Updated on April 26, 2023

Scores of organizations are seeing their ambitions hampered by the labour shortage. For many of them, technology could save the day.

While hiring immigrant workers and rethinking business models may partially address this shortage issue, technology should also be considered as a way to successfully deal with it.

What are the benefits of a digital transformation in a labor shortage environment? Here are some of them:

• Automate tasks
• Encourage mobility and communication
• Be more attractive to talent
• Optimize ongoing training

Automate tasks and robotize administrative processes

Actually, many organizations are forced to curtail their activities due to a severe lack of available workers.

Some sectors have even experienced a significant increase in demand, but organizations are struggling to capitalize on opportunities or sustain growth.

However, automating certain tasks could free up resources to use their skills elsewhere in an enhanced role.

This can include automating certain production steps, such as a specialized packaging machine that improves order processing time, or automated robots that can transport materials or meal trays or make it easier to weed farmland.

Options also include robotic process automation (RPA), which reduces the risk of errors, saves time and increases the efficiency of your activities in addition to creating a more motivating environment for your employees.

Fostering mobility and communication

Worker habits have changed, and people want to continue to enjoy the benefits of teleworking and mobility. In order to retain and attract talent, your organization has to build flexibility into the way it operates and optimize its workers’ quality of life.

This type of flexibility and the widespread use of hybrid work model require a high-performance infrastructure and technological tools that allow managers and teams to perform their duties remotely, efficiently and securely. These tools must also make communication easier and promote teamwork.

In addition, the right tools help extend the hiring boundaries by facilitating cross-border recruitment.

Being more appealing to talent

Technology in an integral part of the daily life of the latest generation of employees. Tools that meet their requirements for mobility, security, communication and collaboration are among the strengths that will make your organization more attractive.

Employees expect flexibility to improve their quality of life, but they also want to work safely and efficiently. Your ability to hire may be impaired if your technology in not up to par and prevents your talent from taking action and implementing their initiatives.

Ongoing employee training

Digital and technological progress is not static. In order to continue to evolve and remain competitive, you may need to adapt your organization’s culture to be open to innovation and foster the continuous improvement of your practices.

This requires a business strategy that includes a change management process and access to continuous training to optimize the use of technology and properly approach the transformation and how it will impact your teams.

In general, organizations are increasingly involved in updating knowledge and transferring skills. The market is evolving at a rapid pace and it is always more profitable to mobilize existing teams rather than continuously recruit.

It is to your advantage to train employees who are already familiar with your organization to adapt their skills to the changing needs. Perfecting your digital tools can contribute to a successful outcome, especially with:

• Predictive training according to different fields of interest;
• Integrated documentation to make it easier to access procedures;
• Augmented reality to maximize technical training.

Step-by-step approach

To successfully evolve, your organization must assess its needs and move forward in stages, according to its capabilities and objectives. This requires a strategic plan. You should focus on the short-term solutions that are most profitable for you, without losing sight of your long-term objectives.

We suggest that you take this questionnaire in order to properly assess your needs. You will know which aspect to focus on first and be able to measure your level of preparedness by comparing your progress with that of other organizations in your sector.

Of course, at any time, you can contact our team of experts who can assist you in your analysis and developing your action plan.

Funds are available for your corporate projects, but given rising interest rates, is it the right time to invest?

Did you put your investment projects on hold in the first year of the pandemic? Did you postpone discussions about the sale of your business by a year? Did you have to quickly invest in technologies to adapt to the new reality? Would you like to resume your projects, but the current state of inflation is raising new concerns?

If you’re nodding your head, slightly discouraged, you’re not alone. Each organization is unique and you need to take the time to analyze your situation.

Unprecedented increase in 30 years

Inflation is rampant, with increases we haven’t seen in 30 years of 6.8% over a 12-month period (April 2021 to April 2022), especially in oil prices, which have also risen, mainly due to the armed conflict in the Ukraine.

The global stock market has had a difficult start to the year with its main indexes declining (notably -12% for the S&P 500, -8.5% for the Dow Jones and -23% for the NASDAQ), despite a slight increase since the end of May.

With many government assistance programs ending and a growing shortage of skilled labour, business leaders are being held back in their productivity and growth.

The World Bank is talking increasingly about the risk of global stagflation, and we need to be cautious in our forecasts.

Financing is available

The good news is that there’s still a lot of money in the market currently. While many companies sped up their plans in the second year of the pandemic and have already put their projects into motion, many investment funds still have plenty of cash to lend and institutions are willing to participate in the economic recovery.

As for the banks, they set aside large cash reserves at the beginning of the pandemic to deal with possible client defaults, but these reserves were, in fact, little used. This in itself is excellent news, as it means that our companies have fared better than expected. The reserved funds are now available for businesses.

The prime guideline of different government bodies is to support the economic recovery, which is being done through various programs, or by increased flexibility in credit decisions. In short, funds sources are there for entrepreneurs who wish to move forward.

Interest rates as a risk factor

However, rising interest rates (current and future) are a factor to consider in your calculations and strategy. The Bank of Canada has raised its prime rate by 0.25% (March 2022), 0.5% (April 2022) and 0.5% a second time (June 2022) to 1.5%. There is no danger at the moment, as the Bank of Canada’s pre-pandemic prime rate was 1.75%. So, we are almost back to that level. But it’s not over yet.

Since the economic crisis of 2008-2009, the average posted five-year fixed bank rates (the favourite rate of Canadians) have fluctuated around 5%. Since bank data on this topic was not available before 1970, it’s safe to say that we have not seen such a level in over 50 years.

The Bank of Canada announced quite clearly that increases were coming in the next few months in an attempt to slow down inflation. This will most likely be – opinions vary among the economists of the major banks – from 0.5% to 1.5%. The Bank of Canada recently warned that an increase of 0.75% in July was not excluded. It’s a safe bet that inflation will have to be considerably milder before it stops.

In this context, Canada’s major banks decided to raise their prime rate from 2.45% as of March 2020 to 3.2% in April 2022. By comparison, the only other time this benchmark rate has been lower was in 2009 in the midst of the economic crisis, when it was 2.25%.

Don’t panic, the rates are still what we would generally call “low”. The longer-lived among us will remember the period in the early 1980’s when rates were between 15% and 25%. Let’s just say that the rate of return calculations are not the same for an investment project in this context.

Please understand that we are very far from this level, but it’s still important to plan for your project’s financing so that the variable interest rates do not become an important risk factor.

Which rate structure should you choose for your business?

Unfortunately, the answer to this question will always be: “It depends”, especially:

• If one of the pledged assets will potentially be sold in the short term;
• If you have a significant margin in your cash flow from operations to potentially absorb a short-term rate increase;
• On your level of risk tolerance;
• On your interest in entering into new negotiations with your financial partner next year.

These factors are the same as in a low interest rate situation, as we have experienced in the last 13 years.

However, you should be aware that costs are rising, which means that the overall cost of your project increases and that your internal rate of return calculation will be affected.

If you’re a buyer, this will lower the price you are willing to pay to conclude the transaction.
On the other hand, if you are a seller, you must be aware that the market rates may have an impact on your business’s valuation and that buyers will have this in mind during their considerations.

Depending on their financial situation, buyers will also potentially see their borrowing capacity reduced and, consequently, the price they are able to offer you. Perhaps they will still want to go ahead and honour the price agreed upon, but will ask you to be more involved (e.g., by a larger balance of sale).

The right decision will always be the one that fits in with your short-, medium- and long-term goals. It’s important to assess your situation and make sure that you don’t jeopardize your operations’ sustainability.

Different choices based on project nature

Remember that you’re an entrepreneur, not a trader on the financial market. Forget about complex structures involving interest rate swaps and the like. If you don’t fully understand the ins and outs of what is being proposed, choose another solution. However, if you have the right guidance to understand this type of structure, there may be some interesting opportunities.

Furthermore, the transaction circumstances may have an impact on the rate you are offered, or choose. For example, the acquisition of a building is currently very easy to finance and you will probably opt for the lowest rate offered to you.

However, perhaps a lack of excess cash flows will lead you to opt for a loan-to-value ratio of 100% or more, which will result in a higher interest rate.

Let’s take another example, the type of project that puts the most stress on an organization’s financial structure: an acquisition. If you’re acquiring a business, it’s probably best to go with a lenient and flexible financing structure, which is likely to have a higher interest rate. If the context is right, the additional cost of the higher interest rate will probably be worth it for the reduced operational risk it provides.

Financing a project: a complex process

Financing a project requires careful consideration and analysis of your needs. To ensure that you make the best decision for your business, an expert’s support can be a valuable asset. He or she will be able to advise you on the best course of action and assist you in the search for financing and negotiating with financial partners.

Changes in the cost of insurance are influenced by the flow of capital within the market. What can businesses do?

Typically, the property and casualty (P&C) insurance market is characterized by soft market cycles, with strong competition from insurers, price decreases and availability of coverage, followed by hard market cycles. In these cases, there is a marked decrease in competition, rates increase and the coverage offered is reduced. These variations are caused in particular by the flow of capital within the insurers’ market.

After a somewhat lengthy period of fighting for market shares to capitalize primarily on cash flows from investments, insurers are slow to increase rates in line with rising claims costs.

Subsequently, over a short period, insurers compensate for the shortfall accumulated during the soft market period with large premium increases. Insurers then seek to maximize profitability by revising their underwriting capacity and abandoning certain risk categories, which leads to a significant contraction in the insurance supply.

The new market reality

From 2010 to 2018, the P&C insurance market in Canada was characterized by strong competition. Now we are seeing a significant tightening of this market across all economic industries that started rather modestly in early 2019.

Insurers are united when it comes to imposing changes in terms and conditions by centralizing renewal decisions. The impact of the insurance market downturn seen in 2020 and 2022 is unprecedented, and companies must renew their insurance programs in the turmoil. Renewals may require lengthy negotiation periods, coverage revisions, additions to terms and conditions, as well as changes in insurers, resulting in very significant rate increases.

The insurers’ pricing approach is essentially aimed at ensuring a given level of income, while the underwriting approach is based on a rigorous assessment of the risk to be insured. The current state of the market is shifting the weight of the main factors that are generally considered by insurers in setting rates.

Market prospects

Despite a major return to profitability in 2021 and the prospect of rising interest rates potentially benefiting insurers’ bottom lines, insurance supply remains constrained in the current market and signs the supply conditions are improving are slow to emerge.

However, some stabilization of the market in the medium term (within one to two years) and improved conditions in the long term (within two to five years) cannot be ruled out. The pace of market improvement remains highly uncertain.

What about self-insurance?

In the short term, there is so little insurance available that companies are forced to renew their insurance programs with their current providers.

Furthermore, approaches aimed at revising the risk financing structure by increasing the level of coverage retention do not make it possible to significantly reduce the premium increases. In fact, for insurers, current premiums represent a minimum threshold, which cannot be easily compressed given the risks assumed in light of the coverage purchased.

The cost of insurance can only be reduced significantly by cancelling guarantees (complete self-insurance). Such a decision must be supported by demonstrating its profitability in the medium and long term, but also by a willingness on the part of the company’s management to deal with a much greater variability in the cost of financing fully self-insured risks.

Getting the best possible conditions

Where full self-insurance is not an option, only improved market conditions will result in lower premiums. To take advantage of improved market conditions as soon as possible, companies should take the following steps to obtain insurance coverage at the best possible terms and conditions:

1. Work with their broker to determine the renewal timeline and objectives with respect to terms and pricing with a plan for follow-up negotiations;
2. Ask the broker to obtain alternative proposals from other insurers and send the marketing report to them;
3. Establish scenarios for the amount of retention to be purchased for each coverage;
4. Have a rigorous process to maintain and document their risk profile. The risk profile should include the following:
   • Organization’s background and governance;
   • Change in revenues and allocation by region and by product or service category;
   • Change in the intensity of activities in terms of production units or services;
   • Change in the number of employees;
   • Description of products and services provided;
   • Clientele profile;
   • Standards and practices;
   • Measures, policies and regulations to reduce the risk of loss and mitigate its severity;
   • List and value of assets to cover;
   • COPE (construction, occupancy, protection and exposure) description of property to insure;
   • Directory of third-party agreements and contracts;
   • Cyber-risk exposure;
   • Change in the loss ratio by guarantee (cost of claims/units of exposure).