Release of the Canadian Monetary Policy Report

Release of the Monetary Policy Report

Governor of the Bank of Canada

Ottawa, Ontario

17 July 2013

Good morning. Tiff and I are pleased to be here with you today to discuss the July Monetary Policy Report, which the Bank published this morning.

• Global economic growth remains modest, although the pace of economic activity varies significantly across the major economies.
• The U.S. economic expansion is proceeding at a moderate pace. The continued strengthening in private demand is being partly offset by the impact of fiscal consolidation.
• In Japan, fiscal and monetary policy stimulus is contributing to a rapid recovery in economic growth.
• In contrast, economic activity in the euro area remains weak.
• In China and other emerging market economies, real GDP growth has slowed, although it is stronger than in the advanced economies. This is exerting downward pressure on global commodity prices.
• And, as a consequence, the Bank has downgraded slightly its global growth forecast.
• The global economy is still expected to pick up in 2014 and 2015.
• In Canada, economic growth is expected to be choppy in the near term, owing to unusual temporary factors. The overall outlook is little changed from the Bank’s projection in April.
• Annual GDP growth is projected to average 1.8 per cent in 2013 and 
  2.7 per cent in both 2014 and 2015, supported by very accommodative financial conditions.
• Despite ongoing competitiveness challenges, exports are projected to gather momentum. This should boost confidence and lead to increasingly solid growth in business investment. The economy will also be supported by continued growth in consumer spending, while further modest declines in residential investment are expected.
• Growth in real GDP is projected to be sufficient to absorb the current material excess capacity in the economy, closing the output gap around mid-2015, as projected in April.
• Inflation has been low in recent months and is expected to remain subdued in the near term.
• The weakness in core inflation reflects persistent material excess capacity, heightened competitive pressures on retailers, relatively subdued wage increases, and some temporary sector-specific factors. Total CPI inflation has also been restrained by declining mortgage interest costs.
• As the economy gradually returns to full capacity and with inflation expectations well-anchored, both core and total CPI inflation are expected to return to 2 per cent around mid-2015.
• The outlook balances the many upside and downside risks to inflation. Three of the most important emanate from the external environment, and include the risks of stronger U.S. private demand, a failure to contain the crisis in Europe, and weaker growth in China and other emerging-market economies.
• The most important domestic source of risk to the Canadian economy remains the possibility of a disorderly unwinding of household sector imbalances.
• Against this backdrop, the Bank today decided to maintain the target for the overnight rate at 1 per cent.  
• As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate. Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target.

Rediscover Your Company's Humanity

by Sam Ford

We've heard the rallying cry for the past few years for companies to "be customer-centric" and to transform into "a social business." But what does that really mean?

As I've said before, It's hard for most organizations to come to any real consensus because each part of the company only sees one small sliver of the customer, a sliver that comes with different meanings and measurement: a segmentation profile in marketing, website traffic for the digital team, "call volume" to the customer service team, a "conversion" to the sales team, or an "impression" to the advertising team. The real risk here is that no one sees the customer as an actual human being.

But the challenge the corporation really needs to answer — listening to and understanding the customer more deeply — can start with the concept of empathy: encouraging employees to put aside their particular duties with the company and put themselves in their customer's shoes.

This process need not require deeply specialized skills: it can be as simple as it sounds. The problem is, professional training has distanced us from fundamental principles of human communication. We now tend to focus on empirical data from survey results and analytics or customer insights from feedback forms and focus groups constrained by what the company knows to ask.

And, just as challenging, the differences in each of our professional trainings as we look across disciplines within any organization means that people think and talk differently about their relationship with that customer. Even more confusing, we are often using the same words for somewhat different purposes from department to department.
 
As a result, empathy with the customer, which is among the simplest of principles, can be among the most challenging to master, especially for employees managing communication with a community to which they've never actually belonged themselves.

At our agency, Peppercomm, this core philosophy of listening and empathy has transformed the way we work. We strive to see ourselves as beholden not just to the clients paying us for our consulting but equally so to the audiences they seek to reach, who give their time and who ultimately determine the success of our clients' businesses.

We've largely accomplished this through putting a deeper focus on helping our clients see the world from the eyes of their various audiences. We make it a priority to think about the communications experience of various stakeholders at every step along the way.

Thinking this way is a challenge. We still find ourselves accepting assumptions passed along by clients about their audiences without thinking them through from the audience's perspective. Occasionally, we'll catch one another talking about the customer as a number, or a profile, or a concept instead of an actual human being. And we sometimes still realize that we have created a communications strategy or drafted content more intent on capturing what everyone within the company would like to communicate without much thought as to what audiences actually want or need to know.

Customer empathy is a goal we'll never claim to "master," because it requires constantly challenging ourselves to work as a team from the common place of the perspective of the customer, the employee, the journalist, or any other constituency. But we pride ourselves on holding it up as our rallying cry and our filter on a daily basis.

As all of our companies continue acclimating to the realities of today's communications environment, it's imperative that those of us who see listening and empathy as a critical determinant of organizational health make it a company priority. We must all ensure our daily work reflects these principles. And we have to spread that message, both vertically and horizontally, within our organizations (and, for those of us in professional services, inside those companies we work with).

It will likely be frustrating and occasionally disheartening, especially since it seems so deceptively simple. But it is vital work, not just for the sake of our companies but for those audiences we serve. Only when all employees, from the C-suite to the interns, work to truly understand the world from their customer's points of view can we truly call ourselves "customer-centric" and a "social business."

Sam Ford

Sam Ford is Director of Digital Strategy at Peppercomm and co-author, with Henry Jenkins and Joshua Green, of Spreadable Media: Creating Value and Meaning in a Networked Culture. 

Three Kinds of Service

Avoid the Deadly Temptations that Derail Innovators

by Rosabeth Moss Kanter 

Any promising new initiative — a stand-alone business venture or an innovation in an established organization — hits roadblocks and unexpected obstacles. Recently I've advised entrepreneurs and innovators about a different, seemingly better, dilemma: pop-up opportunities that look like short cuts to success. Too often, these turn out to be deadly temptations.

Consider these cases (with names disguised to protect confidentiality):

Bill's venture capital-backed business concept was to operate a new revenue-producing service for large U.S. professional organizations. In its first year, the venture landed two almost-committed pilot sites and a prospect pipeline for a multi-billion-dollar market. But almost at the same time, Bill was offered a lucrative deal to build a similar service for an English-speaking country outside the U.S. Feeling that the money was good and the chance to show credibility to U.S. customers even better, Bill took the deal, brushing aside numerous challenging differences and departures from his model. Then he was offered an even bigger international site in a developing country eager for American know-how, in partnership with a U.S. organization that could also be a customer. His financial backers urged him to take it — it would mean more revenue, fast. Suddenly Bill was in a different, less appealing business, jeopardizing building the U.S. business.

In this story, that giant sucking sound you hear is the draining of time and energy from the core business by tempting almost-related opportunities. The danger comes from possibilities that are close enough to be plausible but take attention away from the building the main business and don't prove the concept anyway. 

Mary's temptations were slightly different but had similar consequences. She started a non-profit organization with lavish foundation funding and a high-profile board in order to spread an innovation in health care. This was a situation devoutly to be wished for by most social causes, but it proved limiting and almost fatal to Mary's project. The staff proliferated without clarity of purpose, and the organization became insular, looking inward and feeling they must be at the top of their field. Other groups courted the organization because it could bring funding, not because of a commitment to the innovation. Soon the goal became how to raise money, not how to support and improve the innovation. The organization took some government contracts to provide a somewhat-related but more routine service. Donors became confused about what the organization did. Private funding declined. The venture was in peril.

Ironically, these problems come along with looking like you might succeed. Investors, donors, potential partners, or bosses shower temptations on entrepreneurs who show promise. Joe's first wildly successful conference, accompanied by highly creative marketing, drew offers to him from investors who wanted to back him to go national, people who wanted to hire him to popularize their work, and companies that wanted him to be a distributor for merchandise sales. Joe was dazzled by the big-name people interested in him. But none of this built Joe's brand. The graveyard of startups is filled with innovators lured by glamour to let others take over their concept before it was fully developed.

In the western classic The Odyssey, Odysseus put wax in his sailors' ears and tied himself to his boat to avoid being tempted by the sirens and lured into lethal rocks. In her new book Sidetracked, my HBS colleague Francesa Gino outlines ways to handle more contemporary distractions. Entrepreneurs who want to avoid the deadly temptations I identify here can take these actions:

Establish principles by which opportunities will be judged. Creating new initiatives benefits from the flexibility to improvise, as I've written, but boundaries and direction ensure that efforts add up in a coherent way and can be replicated and scaled. Strategy is what you don't do, not just what you do, as my HBS colleague Michael Porter has said.

Prove the concept you want to prove. Most people are concrete thinkers who will assume that a project is whatever they first see — why Bill's strategy for a prototype was very risky. It's important to build into the first model at least one glimmer of everything you anticipate for the full product, while screening out anything that doesn't signal future aspirations. For example, if you want corporate partners eventually, get at least one before you start. If you want to reach full potential in the domestic market, hold off on international forays. Sometimes walking away from money is smart strategy if it comes with unrelated requirements.

Control your identity. Put the right words around the project, and stick with them. Observers often reduce innovations to familiar elements, using language they already have, but which might not fit the initiative, leading to offers of distracting opportunities when the core business isn't understood. One innovation group developed a glossary of terms to be used, and words to be avoided. The same group also declined an investment from a source that would have sent misleading signals about the business the venture was in. 

Don't lean insular. Innovators can lean in so far that they become insular. talking only to those that agree with them or flatter them. Was Kodak's demise precipitated by being Rochester-centric, where they were top of the heap, rather than mingling more in Silicon Valley where people had different views of the future of photography? Bill, Mary, and Joe were so flattered by money that they didn't check with outside experts who would have warned them of the dangers ahead.

In short, to get to where you want to go, ignore the deadly temptations that might spring up on an innovation journey. Stay focused on the purpose and the destination.

Rosabeth Moss Kanter

Rosabeth Moss Kanter is a professor at Harvard Business School and the
author of Confidence and SuperCorp. Her 2011 HBR article, "How Great Companies Think Differently," won a McKinsey Award for best article. Connect with her
on Facebook or at Twitter.com/RosabethKanter.

The Three Things That Employees Really Care About

Being a leader means energizing and motivating your team of direct reports to perform at a higher level. Again, there is no shortage of literature and advice on this issue, yet more managers get it wrong than right. There is no doubt that a motivated and energized workforce translates directly into a better bottom line. Furthermore, most managers want to keep their people motivated. The problem is that in the clamor of all the advice on how best to motivate their people, managers don't even know where to begin. Sometimes I think we are so poor at motivating people because there is so much information on how to do it. Most of it is too complex. Another factor is that today's managers generally tend to be player-coaches, meaning that they have individual production responsibilities in addition to their managerial roles. Who has the time for all the "people issues"? If only there were a simple way of thinking about it. If only there were some tangible things managers could do without investing a ton of time. There are. Here's a one-minute course on energizing and motivating others:

1. However hard you try, you cannot motivate another human being. Humans are premotivated by their individual purpose and values.
2. Don't ask yourself what you can do to motivate them; try to find out how they are already motivated.
3. Once you know their personal motivation triggers, try as best you can to match their expectations with the work at hand. For example, if someone enjoys creative work, give them more assignments involving creative work. If someone likes customer interface more than processing, try to give them opportunities to interact with customers. The point is, now that you know what they like, to the extent possible, design their job in a way that gives them an opportunity to do what they like best.
4. If, however, there is a complete mismatch between personal motivators and the work at hand, rather than fixing the problem with carrots or sticks, the best course is to find a better fit. In other words, if the demands of the job are diametrically opposite of what the individual is energized by, then it is best to help this individual find another job or role.

So the key is: You have to figure out what your people expect from their jobs, and do your best to link people's expectations with the work you want them to do. Your immediate reaction upon reading this probably is: "This is easier said than done. How do I even begin to find out what each of my direct reports wants?" Fortunately, it is far less daunting than most people think, because most employees care about the same three things in their professional life. When I tell people that everyone cares about the same three things, most initially disagree with me. After all, we're all different. But take a few minutes to try the following exercise before you continue reading the rest of this chapter. 

Imagine you are about to change jobs and have two competing offers. Both jobs pay roughly the same amount of money and are in the same industry. Both are at reputable companies. How will you choose between the two jobs? What factors will you consider while making your decision? 

What factors did you consider? Did you think about the exact nature of your role, and how your work will fit in with the larger picture of the organization? Did you consider your own strengths and limitations and think about which of the two will be better suited for you? Did you think about the work culture of the two organizations? Did you consider the quality of your coworkers, and the way they interact with each other? Did you consider the reputation of the companies? Did you think about future career prospects? Most people go through a list like that when making career decisions.

I have facilitated this exercise in my seminars with hundreds of executives around the world. I pose the same imaginary dilemma, and ask them to tell me what they are likely to consider while making a decision. As they begin to talk, I write down their responses on one of three blank flip charts in front of the room. Each flip chart represents one of the three things people care about, but while I facilitate this discussion and capture their responses, there are no titles on the flip charts. After capturing participants' responses on the three charts, I reveal the hidden titles, which are:

• ROLE
• ENVIRONMENT
• DEVELOPMENT

I then explain that most employees care about the same three things--the nature of their Role, their work Environment, and their professional Development (RED). I ask them if they agree with me that all of their responses fit in with one or more of the three RED buckets. I have yet to hear a response that does not belong in one of these three categories. Slowly it begins to dawn upon people that while each employee's preferences are unique, everyone cares about those three overarching things. 

As managers, you need to talk regularly with employees about the three buckets, and as you keep the dialogue going, listen for information about their preferences and aspirations. Armed with this information, you can label and link day-to-day work with their expectations. For example, if you know that one of your employees wants to get more experience in dealing with cross-border transactions, you might staff her on a team that is working on an important transaction. However, before giving her that assignment, you must talk to her and tell her (label) that you are doing so because it will give her the experience she needs, and explain (link) that it will help her in her career progression if she gains cross-border expertise.

In my experience with managing people all over the world, I have found that most ineffective managers are considered ineffective not because they don't know how to motivate people, but because they don't know what motivates their people. This is an important distinction, and perhaps the biggest key to motivating others. Most managers think they know what motivates their direct reports, but when you ask them, they actually list things that motivate them. They falsely assume that what motivates them also motivates others. I have quizzed countless managers about their knowledge of their direct reports' motivation, and most fall short. 

Granted that one person's preferences and expectations are different from the next, once you know what they are, it is relatively easy to meet the expectations. Most managers are able to meet employees' expectations in the normal course of day-to-day work without making any major concessions. If, however, there is a massive disconnect between an employee's expectations and the role, environment, and development features of the job, then in the long run it is best both for the employee and the organization to separate. Unfortunately, many employees are dissatisfied even when it is possible to match the RED features with their preferences, and this is so because managers don't even try to find out what the employees' preferences are. The key really is in keeping the dialogue going with your people.

You will find that it does not take a lot of time to energize people if you organize your interaction and communication with employees around the simple RED framework. All it takes is a bit of proactive action on the part of managers during the normal course of day-to-day functioning. 

From TOO MANY BOSSES, TWO FEW LEADERS by Rajeev Pershawaria. Copyright © 2011 by Rajeev Peshawaria. Excerpted with permission by Free Press, a Division of Simon & Schuster, Inc.

Most of Canada's Fastest-growing Tech Companies are Business-to-Business. Here's Why

Posted by Jacob Serebrin
 
Most of Canada’s fastest growing tech companies have something in common: they’re selling to businesses rather than consumers.

Out of the over 125 software, IT and web-focused firms on Profit Magazine’s list of the 500 fastest-growing companies in Canada, released in early June, only nine are consumer-facing.

Only two of those managed to crack the top 30—Electronic Box, a Longueuil Que. based Internet service provider, at number 28, and Ashley Madison, the online dating service for people who are already in relationships, at number 29.

While the Profit 500 is self-reported, and not comprehensive, the data does line-up with other, similar, reports. And Deloitte’s Technology Fast 50, an annual list of the 50 fastest-growing tech companies in Canada, released in November, was made up almost exclusively of companies in a business-to-business market.

“It’s part of the Canadian landscape,” says John Muffolini, Technology, Media and Telecommunications industry practice leader for Deloitte. “We have fewer companies selling directly to consumers.

Part of this, according to Muffolini, is because of the higher cost of marketing in the consumer marketplace.

“When you’re marketing to consumers, you may have the best technology but it’s hard to remove the Samsungs and the Apples,” he told Techvibes. “Businesses tend to go for the best technology, the best value, if there’s a value-ad.”

With less marketing dollars available, Canadian tech companies are playing to their strengths and going after low-hanging fruit, Muffolini says. This isn’t a new trend; both Profit and Deloitte’s past surveys suggest that the business-to-business side has been growing faster for some time.

“If you look at the past 10 years, there’s only a hand of Canadian companies that have been big in the consumer market,” says Muffolini.

In fact, on Profit’s 2012 list, no consumer-facing tech companies even made the top 40.
Muffolini says he’s optimistic about the future of customer-facing tech companies in Canada, and says he sees growing pockets in the app and gaming sectors. And when it comes to gaming, the lack of fast growth doesn’t mean it’s not big business.

“There are a lot of large companies with Canadian operations, using Canadian talent,” says Muffolini. “But they’re not Canadian companies.”

Despite the fact that most of the fast-growing companies in the Canadian tech industry are in the business-to-business market, they’re still rather diverse, with companies providing cloud services, network security, e-commerce platforms, analytics and custom solutions all posting strong growth.

And it’s not just established firms that are continuing to scale-up, who are making these lists, “there are quite a few that are emerging that have ramped-up pretty quickly,” says Muffolini.

Here's How to Actually Empower Customer Service Employees

There is perhaps nothing as fundamental for organizations as customer service. Any company in a truly competitive market suffers an inevitable decline if it ignores this basic discipline for too long. Take McDonald's for example—the organization's recent confession to franchisees that 20 percent of customer complaints are due to "unfriendly service," with "rude or unprofessional employees" as the number one complaint is a reminder that the final customer touch point often determines whether or not customers return. Despite spending nearly $2 billion annually on advertising, McDonald's service frequently leaves a bad taste.

Similarly, Brian Moynihan, CEO for Bank of America, one of the country's largest banks in both assets and branches, has implored employees to improve their relationships with customers. How committed is Moynihan to this? He mailed letters to the homes of 270,000 employees outlining the need to make it easier for customers to do business with the bank. This comes after nearly five years of internal discussions about becoming "customer centric"—more than three with Moynihan at the helm. 

The importance (and difficulty) of engaging an organization's "front line" to deliver on the customer strategy has been a recurring topic for HBR. It's one of the fundamentals that companies in all industries must remember to revisit and for some, resuscitate after periods of neglect. 

Our research into more than 20 front-line focused organizations (the basis for our recent book Judgment on the Front Line), led us to a set of principles for moving well beyond the basics of customer service by putting power, resources and trust in the hands of front line personnel. By doing so, an elite group of companies has enabled their employees to more rapidly address customer problems, anticipate unarticulated needs and drive customer-facing innovation.

We uncovered information about a variety of companies, ranging from the Ritz-Carlton and Yum! Brands to the Mayo Clinic and U.S. Navy SEALs. Consider what we can learn from the following examples:

• Amazon, where CEO Jeff Bezos often insists on leaving an empty chair at meetings to represent the "customer's voice," has a data-driven culture which actively encourages employees to build experiments based on customer insight. Innovations such as shopping cart recommendations have been the direct result of entry-level employees taking initiative. Behavior-based search was first implemented by an intern, resulting in a three percent revenue increase.
• Zara, the Spanish fast-fashion company, receives quantitative data and qualitative observations from store managers daily to better understand what customers want. Every day, store staff chat with customers, asking questions like, "What if this skirt was longer?" or "What other colors would you like for this item?" This has allowed Zara to limit failed product introductions to just one percent (the industry averages nearly ten percent) while producing nearly ten times the number of products as its largest competitors.

Even with these successes, we've found that no single organization has all of the answers. But combining effective best practices from these diverse organizations and others provides a methodology for building a front line-focused organization, as well as the leadership required to enable your front line to make real-time judgment calls. This process encourages leaders to break down the individual elements required to build and reinforce front line judgment while ensuring they provide an integrated, systemic framework for action rather than a pastiche of so-called empowerment initiatives overlaid on a command-and-control structure. As companies seek to get more contribution and creativity from frontline personnel, here's a five-step process for moving beyond a suggestion-box mentality.

Step 1: Get Started: Connect the front line to the customer strategy. Paradoxically, empowering the front line starts with senior leaders, who have the authority to ensure frontline voices are heard. Senior leaders need to help match their customer promise to the capabilities of the front line while listening closely so they can help align the culture, training, work processes and reward systems. Yum! Brands CEO David Novak, for example, has given every employee the latitude to spend up to ten dollars to fix any customer problem.

Step 2: Empower Your Workforce: Teach people to think for themselves. Employees at every level need to understand the customer strategy. They also need simple problem solving frameworks that are used throughout the organization to promote cross-hierarchical dialogue. We found that the methodology mattered less than having a shared language and thought process for diagnosing root causes or exploring unmet needs. For example, Ritz-Carlton uses MR BIV as a common framework for spotting mistakes, rework, breakdowns, inefficiencies and variations in work processes.

Step 3: Experiment to Implement: Grant front line workers latitude to experiment. Front line workers not only see service breakdowns but also opportunities for serving customers in entirely new ways. Teaching front line leaders the basics for designing simple experiments enables organizations to test many more ideas than could ever be orchestrated centrally. Facebook puts this into practice during "hack-a-thons" designed to unleash pent-up employee creativity. Vital features such as Facebook Video, which has garnered billions of views, have come from giving individual programmers the time and resources to put their customer insight into practice.

Step 4: Eliminate the Barriers: Break down the hierarchy. Nearly every organization has embedded assumptions about roles and power. Freeing front line capacity requires frequent, diligent effort to eliminate decision processes or administrative work that gets in the way of enabling the front line to expeditiously serve customers. For example, at the Mayo Clinic of Scottsdale, nurses have the power to question any doctor's decision or diagnosis through its "Plus One" protocol, completely breaking down the traditional hierarchy. If nurses - some of whom have far more experience than many doctors - fear for a patient's safety, they can move up the chain of command or bring in a specialist to consult and potentially override the initial care recommendation. The hospital was recently named by Consumer Reports as the safest teaching hospital in the U.S.

Step 5: Invest in Your Frontline: Put budget behind it. Too often, companies reserve big budgets for senior management training while spreading funding thin for front line personnel. Similarly, too many companies are content to hire front line staff without carefully considering whether they possess the right attitude and values to represent their brand. At Zappos, it's not unusual for someone interviewing for a $13-per-hour call center job to meet with 15 people before being hired. If they do get the job offer, they will be required to sit through several weeks of training, including listening to recordings of real customer interactions, before they ever work a full day.

Delivering a great customer experience is a fundamental that every company needs to practice, and organizations that excel in this area focus on how to get the most from their front line. As companies such as McDonald's and Bank of America reconsider how their employees interact with customers, they will be challenged to move beyond just rhetoric. If they are truly serious about turning their people into their greatest asset, they'll invest in the front line. 

Chris DeRose and Noel Tichy

Chris DeRose and Noel Tichy are co-authors of Judgment on the Front Line: How Smart Companies Win By Trusting Their People. They have advised CEOs around the world and worked with Royal Dutch/Shell, Ford Motor Company, 3M, and Intel.