Canada suffering from innovation doldrums: IDC

Although Canada’s IT industry is finally emerging from a five-year slump, the country is suffering from a lack of innovation, according to IDC Canada Ltd.

Toronto-based IDC points to the growing productivity gap between Canada and the U.S. as evidence for this country’s innovation lag.

In 2003, Canada’s gross domestic product (GDP) was 19 per cent less than the U.S. GDP and the gap is widening, explained Denis Vance, group vice-president and chief research officer at IDC. He was speaking at the IDC Canada Directions conference earlier this month in Toronto.

The good news is that all sectors of the Canadian IT industry — hardware, software and services — are projected to grow in 2005, Vance said. Overall, Canadian companies will spend $37.2 billion on technology in 2005, up 3.9 per cent from 2004, according IDC. This figure doesn’t include money spent on telecommunications, which will reach $36.1 billion in 2005.

Paul Tsaparis, president and CEO of Hewlett-Packard Canada Co., said Canadian companies have traditionally relied upon the weak dollar to compete against U.S. firms. A weak Canadian dollar compared with U.S. dollars makes Canadian goods and services relatively more affordable to U.S. customers. But in the past couple of years the Canadian dollar’s value has been strong, often trading at more than 80 cents per U.S. dollar. At press time, the dollar was trading at 81 U.S. cents.

As a result, Canadian companies have to devise other ways to be competitive. That’s why it’s imperative for them to invest more in technology, according to Tsaparis.

“If you don’t believe investment in IT increases productivity, just look to the U.S.,” Tsaparis said. “It’s not a leap in logic to say there is some correlation.”

Joel Martin, vice-president, software solutions at IDC Canada, said in the 1990’s, Australia invested enormously in technology and as a result, the country’s productivity has even outstripped that of the U.S.

However, Canada’s corporations still have a cost-cutting mentality; that is, they are cutting costs just for the sake of cutting costs, Tsaparis explained. He also noted that Canadians are still afraid to invest in technology, even though tech is one of the largest Canadian industries in terms of supplying jobs and bringing in revenue.

The small- to medium-sized business (SMB) market particularly under-invests and under-utilizes technology, Tsaparis said.

“There is a credibility gap, since the dot-com meltdown,” said Ralph Hyatt, vice-president, general manager of Toshiba Canada in Markham, Ont. “Hopefully it’s far enough in the past so that vice-presidents of finance have forgotten about it.”

A survey IDC Canada conducted among 1,000 IT decision-makers across the country revealed that twice as many pointed to IT as a significant portion of competitive advantage in 2004 than in 2003 (just upwards of 20 per cent, compared with just upwards of 10 per cent, respectively).

However, twice as many also indicated they received a disappointing return on investment from IT (10 per cent in 2004 and five per cent in 2003).

The lesson is that IT products must perform well to stay relevant, Martin said. As well, IT must be able to adapt to a changing business climate.

Robert Courteau, president of SAP Canada Inc., said companies are starting to understand that tech is a business enabler. But to get firms to adopt new technology and buy into new IT strategies requires presenting a coherent business case.

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