Firm Foundations: Questions and Answers - 12 December 2005
[ Last Updated 14 December 2005 ]
12 December 2002
Contents
What is this study?
Firm Foundations is one of the most comprehensive and extensive studies of business practices to be undertaken in New Zealand. Its key purpose is to gauge the capabilities of New Zealand businesses across a range of indicators including: leadership and planning; employee practices; customer focus; quality and supplier focus; innovation and technology; and information and benchmarking.
Information derived from this study will directly contribute to improving our knowledge base and thus will better inform our policy advice, development and recommendations.
The survey, administered by Statistics New Zealand, covered more than 2,700 respondents representing firms with six or more staff and most industry sectors. Detailed follow up interviews were conducted with 48 businesses - these provided a richer picture of the firms, their specific practices and barriers to growth.
What is good business practice?
The main point is that there is no one set of "best practices" that can be bought off the shelf and implemented. Business improvement is not about copying other companies nor is it a one-off task. It is a continuous process in which each firm develops and maintains a unique set of practices that will support their strategic decisions, their size and structure and the industry that they operate in. That said, there are business practices that in combination consistently appear to provide advantages to firms that adopt them. This study seeks to highlight areas of business practice that may over time provide the best development opportunities for business - it's descriptive not prescriptive.
Are you saying that if companies get all these things right they'll succeed globally?
Not necessarily. We're saying that companies who get these things right should enjoy better business outcomes - and that could include global success. You have to remember that competitiveness is influenced by a whole range of external and internal factors. These include exchange rate fluctuations, market demand, legislation and regulation, as well as the firm's vision and resources.
Can you predict success on the basis of these six factors?
No, success cannot be predicted entirely on the basis of these six measures. "Success" can mean entirely different things to different businesses (100% customer satisfaction, 0% returns or defects, 20% financial growth, 20% growth in staff, just being there in 5 years).
What the study does show is that there is a relationship between the adoption of good business practices and better operational outcomes (not necessarily financial ones).
What does the survey show are New Zealand businesses' key areas of strength?
The study shows that New Zealand businesses have relative strengths in their high level of customer focus and consistent approach to quality, and there are positive signs of an increased commitment to strengthening workforce relations, including training, health and safety processes, and assessments of employee satisfaction.
Where are they weakest - and why?
Areas of relative weakness are a continued focus on the short to medium term, with few firms using longer terms goals or visions to guide development, or having concerns with wider environmental management. There is scope for many firms to develop stronger relationships with suppliers, benchmark ideas and performance with other firms, and consider further investment in R&D. These are all likely to be a function of the small size of most New Zealand businesses. The majority of our firms have neither the capabilities nor the staff resources to dedicate to these activities.
Why focus on these six areas?
These six areas are consistently defined as key areas for business development, not only here in New Zealand, but around the world. The study is based on an extensive review of business literature, on previous business practice studies and on diagnostic tools and excellence awards.
What's changed since 1999? Are we getting better at this stuff?
It's difficult to make direct comparisons. The 1999 study was of one sector only - manufacturing. This time round we wanted a bigger picture of capability across the economy. That meant some questions that were relevant to manufacturers had to be dropped and others redrafted to capture the issues facing other sectors. To an extent, we have sacrificed comparability for comprehensiveness.
What's changed in manufacturing then - do we see the continuous improvement you're talking about?
We have compared the broad findings of this study to previous Ministry commissioned studies of business capability in New Zealand i.e. Islands of Excellence? (1993) and A Season of Excellence? (1996). This broad comparison shows a positive story of business adaptation since the late 1980s. There has been a general progression from cost and quality based strategies and practices, to customer and market driven approaches, stronger relationships with the workforce and increased attention to information management and innovation supporting activities.
How do we compare internationally?
The study was replicated by three regions in Sweden. There the study covered manufacturing firms with 10 or more FTEs. We are able to make direct comparisons with the same sample subset in New Zealand. Across most practices Swedish manufacturers outscored their New Zealand counterparts - with the exceptions being in information management on which New Zealand firms seem to put more emphasis, and practices related to innovation, technology and customer focus, where there was little difference.
Who or what are these Leaders and Laggers?
Leaders are defined in this study as those firms that score in the top 20% of firms on both business practice and outcome measures. Laggers, conversely, are those firms that score in the bottom 20% of firms on both sets of measures.
The primary reason for making the distinction between Leaders and Laggers is to identify the key distinguishing features of top firms. What is apparent is that top performing firms take a more holistic approach to business development.
A key difference is apparent in terms of Leaders' commitment to the "softer" aspects of business development. Leaders are more actively developing relationships with key stakeholders and using their input to feed into operating practices. Leaders also appear to be more concerned with their employees' welfare and have developed more comprehensive systems for measuring performance, providing training, and assessing employee satisfaction.
Innovation has been identified as a key tool for enabling economic growth. From the study's findings, we note that leading firms are undertaking the lion's share of both innovation activities and investment in innovation. It appears that this investment has paid off in terms of opening up new market opportunities, with a much larger proportion of leading firms involved in exporting.
Most New Zealand firms have fewer than six employees, the chief executive is the owner, is the CFO, product designer and marketing manager. Can these firms really afford the sorts of investment in staff; training and innovation that you say are necessary?
There are both strengths and weaknesses in the small size of our firms. Small firms can be more adaptive and responsive to market changes and are less encumbered by bureaucracy. But yes, often being small is associated with having a limited set of resources. This point was made very strongly by Ernest Sirolli at the Regional Development Conference in Rotorua last year - we need to learn when and where to look for other expertise. We cannot all hope to be accountants and creative geniuses and marketers!
There are ways of overcoming the restrictions of small size - clustering is one, where firms work with other companies. Building better relationships with customers and suppliers is another. And there are specific programmes designed to reduce some of the costs associated with training and innovation - such as the BIZ programmes, and the technology assistance through TechNZ.
We are not talking about buying the most expensive software or training packages - but about being aware that these issues do impact on performance and working to improve practice in these areas over time.
If small firms want to grow, the study points out that they will have to pay more attention to business improvement - there is a progressive adoption of business practices as firms size increases from small to medium to large. As small firms grow, their competitive edge they have in terms of being responsive and flexible will tend to diminish unless they start to invest time and resources in more systematic practices and strategies.
What's going to happen with this work now? What's MED / the government going to do with it?
The survey will inform policy development - it helps us to identify to target areas where the public money allocated for economic development can make the most difference to New Zealand businesses. It has already helped shape two business tools being released - INZ / BIZ / SNZ workbooks and the online survey.
What are the implications for government policy?
The study highlights the need to promote awareness and skills in management and business improvement in all business, small or large, and we will be looking to do this through BIZ and other enterprise development programmes. The Foundations for Growth document is an example of the sort of thing we'll be looking at. We'll also be working more closely with NZIM, New Zealand Business Excellence Foundation and others to ensure training programmes are well targeted.
The study also points to perhaps focusing some of the training initiatives provided by government to address areas where there are relative weaknesses and look at ways of encouraging inter-firm learning as part of the delivery. This could include delivering training workshops or other assistance to particular groups or clusters of related firms.
Government could also look at the way in which regulatory obligations are promoted to businesses - there is scope to do this from a positive perspective about what the benefits will be, rather than from a compliance perspective. That could also usefully be backed up with training.
Feedback also suggests we need to reduce bureaucracy in government-provided enterprise development initiatives. We can look to address this as part of the Industry NZ / Trade NZ integration process.
The study also points to the need for more detailed research on access to finance issues, the extent of innovation in businesses, and whether there is a unique model of business excellence for small firms.
What peer review have you had done on this?
Peer review on the framework for the study and questionnaire was sought from a number of New Zealand academics and business representatives who had expressed an interest in being involved in this study. The questionnaire also went through a feasibility and pilot test and discussions with businesses. A draft report on the results has been peer-reviewed by world-class researchers in this area from Australia, United States and United Kingdom, and comments were sought from a large range of business groups and academics in New Zealand.
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