Productivity and Innovation

This was first published on my personal blog

The words ‘productivity’ and ‘flexibility’ get bandied about a lot whenever the economy is discussed. These words seem to be in every article and every piece of commentary about the economy. However, it seems that in the rush to be the first with the latest story about the latest market stats, commentary about innovation is entirely lost.

I mention innovation as it is through innovation that productivity can be lifted.

I also mention it as I recently came across a survey conducted by the Australian Institute of Management into how Australian managers rank themselves on a number of issues. The report suggests that Australian managers didn’t rank themselves well when it came to innovation or thinking globally.

This is pretty damning stuff when you think about it. Yet there is a substantial amount of academic research about the positive links between innovation and productivity. While innovation is often expressed in different ways but it always involves the creation, flow and/or absorption of ideas. Through speed and quality of the creation, transmittal and absorption of ideas innovation is facilitated.

However, innovation depends on an organisation’s ability to create, acquire and manage knowledge. The knowledge economy is something that is yet to be fully realised in Australia. But for many businesses, innovation success involves developing business opportunities by commercialising research and development projects, organisational processes or services faster than the competition.

Organisations can then create competitive advantages through innovation. However, innovation requires deliberate decisions by organisations to invest in skills and knowledge, physical assets, brand reputations, infrastructure etc, to add new resources, to develop different capabilities or extend into new areas and new markets. In this way competition and all important profit motive creates the incentive to innovate.

According to the Australian Bureau of Statistics (ABS), innovation in Australia has been on the increase. In 2007–08 45 per cent of businesses were actively seeking ways to innovate and trending up [1]. Unfortunately the OECD notes that Australian organisations innovating are below the OECD average and well below comparable countries such as Canada, United Kingdom and New Zealand [2].

And despite the research and reality illustrating the need for innovation to bolster productivity, we’re often told that Australian workers have to be more flexible to increase productivity. However, workers know that the word ‘flexibility’ is a one-way street.

The Voices from Working Australia report told us that workers know all-too-well that flexibility is something management expects of workers yet is rarely reciprocated by management. Workers also know it means less time with family, friends and being less productive because of a lack of a rounded life.

Though this kind of managerial approach is also concerning from the view point of developing an engaged workforce; producing a more productive workforce.

There is a significant body of management research that shows that workers involved in the organisation are more loyal and more productive. This means workers are part of the decision-making processes, have a say in their workplaces, have secure jobs, and are given respect and dignity, resulting in a productive workforce working towards the growth of the organisation. It has been regularly shown that in the organisations with the most engaged workforce, and most secure workforces, are more productive.

There are also a range of case studies that highlight the dangers to business of excessive use of overly restrictive employment practices like casual work, contracting and labour hire, where the response to times of high demand cannot be properly planned for with an insecure workforce. As a result such organisations tend to be incapable of competing resulting in further lay-offs, or more out-sourcing; resulting in the organisation being incapable of planning for unexpected times of high demand.

You can see where I was going and unfortunately it’s a vicious downward spiral. Eventually these organisations are bought out or go out of business; and it’s not the fault of the workers. You just have to see in the Voices from Working Australia [3] that Australian workers are very loyal and work long hours, so these organisations can hardly put the blame at the feet of their out-sourced, labour-hired, contracted workforce.

Yet we have from the Australian Institute of Management a survey of Australian managers showing that they ranked themselves lowly when it came to being global thinkers and innovators. One would imagine with all the talk about the global economic uncertainties, Australian businesses would be out there seeing what’s happening globally and returning with fresh ideas on how to innovate in their businesses to meet the challenges of the global economy.

And with such a survey in the public domain, it begs the question as to why the big business lobby and their Coalition mates haven’t been taken to task over innovation. Why haven’t the various business pundits and commentators been asking the hard questions of CEOs and Boards about their investments in skills and knowledge, infrastructure, and programs to add new resources, developing different capabilities or taking on new challenges to move beyond what the company is already good at?

Perhaps the keys to Australia’s productivity woes lies in Australian businesses doing more to innovate, rather than seek ways to shift the risk and burden of employment onto its workforces. Creating secure jobs, which everyone can rely on, creates a more productive workforce and more productive businesses. It also creates a more vibrant domestic economy.

References

1 Australian Bureau of Statistics, Summary of IT Use and Innovation in Australian Business, 2007–08 (cat. no. 8166.0)
2 OECD Science, Technology and Industry Outlook 2008, p. 233
3 Australian Council of Trade Unions, Voices from Working Australia report 2011

18 comments on “Productivity and Innovation

  1. Alex, your phrase ‘thinking globally’ is a real key and one I’ve given a bit of thought to.

    We are amid a new environment of borderless or global markets. One major challenge facing managers in the next ten years in this global economy is to think, plan and act globally as well as domestically. I see the following as potential explanatory factors underlying the global trend:
    • Improvements in international communication facilities;
    • International competitive pressure;
    • The speed of production methods and other business processes; and
    • International business activity.

    In response to this global market, as a matter of survival, corporations should be strengthening networks between functions, divisions, countries and regions and should be investing in alliances and other partnerships to compete through cooperation.

    Throughout the next ten years executives must develop an international focus for their particular organisations. Or rather than simply must, it perhaps should be mandatory. Those organisations whose sole point of comparison is domestic competition, or interstate rivals, will fail.

    The global market poses a threat (or perhaps presents an opportunity) to local organisations. As markets become more open, international firms will enter domestic markets, thereby increasing competition. Further, because firms will be operating in global markets, competitors may not respond to competitive moves in the domestic economy but may act against the firm in the international environment. The increasing amount of competition places pressure on executives to move their organisations into international markets in order to maintain their competitiveness. The opportunities will avail as organisations gain advantage against the world’s best competitors because of pressure and challenge. Lag behind the international field, particularly in an information rich era, and one thing is certain: the majority of customers will go elsewhere.

  2. Migs, basically it gets back to the phrase that Australia must become the clever country. The fact is that we are small country, geographically isolated and with no potential to complete in the sock and jocks field. Manufacturing in Australia is all but dead. We exist because of that which we dig up out of the ground, but our major export countries such as China are moving to becoming energy self-sufficient – in the future China and India are hoping not to have to pay top dollar for that which we dig up.

    We have a small potential to provide some food stuffs, however with climate change, salination of our decreasing waterways, this potential is very limited.

    The kneejerk reaction from industry is to try to make things cheaper, and especially to make labour cheaper. The Dutch boy with his finger in the dyke comes to mind. (pardon the expression, it has other connotations these days).

  3. Once again, disunity in the Coalition camp. These are the wonderful financial managers.

    Opposition Leader Tony Abbott has declined to back a Liberal frontbencher’s defence of a surprise rate hike by ANZ Bank.

    Banks were quite capable of defending themselves, he said.

    The ANZ has raised loan rates by six basis points despite the Reserve Bank recently indicating it may be about to lower the official cash rate in May.

    Opposition finance spokesman Andrew Robb on Monday said the banks were not ‘stupid’ and did not put up their rates ‘willy-nilly’ if they were not suffering a problem with their margins.

    ‘What, do you want them to have a loss before they can put up their margins?’ he said.

    When quizzed about Mr Robb’s comments, the opposition leader blamed the environment in which the banks operated saying it had been ‘contaminated’ by the government’s bad economic policy.

    http://bigpondnews.com/articles/TopStories/2012/04/16/Not_for_me_to_defend_banks-Abbott_740077.html

  4. Yes, we must once again become a clever country. The PM tells us this every day.

    The PM believes education is the key for this to happen.

    We cannot and should not want to compete with low wage countries.

    We want to be up among the high income, specialist areas.

    We now know we do not have to manufacture our own clothes etc. to survive.

    We now have access to manufactured goods at cheaper prices. We are still highly employed.

    We cannot go back to the past, of we want to prosper in today’s global economy and markets.

    Labor has to move away from the concepts of the past, that it believed in, that met the needs of the worker and their families.

    New concepts are needed today.

    Hawke and Keating knew this.

  5. Though this kind of managerial approach is also concerning from the view point of developing an engaged workforce; producing a more productive workforce.

    Alex, I’d like to add my own views to this.

    The characteristics of a person’s experience at work have a strong impact on motivation and ultimately job satisfaction. Traditionally such things as pay and conditions have been the prime motivators. We are now seeing that requirements such as personal growth and development, as well as a rewarding work experiences are stronger motivators. In the coming years executives will be faced with the task of identifying which motivators are for who, as we witness this shift from extrinsic to intrinsic values. Within this shift three major variables of workplace motivation: the individual; the job; and the work environment.

    Leaders have an impact on worker motivation. The major objectives of managers thus is to structure the mix of work and/or rewards so that a high standard of performance is either intrinsically or extrinsically rewarding to the worker . Managers can achieve this by:
    • Leading by example;
    • Providing encouragement to workers through praise, recognition, and other intangibles;
    • Providing a tangible reward system; and
    • Providing job enrichment and job challenges.

    Most of the motivators mentioned have been intrinsic. One of these, job enrichment, is clearly a favourable motivator which can be gained from increases in responsibility and significance. Training, too, not only provides job enrichment but can clear pathways for improving job security. It is worth recognising that an employee’s motivation is to some degree related to the rewards he or she receives through participation in the organisation (perhaps by way of strategically introduced challenges and enrichment programs).

    In the coming years executives will need to develop a deeper understanding of the variables which affect motivation in the workplace, in particular the intrinsic motivators which continue to grow in importance. Managers will need to know what factors or influences can motivate people (and performance) at work, and what encourages greater individual responsibility and effort in the workplace.

  6. We will fight them in the trenches, we will fight them in the..umm bed-making factories?

    If Abbott gets any more crazy, I wouldn’t put it past him trying to make a citizen’s arrest the next time that he meets Julia Gillard.

    Opposition Leader Tony Abbott has urged workers to “rise up” against Labor in protest at the carbon tax, which will come into effect on July 1.

    Visiting a Melbourne bed-making factory on Monday, Mr Abbott said the carbon tax would act like a “reverse tariff” affecting Australian manufacturing while benefiting overseas competitors.

    http://news.ninemsn.com.au/national/8452049/abbott-call-for-revolt-over-carbon-tax

  7. Min, when I seen that earlier, I thought someone was recycling old news.

    Does he not remember, it was a flop last time he tried it.

    Something wrong with his short term memory.

    he is forgetting one thing, the workers will wake up to the fact, they are not paying the so call tax.

  8. I am surprise it was not a broom factory. Maybe Mr. Abbott is training his army with broom sticks, out the back of Liverpool. Just like they did during the great war.

    Maybe that is why they want to put a damper on the second airport.

    I wonder if Mr. Smith has the army on standby when the budget session resumes.

    Mr. Abbott will have to wait until it gets warmer, as aged and retired people do not like Canberra winter.

    I wonder if Mirabella is out there getting them into shape.

    I wonder how he is going to convince them they are paying more tax, when it does not show up on the payslips.

  9. Media Watch is worth a peep. Saying Conroy will have no choice but bring in a new press body.

  10. Such great comments from everyone. Thank you! This persistent whine about productivity and flexibility completely ignores innovation, and is something that gets under my skin.

    Throughout my studies in management, most of the world’s top executives didn’t blame workers or materials but looked for opportunities to expand their businesses in different areas. The world’s top executives actively sought and harnessed the ideas and energy of staff.

    And so far everyone here seems to get that – shame our captain’s of industry seem to be letting the team down.

  11. Alex, I think that this is the point in question. One set of management perceives workers as a drain – a person who takes time off work, who takes unnecessary sickies, that their ideas are nothing but a nuisance, that they are time-wasters who need a good stick in order to force them into action.

    The other set of management is sensitive to their employees needs, who views their employee as a valued asset, that by working together towards a common goal that it’s beneficial to all.

    The fact of the matter is respect. Management who respect their employees, and those who do not.

  12. Alex, speaking of captains of industry i’ve been having a look at what Ms Judith Sloan is about, lately spending large amounts of time on the Drum, where she takes pleasure in being rude to anyone left of Dick Cheney.

    One could easily get the impression that she just doesn’t like Unions, unless it happens to be a right-wing version such as the HR Nicholls Society.

    Ms Sloan had this to say in a speech to the HR Nicholls Society:-

    I have always believed that the H R Nicholls Society was looking forward to the day when its vision would be accomplished; that one day public opinion would force the legislative changes necessary to put behind us all the burdens of trade union privilege and debilitating labour market regulation; and that there would come a time when we could all go off and have a really good celebratory drink, and close the Society down.

    There’s no date on this but rest assured Ms Sloan is still on the same page.

  13. Thanks Alex. It’s a good post and one I haven’t yet finished contributing to. The subject is one I can really get my teeth into but need to put things in my head before I can commit them to words.

    Watch this space!

  14. On the subject of the necessity of acting globally..

    IT’S a move that will make Australia’s bricks and mortar retailers shudder.

    Amazon – the world’s largest online retailer – is in the market for a local warehouse in Australia as part of its massive global distribution network.

    The global giant, which made its name as an online book seller, is now said to be turning its eyes to the Asia-Pacific region.
    Advertisement: Story continues below

    Agents say the group has been making it known in real estate circles that its expansion plans will include Australia, due to the supply of good-quality warehouses at attractive rentals.

    http://www.theage.com.au/business/amazon-eyeing-off-local-warehouse-in-australia-20120417-1x5k5.html#ixzz1sLjWzWuM

    Something that I said a while back which was courtesy of a friend in retail – pet hate – people coming in and trying things on, walking out the door and buying it cheaper online. Now this is fine for the larger retailers, but not good for a one-person business employing 5 people.

    We have: the larger retailers purchasing in bulk..mostly fairly ordinary items. Then we have the smaller shops who must retail reasonably exclusive items so as to attract customers. One cannot compete with KMart, Target and Katies, therefore one has to offer something a little more upmarket.

    People go into these shops, try on say a pair of say Reiker boots and then buy them cheaper online. While this is fine for people looking for a bargain, this will be the demise of shopping centres because obviously the small exclusive retailer, already having to complete with the giants cannot complete with online as well.

  15. Here’s one way to improve “productivity”, tried and tested for it’s effectiveness
    in 1998; it worked a treat.

    BHP denies hiring contract workers for closed mine

    http://www.abc.net.au/news/2012-04-18/bhp-retrenches-workers-then-hires-replacements/3958694

    BHP denies it is recruiting replacement contract workers for a Queensland coal mine just days after it announced its closure and the retrenchment or redeployment of the existing, mainly union, workforce.

    The mining union, the CFMEU, has accused the company of “doing a Dubai”, a reference to the 1998 lockout of maritime workers by Patrick Corporation and their planned replacement with contract labour trained in Dubai.

    Workers spotted an internet ad on a recruitment agency site for a two-year contract starting immediately at the Norwich Park mine, saying it had “the security of a long-term position”.

    One of the mine’s current workers found the ad and applied and was then told to take his resume in next week.

    The CFMEU says it is the war on the waterfront all over again.

  16. Pip, re your quote of Judith Sloan’s yesterday:

    That woman is truly horrible ! And stupid.

    What she craves was “business as usual” in the early days of the industrial revolution, right up into the first quarter of the 20th. Why would anyone in their right mind want to go back there ?

    Labour and Capital will always struggle for a bigger share of the pie, but when one side gets the upper hand absolutely, blood flows.

    When they co-operate (Alex’s point, above) it’s a win-win all round.

    Why does the Drum give that silly bitch oxygen ?

    Her attitudes render her border-line certifiable.

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