Boosting productivity: Why pushing your employees too far can be counterproductive
Incremental improvements to productivity can be made without drastic overhauls – it just requires a mindset of small, continuous improvement.
Productivity growth of 1% doesn’t seem like much.
It’s the sort of target that feels approachable without the need for wholesale change.
But what seems like a marginal improvement can deliver in a big way for individual companies and the wider economy.
In terms of labour productivity – which is what the Reserve Bank and economists are focused on – a rise of 1% is the sweet spot, allowing workers reasonable pay rises while keeping inflation sustainable.
Dig down to the individual business level and a jump of 1% in productivity in a high volume, low margin business could be a game changer to a company’s bottom line.
In sectors with lower volumes and higher margins, growth of 1% means they can build competitive advantage and operational efficiency – in other words, it can make a business more resilient.
Yet many business leaders are deeply concerned about their productivity.
The latest release of the Business Radar report released by Pitcher Partners, which captures the sentiments of Australia’s middle market business leaders, shows that 52% are very or extremely concerned about productivity.
That sentiment suggests that business leaders are far from confident that a 1% gain is easily within reach.
The data captured in the survey shed light on the external and internal issues that hamper productivity, and it was notable that no single factor stood out far beyond the others.
Difficulty in attracting and retaining talent (30%), limited investment in technology and tools (28%), lack of focus on innovation (28%), and employee burnout (27%) were the leading internal factors nominated.
The three leading external factors nominated were labour market shortages (34%), supply chain dynamics (28%), and new government policies that business leaders believe hinder productivity (25%).
The latter was the leading external factor among smaller middle-market businesses with fewer than 100 employees.
These observations highlight that there is no easy fix or solution to lock in productivity gains and a prevailing view that productivity gains can only come from working employees harder, or be influenced by elements out of their control.
Many employers are aware that their people cannot work much harder. A February 2024 report from the Productivity Commission showed a 6.7% increase in hours worked over the 2022-23 financial year but without a corresponding uplift in output.
When asked about steps they are taking or intend to take to improve productivity, Business Radar survey respondents were focused on technology – employing new technology (38%) and introducing new collaboration tools (34%).
However, initiatives to get people to work harder still made up half of the top 10 – investing in training (28%), changing incentives (26%), exploring working models (25%), and implementing wellbeing initiatives (22%) and feedback mechanisms (22%).
This points to a continued overemphasis on the importance of labour, but gains can be made without stretching employees.
Employers should seek to build systems, processes and technology around their people and strategise to work smarter, to help people do more with less.
Fostering a culture of innovation can also support this. Consider setting specific innovation goals and objectives, then arm people to be creative or to make a case for novel approaches.
But don’t fall into the trap that everything innovation has to be ‘new’. It might just be new to you.
What is status quo for one business might be shiny and groundbreaking for another, so draw on insights from networks and advisors to open new horizons.
As the Productivity Commission puts it: “Much productivity improvement involves the wider adoption of established, even dated, technologies and practices … There is a large group of Australian businesses whose management practices, uptake of technology and productivity are below their best practice peers”.
Review your business processes and zero in on those that are slow, redundant, rely on too much manual intervention, or are prone to error, with an eye to automating or using technology to lift efficiency.
Analyse production, sales, inventory and customer data to spot inefficiencies and bottlenecks, any pinch points that make life hard for employees or customers.
Technology advances continue to multiply, so ask some serious questions of your software, tools and equipment. Are they modern? Do they talk to each other? Is the equipment reliable and in good repair?
When your tools, both analogue and digital work as they should, less time is spent plugging gaps and managing delays, and more on the core business.
Innovation and productivity gains can only happen when productivity is made a priority by business leaders.
Once your team is working at its peak, pushing them too far can often be counterproductive – you burn through goodwill, minimising future efficiency, engagement and retention.
The expectation of needing to create something new or invest heavily to obtain it can make business leaders fear. But innovation doesn’t necessarily need to be groundbreaking, so talk to people who may know what better looks like.
Incremental improvements to productivity can be made without drastic overhauls – it just requires a mindset of small, continuous improvement.
In many cases, achieving a 1% rise in productivity is about identifying and implementing a series of small improvements rather than making large-scale changes.
Gavin Debono is a partner and executive director at Pitcher Partners Melbourne.
