According to the article on the Deloitte report, Canadians are fat and happy and too few are willing to invest and to take risks. This is an interesting idea but one that is a bit hard to quantify.  

The report (The Future of Productivity, Clear Choices for a Competitive Canada) points out that large firms are more productive than smaller ones but that the higher concentration of larger firms in the US does not explain the difference.  Differences in the size of businesses are not an explanation for the differences between the two countries. Productivity is higher in the US across all firm sizes.

Interestingly, the report suggests that the US financial sector is more productive than its Canadian counterparts.  This is perhaps counterintuitive, especially since many of the large US financial institutions such as Lehman Bros and Bear Stearns no longer exist.  This raises the issue of "sustainable competition" in a different light. In addition to the impact of productivity on environments and societies, it would be worth considering whether competition is sustainable for the individual and the organization over the longer term.  For many US financial services companies it wasn't simply because they took excessive risks, it was that they engaged in practices which were often illegal and unsustainable such as accepting "no doc loans".|

The results for the oil and gas sector are also surprising and show Canadian firms perform poorly compared to their US counterparts. One might think Canada would excel in productivity gains here given the importance of the sector and of the investments made in the oil sands and off shore.  In fact the report does suggest that both the sectors in the US and Canada had declined in terms of productivity but that this is largely due to massive increases in investment in both countries which in the short term decreases productivity while it is necessary to increase productivity over the longer term.   Also, because this sector is a much larger proportion of the Canadian economy the overall effect of the decline is much greater on the Canadian economy than it is in the US.

In manufacturing Canadian productivity improvements were lower across all sectors the study looked at.  Generally this is explained by three factors, the rising Canadian dollar, rising labour costs which to some extent are associated with the higher exchange rate and less investment in new technologies.  The report says that Canadian businesses made only 52% of the investment that US firms per worker in labour saving machinery over the period from 2000 to 2007.  A question of interest here would be why is the case.  Is it because Canadian managers and owners are risk adverse?  The question of risk aversion among Canadian business leaders would be a question worth exploring further.

The conclusion that retail is the one sector which is an "illuminating bright spot and the most significant contributor to narrowing the productivity gap" is another surprising conclusion.  With the entrance of companies like Target, Walmart, Home Deport into the Canadian market which seem to have had great success taking market share away from Canadian competitors, it seems a stretch to imagine that Canadian retailers are more productive. The global bright spot in retail is, of course, the online businesses such as Apple and Amazon that are American and which are highly innovative and productive.  Rather than suggest that our retailers are doing well, it might be more interesting to try to understand why these online businesses have been so successful and what Canadian firms could learn about innovation in this sector.

An interesting conclusion is that Canada has its fair share of fast growing new entrepreneurial firms but that over time, a number of factors such as risk aversion, low export activity, and weak R&D activity stifle growth.

The results for risk aversion are interesting and are based on a survey of executives and perhaps help to explain lower levels of investment.   The report also references a 2006 CIBC survey of small business owners that suggests that the issue may also be related to a higher priority placed on balancing wealth creation with other lifestyle choices.  US entrepreneurs were more likely to say that wealth creation alone was their primary motive.  The report concludes that both factors are at play; attitudinal differences may affect the growth in demand for financing but there is also less risk capital readily available.  Early stage businesses in Canada can only access 35% of the funding available to US start-ups.

The report suggests that Canadian business is less innovative.  They discuss the business life-cycle and suggest that managers in Canada are not quick enough to address decline let alone to engage in "creative destruction” and to re-invent and re-invigorate their businesses.  

The issue of creative destruction and the suggestion that Canadian businesses are less innovative are areas that warrant further investigation.

The report goes on to make sound recommendations for business, government and academia.  It suggests that businesses should strive to become national and international and leverage new capital equipment.   Government should among other things encourage foreign investment, continue to improve the immigration system and provide incentives for growing rather than for being small. For academia the report suggest greater focus on commercialization and creating the curricula to support productivity.  While all the recommendations are sound, those dealing with academia seem to be the most pragmatic and perhaps the most straightforward to implement.

At the same time, we have to keep the role of randomness and market forces in mind.  A hedge fund that made a killing in the economic downturn may turn out to be a one trick pony, making one lucky bet perhaps betting against financial institutions.  Some potentially great entrepreneurs may not have been successful due to factors that were truly beyond their control. This seems to be an important factor to keep in mind when looking at a “case study” approach to understanding innovation an business success.  It’s amazing how often business books site examples of success which in retrospect are not. Lehman, Bear Stearns and MF Global are all examples. Blackberry will be a hero or a villain depending on how it fares over the next months and years.

Still it is clearly important to understand the role of leadership in competitive success and innovation. In “Judgment: How Winning Leaders Make Great Calls”, Noel M.Tichy and Warren G. Bennis, make the case that leaders make crucial judgments in three areas; People, Strategy, and Crises. Judgments are characterized by three phases; Preparation, the Call and Execution. At a high level it might be of interest to consider where some of these leadership failures have occurred according to these three types of judgments. For example, Amanda Lang author of The Power of Why in a recent interview on the CBC suggests that RIM’s shortcoming were that is was too content with the status quo.  Perhaps this was a failure of strategy, trying to focus on the business market and not being aware of the potential of competing devices that were popular with consumers to become dominant in business as well.  In terms of leadership challenges in the RCMP, judgments with respect to people seem to have been a key issue when two Commissioners have had to be replaced since 2007.  

Another model is proposed by Roger Martin in the Design of Business. He points out that the most successful businesses will balance what he terms reliability and validity. Reliability is the consistency and effectiveness of business processes.   McDonald’s will reliably provide the same dinning experience, following the same processes in all of its restaurants.  Validity is the creative development of new ideas, products and services which can not necessarily be done in a reliable way.  Breakthroughs, innovation and creativity require different thought processes involving “abductive” logic. This is reasoning based on wondering about observations that don’t fit existing patterns and coming up with new designs and creative solutions.  He argues that businesses focus on analytical thinking including deductive and inductive logic because the focus is typically on process improvement rather than on creativity.  Design thinkers can balance analytical thinking and creative thinking. There are some similarities between this approach and Lang’s concept of the Power of Why.  Abductive logic might also be seen as risk taking simply because to invest resources into a concept that does not have a track record in most businesses is seen as risky.  They prefer to focus on what has worked and improve it.  This would be similar to being stuck in the status quo.  The concept of risk in this context is essentially reluctance to innovate and is consistent with Deloitte’s suggestion that Canadian businesses are risk adverse.

The key research question here is the extent to which Canadian businesses do balance reliability and validity and is this a predictor of success.

Canada has many excellent organizations and innovators. Texts on leadership seem to regularly mention the Cirque du Soleil, the Four Seasons Hotels and Resorts. Barrick Gold, Potash, Cameco and Magna International are seen as global leaders as are many Canadian Banks and leaders in Oil and Gas and other natural resources.   Among start-ups, Shopify of Ottawa is rated as one of the best ecommerce platforms.

 But what of other major organizational failures in Canada?  Is it simply the absence of leadership from the top or other facilitators?  Is it a mindset that is not conducive to success and which can permeate an organization?  What other factors are at play in corporate failures like Nortel, or that have led to the need for leadership changes in the RCMP or in the Royal Canadian Airforce or the City of Montreal.

A surprising measure of productivity, although perhaps not totally accurate, is the comparison that it costs 20 to 30% more to build a road or a sidewalk in Montreal than in Toronto (Toronto Sun, Oct 5, 2012). This is due to the inflated costs associated with corruption.  Setting aside whether the number is accurate or whether or not there are similar types of corruption in both cities, it is safe to say based on the astounding testimony heard to date from the Charbonneau Commission into Quebec’s construction industry that corruption has been a huge contributor to excessive costs and poor productivity in Montreal.  In thinking about an agenda for competitiveness in Canada, it may have seemed unlikely a year or two ago that ethics and corruption would be important factors to consider. In the World Economic Forum report on Global Competitiveness, corruption is just mentioned by less than one percent as one of the most problematic factors for doing business in Canada. This compares to 19% who mention it as an issue for the Czech Republic or 16% for India.  It will be interesting to see if this rating for Canada increases next year and if there is an impact on the country’s competitiveness  rating.  A key question here of course is leadership.

 The testimony at the Charbonneau Commission has resulted in the resignation of three mayors including the Mayor of Laval and the Mayor of Montreal, Gerald Tremblay.  While not directly implicated, Tremblay was seen to have turned a blind eye to corruption in the City and in the fund raising practices of his own party. Looking at the testimony of one disgraced City of Montreal engineer, Gilles Surprenant, one sees an employee who says he was in collusion with other staff as well as suppliers and seemed to be operating in an atmosphere of fear.  Perhaps this isn’t surprising given that he was being paid kick-backs from suppliers, but what would be interesting is to know is how many other organizations and how many people work in organizations where there is toleration of unethical behaviour, collusion and fear. So the key issues here are leadership, the impact on corporate culture and ethics and on innovation, competitiveness and productivity

Also of interest are industries that have failed. Looking at the financial crisis of 2008, it is generally assumed that the cause was the development of highly leveraged and sketchy financial instruments; primarily mortgaged backed securities and poor regulation. It would also be of interest to understand the role of culture, and how it was that such risky behavior and business practices were allowed to flourish. It is generally assumed that lack of regulation played a key role and it probably did.  But what of the individuals, their motives and the cultures that were established. One explanation is somewhat similar to the “prisoners’ dilemma” where prisoners have to decide between whistle blowing and collusion.   A culture can be created where collusion is in the best self interest of everyone involved.  Any financial institution that did not participate would have had relatively poor performance in their financial results and share price compared to those who were deeply involved in developing products based on unverified sub-prime loans.  However, while the prisoner who told the truth may have benefited in the dilemma, when the regulators are complicit there is no benefit in coming clean. It seems regulation, or the lack of it, was critical and this is of course a type of leadership failure.  Governments are supposed to provide leadership in the establishment of laws and in promoting a level playing field for businesses to compete