Australia’s $109 billion wage waste

With Australian companies seeing billions wasted on wages through weak productivity, it's high time we started improving our working culture – starting at the top.

Productivity is the new buzz word amongst both the government and private sectors.

Rio Tinto chief executive Tom Albanese has become the latest to encourage Canberra to put productivity high on the agenda to avoid the kind of reform malaise that gripped Europe a decade ago, for which it's paying a large price.

Yet we have a long way to go to improve productivity in Australia and it goes right down to the company level; work by Telstra shows that very few Australian companies know how to measure it (Australia’s missing productivity link, April 5). Many confuse productivity with lower staff numbers in times of reduced volume. In most situations all that means is that when volume improves, staff members go up and there has been no real improvement in productivity.

Others see productivity as a function of economies of scale, as you try to manage higher volumes with the same workforce. While that can be a form of productivity improvement in time, the staff numbers go up unless there has been a fundamental change in the way the business is being conducted and organisations need to get a better handle on their own productivity.

The accountancy firm Ernst & Young has undertaken some fascinating survey work on productivity in Australia as seen by staff. About 20 per cent of the Australian workforce believes their organisation can be improved by reducing bureaucracy and red tape; another 16 per cent believe simplifying processes would help and 10 per cent suggest eliminating wasteful output.

The Ernst & Young analysis into the productivity of a worker's average day found only 58 per cent is spent on work directly as ‘real value’. However, another 24 per cent of the day was spent on networking and personal development and other organisational curricula activities that are important to both individuals and business performance.

But then there is left a whopping 18 per cent, or almost a fifth of the day, on work that is wasted time and effort. Given the annual wage bill is about $606 billion, the total organisational productivity wastage can be valued at $109 billion.

About 39 per cent of the Australian workforce says that their organisation does not believe it works effectively and a further 16 per cent of employees say processes and systems need to be simplified.

Despite this, 68 per cent of workers say they are proud to work for their employer and 69 per cent believe their work is valued.

On the other hand, some 32 per cent of staff were planning to leave the organisation in the next 12 months and a further 35 per cent were already pursuing external opportunities. Ernst & Young says a failure to support staff in areas of development may be a contributing factor to the high numbers looking to leave. In addition, half of all respondents agreed that their company did not have a clear career path. However, if the economy tightens, the amount of people looking to leave their jobs will decline.

One difficulty with productivity is that in too many workplaces it has become a generalised concept, viewed through the prism of profits in the good times and headcount in the bad.

While it is important to get measurement systems in place, productivity can be improved by a vast number of small measures that are targeted to specific areas. But at the moment the management systems of Australian companies are not orientated towards productivity.

It is rarely mentioned in both CEO packages and chief financial officer packages, which are not aligned to productivity. Similarly, HR departments are not embedded in productivity improvement. If Australia is to improve productivity it will need to do so by working on small issues and gradually changing the culture.

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