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The unpalatable links between high productivity, leadership and wages

/ Nov 16, 2012 7:33AM / Print / ()

The unpalatable links between high productivity, leadership ...

For hard-working executives in Australia's leading companies, the suggestion that solving our low productivity rates is their problem is, at the very least, an unpleasant message. For most, it would prompt astonishment.

The long hours and personal sacrifices demanded of executives suggests there is really little more leaders can do to shift the productivity paradigm.

The research finds otherwise, however. The reality is that Australian leaders have the lowest proportion of tertiary education when compared to 16 countries across Europe, south-east Asia, the Americas and Canada, according to a report released yesterday. Recently analysis by Women's Agenda sister site LeadingCompany revealed that just one in five (20) of our ASX100 CEOs has an MBA, and 12 of those leaders appear to have no tertiary qualifications (that is, they make no mention of tertiary education in their biographies).

In fact, our leaders do not even rate highly the impact of their own abilities (or inabilities), the report, produced by the McKell Institute, found. "Not all managers regarded good management as an essential ingredient of success, and the evidence in Australia and globally is that many managers overrate their overall calibre and are thus unable to make a realistic assessment of the link between their own performance and the productivity of the enterprise," the report, Understanding Productivity, Australia's Choice, says.

In other words, Australian leaders do not know how bad they are.

Ouch!

Reality check

Time-wasting costs Australian businesses collectively $87 billion a year, according to the latest Ernst & Young Australian Productivity Pulse Report.

The good news? (Yes, there is some.) There's been a 4% uplift in productivity in the past year, with the average amount of time wasted per day falling from 18% to 14%. The other good news from the Productivity Pulse is that most Australians want to be more productive and see it as their own responsibility – not that of management – to become more productive.

Nevertheless, the EY report shows that when managers are better at communicating about productivity, their staff are far more likely to strive to achieve greater productivity. "When productivity was communicated well, workers were more productive and more satisfied; in fact, 91% of people in organisations where this was done well were trying to increase their own productivity – in contrast to 76% in organisations where productivity communication was poor."

The problem is that we don't know how to do it. As hard as they might try, Australian managers lag behind the global best in every indicator across three key areas of management: operations, performance and people management, as is clearly illustrated in Table 7, page 45 of the report.

Our worst shortfall is in the area of people management, in particular in two key factors: "instilling a talent mindset" and "addressing poor performance".

The labour deregulation option
The news for leading companies gets worse. The report finds that deregulation of labour markets is not the answer to our poor productivity performance; in fact, conversely, high wages are more likely to lead to high productivity. Although the reasons for this are complex, as are the mechanisms for measuring multi-factor productivity (measuring both capital and labour inputs), there are some simple factors at play, says Professor Ray Markey from the faculty of business, Macquarie University.

"There is a lot of evidence that shows high-performance workplaces are high in every other regard: high pay, high skill, high productivity and high job satisfaction," says Markey. "There is confirmation of that in the McKell Institute report. In the period since we had more flexibility in labour market and industry relations through WorkChoices, jobs shifted to low-productivity parts of the economy ... and haven't grown in other sectors in the same way."

Markey says in New Zealand introduced complete labour market deregulation in 1991, but productivity fell. "There is no incentive for employers to invest in tech and innovation when they can get cheap labour, and that is what's happening in Australia," says Markey.

What's to be done?
Scary numbers and zealous definitions will not help leaders solve the problems they face in their own workplaces, and academics and advisors are keen to suggest practical solutions.

The EY report identifies one big problem with a relatively easy solution: a mismatch of skills in the workplace. "People have skills that are not being used," says Markey. Conversely, people do not have the skills a company requires to achieve higher productivity and innovation.

Markey suggests conducting a gap analysis of skills available and missing against the company's productivity goals, together with training and clear communication about the need and purpose of improving productivity as a first step.

Innovation is the key to productivity improvement, the McKell report argues. "Compared to businesses that don't innovate, innovative Australian businesses are twice as likely to report increased productivity; 41% more likely to report increased profitability; twice as likely to export; and up to four times more likely to increase employment and social contributions" the report finds, quoting a government report from 2011.

Innovation requires investment, and this is where companies fall down. Markey says: "Australian employers tend to be parsimonious in what they spend on workforce development and training; they expect an external labour market to provide what they want and have relied on migrants for a couple of hundred years."

The EY report argues a link between flexibility (as defined by control of workload and hours worked) and productivity, showing that 46% of those the report defines as "super achievers" have a lot of flexibility in their roles.

The report also found that "patchy participants", the group that accounts for most of the time wasted in the Australian workplace, are young – 20 to 24-years-old, highly educated and convinced that their skills are not being used well, if at all. Compared to the national average, this group is less likely to see the point of increasing productivity, and see productivity as about career advancement rather than personal satisfaction.

It's not me, it's you
All reports and studies united in one universal chorus: managers need better education, particularly in communication skills. The manufacturing sector's leadership has the lowest levels of education, and this is linked to the sector's lack of innovation and adaptability.

For leaders who want to get the edge over their rivals, that is an opportunity.

What is measured, is managed, the adage goes. Markey says: "Measure something."

"It is possible to have high profit and low productivity if you are a monopoly, for example."

For an economy dominated by service businesses, Markey suggests that measuring improved quality (such as customer satisfaction) while reducing or holding costs might be a good measure to start with.

This story first appeared on Leading Company

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