Waking up to productivity

As Australian businesses begin to see productivity opportunities, more companies will come to understand the neccessity of measuring productivity, and the profitability that can be driven from it.

I am becoming more optimistic that a vast block of Australian non-mining enterprises can move into a new era of prosperity.

At the same time, however, there is scope for an enormous improvement in government services.

I gain that optimism from the 2012 Telstra Productivity Survey. I am the first to admit that too many Australian private and public sector mangers are ‘asleep at the wheel’ but I believe they will ‘wake up’ and with that wake up will come much better Australian enterprises.

To be optimistic we first have to ask the question: Why have only 24 per cent of Australian corporate and government organisations recorded significant productivity gains in 2012? And why is the productivity improvement rate down substantially on the 32 per cent that organisations achieved in 2011?

The 2012 Telstra Survey gives us a clear answer as to why this happening. Only 11 per cent of government organisations actually measure productivity and that is down from 14 per cent in 2011.

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In the private sector the number of enterprises who regarded productivity as important rose from 76 per cent to 80 per cent but the number measuring it fell from 24 to 20 per cent.

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If productivity is important and you don’t measure it then it is very hard to improve it.

In other words, the number of Australian private sector managers who are ‘asleep at the wheel’ rose from 52 per cent to 60 per cent (it's called the productivity deficit). In the government sector it’s slightly better.

The next two graphs tell the story.

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No matter which line you look at, the difference in performance and outlook between those who measure productivity and those who do not is staggering. Until Telstra released the survey last week we had never before seen this sort of material on Australia management.

It is clear that in both the private and government sectors the companies or organisations that are performing best are those that monitor their productivity. They tend to engage much more closely with their staff. As you can see, if they are government organisations they achieve much better outcomes and in the private sector they are much more likely to increase market share and revenue.

Unfortunately, the controllers of government organisations and the corporate boards do not seem to have realised the link between productivity improvement and measuring productivity.

And they have also not seen that this is a key pointer to the success of their organisation or corporation. All too often productivity is seen as slashing staff. It’s actually about doing things better, which may involve fewer staff but may not.

Its not that these managers are stupid. It’s just that no one has told them that those who measure productivity are snatching their breakfast. When the laggards discover what is happening, we will see resurgence in good management, which will greatly improve Australia (A productivity initiative Australia needs, March 27)

Since I first commented along these lines, there has been considerable debate in the boardrooms of Australia.

I think the reasons for the fall in productivity improvement go even deeper than bad management.

Australian companies, at least on the surface, appear to have invested heavily in their facilities and in their IT. And there is no doubt that much of this investment has greatly improved their productivity. But a large amount of the investment is directed at the consumer, whether it be by mobile phones or better links between the goods and services that are provided by the organisation and the customer.

This is an admirable objective and there is no doubt that it has helped productivity. But it is not enough. You need to look much more closely at how the business operates, what people do in the organisation, and what technology backs up their activities. In the case of anything to do with goods, the supply chain is vital and that supply chain starts at where the product is made and it finishes when the customer takes the goods off the shelf or they are sent off to the customer via some form of transport system.

Not nearly enough has been done in these areas. The same applies to service delivery, where all too often old schemes are held on to and not enough investment is made to modernise. In America during the last four years they have had a particularly tough time so American companies have done an enormous amount to improve their productivity. And as the American economy picks up so their profits are responding, and so too is the US sharemarket.

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