Australia’s productivity problem part 2, where to focus – by John Sheridan

Yesterday in the first part of our two part series, John Sheridan identified Australia’s major economic and especially productivity issues. Today he looks at where Australia should focus, and what it means for single businesses.

The productivity issue is a minefield at a national and economic level, but for single businesses it is an easier proposition.

For single businesses, productivity growth is important because providing more goods and services to customers translates to higher profits. As productivity increases, an organisation can turn resources into revenues, paying stakeholders and retaining cash flows for future growth and expansion.

The result of adding more software into the business mix can be measured.

But as technology is incorporated, allocating reward becomes more difficult – is it the person or the software, and does it matter?

In the crudest way, we know that bringing more technology and software into a business reduces bottom line costs – wages. Organisations can be leaner and meaner, and even smarter and more strategic.

Productivity is important, but it is not the key factor in most industry sectors and productivity in different industry sectors means different things.

At the macro level we have 19 industry sectors divided into hundreds of individual business categories, many with unique characteristics. Cane farmers are not like high school teachers, lawyers are not like fabricated steel manufacturers, and general practitioners are not like real estate agents.

They do different things, in different ways, using different tools and their outputs and performance are measured differently as well, or should be.

More than half of our industry sectors are not productive industries.

In broad terms we have primary industries, secondary, tertiary and quaternary:

• Primary industries include agriculture, forestry, fishing and mining
• Secondary or manufacturing industry plus energy and construction
• Tertiary includes the service industries of finance, real estate, wholesale, retail, transport, professional services, accommodation and catering, entertainment, repair, health, administration and defence
• And quaternary includes ICT, research and education.

We can differently group these industry sectors into those that produce a product or service and those that service and support the industries producing a product or service.

These activities all generate wealth for Australia. and we can add value and improve the outputs through innovation, design, branding and advertising to increase price and support jobs.

Productive industries are productive.

But our service and support industries don’t offer the same opportunities as productive sectors, and they should not be considered or measured in the same way.

In many service industries we don’t want workers to be more productive – nurses, firemen, police, defence personnel, aged care and childcare workers etc. We want them to be effective, which is not usually a function of efficiency, speed or output.

The value is measured in other ways, and not always in a spreadsheet – satisfaction, happiness, health, safety, smiles, understanding, reassurance, sharing of experience, legislation, regulation.

The support industries include public administration, retail, accommodation and food, administrative services, transport, wholesale, personal services, finance, rental and real estate and utilities.

Over a million people work in the retail sector and productivity is not the key issue – customer acquisition and retention are, and software has made that process more efficient, with COVID driving online sales and out of store delivery creating a retail environment where productivity is all due to software.

The same for the other services industries, where productivity only delivers limited benefits within the organisation and is often meaningless to the world outside.

Services are there to support productive industry. We need efficiency in both, but not necessarily productivity.

The productive sector.

Increasing productivity in our productive industries offers the biggest economic benefit to Australia.

It can and will lead to greater diversification in our economy and steadily diminish our over-reliance on mining, food, education and tourism.

These sectors are very important and will remain important for a long time, but we can’t afford to have all our eggs in one basket. We need more baskets (markets) and more eggs (products and services).

At the moment, we are too reliant on one basket (China) and two big eggs (mining and education).

Our productive industries need to grow, and that won’t happen on its own.

At the moment mining is the backbone of the Australian economy but we now need to leverage the intellectual horsepower of CSIRO, Data61 and our 38 research-based universities and apply that creative energy of ideas and experimentation across the whole spectrum of our productive industries.

We need to not just to support the mining related manufacturers, but to generate new productive industries of our own, our own home-grown OEMs.

We can apply that same intellectual horsepower of mining to other industries – assistive technology, disability services, aged care, energy, waste management, soil health, aquaculture, housing, preventative medicine, manufacturing, sport and recreation.

Innovation in our productive industries is where our future should be built – in energy, waste management, pollution control, water, automation and robotics, arts and crafts, fashion, manufacturing, ICT, education, space, mining services, defence, assistive technology and ag-tech.

These are industries that will help us manage climate change, these are the industries that will deliver high reward jobs and employment opportunities.

These are the industries that will provide products and services that can be exported to the world.

Read part 1 – Australia’s productivity problem

About John Sheridan: <em>After twenty years in advertising as a creative director working for multinationals in three countries, <a href=”https://www.linkedin.com/in/john-sheridan-509877b/”>John Sheridan</a> co-founded Digital Business insights to help organisations leverage the benefits of the new digital economy. He is the co-creator of the <a href=”https://theredtoolbox.org”>RED Toolbox</a>, an innovation platform for Australia’s productive industry sectors. </em>

Picture: Marand Precision Engineering/Innovation in our productive industries is where our future should be built, argues John Sheridan