Why some businesses are having an easier time with inflation

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Canadian businesses that have invested in productivity are having an easier time handling inflation, labour shortages and supply chain issues, a new report has found. (Getty Images)

Canadian businesses that have invested in productivity are having an easier time handling inflation, labour shortages and supply chain issues, a new BDC report has found.

The study, conducted by BDC economists and based on a survey of 1,000 Canadian companies, found that 61 per cent of all businesses consider inflation to be a challenge. But when it comes to companies that have invested in productivity – meaning technology and processes that help make businesses more efficient – just 39 per cent say inflation is a challenge.

The results follow the same pattern for labour challenges and supply chain issues. The survey found that 58 per cent of all Canadian businesses are experiencing labour shortages, but that number drops to 40 per cent for businesses that focus on productivity. Forty-two per cent of Canadian companies are still facing supply chain problems, but that statistic drops to 28 per cent for those that focus on productivity.

The study also found that productivity-focused companies earn six times more in sales compared to peers in the same industry, and five times more profit.

The report shows the "power of productivity" for entrepreneurs, says BDC chief economist and vice-president of research Pierre Cléroux.

"Businesses that are more productive perform better in terms of profit growth and in terms of the value of their business. It's something we don't often talk about, but it's so important for businesses and the economy as well," Cléroux said in an interview with Yahoo Finance Canada.

"In the case where the economy is slowing down, it is especially important to be more efficient."

Economists expect growth in Canada to slow next year, with some predicting that the country will enter a recession amid rising interest rates, a cooling housing market and weak economic growth. Canadian businesses cited skyrocketing inflation, a tight labour market and ongoing supply chain disruptions as the biggest challenges threatening growth, according to the BDC report.

When it comes to dealing with inflation, 74 per cent of those businesses surveyed say they have seen profits decrease and 72 per cent are now facing higher operating costs. To combat that, two-thirds of businesses (66 per cent) say they have adapted by increasing their prices. While productive companies have been hit with inflation, Cléroux says they likely won't have to increase prices as much as those that have not focused on productivity.

Productivity can also help with labour market issues. The study found that 58 per cent of businesses are having difficulty recruiting workers, with 50 per cent offering higher wages and 43 per cent offering more flexibility for employees. But businesses that have focused on employee productivity have been able to better manage labour shortages, the survey found.

"Business owners cannot count on a return to normal," the study says.

"They need to find new ways of working to become more efficient."

Cléroux recommends entrepreneurs seeking to optimize their productivity first measure their business performance against peers, then eliminate tasks that are inefficient or a waste of time and money.

"When you're not as efficient as you should be, you're leaving money on the table," he said.

"Your level of productivity dictates your competitiveness."

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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