Bank of Montreal chief executive Darryl White says one unexpected consequence of the global pandemic could be a jolt to Canada’s lagging productivity, if key sectors capitalize on the pace of change adopted in response to the coronavirus crisis.
Business leaders and policy makers have focused on the pressing need to safeguard employees, stabilize financial markets and support the companies and workers bearing the brunt of an abrupt slowdown in economic activity. In an interview, Mr. White urged executives and business owners to also think about how Canada can take advantage of the crisis as a way to become more innovative in the years ahead.
The recovery will be uneven whenever it occurs, he said. Sectors such as travel and entertainment “might take years to get back to normal," while others “could actually outperform over the medium-term.” But the wrenching changes that physical distancing and stricter public health measures forced upon most businesses also present opportunities to become more productive under normal circumstances, he said.
On Friday, BMO will release a new report by its chief economist, Douglas Porter, highlighting sectors the bank believes have opportunities to be seized. Among the promising areas are supply chains, remote work, digital commerce, robotics and artificial intelligence, e-learning, local tourism and autonomous vehicles.
“There’s a really difficult amount of sledding that will be ahead of us,” Mr. White said. "But at the same time, we tried to get the periscope up a little bit above the water line and ask ourselves, what does the world look like out on the horizon? What does it look like in two years?”
Canada’s “productivity rut” has been a persistent challenge, as growth in labour productivity has trailed the United States and other major economies for most of the past two decades, Mr. White said. Yet the speed at which the COVID-19 pandemic has swept around the world has forced businesses, including BMO, to cut out “low-value work” – including scores of meetings, slide presentations and multilayered approval processes – and act faster.
Mr. White said BMO’s business clients have told him 85 per cent to 90 per cent of the quick decisions they’ve made in responding to the virus have been the right ones, “with 10 to 15 per cent of the process,” he said. Corporate finance work that took six to eight months “in the pre-COVID world” has been done in “six or eight days,” even without developing new technology.
If that can be sustained, “you end up leapfrogging in productivity," he said. “The risk, of course, is that in six months from now, we all go back and say, let’s just put all those pieces back together the way they were."
The potential to shorten some supply chains could give a boost to manufacturing activity in North America, Mr. Porter says in his report, and many firms may boost stockpiles of raw and intermediate materials. But because “firms will still look to minimize costs” and source materials efficiently, he predicts that some of buying behaviour that has been changed by the coronavirus won’t be permanent.
It’s important for Canada "to get some of the supply chains redomiciled, but I think there’s a risk of going overboard,” Mr. White said. “It’s not to say that we can do everything, or we should do everything here. It’s a matter of understanding where the reliability of your allies are in your supply chain.”
As companies stockpile more inventory, and as online shopping increases, Mr. Porter predicts there could be increased demand for industrial and warehouse space. That could help offset some of the pain felt by the commercial real estate industry as remote working becomes more common, leading to a drop in demand for office space.
Canada could capitalize on an existing competitive advantage in robotics and technology, where “we’ve got such a head start from an intellectual capital perspective,” Mr. White said. Robotics will change the jobs of some workers, but also fill gaps where there are labour shortages. Firms are keen to harness more real-time data. And a larger number of deliveries could be made by self-driving vehicles and drones, reducing human contact when moving goods.
And while the travel industry is likely to suffer for some time – even after restrictions on cross-border movement ease – local tourism could surge in popularity, especially while gas prices remain low. This could benefit the motels, restaurants and fuel stations needed to reach nearer destinations.
“It’s not just to make us feel good, so that we can feel positive about something for a change," Mr. White said. "It’s the accountability of all of us in the leadership ranks to think about, how are we going to make things better when we get out the other side of the tunnel?”
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.