Posts Tagged ‘Productivity’
NZ Institute describes our economic hole – a guide to why NZ needs to walk the talk to escape
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]
Crap management (4) – supply and demand the problem?
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.
Crap management – the elephant in the office (3). More evidence of the size of the problem, but maybe what we are ignoring is not the problem, but the solution
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.