Canadian SMEs hit AI adoption wall as skills & costs stall gains

New research from Sage has found that while artificial intelligence (AI) adoption among Canadian small and mid-sized enterprises (SMEs) has accelerated, progress towards increased productivity is stalling due to barriers around skills, support and costs.

The findings, drawn from a survey of 2,012 SME leaders nationwide, indicate that nearly half of Canadian SMEs now use AI, with a further 18% planning adoption within the next three years. However, the report points to a plateau in digital transformation efforts, highlighting that technology uptake in itself is not translating automatically into gains in productivity unless businesses are supported on issues such as skills and confidence.

Digital transformation stalls

According to Sage's study, "Canada's Digital & AI Imperative: Closing the Productivity Gap and Driving SME Growth," 80% of SMEs surveyed described digitalisation as essential to business growth. An even larger number-82%-said it is critical for survival. Despite this, adoption journeys are facing considerable headwinds. A total of 41% of medium-sized firms cited a lack of internal expertise as a key difficulty, while 58% of small firms pointed to affordability as the largest barrier to embracing digital transformation.

The research also found that digital investment does provide measurable returns. SMEs using digital tools reported an average 29% increase in productivity in the first year, and for those recognised as digital leaders, every dollar invested can yield up to CAD $2.40. However, these advantages are not being unlocked evenly across the country or across industry sectors.

Regional and sector disparities

Sage's survey tracked regional divides in the uptake of AI, with adoption rates ranging from 56% in Québec to just 28% in Northern Canada. The disparity creates what the report describes as a "two-speed digital economy." Sectoral differences are also pronounced; finance and technology firms are generally further ahead, while fields such as agriculture and construction remain slower to adopt AI tools.

Against this backdrop, the gap between ambition and execution becomes evident. The research reveals a paradox: interest and motivation among SMEs to lead in digital transformation are strong, but the practical challenges of cost, capability and establishing returns on investment remain significant obstacles.

Policy recommendations

"Small businesses are the backbone of our economy, yet they continue to face disproportionate challenges in navigating an increasingly complex policy and technology landscape. As AI transforms industries, well-meaning regulations can unintentionally hinder their ability to adapt and compete. To ensure inclusive growth, we must prioritise SME-first policies that empower small businesses with the clarity, flexibility, and support they need to lead in the age of AI," said Cinzia Bazzo, Managing Director of Canada, Sage. 

Sage is urging policymakers to anchor SME support and adoption at the core of Canada's national AI strategy. This, the firm argues, should be backed up by targeted investments in skills and systematic support frameworks. The company recommends a set of actions including embedding SME priorities into national AI strategy, equipping SMEs with practical skills, unlocking AI investment through targeted tax relief and grants, providing trusted guidance, and fostering collaboration across government, industry, academia, and wider community.

Additional recommendations include accelerating the adoption of e-invoicing and structured data, which Sage regards as fundamental to bridging the productivity gap and promoting economic inclusion across sectors and regions.

The company's white paper further suggests that a "whole-of-ecosystem" approach is necessary, involving all levels of government, industry organisations, and educational institutions working in tandem to deliver concrete support to businesses. With digitalisation seen as mission-critical, Sage contends that investment in digital infrastructure, access, and skills development will be important for ensuring Canadian SMEs can remain competitive globally.

The research was conducted in partnership with Strand Partners, with the survey designed to ensure responses were nationally representative by firm size, province, and sector. It examines adoption and impact of AI and other advanced digital tools, as well as the main constraints SMEs are facing in their adoption efforts.

As policymakers consider the report's recommendations, Sage asserts that closing Canada's productivity gap relies on ensuring all SMEs are equipped to benefit from digital transformation, irrespective of region or sector.