Skilled carpenters and builders have a wise watchword – measure twice and cut once. Perhaps the same wisdom should apply to Australia’s action to improve productivity.
Economics writer, Ross Gittins, has been following the recent commentary that questions single, simple prescriptions for lifting Australia’s economic performance and productivity in particular. Gittins reported on a speech to the Australian Business Economists by Dr Ric Simes, a director of Deloitte Access Economics and a former Treasury official.
Dr Ric Simes called for deeper analyses of productivity to elevate the economic debate above catchcries, and so avoid distorted understandings of how productivity actually works to drive greater economic welfare for individuals and society as a whole.
The measurement of productivity has its own problems, according to Ric Simes: “Productivity is simply a less than perfect measure of economic wellbeing, and having the public debate focus so much on what the Bureau of Statistics reports as productivity can be unhelpful.”
Rather than looking at productivity statistics alone, Dr Simes advised taking a wider view of the way societies and businesses are changing, particularly the profound changes of the digital revolution.
Digital technologies are transforming how businesses operate, particularly the shift in the power of individual consumers and customers to shape the products and services they demand and purchase. Witness online shopping and auctions, telework, new products and devices from advances and convergence in telecommunications and computing, and businesses competing by offering superior customer experiences not just products.
Ric Simes argues that productivity, as measured, misses many, if not most, of the gains to consumer and social welfare that digital technology is delivering. For example, productivity measurements don’t capture the benefits from improved convenience of not waiting in queues to renew a licence or to do the banking, or of searching and finding needed services speedily via the internet. Neither do productivity statistics capture the benefits of much greater choice, e.g. of buying books on Amazon or hotel rooms on various online sites.
The lesson for those interested in lifting the productivity of businesses and workplaces is to act on the most potent drivers of economic wellbeing behind the ‘less than perfect’ productivity measurements. In essence, business transformation determines productivity improvements, not simply cost efficiencies and work intensification.
Understanding the concept of productivity, in one sense, is relatively straightforward—examining what you produce compared to what you use to produce it. Improving productivity is about using human and physical resources in ways that produce more output and value.
Increasingly, productivity results from transforming business methods and capabilities to better meet market and customer needs and to earn and capture profits that fund further investment and growth.
Productivity is not just about cost-cutting and minimising the use of inputs like labour and capital. It is also about producing the same things in better (smarter) ways, or about using inputs to produce better (higher value) goods and services. Being smarter and producing higher value business offerings are the pathways to productivity growth that really count over the long run.
Productivity growth comes about through a combination of increased opportunities to improve productivity and the ability of businesses to pursue those opportunities to maximise their sustained competitive performance.
In the modern era, there is a step-change that is multiplying the available opportunities for productivity growth. Labelled the digital revolution or the rise of the knowledge economy, this change requires a similar shift in the insights and capabilities of businesses to turn these opportunities into a distinctive competitive edge.
This challenge to lift productivity needs more than a surface look at productivity statistics and single issue solutions. Rather, it means probing into how businesses manage the ongoing transformation of their enterprises to meet emerging, sometimes unarticulated, market and customer needs and to keep ahead of global competition in doing so.
This Latest Thinking article draws on discussions and writings on the drivers and determinants of productivity by Dean J Parham, of economics research and consultancy firm, Deepa Economics, and who has a career background in the Productivity Commission and its predecessors.