Geoff Dangerfield Talks about Firm Foundations - 12 December 2005
[ Last Updated 14 December 2005 ]
12 December 2005
Research released this week by the Ministry of Economic Development paints a complex picture of New Zealand business capability, writes Ministry chief executive Geoff Dangerfield.
If policy is going to make a difference for the better, it's got to be based in the real world. That's as true of a local authority's district scheme, a multinational company's corporate policies, or a voluntary organisation's aims and objectives, as it is of central government's policies and programmes.
Making a difference isn't about implementing text book solutions or someone else's winning strategy but about understanding your work and the environment you're working in. For the Ministry of Economic Development that means building a strong understanding of New Zealand business and regions, their structure and dynamics, of the domestic factors (such as skills, demographics and regulation), and of the global factors that affect their performance.
This week we published a very real world input into the policy making process: Firm Foundations. Administered on our behalf by Statistics New Zealand, with 2,700 respondents and 48 in depth follow up interviews, it is the most comprehensive survey of business practice and performance carried out in New Zealand. It has been a major project for us and one that will provide valuable information for the policy process.
We wanted information we could use and information that would be relevant and useful to New Zealand business. We wanted to determine the current state of business capability and performance in New Zealand. We wanted to identify the points of difference between higher and lower performing firms.
With that in mind we took six broad areas of business practice that have been identified in international literature and surveys as positively linked with business outcomes. These areas are leadership and planning; employee practices; customer focus; quality and supplier focus; innovation and technology, and information and benchmarking.
Responses show that New Zealand businesses are committed to developing and maintaining close links with their customers (especially compared to developing relationships with suppliers). These relationships are seen as important sources for new ideas for innovation and product/service improvement. New Zealand firms also seem to appreciate the value of collecting information for making informed business decisions, however, this does not necessarily extend to business benchmarking practices.
When we looked at the relationship between these practices and operational outcomes we found that constant, across the board effort was an important factor in generating better business outcomes (in terms of measures such as employee turnover, product quality and customer satisfaction).
We found that 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.
The study does not offer a magic bullet for business growth. Instead it should be viewed as a tool that highlights what businesses are currently doing and where and how they may choose to improve their future performance. In this light, the related publication Foundations for Growth (a practical business guide for small businesses) and the Ministry's online benchmarking survey are important companions to the research.
Firm Foundations can broadly be described as the third in a series of studies designed to gauge the competitiveness and capability of New Zealand firms. In 1994 the Australian Manufacturing Council published a study of Australian and New Zealand manufacturing firms entitled Leading the Way. In 1999 the Ministry used that study as the basis for a study of New Zealand manufacturing firms entitled Gearing Up. The similar model of performance adopted in all three studies has enabled some comparisons of business capability over time to be made, at least in the manufacturing sector.
A study like this will raise at least as many questions as it answers. We have found once again that, in a small economy of small businesses, size does seem to matter. Many small firms had better outcomes than might have been suggested by their reported practices. This suggests that we need to consider whether there is a different recipe for business excellence in SMEs. And secondly, that if small firms wish to grow successfully they must be able to make the shift from the SME recipe to a model more suited to larger businesses - which means investing in capability.
We have also found that New Zealand firms do not cultivate strong inter-firm relationships or inter-firm learning- networking, clustering, supplier chain relationships, benchmarking. These have been identified by other work as a source of sustainable competitive advantage. That suggests to us that policies that encourage networking, programmes in which government plays the role of facilitator or honest broker are on the right track.
Our findings on innovation are interesting too: 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. We need to do more work to resolve that apparent contradiction.
ยป Firm Foundations 2002 - A Study of New Zealand Business Practices and Performance
Back to Top