can’t be written in stone because changing market conditions can require a shift in direction. However, if strategy and operations are misaligned or conflicting, companies with a well-defined business plan should look at changing operations, not strategy, before implementing productivity programs. After all, improving operations that do not support the strategy simply makes a firm better at something that does not support its goals. The end game is a perfectly complementary strategy-operations relationship.
The third pillar in the 3POP framework is technology. Collecting quantitative and qualitative data to support decisions is critical in the rapidly changing markets we face today. Using technology to make operational processes more efficient is also a must. But the wrong investment can make or break certain businesses. Like a contractor using tools to build a house, managers must select the right technology for the job at hand. This is critical to improving productivity.
Identifying technology that best supports a business plan is not simple, but having a well-defined strategy that is aligned with operations will make technology selection easier. Keep in mind the goal is gaining a competitive advantage, not simply keeping up with competitors. Organizations, especially SMEs, cannot adopt every new tech tool that becomes available, but managers must constantly monitor the market for innovations and be ready to act swiftly whenever a game-changing option emerges.
Aligning strategy, operations and technology is critical. But the first step to nurturing significant productivity improvements is creating a supportive culture. After all, while any well-aligned combination of strategy, operations and technology can support productivity improvement, specific cultural traits are almost always needed to realize significant productivity gains. They include willingness to change, tolerance for failure and acceptance of calculated risk. Productive company cultures also tend to show flexibility for employee roles, since changing productivity means changing processes, and an ownership mentality amongst workers, meaning employees who genuinely wish for the company to improve.
Ensuring that the right corporate culture is in place is by far the hardest part of preparing for a successful productivity initiative. Attempts to replicate other corporate cultures almost always result in failure because culture is unique to organizations. Nevertheless, the benefits that come from having a risk-tolerant culture geared towards change are not limited to productivity, particularly for global organizations or organizations with global aspirations.
Simply put, culture characterizes a firm more than any other aspect of the framework, which is why it should be the first thing a firm looks at when seeking sustainable productivity gains. With the right culture in place, firms can experiment with any set of strategy, operations and technology so long as they are aligned.
Launching productivity initiatives may seem daunting, but very few firms need to completely overhaul their operations or culture. Indeed, as long as firms follow a systematic approach, it often takes just a few tweaks and perhaps one or two major changes to align strategy, operations and technology and create a productivity-supporting culture. Once that is done, any Canadian SME has the potential to dramatically increase growth by entering international markets as a worthy competitor. After all, the more productive a firm is, the less risky international ventures become due to price competitiveness.