The NZ Productivity Paradox is one of the issues of our time. Our nation is poorer than it should be despite growth-friendly structural policy settings. We should generate GDP per capita 20% above the OECD average, but we actually generate more than 20% below average. Closing this gap would dramatically lift incomes and wellbeing for all New Zealanders. It would also mean we don’t have to trash our environment by trying to extract one-off value from the environment and could create a fairer society, based on social justice, liveable communities and high levels of education.
All very inspiring, lofty stuff, right? Yes – but it is also important stuff. In this post I aim to outline why Radically has chosen this problem as the thing to set our sights on.
Sir Paul Callaghan’s watershed presentation Sustainable economic growth for New Zealand brought an incredible amount of truth to table for many New Zealanders. “We are poor because we choose to be poor” remains etched in my mind for eternity.
Sir Paul brought up some painful myths we tout in NZ – “great place to live”, “relaxed lifestyle”, “clean and green”. The truth is actually quite the opposite.
NZ has some of the worst statistics in world relating to families. We are the bottom of the heap (or close to it) in child poverty, teen suicide, jobless households, environmental awareness, teenage birth rate, inequity in education, inclusive economy, and child murder. But does the lifestyle in New Zealand makes up for that? No, unfortunately it doesn’t. We are the second hardest working country in the OECD, yet the lowest in terms of productivity. The lifestyle isn’t so relaxed after all.
But we are so clean, green and 100% pure! We know this is not true to the point where it has become a bit of an embarrassment. With the 2017 OECD report finding NZ is reaching its ecological limits, we can no longer stake this claim. We simply can’t continue to haul money out of the ground (milk, meat and forestry). It is what Sir Paul labelled egregious hypocrisy.
But this data is from 2011. Things have gotten a lot better since. Sadly, no. Most of our economic growth has simply come from adding more people.
So what’s going on? Our education system is as good as anyone’s in the world. We are a stable economy with all the right basics. Why have we continued to slide?
The answer is relatively simple: we choose to engage is low wage activities.
In 2011 our per capita GDP was $40k/year. To maintain that, we need about $120,000 per job. On average, tourism earns us $80,000 a job. That drags the average down. The wine industry drags it down too – $90,000 a job. If it is wasn’t for dairy farming, NZ would be extremely poor.
And therein lies our paradox: how do we increase our GDP AND be more sustainable when so much of our success is based on an industry that is pushing the limits of our environment?
The NZ Productivity Commission did some great work to try an answer this question. Their key findings are available to all in glorious detail, but the key aspects are:
- Our physical distance from key markets
- New Zealand’s low R&D investment
- How we use information and communication technology
- Our managerial practices – i.e. how our companies are run.
It is a significant issue. The empirical studies show that these factors combined account for 17 – 22 percentage points of the 27 % productivity gap.
But there are two key points that stand out for us.
Firstly, there are significant gains available to us by lifting our investment in ICT (as a key driver of innovation). However, “in order to maximise the return on this, our firms must adopt business practices that better exploit the new technology”.
In other words, there is no point in blindly investing in technology without understanding how to exploit it. Practices such as Agile, Lean and Design Thinking help test and validate assumptions and risks early, leading to higher tangle ROI.
But practices alone are not enough. Agility and customer-centricity are more a mindset than a set of processes and methods. As the 11th VersionOne Annual State of Agile Report shows, the top 7 challenges in adopting these practices are all about the organisation and its leadership.
This aligns with our experience. Unless transformation is aligned to organisational strategy, and is led and modelled from the top, its chances of success are low. In order to thrive, organisations need to find better ways to lift their game to increase productivity to more competitive with what they currently have.
The second finding is curious: poorly managed firms survive better in NZ than in high-productivity countries (such as the US). While this isn’t a surprise, it is alarming. In a globalised marketplace, NZ firms have gotten away with complacency only because of low levels of competition. In other words, sleepy old NZ is wide-open for disruption. We need to lift the capability within organisations, as well as those of our leaders and our managers. Leadership and management is drastically different in this day and age, and most organisations have under-invested in the right kind of capability uplift.
You can see this happening now. Companies from highly competitive marketplaces (such as the US or China) decide to expand into NZ sending shockwaves throughout our local companies. Just look the pressure in the retail sector right now with the arrival of Amazon. Media has been experiencing it too – just look at Sky TV’s recent challenges after it’s bid to join forces with Vodafone was rejected.
Yet all of this was predictable and predicted. In 2015 I presented Deloitte’s Digital Disruption Map to a range of clients across NZ in exactly these industries, as well as at various conferences, suggesting this was coming and that organisations needed to become more adaptable in order to respond. I suggested developing a capability in organisational agility – what I refer to as “the ability to change course without penalty”. Yet here we are…
And Accenture recently released a major study showing nearly two-thirds of large companies face high levels of industry disruption, and 44% are highly susceptible to disruption. And Accenture’s report mirrored findings of the Deloitte report – “disruption is continual and inevitable – but it’s also predictable”.
From the report – “incumbents need to radically transform the core business while scaling new businesses. But pivot too quickly, and they will likely stretch themselves too thin financially; pivot too slowly, and they risk becoming obsolete.”
This is why we started Radically. To help organisations leaders transform their organisations to achieve radically better outcomes. Not small, cosmetic changes. The time for that is over. It is time for Radically better outcomes.
Our mission is to help New Zealand organisations thrive and succeed on a global stage. This is what we strive to achieve.
This is our mission.