Canada’s large enterprises have a leadership role to play in improving small- and mid-sized firm’s productivity levels, according to one IT industry observer.
Steve Butler, senior analyst at eMarketer Inc., a New York City-based statistics aggregator, says big Canadian companies should encourage smaller businesses to use e-business tools to improve productivity.
“Essentially the SMEs (small- and medium-sized enterprises) are sitting on their hands” when it comes to using things like electronic procurement and supply-chain management (SCM) apps, Butler said during an interview with IT World Canada. “They’ve done the basics of getting hooked up and ready to do e-business, but they need that push to take the steps to start doing the heavier lifting.”
He suggested that large companies could urge the little guys to fully embark the IT bandwagon by setting certain standards — a large enterprise should mandate that suppliers use a particular SCM program if they want to do business, for instance.
In his report, entitled IT and E-Business in Canada: Spending and Trends, Butler says Canada’s relatively low productivity beside that of the United States has much to do with SMEs’ adoption of advanced e-business tools.
Whereas labour productivity in the U.S. grew by 2.5 to 4.5 per cent from 2001 to 2003, productivity in Canada grew by no more than 2.3 per cent over that period of time.
SMEs in particular seem to be the culprit for this country’s generally low productivity growth, Butler says in his study. Canada’s business landscape consists of small companies for the most part — approximately 90 per cent. If the little shops don’t improve their productivity, that affects the nation’s entire corporate picture.
Butler says Canadian SMEs are not big buyers of e-business programs. He quotes a survey of SMEs conducted by McMaster University in Hamilton, Ont., saying a mere 36.8 per cent of respondents track suppliers’ orders online. Just 38.2 per cent use the Web to exchange supply chain data.
Meanwhile south of the border, U.S. tech manufacturers use Web-based SCM apps, as well as supply-chain planning software and product lifecycle management tools.
Butler points out that the U.S. manufacturing industry, which includes the tech manufacturers mentioned above, leads productivity growth in that country. Canada’s less tech-savvy manufacturers are by no means the productivity leaders here.
According to The Bank of Canada, “productivity growth allows real wages to increase by lowering prices, thus leading to real improvements to (sic) our standard of living.”
Butler says SMEs could improve their productivity if they used advanced e-business applications like SCM and information or product lifecycle management tools. He quotes the results of a survey from the Canadian e-Business Initiative (CeBI), a private sector-led group focused on digital commerce: “SMEs that successfully adopted complex Internet business solutions realized sustained and tangible organizational benefits.”
Butler writes, “Respondents reported an average 9.5 per cent decrease in the cost of goods sold in addition to a 7.5 per cent decline in sales, general and administrative costs thanks to their use of e-business solutions.”
What’s holding small companies back from purchasing e-business programs? Butler says SMEs view these apps as complicated, difficult to manage — especially when the IT department comprises one business-line manager who happens to enjoy tinkering with technology.
SMEs might find a solution in IT service providers, Butler said. “People are becoming more comfortable outsourcing mission-critical applications. That becomes an alternative for small and medium businesses.”
In his report, Butler cites an Ipsos-Reid survey that points to productivity as a prime concern among Canadian businesses. Productivity was respondents’ second-most important issue, right behind “ensuring the long-term financial health of the company.”
Butler said SMEs could help themselves to better productivity through IT by developing a three- to five-year e-business plan. This blueprint should prioritize the company’s business objectives, and map out just which computer-based functions would aid the endeavour. The planning process should help businesses decide what to look for by way of IT equipment.
But just as important is the large enterprise’s role, Butler said. “They really have to step in and show some leadership within their industry, saying, ‘This is the standard we want to adopt, and this is the mandate we want you to follow.’”
Butler added that Canada’s paucity of large companies might make this path more difficult to follow than it is in the U.S.