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Productivity Performance and Capability go Hand in Hand

Productivity Performance

Productivity Performance? How many reports does it take to raise sufficient awareness for purposeful and decisive action to overcome New Zealand’s productivity paradox and return our country to the road to prosperity?

Last week I presented at a New Zealand Institute of Directors forum on what we at Productivity People are passionate experts about: that our national business performance is lagging and that by building capability we can achieve breakthrough change.

Earlier we posted about Dr David Skilling’s report into the role played by Frontier Firms in 13 small advanced economies. The Institute of Directors build on his work by commissioning a report by the BRG Institute called “New Zealand Frontier Firms: A Capabilities-Based Perspective”. In last week’s presentation I summarised this insightful report. This will challenge some boards to the core: ”The primary governance challenges are not about solving moral-hazard problems and guarding against opportunism, but rather about assessing, supporting and sometimes challenging management’s strategic planning and not just shareholder primacy.”

The BRG report repeats the known and accepted factors for New Zealand’s productivity problem, listing (1) low international engagement; (2) weak clusters in sectors with comparative advantage (mainly primary); (3) risk-averse ownership structures and stifling regulations, and (4) insufficient investment in skills and innovation. It goes on to say that management capabilities are mentioned but seldom analysed in detail, and that capabilities are underappreciated and only vaguely understood, yet they are the key to building firm-level productivity and competitiveness. The report goes into detail about ordinary and dynamic capabilities; the latter being the differentiators between Frontier Firms and the rest of New Zealand businesses.

The four recommended actions are:

  1. Build dynamic capabilities at firm level: New Zealand should establish a Frontier Firms’ capability programme, a recommendation Productivity People also made to Callaghan Innovation recently;
  2. Develop policy and a competitive fund to support building of ordinary capabilities at firm level: This exists to some extent in New Zealand through the Regional Business Partner Network and Callaghan Innovation. But this is woefully underfunded compared to the Covid-19 funding handouts recently, which propped up all businesses, even the ones that are not involved in “identifying, acquiring and widely diffusing existing best-practice ordinary capabilities and technologies”.
  3. Develop stronger international orientation and better cross-border networks and alliance building for New Zealand managers: We have seen that a growth mindset combined with exposure to international best practice can be a game-changer for a business or a sector.
  4. Evolve corporate governance to support dynamic capabilities: Many board members I have met join boards to genuinely serve the business community. The challenge will be to move their governance input beyond risk, and practice the dynamic capabilities of sensing, seizing, shaping and transforming the businesses they serve.

 

About the author: Geerten Lengkeek is the Managing Director of Productivity People