Will dynamic capabilities solve our productivity problem?

The OECD has neatly captured the concept of the “productivity paradox”: while countries invest in innovative technologies, worker productivity remains unchanged or even decreases.

According to former Productivity Commission Chair Michael Brennan, Australians have never been better educated, nor with so many people employed in research, and yet productivity is at a 60-year low. MIT research shows that transformative new technologies such as AI are not enough, saying “instead, productivity growth from new technologies depends on the invention and implementation of myriad complementary investments and adjustments”. 

CEDA’s recent report, Dynamic capabilities: How Australian firms can survive and thrive in uncertain times, sought to address the role business can play in boosting productivity through sensing and seizing new opportunities, and perhaps most critically, transforming their organisations for success in these highly volatile times. 

The report was based on a cross-sector survey of 149 managers, conducted in partnership with the University of Technology Sydney (UTS), which found Australian businesses overall had good dynamic capabilities, but there was room for improvement in specific areas.

At a recent roundtable hosted by Future Leadership, participants heard that while ordinary capabilities were necessary for businesses to operate effectively in a static environment, dynamic capabilities enabled businesses to thrive in a fast-changing and emergent environment. 

The roundtable guests, who represented private, public, academic and for-purpose organisations, agreed that static environments were largely a thing of the past.

International Medical Robotics Academy (IMRA) chief executive Adam Clark shared the company’s experience of emerging technology adoption during the discussion. 

He revealed how dynamic capabilities within his robotics firm enabled extraordinary growth in a short period of time. IMRA was originally founded in education, providing training to surgeons for robotic procedures. During the pandemic, they identified a growing problem with the availability of patients and lab animals typically used for the training, along with ethical concerns.

The diverse team lifted their eyes from their core education business, sensing an unmet need for synthetic human-tissue models for surgeons to practice on. Directing resources to the identified opportunity, the team was able to seize on the market gap and become an advanced manufacturer of these new models.

While IMRA was able to transform its business model, CEDA’s survey found Australian businesses generally lacked transformative capabilities.

The key enablers required to promote transformation in organisations include:

• Understanding a firm’s capabilities – leaders must see clearly where they are lacking and how to improve, including through education and training;
• Innovation over efficiency – leaders need to find the people, time and money to take advantage of new opportunities and position for the future;
• Risk and reward – leaders need to embrace renewal and change and take smart risks in the face of uncertainty. In addition, the ability to learn from failures and embrace feedback is instrumental;
• Diverse leadership – intersectional leadership including gender, field, age and other diversity should be present at the executive and board level; and 
• Regulatory environment – governments should ensure that regulations are well-designed and do not stifle innovation, especially for small businesses.

The Future Leadership team of organisational psychologists, executive coaches and leadership experts believe that focusing on skills alone is not the answer to building the workforce needed for the future. 

The pace at which technology makes human skills obsolete, and the rapidly increasing range of skills required to stay ahead of change, mean that companies should be focusing instead on the underlying capabilities that enable the skills, mindsets, knowledge and behaviours of the future. 

At a firm level, the way these resources are orchestrated and synthesised internally gives an organisation a competitive advantage hard to replicate in today’s world.

Finally, CEDA’s research provoked a robust discussion around the need for slack and agility in organisations today. When so many businesses are operating at capacity just delivering business as usual, the dynamic capabilities that do exist can be usurped or lie dormant within the routine of daily operations. 

It’s time to stop directing all resources to business as usual and start intentionally creating space to embrace business as unusual. Productivity growth requires us to shift from efficiency to innovation. Future economic dynamism requires us to value space, as much as we value pace.