Executive Summary
Introduction
Firm Foundations provides a panoramic snapshot of the business strategies, practices and performance of the New Zealand business sector. As the most extensive set of representative data to be collected on business capability in New Zealand, the findings provide a sound basis on which to better inform policy advice on business and industry development programmes. The study can also help business advisors and industry groups to develop and focus their support and, for firms, provides the opportunity to learn from the experiences of others and highlights areas of business activity that could be deserving of attention in future.
From the study and related research, some clear messages have emerged:
- Although there are business practices that, in combination, consistently appear to provide an advantage to firms that adopt them, achieving business excellence is not about simply copying what works for others, nor is it a one-step process. Business improvement is a continuous process that is shaped by the environment in which a firm operates, the strategies it chooses to focus on, and structural characteristics. The evolution of competitive capability takes significant time - both in terms of individual business capability and the average level of capability across the business sector.
- Laudable progress is being made as New Zealand firms have continued to adapt to the increasingly open and competitive environment they have faced since the mid to late 1980s. The study confirms a general progression from cost and quality based strategies and practices, to increasing attention to customer and market driven approaches, aspects of the employer-employee relationship, information management and innovation supporting activities. Encouragingly, a good number of New Zealand firms have already built a firm foundation of practices from which to pursue their goals and sustainable advantage. However, there are key areas that deserve further attention by all those involved in the business development effort, particularly strategic planning, environmental management, supplier relationships, staff performance management and more formal research and development activity.
- There is a relationship between adopting a holistic approach to business practices and achieving better operational outcomes such as lower costs, better delivery, greater flexibility, fewer defects and errors, and improved levels of innovation. The study also points to an association between higher levels of financial performance and productivity and a greater commitment to business improvement. However, the study points to some key structural issues that impact on the relationship between business practices and performance, particularly size, industry sector and ownership influences, that need to be further evaluated in assessing the efficacy of business improvement models.
Background
The Business Practices and Performance Study, Firm Foundations, builds on research into firm-level dynamics and business practices conducted since the early 1990s, primarily focused on medium to large firms in the manufacturing sector - Leading the Way (1994) and Gearing Up (1999). The current study has been expanded to cover most industry sectors and to include firms with six or more employees.
The study has been formed around a series of key objectives:
- To determine the current state of business capability and performance across New Zealand. The study measures firm-level investment across a number of activities including innovation; planning; customer, supplier and employee relationships; information management; and firms' operational outcomes.
- To identify the distinguishing attributes of higher and lower performing firms and firms' ability to develop sustainable competitive advantage.
- To examine the relationship between structural issues, strategies, practices and business performance. Examining the relationship between the adoption of business practices and the structure and profile of firms (such as the size and industry of firms, exporting status and level of foreign ownership) provides important insights into business development.
The Business Practices and Performance Model
The model of business practices and performance applied in this study has been adapted from that originally used in the Leading the Way publication and refined in the Gearing Up study. An extensive review of literature and international surveys has informed the adaptation of the model and it has been extended to take account of a wider range of factors impacting on competitive advantage and the expansion of the survey population to service and primary sectors.
The key elements of the model are:
- structural issues (size, ownership, sector, age of business)
- strategy (competitive priorities and exporting status)
- practices, in terms of leadership and planning, customer focus, employee relations, quality and supplier focus, innovation and technology, and information and benchmarking
- outcomes on competitiveness, quality and service, timeliness, flexibility, innovation and human resource measures
- business results such as productivity, profitability and sales.
The central premise of the model is that business excellence is holistic in that all elements of the model must be in place and consistently linked together for a business to achieve sustainable outcomes.
Methodology
A questionnaire survey was developed based on the structure and elements of the Business Practices and Performance Model. The survey questionnaire was distributed to a random sample of 3,378 firms with six or more full-time equivalent employees, from a range of industries, in June 2001. A response rate of 82% was achieved, which allows us to be highly confident that the results reflect the underlying nature of the sample population.
48 site visits were also undertaken to supplement the survey responses. These site visits not only provided a more in-depth picture of firms, specific business practices and barriers to its growth, but they were also used to validate survey responses.
Key Results
Leaders and Laggers
Consistent with the 1994 and 1999 business practice studies, this study defines two groups of firms (Leaders and Laggers) according to their achievement on business practices and operational outcome measures. Leaders are defined in this study as those firms that score in the top 20% on both overall practice and outcome measures. Laggers, conversely, are those firms that score in the bottom 20% on both measures. It is no surprise to note that Leaders outperform Laggers, on average, across all elements of the Business Practices and Performance Model.
The primary reason for making the distinction between Leaders and Laggers is to identify the key distinguishing features of high performing firms.
There are four areas of critical difference between Leaders and Laggers:
- Leaders' have a greater commitment to the "softer" dimensions of business development. Leading businesses have deeper relationships with all stakeholder groups when planning and developing products, services and processes, and recognise the need to promulgate company values. Leaders are more concerned with their employees' welfare and have developed more comprehensive systems for measuring and rewarding staff performance, providing internal and external training and development opportunities, and assessing employee satisfaction.
- Leaders work much more closely with their customers than lagging or average firms. Leading businesses use these closer relationships to help them to develop better products or services that more closely meet customer needs. They are more likely to have set procedures to ensure that customer complaints are dealt with effectively and have a more proactive approach to customers, including regular assessments of customer satisfaction.
- Leading firms are undertaking the lion's share of both innovation-supporting activities and investment in research and development. Leaders are far more likely to be fully up-to-date with the latest technological developments and the vast majority have at least some employees engaged in R&D on a regular basis. Many Leaders support their direct investment in the development of new and improved products, services and processes with expenditure on employee training, marketing, and external R&D.
- Leaders tend to have a broader competitive scope and pay attention to a more balanced portfolio of strategies and performance measures, with the vast majority looking to compete on flexibility and innovation, along with quality and delivery. Laggers, on the other hand, focus primarily on one strategy ahead of the others, with 4 out of 5 relying heavily on quality compared to other strategies and less than a third focusing on innovation.
Leadership and Planning
Leadership is about influencing and setting direction, and inspiring, motivating and gaining the commitment of others to move in that direction. Leadership and planning helps a firm to maintain the direction over time, achieve a higher degree of co-ordination and coherence across its activities, and to act strategically rather than reactively.
The picture of leadership and planning across the New Zealand business sector that emerges is a focus on the short- to medium-term. This appears to be related to the scale of most enterprises and a reliance on one or a few people to both lead and manage businesses. Less than a quarter of businesses set goals longer than one year ahead and many firms, slightly less than half, are not even using more broadly defined goals or visions to provide guidance for the longer term.
Close and cooperative relationships with employees, suppliers and customers can be an important source of competitive advantage as they are difficult for others to replicate. New Zealand businesses are generally more successful in getting buy-in and input into their plans from customers and employees, and supporting organisational coherence by promoting values to staff. More than 4 out of 5 businesses promote company values to employees, and over three-quarters take good account of customer and staff needs in developing goals. Many firms could gain further advantages if they would consider supplier networks in the same light, with only around half of firms consulting firms upstream.
In a similar vein, the community a business operates within provides it with its employment, customers, suppliers and resources. There appears to be a wide appreciation by the New Zealand business sector of their reliance upon, and relationship with, the community. More than 4 out of 5 businesses provide sponsorship or donations to community activities. However, opportunities may be lost in future if greater numbers of firms do not think about addressing the emerging "triple bottom line" and environmental management, issues that key stakeholders and markets are increasingly likely to consider in assessing business performance. It is difficult for businesses to suggest that environmental management is not relevant - any firm that consumes energy and materials or generates waste can gain by thinking about opportunities for adding value or reducing costs by improving environmental impacts. But less than half of businesses had put in place measures to reduce the environmental impacts of their business and only around 1 in 10 have, or are looking to implement, environmental certification.
A lack of attention in this area may well reflect the short-term orientation of most businesses.
Employee Practices
It is widely held that much of a firm's value resides in its human capital and that people provide organisations with a crucial source of sustainable competitive advantage. There is ample evidence that investment in skills and the employer-employee relationship contributes to lower costs and improved productivity.
The study points to mixed efforts on employee practices across the New Zealand business sector.
Appraising employee performance enables a firm to evaluate the contributions and progress made by staff towards the business's goals and is an important mechanism for motivating staff. There does not appear to be a systematic or long-term approach to performance management in many New Zealand businesses, with significant numbers of businesses - close to 2 out of 5 - not utilising performance reviews and, undoubtedly related to this result, more than half of all businesses do not associate rewards clearly with staff performance.
Despite the fact that many businesses are not reviewing employee performance, which would identify the training, development and skills needs of staff and organisations as a whole, the vast majority of firms are providing training opportunities, particularly internally. Around 85% of businesses indicate they conduct in-house training with at least some of their employees - and around a third have more than three quarters of staff participating in internal training. Given that many firms do not use employee performance reviews, there is a question about how well linked the training being undertaken is with the needs of businesses and employees.
There is scope for many businesses to make more extensive use of external training, which is used by fewer firms than internal training (around 7 out of 10) and tends to be applied to a lower proportion of the overall workforce (primarily up to 25% of firms' staff). With "skill shortages" rising in prominence in New Zealand, identifying the demand and supply issues that may be impacting on this deserves some attention.
In addition to providing training opportunities, many New Zealand firms are demonstrating a genuine commitment to the welfare of staff, with regular assessments of employee satisfaction (85% of firms), implementation of health and safety processes (85% of firms), and initiatives to foster a culture of teamwork and communication.
Customer Focus
Many New Zealand businesses appear to have recognised the need to shift their thinking from a focus on production to a focus on what customers really want and how best to deliver it. At the most basic level, profits from customers can only be increased in three ways: by acquiring new customers, enhancing the profitability of existing customers, and extending the duration of customer relationships.
The majority of New Zealand firms appear to be taking a proactive approach to customer relationship management, and more than half choose to work closely with their customers to develop better products and services. However, these relationships tend to be somewhat restricted to the senior or sales end of most organisations and there may be further benefits to be achieved (in terms of service, innovation and information, for example) if firms consider broadening customer relationships to other staff. Almost a third of firms made no effort to ensure their staff (aside from sales and marketing staff) interact with major customers, although this activity was seen to be important by the majority of firms.
Consistent with the desire to build longer-term customer relationships, the vast majority of businesses (three-quarters) also have clear procedures for dealing with customer complaints.
The main area of customer focus where there appears to an opportunity for real improvement, recognised by businesses themselves, is in relation to assessing customer satisfaction, with a quarter of firms not measuring satisfaction at all. Regular feedback would enable firms to better assess whether their current relationships and customer complaint processes are actually working as satisfactorily as they assume.
In addition, there is a very large distance between leading and lagging practice in customer focus and the widest divergence of achievement on this business practice across all firms. So although many New Zealand firms are demonstrating good customer practices, there is significant scope for a large number of businesses to improve their performance in this area.
Quality and Supplier Focus
The key measure of quality is essentially whether businesses meet or exceed customers' expectations on whatever dimension/s they value. Achieving high levels of quality necessitates a commitment to the involvement of all stakeholders (suppliers, customers and employees) in quality management and attention to a variety of quality measures - not just conformance.
Suppliers, like customers, can be an important source of ideas for product developments and improvements, because they are best placed to know how to maximise the performance of their own products and services. As part of managing quality within the value chain, there has been much interest in how a firm and its suppliers can improve one another's performance through long-term relationships, rather than the traditional view of pitting suppliers against each other to drive prices down.
The study shows that the New Zealand business sector is generally not focusing on upstream relationships with suppliers to the same extent as it is downstream towards customers.
Only around 1 in 10 firms works "very" closely with their suppliers to improve each other's processes and less than half of firms work at least "quite closely" with suppliers on process improvements or allow staff to deal with any supply problems directly. Businesses tend to be more vigilant in assessing the quality of their supplies, at least for key suppliers.
There appear to be real opportunities for firms to cultivate supply relationships and gain the potential benefits of improved quality, product and service development, flexibility and reduced costs.
Although the survey indicates that there is not a great deal of take-up of formal quality management system certification, there does appear to be greater recognition of the need for some internally consistent approach to quality, and the vast majority of businesses encourage employees to assess and improve products, services and processes. Firms may need to reconsider the benefits of certification and look at this from a supplier and exporting perspective.
Innovation and Technology
Innovation is the dynamic process of creation that involves the search for, experimentation with, and development and adoption of new and better products, services and processes.
Although there has been much attention in New Zealand over the last few years on a perceived lack of investment in research and development (R&D), innovation is not driven only from the breadth and depth of investment in R&D, but in innovation supporting capabilities, particularly skills, and an environment in which innovation is encouraged and recognised. In fact, in a small open economy with large numbers of small firms like New Zealand, we might expect businesses to be more likely to purchase technologies if they can be produced better and cheaper elsewhere because of benefits from scale and specialisation.
A reasonable proportion of New Zealand businesses are investing in building up their innovative capabilities and, consistent with expectations, a significant portion of that investment is in purchasing innovation from sources outside the firm, such as machinery and equipment, and keeping technology up-to-date (i.e. in keeping up with better practice produced outside the firm).
Importantly, almost half of businesses are investing in employee skills to support the development of new and improved products, services and processes, a result that is consistent with the commitment to training as described in the results for employee practices. Few firms, however, are investing intensively in in-house or external R&D, with only 1 in 5 indicating that they regularly or continuously undertake R&D, or have many staff engaged specifically in R&D - over half have no staff or less than half a full-time equivalent employee devoted to R&D.
To some extent, the firms in the study appear to take a more informal approach to innovation. When interviewed, rather than referring to R&D, most firms talked about generating new ideas from discussions with customers, about environmental scanning and about the importance of their employees. A number of firms cited customer feedback, sales staff feedback and changing customer needs and values as important drivers of new innovations. This suggests a propensity towards less sophisticated or incremental innovation in New Zealand.
It is also apparent that, even more than customer focus, innovation and technology strongly differentiates leading from lagging firms, with substantial differences between the two groups.
The issue these results raise is whether the tendency towards more informal innovation-supporting activities in New Zealand and reliance on external technologies matters in terms of actually commercialising innovation and generating value, and what else could be achieved by a greater commitment to more formal R&D activity.
Information and Benchmarking
All the practices investigated in this study depend vitally on information. In fact, any firm's value chain actually consists of information that flows between the firm and its suppliers and customers, and within the firm, not just the physical processes involved in production or service delivery.
New Zealand businesses, as a whole, appear to be managing internal information quite well, undoubtedly aided by advancements made possible by information technology. The majority of businesses, 4 out of 5, have formal systems in place to manage the storage and retrieval of information and a similar proportion of firms have resources dedicated to assessing whether the business is achieving its goals.
Most firms are also using a broad range of indicators to measure their performance. However, there is a heavier emphasis on assessing performance in terms of financial or quality measures rather than in areas that might provide an earlier indication of performance, such as human resource or innovation measures - only around a quarter of firms give a great deal of attention to these measures. Attention to a wider range of measures could yield greater insight into the factors that drive financial performance and enable more timely remedial action to be taken if necessary.
It will be no coincidence that the types of performance measures least utilised - innovation and human resource measures - are those related to the practices identified as relatively less developed in New Zealand firms. This is consistent with the view that firms pay less attention to the areas of the business they do not measure.
There is less commitment to managing external information, except at a relatively basic level such as monitoring competitors' products or services. Less than half of firms benchmark or look for better practices, innovative ideas and processes from other businesses. When they do, it is performance rather than process or strategy-based, which is where the larger gains are likely to be made - only 2% benchmark their business with firms outside their industry. The firm visits also signalled that much of what firms consider as "benchmarking" tends to be informal and ad-hoc. As a result, there appears to be significant opportunities for firms to more systematically look outside their immediate environment or value chain for ideas and improvements.
Operational Outcomes and Business Results
Operational outcomes are directly affected by the practices that a firm implements. The study shows that there is a positive association between taking a holistic approach to business development and better business outcomes.
The relatively poor uptake of benchmarking practices by New Zealand firms, in particular by lagging firms, is reinforced by the significant number of firms reporting that they did not know how their business compared to competitors, even on relatively simple measures such as quality and service outcomes.
Few firms appear to get any real advantage from cost-related outcomes, with most suggesting they are on a par with competitors on costs, and most firms consider their advantages lie in their quality and flexibility.
Consistent with the greater attention paid by firms in terms of customer and quality practices, most firms reported achieving high levels of quality and that products and services were delivered on time, in full and to specification in over 90% of cases. High levels of quality and delivery were also matched with very few instances of scrap and rework, or customer returns.
A greater emphasis on employee relations is associated with higher employee satisfaction, with 4 out of 5 Leaders considering that employee satisfaction is better than competitors compared to 1 out of 5 Laggers. Similarly, over three-quarters of Leaders reported low employee turnover of less than 10% compared to half of firms overall and a third of Laggers.
Around 60% of all firms report having introduced a new or improved product or service in the last three years, and almost half reported introducing a new or improved process. Outcomes related to innovation (for example the creation of a new product or process) is the area that most distinguishes Leaders from Laggers. Leading firms' investment in innovation has paid off, with almost all leading firms having introduced a new or improved product, service or process in the last three years.
Although the data is somewhat limited in the amount of detail available for the business results, there is a clear association between leading firms and the achievement of higher performance. Overall, firms with better business practices and operational outcomes are more likely to report:
- a higher and increasing market share
- increased levels of productivity, net cash flow and profitability, and
- a higher return on investment than lagging firms.
Competitive Strategy
Strategy guides a firm's behaviour and is fundamentally about how a firm aims to achieve and maintain a competitive advantage. A firm's choice of competitive priorities - innovation, quality, flexibility, pricing and/or delivery - will be dependent upon its strengths, its operating environment, structure and technologies.
The study suggests that quality and delivery performance appear to be the key drivers for most firms' strategies. Innovation was the least emphasised, which may point to exaggerated responses on innovation practices and outcomes. Leading firms tended to take a more balanced approach to their competitive priorities and placed a higher importance on a wider range of competitive strategies than lagging firms, particularly innovation, delivery and flexibility.
At a very broad level, there appears to be a reasonable degree of internal consistency across New Zealand firms between the strategies pursued, the practices adopted, and outcomes. However, more sophisticated strategies are needed for firms to be internationally competitive (whether competing in New Zealand or overseas) and it would be desirable to see more New Zealand businesses incorporating innovation and flexibility into their strategies.
Another element of strategy is the geographic scope or markets a firm decides to compete in. The study points to an important finding in the context of New Zealand's export potential. The traditional view of export development is the "stages" or "stepping stone" model, in which businesses focus initially on markets that are similar and closer to the home market first, and then successively add to these as exporting knowledge grows. If New Zealand exporters behave as this traditional model predicts, we would expect a skewed profile of export intensity among exporters in the study - most would be at the early stages of building "proximate" markets and we would expect to see decreasing numbers of firms achieve successively higher levels of export intensity.
However, the skew predicted by the stages model of internationalisation is evident, but the decline in the frequency of high intensity exporters is interrupted by a marked increase in the number of firms reaching the very high levels of export activity (i.e. exporting more than 75% of sales). In absolute numbers, some 1500 New Zealand firms could be estimated to have reached these very high levels of internationalisation. This suggests a more optimistic assessment of our economic growth potential. Instead of waiting the years and decades predicted by the stepping-stones model for exporters to achieve high levels of internationalisation, it appears that many firms have been able to leapfrog the step approach and achieve high levels of export intensity.
It also appears that exporting firms are more committed to developing their business practices than non-exporting firms. In particular, exporters differentiate themselves from non-exporting companies in terms of their innovation-related practices, especially those firms who are new to exporting. It appears that flexibility, too, is more likely to be perceived as important to a firm as its focus on new export markets increases.
Business Capability and Structural Issues
Structural issues, such as the size of the business, the nature of ownership and the degree of independence the firm has, and the industrial sector a firm operates within, will tend to influence the strategies, practices and outcomes of businesses. The study confirms these influences, although notes that there are complex relationships between structural issues, and that analysis using single explanatory variables does not do justice to the complexity of the relationships between them. It is probable that all of the structural characteristics have some effect.
As one would expect, smaller firms (in terms of number of employees) take a less formal approach to business improvement across the range of practices. Although large firms generally outperformed small firms across all practices, there were little differences on outcomes. It is possible that it is not appropriate to apply the business excellence models and theories of management and quality gurus to small firms and that a different model is needed. It is also possible that the respondents from small firms may have answered the survey differently, either because they were unsure about the terms used in the questionnaire or because they were too busy to give the questionnaire the attention it needed (and hence the practices and outcomes are not a reasonable reflection of their real capability). This may also point to the need for a broader and simple business excellence "language" for small firms. Examining business improvement in small firms may prove to be a more insightful approach for the New Zealand economy as a whole.
The sector a business operates within is also shown to have an impact upon the choices a firm makes about investment in business practices. In general, service businesses tend to outperform firms from the primary and secondary industries, particularly on customer focus and employee practices. This result is consistent with comparable overseas surveys. There are undoubtedly opportunities for cross-sectoral learning, re-emphasising the need for further consideration of benchmarking in New Zealand.
Foreign ownership of New Zealand-based businesses can provide resources, expertise and opportunities to generate substantial positive change to the capabilities of the subsidiaries. The study demonstrates that foreign owned firms outperform domestic businesses on all aspects of the business practices and performance model, with the exception of customer focus. The firm visits confirmed a number of valuable advantages from overseas ownership, including branding, skills, technology, finance and access to benchmarking information, although increased bureaucracy can hamper flexibility.
The Competitive Environment
The strategies a business chooses to pursue, the practices it adopts and the results it achieves are dependent upon how it interacts with its environment. The study examined the impacts of competition, regulation, access to finance and skills, and external sources of assistance.
In considering the impact of various aspects of the competitive environment, the results have identified that these factors do impact on the ability to pursue opportunities and improve performance, but also confirm that the capability of businesses is important in shaping their ability to respond to these factors.
It appears that competition in the market place has an important bearing on firms' strategies and investment in business improvement. Leaders in practices and outcomes tend to be those firms that are operating in a market where they face or perceive a significant number of key competitors. Conversely, a higher proportion of Laggers indicate that they either hold a captive market or are in a market where there is a range of non-dominant competitors.
Although access to external capital does not appear to be a major impediment, with very limited numbers of firms indicating that debt or equity funding was not available (2% on debt and equity) or available on unacceptable terms (6% for debt and 2% for equity), around 1 in 5 firms do consider the availability of finance is a barrier to business development and innovation. This appears to be related to the capability of firms to access capital, and issues associated with some sectors and stages of development. When funding innovation or expansion, the most frequently used source of capital was banks. Very few firms (less than 2%) reported using angel investors or venture capital to any degree.
The availability of skills, particularly specialist skills, was problematic for businesses with 10% of firms signalling they were never available and 65% indicating specialist skills were sometimes available. The availability of skilled staff was also considered a key barrier to innovation for close to a quarter of firms. Skill "shortages" appear to be more acute in particular industries, such as construction, health, accommodation, cafés and restaurants, although the results suggest that some of these differences could be attributed to the quality of demand.
Regulations play an important role in shaping the way a firm conducts its business. Compliance costs, the administrative costs of meeting government requirements, have been increasingly under the spotlight in recent years, as successive governments have attempted to limit the effect that these costs have upon business growth. With the exception of business law, regulation is considered to have a detrimental impact on the way that firms conduct business. In particular, industrial relations related regulation (ACC and employment law) and regulation associated with local government (RMA and local authority regulations) were identified by firms as negatively impacting on productivity and performance. Rather surprisingly, small firms were under-represented in responding that certain regulations had a negative impact upon their business compared with larger firms.
There is a range of external sources of advice and information that can assist firms in developing their products, processes and services and to respond to the pressures faced in the competitive environment. For the most part, and naturally, New Zealand firms turn to business sources (competitors, trade shows and conferences, associated businesses and industry associations) for ideas and information. Compared to leading businesses, there is significant scope for most firms to look at a wider range of sources of ideas and information for innovation, such as research-based organisations. There is also scope for government agencies to consider their role in working with businesses in providing information and ideas to address, in particular, regulatory and skill-based barriers.
A Cross-Country Comparison of Manufacturing
We are pleased to recognise the contribution made by three regions in Sweden who also conducted the Business Practices and Performance Survey and followed the methodology used in the New Zealand study. This provides us with a valuable opportunity to benchmark New Zealand business practices and performance with those of a comparable economy.
The Swedish study was restricted to manufacturing firms with 10 or more FTEs. This sample sub-set was also extracted from our population so that direct comparisons could be made between the two countries.
Across most practices and on outcomes, Swedish manufacturers outscored New Zealand manufacturers, particularly in leadership and planning and quality and supplier focus. The exception is in the area of information management, where New Zealand manufacturers appear to place much more emphasis. There was also little difference in innovation and technology related practices. New Zealand also appears to have a longer "tail" of lagging businesses.
The results suggest that Swedish manufacturers have been more proactive in developing their business practices, but once again these results should be interpreted in tandem with structural issues in mind. The average size of Swedish firms surveyed was significantly larger than that of New Zealand firms. Despite this, the results point to benefits that can be gained from cross-country learning and business exchanges.
Conclusion
The results of the study raise a range of issues of interest to individual firms, business advisors, industry associations, and government. We encourage each of these groups to examine and consider how it might address the issues it is able to influence.
Overall, the business sector generally is on a path that is consistent with what we know and can be realistically expected about the improvement process, particularly given the isolation from global competition New Zealand businesses faced only some 15 years ago. There have been great improvements in business capability since then, although much remains to be learned. Few firms have yet to match leading international benchmarks - no more than 2-3% of firms appear to be approaching international standards of performance on practices such as strategic planning and leadership, supplier relationships, employee performance management and benchmarking, or actively pursue strategies of innovation.
Some of these characteristics may be a function of the dominance of primary product processing industries and the corresponding small presence in the most globally competitive and technology intensive industries. Some of these characteristics may also be due to the vast number of very small firms. Others, however, are simply a function of managing the transition to a more open economy. This is a long-term, evolutionary process.
There remain significant challenges. Performance on the range of practices and indicators is unevenly spread and there appears to be a long tail of New Zealand businesses lagging behind, more so than comparable research suggests is found in other countries. The availability of specialist skills and regulatory issues continue to impact on the innovative and productive potential of businesses.
There is significant scope to encourage inter-firm and cross-sectoral learning in New Zealand. In the recent past there appears to have been limited appetite for New Zealand businesses to look for sources of ideas and improvement outside their immediate environment, perhaps partially a result of the rapid movement to a strongly competitive environment. The development of clusters, sector strategies and cooperative research arrangements in New Zealand is a step in the right direction.
There is a need for a more sophisticated understanding of business improvement and its relationship with operational outcomes and business results, and the pursuit of international competitiveness. In particular, given the structural characteristics of the New Zealand economy, the study has raised the question of whether a different approach or focus is needed to diffuse and develop business capability in small firms. The role and contribution of innovation versus formal research and development, and an assessment of the value generated by what appears to be a more positive commitment to innovation-supporting activities in New Zealand than prior research has suggested, deserves particular attention.
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