The conservative C-suite is a well-established phenomenon in Canada. Senior executives are cautious about investing in technology, and have been for years. What makes them so risk averse, and should they be more adventurous in their ICT spending?
An IT Business article quoted Forrester analyst Andrew Bartels as indicating that weak investment from the private and public sector is driving down technology spending. Organizations are still increasing their overall investments in technology, but growth is slowing—and that’s counterintuitive for businesses who want a competitive advantage. Forrester predicted that growth in technology spending would slow to 3.3 percent in 2016, down from a far healthier 5 percent in 2015. This year, things will be even weaker, with a 3.1 percent projected investment.
Why so frugal?
The battered oil and gas sector must play a part—after all, energy made up 7.3 percent of Canada’s GDP in 2015, around a quarter of all capital investment, according to Natural Resources Canada. With Brent Crude Oil trading in late 2016 at roughly a third of its 2012 high, it’s no wonder companies are nervous about the economy. We can’t blame it all on the black stuff, though—Canadian companies have traditionally been conservative when it comes to technology investments.
Canada ranks 15th on the latest OECD scale for ICT investment, The Conference Board of Canada (CBofC) points out, and the 2.32 percent of its GDP that it invests in ICT earns it a less-than-stellar C grade. Our US neighbour sits third, with an A grade and a 3.25 percent investment in ICT. A report, released by Industry Canada’s Centre for the Study of Living Standards and cited in The Globe and Mail, recorded a very different time. Back in 2013—when oil hovered above CAD$100 and Canada’s natural resource engine was strong—Canadian companies were only spending 57.8 percent of what the US did per worker on ICT, amounting to CAD$2,273 compared to CAD$3,931 south of the border. That’s too big a gap to blame on errors in measurement.
Blame the USD—and a bunch of other things
Canadians are simply less adventurous when it comes to IT. This is due to several issues, suggests the CBofC. The exchange rate with the US dollar can flatten technology spending north of the border because Canadians buy their technology from their southern neighbour. This has a knock-on effect—low labour costs and relatively high ICT costs warp the labour-to-capital ratio for Canadian firms, forcing their dollars into hiring people rather than automating.
Canadian managers are also often less skilled than those in the US, said the CBofC. A larger proportion of smaller companies skew investment metrics because SMBs simply don’t invest as much in technology as larger companies do.
History lesson: The right ways to spend
In spite of these factors, it may be time for Canadian businesses to buck the trend. Bartels pointed out that stinginess in ICT investments can be a false economy. Spending more on ICT can help senior management cut costs, he said, adding that the savings can be invested in increasing sales.
MIT Sloan Management Review surveyed 1,559 executives across a variety of sectors in 2013 and found that digital transformation could improve customer experience. When the conservative C-suite dropped Canada’s ICT investment between 2001 and 2005, it caused a 0.4 percent cut in productivity growth rates per year across Canadian business, according to the Bank of Canada.
None of this means Canadian businesses should be piling their money indiscriminately into technology. Investment dollars should still be used judiciously. Bartels called for caution when it came to hardware and telecom purchases because they don’t contribute to business transformation. How can you avoid hardware investments and instead buy technology that can cut costs and increase your business advantage? One option is so simple it gets overlooked: rent instead.
“X as a service” to the rescue
Investments in managed services such as software as a service (SaaS) are a good way to go, Bartels suggested at a September 2015 conference in Toronto. Paying someone else to run applications for you frees up cash by shifting a lot of spending to the profit and loss sheet. Renting an online app can be an attractive alternative to spending lots of money up front on software licences and then buying the spare hardware capacity to run it all.
The same thing could be said for many other services. Platform as a service (PaaS) helps those that want to develop their software, want some pre-build functionality to begin with, and want to run it on someone else’s computer. Infrastructure as a service (IaaS) is for those that need complete control over their own applications but want to avoid the investment in hardware.
Consider technologies that contribute to business transformation, Bartels advised. Analytics and mobile computing are other good examples of technologies that can help Canadian companies “win, serve and retain customers,” he told IT Business. The numbers bear this out: McKinsey’s study of 800 CIOs revealed that more than half of them will use a dedicated private cloud as the primary resource for at least one workload by 2018.
Canadian businesses could benefit from a combination of courage and circumspection when planning their technology spending. Not all investments will yield the cost savings or business transformation you’re looking for—but there are some diamonds in the rough.