Archive for the ‘Productivity’ Category

by Richard Martin

At the beginning of this new year, among the economic priorities in Quebec must be included the improvement of leadership and an increased investment in human capital with the aim of increasing permanently the productivity and profitability of small business in Quebec. This will help attract greater capital to our small businesses for purposes of investing in new techniques and technologies. Greater profits also would allow small business to increase wages and salaries, which will affect positively its capacity to attract qualified employees and managers, who would then be dedicated and loyal to their employers.

According to Statistics Canada, small business constitutes 92% of all private sector employment in Quebec. This surpasses somewhat comparable figures for the rest of Canada and, by far, figures for other G7 countries, including those of the United States. The predominance of small business in our economy explains in a large measure the relatively low productivity and profitability of Quebec companies and their limited capacity to attract investment. Small business in Quebec must compete against competitors who feature much greater economies of scale. These economies permit greater and quicker return on investments in research and development and capital goods including application of new, high technology.

Surveys by the federal Business Development Bank (BDC) clearly demonstrate that the two greatest problems for leaders of small business in Quebec are the shortage of capital for investment projects and the necessity of increasing long term profitability. Obviously, one can’t happen without the other. In short, small business is the motor of both the Quebec and Canadian economies, but it competes in a hostile environment where big business enjoys important economies of scale making it more productive and profitable.

Furthermore, in addition to imperatives of competition, productivity, and profitability, increasingly small business in Quebec has to compete with big business for skilled workers and managers who are becoming rarer, hence, the object of greater competition. There is nothing new about interesting pay and working conditions for attracting personnel. Moreover, some big businesses now offer their staff the possibilities of unlimited vacations and allowing employees to work a part of their paid employ on useful projects of the employees’ choice. Small business in Quebec must not only compete for clientele but also for the best workers and managers.

In spite of all this, small business in Quebec does have one superior advantage. What might appear to be a weakness can actually be a strength. Big business can display a tendency to become bureaucratic and slow to change direction. It can also become disconnected from customers, employees, and business allies and partners. On the other hand, small business can substitute cohesion, speed, adaptability, and agility to the size advantages of big business. In order to survive and prosper, small business in Quebec must employ its size to its advantage. The shareholders of a small business can often include its founders, or its second or third generation owners, besides operating as its leaders. If they know how to lead and mobilize their personnel, an entrepreneurial spirit and culture can thrive at all levels of the company. The business’s leaders, whether they be company founder or son or daughter or even grandchild of the founder, shareholders, or managers working for company owners, can easily get to know all employees. This can allow them to appreciate their strengths and shortcomings, talents and individual goals in order to obtain their best possible performance by supporting employees’ personal and professional development.

Exceptional leadership and organizational mobilization thus can constitute significant competitive advantages for Quebec small business. For this to occur business owners and leaders must produce useful, mobilizing mission statements. They must lead their employees towards ever-increasing levels of quality, productivity, and profitability. Businesses wherein leaders know how to breathe the entrepreneurial spirit into their companies while setting good collective objectives and encouraging individual initiative can be flexible and able to recognize and pursue opportunities and to resist threats. This will permit short term increases in productivity without immediate recourse to capital investment. The resultant, increased profitability can happen more quickly. Increased profits can be directed to improving pay and benefits, greater investment in human capital, in addition to technological productivity. This can also make companies more attractive to new labour and managers, which can further increase productivity, thus, profitability.

Two examples serve to display the links between leadership and mobilization and increased quality, productivity, and profitability. Firstly, assume an employee knows his or her essential role in the business. Such is an employee’s dedication and motivation that he or she will treat customers well with courtesy and professionalism. As well, an employee who recognizes the need to economize rare financial and material resources will be able to recognize and indicate waste, and seek to eliminate it.

In a second example, a well-motivated and mobilized employee will know and understand the vision and mission of the company. The employee knows where its leaders wish to lead the company. Using these, the employee can propose new ideas with respect to products, customers, techniques of production, and the sharing of information and knowledge within the company. This will be the case especially if he or she knows the ideas will be valued and implemented. These ideas need not imply additional financial layout; for example, a new method on the production line might bring savings and improved quality and quantity of products.

In fact, capital investments simply materialize someone’s previous, good ideas external to the company. The good leader can transform good industrial relations to company objectives. Only a few large companies can so motivate their employees—for instance, Apple or Google—but these are only transitory phases in the lives of these companies that are often provoked by inspirational, charismatic leaders. All the above principles are available to small business in Quebec. What is needed is the necessary will to undertake the required changes.

Richard Martin is a management consultant and trainer living in Montreal who works locally, nationally, and internationally. He is the co-founder and president of the Montreal-based Canadian Academy of Leadership and Development of Human Capital (CANLEAD Academy). He envisions performing organizations that are lasting, cohesive, and adapted to change that invest in human capital. Mr. Martin assists ambitious entrepreneurs and leaders surpass themselves in terms of organizational cohesion, growth, and performance. His advice and training come from a long career building, leading, and mobilizing organizations composed of Quebeckers. Much of his experience was gained as an officer in the Canadian Army operating peace support missions, conflict management, humanitarian assistance and reconstruction in hostile environments that were uncertain, risky, dangerous, and chaotic. In such environments dedication, cohesiveness, and inspired teamwork were essential to the success of missions.

© 2018 Richard Martin. Copying and sharing permitted subject to normal attribution.

The minimum wage in Ontario jumped from $11.60 per hour to $14.00 as of January 1st 2018. Already, there are reports that small businesses will struggle with this jump. This will lead either to increased demands from the workers to generate the productivity increases to compensate, or layoffs and hiring restrictions, as businesses struggle with the increased labour costs without concomittent productivity increases.

Wages are the price of labour. All other factors remaining equal, a mandated minimum wage rise increases the price of unskilled labour, which lowers the demand for it. In other words, less people will be making a bit more money, but it will likely leave many unskilled or under skilled workers in the cold. These are the people normally hired by many small businesses and they can’t afford the pay rise. They will have to lay off workers, hire less workers, and/or do the work themselves.

Additionally, this affects mostly young workers. Statscan’s Labour Force Survey 2015 shows that two thirds of of men earning less than 15K per year (a proxy for minimum wage employment) are in the 15-24 years-old age category. For women, it’s three quarters. I don’t know what explains the disparity. In any case, you can see it here (incidentally reported on an apparently left-wing website): http://www.progressive-economics.ca/…/who-earns…/ (see last table near end of article).

The article notes that young workers deserve “fair” wages too. My question then is, by what standard? If by government fiat, that only raises the price of labour without necessarily generating increased productivity. If by the free market, then the prices reflect the real marginal productivity of the employees that are hired.

The Bank of Canada is predicting that there could be up to 60,000 job losses by 2019 because of increases to minimum wages. TD Bank is predicting 90,000 job losses due to the same cause. These are obviously just forecasts, so we have to take them with a grain of salt. But the reality is that we can’t ignore basic economics by legislating minimum wages. Businesses pay people what they must in order to survive and thrive. But if they can’t generate sufficient profit by doing so, they have three options:

  1. Hire less people;
  2. Improve their productivity (which requires investment in human and intellectual capital development, as well as physical capital); or
  3. Go out of business or go into a different line of business with their existing capital (which may or may not be convertible quickly.

© 2018 Richard Martin. Sharing and reproduction permitted only for non-commercial use.