Article About the Workplace Productivity Challenge

7/29/2019 Article About the Workplace Productivity Challenge

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AUGUST 2004

THE WORKPLACE

PRODUCTIVITY

CHALLENGE

report of the workplace productivity working group


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2 report of the workplace productivity working group


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3report of the workplace productivity working group

the workplace productivity challenge

Working Smarter to Build a Higher Value, Higher Skill, HigherWage Economy

Our places of work and the people who work in them are two key assets in making sure New Zealanders

have a great quality of life for the future.

It is our people in workplaces around the country who collectively drive our economy with their ideas,

innovations, skills, capital and strong work ethic. If our rms are doing well, our economy does well and

that helps to create an environment where we, as a nation, have choices about what we spend and how.

It is a mutually reinforcing cycle.

The Workplace Productivity Working Group (WPWG) was established in February 2004 to undertake

a stocktake of how New Zealand is doing in terms of workplace productivity, and to identify somepractical options for how we can lift our workplace productivity.

The Challenge

The challenge for the future is to build on where our workplaces are performing well, while also achieving

improvements that move New Zealand to a sustainable, high value, high skill and high wage economy.

To achieve this will require engaging New Zealanders and lifting national awareness about what

improved productivity can contribute to our lives.

The WPWG looked at the range of issues that contribute to how well a workplace performs, particularly

how innovation, good culture and leadership help to create an environment of high performance at

rm level.

The Agenda

Many workplaces already have in place business practices that are delivering highly productive,

protable and high quality outcomes. We need to acknowledge the achievements of these leading

rms and learn from them, as well as identifying the new opportunities. There are also many rms that

are doing some things well who could benet from lifting their performance in other areas.

This report reects the WPWGs perspective on some of the tangible actions to improve New

Zealands economic growth by lif ting everyones game at a rm level.


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There is no silver bullet. Building sustainable economic growth and lifting living standards demand a

focused effort and strategic approaches across industry, rms and government. This report articulates

how all rms are capable of raising workplace productivity, and how doing even a few things right can

contribute to greater gains for everyone, such as recognising the importance of innovation, training

and new technology as drivers of productivity.

The ndings and recommendations highlighted in the following pages have been reached after

wide-ranging discussions through informal and formal forums, including reviewing key research, a

series of employee and employer focus groups around the country, an intensive workshop involving

government, business, unions, workers, academics and productivity experts, and discussions with the

Small Business Advisory Group and the Growth and Innovation Advisory Board.

We have great pleasure in presenting this report to the Ministerial Reference Group of the Ministers of

Labour, Finance and Economic Development as a catalyst for further engaging government, industry,

rms, unions and employees in a conversation about how we can lift workplace productivity.

Andrew Annakin

Workplace Productivity Working Group


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contents

1 executive summary 7

1.1 The Challenge 7

1.2 Meeting the Challenge 8

2 consolidated wpwg recommendations 132.1 Building Leadership and Management Capability 13

2.2 Creating Productive Workplace Cultures 14

2.3 Encouraging Innovation and the Use of Technology 15

2.4 Investing in People and Skills 16

2.5 Organising Work 17

2.6 Networking and Collaborating 18

2.7 Measuring What Matters 19

3 background and scope of the workplace productivity working group 213.1 Background 21

3.2 Workplace Productivity Working Group Scope 22

4 the workplace productivity challenge 254.1 New Zealands Recent Productivity Performance 25

4.2 The Link between Workplace Productivity and National Productivity 31

4.3 Workplace Productivity Drivers 33

4.4 Barriers to Introducing Productivity Improving Practices 37

5 meeting the workplace productivity challenge wpwg ndings

and recommendations 395.1 A Workplace Productivity Agenda 44

5.2 Building Leadership and Management Capability 48

5.3 Creating Productive Workplace Cultures 53

5.4 Encouraging Innovation and the Use of Technology 60

5.5 Investing in People and Skills 68

5.6 Organising Work 77

5.7 Networking and Collaborating 83

5.8 Measuring What Matters 88

appendix 1 93

appendix 2 95


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executive summary

Productivity isnt everything, but in the long run it is almost

everything. A countrys ability to improve its standard of living

over time depends almost entirely on its ability to raise its output

per worker. 1

Paul Krugman, The Age of Diminished Expectations

The Challenge

New Zealand has recently enjoyed a resurgence in economic growth after a long period of decline.The two main drivers of economic growth are labour utilisation, where New Zealand is high compared

with the Organisation for Economic Cooperation and Development (OECD) standards, and labour

productivity, where New Zealand is much lower than many OECD countries. Given already high rates

of labour utilisation, increases in New Zealands living standards are thus likely to come from increased

labour productivity.

Productivity increases occur through three different channels in an economy. OECD research

suggests that typically the expansion of more productive rms and the contraction of unproductive

rms account for small increases in overall productivity. The entry of new, productive rms and the

exit of unsuccessful rms accounts for around one-third of overall productivity. The third channel,

productivity gains in existing rms, accounts for the most productivity growth in the economy.

This report focuses on the specic challenge of how improvements in workplace productivity can

contribute to economic growth and lift New Zealands living standards.

Workplace productivity refers to how efciently and effectively a rm of any shape or size can turn its

inputs, such as labour and capital, into outputs, such as products and services.

Improving workplace productivity is not about working harder and harder but about working smarter.

It involves continuous innovation and improvement in all aspects of the rms management and

operations in order to deliver sustainable competitive advantage. The main ways that workplace

productivity can be increased are through investing in capital, achieving economies of scale; investing

in innovation and technology; and adopting better business practices.

1 Krugman, P (1992), The Age of Diminished Expectations: US Economic Policy in the 1980s, MIT Press, Cambridge,

page 9.

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The Workplace Productivity Working Group (WPWG) was established to determine ways that

improved workplace productivity can deliver a high wage, high value economy for the benet of all

New Zealanders.

This report reects the Working Groups views about the status of New Zealands economic

performance and its link to quality of life, and the role of workplace productivity in raising thisperformance, and identies some practical actions for encouraging greater workplace productivity.

The work conducted to meet the objectives of this project was accomplished within a rather ambitious

time frame. We feel that we have been successful in meeting our goals but acknowledge that

given more time, the breadth and depth of our background research would have been expanded.

This report seeks to identify the challenge that New Zealand faces in raising our quality of life through

improved workplace productivity and suggests an ongoing Workplace Productivity Agenda to

contribute to meeting that challenge.

Meeting the Challenge

Our ndings and recommendations set out a Workplace Productivity Agenda for responding to the

workplace productivity challenge.

This Agenda will contribute to the governments overall economic goals and complements existing

work programmes and strategies. A key component of the Agenda is also the shared responsibility for

action among industry, rms, unions, employees and government.

We recommend the establishment of a successor body to oversee the implementation of the

recommendations in this report.

The actions that are proposed are mainly directed at existing rms although they are designed so thatall organisations may benet.

As part of its ndings, the WPWG identied seven complementary and reinforcing drivers of

productivity, listed below. These drivers form the basis for our recommendations and are grouped

around the following four types of actions:

Raising Awareness of what workplace productivity means and the actions that can lead

to improvements.

Diagnostic Tools to assist rms in identifying how effectively they are performing and to

identify where the rm may need to improve its business practices or performance.

Implementation assistance and support for rms to decide what specic actions to take

and the best way to put these in place.

Research and Evaluation collecting and developing the knowledge base about workplace

productivity and what business practices are successful.

Building Leadership and Management

Leadership and management capabilities are key drivers of rm capability and performance and cut

across all of the other workplace productivity drivers. If there is a lack of strong leadership and/or

management in a rm, it will be difcult to successfully develop and implement initiatives around theother main productivity drivers.

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The WPWG identied a strong role for leadership in creating a productive workplace. Leadership

capability relates to an individual or teams ability to identify new opportunities and inspire others

to pursue those opportunities. Leaders are found at every level of an organisation and a productive

workplace will have leadership depth. Leadership, and in particular leadership by example, is a crucial

factor in creating a positive and productive workplace culture.

Managerial capability includes the strategic ability to adapt to a changing environment that creates

internal and external threats and opportunities; organisational and management skills; people and

communication skills; and information acquisition and learning processes all critical factors in

workplace productivity.

High performing organisations have both effective management and effective leadership and

as a result, excellence in execution.

There are already a number of government initiatives to improve leadership and management

capability in New Zealand rms. The Ministry of Economic Development (MED) Management and

Business Capability Co-ordinating Project (MBCC Project) has been established to develop and

implement well-focused management capability initiatives. The WPWG notes this programme andrecommends that our successor body be advised of its progress.

A full list of the WPWG recommendations for building leadership and management capability in rms

is found at the end of this section. The recommendations address such areas as processes to showcase

examples of effective leadership, examining how existing government assistance can be improved,

appraising best practice and encouraging greater relevance and accessibility to information and

programmes for the purposes of improving leadership and management capability in rms.

Creating Productive Workplace Cultures

High performing workplaces are founded on a strong workplace culture in which motivated andengaged employees are willing to go the extra mile. There is no single prescription for creating

a productive organisational culture but rms can cultivate such an environment by fostering some

signicant cultural attributes, such as acknowledging the contribution of individuals, rewarding

participation and good ideas, developing healthy and respectful relationships in the workplace and

promoting a sense of shared goals and values.

More emphasis needs to be placed on good employment relationship management practices as

an important factor in boosting employee participation, building stronger workplace culture and

therefore creating more productive workplaces. Unions can play a constructive role in supporting a

positive culture, both as the representatives of their members within particular workplaces and as

sources of information about employment practices.

A full list of the WPWG recommendations for creating productive workplace cultures in rms is found

at the end of this section. The recommendations address such areas as helping people to identify and

apply principles that can support positive workplace cultures and employment relationships, the

production of productivity tips that introduce common questions about productive workplaces and

help people to think through basic issues to identify areas where they could benet from investment

in their employment relationships; and further research about employee participation mechanisms in

New Zealand workplaces, including identifying good practice examples.

Encouraging Innovation and the Use of Technology

Innovation is a key part of raising workplace productivity. Creating new products or services or justdoing things better are vital ways to achieve rm growth.


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Innovation can be incremental, such as doing things slightly differently, or it can be more radical, such

as incorporating new technology or introducing entirely new products into a rms business. The

knowledge and skills of employees at all levels provide a platform for further innovation and the ability

to adopt and adapt ideas from elsewhere.

The ability of a rm to innovate depends on a variety of internal and external factors, includingorganisational culture, how work is organised, a shared sense of the vision and strategy within the rm

and the impact of such issues as the wider economic and regulatory environment.

A large number of studies support the link between productivity gains and innovation. In particular,

the appropriate introduction of advanced technology is linked with higher productivity, greater

market share and employment growth. Firms with more sophisticated equipment and machinery

employ more skilled workers and these workers receive higher wages.

The major challenge is for rms to harness the capability to extract value from innovation processes,

services and/or technologies. This requires the ability to access, absorb and exploit technology.

A full list of the WPWG recommendations for encouraging innovation and the use of technologyin rms is found at the end of this section. The recommendations address such areas as increasing

awareness of the breadth and benets of innovation; considering making mentoring support an

integral part of delivering technology and innovation assistance; and improving the coordination

and responsiveness of government services making management and marketing support available

alongside research and development (R&D) support.

Investing in People and Skills

Our people are our greatest asset. Skills shortages choke off growth potential. New Zealand needs to

match the potential and talents of New Zealanders up with the skills needed in the workforce.

A skilled workforce can lead to more innovative behaviour and can enable the use of higher levels of

technology, which in turn leads to higher productivity and a better quality of life for all New Zealanders.

Priority must therefore be put on making sure that all adults in the workforce have access to

appropriate learning mechanisms and work skills training and that employers understand how best to

add value to their rm by investing in skills and training.

While there has been an increased emphasis on investment in education and training by employers,

employees and the government, more needs to be done to address barriers that exist to people

obtaining the skills they require.

In particular, a lack of foundation skills, including literacy and numeracy, has been identied as acritical issue in the New Zealand workforce, and this may be limiting productivity levels in rms.

We believe there is a role for government in improving the accessibility and uptake of foundation skills

training as a means of building the productivity of the existing workforce and overcoming the current

skills shortage. This will involve further government investment in the skills training area. We also

believe the balance of government spending between tertiary education and workforce training needs

to be reviewed.

A full list of the WPWG recommendations for investing in people and skills in rms is found at the

end of this section. The recommendations address such areas as changing perceptions of the value

of skills development in the workplace and removing barriers that prevent managers and employees

from investing in high quality education and training; providing rms with the tools and assistance toundertake skills assessments and determine how to address identied skill shortages; and continuing

to build a strong infrastructure, including Industry Training Organisations (ITO) capability, for the

delivery of workplace-based training.


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Organising Work

In order to maintain a competitive edge in a highly competitive, global environment, rms need to

assess and adapt their structures and business practices on an ongoing basis.

To extract the greatest value out of its investment in new technology and skills, work processes and/orproducts and services, rms need also to look at their organisational design. In particular they need to

make sure the activities that create value within a rm are aligned with each other and with the overall

business strategy, and that they are functioning effectively.

A signicant factor in ensuring that work organisation contributes to workplace productivity gains

is employee participation. It is critical that employees at all levels of a rm have an opportunity

to contribute to work organisation and to provide relevant practical advice from their respective

positions, and for them to fully understand the potential benets. Designing good quality jobs is also

a critical consideration for effective work organisation.

A full list of the WPWG recommendations for organising work in rms is found at the end of this

section. The recommendations address such areas as improving rms access to information about theeffect of work organisation on workplace productivity; and providing networking and other learning

opportunities, as well as mentoring assistance, to undertake redesign assessments and to engage in

redesign work.

Networking and Collaborating

Firms do not operate in isolation and there are signicant productivity gains to be achieved by improving

the exchange of knowledge, information and ideas through both formal and informal networks.

Existing networks are already doing an excellent job in lifting scale, improving the adoption of best

practice and assisting with the adoption of strategic approaches specic to particular sectors.

There is also a role for government to act as a catalyst and broker in strengthening network formation.

Specically, government can help to increase rm awareness about the importance and value of both

informal and formal networks as a key business tool. Government also has an important role to play

in providing information to existing networks, and widening networking activities to include key

stakeholders, such as co-operation between science and industry.

A full list of the WPWG recommendations for networking and collaboration in rms is found at

the end of this section. The recommendations address such areas as identifying the full range of

networking and collaborative mechanisms already available and ensuring that rms are aware of these

opportunities; reviewing whether existing tools to diagnose business capability are putting sufcient

emphasis on networking and collaboration; and undertaking more detailed research into how goodnetworking design can improve productivity.

Measuring What Matters

Workplace productivity measurement is essential in assessing the value to a rm of investing in other

workplace productivity drivers.

There is a lack of information about the nature or extent to which New Zealand rms are implementing

measurement and reporting practices. The research that has been conducted shows that there is a low

level of best practice benchmarking among New Zealand rms. This is despite the proven value that

measurement and reporting tools create in terms of realising added value within a rm.

To fully realise workplace productivity improvements within New Zealand rms will require much

more widespread adoption of effective measurement and reporting practices.


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Good measurement and reporting practices are linked to an assessment of an organisations

strategy and how to better achieve those strategic objectives. There is no one right way to undertake

measurement. There needs to be a commitment to measurement throughout the rm and to

communicating the results in a transparent way that relates individual and team performance to the

overall business performance and helps them to take leadership roles in making appropriate changes

to improve productivity.

Measurement and reporting also need to be tailored to the individual rm and to balance both

qualitative and quantitative factors, including nance, organisational culture and human capital.

A full list of the WPWG recommendations for measuring what matters in rms is found at the end of this

section. The recommendations address such areas as raising awareness of the value of measurement

and reporting as an integral part of workplace productivity strategies and providing greater access to

both public and private resources to assist rms in measurement and reporting activities.


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consolidated workplace productivity working

group recommendations

Building Leadership and Management Capability

Awareness Raising

1 Raise awareness of the importance of good leadership and management to workplace

productivity by showcasing effective leaders and celebrating their success, and highlighting

the need for leaders at all levels of an organisation.

2 Examine how existing government assistance programmes could be improved to raise

awareness of the benets of leadership and management development.

3 Use industry networks to raise awareness of the importance of leadership and management

capability in improving performance, and to spread best practice, through the sharing of

management and leadership skills and experiences.

Diagnostic Tools

4 Review the availability and effectiveness of existing tools for diagnosing the level of leadership

and management capability in individual rms and improve them, as necessary, to ensurethey meet the needs and circumstances of all types of New Zealand rms.

Implementation

5 Make it easier for rms to access government leadership and management development

services in a seamless way.

6 Assess the extent to which quality standards exist for leadership and management services

and, where necessary, develop such standards.

7 Bring together businesses and organisations delivering and developing courses andinformation on leadership and management capability to ensure that they are accessible and

relevant to rms. This may include bringing together education institutions and third-party

training providers and rms.

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Research and Evaluation

8 Research whether rms have sufcient incentives to invest in building leadership and

management capability and, if necessary, take action to strengthen these incentives.

9 It is proposed that the Management and Business Capability Co-ordinating (MBCC) Projectadvise the Working Groups successor body of its progress in carrying out its planned work

programme to check that activities aimed at increasing overall productivity are well aligned,

co-ordinated and complementary with the proposed Workplace Productivity Agenda. This

co-operation would also provide the successor body with the ability to ensure that our

recommendations (as outlined in this report) are delivered.

10 Research the value and potential mechanisms for introducing mentoring for managers

in SMEs.

11 Conduct research to gain a clearer understanding of leadership and management capabilities

to avoid duplication and add value to existing programmes, such as the MBCC Project.


Awareness Raising

12 Model and communicate the benets of good employment relationship practices through

industry organisations, networks, clusters and unions.

13 Promote purposeful employee participation, including in change management.

Diagnostic Tools

14 Review existing programmes and support to promote productive workplace cultures and

develop tools, information and frameworks to address any identied gaps. This would include

assessing what tools are available for measuring and addressing employment relations issues

and employee participation.

Implementation

15 Continue to support rms, employees and unions in improving their employment

relationships and in developing supportive workplace cultures.

16 We endorse the establishment of a Partnership Resource to promote workplace innovation,

productivity growth and improved service delivery through constructive employer/union

partnerships.

17 Create greater dialogue between industry, rms, unions and employees on how to develop

combined strategies for encouraging productive workplace cultures and building effective

employee participation mechanisms.

18 Promote and roll out tools, information and frameworks for building productive

workplace cultures.

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19 Undertake research on employee participation mechanisms in New Zealand workplaces,

including identifying good practice examples.


Awareness Raising

20 Raise awareness of innovation as a broader concept than research and development (R&D)

or high-tech investment.

21 Promote an understanding that innovation requires a range of supporting practices within

the rm, such as environmental scanning and information management, close customer

relationships, a culture that encourages new ideas and teamwork, investment in staff and

strong leadership.

22 Use industry networks to raise awareness and spread best practice through sharing

innovation management experience.

23 Raise awareness of the importance of continued investment in the right technology for rms

facing labour shortages.

24 Encourage the adoption of rm management and commercialisation programmes as part of

the engineering/science course syllabus in tertiary organisations and among staff involved in

innovation processes in rms (and vice versa).

Diagnostic Tools

25 Evaluate the effectiveness of existing tools and programmes, particularly around the issue of

rms ability to adopt and adapt innovations and new technology. Develop tools, information

and frameworks to ll identied gaps.

Implementation

26 Facilitate linkages and collaborative relationships, both between rms and Crown Research

Institutes (CRIs)/tertiary institutions and research expertise; and rm-to-rm, to encourage

the exchange of information, skills and technology, improve opportunities for capturingknowledge spillovers, and build up the innovation capability of rms.

27 Consider making mentor support an integral part of the delivery of technology and

innovation assistance, to provide owner/managers with some space and guidance to work on

the rm rather than in the rm.

28 Improve co-ordination and responsiveness of government services making management and

marketing support available alongside R&D support, and improving the front end client

advisory services so that the most appropriate support is provided to rms from the rst

contact, irrespective of the agency rst approached.


29 Ensure research is undertaken into the issue of rms access to nance.

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30 Identify any barriers to increased capital accumulation and how these can be reduced.


Awareness Raising

31 Raise awareness of the need for rms to undertake skills needs assessments, so they can

identify what skills they need and where they have skill gaps including identication of

where improvements in foundation skills are needed. Promote the benets of undertaking

these assessments.

32 Provide information on the best ways of matching skills to the needs of rms and linking to

ongoing improvements in managerial capability and work organisation.

33 Provide information on the return on investment in foundation skills for all rms, and the

return on investment in education and training generally for small and medium-sizedenterprises (SMEs). More robust information, which has credibility within the business

community, has the potential to change managers perceptions, with an increase in the

investment in people and skills.

34 Encourage positive perceptions by school leavers of vocational occupations as careers and

promote industry training as an option, in order to increase the level of investment in these

areas and to reduce the negative impact for business of skill shortages, including targeted

information for school career guidance counsellors.

Diagnostic Tools

35 Review the availability and effectiveness of existing tools to help employers and employees

undertake an assessment of the potential return on investment in skills development

generally (with tools targeted at SMEs in particular), and develop new tools to ll any gaps.

36 Provide a tool to assist rms in undertaking an assessment of skills required by a rm, the gap

between the required skills and the existing skills within the rm, and the steps required to

address any identied skill shortages.

37 As part of the assessment of skills needs, these tools need to identify where foundation skills

training is necessary and the potential return on investment that can be achieved through

workplace-based foundation skills training.

Implementation

Education and Training Infrastructure

38 Build a strong infrastructure, including Industry Training Organisation (ITO) capability, for

the delivery of workplace-based training and ensure ITOs are involved in workplace-based

training for foundation skills and training for SMEs.

39 Continue to build on the improvements in the tertiary education sector to the linkages

between government, suppliers and rms so that over time workplace training increasingly

meets the skill needs of rms.

40 Continue to provide support for the ongoing work of the Skill NZ campaign.

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Support for Firm-specic Training

41 Develop support for rms to identify skill needs, placing those skill needs in a wider

productivity and rm improvement context, and a specic brokerage role to support

investment by SMEs in skills and training. In developing these forms of assistance, consider

the role that ITOs can play as a delivery agency and how this can be encouraged (and identifyother appropriate organisations where no ITO exists).

Foundation Skills Training

42 The government needs to focus on addressing the needs of existing workers with low levels

of foundation skills. This will require a substantial increase in foundation skills funding

targeted at those already in the workforce. Funding should cover learning delivery, including

workplace-based training, co-ordination, and capacity/capability building and support for

providers, practitioners and learners.

43 Integrate foundation learning with industry training so that those with lower levels of

foundation skills can develop those and other skills.

44 Trial (and evaluate) new ways of delivering foundation learning to improve the quality of

training in the workplace and the incentives to design improved high quality training, for

example, designing programmes that closely match workplace tasks.


45 Research the effectiveness of workplace foundation skills programmes through evaluating any

new initiatives that are approved as a result of our proposals to provide improved information

for employers, employees, unions and the government on the best approaches to adopt.

46 Evaluate whether changes are required to the design of funding and accountabilityarrangements for government-funded workplace training to help ensure that SME training

needs are met (for both foundation skills and wider skills training).

47 Research the effectiveness of steps to enhance education and training in SMEs through the

evaluation of trials, to provide assurance that the education and training are providing a

return on the employers investment and to identify critical success factors.

48 Research whether the different funding arrangements for workplace training and other

tertiary education represent an unnecessary barrier to skill development in the workplace.

49 Explore the level of longer-term skill investment needed to achieve a signicant improvement

in lifelong learning, in order to support ongoing productivity improvements.

Organising Work

Awareness Raising

50 Make available and/or produce relevant information about how work organisation affects

workplace productivity and the benets of implementing these strategies, including the

benets of employee involvement.

51 Provide background information on tools used overseas to assess work organisationissues, such as the UKs Department of Trade and Industry Tool Kit and Danish Technology

Institute tools.

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52 Identify case studies and demonstration workplaces that focus on successful organisational

design, processes and practices.

Diagnostic Tools

53 Develop and test diagnostic tools, modifying overseas models for the New Zealand business

environment, for assessing structural and work reorganisation requirements.

54 Provide diagnostic tools to assist in assessing whether a rms structure/work design is

appropriate and/or effective. This may be especially relevant to organisations in times of

change, as well as when developing an ongoing strategy.

Implementation Support

55 Facilitate the provision of networking and other learning opportunities as well as mentoring

assistance, including facilitators and consultant practitioners, to undertake redesignassessments and to engage in redesign work.


56 Assess availability and accessibility of advice for rms, particularly small business services and

potential for intermediaries as service providers.

57 Assess the linkages between the Work-life Balance Project and workplace productivity

improvements.


Awareness Raising

58 Identify the full range of networking and collaborative opportunities and mechanisms already

available and ensure rms are aware of how to use these effectively.

59 Identify and disseminate examples of best practice in networking and collaboration, and case

studies showing the resultant benets.

60 Explore the scope for using employer and employee organisations as complementarymechanisms to help spread key awareness messages.

Diagnostic Tools

61 Review whether existing tools to diagnose business capability are putting sufcient emphasis

on the extent to which rms are utilising networking and collaboration both within New

Zealand and internationally, and adapt these tools, as necessary, to ensure that they are

including this emphasis.


62 Review whether the impact and reach of existing rm capability services (in addition to the

Enterprise Development Fund and Growth Services Fund) could be increased by adding

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further networking and/or collaborative elements to spread the benets beyond the

primary beneciary.

63 Undertake more detailed research into why networks are established and, more

particularly, what constitutes best network design and operation, particularly in relation to

enhancing productivity.


Awareness Raising

64 Raise awareness of the value of measurement and reporting as an integral part of workplace

productivity strategies.

65 Develop greater accessibility to both public and private information and other resources

available to assist rms in measurement and reporting activities.

Diagnostic Tools

66 Provide diagnostic support to assist rms in getting started on measuring and reporting.


67 Undertake further research to better understand:

a The type of measurement and monitoring that is effective in identifying good performance.

b The nature of measurement and reporting practices in New Zealand and how good

measurement practices contribute to increased workplace productivity, such as the

Ministry of Economic Development (MED) continuing to include questions relating to

measurement practices in its business

practice surveys.

c The determinants of rm performance using good micro data and research techniques.

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background and scope of the workplace

productivity working group

Background

A number of government initiatives have been established over recent years to address the challenge

of raising New Zealanders overall quality of life by improving productivity.

At the broadest level the governments Growth and Innovation Framework (GIF) aims to deliver

long-term sustainable growth, and issues around productivity have also been subject to informal

discussions between such groups as the New Zealand Council of Trade Unions (CTU) and Business

New Zealand, facilitated by Treasury, as well as in other forums.

Historically, New Zealand has not put the same emphasis on producing improvements in workplace

productivity within the rm as it has on establishing the broad regulatory framework for business to

operate within, even though workplace productivity is one of the foundations for driving national growth.

High productivity at a rm2 level contributes to the overall productivity of the national economy, which

in turn helps to create higher living standards. Workplace productivity therefore benets everyone.

Put simply, workplace productivity refers to how efciently and effectively a rm of any shape or

size can turn its inputs, such as labour and capital, into outputs, such as products and services. Our

emphasis has been on how New Zealand can achieve improvements in this area.

Improving productivity is not primarily about working harder and harder but about working smarter.

It sounds straightforward but there is no one answer to achieving it.

Improvements in productivity involve doing a number of complementary things well at a rm level.

That could include investing in labour and skills, introducing innovation and new technology or

looking at organisational structures. The important factor is action at a rm level because this is

where productivity is driven.

For the greatest gains, a rm will employ as many of these mutually reinforcing actions as possible. But

even one or two actions will help to improve workplace productivity in a rm as long as the approaches

t from a business and cultural perspective with the rm that is implementing them.

2 In this report the term rm refers to all entities and organisations in the economy that produce goods and services

and includes businesses, non-governmental organisations , not-for-prot organisations, and government agencies.

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To help build momentum at rm level is going to take a concerted effort and shared commitment from

government, industry, rms, unions and employees.

Workplace Productivity Working Group Scope

The government appointed the Workplace Productivity Working Group (WPWG) in February 20043 to

identify the issues affecting New Zealands workplace productivity and how they might be addressed.

The appointment of our group puts the spotlight on the workplace as a place to discuss the need to

improve productivity.

Our strongly practical focus is reected in the terms of reference:4

The Working Group was established to provide the government with information on the current

situation, including how New Zealand is doing in terms of workplace productivity and practice,

what practices have been successful and/or unsuccessful, and how New Zealands policy settings

and processes are promoting workplace productivity, and possible future policy options for liftingworkplace productivity, by providing advice on:

Ways to improve government policies and policy making processes (such as the development of

policies to promote economic growth) to better take account of workplace productivity issues.

New initiatives to lift workplace productivity and promote high performing practices.

Methods of lifting awareness of best practices.

Key information and research gaps to be lled.

We undertook an extensive process in order to meet the objective the government set of advising onpossible future policy options for lif ting workplace productivity. This process included:

Holding ten meetings of the Working Group and meetings by the supporting ofcials.5

Engaging industry, business, unions and employees in formal and informal forums and

discussions, including a two-day workshop and a series of focus groups.

Reviewing key New Zealand and overseas research.

Commissioning case study research into good workplace practice.

Workshop 18-19 May 2004

The workshop was attended by over 70 business leaders, union representatives, academics, ofcials

and other interested parties. The workshops immediate objectives were to test whether we had

identied the important issues, discuss some of the successful methods already used by businesses in

New Zealand, and build consensus between key decision-makers. Feedback from the workshop was

compiled into a Summary of Proceedings that we considered in reaching the recommendations in

this report. This summary was also made publicly available and provided to workshop participants in

June 2004.6

3 Please see Appendix 1 for the membership of the WPWG.4 Please see Appendix 2 for the complete Terms of Reference for the Working Group .5 The Working Group was supported by an ofcials group, who undertook research on behalf of the Working Group,

provided background information and assisted in the preparation of this report .

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Focus Groups

In order to further test the workshop conclusions and to engage more broadly about the Working

Groups thinking, a series of seven focus groups were held in ve locations around the country from

5 to 20 July. This included ve groups held with employers in Nelson, Napier, Manukau, Auckland City

and Christchurch, and two groups with employee representatives in Manukau and Nelson. WorkingGroup representatives and/or ofcials attended all meetings.

The aim of the focus groups was to gain a snapshot of how rms and employees viewed workplace

productivity, to dene workplace productivity and to discuss some of the incentives and barriers to

improving it.

The key ndings of the focus groups can be summarised as:

There is no silver bullet. Solutions will be found from a range of good business and staff

management practices to suit individual workplaces and industries.

Recruitment, management and retention of good staff are central to workplace productivity. Inassessing success in these areas views of both employers and employees need to be considered.

Many employers are dissatised with current education and training systems. Many believe

they are not practical enough and not tailored to suit the needs of industry. They want more

say in course design and structure. Some employees also support this view.

There is widespread concern about the progression from school and work. Many employers

are worried about the lack of work readiness in the youth market. They believe basic skills of

numeracy, literacy and communication all need to be improved.

Globalisation is both a threat and a challenge to New Zealand. As a small country New

Zealand industry/business needs to position itself as an incubator and innovator of goodideas but we need to be exible and sophisticated enough to see that our ideas will be picked

up offshore by countries with more access to capital and labour. Good business will always

need to be ready to produce new ideas and move on.

Linkages to Existing Policies and Practices

Our terms of reference also required that existing policies and practices were taken into account,

which both created natural links to existing advisory groups and required that we look at existing

policy review processes as part of our scope.

Specically, we set out to look at the following key issues:

What we think are the most important drivers for achieving improvements in

workplace productivity.

Consideration of available information on how New Zealand businesses are

currently performing.

Possible barriers to improving New Zealands workplace productivity performance.

The emphasis on the workplace meant we could create clear boundaries around the issues for

consideration. In light of our terms of reference we were not charged with addressing how broader

economic and public policy issues impacted on productivity in New Zealand rms but rather acceptedthem as givens. For example:

6 This summary of proceedings is available from http://www.dol.govt.nz/productivity/


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The issue of low unemployment, and the impact of key pieces of legislation, such as the

Holidays Act 2003, the Resource Management Act 1991 and the Employment Relations Act

2000, were not considered by the Working Group.

Macroeconomic concerns about the need for increased capital investment are not addressed

in this report but we did consider issues about the quality and accessibility of capital.

A wide range of commentators have identied the need to unblock infrastructure bottlenecks

in order to create an environment more favourable to business activity. Two areas where

bottlenecks are frequently cited are transport and electricity. While we recognise the

importance of having a sound infrastructure for overall productivity improvements, this was

not an area that we considered fell within our focus at rm level.

We were conscious of the need to ensure our considerations did not duplicate activities already being

undertaken by government and non-government processes and other advisory bodies, and to ensure

that a wide range of perspectives was reected in our nal recommendations. We met with both the

Growth and Innovation Advisory Board (GIAB) and the Small Business Advisory Group (SBAG) to

discuss their perspectives on workplace productivity and growth. It will be important that thesegroups in particular are engaged with further in the development and implementation of the planned

Workplace Productivity Agenda (as outlined in Part II of this report).

Our view of what some of the relevant linkages are between our work and other processes or advisory

bodies is presented in Figure 1 below. This diagram is only intended to be indicative of these linkages

as there are a large number of complementary initiatives currently underway.

Figure 1: Some linkages between WPWG and Other Processes and

Advisory Bodies


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the workplace productivity challenge

New Zealands Recent Productivity Performance

Over long periods of time, small differences in rates of productivity

growth compound, like interest in a bank account, and can make an

enormous difference to a societys prosperity. Nothing contributes more

to reduction of poverty, to increases in leisure, and to the countrys

ability to nance education, public health, environment and the arts. 7

Alan Blinder and William Baumol, Economics: Principles and Policy

Productivity is about how efciently and effectively a rm of any shape or size can turn its inputs, such

as labour and capital, into outputs, such as products and services.

Productivity improvements are about producing more or better goods and services with the same

inputs or producing the same quantity and quality of goods and services for less.

The common thread among all productivity improvements is not to work harder and harder, but to

work smarter. Improvements in workplace productivity take many forms, ranging from introducing

a new product to the market using existing plant and staff, and reducing the time it takes to deliver

goods to market, to reducing errors and streamlining processes.

The important thing in raising the productivity of an economy is to start from the rm level. Highproductivity within rms contributes to the overall productivity of the national economy, which in

turn helps to create high living standards, which benets everyone.

In this report we use three notions of productivity:

Labour Productivity refers to the quantity of output produced by a given quantity of

labour input. It is driven by the amount of capital available to workers, such as equipment, as

well as multifactor productivity.

Multifactor Productivity (MFP) refers to the way that labour and capital are combined to

produce goods and services (also called total-factor productivity). It is driven by economies of

scale, technical progress and the adoption of best practice.

7 Blinder , A and Baumol, W (1993), Economics: Principles and Policy, Harcourt Brace Jovanovich, San Diego, page 778.

4.1

4


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Workplace Productivity refers to how rms can utilise labour and skills, innovation,

technology and workplace organisation to improve the quantity and quality of their output.

This part of our report examines New Zealands productivity performance in the past few years against

these measures and how we stack up against comparable countries.

Living Standards

The basis for measuring the link between productivity and standard of living is Gross Domestic

Product (GDP) per capita.

GDP represents a broad measure of economic activity and signals the direction of overall aggregate

economic activity. GDP is calculated by the quantity, quality and variety of goods and services available

for consumption. While growth in GDP reects productivity growth, it is also affected by many factors,

such as droughts, the terms of trade and external shocks, that are outside the scope of the rm.

While the well-being of individuals and communities encompasses more than just GDP per capita,including for example leisure time, family and community associations and the quality of the physical

environment, GDP per capita is widely used to compare material living standards between countries.8

The graph opposite (Figure 2) shows GDP per capita as a proportion of the Organisation for

Economic Cooperation and Development (OECD) average, for New Zealand, the US, Australia and the

European Union.

Until the mid-1970s, New Zealand enjoyed living standards in excess of the OECD average. There then

followed two sustained falls in New Zealands relative GDP per capita (with a small rebound in the early

1980s). Since 1992, this decline has been halted and New Zealands income has slightly improved

relative to the OECD average, but New Zealand is still some 15% below the OECD average.

Another way of looking at New Zealands relative economic performance and position is the annual

rankings put out by the OECD, which show how New Zealand compares with other OECD members

(see Figure 3).

Like the preceding graph of GDP per capita (Figure 2), this graph shows that New Zealand achieved

high rankings in the early 1970s, but then underwent a rapid decline before stabilising at a low rank.

The reason for the widening gap between New Zealand and other OECD countries is that our economy

grew at a slower rate than the OECD average during the late 1970s and until the early 1990s.

Since the early 1990s New Zealands rate of economic growth has generally been higher than many

other countries and above the OECD average. This has arrested the decline in New Zealands relativeincome as shown in Figure 4. Nevertheless, to catch up requires a concerted effort in driving growth

through as many sectors of the economy as possible, from the rm level up.

8 To see the different pictures painted by GDP and GDP per capita , consider the case of China and New Zealand.

According to International Monetary Fund (IMF) gures for 2004, Chinas GPD was some US$1,761 billion,

while New Zealands was only US$97 billion, meaning that Chinas economy was about 18 times larger than New

Zealands. But when you divide the former by over one billion people and the latter by only four million, the situation

is much different: Chinas GDP per capita is only US$1,343, while New Zealands is US$24,134, meaning that

average income in New Zealand was actually 18 times larger than in China.


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Figure 2: GDP Per Capita as a Proportion of the OECD Mean: Selected Countries

Source: OECD (2004) Annual National Accounts, Paris

Figure 3: New Zealands GDP Per Capita: Ranking within OECD


Figure 4: Comparison of New Zealands Per Capita GDP Growth with the OECD

Mean and OECD Total Source: OECD (2004) Annual National Accounts, Paris


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What Drives Living Standards

GDP per capita can be broken down into the sub-components. These components are labour

productivity and labour utilisation (see Figure 5).

Figure 5: Contributions of Labour Utilisation and Labour Productivity toGDP Growth

Source: The New Zealand Treasury

Labour productivity can be analysed according to the capital-labour ratio (the amount of capitalavailable per hour worked) and MFP (the way that labour and capital are combined to produce goods

and services).

Labour utilisation, on the other hand, is a function of the participation rate (the proportion of the total

economy in work or looking for work), the unemployment rate (those looking for work), and average

hours worked per person employed.

Figure 6: Contributors to New Zealands Economic Growth



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Growth in labour utilisation was the main source of growth in New Zealands per capita GDP

during the rst half of the 1990s (see Figure 6). Most of this growth in utilisation was sourced from

reductions in the unemployment rate and increases in labour participation, rather than increases in

average hours worked. New Zealand currently has higher labour force utilisation rates than most of the

countries shown in Figure 7.

Growth in labour productivity appeared to be providing greater impetus to growth in per capita GDP

in the latter half of the 1990s. This improvement in labour productivity growth has been sustained in

the six-year period to 2002, and is growing at about 1.7% per year. Even so, New Zealands labour force

productivity rate lags behind most countries shown in Figure 7.

By analysing the various factors that go into measuring GDP per capita, it is also possible to determine

how much of the difference in the level of GDP per capita between New Zealand and other countries is

owing to labour productivity versus labour utilisation. Figure 7 shows New Zealands GDP per capita is

39% lower than that of the US and that most of the gap is ascribed to lower labour productivity. New

Zealands labour utilisation rates are high by OECD standards. The labour productivity story, however,

is somewhat different. New Zealands level of labour productivity is much lower than many OECD

countries, especially those with higher levels of GDP per capita.

Figure 7: Differences in Income and Productivity Relative to US, 2002

Source: OECD (2003) Science, Technology and Industry Scoreboard, Paris


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All countries with a lower level of GDP per capita compared with New Zealand have lower labour

productivity.

While MFP growth has been markedly improved throughout the 1990s, the growth in capital per

worker initially declined, though it too has improved recently as shown in Figure 8. New Zealands

slow growth in capital investment, relative to the OECD, and strong growth in employment means itcurrently has a lower capital-to-labour ratio than many other countries. This capital shallowness may

be a reason for New Zealands lower rate of labour productivity growth. Increasing capital investment

may therefore be a source of improved labour productivity.

MFP growth was weak in the late 1980s and early 1990s, but its growth has improved since the early

1990s. Where it can be more easily measured, MFP growth has been similar to that experienced in

Australia since the early 1990s.

Figure 8: Contributions to New Zealands Labour Productivity Growth

Source: Black, M, Melody, G and McLellan, N (2003), Productivity in New Zealand 1988 to 2002, New Zealand Economic Papers 37(1): 119-150, Statistics

New Zealand.

In comparing New Zealands productivity performance with that of other countries, it is most useful

to look at Australia, as there is comparable statistical data.

Analysis shows that Australia has experienced higher labour productivity growth across most sectorsof the economy with the exception of transport and communications, where New Zealand seems to

have outperformed Australia. The biggest difference seems to be in the manufacturing sector, where

New Zealand had productivity growth of only 0.8% per year from 1988 to 2002 (and -0.1% from

1993 to 2002), compared with 3.5% per year for Australia.

This would indicate that there may be some potential gains from raising productivity in the

manufacturing sector to Australian levels, particularly given the large size of New Zealands

manufacturing sector as a proportion of the total economy.

Moving up the OECD Ladder

For New Zealand to move back up the OECD rankings, per capita GDP growth would need to exceed

the growth rate of richer economies in the OECD by a signicant margin. For example, it would need


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to exceed the UKs per capita GDP growth by 1.9% per year over the next 10 years to rise above the

UKs per capita GDP.

As we have seen, the two main drivers of increased living standards are labour utilisation, where New

Zealands performance is already high compared with the OECD, and labour productivity, where there

is room for improvement.

The rest of this report addresses the specic challenge of how improvements in workplace productivity

can contribute to labour productivity, notably MFP, and therefore to economic growth and New

Zealands living standards.

The link between Workplace Productivity and NationalProductivity

The productivity of rms contributes to national productivity through three different channels:

Productivity gains within existing business. OECD work suggests that productivity gainswithin each business account for the bulk of aggregate labour productivity growth in most

OECD countries between 50% and 80%.

The expansion (increase in market share) of more productive businesses, and contraction

of less productive ones. OECD research suggests that the impact on aggregate productivity

of this reallocation process varies signicantly across countries and times, but it is typically

small.

Business entry and exit. The entry of newer, more productive businesses into the market and

the exit of less productive businesses are both important for aggregate productivity growth.

Work by the OECD suggests that the contribution of entry and exit varies across countries,

but overall about 20-40% of labour productivity growth is driven by this process. Entryand exit seem to play a particularly important role in MFP growth in newer industries like

Information and Communications Technology (ICT).

Of all three channels, improving productivity within existing rms seems to be the most important

contributor to aggregate productivity. This report and the remainder of this paper will focus largely on

what drivers can be employed to improve workplace productivity within rms.

The contribution of reallocation particularly rm entry and exit should not be overlooked.

Firms and Productivity

Firms face strong incentives to invest in productivity-enhancing activities that will increase their

returns. A rms search for advantage over its competitors will lead it to try to nd better ways of doing

business that increase its protability and market share.

New rms that enter the market with new technologies and techniques also create pressure on

existing rms to match the incomers productivity or go out of business.

The decision to invest in activities that increase productivity is thus central to the management of any

rm. The productivity of the rm reects how it brings together people, skills, technology, capital and

other inputs to produce the goods and services that it sells.

Firms operate within the broader macroeconomic, market and regulatory environment in purchasinginputs, such as labour, capital and other resources, and transforming them into goods and services

sold to customers in relationships that are themselves inuenced by regulation. These relationships

are shown in Figure 9.

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Figure 9: The Framework within Which Businesses Operate

The Business Environment

A range of external factors inuences the decisions that individual rms make, including direct

incentives (prots/returns, and the threat of takeover, merger or rm exit), and the broader

institutional and regulatory environment. Factors likely to be important to productivity include

macroeconomic stability, regulatory frameworks that encourage competition and policies that

promote human capital accumulation and an open, connected economy.

Macroeconomic conditions can affect rm productivity, for example through their inuence on

interest and exchange rates. Trade policies affect rm productivity, in part through their direct

impact on the prices of inputs. The type and level of public spending and taxation is also important

for productivity.

The market environment also has an effect on the productivity of rms.

A competitive market, for example, can spur productivity improvements as rms seek to enhance

their performance. Efcient and effective infrastructure investment can reduce costs, for example in

transport or communications, facing rms. Global connectedness (the ow of people, ideas, money

and goods between countries) can promote new competition, and new ideas and technologies.

The regulatory environment also has a profound inuence on rm productivity. The rule of law and

well-dened and enforced property rights are essential for productive activity. A wide range of laws

and regulations directly and indirectly affect rms; social norms also affect how rms do business. For

example, sound contract law permits efcient trade while competition law promotes innovation and

productivity in a competitive environment. Corporate law protects shareholders and enhances the

incentives for managers to perform, while intellectual property law balances the benets of R&D withthe public interest in disseminating knowledge.


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Financial markets and nancial regulation encourage efcient resource allocation, such as shifting

funds from borrowers to lenders. Labour market regulation can affect the employment decisions

of rms.

At the same time, investment in health and education plays a role by ensuring people are t and able

to work, and are equipped with productive knowledge and skills.

While the broader economic, market and regulatory environment is undoubtedly important for the

productivity of rms, it is beyond the mandate of the Working Group, which focuses only on the

workplace itself and the measures that rms can take to improve their productivity, taking the broader

environment as given.

Workplace Productivity Drivers

The objective of any business is to maximise returns within the constraints of the environment it

operates in and, in seeking to maximise returns, rms will have incentives to do things that raise

productivity for example by raising product quality, adding desirable features, improving producttechnology, or boosting production efciency. Increased productivity enables a rm to produce

things for less, and/or to produce more or better things at the same cost. Both effects can increase

the expected returns to the rm and provide it with an advantage over its competitors.

The main ways that rms can increase their productivity are through investing in capital, achieving

economies of scale, investing in innovation and technology, and adopting better business practices.

The way rms respond to productivity issues will depend on the costs and benets of the options

available to them. They also need to have adequate information about the bottlenecks they face and

the strategies they could use in order to make good decisions.

Capital investment involves putting nancial resources into physical resources such as plant andmachinery, equipment, buildings and technology that will generate productivity improvements and

higher returns for the business over time. Capital complements labour, enabling workers to be more

productive. At the simplest level, a lever for example allows a person to move a greater mass than

through human muscle power alone.

The more physical capital available to each worker, the more each worker can produce. Investment in

new technology that embodies the latest innovations can boost productivity further having up-to-

date plant and equipment is associated with better rm performance.

Complementary investments, such as training workers and improving the organisation of work can

allow capital to be used even more efciently.

While the capital-labour ratio across the economy reects the cumulative investment decisions of

individual rms, capital investment can be affected by a number of factors. Relative prices will play

a part; for example if capital is cheap relative to labour due to low interest rates or high wages, a rm

might invest in new technology rather than skills , and vice versa. Government policies and economic

conditions that affect relative prices can therefore affect capital accumulation.

Economies of scale improve productivity as the rm engages in mass production. As the rm produces

more and more goods, average cost begins to fall because of economies in production, such as using

expensive machinery more intensively.

Adopting better practices across the range of business procedures can also lift productivity

directly through improvements in efciency, for example in production processes, but also throughimprovements in the management and implementation of productivity-enhancing strategies such as

worker training or R&D.

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New or improved products and processes, whether developed in the rm, adopted and adapted from

elsewhere or purchased off the shelf, allow the rm to make things better, improve efciency and

quality, make better things, improve quality and develop new products.

Continuous innovation and improvement in all aspects of the rms management and operations are

key components of lifting productivity.

We have identied seven key drivers of workplace productivity (listed below) that embody these

imperatives.

Productivity improvements can be made using any of these drivers, depending on the priorities

facing a particular rm. However, the drivers tend to be complementary, so that changes in one area

reinforce changes in another. Research suggests that the highest productivity gains are found when

complementary changes are made in the skills, innovation and workplace organisation areas. For

example, a rm could upskill its workers, introduce new technology and change how it does business,

and thus maximise its productivity gains.9

We would note that it is not an all or nothing approach and implementation of all seven drivers is notnecessarily imperative to achieving workplace productivity gains. A rm that implements one of the

drivers well is likely to see greater productivity gains than if it did nothing. Ideally, rms will identify

which strategies will have the greatest impact when combined and will implement these together

when it is feasible to do so.

These are not new concepts and many rms have been incorporating strategies that have had notable

impacts on their productivity levels. These success stories need to be shared with other rms as a

means of encouraging their adoption of practices which improve workplace productivity.

Implicit within each of the drivers is the understanding that the way people are treated and managed

is of fundamental importance to workplace productivity. People tend to be more motivated in the

workplace if they feel appreciated and respected. Creating a positive work environment not onlyboosts morale but also productivity levels.

Building Leadership and Management Capability

Leadership matters. It is the enabler of all strategies that lead to productivity and can occur at all levels

of a rm. Leadership is critical for setting the culture and direction of the organisation, which is itself

important for productivity. Leadership involves entrepreneurial skills that are used to identify new

ideas and opportunities, a vision for the future of the rm, identifying strategies to achieve the vision

and the ability to inspire others.

Successful rms enjoy both effective leaders and effective managers. Managerial capability includes

the strategic ability to adapt to a changing environment that creates internal and external threatsand opportunities; organisational and management skills; people and communication skills;

and information acquisition and learning processes. Some of these skills are inherent. Many can

be acquired.

The roles of managers include developing and motivating workers to perform at the highest levels;

selecting the appropriate level and mix of skills and technology; choosing production processes that

are effective and efcient; and structuring the organisation to ensure that it operates productively.

A key feature of management capability is the ability to deal with information both internal and

external in a changing environment. In addition, New Zealand managers need particular skills,

reecting New Zealands values and our reliance on global connectedness.

9 OECD (2003) ICT and economic growth: Evidence from OECD countries, industries, and rms. Paris, Organisation for

Economic Co-operation and Development


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Workplace culture refers to the formal and informal behaviours that dene the way the rm does

business and can have a signicant impact on productivity. The formal aspect of workplace culture

includes written statements of value, such the rms mission statement and organisational chart. The

informal aspect, which may be more important, is about how work gets done in practice, whetherthrough written procedures or by circumventing those, how employees treat one another, how willing

they are to share ideas and information, and how the hierarchy allows employees to cross boundaries

to get work done.

A productive workplace culture is one that involves healthy and positive relationships between

individuals within the workplace, motivating people to work, generating commitment to the rm and

each other and releasing their discretionary effort.

A workplace culture that fosters learning from experience encourages creativity, independence and

variety, acknowledges diversity and supports staff to volunteer information and ideas. It can improve

work processes and harness innovative ideas, making work more efcient and enhancing productivity

in the process. On the other hand, a workplace culture that undervalues and frustrates employees canmean that workers are not giving of their best to the rm.

There are strong linkages between managerial capability and leadership, and culture and employment

relationships. A productive workplace culture arises from employment relationships, management

and leadership all aligned toward common goals.


Most increases in productivity and in living standards come from advances in knowledge, and in

improvements in the application of knowledge. New technology and processes can increase the

productivity of labour, enabling tasks to be undertaken more efciently. New technologies increase

the relative demand for skilled labour. At the same time, skilled labour permits the adoption of newprocesses and technologies. Technical change can affect the demand for skills, as new technology

replaces labour-intensive tasks. In turn, the type of technology adopted may be inuenced by the

availability of skills.

Firms that use new technologies, equipment and processes generally enjoy higher productivity,

employ more skilled workers who receive higher wages, and increase their market share at the expense

of their competitors.

Firms will have an incentive to invest in the development of new technologies and processes when they

can capture enough of the benets of productivity improvements to make the process worthwhile. The

existence of spillovers, where other rms can capture the benets of R&D, can reduce the overall level of

private investment. But even where a rm captures enough of the benets to invest in R&D, there may bespillovers, for example through knowledge leaks and the movement of skilled labour to other businesses.

These spillovers can magnify the impact of new ideas on a wide variety of production processes and

products across rms and industries, and are an important source of productivity growth.

Research suggests that investment in R&D or new processes and in complementary physical and

human capital not only improves current productivity, but also creates a platform from which

rms build future success. Productivity increases can also come from the adoption, application and

commercial exploitation of new processes and technologies developed elsewhere this route to

productivity is particularly important in small countries such as New Zealand.


People and skills are a key driver of workplace productivity. More skilled workers can improve the

output of the rm in a number of ways. They may be able to undertake tasks more quickly and with

fewer mistakes; allow more skilled tasks or technologies to be undertaken; require less supervision,


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perform more complex tasks and carry more responsibility; and process and communicate information

more effectively. Improvements in workforce skills can also increase overall productivity by raising the

productivity of other rm inputs.

These effects may occur in various ways. A skilled labour force is vital to producing the new ideas,

innovation and imitation that sustain growth. Higher workforce skills can support the introduction andeffective use of new technologies; improve the implementation of research and development (R&D)

ndings; allow the rm to implement better organisational structures; or assist in the assimilation of

knowledge embedded in foreign capital investments. Training can increase workplace productivity,

increase wages for the trained workers and lower staff turnover.

Organising Work

Workplace organisation is concerned with ensuring that all the activities of the rm are efcient and

effective in adding value. Changes in workplace organisation that increase efciency and effectiveness

can thus contribute to productivity.

Workplace organisation involves the rms overall strategy, its structure and hierarchy, the processesinvolved in decision-making and production, its employment relationships and reward structures.

Effective workplace organisation occurs when all these components are reinforcing and aligned to the

goals of the rm.

Research suggests that innovation and the use of new technology will have a limited impact on

increasing workplace productivity if not combined with organisational change. It is therefore

important for rms to combine strategies for effective results.

New workplace practices can include, for example, atter management structures, increased

employee involvement in decision-making, an emphasis on continuous improvement, more team

work, bundling productivity-enhancing practices, the use of external networks and collaboration, and

a greater emphasis on performance evaluation.


The use of networks and collaboration with other rms can reduce the costs of doing business and

enhance workplace productivity. An important source of productivity is spill-ins of new knowledge and

technology created elsewhere. Firms may rely on each other for technology transfer and learn from each

other things such as manufacturing methods, modes of organisation, marketing, or product design.

Not all new technology diffuses in the form of technical blueprints or new products. Networks and

social capital can play a crucial role in knowledge diffusion. More interactions between rms in New

Zealand and overseas could raise productivity. Networks can link individuals, groups, rms, industries,

regions and countries. They create the face-to-face and workplace contact that facilitates the learning-by-doing and on-the-job training that increase productivity. Linkages between researchers and

industry are also critical for the effective application of new ideas and knowledge.

The effects of training are also enhanced by networks which allow people to learn from one another,

raising not just the productivity of the person being trained, but also the skill level and productivity of

the group.

People-to-people links can provide access to knowledge about trade opportunities in domestic and

export markets, to technological and managerial developments and to a larger pool of skilled labour.

Migrants bring with them information and links to opportunities, while New Zealanders overseas and

returning to New Zealand can increase knowledge of overseas markets, languages and preferences,

and build business contacts that all have the potential to decrease trading costs.


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An important tool in increasing workplace productivity is the ability to measure productivity and the

success of the rms strategies in enhancing its performance.

Both internal and external measures can be used. Performance measurement generally addressesthe efciency and effectiveness of a rms actions, the impact of its action on its performance and

its performance relative to its plans. Measurement practices need to be tailored to provide effective

information for a business to make good productivity decisions.

Research suggests that high performance is associated with a balanced approach to performance

measurement, covering nance, cost, market/quality, process, employee and innovation indicators,

with close monitoring of competitors products through benchmarking. Benchmarking includes the

identication of key processes and indicators for comparison, identifying suitable comparator rms

and getting access to the comparator information.

At a macroeconomic level it is also important to understand what matters for rm productivity.

For example, is it the size of the business operation, the size of the domestic market, the characteristicsof the rm or some other features that matter for business performance? The availability of good

micro data across rms and good research procedures can help to identify the determinants of

business performance.

Barriers to Introducing Productivit y Improving Practices

In a competitive market, rms should have strong incentives to engage

Documents

Article About the Workplace Productivity Challenge