Rosemary Howard

There is a widespread misconception among many Australian managers that operational excellence equates to saving dollars. However, focusing just on the bottom-line is not the way to transform organisations.

If a business is doing what it did yesterday, but just doing it a bit more cheaply, that isn’t going to deliver any long-term competitive advantage and it won’t make that business more successful.

Real productivity gains are needed but Australia, weighed down by its own good fortune, could struggle to make them.

The mining boom, the very thing that has kept Australia going while other economies in the world have struggled under the weight of the global financial crisis, is taking the focus off productivity levels, and undermining Australia’s ability to perform well in the long term.

A report from independent public policy think-tank the Grattan Institute has pointed out that according to the broadest measures Australia’s productivity performance has turned negative over the last five years. The authors of Australia’s Productivity Challenge, economist Saul Eslake and research fellow Marcus Walsh, issued a stern warning that the country’s economic performance could decline substantially once the commodity boom runs its course.

Australia is not doing the hard yards on a globally competitive basis.

Last year, only 42% of Australian organisations even measured productivity, down from 49% in 2009, according to The Telstra Productivity Indicator 2010.

If organisations are not measuring productivity, how are they managing it?

Leadership remains a key issue, and this is tied to levels of education. However, Australia has a dangerous disdain for business management methodologies such as Six Sigma. Used strategically, these tools can make a valuable contribution to operational excellence.

The education level of Australia’s workforce generally does not compare well with other advanced economies.

We have half the number of people with Masters degrees or PhDs versus the US or the UK and one-third the level of Germany.

Australia ranks 25th out of 33 Organisation for Economic Co-operation and Development (OECD) nations for public expenditure on education as a percentage of GDP.

And when it comes to collaboration between tertiary institutions and business, Australia is a lowly last among the European Union’s 27 nations.

Australia may take pride in being very ‘school of hard knocks’ competent, but if we don’t know what we don’t know, we won’t learn from leading frameworks and best practice.

Australian managers have plenty of positive points that are widely admired and deliver results. We say what we think and don’t hold back. We listen to each other and engage in reasonably open conversations. We form teams naturally, and global academics comment on the phenomenon of boards operating as real teams in Australia, which is comparatively unusual.

Despite this, we are still complacent about addressing productivity.

When the mining boom ends – and it will – we will rely on strong leadership and management skills, as well as technological innovation, to drive the real productivity performance required to sustain our quality of life.

Rosemary Howard is Executive Director and Conjoint Professor of AGSM Executive Programs at the Australian School of Business, UNSW.

Anne Junor

Anil Hargovan

The Federal Court has not imposed extra penalties on six non-executive directors involved in the Centro court case, saying their convictions for breaching the Corporations Act are penalty enough.

My first impression suggests that Justice Middleton in the Centro case appears to have taken one step forward (in the liability decision which set the bar on directors performance standards in reading accounts dauntingly high) and two steps back (in the penalty decision handed down yesterday which did not go far enough in sanctioning oversight failure).

The tone of the penalty decision appears to be less caustic and more forgiving of the directors failure to exercise care and diligence.

The failure to throw the book at the directors in the penalty decision  has polarised the corporate community, attracted controversy and seen a vituperative reaction from sections of the media.

The penalty decision elevates shame and reputational loss as strong determinants of general deterrence but will not appease those baying for blood following significant oversight by the directors in the accounts involving billions of dollars.

The penalty decision boosts the directors shame and reputational loss as an effective deterrence tool.  Such sanctions will only be effective, however, for those directors who put a premium on their reputations.

Media reaction to the penalty decision would suggest that the penalties handed down were largely meaningless. It is important to remember that the judge refused to exonerate or grant forgiveness for breaches of the Corporation Act and did issue court declarations of breach of law which puts a stain of the cv of the directors and, more ominously, offers no comfort to the company and its directors facing class action by the shareholders.

In the refusal to grant forgiveness and the confirmation of breaches of law, the penalty decision has laid a stronger foundation and boosts the prospects of  shareholder success in the class action against the company. Herein lies the potential for a greater penalty afforded by this decision.  Perhaps the judge had one eye on the potential impact of the class action and tempered the penalty decision in light thereof.

Anil Hargovan is an Associate Professor at the Australian School of Taxation & Business Law at the ustralian School of Business.

Michael Peters

New legislation is intended to more closely regulate the duties and pay arrangement of financial planners.

However I would argue that more regulation is not the answer.

Financial Services Minister Bill Shorten’s new legislation has been largely supported by the financial services industry however the chant coming from government once again is ‘when in doubt regulate’.  It will only increase costs, make it less accessible and is unlikely to provide better advice.

Under the legislation, known as Future of Financial Advice (FOFA), financial planners will be obligated to renew contractual arrangements with clients every two years from the beginning of July next year.

It is proposed that what are called ‘fiduciary duties’ are to be codified, however most of what the law will require is good business practice, so why make it law? Why not put it in a code of behaviour endorsed by ASIC and enforced by the ACCC like other professions such as travel agents?

As proposed the legislation will also offer more powers for the financial regulator, ASIC, which will be given additional power to intervene earlier, as well as allowing the regulator to ban financial planners in certain circumstances.

Why are we using regulation to make people feel immune from the market place – which will sometimes lose them money?

People will still miss out on their bet on the stock market or interest rates, and that is quite simply how markets work. Protecting people from themselves through more regulation does not mean people will not lose money. Instead, it means those with money are likely to get access to better advice than those who cannot afford it.

Under the legislation, brokers would have to restructure remuneration arrangements on margin lending, cash management and banking products, and other product solutions sold to retail clients such as managed funds.

There is enough law to regulate planners and advisers; it’s just a matter of enforcing these rules, rather than making more law.

Michael Peters is a Lecturer in Business Law and Taxation at the Australian School of Business

Craig Tapper

Executives, policy makers and commentators across the globe suggest that the capacity to generate significant and sustainable growth or gain major competitive advantage via efficiency and productivity, is reaching its limits, if it hasn’t already passed them.  

In the recent book The Future of Management, author Gary Hamel expresses the point that: “While most executives would willingly attest to the value of initiative, creativity, and passion, they face a worrying conundrum.  They are by temperament, managers.  They are paid to oversee, control, and administer. Yet today the most valuable human capabilities are precisely those that are least manageable.  Whilst the tools of management can compel people to be obedient and diligent, they can’t make the creative and committed.”

Once every business is doing the same things, using the same equipment and systems, and every process that can be outsourced or off-shored to a country or provider with lower costs, then the potential for competitive advantage or bottom line growth gets more and more minimal. 

So the growth challenge for executive leaders today is not just to get more efficient at doing the same things as everyone else, nor simply extracting more productive output from our assets, but to find new things to do and better ways to satisfy customers and deliver value for stakeholders. 

In IBM’s March 2010 survey of 1,500 CEO’s from around the world, over 70% said that their number one challenge in growing their business in the 21^st century was creative leadership.

So what’s the solution? 

Whilst it can be complex to implement, achieving growth via creativity has a few simple but different rules to achieving growth through productivity. 

Firstly, creativity is non-hierarchical.  Existing managers can often feel threatened when transformational ideas come from relatively junior and often relatively new people. 

Secondly, creativity is unpredictable. It tends to happen when our brains are at rest and our thinking is allowed to be unconstrained rather than when they are narrowly focused on tasks and outcomes. 

Thirdly, creative growth is risky.  It relies on a pipeline of lots and lots of ideas, most of which will turn out to be false trails, but some of which will turn out to be spectacularly successful and repay the investments of time and capital many times over. 

Finally, creative growth is more achievable through collaboration than specialisation.  It fails in the silos and regimented structures and processes that produce productivity and efficiency.  Rather, it thrives when we take the restrictions of structure away.

Creative growth is more likely to come when we cross boundaries and forget hierarchies, when we encourage and reward people based on challenging the traditional and existing views rather than conforming to them, when we allow people freedom and time just to think rather than constraining them to be busy and productive, and in cultures where risk is tolerated and there is an appetite to see and do things in sometimes radically different ways. 

As you can imagine, the rules and practices of management that lead to the massive gains in productivity we saw in the 20^th century are unlikely to generate growth via creativity. 

But it’s not an either/or issue, creative growth is about having both. 

It’s about unleashing creativity and then applying discipline and the lenses of efficiency to extract the maximum value from whatever the creativity unleashes. 

The organisations that will be spectacularly successful in the next century will still use resources efficiently and produce the maximum outputs and outcomes from efficient processes; they will just be different processes and more creative outcomes.     

Craig Tapper is an adjunct lecturer in strategy and management at AGSM Executive Programs at the Australian School of Business

The blog of Knowledge@Australian School of Business, the online business journal of the Australian School of Business at the University of New South Wales. Knowledge@Australian School of Business covers research in Finance, Strategic Management, Marketing, Leadership, Social Impact, Population Ageing and eight other knowledge research categories.