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• Firm Foundations 2002

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12 December 2002

Conclusions from a major survey of business capability released today show that while New Zealand businesses have made good progress in adapting to changes in the economy over the last 15 years, there is scope for improvement in key areas of business practice.

Firm Foundations, published by the Ministry of Economic Development, a study of over 2,700 firms from across the economy, examines business practices and their relationships with better business outcomes. The practices investigated are leadership and planning; employee practices; quality and supplier relations; customer focus; information and benchmarking, and innovation and technology.

These six broad areas of business practice have been identified in international literature and surveys as positively linked with business outcomes.

Ministry chief executive Geoff Dangerfield says 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. Some important areas however deserve further attention - particularly strategic planning, environmental management, supplier relationships, staff performance management and more formal research and development activity."

Co-author and Ministry principal advisor Stephen Knuckey said the study confirmed that business improvement had to be considered an ongoing, across the board effort.

"There is a relationship between adopting a holistic approach to business practices and achieving better operational outcomes such as lower costs, on time delivery, greater flexibility, fewer defects and errors in products and services, and improved levels of innovation," Mr Knuckey said.

Despite this picture of gradual improvement, MED has also identified a high proportion of firms that would be regarded in international literature as "vulnerable" or lacking the necessary practice and performance to be effective in international competition.

Other findings - and areas for further work - are:

• Many small firms had better outcomes than might have been suggested by their reported practices, suggesting there may be a different "recipe" for business excellence in SMEs. This result also suggests that small firms wishing to grow had to be able to make the shift from the SME recipe to a model more suited to larger businesses.
• Relatively low levels of inter-firm relationships or inter-firm learning such as networking, clustering, supply chain relationships, benchmarking. These have been identified by other work as a source of sustainable competitive advantage, suggesting that policies that encourage networking, such as programmes where the government plays the role of facilitator or honest broker, will make a useful contribution to business development.
• Formal private sector R&D is low and mostly concentrated in larger firms but investment in activities that support innovation like training, technology and plant appeared positive. This points to a need for a better picture of what’s going on in innovation and R&D in New Zealand firms.
• Ongoing concern with compliance costs, particularly those of ACC, industrial law and the Resource Management Act, confirming the need for ongoing effort to ensure clear, stable and simple regulations. Firm visits suggested that greater efforts by government to promote the benefits of good business practices, such as investment in health and safety, rather than the penalties for non-compliance could improve perceptions of some regulations.
• Confirmation of skill shortages – particularly at a specialist level. The study found this was not just a supply issue – leading business found it relatively less difficult to access skills while the industries that reported most difficulties performed relatively poorly, on average on employee practices.
• On the whole, debt and equity finance appears to be reasonably accessible. There do seem to be issues in relation to access to capital by new firms (one to two years old) and those seeking to expand into exports and for some sectors. The study notes that major research on this issue is overdue and crucial to ensure that enterprise development interventions such as grant schemes and training are targeting the right issues.