Problem: Making the conversion to a 21st-century economy in B.C.
Solution: Promote the businesses of the future, while supporting those of the past
The B.C. economy is riding high today, with oil, gas, mining and forestry companies pouring out product like there’s no tomorrow – not to mention raking in billions. Evidence of the boom is everywhere: labour shortages, new residents flowing here from all over Canada, construction at a fever pitch, real-estate prices reaching ridiculous highs, economists and pundits constantly escalating their predictions for economic output. But doesn’t that all sound so... familiar? Isn’t there, deep down, a worrisome feeling that this might be just another of the periodic booms we’ve experienced every decade or so for the past 100 years? And might not the corollary to this boom be the inevitable bust that’s followed every other boom? And isn’t there some way to stop that boom-and-bust syndrome? Problem B.C. has always been an economy based on resources – commodities such as wood, energy and metals – and related industries like transportation and real estate. But commodities are cyclical industries, and it’s well known that any economy that ties itself to income from resources is in trouble. Just think back to the recessionary ’90s, when commodity prices were in the toilet. Not that this is big news to anyone. Governments of various stripes have been paying lip service to the need to diversify for years. Occasionally they have even launched programs or thrown some money into the pot, like the recent subsidies to the film industry, to back up their talk. But generally, they always fall back on what’s comfortable: resource extraction. Meanwhile, an entirely new economic sector – knowledge business – has been growing under everybody’s noses for the past five years, and could form a diversified 21st-century economy if it was just given a little more encouragement. Yet many in B.C. don’t even know this dynamic business sector exists. Sure, they’re aware of specific high-profile elements like financial services, high technology, life sciences, gaming. But few understand power technology, or Internet services, and rarely do they see how all the parts of the industry make up a connected sector that could rival mining or forestry in terms of employment and holds far more promise for the future. Certainly, governments used to the traditional system of big companies and mass work forces are having a hard time understanding this fluid sector that features many little companies and is constantly evolving. One reason for the confusion is that most governments and economists still use a labour-force analysis system called the North American Industry Classification System (NAICS) based on the industrial system of the 20th century. (BC Statistics tweaked this model a bit to include other industries such as life sciences and software development to form a definition of “high technology.”) No one has come up with a classification for businesses based on knowledge transfer or application. And there hasn’t been the incentive to do so. Besides a few ad hoc efforts, there is no coordinated strategy to encourage growth of the knowledge-based sector. SOLUTION Knowledge business includes any business that sells expertise or applies knowledge to create products and services. It’s often known as business based on an information chain – infrastructure, technology and knowledge. It’s also more recently known as “smart services,” a term coined by a couple of Harvard Business School writers that means products and services that employ networking to more efficiently serve clients or customers. (Think the McDonald’s outlet in Missouri that networks its drive-in windows to an order-taking call centre in Colorado in order to serve customers faster.) All of the industries mentioned above involve selling expertise or knowledge – they’re what’s been dubbed “new economy” businesses (as opposed to the mainstream sectors most people work in, such as retail, real estate, construction, sales, etc.) Hundreds of knowledge businesses have sprung up in B.C. over the past decade, and dozens more appear monthly. The sector, mostly located in Vancouver and Victoria, employs thousands of people and generates billions in economic output. Knowledge business, facilitated by modern communications technology, is clean, generally high value, leaves a small environmental footprint and is attractive to the best and the brightest. Such businesses are also growing as some of the more traditional industries struggle to keep up with the demands of globalization. One example is GMI, a 290-employee global market-research company that started in Seattle and in 2001, opened an office in North Vancouver with one employee and has been growing by leaps and bounds ever since. About 30 people now work out of the North Van office, overseeing a series of global development teams. The company is experiencing 100 to 200 per cent growth a year (last year it earned revenues of US$60 million). Because GMI’s product is information and knowledge, it doesn’t matter where it’s headquartered. Using new technologies, it can set up a fast-moving collaborative team that pumps out market research under the watchful gaze of a multicultural Vancouver team expected to number 60 by next year. Explaining why the Vancouver operation has grown so rapidly, GMI VP of technology and Vancouver chief John Jensen (the company’s first Vancouver employee) highlights a competitive advantage that B.C. economic mavens might want to start thinking about. Simply put, he says, the talent’s here, or will be here. “Vancouver has become very technologically astute in the past five years, and it’s all driven by liveability,” he explains. “It’s a diverse culture, a vibrant community and people want to live here. People in knowledge businesses can live anywhere; it’s just easier to attract people here.” Blake Hanna of Accenture Business Services for Utilities doesn’t need a classification system to know that he’s in a knowledge business. His company, which took over BC Hydro’s back-office and technology operations three years ago, provides outsourced business services to utility companies and is the knowledge business gorilla in B.C. ABSU started with BC Hydro, and now serves 15 utilities across North America. It has grown from 1,500 employees initially to about 3,000 in Canada. It’s the second-largest “tech” company in the province (after Telus) but Hanna, who oversees the BC Hydro unit, doesn’t think of ABSU as a tech player at all. He considers it a “high performance” company that, through technology, collaborates with clients to provide services, much like its parent, the 75,000-employee global consulting giant Accenture. Hanna says he’s still seeing a lot of blank faces around B.C. when the issue of knowledge business comes up. “The problem with knowledge business is that it’s different than the old smokestack industries,” he explains. “It’s invisible, intangible and unevenly distributed, so it’s hard for people to wrap their minds around it.” But business leaders and governments better do so quickly, because commodity industries and their related “old economy” companions are the past, not the future. They aren’t going to die, but will inevitably form a lesser part of the economy as they increasingly shift to cheaper locales. The business that’s going to thrive in the “new world” of globalization, outsourcing and virtual work is knowledge business. Stop worrying about short-term problems like the shortage of low-end construction workers, and start training people in trades involving knowledge transfer, not brawn. Instead of throwing every spare dollar at the cyclical natural gas industry in the north, throw a few cents at training northerners in Web-based networking business – which doesn’t care where you live. Encourage the colleges and universities to train in knowledge-based entrepreneurship, instead of how to fit existing – and temporary – jobs. Ensure that every child in B.C. is immersed in the intricacies of the new information-based society by the time they complete school. LESSONS • Don’t use a rear-view mirror to recognize your strengths and weaknesses. Leverage strengths that will work in the future. • Most great businesses expand by moving sideways in incremental steps, instead of leaping into something foreign. Figure out what you do well, and then do something ancillary. When you learn it, move sideways again. • Create an innovation chain. All businesses must be continually innovating, but most do things as they’ve always done them. It’s easier. Click here to read Tony's blog.