Reaching

new heights
- the next big challenge

FOCUS

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Unlocking
the puzzle

Australias productivity performance has slowed at a time when the economy faces challenges from population ageing, climate change and the adjustment pressures of a two-speed economy. And the terms of trade cannot be relied upon to support higher incomes indefinitely. Given inherent limits to population and participation as drivers of growth, productivity, as Paul Krugman observed, is the only sustainable long-term solution. But how can it be increased?

The Chairman of Australias Productivity Commission, Gary Banks AO, highlights the challenge faced locally
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THe PRODUCTIVITY CHALLeNGe By Henriette Rothschild

henriette.rothschild@haygroup.com
Henriette is the General Manager of Hay Group Pacific and heads up Hay Groups M&A work in the region. Henriette specialises in organisational change consulting and works with boards, CEOs and executive teams to improve their organisations.

Productivity. It is a hot word, though few people know exactly what it means, only that locally it is in decline and that is not a good thing for the economy or for business.
While economists and politicians debate multifactor productivity causes, and reforms and policy setting to reverse the decline, many business leaders get frustrated. In the debate there seems little focus on the very real impact of declining productivity on local businesses the challenge of attracting investment for growth and improving production, effectiveness and profitability. organisations can do to improve productivity at a micro level which, in itself, contributes to macro-level productivity. Hay Group is involved at every level of improving organisational performance around the world. Thats why we focus on the areas that business leaders can directly impact and execute. This edition of Focus highlights how productivity is directly impacted by factors such as a clear direction, organisational design, reward, leadership, performance management, engagement and diversity. Productivity can seem like the management equivalent of the Rubiks Cube every time one bit of the puzzle shifts it exposes more work to be done. Hay Group believes the opposite that while the levers of productivity within an organisation are interconnected and interdependent they work together. Rather than creating more work, improving one factor often creates momentum and improvement in other areas. For example, improving leadership can have a significant effect on employee engagement and effectiveness as well as improving speed and quality of decision-making. To be globally competitive, secure investment and return our economy and organisations to healthy growth, we feel productivity is the next big challenge. The patchwork economy will only become a growth economy if we, as individual leaders and collectively, start to address productivity as a key driver of performance, rather than leave it to the economists and politicians to worry about. For local business leaders wanting to understand more about the levers of productivity within their control and their own organisation, I trust you will enjoy this years edition of Focus.

Future policy settings should equally be based on a commitment to an open, flexible and competitive economy and efficient investment in human and physical capital
Gary Banks

The Nobel Prize wining economist and New York Times columnist Paul Krugman famously said that productivity isnt everything, but that in the long run it is almost everything. Its impact is everywhere, even when it cannot be seen in the sectors of the economy that are booming. Australias Productivity Commission has found that the unprecedented high prices for our mineral exports have been responsible for a significant decline in productivity in the mining sector. In both New Zealand and Australia the impact of natural disasters and weather on productivity further highlights the challenge for local leaders and for the government. But now forget, for a moment, the macro-economic definitions of productivity. For a moment lets discuss what individual organisations can do about productivity at a micro level. Thats what this edition of Focus is all about organisational or micro level productivity. It is about the effective and efficient deployment of activities and people, in the right place, at the right time focusing on the right things at the right price to create value. Business leaders on both sides of the Tasman are trying to tackle the issue of productivity as a key (if not the key) limiting factor to business growth and attracting foreign and local investment. The critical fact to remember is that there is a great deal that

Watch Henriette summarise the key points of her article

Henriette Rothschild
Scan the QR code or go to: www.bit.ly/hg-focus1

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Contents
Foreword Contents Introduction Productivity in Australia Productivity in New Zealand 6 10 3 4 Productivity levers Unleashing the potential of employees The business of performance Organising for growth Paying for performance Diversity a key to performance Productivity in the public sector 14 18 22 26 30 34

About this resource Hay Group production team: Malte Weyhe Mwamba Kasanda External consultant: Blue Dot Media Graphic design: Charcoal Creative - Melbourne

Hay Group 2011. All rights reserved. Without limiting the rights under copyright above, no part of this publication shall be reproduced, stored in or introduced into a retrieval system, or transmitted in any form and by any means (electronic, mechanical, photocopying, recording or otherwise) without the prior permission of the publisher. Copyright 2011

Industry insights Working smarter in financial services CEO roundtable on productivity Productivity in the energy sector Productivity in the pharmaceutical sector 38 40 44 46

Summary The Productivity Framework About Hay Group 48 52

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Throughout this years edition of FOCUS you will find QR codes. These codes can be scanned with your Smartphone or Tablet and will instantly take you to additional information and content online. All you need is a QR code reader on your phone. Scan the QR code on the left to visit the Focus website: www.haygroup.com/au/focus If you do not have a reader installed we recommend using the free i-nigma reader. It supports more than 600 mobile phones, across all leading mobile operating systems and makers. You can go to www.i-nigma.mobi on your phone and i-nigma will automatically identify your handset type, download and install i-nigma. Alternatively you get i-nigma directly from the following app stores:

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Australia has stalled in productivity and substantial improvements are needed to lift our educational performance.

PRODUCTIVITY IN AUSTRALIA

By Dr. Ben Jensen

Director, School Education Program at the Grattan Institute

What lies
ahead
There is a real danger that Australias sustained economic growth is creating a reform complacency that will compromise our well-being and future prosperity.
The two big drivers of economic growth are productivity and education. The two are, of course, related, with improvements in education creating a more productive workforce. High-level education also promotes innovation and technological growth that are often considered separate drivers of economic growth. But reform in Australia has stalled in productivity and substantial improvements are needed to lift our educational performance. In the 1990s GDP grew at an average rate of 3.4 per cent per annum. Growth in labour productivity explained 2.1 of that 3.4 per cent yearly growth. The rest was largely due to a growing population. There were multiple reforms that led to this growth: the sustained trade liberalisation that (among other things) opened the Australian economy continued deregulation of numerous industries and reform across virtually all states to privatise state industries and increase competition labour market deregulation numerous competition-enhancing reforms taxation reforms that culminated in the 2001 reforms that introduced the GST Much has been written about these reforms that need not be repeated here, but there is widespread consensus that the contributions they made to economic growth have benefited all Australians. But in the first decade of this century reform has slowed and productivity growth has declined with it. Australias average GDP growth of 3.1 per cent per annum was similar to our 1990s average but this time population growth was the largest contributor. Productivity growth explained only 1.4 of the 3.1 percentage point growth. While this has not yet impacted living standards, it will have a strong impact once the resources boom subsides and the favourable terms of trade go with it. Our declining productivity will impact our economic growth, particularly compared to other countries. The USA is generally considered to be the gold standard in terms of labour productivity. As our productivity grew in the 1990s, labour productivity reached 92 per cent of US levels in 1998 but has fallen to only 84 per cent in 2010. Across the OECD, average multi-factor productivity growth has maintained its long-term average of about 0.4 per cent, while growth in Australia has dramatically declined from a peak of two per cent in the late 1990s to a negative rate in the later years of the past decade. This has clear implications for our international competitiveness.

Our declining productivity will impact our economic growth, particularly compared to other countries.

What can we do to lift future living standards?

It can be useful to think of productivity-enhancing policies from the perspective of the business owner or manager. With this perspective, there are two (very) broad areas in which policy can impact productivity. First are regulations and policy programs (or the removal of them) that interfere with managers and business owners decisionmaking about the most effective use of inputs in their organisation. Second, are policies that improve the quality and effectiveness of those inputs. These are related and their interaction highlights the dynamic process of economic growth. Under these areas is a range of reform options. Tax reform is clearly on the governments agenda and this can have a substantial impact on productivity. Other reforms should include the removal of unjustified government assistance to industries, targeted infrastructure projects, and further deregulation and reform to increase flexibility in labour and product markets.

The key here is education. Research by the OECD and World Bank show that for Australia, and most other OECD countries, the micro-economic reform that would have the greatest impact on long-term economic growth rates are those that improve performance in school education. If we were to improve the performance of our students by five per cent each year, they would perform at a level comparable with the best nations in the world. We currently sit 9th on the OECD rankings for the Program for International Student Assessment. In the most recent assessment (2009) we were one of only four countries to see a decline in student performance, even though expenditure in education rose substantially. A five per cent increase in student performance would generate more wealth than any of the microeconomic reforms of recent decades. Conservative estimates suggest that it would be worth over $90 billion to the Australian economy by 2050, with greater benefits to flow in subsequent years as more younger people enter the workforce. But reform in school education has been painfully slow. The most prominent debate remains about who gets what (government, catholic or independent schools) rather than being about how to more effectively spend money to improve student performance. The evidence shows that

Education is the key

The other key area of reform is to enhance public sector productivity in government organsiations and in industries with a large government presence.

A five per cent increase in student performance would generate more wealth than any of the micro-economic reforms of recent decades.

The key is to have an unrelenting focus on improving learning and teaching in classrooms.

productivity increases are needed in all school education sectors. This is not just a government school problem. The key is to have an unrelenting focus on improving learning and teaching in classrooms. This requires improvements in the initial education teachers receive and who they attract to the profession; constant feedback to teachers based on a meaningful appraisal of learning in their classrooms; greater recognition of teaching excellence; and, addressing under-performance (of both students and teachers). At the Grattan Institute we emphasise the importance of these issues and how they can be addressed to improve our country. My work in the school education program illustrates this, as does the excellent work of Saul Eslake who heads our productivity program.

Much of the detail of what is discussed above can be found in Saul Eslakes recent report which you can access here.

Scan the QR code or go to: www.bit.ly/focus-grattan

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The agriculture sectors labour productivity has far outstripped the wider New Zealand economy.

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PRODUCTIVITY IN New zeALAND By Shamubeel Eaqub

Principal Economist, New Zealand Institute of Economic Research (NZIER)

A leader
in its field
The three key drivers of our performance are: exploiting natural comparative advantages, building scale and investing in education and technology. In the early 1900s, New Zealanders earned more per head than Australians and Americans. But by 2010, New Zealand income per capita was 30 per cent and 40 per cent below Australia and the USA respectively. The key divergence has been in productivity performance. While this is true for most industries, New Zealands agriculture sector is a clear outlier. It is more productive than in Australia for example and has improved consistently over the last 30 years.

New Zealand has a world-class farm sector. While average incomes are falling behind peers like Australia and the USA, there are salutary lessons from studying New Zealands most productive sector. Agriculture has successfully overcome the tyranny of distance often blamed for New Zealands sluggish economic performance. Agriculture has successfully overcome the tyranny of distance often blamed for New Zealands sluggish economic performance.
Rapid deregulation acted as a defibrillator. It shocked the economy into a deep adjustment process. By 1993 the economy was growing strongly. But agriculture was a little different. It was weaned off larger subsidies and quicker. Farmers rapidly cut back on inputs and investment, but output was broadly unaffected and productivity rose. Over the last 30 years, the agriculture sectors labour productivity has far outstripped the wider economy. Agriculture productivity has averaged 4.5 per cent per year, while the measured sectors1 of the economy averaged only 2.1 per cent per year. Contrary to popular belief, the agriculture sector did not invest heavily in capital, rather invested in improving the efficiency of labour and capital use. This reflects significant progresses in science, application of technology and lessons in pasture management, fertiliser application, irrigation, animal breeding and husbandry among other factors.
1 The measured sectors are those industries that have been properly evaluated to measure value added. This excludes government and health services for example, which are accounted at cost as market prices are not available.

The deregulation defibrillator

Thirty to forty years ago, New Zealand agriculture was similar to many advanced economies now: heavily subsidised, coddled and protected by various government policies, and inefficient as a result. In 1985, the New Zealand agriculture sector received support equivalent to 35 per cent of their income or value added. Forced by a fiscal and monetary crisis, New Zealand rapidly deregulated the agriculture sector and the economy in the mid to late 1980s. Agriculture support went from 35 per cent to two per cent in 1990. This was accompanied by removal of tariffs, quotas, fixed prices and other barriers to trade and commerce.

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A critical aspect of the New Zealand agriculture is its intrinsic comparative advantage. New Zealand is blessed with a moderate temperate climate, available land and, importantly, water. Improvements in agriculture spring from this important foundation and natural advantage. This comparative advantage persists, particularly in livestock and food related products. In some commodities like dairy, New Zealand is a major player in the global market. Production changes in New Zealand can affect global commodity prices. The key lesson here is that agriculture has built on New Zealands existing comparative advantages and continues to do so.

Agriculture has also achieved scale in a global market with single desk approaches to marketing. Fonterra (dairy) and Zespri (kiwifruit) are two examples of marketing arms that represent New Zealand farming interests internationally to achieve the best outcome for New Zealand farmers. The lesson is that choices can overcome the tyranny of distance. Scale can be achieved at home, in the selling market and marketing.

Innovate, educate and embrace technology

The final leg of agriculture sector success is technology, innovation and education. These have been key components to reduce labour requirements on the farm, as each worker is more productive. Farming has become more capital intensive, but at the benefit of providing more value added per worker. New Zealand has a great tradition in technological innovation and adoption in key areas of farming. Such as pasture management, fertiliser application, animal breeding, animal husbandry and crop rotation. This has also provided a critical foundation to the success of the sector. Agriculture has succeeded in New Zealand and is a globally competitive player, despite the tyranny of distance. Agriculture has built on New Zealands intrinsic strengths. It has gained scale at the production, marketing and selling-market levels. It has implemented technological advances to maximise output and reap maximum sustainable dividends from the land. The takeaways from New Zealands star industry are clear. Focus on your strengths, scale up, and stay near the frontier of innovation.

The takeaways from New Zealands star industry are clear. Focus on your strengths, scale up, and stay near the frontier of innovation.

The tyranny of distance

Returns to scale are important for any business. New Zealand agriculture has built scale in farm size, market size and marketing. Farm sizes are increasingly bimodal: either large scale commercial farms, or small lot sizes. For example, dairy farms have increased in average size from around 80 hectares in 1984 to around 170 hectares in 2007. On average, farming in New Zealand has scaled up. This has allowed increased use of capital and technology and to derive significant productivity gains. Market size has also grown substantially. From its early colonial roots, New Zealand is now a global economy, trading with most countries around the world. The virtual removal of all trade barriers in the 1980s increased the trading market size. In addition, New Zealand is increasingly trading more with its fast growing Asian neighbours. Trade ties have been further deepened by trade agreements and migration flows. New Zealand agriculture export growth has been mainly to emerging markets over recent years.

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Executive Insight

Mark Dewdney
Chief Executive of LIC

LIC is a dairy farmer owned, farm improvement company providing a diverse range of products and services to the dairy, beef and deer industries both in New Zealand and around the world with revenue in excess of $110 million per annum.

At LIC we are driven by increasing New Zealand dairy farmers productivity by breeding better cows, and by providing them with a range of farm software, automation, milk and disease testing and farm consultancy products and services. Over 50 per cent of all farm productivity improvements are being generated by year on year improvements in the genetic merit of the dairy cows being milked. We invest approximately $25 million per annum on science, product development and improvements across our business to generate faster rates of genetic gain in the New Zealand dairy herd and we are leading the world in this pursuit. We also constantly focus on three key drivers of success our customers, our science, innovation and technology pipelines and our people. Without all three operating in tandem, we will not be able to develop and provide New Zealands dairy farmers with the products and services they need to increase their productivity and profitability. Our customers are constantly looking for better

ways to meet their needs. Our current planning focus is on 2020, as we know that we need to be putting in place strategies today to ensure that we are positioned to partner with our customers and meet their needs at that point. If we can anticipate those future needs better and earlier than our competitors, we will be successful. Internally, productivity improvement, or doing the same output with less input or more output with the same inputs, will be one of the most critical factors for success in business. Economic cycles come and go, and each cycle provides both opportunities and challenges for business. Productivity improvement provides the basis to survive the down cycles and prosper in the up cycles making productivity improvement the main management focus.

Bill McLeod
Chairman of Ravensdown

Ravensdown Fertiliser Co-Operative Limited manufactures fertilizers, aglime, agrochemicals, animal health, and specialty products in New Zealand. It is owned by farmers and employs around 600 staff.

While farming in New Zealand transitioned from supported to free market policies in the 1980s, farming businesses were also faced with another challenge: the level of debt and resultant debt servicing grew dangerously high and in comparison with international standards certainly put us at a competitive disadvantage. Interest rates over this period climbed rapidly on the back of inflation and saw many farmers paying in excess of 20 per cent per annum. There is nothing like a monkey on your shoulder to make one focus on efficiency. I believe this was one of the most motivating factors in the huge advances made. The less motivated or adaptive exited the industry making way for the high achievers. So where does this leave us today? With the drive to reduce debt as a result of the world melt down, these drivers shouldnt change much in the medium term, but what happens when the debt servicing comes down and on the back of strong commodity prices farms become more profitable? Will farmers slack off?

Or has the culture of excellence now been embedded in our DNA (for both old and young farmers)? We are now seeing farmers being proactive in succession planning and business continuance as a way to mitigate and plan for the future. The answers to all the above look positive. I believe we have learned from the past, but must also remain vigilant.

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The people who are doing the work are the moving force my job is to create a space for them, to clear out the rest of the organisation and keep it at bay.
Steve Jobs

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UNLeASHING THe POTeNTIAL OF eMPLOYeeS

By Steve Ewin
steve.ewin@haygroup.com
Steve has spent the past decade consulting to many of Australia and New Zealands leading companies on strategies aimed at improving productivity. He works with CEOs and executives to drive real change through best practice engagement and enablement practices.

and bounds
Organisations in Australia and New Zealand are behind the productivity curve when compared to the worlds best. A window of opportunity exists for companies to take a dramatic leap forward to catch up to high performing organisations globally.
Productivity in the workplace is largely driven by enabling employees to be optimally effective. Its a leap thats achievable and isnt necessarily about additional resources because its about creating a workforce that is supported for success. So, what constitutes an effective workforce? Its about combining the key concept of employee engagement with the catalytic ingredient of enablement. An effective workforce means having staff that are both motivated to go the extra mile and are committed longer term to the organisation. They are also enabled to spend their time productively, rather than having to invest time and energy breaking down internal roadblocks. As Steve Jobs, ex-CEO of Apple reportedly said in 2010: The people who are doing the work are the moving force my job is to create a space for them, to clear out the rest of the organisation and keep it at bay. Why is this so important for productivity? Hay Group research shows that organisations that have fully enabled and engaged staff achieve revenue growth of up to 4.5 times greater than their peers. Many companies are struggling to be optimally productive and Hay Group data shows that many companies in the Pacific lag behind the worlds leading organisations on key elements of employee effectiveness. Hay Groups global database of employee opinion incorporating over 400 companies shows the largest gaps between Pacific organisations and the best performing global organisations can be found in three key areas:

Leaps

Effective leadership Embracing innovation Rewarding great performance

The real opportunity for leaders to improve productivity is for them to create a harder edge performance climate and still of course work in a collaborative way.

These gaps are both good and bad news. The good news is there is an opportunity for companies locally to increase their productivity by making improvements in these key areas. However, the bad news is that theyre already starting behind on the grid compared to many of their global competitors.

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How can the Hay Group data help organisations increase employee effectiveness and productivity?

Eective leadership
When it comes to effective leadership, there is a 21 per cent gap between how employees in Pacific organisations rate the effectiveness of the leadership in their organisations when compared to the worlds best. Connecting staff with the big picture and ensuring smooth and effective workflows are critical to ensuring an effective workforce. Leaders play an important part in ensuring that work is well structured, staff are clear about where the organisation is heading and how their contribution fits in, providing a crucial line of sight.

Rewarding great performance

When it comes to remuneration expectations, the gap between Pacific organisations and their high performing global peers is 17 per cent. Organisations know that pay should help drive individual and overall performance, but they struggle to consistently connect pay with performance. The result sends mixed messages to employees, demotivating some and reinforcing an unacceptable status quo with others. In productive organisations people understand they will be rewarded for great performance. They also need to understand that there are consequences of not meeting expectations. High performers deserve to get the highest rewards, and organisations need to have the courage to differentiate their incentives. This is essential. Similarly, lower performers should receive lower incentive pay if anything at all. If managers settle for mediocrity simply to avoid the difficult performance conversations, the result is a message that isnt strong enough to ensure the highest levels of productivity.

People need to know they are paid fairly for the work they do and their benefits are aligned to their needs.

Embracing innovation
In terms of innovation, there is an 18 per cent gap between Pacific organisations and the global high performing organisations. While investment in research and development will go some way to embedding innovation within organisations, creating a culture of innovation means actively and regularly reaching out to employees for ideas, as well as responding appropriately to ensure employees know they are being heard. Involving employees when considering issues, such as, how to improve efficiency will help create an environment of continuous improvement. Additionally, encouraging employees to take reasonable risk is essential. However, it is important to note that with this must come a capacity to tolerate acceptable failure.

The time to act is now

Most companies in Australia and New Zealand are still doing a lot better than their American or European counterparts in the broader economic environment. However, there is clear blue water between many organisations in the local environment and high performing companies globally. The differences between local organisations and the worlds best are clear and tangible. Local organisations need to take advantage of the breathing space created by the current economic conditions and act now. Like Steve Jobs they need to unleash the potential of their employees by enabling them for optimal productivity before its too late.

Watch Will Werhane, Global Head of Hay Group Insight, talk about how engagement and enablement drive productivity.

Scan the QR code or go to: www.bit.ly/hg-focus2

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Local organisations need to take advantage of the breathing space created by the current economic conditions and act now.

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The big challenge is how to increase productivity in an environment where productivity is in decline and many leaders dont feel they have the answers.
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THe BUSINeSS OF PeRFORMANCe By Paul Meijer

paul.meijer@haygroup.com
Paul is passionate about developing and leading programs that integrate strategy clarification, organisational design, leadership development, culture and rewards. As part of these programs, as well as in separate interventions, he has been a valued facilitator and executive coach for senior managers and top teams.

Time to rise and shine

Despite the rollercoaster ride of the global economy, and the local patchwork economy, Pacific business leaders appear confident in their growth targets.
Hay Group recently surveyed Australian and New Zealand business leaders to better understand growth ambitions and approaches to achieving this performance. The results reflected a degree of optimism, with Australian and New Zealand CEOs striving to achieve an average of six per cent growth. This figure outstrips the recent IMF prediction of just three per cent growth for Australia in 2011 and 0.9 per cent in New Zealand for the same period. When asked what measures would be taken to achieve growth, the view held by six out of 10 CEOs was that productivity would be key, rather than acquisitions or cost-controlling strategies. But the big challenge is how to increase productivity in an environment where productivity is in decline and many leaders dont feel they have the answers. that performance management was an important driver in overall company performance, yet only four in 10 planned to implement more rigorous individual performance management plans this year. Linking individual performance to strategy and business plans has long been recognised as a basic component in performance-effectiveness. Yet, despite this being well-known and widely documented, less than a third of local leaders actually do this in practice. Furthermore, despite knowing the importance of connecting the management of performance to company culture, only one in 10 local businesses have ensured this linkage. For example, a highly collaborative work environment may rely more on 360 degree feedback as an input to performance management where this may not be well accepted in a more traditional hierarchy. Successfully managing performance also requires ongoing support throughout the year to facilitate improvement and meet individual goals. Yet, this process is rarely implemented effectively. One in four leaders described performance management as a tick-box exercise rather than a tool for continuous improvement.

To successfully manage performance also requires ongoing support throughout the year to facilitate improvement and meet individual goals.

Performance disconnect
CEOs agree that performance and productivity are closely linked, however when it comes to actually managing performance, local leaders fail to effectively pull this essential lever. There is somewhat of a disconnect between what business leaders think in principle and what they do in reality. For example, two out of three leaders agreed

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So what goes wrong? In short:

Performance systems are too complicated, too technical and not transparent Performance management is focused on process and form-filling, rather than performance conversations Managers are concerned about giving feedback 36 per cent of senior managers do not follow the process There is insufficient connection between the hard (targets, KPIs) and soft (leadership, conversations, culture)

Biggest fear for Pacific leaders

If businesses are to outperform the market, it goes without saying that under-performance needs to be addressed. Though not unexpected, perhaps some of the most troubling findings in the face of leaders wanting to outpace the market is their reluctance to manage under-performance. Motivating disengaged employees, having courageous conversations to turn around performance and developing the confidence and skills of your workforce requires time and patience, but almost half of Pacific CEOs admitted that they spent less than 10 per cent of their time doing so. For many leaders, performance management is a source of anxiety. Managers often fear that managing performance involves demanding more from already stretched employees. They are concerned performance conversations could lead to employee burnout and turnover, rather than an uplift in productivity. This fear highlights the importance of well equipped leaders, who are able to use a range of leadership styles to engage their team members in performance conversations.

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Leaders need to ensure they engage their team members and then recognise and reward for performance.

Achieving growth through management of performance

Critical success factors of strategic performance management:

Aligned organisation goals and a clearly articulated and understood performance model Built on the organisations culture and strategy Executable, relevant process Equipped leaders Courageous conversations Multiple and differentiated rewards

To drive productivity, leaders must get people performance right.

CEOs are ambitious and have put their people at the heart of their business success. To drive productivity, leaders must get people performance right. It is important for business leaders to think differently about performance management if executives are to engage the discretionary effort of their employees and deliver the performance growth promised, while retaining talent. To outperform the market, business leaders locally need to strengthen their management of performance, and not confuse this business critical driver of productivity with filling in performance management forms. An important step towards this is to create a shared understanding of what actually constitutes good performance and how it will be driven; the performance model which connects an organisations strategy and culture. Leaders need to ensure they engage their team members in the process of managing and improving performance and finally, that they then recognise and reward for performance.

Watch Paul discuss the critical success factors of strategic performance management.

Scan the QR code or go to: www.bit.ly/hg-focus3

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Instead of focusing on the simple quick fix of moving around names in boxes, organistions need to take the time to step back from the business and ensure that they are working on the right issues.

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ORGANISING FOR GROwTH By Nicholas Conigrave

nicholas.conigrave@haygroup.com
Nicholas is focused on helping CEOs and their teams align the organisation to effectively execute the business strategy. He works with executive teams to help them deliver growth through improving organisation capability and alignment, successful execution of mergers and acquisitions and effective change management.

Slowing down
to speed up
changing market context. Instead of focusing on the simple quick fix of moving around names in boxes, they take the time to step back from the business and ensure that they are working on the right issues.

With markets experiencing fundamental shifts with increased competition through the rise of China, India and the other growth economies, local businesses are looking for growth in productivity.
Productivity growth is not necessarily about getting bigger and improving scale. It can be achieved through becoming more efficient and effective with the resources you have; it can be achieved through growing closer to your clients; and it can be achieved through improving your ability to innovate. Research by Hay Group revealed that in 2011 CEOs in Australia and New Zealand set themselves a bullish growth target of six per cent, which by far outstripped the IMF prediction of three per cent and 0.9 per cent growth for Australia and New Zealand respectively. To deliver the sort of growth in productivity that local businesses aspire requires a fundamental review of how the business creates value. We have seen a number of organisations attempt to make these sorts of changes simply by moving resources and reporting relationships around on an organisational chart. This approach overlooks the complexities of organisational design as it results in doing the same work in a different configuration yet expecting a different outcome. A little bit like shifting the deck chairs on the Titanic. Business leaders who are successful at achieving their targeted productivity growth recognise that they are leading a complex social system which is constantly responding and adapting (or not) to a

Organisational design checklist:

Define and agree on the right business model and ensure value is being created for customers in a profitable and sustainable way Identify the must win battles and critical success factors to succeed in the market Align the operating model to the business model and identify implications for the organisational design on changes made to the operating model Recognise cultural and leadership implications of this change and align the team around the business case for change and what it will take to deliver

Business leaders who are successful at achieving their targeted productivity growth recognise that they are leading a complex social system.

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There are no quick fixes when it comes to fundamental organisational evolution.

Do you have the right business model?

Going back to fundamentals can feel counter intuitive when things are moving so fast. Hay Group recently worked with the executive team of a newly formed government organisation, where the presenting issue for the CEO was the capacity of his team to work together effectively. When we went through the review of the business model, it became clear that there was no agreement on the question: who is the customer? As organisations grow, the nature of the clients they are targeting can change and if mental models of old customer are not made explicit and challenged, leadership teams can end up assuming they are all talking about the same customer when in fact they are working at cross purposes.

the executive team finally agreed to focus on a car park expansion. This may not seem particularly strategic but it was one of the main bottlenecks restricting foot traffic in the retail precinct and therefore reducing retail revenue. This process requires executive team members to be explicit about their biases and be able to see issues from the perspectives of others.

Organisational design that only focuses on organisational charts fails to drive productivity.

Is your operating model aligned?

One of the key shifts we are seeing in the way organisations need to operate is the shift from a geographic based to a customer-focused operating model. This seems relatively straight forward conceptually but when you change the way the business manages the P&L you start to see how much managers and leaders in the business can resist change. The benefit of working through the lens of the operating model before jumping to the names in boxes stage, is the ability to depersonalise what can often be a heated debate and focus on the logic that arises from the business model and must win battles analysis. It provides an opportunity for the CEO to engage with his/her executive team and ensure that they are all aligned around the logic of the change and are on board to lead the change.

Do you know your must win battles?

One of the biggest challenges for CEOs today is managing the drive of their organisation to try and do too much. To get alignment from an executive team around their priority areas can be challenging, due to what the different team members view as important. Hay Group worked with an airport authority where, as one of the must win battles,

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Have you taken culture and leadership into account?

One of the quickest ways to ensure failure in this process is to disregard culture and leadership. While working with the CEO of a professional services firm, Hay Group very quickly identified the informal organisation that was made up of the senior owners in the business. Attempts at driving change in the organisation had failed in the past because they had underestimated the power of the informal organisation and its ability to frustrate change. The CEO recognised the need to have an executive team who could lead the change process and engage effectively with the owners who made up the informal organisation. Organisational design that only focuses on organisational charts fails to drive productivity. Taking the time to go back to fundamentals, looking deeply at key values drivers in your business and checking for alignment and buy-in through the process will give you the best chance of success.

Organising for growth

Business Model

Strategic Imperatives

Operating Model

Alignment

Organisational Design and Structure

Role Design

Leadership Capability

Performance Management

Watch Nicholas discuss the link between organisational design and productivity.

Reward

Implementation

Culture
Scan the QR code or go to: www.bit.ly/hg-focus4

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When pay is seen as an investment, the view of reward is much broader and longer term.

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PAYING FOR PeRFORMANCe By Trevor Warden

trevor.warden@haygroup.com
Trevor helps organisations develop and implement long-term incentive plans, executive service agreements and retention programs. He regularly advises boards on CEO and executive pay, non-executive director remuneration and other corporate governance reward issues. He has extensive experience in consulting to financial services organisations.

Giving and
If pay is a cost, the goal is to minimise it. If pay is an investment, the goal is to optimise it.
Hay Group research has found that the majority of organisations do not evaluate the ROI of their reward programs. 80 per cent of organisations report that it is not a current focus for them, whilst the remaining 20 per cent are split between evaluating relatively loosely and utilising a more rigorous process.

getting back
When pay is seen as an investment, the view of reward is much broader and longer term. It is these organisations that are leveraging the power of their managers and measuring the ROI of their programs: They think through how their people strategy and reward strategy align with their business strategy They have reward programs that align employees interests with the organisations interests They spend a lot of time on effectively communicating, especially the link between pay and performance They ensure that managers are on board, aligned and reinforce their messages They have investment-oriented methods that focus on optimising the value of pay programs They consider both effectiveness and efficiency Most importantly though, they know that performance and productivity can be driven through appropriate reward, and they do believe that incentives work. But the trick is to find what the right incentives are and align variable reward to improve performance outcomes.

Heres a question not too many organisations ask themselves: How do we link reward with productivity? Even more fundamental is, do most organisations ever try to measure a return on investment or ROI on reward? The reality is that most companies risk getting both wrong.

Cost or investment
A key reason for the difference in the approach organisations take to monitoring ROI lies in the mindset of the organisation; in whether they view their reward program as a cost or as an investment. If pay is a cost, the goal is to minimise it. If pay is an investment, the goal is to optimise it. If pay is viewed as a cost, organisations tend to be reactive: They follow what others do They have an unhealthy focus on benchmarking there is no choice but to follow the herd They only focus on the estimated cost of the program They focus on the organisations ability to pay

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Variable reward as a productivity improvement lever

There are numerous variable reward plans out there, from sales commission plans, to long-term incentive plans and everything in between included in the in between plan types are profit sharing or gain sharing type plans. The former is fairly widely found and in this plan employees share in the profits and thus share in the good times. Often the employee does not know what he or she did to actually improve profits and thus these types of plans have limited real incentive value across all roles. Gain sharing plans, which have become few and far between in recent years, are about sharing the fruits from productivity improvements, and employees have clear targets in this regard. They know what needs to be done and what they get in return, creating real incentive value. Now may well be the right time for organisations to revisit gain sharing, work out why they fell out of vogue and plan a new approach.

The bigger reward picture

Remember though that reward can be a blunt tool. If youre the sales manager you pay a bonus to your sales team if they reach last quarters budget but perhaps dont build in incentives for how to grow sales in the future. Its too often about looking back and not forward. If youre a company director you might agree to only pay your CEO or senior management team a bonus if they achieve certain criteria like total shareholder return, but wheres the incentive for the CEO to reduce profits for a year or two and invest in organisation change which might double the size of the company in a few years? These two examples show the potential pitfalls of how weak the link between reward and productivity can be if not properly thought through when designing incentive programs. Its therefore the role of the leaders within organisations and even the remuneration subcommittees on the boards of companies to think about the bigger reward picture more often and what return on that investment they can build into their decision-making. This examination needs to go on through the entire organisation because incentives work everywhere to help improve employee performance.

Its the role of the leaders within organisations to think about the bigger reward picture.

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Engaging employees through total reward

Another thing that organisations dont always get is that the most powerful factor generating productivity is how engaged employees are. Its not always about the dollar figure in their pay packet although thats part of the equation. Its also about whether theyre working in a stimulating environment, with a manager who listens and whether there are opportunities to train and advance their careers. A total reward approach on top of appropriate financial incentives can create other incentives to boost ROI. But remember that equity is also very important employees make comparisons to their peers and think about how their own reward relates to their skills and outputs versus the skills and outputs of others. Even if their own reward or total reward is good it will always be judged relative to others. And dont believe that reward is as confidential as companies think it is, water cooler talk abounds. Most people dont leave their current employment because of the amount of money they are paid; they leave because they are unhappy. Many of the companies identified in Fortune Worlds Most Admired global survey arent the highest payers of their employees in their sector; but given that their employees are highly engaged and productive they are getting the higher ROI. We all know that the wages bill can be the largest single cost in a business. Now is the time to make that wages bill earn a much higher ROI or risk missing out on critical productivity gains.

The top three list to drive productivity through reward

1. Treat reward as an investment rather than cost 2. Leverage the power of reward through a broad and long-term reward strategy that is aligned to the business strategy 3. Keep the bigger picture in mind by looking beyond reward to ensure your employees remain engaged

Watch Trevor talk about how to drive productivity through reward.

Scan the QR code or go to: www.bit.ly/hg-focus5

We all know that the wages bill can be the largest single cost in a business. Now is the time to make that wages bill earn a much higher ROI.

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FOCUS

Now is the time for all organisations looking to improve productivity to include tackling diversity near the top of their to do list.

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DIVeRSITY A keY TO PeRFORMANCe By Wendy Montague

wendy.montague@haygroup.com
Wendy works with senior executive teams and individuals to improve leadership effectiveness. She has facilitated organisational change programs including introducing leadership concepts at all levels and re-aligning organisational structures to business strategies.

The value of diversity

A focus on diversity can translate into real business results derived from creating and sustaining a culture of innovation, where employees feel they are part of the solution as their ideas get heard. Embracing age dierences and experience is another factor that can generate high performance gear changes.
As the effects of globalisation become more prevalent, to survive organisations need to position themselves to effectively compete in this new environment. For this reason, it is not surprising that diversity is commonly cited by global companies as a competitive advantage. However, very few realise that apart from access to talent and improving corporate reputation, diversity can actually unlock significant productivity gains from within their organisation. A focus on diversity can translate into real business results derived from creating and sustaining a culture of innovation, where employees feel they are part of the solution as their ideas get heard. Organisations topping the Fortune Worlds Most Admired Companies list and Hay Groups Best Companies for Leadership research have built and maintained a diverse culture and are able to measure the benefits that flow from this through higher engagement, increased levels of creativity and innovation. Creating a culture of diversity isnt easy, but the returns can be significant the Worlds Most Admired Companies and the Best Companies for Leadership consistently outperform their peers in terms of total shareholder returns.

So what can we learn from these world leading organisations, with regards to creating a culture of diversity?
Understand the needs of the different groups in your organisation Address the bias or blockages to performance, which prevent groups from succeeding Develop your leaders in leading a diverse team and getting the best performance out of all employees Understand your current organisational culture and how it supports an empowered diverse workforce Develop policies and structures that support top leadership commitment to embracing the new culture

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How do these world leading companies create a culture of diversity?

Understand the needs of the dierent groups in your organisation

Hay Group recently completed a diversity study for one of the premier global technology companies. The client organisation had long sought to create a culture that values, develops, and promotes diversity within its workforce. Hay Group was asked to partner with the company to undertake a broad study to understand the experiences of the most senior executives among eight constituencies, including women and minorities. The outcomes of this study then shaped this organisations global response to development, retention and talent management. In Australia, Westpac, one of Australias Most Respected Companies, has recently announced Employee Action Forums to better understand their employees from different cultural backgrounds.

Address the bias or blockages to performance, which prevent groups from succeeding
The picture that emerges of this years 20 Best Companies for Leadership is of a group of companies moving more quickly than others to flatten their business structures and diversify their workforces, with the goal of improving their efficiency. Locally, male dominated companies such as BHP Billiton are working to move women into executive positions as well as increasing the percentage of new female graduates coming into the workforce from a current level of 12 per cent to 25 per cent.

A diverse culture is one where all employees feel accepted and encouraged to meet their performance and potential objectives.

Develop your leaders in leading a diverse team and getting the best performance out of all employees
Ultimately, a diverse culture is one where all employees feel accepted and encouraged to meet their performance and potential objectives. Leaders in these organisations live by these values, as openness to diversity is primarily experienced by individuals in their interactions with their managers. Organisations that have embraced this agenda are also helping leaders master collaborative strategies that harness resources throughout the company.

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At the same time, they are also adapting development tools and reward structures to equip managers with the leadership skills that their changing environments demand, and incentivising them to use these effectively. For example, ING links parts of each business units bonus pool to specific diversity goals.

Develop policies and structures that support top leadership commitment to embracing the new culture
In Australia, the concept of a Diversity Council has been used to set and align diversity policies with business strategies and objectives. For example, ANZs CEO, Mike Smith is the Chair of its Diversity Council and delivery of this strategy is the accountability of the business leaders, not human resources. Its charter is to leverage employee diversity to increase business outcomes. Now is the time for all organisations looking to improve productivity to include tackling diversity near the top of their to do list.

Understand your current organisational culture and how it supports an empowered diverse workforce
Culture always begins at the top. Hay Group research shows that 70 per cent of the beliefs (and hence the behaviours) of managers and employees alike come from observing the individuals to whom they directly report. Organisations that actively manage their culture conduct audits of their current culture and seek to uncover the impact it is having on diversity. They understand the components of their as is culture and create a blueprint for their to be model. Once the future culture is defined, they implement processes to embed the new culture.

Watch Wendy discuss how diversity can help unlock performance.

Scan the QR code or go to: www.bit.ly/hg-focus6

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Creating an environment where people can do their best work is the first step towards improving productivity.

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PRODUCTIVITY IN THe PUBLIC SeCTOR

By Nicholas Jackson
nicholas.jackson@haygroup.com
Nicholas has consulted to or worked within public sector organisations for the last twenty years. His work draws on the full spectrum of Hay Group methodologies to plan and implement organisational improvement strategies. Nicholas manages Hay Groups work in the federal and Victorian public sectors.

Doing more
with less
A conference of CFOs from the public sector in Canberra in mid 2011 asked the question about how to improve their own productivity and they came up with what might seem a simple answer People need to look at their own behaviours, reach out to their co-workers and encourage others to contribute. Productivity can also be about the micro-skills of managers.
At first glance it looks like a motherhood statement, but it indicates an important shift in how the public sector feels about working better and smarter. Until now the word productivity was perhaps most often heard in annual performance reviews and Enterprise Bargaining Agreement (EBA) negotiations. Now it can be seen as part of the everyday equation that leaders and managers in the public service examine while managing their staff how to create an environment where people can do their best work. Its no surprise the focus on productivity is happening right now because the public services in both Australia and New Zealand face a far more challenging environment in the coming years. Government surpluses have turned to deficit and the demands on all programs are growing.

Managing for productivity gains

Productivity is not always about big, dramatic initiatives like restructures or culture change. It can also be about the micro-skills of managers, who need to tick some critical boxes when it comes to encouraging staff, including:

Creating goal clarity setting challenging, but obtainable goals Better understanding and listening connecting with how employees are performing and working together Allowing employees to have better ownership of their tasks and goals Removing or at least explaining what looks like unnecessary bureaucracy that slows things down Generating a sustainable and rewarding environment fostering collaboration and commitment to the tasks 36

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Leadership development can generate far greater returns in the long-term.

These simple points all add up to elements which the research shows can have a dramatic impact on productivity. It can be confronting for any manager to admit they need to change the way they manage but the benefits can be enormous. We know from Hay Group research in the private sector, involving the Worlds Most Admired Companies, that over a 10 year timeframe those companies that invest heavily in leadership and better training of managers produce better returns for shareholders. In the public sector addressing the capability of managers on a broad level was often seen as venturing into the too hard basket. Department heads were also worried about whether theyd be queried on the amount spent on such programs. The reality is that leadership development can generate far greater returns in the long-term.

This organisation planned and implemented a six-month leadership development initiative that has been an outstanding success. Looking back, Mr Wilson reflects there were some who had drifted, or were not strong or capable in the management and development of their people, but now they have actually changed in the way they deal with me, their staff, fellow managers, and are definitely better managers and leaders. Youve got to remember that most workers in the public service are values driven and often work in a particular area because they have some attachment to that public service, whether it is healthcare, indigenous affairs or education. They can often see the public good in what they do and are motivated, they just need better direction and more valued feedback. In effect they need an environment where they can do their best work. Managers can dramatically influence the perception that workers have about where they work. Thats the next challenge for the public sector focusing the energy of a workforce thats going to have to do more with less in the future.

Creating an environment that drives productivity

In 2007 and 2008, the workload of the Office of the Fair Work Ombudsman was due to grow by 30 to 40 per cent. Recognising that this was not sustainable with their current resources, the Fair Work Ombudsman, Nicholas Wilson, decided that rather than simply employing more staff, they should develop and empower their existing managers and help them work more innovatively. We made a conscious decision to invest heavily in our managers and look at how to develop them further.

Watch Nicholas explain how public sector managers can drive productivity.

Scan the QR code or go to: www.bit.ly/hg-focus7

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Managers can dramatically influence the perception that workers have about where they work.

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wORkING SMARTeR IN FINANCIAL SeRVICeS By Colin Neave

Colin Neave has been the Chief Ombudsman of the Financial Ombudsman Service until September 2011, having commenced as the Australian Banking Industry Ombudsman in 1996. He is also the Chairperson of the Victorian Legal Services Board and Chairman of the Commonwealth Consumer Affairs Advisory Council.

One step
ahead
Its a worrying thought that half a million people are in financial difficulty in Australia as the financial system works to address increasing customer issues in a patchwork economy. This points to a growing need for the industry to work smarter and more efficiently in effect to become more productive to deal better with customer needs.
The first issue that needs changing, especially when it comes to the financial planning sector, is how to manage incentive based reward schemes. Selling a financial services product, like a mortgage, shouldnt just be about a sales based incentive scheme. Rather it should be about the best fit for the customer. That would make the whole industry operate in a more productive way. At the moment more men than women sell financial products in the industry, but more women than men work in the customer complaint areas. Maybe if there was more equality in the sales area there wouldnt be as many complaints. Age diversity can also be key in providing more effective customer service in this industry. Generally speaking, older workers have seen more economic cycles and know how to manage a mortgage over 20 years, than a younger worker who might never have seen a downturn. A number of financial service companies have begun to re-hire workers with experience to work at the customer service interface and thats a good thing.

Maybe if there was more equality in the sales area there wouldnt be as many complaints.

Diversity is key
Diversity also plays a significant role in improving service and ultimately industry performance. Overall, the sector has a much better appreciation of the positive role played by diversity than a decade ago, but there is still room for improvement. We all know there are now more women working in senior management roles in the financial services sector, but not enough. Great female leaders like Gail Kelly at Westpac or Lisa Gray at nab are providing aspirational role models, but organisations have to foster more women through middle management to make a difference.

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Clear definitive communication on the organisations focus is critical to everyone working in the same direction.

Flexibility and engagement for customer focus

There are many lingering issues from the Global Financial Crisis which are impeding performance and service levels. Many organisations responded to the crisis by becoming too rigid and over regulating in the way they operate internally and that can have a suffocating effect on customer service. The design of organisational structure needs to be more flexible to meet customer needs. Clear definitive communication on the organisations focus is critical to everyone working in the same direction. Without a consistent message on strategy, there can be no common outcomes and service quality suffers. Human Resources policies need to change and along with them the employee engagement procedures. Employees dealing with customers want their managers to work with them to improve their performance and provide more guidance.

Employees want to feel proud to work for a company which is an employer of choice in the industry. Employee engagement needs to come from the top. Managers need to demonstrate concern and be able to engage in early dialogue to address issues, rather than be confronted by customer complaints further down the track. In a hugely competitive industry, capitalising on productivity gains is critical for all market players. The Financial Ombudsman Service is at the coalface when things go wrong or service breaks down. Those companies which can avoid these pitfalls and improve their way of doing business will not only leap ahead, but also spend less unproductive time cleaning up the mess of past mistakes.

In a hugely competitive industry, capitalising on productivity gains is critical for all market players.
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CeO ROUNDTABLe ON PRODUCTIVITY Ross Pilling

BASF Australia Ltd Ross is Managing Director, Australia & New Zealand at BASF Australia Ltd, a subsidiary of world leading chemical company BASF with over 540 employees in Australia and New Zealand and more than 109,000 around the world.

Albert Goller
Siemens Australia Albert is Managing Director at Siemens Australia. Siemens is a German based global technology company with more than 2,500 people at 87 locations across Australia and New Zealand and more than 400,000 employees worldwide.

Philip Binns

Agilent Technologies Australia Philip is Vice President/General Manager at Agilent Technologies Australia. Agilent is a US based manufacturer of innovative measurement solutions with over 18,500 employees worldwide.

Melissa Hamilton
Stellar Melissa is Chief Executive Officer of Asia Pacific for Stellar. Stellar is a leading global provider of call centre and business process outsourcing solutions, operating outsourcing centres around the world.

Nan-Maree Schoerie
Thermo Fisher Scientific Nan-Maree is Vice President and General Manager ANZ at Thermo Fisher Scientific, the world leader in serving science. Thermo Fisher Scientific offers a range of high-end analytical instruments as well as laboratory equipment, software, services and consumables and employs over 36,000 people worldwide.

from a summit
Hay Group recently hosted a business roundtable with CEOs from multinational company subsidiaries. All participants attended due to their interest in and concern for improving productivity in Australia.
Impact of productivity on local subsidiaries
Local subsidiaries of global organisations are highly impacted by the current decline in productivity because their global parents are making investment decisions, on a regular basis and the decline in productivity in any given country or region often means the global parent will reduce and refocus investment to a more profitable and productive market. These decisions are often made swiftly because the infrastructure is already in place to move skills, capabilities and activities from one geography to another. In Australia and New Zealand, local subsidiaries often compete internally against countries such as Indonesia, India and China for investment from the parent company. To highlight the severity of such internal competition, one CEO cited a manufacturing process costing $40,000 per head locally versus $9,000 per head in Indonesia. To compete, Australian subsidiaries need to therefore automate and produce high quality to mitigate the difference with other lower cost countries. While some may see this as a threat, others see it as a great opportunity to constantly innovate and redefine the best way to generate value for local customers and for the global parent. It allows local businesses to collaborate with other economies and focus on the areas of greatest performance and productivity. It also enables them to grow in areas where they can differentiate by offering something of greater value.

Insights

Drivers of productivity
The discussion focused on the following levers of productivity in Australia & NZ:

Innovate and redefine the best way to generate value for local customers and for the global parent.

Talent Clear value proposition (to customers, the global parent and employees) Infrastructure Decision-making Innovation Organisational structures Need for clarity Role of Pay

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Getting the best from local talent

Capability, education level and skills of local talent, were identified as being a key strength of Australian and New Zealand businesses and subsidiaries. The CEOs, however, shared the ongoing challenge of stimulating employee engagement in the current environment of near full employment against a strong entitlement mentality. Some felt it is more difficult than ever to create a clear and compelling value proposition for staff, especially the younger workforce Generation Y who generally respond to organisational or operational change by asking the simple question of; Whats in it for me?

or identify new opportunities that provide this advantage. Unfortunately, unlike previous generations, younger workers joining these organisations no longer see manufacturing as an appealing workplace. Participants shared their concern on the view that the emerging workforce would only consider a role (not a career) in manufacturing if they didnt succeed in securing other employment. This makes campaigns to build employee engagement more necessary than ever. However, all participants agreed that improved employee engagement is still possible with a well-communicated positive plan for the future that allows employees to understand how they can contribute to the improved output of their business. An increasingly important lever in engaging Gen Y is stronger community engagement and links with organisations and activities that allow them to contribute back to a cause aligned with their values. The CEOs discussed a range of not-for-profit and corporate social responsibility activities that have gone beyond a nice to have to being a significant focus of their organisation and of their engagement strategy.

The value proposition

The majority of companies that took part in the roundtable discussion are engaged in manufacturing. It is clear that within the local environment of a high dollar and near full employment, organisations need to continually focus on where they can produce something better, of higher quality or with unique benefits. The local leadership team needs to continue to ensure they have a unique advantage in their chosen focus

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Impact of infrastructure
Looking at the big picture, the view of the roundtable was that national infrastructure needs to be better addressed to enhance productivity. In particular, better road and rail networks, are needed to improve the effectiveness of their supply chain and reduce its costs.

pathological focus on continuous improvement. Many have seen significant productivity improvement through investment in new processes and technologies. Germanys manufacturing prowess was referred to as an example of the impact of investing in new systems to drive productivity aligned to the new market.

Decision-making
Local participants shared the frustration emanating from excessive parent or corporate processes such as endless budgeting and re-forecasting where there was little value-add and little focus on the market, innovation or clients. As one CEO commented, this feeding the corporate machine distracts from efficient decision-making and impacts productivity. Another impact on efficient decision-making was the amount of time consumed in managing union relationships. While participants described constructive dialogue with some unions on productivity, there was also a view that some local unions are creating a more difficult industrial relations climate, hindering decision-making, which could have led to further investment and job creation. Managing these relationships can be very time consuming, and this is then further exacerbated by internal union power struggles detracting from the ability to move quickly on new opportunities.

Organisational structure
Another key concern that continues to plague local and global organisations is silo structures that lead to more hierarchy and division between business units reducing collaboration. Many of the CEOs participating in the discussion have already tackled productivity gains through more consolidated and efficient HR, IT and finance functions and the right balance of local vs. centralised resources for a more efficient structure. Further potential was seen in organisations that are more able to improve processes across traditional business unit silos and strengthen collaboration. These are more likely to unlock innovation and process improvement which in turn drives efficiencies and productivity.

There is a need for a pathological focus on continuous improvement.

Need for clarity

One of the most important levers of productivity, it was agreed, is the importance of leaders providing absolute clarity on why things are done and whats important to clients. This is a key driver of efficiency and effectiveness in all organisations. Creating a clear line of sight between customer needs and individuals activity ensures people understand WHY they are being asked to do what they do and how this contributes to the bigger goals of the organisation and to the clients they serve. This approach is highly reliant on a level of transparency of goals and measures to continually reinforce priorities and to measure performance against these goals. In addition, work done on improving the overall culture and leadership of the organisation and through this a more engaged working environment, pays broader dividends.

Innovation
On the upside, all participants agreed that some very simple aspects of operational and organisational development can have an immense effect on performance and productivity. At the forefront is the need to drive innovation to develop new products that maintain a competitive advantage over international trends. The common view was investment in research and development pays significant dividends in the longer term. There was also agreement on the need for companies to evaluate and continue to champion process improvements with technology and systems. As one CEO put it, there is a need for a

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Organisations need to continually focus on where they can produce something better, of higher quality or with unique benefits.

Role of pay
Participants expressed the desire for team members to act more like owners and take responsibility for organisational performance, rather than demonstrating a level of disconnect from the goals of the company. It was agreed that where performance measures are clear and transparent, profit sharing can help in this process, along with bonuses that are tied to true measurable performance, relevant to the goals of the overall business. In the end, many felt that there are challenges ahead in dealing with the issues surrounding productivity but there are also opportunities. While the barriers to productivity can be many, the issue of company productivity comes down to the culture of the organisation and whether staff are motivated to embrace change to improve performance. Tackling these bigger issues is not just about doing it because staff will get an incentive for addressing them but because it is important to do so for the long-term value creation of the organisation and the deeper engagement and retention of a talented workforce.

Some barriers to local productivity:

Entitlement culture Fear of change Business unit silos that dont collaborate to serve clients Union infighting Complacency Conservative goal setting Reluctance to confront underperformance

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PRODUCTIVITY IN THe eNeRGY SeCTOR By John Devereaux

CEO of Energy Networks Association
The Energy Networks Association (ENA) is the peak national body representing gas and electricity distribution businesses throughout Australia. All of Australias electricity and gas network companies are members of ENA, providing governments, policy-makers and the community with a single point of reference for major energy network issues.

Plugging into
the big picture
Benefits sharing schemes usually see 70 per cent of the value of such efficiencies returned to customers, giving businesses a strong continuous incentive to uncover efficiency (productivity) gains.

There are lots of drivers to improve productivity in the electricity and gas networks sector in Australia, including rising retail electricity prices, a regulatory regime that demands performance improvements as part of regular reviews and broader competitive pressures.
The word productivity might not be in everyday use in our industry often its referred to as seeking efficiency gains but for the best performing businesses it is part of their DNA. The focus on efficiency does however vary across the industry.

The challenges of a highly regulated environment

Energy networks operate in a highly regulated environment, where every five years our members must submit their revenue proposals to the Australian Energy Regulator (AER) to set revenue allowances, network investment plans, expenditure allowances and ultimately network prices. In order to justify projected expenditure and pricing proposals, energy networks are required to demonstrate that their delivery of regulated services will be undertaken efficiently. Further, as part of the regulatory framework, a benefits sharing scheme typically applies where efficiencies are delivered in excess of projections.

A culture of continuous improvement

Among energy network businesses the top performers recognise the need for ongoing improvement in performance and have embedded such a focus in their corporate culture. Typically these are the businesses that dont just look for improvements at the margin, but examine how their end-to-end processes can be completely overhauled and improved. One member organisation recently undertook such an overhaul with the aim of achieving 20 per cent efficiency gains in delivering field services, by building on the work previously undertaken in significantly enhancing the IT tools underpinning asset management decision-making.

The challenge is to find the right balance between managing risk and delivering efficiency gains.

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The top performers recognise the need for ongoing improvement in performance and have embedded such a focus in their corporate culture.

A complete revamp of field works management, works delivery processes and deployment of field based IT tools, using the platform established for asset management decision-making, was the mechanism to deliver the efficiency gains, targeting best practice benchmark performance.

In contrast to a more interventionist approach the current approach appears to be more hands off but very outcomes focused, better suited to achieving efficiency gains that will be sustainable in the longer term. There are many challenges facing energy networks, including growing political and public pressure to limit retail price rises, skills shortages, the need to encourage further investment in the industry and the need to better manage peak power demands. That all adds up to all leaders in our industry needing to take a holistic view, and one way of addressing the pressure around prices is to incorporate the drive for efficiency gains as an inherent component of corporate culture and strive to deliver it on a daily basis.

Finding the right balance

For some members the key focus is on delivering an essential service to the appropriate standard and avoiding significant asset failures which lead to major outages. For those businesses, delivering efficiencies is also a priority; however the drive to improve efficiency is tempered by a more risk averse approach to asset management. The challenge for all our members is therefore to find the right balance between managing risk and delivering efficiency gains. The privatisation of Victorias distribution businesses also presents an interesting case study around the impact of corporate governance/ management approaches adopted by the initial purchasers of those businesses, which in many cases contrasted significantly to those adopted by the current owners.

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PRODUCTIVITY IN THe PHARMACeUTICAL SeCTOR Frederic Guerard

Novartis Pharmaceuticals Australia Frederic is Managing Director at Novartis Pharmaceuticals Australia Pty Ltd, a part of Novartis International AG, a multinational pharmaceutical company based in Basel, Switzerland with over 700 staff in Australia and nearly 100,000 employees in over 140 countries worldwide.

Fred Nadjarian
Roche Products Pty Ltd Fred is Managing Director at Roche Products Pty Ltd, a part of the international F. Hoffman-La Roche Group, a leader in research-focused healthcare with combined strengths in pharmaceuticals and diagnostics and over 80,000 employees in more than 150 countries worldwide.

Kirsten ODoherty
Abbott Australasia Pty Ltd Kirsten is Commercial Director at Abbott Australasia Pty Ltd, a part of Abbott Laboratories, a leading global health care company with 700 employees in Australia and nearly 90,000 staff in 100 countries.

Strengthening
local leadership
In Australia, these demands are compounded. As more than 85 per cent of the Australian pharmaceutical industry companies are multinational, they feel the impact of these global industry trends stronger than other Australian industries. A strong Australian dollar also impacts their ability to compete for global resources and investment in research and development or manufacturing. Australia is now losing out to the rest of the world in terms of clinical research and manufacturing of local products
Fred Nadjarian, Managing Director, Roche Products

To understand the challenges facing the Pharmaceutical Sector in the Pacific region, Hay Group met with three leaders from Roche, Abbott Labs and Novartis.
For the past decade, global pharmaceutical organisations have been facing a range of challenges that have shaken the industry to its foundations. These include the generic-isation of drugs, fewer mega drugs, higher costs of healthcare (with an accompanying greater scrutiny of prices from regulators and insurers) which in turn, make it difficult to generate a return on investment in research. From a marketing and sales perspective, the trend is towards commoditisation with less product differentiation. The traditional response of hiring and augmenting sales forces to launch a new product or boost sales of an established product is no longer a guarantee of success. In summary, the traditional pharmaceutical commercial model of share of voice is broken and the industry has been slow to accept this new reality. A commercial model focused on traditional sales force only, doesnt work well. It is head count heavy, misses impacting many key stakeholders and is too expensive. Pharmaceutical companies need to focus on a broader range of stakeholders and communicating health outcomes for patients rather than just taking a product focus.
Kirsten ODoherty, Commercial Director, Abbott Labs
Tactical
Short-term horizon Backward facing Internal focus

The traditional pharmaceutical commercial model of share of voice is broken...

Senior leadership team activities

Decision-making

New products new markets Brand positioning Succession planning

Coordinating

Consultative
Project reviews

Information sharing

Financial reviews

Strategic
Long-term horizon Forward facing External focus

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There are four components that drive success when addressing the productivity challenge in the local pharmaceutical industry:

1 PBS listing is mandatory

For new products, gaining a PBS is an all or nothing option, without this listing, there is a very poor chance of selling any drug. The ability to work through this process in a timely and commercial manner is the number one measure of success for a product in Australia.
Frederic Guerard, Managing Director, Novartis Pharmaceuticals

3 Organisational eectiveness
Global pharmaceutical companies primary focus is product. They fund local subsidiaries on their ability to list, market and sell these products. This requires local organisations to optimise this product investment by continually assessing their portfolios against their current/future talent and product requirements. Portfolio management needs to include longer term investments to respond to the changing channels to market and requires more sophisticated digital marketing. Developing longterm government relationships is paramount to address regulatory and listing issues.

2 Sales eectiveness
At a time when profits are dropping, the industry requires a hard ROI approach to marketing and selling challenges. As medicines become more complex and focused on niche areas, sales representatives need to specialise and the industry needs to connect with a broader range of health care professionals who may be involved in making the prescription recommendation. Keeping their sales team up-to-date with the most current product information is paramount for pharmaceutical companies.

4 Collaboration
Working in complex global matrix organisations, requires a high level of collaboration across product and functional boundaries. Collaboration drives innovation which has a positive impact on productivity through improved customer focus and process improvement.

Local leadership teams have invested time and resources to get the support they need to succeed.

To respond to these challenges and improve productivity and efficiencies has required local pharmaceutical organisations to strengthen their local leadership teams. They have realised that no one function or Managing Director can plan an approach that takes into account the range of competing requirements for resources or the range of stakeholder and regulatory issues that arise everyday. Their leadership teams accountabilities have expanded, requiring an integrated, flexible approach to the current reality. These leadership teams collaborate on making decisions, taking into account global, regional and local needs. They provide the local company breadth of perspective to enable resources and innovation to be shared across product ranges while

providing a vision for the organisation that engages and energises their teams. The team moves past just information sharing to challenging the old ways of doing things and spends time clarifying the local business and operating models, helping align the accountabilities of the organisation to deliver the strategy. This collaboration and leadership has meant that the local leadership teams have invested time and resources to get the support they need to succeed. As Fred Nadjarian says, I needed to take a new approach of working with my team, listening to their suggestions and creating a real team.

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FOCUS

Hay Group research from more than 400 companies globally has highlighted employee enablement as the missing link to productivity.
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THe PRODUCTIVITY FRAMewORk

By Henriette Rothschild
General Manager Hay Group Pacific

it all together
This edition of Focus is critical because growth in productivity is essential if Australian and New Zealand organisations are to stay competitive now and in the future. On average 15 per cent of employees are engaged but not enabled, which leads to frustration.
At organisational or industry level, increased productivity has numerous benefits including, better working conditions for employees, increased returns for shareholders, better value for customers through lower prices and improved company sustainability. For many years, companies across every industry have focused on improving employee engagement as a means of increasing productivity. Whilst engagement levels are certainly important, it can be argued that engagement is now merely the entry point for success, but not the overall driver of that success. Hay Group research from more than 400 companies globally has highlighted employee enablement as the missing link to productivity. On average 15 per cent of employees are engaged but not enabled, which leads to frustration. This of course has serious financial implications as these previously engaged employees have now found roadblocks to being productive and often leave. The good news is that there are multiple drivers for both engagement and enablement as shown in the preceding articles and in Hay Groups productivity framework.

Bringing

Hay Groups Employee Effectiveness model the pathway to productivity

Clarity and Direction Confidence in Leaders Quality and Customer Focus Respect and Recognition Compensation and Benefits

Engagement
Discretionary Effort Commitment

Financial Performance

Drivers

Productivity

Customer Satisfaction

Employee Performance
Performance Managment Authority and Empowerment Cooperation Structure, Work and Processes

Enablement
Supporting Environment Optimised Roles

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FOCUS

The nine drivers of productivity:

1 Clarity and direction

As highlighted in most of the previous articles, improvement in employee engagement and productivity starts with a clear direction, strategy and line of sight to an individuals role. Organisations that continue to clearly communicate their goals and directions and are clear about their expectations of employees are more likely to have strong engagement and better productivity.
Read more on page 18, The business of performance by Paul Meijer

4 Reward only the best - respect and recognition

Managing remuneration expectations is a key driver to improved productivity. Organisations must learn to reward the best and manage all employees. That doesnt mean paying everyone more, it means better differentiating and identifying the best performing staff and retaining them.
Read more on page 26, Paying for performance by Trevor Warden

2 Confidence in leaders
Another strong theme through this years focus is the role of leaders in connecting staff with the big picture. Leaders play an important part in ensuring that work is well structured, staff are clear about where the organisation is heading and how their contribution fits in, providing the crucial line of sight. The most significant impact on a team members discretionary effort and their willingness to go the extra mile for the organisation is their view of their direct line manager. A key starting point for organisations wanting to raise productivity is therefore to strengthen the capability and impact of their leaders on the teams they manage.

5 The ROI on reward compensation and benefits

Its time for all organisations to recognise that there should be a ROI on reward. Every company has a ROI on almost all of its other activities and it should look at pay as an investment and view reward as a mechanism to stimulate employee performance for the longer term, in line with the strategy. The bottom line is financial incentives work so lets use them better. Pay is one of a companys strongest communicators of what is valued.
Read more on page 26, Paying for performance by Trevor Warden

3 Quality and customer focus

Improved sustained productivity isnt about a quick fix. Many companies look too much at a names in boxes approach to examining how they can re-structure a business and hope that does the trick. The reality is that long-term substantial performance improvements can only come through examining fundamental organisational design change. That means a clear focus on what the customer wants and creating the most sustainable structure to meet customer needs.
Read more on page 22, Organising for growth by Nicholas Conigrave

6 Performance management
Linking individual performance to the organisational strategy and business plans is easier said than done, but essential if you are to execute the strategy. Australian and New Zealand business leaders struggle with managing the link between individual and business performance and, more importantly, having courageous conversations to lift performance improvement. Performance management is a key lever in productivity and a great opportunity for local business leaders to drive organisational performance.
Read more on page 18, The business of performance by Paul Meijer

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To take the next step in productivity improvement, encouraging a culture that focuses on sustained and long-term improvements is critical.

7 Your workforce is critical - empowerment and authority

Creating a more effective workforce is within the means of every organisation. That process requires combining employee engagement and enablement. Leaders must create their own checklist when it comes to giving their employees the tools and incentives to improve their own productivity. Employees want empowerment and authority to act in the best interests of the organisation having the confidence to let team members lead is a great way to unleash potential and performance.
Read more on page 14, Unleashing the potential of your employees by Steve Ewin

9 Structure, work and processes

The biggest impediments to business performance are often internal systems that are too complicated, too technical and lack transparency. Another typical barrier are people operating within silos, overcomplicating processes that should be delivering value to customers. As highlighted in the CEO discussions, a well designed organisation recognises and often automates the key systems and processes which add value. A good design works to simplify these systems and processes across the organisation. It ensures greater productivity when servicing the customers, as opposed to the common complaint of servicing the silo or feeding the corporate machine.
Read more on page 22, Organising for growth by Nicholas Conigrave

8 Collaboration
Innovation is a critical lever of productivity. It is also clear that a more diverse workforce, well managed and enabled can unblock performance and strengthen collaboration that helps the organisation achieve innovative breakthroughs in customer focus and process improvement.
Read more on page 30, Diversity - a key to performance by Wendy Montague

The role of culture

The bottom line is that culture eats strategy for breakfast. For organisations to take the next step in productivity improvement, encouraging a culture that focuses on sustained and long-term improvements is critical. Culture needs to start at the top and is a composite of all of these levers including structure, leadership, systems and processes so its up to all leaders to recognise the challenge of creating an enabling culture and embrace it.

Watch Henriette bring it all together.

Scan the QR code or go to: www.bit.ly/hg-focus8

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About Hay Group

Hay Group is a global management consulting firm that helps businesses improve performance and get the best out of their people. We develop talent, organise people to be more effective and motivate them to perform at their best. Our focus is on making change happen and helping people and organisations realise their potential. We have over 2600 employees working in 85 offices in 48 countries. Locally, we operate out of six offices across Australia and New Zealand with over 100 employees. We consult to listed, private and public sector organisations as well as the not-for-profit sector. We work with senior leadership teams to help them ensure their organisations work. This includes helping to align their strategic direction, their operating model and organisation structure to ensure the organisation can achieve its business goals. Hay Group helps leaders and executive teams to improve their effectiveness through clarifying their purpose, and direction and helping them to work collaboratively so that they can execute the organisations strategy.

We provide advice to and work with leaders and their teams in the areas of:
Building eective organisations Strategy clarification: translating strategy into actionable plans Operating model definition and alignment Organisation and job design Leadership and talent Team facilitation and improving team effectiveness Executive leadership development CEO and leadership succession Executive coaching Reward Executive remuneration Reward strategies Reward information Employee eectiveness surveys

For further information please contact us on 1800 150 124 (in Australia) or 0800 429 477 (in New Zealand) or email: info_pacific@haygroup.com

All articles are available on our website. Please visit: www.haygroup.com.au www.haygroup.co.nz

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