Australian companies must become more dynamic to solve our productivity problem: CEDA

Australian businesses must get better at transforming themselves to seize new opportunities rather than focussing their energies on business as usual, a new survey by the Committee for Economic Development of Australia (CEDA) has found.  

Dynamic capabilities: How Australian firms can survive and thrive in uncertain times reveals the results of the first broad survey of the dynamic capabilities of Australian companies, by CEDA and University of Technology Sydney (UTS).   

“Our survey shows the most dynamic firms are resilient and more successful, especially in challenging times,” CEDA Chief Executive Melinda Cilento said. 

“Until now, we didn’t know much about the dynamic capabilities of Australian businesses. This survey reveals how our companies stack up, and why these capabilities matter for firm performance and economic growth.” 

The survey found Australian businesses overall have good dynamic capabilities, but they must get better at transforming. As new opportunities and challenges emerge, the ability to transform is critical to enabling firms to survive and thrive. 

We also found that a crucial enabler of transformation is having the spare capacity to build capabilities and to identify and pursue long-term innovation and opportunities. Yet a consistent message is that companies lack bandwidth beyond business as usual. 

“Even amid skills shortages and a tight jobs market, businesses need to find the space to lift their eyes and look to the future to ensure they can survive amid uncertainty,” Ms Cilento said.

Comparing the most dynamic 25 per cent of firms with the least dynamic 25 per cent, we found: 

• 85 per cent of the top firms had higher net profits after June 2020, compared with 61 per cent of the weakest firms. 
• 63 per cent of top firms had higher productivity, compared with 54 per cent of the weakest firms. 
• 54 per cent of top firms innovated by overhauling their management processes in the first few months of the pandemic, compared with 26 per cent of the weakest firms. 
• Diversity matters – 81 per cent of top performing companies with a board had at least one director that was female, at least one that had science and technology expertise and at least one with international experience, compared with just 26 per cent of the weakest firms.  

Despite perceptions that Australian businesses are risk averse, 89 per cent of survey respondents agreed that learning from failure was a necessary part of success.  

This probably reflects that a high proportion of respondents were senior executives, who typically have a higher risk appetite, and that they recognise the need to take more risks and build the capabilities to do so. 

Given the link between diversity and dynamic capabilities in our findings, one way to challenge business as usual and boost transformation is to embrace diversity at the board and senior executive level.  

CEDA surveyed 149 managers of businesses of all sizes in a range of sectors around the country. 

Each respondent rated their business in the categories of sensing opportunities and threats, seizing these opportunities and transforming when they need renewal or change. They were also asked about their performance during the pandemic and a range of business characteristics. 

“Dynamic capabilities are essential strategic qualities in a world of changing customers, technologies and markets,” Ms Cilento said. 

While there has been much discussion about what governments can do to boost Australia’s productivity, we must understand the role that businesses have in driving innovation.    

“Differences in ordinary capabilities – the basic qualities needed to run a business in normal times – may explain up to half of the productivity gap between Australia and the United States,” Ms Cilento said. 

“This highlights that in uncertain times like now, strengthening business’ dynamic capabilities is critical not just for their own success, but also for Australia’s economic growth, productivity and innovation.” 

The report was written by CEDA Senior Economist Melissa Wilson, with: 

• Dr Renu Agarwal, Professor in Management at UTS Business School;
• Dr Wen Helena Li, Senior Lecturer at UTS Business School; and
• Dr Christopher Bajada, Professor of Economics at The University of Technology Sydney.