What is the answer to New Zealand’s Productivity Crisis?
Recap of previous article ‘Do Kiwi Business Managers have what it takes?’:
Happy New Year all! I have been posting a series of Blogs on the Productivity Crisis we face in New Zealand. So far I have posted six blogs in this series with a few more to go. For those who have missed reading these blogs, they are posted on the EDIStech website and also on my LinkedIn Page. However, just to recap on my last blog from December: I wrote about Domestic Kiwi Management and how we may not be as competent as management working in internationally exposed organisations.
As a result, the way we implement ICT into our domestic organisations may not necessarily achieve the best results from this innovation. I gave an example of one of EDIStech’s clients in my Blog entitled ‘Do Kiwi Business Managers have what it takes?’
So, should Kiwi businesses be implementing ICT into their organisations?
It’s all well and good implementing ICT into organisations, but unless the benefit of it is exploited to its fullest, the productivity gain will not be maximized. Organisations need to improve their operational processes and organisational structures at the same time as innovating their products. This approach will lead to the greatest productivity improvement. But to achieve this, management must be trained appropriately.
In all my previous articles I have raised mainly issues surrounding our productivity crisis, but have offered not many solutions, so here goes;
What is the NZ Government doing about the crisis?
The new Coalition Government has recognised our productivity crisis and has set a goal for New Zealand’s Research & Development expenditure from The Business Sector’ to grow to 2% of GDP by 2027.
Currently, our R&D investment to total GDP is 0.5% for the Business Enterprise Sector’ (see graph from my blog entitled “Should New Zealand business spend more on R&D and Innovation?”)
To reach 2% requires an additional investment in R&D of approximately $2.7 Billion. To assist this, the government has pledged $1 Billion towards an R&D Tax Credit Policy. This will certainly assist.
Callaghan Innovation is another organisation that exists to assist companies apply for R&D Grants. Vic Crone the new Chief Executive has just completed a new strategy plan for Callaghan Innovation. She has stated that;
‘My focus is how to get businesses to increase R&D investment not just into new products but also into process improvement and business model innovation’. She is referring to business investment into the whole Knowledge Based Capital piece. (Refer to my previous Blog entitled “Should New Zealand business spend more on R&D and Innovation?”)
However, the coalition Government is planning to take away grant money from Callaghan Innovation and place it into the R&D Tax Credit Policy. My recommendation is to maintain both. And I hope that the criteria to apply for the R&D Tax Credit is not onerous on smaller businesses, otherwise they will not attempt to apply. Currently to qualify for the Callaghan Growth Grant a company needs to show they have spent $300,000 per annum on R&D over the past two years. The qualifying criteria for the Tax Credit is $50,000. The reduction in this threshold is positive as it will enable more businesses to apply.
Also, Ms Crone says in comparison to overseas countries, taxpayer-funded incentives to lift innovation and R&D here in New Zealand is so much less. We need to remove this dis-equilibrium.
Our Domestic Focus provides little incentive for NZ business to invest in ICT.
It’s easier for businesses to trade domestically. The competition from an international arena is not as prevalent here, so there is no real pressure to innovate and adopt technology to lift labour productivity that international firms need to compete. And because we are isolated from interacting with these overseas firms, we do not get exposed to the technologies they are implementing.
As a result, business owners and Boards running companies in NZ with a domestic focus have little incentive to invest in ICT; be that software purchased or leased on a SaaS (Software as a Service) model.
In fact, the world is progressing fast towards SaaS for everything. Be this leasing of servers in the ‘Cloud’ from companies like AWS – Amazon Web Services or Azure by IBM. In addition, companies are choosing software in the cloud like Electronic Data Interchange (EDI) software, leaving complex processes to these experts.
However, the cost of these services are treated as OPEX rather than CAPEX so companies receive no additional tax incentives or rebates for investing in SaaS style technology.
Incentive is needed for the adoption of SaaS style technology.
There needs to be some incentive with a finite window of opportunity to entice businesses to look at Cloud based software solutions that will revolutionize productivity gains.
Companies failing to invest in SaaS software like EDI are critically exposed to losing their trading partners to either other domestic companies that do have an EDI solution or to overseas competition where this technology has been implemented for a while.
As an example of what EDI can do for a company’s supply chain, I can quote the following statistics that were produced by Stanford University, AT Kearney Management Consultants (USA) and DART Consulting (USA);
BENEFITRESULTCost SavingsLowers Supply Chain operating costs at least 35%SpeedSpeeds up business cycles 61% (ie) From manufacture to deliveryAccuracyIn a manual system, 30-40% of transactions have errors. An EDI system has none.Business EfficiencyData Entry Clerks moved to more value-added positions or company saves on these salariesSecuritySecurity of transactions enhancedEnvironment–FriendlyMigration from paper to electronic transactions reducing carbon footprints
Kiwi Managers Need to Use Smart Technology to Revolutionise Productivity.
Kiwi managers and business owners just need to ‘bite the bullet’, somehow change our ‘Number 8 Wire’ mentality and engage the many Kiwi firms out there that offer really smart technology that can revolutionise productivity.
However, with this technology will come redundancies, especially in those manual, mundane tasks such as data entry. A good EDI system such as is offered by EDIStech Limited, will eliminate most data entry type rolls in the Supply Chain process.
Thus, as a country we need to start looking at re-training many of the people in these functions. Technology will take away many jobs, but it will also create new ones.
Robotics, AI, the Internet of Things and EDI will take away many of these mundane processing tasks so training organisations need to quickly see this coming wave and offer relevant courses for re-training.
The Government may have to offer some rebates to make this training affordable, as they have done with offering first year free for Tertiary Studies.
I believe ICT studies should be compulsory in Secondary Schools up to year 11. It is critical our country is made ready for this wave that will revolutionise our working life and job structures.
What we need to ask now, is the Coalition Government helping or hindering Productivity Improvement in New Zealand?
Read on in my next article ‘Is the Coalition Government helping or hindering Productivity Improvement in New Zealand?’.
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