Getting more from less

This is the third in a four-part series that explains productivity and why it matters to investors. You can read the first two articles here: and

In the earlier articles in this series, we looked at why it is important for Canada to find ways to improve productivity. We discussed the importance of finding ways to improve productivity without relying on paying people less or working them harder-or both. The key to a better future for Canada-we have to hope-cannot lie in paying people less to do more. In this article, we explore some of the ways we can improve our productivity.

We will also share some "Investor Insights" along the way. Productivity performance can affect a company's profitability and future success-two things that should be of interest to investors when considering investing in a company.

The quantity, quality, and location of natural resources

The quantity and quality of natural resources available will affect the cost to access and use resources, the total cost of production, and how productive producers and workers can be. For example, the quantity of Canada's oil reserves and where they are located affect the costs incurred to access the oil, refine it, and transport it to markets. Easily accessible deposits of oil in southern Alberta can be pumped, refined, and transported to markets using fewer resources, and at less cost, than more isolated deposits or tar sands deposits that need more refining. The more difficult oil to access and refine will require new methods and technology to bring down costs. So the quantity and location of our natural resources can affect our productivity.

Investor Insight

In looking ahead to a company's potential, consider the resources the company is using-and to which it has future access. Will the quality of resources possibly decline? Is the cost to locate, transport, or access needed resources likely to rise? Is the company taking steps to secure access to the resources it will need in the future-and to control costs?

Quality of management and leadership

The better the management expertise brought to a business, the more productive it can be. The managers, and the management methods used, will affect the company's vision and goals, efficiency, use of resources, labour relations, strategic planning, marketing, product lines, and more. And all these will affect the company's productivity.

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For example, if a Canadian bank is better managed than its American competitors, operates more effectively, incurs lower costs, and provides better returns and service, it may more readily attract depositors and borrowers based on its management record and performance. Just consider the importance of Steve Jobs to Apple and Bill Gates to Microsoft. Leadership and management are important resources affecting productivity and success.

Investor Insight

In looking at a company's performance and future prospects, what is happening in terms of leadership and management? Has it been changing? Is it likely to change? Is there a high quality Board of Directors? Are there potential health issues facing company leadership? Changes in leadership and management can significantly affect a company's performance-for better and for worse.

Entrepreneurship

The more talented a nation's entrepreneurs, the better able it should be to improve productivity. Entrepreneurs identify needs and wants, generate ideas, mobilize resources, create ventures, and build new enterprises. The better our entrepreneurs are, the more productive the enterprises they create will be-and the better able they may be to improve productivity. If Canadian companies can find new and better ways to combine resources to create new products that do new things, like the Blackberry that RIM created, then Canadian resources can be put to better, more productive use.

Investor Insight

In assessing a company's prospects, how entrepreneurial is the company? How entrepreneurial is the company leadership? And, even more important, what is the quality of the entrepreneurship leading the company? Is it overly risky? Is it competent and astute? In assessing many companies' potential, considering entrepreneurial experience, skill, ability, and potential can be key.

Quality and knowledge and education

The better the quality of a nation's education system, the better trained, more knowledgeable, and more skilled its workers will be. The labour force can be more creative, more able to adapt to new technology and methods and more able to generate new ideas and add value to production activities. Frequently, the most important input to production is the talent and experience of the people involved-their intelligence, skills, experience, creativity, effort, and innovative ability. The better educated that people are, in the broadest sense, the more likely they are to be able to improve productivity-and generate ways to improve productivity.

Investor Insight

A company's future can be significantly affected by the quality of the labour used. Does the company stress finding, employing, and effectively using quality labour? Does the company invest in training, compensate employees well, attract high quality workers, etc.? The better a company's labour force, the more success it is likely to have.

Training-and retraining

Effective training and retraining of employees can enhance productivity. If Canadian companies can develop outstanding training programs to ensure their workers have the most up-to-date skills, then those workers should be able to achieve higher levels of productivity. A particular challenge facing many companies is retraining-especially as technology and production methods change and evolve. And if improvements in productivity displace some workers, our ability to retrain them for productive participation in other ways in our economy will also affect our productivity.

Investor Insight

A company that invests in training and retraining helps to ensure its employees can work effectively with new technology, and adapt to new production strategies, and should be better able to increase productivity. Employees are usually happier, more motivated, and see opportunities for personal growth. That can affect a company's prospects for success. In assessing a company's potential, consider its reputation in providing training and retraining-and does it seem to be a company willing to invest in its workforce?

Health and nutrition

Health and nutrition affect minds and bodies, and minds and bodies play a predominant role in most production activity. For example, some businesses now provide health or athletic facilities for employees. Many provide advisory services regarding nutrition. Many provide health care insurance coverage to employees. These and other measures help to improve health and fitness. This should, in the long run, reduce lost working days, improve work performance, and enable people to live healthier, happier lives. All these factors should contribute to improved productivity.

Investor Insight

One thing to consider in assessing a company is how well it treats its employees-and how well it is regarded by employees. A number of surveys report on how companies are regarded by their employees. These can be of interest to prospective investors. Employees who are in good health, and who feel cared for by the company, will often seek out ways to help a company succeed-and take pride in its accomplishments.

Economic infrastructure

The roads, services, bridges, power lines, phone lines, and so forth of a region/nation all affect its economic activity. The better the quality of a nation's economic infrastructure, the more likely productivity can be increased. Effective infrastructure in a nation can affect such things as production costs, productivity of resources, reliability, access to resources, and so on. For example, the quality of Canada's rail lines can affect the speed of our trains and the costs incurred in shipping goods. Improved rail lines can improve efficiency, lower transportation costs, and help achieve increased productivity in the markets to which we are shipping goods by rail. The quality and congestion of our highways can affect trucking costs and efficiency. The quality of our power lines can affect the reliability of energy. And on it goes. The quality of our infrastructure can have a significant affect on the productivity of our businesses.

Investor Insight

When assessing a company's outlook, consider the extent to which infrastructure can influence company performance, productivity, and profitability. Is traffic congestion a problem? Are shipping costs rising? Is adequate power available-at reasonable cost? And so on. Infrastructure related costs can affect profitability-sometimes substantially depending on the company's production activities.

Quality of investment decisions

Those who make investment decisions will have to decide where, when, and how much to invest. The more informed, and the better the quality, of the investment decisions, the more able we will be to use our resources to improve productivity. If wise investments are made in the areas of technology and innovation, if firms with real potential are able to attract investment, if effective decisions are made in the areas of management, labour training/education, and so on, productivity can be improved. For example, if Canadians invest in areas in which we have a competitive advantage or opportunity, we can improve productivity. If investments are made in areas that have little opportunity for success, then we will not be as productive as we could have been.

Investor Insight

You might want to pay attention to annual reports and company minutes. What investments are planned by the company? Is the company allocating enough to investing for the future? Are the investments planned strategic and do they seem to reflect a good vision for the company and how it will succeed in the future? A company's investment strategy can make a significant difference to the company's future productivity-and profitability. And a successful company that rests on its laurels will soon find its success at risk.

This article has explored some of the factors that can affect productivity. We will explore some other factors in the last article in this series.