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Beware the walking dead

Zombie companies are a drag on national productivity.


Zombie companies are diverting capital and talent from more productive firms. PHOTO: ADOBE STOCK

Canadian businesses aren’t acting fast enough to adapt to change, says a Deloitte Canada report.

The infinite organization: Realizing lasting success studied more than 700 Canadian businesses, analyzing their future-focused attitudes and practices and found complacency is holding them back.

“Business is changing – and what it takes for Canadian companies to succeed is also changing. This report points to a new reality, which is attitudes and behaviours that made companies successful in the past will not be the best or most reliable predictors for success in the future,” says Duncan Sinclair, chair, Deloitte Canada and Chile. “More concerning – while 55% of Canadian companies believe that they’re positioned for lasting success, our analysis found that few in fact are.”

The study shows 16% of public companies (including manufacturers) on the TSX and TSXV are considered to be “zombie” companies. That’s 60% higher than the global average of 10%. Walking dead companies are defined by the OECD as 10 years and older with earnings that aren’t high enough to cover the interest payments on their debts, yet they manage to survive.

Deloitte says that puts many Canadian businesses in a vulnerable position when it comes to economic shocks and technological disruption. But they’re also a drag on productivity because they divert capital and talent away from more productive firms, while hindering the ability of younger, more dynamic businesses to grow.

The advisory firm identified five essential behaviours cited by successful companies:

Be clear about the company’s purpose and ensure everyone knows it. Use purpose to drive innovation, foster a strong work culture, and shape decisions.

Use change as an opportunity to experiment, win fast, fail quickly, learn and grow.

Play the long game but make small bets on new opportunities as they arise; both require overcoming uncertainty to make the tough calls.

Invest in your people as a competitive advantage, and use analytics to truly understand your customers and anticipate their needs.

Embrace opportunities to collaborate globally with customers, vendors and governments.

Short on investing

Deloitte says Canadian companies perform well in some of these areas and poorly in others. More than half (57%) of the respondents reported they had a clear purpose beyond simply making money, but they fall short in investing with a view to the long term with only 20% putting money into products and services that won’t come to market for at least a year. Only 3.6% export and just 19% have processes in place to test and scale innovations. Just 37% are heavily investing resources in developing talent and less than half (45%) are investing heavily in the technology they believe will help them get ahead.

Deloitte LLP is the Canadian member of Deloitte Touche Tohmatsu Ltd.

Visit www.canada175.ca for a pdf of the report.

This article originally appeared in the November-December 2018 print issue of PLANT Magazine.

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