Exclusive new series
This is the first of three-part series of articles on productivity by Reg Birchfield. In next month’s issue, he looks at how organisations might manage in ways that help boost productivity. He also examines some of the impacts new technologies are having on productivity and management processes. In April’s third and final article, he examines productivity measures and asks how relevant and meaningful they are. He wonders if there are other ways to look at this increasingly critical management and organisational issue, and suggests alternatives.
Productivity increases are supposed to lift the lot of individuals and nations. The experts describe it as the process by which we do more with less and, as consequence, become individually and collectively richer.
That explanation is the good news side of the story. For many, particularly employees, productivity is often discussed in less glowing terms. Critics call it code for cost cutting and labour lay-offs.
Some, both managers and employees, equate productivity with working harder. Others on the flipside insist it’s about working smarter.
So what’s in word? If it’s productivity, then lot of confusion apparently. Little wonder then that many business leaders opt to let it lie fallow rather than plough more productive fields through organisational change and thinking.
But New Zealand’s business pastures, with the current exception of those ploughed by the agriculture sector, are not as green as they were. The global financial crisis and its following recession are making business life difficult. America’s debt plight and political ineptitude, coupled with Europe’s war of fiscal attrition, don’t help.
Facing lower global demand, frightening levels of national indebtedness and with some dramatic demographic changes looming, managers must now overcome their ignorance of the concept and get to grips with what productivity means and how to recover market economy’s holy grail.
Yes we can
We can do it. Our agriculture industry is shining example of productivity in action. Since the sector was deregulated by the 1984 to ’89 Labour government, agriculture’s average annual productivity rate has climbed to 4.5 percent. The measured sectors of the rest of the economy have managed just 2.1 percent growth year.
If, over the past 10 years, New Zealand’s across-the-board productivity had averaged 4.5 percent, our economy would be 25 percent larger than the roughly $200 billion it is now.
We would be richer, somewhat closer to Australia, and governments of the day would have had markedly more tax income to squander on whatever bought votes and political power.
For every one percent lift in the nation’s productivity, each and every one of our 2.2 million strong workforce would be $450 year better off. As it is, our sluggish performance means we don’t keep pace with the rest of the world. “Our income has not kept pace with that of our peers and neighbours, and it has certainly not kept pace with our needs and wants,” says Shamubeel Eaqub, principal economist at the New Zealand Institute of Economic Research (NZIER).
The productivity problem, according to recent research by global management consultancy Hay Group, is serious and becoming more so – both for New Zealand and, interestingly, for Australia. Given that Australia’s gross domestic product per head is reportedly US$61,040 compared with our US$35,880 and America’s US$49,340, the comparison the Hay Group study draws between New Zealand and Australia is surprising.
According to Henriette Rothschild, Hay’s general manager Pacific, productivity is the “next big challenge” for both countries. If so, surely its findings are even worse news for New Zealand than they are for Australia. As it stands, our consistently poorer productivity performance means we are steadily falling further behind our trans-Tasman neighbour and far too many of us are moving there for more than just Gold Coast holidays.
The reality
The Government now seems to recognise the reality of our plight. It has, for instance, finally given up on its ill-advised campaign to promise living standard catch-up with Australia by 2025. And last April it did something more tangible than talk and established Productivity Commission, mini version of Australia’s.
“New Zealand’s inability to lift its productivity performance is longstanding problem,” says Eaqub. And growing body of research shows just how profound the problem, and how elusive the solution, is. The Productivity Commission should help with additional research and better considered policy advice, but identifying the root causes of the nation’s flaccid productivity performance won’t come easy.
The productivity puzzle is governance and management jigsaw. Researchers and management consultants think directors and managers are largely to blame for perpetuating the problem. Outdated work practices, old-fashioned responses to unfamiliar and changing market circumstances and reluctance to commit to much-needed people development programmes don’t help.
Last year’s Hay study, for example, found that chief executives set growth targets that consistently outstripped readily available economic forecasts. Business leaders expected employees to be dramatically more productive, but at the same time admitted that their employees were already overstretched. Worse, they acknowledged that company culture and values positively impacted effectiveness, but only 17 percent of them said they aligned their business strategies with their plans for cultural change.
“Far too many managers and directors are confused about what productivity means and consequently don’t know how to deliver it,” says Shaun McCarthy, chairman of organisational culture experts Human Synergistics. “Productivity means different things to different people and the result is invariably leadership confusion.”
Competitive reality
Competition, not competency, rates higher on the fault line identified by New Zealand’s first productivity commissioner Murray Sherwin. “The degree to which business leaders understand productivity is defined by the extent to which their businesses are exposed to competition – either at home or abroad,” he says.
“Companies that are exposed to real competition understand it. And they say they need two or three percent productivity gain every year just to stay in business.”
If this is true, the increasing global competition which this country seems bound to confront should rapidly lift productivity literacy in future.
Higher productivity, according to Sherwin, is about creating better-performing economy – one which generates higher average incomes, greater individual opportunities and improved personal wellbeing. Countries with strong economies are more resilient to the inevitable “shocks and adversities” that nations face.
Whatever other political, natural or geographic factors contribute to it, enhancing productivity is still fundamentally about the adoption or rejection of best management and governance practice and thereby organisational performance. It obviously also needs the right business environment, generated by having the right policy settings, laws, regulations and institutions in place. Helping to create that environment is part of the new Commission’s job.
For her part, Rothschild is clear about what impacts productive performance most. Clear direction, organisational design, reward, leadership, performance management, engagement and diversity are, she says, all at the heart of issue.
“Productivity can seem like the management equivalent of the Rubik’s cube – each time one bit of the puzzle shifts it exposes more work to be done. We think that while the organisational levers are interconnected and interdependent, they work together. Rather than creating more work, improving one factor often creates momentum and improvement in other areas.”
Australasian business leaders
