Small & in control business sentiment hold back productivity

8 October 2013

Small and in control business sentiment holding back productivity

New Zealand businesses’ contentment with their own size is one of many issues holding back productivity, and breaking this inertia is critical if New Zealand is going to generate the economic outputs and incomes expected of a world class economy.

The latest Grant Thornton International Business Report (IBR) survey into productivity showed that 77% of New Zealand business owners thought the desire to remain small and retain control of their destiny was hurting productivity.

Simon Hunter, Business Transformation Partner, Grant Thornton New Zealand, said that the flipside to this statistic was that not many business owners were actively looking at ways to grow and increase their productivity and this is what’s actually constraining a lift in GDP.

“These statistics are not a surprise,” said Hunter. “After 30 years of low productivity growth our GDP per capita is now 20% below the OECD average and 40% below Australia’s. We think of ourselves as a ‘can do’ country but the prevailing attitude from the survey is ‘won’t do’. This is a key factor that explains our poor competitive performance as a nation.

“This desire to stay small and in control explains why for many years New Zealand’s answer to increasing productivity and growth has been to throw more labour at issues rather than becoming smarter about how we do things. That’s not sustainable in the long term for individual business or the country as a whole.”

There also appears to be a link between this attitude and other key factors that constrain growth and productivity, said Hunter. Seventy-three percent of respondents thought business growth was limited by the skills of the owner and 61% said our lack of investment in research and development was also an issue.

“This is partially due to the fact that many businesses only plan for the short-term. Improving productivity is a long-term game and yet 59% of those surveyed indicated that businesses tended to take a short-term view rather than make long-term capital investments,” said Hunter.

“The most productive firms in New Zealand, such as Air New Zealand, have had a long-term focus on productivity stretching back 20 years. These firms have a clear view of their future and have the confidence, people and frameworks to repeatedly make significant business and investment decisions regarding innovation, products, brands and assets that lead to a step change in performance.”

The survey also showed that 57% of respondents thought businesses do not invest enough in developing talent and 73% thought our best talent frequently moves off shore.

“Many business owners and managers despair at this loss of talent but this shouldn’t be a surprise when so many enterprises don’t have enough ambition or productivity to invest in employees and pay a decent salary.”

Hunter also said that the preference to stay small and in control often results in businesses being increasingly insular in their day-to-day activities.

“Seventy-two percent of those who took part in the survey stated that businesses do not collaborate enough with each other to drive mutual success. This is probably one of the easiest areas where individuals in businesses can increase productivity. It requires an attitude change, and one of trust. Who can you work in collaboration with who will help your business? It is as easy as answering that question.”

Hunter also said that despite these issues, New Zealand is still an exceptional country to build globally competitive enterprises in.

“There are many forward thinking businesses that are constantly increasing their productivity, competitiveness and profitability as highlighted in Grant Thornton’s Global Dynamism Index where New Zealand ranked the fourth most dynamic country to do business. However, the biggest challenge – and opportunity for New Zealand – is that there are not enough of these enterprises and the balance of the stagnating enterprises creates a dead weight on the economy. This lack of productivity must be addressed if we do not want to drift further below the OECD average.

“As the research shows, a change in attitude rather than a large investment of capital can make all the difference. Unless the mindset of New Zealand business owners and managers changes, no amount of capital investment will be effective,” he said.

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