Small Business: Work hacks - Paul Conway, New Zealand Productivity Commission

Paul Conway, director of economics and research at the New Zealand Productivity Commission. Photo / Stephen Court

Small business editor Caitlin Sykes this week interviews a handful of small business owners about work hacks.

Paul Conway is director of economics and research at the New Zealand Productivity Commission.

How do New Zealand's small business owners stack up generally in terms of working smarter, not harder?

It's hard to compare small businesses here to small businesses in other countries just because of how the data works. But you see on an economy-wide level that New Zealand has a significant productivity gap when compared with a number of other countries that we'd like to compare ourselves to. From a productivity perspective that tells us businesses in New Zealand in general aren't as productive as some of their international counterparts, and I think that would hold as equally for small businesses as it does across the board.

How are those statistics trending?

Our productivity is improving when you look at the aggregate measures, and there are parts of the economy that perform quite well from a productivity perspective. And when you look at our productivity growth in aggregate and compare that to other countries we've been having faster productivity growth than some other OECD economies over the past six years. It's not that our productivity growth has been spectacular; it's that productivity growth internationally has been quite weak.

What are some of the sectors that are performing well?

Productivity growth is quite good in the primary sector. It's also reasonable in parts of the manufacturing sector, and it's quite good in some parts of the services sector, such as in information and telecoms.

What are some of the sectors that aren't doing as well?

Construction has a low level of productivity and low productivity growth, and there are a lot of small businesses in that sector. There are also parts of the services sector — accommodation and food and some of the professional services — where productivity growth has been quite weak.

What are some of the factors driving productivity growth here?

Technology is radically changing the way we do things across vast tracts of our economy and that's part of the reason why productivity has been improving. But there are issues around the extent to which some of our low productivity firms benefit from new technology; there's a large number of low productivity firms that aren't really feeling the positive effect on their productivity that comes from new technology. As a consequence we aren't seeing the full potential impact on productivity growth that comes with new technology and better ways of doing things, and this is a significant challenge for New Zealand.

What are some of the barriers in that regard?

That issue could reflect that many of our businesses are small and have insufficient resources to upgrade their technology. It's also likely some of our small businesses don't face the same pressures to upgrade their technology as firms in bigger or more competitive markets do. Firms in the US for example don't really have a choice whether they adopt new technology; if they don't they just get swallowed up by a competitor. For some firms at least in some parts of our economy it's possible to do what you've always done and survive, but that's not a recipe for improving productivity.

What are some other barriers you see to our smaller firms becoming more productive?

Again, scale is a real issue. It's difficult for some businesses to get larger given the New Zealand market is quite small and we are not particularly well connected internationally; the size of the firm to some extent is determined by the size of the market. So there are real issues around upscaling, and productive firms getting bigger. The size of the market also affects the degree to which firms can specialise. You find in large markets it's easier for firms to really specialise in something and do it extremely well and productively, whereas in small markets we tend to be more generalists.

Any practical tips for business owners who want to be more productive without clocking up more hours?

If you look at the data the hours worked per capita in New Zealand are well above the OECD average, but what we produce for every hour in the job is well below the OECD average, so I think these are exactly the questions we need to be asking.

In some ways the branding around productivity growth isn't so great; people think it means you have to work harder, but it's actually about opening up choices — be it higher incomes or better work life balance and anything in between.

I think to some extent it's incumbent on business owners to get out there and learn about better ways of doing business. There's also a role here for industry bodies to tell firms how they're going relative to the overall industry, what the international trends are, and to help firm owners understand what's happening with technology and what we can gain from it. And that's not just about computers; it's about new ways of doing business, structuring your business and organising yourself. It's as much about growing management capability as it is about embracing a more narrow definition of technology.