Small businesses face perfect storm that can challenge growth
BDC REPORT EXAMINES TOP THREE ISSUES
Significant shifts in both demographics and digital technology innovation are having a profound impact on today’s business landscape, according to the newly released BDC (Business Development Bank of Canada) study Future-Proof Your Business: Adapting to Demographic and Technology Trends. The study, conducted online with more than 1,400 business leaders across Canada, was released to mark the launch of BDC Small Business Week.
While these shifts create challenges, they also offer opportunities for business owners who are able to adapt quickly, says Pierre Cléroux, vice president, research and chief economist at BDC.
On the workforce front, BDC reports that one-quarter of respondents are already feeling the impact of demographic shifts on their ability to recruit qualified personnel. There are three demographic shifts of note, all of which are affecting business owners to varying degrees: the aging workforce, the rise of the millennial generation and a more culturally diverse population.
“We are finding in our own travels that this is a very important issue, especially in regions outside of major cities, where employers are having a more difficult time finding people,” Cléroux says. “That is limiting the growth of many businesses right now. In many parts of the country the labour force is actually shrinking. It’s going to get very difficult for small business owners when there are less people in the labour force pool. Hiring will be very tight.”
On the plus side, a majority of business owners have taken steps to secure the talent they need, with only 28 per cent saying they have made no particular efforts. The most popular strategies being used to address the issue are offering more flexible work arrangements (30 per cent) and relying on older workers (29 per cent). Other strategies include improving working conditions and hiring students or interns.
To underscore the need to adapt to demographic changes, those businesses that are proactive in addressing workforce needs enjoy higher growth. One-quarter of respondents who have taken action to facilitate the hiring of skilled workers said they expect annual sales growth of 10 per cent or more over the next three years, the report states. By way of comparison, only 14 per cent of entrepreneurs who have done nothing expect to experience sales growth over the same period.
BDC outlines several actions that business owners can take to address the shrinking labour pool.
For example, creating an accommodating workplace by offering part-time options or contract work may encourage older employees to delay their retirement. Pairing mentors who are close to retirement with new workers enables the transfer of skills and encourages younger employees to stay.
Employers can also consider improvements to their pension plan, health insurance or profit sharing as a retention tool for younger workers. Where candidates are in short supply, boosting productivity and operational efficiency through equipment and technology will also help companies experience growth without having to add to their head count.
The millennial workforce is another shift that businesses need to embrace. Millennials now account for 40 per cent of the working-age population, the report says, with Generation Z (individuals born after 2000) following close behind. When combined, they will account for half of the workforce by 2020, and three quarters by 2030.
Businesses can adapt to this increasingly important generation by:
positioning themselves on social media to identify and connect with potential job candidates
partnering with schools to attract younger workers investing in training publicly recognizing and appreciating employee contributions and
implementing leadership development as part of their business strategy.
The rise in cultural diversity will continue, as population growth from immigration is expected to reach 80 per cent by 2032, according to Statistics Canada. BDC offers a number of potential strategies, including:
reaching out to immigrant communities through business associations and networks
considering “blind recruitment” to ensure hiring decisions are based on work experience, competencies and education
leveraging government programs, such as the Temporary Foreign Worker Program and the Global Talent Stream
customizing training to meet the needs of new Canadians
On the digital technology side, the report singles out three trends of particular relevance to the business community: the growth of virtual marketplaces, the automation of business activities and the rise of the data economy.
“The good news is more and more small and mid-size firms are really taking action to adopt technologies. Adoption levels are higher than two years ago,” Cléroux says. “Also, more businesses are reporting that technology investment is part of their planning for the next few years.”
However, companies with fewer than 20 employees continue to show a low rate of adoption (with the exception of social media). Less than one quarter currently use e-commerce platforms, although the number is expected to double to 48 per cent by 2020.
“Low adoption is a concern, because the most successful companies who are increasing profits and experiencing growth had adopted technologies to improve productivity and/or the client experience,” Cléroux says. “The ones not doing it will be in trouble in five or 10 years because they are giving up such a competitive advantage.”
According to BDC, businesses that have embraced digital technologies have improved their customer experience (49 per cent), boosted revenue growth (34 per cent) and enhanced their efficiency through lower costs (36 per cent) and better productivity (45 per cent).
A promising factor is that technology is more user friendly and affordable, Cléroux notes. “Not only is it much easier to have a website and perform transactions online, technology is cheaper and more robust.”
This is critical given that BDC found that nine out of 10 consumers systematically visit a company’s website before contacting it for information. Also, 57 per cent of the business-to-business purchasing process is done online before a salesperson is contacted. “Not everybody needs to sell online, but they have to be there to be visible to the customer,” Cléroux notes.
BDC advises business owners to consider strategies such as building their online presence, learning how to attract customers online, increasing social media efforts and measuring online marketing efforts.
Manufacturers are particularly reliant on technology innovation, he adds. “They have had a tough time competing over the last 15 years because labour costs are high. Technology can reduce labour and production costs and help them to be more competitive.”
Technology is, in fact, transforming the workplace in sectors beyond retail and manufacturing, he says. “Everybody is changing their business model and the way people work.”
Automation of business activities is an equally compelling force. Customer relationship management (CRM) and enterprise resource planning (ERP) systems are helping boost productivity and reduce costs by automating repetitive functions such as accounting, supply chain management, human resources and customer service.
BDC says businesses should take steps to map out their business processes and engage employees when selecting new technology systems. BDC also advises conducting careful assessments of available solutions and choosing the right third-party technology partners.
The third digital technology shift — data capture and analysis — is key to generating valuable insight into customers and business processes, the report says. While advanced data analytics may be beyond some budgets, there are strategies that can help small businesses optimize their data resources. Free low-cost tools such as Google Analytics can provide valuable insight into online activities and customer behaviour. A CRM system is an effective tool for centralizing customer information to deliver a more personalized customer service experience.
The full BDC report FutureProof Your Business: Adapting to Demographic and Technology Trends is available online at www.bdc.ca.