STANDING COMMITTEE ON INDUSTRY'S STUDY ON PRODUCTIVITY AND COMPETITIVENESS OF THE CANADIAN BUSINESS SECTOR
Notes for Gaylen Duncan, President & CEO, ITAC
February 22, 2000 - Ottawa, Ontario
Good afternoon ladies and gentlemen. It is a pleasure to join you here today to contribute the views of ITAC to this important exploration of productivity and competitiveness in the Canadian business sector.
You asked us to frame our presentation around the key ingredients of business sector productivity. I'm going to limit my focus to one ingredient, information technology.
Now, it probably won't surprise you to have the CEO of ITAC claim to you that IT is central to our quest for productivity and competitiveness. IT solutions are, after all, what the companies who pay my salary sell.
So don't take my word for it. Listen to what the Chairman of the Federal Reserve Board, Alan Greenspan, recently told the Economic Club of New York.
Greenspan these days is in the enviable position of having to account for the longest economic boom in American history. He said "...it is information technology that defines this special period. The reason is that information innovation lies at the root of productivity and economic growth. Its major contribution is to reduce the number of worker hours required to produce the nations output."
He went on to provide clarity on how this reduction happens. "Before this revolution in information availability, most twentieth century business decision making had been hampered by wide uncertainty - the remarkable surge in the availability of more timely information has enabled business management to remove large swaths of inventory safety stocks and worker redundancies."
He provides a thoughtful examination of the various ways this has evolved. It is an important speech and because it directly informs your explorations we have included it in the materials we have brought for you.
Also in the material we have collected is validation of the enabling impact of information technology from a Canadian source. In 1997, we worked with the Conference Board of Canada on a study called Jobs in the Knowledge-based Economy. The study gathered facts about the impact of IT investment on the economy over the period from 1986 to 1995.
Jobs in the Knowledge-based-Economy demonstrated that companies that were more IT intensive experienced strong business expansion and employment growth while less IT intensive companies actually saw employment fall.
The study also contained two case studies and since you have requested a case study approach I thought it would be worth summarizing the impact of IT on the Canadian Imperial Bank of Commerce.
CIBC, like all Canadian banks, can be described as IT intensive. Its IT investment increased by 86 per cent between 1988 and 1995 from $129 million to $239 million. One focus for this investment was automatic banking machines. The number of installations over the ten years from 1987-1996 grew by 310 per cent.
ABMs didn't have an impact on the number of branches operated by CIBC until about 1991. During the following five years the number of bricks and mortar branches fell by 9 per cent.
While the bank experienced a decline in employment in the early nineties it enjoyed a turnaround in 1996. This was in large part attributable to the creation of nearly 1,000 jobs in two new telephone banking centres.
Information technology changed the dynamic of work in the bank branch. Instead of queuing up sometime between 8 and 5 to hand a bank teller the information necessary to complete a transaction, ABM's gave the customer the power to input that information directly at any time of day or night.
The banks did their own productivity analysis. They established that the cost of a mediated transaction over the counter was $3.00. They invested heavily in the technology to develop alternative channels of delivery. Telephone based banking not only employed 1,000 new people it also dropped the transaction cost to $1.50. Banking via personal computer brought the cost to $.50. And Internet banking heralded an era when transactions could cost as little as $.15 each. No wonder Canada's banking industry leads the world in IT investment.
Elsewhere in our banking community, IT has meant not only increased productivity but access to a new markets and new possibilities.
When the Citizen's Bank of Canada was launched in 1997 it set out to be a bank with a difference. At a time when Canada's big banks were under fire for their merger plans and profits, Citizens Bank chose to offer customers a socially responsible alternative.
The bank was launched as a subsidiary of VanCity a successful B.C. based credit union with over 50 years of operation primarily in the Vancouver market. VanCity saw Citizens Bank as the vehicle to take its corporate responsibility mandate and credit union philosophy across the country.
But the cost of a physical expansion was out of the question. It costs, conservatively, about a million dollars to open a new branch. But information technology gave Citizens Bank a whole new strategy for expansion and provided this local Vancouver company with ease of access into the national banking marketplace.
Citizens Bank began with PC banking and followed that offering with CitizenNet, an Internet based service option. Through these channels the bank offers a full range of personal financial services - from making deposits to paying bills. Citizens Bank was also the first company in Canada to offer on-line mortgage applications.
While no one is under any illusion that information technology has leveled the playing field for new arrivals of intranets in the financial markets, it is clear that it does get them in the game. And the whole industry benefits from new competitive positioning from new arrivals like Citizens Bank.
This idea of market access has broader reaching implications for Canada's competitive positioning in general. If Citizens Bank can use IT as a platform for competing against Canada's big national banks, why can't a bookshop in Victoria go head to head with Barnes and Noble. ABE Books is doing just that - providing an on-line distribution centre for rare, used and out of print books.
ABE has the distinction of not only competing effectively outside Canada, it is also the only on-line book retailer who's currently showing a profit.
If ABE can do it why can't a bunch of women from North of Superior compete with CD-ROM manufacturers like Microsoft to distribute self-help CDs like NFL Football Made E-Z. Kim Sartor and her team from Angel Lake Multimedia are doing just that.
And if they can why can't a trio of professionals from Toronto go up against the Arrow man Brooks Brothers and Hathaway by offering excellent quality, well-priced business wardrobe staples - white shirts and black socks. Check out their website. http://www.justwhiteshirts.com . They're doing it as we speak.
The U.S. economy has embraced information technology warmly and isn't letting go. While Canada can boast that it is one of the most wired countries on earth, we aren't keeping pace with the U.S. in the adoption of IT tools in business. U.S. rates of adoption and the whole juggernaut of the dot.com economy could have a negative impact on our long term productivity and competitiveness. Even today we're seeing some of the best and brightest Canadian innovations and enterprises being swept south by the lure of ready financing, big markets and potential allies with deep pockets. To maintain our advantages Canada must not only do as well as the U.S., we must do better.
The E-business Roundtable made six key recommendations to make this happen. These recommendations are
- establish Canada's brand in e-business domestically and globally
- accelerate the transformation of existing business in Canada
- foster e-business creation and growth
- expand the e-business talent pool in Canada
- make government on-line a major priority
- and build Canada's leadership in international Internet policy development
This Committee can influence the adoption of any and all of these recommendations. But I believe your focus must be to accelerate the transformation of existing businesses in Canada.
Whether you come from Canada's industrial heartland, or from those regions dominated by our resource sector, you can use your influence to encourage the adoption of IT tools as aids to productivity and competitiveness.
I'm not claiming that IT is a silver bullet. It won't repair but only exacerbate the damage done by bad management. But I'd venture to say that there isn't a single sound business in Canada that couldn't improve productivity and competitiveness by asking itself a simple question. Am I doing anything in my business process that can be replaced or improved by the deployment of a sound IT strategy? If you can use your leadership to precipate that probing, then you will measurably advance Canada's productivity and competitiveness.