How to solve the "Canadian Productivity Puzzle"

Consider this. Canada has a very attractive investment climate:

• the cost of capital is quite low
• inflation is also at low levels
• even at current exchange rates, the Canadian dollar is still at a much stronger level than a decade before, thus making imports of needed capital goods so much cheaper
• the current Conservative government has worked to decrease levels of corporate taxation
• depreciation allowances on new equipment are among the most generous in the world
• incentives for spending on research and development are also attractive
• free trade agreements are in place with many of our large trading partners, and more are in the pipeline

But why is our productivity lagging?

• it has hardly changed at all from the early 1970s
•  there is strong evidence that Canadian businesses do not adopt best business practices with the enthusiasm shown by their foreign counterparts
• even when they do invest, they do not even get 80% of the consequential rise in productivity that similar US firms achieve

There are various reasons for why this is happening, as noted in a 2010 report from TD Bank:

•  many Canadian industries are shielded from the effects of competition that outsiders face
• there is a reluctance to invest in levels of education demanded of employees by their foreign counterparts
• there is similar reluctance to select available talent brought in by recent immigrants
• incentives appear to be concentrated on the type of inputs, as opposed to desired outcomes (the Small Business Deduction is a good example of this, as it discourages business from expanding to a more desirable size to take advantage of economies of scale)
• there is little effort to develop and protect intellectual property rights that may arise from R&D that has been undertaken
• we must not ignore the excessively risk-averse attitudes Canadian business leaders have historically exhibited

When expressed like this, the solutions would appear to be obvious, but the last factor (in my personal experience) is the most destructive. I have helped to turn several enterprises around through improving how they achieved things, only to see such improvements reversed through subsequent changes in management that wanted to return things to circumstances they were more comfortable with (usually to disastrous results). Nevertheless, the outcomes that are necessary for Canadian business to thrive must still be actively sought, and such efforts are, to not surprise, easy to achieve. As always, I am ready to help.

Jim Flaherty, the man that saved the world

At first glance, the title appears to be somewhat over the top, but consider the reaction when Jim Flaherty's death was announced yesterday:

• proceedings immediately halted in both houses of the Parliament of Canada,
• politicians on all sides welled up in tears, paying tribute to him,
• a meeting of the G20 finance ministers and central bank governors was suspended, in order for all present to publicly pay their respects,
• among comments internationally was the observation that his views were always actively sought in world meetings!

Now that is high praise.Although a social conservative, he was also a master of political economy. He helped Canada to avoid the massive aftershocks of 2008's Great Recession, raised consumer confidence, and brought about some compassion as well, by:

• making massive investments in infrastructure, ,as well as shoring up GM's and Chrysler's Canadian operations (through huge bumps in deficit spending),
• eliminating the hollowing-out of tax revenues through the abuse of income trusts,
• implementing a two-point reduction in the GST,
• tightening borrowing requirements for household mortgages,
• selecting, in a brilliant move, Mark Carney to head the Bank of Canada (which later led to his being poached by the Bank of England),
• giving investors greater flexibility through the introduction of Tax-Free Savings Accounts, and
• introducing the Registered Disability Savings Plan for helping the more vulnerable members of society.

 As a result, Canada has weathered the last few years relatively better than most other countries, and Ottawa is one year away from returning to balanced budgets.

There are missed opportunities to note:

• his initiative to introduce a national securities regulator was shot down for constitutional reasons, but he still kept working on setting up an alternative that would work (for which we should stayed tuned),
• the recession resulted in a massive hollowing-out of Canada's manufacturing capacity and an over-dependence on resource industries, which is not a long-term recipe for economic stability (but that is a failure of corporate Canada, and not of government policy),

But I digress. He will be truly missed.

The proper way to report headcount

It never ceases to amaze me how a simple operation like reporting how many people work for you can be so routinely manipulated:

• if a layoff occurs on the last day of a reporting period, many managers will disclaim responsibility for the people who actually worked during the period, saying that their effective headcount is the people who remain.
• other managers may farm out significant roles to agency workers or outside consultants, and not report such activity.
• others who are on leave of absence are ignored until their return to work.
• conversely, there are other managers who report the positions they are responsible for, whether or not they are actually filled, and whether or not one person is filling more than one position!

These areas (among others) contribute to unreliability in reporting and unpredictability in forecasting future needs. I would like to summarize some current best practice (of which a more precise summary is given here), in the hope that it will help to improve what has been a rather messy situation.

What to report?

Managers must be held responsible for all activity that arises from the areas under their control, and there are several critical areas that need to be covered:

• staff who are on payroll (segregated into full-time, temporary/casual, and part-time)
• non-staff payroll (segregated into contingent labour and consultants)
• actual vs full-time equivalent (FTE) headcount
• internships
• workers on paid leave
• workers on unpaid leave
• workers who are on short-term or long-term disability, who are expected to return to work
• sickness and absence costs
• hours worked
• overtime hours
• vacancies at the end of the reporting period
• training costs

This is a much broader definition than what is given by Statistics Canada for its reporting, but it more properly reflects reality.

Definition of "headcount" - payroll employees

Segregate between:

• Permanent employees: those with contracts without expiry dates or on fixed-term contracts lasting more than 12 months
• Temporary/casual: those, excluding agency workers, with fixed-term contracts of 12 months or less, or are employed on a casual basis
• Part-time: those who work less than an organization's normal weekly hours

Include:

• Agency workers, when paid directly from payroll
• Those temporarily absent but still on the payroll (ie, on maternity leave)
• Seconded employees, where the organization is paying 50% or more of the related payroll cost
• Workers who only work part of the year, where they are being paid at the reporting date
• All those on paid leave

Exclude:

• Agency and other workers not paid directly from the payroll
• Seconded employees, where the organization is paying less than half the related payroll cost
• Self-employed workers
• Voluntary workers
• Former employees only receiving a pension
• Directors who do not receive a salary
• Workers who only work part of the year, where they are not being paid at the reporting date
• All those on career breaks
• All those on unpaid leave

Definition of "headcount" - non-payroll workforce

Segregate between:

• Contingent labour: workers engaged to cover business-as-usual or service delivery activities within an organization (whether agency workers, interim managers or more comprehensive outsourcing arrangements)
• Consultants: those providing management with objective advice relating to strategy, structure, management or operations of an organization, in pursuit of its purposes and objectives.

Counting workers

Headcount relates to the number of workers paid by or for the organization.

While all reporting must include continuity schedules that detail all activity affecting headcounts from opening to closing amounts (ie, hires, exits, going to and returning from leave, and so on), this must be compared to the full-time equivalents for the work actually performed during the reporting period. There are certain critical points to consider:

• Exclude overtime hours from FTE calculations
• Include the contracted working hours for each employee that worked during the reporting period, whether working, temporarily absent or on paid leave during that time
• Divide by the standard working hours of the organization

For the non-payroll workforce, hours must be gathered for all activity worked , in order to perform similar calculations. The related agreements and invoices rendered must note this information.

Other areas to consider

There are other areas that may be required, or may otherwise prove useful for reporting or forecasting purposes:

• diversity of the workforce
• workforce by age
• workforce by seniority

Method of reporting

The type of reporting really needs to be configured to the needs of the organization, but the above data must all be presented in it in a logical way. I prefer continuity schedules to prove movements from beginning to end, and from one bucket to another (ie, change of status from one category to another, going to and returning from paid or unpaid leave). Care is required in designing these reports, or the presentation of the data may otherwise prove cumbersome and difficult to understand. Many examples can be found in web searches, especially in the education sector.

Painless wire-transfer instructions

For many business users, composing wire-transfer instructions for transmitting funds to Canadian banks can be rather frustrating, because the banks themselves do not present the syntax in a way that can be converted to the internationally recognized SWIFT MT103 format. The templates I have seen do not even allow for fillable formats for on-screen entry and validation before printing and forwarding, let along ease of use for on-screen data entry such as is used in other countries. Here are some pointers that I have gathered which may be of use.

Scenario: transmission of CAD funds to a Canadian bank (details of beneficiary)

Bank	Canadian Imperial Bank of Commerce (010) (SWIFT CIBCCATT)
Transit (branch)	aaaaa
Account number	xx-xxxxx
Branch address	123 ANYWHERE ST ST JOHN'S, NL  A1A 1A1 CANADA
Beneficiary name and address	JOHN Q. DOE 456 ELSEWHERE AV ST JOHN'S, NL  A1A 1A2
Remittance information	Either description or reference - in this case, assume payment reference is 123456789
Responsibility for wire charges	Beneficiary (BEN)/Sender (OUR)/Shared (SHA) - in this case, assume BEN

The key fields will be laid out as follows:

Field tag	Field name	Format to be entered
:57A	Account with institution	SWIFT BIC: CIBCCATT //CC0010aaaaa
:59	Beneficiary	xx-xxxxx JOHN Q. DOE 456 ELSEWHERE AV ST JOHN'S, NL  A1A 1A2
:70	Remittance information	123456789
:71A	Details of charges	BEN

There are some possible variations:

• If the beneficiary has obtained his own SWIFT Business Entity Identifier, use tag :59A and enter the account number and BEI only.
• The beneficiary's bank may require the insertion of the branch's address as well, in which case use tag :57D

 I hope this clarifies matters for some users.

Tracking systems to make your work easier

One of the impacts of implementing ISO 9000 systems has been the necessity to be able to track issues from initiation to resolution, and changes to company documentation. There are too many instances, which I am familiar with, of organizations attempting to set these up from scratch. Such developments often have fuzzy goals, expenditures that seem to be out of control, inordinate wastes of time, and a failure rate that is all too high. And that's before updating and maintenance!


The above chart shows a bug lifecycle chart as implemented in Bugzilla, a rather good issue-tracking application that is really open-source software. It has great reviews, is very flexible, and is worth checking out.

For tracking of document changes, Subversion is a great open-source revision control application as well, which can be integrated with many other applications as well for tracking company documents, software documentation, and the like. 

Global Trade Management: do you need it?

Cross-border transactions require massive attention to detail. The following all contribute to this:

• product codes for purchased items need to be matched with the country of origin and be property identified under the Harmonized System
• product codes for manufactured items need to be analyzed to determine whether tariff shifts have taken place under applicable rules of origin
• trade parties (ie, customers, suppliers, carriers, customs brokers, freight forwarders and third-party logistics providers) need to prove compliance with applicable requirements, such as end use and end user for products, necessary registrations and certifications, and security-related information
• appropriate security arrangements (such as the US Customs-Trade Partnership Against Terrorism and the Canadian Partners in Protection) need to be in place in order to receive preferential clearance treatment through the various customs authorities
• economic sanctions, import/export/re-export controls and licensing requirements will require review to ensure that designated goods do not get shipped either to prohibited countries or for prohibited purposes, or to (or through) prohibited trade parties
• free trade agreements will require certificates of origin to be on file to prove that shipped goods qualify for preferential treatment
• duties, taxes and fees have to be properly matched to applicable product codes in line with the above
• accounting for activity that occurs in duty-free zones
• the matching of transactions with applicable letters of credit (where they are used)
• full documentation of the above, and how they have been applied to specific transactions, will need to be kept on file for future audit by the appropriate authorities

 This is a very daunting list, and many organizations still tend to still treat this as a manual operation, and that can be cumbersome. With most organizations operating ERP these days (and shame on those who still don't), it is a valid question as to whether that can be extended to handle the above through what is referred to as a Global Trade Management platform.

This is a decision that cannot be taken lightly. It is estimated that the software cost for such a move will be between 0.25-1 million dollars or more, and implementation costs will be 2-3 times that amount. The following vendors are currently promoting their own particular solutions:

• Oracle and SAP - naturally - are offering extensions for their own platforms
• Other vendors with broad-based offerings include Integration Point, Precision Software and Amber Road. There are others that appear to offer less comprehensive solutions.

If you are a reasonably complex enterprise operating in two or more countries or having extensive cross-border supplier and customer networks, these may be worth investigating. As always, be aware that most IT projects do fail for lack of proper cost-benefit analysis, lack of buy-in (a huge consideration in Canada), or improper training (a huge failing here as well).

Just how good is FOSS getting?

Microsoft, Apple, Adobe and the like do create excellent software, but the license fees that are required can be prohibitive for organizations of any scale. Fortunately, this last decade has seen significant developments in the FOSS (Free and Open Source Software) alternative.



For example, take the city of Munich in Germany. Rather than remain hostage to the Microsoft régime, it chose to go the Linux route, and has completed the migration of 15,000 of its 18,000 workstations to its own LiMux platform. It took ten years, but it appears to be worth it. Most of the documentation at their site is in German, but there is a lot to learn about what they did to standardize their development of documents and forms which can be seen here.

On a smaller scale, any organization can benefit from the software that is available now:

• For a standard office suite, check out OpenOffice or LibreOffice. They use the Open Document Format, but can import and export from Microsoft formats as well, and also export to PDF.
• For those that need to use a good desktop publishing application, Scribus is excellent and it exports to PDF as well. If you need the more extensive capabilities provided by LaTeX, give LyX a try.
• Mozilla Thunderbird is a great e-mail client, which is easily customizable.
• For those who work with graphics, GIMP and Inkscape are excellent choices, for raster and vector formats respectively.
• There is too much about Linux that can be summarized easily, but note that many server installations depend on one distribution or another, as opposed to Microsoft or one of the other proprietary vendors. The good people in IT are quite familiar with this.

I have only scratched the surface. This is a field that is worth checking out further.