The productivity dilemma
A recent report from the New Zealand Productivity Commission, Productivity by the numbers, paints a bleak picture of the productivity of NZ compared to other OECD countries. But it’s not just us - measured productivity growth in recent times has been weak globally.
Productivity, Growth and Productivity Growth
To quote Productivity by the numbers (hereafter referred to as ‘the report’) “Simply put, productivity measures how well an organisation, industry or country is using the resources available to it.” (P7) It’s the ratio of outputs to inputs.
It is NOT the same as growth. Growth (of outputs) can come from more inputs, for example by increasing the number of hours worked. As the report says on P20, “working more hours and putting more people into work has been the main way that GDP has grown (and how New Zealanders have earned income) over the past few decades.
Productivity growth is getting more outputs for the same input. That’s what leads to increase in per capita income and material living standards. That’s where global economies are weak and New Zealand in particular, is lagging.
Where does Productivity Growth come from?
Innovation is using technology and new skills in new, innovative ways.
“Innovation is an inherently risky long run game, but being entrepreneurial, and making continual investments to maintain, improve, and adapt skills, equipment, and technology, are key to improving performance and national productivity.” (P11)
“Innovation lies at the heart of growth, and the majority of the growth in productivity and material living standards has come from combining inputs into new products and services – like antibiotics and anti-slip mats” (P7)
“Introducing new capital can increase the relative volume or value of output by replacing labour, reduce the costs of production, make workers more productive, or allow new goods and services to be created. New Zealand firms are, by the standards of other developed countries, capital-shallow, meaning that workers have relatively limited equipment etc. to work with.” (P10)
How to improve Productivity
This is the section heading of Part 4 of the report. The answer is “Innovation and Technology.”
Underlying the many factors and interactions that determine how efficiently an economy transforms labour and capital inputs into outputs is “the creation and adoption of new technology.” (P38)
“Technology” is used in a broad sense that encompasses
· innovation and technological improvements (automation, IT, better processes etc.),
· economies of scope and scale of production,
· changes in workforce skills and
· better management techniques.
We grow productivity by being smarter about how we use technology – in the broad sense of the word.
According to the report, that starts with a small group of high-performing firms and diffuses to other firms. (P39)
Some NZ companies are world leaders and innovators in some area of technology. For example, Fisher & Paykel Healthcare lead the world in products for respiratory care - innovative products designed and developed in New Zealand. But even they will surely be striving to adopt new technology (such as IT and production methods) to become more productive.
I think all NZ companies need to focus on their adoption of technology – even if it means capital investment. To help get it right, there are many companies, consultants and organisations who specialise in the aspects of technology identified above.
Magnetism is one of them. Our mission is “To work as one with our clients to help them realise their potential through our smart use of technology.” Our specialty is Customer Relationship Management and Business Solutions.