Powering business productivity

Kiwis work around 45 minutes a day longer than Aussies, and around nine weeks a year longer than people in the UK, says Nick Tuffley, chief economist at the ASB.

While we have seen periods of strong economic growth at times, it seems that we are sustaining it by working longer and harder. How we reverse that trend is the productivity challenge, he says. 

“We're a country of small and medium-sized businesses, and often you've got management very much involved in running the business. They are working in the business, not on the business – which is where you take that more strategic, top-down view that drives ‘where to’ for the business. Compared to a lot of small, advanced economies, we have a small proportion of very large, innovative businesses.”

Speaking at an Institute of Directors “Powering Business Productivity” event, Tuffley said these factors can constrain our exposure to new technology and the development of homegrown talent, which are known contributors to improved productivity.

Other factors including exposure to international markets and competition, which can force firms to sharpen up, and strategic partnerships (where competition law allows) can also improve productivity for firms, and perhaps whole sectors of the economy, he says.

“In some countries you have clusters of firms working together. They are building innovation and creating new markets. I think, from a New Zealand point of view, that type of collaboration is not a core part of our DNA.”

When you add in that our research and development spend is around half of the OECD average, the challenges to improving our productivity have come into focus. But the problem can be solved and the ASB has developed a $5 million “productivity grant” fund to help firms invest in solutions, Tuffley says. 

Investment in digital technology is one area in which productivity gains are likely to be found, says Laurence Chapman from Spark NZ. 

Research conducted by Spark and the New Zealand Institute of Economic Research suggests a 20 per cent rise in the use of advanced digital technology could increase industry output by $26 billion over the next decade.

“Advanced digital technologies are now reaching a level of maturity where they have the potential to solve some of the problems they were not able to solve in the past,” Chapman says. 

“Digital transformation can be a key enabler in productivity improvements in every sector, but it must be integrated into business strategy in order to deliver.”

Part of the challenge in New Zealand is that we do not measure digital adoption or progress in a comprehensive way, he says. “We need to measure digital adoption among New Zealand businesses in order to unlock and target investments in productivity improvements. And at Spark we believe New Zealand should develop its own AI strategy to ensure we are a creator of AI, not just a consumer of it.”

Echoing Tuffley’s observation about clusters, Chapman suggests we need to build an “effective innovation ecosystem” that brings together businesses, academics and the government with the goal of boosting productivity through innovation. 

Director and former Productivity Commission Chair Murray Sherwin CMInstD closed the discussion with a recommendation to directors: have more ambition and don’t get too comfortable with your familiar ways of doing business. 

Productivity improvement at its most basic is about extracting more from less, Sherwin says, but this will only occur if we have ambition at both the national level and enterprise levels. And while improving productivity is not the same as improving profitability, the two are closely allied. 

“As a director, you are going to be really focused on cash flow and profitability. Productivity will help get you there.”