The Current and Future Shape of the e-Economy

e-Commerce to e-Economy: Strategies for the 21^st Century
Industry Canada
September 27-28, 2004
Ottawa, Ontario

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Hon. John Manley
Senior Counsel, McCarthy Tétrault LLP
Panel Moderator

In his introduction to the panel discussion, Hon. John Manley noted that "things have changed" since 1993, when the "information highway" was still a new idea. The government had made a promise to create an information highway committee, but many people were asking, "What is this?"

The government launched an Information Highway Advisory Council in 1994. Manley remarked that "many members of that Council are here today." The Council wrote two volumes of seminal reports, which were adopted for use around the world. The work was invaluable in setting the agenda, and Manley noted that it dominated his seven years as Minister of Industry.

In 1998, Canada hosted an OECD conference on e-commerce, and launched the e-commerce strategy, as well as the National Broadband Task Force. The government has been working with the private sector in this area, and this conference is part of a continuous flow of events stretching back over 10 years.

Manley personally acknowledged David Johnston's involvement in this work, describing Johnston as "the godfather of the Canadian connectedness agenda."

He added that Canada has benefited from the leadership of hundreds of people to become one of the most connected nations in the world. It was one of the first countries to connect all its schools to the Internet. Manley recalled the last school connected to the Internet in Canada: a school with three students, located on Pictou Island, Nova Scotia. Today, all of Canada's schools, as well as many businesses and people, are connected and Canada shares its strategies in international fora.

Canada has seen rapid evolution over the last 10 years, with ICTs affecting all aspects of society and the economy.

Manley explained that this first session would explore the challenges and opportunities. Today, the scene is different than it was in 1994. Canadians need to ask some key questions: "Where do we go now? What are the challenges facing business and government? What are the public policy issues that need to be tackled?"

Ed Kilroy
President, IBM Canada

Many current strategies in the e-economy focus on leadership and collaboration, observed Ed Kilroy. IBM Canada surveyed over 400 CEOs, asking about their major objectives and the major barriers to these goals. The results showed that "growth is back on the agenda of CEOs." Cost cutting and productivity, while still important, are no longer central. CEOs believe that growth will come from investment in new markets and new products and services developed within the next two to five years, Kilroy reported. Innovation, agility and speed are therefore seen as critical to competitiveness, with 80 per cent of CEOs expecting to undertake significant transformation over the next two to three years.

In the context of the current economy, Kilroy noted that there has been moderate growth in GDP and extreme competition from all parts of the world. The situation calls for innovation and increased productivity.

What are the inhibitors to achieving these objectives? Most CEOs felt that their companies were not agile enough to identify and pursue new markets. There have been major transformations within organizations, but these have occurred mostly within individual pillars (such as manufacturing, distribution, human resources and customer management). The challenge now is to integrate horizontally, both internally and externally. This is not a technical issue but a leadership issue. The key is the intersection between leadership-identified business transformation and technological capability.

The days of tweaking "business as usual" processes are gone. Businesses must innovate, and the model for innovation is changing dramatically. This discussion brings together public policy makers, academia and private sector organizations, but even more collaboration in needed amongst these groups.

It is critical to ensure that no one is left behind in this transformation, Kilroy added. Therefore, IBM Canada has announced a strategy for reaching out to Aboriginal business.

Frank Clegg
President, Microsoft Canada

Frank Clegg observed that Canada has transformed from a resource based economy into a leading knowledge based economy, with the help of visionary leadership by former Industry Minister John Manley.

There is a proven link between IT and ICT investment and growth in productivity, he stated. Canada has had success as the most wired nation in the world, and has a knowledgeable workforce - but more can be done. Although Canada has made gains in productivity, it is significantly behind the U.S. While Canada's population and GDP is about 10 per cent of that the U.S., its ICT spending is only 6.3 per cent of what is spent by the U.S. The numbers are even worse when it comes to small businesses, where ICT investment falls well behind that of the U.S. and the large enterprise environment.

Clegg listed several reasons for this situation. He noted that keeping up with the technology curve is not a "top of mind" concern among Canadian small businesses, which are more concerned with staffing and generating cash flow. Small businesses generally focus on IT only when something goes wrong with their technology. Another potential inhibitor is the cost of the technology and the training time required for employees.

Microsoft has acquired two companies that deal specifically with solutions for small and medium-sized enterprises (SMEs) and is investing $2 billion a year in research and development focused specifically on their needs.

Governments also have an important role to play in helping SMEs integrate IT. One of the immediate steps that can be taken is to build a better case for using the technology, making the connection between IT and productivity growth. The government should also offer direct support for small businesses through tax breaks or credits for firms seeking to be more innovative, and by providing support for research and development.

Paul Tsaparis
President and CEO, Hewlett Packard Canada

Canada has accomplished a lot, but more can be done to move forward, said Paul Tsaparis. He discussed the roles of consumers, business and society.

Noting that it is easy to find a survey showing the results one wants to see, he observed that Canada is not always ranked at the top when it comes to e readiness. He cited a 2004 report that ranked Denmark in the top spot in terms of e readiness, with Canada ranked 11th.

Tsaparis acknowledged the view that regulatory environments can influence changes. Canada has had a great telecommunications system, he said, while warning that some systems that were once enablers can potentially become inhibitors.

Another factor for consideration in Canada is that the number one priority for Canadian citizens, health, is a sector that is sorely under-invested when it comes to ICTs. Canada is missing a tremendous transformational opportunity here, he said.

Tsaparis reminded participants that studies show Canada as less productive than the U.S., and these studies attribute the difference in productivity to the lack of ICT investment.

Technology will influence industry in Canada and have an impact on the issue of human capital. He observed that Canada has made good progress in developing a skilled IT workforce through industry and government collaboration. In the U.K., there have been significant problems in filling IT and engineering jobs. This issue is seen as a significant inhibitor to moving the economy forward, and Canada is better positioned in this regard.

From the consumer perspective, Canada is one of the largest IT consumer communities in the world. Hewlett Packard is trying to bridge the gap between the "digital haves and have nots" through its world e inclusion initiative, which is about connecting disadvantaged communities, both in developing countries and here in Canada.

The challenge, Tsaparis concluded, is to collaborate across all segments-business, consumers and government.

Chuck Hounsell
Senior Vice President, TD Canada Trust

On the theme of collaboration, Chuck Hounsell, described how his teenage daughter collaborated with fellow students to complete a project, using MSN Messenger. Six friends were chatting online, modifying a PowerPoint document and researching the Internet, all at once. This is inspiring, he said, because today's youth are doing naturally what businesses are still struggling to do: use ICT to work collaboratively.

Hounsell explained that he has spent a lot of time building consumer services around the Internet and around telephone banking. He stressed the value of simplicity. The process of simplification involves asking users for feedback on the systems, and involving them in design. One key theme that has arisen among TD customers is the issue of privacy and security. Canada has become an attractive place for identity theft, and the government should take further steps to step up enforcement.

Outsourcing has been an important solution to TD's efforts to increase productivity, Hounsell said. Yet, this is a complex proposition: it takes a long time to determine what to outsource and how to do it. There should be a set of regulations and tax implications that make it easy for companies to be as productive as possible, he said.

Another challenge is the need to accommodate employees when moving them from one company to another and when outsourcing services. By creating a larger sense of community, TD has been able to send employees from one company to another, while helping them continue to feel at home.

There is a human dimension to all these changes, Hounsell concluded. "We need to think about how what we are doing affects peoples' lives."

Terry Walsh
President and CEO, Cisco Systems Canada

Calling Canada the most connected society in the world, Terry Walsh asked, "What happened in Canada's history that caused the country to position itself so well in integrating these technologies?"

Small and medium-sized enterprises make up 99 per cent of Canadian businesses, 80 per cent of employment and 60 per cent of economic output. But research shows that 50 per cent of SMEs are not taking advantage of Internet solutions to drive productivity growth, Walsh noted. As a result, Canada's level of e readiness has slipped.

For the 50 per cent of SMEs that have adopted Internet readiness solutions, there has been a 40 per cent increase in revenues and a 150 per cent increase in profits. Therefore, the 50 per cent that are not participating are at serious risk of falling behind both local and global competitors.

One of the reasons that they are staying away from ICTs is their focus on day-to-day survival. In addition, they lack the money to invest, and are not aware of the benefits.

The first step in creating change is to make this issue a national priority. Canadian businesses cannot compete in a 21st century economy unless they grapple with this issue, Walsh stated.

With the highest level of connectedness in the world, Canada should have a competitive advantage. "We don't need more studies," he concluded. "We need leadership. It is time for us to stand up and be counted as leaders, public and private."

Discussion

What if Industry Canada staff were to say, "the agenda is overworked and tired; let's come up with something new?" asked Hon. John Manley. He challenged panellists for what they would say to the Minister to convince him of the relevance of this issue.

Ed Kilroy highlighted the need for leadership and collaboration within industry. In the private sector, if the leadership team is not addressing the issue, then the leadership should be changed. There must also be collaboration with academia, which is producing good benchmarks and case studies. But leadership is key - in both the public and the private sector. "Our company got to the point of standing on death's door in early 90s," until it addressed this issue, he said.

Frank Clegg noted that "other countries are stepping up and investing in a significant way." They are looking at the North American economy driving the GDP, and they want to take their share. Canadian companies understand this. The era of information is only beginning: there will be tremendous opportunities in the next decade for information technology to change Canadians' lives, he said. "Let's invest in it." The job of the government is to identify ICT as a high priority.

Paul Tsaparis acknowledged that there are different issues of concern across the country but said that he would warn the Minister against being tempted to dismiss all the good ideas that have preceded this government. He added that new, trendy terms are emerging, such as nanotechnology and biotechnology, but these technologies are not distinct from ICT - they were developed through ICT investment. He concluded that healthcare is a key issue in Canada and the industry is badly in need of transformation. The Canadian economy, with its publicly funded healthcare system, is a "wonderful living lab for biotechnology innovation." Why not invest in the healthcare industry by transforming it through technological innovation?

There are huge opportunities for collaboration with the medical community to make the healthcare system as connected as possible, said Chuck Hounsell. On the consumer side, he recommended a focus on identity theft, which has a big impact on consumer confidence.

Terry Walsh remarked that the lack of participation among SMEs should be on the agenda, even if it sounds like old news. Setting the agenda, verbalizing goals and setting targets can achieve some "easy wins." The bulk of the work will be done by the private sector. Government can provide some incentives, but most of all, it needs to set the agenda. People will rally around that.

Manley observed that the IHAC process led by David Johnston 10 years ago was successful because it was a specific set of clear, broad-based recommendations, and many ministries were engaged in the process.

A participant involved in e health innovation commented that Canada could be a living lab to create the health system of the future. "We are ready to act," he said, butthere is a need for "a council of boldness and ideas" where different actors within the health sector can come together to discuss new ideas. This would make the process less fragmented.Manley remarked that there have been initiatives to draw IT into the healthcare sector, but the sector is currently organized in such a way that the only people who have to worry about costs are the provincial and federal finance ministers and hospital administrators. These, therefore, are the only actors motivated to introduce technology that can reduce costs and increase efficiency.

Tsaparis said that industry has an advocacy role to play by providing compelling examples of success to governments. The Canadian Health Infoway was an excellent gesture on the part of the Canadian government to create an environment where some of these initiatives could be sponsored. What seems lacking now is a number of initiatives like this that can take hold. One of the challenges is the number of jurisdictions responsible for health across Canada: there is confusion about who owns the issue.

Private sector companies "are aware of ROI, so we will go where decisions are made rather than swimming upstream," said Kilroy. He noted that IBM Canada has a multi-year arrangement with the Alberta government to do work on specific issues. The company has an innovation centre in Alberta that is focused on healthcare innovation.

Asked how the Canadian government can remove obstacles to innovation, Hounsell said that the first step is to identify existing barriers. For example, would a change in one's way of doing business, such as increased outsourcing, trigger a tax event that would have a negative impact?

Government needs to look at what it is like to do business in Canada, said Clegg. For example, it should identify and eliminate the top three obstacles to starting a business in one province and moving it to another. Currently, there is a lack of knowledge about these issues.

A participant commented that the model of innovation is changing and requires a shift in organizational culture and structure. He asked panellists for their views on how the process of innovation is changing.

Kilroy said that the gap between discovering something and getting it to market has shrunk. People from all over the world are contributing to technological changes, with multiple partners collaborating to bring about innovation. It is essential to forge a closer relationship between the business perspective and technological expertise, Kilroy said. The key question: How do you drive business value? Academia and government can play a role in creating these links.

A participant commented that a big threat today is regulation of the Internet, especially ISPs. More and more, government is looking to ISPs to solve the problem of spam, child pornography and other issues.

Walsh agreed that this is a vexing issue and emphasized that the role of government is to intervene only when market forces do not work. Some issues, such as spam and child pornography, will probably not be resolved by those motivated by return on investment. Such issues will require technological solutions and these innovations must be seen as part of the cost of doing business. However, it is reasonable to give government a voice, because the issues will not all be solved through market forces.Manley agreed, adding that as long as there is a problem, the question will be, "What is government doing about it?"

Clegg suggested that government should let industry solve the problem, but should step in if it is not resolved in a couple of years. Industry must act much more aggressively and show its piece of the plan.

A participant commented on the value of pilot projects with SMEs that involve e collaboration, e-commerce, e learning or other innovative approaches. Panellists expressed interest in such forms of government and industry collaboration. If the results can be targeted, measured and tracked then such projects would be worthwhile, said Clegg. "Clearly there is a business need to provide better technology to that marketplace," he stated.

Kilroy noted that there is a need to understand who is influencing SMEs in their decisions regarding new technology. These people (for example, accountants and business advisors) should be approached and convinced of the value of ICTs. "There are leaders and laggers," he noted, and said that the focus should be on the leaders - others will follow.

Asked why online debit services are not yet available, Hounsell said that Interac is building an online debit capacity that should be in place next year. One unresolved issue is the fact that this would only be available for Canadians buying from Canadian companies.

In response to a question about Internet services that allow applications to talk to each other, Clegg commented that considerable work has been done on integration and web services. He acknowledged that Microsoft may need to market these services better in order to make Canadian companies more aware of their existence.

Another participant suggested a partnership between banks, suppliers of hardware/software, and telecommunications companies, to offer a productivity/connectivity opportunity for the 50 per cent of SMEs not yet using ICTs.

Kilroy commented that IBM Canada already serves SMEs through its 1,500 "business partners." Other panellists added that the needs of SMEs are very diverse and would be hard to address in one swoop.

Walsh said that a key strategy for reaching SME customers is to form partnerships where there is trust. Tsaparis added that the solutions offered must be "radically simple" and easy to use. This notion "must underline everything we do: it has to be very easy to use."

Asked about their strategies with regard to Aboriginal or "remote" companies, Tsaparis said that he is a board member of the National Aboriginal Achievement Foundation, and Hewlett Packard Canada has sponsored a study related to Aboriginal business, called "Taking Pulse."

TD Canada Trust is providing infrastructure for the First Nations Bank and is working to provide remote access because branches could not be located in every community, said Hounsell.

Microsoft Canada has a program in place to identify areas of underdevelopment, and a key area of underdevelopment involves Aboriginal communities in Canada, Clegg said. The company is donating several million dollars to train teachers in Northern Manitoba on the use of technology to provide content. Another initiative is to create a system that would qualify students to be employed at any help desk facility in world.

Kilroy said that IBM Canada supports programs for Aboriginal communities that focus on primary education and develop the capacity of Aboriginal firms.

A participant remarked on the need to promote opportunities in industries not perceived as technology leaders, for instance, construction.

Walsh said that his organization has two programs that focus on taking knowledge of the technology into universities and high schools. In many cases, this knowledge has become part of formal accreditation. "We see it as a chance for people to enter the workforce with skills they might not otherwise have had."

"Are we doing enough?" he asked. The technological knowledge is going from an "add-on" to an integral skill among youth. The work is not done unless every student has working skills.

It was noted that many SMEs do not have a Chief Information Officer, but perhaps this function could be integrated into the CEO's role or could become a virtual capacity. The key is not to have a "one size fits-all" model said Tsaparis. Thus, the wisdom of these strategies lies in the concept of a "virtual CIO." The starting point is to have "baseline connectivity" in the form of a printer and a land device connecting to a network. The industry challenge is to "make that part easy" for SMEs. The fundamental requirement is a reliable infrastructure.

The session concluded with a comment from Nancy Hughes Anthony that "we have a wealth of talent here and an opportunity to attract more talent to Canada."