article about the workplace productivity challenge
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AUGUST 2004
THE WORKPLACE
PRODUCTIVITY
CHALLENGE
report of the workplace productivity working group
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3report of the workplace productivity working group
the workplace productivity challenge
Working Smarter to Build a Higher Value, Higher Skill, HigherWage 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 rms 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 somepractical 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
rm level.
The Agenda
Many workplaces already have in place business practices that are delivering highly productive,
protable and high quality outcomes. We need to acknowledge the achievements of these leading
rms and learn from them, as well as identifying the new opportunities. There are also many rms that
are doing some things well who could benet from lifting their performance in other areas.
This report reects the WPWGs perspective on some of the tangible actions to improve New
Zealands economic growth by lif ting everyones game at a rm level.
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There is no silver bullet. Building sustainable economic growth and lifting living standards demand a
focused effort and strategic approaches across industry, rms and government. This report articulates
how all rms 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 ndings 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,
rms, unions and employees in a conversation about how we can lift workplace productivity.
Andrew Annakin
Workplace Productivity Working Group
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contents
1 executive summary 7
1.1 The Challenge 7
1.2 Meeting the Challenge 8
2 consolidated wpwg recommendations 132.1 Building Leadership and Management Capability 13
2.2 Creating Productive Workplace Cultures 14
2.3 Encouraging Innovation and the Use of Technology 15
2.4 Investing in People and Skills 16
2.5 Organising Work 17
2.6 Networking and Collaborating 18
2.7 Measuring What Matters 19
3 background and scope of the workplace productivity working group 213.1 Background 21
3.2 Workplace Productivity Working Group Scope 22
4 the workplace productivity challenge 254.1 New Zealands Recent Productivity Performance 25
4.2 The Link between Workplace Productivity and National Productivity 31
4.3 Workplace Productivity Drivers 33
4.4 Barriers to Introducing Productivity Improving Practices 37
5 meeting the workplace productivity challenge wpwg ndings
and recommendations 395.1 A Workplace Productivity Agenda 44
5.2 Building Leadership and Management Capability 48
5.3 Creating Productive Workplace Cultures 53
5.4 Encouraging Innovation and the Use of Technology 60
5.5 Investing in People and Skills 68
5.6 Organising Work 77
5.7 Networking and Collaborating 83
5.8 Measuring What Matters 88
appendix 1 93
appendix 2 95
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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
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 rms and the contraction of unproductive
rms account for small increases in overall productivity. The entry of new, productive rms and the
exit of unsuccessful rms accounts for around one-third of overall productivity. The third channel,
productivity gains in existing rms, accounts for the most productivity growth in the economy.
This report focuses on the specic challenge of how improvements in workplace productivity can
contribute to economic growth and lift New Zealands living standards.
Workplace productivity refers to how efciently and effectively a rm 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 rms 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.
1 Krugman, P (1992), The Age of Diminished Expectations: US Economic Policy in the 1980s, MIT Press, Cambridge,
page 9.
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8 report of the workplace productivity working group
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 benet of all
New Zealanders.
This report reects 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 thisperformance, and identies 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.
Meeting the Challenge
Our ndings 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, rms, 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 rms although they are designed so thatall organisations may benet.
As part of its ndings, the WPWG identied 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 rms in identifying how effectively they are performing and to
identify where the rm may need to improve its business practices or performance.
Implementation assistance and support for rms to decide what specic 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 rm 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 rm, it will be difcult to successfully develop and implement initiatives around theother main productivity drivers.
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The WPWG identied 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 rms. 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 andrecommends that our successor body be advised of its progress.
A full list of the WPWG recommendations for building leadership and management capability in rms
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 rms.
Creating Productive Workplace Cultures
High performing workplaces are founded on a strong workplace culture in which motivated andengaged employees are willing to go the extra mile. There is no single prescription for creating
a productive organisational culture but rms can cultivate such an environment by fostering some
signicant 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 rms 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 benet 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 justdoing things better are vital ways to achieve rm 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 rms 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 rm to innovate depends on a variety of internal and external factors, includingorganisational culture, how work is organised, a shared sense of the vision and strategy within the rm
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 rms 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 technologyin rms is found at the end of this section. The recommendations address such areas as increasing
awareness of the breadth and benets 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 rm 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 identied as acritical issue in the New Zealand workforce, and this may be limiting productivity levels in rms.
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 rms 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 rms with the tools and assistance toundertake skills assessments and determine how to address identied 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, rms 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/orproducts and services, rms need also to look at their organisational design. In particular they need to
make sure the activities that create value within a rm are aligned with each other and with the overall
business strategy, and that they are functioning effectively.
A signicant factor in ensuring that work organisation contributes to workplace productivity gains
is employee participation. It is critical that employees at all levels of a rm 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 benets. Designing good quality jobs is also
a critical consideration for effective work organisation.
A full list of the WPWG recommendations for organising work in rms is found at the end of this
section. The recommendations address such areas as improving rms access to information about theeffect 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 signicant 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 specic to particular sectors.
There is also a role for government to act as a catalyst and broker in strengthening network formation.
Specically, government can help to increase rm 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 rms 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 rms are aware of these
opportunities; reviewing whether existing tools to diagnose business capability are putting sufcient
emphasis on networking and collaboration; and undertaking more detailed research into how goodnetworking design can improve productivity.
Measuring What Matters
Workplace productivity measurement is essential in assessing the value to a rm of investing in other
workplace productivity drivers.
There is a lack of information about the nature or extent to which New Zealand rms 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 rms. This is despite the proven value that
measurement and reporting tools create in terms of realising added value within a rm.
To fully realise workplace productivity improvements within New Zealand rms 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 rm 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 rm and to balance both
qualitative and quantitative factors, including nance, organisational culture and human capital.
A full list of the WPWG recommendations for measuring what matters in rms 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 rms 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 benets 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 rms and improve them, as necessary, to ensurethey meet the needs and circumstances of all types of New Zealand rms.
Implementation
5 Make it easier for rms 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 andinformation on leadership and management capability to ensure that they are accessible and
relevant to rms. This may include bringing together education institutions and third-party
training providers and rms.
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Research and Evaluation
8 Research whether rms have sufcient 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) Projectadvise 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.
Creating Productive Workplace Cultures
Awareness Raising
12 Model and communicate the benets 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 identied gaps. This would include
assessing what tools are available for measuring and addressing employment relations issues
and employee participation.
Implementation
15 Continue to support rms, 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, rms, 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.
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 rm, 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 rms
facing labour shortages.
24 Encourage the adoption of rm management and commercialisation programmes as part of
the engineering/science course syllabus in tertiary organisations and among staff involved in
innovation processes in rms (and vice versa).
Diagnostic Tools
25 Evaluate the effectiveness of existing tools and programmes, particularly around the issue of
rms ability to adopt and adapt innovations and new technology. Develop tools, information
and frameworks to ll identied gaps.
Implementation
26 Facilitate linkages and collaborative relationships, both between rms and Crown Research
Institutes (CRIs)/tertiary institutions and research expertise; and rm-to-rm, to encourage
the exchange of information, skills and technology, improve opportunities for capturingknowledge spillovers, and build up the innovation capability of rms.
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 rm rather than in the rm.
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 rms from the rst
contact, irrespective of the agency rst approached.
Research and Evaluation
29 Ensure research is undertaken into the issue of rms access to nance.
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30 Identify any barriers to increased capital accumulation and how these can be reduced.
Investing in People and Skills
Awareness Raising
31 Raise awareness of the need for rms to undertake skills needs assessments, so they can
identify what skills they need and where they have skill gaps including identication of
where improvements in foundation skills are needed. Promote the benets of undertaking
these assessments.
32 Provide information on the best ways of matching skills to the needs of rms and linking to
ongoing improvements in managerial capability and work organisation.
33 Provide information on the return on investment in foundation skills for all rms, and the
return on investment in education and training generally for small and medium-sizedenterprises (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 ll any gaps.
36 Provide a tool to assist rms in undertaking an assessment of skills required by a rm, the gap
between the required skills and the existing skills within the rm, and the steps required to
address any identied 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 rms so that over time workplace training increasingly
meets the skill needs of rms.
40 Continue to provide support for the ongoing work of the Skill NZ campaign.
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Support for Firm-specic Training
41 Develop support for rms to identify skill needs, placing those skill needs in a wider
productivity and rm improvement context, and a specic 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 identifyother 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 accountabilityarrangements 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 signicant improvement
in lifelong learning, in order to support ongoing productivity improvements.
Organising Work
Awareness Raising
50 Make available and/or produce relevant information about how work organisation affects
workplace productivity and the benets of implementing these strategies, including the
benets of employee involvement.
51 Provide background information on tools used overseas to assess work organisationissues, 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 rms 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 redesignassessments and to engage in redesign work.
Research and Evaluation
56 Assess availability and accessibility of advice for rms, 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.
Networking and Collaborating
Awareness Raising
58 Identify the full range of networking and collaborative opportunities and mechanisms already
available and ensure rms 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 benets.
60 Explore the scope for using employer and employee organisations as complementarymechanisms to help spread key awareness messages.
Diagnostic Tools
61 Review whether existing tools to diagnose business capability are putting sufcient emphasis
on the extent to which rms 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 rm 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 benets beyond the
primary beneciary.
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.
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 rms in measurement and reporting activities.
Diagnostic Tools
66 Provide diagnostic support to assist rms 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 rm 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 rm 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 rm2 level contributes to the overall productivity of the national economy, which
in turn helps to create higher living standards. Workplace productivity therefore benets everyone.
Put simply, workplace productivity refers to how efciently and effectively a rm 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 rm 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 rm level because this is
where productivity is driven.
For the greatest gains, a rm 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 rm as long as the approaches
t from a business and cultural perspective with the rm that is implementing them.
2 In this report the term rm refers to all entities and organisations in the economy that produce goods and services
and includes businesses, non-governmental organisations , not-for-prot organisations, and government agencies.
3
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To help build momentum at rm level is going to take a concerted effort and shared commitment from
government, industry, rms, unions and employees.
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 reected 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 liftingworkplace 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 lled.
We undertook an extensive process in order to meet the objective the government set of advising onpossible future policy options for lif ting workplace productivity. This process included:
Holding ten meetings of the Working Group and meetings by the supporting ofcials.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, ofcials
and other interested parties. The workshops immediate objectives were to test whether we had
identied 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
3 Please see Appendix 1 for the membership of the WPWG.4 Please see Appendix 2 for the complete Terms of Reference for the Working Group .5 The Working Group was supported by an ofcials 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 ve locations around the country from
5 to 20 July. This included ve groups held with employers in Nelson, Napier, Manukau, Auckland City
and Christchurch, and two groups with employee representatives in Manukau and Nelson. WorkingGroup representatives and/or ofcials attended all meetings.
The aim of the focus groups was to gain a snapshot of how rms and employees viewed workplace
productivity, to dene workplace productivity and to discuss some of the incentives and barriers to
improving it.
The key ndings 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. Inassessing success in these areas views of both employers and employees need to be considered.
Many employers are dissatised 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 goodideas but we need to be exible 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.
Specically, 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 rms but rather acceptedthem as givens. For example:
6 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 identied 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 rm 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 reected in our nal 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 thesegroups 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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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 nance education, public health, environment and the arts. 7
Alan Blinder and William Baumol, Economics: Principles and Policy
Productivity is about how efciently and effectively a rm 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 rm level. Highproductivity within rms contributes to the overall productivity of the national economy, which in
turn helps to create high living standards, which benets 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.
7 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 rms 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 reects 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 rm.
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 relativeincome 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 rm level up.
8 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) gures 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
Source: OECD (2004) Annual National Accounts, Paris
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 toGDP Growth
Source: The New Zealand Treasury
Labour productivity can be analysed according to the capital-labour ratio (the amount of capitalavailable 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
Source: OECD (2004) Annual National Accounts, Paris
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Growth in labour utilisation was the main source of growth in New Zealands per capita GDP
during the rst 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 itcurrently 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 sectorsof 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 signicant 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 specic challenge of how improvements in workplace productivity
can contribute to labour productivity, notably MFP, and therefore to economic growth and New
Zealands living standards.
The link between Workplace Productivity and NationalProductivity
The productivity of rms contributes to national productivity through three different channels:
Productivity gains within existing business. OECD work suggests that productivity gainswithin 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 signicantly 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. Entryand 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 rms 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 rms.
The contribution of reallocation particularly rm 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 rms search for advantage over its competitors will lead it to try to nd better ways of doing
business that increase its protability and market share.
New rms that enter the market with new technologies and techniques also create pressure on
existing rms 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
rm. The productivity of the rm reects 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 purchasinginputs, such as labour, capital and other resources, and transforming them into goods and services
sold to customers in relationships that are themselves inuenced 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 inuences the decisions that individual rms make, including direct
incentives (prots/returns, and the threat of takeover, merger or rm 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 rm productivity, for example through their inuence on
interest and exchange rates. Trade policies affect rm 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 rms.
A competitive market, for example, can spur productivity improvements as rms seek to enhance
their performance. Efcient and effective infrastructure investment can reduce costs, for example in
transport or communications, facing rms. Global connectedness (the ow of people, ideas, money
and goods between countries) can promote new competition, and new ideas and technologies.
The regulatory environment also has a profound inuence on rm productivity. The rule of law and
well-dened and enforced property rights are essential for productive activity. A wide range of laws
and regulations directly and indirectly affect rms; social norms also affect how rms do business. For
example, sound contract law permits efcient 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 benets of R&D withthe public interest in disseminating knowledge.
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Financial markets and nancial regulation encourage efcient resource allocation, such as shifting
funds from borrowers to lenders. Labour market regulation can affect the employment decisions
of rms.
At the same time, investment in health and education plays a role by ensuring people are t 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 rms, it is beyond the mandate of the Working Group, which focuses only on the
workplace itself and the measures that rms can take to improve their productivity, taking the broader
environment as given.
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, rms will have incentives to do things that raise
productivity for example by raising product quality, adding desirable features, improving producttechnology, or boosting production efciency. Increased productivity enables a rm 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 rm and provide it with an advantage over its competitors.
The main ways that rms 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 rms respond to productivity issues will depend on the costs and benets 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 nancial resources into physical resources such as plant andmachinery, 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-to-
date plant and equipment is associated with better rm performance.
Complementary investments, such as training workers and improving the organisation of work can
allow capital to be used even more efciently.
While the capital-labour ratio across the economy reects the cumulative investment decisions of
individual rms, 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 rm
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 rm engages in mass production. As the rm 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 efciency, for example in production processes, but also throughimprovements 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 rm, adopted and adapted from
elsewhere or purchased off the shelf, allow the rm to make things better, improve efciency and
quality, make better things, improve quality and develop new products.
Continuous innovation and improvement in all aspects of the rms management and operations are
key components of lifting productivity.
We have identied 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 rm. 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 rm 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 notnecessarily imperative to achieving workplace productivity gains. A rm that implements one of the
drivers well is likely to see greater productivity gains than if it did nothing. Ideally, rms 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 rms have been incorporating strategies that have had notable
impacts on their productivity levels. These success stories need to be shared with other rms 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 onlyboosts 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 rm. 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 rm, identifying strategies to achieve the vision
and the ability to inspire others.
Successful rms enjoy both effective leaders and effective managers. Managerial capability includes
the strategic ability to adapt to a changing environment that creates internal and external threatsand 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 efcient; 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,
reecting New Zealands values and our reliance on global connectedness.
9 OECD (2003) ICT and economic growth: Evidence from OECD countries, industries, and rms. 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 dene the way the rm does
business and can have a signicant impact on productivity. The formal aspect of workplace culture
includes written statements of value, such the rms mission statement and organisational chart. The
informal aspect, which may be more important, is about how work gets done in practice, whetherthrough 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 rm 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 efcient and enhancing productivity
in the process. On the other hand, a workplace culture that undervalues and frustrates employees canmean that workers are not giving of their best to the rm.
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 efciently. New technologies increase
the relative demand for skilled labour. At the same time, skilled labour permits the adoption of newprocesses 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 inuenced 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 benets of productivity improvements to make the process worthwhile. The
existence of spillovers, where other rms can capture the benets of R&D, can reduce the overall level of
private investment. But even where a rm captures enough of the benets to invest in R&D, there may bespillovers, 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 rms 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
rms 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 rm 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 rm 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 andeffective use of new technologies; improve the implementation of research and development (R&D)
ndings; allow the rm 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 rm are efcient and
effective in adding value. Changes in workplace organisation that increase efciency and effectiveness
can thus contribute to productivity.
Workplace organisation involves the rms overall strategy, its structure and hierarchy, the processesinvolved 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 rm.
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 rms to combine strategies for effective results.
New workplace practices can include, for example, atter 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 rms 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 rms in New
Zealand and overseas could raise productivity. Networks can link individuals, groups, rms, industries,
regions and countries. They create the face-to-face and workplace contact that facilitates the learning-by-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 rms strategies in enhancing its performance.
Both internal and external measures can be used. Performance measurement generally addressesthe efciency and effectiveness of a rms 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 nance, cost, market/quality, process, employee and innovation indicators,
with close monitoring of competitors products through benchmarking. Benchmarking includes the
identication of key processes and indicators for comparison, identifying suitable comparator rms
and getting access to the comparator information.
At a macroeconomic level it is also important to understand what matters for rm productivity.
For example, is it the size of the business operation, the size of the domestic market, the characteristicsof the rm or some other features that matter for business performance? The availability of good
micro data across rms and good research procedures can help to identify the determinants of
business performance.
Barriers to Introducing Productivit y Improving Practices
In a competitive market, rms should have strong incentives to engage