Why we need to do something about productivity – right now

Australia has a history of being productive through hard work, rather than through being smart, says Patrick Callioni. He believes it is time to turn the tables today rather than years in the future when it could be too late.

In Australia small and medium size businesses (SMEs) are the mainstay of the economy, despite what the big end of town thinks. SMEs generally drive employment numbers – up or down – and are especially important in regional centres.

Government would do well to listen to SMEs more and to the big players less. This is why any effort by government, with SMEs, to improve productivity in this sector would be especially valuable, economically and socially.

When I use the term productivity, I mean the amount of value produced per hour worked, which is the result of the application of several economic factors, including capital, labour and land, the traditional factors, plus knowledge or know how and several other less visible, but increasingly crucial factors in a globalised economy.

As recent events have shown, the capacity of economics and economists to see what is coming is severely limited. Modern economies are far too complex to be predictable. However, even if we accept that the deep future is not knowable, the direction and speed of change can be influenced, if not controlled, by what we do or don’t do in the present and in the near future. As with any journey, two points of reference are crucial: where we start and where we intend to finish.

In 1964, Peter Drucker wrote:

Other resources, money or physical equipment, for instance, do not confer any distinction. What does make a business distinct and what is its peculiar resource is its ability to use knowledge of all kinds – from scientific and technical knowledge to social, economic and managerial knowledge. It is only in respect to knowledge that a business can be distinct, can therefore produce something that has a value in themarket place.

We in Australia seem to have missed this point, by and large. We have ridden our luck – in sheep or mineral form – and have not had to try very hard. This, I am sorry to say – well, actually I am not at all sorry – cannot last. Physical resources are finite by their very nature; the only infinite resources we have are the creativity and ingenuity of people, of which technology is a manifestation, albeit not the most important manifestation. Yet, what we do with our people is to abuse them, overwork them, burn them and then, often, sack them, sacrificing their jobs and, as we will see, shareholder value on the altar of (pretend) productivity.

My life and work experience – and years of research – tell me that Australia has a history of being productive through hard work, rather than through being smart; that a productive society requires certain fundamental elements – stability, productivity and leadership; and that good regulation, smart regulation, can make a great difference for the better. I also know that it is imperative that the wilder tendencies of the market be tamed by the state, to ensure the balance of equity and hard-headedness we Australians like to call “a fair go”, for all, rather than a few.

But we seem to be stuck in a world where productivity seems to mean sacking people or working more and more hours or getting more people into the workforce. These are short-sighted and unsustainable approaches and also a symptom of the poor quality of management in this country, in both the private and public sectors, something the Karpin Report made clear a quarter of a century ago. Paraphrasing Al Gore, what the Karpin Report had to say was an inconvenient truth and was conveniently ignored. It is much easier for senior management to sack hundreds or thousands of staff than it is for them to accept that they are the ones at fault – that their lazy, arrogant ignorance of how to generate real, sustainable productivity is what is putting their businesses and our economy at risk.

As further proof of their collective lack of good sense, they forget that each person they sack represents something like $200,000 or more of investment of their shareholders’ dollars, which they are happily throwing away. While they may congratulate themselves on saving a few dollars by getting rid of a thousand staff – as the ANZ is planning to do – what they are actually doing is burning $200 million of shareholder costs and a much greater sum of potential shareholder value that could have been created if these people had been kept on and used imaginatively, creatively.

So, I say to the captains of industry – stop berating governments and stop blaming your employees for your poor management, your lack of vision, your sheer incompetence, your failure as managers and leaders. If you want to create shareholder value by sacking anyone – sack yourselves.

Patrick Callioni is a former senior public servant, with the Queensland and Australian Governments, and is now the Managing Director of consulting company, Enterprise Intelligence Pty Ltd, which specialises in helping business to do business with government and vice-versa.