Productivity People were invited to make a submission on an issues paper by the NZ Productivity Commission. As the Commission states, these are extraordinary times: “New Zealand is facing the prospect of a significant economic shock from the spread of COVID-19. Helping more Kiwi firms reach the productivity frontier would be a valuable step towards the economy reaching its full potential once the immediate effects of COVID-19 have passed.”
The inquiry will investigate New Zealand’s most productive firms and how their economic performance can be maximised to lift New Zealand’s productivity as a whole. This is not new. It is not the first time the Productivity Commission has focused on this. And the issues raised in the late Sir Paul Callaghan’s presentation on a whole of government commitment to the strategy of “New Zealand, where talents want to live” are still current while almost 10 years old. But the Productivity Commission provided interesting new research as input for the inquiry: a report by Dr David Skilling into the role played by exporting firms in 13 small advanced economies and the types of government policies that could help these firms improve their performance. A key message from this work is that small economies can be very successful. The small countries the report studied were generally high-performing and had better economic and social outcomes than their larger peers. Dr Skilling’s report argues, unsurprisingly, that New Zealand needs to do more to create large exporting companies. He states that the flow-on effects from these aptly named ‘frontier firms’ is highly valuable but also that we currently have insufficient of these firms or groupings of these firms in New Zealand.
We focussed our submission on how frontier firms have achieved their industry-leading position by developing business management systems with a continuous improvement focus, and with people at the heart of the system.
In our work the Productivity People team see a huge range in performance and practices amongst New Zealand companies. We see the same correlation between improved practices and improved productivity in New Zealand companies as is internationally documented by Bloom et all in the World Management Survey (WMS). In our work we have used the WMS with New Zealand manufacturing companies and have replicated this link between improved practices and improved performance. It is our experience that success of frontier companies is (partially) due to a sustained effort to systematically drive performance improvement at all levels in the organisation.
A crucial piece of the puzzle in our opinion is the lack of awareness within New Zealand firms of the significant impact that improved management practices can have on productivity improvement. This lack of awareness is present in all levels of firms including at board level.
We also see a diffusion of good practices when people from frontier firms with better management practices move to other firms within New Zealand. However, this is an uncontrolled and slow process and it is debatable whether improving New Zealand’s performance culture should be left to such chance. We have seen very effective forums where the dissemination of management practice knowledge between firms is shared between leading and lagging firms. We need more of these networking forums and they need to be supported.
The more awareness that can be created on the link between management practices and productivity performance, the better. Because awareness is the yeast for action; and action is what we need to return New Zealand to prosperity.