Canada's 'zombies' are dragging down productivity

The current environment of uncertainty, protectionism, and change is not a time to be complacent in business.

But a new report warns that too many Canadian companies are just that and are dragging down the country’s overall potential for lasting success.

The Deloitte report says that sluggish business dynamics must end if businesses and the wider economy are to thrive in the coming 25 years.

"Business is changing – and what it takes for Canadian companies to succeed is also changing," said Duncan Sinclair, Chair, Deloitte Canada and Chile. "This report points to a new reality, which is that attitudes and behaviours that made companies successful in the past will not be the best or most reliable predictors for success in the future.”

While the report’s survey of 700 businesses found that 55% of Canadian companies believe that they're positioned for lasting success, but that few in fact are.

Canada has too many zombies
Deloitte found that 16% of TSX and TSXV listed companies are considered "zombie" – mature businesses (at least 10 years old) whose earnings are not high enough to cover the interest payments on their debts and yet still manage to survive.

The global average for zombie companies is just 10%, highlighting the vulnerability of many Canadian businesses to economic shocks and technological disruption.

These companies divert capital and talent away from more productive firms and hinder the ability of younger, more dynamic businesses to grow; hampering overall productivity.

"Canadian businesses today face a critical choice: make do with the status quo and risk succumbing to steady decline or reinvent themselves and kick-start a new cycle of growth," said Sinclair. "The future looks bright for Canada, but we must take a strategic look at the path forward to ensure our businesses – and our country – thrive in the future."

What businesses can do better
Deloitte’s study highlights some areas that businesses should improve and five key essential areas for ongoing success:

• Drive purpose and impact: Be clear about the organization's purpose and ensure everyone knows it. Use purpose to drive innovation, foster a strong work culture, and shape decisions.
• Disrupt with resilience: Use change as an opportunity to experiment, win fast, fail quickly, learn and grow.
• Pursue tough decisions: Play the long game but make small bets on new opportunities as they arise; both require overcoming uncertainty to make the tough calls.
• Nurture your roots: Invest in your people like they're the competitive advantage you say they are, and use analytics to truly understand your customers and anticipate their needs.
• Assert global leadership: Embrace opportunities to collaborate on the world stage with customers, vendors, governments for the mutual benefit of all.

Among these some things are being done well but others are lagging.

For example, they fall short in investing with a view to the long term —only 20% reported putting money into products and services that won't come to market for at least a year.

Only 37% are heavily investing resources in developing talent and just 45% are investing heavily in the technology they believe will help them get ahead.

"By cultivating the five essential behaviours, businesses can course-correct immediately while ensuring we are collectively establishing the foundation for a prosperous, thriving Canada in the future," added Mike Nethercott, Leader of the Future of Canada Centre. "This report shows that Canadian business leaders are facing a challenge but also an opportunity, and we are confident they will rise to that challenge."