07.10.2015 : Francis Tse

Happy with a 1% pay rise?

New Zealand has had minimal productivity growth over the last decade. What does this mean to our communities and nation? Leveraging technology is the only option.

Imagine these are the percentage increases of your salary over the last five years. I’m sure none of us would be too pleased with these figures and it looks like we actually had a pay cut in one year. These are in fact New Zealand’s productivity growth from 2008 to 2012.

Productivity is a measure of how efficiently resources are being used to produce outputs. Higher productivity earns us the right to do everything else from quality healthcare and better education to safer communities and improved environment.

Productivity isn’t everything, but in the long run it is almost everything. - Paul Krugman, 1994

According to the New Zealand Productivity Commission, we rank 22nd on the OECD for productivity but we are 12th when it comes to being the hardest worker. We produce 30% less output than Australians per hour worked. In short, we are working harder but not necessarily getting any wealthier.

Aviation fascinates me. I often think about what future airports will be like. A couple of years ago, a colleague, Hena Rana, and I presented at a conference on this very subject. Our opening statement was “The possibilities are endless, but what is certain is that smart enabling technologies will significantly shape our future airports.”

Fast forward to 2015 and this statement continues to stay true. Dubai has just surpassed Heathrow as the world’s busiest airport by passenger volume and is predicted to reach 100 million passengers by 2020. Auckland, Sydney and Melbourne are all predicting at least 4% year on year growth in passenger volume in the next decade. To keep up with such growth in service demand, we must significantly lift our productivity and this is unlikely going to be achieved through small incremental operational improvements alone (somewhat ironic coming from a business improvement practitioner who advocates operational excellence).

Technology advances have been faster than ever before and slower than they ever will be. According to Stanford Professor Tony Seba, anything that can be digitised will be digitised, anything that can be automated will be automated and tomorrow’s business model is one where the cost of serving one extra customer is zero.

Airports connect local businesses, drive tourism and travel and promote international trade. They are a vital contributor to our economy and community. A number of airports are already taking advantage of automation and digital technologies to lift productivity such as smart gates at passport control and self-boarding at gate lounges. It is fair to say the aviation industry is a pioneer in leveraging technology to increase productivity. It would be interesting and exciting to see how airlines and airports transform themselves so that the cost to serve one extra customer is zero.

Being a professional services consultant who effectively sells time, I believe there is still more we can be doing to achieve tomorrow’s business model and I suspect I am not alone. So, I’m keen to know… what are you doing in your industry to lift productivity? What is your cost to serve one extra customer? What are your next steps?

About the Author

Francis Tse

Principal - Programme Advisory

Ignite Your Thinking

What Do You Think?

Adrian Dickison · 9/10/2015 3:50:10 PM
Many professions, including most services, simply can't put technology to use to improve productivity - e.g. a school teacher - does this mean that the burden has to fall on manufacturing and other sectors? And if a lawyer increases his rates does that count as an increase in productivity in this sense?

Amit Shah · 21/04/2015 4:29:15 PM
Very interesting article, Francis.

Smith · 15/04/2015 1:57:12 AM
Thanks for the post.

Jon Huxley · 9/04/2015 1:36:24 PM
Thanks Francis. Interesting stuff indeed.

Francis Tse · 9/04/2015 12:27:16 PM
Hi Jon - Data from the NZ Productivity Commission shows that approximately 30% of the gap comes from the differences in industry structure. Comparatively, more Australians are employed in higher value add industries - e.g. mining, finance - than NZ. The other 70% comes from within the same industry. So even when we do a 'like for like' comparison, Australia still has more efficient use of capital and labour inputs.

The 70% gap is due to a combination of factors. A key one is that Australia is more capital intensive per hour worked. The four types of capital assets include structures and land improvement, machinery and equipment, vehicle and transport, and intangible assets like software. It is interesting to note that a number of these capital assets are highly correlated with technology advancement/investment. Another factor is skilled workers where Australia has a comparatively higher number of skilled workers measured by workforce qualifications and relative pay levels. This would not be a surprise given the 'brain drain' issue NZ has faced over the last decade or two. Other factors include scale of economy, currency, size and diversity of urban areas/cities etc.

Jon Huxley · 7/04/2015 10:37:25 AM
30% is a big gap Francis between NZ and Australia. What's the leading thinking on why?