Enabling productivity: the board’s key roles

Cathy Quinn

What is a board’s role in enabling productivity?

You can’t understand your organisation’s productivity performance without understanding what ‘good’ actually looks like, she says. Then you need to put appropriate metrics in place.

“What are the global or competitor benchmarks you can look to in order to measure your company’s performance? For example, in a manufacturing business you might measure productivity versus capacity, run to target, unplanned downtime and the cost of quality failure.”

Improvement on a particular metric is good, she says, but may not tell you much about underlying productivity because a lift from 60 per cent to 65 per cent on a particular metric is less impressive if the global or competitor benchmark is 75 per cent.

“Without the comparator data, the improvement may be reported as a success when really it isn’t. The board can’t be captured by what management thinks good looks like. It needs to ask for the relevant benchmarks to test the business’ performance.”

Investment in productivity is important, she says. That means ensuring the board signs off capital expenditure for productivity improvements and initiatives that can have an indirect benefit.

“Sometimes we have to spend money on things that may not provide an immediate financial return, but may go towards reducing risk, such as improving IT systems. Generally, it will also have a positive impact on productivity.”

She offers an interesting example from Tourism Holdings, where investment in “telematics” for the recreational vehicle fleet has delivered improvements across multiple metrics.

“Telematics installed in a campervan will tell a driver they are going too fast, or they have taken a corner too fast. It will send them a message. That has a direct bearing on our repairs and maintenance costs because if people drive more slowly, it does less damage to the tyres, the brake pads and all of those things. That is a practical example of investing to enable a productivity saving, as well as a customer safety measure.”

While a board needs to form its own view of productivity independent of management, it also needs to support management to understand what good productivity looks like, she says.

“That means maintaining a budget that allows them to go to conferences onshore and offshore, for example. Trade shows, visits to equipment suppliers . . . this is where they can learn a lot about potential productivity improvements and new technologies.”

The board may also choose to go on trips to look at innovation, developments offshore and the like, she says. “These trips are not junkets. You can learn a huge amount. And having the board take a personal look is great for the management team because, while they can tell the board about things, it is sometimes more impactful for the board to see for itself.”

Are there key appointments or policies that a board needs to consider through a productivity lens?

Health and safety policies can be a key enabler of productivity, she says. And she has a practical example.

“I’ve seen quite simple policies make a big difference. For example, in a manufacturing context, the requirement to use gloves – and providing the right gloves for the particular activity – can significantly reduce hand injuries. It’s a simple policy, and not expensive, which can improve productivity alongside employee welfare.

“When you see a poorly performing business it tends to have poor financial performance, poor customer metrics and poor health and safety. So health and safety statistics can provide important insights. If you have a good environment and a good culture you are likely to have fewer injuries, which goes to productivity and reducing serious harm. You will typically also have improved employee engagement and improved customer satisfaction, and better financial performance. They all go together.”

Policies that promote employee engagement can also be helpful because poorly engaged staff are “hardly likely to go the extra mile”, she says.

While boardroom views on sustainability are varied, she advocates seeking opportunity when the topic is discussed. If you see sustainability as an opportunity for the business, instead of as a compliance or regulatory cost, you can improve productivity, increase revenue and improve your reputation all at once, she says.

“For example, at Fletcher Building’s Golden Bay Cement we have invested significantly to enable the plant to use a large percentage of used tyres in New Zealand in the cement-making process. Tyres are a huge problem because they don’t biodegrade. We also use other forms of waste from our sites. The tyres are combusted at 1,400 degrees Celsius and the rubber, metal and ash are combined in the cement. Even before this project, our cement had 20 percent lower emissions than imports. The use of waste tyres and other materials reduces our footprint further, reduces our need for coal, raw materials such as iron sand, and supports local jobs as well as providing supply chain security for New Zealand’s domestic building, infrastructure and construction industries.”

What questions might a board ask itself to help an organisation become more productive?

Many reflect the experiences she has already described, plus a couple for boards on their own culture:

• Are we measuring the right things? Do we have the right external benchmarks?
• What is our health and safety culture like?
• Does our team scan the globe for technological or other innovation that could improve productivity?
• Do we see sustainability as an opportunity rather than a regulatory burden?
• Do we accept there will be failure when innovating?
• To what extent could we collaborate with others in our industry to improve productivity for all? “Obviously we don’t want to breach any competition laws, but there may be ways we can collaborate to explore technology or other new innovations that may be useful to all of us.”
• What can we learn from other industries?
• Are we allowing the organisation to be as productive as it could be?
• What’s the best way to organise our board meetings without having management spend half a month preparing and then more time recovering from the meeting?

Mark Cross

What is a board’s role in enabling productivity?

He begins by referencing the first of the IoD’s Four Pillars of Governance Best Practice – determining purpose.

“Linking this back to Xero’s purpose, productivity is all about how efficiently we can convert our labour and capital into software that makes life better for small businesses around the world – rather than simply making more money.”

If Xero is making life better for small businesses, the money will flow, he says. “Simply put, if you are delivering products that customers want, you will sell more.”

Productivity, in this sense, is a means to deliver more value to customers, as well is increase the cash flow of the company, he says. It’s a holistic view that demonstrates the importance of a board having a focus on productivity.

“Being more productive over time means being able to offer better value for customers, higher pay for our people, profits and capital growth for our shareholders, and making a bigger contribution to the economies in which we operate.”

The board has a number of key roles in enabling productivity, he says, which will allow the business to find ways to deliver improvements. First among these is fostering a culture that enables and encourages productivity – and this includes taking appropriate risks.

Another is to approach expenditure strategically. “In terms of being more efficient and generating cash flow, a board’s role is to allocate capital to the highest returning uses.”

Like Quinn, he highlights the importance of working with management and investing to drive productivity. For Xero, one of the more important objectives is efficiently converting inputs, primarily its people, into outputs, the software services.

Again aligning with Quinn, he notes that monitoring and oversight of productivity should be a priority for the board. It should agree key metrics and monitor these over time.

“Revenue per full-time employee is a commonly used productivity metric in the tech sector because people are the main cost. Rule of 40 is another common metric that combines revenue growth and profitability, the trick being to achieve some kind of balance between the two.

“These are important guard rails from a board perspective. The Jaws ratio (growth in revenue vs growth in operating expenses) is also widely used, perhaps more in traditional industries but still relevant to tech.

“Productivity in software development teams can be very data-driven, although the board would not typically have visibility of those lower-level metrics.”

Are there key appointments or policies that a board needs to consider through a productivity lens?

Having already highlighted the board’s role in establishing a strategy and culture that supports productivity, he answers with reference to one of the board’s key responsibilities.

“As we know, appointing the CEO is one of the most important jobs of any board. What you are NOT looking for, unless the business needs it, is the classic slash- and-burn CEO. That person can promise an improvement in productivity through the short-term approach of getting rid of people. And that often opens up problems down the track.” 

Long-term productivity gains will come through a CEO who can unite people, he says. In this sense, he has a very similar view to Quinn on employee engagement.

“People will be more productive if they are doing a job that means something to them, and they understand that it means something to other people – as opposed to just turning up 9-to-5 and going through the motions.”

That CEO, he says, should seek to understand the needs of their people, and the practical effects of operating models and policies on their ability to work efficiently – in short, to remove unnecessary impediments.

“This is not someone for whom improving productivity is narrowly defined and micromanages the workforce. Are our people able to do their job efficiently? Do we have the right operating model or have we created a bureaucratic monster in which every decision takes a meeting of 10 people?”

What questions might a board ask itself to help an organisation become more productive?

Some points he has already raised, but throws a few new ideas into the mix:

• Do we have the culture and values that encourage productivity?
• Do we have the right CEO and executive team in place?
• Have we got the right people in the right roles and are we attracting enough A-team players?
• Are our people qualified and experienced in their roles?
• Do we have the right balance of longer tenured people and new people bringing fresh ideas?
• Is there enough clarity on the why, the what, and the how to drive productivity? On the why, are our people driven by a purpose beyond just turning up and getting paid?
• Are the right performance management systems and remuneration structures in place, and do our people leaders have the capabilities to drive performance and productivity from the people they lead?
• Do our operating model and management structures support productivity – have we removed unnecessary bureaucracy to enable our people to spend their time productively?
• Have we invested in the right tools to enable our people to be more productive? Generative AI is obviously topical in that sense with developer tools and customer service assists.