Holistic approach is key to measuring productivity

The demise of the Productivity Commission has seen workforce productivity in Aotearoa New Zealand become the topic du jour, or o te rā. It was birthed in 2008 by the same political parties – National and ACT – that believe it no longer effectively serves its purpose.

The commission was designed as an independent Crown entity tasked with investigating policies that may unintentionally harm national productivity, and counselling government on how these policies might be amended to improve productivity.

It is being replaced by a new Ministry for Regulation, which will look at ways in removing red tape for businesses and foster greater innovation. It is understandable the new Government wishes to focus on reducing regulation and increasing innovation. However, productivity will remain a key metric for our performance on a global stage.

Productivity, at face value, is simple to define – how much output an organisation can generate (products or services) within a given set of inputs (the number of hours worked by its staff). 

Enabling productivity, then, becomes a simple matter of increasing the number of services or products an organisation is able to produce, while retaining the same level of hours worked by its staff.

At its most basic, the OECD measures productivity as GDP per hour worked. Aotearoa New Zealand is at an immediate disadvantage given its relative geographical isolation and its small population. Of course, it is not that simple, and the Ākina Foundation subscribes to a more holistic picture in defining productivity.

The commission’s ‘Productivity by the Numbers’ report, released in mid-2023, showed little change in economic productivity. We continue to decline in terms of national productivity and have gone from being one of the most productive countries in the 1960s to one of the least productive in the OECD, ranked 29 of 43.

It is certainly not the case that the commission’s work had become redundant: in announcing its disestablishment in order to fund the new ministry, it highlighted our decades-long productivity problem.

Low productivity has a significant impact on Kiwis’ quality of life. It is linked to our welfare as a nation and our ability to educate our young people, build and improve infrastructure, care for our elderly, enjoy more leisure time, and build our human capital and workforce skills. Businesses can, and do, make a positive contribution to our social fabric. Low productivity affects everyone, not just businesses.

New Zealand’s productivity issues are driven largely by people working longer hours for the same outputs. There are some significant risks for businesses associated with this, including poor business performance and worker retention, and a dissatisfied, burnt-out workforce.

The Institute of Director’s top five issues for directors in 2024 shows organisations are becoming increasingly focused on ways to enable greater productivity as they face cost and pricing pressures, supply chain concerns and increasing wage demands in a tight labour market.

Directors have also pointed to changing stakeholder expectations: their staff, customers and communities are all expecting more in terms of sustainability, social and community impact, and workforce wellbeing.

Kantar’s 2023 Better Futures Report reinforces this, with 58 per cent of respondents prepared to invest their time and money to support companies that try to do good. Businesses that aren’t focused on achieving a positive impact are losing customers, with 51 per cent of respondents indicating they had stopped buying certain products or services because of their impact on the environment or society.

On top of this, some of the positive social outcomes of a more productive economy are key concerns for New Zealanders – the cost of living, crime, housing and affordable healthcare all rank in the top 10 areas of concern.

In this respect, businesses have an opportunity to hit two targets with a single arrow – to increase productivity while meeting the expectations of their stakeholders, and to create a positive work environment that fosters productivity, innovation and employee satisfaction.

When linked to business strategy and delivered with authenticity, such initiatives give employees a sense of purpose and pride in their organisation. Engaged, empowered employees are more productive and committed to their work when they believe it has a positive impact.

This can be achieved through upskilling initiatives, a greater focus on delivering positive social and environmental impact through mahi, and measuring and then communicating that impact.

Equally important as reporting these impact outcomes to stakeholders is being able to recognise opportunities to contribute to the wellbeing of staff, customers and communities through an impact-led approach.

As stakeholders become more and more attuned to these outcomes, there has been a noticeable shift in perspective from more standard environmental, social and corporate governance (ESG) approaches. Approaches that were previously more harm reduction-focused have moved towards prioritising an organisation’s positive societal contributions.

Ākina has seen an increase in organisations looking right across their business activities, sustainability strategies and community investments to identify where they can increase their positive impact.

There is no downside: more equitable workplaces – businesses that prioritise their ESG outcome – have higher business performance. That is, they are more productive.

The commission had long championed the refrain that productivity matters for wellbeing. Last year, chair Dr Ganesh Nana highlighted that “the choices we make today influence the productivity and standard of living, waiora, and wairua tomorrow, and for future generations”.

Similarly, the OECD has repeatedly pointed to the link between productivity and inequality – a sliding scale showing that where productivity increases, inequality decreases, and vice versa.

By focusing on their long-term social and environmental impact, businesses have the power to drive greater impact and better performance through their governance practices, as well as to make a greater contribution to our national wellbeing.