Digital transformations on the wrong end of the stick

scio-asset-management-inc-founder-and-managing-director-paul-daoust-in-the-CBQ

There’s a growing body of evidence demonstrating technology-led digital transformations are overpromising and under-delivering returns on investment for owners in asset-intensive organizations.

According to McKinsey & Co., 70% of digital transformations are failing to meet stated business goals. For industrial sectors like manufacturing, utilities, energy and mining the reports are worse, the rate can soar to 80%. That doesn’t mean these major projects aren’t providing any value, just that the ROI can and should be questioned as a good business decision.

Certainly, asset owners are spending millions or tens of millions of dollars on technology investments to revamp their enterprise solutions architecture. By no coincidence management consultants, systems integrators and solution providers are making millions or tens of millions from these improvement initiatives. 

What value are the asset owners realizing? The exact returns on these investments are often unclear, obfuscated and rarely published in investor presentations and annual reports. Despite research to the contrary, most companies believe what they’ve done is good enough, thank you very much. Nothing to see here. This is fine.

This, of course, impacts Canadian business competitiveness both domestically and globally. It adversely impacts productivity which lowers profitability in private sectors and increases the cost of service in public sectors.

It’s not all bad news. The technology-first approach to organizational transformation in the pursuit of operational excellence has provided infrastructure with tremendous potential. Access to data stored and managed in the cloud has grown exponentially. Analytics tools and platforms offer limitless analysis capability. Now, anything is possible!

Unfortunately, potential doesn’t pay the suppliers. Potential doesn’t pay the shareholders. Potential doesn’t deliver value to other stakeholders like customers, regulators, communities, etc. “Potential is like a summer crop. If it don’t rain, it don’t grow.” – Charles Oakley.

This is a classic case of Field of Dreams – build it and they will come. “Data informs decisions!” we shout. This is precisely where one should question – which decisions exactly? And how? Because that’s where the conversation usually ends.

Our digital transformations haven’t been working because it’s been technology first, people and decisions second. Few initiatives have included an appropriate organizational redesign and new competencies for its people. Fewer changes have been accompanied by revised operating and governance models that complement the new technology. There’s lots of talk about Industry 4.0 but technology isn’t enough when people and decision-making are not adequately supported. We’ve missed the boat on Industry 4.0.

Douglas Hubbard, a risk and decision expert and author at Hubbard Decision Research has asserted, “The most important decision you will make is how you will make your decisions.” This statement is profound in the pursuit of operational excellence as a business outcome. Excellence is an incredibly high bar without room for compromise.

One root cause in underperforming digital transformations is that in the face of massive investment, organizations collectively are still no better at decision-making than they were before the change took place. This is the battleground where operational excellence is won and lost.

Our technology investments have revealed an immediate bottleneck – our people’s capability to ask and answer the right questions resulting in more, better decisions. Data scientists can do almost any manipulation of the data but require capable subject matter expertise to ask and answer the right technical questions with the data and analytical tools. 

It isn’t just the practitioners; leaders are also at fault. What are the key management questions operations leadership is asking of its organization and to what quality are those questions being answered by its practitioners? How are these questions and answers leading to decisions?

What is a decision exactly? It is a choice made under conditions of complexity and uncertainty to meet business objectives.

A decision’s level of structure and rigour applied must be consistent with its degree of complexity and consequence potential. Some decisions are a simple yes/no choice where it is appropriate to use experience and intuition. Other decisions are very complex involving multiple solution options for multiple objectives requiring considerable data and analytical evidence. Good decisions must incorporate not only the best available knowledge but the uncertainty around that knowledge. This is why many decisions should be made with simple quantitative two-pass model frameworks. The first pass gets us into the ballpark while a refined second pass reduces uncertainties associated with the inputs.

There are many questions that should be considered in proper decision-making: What are the important decisions to be made? Who makes them and who is included to provide support? When should they best be made? What knowledge is required? Does knowledge come from experience, data evidence or both? What options, alternatives and scenarios should we consider? What business objectives do we value? How will we balance financial (production revenue, cost) with non-financial (safety, environmental, customer service and quality, social governance and sustainability) drivers? Is this a satisfying decision or an optimization decision? If optimizing, for what and over what period? What if we’re wrong? What are the constraints and can they be tested? What biases exist and can they be minimized? What if we’re wrong? Is the decision reversible? Can we live with the decision if the result turns out poorly?

This structured decision-making technique is rarely utilized.

What’s at stake? A lot. By definition, performance benchmarking allows only 10% of operating companies in the top decile and 25% in the top quartile. These organizations already have good management practices to get them there and believe in continuous improvement to raise the bar even higher. That means the remaining 75% of companies either stuck in the mediocrity of second or third-quartile (or worse) have a lot of work to do to keep up and catch up. The good news is it can be done. McKinsey & Co. say that 10% of companies can actually make the leap to displace an incumbent in the top quartile.

According to Solomon Associates, the difference between average and top-quartile performers can be a 6% increase in production and a 45% reduction in spending. That difference is massive in any organization and is largely due to the organization’s decision-making capacity. Decision management is the key to operational excellence results.

How good is the organization’s current decision-making? Hubbard says it is reflected in the organization’s decision track record. Unfortunately, most organizations are not very good at tracking their decisions, actions, and results. Sadly, many managers would prefer their decisions not to be tracked as the transparency can be uncomfortable. Ultimately, however, decision quality is reflected in operational performance. In the words of W. Edwards Deming, “Your system is perfectly designed to give you the results that you get.

Often the important decisions are obscured in our policies, standards and business processes. Or there is some expectation of some nameless decision to be made with data once analyzed. “Data informs decisions!” we repeat.

There is a principle, an acronym called DIKDAR adapted from data quality management that tells a story. Data > Information > Knowledge > Decision > Action > Result is a progression more than a process. Data by itself is not useful until the technical context is added. This may be done through analysis to synthesize data into information. Information is still not yet actionable until the business context is added to form knowledge. With knowledge, a decision may be made. The decision guides what action will be taken in the form of plans and tasks that deliver a result.

Everyone wants great results. Most people are predisposed to action so once the decision is made, execution is assured to follow so the ‘A’ and the ‘R’ are not the problem here. The key is to make the right decision. Many people will concentrate on the data and information with some notional idea of a decision. This discovery method yields mediocre results. A better way is to centre on the decisions to be made and work backwards. Start with a decision and determine the knowledge required to make the best decision possible at every opportunity. Then determine the information and analytics required to support that knowledge, and finally, determine what data is useful to support the required information. This more deliberate method provides superior results. Some data is more important than other data. The deliberate approach allows the distinction of valuable data to support the decision while the discovery approach does not.

What are the important decisions to be made in operational management? The ISO 5500x Asset Management family of standards provides guidance on how asset owners should coordinate the organization’s activities to create value from its assets to meet the strategic organizational objectives for its stakeholders. These expectations are communicated more practically in the Asset Management Landscape document by the Global Forum for Maintenance and Asset Management (GFMAM.org). This reference clearly and simply outlines the fundamentals of asset management and the 39 subjects of asset management in six subject areas. This set of practices cover the entire asset lifecycle from cradle to grave.

Formal asset management should be foundational for all asset owners but the adoption of this relatively new disciple and emerging profession has been slow globally, particularly in North America. The reason in part for the slow uptake is because of how asset management practitioners have tried to offer and deliver asset management as a heavy-handed standalone documented asset management system that does not integrate well with the asset owners existing operational management.

A more beneficial approach is to cut to the chase, go directly to the important decisions throughout the asset life cycle. Fortunately, there are a finite number of important decision types within those 39 subjects of asset management. A more effective management system framework would codify those decision types and offer a decision model for each enabling the best decision possible at every opportunity. Decision models can be standardized by decision type using simple and proven problem-solving and decision-making methods like the A3 PSDM. Now the knowledge, information and data required to make the best decision are revealed and made obvious. 

An interesting phenomenon happens when the perspective changes from managing the “tasks to be done” to the “what and how decisions are made”. Suddenly the overwrought business process becomes simplified. We no longer need volumes of policy, standards, processes and procedure documents that no one reads (TL;DR – too long didn’t read). Better decision-making can be accomplished with only a modest investment in our people’s competencies and simple tools to consistently make more, better decisions.

Data is the wrong end of the stick. Digital transformations laser focus on data and data management in its technology-led solutions has obfuscated the forest for the trees. Decision management is the right end of the stick. Leaders would do well to center themselves and their organization on more, better decision-making.

Decision-making doesn’t need to be perfect for perfection is not a reasonable expectation. In all decisions made by either commission or omission, there will always be good decisions with good outcomes, bad decisions with good outcomes, bad decisions with bad outcomes and good decisions with bad outcomes. Decision-making simply needs to be better than it was before and hopefully better than peers or competitors to realize more value through continuous improvement.

Digital transformations to date have left operational leaders greatly underserved for the job-to-be-done: to direct the organization’s activities to deliver more value from the same assets with fewer resources. There is a solution. An Enterprise Operational Management System (EOMS) as a simple and effective framework gives leaders the tools to manage, lead and govern the organization.

The EOMS is the lens through which leader see their organization. It is the space where they think about operational performance. It is the canvas upon which they decide where to disproportionately apply its vast and scarce resources. It is how they instruct the organization to act to achieve the desired business outcomes. See. Think. Decide. Act.

Intelligent EOMS design starts with first-principles decision management and also includes systems thinking, human-centred design, modern leadership attributes, choice architecture as well as asset management fundamentals and select operational excellence practices all wrapped in a low administrative burden framework.

The EOMS reframes the wicked problem of value leakage from suboptimal decision-making. It provides the right balance of structure and discipline with flexibility and innovation. It integrates all the activities of the organization to deliver more value than would the sum of its parts. It is built for leaders and first-principles decision-making. As a framework, EOMS fits any organization regardless of maturity or complexity.

An enterprise operational management system is the keystone apex solution that courageous operational leaders in progressive organizations need to manage, lead and govern their organizations. The EOMS is the technology missing from digital transformation projects and the enterprise solution architecture in the odyssey operational leaders are undertaking. Maybe we will get it right in Industry 4.1.

After the digital transformation, operational leaders now need a transmutation of their organization’s decision-making capability. Let it rain to nurture our crops. Step out of the cornfield onto the field of dreams. 

Paul Daoust is the Founder & Managing Director of Scio Asset Management Inc., www.scioam.com.

Altasciences: Fully integrated problem-solving solutions

Altasciences CEO Chris Perkin in The CBQ

Headquartered in Laval, Canada, Altasciences is an integrated drug development solution company offering sponsors a one-stop solution for all their early phase drug development needs.

Altasciences CEO Chris Perkin has over 50 years of experience in the CRO industry, having started his career as a toxicologist for a preclinical CRO in England and worked his way up the ranks. Since Chris took on the leadership of Altasciences in 2010, he and his team have transformed the company from a CRO that supported only generic drug development to an integrated solution that supports novel drug development for small and large biopharmaceutical companies. For his leadership at Altasciences, he was named ‘One of the 100 Most Inspiring Leaders in the Life Science Industry’ by PharmaVOICE magazine for four consecutive years, and was made a Red Jacket honoree in 2019. Chris spoke with us recently about the origins of the company, the shift in dynamics in the pharmaceutical industry due to the so-called ‘patent cliff’, and the integration model at the heart of Altasciences’ DNA.

Collaboration and trust

“Altasciences actually started off as a different company,” Chris explains, “Algorithme Pharma was a fairly small clinic and laboratory focused entirely on generic drugs. When I joined in 2010, it was facing significant price competition out of India, and we started transforming the company by repositioning it as an innovator drug testing clinic.”

This transformation led to the company’s first acquisition in 2013, an innovator drug clinic in Kansas. This was the start of the development of the idea behind Altasciences – a full-service, integrated, early phase CRO.

“In 2017, we had new owners, and under them we added a preclinical CRO, which was a key piece in that plan, and a CDMO, which was also a differentiator. Then in 2021 we had another set of new owners, and they acquired Altasciences on the basis of showing that our plan was viable, and we have added two more preclinical facilities and a clinic in Los Angeles.”

At the same time, the company made a number of organic changes, such as building large and small molecule bioanalysis laboratory capabilities, and adding Program Management services to help provide the integrated comprehensive early drug solution that had been envisaged.

“We also implemented cross-selling, rethought the org chart to ensure our vision of integration was mirrored by the reporting and the responsibilities at the senior level. Then in 2019 we changed to the Altasciences name, and positioned ourselves as a solution provider for early-stage drug development.”

Chris’ journey to the top of the company has been a long one. Forty-seven years ago, he began working with Huntingdon Life Sciences in England as a toxicologist. He stayed in the field of preclinical testing until 2010, in both CROs and the pharmaceutical industry, where he had been moving up the seniority ladder since arriving in Canada in 1988.

“When the Montreal CRO where I was working was acquired by Charles River Laboratories in 2004, for the next six years I managed all their North American facilities, and we built one in China.”

Altasciences CEO Chris Perkin in The CBQ
Chris Perkin cutting the ribbon at the ligand binding laboratory’s second expansion in November 2021

Working his way up the ranks in this way helped Chris develop a management style that prioritizes collaboration and trust in working relationships. He is a true believer in the power of communication, a founding principle on which Altasciences was built.

The pharma industry

The CRO industry replaces internal capacity in both large and small pharmaceutical and biopharma companies, providing in-depth services which are expensive to build and staff, helping drugs through the research phases and regulated requirements for any country, which are very stringent, and finally bringing it to market.

“Our goal is to become the solution for outsourced, early-phase drug development, from the time that the lead candidate is identified, through to the studies which show it actually works in a small group of patients. We’ve put together the pieces that are traditionally offered by separate CROs. Nobody else to date has done that in an integrated fashion.”

Whether it is one study or a whole program, Altasciences aims to provide a simple, integrated, outsourcing solution with a focus on customer service, that removes the need for multiple service providers during the early stages of drug development.

Part of the original idea that the company started putting together in 2013 was to approach early drug development in the way the client approaches it, rather than in the way that a provider would normally approach it.

“It’s assigning a single program manager to a client, to manage their whole program for them across Altasciences, centralized scheduling tools that actively manage multiple studies, no matter in which facility or which discipline or capability is involved.”

One of the major issues identified by clients was that they had to provide information too many times across the different areas of the business. With communication as a founding principle, Altasciences built a tool to ensure that the client only has to share key information once.

Altasciences CEO Chris Perkin in The CBQ
Headquartered in Laval, Canada, Altasciences is an integrated drug development solution company offering sponsors a one-stop solution for all their early phase drug development needs

“It doesn’t matter how many studies they are doing, or how many facilities or departments are involved, we actively cross-sell our services to become more of a problem-solving solution. By putting together the whole early development process, we can actually reduce early development time by up to 40%, and reduce costs by performing all those services in a single, integrated CRO.”

Integrating all these pieces has been built into the company from day one, a core requirement of the business model. Chris doesn’t believe in retrofitting integration – it must be a part of the DNA and culture of a company in order for it to be successful.

“Before we even started implementing this idea, we did a lot of road testing. We talked to a lot of clients and marketing firms, we had surveys done. There was a lot of interest, but a lot of skepticism. When you offer something unique in an industry not really known for its innovation and out-of-the-box thinking, you get a lot of questions, which result in hesitancy.”

The real turning point for the company came with the onset of the COVID-19 pandemic. All of a sudden travel was next to impossible, with a huge number of issues stemming from the fact that supply chains stretched across continents.

“A single CRO solution became much more attractive. We’ve seen and continue to see a significant increase in clients interested in using the multiple capabilities and with everything that integration means, particularly in those small to mid-size biopharmas.”

The pharmaceutical industry is now increasingly reliant on small to mid-size biopharma for early-stage development, following the reorganization after the ‘patent cliff’ that started in 2010 – a sharp decline in revenue or profitability after a patent’s expiry, opening companies up to competition.

“Big pharma realized that shots-on-goal wasn’t working, and just acquiring the small start-up biotechs wasn’t a sustainable solution. They now tend to leave them to do that early development, take it to proof of concept, and then they will step in for the later stages of development. And it’s working very well, it’s a very synergistic relationship.”

In addition, new drugs are getting more complex to evaluate, with new molecules, indications and mechanisms. This makes it more difficult for the larger clinical CROs to maintain the infrastructure needed to assess tolerance and safety, key for early stage development.

Later stage clinical development is therefore becoming increasingly separate, handled mostly by the larger CROs, meaning that early-stage development CROs are taking a different and critical role within the whole organization.

Identifying synergies

“We’ve got very active owners, who are very supportive of this model, and quite excited by it actually,” Chris says. “So, we have a growth plan: keep building the capabilities – both by acquisitions and organically – and the capacity to enhance that integrated full-service early drug development model.”

This will involve adding more capabilities and, crucially, more geographical reach. There are already plans to move into Europe, with active pursuit for geographical growth currently in progress.

“We will continue to focus on that lead candidate selection to proof of concept area of development. Everything that we add will plug on to that. Every client that comes to Altasciences is potentially a client for every one of our services, whether they are using them or not.”

Since 2020, the company has completed four acquisitions, adding the former Alliance Contract Pharma, WCCT Global, Calvert Labs, and Sinclair Research. There are more acquisitions currently in discussion.

 

Altasciences CEO Chris Perkin in The CBQ
Since 2020, the company has completed four acquisitions, adding the former Alliance Contract Pharma, WCCT Global, Calvert Labs, and Sinclair Research

“Over the years we have developed a very elegant integration process, that identifies and realizes true synergies really quickly by establishing cross-functional teams from day one, for each department to evaluate and adopt best practices.”

Many of the tools that have become key to this model have come from companies that have been added to Altasciences. These synergies have never been about cost-cutting and headcount reductions, rather helping develop and grow the model.

“For over 30 years now, I could never understand the logic behind early drug development being so siloed,” Chris concludes. “As far as a drug is concerned, it’s a single pathway from lead candidate selection to clinical proof of concept.”

After the emergence of the patent cliff and the re-evaluation of the role big pharma would play in drug development, there became a significant gap in the market, exacerbated by the larger CROs getting even larger, decimating the mid-level CRO tier that traditionally serviced small to mid-sized biopharma.

Altasciences CEO Chris Perkin in The CBQ
The pharmaceutical industry is now increasingly reliant on small to mid-size biopharma for early-stage development

“I, and a number of other senior operations, scientific, and business development staff, decided it was our opportunity. The unique mix and range of CRO experience in our management team has made it not only possible, but it’s created a significant barrier to entry, and that’s really allowed us to grow significantly to date and will enable us to continue to do so in the future.”

Having expanded from one clinical site to eight locations across North America, and offering preclinical, clinical, bioanalytical, formulation, and drug manufacturing services in one integrated model, the future looks bright for Altasciences. Find out more about Altasciences by visiting www.altasciences.com.

It’s impossible to tackle climate change without nuclear

Canadian Nuclear Association and President and CEO John Gorman in The CBQ

The task of tackling climate change is mammoth. It requires an ‘all-in’ approach among Canada’s business leaders, governments, and the clean tech industries. But done right, not only can we mitigate environmental catastrophe – we can drive economic growth by building a sustainable green economy and leveraging our unique position as a global leader in clean energy.

It is no exaggeration to say that the future of our planet resides in the palms of today’s business and political leaders. We are all too aware that we are running out of time to mitigate catastrophe before it is too late. While climate change must be addressed through a global approach, Canada must act now if it has a chance of reaching its goal of net-zero emissions by 2050.

Reducing our carbon footprint is a key challenge for corporate Canada. As a nation we face unique challenges and opportunities. We have one of the highest energy consumption rates per capita in the world – and we are warming at twice the average global rate. The backbone of our economy is built on natural resources, with fossil fuels currently serving 80 per cent of all energy needs in Canada. Oil and gas represented around $105 billion in GDP in 2020, but it also accounts for a large share of Canada’s emissions. Meanwhile, analysis by Royal Dutch Shell projects that global energy demand will triple by 2050. And we still face significant challenges with many of Canada’s 170 remote and Indigenous communities being ‘off the grid’ and forced to rely on costly and high-emitting diesel.

The task ahead is mammoth – but there is a proven path

We have a monumental task ahead. One that requires a massive energy system transition leveraging the full mix of low-emitting energy sources if we are to be successful. There is no perfect – or easy – solution. But there is a proven viable path. And the reality is that we have no choice but to pursue that path if we have a chance of mitigating climate catastrophe.

That path must include all viable clean energy technologies, and that means renewables working together with nuclear.

It’s hard to fathom the extent of global scientific research that has gone into helping understand the path to fight climate change. Based on that research, scientists, governments, environmentalists, and climate change experts across the world have concluded over and over that it is just not possible to get to net zero without nuclear in the mix. This is a fact, not an opinion.

Why nuclear?

Nuclear energy is a clean, energy-dense, carbon-free, reliable energy available around the clock.

Nuclear power produces less CO2 emissions over its lifecycle than any other electricity source, according to a recent report by the United Nations Economic Commission for Europe (UNECE). The commission found that nuclear power has the lowest carbon footprint measured in grams of CO2 per kilowatt-hour (kWh) compared to any other electricity sources – including wind and solar.

Nuclear is also the most land-efficient means of producing clean energy; at least 15 times more efficient than renewable sources like wind and solar. And it serves as one of the most affordable electricity sources worldwide.

As someone who spent much of my career in renewables, I am a true proponent of maximizing the full potential of solar, wind, hydro and other renewables. But the fact is that 20 years ago, when I started in the renewables sector, 36 percent of the world’s electricity supply was non-emitting. Today – two decades later and following huge investments ramping up wind and solar – we’re still at 36 per cent non-emitting electricity on the world’s grids. We just cannot get to net zero through renewables alone.

New nuclear innovation through SMRs

There is significant focus on the role SMRs (small modular reactors) must play, leveraging innovative technology for safe, cost-effective small-scale fission reactors that can be built in factories and easily transported on-site. Not only do SMRs provide clean electricity, but they can also play an integral role in decarbonizing Canada’s heavy industry, including the oil and gas sector that represents such a significant part of our economy. And they can serve small or remote communities, including the many Indigenous communities that currently rely on diesel. Unlike most renewable energy sources, they can also provide high-density, zero-emission energy around the clock.

Nuclear contribution to a green economy

The nuclear industry contributes over $6 billion in revenue annually in Canada and represents 76,000 jobs. But we have only scratched the surface of its potential to drive economic growth. The projected growth of the nuclear industry means an early leadership position for Canada in SMRs. According to the SMR Roadmap, the estimated total global export potential of SMRs is approximately $150 billion per year for 2030 to 2040.

Nuclear is decarbonizing the world

Nuclear is the only technology that has achieved deep decarbonization of entire economies in adequate timeframes. Places such as France, Sweden, and the province of Ontario have been able to decarbonize their electricity grids and limit or phase out coal generation thanks to nuclear.

Roll-out of investments in nuclear across the world

Several countries have recently announced significant investments in nuclear technology as part of their net zero path, including $200 million in SMR investments in the UK, $1 billion in France, and $2 billion in the U.S. This is on top of the $6 billion the U.S. has committed to reinvest in existing reactors and the billions that will be invested in France’s plans to build new large reactors. Meanwhile in Canada, Ontario Power Generation (OPG) just announced it will work together with GE Hitachi Nuclear Energy to deploy a small modular reactor at the Darlington new nuclear site, with completion as early as 2028.

Nuclear plays a vital role in producing clean electricity

Creating clean electricity will be a key component of Canada’s path to net zero. The International Energy Agency (IEA) projects that electricity generation will be about 2.5 times higher in 2050, stating that “Spreading the use of electricity into more parts of the economy is the single largest contributor to reaching net-zero emissions.” Nuclear is one of the largest producers of clean electricity around the world and in Canada, and already accounts for about 15 per cent of Canada’s electricity. But it has the potential to do so much more.

Nuclear technology can support a clean hydrogen economy

There is increasing focus on how the hydrogen economy will be a critical part of our clean-energy future. The Hydrogen Council estimates that by 2050 hydrogen will represent 18 per cent of the energy delivered to end users, avoid 6 gigatonnes of carbon emissions annually, enable U.S.$2.5 trillion in annual sales, and create 30 million jobs globally. When hydrogen gas reacts with oxygen it releases clean energy, and the only by-product is pure water. Like SMRs, hydrogen has the potential to help Canada transition remote communities away from high-emitting diesel and to decarbonize heavy-industry operations, transport, and community infrastructure. Today, almost all hydrogen comes from high-emitting fossil fuels. However, nuclear technologies make hydrogen gas a more practical fuel for a carbon-free energy system. Economical production of hydrogen would usher in a new era of hydrogen-powered vehicles that would create no more emissions than walking.

Canada’s nuclear medicine saves millions of lives

Nuclear medicine is used to help diagnose and treat millions of Canadians every year. Through exports, Canada’s nuclear healthcare innovation saves millions of lives each year in 80 different countries, with significant economic benefits. For example, more than 50 per cent of the world’s supply of cobalt-60 isotopes is produced at Canadian nuclear power plants, within a global business estimated to grow over U.S.$17.1 billion by 2023.

Canada is uniquely positioned to take a global leadership role

Canada can drive environmental, social, and economic advantage on the global nuclear stage. For many years Canada has been a leader in nuclear technology, exporting reactor systems developed in Canada as well as supplying a high proportion of the world’s medical radioisotopes. We also have the largest reserves of high-quality uranium in the world and are the second largest producer and fourth largest exporter of uranium. Canada’s nuclear industry has an impeccable safety record spanning 65 years, and we are proud to have world-class regulatory oversight.

Now is the time for industry and political leaders to work together to build a green economy

The socio-economic cost of climate change is huge – and growing. Business and industry leaders across Canada know that this is not an issue we can pass on to our next generation leaders to resolve. We are at a pivotal moment in time. Canada needs to take decisive action to mitigate catastrophe and to avoid falling behind other countries who are accelerating their path to net zero through clean nuclear. We cannot afford to lose out on the unique advantage Canada has in nuclear innovation.

Having targets is imperative, but we need tangible plans and actions that unite the public and private sectors and acknowledge the need for the right investments, infrastructure, and regulatory oversight. Corporate Canada must work in partnership with the government to build out a concrete and ambitious plan to incent fuel-switching and to signal to the clean energy sector what’s required.

The task in front of today’s business and political leaders to fight climate change is no doubt daunting. But the opportunity to work together to build a better and more prosperous future is far greater.

John Gorman is the President and CEO of Canadian Nuclear Association, www.cna.ca.

Inflation: Demand creates its own supply

Rosenberg Research and Associates Founder and President David Rosenberg in The CBQ

The point has to be made that while we clearly have a stickier inflation situation on our hands, the entire story relates to the pandemic and the impact this has had on impeding the supply side of the economy. This is not a demand story one iota, which means that the Fed really is not at all well equipped to deal with this sort of inflation without driving the economy into recession.

We have a highly inelastic aggregate supply curve on our hands. In some industries, it can be argued that the supply curve has turned vertical in shape. What that means is that you don’t need incrementally strong demand to generate these wild increases in prices — even small moves can do the trick. For now, and the near-term, but not indefinitely. My view is that the supply curve will resume its normal shape of sloping upward from left to right on the price-output chart, even if we have to wait longer. But what I don’t see changing is the secular softness in demand, which was a principal feature of the 2009-2019 economic cycle.

The principal risk to my view is if the price action feeds in a broad-based manner into wages, and we embark on a wage-price spiral. A few headline contract disputes and strike action will have to broaden out to cause a shift — so far, many measures of wage growth are contained among the youth, uneducated and unskilled in some of the public-facing cyclical industries, like retail and leisure/hospitality.

Let’s look at the auto sector, which has been a poster child for this inflation surge. Production has plunged 25% in the past year and retail inventories have plunged 18%. At the same time, sales are down 20% and new orders have fallen 10%. Auto-buying intentions are down to four-decade lows. The story here is that as weak as demand has been, the supply shortage has dominated and as such we have a big inflation surge in this key sector. A case, again, of supply being weaker than demand. But demand is weak and that is a key point and when the supply does come back, demand is bound to lag behind and the price action will reverse. This is likely to be a theme in 2022 but not yet appreciated.

Of course, at the root of this supply situation is what has happened to global supply chains for key inputs, and particularly for semiconductors. But I am seeing an impressive supply response already taking place. Domestic production of micro processing chips has risen 9% from year-ago levels. The onshoring of production is already taking hold. And we also see that imports of electronic components from abroad are seeing a sharp rebound — finally — as they are up 23% on a year-over-year basis.

And let’s face it — if the chip shortage was some sort of long-lasting phenomenon, someone has to tell that to the sector stock index, which is hovering near all-time highs. You will not find this in the morning papers where inflation has reached a feverish pitch and is a key selling topic for the readership.

Meanwhile, for all the talk of a reversal in globalization, exports out of Singapore are up 23% YoY, up 19% in Korea, up 20% in Taiwan and up 24% in China. In fact, it is my contention that, with the property market in disarray and retail sales in a deep funk in China, the next big theme will be an export boom out of China because this will have to be the offsetting safety valve to prevent the economy there from slipping into recession. This will be another theme ahead — China again becoming export-dependent and this will actually be a deflationary force on the global economy. Again, who is writing about this?

We also see a similar situation in the energy market as with autos. Supply is being constrained and the only reason why OPEC+ has remained stringent is because it sees demand softening in the coming year. But as with autos, demand is below pre-pandemic levels across all segments — while real consumption has obviously rebounded from the 2020 lows, whether you look at gas usage volumes, miles driven or air travel, they are all significantly below pre-COVID-19 levels — which was a time when WTI was sitting at $53 per barrel, not $83 per barrel. If production wasn’t set to recover before too long, I doubt that we would be seeing the mid cap auto manufacturing stocks not just carving out a bottom but up nearly 10% so far in November (ditto for the small cap parts producers, which are up more than 9% month-to-date and are at all-time highs).

Food has been a big problem and, again, this is not due to demand. It is part transportation costs (and fuel for farmers) and part disrupted supply chains for food producers. But it is mainly the fact that violent climate shifts, such as droughts and floods in key food producing regions both within North America and abroad, have wreaked havoc with supplies. Demand for food tends to be very stable and people don’t shift their appetites this quickly. So the big food inflation in the CPI data reflects all this and with a lag from the prior surge in the commodity pits. But we have recently seen a thaw in the price action at the early farming stages and this too will filter next year into some much-needed relief. Food prices rose with a lag, and they will come down with a lag. Nothing here is permanent — any more than the doubling in agricultural prices in the mid-1930s with the “Dust Bowl.” In 1934 alone, that caused a massive 800-basis point swing up in the headline inflation rate! Somehow, when all was said and done, nobody seemed to recall that, because of a supply shock in the context of the Great Depression, we did have a two-year inflation shock to deal with. Those who believed the Fed would respond and bond yields would soar were surely disappointed.

Now for the housing aspect to this story. Yes, the dominant rental components, including OER, are filtering through with a lag. This will likely persist into 2022. But the Fed has never before reacted to this force within the inflation data, and I doubt that Powell (or whoever may replace him) will bother to respond to the rental influence on the data. The key, as I said before, is the extent to which all of what we are seeing will feed into wages. So far, let’s just say that wages have lagged behind prices in six of the past seven months, during which real work-based pay has contracted at nearly a 3% annual rate. We shall keep an eye on this since this is the area that would cause us to shift our view on inflation being “non-permanent.”

Again, the supply front is showing some verve. With the rental vacancy rate at a 35-year low of 5.8% and quoted rents running hot at +12.5% YoY (was +0.2% a year ago!), the real estate developers are springing into action. The story here is that it isn’t just demand — but until recently, new supply was dormant. So much so that apartment unit completions as of September were down 42% to their most depleted levels in two years!

But now we are seeing rental building permits up 16% YoY to their highest level in six years; multi-family starts have soared 38% YoY; and units under construction — and soon to hit the market — are up more than 6% and 714k units (the highest they have been in 45 years). To be sure, it takes 12-18 months (versus 7 months for single-family) for a high-rise building to morph from start to completion. But what lies around the bend, nonetheless, is a return to either a better balance in the rental market or a move back to excess supply. Whether it is a 2022 or 2023 story, the future is one of supply playing catch-up; and we will no longer be talking about rampant rental inflation in the CPI data.

David Rosenberg is the Founder and President of Rosenberg Research and Associates, www.rosenbergresearch.com.

The Business of Human Rights

Canadian Bar Association Warren Ragoonanan is the Chair of the International Law Section and Tina Parbhakar is the Section’s Past Chair in The CBQ

The Canadian Bar Association’s Business and Human Rights (BHR) Guide helps Canadian lawyers and their clients account for human rights in their operations.

What is the role of business when it comes to respecting human rights? The answer depends on who you ask, and what you are asking about. In Western liberal democracies, human rights are integrated into our constitutional order. There are clear legal consequences if human rights are ignored. It is easy to forget that this approach is not widely shared around the world. Does that mean that outside Canada, businesses can simply ignore human rights? No. Human rights laws, regulations and decisions are evolving constantly, and businesses face legal, financial and reputational exposure for failing to respect them – even if they do so unwittingly.

There are no easy answers here. That is why the Canadian Bar Association has added the new Business and Human Rights Guide to its practice tools. The CBA Guide is designed to help lawyers and businesses integrate human rights into their operations when acting abroad.

The risks

Human rights violations can be perpetrated by anyone from company directors to state actors, sub-contractors, or private security forces. They can happen anywhere along the global supply chain.

Relevant information and actionable guidance are some of the best ways for businesses to avoid being exposed to this risk. One of the CBA Guide’s fundamental goals is to help Canadian lawyers and businesses avoid getting caught up in problematic human rights situations. The Guide is also there to help them respond to situations that are hard to predict.

Businesses must have up-to-date knowledge of expectations on critical social factors like international human rights. Such factors change rapidly and can catch practitioners by surprise.

A changing legal landscape

We have been feeling the effects of globalization since the 1990s. That, coupled with the internet and associated technology, makes it possible for large and small businesses to operate globally. With so much foreign business influence in their economy, governments sometimes find challenges in their ability to oversee business activities and ensure that human rights are protected.

The United Nations Guiding Principle 13 explicitly states that businesses have the responsibility to avoid causing or contributing to adverse human rights impacts through their own activities and address such impacts when they occur; and to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services by their business relationships, even if they have not contributed to those impacts.

Litigation risks

In recent years, there have been human rights cases brought by foreign litigants against Canadian companies. As outlined in the CBA Guide, there is now an emerging Canadian body of jurisprudence highlighting that Canadian businesses can be held liable for human rights abuses connected to their international operations. Surprisingly, when responding to such litigation, there are factors beyond just the legal issues which may drive the decision making process.

Often in business human rights litigation, what’s at issue isn’t the human rights violation itself but whether a company should be held legally responsible for that human rights violation. A company might well win in court but still lose in the marketplace and suffer great damage to its brand and reputation. A customer is much more likely to remember the association between a brand and an event abroad than they are to remember that the court actually found the company not liable. Just the fact that there was a court case might be enough to cause irreparable harm to a company’s reputation.

Businesses seen as having fallen short of their obligation to ensure human rights are respected can see their “social license to operate” undermined by public opinion. This can hurt the businesses’ ability to increase their market share, find employees, obtain regulatory approvals, and expand their operations to other countries.

International human rights obligations

There is no international obligatory standard of corporate liability when it comes to violations of human rights. However, human rights violations abroad may expose companies to criminal liability in their own countries for activities that happen elsewhere.

At the international level, criminal charges for alleged business complicity in international crimes are increasing – this includes activities that constitute crimes against humanity. The case of the French multinational Lafarge is particularly interesting. Both the parent company and its subsidiary, Lafarge Cement Syria, were indicted for complicity in crimes against humanity, among other charges, for the subsidiary’s operations during the Syrian civil war. This was the first time a French parent company was charged for the actions of one of its subsidiaries abroad. The case is still before the courts.

In addition to potential corporate liability, in some jurisdictions including the UK, France, California and Australia, directors and officers can also be held personally liable for failure to comply with human rights obligations.

Canada does not have a similar regime, but Bill S-216, the Modern Slavery Act, tabled in the Senate in 2020, tried to address some of these issues by making directors and officers personally liable for their actions if they directed, authorized, assented to, acquiesced in or participated in the offence, whether or not the person or entity has been prosecuted or convicted. If passed, the Bill will enact Canada’s first modern slavery disclosure legislation. Under current Canadian law, corporations (and possibly their directors and officers) can be held criminally responsible where a “real and substantial connection” can be made between Canada and the alleged offence. It is crucial for Canadian directors and officers to take note of how foreign legislation is impacting businesses operating in those jurisdictions to inform their assessment of potential liability that may arise in Canada.

Mandatory disclosure

Provincial securities legislation obliges Canadian public companies to disclose material risk to their business. This includes business human rights issues that would be material to any reasonable investor. But other than in Quebec, at the moment, there are no concrete requirements that public companies disclose BHR or modern slavery risks.

However, Canadian companies that operate in jurisdictions with regulations requiring disclosure of BHR or modern slavery risks, such as the UK, France, California and Australia, are subject to disclosure requirements in those jurisdictions. Businesses often find that the least costly approach is to simply comply with the highest disclosure standards required and apply that to their operations in all jurisdictions.

Regardless of government regulations, there is a class of investors who evaluate companies based on business human rights ranking, voluntary disclosure, and benchmarking tools developed to incorporate the United Nations Guiding Principles. That means that good performance on these benchmarking tools can facilitate access to this exclusively available capital.

Best practices

As the business human rights landscape continues to evolve, businesses and their lawyers need to manage BHR risks as they do any other legal, regulatory or operational risks.
The CBA Guide contains a section emphasizing best practices to enable lawyers and their clients to decide when business activities or relationships pose too high a risk to human rights or at least require a mitigation strategy.

The fundamentals of BHR compliance derive from corporate governance and risk management practices that are already familiar to business lawyers. Basic components include effective board level oversight, a public commitment to respect human rights, due diligence to “identify, prevent, mitigate and account” for adverse human rights impacts, sufficient training, proper control of business partners’ conduct all along global supply chains, proper disclosures and grievance mechanisms.

Conduct of lawyers

The CBA Guide also includes a section on the duty of lawyers and law firms to avoid causing or contributing to adverse human rights impacts through their own activities. It helps clarify the role of Canadian lawyers in advancing the objectives of the United Nations Guiding Principles in accordance with their professional responsibilities as set out in the Model Code of Professional Conduct established by the Federation of Law Societies of Canada (FLSC Model Code).

Conclusion

Respect for human rights is increasing everywhere around the world and we all have a role to play to ensure continued progress.

The legal landscape of business human rights is in constant evolution. It is critical for businesses to engage with BHR risks. These risks will continue to grow. Managing them is both a legal and strategic imperative for lawyers and their business clients alike. With the help of the CBA Guide, risk management becomes a little bit easier.

Special thanks to Claudia Feldkamp and Josh Scheinert for their tireless leadership on assembling the CBA Guide.

Warren Ragoonanan is the Chair of the International Law Section of the Canadian Bar Association and Tina Parbhakar is the Section’s Past Chair and a member of the Business and Human Rights working group of The Canadian Bar Association (CBA), www.cba.org

North Canadian Construction Group: Exceeding customer expectations

North Canadian Construction Group Owner Brandon Fuchs in The Canadian Business Quarterly

A locally-owned company that has been renovating and building high-quality homes in Regina, Saskatchewan for over 10 years, North Canadian Construction Group (NCC) ensures quality craftsmanship and communication to provide a transparent general contracting experience that takes care of all the details.

Owner Brandon Fuchs has been in the construction industry for almost 20 years, turning his childhood love of tools and building into an entrepreneurial passion which continues to grow as the company expands operations across Western Canada. Mr Fuchs recently created the North Advantage Program, an innovative membership program which provides homeowners with peace of mind and access to NCC and its network of trades for their properties. He is equally passionate about community involvement and is actively involved in supporting groups such as Big Brothers Regina and spearheading charitable events such as Build Love. Mr Fuchs spoke to us recently to discuss some of NCC’s recently completed projects, the issues currently faced in the construction industry, and the focus on loyalty and honesty that has helped NCC build a successful locally-owned business.

Building relationships

“NCC is a company that focuses on providing high quality renovations and builds to both residential and commercial,” Mr Fuchs explains. “We are currently operating out of Regina and Saskatoon and we are expanding as well to Alberta, BC, and Manitoba. Our five year plan is to expand into those regions and provide a high quality service.”

Having worked as a subcontractor for other construction companies, Mr Fuchs has learned more about how the company differentiates from its competitors, with one of the main differences being loyalty, which helps build positive relationships with trades and customers.

North Canadian Construction Group Owner Brandon Fuchs in The Canadian Business Quarterly
NCC has shown how to build a successful locally-owned business that continually exceeds customer expectations

“We are very loyal to our subtrades and our suppliers, and by doing so they provide us with very competitive pricing and a better position in the calendar when we’re trying to schedule them. They prioritize our projects, primarily because we’ve got their back. Our customers see this and they enjoy seeing a lot of the same trades on all of their projects.”

The business is all about relationships. By building great relationships with customers, those who hire NCC always feel they are in good hands. By doing the same with suppliers and sub-contractors, everyone involved in the process is happy.

“There is something to be said about just being loyal and letting somebody trust you. I think trust in construction is something that doesn’t really exist that much anymore, unfortunately, and I think that we stand at the front of that and try to provide that trust both for our customer and our sub-contractor and our supplier.”

North Canadian Construction Group Owner Brandon Fuchs in The Canadian Business Quarterly
NCC is a company that focuses on providing high quality renovations and builds to both residential and commercial

The company’s recent advantage program has opened it up to any clients who need work done in their home and can appreciate hiring a professional. The company doesn’t perform the individual task, but is a specialist in managing professionals for each part of a job.

“If you’re somebody that’s looking at building a home, and you want professionals to complete the entire thing, that’s the way we operate our company. If you’re looking at renovating your home, we bring in professionals for each part. So our customer really is somebody who appreciates that.”

The company’s main demographic is the high to medium income range client, people who would benefit from property maintenance, or those with multiple locations. Knowing that customers can call one company to take care of all their needs is a key selling point.

One of the company’s most impressive features is the digital marketing campaign it has embarked upon over recent years, which includes at its heart a YouTube channel, NCCTV, which brings to life the company’s daily workload.

“NCCTV was us just trying to show our customers who we are, show our customers the professionals that we use. We have goals to try to produce at least one episode a month. Trying to manage a construction company that’s growing across Canada, and film a lot of the things you are doing, is very complex.”

The company has recently finished a number of impressive commercial projects, including Regina’s coffee-shop hotspot, The Everyday Kitchen, a swanky, relaxing space where people can work and socialize. Another recently completed commercial project was for Paradise LeisureScapes in Regina.

North Canadian Construction Group Owner Brandon Fuchs in The Canadian Business Quarterly
Currently operating out of Regina and Saskatoon and they are expanding as well to Alberta, BC, and Manitoba

“That’s about a 14,000sqft space that focuses on hot tub, leisure, pools, and accessories. We’ve actually just finished a deck that they added on at the end – it’s designed to hold three hot tubs, and run smoking functions outside. It’s a super cool, unique space that we were very fortunate to be trusted to build.”

On the residential side, NCC has recently renovated the home of one of its designers – a 6,000sqft home with an indoor pool and a total of six-car garage space. The house has just been sold in less than 48 hours and has gone for over the asking price.

“So many super unique projects that we get to work on,” Mr Fuchs says. “We’ve got probably over a hundred projects a year, and each one is just very special and very different, and we’re so fortunate to be able to work on such unique projects.”

Inefficiency in the industry

Every industry has struggled during the COVID-19 pandemic, and construction is no different. Mr Fuchs explains that he took some time to really get a handle on what problems the pandemic had created for the industry.

North Canadian Construction Group Owner Brandon Fuchs in The Canadian Business Quarterly
Owner Brandon Fuchs has been in the construction industry for almost 20 years, turning his childhood love of tools and building into an entrepreneurial passion which continues to grow as the company expands operations across Western Canada

“You listen to your customer, and their frustrations. Then you listen to the subcontractor and their frustrations. Then you try to step back for a moment, you try to figure out what is going on. Everything isn’t working. I realized it’s a major inefficiency in how the world is operating right now, unfortunately.”

One example Mr Fuchs gives is of one of the company’s subcontracted electricians looking for a basic screw from his supplier. The supplier didn’t have the screw that was needed, and the electrician had to visit two more suppliers to get it.

“You can imagine that driving all over the city took nearly three hours. Then by the time he got back to site, that normal process maybe would have taken one hour. But it took three times as long to find a screw. That’s just one subtrade, and we deal with hundreds. You can imagine the inefficiency that’s happening.”

For a company like NCC this has created the need to always be pivoting and looking for a solution to unnecessary problems. The issues in the industry don’t change the expectations of customers, who still expect their job to be done on time and on budget.

North Canadian Construction Group Owner Brandon Fuchs in The Canadian Business Quarterly
The business is all about relationships. By building great relationships with customers, those who hire NCC always feel they are in good hands

“It’s a struggle. The other part that I’ve learned to this is to just be honest. Tell your customer what’s going on. Don’t burden them with it, but allow them to understand the magnitude of some of these inefficiencies that are happening, because then their reactions when things don’t go to plan won’t be as complicated to deal with.”

Over the years in the construction industry, many with a number of different of organizations, Mr Fuchs admits to getting a lot of life lessons that have helped him navigate the different business environments he has chosen to work in.

“All of those situations are experiences,” he says. “My recommendation to anyone is to really figure out who your customer is, and what their expectation is, and find a way to exceed it. When you can focus your business on exceeding your customer’s expectation, everything else will come together.”

With a focus on loyalty, honesty and integrity, NCC has shown how to build a successful locally-owned business that continually exceeds customer expectations. Find out more about North Canadian Construction Group by visiting www.nccgroup.ca.