Too many Canadian "zombie" companies drag down national productivity, affecting potential for our country's lasting success

Deloitte recommends five essential behaviours businesses need to cultivate today

TORONTO, Sept. 18, 2018 /CNW/ - Canadian businesses aren't acting fast enough to adapt to change – putting Canada's status as the best place to live and work at risk, according to a new Deloitte report. The findings show that while there is infinite opportunity for success, our own complacency is holding us back.

Deloitte's new report The infinite organization: Realizing lasting success sounds the alarm, raising awareness about the country's sluggish business dynamics. It's based on a comprehensive study of more than 700 Canadian businesses that analyzed their future-focused attitudes and practices, and builds on previous Deloitte research examining Canadian business culture and productivity. This study aims to provide guidance to business and government leaders alike, to help ensure Canada remains the world's best place to live and work for the next 25 years and beyond.

"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. Perhaps even more concerning is that, while 55 percent of Canadian companies believe that they're positioned for lasting success, our analysis found that few in fact are." 

As part of the study, Deloitte also found that 16 percent of public companies on the TSX and TSXV are considered to be "zombie" companies. That's 60 percent higher than the global average of 10 percent and highlights that many Canadian businesses are in a vulnerable position when it comes to economic shocks and technological disruption.

Zombie companies are defined by the OECD as mature businesses – aged 10 years and older – whose earnings are not high enough to cover the interest payments on their debts and yet still manage to survive. They are a drag on productivity because they divert capital and talent away from more productive firms and hinder the ability of younger, more dynamic businesses to grow.

"We wanted to look at what it is that allows some companies to draw on a seemingly infinite and/or limitless capacity for reinvention. 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."

Deloitte talked to more than 50 leaders of prominent Canadian companies about success, disruption and longevity. From these discussions, Deloitte identified five essential behaviours for lasting 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.

Of the five behaviours, Canadian companies perform well in some and poorly in others. Some of the findings in The infinite organization: Realizing lasting success are: 

• More than half (57 percent) of the firms that responded to our survey reported they had a clear purpose beyond simply making money.
• They fall short in investing with a view to the long term —only 20 percent reported putting money into products and services that won't come to market for at least a year.
• Despite the known benefits—and growing imperative—of going global, only 3.6 percent of Canadian companies export.
• They continue to struggle with the discipline of innovation: just 19 percent of survey respondents reported having processes in place to test and scale innovations.
• Less than half of Canadian organizations reported making the investments in the people and technology they said they need for the future: 
• Only 37 percent are heavily investing resources in developing talent.
• Just 45 percent are investing heavily in the technology they believe will help them get ahead.

Case studies and commentary from leading CEOs and business leaders describing how their companies adapted to succeed through economic storms or how they dealt with a missed opportunity are documented throughout the report.

"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."

About Deloitte

Deloitte provides audit & assurance, consulting, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights and service to address clients' most complex business challenges. To learn more about how Deloitte's approximately 264,000 professionals—9,400 of whom are based in Canada—make an impact that matters, please connect with us on LinkedIn, Twitter or Facebook.

Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

SOURCE Deloitte & Touche

Tonya Johnson, Deloitte, 416-607-0741, [email protected]; Marilyne Plouffe, Deloitte, 514-393-5471, [email protected]