Article About The Workplace Productivity Challenge

AUGUST 2004
THE WORKPLACE PRODUCTIVITY CHALLENGE
report of the workplace productivity working group
the workplace productivity challenge

Working Smarter to Build a Higher Value, Higher Skill, Higher Wage Economy
Our places of work and the people who work in them are two key assets in making sure New Zealanders have a great quality of life for the future. It is our people in workplaces around the country who collectively drive our economy with their ideas, innovations, skills, capital and strong work ethic. If our firms are doing well, our economy does well and that helps to create an environment where we, as a nation, have choices about what we spend and how. It is a mutually reinforcing cycle. The Workplace Productivity Working Group (WPWG) was established in February 2004 to undertake a stocktake of how New Zealand is doing in terms of workplace productivity, and to identify some practical options for how we can lift our workplace productivity.
The Challenge The challenge for the future is to build on where our workplaces are performing well, while also achieving improvements that move New Zealand to a sustainable, high value, high skill and high wage economy. To achieve this will require engaging New Zealanders and lifting national awareness about what improved productivity can contribute to our lives. The WPWG looked at the range of issues that contribute to how well a workplace performs, particularly how innovation, good culture and leadership help to create an environment of high performance at firm level.
The Agenda Many workplaces already have in place business practices that are delivering highly productive, profitable and high quality outcomes. We need to acknowledge the achievements of these leading firms and learn from them, as well as identifying the new opportunities. There are also many firms that are doing some things well who could benefit from lifting their performance in other areas. This report reflects the WPWGs perspective on some of the tangible actions to improve New Zealands economic growth by lifting everyones game at a firm level.
There is no silver bullet. Building sustainable economic growth and lifting living standards demand a focused effort and strategic approaches across industry, firms and government. This report articulates how all firms are capable of raising workplace productivity, and how doing even a few things right can contribute to greater gains for everyone, such as recognising the importance of innovation, training and new technology as drivers of productivity. The findings and recommendations highlighted in the following pages have been reached after wide-ranging discussions through informal and formal forums, including reviewing key research, a series of employee and employer focus groups around the country, an intensive workshop involving government, business, unions, workers, academics and productivity experts, and discussions with the Small Business Advisory Group and the Growth and Innovation Advisory Board. We have great pleasure in presenting this report to the Ministerial Reference Group of the Ministers of Labour, Finance and Economic Development as a catalyst for further engaging government, industry, firms, unions and employees in a conversation about how we can lift workplace productivity.
Andrew Annakin Workplace Productivity Working Group
contents
1 executive summary
1.1 1.2 The Challenge Meeting the Challenge
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2 consolidated wpwg recommendations

2.1 2.2 2.3 2.4 2.5 2.6 2.7 Building Leadership and Management Capability Creating Productive Workplace Cultures Encouraging Innovation and the Use of Technology Investing in People and Skills Organising Work Networking and Collaborating Measuring What Matters
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13 14 15 16 17 18 19
3 background and scope of the workplace productivity working group

3.1 3.2 Background Workplace Productivity Working Group Scope
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4 the workplace productivity challenge

4.1 4.2 4.3 4.4 New Zealands Recent Productivity Performance The Link between Workplace Productivity and National Productivity Workplace Productivity Drivers Barriers to Introducing Productivity Improving Practices
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25 31 33 37
5 meeting the workplace productivity challenge wpwg findings and recommendations

5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 A Workplace Productivity Agenda Building Leadership and Management Capability Creating Productive Workplace Cultures Encouraging Innovation and the Use of Technology Investing in People and Skills Organising Work Networking and Collaborating Measuring What Matters
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44 48 53 60 68 77 83 88
appendix 1 appendix 2
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executive summary
Productivity isnt everything, but in the long run it is almost everything. A countrys ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker. 1 Paul Krugman, The Age of Diminished Expectations
1.1
The Challenge
New Zealand has recently enjoyed a resurgence in economic growth after a long period of decline. The two main drivers of economic growth are labour utilisation, where New Zealand is high compared with the Organisation for Economic Cooperation and Development (OECD) standards, and labour productivity, where New Zealand is much lower than many OECD countries. Given already high rates of labour utilisation, increases in New Zealands living standards are thus likely to come from increased labour productivity. Productivity increases occur through three different channels in an economy. OECD research suggests that typically the expansion of more productive firms and the contraction of unproductive firms account for small increases in overall productivity. The entry of new, productive firms and the exit of unsuccessful firms accounts for around one-third of overall productivity. The third channel, productivity gains in existing firms, accounts for the most productivity growth in the economy. This report focuses on the specific challenge of how improvements in workplace productivity can contribute to economic growth and lift New Zealands living standards. Workplace productivity refers to how efficiently and effectively a firm of any shape or size can turn its inputs, such as labour and capital, into outputs, such as products and services. Improving workplace productivity is not about working harder and harder but about working smarter. It involves continuous innovation and improvement in all aspects of the firms management and operations in order to deliver sustainable competitive advantage. The main ways that workplace productivity can be increased are through investing in capital, achieving economies of scale; investing in innovation and technology; and adopting better business practices.
Krugman, P (1992), The Age of Diminished Expectations: US Economic Policy in the 1980s, MIT Press, Cambridge, page 9.
The Workplace Productivity Working Group (WPWG) was established to determine ways that improved workplace productivity can deliver a high wage, high value economy for the benefit of all New Zealanders. This report reflects the Working Groups views about the status of New Zealands economic performance and its link to quality of life, and the role of workplace productivity in raising this performance, and identifies some practical actions for encouraging greater workplace productivity. The work conducted to meet the objectives of this project was accomplished within a rather ambitious time frame. We feel that we have been successful in meeting our goals but acknowledge that given more time, the breadth and depth of our background research would have been expanded. This report seeks to identify the challenge that New Zealand faces in raising our quality of life through improved workplace productivity and suggests an ongoing Workplace Productivity Agenda to contribute to meeting that challenge.
1.2
Meeting the Challenge

Our findings and recommendations set out a Workplace Productivity Agenda for responding to the workplace productivity challenge. This Agenda will contribute to the governments overall economic goals and complements existing work programmes and strategies. A key component of the Agenda is also the shared responsibility for action among industry, firms, unions, employees and government. We recommend the establishment of a successor body to oversee the implementation of the recommendations in this report. The actions that are proposed are mainly directed at existing firms although they are designed so that all organisations may benefit. As part of its findings, the WPWG identified seven complementary and reinforcing drivers of productivity, listed below. These drivers form the basis for our recommendations and are grouped around the following four types of actions: Raising Awareness of what workplace productivity means and the actions that can lead to improvements. Diagnostic Tools to assist firms in identifying how effectively they are performing and to identify where the firm may need to improve its business practices or performance. Implementation assistance and support for firms to decide what specific actions to take and the best way to put these in place. Research and Evaluation collecting and developing the knowledge base about workplace productivity and what business practices are successful.
Building Leadership and Management Leadership and management capabilities are key drivers of firm capability and performance and cut across all of the other workplace productivity drivers. If there is a lack of strong leadership and/or management in a firm, it will be difficult to successfully develop and implement initiatives around the other main productivity drivers.
The WPWG identified a strong role for leadership in creating a productive workplace. Leadership capability relates to an individual or teams ability to identify new opportunities and inspire others to pursue those opportunities. Leaders are found at every level of an organisation and a productive workplace will have leadership depth. Leadership, and in particular leadership by example, is a crucial factor in creating a positive and productive workplace culture. Managerial capability includes the strategic ability to adapt to a changing environment that creates internal and external threats and opportunities; organisational and management skills; people and communication skills; and information acquisition and learning processes all critical factors in workplace productivity. High performing organisations have both effective management and effective leadership and as a result, excellence in execution. There are already a number of government initiatives to improve leadership and management capability in New Zealand firms. The Ministry of Economic Development (MED) Management and Business Capability Co-ordinating Project (MBCC Project) has been established to develop and implement well-focused management capability initiatives. The WPWG notes this programme and recommends that our successor body be advised of its progress. A full list of the WPWG recommendations for building leadership and management capability in firms is found at the end of this section. The recommendations address such areas as processes to showcase examples of effective leadership, examining how existing government assistance can be improved, appraising best practice and encouraging greater relevance and accessibility to information and programmes for the purposes of improving leadership and management capability in firms.
Creating Productive Workplace Cultures High performing workplaces are founded on a strong workplace culture in which motivated and engaged employees are willing to go the extra mile. There is no single prescription for creating a productive organisational culture but firms can cultivate such an environment by fostering some significant cultural attributes, such as acknowledging the contribution of individuals, rewarding participation and good ideas, developing healthy and respectful relationships in the workplace and promoting a sense of shared goals and values. More emphasis needs to be placed on good employment relationship management practices as an important factor in boosting employee participation, building stronger workplace culture and therefore creating more productive workplaces. Unions can play a constructive role in supporting a positive culture, both as the representatives of their members within particular workplaces and as sources of information about employment practices. A full list of the WPWG recommendations for creating productive workplace cultures in firms is found at the end of this section. The recommendations address such areas as helping people to identify and apply principles that can support positive workplace cultures and employment relationships, the production of productivity tips that introduce common questions about productive workplaces and help people to think through basic issues to identify areas where they could benefit from investment in their employment relationships; and further research about employee participation mechanisms in New Zealand workplaces, including identifying good practice examples.
Encouraging Innovation and the Use of Technology Innovation is a key part of raising workplace productivity. Creating new products or services or just doing things better are vital ways to achieve firm growth.
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Innovation can be incremental, such as doing things slightly differently, or it can be more radical, such as incorporating new technology or introducing entirely new products into a firms business. The knowledge and skills of employees at all levels provide a platform for further innovation and the ability to adopt and adapt ideas from elsewhere. The ability of a firm to innovate depends on a variety of internal and external factors, including organisational culture, how work is organised, a shared sense of the vision and strategy within the firm and the impact of such issues as the wider economic and regulatory environment. A large number of studies support the link between productivity gains and innovation. In particular, the appropriate introduction of advanced technology is linked with higher productivity, greater market share and employment growth. Firms with more sophisticated equipment and machinery employ more skilled workers and these workers receive higher wages. The major challenge is for firms to harness the capability to extract value from innovation processes, services and/or technologies. This requires the ability to access, absorb and exploit technology. A full list of the WPWG recommendations for encouraging innovation and the use of technology in firms is found at the end of this section. The recommendations address such areas as increasing awareness of the breadth and benefits of innovation; considering making mentoring support an integral part of delivering technology and innovation assistance; and improving the coordination and responsiveness of government services making management and marketing support available alongside research and development (R&D) support.
Investing in People and Skills Our people are our greatest asset. Skills shortages choke off growth potential. New Zealand needs to match the potential and talents of New Zealanders up with the skills needed in the workforce. A skilled workforce can lead to more innovative behaviour and can enable the use of higher levels of technology, which in turn leads to higher productivity and a better quality of life for all New Zealanders. Priority must therefore be put on making sure that all adults in the workforce have access to appropriate learning mechanisms and work skills training and that employers understand how best to add value to their firm by investing in skills and training. While there has been an increased emphasis on investment in education and training by employers, employees and the government, more needs to be done to address barriers that exist to people obtaining the skills they require. In particular, a lack of foundation skills, including literacy and numeracy, has been identified as a critical issue in the New Zealand workforce, and this may be limiting productivity levels in firms. We believe there is a role for government in improving the accessibility and uptake of foundation skills training as a means of building the productivity of the existing workforce and overcoming the current skills shortage. This will involve further government investment in the skills training area. We also believe the balance of government spending between tertiary education and workforce training needs to be reviewed. A full list of the WPWG recommendations for investing in people and skills in firms is found at the end of this section. The recommendations address such areas as changing perceptions of the value of skills development in the workplace and removing barriers that prevent managers and employees from investing in high quality education and training; providing firms with the tools and assistance to undertake skills assessments and determine how to address identified skill shortages; and continuing to build a strong infrastructure, including Industry Training Organisations (ITO) capability, for the delivery of workplace-based training.
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Organising Work In order to maintain a competitive edge in a highly competitive, global environment, firms need to assess and adapt their structures and business practices on an ongoing basis. To extract the greatest value out of its investment in new technology and skills, work processes and/or products and services, firms need also to look at their organisational design. In particular they need to make sure the activities that create value within a firm are aligned with each other and with the overall business strategy, and that they are functioning effectively. A significant factor in ensuring that work organisation contributes to workplace productivity gains is employee participation. It is critical that employees at all levels of a firm have an opportunity to contribute to work organisation and to provide relevant practical advice from their respective positions, and for them to fully understand the potential benefits. Designing good quality jobs is also a critical consideration for effective work organisation. A full list of the WPWG recommendations for organising work in firms is found at the end of this section. The recommendations address such areas as improving firms access to information about the effect of work organisation on workplace productivity; and providing networking and other learning opportunities, as well as mentoring assistance, to undertake redesign assessments and to engage in redesign work.
Networking and Collaborating Firms do not operate in isolation and there are significant productivity gains to be achieved by improving the exchange of knowledge, information and ideas through both formal and informal networks. Existing networks are already doing an excellent job in lifting scale, improving the adoption of best practice and assisting with the adoption of strategic approaches specific to particular sectors. There is also a role for government to act as a catalyst and broker in strengthening network formation. Specifically, government can help to increase firm awareness about the importance and value of both informal and formal networks as a key business tool. Government also has an important role to play in providing information to existing networks, and widening networking activities to include key stakeholders, such as co-operation between science and industry. A full list of the WPWG recommendations for networking and collaboration in firms is found at the end of this section. The recommendations address such areas as identifying the full range of networking and collaborative mechanisms already available and ensuring that firms are aware of these opportunities; reviewing whether existing tools to diagnose business capability are putting sufficient emphasis on networking and collaboration; and undertaking more detailed research into how good networking design can improve productivity.
Measuring What Matters Workplace productivity measurement is essential in assessing the value to a firm of investing in other workplace productivity drivers. There is a lack of information about the nature or extent to which New Zealand firms are implementing measurement and reporting practices. The research that has been conducted shows that there is a low level of best practice benchmarking among New Zealand firms. This is despite the proven value that measurement and reporting tools create in terms of realising added value within a firm. To fully realise workplace productivity improvements within New Zealand firms will require much more widespread adoption of effective measurement and reporting practices.
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Good measurement and reporting practices are linked to an assessment of an organisations strategy and how to better achieve those strategic objectives. There is no one right way to undertake measurement. There needs to be a commitment to measurement throughout the firm and to communicating the results in a transparent way that relates individual and team performance to the overall business performance and helps them to take leadership roles in making appropriate changes to improve productivity. Measurement and reporting also need to be tailored to the individual firm and to balance both qualitative and quantitative factors, including finance, organisational culture and human capital. A full list of the WPWG recommendations for measuring what matters in firms is found at the end of this section. The recommendations address such areas as raising awareness of the value of measurement and reporting as an integral part of workplace productivity strategies and providing greater access to both public and private resources to assist firms in measurement and reporting activities.
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consolidated workplace productivity working group recommendations

Building Leadership and Management Capability
Awareness Raising 1 Raise awareness of the importance of good leadership and management to workplace productivity by showcasing effective leaders and celebrating their success, and highlighting the need for leaders at all levels of an organisation. 2 Examine how existing government assistance programmes could be improved to raise awareness of the benefits of leadership and management development. 3 Use industry networks to raise awareness of the importance of leadership and management capability in improving performance, and to spread best practice, through the sharing of management and leadership skills and experiences.
2.1
Diagnostic Tools 4 Review the availability and effectiveness of existing tools for diagnosing the level of leadership and management capability in individual firms and improve them, as necessary, to ensure they meet the needs and circumstances of all types of New Zealand firms.
Implementation 5 Make it easier for firms to access government leadership and management development services in a seamless way. 6 Assess the extent to which quality standards exist for leadership and management services and, where necessary, develop such standards. 7 Bring together businesses and organisations delivering and developing courses and information on leadership and management capability to ensure that they are accessible and relevant to firms. This may include bringing together education institutions and third-party training providers and firms.
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Research and Evaluation 8 Research whether firms have sufficient incentives to invest in building leadership and management capability and, if necessary, take action to strengthen these incentives. 9 It is proposed that the Management and Business Capability Co-ordinating (MBCC) Project advise the Working Groups successor body of its progress in carrying out its planned work programme to check that activities aimed at increasing overall productivity are well aligned, co-ordinated and complementary with the proposed Workplace Productivity Agenda. This co-operation would also provide the successor body with the ability to ensure that our recommendations (as outlined in this report) are delivered. 10 Research the value and potential mechanisms for introducing mentoring for managers in SMEs. 11 Conduct research to gain a clearer understanding of leadership and management capabilities to avoid duplication and add value to existing programmes, such as the MBCC Project.
2.2
Creating Productive Workplace Cultures

Awareness Raising 12 Model and communicate the benefits of good employment relationship practices through industry organisations, networks, clusters and unions. 13 Promote purposeful employee participation, including in change management.
Diagnostic Tools 14 Review existing programmes and support to promote productive workplace cultures and develop tools, information and frameworks to address any identified gaps. This would include assessing what tools are available for measuring and addressing employment relations issues and employee participation.
Implementation 15 Continue to support firms, employees and unions in improving their employment relationships and in developing supportive workplace cultures. 16 We endorse the establishment of a Partnership Resource to promote workplace innovation, productivity growth and improved service delivery through constructive employer/union partnerships. 17 Create greater dialogue between industry, firms, unions and employees on how to develop combined strategies for encouraging productive workplace cultures and building effective employee participation mechanisms. 18 Promote and roll out tools, information and frameworks for building productive workplace cultures.
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Research and Evaluation 19 Undertake research on employee participation mechanisms in New Zealand workplaces, including identifying good practice examples.
2.3
Encouraging Innovation and the Use of Technology

Awareness Raising 20 Raise awareness of innovation as a broader concept than research and development (R&D) or high-tech investment. 21 Promote an understanding that innovation requires a range of supporting practices within the firm, such as environmental scanning and information management, close customer relationships, a culture that encourages new ideas and teamwork, investment in staff and strong leadership. 22 Use industry networks to raise awareness and spread best practice through sharing innovation management experience. 23 Raise awareness of the importance of continued investment in the right technology for firms facing labour shortages. 24 Encourage the adoption of firm management and commercialisation programmes as part of the engineering/science course syllabus in tertiary organisations and among staff involved in innovation processes in firms (and vice versa).
Diagnostic Tools 25 Evaluate the effectiveness of existing tools and programmes, particularly around the issue of firms ability to adopt and adapt innovations and new technology. Develop tools, information and frameworks to fill identified gaps.
Implementation 26 Facilitate linkages and collaborative relationships, both between firms and Crown Research Institutes (CRIs)/tertiary institutions and research expertise; and firm-to-firm, to encourage the exchange of information, skills and technology, improve opportunities for capturing knowledge spillovers, and build up the innovation capability of firms. 27 Consider making mentor support an integral part of the delivery of technology and innovation assistance, to provide owner/managers with some space and guidance to work on the firm rather than in the firm. 28 Improve co-ordination and responsiveness of government services making management and marketing support available alongside R&D support, and improving the front end client advisory services so that the most appropriate support is provided to firms from the first contact, irrespective of the agency first approached.
Research and Evaluation 29 Ensure research is undertaken into the issue of firms access to finance.
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30 Identify any barriers to increased capital accumulation and how these can be reduced.
2.4
Investing in People and Skills

Awareness Raising 31 Raise awareness of the need for firms to undertake skills needs assessments, so they can identify what skills they need and where they have skill gaps including identification of where improvements in foundation skills are needed. Promote the benefits of undertaking these assessments. 32 Provide information on the best ways of matching skills to the needs of firms and linking to ongoing improvements in managerial capability and work organisation. 33 Provide information on the return on investment in foundation skills for all firms, and the return on investment in education and training generally for small and medium-sized enterprises (SMEs). More robust information, which has credibility within the business community, has the potential to change managers perceptions, with an increase in the investment in people and skills. 34 Encourage positive perceptions by school leavers of vocational occupations as careers and promote industry training as an option, in order to increase the level of investment in these areas and to reduce the negative impact for business of skill shortages, including targeted information for school career guidance counsellors.
Diagnostic Tools 35 Review the availability and effectiveness of existing tools to help employers and employees undertake an assessment of the potential return on investment in skills development generally (with tools targeted at SMEs in particular), and develop new tools to fill any gaps. 36 Provide a tool to assist firms in undertaking an assessment of skills required by a firm, the gap between the required skills and the existing skills within the firm, and the steps required to address any identified skill shortages. 37 As part of the assessment of skills needs, these tools need to identify where foundation skills training is necessary and the potential return on investment that can be achieved through workplace-based foundation skills training.
Implementation Education and Training Infrastructure 38 Build a strong infrastructure, including Industry Training Organisation (ITO) capability, for the delivery of workplace-based training and ensure ITOs are involved in workplace-based training for foundation skills and training for SMEs. 39 Continue to build on the improvements in the tertiary education sector to the linkages between government, suppliers and firms so that over time workplace training increasingly meets the skill needs of firms. 40 Continue to provide support for the ongoing work of the Skill NZ campaign.
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Support for Firm-specific Training 41 Develop support for firms to identify skill needs, placing those skill needs in a wider productivity and firm improvement context, and a specific brokerage role to support investment by SMEs in skills and training. In developing these forms of assistance, consider the role that ITOs can play as a delivery agency and how this can be encouraged (and identify other appropriate organisations where no ITO exists). Foundation Skills Training 42 The government needs to focus on addressing the needs of existing workers with low levels of foundation skills. This will require a substantial increase in foundation skills funding targeted at those already in the workforce. Funding should cover learning delivery, including workplace-based training, co-ordination, and capacity/capability building and support for providers, practitioners and learners. 43 Integrate foundation learning with industry training so that those with lower levels of foundation skills can develop those and other skills. 44 Trial (and evaluate) new ways of delivering foundation learning to improve the quality of training in the workplace and the incentives to design improved high quality training, for example, designing programmes that closely match workplace tasks. Research and Evaluation 45 Research the effectiveness of workplace foundation skills programmes through evaluating any new initiatives that are approved as a result of our proposals to provide improved information for employers, employees, unions and the government on the best approaches to adopt. 46 Evaluate whether changes are required to the design of funding and accountability arrangements for government-funded workplace training to help ensure that SME training needs are met (for both foundation skills and wider skills training). 47 Research the effectiveness of steps to enhance education and training in SMEs through the evaluation of trials, to provide assurance that the education and training are providing a return on the employers investment and to identify critical success factors. 48 Research whether the different funding arrangements for workplace training and other tertiary education represent an unnecessary barrier to skill development in the workplace. 49 Explore the level of longer-term skill investment needed to achieve a significant improvement in lifelong learning, in order to support ongoing productivity improvements.
2.5
Organising Work
Awareness Raising 50 Make available and/or produce relevant information about how work organisation affects workplace productivity and the benefits of implementing these strategies, including the benefits of employee involvement. 51 Provide background information on tools used overseas to assess work organisation issues, such as the UKs Department of Trade and Industry Tool Kit and Danish Technology Institute tools.
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52 Identify case studies and demonstration workplaces that focus on successful organisational design, processes and practices.
Diagnostic Tools 53 Develop and test diagnostic tools, modifying overseas models for the New Zealand business environment, for assessing structural and work reorganisation requirements. 54 Provide diagnostic tools to assist in assessing whether a firms structure/work design is appropriate and/or effective. This may be especially relevant to organisations in times of change, as well as when developing an ongoing strategy.
Implementation Support 55 Facilitate the provision of networking and other learning opportunities as well as mentoring assistance, including facilitators and consultant practitioners, to undertake redesign assessments and to engage in redesign work.
Research and Evaluation 56 Assess availability and accessibility of advice for firms, particularly small business services and potential for intermediaries as service providers. 57 Assess the linkages between the Work-life Balance Project and workplace productivity improvements.
2.6
Networking and Collaborating

Awareness Raising 58 Identify the full range of networking and collaborative opportunities and mechanisms already available and ensure firms are aware of how to use these effectively. 59 Identify and disseminate examples of best practice in networking and collaboration, and case studies showing the resultant benefits. 60 Explore the scope for using employer and employee organisations as complementary mechanisms to help spread key awareness messages.
Diagnostic Tools 61 Review whether existing tools to diagnose business capability are putting sufficient emphasis on the extent to which firms are utilising networking and collaboration both within New Zealand and internationally, and adapt these tools, as necessary, to ensure that they are including this emphasis.
Research and Evaluation 62 Review whether the impact and reach of existing firm capability services (in addition to the Enterprise Development Fund and Growth Services Fund) could be increased by adding
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further networking and/or collaborative elements to spread the benefits beyond the primary beneficiary. 63 Undertake more detailed research into why networks are established and, more particularly, what constitutes best network design and operation, particularly in relation to enhancing productivity.
2.7
Measuring What Matters

Awareness Raising 64 Raise awareness of the value of measurement and reporting as an integral part of workplace productivity strategies. 65 Develop greater accessibility to both public and private information and other resources available to assist firms in measurement and reporting activities.
Diagnostic Tools 66 Provide diagnostic support to assist firms in getting started on measuring and reporting.
Research and Evaluation 67 Undertake further research to better understand: a The type of measurement and monitoring that is effective in identifying good performance.
b The nature of measurement and reporting practices in New Zealand and how good measurement practices contribute to increased workplace productivity, such as the Ministry of Economic Development (MED) continuing to include questions relating to measurement practices in its business practice surveys. c The determinants of firm performance using good micro data and research techniques.
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background and scope of the workplace productivity working group

Background
A number of government initiatives have been established over recent years to address the challenge of raising New Zealanders overall quality of life by improving productivity. At the broadest level the governments Growth and Innovation Framework (GIF) aims to deliver long-term sustainable growth, and issues around productivity have also been subject to informal discussions between such groups as the New Zealand Council of Trade Unions (CTU) and Business New Zealand, facilitated by Treasury, as well as in other forums. Historically, New Zealand has not put the same emphasis on producing improvements in workplace productivity within the firm as it has on establishing the broad regulatory framework for business to operate within, even though workplace productivity is one of the foundations for driving national growth. High productivity at a firm2 level contributes to the overall productivity of the national economy, which in turn helps to create higher living standards. Workplace productivity therefore benefits everyone. Put simply, workplace productivity refers to how efficiently and effectively a firm of any shape or size can turn its inputs, such as labour and capital, into outputs, such as products and services. Our emphasis has been on how New Zealand can achieve improvements in this area. Improving productivity is not primarily about working harder and harder but about working smarter. It sounds straightforward but there is no one answer to achieving it. Improvements in productivity involve doing a number of complementary things well at a firm level. That could include investing in labour and skills, introducing innovation and new technology or looking at organisational structures. The important factor is action at a firm level because this is where productivity is driven. For the greatest gains, a firm will employ as many of these mutually reinforcing actions as possible. But even one or two actions will help to improve workplace productivity in a firm as long as the approaches fit from a business and cultural perspective with the firm that is implementing them.
3.1
In this report the term firm refers to all entities and organisations in the economy that produce goods and services and includes businesses, non-governmental organisations, not-for-profit organisations, and government agencies.
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To help build momentum at firm level is going to take a concerted effort and shared commitment from government, industry, firms, unions and employees.
3.2
Workplace Productivity Working Group Scope

The government appointed the Workplace Productivity Working Group (WPWG) in February 20043 to identify the issues affecting New Zealands workplace productivity and how they might be addressed. The appointment of our group puts the spotlight on the workplace as a place to discuss the need to improve productivity. Our strongly practical focus is reflected in the terms of reference:4 The Working Group was established to provide the government with information on the current situation, including how New Zealand is doing in terms of workplace productivity and practice, what practices have been successful and/or unsuccessful, and how New Zealands policy settings and processes are promoting workplace productivity, and possible future policy options for lifting workplace productivity, by providing advice on: Ways to improve government policies and policy making processes (such as the development of policies to promote economic growth) to better take account of workplace productivity issues. New initiatives to lift workplace productivity and promote high performing practices. Methods of lifting awareness of best practices. Key information and research gaps to be filled. We undertook an extensive process in order to meet the objective the government set of advising on possible future policy options for lifting workplace productivity. This process included: Holding ten meetings of the Working Group and meetings by the supporting officials.5 Engaging industry, business, unions and employees in formal and informal forums and discussions, including a two-day workshop and a series of focus groups. Reviewing key New Zealand and overseas research. Commissioning case study research into good workplace practice.
Workshop 18-19 May 2004 The workshop was attended by over 70 business leaders, union representatives, academics, officials and other interested parties. The workshops immediate objectives were to test whether we had identified the important issues, discuss some of the successful methods already used by businesses in New Zealand, and build consensus between key decision-makers. Feedback from the workshop was compiled into a Summary of Proceedings that we considered in reaching the recommendations in this report. This summary was also made publicly available and provided to workshop participants in June 2004.6
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Please see Appendix 1 for the membership of the WPWG. Please see Appendix 2 for the complete Terms of Reference for the Working Group . The Working Group was supported by an officials group, who undertook research on behalf of the Working Group, provided background information and assisted in the preparation of this report.
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Focus Groups In order to further test the workshop conclusions and to engage more broadly about the Working Groups thinking, a series of seven focus groups were held in five locations around the country from 5 to 20 July. This included five groups held with employers in Nelson, Napier, Manukau, Auckland City and Christchurch, and two groups with employee representatives in Manukau and Nelson. Working Group representatives and/or officials attended all meetings. The aim of the focus groups was to gain a snapshot of how firms and employees viewed workplace productivity, to define workplace productivity and to discuss some of the incentives and barriers to improving it. The key findings of the focus groups can be summarised as: There is no silver bullet. Solutions will be found from a range of good business and staff management practices to suit individual workplaces and industries. Recruitment, management and retention of good staff are central to workplace productivity. In assessing success in these areas views of both employers and employees need to be considered. Many employers are dissatisfied with current education and training systems. Many believe they are not practical enough and not tailored to suit the needs of industry. They want more say in course design and structure. Some employees also support this view. There is widespread concern about the progression from school and work. Many employers are worried about the lack of work readiness in the youth market. They believe basic skills of numeracy, literacy and communication all need to be improved. Globalisation is both a threat and a challenge to New Zealand. As a small country New Zealand industry/business needs to position itself as an incubator and innovator of good ideas but we need to be flexible and sophisticated enough to see that our ideas will be picked up offshore by countries with more access to capital and labour. Good business will always need to be ready to produce new ideas and move on.
Linkages to Existing Policies and Practices Our terms of reference also required that existing policies and practices were taken into account, which both created natural links to existing advisory groups and required that we look at existing policy review processes as part of our scope. Specifically, we set out to look at the following key issues: What we think are the most important drivers for achieving improvements in workplace productivity. Consideration of available information on how New Zealand businesses are currently performing. Possible barriers to improving New Zealands workplace productivity performance. The emphasis on the workplace meant we could create clear boundaries around the issues for consideration. In light of our terms of reference we were not charged with addressing how broader economic and public policy issues impacted on productivity in New Zealand firms but rather accepted them as givens. For example:
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This summary of proceedings is available from http://www.dol.govt.nz/productivity/
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The issue of low unemployment, and the impact of key pieces of legislation, such as the Holidays Act 2003, the Resource Management Act 1991 and the Employment Relations Act 2000, were not considered by the Working Group. Macroeconomic concerns about the need for increased capital investment are not addressed in this report but we did consider issues about the quality and accessibility of capital. A wide range of commentators have identified the need to unblock infrastructure bottlenecks in order to create an environment more favourable to business activity. Two areas where bottlenecks are frequently cited are transport and electricity. While we recognise the importance of having a sound infrastructure for overall productivity improvements, this was not an area that we considered fell within our focus at firm level. We were conscious of the need to ensure our considerations did not duplicate activities already being undertaken by government and non-government processes and other advisory bodies, and to ensure that a wide range of perspectives was reflected in our final recommendations. We met with both the Growth and Innovation Advisory Board (GIAB) and the Small Business Advisory Group (SBAG) to discuss their perspectives on workplace productivity and growth. It will be important that these groups in particular are engaged with further in the development and implementation of the planned Workplace Productivity Agenda (as outlined in Part II of this report). Our view of what some of the relevant linkages are between our work and other processes or advisory bodies is presented in Figure 1 below. This diagram is only intended to be indicative of these linkages as there are a large number of complementary initiatives currently underway. Figure 1: Some linkages between WPWG and Other Processes and Advisory Bodies
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the workplace productivity challenge

New Zealands Recent Productivity Performance
Over long periods of time, small differences in rates of productivity growth compound, like interest in a bank account, and can make an enormous difference to a societys prosperity. Nothing contributes more to reduction of poverty, to increases in leisure, and to the countrys ability to finance education, public health, environment and the arts. 7 Alan Blinder and William Baumol, Economics: Principles and Policy Productivity is about how efficiently and effectively a firm of any shape or size can turn its inputs, such as labour and capital, into outputs, such as products and services. Productivity improvements are about producing more or better goods and services with the same inputs or producing the same quantity and quality of goods and services for less. The common thread among all productivity improvements is not to work harder and harder, but to work smarter. Improvements in workplace productivity take many forms, ranging from introducing a new product to the market using existing plant and staff, and reducing the time it takes to deliver goods to market, to reducing errors and streamlining processes. The important thing in raising the productivity of an economy is to start from the firm level. High productivity within firms contributes to the overall productivity of the national economy, which in turn helps to create high living standards, which benefits everyone. In this report we use three notions of productivity: Labour Productivity refers to the quantity of output produced by a given quantity of labour input. It is driven by the amount of capital available to workers, such as equipment, as well as multifactor productivity. Multifactor Productivity (MFP) refers to the way that labour and capital are combined to produce goods and services (also called total-factor productivity). It is driven by economies of scale, technical progress and the adoption of best practice.
4.1
Blinder , A and Baumol, W (1993), Economics: Principles and Policy, Harcourt Brace Jovanovich, San Diego, page 778.
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Workplace Productivity refers to how firms can utilise labour and skills, innovation, technology and workplace organisation to improve the quantity and quality of their output. This part of our report examines New Zealands productivity performance in the past few years against these measures and how we stack up against comparable countries.
Living Standards The basis for measuring the link between productivity and standard of living is Gross Domestic Product (GDP) per capita. GDP represents a broad measure of economic activity and signals the direction of overall aggregate economic activity. GDP is calculated by the quantity, quality and variety of goods and services available for consumption. While growth in GDP reflects productivity growth, it is also affected by many factors, such as droughts, the terms of trade and external shocks, that are outside the scope of the firm. While the well-being of individuals and communities encompasses more than just GDP per capita, including for example leisure time, family and community associations and the quality of the physical environment, GDP per capita is widely used to compare material living standards between countries.8 The graph opposite (Figure 2) shows GDP per capita as a proportion of the Organisation for Economic Cooperation and Development (OECD) average, for New Zealand, the US, Australia and the European Union. Until the mid-1970s, New Zealand enjoyed living standards in excess of the OECD average. There then followed two sustained falls in New Zealands relative GDP per capita (with a small rebound in the early 1980s). Since 1992, this decline has been halted and New Zealands income has slightly improved relative to the OECD average, but New Zealand is still some 15% below the OECD average. Another way of looking at New Zealands relative economic performance and position is the annual rankings put out by the OECD, which show how New Zealand compares with other OECD members (see Figure 3). Like the preceding graph of GDP per capita (Figure 2), this graph shows that New Zealand achieved high rankings in the early 1970s, but then underwent a rapid decline before stabilising at a low rank. The reason for the widening gap between New Zealand and other OECD countries is that our economy grew at a slower rate than the OECD average during the late 1970s and until the early 1990s. Since the early 1990s New Zealands rate of economic growth has generally been higher than many other countries and above the OECD average. This has arrested the decline in New Zealands relative income as shown in Figure 4. Nevertheless, to catch up requires a concerted effort in driving growth through as many sectors of the economy as possible, from the firm level up.
To see the different pictures painted by GDP and GDP per capita, consider the case of China and New Zealand. According to International Monetary Fund (IMF) figures for 2004, Chinas GPD was some US$1,761 billion, while New Zealands was only US$97 billion, meaning that Chinas economy was about 18 times larger than New Zealands. But when you divide the former by over one billion people and the latter by only four million, the situation is much different: Chinas GDP per capita is only US$1,343, while New Zealands is US$24,134, meaning that average income in New Zealand was actually 18 times larger than in China.
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Figure 2: GDP Per Capita as a Proportion of the OECD Mean: Selected Countries
Source: OECD (2004) Annual National Accounts, Paris
Figure 3: New Zealands GDP Per Capita: Ranking within OECD

Figure 4: Comparison of New Zealands Per Capita GDP Growth with the OECD Mean and OECD Total Source: OECD (2004) Annual National Accounts, Paris
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What Drives Living Standards GDP per capita can be broken down into the sub-components. These components are labour productivity and labour utilisation (see Figure 5). Figure 5: Contributions of Labour Utilisation and Labour Productivity to GDP Growth
Source: The New Zealand Treasury
Labour productivity can be analysed according to the capital-labour ratio (the amount of capital available per hour worked) and MFP (the way that labour and capital are combined to produce goods and services). Labour utilisation, on the other hand, is a function of the participation rate (the proportion of the total economy in work or looking for work), the unemployment rate (those looking for work), and average hours worked per person employed. Figure 6: Contributors to New Zealands Economic Growth
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Growth in labour utilisation was the main source of growth in New Zealands per capita GDP during the first half of the 1990s (see Figure 6). Most of this growth in utilisation was sourced from reductions in the unemployment rate and increases in labour participation, rather than increases in average hours worked. New Zealand currently has higher labour force utilisation rates than most of the countries shown in Figure 7. Growth in labour productivity appeared to be providing greater impetus to growth in per capita GDP in the latter half of the 1990s. This improvement in labour productivity growth has been sustained in the six-year period to 2002, and is growing at about 1.7% per year. Even so, New Zealands labour force productivity rate lags behind most countries shown in Figure 7. By analysing the various factors that go into measuring GDP per capita, it is also possible to determine how much of the difference in the level of GDP per capita between New Zealand and other countries is owing to labour productivity versus labour utilisation. Figure 7 shows New Zealands GDP per capita is 39% lower than that of the US and that most of the gap is ascribed to lower labour productivity. New Zealands labour utilisation rates are high by OECD standards. The labour productivity story, however, is somewhat different. New Zealands level of labour productivity is much lower than many OECD countries, especially those with higher levels of GDP per capita. Figure 7: Differences in Income and Productivity Relative to US, 2002
Source: OECD (2003) Science, Technology and Industry Scoreboard, Paris
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All countries with a lower level of GDP per capita compared with New Zealand have lower labour productivity. While MFP growth has been markedly improved throughout the 1990s, the growth in capital per worker initially declined, though it too has improved recently as shown in Figure 8. New Zealands slow growth in capital investment, relative to the OECD, and strong growth in employment means it currently has a lower capital-to-labour ratio than many other countries. This capital shallowness may be a reason for New Zealands lower rate of labour productivity growth. Increasing capital investment may therefore be a source of improved labour productivity. MFP growth was weak in the late 1980s and early 1990s, but its growth has improved since the early 1990s. Where it can be more easily measured, MFP growth has been similar to that experienced in Australia since the early 1990s. Figure 8: Contributions to New Zealands Labour Productivity Growth
Source: Black, M, Melody, G and McLellan, N (2003), Productivity in New Zealand 1988 to 2002, New Zealand Economic Papers 37(1): 119-150, Statistics New Zealand.
In comparing New Zealands productivity performance with that of other countries, it is most useful to look at Australia, as there is comparable statistical data. Analysis shows that Australia has experienced higher labour productivity growth across most sectors of the economy with the exception of transport and communications, where New Zealand seems to have outperformed Australia. The biggest difference seems to be in the manufacturing sector, where New Zealand had productivity growth of only 0.8% per year from 1988 to 2002 (and -0.1% from 1993 to 2002), compared with 3.5% per year for Australia. This would indicate that there may be some potential gains from raising productivity in the manufacturing sector to Australian levels, particularly given the large size of New Zealands manufacturing sector as a proportion of the total economy.
Moving up the OECD Ladder For New Zealand to move back up the OECD rankings, per capita GDP growth would need to exceed the growth rate of richer economies in the OECD by a significant margin. For example, it would need
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to exceed the UKs per capita GDP growth by 1.9% per year over the next 10 years to rise above the UKs per capita GDP. As we have seen, the two main drivers of increased living standards are labour utilisation, where New Zealands performance is already high compared with the OECD, and labour productivity, where there is room for improvement. The rest of this report addresses the specific challenge of how improvements in workplace productivity can contribute to labour productivity, notably MFP, and therefore to economic growth and New Zealands living standards.
4.2
The link between Workplace Productivity and National Productivity

The productivity of firms contributes to national productivity through three different channels: Productivity gains within existing business. OECD work suggests that productivity gains within each business account for the bulk of aggregate labour productivity growth in most OECD countries between 50% and 80%. The expansion (increase in market share) of more productive businesses, and contraction of less productive ones. OECD research suggests that the impact on aggregate productivity of this reallocation process varies significantly across countries and times, but it is typically small. Business entry and exit. The entry of newer, more productive businesses into the market and the exit of less productive businesses are both important for aggregate productivity growth. Work by the OECD suggests that the contribution of entry and exit varies across countries, but overall about 20-40% of labour productivity growth is driven by this process. Entry and exit seem to play a particularly important role in MFP growth in newer industries like Information and Communications Technology (ICT). Of all three channels, improving productivity within existing firms seems to be the most important contributor to aggregate productivity. This report and the remainder of this paper will focus largely on what drivers can be employed to improve workplace productivity within firms. The contribution of reallocation particularly firm entry and exit should not be overlooked.
Firms and Productivity Firms face strong incentives to invest in productivity-enhancing activities that will increase their returns. A firms search for advantage over its competitors will lead it to try to find better ways of doing business that increase its profitability and market share. New firms that enter the market with new technologies and techniques also create pressure on existing firms to match the incomers productivity or go out of business. The decision to invest in activities that increase productivity is thus central to the management of any firm. The productivity of the firm reflects how it brings together people, skills, technology, capital and other inputs to produce the goods and services that it sells. Firms operate within the broader macroeconomic, market and regulatory environment in purchasing inputs, such as labour, capital and other resources, and transforming them into goods and services sold to customers in relationships that are themselves influenced by regulation. These relationships are shown in Figure 9.
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Figure 9: The Framework within Which Businesses Operate
The Business Environment A range of external factors influences the decisions that individual firms make, including direct incentives (profits/returns, and the threat of takeover, merger or firm exit), and the broader institutional and regulatory environment. Factors likely to be important to productivity include macroeconomic stability, regulatory frameworks that encourage competition and policies that promote human capital accumulation and an open, connected economy. Macroeconomic conditions can affect firm productivity, for example through their influence on interest and exchange rates. Trade policies affect firm productivity, in part through their direct impact on the prices of inputs. The type and level of public spending and taxation is also important for productivity. The market environment also has an effect on the productivity of firms. A competitive market, for example, can spur productivity improvements as firms seek to enhance their performance. Efficient and effective infrastructure investment can reduce costs, for example in transport or communications, facing firms. Global connectedness (the flow of people, ideas, money and goods between countries) can promote new competition, and new ideas and technologies. The regulatory environment also has a profound influence on firm productivity. The rule of law and well-defined and enforced property rights are essential for productive activity. A wide range of laws and regulations directly and indirectly affect firms; social norms also affect how firms do business. For example, sound contract law permits efficient trade while competition law promotes innovation and productivity in a competitive environment. Corporate law protects shareholders and enhances the incentives for managers to perform, while intellectual property law balances the benefits of R&D with the public interest in disseminating knowledge.
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Financial markets and financial regulation encourage efficient resource allocation, such as shifting funds from borrowers to lenders. Labour market regulation can affect the employment decisions of firms. At the same time, investment in health and education plays a role by ensuring people are fit and able to work, and are equipped with productive knowledge and skills. While the broader economic, market and regulatory environment is undoubtedly important for the productivity of firms, it is beyond the mandate of the Working Group, which focuses only on the workplace itself and the measures that firms can take to improve their productivity, taking the broader environment as given.
4.3
Workplace Productivity Drivers

The objective of any business is to maximise returns within the constraints of the environment it operates in and, in seeking to maximise returns, firms will have incentives to do things that raise productivity for example by raising product quality, adding desirable features, improving product technology, or boosting production efficiency. Increased productivity enables a firm to produce things for less, and/or to produce more or better things at the same cost. Both effects can increase the expected returns to the firm and provide it with an advantage over its competitors. The main ways that firms can increase their productivity are through investing in capital, achieving economies of scale, investing in innovation and technology, and adopting better business practices. The way firms respond to productivity issues will depend on the costs and benefits of the options available to them. They also need to have adequate information about the bottlenecks they face and the strategies they could use in order to make good decisions. Capital investment involves putting financial resources into physical resources such as plant and machinery, equipment, buildings and technology that will generate productivity improvements and higher returns for the business over time. Capital complements labour, enabling workers to be more productive. At the simplest level, a lever for example allows a person to move a greater mass than through human muscle power alone. The more physical capital available to each worker, the more each worker can produce. Investment in new technology that embodies the latest innovations can boost productivity further having up-todate plant and equipment is associated with better firm performance. Complementary investments, such as training workers and improving the organisation of work can allow capital to be used even more efficiently. While the capital-labour ratio across the economy reflects the cumulative investment decisions of individual firms, capital investment can be affected by a number of factors. Relative prices will play a part; for example if capital is cheap relative to labour due to low interest rates or high wages, a firm might invest in new technology rather than skills, and vice versa. Government policies and economic conditions that affect relative prices can therefore affect capital accumulation. Economies of scale improve productivity as the firm engages in mass production. As the firm produces more and more goods, average cost begins to fall because of economies in production, such as using expensive machinery more intensively. Adopting better practices across the range of business procedures can also lift productivity directly through improvements in efficiency, for example in production processes, but also through improvements in the management and implementation of productivity-enhancing strategies such as worker training or R&D.
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New or improved products and processes, whether developed in the firm, adopted and adapted from elsewhere or purchased off the shelf, allow the firm to make things better, improve efficiency and quality, make better things, improve quality and develop new products. Continuous innovation and improvement in all aspects of the firms management and operations are key components of lifting productivity. We have identified seven key drivers of workplace productivity (listed below) that embody these imperatives. Productivity improvements can be made using any of these drivers, depending on the priorities facing a particular firm. However, the drivers tend to be complementary, so that changes in one area reinforce changes in another. Research suggests that the highest productivity gains are found when complementary changes are made in the skills, innovation and workplace organisation areas. For example, a firm could upskill its workers, introduce new technology and change how it does business, and thus maximise its productivity gains.9 We would note that it is not an all or nothing approach and implementation of all seven drivers is not necessarily imperative to achieving workplace productivity gains. A firm that implements one of the drivers well is likely to see greater productivity gains than if it did nothing. Ideally, firms will identify which strategies will have the greatest impact when combined and will implement these together when it is feasible to do so. These are not new concepts and many firms have been incorporating strategies that have had notable impacts on their productivity levels. These success stories need to be shared with other firms as a means of encouraging their adoption of practices which improve workplace productivity. Implicit within each of the drivers is the understanding that the way people are treated and managed is of fundamental importance to workplace productivity. People tend to be more motivated in the workplace if they feel appreciated and respected. Creating a positive work environment not only boosts morale but also productivity levels. Building Leadership and Management Capability Leadership matters. It is the enabler of all strategies that lead to productivity and can occur at all levels of a firm. Leadership is critical for setting the culture and direction of the organisation, which is itself important for productivity. Leadership involves entrepreneurial skills that are used to identify new ideas and opportunities, a vision for the future of the firm, identifying strategies to achieve the vision and the ability to inspire others. Successful firms enjoy both effective leaders and effective managers. Managerial capability includes the strategic ability to adapt to a changing environment that creates internal and external threats and opportunities; organisational and management skills; people and communication skills; and information acquisition and learning processes. Some of these skills are inherent. Many can be acquired. The roles of managers include developing and motivating workers to perform at the highest levels; selecting the appropriate level and mix of skills and technology; choosing production processes that are effective and efficient; and structuring the organisation to ensure that it operates productively. A key feature of management capability is the ability to deal with information both internal and external in a changing environment. In addition, New Zealand managers need particular skills, reflecting New Zealands values and our reliance on global connectedness.
9 OECD (2003) ICT and economic growth: Evidence from OECD countries, industries, and firms. Paris, Organisation for Economic Co-operation and Development
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Creating Productive Workplace Cultures Workplace culture refers to the formal and informal behaviours that define the way the firm does business and can have a significant impact on productivity. The formal aspect of workplace culture includes written statements of value, such the firms mission statement and organisational chart. The informal aspect, which may be more important, is about how work gets done in practice, whether through written procedures or by circumventing those, how employees treat one another, how willing they are to share ideas and information, and how the hierarchy allows employees to cross boundaries to get work done. A productive workplace culture is one that involves healthy and positive relationships between individuals within the workplace, motivating people to work, generating commitment to the firm and each other and releasing their discretionary effort. A workplace culture that fosters learning from experience encourages creativity, independence and variety, acknowledges diversity and supports staff to volunteer information and ideas. It can improve work processes and harness innovative ideas, making work more efficient and enhancing productivity in the process. On the other hand, a workplace culture that undervalues and frustrates employees can mean that workers are not giving of their best to the firm. There are strong linkages between managerial capability and leadership, and culture and employment relationships. A productive workplace culture arises from employment relationships, management and leadership all aligned toward common goals. Encouraging Innovation and the Use of Technology Most increases in productivity and in living standards come from advances in knowledge, and in improvements in the application of knowledge. New technology and processes can increase the productivity of labour, enabling tasks to be undertaken more efficiently. New technologies increase the relative demand for skilled labour. At the same time, skilled labour permits the adoption of new processes and technologies. Technical change can affect the demand for skills, as new technology replaces labour-intensive tasks. In turn, the type of technology adopted may be influenced by the availability of skills. Firms that use new technologies, equipment and processes generally enjoy higher productivity, employ more skilled workers who receive higher wages, and increase their market share at the expense of their competitors. Firms will have an incentive to invest in the development of new technologies and processes when they can capture enough of the benefits of productivity improvements to make the process worthwhile. The existence of spillovers, where other firms can capture the benefits of R&D, can reduce the overall level of private investment. But even where a firm captures enough of the benefits to invest in R&D, there may be spillovers, for example through knowledge leaks and the movement of skilled labour to other businesses. These spillovers can magnify the impact of new ideas on a wide variety of production processes and products across firms and industries, and are an important source of productivity growth. Research suggests that investment in R&D or new processes and in complementary physical and human capital not only improves current productivity, but also creates a platform from which firms build future success. Productivity increases can also come from the adoption, application and commercial exploitation of new processes and technologies developed elsewhere this route to productivity is particularly important in small countries such as New Zealand. Investing in People and Skills People and skills are a key driver of workplace productivity. More skilled workers can improve the output of the firm in a number of ways. They may be able to undertake tasks more quickly and with fewer mistakes; allow more skilled tasks or technologies to be undertaken; require less supervision,
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perform more complex tasks and carry more responsibility; and process and communicate information more effectively. Improvements in workforce skills can also increase overall productivity by raising the productivity of other firm inputs. These effects may occur in various ways. A skilled labour force is vital to producing the new ideas, innovation and imitation that sustain growth. Higher workforce skills can support the introduction and effective use of new technologies; improve the implementation of research and development (R&D) findings; allow the firm to implement better organisational structures; or assist in the assimilation of knowledge embedded in foreign capital investments. Training can increase workplace productivity, increase wages for the trained workers and lower staff turnover. Organising Work Workplace organisation is concerned with ensuring that all the activities of the firm are efficient and effective in adding value. Changes in workplace organisation that increase efficiency and effectiveness can thus contribute to productivity. Workplace organisation involves the firms overall strategy, its structure and hierarchy, the processes involved in decision-making and production, its employment relationships and reward structures. Effective workplace organisation occurs when all these components are reinforcing and aligned to the goals of the firm. Research suggests that innovation and the use of new technology will have a limited impact on increasing workplace productivity if not combined with organisational change. It is therefore important for firms to combine strategies for effective results. New workplace practices can include, for example, flatter management structures, increased employee involvement in decision-making, an emphasis on continuous improvement, more team work, bundling productivity-enhancing practices, the use of external networks and collaboration, and a greater emphasis on performance evaluation. Networking and Collaborating The use of networks and collaboration with other firms can reduce the costs of doing business and enhance workplace productivity. An important source of productivity is spill-ins of new knowledge and technology created elsewhere. Firms may rely on each other for technology transfer and learn from each other things such as manufacturing methods, modes of organisation, marketing, or product design. Not all new technology diffuses in the form of technical blueprints or new products. Networks and social capital can play a crucial role in knowledge diffusion. More interactions between firms in New Zealand and overseas could raise productivity. Networks can link individuals, groups, firms, industries, regions and countries. They create the face-to-face and workplace contact that facilitates the learningby-doing and on-the-job training that increase productivity. Linkages between researchers and industry are also critical for the effective application of new ideas and knowledge. The effects of training are also enhanced by networks which allow people to learn from one another, raising not just the productivity of the person being trained, but also the skill level and productivity of the group. People-to-people links can provide access to knowledge about trade opportunities in domestic and export markets, to technological and managerial developments and to a larger pool of skilled labour. Migrants bring with them information and links to opportunities, while New Zealanders overseas and returning to New Zealand can increase knowledge of overseas markets, languages and preferences, and build business contacts that all have the potential to decrease trading costs.
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Measuring What Matters An important tool in increasing workplace productivity is the ability to measure productivity and the success of the firms strategies in enhancing its performance. Both internal and external measures can be used. Performance measurement generally addresses the efficiency and effectiveness of a firms actions, the impact of its action on its performance and its performance relative to its plans. Measurement practices need to be tailored to provide effective information for a business to make good productivity decisions. Research suggests that high performance is associated with a balanced approach to performance measurement, covering finance, cost, market/quality, process, employee and innovation indicators, with close monitoring of competitors products through benchmarking. Benchmarking includes the identification of key processes and indicators for comparison, identifying suitable comparator firms and getting access to the comparator information. At a macroeconomic level it is also important to understand what matters for firm productivity. For example, is it the size of the business operation, the size of the domestic market, the characteristics of the firm or some other features that matter for business performance? The availability of good micro data across firms and good research procedures can help to identify the determinants of business performance.
4.4
Barriers to Introducing Productivity Improving Practices

In a competitive market, firms should have strong incentives to engage in practices and strategies that raise their productivity. To be worthwhile, productivity improvements should deliver net benefits to the firm. They should also offer a higher, risk-adjusted rate of return than alternative investment opportunities. But there may be barriers that impede firms from developing or implementing productivity improvements, typically where firms do not see them as worthwhile due to their costs, risks or the inability to appropriate the benefits. We believe that the five key barriers are likely to lie in the following areas: High Information Costs To make the best possible decisions on the practices and strategies needed to raise productivity, firms need appropriate information on what these practices might be. However, the perceived costs of obtaining information may be high relative to the potential benefits. Tacit and/or diffuse information may be particularly difficult to acquire. Information about best practice, new ideas or the latest technology may, as a result, not be readily available to firms. The difficulties and costs of obtaining timely and relevant information can mean that firms may be unaware of the productivity bottlenecks they face and/or the appropriate strategies for overcoming them. We have identified information costs as a major barrier to improving workplace productivity and our recommendations contain measures to address this issue. Costs Outweighing Benefits Implementing new practices and strategies to lift productivity can involve significant costs, for example in new machinery, changing processes, training and workplace organisation. There may also be a period of lower productivity while the reorganisation is bedded in. Typically these costs occur in the short term, while the benefits extend over a longer period. High short-term costs relative to modest long-term costs may mean productivity-enhancing propositions are not perceived to be
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worthwhile relative to other investment opportunities. Although our terms of reference emphasise that our recommendations should build on the existing regulatory framework, we note that regulation can have a significant effect on the costs facing a firm, with commonly cited examples being the impact of labour market and resource management regulation on investment decisions. Resistance to Change Implementing a strategy to lift productivity may be difficult if there is a lack of buy-in to the strategy. For example, a perception that a productivity strategy would result in job losses could result in opposition to its adoption. Risk There is likely to be an element of risk involved in implementing many of the practices and strategies that could lead to improved productivity. For example, changing business practices often creates associated costs and, if the new strategy does not deliver the expected benefits, there is a risk that the effort and resources involved will have been wasted. If a firm thinks the risks of a new strategy or practice are too high compared with the potential benefits, they may decide to maintain their current practices, even if these are not delivering the maximum possible level of productivity. Risk is particularly important in R&D and may deter investment, especially in frontier research where the firm bears all the risk. Spillovers In making a decision to invest in a productivity-enhancing strategy, the firm will necessarily consider only those gains that it can capture, for example in the price of the product it sells. However, firms can be reluctant to invest in productivity-enhancing activities if they think their competitors could capture so much of the gains that the investment is not worthwhile.
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meeting the workplace productivity challenge

wpwg findings and recommendations
At a firm or industry level, productivity growth is important because it means businesses can meet their obligations to workers, shareholders, and governments (taxes and regulation), and still remain competitive or even improve their competitiveness in the market place.10 Westpac Economic Overview July 2004
New Zealands challenge for the future is to build on its high performing workplaces, while also achieving improvements that move the country to a sustainable, high value, high skill and high wage economy. There is no single answer to this challenge. Instead this report articulates how all firms are capable of raising workplace productivity, and how doing even a few things right, such as training or investing in new technology, can contribute to greater gains for everyone. We recognise that there are many different ways to define what is important for improving workplace productivity. The way people think about these issues depends on their perspectives and the types of business, industry or union that they are involved with. This report seeks to distil the wide range of points of view that were articulated over the course of our considerations. In this section we identify some steps for how New Zealanders can raise workplace productivity in order to improve economic performance and therefore ensure we have the very best quality of life possible. Our findings and recommendations set out an agenda for responding to the workplace productivity challenge and emphasise the need to build a shared responsibility for action among industry, firms, unions, employees and government.
SHARIN G RESPON SIBILIT Y We view this report as a means of beginning a discussion about the importance of lifting workplace productivity. In order for this discussion to lead to sustained change, we have sought to approach the concept of workplace productivity in a broad way that adds value to existing systems and processes and sets goals for continuous improvements.
10
Westpac Economic Overview, July 2004, page 2.
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Industry, business, unions and employees are all important in lifting productivity at the firm level. Representatives of these key stakeholders have conveyed a strong sense of commitment to workplace productivity but have also acknowledged that sharing responsibility with government in an appropriate manner is also required as a part of the Workplace Productivity Agenda. We believe that industry, business, unions and employees and their existing networks can be a very effective avenue to move the ongoing workplace productivity agenda forward and wherever possible these networks and structures should be utilised. In order for this to be successful in building productivity improvements, there must be a commitment to the concept of joint responsibility among industry, business, unions, employees and government. A joint commitment to action the Workplace Productivity Agenda will be sought with stakeholders. The proposed Workplace Productivity Agenda (which is detailed later in this section) includes a number of actions aimed at providing support to firms in lifting their productivity. Support may be provided through a variety of mechanisms, such as regional workshop meetings and on-line information, and by any of the parties involved in delivering the Agenda. It is envisaged that the governments role in the Agenda would focus on facilitation and support. As there is already a wealth of information and support available to firms, a key focus going forward will be to help them access these resources and to add additional assistance, should that be required.
R EL E V ANC E T O ALL FI RMS A N D SECTORS Our recommendations (outlined later in this report) are founded on the principle that the Workplace Productivity Agenda must be relevant to all firms. New Zealands economy includes a wide variety of firms in terms of size, geography and business operation, each of which faces specific challenges in increasing productivity levels. Of all New Zealand enterprises, 97% employ 19 or fewer employees. This is not exceptional when making comparisons with other countries. Using value added as a measure of output, SMEs accounted for 38% of the economys output in 2003.11 In terms of total employment, around 30% of employees work in a workplace with fewer than 20 employees, although this needs to be balanced against the roughly 50 %who are employed by businesses with more than 100 employees.12 Productivity is an important issue for all businesses, and so communications and support tools need to be customised across sectors as much as possible to be relevant to a range of needs. For example, SMEs face specific challenges in increasing productivity levels across all of the drivers identified (see pages 37 43), including how to encourage both national and international expansion as a means of increasing productivity. We were cognisant of the challenges faced by firms of different sizes in drafting the Workplace Productivity Agenda. We also note two other important considerations for ensuring our recommendations are relevant for all firms: While we have not analysed or considered the performance of the public sector, the Working Group recognises that improving workplace productivity in this sector is also important and we believe many of our recommendations are also relevant to the public sector.
11 12
Ministry of Economic Development (2004), SMEs in New Zealand: Structure and Dynamics, Wellington. Mills, D and Timmins, J (forthcoming), Firm Dynamics in New Zealand: Comparative Analysis with OECD Countries, Working Paper, Wellington, New Zealand Treasury.
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The government will need to consider further how workplace productivity improvements can be achieved in the public sector. We are aware there is variability in the performance of firms across different industry sectors. While we did not analyse the aggregate performance of the New Zealand economy on an industry basis, different sectors will be in different positions in terms of the potential for them to achieve workplace productivity improvements, the types of assistance that could help them, and industry willingness, readiness and motivation to engage with the Workplace Productivity Agenda. In implementing the Workplace Productivity Agenda, initiatives will need to be developed that meet the needs of SMEs, and different sectors or industries. The development of these initiatives will also need to take into account sequencing issues about the prioritisation of assistance and targeting to achieve the greatest effectiveness, for example in terms of identifying what the criteria are for providing direct assistance to firms for a particular initiative.
Improved Accessibility and Reach One of the key issues raised at the Workplace Productivity Workshop was the accessibility and reach of government programmes. To inform our recommendations a stocktake was undertaken of existing government programmes available to industry, firms and unions that could assist in productivityimproving business practices. This exercise confirmed that there is a wide range of programmes currently available to these groups, all of which are aimed at assisting them to succeed with their business strategies. A proportion of firms was not fully informed about what existing support was available or how different government programmes functioned. Representatives from firms also indicated that they did not always use the government information or programmes available to them as they found the current systems and processes too onerous and complicated. Overall, they wanted more information about what supports are currently available to them and to be able to access in a simple and easy manner.
S T R UC T U RE OF OU R RE C OMMEN DATION S In Section 2 (pages 13-19) of this report, we have identified seven main drivers that are important in lifting workplace productivity: 1 Building Leadership and Management Capability 2 Creating Productive Workplace Cultures 3 Encouraging Innovation and the Use of Technology 4 Investing in People and Skills 5 Organising Work 6 Networking and Collaborating 7 Measuring what Matters The Working Group has made recommendations for each of these drivers under four broad actions identified on the next page (Figure 10).
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These actions shown in Figure 10 support the Productivity Agenda and represent a broad framework for the ways that industry, firms, unions, employees and the government can implement productivity improvements. The actions identify what we think matters for improving workplace productivity, and the order in which we think support should be provided. The intention is to create an ongoing process that generates continuous improvements in the processes and systems available to all stakeholders. It is proposed that support for firms will continue to be the shared responsibility of all partners identified in the framework.
Awareness Raising This is an extremely important component of meeting the productivity challenge. It is proposed that a first step in the process of improving productivity gains for all New Zealand firms is promoting greater awareness of what workplace productivity means and the potential opportunities and benefits that can be created for all, in a way that is meaningful for all New Zealand workplaces. Lifting the profile of workplace productivity is a responsibility for industry, firms, employees, unions and government. Figure 10: Framework of Recommendations
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Diagnostic Tools Diagnostic tools assist firms in identifying how effectively they are performing, and identify where they may need to improve. Diagnostic tools can measure performance individually against any of the seven drivers of workplace productivity, although the diagnostic process will be more effective where it examines performance against a combination of these drivers (reflecting the complementarities between different business practices). An effective diagnostic tool will enable a firm to undertake a gap analysis of current performance and the firms objectives. The tool may also allow for ongoing evaluation of the firms progress in achieving changes to its business practices and measurement of the improvements that result. To assist in this process, and to ensure that firms can easily access and navigate the wide range of government support that is available to them, we are recommending the development of a range of diagnostic tools to help firms in this next stage. There are many existing diagnostic tools, and it will be necessary to look at what tools already exist to identify how these could be complemented or supplemented by the development of new tools. There is a range of different types of diagnostic tools for example they can be on-line questionnaires linked to productivity tips, summaries of best-practice findings, skills needs analysis and analytical frameworks. There is also a range of ways in which diagnostic tools can be applied for example, they can be self-administered tools or on-line programmes, or they can involve interactions with experts in a particular field. Employee involvement in the assessment process is also a vital component to its success because workers will ultimately be responsible for implementing any workplace productivity strategies and those strategies will need to reflect workers experiences to be truly effective. These diagnostic tools may also help in ensuring that an individual firms productivity improvement strategy is aligned with its business practices, including incentives. For example, if a firms approach to the use of technology does not support its organisational goals, then the firm may not realise the potential benefits of introducing new technologies.
Implementation In implementing strategies to improve productivity, a firm is likely to want more information and support to decide what specific actions it wants to take and the best way to put these in place. This could include access to professional support, quality assurance and best practice, and information about what sort of support is most effective and is directly linked to productivity gains. Based on feedback from the workshop, firms have indicated they want to be able to access information in a simple, user-friendly, streamlined manner. For example, a firm may simply need to know where to find good consultants to assist in implementing parts of its strategy, it may need information about training and/or education programmes available to meet its specific needs or it may need small business growth assistance.
Research and Evaluation As firms engage in workplace productivity strategies, valuable information, such as lessons learned, best practices, collection of benchmarking data and other information, will be collated and developed to become additional tools to assist businesses towards continuous improvement in the future. Research will continue in various government and non-government agencies that will also build on the workplace productivity knowledge base. Collaboration among all the key stakeholders (industry,
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firms, unions and employees) will be required to ensure that this information is organised and made easily available. Support for networking activities to facilitate information/knowledge dissemination and sharing may be needed to encourage firms to participate and realise the benefits of this exchange.
5.1
A Workplace Productivity Agenda

During the 90s, productivity meant reducing staff numbers and making people work harder to make the profit share more compelling. But this made it harder for employees. It seems to have changed over the last couple of years. Employers are meeting employees part way. WPWG Focus Group Participant Auckland, 16 July 2004
Improving workplace productivity needs to be a high profile issue for industry, firms, unions, employees and government. We have made a range of recommendations for how workplace productivity can be improved we recommend that a Workplace Productivity Agenda be adopted to provide a co-ordinated response to our recommendations, to oversee this response, and to generate joint commitment from industry, firms, unions, employees and government to improving workplace productivity. For the remainder of this report, this co-ordinated response is what we mean when we refer to a Workplace Productivity Agenda. The process we undertook in reaching our findings has generated a heightened level of attention to workplace productivity issues, a significant level of commitment from key stakeholders and goodwill for initiatives to lift New Zealands overall workplace productivity performance. We consider that it is essential this commitment and goodwill be harnessed to achieve sustained emphasis on continuous improvements in workplace productivity. It will also be important that the Workplace Productivity Agenda is connected to or aligned with other activities, such as research commissioned by the GIAB on how workplace culture is integral to innovation and productivity improvements. In communicating messages about the Workplace Productivity Agenda there needs to be a greater emphasis on learning how to do what we do better, increasing the value of what we do now and identifying the new opportunities that will lead to the higher value, higher skill, higher wage economy. Productivity messages also need to be presented in line with New Zealanders values, and emphasising the potential for the associated benefits and opportunities from productivity to be shared. When businesses excel, the benefits of that extend to customers, for example through improved service delivery, and employees, where increased profits lead to increases in compensation and/or employee benefits. In the past, debate about how to improve productivity in New Zealand has been affected by some negative interpretations, including concerns that it equates to cost-cutting.
The Agenda Needs to be Overseen by a Successor Body to the WPWG It would be valuable to have a successor body to this Working Group that is accountable for the proposed ongoing Workplace Productivity Agenda, and charged with maintaining the profile of workplace productivity issues and the commitment of the key stakeholders.
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While there is a range of institutional forms that a successor body could take, on balance we support the form of an advisory board or committee. We recognise that there are already a number of advisory boards and committees in place, and that the government may wish to allocate to an existing body responsibility for the functions we outline for a successor body. We consider that a separate successor body should be established to oversee the Workplace Productivity Agenda, and that body should be responsible for ensuring its activities are aligned with and complementary to those of existing bodies. If, however, an existing body were to be allocated responsibility for overseeing the Agenda, then we recommend that the workplace focus is strongly emphasised. The successor body should be: Founded on the basis of shared responsibility, consultation and active engagement industry, firms, unions, employees and the government this approach is important for creating a degree of independence so that the body can credibly engage with a range of stakeholders. Established for a specified period of time and subject to a review of its purpose, effectiveness and composition towards the end of that period we would recommend a time frame of two to three years to provide the body with sufficient time to achieve a clear impact on workplace productivity. Focused on short- to medium-term implementation the body should focus on ensuring our recommendations are delivered over this time frame, although changes to its focus may be appropriate over the longer term.13 Representative of a broad range of industries and different sized firms this will support the ability of the body to achieve buy-in from a broad range of stakeholders. Supported by a secretariat seconded from interested departments and agencies.
Functions to be Included in the Workplace Productivity Agenda We consider that the following functions need to be included in the Workplace Productivity Agenda:
Awareness Raising Strategic Communications: A strategic communications programme that continues to raise the profile for workplace productivity and that keeps the workplace productivity agenda alive by promoting the benefits and opportunities of productivity improvements. This action should engage all the key stakeholders.14
13
For example, as a result of the proposed review of the ownership bodys purpose and effectiveness, in the longer term the ownership body may shift to more of a monitoring and supporting body. Possible partners include the New Zealand Institute of Management, the Industry Training Federation, the GIAB, the SBAG, the Equal Employment Opportunities Trust, the Human Resources Institute of New Zealand, the National Advisory Council on the Employment of Women, Economic Development Agencies, Chambers of Commerce, Business in the Community mentors, employers organisations, unions, NZTE, Economic Development Association of New Zealand, and Enterprise Training providers.
14
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Information Sharing and Dissemination: An intermediary role around sharing knowledge by supporting the distribution of research and diagnostic tools and technologies with the support of all the key stakeholders.
Diagnostic Tools Information Sharing and Dissemination: An intermediary role around creating or commissioning new diagnostic support tools and other assistance to help identify possible workplace productivity improvements.
Implementation Facilitation: A facilitation role to provide a catalyst for learning, such as bringing firms together for business-to-business exchanges. This could occur through a range of functions such as participation at small business days, seminars, workshops or a workplace productivity conference. Funding: Providing funding support for capacity-building activities and workplace productivity improvements. (More detailed recommendations on the use of the available funding are made later in this section.) Supporting organisations that could be funded include regional development agencies, networks, industry or sector associations, clusters, business support organisations and unions.
Research and Evaluation

Research and knowledge-deepening role to:
1 Develop links to international productivity organisations, such as the Australian Productivity Commission. 2 Evaluate appropriate supports for micro enterprises and SMEs with the specific aim of determining whether a one-on-one or small group mentoring pilot programme would be of value. 3 Commission and report on research into workplace productivity issues, including learnings from international best practice and research into practical initiatives and existing workplace practices that can lead to identifiable workplace productivity improvements. 4 Take a role in understanding the barriers to accessibility and reach and why they exist. Section 1 (pages 37 - 38) of this report has suggested some of the barriers but more work is required to fully understand why firms choose not to implement basic management strategies, despite knowing that they would be likely to derive considerable benefit from them. Review: Taking an active role in reviewing government programmes to ensure that resources are focused, targeted and relevant. As the Workplace Productivity Agenda proceeds, government will remain cognisant of how best to co-ordinate and deliver its programmes to ensure that they are effective, relevant and readily accessible to firms, both individually and as a whole, and include workplace productivity as a consideration in planning and implementation.
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The WPWG Could be Responsible for Communications until a Successor Body is Appointed We recognise that the appointment of a successor body may take time. In the interim, we would suggest that we continue to be responsible for communications activities, including around the launch of our report.
The Funding Available For Workplace Productivity Initiatives In Budget 2004 the government set aside a contingency of up to $2.5 million per year to implement our recommendations. This funding allocation is intended for activities to promote improved workplace productivity with the Working Group to advise on the merits, establishment and operation of a workplace productivity initiatives fund. We considered a range of possible options for the use of the available funding to support workplace productivity initiatives, including the use of a contestable funding process and direct tendering for services. Given the level of funding available, we do not consider individual grants or a contestable fund would provide sufficient value for money, owing to the reasonably small number of grants that would be possible. Instead, we recommend a flexible method of allocating funds across the functions proposed for an ongoing Workplace Productivity Agenda be used because this will allow for targeting areas of greatest importance each year. The successor body should be required to identify to Ministers the areas in which it considers the most emphasis should be placed each year and the allocation of funds it proposes making across these areas, and should be accountable to Ministers for the achievement of agreed outcomes. This funding model would still involve a degree of contestability within functions such as research and knowledge deepening, and the development of diagnostic tools and technologies, while ensuring value for money through tendering for other services.
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5.2
Building Leadership and Management Capability Findings and Recommendations

Leadership is an influence relationship between leaders and followers that seeks to elicit voluntary commitment and action to effect real change and outcomes that reflect their shared purpose. Lester Levy, NZ Leadership Institute WPWG Workshop, May 2004
Discussion Leadership and management capabilities are critical drivers of firm capability and performance. Leadership capability involves vision and applies to an individual or teams ability to identify new opportunities and motivate others to pursue those opportunities. Leadership capability, and in particular leadership by example, is a particularly important factor in enabling the behaviours and decision making that will add value to a firms systems and processes. Effective leaders can be found at every level of a firm, whether they are formally acknowledged or not, and successful businesses are often characterised by the depth of leadership within their organisation. As outlined in the first part of this report, management capability includes the ability to adapt to a changing environment, organisational and management capability, people and communication skills, and information acquisition and learning processes. Some of these skills are inherent, while many can be acquired in a number of ways, including mentoring, networks and on-the-job learning. Investment in physical capital and in raising workplace skills (human capital) is most likely to succeed in instances where managers and leaders recognise the value of increasing productivity and have the necessary skills to achieve it. Improvements in management and leadership skills are about doing things better, for example by identifying productivity bottlenecks and then devising and implementing strategies to overcome these. As firms grow, adopt new technologies or become exporters, they require more sophisticated and specialised management processes. If they can effectively and efficiently manage these changes, organisations will be better placed to realise the productivity benefits of new resources and potentially succeed in new markets.
WPWG Findings There is a widespread perception, although little hard evidence, that weaknesses exist in the quality and quantity of New Zealands stock of leadership and management capability. Concerns centre on the ability of New Zealand managers to take advantage of changing business environments, through such measures as marketing, innovation management, and building networks and relationships. However, measuring the quality and quantity of management capability is difficult, and there has been little New Zealand research into management capability in recent years. It is unclear how the capability of New Zealand leaders and managers compares internationally, or how it differs among firms in different sectors, of different sizes or at different points in the business life cycle. There is also a lack of information about whether the diverse range of management capability services available to New Zealand firms is well directed at their particular needs, taking into account that the management capabilities required in New Zealand are a reflection of this countrys particular circumstances and characteristics. For example, a heavy reliance on international connections leads to an important need
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for relationship building and export marketing skills. Cultural attributes such as an independent outlook and focus on quality-of-life may also pose particular challenges for New Zealand managers. What is known is that without strong leadership and management capabilities in a firm, it is difficult to successfully develop and implement initiatives around any of the other key productivity drivers. To assist in building greater leadership and management capabilities, we support the following main areas of government action, all of which are currently being pursued by MED through its management capability work programme. These are: Improve understanding of management and leadership capability in the New Zealand context. Raise awareness of the importance of good leadership and management to workplace productivity. Improve firms access to management and leadership development services.
Existing Programmes We note the following MED-led programme of planned activities: Facilitate the establishment of a Management and Business Capability Co-ordinating Project (MBCC Project)15 to promote and secure an integrated approach to the development and delivery of management and firm capability in New Zealand. The Project will aim to help the government develop and implement well-focused management capability actions. It will also play a role in helping to deliver management capability initiatives. Gain an improved understanding of New Zealand management capability by drawing on existing data, undertaking research and collecting new data. Develop working hypotheses about how demand and supply differs across New Zealand firms at different life cycle stages for management and leadership development. Develop a framework and indicators to measure management capability. Use the indicators to measure the quality and quantity of management capability and how it changes over time. Raise awareness of the importance of management capability, such as through a co-ordinated promotional campaign, in order to stimulate demand among firms and individuals. Investigate whether existing management capability services, including Tertiary Education Commission (TEC)-funded services are sufficiently well targeted at the needs of New Zealand firms, including SMEs and micro firms. Where necessary, improve this targeting by removing overlaps and filling gaps.
15
The Project group is in the early stages of developing a strategic plan. Group members currently include: Business New Zealand, CTU, Chambers of Commerce, New Zealand Institute of Management, New Zealand Business Excellence Foundation, Independent Business Foundation, Employers and Manufacturers Association, Centre for Organisational Excellence Research, Business in the Community, Vice-Chancellors Committee, institutes of technology and polytechnics, Industry Training Federation, Economic Development Association of New Zealand, MED and NZTE. Other agencies will be involved as the project progresses.
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W PWG RE C OMME NDAT I ON S In recognition of our findings outlined above, and to complement the activities and processes that are already taking place, the Working Group recommends the following additional actions:
Awareness Raising 1 Raise awareness of the importance of good leadership and management to workplace productivity by showcasing effective leaders and celebrating their success, and highlighting the need for leaders at all levels of an organisation. 2 Examine how existing government assistance programmes could be improved to raise awareness of the benefits of leadership and management development. 3 Use industry networks to raise awareness of the importance of leadership and management capability in improving performance, and to spread best practice, through the sharing of management and leadership skills and experiences.
Diagnostic Tools 4 Review the availability and effectiveness of existing tools for diagnosing the level of leadership and management capability in individual firms and improve them, as necessary, to ensure they meet the needs and circumstances of all types of New Zealand firms.
Implementation 5 Make it easier for firms to access government leadership and management development services in a seamless way. 6 Assess the extent to which quality standards exist for leadership and management services and, where necessary, develop such standards. 7 Bring together businesses and organisations delivering and developing courses and information on leadership and management capability to ensure that they are accessible and relevant to firms. This may include bringing together education institutions and third-party training providers and firms.
Research and Evaluation 8 Research whether firms have sufficient incentives to invest in building leadership and management capability and, if necessary, take action to strengthen these incentives. 9 It is proposed that the MBCC Project advise the Working Groups successor body of their progress in carrying out its planned work programme to check that activities aimed at increasing overall productivity are well aligned, co-ordinated and complementary with the proposed Workplace Productivity Agenda. This co-operation would also provide the successor body with the ability to ensure that the Working Groups recommendations (as outlined in this report) are delivered. 10 Research the value and potential mechanisms for introducing mentoring for managers in SMEs. 11 Conduct research to gain a clearer understanding of leadership and management capabilities to avoid duplication and add value to existing programmes, such as the MBCC Project.
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Case Study Toll Tranzlink
We were on a downward spiral with no real future. However, we didnt let this stop us. We went for a 50-50 strategy 50% best-of-breed technology and 50% the best in management and education. In three years we have turned the firm around and it is now financially stable and growing. We have an operationally sound network and a proud culture. Informed decision-making happens at the coalface or at a grass-roots level first in our company. We are now moving at pace in one direction as a world-class logistics operation that people want to work for. Greg Miller, Group General Manager, Toll Tranzlink
Just over two years ago Toll Tranzlink was facing massive business challenges and significant financial losses. Poor systems and reporting at all levels in the firm meant that misinformation was running the company into the ground. In fact, the financial losses caused by the low levels of business knowledge meant Toll Tranzlink was nearly at the point of insolvency. The poor systems were also leading to poor decision-making in the firm and inconsistent customer service. As a result, Toll Tranzlink had grumpy customers, high customer and staff churn and constant leadership and management changes. The poor financial performance also discouraged shareholders from making much needed investments to improve the firm. In summary, Toll Tranzlink was a very poor performing company with extremely low levels of morale, a lack of trust between workers and management, and generally poor productivity in all areas. When Greg Miller joined the firm his first priority was to stabilise the business. Once the lack of business knowledge was identified as the foundation of Toll Tranzlinks performance issues, Mr Miller set out to implement a solution that involved integrating the people and systems, implementing an enterprise-wide new management system, and ensuring that a strong leadership team was in place that included industry specialists. Mr Miller says that Toll Tranzlinks leadership team embarked on a strategy that involved the introduction of a broad range of technological solutions to improve their business knowledge. At the heart of the technology strategy was the development of a best of breed web-based system for global access to business information. This technology was designed to be used by mobile operators in the field, in trucks, in the yards or working on a forkhoist, Mr Miller says. This meant that Toll Tranzlinks operations data could be collected at all stages and while workers were on the move. The data collection was built into the desired business practices and processes. Many communications options existed but Toll Tranzlink settled on a strategic partnership with Vodafone to provide GPRS technology (and RF, radio band and frequency-Fleet Link). continued
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continued A massive investment in behind-the-scenes technological infrastructure was needed to create Toll Tranzlinks knowledge management and visualisation systems, to make use of the new business data that was to be collected. As they say, a picture is worth a thousand words so thats what we did. We turned our business data into pictures, and we have just reported a 400% return on investment (ROI) in 30 months from our investment, Mr Miller says. The leadership team also recognised that to get good data collection and make a difference to the firm, every staff member needed to be committed to the changes, whether they were in a Toll Tranzlink depot or driving a refrigerated truck the length of the country. This meant developing a full suite of educational tools to teach staff how to use the new mobile data collection system and setting up two education centres. Toll Tranzlinks First Class Training School was designed for both literate and illiterate workers, and covered how to self-measure within all areas of the organisation, as well as understanding the productivity drivers that are relevant to each staff member and how they can individually influence the firms outcomes. Toll Tranzlinks workers were introduced to the new technology by providing it with technology games and tests to allow them to grow and navigate with the new tools in both software and hardware. At the training school, workers were also taught budgeting at home in line with profit and loss reporting in a firm, to reinforce how live, accurate, daily self-measurement was a driver to improved firm-wide productivity. Mr Miller says that once the significant investment in training had been made, Toll Tranzlinks new enterprise management system was deployed nationally, with the leadership team taking a central role during the roll-out. Our new systems meant every worker had full transparency on their business decisions, down to the minute, 24/7. And we managed to do all of this concurrently and on a budget that was less than the past operations system-licensing cost, Mr Miller says. The successful implementation of the technology, staff and business process strategies at Toll Tranzlink has enabled far broader and more accurate reporting, with a knowledge management system that now handles over eight million pieces of real-time business information each week. The accuracy of the information has also resulted in a 55% increase in the number of on-time, undamaged deliveries and more effective use of each trucks capacity, creating significant improvements in customer confidence and far better overall business performance.
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5.3
Creating Productive Workplace Cultures Findings and Recommendations

Culture is how people behave when the boss isnt around. Kevin McKenna, PricewaterhouseCoopers WPWG Workshop, May 2004
D I S C USSI O N A productive workforce relies on a firm having a learning environment that builds on its experiences, rather than punishing mistakes. It also encourages creativity, independence and variety, acknowledges diversity and supports staff to volunteer information and ideas. Firms can cultivate such an environment16 by: Acknowledging and rewarding good ideas, suggestions and voluntary effort. Having methods of performance evaluation that are clear, consistent and regular. Recognising that individuals seek satisfaction and fulfilment both at work and outside of work. Having open communication lines, especially about changes or developments within the firm. Fostering good communication by providing opportunities to interact in a work and social sense. Promoting shared goals and values, such as encouraging teamwork, shared effort and acting in a respectful manner towards others. Leading by example, such as modelling the behaviour you want others to adopt. Workplace culture is the set of beliefs and behaviours of individuals within a firm or workplace. Good culture is not necessarily a formal concept; rather it is about the atmosphere that exists in the workplace good culture is about having healthy and positive relationships within the workplace, and having an environment where people want to go the extra mile to create value in their work and the wider firm. Figure 11: Culture Flow
The diagram above illustrates the Vodafone approach of creating culture and identity for employees, which leads to motivated and achievement-focused staff who actively engage in the firms overall goals and strategies. (See case study in this section.)
16
For further examples of practices to cultivate a good work environment see Unlimited magazine 2004, The 20 Best Places to Work Survey, February.
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Research in New Zealand and overseas shows that where culture is currently not given sufficient emphasis, this may be due to the complexity of organisational culture as a concept and the difficulty people may encounter in trying to change culture. However, the contribution of a positive workplace culture to productivity performance is significant and cannot be ignored.
W PWG FI NDI NG S The right culture can create improvements, especially through greater employee participation, in work processes and harnessing innovative ideas, which further raise productivity. We believe that more emphasis could be placed on workplace culture and the benefits that a good culture can have in supporting employee participation and better employment relationships, which generally lead to productivity improvements. Developing and supporting culture is often a difficult challenge because it is dependent on the relationships between those in individual workplaces. It is similarly hard to identify how best to provide assistance on how to improve culture, with research showing that successful cultures are hard to replicate. As a consequence, our recommendations in this area are more focused on helping people to identify and apply principles that can support positive workplace cultures and employment relationships. We have determined that for culture and employment relationships to effectively improve productivity, firms need to:
Consider culture at the same time as they are developing and setting objectives and strategies, because to obtain these benefits17 the organisational culture needs to be aligned with and support the strategies of the firm. Take a more participative approach to employment relations, by engaging with their employees in a meaningful and ongoing way. This needs to be a two-way process, where there is a mutual investment in the employment relationship leaders need to model the expected behaviour and employees need to respond to the opportunity by contributing. Develop leaders and managers with capability for recognising and responding to culture and employment relationships. There are also strong linkages between managerial capability and leadership, and culture and employment relationships. Anecdotally we heard of SME owners finding these issues difficult to deal with, although we are also aware that there are many examples of small firms where the personal relationship is paramount and motivates productive outcomes. There is also evidence in larger firms that managerial capabilities could improve in such areas as the management of employment relationships.
Perceptions of Workplace Culture in New Zealand Research has shown that perceptions of workplace culture in New Zealand are generally positive. A 2003 Department of Labour survey indicated that the majority of employees rated the relationships
17
For example, the contribution of innovative ideas, a better public profile improving recruitment chances and improvements in the commitment, shared vision and retention of existing staff.
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between employers and employees at their workplace as good (34%) or very good (49%), with just 5% rating employment relationships negatively.18 Our findings are supported by more recent research by the GIAB19 on attitudes to growth. This research found some reasonably significant differences between employer and employee perceptions of the state of workplace relations. We consider that the GIAB findings are likely to reflect the attitudes that New Zealanders have about the importance of workplace productivity.
Workplace Actions
(employee response20) My employer values my work My employer encourages me to put forward my ideas There is good staff morale I am recognised for any new ideas that I raise
Applies a Lot (10) 22%
Applies (7-9) 51%
Neutral (4-6) 17%
Does Not Apply (0-3) 10%
21%
43%
21%
14%
15% 13%
46% 34%
24% 31%
15% 21%
Workplace Actions
(employer vs. employee) Recognising or rewarding employees that raise new ideas that help your organisation Providing opportunities for employees to train and learn new skills
Employer Positive Response
Employee Positive Response
72%
47%
75%
65%
The GIAB research reinforces the common perception of New Zealanders as hard workers, who have a positive disposition towards innovation and improvements in work processes. We consider that there are significant benefits that can come from linking this work ethic with more of a focus on working smarter.
Employment Relationships and High Performing Cultures Evidence about employee practices from the MED research Firm Foundations: A Study of New Zealand Business Practice and Performance shows widespread diversity among the adoption of what may generally be considered to be good practices.21
18
Waldegrave, T, Anderson, D and Wong, K (2003), Evaluation of the Short Term Impacts of the Employment Relations Act 2000, Department of Labour, Wellington, page 43, available at http://www.dol.govt.nz/PDFs/ERA%20Evaluation.pdf
19
Growth and Innovation Advisory Board (2004), The Report on Research and Growth in Innovation, available at http://www.giab.org.nz/uploadedfiles/Documents/Reports/Research_Summary.pdf Employee responses are rated on a scale of 1 to 10. Knuckey, S and Johnston, H (eds) (2002), Firm Foundations: A Study of New Zealand Business Practice and Performance, Ministry of Economic Development, Wellington, page 59, Figure 14, Employee Practices.
20 21
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Question: This business ... reviews employee performance at all levels has at least a few employees on pay-for-performance schemes conducts in-house training uses external training provides opportunities for job rotation/exchanges systematically measures employee satisfaction has processes in place to manage employee health and safety
Leaders 72% 68% 100% 95% 65% 99% 97%
All 30% 43% 83% 71% 46% 84% 84%
Laggers 12% 22% 56% 39% 24% 62% 54%
Research by the GIAB also suggests a lingering lack of trust between employers and employees in the workplace, and raises a concern regarding employees perceptions of the value and recognition of their contribution of new ideas to their workplace. This lack of trust needs to be addressed. Employee participation can be seen as contributing to the success of employment relationships and therefore the creation of more productive workplaces. It is envisaged that promoting greater awareness of the value of employee participation would be a key activity for the Working Groups successor body, as part of the proposed Workplace Productivity Agenda. We consider that there is potential for further benefit from more widespread adoption of good employment relationship management practices, although there needs to be caution to ensure that the adoption of these practices does not overly formalise employment relationships. Unions can have a crucial role to play in supporting a positive workplace culture, both as the representatives of their members within particular workplaces and as sources of information about employment practices more broadly. This role will work most effectively where there is a positive and constructive relationship between management and union representatives, based on mutual respect and recognition of the benefits of constructive engagement towards common objectives.
Existing Programmes Industry, firms, unions and employees can currently access a range of support to deal with employment relations or business management issues. However, there is still an emphasis on resolving problems after they have arisen rather than in promoting a positive workplace culture. In the 2004 Budget the government announced funding for the establishment of a Partnership Resource to promote workplace innovation, productivity growth and improved service delivery through constructive employer/union partnerships. Work to scope the functions and form of this resource has been completed. This Partnership Resource will provide a useful complement to our recommendations.
W PWG RE C OMME NDAT I ON S In recognition of our findings outlined above, and to supplement the activities and processes that are already in place, we recommend the following actions:
Raising Awareness 12 Model and communicate the benefits of good employment relationship practices through industry organisations, networks, clusters and unions. 13 Promote purposeful employee participation, including in change management.
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Diagnostic Tools 14 Review existing programmes and support to promote productive workplace cultures and develop tools, information and frameworks to address any identified gaps. This would include assessing what tools are available for measuring and addressing employment relations issues and employee participation.22
Implementation 15 Continue to support firms, employees and unions in improving their employment relationships and in developing supportive workplace cultures. 16 We endorse the establishment of a Partnership Resource to promote workplace innovation, productivity growth and improved service delivery through constructive employer/union partnerships. 17 Create greater dialogue between industry, firms, unions and employees on how to develop combined strategies for encouraging productive workplace cultures and building effective employee participation mechanisms. 18 Promote and roll out tools, information and frameworks for building productive workplace cultures.
Research and Evaluation 19 Undertake research on employee participation mechanisms in New Zealand workplaces, including identifying good practice examples.
22
This should be a first step that precedes the development of more comprehensive diagnostic tools, as well as the expansion of these tools to be targeted at different types of firms or made more industry specific (as recommended under Ongoing Research and Evaluation).
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Case Study Vodafone Investing in Culture and Values
Achieving the right culture and values has been crucial to Vodafones success over the past six years. At the heart of the Vodafone story is the belief that focus on the customer is the key to sustained business performance. Leaderships role is to create this focus with the people in the organisation. The business results speak for themselves. Vodafone has grown its customer base from 138,000 customers in November 1998 to 1.675 million as at June 2004 a market share of 55.4%.
Values and the Vodafone Branded Customer Experience Vodafones success is one built on differentiation of the customer experience, which depends on strong alignment between the external brand and internal values. The brand personality can be defined as fun and energetic, onto it and creative, and the companys global vision is to enrich customers lives, helping individuals, business and communities to be more connected in a mobile world. The branding is reflected at an array of customer touchpoints including contact centres, retail stores, advertising and sponsorships. Internally, Vodafones culture is reflected in a unique set of values that capture this same spirit, including straight up, zesty, unleashed minds and going for it. Making these values real, rather than just slogans, required a huge investment from the leadership of Vodafone, the managers and staff. While this approach was initially driven by the senior leadership at Vodafone, they knew that for it to succeed the employees throughout Vodafone needed to be committed to the alignment between brand and values. Generating this commitment involved staff focus groups to initially identify the values and intensive employee engagement through induction and values workshops to make sure that the right values had been identified. It also led to changes in leadership development, HR policies, performance management processes and the work environment.
All Employees are Directors of the Customer Experience The emphasis on connecting the contribution that all staff made to the customers experience of Vodafone led to decision-making being devolved to front-line employees. Vodafones values are the guiding principles that help people make the right decisions to achieve customer satisfaction. A simple example of what this means in practice for employees is Vodafones change to a dress for purpose dress code. The casual Friday dress code that had been in place was identified as being at variance with the devolved decision-making strategy, so the policy was changed. Employees are still expected to meet dress standards but are given personal responsibility to decide themselves what the standards are for them depending on what their work day involves.
continued
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continued
The benefits of the Vodafone approach are evident in the results of employee satisfaction surveys (below) and in the reductions in employee turnover (down by a third, delivering an estimated benefit of $20 million per annum).
Overall satisfaction and engagement Importance of passion for customers Importance of passion for results Pride in Vodafone Role supporting company strategy
84% 97% 97% 96% 88%
This has also made Vodafone a fantastic employment brand, which means huge numbers of applications whenever jobs are available. For example, there were recently over 1,000 applicants for eight graduate positions.
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5.4
Encouraging Innovation And The Use Of Technology Findings And Recommendations

We need business-savvy people in the R&D sector, and R&D-savvy people in the private sector,23 Institute of Professional Engineers New Zealand Inc. Growing Smartly D I S C USSI O N Innovation is central to enhanced productivity. It can create higher value products and services and/or new ways of working that enable workers to operate more effectively. New ideas can be embodied in products, processes and services or in work organisation, management or marketing systems. Innovation is already occurring in many New Zealand firms. These firms are implementing both incremental innovation, simply doing things better; and more radical innovation, such as doing new things or doing things differently. Most innovation usually takes the form of small incremental changes, often in areas where firms already have the necessary expertise and experience. Radical innovation, such as the development of entirely new products, processes or technologies, typically requires higher educational levels and research competence along with more formal R&D. Firms can also gain the benefits of innovation where they purchase innovations, new technologies or processes that embody new knowledge, or where they adopt or adapt research findings from outside the firm. Productivity gains are often due not so much to the invention of new products and processes but to their application and commercial exploitation. Furthermore, firms that have been successful innovators in the past can often build on their success and increasingly outperform their competitors. This suggests that investment in innovation-supporting practices not only improves a firms current productivity performance, but also creates a platform from which it builds future success. A large number of studies support the positive link between innovation, particularly R&D, and productivity growth. For an individual firm, innovation can have significant benefits. More advanced technology generally is linked with higher productivity, greater market share and employment growth. Firms with more sophisticated equipment and machinery employ more skilled workers and these workers receive higher wages. Firms therefore face strong incentives to invest in innovation and new technology, where they consider that the gains outweigh the costs. Typically, estimates suggest that the private rates of return on R&D are between 10% and 20%, although there are considerable differences across sectors with R&D-intensive sectors showing a higher rate of return. Related studies suggest that the social rate of return to R&D expenditure is higher than the private rate of return and could range between 20% and 50%. One of the reasons this is important is that firms are likely to under-invest from the overall economy perspective if they cannot capture adequate returns to their investment. To be able to undertake sustained innovation that is to be able to adapt on a continuous basis to changes in markets, technologies and competition, rather than undertake one-off innovations requires a firm to be able to:
23
The Institute of Professional Engineers New Zealand Inc. (2004), Growing Smartly A Review of National Policies for Fostering Research, Development, Innovation and Entrepreneurship in New Zealand.
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Generate new ideas (where new means new to the firm but not necessarily new to the wider economy). These may come from formal research, customer suggestions, observation, creativity of staff, or other sources. Evaluate these ideas in a technological and economic sense. Integrate the ideas into the firms processes or products through additional investment in research, development and design. Market new or improved products or services. But the ability of a firm to innovate depends on a variety of internal and external factors. The stock of knowledge and skills within a firm provides a platform for driving innovation and relates to its ability to adopt and adapt ideas from elsewhere. This absorptive capacity within a firm, which relates to its ability to implement innovation, is largely determined by the quality of and investments in the people in the organisation (across a range of areas). Over time the ongoing capacity of the firm is further improved by internal learning, involving investments in such things as formal R&D, experimentation, adaptations, and in-house staff training. In addition, interaction with suppliers, customers, public institutions, industry associations and other organisations onshore and offshore results in the firm gathering information about ideas, technologies, markets and inputs to complement the internal innovation process. A range of international and domestic research has suggested key supporting practices required for innovation include:24 Ideas management and environmental scanning processes which seek and gather ideas and knowledge widely from customers, suppliers, employees and competitors; and allow ideas and knowledge to be shared, stored in a user-friendly form and made freely accessible. This is critical given that there will always be a vastly greater number of ideas outside a firm, even a large one, than there are within it. A climate that does not punish mistakes but encourages ideas to flow freely through the firm, including shared understandings, routines and processes, promoting creativity and having a go, internal collaboration and teamwork, and upskilling of people. In addition, using carefully designed reward, recognition and development systems to reinforce management behaviour that encourages innovation and gives staff considerable discretion to pursue ideas. A willingness and ability to involve others, including advisors, other firms and research expertise, in the innovation process. Vision, strategy and a clear understanding of what the firm is good at and its competitive advantages; strong leadership and clear strategic intent to pursue improvement and not rely on the status quo.
24
Arthur D Little Ltd, 2001, The Innovative Company Using Policy to Promote the Development of Capacities for Innovation, Final Report to Participating Governments prepared for members of the OECD Focus Group on the Innovative Firm, February, Cambridge; Campbell-Hunt/CANZ, 2001, World Famous in New Zealand How New Zealands leading firms became world-class competitors, Auckland University Press, Auckland; Innovation & Systems Ltd, 2003, Innovative Enterprises Managing And Organising For Innovation: Report Prepared for Growth and Innovation Advisory Board; Australian Manufacturing Council , 1995, The Innovation Cycle Practical Tips from Innovative Firms, Melbourne; Infometrics Ltd, 1999, Firm-Level Export Study: Trends and Issues, A Report Prepared for the New Zealand Treasury, July, Wellington; Simpson, B, McGregor, J, Seidel, R, Kolb, D, Henley-King, J and Tweed, D, 2000, Learning in the manufacturing sector, University of Auckland Business Review, Vol.2, No.1, pp 39-50.
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W PWG FI NDI NG S The available evidence on innovation and innovation-supporting practices in New Zealand suggests that: On international measures, New Zealand firms rate well in terms of being innovative in the sense of introducing products and processes that are new to the firm. The 2003 Innovation Survey suggests that New Zealand is approximately on par with the European Union as a whole on an overall innovation rate of 44% (the proportion of firms reporting some innovative activity). There appears to be a gap between New Zealand and leading countries in terms of our capacity to develop and commercialise genuinely new to the world products, processes and organisational arrangements. Generally New Zealand firms are more incremental than radical innovators.25 Rates of private sector R&D are very low, both overall and as a proportion of total R&D effort. Private sector R&D ($524 million in 2002) as a proportion of GDP is well below the OECD average (0.42% versus 1.44%).26 New Zealand tops the OECD scales for the proportion of R&D undertaken in the public sector compared with the private sector. In percentage of GDP terms, however, total research funded by the New Zealand government ($667 million in 2002) is a low 0.54%, less than the OECD average of 0.64%,27 although the government has made increasing investment in research, science and technology in recent years. New Zealand firms are strong in the take-up of off-the-shelf technology such as computers, mobile phones and the Internet. Being early adopters and good adaptors of technology helps New Zealand to achieve the productivity gains from such technology slightly in advance of many of our competitors. Many New Zealand firms may not be sophisticated at utilising design or marketing their products or services, and may prefer to focus mainly on selling at a competitive market price. Failure to derive added value benefits of design or marketing can consign New Zealand firms to selling more on price than value. New Zealand firms continue to focus primarily on quality and delivery, and to a lesser extent flexibility. The least attention is paid to innovation. According to Firm Foundations (2002), only around 60% of firms regarded innovation strategy as important to their firm. The 2003 Innovation Survey ranked what firms considered to be the most significant impediments to innovation. These were: a lack of management resources (56%); the cost to develop new products, processes or services (53%); and lack of appropriate personnel (51%) as impediments to innovation. There is a continued focus on the short to medium term, with few firms using more broadly defined goals or visions to guide development, or planning for more than a year ahead. As discussed later in the findings around Measuring What Matters, most firms focus on lagging indicators of performance. Firm Foundations (2002) found that most firms do not use innovation measures for assessing their performance and very few firms compared their performance with their competitors in terms of innovation measures.
25 26
These findings are supported by firm visits undertaken in preparing Firm Foundations (2002). There is some evidence that private sector R&D spending has been increasing recently, and the challenge is to sustain these improvements. If we were to match Australias public sector R&D rate of 0.71% then we would be spending an additional $120 million.
27
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Most firms do not take a strategic approach to external information management, except at a relatively basic level, such as monitoring competitors products or services, and informal and ad hoc benchmarking. This is further discussed in the section on measurement and reporting later in this report. Strong linkages are crucial to the innovation process as they maximise the chances of information, skills, knowledge and technology being taken advantage of and used. Research shows that many New Zealand firms are either reluctant or unable to enter into more structured collaborative arrangements, beyond a transactional nature, or they view collaboration with a very narrow focus. (This is further discussed in the Networking and Collaboration Recommendation later in this report.) There are several possible explanations for New Zealands experience with weak capital accumulation. Many of these factors are outside the Working Groups terms of reference. Most closely related to the WPWG work are the important complementarities that seem to exist between capital investment and other drivers of workplace productivity, such as skills, human capital and workplace organisation. Management capability is clearly also important in maximising the effective use of the capital that firms have. The recommendations in other parts of our report are directed at addressing these issues.
The Role of Government in Supporting Firm-level Innovation We believe there is a sound economic case for public support of innovation, and R&D in particular. Firms may under-invest in the innovation process, from a socially desirable perspective, due to the technological spillovers where a firms investment benefits competing firms. Government support for public good R&D is intended to overcome this problem. The impact of innovation and R&D on the economy strongly hinges on its diffusion across the public and private sectors, that is, transfer from public research institutes to the private sectors needs to be more effective. These connections are increasing, although it appears CRIs and universities are generally working increasingly with larger industry players and interacting less with SMEs. The government provides direct support for firm innovation by funding a range of technology and R&D assistance through the Foundation for Research, Science and Technology (FRST). These include: Technology for Business Growth funds technologically capable firms to move towards high value, technology-based products, processes or service. Grants for private sector research and development providing grant assistance to SMEs to undertake R&D projects that have the potential to stretch a firms technological capability and create an enduring increase in their R&D investment. Technology for Industry Fellowships scheme enables students and experienced researchers to complete R&D projects in companies. SmartStart supports a range of technological project planning, assessment and investigation work.
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Some public support for firm R&D and innovation is also provided through other programmes operated by the FRST: Research for Industry, Research Consortia and the New Economy Research Fund. These tend to be at the research end of the R&D spectrum. Evaluations of Technology New Zealand schemes have found that they are largely meeting their objectives, including raising the innovation capability of firms and contributing to an overall increase in firm R&D. There are nevertheless a number of constraints that limit the effectiveness of these programmes:
The reach of the programmes is relatively limited, with only 750 projects receiving support in 2002-03. Clearly, Technology New Zealand schemes are not in a position to reach all firms with the potential to improve their level of innovation and R&D. The traditional approaches towards innovation support are based on organisations writing a formal development project proposal and submitting the proposal to a government agency, which decides on the level of support according to the quality of the proposal. We believe that a better way might be for an intermediary/advisor to help a firm identify when such a scheme would be useful, help find the candidate as needed, and perhaps not require a formal project as a condition for the allocation of the support. Providing resources to support innovation is not sufficient if firms do not possess the broader capabilities to deal with innovative processes and extract value. Increased attention has to be given to the broad innovation process within and around the firm. There is still a division of effort between management and firm development support, through New Zealand Trade and Enterprise (NZTE), on the one hand, and research and technology support, through FRST, on the other, that can lead to a lack of co-ordination of support.
Existing Programmes The government has recently agreed, as part of the Growth and Innovation agenda, to an extensive medium-term work programme on issues related to the innovative system and strengthening the innovation capability of firms. This includes: Further work on enhancing the effectiveness of existing government R&D support mechanisms. A review of the framework for the development and role of government in promoting standards in New Zealand. A review of how the government could better implement procurement policy to enhance innovation. Detailed research to improve the understanding of the dynamics of collaboration in New Zealand. Work on exploring options to engage organisations such as Research Associations, ITOs, polytechnics and industry bodies as intermediaries between public research providers and the private sector. Pilot initiatives aimed at developing broker or intermediary mechanisms between public and private investment in innovation. A review of how the co-ordination of FRST and NZTE services can be improved. An expansion of the Technology for Industry Fellowships scheme to improve the transfer of research and technical knowledge from the public to the private sector and among firms themselves.
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Increased funding for projects that build connections among tertiary education organisations (TEOs) and enterprises in GIF focus sectors. In addition, MED is researching access to finance issues, including research using data from Statistics New Zealands demand-side survey of firm financing. The Working Group would like to emphasise the importance of the above actions of the Growth and Innovation agenda. We believe this agenda will provide a sound base for improving the level of innovation in New Zealand. We highlight that there appears to be a gap in the ability of the public support for R&D and innovation to meet the applied development needs of SMEs. This may be addressed through extending or better coordinating the activities of current schemes and organisations, or it may require new types of initiatives. The more promising support mechanisms are likely the ones that gather a combination of management, marketing and technology assistance under one umbrella, rather than delivering these in isolation. Such mechanisms would be more able to respond to a broader perspective of innovation than those that tackle single steps in the innovation process at a time. In addition, policies to promote the acquisition, absorption and use of knowledge should also take account of the need for personal contact and networking, and so local and regional schemes and peer group learning should be considered.
Awareness Raising 20 Raise awareness of innovation as a broader concept than R&D or high-tech investment. 21 Promote an understanding that innovation requires a range of supporting practices within the firm, such as environmental scanning and information management, close customer relationships, a culture that encourages new ideas and teamwork, investment in staff and strong leadership. 22 Use industry networks to raise awareness and spread best practice through sharing innovation management experience. 23 Raise awareness of the importance of continued investment in the right technology for firms facing labour shortages. 24 Encourage the adoption of firm management and commercialisation programmes as part of the engineering/science course syllabus in tertiary organisations and among staff involved in innovation processes in firms (and vice versa).
Diagnostic Tools 25 Evaluate the effectiveness of existing tools and programmes, particularly around the issue of firms ability to adopt and adapt innovations and new technology. Develop tools, information and frameworks to fill identified gaps.
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Implementation 26 Facilitate linkages and collaborative relationships, between both firms and CRIs/tertiary institutions and research expertise; and firm-to-firm, to encourage the exchange of information, skills and technology, improve opportunities for capturing knowledge spillovers, and build up the innovation capability of firms. 27 Consider making mentor support an integral part of the delivery of technology and innovation assistance, to provide owner/managers with some space and guidance to work on the firm rather than in the firm. 28 Improve co-ordination and responsiveness of government services making management and marketing support available alongside R&D support, and improving the front end client advisory services so that the most appropriate support is provided to firms from the first contact, irrespective of the agency first approached.
Research and Evaluation 29 Ensure research is undertaken into the issue of firms access to finance. 30 Identify any barriers to increased capital accumulation and how these can be reduced.
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Case Study Jenkin Timber: A Track Record of Innovative Success

Achieving $21 million in exports last year, family business Jenkin Timber has come a long way since it was established in 1922, but its original values of integrity, innovation and foresight still underpin this successful West Auckland manufacturer. Jenkin Timber has been named the Wood Processing, Building and Interiors Exporter of the Year in the 2004 New Zealand Trade and Enterprise Export Awards. The company was founded 84 years ago by builder Harry Jenkin and over the decades it has evolved into a leading innovator, manufacturer and exporter of value-added finger-jointed and solid wood radiata pine products. And it remains family-driven, with Harrys son Jim and grandson Gary directors in the business. Operations Director Richard Carbines says the company is performing strongly, achieving 20% year-on-year growth over the past three years, with annual turnover of $30 million in 2003 70% generated from export sales. To succeed in an industry typified by commodity products and pricing regimes Jenkin Timber has sought to create a positive point of difference between itself and competitors, he says. We have explored and adapted innovative ways to approach our markets and people and in doing so have created a more stable foundation for the business to grow and ensure market potential is realised. For us this revolves around brand development and the attributes of product, service and the overall presentation of our company and its people. This is linked to a relationship marketing approach that also includes our distribution and supply channel, Mr Carbines says. Jenkin Timber is considered a leader in the use of technology within the timber industry, Mr Carbines says. Its an early adopter of new manufacturing technologies and also uses technology for e-commerce, to track and measure performance and to analyse product characteristics. The company moved into a new purpose-built site in 1997 and is currently undertaking a further $10 million investment programme to ensure it continues its 20% annual growth. Mr Carbines says that will give it the ability to more than double output in the next five years. He says the company also makes a major investment in its people. We place an extremely high value on our people. The success of any organisation is dependent on the performance of its people and we are very committed to training and development. The average length of service with the company is 11 years. As technology changes theres a new generation of requirements on processors such as ourselves, and we are endeavouring to train all our people to meet that challenge.
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5.5
Investing in People and Skills Findings and Recommendations

Dont get the machinist to hang his brain at the door when he comes to work. Geoff Vazey, Ports of Auckland WPWG Workshop, May 2004
D I S C USSI O N The knowledge, ability and skills of workers contribute to workplace productivity. Ongoing investment in foundation, technical, supervisory and managerial skills, together with improvements in work organisation, can help improve the productivity and performance of New Zealand firms. A skilled workforce can lead to more innovative behaviour and can allow the use of higher levels of technology, which in turn leads to further productivity gains. The OECD states, summarising international evidence, that: Training does generate increased wages for trained workers, and increased productivity for those enterprises that train and innovate. Some of the gain goes to workers in wages and firms keep some: it has been estimated that these two shares are of roughly the same size Enterprise-based training has the greatest impact on performance when undertaken in connection with changes in work organisation, job structure, and, in some instances, technological innovation 28 There needs to be more diverse education and training responses to the changing nature of work if we are to ensure that the skills of the workforce make their full contribution to workplace productivity. Investment in people and skills also needs to be responsive to a firms current stage of development and productivity challenges. In order to increase the skills of the workforce in line with the needs of firms, people in the workforce need to be involved in lifelong learning.29 The case study of Rotaform Plastics Ltd (see page 77) provides an example of the potential returns from investment in people and skills at the same time that managerial capability and work organisation are improved. Many firms are currently experiencing a shortage of skills in the existing and potential workforce that is limiting their ability to grow. The investment in the skills of the workforce needs to cover a number of distinct aspects, including: Helping all employees to access ongoing, or lifelong learning to respond to new technology, and the changing nature of work. Educational success is a critical factor in labour market success, ongoing employability and maintenance of relative income. Enabling employees with inadequate foundation knowledge and skills to access specific literacy and numeracy training to support their learning.
28
OECD (1998), Human Capital Investment: An International Comparison. These statements reference OECD (1994) The OECD Jobs Study, Evidence and Explanations and Black, S and Lynch, L (1996) Human Capital Investments and Productivity, American Economic Review.
29
The focus of the Working Group means we emphasis the benefits of lifelong learning for driving a stronger economy, and benefiting workers and firms. We recognise that the concept of lifelong learning is far broader, and must also focus on the intrinsic benefits and qualities of education.
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Improving the applicability and responsiveness of industry training and other education and training to business needs. Some groups that have foundation and technical skills, such as those with disabilities, face particular barriers to obtaining employment. While addressing this issue will help overcome the current shortages, this issue was outside our terms of reference.
W PWG FI NDI NG S We consider that there needs to be a realistic assessment of the level of investment required to ensure that lifelong learning becomes a reality for those already in the workforce. Firms, employees and the government all need to take responsibility for their contribution to improving education and training. Around 80% of todays workers will still be in the workforce in 10 years. This means that, even if new people coming into the workforce have higher levels of foundation skills, there is a critical need to lift the skill levels of the current workforce if New Zealand is to achieve a more productive economy. We know that a number of investments in people and skills are being made and that upskilling alone may not produce productivity gains. We are concerned that there are barriers to sufficient investment being made in people and skills. Until these barriers are addressed, New Zealand is unlikely to make the significant investment in people and skills that is needed to achieve the high skill, high value and high wage environment that is desired. Possible barriers to investing in upskilling include: There is limited information about the return on investment to firms of education and training, and evidence that some employers find it difficult to assess the value of the investment they make in training.30 For example, Heinz Watties spoke at the recent Industry Training Federation conference about the lack of return on investment noted from some training and how this was a disincentive to providing training. There is a lack of clear and immediate business benefits from investments of time and money in people and skills. There is a growing dissatisfaction on the part of firms with the training options available to the workforce and a perception that the available options are failing to build sufficient job-relevant skills. This may be because the business benefits of training are low, are not the focus of the training being undertaken or are not being measured. In addition, many firms believe that it is not their responsibility to educate the workforce and think that once they have trained people they will get a better job elsewhere. In some cases, employers and employees make choices about training based on the direct costs of that training rather than the incremental value to their firm. Different funding arrangements in the industry training and education environments reflect the assumption that firms benefit from workplace-based training and should make a contribution to it. This may not lead to the best possible decisions about which course is best suited to an industrys particular needs. Demand for workplace-based training through ITOs exceeds the number of governmentsubsidised training places. This deters both employers and employees from undertaking additional workplace-based training. For example, the number of people wishing to undertake Modern Apprenticeships is greater than is presently funded.
30
Report of the Business New Zealand Skills and Training Survey 2003: Findings of research conducted by Business NZ and the Industry Training Federation of NZ for the Future of Work Research Programme, Department of Labour, June 2003.
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Inadequate linkages are made between the investment in education and training and the complementary investments in technology, work organisation and/or management that have the potential to substantially increase the value obtained from the investment in education and training. Training needs to meet a diverse and varying range of needs of different employers and employees. There are some mismatches between the training that is currently available and the quantity, quality and type of education and training required by individual firms or employees.31 The courses that are being provided are not meeting employers requirements in terms of content or delivery. The linkages between providers and the workplace are improving as a result of the tertiary education reforms and the Tertiary Education Strategy 2002-07. Where there are good linkages, relationships appear to work well. But the relationships are not consistent between industries, geographically and across industries. While there has been considerable growth in the number of employers involved in industry training (29,606 employers were involved in industry training in 2003, up 31% from the 22,353 employers in 2000), employers are still reporting variable relationships with ITOs.
Foundation Skills As jobs and technology change, employees ability to learn on the job and through industry training is constrained by their literacy and language skills. This may range from minimal understanding of verbal instructions or printed material through to problems with speed, fluency or accuracy. There has been some increase in the focus on building foundation skills (listening, speaking, reading, writing and mathematical knowledge including the ability and inclination to use new technologies interactively) through foundation learning in recent years in response to concerns about the low level of literacy within New Zealands workforce. About one in five adults in New Zealand are at the lowest level of literacy.32 While this is consistent with the rate in some other similar countries, it still represents a significant problem as skills shortages choke off growth potential. More investment in developing foundation skills within the existing workforce may be necessary for supporting sustainable employment and active participation in society. Without adequate foundation skills, workers have difficulty undertaking further learning and applying the knowledge they have gained through education and training in many settings. This has led to a range of valuable strategies which focus on improving foundation skills through, for example, the Adult Literacy Strategy (2001), the Tertiary Education Strategy (2002), and the Adult English as a Second Language (ESOL) Strategy (2003). These strategies have led to funding for the broadening of the nature of provision of training, expanding the capacity and capability of providers to respond, and in a few cases the delivery of foundation skills training through specialised literacy providers.
31
There are many possible reasons for mismatches, including the time it can take to develop courses and qualifications that meet immediate business needs, different understanding between firms and providers on whether a training course will meet a firms needs and difficulties employers had understanding how to access the tertiary education system arising from its complexity.
32
International Adult Literacy Survey, which was conducted in New Zealand in 1996. In practical terms, that means they couldnt normally calculate the total cost of a purchase from an order form or be able to find a specific intersection on a street map. There is a concentration of those with low levels of literacy among the unemployed and in primary and manufacturing sectors of the economy.
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The majority of the provision and resourcing for foundation learning has, however, been for job seekers or those in pre-employment training. However, there is very limited foundation training available for those already in the workforce, and funding for this group is currently not being fully utilised. There is a range of barriers to increasing foundation skills in the workplace that will need to be addressed, including: The lack of foundation skill development, education and training courses for the workforce as a result of the lack of experienced practitioners and providers specialist skills are required to achieve effective foundation learning outcomes for adults. The limited number of providers reflects uncertainty about funding for foundation skills programmes, the difficulty of securing interest from employers, the newness of the field and limited knowledge of how to deliver high quality foundation skills training. Some training that is offered is not sufficiently tailored to the particular needs of the employer and employees and/or does not generate a return on investment for both parties. Employers may not be addressing foundation skill issues for their employees due to a lack of knowledge about the effect of poor foundation skills, a lack of tools to identify workers needs, perceptions that addressing this issue is not an employers responsibility or perceptions about the complexity of dealing with the issue. Employers face a substantial proportion of the costs of undertaking foundation skills training. These are both the direct costs of the training itself (although these are sometimes subsidised) and a range of indirect costs that are often more substantial than the direct costs. Poor participation in training courses as a result of the limited (or non-) availability of courses in many locations, a lack of willingness by many workers to participate and poor information on available courses. ITOs have mixed levels of involvement in foundation skills training. For example, the New Zealand Seafood Industry Council Limited has some involvement in foundation skills training, while other ITOs have no involvement. Foundation skills training is often not integrated with, or linked to, other training. This can mean that those with poor foundation skills do not participate in training and/or do not have the ability to utilise the skills they are learning in a range of settings.
Education and Training in SMEs Surveys in New Zealand and overseas consistently find that SMEs33 undertake less formal training for their staff than large firms, although there are some suggestions that more informal training occurs in smaller firms. For example, Firm Foundations34 found that 16% of firms with fewer than 20 staff said no employees received in-house training during the past year, compared with 2% of large firms. Similar figures arise for external training (28% for firms with 20 staff or fewer and 6% for large firms).
33
In New Zealand, firms with fewer than 20 employees are normally regarded as SMEs. This is smaller than in other jurisdictions where firms with 50 or 100 employees may be regarded as SMEs. Knuckey, S and Johnston, H (eds) (2002), Firm Foundations: A Study of New Zealand Business Practices and Performance, Ministry of Economic Development, Wellington.
34
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Available research35 suggests there are a number of barriers to SME engagement in training that need to be addressed in New Zealand, including: Most SMEs do not take a strategic approach to training and do not normally have dedicated training budgets or managers. Rather, they focus on training that is just enough, just in time, just for me, that seeks to address immediate problems or crises. They perceive that many courses are irrelevant to their needs and are inflexible. The high fixed costs associated with training may restrict its affordability for SMEs. These costs include identifying training needs and delivery options, as well as the opportunity cost (in fees and time off work) of releasing staff for training. These opportunity costs are often higher than the direct costs of the training itself. Education and training organisations, including ITOs, find it more difficult and costly to reach SMEs (and vice versa). As many ITOs face a high level of demand from larger firms, they have limited incentive to focus on the more costly and difficult SME training. There are perceptions that the return on investment from education and training is uncertain and risky. For example, there are often perceptions that once trained the staff member will move to another firm, which results in relatively high costs for a small firm, although the firm may obtain benefits during the training itself.
Existing Programmes New Zealand firms, employees and the government are already making substantial, valuable investments in people and skills and this trend should continue. This investment is funded by a combination of private sector firms, employees and the government (for details on government spending, see the tables below). This is reflected in the relatively strong participation in learning by adults in formal tertiary education and workplace-based training, including that provided through ITOs in New Zealand.
Tuition-related Education Expenditure ($ Million, GST Inclusive)

Source: Budget Economic and Fiscal Update 2004
Actual 1998/99 Early Childhood Education Primary Secondary Special Education Tertiary Total 1,236 4,584 1,624 1,155 275 294
Actual 1999/00 325
Actual 2000/01 331
Actual 2001/02 358
Actual 2002/03 394
Forecast 2003/04 421
Forecast 2004/05 460
1,731 1,312 262
1,780 1,333 236
1,838 1,311 281
1,891 1,366 254
2,063 1,485 256
2,061 1,535 264
1,219 4,849
1,362 5,042
1,554 5,342
1,700 5,675
1,930 6,155
2,054 6,374
35
Most of these findings are set out in a literature review and stakeholder survey undertaken by the Small Business Fund.
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TEC Expenditure on Vocational Education and Training ($000)

Source: TEC Statement of Intent 2003/04 to 2005/06
2003/04 Industry Training Youth Training Skill Enhancement Modern Apprenticeships Reducing Inequalities Gateway Training Opportunities Total Vocational Education and Training 98,363 69,486 8,222 22,892 1,362 5,115 96,902 302,342
2004/05 107,263 69,998 8,222 27,153 1,362 7,165 96,902 318,065
2005/06 116,163 69,998 8,222 25,669 1,362 9,815 96,902 328,131
There have been a number of recent developments that are seeking to improve both the level and quality of skill levels of the New Zealand workforce, including: The tripartite SkillNZ campaign involving Business New Zealand, the CTU and government is promoting participation in workplace learning through providing better information on its benefits and addressing barriers in specific industries that have low participation rates. Barriers are currently being addressed in the retail, hospitality, tourism and furniture industries. ITOs have a leadership role on matters relating to skill and training needs by identifying current and future skill needs of employers and employees and developing strategic training plans to assist the industry to meet those needs. Ongoing increases in funding for formal qualifications and significant increases in the numbers of people undertaking formal training. The number of participants in industry training and Modern Apprenticeships has continued to exhibit strong growth during recent years (see table below). In 2003, 14,181 of those trainees achieved National Certificates, which represents an increase of 45% from the 9,761 National Certificates achieved in 2002.
Industry Training
Employees Participating 2000 2001 2002 2003 81,343 95,263 106,997 126,870 Employers Participating 22,353 26,901 24,576 29,206
Greater emphasis on the responsiveness of training providers to the needs of industries, regions, communities and individual learners through the implementation of the governments Tertiary Education Strategy. There is an increased (but still relatively modest) investment in foundation skills. For example, a small number of firms such as Rotaform have worked with Workbase to implement workplace-based literacy programmes. (See case study below)
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The Tertiary Education Commission is undertaking a scoping exercise into the level of stakeholder support for a National Centre for Vocational Education and Training Research that would promote excellence in vocational education and training research.
Awareness Raising 31 Raise awareness of the need for firms to undertake skills needs assessments, so they can identify what skills they need and where they have skill gaps including identification of where improvements in foundation skills are needed. Promote the benefits of undertaking these assessments. 32 Provide information on the best ways of matching skills to the needs of firms and linking to ongoing improvements in managerial capability and work organisation. 33 Provide information on the return on investment in foundation skills for all firms, and the return on investment in education and training generally for SMEs. More robust information, which has credibility within the business community, has the potential to change managers perceptions, with an increase in the investment in people and skills. 34 Encourage positive perceptions by school leavers of vocational occupations as careers and promote industry training as an option, in order to increase the level of investment in these areas and to reduce the negative impact for business of skill shortages, including targeted information for school career guidance counsellors.
Diagnostic Tools 35 Review the availability and effectiveness of existing tools to help employers and employees undertake an assessment of the potential return on investment in skills development generally (with tools targeted at SMEs in particular), and develop new tools to fill any gaps. 36 Provide a tool to assist firms in undertaking an assessment of skills required by a firm, the gap between the required skills and the existing skills within the firm, and the steps required to address any identified skill shortages. 37 As part of the assessment of skills needs, these tools need to identify where foundation skills training is necessary and the potential return on investment that can be achieved through workplace-based foundation skills training.
Implementation Education and Training Infrastructure 38 Build a strong infrastructure (including ITO capability) for the delivery of workplace-based training and ensure ITOs are involved in workplace-based training for foundation skills and training for SMEs.
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39 Continue to build on the improvements in the tertiary education sector to the linkages between government, suppliers and firms so that over time workplace training increasingly meets the skill needs of firms. 40 Continue to provide support for the ongoing work of the Skill NZ campaign. Support for Firm-specific Training 41 Develop support for firms to identify skill needs, placing those skill needs in a wider productivity and firm improvement context, and a specific brokerage role to support the investment of SMEs in skills and training. In developing these forms of assistance, consider the role that ITOs can play as a delivery agency and how this can be encouraged (and identify other appropriate organisations where no ITO exists). Foundation Skills Training 42 The government needs to focus on addressing the needs of existing workers with low levels of foundation skills. This will require a substantial increase in foundation skills funding targeted at those already in the workforce. Funding should cover learning delivery, including workplace-based training, co-ordination, and capacity/capability building and support for providers, practitioners and learners. 43 Integrate foundation learning with industry training so that those with lower levels of foundation skills can develop those and other skills. 44 Trial (and evaluate) new ways of delivering foundation learning to improve the quality of training in the workplace and the incentives to design improved high quality training, for example designing programmes that closely match workplace tasks.
Research and Evaluation 45 Research the effectiveness of workplace foundation skills programmes through evaluating any new initiatives that are approved as a result of our proposals to provide improved information for employers, employees, unions and the government on the best approaches to adopt. 46 Evaluate whether changes are required to the design of funding and accountability arrangements for government-funded workplace training to help ensure that SME training needs are met (for both foundation skills and wider skills training). 47 Research the effectiveness of steps to enhance education and training in SMEs through the evaluation of trials, to provide assurance that the education and training are providing a return on the employers investment and to identify critical success factors. 48 Research whether the different funding arrangements for workplace training and other tertiary education represent an unnecessary barrier to skill development in the workplace. 49 Explore the level of longer-term skill investment needed to achieve a significant improvement in lifelong learning, in order to support ongoing productivity improvements.
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Case Study Rotaform Plastics Ltd

Rotaform Plastics Ltd is an Auckland plastics manufacturer specialising in rotational moulding, which has experienced a dramatic improvement in company performance that has been underpinned by a very successful workplace literacy programme. Rotaforms future success lies in producing high value quality products in a highly competitive environment. Rotational moulding is very labour intensive and about 70% of product quality is dependent on the skill of the worker. Rotaform is therefore reliant on the skills of its staff and on introducing greater sophistication and professionalism into all aspects of its firm operations. To retain its competitive edge, Rotaform has taken a proactive approach to investing in its people and their skills. In 1998, the firm signed up to a literacy training pilot and it was so successful it has continued to offer the programme to its staff. The programme is voluntary, but Rotaform found all its factory workers signed up for it. Participants literacy skills are assessed and they are grouped according to literacy levels. Those involved in the programme receive one hours tuition per week and are also given homework. The literacy course is based on Rotaforms work procedures, so learning is directly relevant to the work environment. For example, one of the first things Rotaform found when the programme began was that some of their staff didnt understand the difference between a kilo and a gram and these were the same people who were required to weigh all their raw materials by hand. Rotaform was initially sceptical about the benefit of the literacy programme to overall productivity and firm performance. But CEO David Brumby says there has been an amazing transformation in the firm and he attributes much of that to the rise in staff literacy skills. In 2001, for example, sales rose 34% and profits 31%. They doubled their turnover and reduced rejects by up to 50%. The following table describes the returns Rotaform has gained from investing in its people.
Beneficiary Employees Benefit Capacity to be involved in the development of new products Increased motivation and pride in their work, leading to better contributions by staff to discussions Ability to work more flexibly The firm can become more effective by introducing new systems, confident in employees ability to adapt to them Managers Less needs for employees to refer to managers Management is freed up to spend more time being innovative and developing the firm Customers Ability to communicate more effectively with customers Customers see a more professional approach from the firm Value to the Firm The firm is producing sophisticated highend products such as spa pools The firm captures the expertise of those on the ground
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5.5
Organising Work Findings And Recommendations

The last true source of competitive advantage is organisational capability the ability of the organisation to innovate, to motivate, to satisfy customers. And tied to that is another source of advantage: intellectual property or intellectual capital, which is the result of organisation capabilities that cant be easily copied or reconstructed. David Nadler, President of Delta Consulting Group It Could Happen to Us, Across the Board, October 1993, page 28
D I S C USSI O N As organisations grow and products, technology and markets change, there is a need to review how work is organised. Studies have shown that changes within firms (implementing new technology, work processes and/or products) need to be combined with organisational change in order to reach full productivity potential.36 Work organisation is concerned with getting the right information resource to the right place at the right time to meet a need. Specifically it involves the deliberate process of configuring structures, processes, reward systems and people practices and policies to create an effective organisation capable of achieving the business strategy.37 Work organisation refers to both the organisational design process of setting up a new firm and organisational redesign in existing firms. Work organisation should ensure the activities that create value within a firm are aligned with each other, and with the overall business strategy, and are functioning effectively. Effective work organisation requires five integrated components:
1 Strategy: a firms vision, mission and short-term and long-term goals. 2 Structure: the location of formal power and authority, an organisations main components, its relationships and overall hierarchy. 3 Processes and lateral capability: how information-sharing and decision-making occur within and across the firms networks, processes and teams. 4 Human Resources: how a firm treats and values staff, measures performance and provides upskilling opportunities, which are the foundation to building its capability. 5 Reward system: the goals, values and rewards within a firm that align individual behaviour and performance with organisational goals. Work Organisation Design In order to survive in a highly competitive, global environment, it has become necessary for firms to assess and adjust their business practices in an effective and timely manner on an ongoing basis.
36
A study conducted using data from businesses in the UK, US, France and Italy concluded that the marginal productivity of labour does not change significantly if new technologies or changes in work organisation are introduced separately. Cristini, A, Gaj, A, Leoni, R, The Gains from Investing in Workplace Organisation, 2003.
37
Galbraith, J, Downey, D and Kates, A (2002), Designing Dynamic Organisations.
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A high performing, adaptable organisation is often characterised by its ability to quickly combine and recombine skills, competencies and resources across the enterprise to respond to changes in the external environment. Adaptable organisations that reconfigure effectively are characterised by the following:38 Active leadership: belief in organisation as a source of competitive advantage. Knowledge movement: knowledge is collected and utilised across the organisation. Learning culture: encouraging, supporting and rewarding learning behaviours. Flexibility: tolerance of ambiguity, change and unpredictability, and an understanding that change is natural. Integration: mobility within an organisation is natural and is encouraged. Employee commitment: a strong organisational culture that results in employee commitment to the company and its products/services and a desire to go the extra mile. Change readiness: employees understand the direction that the work organisation is taking and have been involved in the process. Why Is Work Organisation Important to Improving Workplace Productivity? Workplace organisation, such as structuring work groups or work processes, complements other strategies that firms invest in as a means to improving their productivity. Simply introducing new technology could introduce some productivity enhancement, for example, but changing the way work is organised around the new technology could produce even greater gains. The main ways changing work organisation can contribute to improving workplace productivity are: Employee Participation employees find it difficult to own solutions proposed within a firm if they have not played a role in the design or planning. It is essential that employees at all levels of a firm have a genuine opportunity to contribute to work organisation, to provide relevant practical advice from their respective positions and to fully understand the potential benefits. Designing work to create more interesting and meaningful jobs and creating better connections between individuals and teams, both within a firm and across industry, will also help to create productivity improvements. Capacity to Change/Innovate the key to increasing a firms productivity performance is the capacity to do things differently, including continual reinvention of products and services using knowledge, skills and experience in a more imaginative and effective way, at all levels of the firm. Bundling of Productivity Strategies studies indicate that innovation and the use of new technology will have a limited impact on increasing workplace productivity if not combined with organisational assessment/changes.39 It is therefore critical for a firm to combine strategies for effective results. Timing there are crucial moments when organisation design should be considered, particularly when significant changes in strategy are taking place. Choosing to plan
38 39
Galbraith, J, Downey, D and Kates, A (2002), Designing Dynamic Organisations. Cristini, A, Gaj, A, Leoni, R The Gains from Investing in Workplace Organisation, 2003.
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organisational changes allows organisations to control the process more than if design is in response to crisis and/or by pressure from other firms or customers. External Partnerships new forms of work practices and cultures enhance the potential for innovation and improvement not just within firms but by potentially enhancing collaboration between firms. Virtual networks and other forms of information sharing can help more firms implement workplace change successfully, thereby enhancing their productivity. Different Models for Different Firms building organisational competence requires fundamental and sustained changes throughout the firm. However there are no blueprints. External consultants will not be able to offer a ready-made solution to a firm. Effective workplace design requires a thorough understanding of the nature of a firm at all levels. Each firm must learn to adapt organisational structures, skills and cultures in ways that reflect their individual circumstances and potential.
W PWG FI NDI NG S We believe that work organisation is not a well-understood or well-developed business discipline in New Zealand. For example: There is currently a limited focus on both the conceptual foundations and the how-to toolbox and practicalities of effective work organisation within the management curriculum in New Zealand. Structural and strategic review is reasonably common in New Zealand but generally that seems to stop close to the top of a firm, with the implications for operational activities not seen through in full. This often means the potential benefits of work organisation design for workplace productivity are not fully realised. It is unclear what supports may currently be available to New Zealand through business groups, unions and existing government programmes. Despite the general understanding of the benefits of work organisation activity, the spread of new forms of work organisation has been limited in general:40 Research appears to be fragmented and there are said to be too few bridges between academics and practitioners. There is a need for a better knowledge base around the link between strategy selection, choice of business model, organisational structure and operational design as a complete and integrated process. Literature and research on work organisation and workplace productivity appear limited. Taking all this into account, we have come to the following conclusions on the issue of work organisation design: There is a correlation between workplace productivity and the ability for firms to respond to external changes and adapt, innovate and change in a timely and effective manner.
40
Evidence for this proposition in the US is contained in Galbraith, J, Downey, D and Kates, A (2002), Designing Dynamic Organisations.
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Work organisation design appears to be a critical part of productivity strategies, including new work processes, products and technologies, and a firms ability to survive in a rapidly changing, highly competitive environment. Timing is critical there are key points in business cycles and in response to external factors, such as competition, when organisational change should be considered. Productivity strategies need to be bundled and should include organisational design in order to reach full productivity potential. One of the barriers to firms implementing organisational redesign effectively appears to be a lack of good information and understanding of the discipline and potentially the supply of training available. It should be noted that further work would be required to confirm this preliminary finding. It is essential that employees at all levels of a firm are involved in work organisation design to provide valuable practical advice from their respective positions and in order to fully understand the potential benefits. Good work design can also assist in creating opportunities for work-life balance and improvements in employee engagement and participation. Improvements in work-life balance practices could also lead to improvements in staff retention and reduction in staff turnover rates, with corresponding benefits to firms and improvements in workplace productivity. We believe that more emphasis could be placed on work organisation and the productivity improvements that good work organisation can provide.
Existing Programmes NZTE offers a number of programmes41 that include work organisation components as part of a broader curriculum, as does formal management training such as an MBA. These programmes are complemented by well-developed expertise available in private sector consultancies, although we do not have information on the take-up of these services, and through work organisation literature. In addition, the Department of Labour is co-ordinating the Work-Life Balance Project to look at what is already being done for work-life balance and to help shape practical solutions for what more can be done. This project incorporates some elements of how work is organised.
W PWG RE C O MME NDAT I O NS In recognition of our findings outlined above, and to supplement the activities and processes that are already in place, we recommend the following actions:
Awareness Raising 50 Make available and/or produce relevant information about how work organisation affects workplace productivity and the benefits of implementing these strategies, including the benefits of employee involvement.
41
NZTE programmes include: enterprise training in managing human resources (planning, organisational design, skills development and succession) as well as business diagnosis using the Baldrige Tool to assess business practices, including: leadership, strategic planning, customer and market focus, information and analysis (performance measurement), human resources and organisational design, process management, and business results.
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51 Provide background information on tools used overseas to assess work organisation issues, such as the UKs Department of Trade and Industry Tool Kit and Danish Technology Institute tools. 52 Identify case studies and demonstration workplaces that focus on successful organisational design, processes and practices.
Diagnostic Tools 53 Develop and test diagnostic tools, modifying overseas models for the New Zealand business environment, for assessing structural and work reorganisation requirements. 54 Provide diagnostic tools to assist in assessing whether a firms structure/work design is appropriate and/or effective. This may be especially relevant to organisations in times of change, as well as when developing an ongoing strategy.
Implementation Support 55 Facilitate the provision of networking and other learning opportunities as well as mentoring assistance, including facilitators and consultant practitioners, to undertake redesign assessments and to engage in redesign work.
Research and Evaluation 56 Assess availability and accessibility of advice for firms, particularly small business services and potential for intermediaries as service providers. 57 Assess the linkages between the Work-Life Balance Project and workplace productivity improvements.
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Case Study The Good Time Food Company
The Good Time Food Company is a Hawkes Bay company with a simple objective: To Make Good Time A Good Place To Work. Founded in 1978, the company, which makes quality pies for the New Zealand market, started with a turnover of $30,000. The company now employs 38 staff and last year, it recorded a turnover of $6 million. That is projected to grow to $8 million this year. The company also won the 2003 Hawkes Bay Business of the Year Award. As a part of the companys overall growth strategy, it has recently launched the low fat pie into the New Zealand market and is working towards implementing the changes necessary to gain Risk Management Programme certification which will allow them to export to various countries that have expressed an interest in their products. The success of the company is largely due to the creative staff and business management strategies of CEO Phil Pollett. Good Time is driven by the need to get quantities of fresh pies into the market on a daily basis and Mr Pollett believes small things can often hinder productivity. Because of the temporal nature of the business, being responsive and adapting the business is an ongoing part of their business strategy. In 1998 Good Time recorded a 180% staff turnover for the year. This was of such concern to the company that Mr Pollett implemented a number of strategies for change. Management profiled existing staff, analysing which of them had been successful employees and designed a pre-employment test for new staff based on the results. They also implemented a number of foundation training initiatives including writing and designing a baking basics tutorial. By 2003 staff turnover had dropped to 14% and productivity has risen substantially. Mr Pollett was quite interested in the theory of constraints in work processes to sort out bottlenecks in production. A book on this subject was simplified and given to staff who then took responsibility for applying it in their own workplace. Staff responded to this information with great enthusiasm and Mr Pollett was overwhelmed by the number of staff suggestions on how to improve work processes and productivity in response to sharing this information. By including his staff in this strategic approach to the business he gained invaluable information at the staff level and his staff became even more engaged in how the company was performing. Mr Pollett now has plans to contract a software designer to develop a programme to help workers monitor their productivity and performance every day. They will input data on their own work into the system and will be paid productivity bonuses based on their results. Mr Pollett believes personal issues frequently impact on the performance of his staff. Accordingly he uses monthly staff meetings and a process of open dialogue to discuss issues that may lead to absenteeism or impact on productivity. The company has recently contracted a counsellor to provide a free service to staff. Where there are issues of poor staff performance the company puts its efforts into structured remedial action that offers workers an opportunity to improve.
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5.7
Networking and Collaborating Findings and Recommendations

Clusters are the building blocks of a productive, innovative economy. Professor Michael Porter
D I S C USSI O N Firms do not operate in isolation and there are significant productivity gains to be achieved by improving the interchange of knowledge, information and ideas through both formal and informal networks and collaborative mechanisms. There are many existing formal networks in New Zealand, including Business New Zealand, Chambers of Commerce, Trade Associations, the CTU and ITOs. The number of clustering initiatives has also expanded. Informal networks also play an important part in the transferral of knowledge and information. Networks also have an important role in promoting research and development. The transfer of new knowledge (spill-ins) from other firms or research organisations is an important source of productivity growth. Formal industry associations can also be used to undertake activities such as research or training that benefits the whole industry. But it appears that many New Zealand firms are reluctant or unable to enter into collaborative arrangements beyond those of a simply transactional nature. According to the Innovation Survey (2003), most innovating firms (57%) do not collaborate with other firms or institutions in developing their innovations. This is despite the fact that increasing specialisation within firms and increasing competition both facilitate and require greater collaboration. Research has found the following impediments to the development of co-operative arrangements in New Zealand:42 Concerns about the legal limits to co-operative behaviour. A culture of self-reliance. A legacy of a regime of protection that fostered a mindset of insularity. The widespread and rapid promotion of competition following the economic reforms. The small scale of firms, sectors and markets imposing limits on the extent of specialisation and exchange possible. The fact that New Zealand does have a lot of small and medium-sized firms places an increased emphasis on networking and collaboration as a means of creating greater scale and scope. The geographical spread of firms also means that they need assistance to create localised collaborative concentrations that can achieve this scale.
42
Campbell-Hunt, C and Corbett, L (1998), The Path to Competitive Advantage: Strategic Development in New Zealand Businesses during the 1990s, School of Business and Public Management, Victoria University of Wellington; Chapter 2 of Yeabsley, J (ed) (2001), Global Player? Benchmarking New Zealands Competitive Upgrade, NZIER Research Monograph 67, Wellington.
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Preliminary research undertaken by NZTE and the TEC has found that there may also be less inter-firm collaboration in some larger firms. These firms often internalise the specialist skills they need because they cannot guarantee supply from New Zealands thin markets. A common theme in Firm Foundations was an absence of strong inter-firm relationships. For example, only one in 10 firms appeared to work very closely with suppliers to improve each others processes.43 An MED-sponsored study of collaboration and linkages between New Zealand SMEs suggests that: Collaborations occur across the full range of SME business functions but are more evident in areas where outsourcing is more economic, such as logistics management, and where resource-pooling opens opportunities to SMEs that are otherwise beyond their capacity, such as joint marketing and market development. Collaboration between SMEs will be frequent during early attempts at internationalisation. The scope and type of collaborations will change as a firm expands to include an international focus either importing or exporting. For example, a firm that is growing its export market is likely to initially focus on collaborations with offshore distributors, and then, as its market grows, focus on manufacturing. Collaborative relationships with demanding clients are the primary external source of new knowledge assets and innovation among SMEs in New Zealand. This MED-sponsored study of collaboration and linkages between New Zealand SMEs is also suggesting that knowledge-based collaborations are more important in those firms that are: In the early stages of an industry life cycle. In the early stages of organisational growth. Locally owned. Information and communications technology intensive.
W PWG FI NDI NG S We believe that it is important to recognise the good work being done by existing networks and raise their profile. Networks and collaborative activities work best when they develop naturally, through a bottom-up process. There is a range of networking and collaboration that can be achieved through both informal and formal mechanisms. But the essence of any networking or collaborative relationships is the opportunity to achieve productivity gains by sharing information and knowledge with partners, suppliers, and other firms in the value chain. There is also a key role for government to act as a catalyst and broker in strengthening network formation. In particular, government can:44 Facilitate the provision of information as an input into networks.
43
Knuckey, S and Johnston, H (eds) (2002), Firm Foundations: A Study of New Zealand Business Practices and Performance, Ministry of Economic Development, Wellington. OECD (1999), Managing National Innovation Systems, page 61.
44
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Help to bring the right parties together in co-operative activities so they can build trust. Stimulate knowledge exchange between the various actors within networks and clusters. Use direct intervention for instance in the form of R&D support when there are clear market or systemic failures or when the private sector alone cannot undertake the task. Act as a demanding customer, such as in relation to standards and procurement. Strengthen co-operation between science and industry.
Existing Programmes Several strands of government work are already underway to improve New Zealands performance in the area of collaboration and networking. These include: MEDs recent engagements with small firms, such as through the Small Business Days, have highlighted the need for further improvement in collaboration within government to ensure that its interactions, and communications, with firms are better co-ordinated. This will be addressed as part of the governments overall effort on whole-of-government alignment. The Regional Partnerships Programme (RPP) has been performing well in terms of building local economic development capability and governance, and developing partnerships and networks and institutional linkages. But suggested areas for enhancement include improving alignment and integration across regional development programmes, the ability of Maori to engage with the RPP, and more flexibility in programme funding to incentivise collaboration among smaller regions. The suggested improvements are now being implemented. An Incubator Support Programme promotes best practice among incubators in New Zealand, enhances networking among members of the incubator network and facilitates access among incubator tenants to other government programmes, where appropriate. Thirty-eight funding awards have been made to 18 incubators since the programme was started in 2001. An industry association, Incubators New Zealand, has now been established to promote the industry, and support incubators in New Zealand. This should provide incubators with collective ownership of their development and a sustainable structure to maintain their industry. The Beachheads Programme assists companies in specific sectors to establish a presence in global markets through the establishment of forward offshore marketing bases, and sharing of the costs of accommodation and a business development manager. This allows them to reduce the risks/costs associated with establishing a presence close to their customers and/or suppliers. Beachheads have so far been established in Singapore (ICT and high-tech), London (high-tech), Silicon Valley (ICT) and Fort Lauderdale (marine). NZTE is moving to focus its resources on targeted global opportunities for New Zealand firms and opportunities for New Zealand firms to form strategic partnerships with international organisations. MED, Ministry of Foreign Affairs and Trade (MFAT) and NZTE (with other parts of government) are working, within the context of the Closer Economic Relations agreement with Australia and trade negotiations with other countries, to identify and facilitate opportunities for further networks and collaboration with other countries like Australia and China.
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MED and NZTE are planning to extend their work with sectors, aimed, among other things, at increasing networking and collaboration within each sector and between the sector and government organisations. MED is working with the Kiwi Expat Association (KEA) to further develop and exploit global networks based around expatriate New Zealanders. MED and NZTE are planning to examine how to make the Enterprise Development Fund and Growth Services Fund more flexible for assisting collaborative initiatives. MED and MoRST are planning some research work to improve our understanding of the drivers of, and incentives for, collaboration and linkages, both between firms and between firms and other institutions. Te Puni Kokiri is working with Maori business networks to support their sustainability and to promote strategic alliances, including alliances between these networks and mainstream business networks.
Awareness Raising 58 Identify the full range of networking and collaborative opportunities and mechanisms already available and ensure firms are aware of how to use these effectively. 59 Identify and disseminate examples of best practice in networking and collaboration, and case studies showing the resultant benefits. 60 Explore the scope for using employer and employee organisations as complementary mechanisms to help spread key awareness messages.
Diagnostic Tools 61 Review whether existing tools to diagnose business capability are putting sufficient emphasis on the extent to which firms are utilising networking and collaboration both within New Zealand and internationally, and adapt these tools, as necessary, to ensure that they are including this emphasis.
Research and Evaluation 62 Review whether the impact and reach of existing firm capability services (in addition to the Enterprise Development Fund and Growth Services Fund) could be increased by adding further networking and/or collaborative elements to spread the benefits beyond the primary beneficiary. 63 Undertake more detailed research into why networks are established and, more particularly, what constitutes best network design and operation, particularly in relation to enhancing productivity.
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Case Study Kiwi Expat Association Provides Positive Leads for Battery Breakthrough
A breakthrough battery technology developed in New Zealand and being marketed to the world by a company of expatriate New Zealanders is attracting strong interest from military and consumer electronics firms in the United States. The revolutionary zinc battery technology which lasts much longer than existing types of batteries was developed by the Nanomaterials Research Centre at Massey University in Palmerston North, and has been exclusively licensed to purpose-built San Francisco company Anzode. Anzode chief executive Chris Officer, a former Massey University graduate and staff member, first learned of the breakthrough when visiting in 2003 and immediately recognised the technology was almost market ready and would be extremely attractive to investors. However Mr Officer, a US resident, had to acknowledge the technology was outside his expertise. While struggling with a way forward he was invited to a meeting of the Silicon Valley chapter of Kiwi Expat Association (KEA), where he met people who helped him structure the company, secure the technology, protect the intellectual property, and work out the commercialisation strategy, including obtaining early funding. KEA member John Ritchie, a San Francisco lawyer, quickly convened a meeting of an impromptu advisory group. Linda Jenkinson, who had vast experience starting companies in the US offered invaluable advice, and Howard Moore, who was in the final stages of taking a New Zealandoriginated company to initial public offering (IPO) in the US, provided guidance and ultimately became chairman of Anzode. As a result I talked to a wide range of experienced and connected New Zealanders who helped shape my thinking. At the end of this process I had secured enough funding to get through the negotiation process with Massey University and secure the technology, said Mr Officer. This case study was reproduced with the permission of the Kiwi Expat Association. http://www.keanetwork.com
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5.8
Measuring What Matters Findings and Recommendations

Key performance indicators should be appropriate to peoples level of control, within their sphere of influence and in their language. Alan Bennett, Fonterra WPWG Workshop, May 2004
D I SCU S S I O N Workplace productivity measurement and reporting tools assess workplace productivity performance and use the findings to assess the success of an organisations strategies. Measurement and reporting on the firms performance is integral to realising the productivity potential of a firms use of other drivers of workplace productivity. There is some New Zealand evidence that good measurement and reporting practices affect business performance. MED research45 shows that New Zealand firms are using a broad range of indicators to measure their performance. This research: Suggests high performance is associated with close monitoring of competitors products (through benchmarking), a focus on financial performance and measurement of employee satisfaction. However, there is heavier emphasis on assessing performance in terms of financial or quality measures than in areas that might provide an earlier indication of performance (and any problems), such as human resource or innovation measures.46 Only around a quarter of firms give a great deal of attention to these measurement areas. Shows that only 2% of those New Zealand organisations surveyed are undertaking best practice benchmarking, although 48% are undertaking performance benchmarking. By comparison, various American and European studies suggest that between 60% and 88% of US and European firms undertake benchmarking. One reason for this may be that many New Zealand firms still do not understand how to use external measures and, even if they do, they do not have the time and/or resources to do it properly.47 This includes identifying the key processes and indicators that a firm compares itself against, identifying suitable comparator firms and getting access to the comparator information. This is despite a range of software and online tools that can make measuring and collating certain types of information easier, which may suggest an accessibility issue.
WPWG F I N D I N G S In looking at the issue of workplace productivity measurement and reporting, we have come to the following conclusions: Good measurement and reporting practices are linked to assessment of an organisations strategy and how to better achieve strategic objectives.
45
Knuckey, S and Johnston, H (eds) (2002), Firm Foundations: A Study of New Zealand Business Practices and Performance, Ministry of Economic Development, Wellington. Financial performance indicators are often out-of-date, not leading indicators from a business improvement perspective and can lead to short-term investment decisions. This suggestion is based on comments made by some firms during Ministry of Economic Development interviews for Firm Foundations: A Study of New Zealand Business Practices and Performance, 2002.
46
47
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There is no one right way to undertake measurement. Firms must choose a form of measurement, either internal and/or external, and a form of reporting that best meet their information needs. There needs to be a commitment to measurement throughout the firm and to communicating the results of the measurement in a way that relates individual and team performance to the overall business performance. There is no definitive evidence of the scope or effectiveness of measurement and reporting practices in New Zealand. While MED has undertaken some investigation of measurement and reporting practices in New Zealand firms, we do not have a definitive picture of the nature or extent to which firms undertake these activities. We lack information on how firms decide to undertake measurement activities and how they choose relevant measurement indicators. There is also a research gap in terms of evidence of whether best practice monitoring makes any difference to firm performance, how best practice is determined and what the barriers are to firms using best practice, especially if it makes a significant difference to their performance.
Effectively Measuring and Reporting on Workplace Productivity Workplace productivity measurement and reporting is not a new concept, with many firms already undertaking measurement activities. The main challenge in effectively measuring and reporting on workplace productivity is whether measurement practices are tailored enough to provide effective information for a firm to make good productivity decisions. High performing firms tend to take a balanced approach to performance measurement, including developing finance, cost, market/quality, process, staff and innovation indicators.48 Key considerations for applying good measurement and reporting practices are:
Measuring What Matters Measurement practices need to be linked to achieving the firms strategic objectives and management decisions and communication needs to take into account the information that is being provided. Good measurement can assist in leading and managing change, especially at transition points. Indicators should be selected which provide practical and useful information.49 Measuring those processes with the greatest potential value for organisational improvements is as important as measuring to reducing costs.
48
Examples of these indicators are: finance and cost indicators revenue, profit and loss, cash on hand, return on investment, cost per unit, inventory costs; market/quality and process indicators customer satisfaction, customer complaints, market share, comparisons with competitors, response time, returns and rework, percentage on time; staff indicators staff satisfaction, staff turnover, skills development, absenteeism, morale; innovation indicators investment in new products and services, cycle time, research and development expenditure.
49
Critical questions that firms need to ask about performance information are: is the information useful and relevant? information on performance should be based on the need to manage processes better, meet stakeholders needs, track the business against goals and targets, or act strategically; do firms get the performance information they need when they need it?; is the information accurate or is it too approximate?; is it analysed and summarised or in a form that is easy to use?; is everyone in the firm working off the same performance information and is it available to all staff that need to use it?
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Measurement and reporting also need to be tailored to the individual firm and to balance both qualitative and quantitative factors, including finance, organisational culture and human capital. Some examples of measurement and reporting include return on investment measures for skills development, culture assessments and follow-up assessments of change.
Involvement Measurement needs to be simple and understandable so that all levels of a firm can understand what the results mean in relation to their own personal or team performance and how their performance contributes to the organisations overall performance. Targets can be broken into sub-targets that relate to individual or team areas of responsibility. Employees should be involved in designing an organisations key performance indicators. Importantly, people need to be able to trust the information about the targets to which they are contributing. Measurement need not be subservient to culture but can help to inspire an objective-based culture.
Different Firms Will Have Different Needs While good measurement practices tend to include particular criteria (as outlined above), different firms will have different measurement needs. For example, SMEs may choose to use data collection processes and measurement practices that focus on a few key indicators, due to the labour intensity of measurement activities relative to their workforce or turnover. A range of internal and external measurements, such as benchmarking, participation in business excellence awards, and sustainable development reporting, is available. Customisation of these measurements will ensure that the information meets an individual firms specific needs. Those firms that choose to undertake external assessment will need to find suitable partners. The identification of appropriate partners may be costly. However, these partners need not be within-industry partners. For example, the effectiveness of a real-time data collection process in the transport sector might be assessed against a similar process in a manufacturing production line.
Existing Programmes MED offers a benchmarking tool for firms on its website, based on the Business Practices and Performance Survey (2001). In addition, Statistics New Zealand offers a range of information that firms can use for benchmarking purposes. NZTE also supports the development of measurement and reporting systems through its Enterprise Development Fund and Growth Services Fund. Grants through these funds are available for developing and implementing improvement strategies, including ISO 9000 and systems evaluation and development. In addition, there are public sources of information and support on measuring and reporting available to firms. For example, the Business Performance Improvement Resource (BPIR) (www.bpir.com) offers a wide range of information and a model that firms can use to implement measurement and reporting practices specific to their line of business.
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Awareness Raising 64 Raise awareness of the value of measurement and reporting as an integral part of workplace productivity strategies. 65 Develop greater accessibility to both public and private information and other resources available to assist firms in measurement and reporting activities.
Diagnostic Tools 66 Provide diagnostic support to assist firms in getting started on measuring and reporting.
Research and Evaluation 67 Undertake further research to better understand: a The type of measurement and monitoring that is effective in identifying good performance.
b The nature of measurement and reporting practices in New Zealand and how good measurement practices contribute to increased workplace productivity, such as MED continuing to include questions relating to measurement practices in its business practice surveys. c The determinants of firm performance using good micro data and research techniques.
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Case Study Fonterra Co-operative Group Ltd

Fonterra is the fourth largest dairy company and the second largest milk processor in the world, with revenues of over US$8 billion, 20,000 staff worldwide, major operations in 40 countries and sales to more than 100 countries. Within New Zealand, Fonterra is owned by more than 12,000 farmer shareholders, is responsible for 22% of New Zealands total exports and has 26 manufacturing sites (18 in the North Island, eight in the South Island). In 1999 the General Secretary of the Dairy Workers Union (DWU) identified a shop-floor based improvement methodology in Australia. The DWU believed this represented an opportunity for upskilling its members, increasing the scope of their roles, and providing longterm sustainability for Fonterra and therefore DWU members. Kiwi Dairies bought a licence for this methodology and started implementing it at Whareroa in 2000. Kiwi Dairies named the initiative Manufacturing Excellence (ME) and when Fonterra was established, a decision was made to undertake a controlled roll-out across the organisation. The key philosophy behind ME is that it is a joint DWU/Engineering Printers and Manufacturers Union (EPMU)/ Fonterra initiative. As a part of the ME initiative, Fonterra implemented a Visual Performance Measurement (VPM) system, which is based on identifying key performance indicators for each work team (based on the firms key drivers and the major losses in the area), agreeing with the team on improvement objectives and providing them with visual, short-cycle feedback on their performance against these objectives. The VPM gives the team visibility on their performance and improvements, establishes a drive for improvements, ensures timely corrective action at source, gives the team ownership and accountability for their performance, makes the workplace transparent, and empowers the work teams with information to make decisions. Staff involvement is also integral to the way the performance measurement is used.
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appendix 1
Workplace Productivity Working Group Membership
The members of the Workplace Productivity Working Group have a wide range of backgrounds, and bring diverse and practical perspectives. They are:
1 Owen Harvey (Innovation and Systems Ltd): Owen has broad experience in collaborative
organisational learning and development with an emphasis on building participation and learning into any development process. Owen was an organisational development consultant and the Manager of Workplace New Zealand, an organisation that promoted and resourced transformational change in New Zealand workplaces. Owen consults to a wide range of organisations in the areas of strategic organisational design, team development, building cooperative workplace relationships, and leadership development.
2 George Lafferty (Victoria University): George is a Professor of Human Resource
Management & Industrial Relations at Victoria University. His research interests include: human resource management in the public sector, work reorganisation, international and comparative analysis of employment issues, and trade unions.
3 Jan Mottram (Vodafone): Jan is the HR Director at Vodafone and the winner of the 2003
HRINZ HR person of the year. She has established an expectation of HR as a business partner at the board table. Working on a core belief that people are the key differentiator between one organisation and another, Vodafone was instrumental in creating a culture that has become enduring and fundamental to the organisations business practice. The focus on people led to a comprehensive range of HR systems and policies. These have evolved over time and are reflected in an organisation where people feel valued, supported, treated fairly and have fun, a powerful basis to deliver value to customers and, ultimately, economic value to shareholders.
4 Katherine Percy50 (WorkBase): Katherine joined Workbase as Chief Executive in 2001.
Prior to joining Workbase, Katherine was Northern Regional Manager with the Ministry of Education, and previously held a range of roles within both the private and public sectors. In addition to leading the organisation through a period of significant growth and development, Katherine is involved in a number of projects Workbase undertakes. These include evaluation and monitoring of the Workplace Basic Skills Development Fund.
50
Katherine was supported by Carla White, Acting Chief Executive of Workbase.
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5 Craig Ellison (Moana Pacific Fisheries Limited): Craig has been a Commissioner of Te Ohu
Kai Moana (TOKM) since 1993. He was involved in a successful family fishing firm and has had an active involvement in a wide range of industry groups, including being a member of the New Zealand Fishing Industry Board (NZFIB) and President of the Fishing Industry Association. He is currently chairman of the New Zealand Seafood Standards Council, Deputy Chairperson, Treaty of Waitangi Fisheries Commission, and Chairperson, Prepared Foods Group Limited, as well as a board member of several other TOKM subsidiaries. He is also an alternate director of the Seafood Industry Council (SeaFIC), Convenor of the Pacific Economic Co-operation Council (PECC) Fisheries Task Force and an observer on the APEC Fisheries Working Group. Craig is also a board member of NZTE. He has a strong background in resource management and has done post-graduate work in marine biology.
6 Greg Miller (Toll Tranzlink): Greg is Group General Manager, Toll Tranzlink and a Senior
Executive, Tranz Rail Holdings. He has 18 years experience at all levels within supply chain and logistics industries globally, including recent experience in the Mainfreight Group as Group Development Manager. Gregs role at Toll Tranzlink has involved setting the new strategic direction required by the board, including establishing clear business units and structures. Greg has a strong background in networks management, wholesale and retail operations, marketing and finance, and is an established leader in Enterprise Management System development.
Representatives of Organisations or Agencies:

Peter Conway NZCTU representative Nick Clark51 Business New Zealand representative Andrew Annakin52 Department of Labour representative (Working Group Chair) Peter Wilson53 Treasury representative David King Ministry of Economic Development representative Maria Crook New Zealand Trade and Enterprise representative James Buwalda Department of Labour, Project Sponsor.
51 52 53
Nick was supported by Jeremy Baker and Peter Whitehouse. Andrew replaced Geoff Bascand as the Department of Labours representative on the Working Group. Peter replaced Jeremy Corban as the Treasurys representative on the Working Group.
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appendix 2
Terms of Reference for the Workplace Productivity Working Group (WPWG)
Workplace productivity 1 To create a more innovative economy, New Zealand needs more than good social and physical infrastructure and a competitive business environment. We need to provide further support for innovation and growth, by encouraging: a Firms, managers and a workforce that have strategies oriented towards innovation and the production of high value added goods and services.
b Investment in innovative capacity, skills, modern production technology, and IT to support sustainable (and continually upgrading) competitive advantages. 2 The areas of workplace practice that are likely to be most relevant to lifting productivity54 are: a Leadership, managerial capability and investing in people and skills: leadership includes setting strategies and objectives that are appropriate to firms, and engagement to generate commitment to these strategies and objectives; managerial capability refers to skills that managers need to plan and execute those strategies and objectives55; investing in people and skills refers to formal learning and on-the-job learning to ensure the firm has the current and future capability to achieve the firms objectives. b The ways that ideas and technology are created, adapted and adopted by firms: this area includes the systems, processes, tools and technologies that are used by the firm to drive efficiency and productivity, by making the most of the information and ideas that are available from their employees, suppliers, customers and other networks.
54
The Ministry of Economic Development (MED) has undertaken a review of firm practice in its publication Firm Foundations. It groups firm practices under the following headings: Leadership and Planning, Employee Practices, Innovation and Technology (all to be investigated by WPWG); Customer focus, Quality and Supplier focus; Information and Benchmarking; and Information Technology. Successful firm practice is often about more than any particular policy; rather it is about how the practices work together.
55
This is being examined separately by MED and so should be seen in the context of specific skills that are acting as barriers to the adoption of high performing practices.
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Workplace culture, participation and productive relationships: this area covers the development and support of the culture of an organisation to deliver to its strategies and objectives, undertaking employee-employer dialogue aimed at identifying and implementing more productive workplace practices, and building on the principles of partnership and participation in recent legislation, such as the Employment Relations Act 2000 and the Health and Safety in Employment Amendment Act 2002.
d Organisational design and workplace organisation: this area includes considering whether the ways work and workplaces are designed are fit for purpose, by assessing design against strategies and objectives, as well as incorporating employee participation into design; it also includes exploring the ways in which the design of work flows and how people and technology are configured to perform work contribute to performance and productivity. e Measuring and reporting on workplace productivity achievements: this area includes firms assessing their workplace productivity performance,56 and taking that performance into account in implementing and assessing the success of a firms strategies.
3 The government has instituted an employment relations framework (including the Holidays Act, Employment Relations Act, and Health and Safety in Employment Act), which includes the key principles of good faith and employee participation. The WPWG should be focused on building on the principles of this framework. The main focus of the WPWG is to consider nonregulatory instruments to promote productivity at the firm and industry level.
Purpose of the Workplace Productivity Working Group 4 The Working Group will advise the government on the current situation (including how New Zealand is doing in terms of workplace productivity and practice, what practices have been successful/unsuccessful, and how New Zealands policy settings and processes are promoting workplace productivity), and possible future policy options for lifting workplace productivity, by providing advice on: a Ways to improve government policies and policy-making processes (such as the development of policies to promote economic growth) to better take account of workplace productivity issues.
b New initiatives to lift workplace productivity and promote high performing practices. c Methods of lifting awareness of best practices.
d Key information and research gaps to be filled.
Process and Deliverables 5 In March 2004 the Working Group will meet to: a Confirm their area of main focus and their work programme.
b Develop details of a workshop. c Establish a programme of monthly reports to the Ministers of Labour and Finance and the Minister for Economic Development on progress.
56
This assessment can occur in a number of ways internally, externally, or through a mixture of both.
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6 The Working Group will meet on a fortnightly to monthly basis from March 2004 to August 2004 to discuss issues and develop options for report back. 7 The Working Group will organise a workshop in May 2004 on workplace productivity to test and develop ideas. 8 The Working Group will consider ways to communicate the findings of its work to the wider community. 9 The Working Group will report to Cabinet in July 2004 regarding policy options for lifting workplace productivity (see paragraph 4 for a description of what will be involved in the report back).
Officials group support for the Working Group 10 The Working Group will be supported by officials from the Departments of Labour and Prime Minister and Cabinet, the Treasury, the Tertiary Education Commission, New Zealand Trade and Enterprise and the Ministries of Economic Development, Social Development, and Research, Science & Technology. Officials will both support the Working Group and take a focus on how to improve policy processes to better take account of workplace productivity issues.
Department of Labour PO Box 3705 Wellington Phone 04 915 4000 www.dol.govt.nz/productivity/

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AUGUST 2004

THE WORKPLACE PRODUCTIVITY CHALLENGE

report of the workplace productivity working group

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the workplace productivity challenge

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Andrew Annakin Workplace Productivity Working Group

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2 consolidated wpwg recommendations

3 background and scope of the workplace productivity working group

4 the workplace productivity challenge

5 meeting the workplace productivity challenge wpwg findings and recommendations

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Meeting the Challenge

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Creating Productive Workplace Cultures

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Encouraging Innovation and the Use of Technology

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Investing in People and Skills

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Networking and Collaborating

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Measuring What Matters

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Workplace Productivity Working Group Scope

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

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the workplace productivity challenge

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

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The link between Workplace Productivity and National Productivity

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Figure 9: The Framework within Which Businesses Operate

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Workplace Productivity Drivers

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Barriers to Introducing Productivity Improving Practices

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