>Exclusive series
This is the second of an exclusive three-part series on productivity by Reg Birchfield. In next month’s 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.
The New Zealand and Australian governments are getting serious about productivity. Why else would they commit their respective Productivity Commissions to undertake “joint productivity study” as they did last month?
Together, the commissions will identify options for more economic reform and integration between the trans-Tasman neighbours. Both governments clearly see the pursuit of single market agenda as the route to greater productivity and economic growth, and as counter to global economic instability.
Productivity is about building national and individual wealth and wellbeing by working smarter, not harder. Clearly neither country has got good grasp on the concept because productivity is reportedly slipping on both sides of the ditch. “Productivity,” according to America’s Nobel Prize winning economist and writer Paul Krugman “isn’t everything, but in the long run it’s nearly everything”.
Governments look to economic growth through increased productivity to fund nation’s future. The joint trans-Tasman study is, therefore, politically understandable. Productivity increases in both countries, particularly New Zealand, have faltered recently.
As Saul Eslake, chief economist at Bank of America Merrill Lynch Australia, said last year: “Reversing the decline in Australia’s productivity performance calls for re-invigorated economic reform effort, improvements to education and training, improved governance of infrastructure investment and heightened innovation effort.”
Much the same could be said for New Zealand’s wilting productivity performance.
Macro measures, such as deploying the right regulatory policy settings to create sympathetic business environment and others identified by Eslake, undoubtedly go some way to solving lagging productivity. But more than anything, productivity rises or falls on the back of wise or wasteful management and leadership practices employed at each and every organisation in the land.
And therein rests an issue. Generally speaking, productivity is not uppermost in the minds of most managers, according to David Hand, managing director of management consultancy Newport Consulting. “Survival is the key management driver,” he notes. “It determines almost everything organisations do.”
And more businesses need higher productivity to survive in today’s increasingly competitive world, according to Murray Sherwin, chair of New Zealand’s Productivity Commission. “But it doesn’t work for boards to simply say they need higher productivity, even if it is the only answer to economic survival.”
Focusing on survival is understandable in today’s tough economic climate. But, according to Hand, it has always been that way. Survival is what managers think about most. Profit, he admits, is also driver but he thinks companies change to survive, not to be more productive.
An upside to the current drive to survive is that managers are developing new products and services, according to Newport survey of 242 New Zealand and Australian business leaders, conducted last year. It found that innovation is increasingly component of companies’ survival strategy. Innovation is not, however, silver bullet with which to dispatch the productivity problem. It’s an outcome of necessity, says Hand. “As business gets tougher, so managers look for other survival options.”
Whether productivity increases are intended or simply the byproduct of survival or profit-driven strategy, they are accomplished mainly through singular, sustained and people-focused management and leadership.
Productivity increases result from cumulative, sector-by-sector, site-by-site, individual-by-individual process and leadership improvements. Sherwin agrees. “Productivity is all about sustained [business] improvement delivered mainly through micro activity. Even small improvements in productivity growth, if sustained, can have big impact on income and wellbeing.”
Shamubeel Eaqub, principal economist at the New Zealand Institute of Economic Research, says enhanced productivity accrues from the cumulative impact of micro changes across enterprise.
“It is about business doing things better. That’s why it takes time to see changes in productive performance.” New Zealand must focus on the “quality” of its labour and its management as well as on its capital and regulatory environment, according to IER’s Industry Productivity and the Australia-New Zealand Income Gap report, released in September last year.
The consistent implementation of management practices that deliver higher productivity aren’t the long suit of Kiwi business leaders. Shaun McCarthy, chairman of organisational culture consultancy Human Synergistics, thinks too many Australasian business leaders don’t understand “how to get the best” from their employees.
He attributes most of our poor productivity performance to our poor management practices and steadfast, top-end refusal to accept that better management culture delivers better results. “There is disconnect between the desire [to manage differently] and the reality of doing so – between the exhortations and the execution,” he adds.
Individuals must be committed to an organisation. And in turn, they need to feel that the organisation is committed to them. “Both the individual’s and the organisation’s needs must be in balance as opposed to one side being either superior or subordinate,” says McCarthy.
A study by global management consultancy Hay Group last year identified productivity as the “next big challenge” for Australasian businesses. It pinpointed management and leadership failings as the principal inhibitors to better productivity performance.
The study found nine productivity drivers which Hay Group’s general manager Pacific Henriette Rothschild says are essential to growing productivity. “Productivity is directly linked by factors such as clear direction, organisational design, reward, leadership, performance management, engagement and diversity,” she says. The combination of engagement and employee enablement is, she says, productivity’s missing link. “On average, 15 percent of employees are engaged but not enabled. This leads to frustration.”
The Hay Group findings are helpful but hardly surprising. They point to the essential management and leadership priorities and practices that Kiwi companies need to embrace to seriously tackle the productivity problem. They also illustrate the essence of managing for productivity growth – need to focus on the aspirations, abilities and worth of the individual – from the top to the bottom of the enterprise.
Hand thinks senior executives and directors focus too much on rewarding themselves and cadre at the top of the enterprise. “Remuneration at the top end of many organisations is outrageously over the top,” he says. “Executives and directors give themselves ridiculous increases and bonuses because they can, not because they either deserve or earn them. This is an enormously destructive leadership and management issue.”
Employees can’t be expected to act positively or think productively when they see they are being ripped off, he adds. He does not buy the argument that companies have to pay “outrageously” to attract the best individuals.
Appropriate reward is, however, critical to building more productive enterprises according to Hay Group’s executive reward expert Trevor Warden. He thinks management performance packages should be properly linked to productive performance.
But this seldom happens. When companies sometimes try, the package structure and its implementation are more often than not poorly conceived, implemented
