13/06/2023
I’m often asked by business leaders how they can be more effective. The one change I always need to recommend is they spend less time being “busy”. I tell them: “Your calendar is over-jammed. Clear it for at least an hour each day. Do some thinking work. It’s not how busy you are that will be noticed, but rather the quality of the ideas you are turning up with.”
So it came as little surprise to me that CEDA’s new research reveals that Australian firms are strongest at sensing opportunities for innovation but not necessarily putting this into action by transforming their business. The companies are behaving just like their leaders. Too busy to really think.
CEDA’s research explored the dynamic capabilities of Australian businesses. Capabilities that help businesses survive and thrive in uncertain times. Businesses are only able to harness dynamic capabilities when they have the space to do “thinking work”.
According to the Australian government, there is a widening productivity gap between Australian businesses and the rest of the world.
The Productivity Commission’s recent Five-Year Productivity Inquiry highlighted the government’s reduction of the annual productivity growth assumption from 1.5 per cent to 1.2 per cent.
This implies that in 40 years’ time, without change, the average Australian will be 20 per cent poorer.
I’m surprised this didn’t make more headlines. It certainly concerns me. Of course, over 40 years a lot can happen but complacency is never a strategy. Now is the time to focus on our productivity growth.
No one, not even a government, can simply wave a magic wand to lift productivity.
In the past 120 years it is sustained investment – in buildings, machines, technology and intellectual property – that has accounted for nearly half of labour productivity.
The onus is on managers and boards to think, then take risks and invest in growth for the future.
Investment has been weak in recent years, and it is at the same levels as the 1990s recession. This is a drag on productivity.
To get productivity growth back to 1.5 per cent we need an increase in investment growth from 2.2 per cent up to 3.3 per cent.
There is high economic pay-off. Real wage growth is facilitated, inflationary pressures are eased, and doing more with less is an imperative in a world with an ageing population.
But how do we get there?
Three key changes have the potential to make all the difference.
First, boards encouraging Australian managers to be more dynamic, innovative and jump on opportunities.
Second, building a better regulatory environment to support business investment. Australia’s inefficient tax system, lack of cyber security preparedness, and complex foreign investment rules can all deter investment.
Australia can copy lessons from Asian powerhouses South Korea and Singapore. The first reduced barriers to foreign direct investment in the early 2000s, paving the way to introduce key technologies, improve management skills and boost economic growth. The second established an Economic Development Board centralising decisions and policies to attract the best global capital.
CEDA’s research reveals that onerous compliance regimes can hinder the development of dynamic capabilities. This might explain why accountants and lawyers are so well represented on company boards. But we know that board diversity – of experience and expertise – can really enable organisations to be more agile in the face of adversity.
CEDA’s research shows that 81 per cent of top-performing companies had at least one female board director, at least one director with science and technology expertise, and at least one with international experience.
This may not be particularly surprising. What is surprising is that Australian boards still lack diversity. It’s an issue I’ve been vocal about in the past.
Finally, better migration settings can ensure Australia attracts top global talent – thinking talent, who will be critical for driving productivity gains. The federal government has made good progress with the establishment of a three-tier system of skilled migration.
I’m a businessperson, and unapologetically my solutions are always anchored in changes businesses can make. Investment in a period of rising interest rates can be challenging but it can make all the difference to Australia’s future prosperity. So time to start thinking.
This article originally appeared in The Australian Business Review on 9 June 2023. You can see the full highlights of CEDA's State of the Nation here, including Diane Smith-Gander's opening address.