Investing to Close the Productivity Gap

By Mark Borkowski

I am fortunate that my career is an advisor to business owners, managers and investors who are selling their companies. This provides me with a window into the Canadian economy. While our economy is improving from the depths of a not-so-distant recession, there is a perception that Canada, as an economy, is lagging behind in its productivity, particularly relative to the United States. This proverbial productivity gap is an issue which attracts a lot of attention, from the Prime Minister to the Bank of Canada to the IMF and, of course, the media. Naturally, there is no shortage of viewpoints and reports lamenting the data and situation in general. What is lacking, though, is much of anything actually being done to get real results in overcoming this perceived disadvantage.

I recently sat down with Glen Ampleford, Vice-President of Carpedia Capital, an investment firm whose entire approach is built around closing the productivity gap, to discuss how they create value and are developing the Canadian economy one company at a time.

Q: How is Carpedia Capital’s investment approach is closing the productivity gap in Canada?
A: Our mandate is to invest in good, fundamentally strong businesses which will benefit substantially from the Carpedia approach to operational improvement. We identify specific processes, systems and behaviours which can be improved to create sustainable and measurable gains in revenue, throughput, cost and capital. These are the levers which, when improved, close the productivity gap and lead to true value creation. Where many people see disadvantages in Canadian productivity, we see opportunity.

Q: Can you give some specifics?
A: While productivity and value creation are big picture issues, they come about from and are often the result of small details found in unlikely places on a business’ front lines – in how resources are deployed, activities scheduled, the behaviours exhibited in managing the points of execution and the systems used to gauge results. A great example of this is the gains we made at a portfolio company in throughput – getting more unit volumes out faster with the same amount of direct labour – which created the extra profit we needed to support making investments in new sales activities and product lines. These investments, a year later, have now delivered a substantial increase in new business and profits.

Q: This sounds great, but we all know how hard productivity gains are to come by. How is Carpedia Capital able to deliver results?
A: Our investment approach is born from our founders’ 20-plus years of experience at driving sustainable gains in productivity for their clients while building our parent company, Carpedia International, into one of the world’s leading operations improvement consultancies. After more than 500 successful engagements for blue chip and middle-market clients, we launched the capital division specifically to leverage Carpedia’s capabilities in building great businesses. Carpedia’s proven approach gets sustainable results while empowering managers to be more successful and effective. When you focus these world class-capabilities on businesses in the Canadian mid-market, the results are often tremendous.

Q: Canada’s productivity gap is often attributed to a lack of investment in new capital equipment. Do you find significant investments in new equipment are necessary to capture gains in productivity?
A: We actively seek out opportunities to invest in innovative equipment that can expand the quality, cost and delivery of our businesses’ products in a way which exceeds the cost of the equipment. However, we typically find that substantial gains in these factors can first be made through changes to processes, systems and behaviours to capture latent capacity and inefficiency without needing major investments in new equipment; our approach is to always optimize usage of existing assets before adding new equipment. In the big picture, we believe meaningful progress can be made to close Canada’s productivity gap without the need to first invest significantly in new equipment. In fact, with many of the businesses with which we are involved, investments in training, new staff, new products and additional sales initiatives will often exceed our investments in new equipment.

Q: What’s next for Carpedia Capital?
A: We are constantly looking for ways to optimize the productivity of businesses in which we have an interest and are actively looking to invest in additional companies and to partner with outstanding entrepreneurs that share our approach to building great businesses.

Glen Ampleford, Vice-President of Carpedia Capital Ltd.,

Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation, a mid market M&A brokerage firm.