Archive for the ‘Leadership’ Category
BigCake’s four big themes have been:
1. Economically we are in a hole
2. We need to recognise we are in a hole
3. We can extricate ourselves if we get our act together
4. NZ is still a pretty sh!t hot place, so while climbing out of the hole, we need to protect what’s great about living here.
Regarding numbers 1 and 3, the NZ Institute thinktank has been a major influence.
Following up on yesterday’s post. Below I’ve cherry picked facts from the institute’s latest paper, A goal is not a strategy, to show that NZ is in a hole. Many challenge the way we like to think of ourselves:
Innovation and education
• New Zealand has the highest proportion in the OECD (equal with Ireland) of highly skilled people living in other OECD countries.
• None of the 10 MBA programmes offered around the country focuses on developing the skills needed for international business success.
• In New Zealand innovation is often confused with inventiveness. As a result there is a tendency to think that if R&D output is increased then innovation will increase. Unfortunately for New Zealand, which is quite good at inventiveness, innovation also depends on successful commercialisation of the new way of doing things, and New Zealanders are not so good at this.
• New Zealand’s innovation and business sophistication score is low relative to the scores for many other advanced economies indicating there is great potential to improve innovation, and that doing so would lift economic performance substantially.
Agriculture
• In 1990 New Zealand had around five hectares of agriculture and forestry land per person; today it has less than three hectares per person. Population growth will reduce that further.
• Productivity per hour worked in agriculture is not very different between New Zealand (NZ$40) and Denmark (NZ$50). But in New Zealand the productivity of agriculture is around 83% of the average for the whole economy (NZ$48) whereas Denmark’s agricultural productivity is only around 47% of Denmark’s overall average productivity (NZ$106). Despite outperforming New Zealand in agriculture, agriculture is not the powerhouse of the Danish economy.
• Denmark and New Zealand have almost identical food and agriculture, beverages and tobacco exports per capita. However, New Zealand uses a greater share of its total workforce (6.8%) than Denmark (2.6%) to achieve the same result.
Entrepreneurship
• Two-thirds of New Zealand entrepreneurs are home based and tend to be ‘solo’ operators with few employees. Many of these people are satisfying their desire for independence, to be their own boss. These small independent businesses are likely to have quite low productivity. The relative abundance of these small businesses is therefore likely to be contributing to low overall relative productivity.
• New Zealand has too few highly skilled entrepreneurs targeting international business success. The shortage means the product of New Zealand’s inventiveness – large research output, inventions, and new business opportunities – is not being converted into international business success.
Exporting
• New Zealand’s exports have grown much more slowly than the OECD average partly because global trade in commodities (where New Zealand exports are concentrated) has grown more slowly than trade in differentiated goods and services.
• New Zealand’s most important sectors for exports are tourism, agriculture, and manufacturing. All three have average or lower than average productivity so simply growing these activities without also substantially lifting productivity would not lift GDP per capita materially.
• Commodities are well known for their cycles, and reliance on them would mean New Zealand would continue to be exposed to volatility and price shocks.
General
• New Zealand and Denmark have similar small populations yet the institute calculates that Denmark’s GDP per worker (NZ$170,386) is more than twice New Zealand’s GDP per worker (NZ$83,842).
• New Zealand’s manufacturing labour productivity is the same as that of agriculture, at NZ$40 per hour worked. In comparison, Denmark’s manufacturing labour productivity is almost 90% higher than New Zealand’s, at NZ$75 per hour worked.
• Despite strong doses of economic liberalisation, New Zealand’s GDP per capita remains lower than the OECD average and much lower than Australia’s. New Zealand’s private economy labour productivity is 57% of Australia’s.
• New Zealand scores relatively poorly on measures of infrastructure development, placing 35th in the world with the quality of roads, railways, and electricity ranking worse than the OECD average.
It’s a pretty big hole, but it’s one that we can get out of if enough of us accept we are in a hole. We also need to accept that something more needs to be done to get us out our hole than we are seeing at the moment.
In A goal is not a strategy, which everyone interested in the above issues should read, the Institute again sets out the case for change and the bare bones of an economic growth strategy. It says New Zealand needs to:
• Focus on the internationalisation of high value,differentiated export sectors
• Prioritise labour productivity improvement efforts on these sectors, and
• Reallocate resources from low to high productivity sectors.
[Photo credit - horslips5 via Flickr]
I think there’s pretty much broad agreement that business has lost society’s trust, though that trust probably hasn’t taken such a big hit in New Zealand as say in the US.
Author and consultant Charles H Green points out in an article in BusinessWeek that this loss of business’ legitimacy is a shame, not just for business but for society at large.
I’ve posted before on one aspect of this – how the Government’s efforts to tilt the playing field in favour of business to boost economic growth is a bad piece of timing, coming as it does when trust in business is at a low ebb.
Green writes there is no such thing as a legitimacy index - “…any attempt at mapping something as ephemeral as legitimacy will be fraught with subjectivity”.
But he suggests legitimacy broadly tracks social phenomena such as trust and confidence, heroes vs. villains, and the popularity of going into business as a career choice. “By these indicia, the socially perceived legitimacy of business was low in the 1960s, high in the ’80s, and is at a nadir now.”
Green points to a couple of drivers of the ups and downs:
• “In the ’80s, there was a common viewpoint about business’ relationship to society. Milton Friedman spoke the economists’ version—companies owed no social debt beyond being profitable.”
• “[Michael] Porter’s major impact was describing business itself as an ongoing Hobbesian state of competition—not just between competitors, but between companies and their customers, suppliers, and social institutions. Corporate success is defined as gaining sustainable competitive advantage over all one’s competitors. Adversarial relationships in Porter’s worldview are simply the Way Things Are.”
• “One of Goldman Sachs’ defenses in its current litigation is caveat emptor.”
“These messages all converged. Business was the source of its own legitimacy. It needed no external endorsement. It would work best when left alone, allowing Darwinian forces to work their magic.”
Funnily enough Porter’s and Friedman’s ideas seen naïve now, post the Global Financial Crisis. (I like the idea of Gordon Gekko being naïve).
How do businesses get their legitimacy back?
Green says they need to recognise that social legitimacy comes from finding a role in society — “not from complaining about society’s intrusions, albeit in the form of government”.
“Business legitimacy won’t be regained as long as it remains all about competing successfully with other stakeholders rather than collaborating with them.
“And business is being rudely reminded that legitimacy derives from society, which occasionally makes its will known via the political system. The smart bet would be to collaborate, not compete.
“… legitimacy must come from within business itself, not from charity, corporate social responsibility — or community development. “
Hat tip – Stephen Lynch
Are Kiwis scared of change, like more afraid than other countries?
Our ancestors, willing to head out to settle in an unknown land, for sure weren’t.
“The lust of a pioneer will acknowledge no frontier.”
But have we since evolved into weak-kneed shadows of our forefathers who see ever present danger in change, risk in opportunity? Realising we are a bunch of lucky sh!ts, have we spent most of the last 150 years wringing any further uncertainty out of our lives?
Harsh? Dunno.
Certainty has a lot going for it, but it can weaken the lust of a pioneer.
BigCake found a survey of New Zealand business managers that showed they ranked in the top 25% in terms of “uncertainty avoidance” in an international survey.
Uncertainty avoidance was measured by stuff like how many laws or rules we have to cover most situations, the tendency to lead structured lives and an emphasis on orderliness and consistency.
If Kiwi managers in the survey were more uncomfortable with uncertainty than their international counterparts, it’s a reasonable guess that it’s a national trait.
You don’t have to look too hard to find evidence of this “nanny state”, say from 1890s labour laws through to ACC.
And on an individual level it is behind a lot of what BigCake calls “growth scepticism” – the sceptical reaction to claims that economic change this time will make a difference.
The uncertainty measure is in the Global Leadership and Organizational Behavior Effectiveness (GLOBE) project which I came across while researching the poor state of NZ management.
GLOBE interviewed 184 Kiwi middle managers in finance, food processing and telecommunications and found that by the standards of other countries, these managers were:
• Very focused on performance
• Collectivist and
• Uncomfortable with uncertainty.
The associated report on New Zealand was written in 2006 by Jeffrey Kennedy, now Director Open & Custom Programs at Nanyang Technological University in Singapore.
Kennedy says NZ’s society is “characterised by a reliance on social norms, rules, and procedures to reduce unpredictability and uncertainty”.
Kennedy comes up with a couple of pieces of hard evidence of this. In a 1990 Survey of Values Kiwis ranked life’s qualities as follows:
1. Security
2. Accomplishing things
3. Comfort and prosperity third.
And in an international study of entrepreneurship, New Zealand ranked 15th out of 29 countries in tolerance for uncertainty.
And there are real consequences of this in the world of business. Off the top of my head:
• The whole export gig is shot through with uncertainty so we don’t export as much as we should or could
• When trading with the world we like to deal in hard contracts rather than engage in the soft (and unpredictable) world of relationship building.
The tyranny of distance is stopping the cavalier.
Most of us like to think we are now more grown up than the conformist, boring, predictable image of New Zealand from mid last century, but as author Malcolm Gladwell says cultural legacies have deep roots.
A follow up on the last two posts regarding who’s not pulling their weight in research and development spending.
The graph below shows, by comparison with Finland, Denmark, Australia and Ireland:
a) the relatively strong commitment to R&D spending of our smaller businesses and in particular those with less than 50 employees
b) the shocking under investment by our largest companies.
LEVEL OF BUSINESS EXPENDITURE ON R&D BY FIRM SIZE
Sources: Statistics NZ and OECD surveys (Finland, Australia and Ireland data 2006, Denmark 2005 and NZ estimated from 1999 – 2005 trend)
Just checked out the research and development spend of NZ’s next two largest companies after Telecom and Fletcher Building:
- Telecom – 0.18% of revenue ($5.6 billion) in 2008-09. It’s R&D spend has been steady for the last three years.
- Air NZ – can’t find any figures on R&D spend in their accounts, but they do some through the Air New Zealand Environment Trust which funds research and development into alternative fuels. Note: The trust is funded by donations from passengers and other members of the public and a one-off payment by Air New Zealand.
The next lot of NZ’s largest companies are: Woolworths, Shell, BP, Foodstuffs (Auckland), Chevron, Exxon, Foodstuffs (South Island), Foodstuffs (Wellington)…
You get the picture? Food and gas sellers the lot, the latter all overseas owned. Not much R&D going to come from there.
NZ company spending on research and development is less than a third that of the OECD average, so who’s not pulling their weight?
Small businesses? Well yes, but they have a good excuse. Around 97% of Kiwi businesses employ fewer than 19 people. R&D wouldn’t be relevant to most of these small and medium sized businesses (SMEs) who’d mainly be trades based, retailers etc
And for those where R&D might be relevant, this activity is in all likelihood going to get squeezed by the need to manage, market, sell and engage in whatever it is that the 19 maximum people actually do for a living.
These SMEs represent just under 40% of the GDP so that’s a good chunk of the economy which just can’t or doesn’t need to do R&D.
This must be the single biggest factor behind the paltry 7% of businesses reporting R&D activity in a 2008 Statistics NZ survey.
The indications are that businesses in the next group up (20 to 50 employees) do a hell of a lot of R&D. This group, along with the SMEs (who for reasons explained above probably don’t contribute much), account for just under half of total business R&D in NZ, the highest relative R&D contribution for businesses of this size in any OECD country.
By now you can probably see where this is going.
Here’s a table showing the falling R&D expenditure of Fonterra. Picking on them because they’re by far NZ’s biggest company and hence the biggest offender.
In 2003-04 Fonterra’s R&D spend was $100 million, so they’ve basically gone backwards. And they’re a along way off what Nestle spends on R&D. I think when Fonterra was created, Nestle was held up a model of the global dairy ingredients business the country needed (as opposed to the milk trader we’ve still got).
But to be fair to the big guy, here’s the figures for the next two biggest agricultural exporters:
And to be even more fair, here’s New Zealand second largest company:
So Fonterra is actually a good R&D investor by large New Zealand company standards.
Among at least one of these companies there are some very antediluvian management attitudes to R&D. Overall, business leadership seems to be missing here and until the private sector steps up it’s hard to see how we’re going to reverse our economic decline.
Dunno if this was meant to be a used as a target for a minimum R&D spend – perhaps for hi-tech companies – but companies wanting a government R&D technology development grant must spend at least 5% of revenue on R&D over a three-year period.
Whatever, you can see how far out of the ball park NZ’s biggest companies are.
So with these miserable R&D contributions by the big companies, you can see why NZ only spends about 1.2% of gdp on research and development, half by the public sector, half by private industries.
The PM’s science adviser Sir Peter Gluckman gives Israel, as an “extreme example”, saying it spends 4.9%, excluding defence, of gdp on research and development.
Interestingly, a big hunk of NZ’s public sector R&D spend goes on the primary industries, so you wonder if the big agricultural companies made a conscious decision to live off a form of R&D welfare. A more generous appraisal could be that the government R&D spend in the primary industries is crowding out the private stuff.
In the Budget the Government announced $321 million over four years in investment in new R&D initiatives, including a $234 million increase in support for business R&D.
Will this get the big R&D slugs moving? It’s a carrot, but sometimes you feel a stick would be handy, if only to make you feel better.
There’s no shortage of training programmes for NZ managers with a mind to improve their leadership skills to tuck into.
A MED report in 2009 identified 546 programmes run by 59 organisations.
On the demand side there is also quantity wise no problem. In a Massey University survey more than 80% of small business manager/owners said they saw managerial skills and leadership as key to company growth, performance and competitive advantage. (2% didn’t see any relationship)
But as a University of Technology Sydney (UTS) report points out many larger business owners (and most likely smaller ones as well) are delusional about their abilities – they think they are better than they are.
So judging by the fact that at best our managerial quality is marginally improving, though still mediocre by international standards, somehow supply and demand are not connecting.
And this disconnect has been known about for sometime.
But not all the issues behind NZ’s poor management performance can be fixed bv sending managers back to the classroom. A big factor is that NZ’s economy is dominated by small businesses and it’s hard for these business’s owners and managers to find the time and capacity (though too often also the inclination) to do some training.
Other issues not amenable to a training fix include:
• The best managers leaving.
• Difficulties in getting rid of bad managers.
• Lack of ambition.
The Government has a Skills Strategy, one stream of which is improving management and leadership capability. This includes trials of training partnerships between tertiary organisations and industry along with a commitment to streamline government training activities and improve links with the private sector.
Government agencies offering training include Trade and Enterprise, MED, FoRST, the Department of Labour, the Tertiary Education Commission, the Ministry for the Environment, the Ministry of Social Development, Te Puni Kokiri, the Ministry of Agriculture and Forestry and Treasury.
Hah, but this issue is primarily the responsibility of businesses and their representatives to fix, though there’s also an argument that there’s a market failure going on here.
Spanning the public and private sectors is the Business Capability Partnership which represents government, businesses and unions.
In the private sector trainers include Business NZ, Employers and Manufacturers Associations, Chambers of Commerce, the NZ Institute of Management, the NZ Council of Trade Unions, ITOs etc etc
The 546 programmes teach:
• Communication skills – 228
• Leadership skills – 196
• Employment relations – 122
• Influencing skills 110
• Team building 94
• Workplace culture 63…
Funnily enough given the above’s focus on soft skills, our managers do most poorly in people skills according to the UTS report.
And while we do relatively well in process skills in that report, on the ground there’s a dearth of training programmes that focus on this.
So …maybe the training market is sorting itself out, though no one seems to have a clue about the how effective many of these programmes are.
When BigCake started this series on the disastrous state of business management in NZ, he thought of the elephant as being a problem.
Which it is. A report out yesterday shows more of our firms are poorly managed than well.
But maybe a better way to view our beast in the office is to think of him as a solution. That’s what we have really been ignoring.
And in terms of kicking business growth up the arse, it’s bigger than tax cuts.
A report commissioned by the MED indicates that basic improvements to management leadership, capability and skills would be massively more beneficial to business productivity than big increases in staff numbers or capital.
And our managers are delusional about their management skills. The report found managers consistently overrate their firms’ management performance. Also their self assessments “do not align well” with an external tests.
The report, Management Matters in New Zealand – How does manufacturing measure up? Findings from the New Zealand Management Practices and Productivity global benchmarking project, shows that NZ business managers are a lot like our school kids – at the top as good as anybody, but with a long ‘tail’ of mediocrity.
It was written by University of Technology Sydney using methodology developed by the London School of Economics and McKinsey & Company that is in use in 16 other countries. It was paid for by NZ Trade and Enterprise, the Department of Labour and Treasury.
The authors point out businesses and managers themselves must take primary responsibility for upgrading their management skills and improving their practices.
Based on a survey of management practices in 152 medium and large sized manufacturing firms in NZ during mid 2009, the report shows the average New Zealand business, in terms of management performance, is below the top 59% of Australian, 64% of Japanese and 75% of the US manufacturing firms.
That’s three of our top four export markets. Our average business is also below the top 30% of Indian and Chinese firms taken together.
The report’s findings suggest that firms would need to increase labour by 41% or capital by 77% to increase their output to match a lift in their management score from the 25th to the 75th percentile of the other 16 countries.
Surprisingly what mostly lets us down is our managers’ people skills. They are not so bad at operations and performance management.
The key drivers behind this situation according to the report are:
o Firm size – larger New Zealand firms significantly outperform smaller firms. BTW – The New Zealand economy is dominated by small and medium sized firms.
o Ownership – multinational corporations adopt and spread better management practices compared to domestic firms. Publicly listed companies are also better than privately owned firms, family owned firms and cooperatives. Family run firms tend to under perform.
o Higher levels of education and skills among both managers and non-managers makes a difference.
The results show better managed firms are likely to be more productive, larger, and have greater sales.
Other survey results include:
o We rank 10th out of the 17 countries for operations management.
o In performance management, New Zealand comes 9th out of 17.
o In people management we’re on par with France, Ireland, Italy and developing counties such as Brazil, India and China
There’s interesting stuff on which sectors do better than others:
o Overall petroleum, coal, chemical and associated product manufacturing perform significantly better than other sectors.
o Machinery and equipment manufacturing is tops in operations management.
o Printing, publishing and recorded media and other manufacturing are the worst in people management practices. (Haven’t seen any mainstream media coverage of this report!)
Still to come – what’s being done to fix all this.
Probably the bowls club. The bad manager elephant we like to ignore at our cost is likely to be male, and an old one at that.
Woman and the young (well, under 55 – nice to be called young) are more inclined to improve their management skills than anyone else, according to a Massey University study into management capability in NZ’s small businesses.
Nearly everyone who took part in an associated survey said they didn’t do much formal management training (with woman doing slightly more), but when it came to the more popular “informal” and “incidental” training, woman were much more committed.
Same for age. The so-called young were into it, those over 55 markedly less so. The age thing is concerning because a large percentage of our managers and owners (62% for larger business) are “old”.
If our managers were as crap as everyone else in the world, it wouldn’t matter, but they are, despite apparent improvements of late, at the back of the field.
There are reports of international business deals falling through because of a lack of confidence in the New Zealand management end. New Zealand businesses are seen as having low business capability and acumen by their foreign counterparts according to New Zealand Trade and Enterprise research into perceptions of New Zealand businesses in leading international markets.
So why so bad? In no particular order or attempt at completeness (basically just what BigCake finds interesting):
• Do it yourself: The predilection for informal and incidental training – good old Kiwi DIY – must be part of it. According to the Massey survey, 61% of small business owner-managers learn by doing and being a bunch of tight wads spent an average $1000 a year on developing their managerial skills. The Massey report comments that this cold-shouldering of formal training in large numbers is of continuous concern for policy makers, but it adds the informal stuff also needs to be acknowledged.
• The best managers leave. Too many of the most competent, most ambitious, most forward thinking just scarper. This is mostly anecdotal, but BigCake’s seen it in many enterprises. The best leave and all too often, because the talent pool is so shallow, are replaced by lesser mortals. New Zealand is seriously haemorrhaging managers. Specialised managers topped a list of occupations of Kiwis heading for Australia by 30%.
• Businesses can’t get rid of bad ones. Even “reasonable” employers shy away from sacking incompetent managers because of the fear they’d lose any challenge to the dismissal. Most small businesses don’t have the resources to put up a fight, so they just suck it in.
• The 3Bs. I’ve got my boat, BMW and bach so ‘why the hell would I need to go to the trouble of doing any training?’
Soon I’ll look at what our managers are bad at.
Are our business owners and managers deserving of the faith – and dosh – the Government handed over in last week’s Budget?
Don’t think so. There’s stacks of evidence that too many are just not very good at running their businesses.
Of course there are some great managers out there who’ll repay the Government’s faith and others will have more reasons to get their act together. In many cases though, it’ll be trust,expectation and money down the tubes.
A screed of reports and surveys show many of our bosses can’t foot it internationally, though there is evidence that the situation is improving.
For some reason this issue largely gets ignored in debates about how to drag this country out of its economic rut.
Evidence of the problem includes:
• “Few firms have yet to match leading international benchmarks – no more than 2-3% of firms appear to be approaching international standards of performance on practices such as strategic planning and leadership, supplier relationships, employee performance management and benchmarking, or actively pursue strategies of innovation.” (MED)
• “New Zealand suffers a dearth of high quality managers and entrepreneurs. This lack of managerial talent could be affecting both a firm’s ability to internationalise and also the average firm’s ability to identify new opportunities and grow.” (Treasury)
• “[Despite some good news] the downside is that the Canadians have now joined a slowly growing list of countries whose managers outperform ours.” The New Zealand Institute of Management.
We also rate poorly in international surveys such as the World Economic Forum’s Global Competitiveness survey.
And then there’s the circumstantial stuff:
• “What is holding New Zealand back is a widespread lack of management and leadership skills among SME owners, which translates to disengaged workers and low productivity,” (Grant Hally, chairman, Independent Business Foundation)
• “The low productivity is mostly from significant mismanagement: The greatest differences identified here are in: GroupThink; “number 8 wire and not learning from others”; hostility to constructive criticism; discounting of formal qualifications; ignorance of both quantitative management and systems-approach management; “the old boy network”, and many more.” (2025 Taskforce)
• “Something I have noticed peculiar to New Zealand is a lack of commercial impetus due to dire motivation. I am frustrated by the isolatory and timorous attitude of NZ’s senior management who appear closeted within a fall-out shelter of “tried & tested” cladding, as if sticking their heads above an imagined parapet would render them terminally radioactive.” (UK immigrant to New Zealand commenting on the NZ Institute’s NZ Ahead website)
Over the next few days I’ll post on what may be behind this situation and what’s being done to fix it.
