Munro and Lamb: The pandemic forced Canadian business out of a tech lethargy. What happens next?

A reminder that the government’s strategy of relying on immigration to address labour shortages neglects the role that technology can and does play.

The government’s focus on addressing business demands for more immigration reduces incentives for businesses to adapt new technology and improve productivity.

This analysis by Munro and Lamb should be a wake-up call to governments:

Canadians tend to think that innovation is mainly about inventing, producing and selling new technologies and products. Largely neglected in the discourse about innovation in Canada is the critical role of technology adoption or tech-taking. Technology adoption is often viewed as a lesser form of innovation, if it is viewed as innovation at all. Yet, adopting technologies that range from data analytics software to communication and collaboration tools, e-commerce platforms, and design technologies can enhance productivity and growth. It can also generate more and better employment opportunities, and enable new and different kinds of innovation.

Why are so many Canadian firms technology adoption laggards? Why are they content with low-tech business strategies? The short answer, borrowing an observation from Peter Nicholson, is that Canadian business has been “only as innovative as it has needed to be” – and, we might add, can be. Firms across a range of sectors have been able to maintain above-average profits for decades with low-wage strategies and minimal innovation and technology adoption. Among those that have seen the need to change, many face resource, knowledge and skills constraints that prevent them from doing so.

But our longstanding low-tech, low-innovation equilibrium may be changing, as we reveal in a new report on Canada’s technology trajectories.

Not only has the pandemic forced firms in key sectors to adopt new technologies to sustain operations, but recent changes in the ways technologies are packaged and sold have improved the cost-benefit analysis facing firms. For example, the increasing adoption of cloud solutions has meant that instead of making large upfront investments in hardware or software, firms can now purchase subscriptions that are easily administered, can be scaled up or down, canceled or customized and often have readily accessible education and consulting services. Are we in the midst of a fundamental shift in Canadian firms’ attitudes about the benefits and feasibility of adopting new technologies? Or will pre-pandemic lethargy return?

Canada’s pre-pandemic tech lethargy

Prior to the pandemic, Canada was a laggard on business investments in information and communications technologies (ICT). ICT investment per job in Canada, for example, has ranged from just 54 per cent to 68 per cent of U.S. levels since the late 1990s – largely due to lower investment in software and databases and contributing to our weak productivity relative to the U.S.

On another measure of ICT investment, Canada’s performance has deteriorated absolutely and relative to peers. In 2000, ICT investment as a share of total gross fixed capital formation (GFCF) in Canada was roughly 16 per cent. By 2019, this had declined to 11 per cent – roughly six percentage points lower than investment levels in France and the U.S. Since 1995 – when Canada trailed only the U.K. and the U.S. among G7 countries for whom data were available – we have been overtaken by France and Italy and now trail four of the six countries with available data (figure 1).

Canadian firms often cite weak incentives to explain why they do not adopt technology, with many firms saying that investment is “not necessary for continued operations” or that they were “not convinced of the economic benefit” of candidate technologies. Other data aligns with this explanation. Notably, Canadian firms’ profitability has been rising over the past two decades, reducing incentives to adopt technologies to sustain revenue. Between 1997 and 2017, average annual growth of after-tax profits rose 7.6 per cent over the period. Profits as a share of GDP rose from 8.4 per cent in 1997 to 15.2 per cent by 2017, and since 2000 have exceeded that of the U.S. both before and after tax (figure 2).

At the same time, many firms recognize how technology adoption could help maintain or improve competitiveness, but they lack the capacity to make the change. This includes financial resources to purchase new technologies or technology service subscriptions; access to skills to implement, use, and maintain technologies; organizational and management cultures equipped to embrace and effectively use new technologies; and other factors. Given these weak incentives and substantial barriers, it is easy to see why business leaders might stick with existing low-tech strategies rather than shifting to an alternative.

The pandemic tech shock

The pandemic and associated restrictions sent shockwaves through Canada’s low-tech equilibrium. Key sectors recognized that lagging technology adoption was no longer an option. Implementing a range of communications, e-commerce, logistics and other technologies would be necessary for survival. 

Retail firms, for example, realized that they had to find ways to reach customers virtually or go out of business. Turn-key online sales platforms, like Canada’s own Shopify, along with government- and industry-supported digital adoption support programs, like Digital Main Street, helped move many businesses’ retail operations online. The result? From February 2020 to May 2021 retail e-commerce sales in Canada increased by over $2 billion, reaching an all-time high of more than $4.1 billion – an increase of 127 per cent relative to May 2019 (figure 3).

Similarly, non-retail firms that depend on the efforts of people to provide services, collaborate, and interact with clients and colleagues to generate value have adopted virtual platforms to enable interaction. Platforms like Google Meets, Microsoft Teams, Zoom, and myriad collaboration software. In the first quarter of 2021, when businesses were asked what technologies they adopted due to the pandemic, collaboration tools and cloud solutions were the most frequently cited.

This rose to over 50 per cent of businesses in information and cultural industries and professional, scientific, and technical services, two highly knowledge-intensive sectors. What began as a necessary change to maintain operations and sales has the potential to become a new, higher technology equilibrium for Canada.

The intangible shift

Much of the accelerated tech adoption amidst the pandemic has been facilitated by a trend that was gathering momentum before the pandemic – a shift away from more tangible kinds of technology investment, like hardware and IT systems, and toward more intangible, ICT-as-a-service investments, like cloud solutions and ready-made software. More intangible technology options help address some of the historical barriers to technology adoption, such as high cost, high skills needs, and integration with existing systems.

Cloud computing services offer a useful illustration. Instead of making large upfront investments in physical software and/or hardware, firms are now able to purchase ongoing subscriptions for services, which are easily administered and can be scaled up or down, canceled or customized depending on the effectiveness of the services and firms’ changing needs. Cloud services help de-risk and ease the purchase and use of digital technologies, overcoming one of the key barriers to technology adoption and use that have long faced Canadian firms.

And the shift is striking: Canadian firms spent $420 million on cloud services in 2006 and nearly $2.6 billion in 2014 – an annual growth rate of more than 25 per cent over the period. Contrast that to the 20 per cent annual growth in cloud service spending among firms in the U.S. over the same period. By 2017, 29 per cent of small and medium-sized enterprises (SMEs) reported using cloud computing technologies over the previous three years, which was the most frequently selected technology, above data analytics, customer relationship management software, and enterprise resource planning software, to name a few.

The embrace of cloud services prior to and during the pandemic suggests that current data and measurement probably underestimate the extent to which Canadian firms are investing in and using technology because subscription cloud services are not always reported by firms as technology investments. By how much, exactly, is not clear, though there are some signals.

Moreover, while we expect that, over time, these investments will begin to have an effect on, and show up in measurements of, productivity and growth, we are not yet seeing the results. Still, given what we know about the relationships among technology adoption, productivity and growth, it is encouraging to see technology adoption strategies emerging in the face of new constellations of incentives and capabilities.

What’s next for technology diffusion in Canada? 

What does the future hold for technology adoption in Canada? Early indicators suggest that many Canadian firms may stick with the technologies they adopted during the pandemic and add more. Retail firms have learned that e-commerce can complement and expand in-person sales, and many employers have seen how remote work and collaboration can improve talent recruitment and retention. Moreover, the intangible shift has reduced the cost of technologies, making long-term technology adoption options more feasible.

Still, old habits die hard. A number of managers still prefer to have their employees interact in-person and many retail firms will welcome the return to in-person, albeit smaller, markets. Those firms that try to maintain higher technology adoption patterns will need people with technical skills to implement and use new kinds of technologies – and these skills may be scarce in the years ahead. Access to digital infrastructure (such as sufficient broadband) remains spotty in rural and remote areas, and cybersecurity continues to be a challenge for many firms. Even with new incentives to maintain or increase technology adoption, barriers will remain.

If governments and large anchor firms can find ways to help small and medium firms overcome labour and infrastructure challenges, Canada might shift to a higher technology adoption trajectory and reap the innovation and productivity benefits it generates. The financial, technical, and infrastructure support provided by programs like Digital Main Street, the Canada Digital Adoption Program, and the Universal Broadband Fund are promising signs that governments are willing to do their part. What remains to be seen is whether Canadian businesses are ready to leave behind the low-wage, low-technology equilibrium and embrace a higher technology, higher productivity, and higher wage and well-being future.

Source: The pandemic forced Canadian business out of a tech lethargy. What happens next?

Brexit fallout: UK’s Johnson woos ‘best and brightest’ immigrants

But will they come?

UK Prime Minister Boris Johnson unveiled plans on Thursday for a new fast-track visa to encourage the “best and brightest” of the world’s scientists to emigrate to Britain.

The announcement came as the impending Brexit — a cause championed by Johnson — will see much European Union research funding cut off and place the immigration status of many European researchers at risk.

“To ensure we continue to lead the way in the advancement of knowledge, we have to not only support the talent that we already have here, but also ensure our immigration system attracts the very best minds from around the world,” Johnson said.

The new fast-track immigration route would be targeted towards engineering, technology, and other sciences, the government said.

Research, business sectors support plan

New provisions would remove the requirement of having a job offer before arriving, and would allow an immigrant‘s dependents to access the UK labor market. It would also remove the limit on the number of applicants vying for the Tier 1 Exception Talent visa.

Business and universities hailed the move, as leading institutions such as Oxford and Cambridge have voiced concerns about the impact Brexit could have on their researchers and talent pool.

The 2018-2019 academic year saw a significant drop in applications to British universities from EU students.

Johnson, who has frequently expressed anti-immigrant views, is also seeking to introduce an Australian-style immigration system based on points awarded for higher education qualifications, language competency and other specialized skills.

Source: Brexit fallout: UK’s Johnson woos ‘best and brightest’ immigrants

Steve Jobs Was a Low-Tech Parent –

Nice counterpoint article to the unveiling of iPhone 6 and Apple watch.

We were more liberal on tech and kids than most of the tech entrepreneurs:

When Steve Jobs was running Apple, he was known to call journalists to either pat them on the back for a recent article or, more often than not, explain how they got it wrong. I was on the receiving end of a few of those calls. But nothing shocked me more than something Mr. Jobs said to me in late 2010 after he had finished chewing me out for something I had written about an iPad shortcoming.

“So, your kids must love the iPad?” I asked Mr. Jobs, trying to change the subject. The company’s first tablet was just hitting the shelves. “They haven’t used it,” he told me. “We limit how much technology our kids use at home.”

….I never asked Mr. Jobs what his children did instead of using the gadgets he built, so I reached out to Walter Isaacson, the author of “Steve Jobs,” who spent a lot of time at their home.

“Every evening Steve made a point of having dinner at the big long table in their kitchen, discussing books and history and a variety of things,” he said. “No one ever pulled out an iPad or computer. The kids did not seem addicted at all to devices.”

Steve Jobs Was a Low-Tech Parent –

Intel’s Sharp-Eyed Social Scientist –

And now for something completely different.

Interesting article about Intel’s Genevieve Bell, an anthropologist who is Intel’s resident tech intellectual (director of user experience research at Intel Labs), who brings the real world user experience perspective. I liked the analysis of cars and technology as the user experience in many cars leaves a lot to be desired:

As they [Dr. Bell and a colleague] traveled from country to country, asking drivers about how they used every object in their cars, the pair developed a messier counternarrative to the tech-idealized version. Although carmakers have embedded voice-command systems and the like in their vehicles with the idea of reducing distracted driving, the researchers found that when drivers were bored in traffic, they often picked up their hand-held personal devices anyway.

“What became clear was a couple of things: how much technology people bring to cars, how much they were ignoring the technology that was built in, and how much that technology was failing them,” Dr. Bell says.

Intel’s Sharp-Eyed Social Scientist –