1. executive summary

Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.[1]

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 Co-operation 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 Zealand's 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 Zealand's 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 firm's 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.

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 Group's views about the status of New Zealand's 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 timeframe. 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 government's 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's or team's 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, 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 in Section 2. 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 in Section 2. 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.

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 firm's 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 in Section 2. 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 co-ordination 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 up the potential and talents of New Zealanders 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 firms 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 existing barriers 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 in Section 2. 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.

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 in Section 2. 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 collaborating in firms is found in Section 2. 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.

Good measurement and reporting practices are linked to an assessment of an organisation's 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 in Section 2. 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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