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Pulse - March 2012 - Overview - EY - Australia

Productivity:

Time to work together

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The current push behind productivity is both vigorous and well-placed. However, it is in danger of following the same well-trodden path as before, confined to the realm of economics and politics.

It’s safe to say almost everyone agrees Australia faces a productivity problem. Our standards of living are falling and several of our sectors such as manufacturing, are becoming globally uncompetitive. While there is consensus around the problem, we continue to hit a deadlock in how to fix it and who is responsible.

Pointing the finger

The business community blames the government for a lack of infrastructure spending and restrictive labour laws. The government counters this by saying the labour laws are just fine and what is needed is better management, skills, education and innovation from business. Of course, they are both right, but herein lies the issue.

Government has a responsibility to use economic levers such as productivity to provide the springboard for business and the economy. However this doesn’t mean business should sit on its hands and ignore what can be done within organisations to drive productivity.

Sure we need flexible labour practices, large scale investment in technology and innovation, and infrastructure. But while we wait, we risk slipping down a few more rungs.

An integrated approach

Both sides need to acknowledge that the solution to our productivity challenge requires an integrated and coordinated program involving government, business, as well as individual Australian workers.

A starting point would be for both government and business leaders to take joint responsibility for driving productivity by forming a pact and hand-on-heart declaring they will work together to address productivity. This could then be followed quickly by a bold statement of ambition on productivity setting out a 20-year plan to the year 2030 to provide the light on the hill.

And then to ensure that action will follow words, government and business leaders could commit that from the next reporting season, they will begin measuring and reporting the productivity performance of their individual organisations in their annual reports and disclosures. In other words: start reporting productivity performance in a transparent and consistent manner just like assets, liabilities, profits, labour numbers, and other facts are reported each year. This could start with the 200 largest publicly listed companies on the Australia Stock Exchange and the 200 largest federal and state government departments and agencies.

Reporting on productivity performance a must

Measuring and reporting on productivity may also help address the perception that “productivity only yields long-term returns” that can’t be seen or felt during one government or CEO term. With regular reporting, even incremental changes would be seen and felt.

While ambitious, it can be achieved, and soon. As well as demonstrating that both business and government are serious about improving the country’s productivity performance, this approach can yield a number of clear benefits for all sectors.

Benefit to shareholders

In the business arena, reporting on productivity performance at an individual enterprise level will enable shareholders to make more informed decisions about the quality of business performance overtime. Too often, profit and loss information is clouded by exceptions, abnormalities, one-off adjustments, and accounting rule changes, which make understanding the true operational performance of the business hard for the average shareholder.

And it is the operational performance that at the end of the day is what counts: not what the sleek PowerPoint presentation at annual meetings look like; nor what the press release headline states. What matters is: are our businesses in Australia operating more productively than last year and the year before, or are they going backwards?

The role of government

Government also needs to do its bit on reporting and not just think of itself as the policy folk. They are a major employer responsible for more than 700,000 jobs in Australia, and tax payers have a right to know whether the public sector is more or less productive than last year and the year before. Who would know the answer to this today?

The idea that productivity needs to be measured and reported on may elicit scepticism from a number of corners of government and business. Business will say something along the lines of: this is just more regulation and only seeks to drive up costs. Well, they are wrong. A well-run business already knows its productivity performance, sets targets and programs to improve performance, and holds its senior executives accountable. Government will say you can’t measure what we do because we are unique and don’t produce widgets which are easy to count. Well, they would be wrong too...all organisations’ outputs can be measured.

A way forward

To be successful in shifting the needle on productivity, business cannot continue to pass the baton on to government, and government cannot then redirect the problem back to business. The time has come for business and government leaders to stand above the politics and work together to address our productivity problem. A joint statement of ambition and agreement to start reporting productivity in an open and transparent way will be a credible step on this journey.

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