WELCOME TO BUSINESS INSIGHTS
The report shares the results of the eighth annual Business Insights® Survey of Canadian Private Companies. In the summer of 2012, PwC surveyed over 400 leaders of Canadian privately-held companies from a broad range of industries to share their thoughts on the issues affecting their business. Issues such as current and future performance, innovation, leadership and talent were just some of the topics discussed.
For a second consecutive year, the survey revealed that Canadian private company leaders are optimistic and confident that things will improve, and are planning to grow over the next 12 months. The majority of companies plan to take their business to the next level, following their "gut feeling" and lessons learned from the recessionary years to navigate the future of their business. They're keeping a close eye on the looming grey cloud of the economy, setting realistic goals and plotting growth accordingly, arming themselves with the tools, efficiencies and cost-reduction strategies to handle obstacles that may come their way.
Although private companies across Canada are focused on managing costs to thrive in today's uncertain market, one particular area that concerned me was the lack of understanding and effective use of leading-edge technologies to evolve business. Given today's competitive market, companies need to focus on building technology into their innovation strategies. Leaders need to realign their social media strategy to not only build their brand, but also to collect customer feedback and foster internal collaboration among their people. What's more alarming is the number of leaders who have no plans to invest in mobile technology. The need to embrace the new has never been more important to the success of your company. PwC is committed to helping your company succeed over the long-term. The Business Insights Survey helps us to gain a better understanding of the issues and challenges facing private companies and can be used as a resource to help you plan for the future of your business.
I hope that you enjoy reading the report and I encourage you to reach out to any of the contacts listed on the back page to talk about the survey findings or topics discussed.
Tahir Ayub
Canadian Private Company Services Leader,
PwC
ECONOMIC OUTLOOK - 2012–2013
Even as developed world central banks prime the pump furiously, the spark of global growth remains elusive. The global economy lacks vigour, and domestic sources of growth are providing less lift than expected. We expect the Canadian economy to expand at less than 2.0%, well below its potential pace, in 2012 and 2013. Before we turn our attention to Canada, let's start with a discussion of the global economic backdrop.
HSBC's global growth forecast for 2012 is 3.0%, with a modest increase to 3.3% in 2013. We have particular concerns over the health of global trade toward year-end of 2012, and over the looming potential for a sharp fiscal contraction in the United States, unless actions are taken quickly after the US Presidential election to avoid going over the "fiscal cliff."
In Europe, the European Central Bank (ECB) President Draghi pledged in late July to do "whatever it takes" to save the euro, and those words were reinforced by the ECB's commitment to Outright Monetary Purchases in early September. Even so, the crisis in the eurozone periphery remains a downside risk to global growth, with slowing global factory sector activity resulting in a late year downturn in external demand and global trade.
Another source of risk facing the global economy toward year end is the US "fiscal cliff." The name denotes the potential impact of US tax increases and spending cuts that are scheduled later this year and in early 2013. If nothing is done to avoid these automatic tax increases and spending cuts, the US federal budget deficit would decline by USD600 billion, or roughly 4.0% of gross domestic product (GDP). US aggregate demand would, in effect, drop off a cliff. We think the potential of such a trauma will spur political leaders to compromise.
At HSBC, we think that the outcome of US political negotiations will foresee a fiscal drag of 1.1% of GDP in 2013. A third, less likely, scenario would be a post-US election postponement of difficult decisions. However, the US would still face difficult fiscal decisions, and such a strategy would likely prompt sovereign credit rating downgrades. Overall, HSBC expects the fiscal drag to limit US GDP growth to 1.7% in 2013, after growing by 2.2% in 2012.
The above discussions highlight that the most challenging period for the global economy will be 2012 Q4 and 2013 Q1, when down-side global and US economic risks are most acute.
For Canada, we expect growth of 1.9% in both 2012 and 2013, which though moderate, would still outpace the tepid advances in most other G7 nations. Growth though will be narrowly based. With Canadian households focused on elevated debt levels, there has been a renewed impetus for borrowing and spending restraint. As a result, consumption will provide only one-half the boost to GDP growth compared to that experienced during the commodity boom between 2003 and 2008. Meanwhile, as with many governments in emerging markets and in the G7, Canadian governments at all levels are focused on fiscal austerity or deficit control. Though the drag of the US "fiscal cliff" gets a great deal of attention, fiscal drag will be widespread in 2013, though for Canada the International Monetary Fund (IMF) projects that the fiscal drag will be roughly one-half the G7 average. Lastly, residential investment is expected to cool, in part due to measures implemented by the federal government to tighten mortgage rules.
That does not leave many other sectors to boost growth. One that we focus on is non-residential business investment. Surveys suggest that Canadian firms remained quite optimistic with regard to non-residential investment in plants and equipment. As well, with the Canadian dollar still persistently strong, the "terms of trade" still favour imports of machinery and equipment, presenting an opportunity for cost-effective, productivity-enhancing investment.
Bank of Canada surveys also suggest that Canadian firms remain positive on future employment prospects, a trend that is evident in Canada's Survey of Employment, Payrolls and Hours, which is Canada's version of the US Establishment survey.
With a still unstable global economic backdrop, slowing global trade, the uncertainty in the US, particularly in the first half of 2013, and a more moderate pace of GDP growth in Canada, we expect the Bank of Canada to remain on hold throughout 2013.
EXECUTIVE SUMMARY
The 2012 Business Insights Survey finds an overwhelming majority of respondents (81%) are planning to grow and expand over the next 12 months. This is despite the fact that they're concerned about the economy, which most believe will be the top issue that will influence their companies in the coming year. However, strategies for growth are focused on factors they can do something about rather than those beyond their control. Sixty-two per cent of respondents cite improved sales and marketing as their top strategy for growth, 51% list market share gain and 49% say they will use improved internal systems for growth. As well, 47% cite reducing the cost of operations as their number one priority to improve their competitive performance. It's important to note that four years ago, Canada's private companies zeroed in on improving their efficiencies and reducing costs as a means to survive the recession. Now, they have embraced these as an ongoing process not to survive, but to grow, gain a competitive edge and reinforce their agility.
Private companies are looking beyond these strategies to find new ways of seizing growth and opportunities in today's world of complexities, volatility, uncertainty and rapid change. Many are turning to new technologies in order to do this, with 53% of respondents saying they are looking to invest in mobile computing within the next three years, 45% considering investing in customer relationship management systems (CRM) and 38% embracing social media/ networking. They also have an eye on innovation. Most say they have a created a culture that encourages creativity, with 77% of respondents believing that as leaders, they clearly communicate their company's business focus on innovation as a priority.
Canada's private companies have accepted that volatility, uncertainties and tough challenges, including fierce competition, price-cutting and skilled labour shortages are here to stay. But they're also confident in their own abilities to grow in such an environment—and for many, to grow robustly. They're not about to wait for better and more secure times—which may never come. This year's Business Insights Survey points to an emerging aspect of the new reality: Canadian private companies are owning the today and tomorrow of their business.
INTRODUCTION
If there is one theme that permeates the findings of this year's Business Insights Survey, it is self-confidence. Last year's report found Canadian private companies had not only adapted to the uncertainty of the new post-global recession world with all its complexities, intense competition and rapid change, they were actually taking it on.
This year's findings reveal the majority of companies have rooted themselves in this approach and taken it to the next level. They are now deeply confident in their own capabilities to embrace change and external challenges. They have—and continue to arm themselves with the tools, efficiencies and cost reduction strategies they need to maximize their ability to proactively respond to external curve balls. They're setting realistic goals and strategically plotting their growth, with half of respondents currently conducting business outside of Canada. While companies are aware, informed and alert about external forces, they are not counting on them for success or view these external forces as potential blows that will inhibit future growth. Instead, they believe in their own abilities to pave a solid bridge of success for themselves over the quicksand of uncertainty and change, not just today, but for the long-term.
"Despite some of the doom and gloom we read in the news these days, there is still tremendous confidence out there in terms of private company CEOs looking to grow their top line. They are consistently focused on the top three priorities of how they run their business: managing their costs, using technology and driving innovation," says Tahir Ayub, Canadian Private Company Services Leader, PwC.
Ayub's observations of Canadian private companies confirm that self-confidence earned through solid strategic planning and ongoing improvement of efficiencies is key to success in a world of uncertainty. "There are some companies that are seeing flat growth and other companies that have double-digit growth. It's all over the place and has no relation to externals," he says. "I've seen companies in retail hitting double-digit growth rates, but there's no way that the retail sector is seeing double-digit growth rates. I've seen companies in booming industries that aren't doing well at all. More than ever, it depends on what you are doing and how effective you are in your strategic planning and execution."
Confident companies are investing in and leveraging technology, with a high percentage of respondents this year planning to either buy new enterprise resource planning (ERP) or client relationship management (CRM) systems or upgrade existing ones. "That's very impressive and good news because these systems not only improve efficiencies, they also help provide real-time information for informed decision-making," says Ayub.
The survey findings, however, did raise an alarm when it comes to effective use and understanding of leading-edge technologies. Only 16% of respondents said they were using social media internally—which, particularly for larger companies, should be a critical component of an innovation strategy. As well, 25% of respondents had no plans whatsoever to invest in mobile technology. "This is staggering. They are going to be left behind," says Ayub. "There is no industry, no function within a company that is not going to be affected by mobile technology. Mobile technology just means a leaner, meaner, more efficient way to do business. It doesn't take away from the soft touch. It can actually add to the customer experience. There's still a bit of a knowledge gap about technology out there among CEOs. If you are CEO of a private company and you don't have a very good understanding of technology in general, including mobile technology, you need to invest the time in overcoming that learning curve because it is a business imperative."
Overall, this year's Business Insights Survey findings point to a good news story that somewhat contradicts many media headlines today. Interestingly, the majority of business leaders surveyed do not rely on the media as a top source of information. Instead, they look to industry publications, associations and peers. "With all the quality, detailed information CEOs can access today, they are far more knowledgeable and informed than they could have been even 10 years ago," says Ayub. "While they obviously follow major global newspapers, they're far more able to form their own analysis of what's going on, which makes them less susceptible to the latest sensationalist headline."
In fact, when asked why they expected their business to improve in the coming year, 26% cited gut feel. "I think this points to their self-confidence," says Ayub. "They're relying on their instincts. And let's not forget that those instincts or 'gut feel' are the CEOs who are constantly reading, listening, observing, analyzing and keeping up with what's happening in the marketplace, as well as having the knowledge that comes from years of experience. Those are the finely-tuned instincts of highly informed leaders."
KEY TRENDS
The results from the 2012 Business Insights Survey, conducted in June and July, show that just as last year, an overwhelming number of private company respondents (81%) are planning to grow and expand over the next 12 months. This is a shift from 2010, when companies were climbing out of the recession and only 66% of respondents said they planned to grow in the coming year.
With such a positive outlook for two years in a row, one could conclude that Canadian private companies are feeling optimistic about the return of better economic times. A look at the world's political and economic volatility makes such a conclusion seem nonsensical. The reality is that private companies surveyed continue to be concerned about economic uncertainty and today's heightened competitive environment. When asked what top issues influenced their companies over the last year, the economy and competition/ discounting tied for first place at 33%, with profitability coming in second at 24%. Looking forward to the next 12 months, 32% of respondents cite the economy as the top issue that could influence their business, with competition and discounting coming in at 31%. Instead of profitability being their third top concern for the coming 12 months, it is labour at 25% that worries them, being driven primarily by a lack of qualified workers. In short, respondents are only too keenly aware how tough it is out there and that the potential for another sudden major blow to the global economy is part of the new reality in today's interconnected world.
So where is their optimism coming from? In fact, it may not be optimism as much as self-confidence. Four out of five respondents rated their performance as good or excellent relative to their business plan or budget as well as to their competition. Canada's private companies seem to have taken the lessons from the cost-cutting recessionary years and built on them. They have developed a deep self-confidence through their resilience and in knowing they will not allow uncertainty, change and volatility to stop them from taking charge of their own future.
GROWING WITH PURPOSE
Canada's private company leaders are doing everything they need to do to grow their share of the market on their terms, regardless of what the economy or competitors may throw their way. Leading companies understand a strong core is mission critical in the new business reality of rapid change and uncertain world markets. They are connecting the dots between strategy and performance and are using information systems throughout operations—from sourcing and procurement to customer feedback—to streamline processes and drive growth. In a nutshell, they are covering all their bases and taking as much risk and guesswork out of the equation as possible.
"The majority, 81%, are planning for growth, but not significant growth. They want to improve revenue, but they have concerns the competition may try and steal their market share through discounting, so they are investing in IT and strategic planning to help meet those challenges. They are taking as much control as possible," says Scott Fitzsimmons, associate partner, Consulting & Deals, PwC. "This is the overarching story—and it's good news."
He points specifically to the top three strategies to achieve growth: improved sales and marketing (62%), market share gain (51%), and improved internal systems (49%). "You can influence revenue, but you can also control costs. I like the breakdown because it illustrates that private company leaders are focused on both sides of the equation—the internal and external worlds. Improving internal systems and processes is critical to achieving profitable, sustainable growth as opposed to fluctuating as the market shifts."
The economy continues to keep private company leaders up at night. When asked to look back over the previous year, respondents cited competition/discounting, 33%, economy/lack of activity, 33% and profitability, 24% as top challenges. The story shifts as respondents predicted top challenges for the next 12 months. The economy is now in the top spot for 32% of respondents, competition drops to number two, with 31% of respondents and lack of talent moves into the top three for 25% of respondents. Twenty-three per cent of respondents cite finding new clients as a key challenge, while profitability drops from number three to number five at 22%.
Consistent with the top strategies reported last year, private company leaders have an ongoing focus on improving internal systems and processes and reducing cost of operations, which appears to be paying off. This is confirmed by how strongly private company leaders believe they have performed. Four out of five companies reported their performance was excellent relative to both their business plan and/or budget and to their competition. The bigger the company, both in terms of revenue and number of employees, the better they felt about their overall performance.
"Larger revenue generating companies tend to have the processes and systems in place to measure against their targets," says Fitzsimmons. "It is imperative that private companies get themselves on track first, then benchmark against others to continue to improve their business. If they meet their budget or plan, then they need to look at their competitors and make sure they are being aggressive enough with their own goals and targets. Having a plan and key performance indicators (KPIs) in place to measure your performance will provide insight into how to best move forward on all fronts: people, finding and serving clients, building strategic partnerships and investing in the right technology."
This year's respondents are just as positive about future performance, with 77% predicting their business will get better over the next 12 months. Of these, 66% cited improved sales as the top reason for this optimism, followed by market share gain at 50%—the same top two strategies to achieve growth. Company forecasts came in at 49%. "This last statistic suggests respondents are confident they will be able to take advantage of expected market growth and that they are on track," says Fitzsimmons.
One quarter of respondents cite a potentially problematic reason as to why they expect business to get better: gut feel (26%). While gut feel, particularly among this group can come from hard earned experience and well-placed confidence, it has to be supported by strong internal systems and processes to ensure sustainable growth. "We've met with many CEOs who feel they are doing fine operating off of their gut instinct. That works well until they want to sell their company. People are less likely to buy a company based on the fact that you think you've run things well," says Fitzsimmons. "Companies are valued higher when they go to sell if there is an inherent discipline around the way they operate. This is particularly true if you are in a mature industry, which was the case for a large concentration of respondents who came from manufacturing (18%) or distribution (11%). You need to have the systems, processes and the technology in place— all the components to instil the sense of trust your operating model will continue into the future. The fact is, you start a business because, one day, you will exit and you want to ensure you exit on your terms." It's an important message, as just over one quarter of respondents, 27%, anticipate a change in ownership over the next five years.
When asked to prioritize how they plan to improve competitive performance, the top responses were reducing costs of operations, 47%, improving staff skills, 41%, improving processes, 40%, and better targeting of customers, 39%. These findings all support the focus on achieving growth through improving internal systems and growing market share using performance management tools to get there. In fact, 56% of respondents cited strategic plans as the most effective tool in contributing to bottom line results. This was followed by business processes at 44%, annual plans at 41% and information systems at 34%.
"A strategic plan should include all of the priority areas. It's a roadmap. If you know where you are going then you know who the right customers are to help you get there. That will allow you to break down priorities. While it's encouraging to know that it is front and centre for respondents, what we find is that a lot of companies have a disconnect between their strategic plan and the execution of the plan," says Fitzsimmons. "Performance management is about aligning all aspects of the strategic plan: processes, systems and people. The most important thing is to use the strategic plan as the context so that people inside and outside the organization understand why you are doing things. Sometimes companies lose sight of why they are in business. They choose a certain course of action because they think it's the right thing to do, rather than because it will help them achieve their goal. For example, you can tick a box saying that every year you conduct a customer survey, but do you use the information within the survey to improve performance? Having a strategic plan keeps you honest. It also helps ensure the sustainability of your vision."
This year's respondents were asked specifically about how they listen to customers through feedback. The overwhelming majority, 90%, said they maintained direct customer relationships, 37% used their website as a repository for feedback, and 35% employed market surveys.
Customer feedback is perhaps the greatest tool to help ensure you own the today and tomorrow of your business, but it is also a prime example of a cautionary tale, says Fitzsimmons. "Really listening to your customer is what will lead to your success, but you have to do it in a structured way to ensure you give them what they want—or risk losing them. The top response, direct customer relationships, is the least formal and may simply mean respondents talk to their customers—but are they listening and taking action? Each of the other methods of obtaining customer feedback listed is much more deliberate. A formal feedback program is the most effective way of ensuring you are listening to your customers and providing them with what they want," says Fitzsimmons.
"Within PwC, we have a structured program to regularly reach out to clients and we find that when we go out to meet with them, we hear completely different things than we would when we just have a 'relationship' or conversation with their team. A best practice in this area is to prioritize your customers and take an ABC approach. For example, you may want to schedule quarterly reviews with top tier or A customers, annual reviews with B customers and conduct an online survey with C customers," says Fitzsimmons.
One quarter of this year's respondents reported they use social media to listen to their customers. It is a channel that will become increasingly relevant, particularly for consumer-facing businesses such as retailers, whose customers are already likely posting information about themselves, their likes and dislikes, on social media platforms, says Fitzsimmons. "But in other more traditional industries, such as mining or forestry for example, social media is less relevant and so logically, it's less likely to be an effective channel for feedback—at least for now. That's where planning and performance management comes in. Knowing where you need to go will lead you to where your customers are and help you determine the most effective way to reach them and then ensure you act on what they're telling you. It's all connected."
STRATEGIC SOURCING AS A COMPETITIVE ADVANTAGE
Private company leaders have turned their sights to sourcing and procurement, and for good reason, says Lino Casalino, national leader, Supply Chain and Procurement, PwC. "Heightened importance has been placed on this area and it is directly tied to economic uncertainty, global competition and increasing costs of raw materials. As a result, driving down costs is a big priority for private company leaders and sourcing and procurement offers quick ways of generating savings that have an immediate impact on the bottom line."
In fact, reducing the cost of operations is the number one priority to improve competitive performance and drive growth for 47% of this year's respondents. The supply chain is the most logical starting point as it accounts for anywhere from 30% to 70% of a business' overall cost base, with input costs and raw materials representing a significant portion of that expense.
Strategic sourcing involves having in-depth knowledge and standardizing a company's specifications for the procurement of goods and services, and matching that knowledge with in-depth supply market research of vendors and pricing trends in order to obtain the best overall value for company. It is the upstream set of activities that precede completion of a contract for goods and services, and may include competitive tendering, bid evaluations, site visits, vendor negotiations and contracting. Once a contract is signed, the "procure-to-pay" cycle follows where goods and services are then purchased off the contract.
Procurement involves requisitioning, purchase order management and payment and vendor management. To streamline the process and cut costs that will lead to immediate bottom line expense savings, companies are using technology in the procure-to-pay cycle as an innovative workflow tool to manage processes and controls. The first step to understanding the savings opportunity within your organization would involve completing a spend analysis. Spend analysis will enable you to effectively review what your level of spend is by category and commodity, including a detailed understanding of your vendor base. Benchmarking of unit pricing against market intelligence will then highlight savings potential and opportunities on a category by category basis. Application of a host of potential sourcing strategies that include demand management, volume aggregation and supplier rationalization can then be applied as part of the sourcing strategy as a means to achieving the cost savings.
Leading organizations are looking well beyond cost when they develop sourcing and procurement strategies. In fact, an effective sourcing and procurement policy will allow you to continuously identify incremental benefits throughout the entire process and execute initiatives to achieve those benefits. It provides more control over data, improves visibility and ensures compliance. It also ensures people's skills are linked with their roles and that they have the tools they need to be effective, which in turn leads to improved employee satisfaction. Done right, this can be a potential competitive advantage.
For the first time, private company leaders were asked specifically about their approach to sourcing and procurement. The findings paint an interesting picture. When asked to outline the innovative strategies they apply to sourcing and procurement, organizing procurement around category management came back as the most common strategy over the past year, cited by 35% of respondents. This was followed by sourcing from low cost countries (21%) and use of buying groups (21%).
"Category management is certainly the most innovative of the strategies listed and it's what we recommend to our clients," says Casalino. Category management requires looking at the total supply chain costs of the category, including a "should cost" view of the vendor costs, aligning those costs by similar characteristics and markets to provide a big picture view, which will then highlight opportunities and potential areas for cost savings and opportunities to innovate. Larger organizations are more likely to take a category management approach to sourcing and procurement (41% of companies with more than 100 employees employ this strategy) and they are looking at technology solutions to help them execute that strategy.
"There are a number of relatively low-cost spend analysis tools available on a 'software as a service' basis that allow you to focus on where you are spending your money and provide extensive detail that traditional systems have not been able to categorize. We are seeing significant activity in this area by a number of our clients," says Casalino. "We've also seen a fair amount of focus on connecting core enterprise resource planning (ERP) systems to other procurement and contract-enabling tools to help manage all touch points in the sourcing and procurement process." These types of solutions enable the electronic management of contracts, for example, ensuring you have the right contracts in place, that they are administered and that they are stored in a repository that your people can easily find the contracts you've negotiated as opposed to paying more for products and services off contract. "A common observation that we have made in many of our engagements is that clients pay different prices for the same product or services across different locations, divisions or functional areas. Plus, there is still a fair amount of off-contract spend taking place in the marketplace. Price-leveling and ensuring better contract compliance are two quick wins we often deliver for our clients, and having proper technology in place to highlight and make these opportunities visible is a leading practice."
In some cases, companies that become experts in sourcing and procurement can turn that expertise into a new revenue stream. A current leading computer and electronics manufacturer has done just that, and now they offer strategic sourcing expertise and extend their buying power as a service to the marketplace, helping companies streamline their own procurement systems and cut costs. "If you're a leader, you can use it to differentiate yourself in the market. That's an innovative approach to procurement," says Casalino. "Sourcing from low cost countries, on the other hand, is not innovative. Rather, it's just expected. If you are in the business of producing a product, it's a normal course of action to source all of your inputs, raw materials and other goods from the lowest possible cost source you can. It is not innovative— but it can be. Leaders are turning their attention beyond low cost country sourcing to considering near-shore alternatives to reduce lengthy lead times and cut inventory levels. This 'total cost of ownership' perspective is an important trend we are seeing."
In fact, the sourcing and procurement function provides an opportunity for private company leaders to expand operations beyond Canada and enter new, emerging markets. According to this year's survey, almost 50% of respondents already operate outside Canada, of these 24% are operating in Asia. "It stands to reason that for many, internationalization comes in the form of low-cost sourcing from other countries (19%), and that could be one way to build a network to lead you into new emerging markets ripe for growth," says Casalino. Growth is the top reason the majority of this year's respondents (63%) who are already investing in or considering investing in an emerging market are looking to markets such as China (19%), Brazil (12%) and India (11%).
It is certainly an idea those 37% of respondents who cite strategic relationships as a strategy to achieve growth would be wise to consider. "For example, if you are a pharmaceutical company here in Canada sourcing raw materials from India and China, then you've built a relationship with a supplier who is likely supplying other companies globally from other low-cost regions," says Casalino. "They may also have facilities in Eastern Europe or South America that could help you establish a presence there if that is an area of interest to you, while helping mitigate some of the risk of the unknown."
Casalino applies the same lens to the use of traditional buying groups. In effect, a buying group is similar independent businesses coming together to leverage combined purchasing power to negotiate better deals. While they can be efficient in and of themselves, they are not particularly innovative. That is, unless private company leaders are looking to partner beyond the usual suspects—which is happening. "The concept of buying groups has been around for a long time.
However, we are seeing some businesses collaborate between competitors in areas that do not represent a competitive threat and that can result in bringing different ideas to the table," says Casalino.
Collaboration between functions is perhaps the biggest benefit of an effective supply chain more broadly—which is how innovation happens. "Leaders effectively connect functional areas with the processes of supply chain, involving procurement and sourcing early on in the research and development and new product design processes. This is a paradigm shift for many leaders because traditionally supply chain has just been thought of as a cost of doing business; the procurement, manufacturing, warehousing and distribution components of the business. It hasn't been viewed as an enabler to achieve strategic objectives as a means to gain ground on competitors," says Casalino.
He points to a recent example of a pharmacy retailer using supply chain to do just that. This particular client set itself the objective of being the pharmacy of choice for baby boomers as they age. In order to do that, it strategically prioritized pharmaceutical products based on their target market's needs and wants and set a supply chain strategy to ensure those top products would be stocked at all times. "When their customers went into their store, they wanted to ensure they would always find the pharmaceutical products that were of most importance to them. These products also represented the highest margin product in the store. That wasn't necessarily what the competition was thinking," says Casalino. "Ultimately, we want companies to put a strategy in place that differentiates them in the market. The way you approach supply chain can help you achieve a competitive advantage and can help you grow."
USING MOBILE, SOCIAL AND THE CLOUD TO INNOVATE AND GROW
"We are at an interesting point in the business journey. Customers are increasingly looking for personalized services. They want to be seen as the most important customer to a company and that means organizations have to have a clear understanding of their preferences, the types of products and services they want, their feelings about the brand and how they want to engage," says Aayaz Pira, director, Management and Technology Consulting, PwC. "As businesses look to grow, they have to focus on building that critical understanding so they can effectively provide the services and products their customers want, when they want them. To do that, they have to embrace technologies that give customers and employees a voice; mobile, social and cloud, and allow organizations to listen and respond."
That is exactly what leading companies are doing. According to this year's findings, 53% of respondents are looking to invest in mobile computing within the next three years; 45% are looking into customer relationship management (CRM) systems and 38% are considering social media/networking.
"It's interesting that the top areas of focus are now being accessed on mobile devices. Whether it's mobile and you are using it internally to be more effective as an organization or you're equipping your sales force with cloud-based mobile CRM tools, we are seeing a lot of organizations moving in that direction because people—both employees and customers—want to have immediate access, no matter their location," says Pira.
And this speaks to a significant trend; organizations are being influenced by the consumerization of technology, which in turn is blurring the lines between the personal and professional lives of employees. The mobile strategy companies are employing is a clear reflection of this new business reality. Over the next year, 41% of respondents plan to optimize their websites for mobile—table stakes for businesses today, as online traffic has shifted from PC to mobile and 24% are planning to create a mobile application. "If your website is not optimized for mobile, you are behind the eight-ball," says Pira. "Leading organizations have taken the next step and are designing mobile applications, both on the consumer side and for internal use, such as deploying ERP systems for their people to be more effective. A lot of mobile applications are being fueled by cloud technology, making it cost-effective and easy to plug and play."
Meanwhile, 20% of respondents will be deploying tablets across their organizations and 14% plan to support their employees' devices in the workplace. "As digital natives—people who have grown up with technology—start to enter the workforce, they expect to use the same technology in their professional life as well." says Pira. "It's a trend that will become increasingly important going forward."
Surprisingly, 25% of respondents have no plan to invest in mobile technology. This may reflect the fact that they are in traditional or mature industries, such as oil and gas or manufacturing, so they have not faced the same push from clients or digital natives—yet. "I think that's going to change. For a business to be effective, you have to continue to innovate. A lot of these technologies spawn innovation because they foster collaboration," says Pira. "If you are not collaborating and innovating, it's going to be easy for your competitors to start to creep up and take market share."
Mobile works hand in hand with virtualization and cloud computing—tools that help build scalability and flexibility into operational strategy. High growth companies are using them to further fuel expansion while keeping costs down. In fact, respondents planning on double-digit growth were more likely to invest in cloud computing (43%) and virtualization (36%) than companies planning for growth rates less than 10% (28% and 22%, respectively).
Virtualization and cloud computing allow organizations to better manage and reduce costs—the top priority to improve competitive performance for this year's respondents. Instead of installing expensive servers, infrastructure and programs, companies can subscribe monthly or on a pay as you go basis to access tools that were once only available to large corporate players. In the process, they are changing capital costs to operational costs and giving themselves more control.
Social media represents another key growth driver as social networking and media sharing platforms such as Facebook, LinkedIn, Twitter and YouTube become larger and larger aspects of everyday life.
An effective social media strategy can help extend brand and sales reach, engage employees and customers, encourage collaboration and ultimately grow business.
Most understand this new business reality. Almost half, 47%, plan to use social media for sales and marketing—the top strategy to achieve growth.
Some 35% of respondents plan to use social media as a customer service tool. "It's a way to understand what your customers are saying or how they feel about you. It gives them a voice to be part of your business. But that can also be scary for some organizations, which may be one of the reasons only 25% of this year's respondents used social media to listen to their customers and why 28% of all survey respondents don't plan to use it at all," says Pira. "The benefit and trouble with social media is its amplification effect. Hundreds of people may repeat or re-tweet comments and explode an issue. At the same time, if you respond efficiently through social media, you can also resolve an issue very quickly. The key is to stay on top of it and manage what's happening."
Social media can also be an effective tool for recruiting, which is how 34% of respondents plan to use it. There are two key reasons for this: social media speaks more directly to the younger generation entering the workforce and it allows companies to take a more targeted approach to finding the right talent.
Only 16% of respondents plan to use social media to foster internal collaboration. "This is a missed opportunity," says Pira. "We tell people that if you have a social media strategy and you are using it for sales and marketing, customer service and recruiting and you are trying to portray yourself as a social enterprise, then you need to be social on the inside as well. In addition to enabling collaboration, new employees recruited over a social platform expect that they will be able to use social platforms to be effective in their jobs. If they realize you are not using social media inside the organization, it's going to be difficult to retain that talent. At a time when private company leaders cite labour shortages as a top issue going forward, social media can be a powerful tool to attract and retain talent."
It can also be a valuable tool to develop and follow brand influencers. Collaborate with the customers and the public to create the products they want. That said, only 13% of respondents plan to use social media to develop new products. "This is a huge opportunity for businesses to help drive innovation and growth," says Pira.
"Social is here to stay. It is another tool like CRM that allows you to gain a deep understanding of your customers and their wants in order to move your business forward. The key is to build a social media strategy that is aligned with your overall objectives. It will help you move forward with confidence."
CREATING A CULTURE OF INNOVATION
Eighty-one per cent of this year's respondents say they have created a culture that encourages creativity, and 77% believe that they, as a leader, clearly communicate their company's business focus on innovation as a priority. If this is an accurate perception of what they're doing, says Philip Grosch, partner, Management and Technology Consulting Leader, PwC, then these companies have taken the most important step towards creating a culture in which innovation thrives. "Organizations and people are naturally resistant to change," he says. "And what has the greatest impact on that is the leader. When leadership embraces and rewards change, it cascades down throughout the organization, regardless of its size. Without that, change is impossible."
At 74%, the majority also believe that they have processes in place to identify ideas that should move forward, with 72% saying they reward innovative ideas. However, companies with 501 employees or more are less likely to be as accepting of failure as smaller companies (63% vs. 78%). This, says Grosch, is pretty standard. "A hallmark of innovation is failure because it's about experimenting and learning. It's why there are very few large organizations that are great at innovation. In order for large organizations to drive efficiencies, they need to become very disciplined and process driven and that isn't the most fertile ground for innovation."
For years, many have understood that new technologies can empower smaller businesses with the capabilities of larger companies, but when it comes to innovation, new technologies can now also help large organizations reach for some of the advantages of smaller companies. Through the internal use of social media, for example, even a large global business can foster an environment of open, non-hierarchal communication that cuts through the bureaucracy for the purpose of innovation.
Traditionally, large organizations rely heavily on M&As as a significant source of innovation, which is exactly what 42% of respondents with 501 or more employees indicated, compared to 24% of companies with up to 100 employees.
"Large organizations find very innovative, nimble, smaller organizations, buy them and use their own operational efficiencies to maximize the value from the innovations," says Grosch.
Much has been reported on and written about Canadian companies, large and small, lagging behind in innovation— which would seem to contradict the perception this year's respondents have of themselves in regards to innovation. But Grosch suggests that all too often, innovation is defined only in terms of new products. "Operational excellence to stay on top of change is far more critical than ever, and that can be innovation. You can innovate in business models. And organizations that have become acquisition machines have innovated in their ability to acquire, integrate and monetize," he says.
Ironically, one of the factors, why Canadian companies fared so much better than their counterparts in other parts of the world during the global recession may just be how innovatively they addressed the challenges, improved their processes, cut costs and embraced the new reality.
LEADING CHANGE AND INNOVATION
Driving innovation throughout an organization starts at the top. It is the leader who sets the vision, encourages, engages, inspires and establishes the culture that says it's OK to fail, to try new things, to disrupt the status quo in order to get better, do better and ultimately perform better. It is a message not lost on today's private company leaders facing hyper competitive markets in a rapidly changing global business environment. As a result, leadership and what it takes to lead effectively is a hot topic.
That's why this year, for the first time, respondents were polled about their approach to leadership, followed by a roundtable discussion with three private company leaders in distinct industries.
The findings and conversation offer a window into the challenges today's business leaders face. When asked to rank the three most important attributes of a business leader, 56% of respondents cited ability to communicate, 48% cited building and empowering a management team that complements their strengths and challenges and 43% cited ability to inspire people.
These speak to a growing recognition that currently leading in the Information Age when power and knowledge is widely dispersed, is far removed from the days of top-down command and control. Employees want to be inspired by their leaders as role models. They want to feel their actions are recognized and that they are creating value.
The findings were reaffirmed during a CEO roundtable event with Ash Sahi, President and CEO of the Canadian Standards Association (CSA), Tom Hitchman, President of Naylor Group Inc. and Bob Clark, President of Atlas Van Lines, where they shared their thoughts on the evolving role of a leader.
" Our employee surveys tell us people want communication. They want to know what's going on and that means interaction on a regular basis with management. They want the opportunity to do more. Feedback, recognition and fair process—leaders have to make sure these are all in place." —Ash Sahi
" A leader has to be confident. People have to respect your morals and how you are perceived in the larger community. A leader sets the brand image—your actions are the brand. A leader has to be able to delegate effectively, otherwise you limit the potential of the organization." —Tom Hitchman
" Integrity is critical. As the leader, you are the focal point for the business. Over the past few years, we've seen so many leaders fall on their sword because they lacked integrity. You also have to have the respect of your people, but that doesn't just happen. You have to earn it. I've done every job in my industry and that gives me credibility. If I have a legacy, it's that I was informed. But that doesn't mean I think I know everything. I know what I don't know and that's important for a leader because it allows you to stay out of your own way." — Bob Clark
When it came to where respondents were spending the majority of their time, the top response was setting strategy and managing risk (55%) followed by improving organizational efficiency (53%) and meeting with internal teams (50%). This appears to be in line with this year's overall focus on pragmatic growth, cost-cutting and improving processes. Slightly less time was spent meeting with customers and partners (46%), keeping up to speed on industry and market trends (43%), and developing leaders and talent (41%).
The roundtable participants shared similar responses—and all said they wanted to spend more time with customers—a key to helping drive profitable growth and innovation.
" I spend a lot of time on strategy, our five and 10 year plans and looking at where we should be investing. But I want to spend more time with customers and improving the customer experience. That is a key objective, along with improving employee satisfaction." — Ash Sahi
" When I first started, this was a $1.5 million a year business and I was the salesman. We now have about 300 employees and annual sales of $60 million and I'm spending more of my time away from customers and with HR and employees to give them the tools to make the customers happy." — Tom Hitchman
Attracting and retaining talent are clearly front-of-mind for private company leaders. Almost all of this year's respondents invest in leadership development, while 90% rated their level of investment in developing high potential talent as neutral to excellent. Not surprisingly, when the roundtable participants were asked about their biggest challenges, each of the three CEOs cited people and succession planning.
" I'm moving the management of the business to my children, and in the past three or four years, we've replaced the senior management team with a more sophisticated group of younger people, most of whom are MBAs. The average age of our management team is 36, they are very tech savvy and have helped us deploy and integrate technology across our operations. Overseeing the succession and watching them make their mistakes and enjoy their successes is my challenge right now." —Tom Hitchman
" Developing future leaders is a key challenge. High potential people need to be exposed to different business units and geographies, but it hasn't been easy getting people to move because you often have two career couples with aging parents to look after who don't want to leave." —Ash Sahi
The majority of respondents, 59%, cited lack of qualified workers as a primary concern for the next 12 months. At the same time, when asked to name the single most important driver for long-term success, the most common response was access to talented individuals and retaining top employees.
" The attention and focus on people is absolutely critical all the time. When the right person is in the right job, the shift and the benefits are immediately tangible."—Ash Sahi
CONCLUSION
The story told by the Business Insights findings over the last four years has been a gripping one. The 2008 crisis left companies scrambling to cope with an unprecedented global financial meltdown and recession and the deep crisis in the US, along with the pressures of increasing internationalization, new disruptive technologies and the fluctuations and rise of the Canadian dollar. This country's private companies have successfully tackled profound challenges. Last year's survey celebrated the remarkable resilience of private companies in the face of volatility and change. This year's survey reveals they have taken it to the next level, fully rooting themselves in the knowledge that true solutions to all external challenges and opportunities lie within themselves and in their own ability to constantly improve, evolve, adapt, change and keep their eye on growth—no matter what comes their way. With confidence and courage, this year's Business Insight's respondents are owning their business' success, today and tomorrow.
APPENDIX
Methodology and demographics
The eighth annual Business Insights Survey examines issues affecting Canadian private companies. In June and July 2012, 406 participants from across Canada completed the survey. Business leaders from a broad range of industries of various sizes and locations were questioned about their strategies. In addition to this, we conducted in-depth interviews with private company leaders from across Canada to get a better understanding of the issues that impact their business.
The survey sample is concentrated around four provinces —British Columbia, Alberta, Ontario and Quebec.
Participant demographics
Survey participants represent a wide range of revenues, locations and industry sectors.
Revenues
Of 406 companies surveyed, 45% have revenues between $10-50 million and the remaining 55% have revenues over $51 million.
Employees
14% of companies surveyed have fewer than 50 employees, 19% have between 51 and 100 with 67% having more than 101 employees.
History
5% of companies have been operating for less than 10 years, 18% between 10 and 19 years, 45% between 20 and 49 years and 32% over 50 years.
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