Saturday, April 18, 2009

Productivity Alberta

This article appears in the April 2009 issue of Oilsands Review
By Peter McKenzie-Brown

“It’s really tough to be less productive (than other companies) when times get bad,” according to Jim Rakiewich. “You and your competitors are both scrambling for sales, but prices become compressed. So the companies that aren’t really productive and have too much cost built into their products – they really get killed.” The president and CEO of Edmonton-based McCoy Corporation, Rakiewich was discussing Alberta’s productivity growth – or, more to the point, the lack thereof.

In economics, the definition of “productivity” is bloodless. It is a ratio comparing what is produced to what is required to produce it – usually an average expressing the total output of some category of goods divided by the total input of, say, labour or raw materials. Bloodless the definition may be, but the reality of Alberta’s productivity ranking is downright bloody: Dead last in labour productivity growth among Canadian provinces during the period 1997-2005. Growth was 1 per cent a year – below the national average of 1.4%, and well below growth rates for U.S. and European countries.

The Alberta government is concerned about this problem, and in March launched an agency – Productivity Alberta – to help improve provincial productivity. Rakiewich is one of a group of private sector CEOs who have agreed to serve as advisors to the agency. “If you want to stimulate productivity in Alberta,” he says, “it’s important to have those who are passionate about it on the governing board. That’s why I’m on the board.”

Alberta’s go-to person is Lori Schmidt, a senior director in the Finance and Enterprise bureaucracy. “When this process started,” she said, “companies were working flat out, didn’t have enough people, but despite working at capacity were finding their bottom line continually shrinking. That’s why we started to look at the importance of increasing our productivity. Today, with the economic conditions changing, there’s probably even more need for firms to look at their efficiencies. This doesn’t mean getting rid of people, but utilizing our people to their best ability. Are we utilizing all the inputs and resources and processes that we have so that we can continue to compete?”

Schmidt describes the new agency sees itself as a “path-finding service” which will offer two levels of service to any business that asks for it. “For free, we will offer a preliminary assessment to help them with their operational efficiencies, perhaps by directing clients to online tools. Right now, people may know they have problems but don’t know where to begin. That’s the free part.” Adds the ever-enthusiastic Jim Rakiewich, “You don’t really pay for someone to help you analyse your processes and offer advice. In effect you are getting free consultants, and these are really sharp guys. Where your costs come in is in implementing those ideas.”

“The second part,” continued Lori Schmidt, “is to connect (our clients) to tools and programs and services that are already out there in the marketplace. We want to be the connection point” between organizations that need to become more efficient and resources they can use to achieve that aim. “This is available to any business, but we are really focusing on value-adding businesses – anyone who produces a good. Manufacturers and their supply chains, for example, but also small and medium enterprises. In Alberta, that means businesses with 100 employees or less. Those companies have been doing a lot of work in the oilsands.”

According to the new agency’s slick new brochure, “Productivity Alberta brings together the talents and efforts of people and organizations across the province to tackle productivity challenges and to provide a direct point of access to productivity enhancement offerings. This industry-guided, not-for-profit corporation works in concert with government, industry, academia, associations and communities throughout Alberta to address productivity challenges.”

Jim Rakiewich has bold opinions about the importance of higher productivity and about the reasons why Alberta’s recent record has been so dismal. “Those who are more productive have lower input costs. If you are not really connected (to the importance of increased productivity), you have a lot of waste in your system.”

Alberta’s low productivity growth has had a number of causes – most importantly the tight labour market. There is also a geographical component to Alberta’s poor recent performance. According to Rakievich, “North America is not very competitive compared to the rest of the world, and Canada generally performs worse than the U.S. Alberta just hasn’t been very focused on becoming more competitive” – to a big extent because of the tight labour market. “Rather than finding the right skill sets for jobs on offer, (companies in Alberta) have been hiring warm bodies and trying to bring them up to standard.” He adds that, because manufacturing is such a small part of the provincial economy, there is less experience to draw from than in, say, southern Ontario.

Rakievich’s final comment pertains to the threat of global markets to Alberta business. “Markets are really global in nature, now, and outsiders are coming in to steal market share. This is forcing us to realize someone is going to eat our lunch if we don’t smarten up.” Heed this.
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