If there is one word on the lips of Australian business leaders and economic policy makers at present it is "productivity".
Australia may have received a gold star for weathering the global financial crisis, shooting to sixth place among OECD countries in terms of per capita GDP, but while our economy has grown, the productivity of our workforce has flat-lined.
Over the past decade we have become significantly less productive. Multi-factor productivity shrank in the mid 2000s to unprecedented lows. Even worse, taking the data at face value, productivity seems to have completely disappeared, with the latest figures showing it at zero or even negative.1
A recent global report (commissioned by the US Society of Human Resources Management and the Australian Human Resources Institute2) ranked Australia 50 of 51 countries in a review of productivity, with 10.3 points out of a possible 100, ahead only of Botswana, which received zero points.
This has been followed by widely reported incidents of a drop in new investment in the resources industry, cancellation of some high profile, large scale projects and declining terms of trade which many believe are the first indicators of Australia’s resources boom coming to an end.
For The Five Faces of Productivity, the latest in Chandler Macleod Group’s white paper series, we surveyed 563 senior businesspeople across Australia in September 2012. This was supplemented with insights from a range of publications, research reports and articles produced in the last 12 months, including Chandler Macleod’s June 2012 publication, Leadership in a Patchwork Economy.
Interestingly, we found that the experts hold a range of opinions about whether we’re at crisis point or merely experiencing an adjustment; the reasons for this productivity slide; and where the focus should be to address it.
- Productivity and the Patchwork Economy. Income growth has decoupled from productivity growth with the resources sector, representing just 10% of the economy and 3% of its direct labour, driving a third of income growth. More than 90% of recent income growth has come from Australia’s favourable terms of trade and more than half is due to temporary boom-time effects.
- Capital investment is still on the up, but the low hanging fruit has been picked. Excluding those with no significant capital expenditure and those who are unsure, 62% of businesses have seen an increase in capital investment over the past 3-4 years. However there is evidence that the easiest gains in productivity have already been achieved; 34% of respondents indicated that their organisation has already invested in the capital equipment with the biggest impact on productivity.
- Organisations may not be focussing on the right productivity initiatives. While organisations are focussing on people management, training and process innovation, it’s at the expense of increased organisational porosity, employee mobilisation (across sites, teams, projects and countries), workforce planning, product innovation and skills utilisation – the things that will truly drive productivity.
- Talent is still a major issue. CEOs say the talent crunch is the main threat to business expansion, with 58% of businesses reporting skills shortages. Talent and skills shortages are seen as a major threat to business expansion and future profitability. By making talent a strategic focus, CEOs hope to ensure future growth and understand employee engagement.
- There are still barriers to measuring productivity. Only 42% of businesses measure their productivity at an organisational level, and of these, only 22% believe that they can accurately measure productivity benefits. Possibly due to the complexity of the areas of measurement (or not knowing what to measure) and the potential for unpleasant and disruptive productivity enhancement changes, companies seem to find it easier not to consider productivity measurements.
- Leadership is key. Government and Central Bankers need to set policies which create an environment which supports widespread productivity improvements – however it is CEOs, CFOs and other business leaders in organisations across the spectrum of Australian industries who will drive productivity growth. They need to understand what productivity means and how it can be influenced to drive output and revenue growth. Importantly, leaders need to "de-mystify" productivity at a grass-roots level through strategies of both incremental change and continuous improvement.
Within this climate, our report explores the five faces of highly productive organisations, finding they have the following factors in common:
- An agile, flexible, responsive and collaborative workforce
- A culture where productivity and employee happiness co-exist
- Strong leadership capability at multiple levels
- Regular investment in innovation
- Systematically measure productivity.