Making Productivity real for the Small Business Owner
Making productivity real for real people - this is my big hobby horse for 2020 and probably for a few more years after that! Following the impact of COVID-19 it has become more critical for the survival of small, medium businesses (SMEs).
Before I start into my rant about this topic, let’s start at with a simple question, well two actually
What is productivity?!
What does it have to do with your business?
Because, at the end of the day, all of this is pretentious bullshit if SMEs aren’t achieving their dreams, doing the things that they really want to be doing - both work and personal. Those goals might be developing the business further into new markets, investing in the next growth phase, or just simply having more time with the family.
Behind all of this is a word, a philosophy, a powerful construct - Productivity.
Gradually, over time this word has been hijacked by politicians, economists, policy makers to mean something that is now out of touch with Mr & Mrs SME owner. Now it is at risk of being a cliche that means infrastructure, roading; all the political footballs that create click bait headlines.
So how do we make it real, to make it meaningful for the 529,179 businesses that employ 50 people or less in New Zealand. 97% of businesses in NZ are defined as a small business. Those numbers are huge. For New Zealand to really make a mark in the global economy, productivity needs to mean something to the thousands of owners, managers, staff who turn up every Monday to do a solid week’s work to make an honest dollar.
We all have a part to play to make New Zealand better at business, so they can earn more by working smarter. Better at business in this context doesn’t mean intelligence, innovative, cleaver - we already have that in spades. We need to support this by simplifying the productivity message so it becomes an achievable thing part of their business, your business. By filtering through the jargon and understanding that productivity is not something that needs government investment, R&D grants, it is something that they can do about it today.
First the back story, the statistics on what drives this mission. In simple terms, productivity in New Zealand is woeful, we are crap - the end. We simply don’t work smart enough to compete with the world’s economy. Since the Invincibles stormed the UK and all before them, New Zealanders have created an aura of “she’ll be right” attitude. The number 8 wire attitude can only take us so far. The macho approach of working harder to get the job done hasn’t hurt anyone, but it doesn't help us compete in the global market.
28% of New Zealand's Gross Domestic Product (GDP) is generated by small businesses. The hard graft that employs just shy of a million people creates $66 Billion to our economy. Yet our output per person (the definition of productivity) is in the lower half of the OECD. There is some good news, GDP growth continues to gradually increase (2.8% in 2018), however when we translate that into GDP per capita, it is down 0.4%. Labour productivity is 40% below the OECD average and getting worse (36% in 1996). Making the situation a little bit more grim, the hours we work per capita is 17% higher than the OECD average. Because we have been in a decline for the past quarter of a century, it is politically neutral, neither side of the debating chamber has effectively dealt with this problem. Hence the need to drive it from the SME owner.
Quoting the Productivity Commission, it describes it very succinctly. “The economy is like a car stuck in first gear, where faster growth comes from revving the engine rather than driving more efficiently” (Productivity by the Numbers, p. 3). The result of all of this is that we have below average incomes and this has an impact on the real cost to our living standards in New Zealand, our health determinants so on and so on - it is that important.
The simplistic equation surely is this; if the largest part of the economy is working smarter, we will make more money, more people will be able to afford things, we will be less stressed and it will be a happier place.
I know what you are thinking, what does this all mean for Mr & Mrs SME owner. What can they do today, tomorrow to even make a dent in these numbers. Understanding the current situation and the desperate situations NZ SMEs are in is an important step into making some real changes.
The good news amongst all of this doom and gloom is that businesses can do something about their productivity without relying on the government, waiting for them to deliver on a myriad of policy promises.
Using approaches such as Lean Thinking, Operational Excellence, Agile, Theory of Constraints (and many more) can make a huge difference. Yet it remains only one small part of a complex puzzle. However, these are real functional methodologies that can make a massive impact on a workplace environment so that it thrives, one that everyone is involved in, engaged with the purpose.
These approaches have been effectively transforming businesses since the early 1900’s, supported by more recent thinkers such as Deming in the 1980’s. So why haven’t we even got close to having this as a norm in the New Zealand workplace? Why haven’t we placed more effort to help owners, managers, workers to improve their jobs at the coalface.
The answer is also the solution - people. Although the solutions might be simple in themselves, they are difficult to implement. People don’t deal with change very well, even though it consumes us every day. This is why It is easy to default the issue of productivity to someone else and in this case the someone is often the government.
With this void in results, bureaucrats have stepped in to provide solutions. They have set policies that in theory help solve the issues. One factor is missing from all of the documented policies - accessibility. Making it easy for SMEs owners and operators to understand the benefits. Tax breaks as an example - the promise of more money in the business, you can now invest in that new technology, that new widget that will speed up your operations. This may be true, however it does not deal with the problem of working inefficiently in the first place. This has just become a classic work-around. R&D grants are the same, let’s get technology in, let's develop more products that we can sell to the world. Brilliant idea, why didn’t SME owners think of that before. It isn’t that SME owners don’t want to do this but in reality, how do they fit in R&D when they can’t even get out the current product in a productive way. Now we are telling them to do more on top of an even more chaotic business - my head is starting to spin - but you are starting to see the problem, right?
All of these policies and objectives have a very important place at making our economy become more relevant in the future world market. The message is this - if we don’t fix the basic challenges of poor productivity, how are we going to achieve the other goals?
I will finish with a story that will hopefully resonate with you. I once worked with a CEO, he was dynamic, forward thinking. The organisation was doing things that were already impressive. The challenge we all had in the organisation was that he was the quintessential Magpie. Every time he went to talk to someone, attended a conference, brought in a keynote speaker to inspire us, it resulted in one thing - more work. On top of the good will that was happening, he threw his teams the latest idea without finishing the last one. It was chaos. Only after a lot of hard workIt wasn’t until by everyone across the company, an organisational wide process was developed to manage the prioritisation of projects and workload. Only when this was in place did the company start to move forward, gradually at first but then the momentum grew, and continued to grow.
This is how I feel all political parties are approaching productivity in NZ. They are jumping on all the ideas which all stand alone are all great as great ideas. But they are forgetting to get the original work done, better, smarter. Until this happens it is my absolute belief, we won't make a dent into those productivity numbers. Until productivity becomes a tangible target in every SME in NZ, the other objectives will always struggle to make an impact.