Stephen Knuckey

Hayden Johnston

with
Colin Campbell-Hunt
Ken Carlaw
Lawrence Corbett
Claire Massey

ISBN 0-478-26325-2
Quotation from this document with appropriate acknowledgement is welcome.

The views expressed in this document are those of the authors, not necessarily those of the Ministry of Economic
Development.

The Ministry of Economic Development does not accept any responsibility or liability whatsoever whether in
contract, tort, equity or otherwise for any action taken as a result of reading, or reliance placed on the Ministry
because of having read, any part, or all, of the contents of this document or for any error, inadequacy, deficiency,
flaw in or omission from the information provided in this document. Specific advice should be sought from
qualified professional people before undertaking any action following information obtained from this document.

Ministry of Economic Development

PO Box 1473, Wellington.

Tel: +64 472 0030

Fax: +64 4 474 2659
www.med.govt.nz

December 2002

2
AUTHORSHIP
This study is primarily the product of the combined efforts of the following team.

Stephen Knuckey is a Principal Advisor at the Ministry of Economic Development and Economic Development
Advisor to the Minister for Economic Development. His area of work focuses on the impact of government policy
on firm performance and the design and implementation of business, industry and regional development assistance
programmes. He was principal author of the previous study on manufacturing business practices in New Zealand,
Gearing Up (1999).

Hayden Johnston is a Research Advisor in the Industry and Regional Development branch of the Ministry of
Economic Development. His other research interests include the structure and dynamics of small and medium
enterprises (SMEs) and the development of an enterprise culture.

Colin Campbell-Hunt is Professor of Management at the University of Otago. His research focuses on competitive
strategy and competitive advantage and his work has looked at the New Zealand business cycle, determinants of
industry-level productivity, strategic responses of firms to the reforms of the mid-1980s, and generic competitive
strategies. He is co-leader of the Competitive Advantage in New Zealand project, funded by the Foundation for
Research, Science and Technology.

Ken Carlaw is a lecturer in Economics at the University of Canterbury. His research interests lie in technology and
long-run economic growth, general-purpose technologies, and how we measure economic advances.

Lawrence Corbett is Associate Professor of Operations Management at Victoria University of Wellington. He has
led a ten-year study of manufacturing strategy in New Zealand as part of the global Manufacturing Futures Survey
and was involved in the Leading the Way (1994) study of leading Australian and New Zealand manufacturers. He is
co-leader of the Competitive Advantage in New Zealand project, funded by the Foundation for Research, Science
and Technology.

Claire Massey is Director of the New Zealand Centre for SME Research and a lecturer in small business at Massey
University, Wellington. Her key area of research interest is the structure, dynamics and capabilities of small and
medium enterprises.

In addition, chapter 15 was written by Michael Leigh and Per Magnus Wijkman, of ECON – the Centre for
Economic Analysis – in Sweden.

3
4
CONTENTS

Authorship 3
Foreword 9
Executive Summary 11
Introduction 11
Background 11
The Business Practices and Performance Model 11
Methodology 12
Key Results 12
Competitive Strategy 16
Business Capability and Structural Issues 17
The Competitive Environment 17
A Cross-Country Comparison of Manufacturing 18
Conclusion 18

1 – Introduction 21

2 – A Model of Business Practices and Performance 23

Understanding Business Practices and Business Excellence 23
The Business Practices and Performance Model 26
Assessing Business Practices and Performance 28
Strengths and Limitations of the Study 31
AXA New Zealand Ltd – On the path to Business Excellence 33

3 – New Zealand Businesses: Practices and Performance 35

Broad Results for New Zealand Firms 35
Leaders and Laggers 38
Broad Results for Manufacturing Firms and Comparison with Gearing Up 39

4 – Leadership and Planning 43

Acting Strategically 43
Evidence of Vision and Planning 45
Coordination and Coherence 46
Equinox Limited – Planning with People 49
Community and the Environment 50
The Evolution of Manufacturers’ Leadership and Planning 53
Conclusions on Leadership and Planning 54
Design Mobel NZ Ltd – A Sustainable Future 56

5 – Employee Practices 57
The Formal Dimension of Employee Practices 57
The Psychological Dimension of Employee Practices 62
The Social Dimension of Employee Practices 62
Evolution of Manufacturers’ Employee Practices 63
Conclusion on Employee Practices 64
Nova Enterprises Ltd (Good Beginnings Early Childcare Centre) – Investing in Staff 65

5
6 – Customer Focus 67
Working Closely with Customers 67
Dealing with Customer Complaints 70
Prolife Foods Ltd – A Market Focused Approach 71
Customer Satisfaction 72
Evolution of Customer Focus Practices in New Zealand Manufacturers 73
Conclusions on Customer Focus 74
Southland Credit Union – Deepening Relationships with Customers 75

7 – Quality & Supplier Focus 77

Supplier Relationships 77
Employee Involvement in Quality Management 79
Quality Management Systems and ISO 9000 80
Evolution of Manufacturers’ Quality and Supplier Focus Practices 82
Conclusions on Quality and Supplier Relations 84
Stabi-Craft Marine Limited – Quality throughout the Value Chain 85

8 – Innovation and Technology 87

Investment in Supporting Innovation 87
Degussa Peroxide Ltd – Staff integral to Innovation 89
Research & Development Activity 90
Technology 91
Conclusions on Innovation and Technology 92
International Marine Insurance Agency Ltd – Developing ‘Stars’ 94

9 – Information and Benchmarking 97

Internal Information 97
External Information 100
Strategic Information 103
Evolution of Manufacturers’ Information & Benchmarking Practices 103
Conclusions on Information and Benchmarking 104
George Seymour College of Tourism – Internally Benchmarking Performance 105

10 – Information Technology 107

Use of IT in New Zealand Firms 107
The Internet, Email and Websites 108
Purpose for Using Email, Internet and Websites 109
Barriers to the Use of the Internet 110
Micro Business Systems Ltd – IT Solutions 110

11 – Operational Outcomes 113

Cost Competitiveness 114
Quality and Service 114
Flexibility 115
Timeliness 116
Human Resources 116
Innovation 117
Business Practices and Firms’ Competitive Position 120
Conclusions on Operational Outcomes 122

6
12 – Business Results 123
Comparisons with Competitors 123
Reported Results 124

13 – Competitive Strategy 127

Competitive Priorities 127
Market Scope – Exporting 128
Business Practices in Exporting Firms 130
New Zealand Pharmaceuticals Ltd – Exporting Innovation 136

14 – Business Practices and Structural Issues 137

Size of Firm 137
Comparison Across Industries 150
Barriers to Business Performance 156
Gosling, Chapman & Co – Service Excellence 157
Overseas Ownership 158
Years in Operation 161
Conclusions on Business Improvement and Structural Issues 162
Criterion Group Ltd – Managing Growth 163

15 – Manufacturing Business Practices and Performance in Sweden 165

Introduction 165
Background 165
Key Results 166
Improving Key Practices In Sweden 168
The Importance of Size, Export Status, Industry, and IT 170
Conclusions 172

16 – The Impact of the Competitive Environment 175

Competition 175
Access to Finance 177
Access to Skills 182
Impact of Regulation 186
Sources of Assistance 192
Conclusions on the Impact of the Competitive Environment 195

17 – Building Firm Foundations 197

Evolution of Organisational Capability 197
Foundations for Competitive Advantage 200
Areas for Further Attention 201
Conclusion 206

Bibliography 207

Appendices 219
A. Data Collection and Analysis 219
B. Business Improvement Frameworks and Diagnostic Tools 225
C. Differences between Industries, Size of Firm Exporting Status, and Overseas Ownership 234
D. Firm Visits Interview Schedule 237
E. Project Team and Contributors 240
F. Questionnaire 241

7
8
FOREWORD
Firm Foundations – A Study of New Zealand Business Practices and Performance is the major output of the
Business Practices and Performance Survey that was undertaken in 2001. The study has been designed by the
Ministry of Economic Development, in association with other government departments and academics, to
comprehensively gauge the nature and capabilities of New Zealand businesses. It also seeks to identify the key
issues that need to be addressed so that these capabilities can be further developed in the future.

The study is one of the most extensive studies of New Zealand business practices ever to be produced, and
emphasises our commitment to improving the research base upon which we develop and implement programmes
designed to improve business foundations and promote business growth.

This study provides us with a timely insight into the skills, talents and innovative potential of New Zealand firms.
These are the key areas that are crucial for improving business performance and, as such, the economy’s
performance as a whole.

On behalf of the Ministry I would like to express our deep appreciation to the many people who have been
involved in the development, preparation, administration and analysis of this study. In particular, those at Statistics
New Zealand and the contributing academics who have assisted us in developing this research.

It is also critical to recognise those who have generously provided their time to participate in this study and
provided an enormous contribution in terms of the wealth of data we have been able to collect. I would particularly
like to thank the 2,756 New Zealand businesses who took the time to fill out the questionnaire on which this study
is based, and the 48 firms who allowed us to visit them and discuss these issues in more detail. The information
that each business provides is fundamental to our ability to provide informed and effective policy advice.

This study does not provide ‘the formula for business success’. However, we hope that it will be valuable as a tool
for benchmarking your business’s practices, or for developing a better understanding of the structure and dynamics
of the New Zealand business sector. In particular, we hope that from this report you will be further encouraged to
continue your efforts towards business improvement.

Geoff Dangerfield
Chief Executive, Ministry of Economic Development

December 2002

9
10
EXECUTIVE SUMMARY

■ Introduction commitment to business improvement. However, the

study points to some key structural issues that
Firm Foundations provides a panoramic snapshot of the impact on the relationship between business
business strategies, practices and performance of the practices and performance, particularly size, industry
New Zealand business sector. As the most extensive set sector and ownership influences, that need to be
of representative data to be collected on business further evaluated in assessing the efficacy of
capability in New Zealand, the findings provide a business improvement models.
sound basis on which to better inform policy advice on
business and industry development programmes. The
study can also help business advisors and industry
■ Background
groups to develop and focus their support and, for
firms, provides the opportunity to learn from the The Business Practices and Performance Study, Firm
experiences of others and highlights areas of business Foundations, builds on research into firm-level
activity that could be deserving of attention in future. dynamics and business practices conducted since the
early 1990s, primarily focused on medium to large
From the study and related research, some clear firms in the manufacturing sector – Leading the Way
messages have emerged: (1994) and Gearing Up (1999). The current study has
been expanded to cover most industry sectors and to
• Although there are business practices that, in
include firms with six or more employees.
combination, consistently appear to provide an
advantage to firms that adopt them, achieving
The study has been formed around a series of key
business excellence is not about simply copying
objectives:
what works for others, nor is it a one-step process.
Business improvement is a continuous process that is • To determine the current state of business capability
shaped by the environment in which a firm operates, and performance across New Zealand. The study
the strategies it chooses to focus on, and structural measures firm-level investment across a number of
characteristics. The evolution of competitive activities including innovation; planning; customer,
capability takes significant time – both in terms of supplier and employee relationships; information
individual business capability and the average level management; and firms’ operational outcomes.
of capability across the business sector.
• To identify the distinguishing attributes of higher
• Laudable progress is being made as New Zealand and lower performing firms and firms’ ability to
firms have continued to adapt to the increasingly develop sustainable competitive advantage.
open and competitive environment they have faced
• To examine the relationship between structural
since the mid to late 1980s. The study confirms a
issues, strategies, practices and business
general progression from cost and quality based
performance. Examining the relationship between
strategies and practices, to increasing attention to
the adoption of business practices and the structure
customer and market driven approaches, aspects of
and profile of firms (such as the size and industry of
the employer-employee relationship, information
firms, exporting status and level of foreign-
management and innovation supporting activities.
ownership) provides important insights into business
Encouragingly, a good number of New Zealand firms
development.
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 ■ The Business Practices and
business development effort, particularly strategic Performance Model
planning, environmental management, supplier
relationships, staff performance management and The model of business practices and performance
more formal research and development activity. applied in this study has been adapted from that
originally used in the Leading the Way publication and
• There is a relationship between adopting a holistic refined in the Gearing Up study. An extensive review of
approach to business practices and achieving better literature and international surveys has informed the
operational outcomes such as lower costs, better adaptation of the model and it has been extended to
delivery, greater flexibility, fewer defects and errors, take account of a wider range of factors impacting on
and improved levels of innovation. The study also competitive advantage and the expansion of the survey
points to an association between higher levels of population to service and primary sectors.
financial performance and productivity and a greater

11
 The key elements of the model are: The primary reason for making the distinction between
Leaders and Laggers is to identify the key
• structural issues (size, ownership, sector, age of
distinguishing features of high performing firms.
business)
• strategy (competitive priorities and exporting status) There are four areas of critical difference between
• practices, in terms of leadership and planning, Leaders and Laggers:
customer focus, employee relations, quality and • Leaders’ have a greater commitment to the ‘softer’
supplier focus, innovation and technology, and dimensions of business development. Leading
information and benchmarking businesses have deeper relationships with all
• outcomes on competitiveness, quality and service, stakeholder groups when planning and developing
timeliness, flexibility, innovation and human products, services and processes, and recognise the
resource measures need to promulgate company values. Leaders are more
concerned with their employees’ welfare and have
• business results such as productivity, profitability developed more comprehensive systems for measuring
and sales. and rewarding staff performance, providing internal
and external training and development opportunities,
The central premise of the model is that business and assessing employee satisfaction.
excellence is holistic in that all elements of the model
must be in place and consistently linked together for a • Leaders work much more closely with their
business to achieve sustainable outcomes. customers than lagging or average firms. Leading
businesses use these closer relationships to help them
to develop better products or services that more
closely meet customer needs. They are more likely to
■ Methodology have set procedures to ensure that customer
A survey was developed based on the structure and complaints are dealt with effectively and have a
elements of the Business Practices and Performance more proactive approach to customers, including
Model. The survey questionnaire was distributed to a regular assessments of customer satisfaction.
random sample of 3,378 firms with six or more full- • Leading firms are undertaking the lion’s share of
time equivalent employees, from a range of industries, both innovation-supporting activities and
in June 2001. A response rate of 82% was achieved, investment in research and development. Leaders are
which allows us to be highly confident that the results far more likely to be fully up-to-date with the latest
reflect the underlying nature of the sample population. technological developments and the vast majority
have at least some employees engaged in R&D on a
48 site visits were also undertaken to supplement the regular basis. Many Leaders support their direct
survey responses. These site visits not only provided a investment in the development of new and improved
more in-depth picture of firms, specific business products, services and processes with expenditure on
practices and barriers to their growth, but they were employee training, marketing, and external R&D.
also used to validate survey responses.
• Leaders tend to have a broader competitive scope
and pay attention to a more balanced portfolio of
strategies and performance measures, with the vast
■ Key Results majority looking to compete on flexibility and
Leaders and Laggers innovation, along with quality and delivery. Laggers,
on the other hand, focus primarily on one strategy
Consistent with the 1994 and 1999 business practice ahead of the others, with 4 out of 5 relying heavily
studies, this study defines two groups of firms (Leaders on quality compared to other strategies and less than
and Laggers) according to their achievement on a third focusing on innovation.
business practices and operational outcome measures.
Leaders are defined in this study as those firms that Leadership and Planning
score in the top 20% on both overall practice and
outcome measures. Laggers, conversely, are those firms Leadership is about influencing and setting direction,
that score in the bottom 20% on both measures. It is no and inspiring, motivating and gaining the commitment
surprise to note that Leaders outperform Laggers, on of others to move in that direction. Leadership and
average, across all elements of the Business Practices planning helps a firm to maintain the direction over
and Performance Model. time, achieve a higher degree of co-ordination and
coherence across its activities, and to act strategically
rather than reactively.

12
The picture of leadership and planning across the New skills and the employer-employee relationship
Zealand business sector that emerges is a focus on the contributes to lower costs and improved productivity.
short- to medium-term. This appears to be related to
the scale of most enterprises and a reliance on one or a The study points to mixed efforts on employee
few people to both lead and manage businesses. Less practices across the New Zealand business sector.
than a quarter of businesses set goals longer than one
year ahead and many firms, slightly less than half, are Appraising employee performance enables a firm to
not even using more broadly defined goals or visions to evaluate the contributions and progress made by staff
provide guidance for the longer term. towards the business’s goals and is an important
mechanism for motivating staff. There does not appear
Close and cooperative relationships with employees, to be a systematic or long-term approach to
suppliers and customers can be an important source of performance management in many New Zealand
competitive advantage as they are difficult for others to businesses, with significant numbers of businesses –
replicate. New Zealand businesses are generally more close to 2 out of 5 – not utilising performance reviews
successful in getting buy-in and input into their plans and, undoubtedly related to this result, more than half
from customers and employees, and supporting of all businesses do not associate rewards clearly with
organisational coherence by promoting values to staff. staff performance.
More than 4 out of 5 businesses promote company
values to employees, and over three-quarters take good Despite the fact that many businesses are not reviewing
account of customer and staff needs in developing employee performance, which would identify the
goals. Many firms could gain further advantages if they training, development and skills needs of staff and
would consider supplier networks in the same light, organisations as a whole, the vast majority of firms are
with only around half of firms consulting firms providing training opportunities, particularly internally.
upstream. Around 85% of businesses indicate they conduct in-
house training with at least some of their employees –
In a similar vein, the community a business operates and around a third have more than three quarters of
within provides it with its employment, customers, staff participating in internal training. Given that many
suppliers and resources. There appears to be a wide firms do not use employee performance reviews, there
appreciation by the New Zealand business sector of is a question about how well linked the training being
their reliance upon, and relationship with, the undertaken is with the needs of businesses and
community. More than 4 out of 5 businesses provide employees.
sponsorship or donations to community activities.
However, opportunities may be lost in future if greater There is scope for many businesses to make more
numbers of firms do not think about addressing the extensive use of external training, which is used by
emerging ‘triple bottom line’ and environmental fewer firms than internal training (around 7 out of 10)
management, issues that key stakeholders and markets and tends to be applied to a lower proportion of the
are increasingly likely to consider in assessing business overall workforce (primarily up to 25% of firms’ staff).
performance. It is difficult for businesses to suggest With ‘skill shortages’ rising in prominence in New
that environmental management is not relevant – any Zealand, identifying the demand and supply issues that
firm that consumes energy and materials or generates may be impacting on this deserves some attention.
waste can gain by thinking about opportunities for
adding value or reducing costs by improving In addition to providing training opportunities, many
environmental impacts. But less than half of businesses New Zealand firms are demonstrating a genuine
had put in place measures to reduce the environmental commitment to the welfare of staff, with regular
impacts of their business and only around 1 in 10 have, assessments of employee satisfaction (85% of firms),
or are looking to implement, environmental implementation of health and safety processes (85% of
certification. firms), and initiatives to foster a culture of teamwork
and communication.
A lack of attention in this area may well reflect the
short-term orientation of most businesses. Customer focus
Many New Zealand businesses appear to have
Employee Practices
recognised the need to shift their thinking from a focus
It is widely held that much of a firm’s value resides in on production to a focus on what customers really
its human capital and that people provide organisations want and how best to deliver it. At the most basic level,
with a crucial source of sustainable competitive profits from customers can only be increased in three
advantage. There is ample evidence that investment in ways: by acquiring new customers, enhancing the

13
 profitability of existing customers, and extending the term relationships, rather than the traditional view of
duration of customer relationships. pitting suppliers against each other to drive prices
down.
The majority of New Zealand firms appear to be taking
a proactive approach to customer relationship The study shows that the New Zealand business sector
management, and more than half choose to work is generally not focusing on upstream relationships
closely with their customers to develop better products with suppliers to the same extent as it is downstream
and services. However, these relationships tend to be towards customers.
somewhat restricted to the senior or sales end of most
organisations and there may be further benefits to be Only around 1 in 10 firms work ‘very’ closely with their
achieved (in terms of service, innovation and suppliers to improve each other’s processes and less
information, for example) if firms consider broadening than half of firms work at least ‘quite closely’ with
customer relationships to other staff. Almost a third of suppliers on process improvements or allow staff to
firms made no effort to ensure their staff (aside from deal with any supply problems directly. Businesses tend
sales and marketing staff) interact with major to be more vigilant in assessing the quality of their
customers, although this activity was seen to be supplies, at least for key suppliers.
important by the majority of firms.
There appear to be real opportunities for firms to
Consistent with the desire to build longer-term cultivate supply relationships and gain the potential
customer relationships, the vast majority of businesses benefits of improved quality, product and service
(three quarters) also have clear procedures for dealing development, flexibility and reduced costs.
with customer complaints.
Although the survey indicates that there is not a great
The main area of customer focus where there appears deal of take-up of formal quality management system
to an opportunity for real improvement, recognised by certification, there does appear to be greater
businesses themselves, is in relation to assessing recognition of the need for some internally consistent
customer satisfaction, with a quarter of firms not approach to quality, and the vast majority of businesses
measuring satisfaction at all. Regular feedback would encourage employees to assess and improve products,
enable firms to better assess whether their current services and processes. Firms may need to reconsider
relationships and customer complaint processes are the benefits of certification and look at this from a
actually working as satisfactorily as they assume. supplier and exporting perspective.

In addition, there is a very large distance between Innovation and Technology

leading and lagging practice in customer focus and the
widest divergence of achievement on this business Innovation is the dynamic process of creation that
practice across all firms. So although many New involves the search for, experimentation with, and
Zealand firms are demonstrating good customer development and adoption of new and better products,
practices, there is significant scope for a large number services and processes.
of businesses to improve their performance in this area.
Although there has been much attention in New
Zealand over the last few years on a perceived lack of
Quality and Supplier Focus
investment in research and development (R&D),
The key measure of quality is essentially whether innovation is not driven only from the breadth and
businesses meet or exceed customers’ expectations on depth of investment in R&D, but in innovation
whatever dimension/s they value. Achieving high levels supporting capabilities, particularly skills, and an
of quality necessitates a commitment to the environment in which innovation is encouraged and
involvement of all stakeholders (suppliers, customers recognised. In fact, in a small open economy with large
and employees) in quality management and attention numbers of small firms like New Zealand, we might
to a variety of quality measures – not just expect businesses to be more likely to purchase
conformance. technologies if they can be produced better and cheaper
elsewhere because of benefits from scale and
Suppliers, like customers, can be an important source specialisation.
of ideas for product developments and improvements,
because they are best placed to know how to maximise A reasonable proportion of New Zealand businesses are
the performance of their own products and services. As investing in building up their innovative capabilities
part of managing quality within the value chain, there and, consistent with expectations, a significant portion
has been much interest in how a firm and its suppliers of that investment is in purchasing innovation from
can improve one another’s performance through long- sources outside the firm, such as machinery and

14
equipment, and keeping technology up-to-date (i.e. in Most firms are also using a broad range of indicators to
keeping up with better practice produced outside the measure their performance. However, there is a heavier
firm). emphasis on assessing performance in terms of
financial or quality measures rather than in areas that
Importantly, almost half of businesses are investing in might provide an earlier indication of performance,
employee skills to support the development of new and such as human resource or innovation measures – only
improved products, services and processes, a result that around a quarter of firms give a great deal of attention
is consistent with the commitment to training as to these measures. Attention to a wider range of
described in the results for employee practices. Few measures could yield greater insight into the factors
firms, however, are investing intensively in in-house or that drive financial performance and enable more
external R&D, with only 1 in 5 indicating that they timely remedial action to be taken, if necessary.
regularly or continuously undertake R&D, or have
many staff engaged specifically in R&D – over half It will be no coincidence that the types of performance
have no staff or less than half a full-time equivalent measures least utilised – innovation and human
employee devoted to R&D. resource measures – are those related to the practices
identified as relatively less developed in New Zealand
To some extent, the firms in the study appear to take a firms. This is consistent with the view that firms pay
more informal approach to innovation. When less attention to the areas of the business they do not
interviewed, rather than referring to R&D, most firms measure.
talked about generating new ideas from discussions
with customers, about environmental scanning and There is less commitment to managing external
about the importance of their employees. A number of information, except at a relatively basic level such as
firms cited customer feedback, sales staff feedback and monitoring competitors’ products or services. Less than
changing customer needs and values as important half of firms benchmark or look for better practices,
drivers of new innovations. This suggests a propensity innovative ideas and processes from other businesses.
towards less sophisticated or incremental innovation in When they do, it is performance rather than process or
New Zealand. strategy-based, which is where the larger gains are
likely to be made – only 2% benchmark their business
It is also apparent that, even more than customer focus, with firms outside their industry. The firm visits also
innovation and technology strongly differentiates signalled that much of what firms consider as
leading from lagging firms, with substantial differences ‘benchmarking’ tends to be informal and ad-hoc. As a
between the two groups. result, there appears to be significant opportunities for
firms to more systematically look outside their
The issue these results raise is whether the tendency immediate environment or value chain for ideas and
towards more informal innovation-supporting activities improvements.
in New Zealand and reliance on external technologies
matters in terms of actually commercialising Operational Outcomes and Business Results
innovation and generating value, and what else could
be achieved by a greater commitment to more formal Operational outcomes are directly affected by the
R&D activity. practices that a firm implements. The study shows that
there is a positive association between taking a holistic
approach to business development and better business
Information and Benchmarking
outcomes.
All the practices investigated in this study depend
vitally on information. In fact, any firm’s value chain The relatively poor uptake of benchmarking practices
actually consists of information that flows between the by New Zealand firms, in particular by lagging firms, is
firm and its suppliers and customers, and within the reinforced by the significant number of firms reporting
firm, not just the physical processes involved in that they did not know how their business compared to
production or service delivery. competitors, even on relatively simple measures such as
quality and service outcomes.
New Zealand businesses, as a whole, appear to be
managing internal information quite well, undoubtedly Few firms appear to get any real advantage from cost-
aided by advancements made possible by information related outcomes, with most suggesting they are on a
technology. The majority of businesses, 4 out of 5, have par with competitors on costs, and most firms consider
formal systems in place to manage the storage and their advantages lie in their quality and flexibility.
retrieval of information and a similar proportion of
firms have resources dedicated to assessing whether Consistent with the greater attention paid by firms in
goals are being achieved. terms of customer and quality practices, most firms

15
 reported achieving high levels of quality and that on a wider range of competitive strategies than lagging
products and services were delivered on time, in full firms, particularly innovation, delivery and flexibility.
and to specification in over 90% of cases. High levels
of quality and delivery were also matched with few At a very broad level, there appears to be a reasonable
instances of scrap and rework, or customer returns. degree of internal consistency across New Zealand
firms between the strategies pursued, the practices
A greater emphasis on employee relations is associated adopted, and outcomes. However, more sophisticated
with higher employee satisfaction, with 4 out of 5 strategies are needed for firms to be internationally
Leaders considering that employee satisfaction is better competitive (whether competing in New Zealand or
than competitors compared to 1 out of 5 Laggers. overseas) and it would be desirable to see more New
Similarly, over three-quarters of Leaders reported low Zealand businesses incorporating innovation and
employee turnover of less than 10% compared to half flexibility into their strategies.
of firms overall and a third of Laggers.
Another element of strategy is the geographic scope or
Around 60% of all firms report having introduced a markets a firm decides to compete in. The study points
new or improved product or service in the last three to an important finding in the context of New
years, and almost half reported introducing a new or Zealand’s export potential. The traditional view of
improved process. Outcomes related to innovation (for export development is the ‘stages’ or ‘stepping stone’
example the creation of a new product or process) is model, in which businesses focus initially on markets
the area that most distinguishes Leaders from Laggers. that are similar and closer to the home market first, and
Leading firms’ investment in innovation has paid off, then successively add to these as exporting knowledge
with almost all leading firms having introduced a new grows. If New Zealand exporters behave as this
or improved product, service or process in the three traditional model predicts, we would expect a skewed
years prior to the survey. profile of export intensity among exporters in the study
– most would be at the early stages of building
Although the data is somewhat limited in the amount ‘proximate’ markets and we would expect to see
of detail available for the business results, there is a decreasing numbers of firms achieve successively
clear association between leading firms and the higher levels of export intensity.
achievement of higher performance. Overall, firms with
better business practices and operational outcomes are However, although the skew predicted by the stages
more likely to report: model of internationalisation is evident, the decline in
the frequency of high intensity exporters is interrupted
• a higher and increasing market share
by a marked increase in the number of firms reaching
• increased levels of productivity, net cash flow and the very high levels of export activity (i.e. exporting
profitability more than 75% of sales). In absolute numbers, some
• a higher return on investment than lagging firms. 1500 New Zealand firms could be estimated to have
reached these very high levels of internationalisation.
This suggests a more optimistic assessment of our
economic growth potential. Instead of waiting the years
■ Competitive Strategy and decades predicted by the stepping-stones model for
Strategy guides a firm’s behaviour and is exporters to achieve high levels of internationalisation,
fundamentally about how a firm aims to achieve and it appears that many firms have been able to leapfrog
maintain a competitive advantage. A firm’s choice of the step approach and achieve high levels of export
competitive priorities – innovation, quality, flexibility, intensity.
pricing and/or delivery - will be dependent upon its
strengths, its operating environment, structure and It also appears that exporting firms are more committed
technologies. to developing their business practices than non-
exporting firms. In particular, exporters differentiate
The study suggests that quality and delivery themselves from non-exporting companies in terms of
performance appear to be the key drivers for most their innovation-related practices, especially those
firms’ strategies. Innovation was the least emphasised, firms who are new to exporting. It appears that
which may point to exaggerated responses on flexibility, too, is more likely to be perceived as
innovation practices and outcomes. Leading firms important to a firm as its focus on new export markets
tended to take a more balanced approach to their increases.
competitive priorities and placed a higher importance

16
■ Business Capability and technology, finance and access to benchmarking
information, although increased bureaucracy can
Structural Issues hamper flexibility.
Structural issues, such as the size of the business, the
nature of ownership and the degree of independence
the firm has, and the industrial sector a firm operates ■ The Competitive Environment
within, will tend to influence the strategies, practices
and outcomes of businesses. The study confirms these The strategies a business chooses to pursue, the
influences, although notes that there are complex practices it adopts and the results it achieves are
relationships between structural issues, and that dependent upon how it interacts with its environment.
analysis using single explanatory variables does not do The study examined the impacts of competition,
justice to the complexity of the relationships between regulation, access to finance and skills, and external
them. It is probable that all of the structural sources of assistance.
characteristics have some effect.
In considering the impact of various aspects of the
As one would expect, smaller firms (in terms of number competitive environment, the results have identified
of employees) take a less formal approach to business that these factors do impact on the ability to pursue
improvement across the range of practices. Although opportunities and improve performance, but also
large firms generally outperformed small firms across confirm that the capability of businesses is important
all practices, there were little differences on outcomes. in shaping their ability to respond to these factors.
It is possible that it is not appropriate to apply the
business excellence models and theories of It appears that competition in the market place has an
management and quality gurus to small firms and that important bearing on firms’ strategies and investment
a different model is needed. It is also possible that the in business improvement. Leaders in practices and
respondents from small firms may have answered the outcomes tend to be those firms that are operating in a
survey differently, either because they were unsure market where they face or perceive a significant
about the terms used in the questionnaire or because number of key competitors. Conversely, a higher
they were too busy to give the questionnaire the proportion of Laggers indicate that they either hold a
attention it needed (and hence the practices and captive market or are in a market where there is a
outcomes are not a reasonable reflection of their real range of non-dominant competitors.
capability). This may also point to the need for a
broader and simple business excellence ‘language’ for Although access to external capital does not appear to
small firms. Examining business improvement in small be a major impediment, with very limited numbers of
firms may prove to be a more insightful approach for firms indicating that debt or equity funding was not
the New Zealand economy as a whole. available (2% on debt and equity) or available on
unacceptable terms (6% for debt and 2% for equity),
The sector a business operates within is also shown to around 1 in 5 firms do consider that the availability of
have an impact upon the choices a firm makes about finance is a barrier to business development and
investment in business practices. In general, service innovation. This appears to be related to the capability
businesses tend to outperform firms from the primary of firms to access capital, and issues associated with
and secondary industries, particularly on customer some sectors and stages of development. When funding
focus and employee practices. This result is consistent innovation or expansion, the most frequently used
with comparable overseas surveys. There are source of capital was banks. Very few firms (less than
undoubtedly opportunities for cross-sectoral learning, 2%) reported using angel investors or venture capital to
re-emphasising the need for further consideration of any degree.
benchmarking in New Zealand.
The availability of skills, particularly specialist skills,
Foreign ownership of New Zealand-based businesses was problematic for businesses, with 10% of firms
can provide resources, expertise and opportunities to signalling they were never available and 65%
generate substantial positive change to the capabilities indicating specialist skills were sometimes available.
of the subsidiaries. The study demonstrates that foreign The availability of skilled staff was also considered a
owned firms outperform domestic businesses on all key barrier to innovation for close to a quarter of firms.
aspects of the business practices and performance Skill ‘shortages’ appear to be more acute in particular
model, with the exception of customer focus. The firm industries, such as construction, health,
visits confirmed a number of valuable advantages from accommodation, cafés and restaurants, although the
overseas ownership, including branding, skills, results suggest that some of these differences could be
attributed to the quality of demand.

17
 Regulations play an important role in shaping the way information management, where New Zealand
a firm conducts its business. Compliance costs, the manufacturers appear to place much more emphasis.
administrative costs of meeting government There was also little difference in innovation and
requirements, have been increasingly under the technology and customer focus related practices. New
spotlight in recent years, as successive governments Zealand also appears to have a longer ‘tail’ of lagging
have attempted to limit the effect that these costs have businesses.
upon business growth. With the exception of business
law, regulation is considered to have a detrimental The results suggest that Swedish manufacturers have
impact on the way that firms conduct business. In been more proactive in developing their business
particular, industrial relations related regulation (ACC practices, but once again these results should be
and employment law) and regulation associated with interpreted in tandem with structural issues in mind.
local government (RMA and local authority The average size of Swedish firms surveyed was
regulations) were identified by firms as negatively significantly larger than that of New Zealand firms.
impacting on productivity and performance. Rather Despite this, the results point to benefits that can be
surprisingly, small firms were under-represented in gained from cross-country learning and business
responding that certain regulations had a negative exchanges.
impact upon their business compared with larger firms.

There is a range of external sources of advice and ■ Conclusion

information that can assist firms in developing their
products, processes and services and to respond to the The results of the study raise a range of issues of
pressures faced in the competitive environment. For the interest to individual firms, business advisors, industry
most part, and naturally, New Zealand firms turn to associations, and government. We encourage each of
business sources (competitors, trade shows and these groups to examine and consider how it might
conferences, associated businesses and industry address the issues it is able to influence.
associations) for ideas and information. Compared to
leading businesses, there is significant scope for most Overall, the business sector generally is on a path that
firms to look at a wider range of sources of ideas and is consistent with what we know and can be
information for innovation, such as research-based realistically expected about the improvement process,
organisations. There is also scope for government particularly given the isolation from global competition
agencies to consider their role in working with New Zealand businesses faced only some 15 years ago.
businesses in providing information and ideas to There have been great improvements in business
address, in particular, regulatory and skill-based capability since then, although much remains to be
barriers. learned. Few firms have yet to match leading
international benchmarks – no more than 2-3% of
firms appear to be approaching international standards
■A Cross-Country Comparison of of performance on practices such as strategic planning
and leadership, supplier relationships, employee
Manufacturing performance management and benchmarking, or
We are pleased to recognise the contribution made by actively pursue strategies of innovation.
three regions in Sweden who also conducted the
Business Practices and Performance Survey and Some of these characteristics may be a function of the
followed the methodology used in the New Zealand dominance of primary product processing industries
study. This provides us with a valuable opportunity to and the corresponding small presence in the most
benchmark New Zealand business practices and globally competitive and technology intensive
performance with those of a comparable economy. industries. Some of these characteristics may also be
due to the vast number of very small firms. Others,
The Swedish study was restricted to manufacturing however, are simply a function of managing the
firms with 10 or more FTEs. This sample sub-set was transition to a more open economy. This is a long-term,
also extracted from our population so that direct evolutionary process.
comparisons could be made between the two countries.
There remain significant challenges. Performance on
Across most practices and on outcomes, Swedish the range of practices and indicators is unevenly spread
manufacturers outscored New Zealand manufacturers, and there appears to be a long tail of New Zealand
particularly in leadership and planning and quality and businesses lagging behind, more so than comparable
supplier focus. The exception is in the area of research suggests is found in other countries. The
availability of specialist skills and regulatory issues

18
continue to impact on the innovative and productive There is a need for a more sophisticated understanding
potential of businesses. of business improvement and its relationship with
operational outcomes and business results, and the
There is significant scope to encourage inter-firm and pursuit of international competitiveness. In particular,
cross-sectoral learning in New Zealand. In the recent given the structural characteristics of the New Zealand
past there appears to have been limited appetite for economy, the study has raised the question of whether
New Zealand businesses to look for sources of ideas a different approach or focus is needed to diffuse and
and improvement outside their immediate environment, develop business capability in small firms. The role and
perhaps partially a result of the rapid movement to a contribution of innovation versus formal research and
strongly competitive environment. The development of development, and an assessment of the value generated
clusters, sector strategies and cooperative research by what appears to be a more positive commitment to
arrangements in New Zealand is a step in the right innovation-supporting activities in New Zealand than
direction. prior research has suggested, deserves particular
attention.

19
20
1 - INTRODUCTION
Firm Foundations reports on the findings of the • examine the relationship between the adoption of
Business Practices and Performance Survey 2001 business practices, innovation, IT and company
(BPPS) and follow-up interviews with firms. The study structure and profile
was undertaken to gain an updated picture of how
• identify the attributes of higher and lower
successful the New Zealand business sector has been in
performing firms
adopting good business practices, as described in the
original Leading the Way study of 1994 and the follow- • identify firms’ commitment to capability
up study Gearing Up in 1999. It was also developed to improvement and innovation, and
evaluate how business capability has evolved over the • assess the underlying strengths of aggregate firm
last decade, following from the report cards signalled in performance and firms’ ability to develop sustainable
Islands of Excellence (1993) and A Season of competitive advantage.
Excellence? (1996). Improved business capability is
critical to the ability of all firms, particularly small New These findings have important implications for all
Zealand firms distant from major markets, to compete groups interested in the business improvement process
in the business environment they face in the new including government, industry associations, advisors,
millennium. managers, and employees. The findings will better
inform policymakers’ input and advice on industry and
Since the 1999 Gearing Up report, Government has regional development programmes; for academics, the
devoted quite significant effort and resources to better study offers the most comprehensive database of
understanding barriers and opportunities facing business practices, strategies, and outcomes ever
businesses, sectors and regions, and to introducing new produced in New Zealand, and is therefore a mine of
industry and regional development policy and information for future research; industry associations
initiatives to improve information and assistance and advisors will be able to use the information to
available to businesses. These industry development consider the ways in which their own services are
initiatives have had a particular focus on building geared towards addressing business weaknesses; and
business capability. managers and employees will be able to consider their
own business practices in the light of how leading
Research at the level of the firm, on the dynamics of New firms perform.
Zealand business and on the evolution of competitive
capability, has unfortunately declined over the last three As with the preceding 1994 and 1999 studies, this
to four years. This contrasts with significant research report does not attempt to resolve all the policy
efforts in the early and mid-1990s, which focused on implications that arise from the findings. However, it
how the business sector was adjusting to an increasingly does highlight particular issues, which could deserve
open and competitive environment. Notable exceptions in the further attention and debate of policy makers.
recent years have been the Competitive Advantage in
New Zealand Project (Victoria University), Research into Each chapter of the report provides an analysis of the
Service Sector Competitiveness (Otago University) and results for particular business activities covered by the
Treasury’s series of Economic Transformation research survey, compares these results to related New Zealand
projects. research that has been undertaken in the last few years,
and describes the latest ‘accepted wisdom’ in each area
In this context, the BPPS is a timely and important of business practice. Most chapters also have a separate
study, which fills a gap in the ongoing assessment of section on manufacturing, where we have compared
the underlying strengths and weaknesses of the New this survey’s results with comparable results from the
Zealand business sector. Gearing Up (1999) study.
Specifically, the BPPS was designed to: Observations obtained from 48 site visits, undertaken to
• determine the current state of organisational test the survey data and illuminate the findings, are
capability in New Zealand firms also incorporated into this report.
• assess the current level of business practices,
The survey was administered by Statistics New Zealand
innovation, and use of IT (Information Technology)
and was overseen and analysed by the Ministry of
in New Zealand firms
Economic Development, with the assistance of Colin
• measure business performance across a range of Campbell-Hunt (Professor, Department of Management,
indicators University of Otago), Lawrence Corbett (Associate
Professor, School of Business and Public Management,
• examine the relationship between the adoption of
Victoria University of Wellington), Claire Massey
business practices, innovation, IT and business
performance

21
 (Director, New Zealand Centre for SME Research, Employers and Manufacturers Associations, and
Massey University) and Ken Carlaw (Department of contributors from Auckland, Waikato, Victoria, Massey
Economics, University of Canterbury).1 and Otago Universities.

Peer review and an international perspective was We are particularly pleased that Sweden, through
provided by Danny Samson (Professor, Operations and NUTEK (the Swedish Business Development Agency)
Strategy, Department of Management, Melbourne and the Swedish Pressure Vessel Association, agreed to
University), David Yarrow (Principal Lecturer, Centre replicate the study in three regions to provide some
for Business Excellence, Northumbria University) and international comparison on manufacturing practices
Karen Brown (Professor, Operations and Production and performance.2 A discussion on these results is
Management, University of Washington, Bothell). We provided in chapter 15. With time, we hope to
also appreciate the comments and input provided by encourage other OECD countries to also adopt the
Business New Zealand, Chambers of Commerce, the survey, which will allow New Zealand firms to compare
New Zealand Business Excellence Foundation, themselves to the world’s best businesses.

1
The survey was a collaborative project between the Ministry of
Economic Development, the Ministry of Research, Science and
Technology and Statistics New Zealand. The Ministry of Research,
Science and Technology has a particular interest in the innovation
section of the survey and has analysed these results in more detail, as
described in a companion paper: Innovation Report – 2001. Statistics
New Zealand has already released a more detailed report on the IT
section of the survey: Information Technology Use in New Zealand
2001 (May 2002). Both of these will be available from
www.stats.govt.nz
2
We are grateful to Gunnar and Penny Kullberg for facilitating the
project in Sweden, and the support of Lars-Göran Eriksson, Anders
Olsson, Sune Halvarsson, Per Wijkman, Jan Sundqvist and Ragnar
Ahlström Söderling in deepening our appreciation of Swedish culture
and economic development (Helen Gar!).

22
2 – A MODEL OF BUSINESS
PRACTICES AND PERFORMANCE
■ Understanding Business Practices the complex relationships between and within firms,
there is no single set of ‘best practices’ – there are too
and Business Excellence many variables.
The overall premise of the study is best summed up by
the definition and logic of ‘best practice’ used in the Hence, for the 2001 survey, we have moved away from
1994 Leading the Way and 1999 Gearing Up studies: the concept of ‘best practice’ to good practice, business
improvement and business excellence. This reflects
International research on business capability issues both that we are interested in practices that are
demonstrates that there is a link between the practices regarded internationally as beneficial to business
adopted and processes within businesses and their performance – not necessarily the ‘best’ – and that we
performance. Those businesses that adopt a coordinated have expanded our scope of analysis beyond the
and cooperative approach to development generally manufacturing sector. These are practices that in
outperform firms that do not follow this approach. This combination (this is the general consensus in the
coordinated and cooperative approach has often been literature, diagnostic tools and quality/business
denoted ‘best practice’1 excellence organisations) consistently appear to provide
firms who adopt them with an advantage over those
And: that do not (Lamming, 1996).
The cooperative way in which firms and their
employees undertake business activities in all key Business Practices and
processes - leadership, planning, people, customers, Competitive Advantage
suppliers, community relations, production and supply
of products and services, and the use of benchmarking. Business managers, advisors and academics alike can
These practices, when effectively linked together, can be be forgiven for being confused when trying to establish
expected to lead to sustainable world class outcomes in how the large array of concepts and theories related to
quality, customer service, flexibility, timeliness, business management fit together. Examples include
innovation, cost and competitiveness.2 concepts such as: core competencies (e.g. Prahalad and
Hamel, 1990); distinctive capabilities (e.g Stalk, Evans
And: and Schulman, 1992; Kay, 1993); competitive strategy
The logic behind best practice is simple: because (e.g. Porter, 1980); organisational culture (e.g. Kotter
operational outcomes are a key contributor to and Heskett, 1992; Collins and Porras, 1994), and
competitiveness and business performance, and because learning organisations (e.g. Senge, 1990). The following
best practice should improve operational outcomes, by discussion attempts to bring these concepts together
implication good practice should lead to increased and position business excellence within them.
competitiveness. Best practice should lead to world-
class performance.3 A firm creates competitive advantage if it succeeds in
becoming different from its competitors in a way that
This seems simple and commonsense enough, but the is recognised and appreciated by its (existing and
term ‘best practice’ has become a well-worn buzzword, potential) customers (Henne, 1997). Competitive
used frequently by industry, advisors, quality advantage for a business derives from building what
proponents and academics, in a variety of ways: are known as distinctive capabilities (this term is used
becoming the best competitor in at least one aspect of interchangeably in the literature with core
business process; out-pacing competitors in responding competencies).
to market shifts and pricing changes, and in developing
new products; the practices used by firms achieving Distinctive capabilities refer to stocks of strategic
world-class performance; and having operational resources or assets that are accumulated through a
performance equalling or surpassing top international pattern of investments over time, applied to a market
companies. It has also been particularly associated with purpose, and that cannot be easily imitated or acquired
the manufacturing sector and the use of specific by competitors, nor readily substituted (Ward et al,
production processes such as Just-In-Time 1996; Grant, 1995). Examples include some processes,
management, Materials Resource Planning and Kanban reputations and brands, workforces, and networks of
systems. relationships. The most potent of these are thought to
be intangible or tacit (this derives from the resource-
In addition, as noted in the 1999 study, ‘best practice’ 1
Knuckey et al (1999), p 19. See for example: Australian
is, in a sense, a misnomer. Best practice is a moving Manufacturing Council (1994), Ahmed N U et al (1996), Hanson P
target – what was regarded as best practice in the and Voss C (1995), Kim J S and Arnold P (1992), Morita M and Flynn
1990s is not necessarily regarded as best practice today E J (1997), Powell T C (1995).
2
Australian Manufacturing Council (1994), p 1.
(Perry et al, 1995). Similarly, in attempting to manage 3
Knuckey et al (1999), p 23.

23
 Figure 1. The Firm, Business Practices, Distinctive Capabilities, and Competitive Advantage

COMPETITIVE ENVIRONMENT
Competitive Advantage Sustainable Competitive
(when aligned with environment) Advantage (if maintained over time)
THE FIRM

Distinctive capabilities or resources

Intended Competitive Priorities Competence when aligned Realised Competitive Priorities

Business assets Business strategy Business practices Operational outcomes Business

and structure or processes performance

based view of the firm as described by Nelson and market, the nature of customers, suppliers and
Winter, 1982; Prahalad and Hamel, 1990; Barney, 1991; competitors, and economic, social, environmental,
Peteraf, 1993; among others). technological and governmental trends. Realising
competitive priorities, in terms of operational
Sustained competitive advantage refers to competitive outcomes, builds distinctive capabilities over time,
advantage that lasts long enough for the firm to though this requires investments in various business
harvest the potential benefits (Barney, 1991; Henne, activities or practices.
1997). In attempting to create and sustain a
competitive advantage, a firm determines and pursues It is through business practices and how a firm operates
an overall business strategy in relation to the to achieve outcomes that a firm builds distinctive
competitive environment it faces, and the business capabilities, which are capable of providing competitive
assets and structure it has to deal with (e.g. advantage. Good business practices can be thought of
technologies, basis of ownership, internal structures, as the base or foundation on which distinctive
the nature of its industry). capabilities and hence competitive advantages are
built. Maintaining or enhancing these capabilities and
Strategy essentially relates to choices about products, advantages demands continued reinvestment and
markets, and positioning. An important part of business development of processes and practices.
strategy is the choice of competitive priorities, or the
choice of areas a firm wishes to excel at in order to A firm’s reputation, for example, is a function of the
meet customer demands, or win orders against the history of its customer service practices, among other
competition (Voss, 1995). Competitive priorities often things, and its customer satisfaction and delivery
include quality, cost, innovation, flexibility, and outcomes. But this reputation will diminish unless it is
delivery, and firms typically consider and compete, to reinvigorated by improving customer practices.
some extent, on each competitive priority – although
each firm will tend to emphasise, and excel at, certain There are obviously inter-relationships throughout. A
priorities compared to others. business develops a strategy in relation to its unique
capabilities and the competitive environment in which
The realisation, or otherwise, of competitive priorities is it operates. This strategy will guide and influence key
reflected in a business’s operational outcomes. choices, such as the development of business practices.
Competence refers to the alignment of intended The implementation of processes and practices will
competitive priorities (strategy) and realised assist the development of a firm’s capabilities, which
competitive priorities (outcomes); i.e. a firm has a may in turn enhance or change the way it chooses to
particular competence if it has strong capability in an compete and thereby affect the competitive
area that is also regarded as important (Kim and environment in which it operates. Recent literature
Arnold, 1992). Of course, the realisation of competitive explicitly recognises these inter-relationships and
priorities is dependent on how the firm interacts with suggests that a holistic approach to business practices
its environment. This includes the demands made in the is necessary for a firm to achieve overall alignment –

24
Figure 2. Firm Foundations4

INTERNATIONAL COMPETITIVENESS

COMPETITIVE ADVANTAGE

DISTINCTIVE CAPABILITIES

CUSTOMER
LEADERSHIP & FOCUS
PLANNING
EMPLOYEE
PRACTICES
INNOVATION
& TECHNOLOGY
QUALITY &
INFORMATION SUPPLIER FOCUS
& BENCHMARKING

all the elements must be in place and linked together to experience, knowledge and understanding. This can
achieve improved business outcomes and competitive only occur when knowledge becomes institutionally
advantage. available – the organisation learns collaboratively –
rather than knowledge remaining the property of
If we visualise a firm’s ultimate goal as international certain individuals or groups, and where all employees
competitiveness, as illustrated by the globe, we can are involved and encouraged to look for improvements
picture business practices as segments of the base of in every area of the firm (Nevis et al, 1995; La Rooy,
the globe, where each must be in place and effectively 1998).
linked with the others to provide a strong foundation
(see figure 2). The absence of one may make the whole In summary, the competitive advantage of a firm is
breakdown, threatening competitiveness and stability. based upon its business processes or practices, which
shape its distinctive resources/capabilities. These, in
Successful companies compete by leveraging off their turn, are shaped by a firm’s assets and the environment
capabilities and aligning these with their strategy, (endowments of technology, intellectual property,
competitive priorities, practices, outcomes and the customer base, finances, regulations, policy), the
demands of the market; i.e. there is both internal and business paths available (strategic choices) and also
external consistency. This is an evolutionary and where the firm has come from (path dependency). This
iterative process, and cooperation between all takes time to build and depends on a cooperative
management and stakeholders (owners, customers, business culture and organisational learning.
suppliers and employees) in all aspects of business is
critical. So there are some important subtleties and caveats to
the logic (as expressed in the opening quotes) that, if a
Companies that are successful in achieving this firm has adopted a range of good business practices, it
alignment and developing this cooperative culture have will tend to achieve better outcomes than those who
been called learning organisations. A learning
organisation is one with the abilities or processes to
4
continually improve performance and actions through Adapted from Australian Manufacturing Council (1994), p 2 and
Knuckey et al (1999), p 19.

25
 Figure 3. Business Practices and Performance Survey Model (2001)5

have not. These need to be noted when interpreting the international literature, and major international quality
results of the survey. awards and business excellence programmes. We
adopted and made minor adjustments to these Models
The BPPS aimed to collect and interpret information on again after a review of best practice literature, surveys
a number of the elements important for business and diagnostic tools (see Appendix B). The components
success – the competitive environment, competitive included in the survey have all been widely
priorities, and business strategy – but the core of the acknowledged in the literature as contributing to
study focused on business practices and operational superior business performance, either explicitly or
outcomes. The survey did not look at the development implicitly (see Statistical Evidence on the link between
of a culture geared towards continuous improvement or Business Improvement and Operational and Business
learning, nor at the development of distinctive Performance on page 27).
resources or capabilities. However, both of these
elements will, by definition, be unique to each firm, so Structure
would be difficult to discover via a mail-out survey
(although some insights were obtained from the follow- As intimated earlier, several studies and theories (e.g.
up interviews). Further caveats to the interpretation of Porter, 1980; Miller, 1986; Teece et al, 1997) report on
the results are discussed in Strengths and Limitations of the differences in adoption of business practices and
the Study on page 31. the achievement of outcomes related to underlying
business structures. Among others, these include:
■ The Business Practices and • Size - smaller firms typically have to devote a much
higher proportion of managerial time and services to
Performance Model operations rather than leadership and planning. They
In designing the survey questionnaire, we adopted the also tend to adopt less formalised practices than
Business Practices Models used in the Leading the Way larger companies.
(1994) and Gearing Up (1999) studies with some
• Industry - the context of the industry that a firm
adaptations. Like the 1994 and 1999 Business Practices
operates within matters in a number of different
Models, the 2001 survey model comprises key modules
ways. For example, in industries with rapid
or components:
technological development, such as electronics,
• Structure technology practices may be more advanced than in
traditional industries.
• Strategy
• Practices The structural factors examined by this study were the
industry sector, size (by employment numbers), level of
• Outcomes
overseas ownership and age of the business.
• Business Results.

The Business Practices Models used in the 1994 and

1999 studies were based on extensive reviews of 5
Adapted from Knuckey et al (1999), p 99.

26
Strategy • Delivery performance as a competitive priority
means a firm has a focus on speed and/or reliability
A firm’s strategy essentially relates to the choice of of delivery.
products, markets, positioning and focus. The survey
included questions on competitive priorities and market • Innovation as a priority means that a firm will
scope. emphasise product or process improvement and
development to compete.
The traditional list of competitive priorities was
examined: cost, quality, flexibility, delivery and Firms can emphasise and excel at more than one
innovation. competitive priority at a time (Ward et al, 1996; Stock et
al, 1998).
• A firm for which cost is a competitive priority would
tend to be a low or the lowest cost producer in its Another major element of strategy is market scope. This
industry or niche. All firms attempt to compete to relates to the markets that a firm chooses to serve. At
some extent on cost, but most do not compete solely, one level this includes the decision to export, and
or even primarily, on this basis. questions on exporting were included in the survey
• When quality is a competitive priority, a firm questionnaire (chapter 13 discusses these results).
attempts to position itself on the basis of the quality
of its products and services – such as performance,
conformance, serviceability, durability, features, Conduct
aesthetics and reliability.
Strategising
• When flexibility is a competitive priority, a firm
The strategising element of the conduct component
tends to focus on design, product/service mix and
encapsulates the leadership and planning activities
volume flexibility to win orders.
within a firm. It examines the nature of direction

■ Statistical
Evidence on the link between Business Improvement and
Operational and Business Performance
Much of the evidence on the impact of business improvement and before and continuing until four years after the award winners won
business performance is based merely on opinions, perceptions, and their first award. Award winners experienced a 44% higher stock return,
impressions of businesses on the value of business improvement efforts. 48% higher growth in operating income and 37% higher growth in
However, in recent years, there have been an increasing number of sales compared to the control group. Contrary to the usual perception,
more objective and statistical studies examining the relationship. Some smaller firm award winners actually achieved better results than larger
of these include: business award winners.

The Relationship Between Malcolm Baldrige Quality Award Business Success and ABEF Evaluation Results: On the Nexus
Category Scores and Operational Performance (Samson D, between Manufacturing Results and Frameworks for Business
Terziovski M and Dow D (1997), Working Paper No. 7, July, Excellence (Hausner A (1999), University of Wollongong)6
Melbourne Business School, The University of Melbourne)
This study was carried out on the manufacturing sector and involved
The reliability and validity of the Malcolm Baldrige National Quality 22 manufacturing companies that had participated in the Australian
Award (MBNQA) model was evaluated by statistical testing of selected Quality Awards for Business Excellence between 1992 and 1997 (but
sets of questions from the 1994 Leading the Way survey data. The results not all were winners). Cooperating companies were asked to identify
showed that the MBNQA is generally a valid and reliable model for and prioritise their top ten key performance indicators (KPIs) and then
measuring and predicting the relationship between total quality to provide actual data relating to those KPIs over the previous seven
management practice and organisational performance. In particular, years. The KPIs generally related to financial performance but contained
three MBNQA categories (leadership, people and customer focus) were a spread of measures relating to all stakeholder groups.
statistically significant predictors of organisational performance.
The study also made use of advanced data techniques to isolate other
The Impact of Total Quality Management (TQM) on Financial external factors from the cause of business performance, such as changes
Performance: Evidence from Quality Award Winners in foreign exchange rates or company mergers. The findings
(Hendricks K B and Singhal V R (2000), www.efqm.org) demonstrated a strong positive correlation between use of the Awards
Framework and improvements in company business performance. The
A five-year study of more than 600 quality award-winning firms showed study charts the average annual improvement in the KPIs against the
that, as a whole, they experienced statistically significant improvement Australian Quality Awards evaluation score and shows an increase in
in operating income, sales, return on sales, employment and asset growth. the Awards score is strongly correlated with improved KPIs.

The authors compared the financial performance of the 600 firms against 6
Sourced from Vogel N and Hausner A (1999), Quality Management
a control sample of firms of a similar size and operating in the same Practices linked to Business Performance, The Quality Magazine,
industries. Both groups were tracked over a period, starting one year August, pp 49-50.

27
 setting, whether it is long-term and consultative and which shape the market and the capabilities of
whether it facilitates company culture or values, and managers (Stock et al, 1998).
the relationship of the business with its community.
These factors have been well described by Porter’s
Practices diamond model of the determinants of a competitive
environment – demand conditions, factor conditions,
A firm’s strategic direction is transformed into
related and supporting industries, firm strategy,
outcomes through its conduct or practices. This survey
structure and rivalry. The competitive environment also
examined a firm’s practices in terms of its:
relates to the five forces model of key drivers in the
• employee practices – the way in which human industry – threat of new entrants, bargaining power of
resources are managed and developed suppliers, bargaining power of buyers, rivalry among
• customer focus – processes that provide the firm existing competitors, and the threat of substitute
with a comprehensive understanding of the current products or services (Porter, 1980).
and future requirements, expectations and
satisfaction of customers, and build effective This survey focused on four key elements of the compet-
customer relationships itive environment from a policy perspective – competition
(particularly rivalry), regulation, access to finance, and
• quality and supplier focus – those practices used to access to skills (chapter 16 discusses these results).
design, operate and control the production and
delivery system and develop and maintain close Inter-relationships within the model
relationships with suppliers
As previously discussed, the components of structure,
• innovation and technology – practices that support strategy, strategising, practices and outcomes are
the adoption and development of new and improved obviously inter-related. The inter-linking of these
equipment, processes, products and services components represents the dynamic nature of business
• information and benchmarking – those practices processes, where components rarely operate in isolation
related to searching for, gathering and using in the long-term. For example, the focus of practices
information to identify risks and opportunities, built up by a firm often reflects its business strategy.
measuring performance and progress against goals, Similarly, although the practices of a firm will have an
comparing the performance of the firm against other effect on its operational outcomes, over time
organisations, and searching for and introducing operational outcomes (such as customer satisfaction)
business excellence into the organisation. will also influence practices (such as quality control).

Outcomes ■ AssessingBusiness Practices

This component identifies the outcomes resulting from and Performance
practices and strategic decisions. Outcomes refer to As with the Leading the Way (1994) and Gearing Up
operational measures and are related to the firm’s (1999) studies, a comprehensive survey questionnaire
competitive priorities, such as timeliness and quality, was developed, based around the structure of the
which are largely within a firm’s control. Business Practices and Performance Model.
Respondents were asked questions on each element of
Business Results the Model. Questions on strategising and practices
The business results component of the model provides a required subjective responses while questions
snapshot of a firm’s financial performance. Firm examining operational outcomes in some cases
performance is gauged through variables such as sales, required quantitative responses. Detail on the
cashflow, profitability and market share. As stated, in questionnaire design and development process is
contrast to the outcomes component, these variables described in Appendix A and the questionnaire can be
are more likely to be influenced by factors external to found in Appendix F.
the firm, such as exchange rate and demand
fluctuations. The survey questionnaire was distributed to a random
sample of 3,378 New Zealand firms employing six or
more full-time equivalents (FTEs), from a range of
Competitive Environment
industries. An excellent response rate of 81.6% (2,756
The competitive environment includes the demands firms) was achieved, meaning we can be highly
made in the market such as price, characteristics and confident in the reliability of the results (details on the
features of products; variability in demand; the nature sample selection and stratification are included in
of customers, suppliers and competitors; and economic, Appendix A). Non-response was low across virtually all
governmental, environmental and technological trends, questions.7

28
Figure 4. Calculation of the Indices8

STRATEGISING PRACTICES OUTCOMES

Leadership & Customer Focus Quality & Service

Planning
Quality & Supplier Flexibilty
Focus
Timeliness
Employee Practices
Innovation
Information &
Benchmarking Competitiveness
Innovation & Human Resources
Technology

Strategising/Practices Index Operational Outcomes Index

Index compiled from questions asked in each component. Index compiled directly from questions.
Allows an assessment of overall strategising/practice adoption to be made. Allows assessment of extent to which practices
have been converted to operational outcomes.

The sample was segregated into 84 cells or strata using When assessing how far a firm has progressed, both
14 industry codes, three size categories (6–19 FTEs, indices are considered simultaneously. Businesses that
20–49 FTEs and 50+ FTEs), and exporting status. Data score highly on the strategising/practices index have
in each cell were stratified (weighted) to reflect the made the most progress in adopting the full range of
underlying business population densities by size and these practices. If they also score highly on the
sector. operational outcomes index, their practices are being
converted into outcomes (Australian Manufacturing
In analysing the results, questions were grouped into Council, 1994).
the six categories of strategising/practices: leadership
and planning, employee practices, quality and supplier The 48 site visits confirmed that questions were
focus, customer focus, information and benchmarking, generally answered realistically by respondents (see
and innovation and technology. Questions were Business Improvement Revealed on page 30). The
generally based on a Likert-type (rating) scale, with the methodology also ensured that the best person was
response to each question then scored on a range selected to answer the questionnaire (see Appendix A).
between zero and one with the ‘worst’ answer given a
value of zero and the ‘best’ answer a value of one. As with Gearing Up (1999), the progress of each firm
towards sustainable advantage can be shown by
A similar scoring system was used for questions on plotting its position on a set of axes representing a
operational outcomes. These scores were then summed Business Practices and Outcomes scorecard (Australian
for each firm across the different practices. Each Manufacturing Council, 1994). The horizontal axis
practice score was standardised to give it a value out of represents the strategising/practices index values, and
100. The six practice scores or indices were summed the vertical axis represents the operational outcomes
and standardised to provide a single score out of 100 index values. The closer a site is to the top-right-hand
for overall practices. The scores for the outcomes corner of the graph, the closer it is likely to be to
questions were also summed for each firm and achieving sustainable high performance.
standardised to generate a value out of 100.
The graph of the distribution of firms according to their
This scoring system resulted in two main indices (see scores is shown in figure 5. This shows the expected
figure 4): ‘oval’ shape, indicating that good outcomes are
associated with good practices.
• the strategising/practices index provides an overall
assessment of an enterprise’s efforts towards
business improvement 7
Note that, although Statistics New Zealand’s powers of compulsory
• the operational outcomes index provides an reporting were used and this undeniably contributed to the high
response rate, the response rate for this qualitative survey was
assessment of the extent to which practices have
superior to many quantitative surveys undertaken by Statistics New
been converted into operational outcomes.9 Zealand. The expected overall response rate was 70%.
8
Adapted from Australian Manufacturing Council (1994), p 5 and
Knuckey et al (1999), p 21.

29
 Distribution of Results
Figure 5. Scorecard of the Distribution of Firms 100
Leaders
90

80

70

60

Outcomes
50

40

30

20
Laggers
10

0
0 10 20 30 40 50 60 70 80 90 100

Practices

■ Business Improvement Revealed

As a part of this study, Ministry of Economic Development representatives The interviews were conducted with the primary respondent to the survey
conducted interviews with 48 firms. A selection of case studies gathered (often a senior manager) and, where possible, with one or more employees
from these visits has been incorporated throughout this publication, to to develop a fuller understanding of the firm’s practices. A core function
provide practical examples of firms that are actively working towards of the firm visits was to validate responses to the questionnaire. In most
improving aspects of their operations. These firms are not necessarily cases, respondents’ statements during their interviews backed-up their
more successful than others, but they are thinking about and undertaking responses to the survey. The face-to-face interaction also provided us
interesting approaches in areas of business practice that we consider with useful feedback for the continued refinement of our survey.
are worth reporting.
Firms were also asked what business excellence or ‘best practice’ meant
The firm visit programme was undertaken to fulfil the following to them. Most firms had a relatively uncomplicated idea of the concept
objectives: and referred chiefly to satisfying customers’ needs and delivering a
quality product or service:
• to provide the Ministry with an opportunity to verify responses to
the questionnaire. This is particularly important for the continued • ‘Providing customers with the best possible service. Working with
development of the survey questionnaire, and to ensure the results customers to help them set and achieve their goals’
we are reporting are reliable
• ‘Providing a quality product so that customers are satisfied’
• to provide a historical picture of each firm and its progress towards
• ‘Providing a quality service – lead the industry in this and then
the development of distinctive capabilities
market the company as such’.
• to provide further information on barriers to business growth, the
role of government, and firms’ perceptions of the business A number of firms took this a step further and recognised that capable
environment. and empowered employees are also critical to support excellence in
customer focus and quality:
Because of the large number of firms (548) willing to be interviewed, a
• ‘Employees need to have the necessary physical, emotional and
selection process was required to generate a broad cross-section of firms
intellectual skills to support this’
from the population. We generated this cross-section using the following
criteria: • ‘Work as a team and have excellent communication to support this’
• responses to the survey (of particular interest were ‘leading’ and • ‘Focus on leadership and developing leaders, staff retention and
‘lagging’ firms) managing the workforce’
• size of firm (by FTE number) • ‘Look after your employees better than your competitors, which leads
to excellent customer services and satisfaction, which then leads to
• industry classification (at the one-digit ANZSIC level)
higher returns’.
• exporting status (exporters or non-exporters)
Leading firms, however, tended to go even further and refer to a coherent
• location (by region).
or systems approach to operating the business, and related the concept
of business improvement to capabilities that underpinned competitive
Interviews were semi-structured with questions covering firm
advantage. To these firms, success in business improvement relied on:
performance, the general business environment, perceptions of business
excellence, barriers to business improvement, and details of business • ‘Relationships and knowledge’
practices adopted (the interview guidelines are shown in Appendix D).
• ‘A holistic approach to all parts of the business – developing internal
and external processes, benchmarking them so you know what is
Encouragingly, we received positive feedback from a number of
going on and then focusing on improvement’
respondents on the nature of the study and the active approach taken
by the Ministry in visiting these businesses. Each firm interviewed • ‘All business activity being coordinated, not working in isolation’
received a report based upon the interview and will also receive a
scorecard comparing its score on the survey indices with the mean • ‘Improvement in all respects’.
score for its industry and the mean across the entire survey population.

30
■ Strengths and Limitations of • Given the discussion on business practices and
competitive advantage, the simple linear relationship
the Study between outcomes and practices needs to be viewed
In methodological terms, there are many strengths to with some caution. Outcomes will tend to be affected
this study: by different combinations of practices and by
strategies, competitive priorities and capabilities. For
• The size of the stratified sample across business example:
sectors and size of firms is almost incomparable for
research of this nature from both New Zealand and • the impact of practices on firm performance and
overseas. the specific techniques adopted are conditioned by
an organisation’s strategy
• The overall response rate was excellent. Further, as
stated, non-response was low for virtually all • if a firm is following a cost strategy, the best
questions. This allows the results to be generalised to approach to employee practices might be focused
the underlying population of New Zealand on results-based performance appraisal, hourly
businesses. It is likely that this study provides a more pay, individual incentives, and training on
in-depth and representative snapshot of the national procedures
business community than most equivalent studies • if a firm is following a quality strategy, the best
overseas. approach to employee practices might focus on
• The partnership with Statistics New Zealand has training for technical and problem-solving skills,
helped to ensure robustness and quality of the data. behaviour-based performance appraisal, and
group incentives
• The questionnaire was carefully pre-tested and
piloted to ensure that responses would be as accurate • if a firm is following a flexibility-based strategy,
as possible. employee practices may be focused on skills-
based pay, group-based performance incentives
• The firm visits validated the survey results in the and team structures, and multi-skilling (Youndt
vast majority of cases. et al, 1996).
However, several caveats to the interpretation of the In defence of the survey, however, we examined the
results should be noted: adoption of broad practices (i.e. do you use
performance appraisals and pay-for-performance
• The survey was obviously mainly qualitative in
schemes) rather than specific ways of implementing
nature and firms will interpret the scales used in
these practices (i.e. do you use results-based
different ways. The probability is for optimistic self-
appraisals or competency-based appraisals; group-
assessments. This should moderate our assessment of
based incentives or individual incentives).
business practice, but it should not distort relative
adoption of different practices, nor relationships • Similarly, business practices are contingent
between them. Although the methodology ensured relationships - the use of certain practices will tend
that the best available respondent answered the to be strongly related to the use of others (Youndt et
questionnaire, it would have been better to have al, 1996; Dow et al, 1999). Indeed, we discovered
multiple respondents9 (this was apparent from a few high correlations between different questions in the
of the interview results - there were a few cases survey. In addition, it is not always clear cut to
where interviewees gave quite different perspectives classify an activity as a particular type of business
than the survey results on some practices, especially practice, and some activities relate to several
leadership and employee practices), and more practices. For example, consulting with customers on
objective questions (Dow et al, 1999). product, process and service improvement is a
customer focus practice but is also closely related to
• The use of good practices is not just a series of yes
innovation practices.
or no decisions. The use of practices is differentiated
in terms of intervals with varying degrees of • Business practices, of course, do not immediately
application (Morita and Flynn, 1997). The BPPS was impact on all operational outcomes and financial
able to capture only some of this differentiation results. Changes to outcomes can take some months
through the use of Likert-type (rating) scales. to result from changes to business practices –
Similarly, the use of a questionnaire meant that in changes to financial performance may take years.
many instances we could only capture the extent of The cross-sectional nature of the study means that
adoption of the practices, not the extent of
deployment of these practices throughout the 9
Although this has been tested through the UK’s PILOT survey, which
organisation, nor the degree to which they are
found no statistically significant differences between responses by
assessed and reviewed. solo and multiple respondents.

31
 we cannot take account of these lags. A longitudinal and hence could be given higher weights. This is an
study would be necessary to properly test causality area for future research.
(Dow et al, 1999).
• The pursuit of business improvement is not an
• The model is not fully comprehensive and hence our acceptable substitute for having leading products
methodology does not take any account of unique and services that deliver new expectations or new
practices that a business may have and that market values (Newman and Chaharbaghi, 1998;
significantly affect performance (Davies and Kochar, Yarrow et al, 2000); i.e. there is not much point in
2002), nor necessarily capture the right emphasis on business improvement efforts or ‘being excellent’ in
certain practices. Our international peer reviewers, producing something that nobody wants to buy!
for example, pointed out that the emphasis on ‘social
outcomes’ could be enhanced in future. So although business practices are a fundamental
element for firm competitiveness, it is important to
• There are various ways in which questions could be recognise when interpreting the results that businesses
weighted for inclusion in the indices and there is no need to have a lot of elements in a row to be
guarantee that the simple weighting system is the successful. Firms must (Shin et al, 1998; Shay and
most realistic. Although each element (question) in a Rothaermal, 1999):
practice index was weighted equally, some elements
receive higher weightings in the overall practice • be self-aware; i.e. know who they are, what they do,
index. For example, if the leadership and planning the need for change, their readiness for improvement
index consists of four questions, then each question • leverage off those particular attributes that enable
or element is worth a higher proportion of the them to create competitive advantage
aggregated practices index than a customer focus
question, if that index consisted of five questions. A • strengthen their market position by leveraging
simple equal weighting of each practice index was competitive advantages to develop, produce and sell
used to follow the methodology used in Leading the the products/services that consumers demand
Way (1994) and Gearing Up (1999). More • position and manage their portfolio of products and
sophisticated statistical techniques can allow us to services in the market
identify a smaller set of practice questions that
contribute most to the business performance index • understand the competitive nature of the industry in
which their products and services compete.

32
■ AXA New Zealand Ltd – On the path to Business Excellence
National Mutual has been operating in New Zealand since 1869. In attitude. Being results-focused, analytical and possessing the necessary
1995, National Mutual was acquired by AXA Global, a large technical skills are also important elements of leadership, but these
multinational insurance and investment company based in France, and need to be backed up with excellent communication skills.
in 1998 the company was re-branded under the AXA name. The New
Zealand operation is effectively a branch of the Australian operation, Taking a leadership role in the community is important for the company.
which has its headquarters in Melbourne. AXA’s ‘Hearts in Action’ programme is designed to get employees to
devote some time to community groups and organisations, including
The New Zealand operations are reasonably autonomous, although being the elderly, children, and the Ronald McDonald House.
part of a larger company provides some benefits, such as access to
benchmarking data. A global synergy group ensures that all operations Customer Focus
are focused towards the overall vision for AXA Global. AXA New
Zealand’s strategic and business plans, as well as major acquisitions, AXA has to be aware of the needs of two types of customers: the final
must be signed off by the head office in France, but new products can customer, and the intermediaries (e.g. insurance brokers, advisors) who
be approved by the Australasian group. sell its products to the final customer. Forming relationships is part of
the business and AXA works closely with its intermediaries to ensure
In recent years, the business strategy has been to focus on core business that it receives good feedback on its products.
activities and divest in other areas. Over the last few years the company
has divested businesses such as its health portfolio to the Tower Group. The company holds weekly teleconferences for its intermediaries and
AXA sees its core business as ‘wealth protection and creation’. discusses with its aligned advisors the potential to make changes to
products. An advisor satisfaction survey is carried out twice a year for
The company approaches growth organically and through acquisitions. any additional feedback. An example of this in practice was the
In 2001, AXA purchased the Sterling Grace Group as a sales and development of a new computer programme for illustrating life insurance
distribution arm. The purchase of the group provides AXA greater access policies. Throughout the prototype phase the company continued to get
to an advisor network. Under the current framework, there are three feedback from its advisors, culminating in a more user-friendly final
types of advisors: aligned AXA advisors, financial planners, and brokers. product.

AXA New Zealand has 283 full-time equivalent employees and the Employee Practices
Sterling Grace Group employs a further 68 full-time equivalents.
AXA New Zealand is proactive in its approach to developing its
employees. Each year, employees undertake a development planning
Business Practices
session and coaches are available to ensure employees have access to
The company uses the Baldrige criteria guidelines to help it develop the training they need. These performance management plans are based
appropriate practices, and has been rewarded for its focus on business on a balanced scorecard approach. Large-scale training exercises are
improvement by being named the winnter of the Insurance Sector in usually outsourced to training providers.
the Startel Group CRM Customer Service Awards for the past two years.
The company is able to offer its employees access to external mentors
Leadership and Planning through its involvement in the New Zealand Institute of Management
mentoring programme, and an internal leadership programme has been
As one would expect, the company’s size makes it necessary to have designed to further increase the potential of its employees.
well-developed planning processes. AXA NZ has a three-year strategic
planning cycle as well as an annual planning cycle. The process starts A study leave policy allows employees to participate in job-related
with the New Zealand executive team, which re-visits the strategic plan, courses. They are allowed up to eight hours a week off work to attend
then communicates this to the functional unit level. Once each functional lectures and can have extra time off for exams. The company pays for
unit has provided its input, the information is collated again at senior the fees entirely unless the employee leaves within 12 months, in which
level. case they are liable to pay a proportion of their fees.

A communication plan is set in place to ensure that the plan is translated Bonuses are the main mechanism for rewarding staff. All staff members
throughout the organisation. Feedback is provided to employees through have a base level of remuneration, and extra performance rewards vary
a variety of mechanisms including: team talks, senior manager for different staff members. Executive-level employees receive individual
presentations to staff, the Intranet, weekly team meetings, ‘news breaks’ incentives, whereas lower-level employees are more likely to receive
with breaking news, and the ‘monthly dashboard’ and the ‘altimeter’, team-based incentives.
which graphically measure progress towards goals.
Innovation and Technology
Three years ago, the company employed external consulting company
McKinsey to undertake a business environment analysis, to be used for AXA NZ introduced the ‘Master Trust’ product as the result of extensive
its annual planning. Each subsequent annual planning session has market research. The product offers a different type of superannuation
reviewed this document. and took two years to develop, one year of which was spent developing
the administration system to support the changes. The key to the
AXA NZ is in the midst of the three-year strategy that was developed company’s ability to develop new products such as the ‘Master Trust’
from the business environment analysis. The programme sets strong has been its tight project planning process and being able to be quite
goals and a strategic direction, which remain set in stone until specific up-front. The company also has strong capabilities in the
completion. evaluation of its new product developments.

The organisation considers that leadership in this type of business

requires involving others, rather than taking a command-and-control

33
34
3 - NEW ZEALAND BUSINESSES:
PRACTICES AND PERFORMANCE
To operate successfully, firms today must compete on a The following charts show the distribution of results
range of levels, such as flexibility, innovative design across the strategising/practices and operational
and product variety, shorter delivery times, and links outcomes indices. It is suggested by the charts that
between suppliers and customers in the value chain. firms’ relative strengths are in customer focus and
These bases of competition necessitate an organisation information and benchmarking practices and that there
that is quick to respond, flexible, creative and is greater scope for improved innovation and
innovative, and co-operative. technology and employee practices. It should also be
noted that a distinguishing feature of the distribution
This chapter broadly outlines the extent to which New of scores on customer focus is that it is flatter and does
Zealand firms have the foundations of good business not reflect the ‘bell-shape’ distribution on the other
practices required to compete successfully, and indices. Hence, there is a reasonable proportion of firms
considers those factors that differentiate the highest that score quite low on this index.
and lowest achieving firms.
Figure 6. Distribution of Indices
It then compares the broad results achieved by Strategising/Practices Index Results
manufacturing firms between the 2001 and 1997 35
surveys.1
30
27
■ BroadResults for 25
23
New Zealand Firms2
20 19
As with previous studies, few firms have reached the %
upper limits of the operational outcomes and 15
strategising/practices indices, and hence few are likely 11
to have developed the underlying co-operative and 10
8
7
organisational learning culture critical for sustainable
competitive advantage and world-class performance.3 5
3
2
However, the majority of firms score above the halfway 0 0
mark on both the outcomes and practice indices. If 0
0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100
these firms can develop their practices further, the New
Zealand business sector should have a sound base for
sustained competitiveness.
Operational Outcomes Index Results
35
The broad results suggest that many New Zealand firms
31
have relatively good customer focus and information
30
and benchmarking practices, as close to 30% of firms 28

reach the top brackets on these indices (70-100), and 25

the majority (close to 60% for customer focus and 70%
for information and benchmarking) score 50 or more, 20 18
although the results for customer focus are more % 17

dispersed. The results on the quality and supplier focus 15

and leadership and planning indices are also
favourable. On these indices, the majority of firms 10
score 50 or more (close to 60% on each) and around
20% score between 70-100. 5 3
2
1
0 0 0
0
However, as with previous studies, the indices suggest 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100
that many firms have not adopted a strategic approach
to organisational development and are not focusing on
two critical areas: employee practices and innovation
1
and technology practices. Half of firms (51%) score 50 The Gearing Up (1999) study reported on the results of the 1997
Manufacturing Business Practices Survey.
or higher on employee practices and fewer than 30% 2
Note: i) all intervals are lower-bound inclusive and upper-bound
score 50 or more on innovation and technology, with exclusive – except for the highest interval, which is lower- and
only 19% scoring 70 or more on employee practices upper-bound inclusive; ii) where the terms ‘firms’ or ‘businesses’ are
and 12% scoring 70 or more in innovation and used in relation to the results, interpret these as ‘enterprises with 6 or
technology. more FTEs’.
3
This is consistent with the findings of Campbell-Hunt C and Corbett
L M (1996) and (1998).

35
 Leadership & Planning Index Results Employee Practices Index Results
35 35

30 30

25 25
22

20 20 18
% %
15 15 15 15
15 14
13
15 14
13

10 9 10 9

5 5 5
5 5 4 4
2 2
1
0 0
0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100

Customer Focus Index Results Quality and Supplier Focus Index Results
35 35

30 30

25 25 23

19
20 20
% % 16 16
15
15 13
14 15

10 10 10
10 8 8 8
10
7 6 6

5 3 5 4
2 2

0 0
0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100

Innovation and Technology Index Results Information and Benchmarking Index Results
35 35
32

30 30

25
25 25
22

20
20 20 19

% %
15 14 15
11
10
10 10 9
8
7
6
5
5 3
5
3 3
2
1 1 1
0 0
0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100

36
However, these broad results should be interpreted with 1 – about 2.5% of firms have both practices and
some caution due to the simplistic way in which the outcomes scores of 75 or higher. This group of firms is
indices were constructed (also refer to the caveats on likely to be internationally competitive and compare to
index creation noted in Strengths and Limitations of the the world’s best.
Study on page 31). It is important to consider the results
on each practice on a question-by-question basis. For 2 – around 21% of the firms have practices and
example, as shall be discussed in subsequent chapters, the outcomes scores of 60 or more (but do not score 75 or
information and benchmarking index tends to overstate higher on both indices). These firms have a strong
strengths in this area (the strength in this practice appears foundation of practice and performance, but world-
to be in information management rather than class performance is likely to require a continued focus
benchmarking), and the innovation and technology index on improvement.
tends to underplay strengths in this area (due to an
overemphasis on activities that support formal R&D 3 – some 24% of firms have strong operational
rather than informal innovation supporting activities). outcomes (scoring 60 or more), which may not be
based on their business practices. In the long-term,
As was the case with similar New Zealand and overseas these outcomes may not be able to be maintained
studies, the business practices scorecard reveals some without improvements to practices.
outliers. For example, some firms achieve a high
operational outcomes score whilst having a low 4 – some 7% of firms have a good foundation of
strategising/practices score. Apart from the various practices in place (scoring 60 or more) but do not have
caveats already made about the simple linear operational outcomes to the same level. In time, these
relationship, this may also reflect some inconsistency practices should result in improved outcomes.
between the firms’ strategies and business operations,
or the length of time the practices have been in place 5 – about 45% of businesses show both practices and
and the lag between converting them into measurable outcomes below 60. These sites should look to
outcomes (Australian Manufacturing Council, 1994). extensively develop their capabilities to enjoy improved
High outcomes may not be sustainable in the long-term operational outcomes.
without a pro-active approach to continuous
improvement. Firms with a high strategising/practices The New Zealand business sector’s average scores and
score but a low operational outcomes score may not yet other statistics on each element of the BPPS are shown
have converted their improved practices into in figure 8.
operational outcomes.

Figure 7 illustrates the proportion of firms that scored

in different intervals on the strategising/practices and
operational outcomes indices.

Figure 7. Distribution of Results4 Distribution of Results

100
3 1
90

80

70
2
60
Outcomes

50

40

30

20

10
5 4
0
10 20 30 40 50 60 70 80 90 100

Practices
4
This figure is adapted from Hanson P and Voss C (1995), pp 65 –
66; Manufacturing Advisory Group (1994), p 27.

37
 Figure 8. Descriptive Statistics for Indices
Maximum Quartile3 Median Quartile1 Minimum Range Mean Mode

Strategising/Practices 91 62 53 43 4 87 52 53
Operational Outcomes 90 67 59 51 25 66 59 68
Leadership and Planning 100 65 53 38 0 100 52 86
Employee Practices 100 67 51 35 0 100 50 49
Quality and Supplier Focus 100 66 53 40 0 100 53 58
Customer Focus 100 75 60 38 0 100 56 67
Information and Benchmarking 100 71 61 46 0 100 57 70
Innovation and technology 100 55 44 33 0 100 45 50

■ Leaders and Laggers Similar and previous surveys have emphasised that the
leading group performs substantially better than the
Using definitions consistent with those adopted in the lagging group on all elements of business practices,
previous studies, Leaders have been defined as those confirming the basic underpinnings of the model.
firms that score in the top 20% on both the Similarly, the table above shows that Leaders
strategising/practices index and the operational consistently out-rate Laggers across all indices. This is
outcomes index; i.e. they not only have good practices not particularly surprising because, by the definition of
in place but have linked them effectively to operational Leaders and Laggers, Leaders will outperform Laggers
outcomes. Firms in the bottom 20% of both indices do on practices and outcomes. However, comparison of the
not have practices in place to achieve good operational individual indexes gives insight into the areas of
outcomes and are designated Laggers. business practice that most clearly differentiate Leaders
from Laggers. This difference can be clearly shown by
Leaders are shown in the top-right area of the calculating the Leaders’ scores as a percentage of
scorecard (Figure 5 on page 30) and Laggers are shown Laggers’ scores.
in the bottom-left area.
From figure 10, it is clear that the particularly
What distinguishes Leaders from Laggers influential business practice is customer focus and, to a
lesser degree, employee practices and leadership and
Figure 9 contrasts the average Leader and Lagger scores
planning also appear to be important. The chart
on the practices and outcomes indices with the overall
indicates that there are relatively fewer differences
average score.
between Leaders and Laggers in the adoption of
information and benchmarking, innovation and
technology and quality and supplier focus practices.
Figure 9. Average Leaders’ and Laggers’ Scores
compared with the Overall scores
Leaders’ Laggers’ Overall
Average Average Average
Score Score Score

Strategising/Practices 74 28 52
Operational Outcomes 76 43 59
Leadership and Planning 73 29 52
Employee Practices 74 27 50
Quality and Supplier Focus 73 31 53
Customer Focus 81 19 56
Information and Benchmarking 76 31 57
Innovation and Technology 69 29 45

38
Figure 10. Leaders as a % of Laggers
Leaders' score as Percentage of Laggers'

269
Strategising /Practices

175
Operational Outcomes

250
Leadership & Planning

281
Employee Practices

Customer Focus 423

Quality & Supplier Focus 239

Innovation & Technology 238

Information & Benchmarking 240

0 50 100 150 200 250 300 350 400 450

%

■ Broad Results for Manufacturing information and benchmarking, customer focus and
quality and supplier relations practices, and that there
Firms and Comparison with Gearing is still scope for improved innovation and technology
Up5 and employee practices.
Gearing Up indicated that, as of 1997, manufacturers
The New Zealand manufacturing sector’s average and
had a high degree of customer focus, with close to a
median scores for 2001, compared (where possible) with
third of the firms scoring 80 and above on this index
1997, are shown in Figure 12.
and the overwhelming majority (83%) scoring 50 or
more. The results on the supplier relations and quality
Although not directly comparable, due to differences in
and operations indices were also favourable. On both
the survey questions, there appears to be little change
these indices, the majority of manufacturers scored 50
in the average index values between 1997 and 2001.
or more (close to 60%) and close to 13% scored
Given that the study surveys a large number of firms
between 80-100.
on a wide range of business activities, this low
variation could be expected over the relatively short
However, Gearing Up indicated that manufacturers
interval of four years. In this context, two changes are
scored relatively poorly on leadership and planning
particularly salient: leadership and planning practices
and innovation and technology practices. Less than
apparently display an improvement and customer-
half (about 48%) scored 50 or higher on these indices,
related practices a reduction over the period. We
with 3% scoring 80 or more on leadership and
examine this in more detail when we describe the
planning and 7% scoring 80 or more in innovation and
results for individual practices in subsequent chapters.
technology. In addition, the survey indicated that the
majority of manufacturers were not recognising that
As will be seen in chapter 15, New Zealand
their employees were an important source of
manufacturers also appear to have some catching-up to
competitive advantage or that they had so far
do with their Swedish counterparts on most practices,
considered employee practices an area too difficult to
with the exception of innovation and technology and
improve. On this practice, only 47% of manufacturers
customer focus (the average score was similar between
scored 50 or more and barely 4% scored 80 or above.
New Zealand and Sweden on these indices) and
information and benchmarking (the average in New
How has the situation changed since the Zealand notably exceeded the average in Sweden).
Gearing Up survey?
Figure 11 shows the distribution of results for
manufacturing firms with 10+ employees in 2001
across all the practices indices and the outcomes index.
5
It is suggested by the charts that, in 2001, Note that this includes only manufacturing firms with 10+
manufacturing firms’ relative strengths are in employees to ensure comparability with the Gearing Up sample
selection.

39
 Figure 11. Distribution of Indices for Manufacturing Firms
Manufacturers 10+ Manufacturers 10+
Strategising/Practices Index Results Operational Outcomes Index Results
40 40 38

30 29
30
27

24

% 20 18 % 20
16

13 13

10 8 10

4 4
2 2
1
0 0 0 0 0 0
0 0
0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100

Manufacturers 10+ Manufacturers 10+

Leadership & Planning Index Results Employee Practices Index Results
40 40

30 30

22

19 19
% 20 % 20
17
16 16
15
14
13
11
9
10 10
6 6
4 4 4 4

1 1 1
0 0
0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100

Manufacturers 10+ Manufacturers 10+

Customer Focus Index Results Quality and Supplier Focus Index Results
40 40

30 30

21
19 19
% 20 18 % 20
17

14
13
11
10
9 9
10 8 8 10
6
5
4
3 3
1 1

0 0
0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100

40
 Manufacturers 10+ Manufacturers 10+
Innovation and Technology Index Results Information & Benchmarking Index Results
40 40

32

30 30

22 22
20
% 20 % 20
16
14 13

10 10
10 8 10 7
8

4 5
3
2 2 2
1
0
0 0
0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100

Figure 12. Descriptive Statistics for Manufacturing Indices

2001 1997
Mean Median Mean Median

Strategising/ Practices 55 57 55 55
Operational Outcomes 61 62 59 59
Leadership & Planning 55 56 48 49
Employee Practices 51 50 49 48
Customer Focus 60 64 70 72
Quality & Supplier Focus6 58 58 54/56 54/55
Innovation & Technology 48 44 49 49
Information & Benchmarking 61 64 57 59

6
Note that, in 1997, Quality and Supplier Focus were separate
indices.

41
42
4 - LEADERSHIP AND PLANNING
As can be readily observed, and as has been reported in business’s goals to achieve top performance. These
study after study, leadership is the key driver for roles – acting strategically and achieving coherence
change, effective performance and business success. and coordination – are critical for the relatively small
New Zealand businesses looking to compete
Leadership is different from management (although both internationally.
are equally important). Leadership is about influencing –
setting direction and inspiring, motivating and gaining Figure 13 summarises the differences between Leaders
the commitment of others to move in that direction. (the leading businesses), Laggers and firms overall
Management is about organising – delegating tasks, across the leadership and planning index.
coordinating resources, monitoring and problem solving.
A ‘leader’ can be any employee who develops and Figure 13. Leadership and Planning Practices
inspires innovative policies and ideas; they don’t
Question: This business ... Leaders All Laggers
necessarily have to carry a managerial designation
(Matheson, 2000; Spagnola, 1996). formally sets goals for more
than one year 39% 18% 9%
Over the last five to ten years, there has been has a vision statement 85% 48% 15%
increasing interest in discovering those qualities and
characteristics that make a good business leader. These promotes company values ‘a
traits commonly include a combination of drive, great deal’ 81% 44% 14%
motivation, honesty, integrity, self-confidence, and ‘always’ incorporates
charisma, somehow beyond that of other people. Some customer requirements when
recent studies have outlined the characteristics that developing goals 72% 55% 21%
make an effective leader in New Zealand and what
qualities might be lacking (see Business Leadership in ‘always’ incorporates supplier
New Zealand: Characteristics and Influences, page 44). requirements when
developing goals 38% 20% 5%
But in addition to behaviours, there are key activities ‘always’ incorporates
and processes recognised as forming the foundation of employee requirements when
good leadership and planning in business. These developing goals 63% 36% 11%
include (see, for example, Bass, 1985; Kouzes and
Posner, 1987; Bennis, 1989; Kotter, 1995; Collins and has sponsored or donated to
Porras, 1997): community activities 94% 82% 58%

• a vision, aim or purpose for the organisation has measures to reduce its
environmental impact 71% 47% 21%
• business planning that considers short- to medium-
term (one to two years) and long-term goals (two has, or is planning to
years plus) implement systems to gain,
environmental certification 27% 9% 4%
• consultation with employees, customers and
suppliers in developing the purpose and goals (and
promoting an environment in which suggestions and
■ Acting Strategically
innovative thinking is fostered)
• promotion of shared goals and values throughout In its strategic role, planning has been subject to
the organisation, and increasing criticism. It is often regarded as being too
centralised, too complex, and too reliant on an ability
• consideration of the role of the community in the to predict the future to be useful in a dynamic,
success of the organisation. competitive environment (Mintzberg, 1994; Grove,
1999; Levy, 1994).
Through these elements, leadership and planning in
organisations serves two key functions and, along with Since the reforms of the New Zealand economy in the
employee practices, is one of the central elements of mid-1980s, studies of firm strategy have repeatedly
the Business Practices and Performance Model. First, it found companies to be struggling with heightened
helps a firm to maintain a direction over time and can degrees of competition and market uncertainty. Under
help a firm to act strategically. Second, it helps a firm these conditions, long-term, rigid planning will
to achieve a degree of coordination and coherence struggle to give shape to a firm’s strategy.1
across the broad sweep of its activities, often through
motivating people (employees, suppliers, other 1
See, among others, Campbell-Hunt, Harper and Hamilton (1993a)
stakeholders) and securing their buy-in to the and Campbell-Hunt and Corbett (1996).

43
 ■ Business Leadership in New Zealand: Characteristics and Influences
World Famous in New Zealand: How New Zealand’s Leading the attributes considered necessary for effective leadership in New
Firms Became World-Class Competitors (Colin Campbell- Zealand organisations.
Hunt/CANZ (2001), Auckland University Press)2
The GLOBE project aims to develop an empirically-based theory to
This study involved a longitudinal, multi-disciplinary, multi-investigator describe, understand and predict the influence of cultural variables on
inquiry into the evolution of competitive capability in ten selected New leadership and organisational processes. The GLOBE community now
Zealand firms, across a range of industries. The histories of the companies comprises around 170 researchers in over 60 countries. The final set of
were built up on the basis of documentary records and a number of leadership dimensions used in the GLOBE study were derived from the
extensive interviews with the top management of each firm, followed analysis of responses to approximately 16,000 questionnaires from
by feedback sessions. Further in-depth inquiries were conducted, middle managers of approximately 825 organisations in 64 countries.
including on-site observation, interviews and action research.
Of all 62 cultures (from 60 countries) in the study, New Zealand gave
The historical record of firms indicated that their leaders played a direct the highest rating to Performance Orientation. The middle managers in
or indirect role in the development of several competitive capabilities the survey clearly believe that New Zealand society encourages and
such as networks of relationships with other businesses, high quality rewards people for performance improvement and excellence. Kennedy
relationships with workforces, reputations among consumers and (2000) suggests that this may be a result of the deregulation of the
influencers, innovations, and effective organisational learning. The study economy from the mid-1980s, which opened our firms to international
also isolated traits in the leaders that could be shown to have made a competition, and removed any remaining governmental subsidies or
contribution to the evolution of these capabilities. These traits included: protection. Given the distance to most of our trading partners, companies
have had to lift their performance to (or above) international standards.
• Innovators – leaders had often played an important role in initiating
and fostering the innovations that had launched their firms on a New Zealand respondents also rated our society as comparatively high
trajectory to global success. At times, a leader’s passion for technology on Uncertainty Avoidance (ranking 8th highest in the sample). Again,
also impacted on the balanced development of the firm’s portfolio the dramatic changes in the economy during the late 80s and early 90s
of capabilities. When technology was placed at the centre of a may have generated a possible weariness, which is reflected in a desire
company’s competitive advantage, the leader sometimes forgot to for greater stability, certainty, and predictability. This seems somewhat
place enough attention to the other requirements of business success, at odds with the reluctance by most firms to plan for the longer-term.
such as customer acceptance and profitability.
New Zealand also scored the lowest of all countries on the Assertiveness
• Dynamos of energy and resilience – another attribute of
dimension of leadership. Respondents clearly believe that, in comparison
entrepreneurial personality is boundless energy, and leaders of the
with other countries, assertion, dominance and aggression are not normal
exemplar organisations in this study displayed the trait to a fault.
aspects of social relationships in New Zealand.
Energy was often expressed in the will, drive and determination to
embrace change constantly or create it, and resilience in the face of
New Zealand’s rating on the Future Orientation dimension ranked 43rd
disappointment.
among the surveyed countries. The results suggest that New Zealand
• International outlook – the leaders of firms in this study, some doing leaders place a comparatively low emphasis on future-oriented
business in 50-60 countries around the world, have always been behaviours such as planning, investing in the future, and delaying
able to put their New Zealand-based business in a global context. gratification; a finding that is consistent with the overall planning
They are seasoned travellers and use their knowledge of global trends findings in the BPPS. Managers in the survey expressed a desire for a
in their industry to anticipate change. much higher emphasis on future orientation, and identified this as an
area they believed required the greatest amount of change.
• Affinity with workforce – particularly for the businesses that are
owner-operated, the owner-manager feels a sense of responsibility
New Zealand middle managers were looking for leaders with confidence
and commitment to employees that can be stronger than any quest
and conviction, who could arouse passions, demonstrate and impart
for return on investment. In several cases, the founders of these
strong positive emotions for work, and stimulate people to exceptional
businesses took the view that the workforce should participate quite
efforts. There was little tolerance among respondents for leaders who
fully in the success of the business. Many of the leaders of the
made decisions in a dictatorial manner, and who did not place importance
exemplar companies were clearly the source of the behaviours that
on a team ethic in accomplishing goals.
supported high-quality, long-term relationships. The attributes of
trust, goodwill, integrity, and reciprocal co-operation and dependency
New Zealand managers also value leaders who inspire enthusiasm and
that characterise these relationships are often direct expressions of
generate commitment among staff. They must be able to achieve
the leader’s own norms.
challenging goals, and to push out the boundaries in striving for higher
• A willingness to grow – often the businesses studied went through standards. Perhaps in reaction to the perceived low emphasis on Future
huge transformations, during which sales doubled every year and Orientation, the managers placed importance on a leader being able to
created enormously complex challenges and issues in managing the demonstrate foresight, to plan ahead, and to take actions in consideration
growth. The leaders also had to be willing to allow for and drive this of future goals.
growth so as not to limit the enormous growth potential of their
firms.
2
Also see: Campbell-Hunt C (2001), In Search of Strategic Leadership,
GLOBE Study of Leadership in New Zealand (Jeff Kennedy Keynote address to the New Zealand Strategic Management Society
Conference, University of Waikato, February.
(2000), Lincoln University)3 3
Kennedy, J (2000), Leadership in New Zealand: Findings of the
Globe Study, International Journal of Organisational Behaviour, Vol
This study reported on the New Zealand findings of the Global Leadership
2, No 4, pp 45-52.
and Organisational Behaviour Effectiveness (GLOBE) project regarding

44
But although firms’ strategies can no longer be planned Q 2.1 Does this business have a formal planning process
(regular meetings and/or written documents)
in great detail over the long term, long-term goals must that sets goals for:
80
still guide firms’ activities into patterns of sustained
71
effort. By putting some signposts in place, strategising
enables businesses to see the path forward and guards 60
against unnecessary detours. It thus helps to reduce %
business risk and focus the organisation’s efforts 40 37
towards specific actions. 33
29 29

Without sustained strategies, the actions of a firm 20 18 18

12 12
become no more than reactive (Miles and Snow, 1978). 10
6
11
7
It becomes completely at the mercy of uncertain market 0
1
3
0
3 2

environments, with no opportunity to cumulate up to

6 months
up to
1 year
up to more than don’t know not
2 years 2 years applicable
strength over time nor to sustain momentum against its
rivals. Leaders All Laggers

In particular, studies of firms experiencing long-lived contemporary New Zealand business environment and
success suggest that a broadly stated long-term aim,
of an economy seeking out positions of advantage that
vision or purpose for the organisation is critical. These cannot yet be held with certainty. Leading businesses’
more broadly stated aims are relevant to a wider range response to this dynamic market has not been to
of possible development paths. They permit extension
abandon planning altogether or focus solely on the
and adaptation widely throughout the organisation and short-term, but to balance the need for sustained
are relevant for all the various stakeholders strategy with the need to allow planning processes to
(management, employees, shareholders and the
evolve quite rapidly in response to new opportunities
community). or challenges.
For example, Collins and Porras in ‘Built to Last’ (1997)
Laggers, by contrast, have typically (71% of them)
found in their research that the fundamental abandoned planning altogether. They report that they
distinguishing characteristic of the most enduring and do not have formal planning processes (regular
successful firms is that they preserve distinctive and
meetings and/or written documents) for setting goals of
core beliefs (what a firm stands for – its values), which, any duration. In this abandonment of planning they
together with an ‘envisioned future’, constitute the distinguish themselves from Leaders (leading
vision.4
businesses) more comprehensively than in any other
aspect of leadership and planning business practices.
A vision is not just about creating a slogan. A good When Laggers do plan, very few venture beyond the
vision statement is the dream for the organisation, and
short-term horizon – only 4% plan for horizons longer
will convey why a business exists and what the than a year.
leadership of the organisation wants the business to
become. It articulates a credible, yet ambitious, future
Comparing Leaders’ planning practices to those of all
for the business that is better in some important ways firms, many more Leaders plan for a horizon greater
than what currently exists, and that retains relevance than two years (29% against 11%); and far fewer
even though the path to achieving that vision may
Leaders have given up on formal planning of any
have to be adapted.5 A vision can assure customers of a horizon (7% against 29%). Average planning practices
commitment to quality and service; communicate to are thus some distance behind Leaders’ practice.
suppliers the business’ ongoing standards and
expectations; and motivate employees to greater The pronounced difference between leading firms and
heights (La Rooy, 1999). Laggers in developing visions is of the same magnitude
as that between their planning practices, and is best
understood in tandem with them.
■ Evidence of Vision and Planning
Even among leading firms in New Zealand, only 29% The vast majority of leading firms, as we saw above,
have formal planning processes that set goals beyond have formal planning processes with most of these
two years. However, 76% of leading businesses aimed at least at the medium-term horizon of one to
certainly have plans that extend beyond six months two years. Relatively few leading businesses use long-
(39% set goals for more than one year). That most term planning (two years plus) to create sustained
leading firms choose to focus on the medium-term is 4
Cited in Noy E (1998), p 928.
consistent with our prior expectations of a dynamic, 5
See also Eisenhardt and Sull (2001).

45
 Q 2.3 Does this business have a vision statement? Overall, leading businesses are:
100 • much more likely to use formal planning practices
85 and visions to act strategically in their activities
80
than are either Laggers or average firms
60 • much more likely than either lagging or average
% 48 firms to plan for horizons longer than two years,
40 even though the Leaders who do this are in the
minority.
20 15

0
yes ■ Coordination and Coherence
Having a vision and goals is not enough – good
Leaders All Laggers deployment is the hard part. ‘Leaders’ in organisations
must cultivate the deployment process through which
strategies but nearly all (85%) make use of more stakeholders gain and commit to a shared sense of
broadly defined vision statements to help them develop what they are doing and where they are all going
sustained strategies in the face of increased levels of (Matheson, 2000). A coherent pattern of mutually
uncertainty in the business environment. For Laggers, reinforcing activity across the whole enterprise is now
the situation is exactly the reverse: 85% do not have a considered to be an asset that can differentiate a firm
vision statement. Laggers seem to be very much from its competitors in ways that they will find very
reactive, with few mechanisms of their own to guide or hard to imitate.6 A coherent system is a product of a
influence the unfolding of events. In addition, many firm’s accumulated learning about how it can best
more leading firms make use of vision statements than compete in a market.
firms overall (48% of all firms have vision statements).
The complexity of a firm’s overall system and processes –
The firm visits demonstrated that being proactive and why it works well, and how it integrates a broad range of
forward thinking enabled leading firms to better diverse actions – can be expected to protect the company
anticipate business opportunities. As a consequence, from competitors’ imitation (Dierickx and Cool, 1989).
most leading firms interviewed reported having This can be seen in practice too. In recent research, New
planning processes that included broad long-term plans Zealand’s leading international firms were asked what
(some up to ten years ahead), which were then differentiates them most powerfully from their world-
supported by yearly or six-monthly detailed plans of class competitors and they pointed to the coherence of
action, typically developed through annual strategic their activities: the way the whole enterprise comes
planning days or sessions with staff. In turn, these were together to deliver value to the customer.7
often supported by monthly meetings to consider plans
and allocate tasks and budgets (even in quite small This coherence can be achieved through:
businesses), and regular evaluations of progress
(anything from monthly to yearly). It was also clear • a set of company values that govern the full range
from the firm visits that many managing directors had of a firm’s decisions in a wide variety of
‘informal’ plans covering longer-term horizons and circumstances, and that are promoted and shared
goals, but had not written these plans down as business throughout the organisation
documents or discussed them with other staff. • consultation with employees, customers and suppliers
in developing the business’s purpose and goals
A number of firms admitted that forward planning had
• consideration of the role of the community in the
been neglected in the recent past due to a focus on re-
success of the organisation.
organisation or not having enough time to think
strategically. Some were looking to employ external
A key mechanism open to firms to guide their
expertise to provide independent advice for planning
development is promoting a widely-shared set of values.
and others were aiming to take more time out of the
Values are about behaviour and set out how a business
organisation to strategise, and had succession plans in
intends to operate and make decisions, and the nature of
place or were developing other staff to allow them to
the relationships with staff, customers, suppliers and
do this. However, other firms cautioned about too much
society as a whole (for example a commitment to quality,
planning with some considering anything beyond two
loyalty, taking risks, being ‘green’). By ensuring that
years was not helpful due to high levels of uncertainty
in their business and that plans lead to less flexibility 6
What Michael Porter calls an activity system (Porter, 1996).
and ‘paralysis by analysis’. 7
See Campbell-Hunt/CANZ (2001).

46
strategic decisions remain consistent with these values, Q 2.4 To what extent does the business promote a set of
company values to its employees?
no matter where they may be made in the firm, a degree 100
of coherence and sustainability is achieved in the firm’s
strategy. At the same time, this permits a wider scope for 80
81

autonomous action than centralised planning can allow.

60
According to Kotter (1995), good leaders instil values %
44
40
by ‘walking the talk’ – this includes how they react to 40 38

stress, their enthusiasm, how they reward achievement 24

and whether they keep their promises. In routine 20 19 18
14
9
discussion about a business problem, they talk about 4 2
6
0 1 0
how proposed solutions fit or don’t fit into the bigger 0
not at all a little a moderate a great deal don't know
picture. In regular performance appraisal, they talk amount
about how the employee’s behaviour helps or
undermines the vision and values. Leaders All Laggers

Another related feature of good leadership practice is promulgation of company values is no less
an effort to engage the commitment of key stakeholders pronounced. Less than half of Laggers (43%) give no or
in the company’s success. The theoretical foundations little attention to values. Of all respondents, 44%
for understanding the value of close and cooperative promote company values ‘a great deal’ to employees,
relationships with employees, suppliers and – through a and a further 40% of businesses promote values ‘a
strong reputation – with customers, has been moderate amount’. Only 14% of Laggers report that
considerably strengthened by the resource-based view they promote company values ‘a great deal’. This lack
of the firm (Wernerfeldt, 1984; Barney, 1991). of setting an example by some firms is consistent with
Intangible assets such as reciprocal goodwill and trust other leadership surveys in New Zealand (see Do New
improve the willingness of business partners to adopt Zealand Leaders ‘Walk the Talk?’ on page 50).
risky, but beneficial, strategies of mutual dependence
and co-operation. This may be achieved by adopting Key leadership characteristics that help to instil values, as
specialised roles within a value system, or by investing cited by firms visited, were honesty and integrity, a
in co-specialised assets (Teece, 1986). willingness to change, accepting of criticism, being open
and non-hierarchical, being decisive, setting clear
When these intangible assets accumulate in a complex responsibilities, and having a sound industry knowledge.
network of relationships, they can be very difficult for
competitors to copy (Kay, 1993). Networks of this kind With few exceptions, leading businesses also make a
with suppliers, distributors, employees and customers regular practice of incorporating the needs of all three
have emerged as salient components in the competitive key stakeholder groups in their planning goals. 88% of
advantage of the leading New Zealand international Leaders incorporate the needs of customers either
companies (Campbell-Hunt/CANZ, 2001). ‘frequently’ or ‘always’, and almost all (94%) incorporate
the needs of employees. With regard to suppliers, 76%
The extent to which respondents try to incorporate the incorporate their needs either ‘frequently’ or ‘always’.
goals of their stakeholders in their planning can give some
insight into the importance of these sources of advantage This high incidence of care in the management of
in contemporary New Zealand business practice. stakeholder relationships is consistent with leading
businesses pursuing the kind of high-quality
Evidence of Values and Consultation relationships from which sustainable competitive
advantage can be built.
Leading businesses are nearly as active in their
promotion of company values to employees as they are The distance between these leading firms’ relationships
in disseminating vision statements: 81% report that and those of average and lagging firms varies
they promote company values ‘a great deal’ amongst depending on the stakeholder. There is relatively little
their staff. As the researchers Collins and Porras (1997) difference between leading, average and lagging
would encourage, leading firms apparently make practice when it comes to customers. 88% of Leaders
extensive use of a vision and values as answers to the often (either ‘frequently’ or ‘always’) incorporate
challenge of strategising in uncertain times. customer requirements in their planning; the
proportion for firms overall is 82%, and for Laggers it
As we have seen, Leaders are well ahead of average and is two out of three. It is likely that the stiff competitive
lagging firms when it comes to the use of planning pressures of the New Zealand market leave little scope
processes and vision statements. Their lead in the for firms to ignore consumer needs in their planning.

47
 Q 2.2 In developing goals how often does this business
incorporate the requirements of its customers?
80 80
72

63
60 55
60
%
43
40 40 35
37 36
31
27
23
21 21
19
20 17
20
15
12 11 11 10
9 9
5 6
4 3 3
0 0 0
0
never sometimes frequently always don't know

Leaders All Laggers

Q 2.2 In developing goals how often does this business respondents, a healthy 73% incorporate the
incorporate the requirements of its suppliers?
80 requirements of employees in their plans either
‘frequently’ or ‘always’. Although only one-third of
Laggers do the same, this is nearly double the attention
60
53 that this group of firms pays to suppliers.
%
40 38 38 A hallmark of leading businesses interviewed during
31
29 the firm visits was their emphasis on ensuring open
20 18
22
20 and constant communication flows throughout the
16
10 11 organisation both from the top-down and the bottom-
5 5
1
4 up, and allowing all staff to input into decision-making
0
0 to ensure buy-in from staff for important changes.
never sometimes frequently always don't know
Most reported that their senior managers had open door
policies and that staff forums or meetings are held
Leaders All Laggers
regularly (weekly, fortnightly or monthly) to enable
input into the running of the organisation – rather than
When it comes to suppliers, the contrast between the managing directors taking command and control
leading firms and the others is much more marked. roles. Many firms indicated that flatter management
76% of Leaders often incorporate the needs of their structures and devolution of responsibility were
suppliers in their plans. However, with Laggers the beneficial in achieving this as they allow staff more
proportion is nearly reversed, with 75% incorporating ready access to management to air views or concerns.
suppliers’ needs only rarely (either ‘sometimes’ or
‘never’). Across all firms this practice is almost evenly As indicated, these types of relationships can be
split between frequent (49%) and infrequent important in the development of sustained competitive
incorporation of suppliers needs (47%). advantage.

The relative infrequency of close supplier relationships Overall, the incorporation of significant stakeholders in
has been a salient feature of New Zealand business the planning process is:
practice for many years and has attracted comment in
several reviews of this country’s competitive • important to leading businesses over all stakeholder
development (also see chapter 7 – Quality and Supplier groups
Focus). Comment has been provided particularly in the • typically important for Laggers and average firms,
context of New Zealand’s previously slow record of where customers are concerned
cluster formation (Crockham, Enright and Porter, 1990;
Campbell-Hunt and Corbett, 1996; Yeabsley (ed.) 2001), • important for the average firm’s relationship with its
although there has been a significant acceleration in employees, and
cluster activity over the last two years.8 • seldom featured in the planning of lagging firms, for
either their suppliers or employees.
In consulting employees when planning, the distance
between leading, average and lagging practice falls in
between that for customers and suppliers. Over all 8
See, for example, the range of clusters in New Zealand described in
Cluster Navigators (2001).

48
■ Equinox Limited – Planning with People
Equinox is a team-based software consultancy service based in since day one. A desire to deliver and exceed expectations is
Wellington. The team members are described as ‘software architects’; complemented by an attitude of finding the best technological fit for its
i.e. people who apply the disciplines of architecture and engineering to customers.
the use of computers and software, to create better business solutions.
The company was established in 1987 and now has 30 staff. There are standard rules on how employees interact with customers. An
example of these rules is that, ‘bad news is never delivered by email, it
Equinox saw a niche in the market for providing advice and offering has to be discussed face-to-face’. All staff members are involved in
practical skills – to borrow a phrase, ‘know how, can do’. Equinox sells customer relations, and a clearly defined ‘terms of reference’ sets the
a service, not just software, and works with companies where it thinks framework in which these relationships operate.
it can make a positive and constructive difference.
Because staff often spend most of their time working at the customer’s
All four owners work in the business and are committed to maintaining premises, customers feel that Equinox’s staff are their own and sometimes
a flat, team-based structure so that the company can remain lean and include them in performance review processes.
responsive.
Customer satisfaction is measured formally in reviews at the end of
Over the last few years, Equinox has enjoyed steady growth. Since the major projects, but is more commonly assessed in the course of day-to-
business started up, it has grown at about 24% a year. day work.

Business Practices Customers are encouraged to use Equinox’s facilities, such as the meeting
room and pool table so that Equinox staff can interact more closely
Equinox is working to develop its core capabilities, which in some cases with them.
it believes are world-class. Equinox is dedicated to quality (repeatable
quality), consistency and being responsive to its customers’ needs. The Employee Practices
company can now leverage off the reputation it has built for itself in
these areas. Good business practice at Equinox is ‘about people’. A team approach is
essential for identifying and fostering improved practices because in a
Leadership and Planning team environment experiences can be shared and benchmarking can be
conducted more readily.
A three- to five-year forward-looking plan is used to set the vision for
the company. This is supported by 18-month reviews of the plan, annual Equinox refuses to ‘compromise on the type of people we hire’. Each
business planning, and budgeting processes that reflect the views of week, the company receives four to eight curriculum vitaes from overseas,
the board of directors. Board meetings are held monthly. Equinox and while the company thinks it is important that its employees have
recognises that it operates in a dynamic industry and, as such, needs to current New Zealand experience, it does look outside for talented
remain responsive and flexible (‘What do we need to do to be here in employees. Recently, four employees were recruited from India for seven
five years?’). A yearly conference includes staff in the planning process. months under the Government’s special entry scheme for specialist IT
workers, and this enabled the company to complete a major project.
As part of the planning process, the vision and values of the company
are formally developed, adapted and communicated to staff so that At Equinox, people’s careers are their own responsibility, although teams
they become relevant drivers for behaviour. have an important role to play in assisting career development.
Mentoring and training schemes highlight areas where training would
Equinox is aware that at the 30 FTE-level firms are at a transition be most beneficial and consistent with the company’s core business.
point. For this reason, the company has defined a governance structure Overseas training is also paid for to ensure employees have a broad
with the roles of the board, management and staff clearly spelt out. The perspective on business issues. Most staff members have had some form
planned appointment of an external director will also strengthen of external training over the last year and sometimes this training is
strategic-planning capabilities. provided company-wide.

Performance is measured monthly against agreed key performance The company remains dedicated to improving its employee practices. A
indicators (KPIs). By choice, the company employs a financial advisor consultant bonus scheme was dropped last year because Equinox felt
who specialises in the IT area to complete this review and provide advice that it did not send the right signals. The company wants to re-focus
to the Board. This is seen as a very cost-effective way of drawing on incentive schemes on the company as a whole, in order to maintain and
external experience. Equinox holds discussions twice a year with its develop the team culture already evidenced in the company’s structure.
accountant about the future of the company. As well as the external
quantitative evaluation, the small Wellington market enables Equinox Equinox has a profit-sharing scheme that gives employees 10% of the
to gather information about other firms’ performance. gross profit, shared equally amongst them. Owners are not eligible for
the performance bonus. There is a component of ‘at risk’ pay based on
Customer Focus achieving particular objectives for some staff. The company also
recognises that different staff members have very different needs for
Equinox has always had a strong relationship with its customers and
direction and feedback.
believes that ‘knowledge exchange has to be a two-way street’. There is
compelling evidence of this, with most of its customers staying with it

49
 ■ Community and the Environment can make good business sense. Dealing honestly and
ethically with suppliers, customers and employees,
In an extension to the argument that leading firms will providing good and safe working conditions, and
build strong relations with key stakeholders, the acting as a good citizen in the local community
Business Practices and Performance Model further (through sponsorship or donations to community
suggests that leading businesses will be sensitive to the activities) all help to win customer loyalty and to
mutual dependencies that exist between the success of attract and retain staff.
their business and that of their community. Many
businesses will also be in a position to affect the Environmental concerns, in particular, are becoming of
natural environment. The Business Practices and paramount importance to consumers, producers,
Performance Model suggests that leading firms will governments, and other interested stakeholders
seek to actively control this impact. worldwide. These groups are collectively pressuring
businesses to demonstrate better environmental
The community a business operates within provides its stewardship and accountability (Hormozi, 1997). The
employment, its customers, its suppliers, and its recent debates in New Zealand on Climate Change
resources, so being responsible within the community

■ Do New Zealand Leaders ‘Walk the Talk?’

The 1999 and 2000 New Zealand Leadership Surveys (Ken The implication is that, if perceptions differ significantly between the
Parry and Sarah Proctor-Thomson, The Centre for the Study chief executive and the rest of the organisation, chief executives may
of Leadership, Victoria University of Wellington) be allocating resources inefficiently and ineffectively.

This research considered the perceived capability of future New Zealand In addition, while many good characteristics of leaders in New Zealand
leaders as seen by top managers reviewing their immediate subordinates. (such as a high degree of integrity) were noted, there were several areas
of concern that needed addressing, such as:
The 1999 study generated its results from a nationwide survey of 1300 • New Zealand’s future leaders are more motivated by reactive and
managers (although the response rate was 20%). Respondent managers ‘carrot and stick’ factors than their US and Australian counterparts
worked in the full range of industries across New Zealand in both public
and private sectors.9 The focus of the research in 2000 was the leadership • only 51% of the immediate subordinates were perceived by the top
present in work groups or units. This survey involved 900 managers.10 managers as having the capability to move into senior management
and be more effective leaders
The 1999 study found that New Zealand business leaders seem to see • 42% of middle and senior managers did not consider development
things through rose-tinted glasses when it comes to understanding of subordinate leaders to be the organisation’s responsibility. It was
leadership and cultural dynamics of their organisations. The survey also considered that only one in four of our best potential
suggested that chief executives’ assessments about key organisational management talent might still be in New Zealand in five years time.
issues (perceptions of culture, organisational effectiveness, morale and
productivity, for example) are significantly more positive than those of The 2000 study indicated that New Zealand leadership scored strongly
lower-level managers. on trustworthiness, conscientiousness and humour. Findings that need
addressing include:
Chief Executives see their organisations more favourably than lower-
level managers in five ways. First, chief executives see their • only 50% considered that individuals going beyond the call of duty
organisational culture as being high in transformational leadership or enacting functions additional to their job description were present
(encourages and supports innovation, widespread support for goals, in their groups
open communicative environment); whereas lower level staff see their
• while task cohesion was strong, social cohesion within groups was
organisation as having transactional leadership (strong individualism,
weak
promotion of self-interest, internal competition, rules and procedures,
staff do not identify well with vision). • innovation did not score well in either organisational support for
innovation, or the supply of resources that enabled innovation to be
The second way in which chief executives see their organisations more undertaken.
favourably than their managers is in the area of perceived organisational
effectiveness.

Third, chief executives see the environment as being less turbulent than
senior managers think.
9
Parry K (2002), Preliminary Findings from the 2000 New Zealand
Fourth, middle and senior managers experience more role conflict than Leadership Survey, Centre for the Study of Leadership, Victoria
chief executives (contrasting commands from multiple authorities, University of Wellington; Parry K W & Proctor S B (2000), The New
receiving incompatible requests from different sources, having shortages Zealand Leadership Survey 1999, The Centre for the Study of
of resources and personnel). Leadership, Victoria University of Wellington.
10
Parry K and Proctor-Thompson S (2002), Do Our Chief Executives
Finally, chief executives believe their work units have higher morale Really Have their Fingers on the Pulse?, University of Auckland
and effectiveness than lower-level managers. Business Review, Vol.4, No.1, pp 1–11.

50
policy and Genetic Modification provide ample Q 8.1 In the LAST 12 MONTHS has this business put any
money into sponsorship of, or donations to,
evidence. any community activity?
100 94

It is increasingly hard for businesses to justify that 82

80
environmental management is not relevant. Similarly, a
view that environmental management is too new, too 58
60
expensive, or too difficult may be failing to %
acknowledge the current activities that support 42
40
environmental improvements. If an organisation
consumes energy and materials, generates waste or is 18
20
quality-oriented, some form of environmental
6
management will exist (Lawrence et al, 1998). 0
yes no

Businesses can think about environmental impacts in

the same way they think about quality. Like defects, Leaders All Laggers
pollution and waste often reveal flaws in product or
process design (wasted resources, wasted effort, and Q 8.2 In the LAST 3 YEARS were measures to reduce the
diminished product or service value to the customer) environmental impact of this business in place?
100
and represent additional costs – not value – for
customers, for example in handling, storage and
80
disposal. In recognising this, leading businesses see 71

practices to improve environmental impacts as an

60
economic and competitive opportunity to lower the 47 45
cost of products or services or to improve their value, 40 35
37

not as an annoying cost or an inevitable threat (Porter

23
and van der Linde, 1995). 20
21
16

6
Increasing numbers of businesses world-wide are 0
striving to demonstrate a good environmental record yes no not applicable

through activities such as environmental reporting;

providing environmental information with products Leaders All Laggers
and services; developing environmental management
systems; achieving certification to environmental Q 8.3 Does this business have, or is it planning
management system standards, such as ISO 14001; and to implement systems to gain, environmental
certification (e.g. ISO 14000)?
producing publicly available environmental policies 100 96
91
(Lawrence et al, 1998).
80
73

Evidence of attention to the community and

60
environment
%
The vast majority of New Zealand’s leading firms (94%) 40
engage in community sponsorship or donations. This is 27

another area where average (82%) and lagging firms 20

(58%) are not far behind. 9
4
0
yes no
Virtually all firms interviewed in the follow-up visits,
whether Leaders or Laggers, confirmed that they
donated to charities and sponsored local community Leaders All Laggers
groups and activities. Most firms tried to support
activities that were related to the business, as this was a staff. To some leading companies, attention to the
useful marketing strategy and helped to build up their community was seen as a virtuous circle in that by
image and reputation. However, the businesses visited ‘putting back into the community the business ensures
also saw a social good element involved in this community support for the business remains’.
approach. Other initiatives cited in a number of
interviews were newsletters to communicate However, less evident is the active management of a
developments at the firm to the local community, a firm’s relationship with the natural environment. To
commitment to local procurement, and hiring local begin, about a quarter of Leaders (23%), just under half

51
 ■ Environmental Reporting in New Zealand
New Zealand Survey of Corporate Environmental The KPMG International Corporate Environmental Reporting
Responsiveness 2001 and 2002 (Centre for Business and Survey(KPMG International Environment Network and the
Sustainable Development, College of Business, Massey Institute for Environmental Management)11
University)
This is a triennial survey to assess the state of environmental reporting
This survey was introduced in New Zealand in 1999 and is run annually by the largest companies world-wide. For the 1999 survey, KPMG
by the Centre for Business and Sustainable Development at Massey conducted an analysis of environmental reporting by the largest 250
University. It is based on the UK Index of Environmental Engagement, companies in the world, based on the Fortune List, which covers 19
which provides the scope for benchmarking New Zealand firms’ countries, as well as a survey of the top 100 companies in eleven
responsiveness to the environment. The survey is systems-focused, so countries. The companies were asked to provide a copy of their most
does not measure actual environmental performance or impact. It takes recent environmental report or any other annual report if it contained
its sample from New Zealand’s top 200 companies by turnover, and the environmental information.
top 30 financial institutions.
This survey suggests that, by international standards, New Zealand’s
Through the survey, companies assess themselves against ten parameters record of corporate environmental reporting has been very limited. The
of environmental engagement – leadership; environmental policy; 1996 triennial KPMG survey of corporate environmental reporting placed
environmental objectives; environmental targets; communication with New Zealand last among 13 OECD countries. According to Milne et al
stakeholders; employee communication, training and responsibilities; (2001), reflecting the lack of developments since 1996, New Zealand
environmental management system; environmental audit; supplier was not even included in the 1999 report and KPMG actually withdrew
programme; and environmental stewardship, products, processes and its sponsorship of the New Zealand environmental reporting awards
services. In 2001 there were 128 companies in the sample with 66 usable last year after a five-year involvement.
responses (52%). In 2002, there were 119 companies in the sample with
54 usable responses (45%). The 1999 KPMG international survey found that an average 24% of the
top 100 companies in each of 11 countries (excluding New Zealand)
Twenty-two companies in 2001 (33%) and 21 (39%) in 2002 returned issue stand-alone environmental reports. In Australia, 15% of the top
evidence of environmental reporting. Of these, only nine in 2001 (14%) 100 companies issue these reports, up from 5% three years ago. In the
and 10 in 2002 (19%) were stand-alone environmental or sustainability UK, Denmark, Sweden, the US and Germany, the figures are at 30%.
reports; in most cases the remaining returns were Safety, Health and The history of the annual New Zealand awards scheme (see Gilkison,
Environmental Reports or environmental sections from Annual Reports. 1995; 1996; 1997; 1998) shows, at best, five serious corporate contenders.
In 1999, the number fell to two (cited in Milne et al, 2001).
Twenty-nine companies (44%) in 2001 and 27 companies (40%) in 2002
had stand-alone environmental policies that were publicly available, Milne, Owen and Tilt (2001) developed a ‘model’ corporate environmental
while eight companies in both 2001 (12%) and 2002 (15%) had report and sought the views of New Zealand Management magazine’s
environmental policies embedded in another policy. Twelve companies top 200 companies as well as 70 local authorities and non-government
(18%) in 2001 and only 8 companies in 2002 (15%) reported that they organisations, to find out the reasons underlying the poor development
had ISO 14001 accreditation in one or more sites, although several of environmental reporting in New Zealand. Major reasons, they
reported in both years that they were actively working towards gaining suspected, could relate to a lack of established management expertise
accreditation. and systems for generating relevant data, the costs involved in producing
the reports, or a perceived lack of demand from stakeholders.
The five highest ranked parameters for environmental responsiveness
in 2001 and 2002 were: But a lack of management expertise and systems or costs provided few
apparent barriers to environmental reporting. Most companies the
• having a written corporate environmental policy authors surveyed suggested that it was a lack of demand from
• leadership – having a senior executive responsible for environmental stakeholders that was driving their decisions not to disclose
responsiveness environmental information. Whether this lack of stakeholder demand
is something that companies have systematically examined and measured
• considering the impact of products, processes and services or whether it is based on assumptions was not clear.
• measurable environmental targets
Several companies said in their responses that they had sought feedback
• communication with stakeholders. from readers of their annual report regarding the environmental content
and the readers were not interested in stand-alone environmental reports.
In both years the survey found that banking, finance and insurance Several others told the researchers that the provisions of the Resource
sectors are least likely to perceive environmental responsiveness as Management Act were sufficient to create accountability through the
applying to their business, and consequently, were the least likely to consent process and through reporting to local authorities. Interested
participate in the study. In general, it was the companies in the ‘heavy stakeholders, it was suggested, could find out about matters of
industry’ sectors that gained the highest scores. This is consistent with environmental performance through the local authority’s monitoring
the results of the BPPS (see Differences Across Industries in chapter 14). records.

There was an apparent ‘compliance ceiling’. Companies were likely to The authors pointed out that it was not clear whether external
have in place the consents that they required under the Resource stakeholders held these same views. They may be satisfied with existing
Management Act, but were paying less attention to parameters extending arrangements. But they may also be unaware of what is possible and/or
beyond impacts to sustainable development. distrust corporate environmental reporting initiatives.
11
Milne M J, Owen D L and Tilt C A (2001), Corporate Environmental
Reporting: Are New Zealand Companies Being Left Behind?,
University of Auckland Business Review, Vol. 3, No. 2, pp 24-36.

52
of Laggers (45%), and slightly more than a third of all Incorporating customer requirements in developing goals
100
firms (37%) do not believe that environmental impact
90
measures are applicable to their business. Since there is
80
no a priori reason to expect that environmental 45 59
70
exposure should differ between these categories, we
60
might conclude that half of the Laggers who believe %
50
their business to be free of environmental impacts are 40 37
in fact mistaken. And while 11 out of 12 leading firms 30 30
who believe their business requires environmental 20
impact measures actually put in place those measures, 10 15
9
among Laggers only about 4 out of 12 do the same. 0 3 2

1997 2001
The result is that only 21% of Laggers, and 47% of all
firms, have put in place measures to reduce the
environmental impact of their business when perhaps always frequently sometimes never
75% of them should do so.
Incorporating supplier requirements in developing goals
100
Even among Leaders, interest in undertaking 14
90 24
environmental certification, such as ISO 14000, is
80
considerably lower again. Only one quarter (27%) of all
70 33
leading firms are environmentally certified, or planning
60 36
to become certified; and for the average and lagging %
50
firms, the proportion falls below 10% (9% and 4%
40 41
respectively). 30
32
20
Together, the increasing world attention to 10
environmental issues (for example, the recent United 0
12
8

Nations World Summit on Sustainable Development in 1997 2001

Johannesburg) and the pressure for accountability will

develop significant pressures towards the integration of always frequently sometimes never
financial, social and environmental accounting and
reporting (Lawrence et al, 1998). Unfortunately, and Sponsorship of community activities
reflecting the lack of environmental responsibility 100
17
90
generally, current evidence suggests that the vast 20

80
majority of New Zealand businesses do not account for
70
environmental policies or indicators in their reports (see
60
Environmental Reporting in New Zealand on page 52). %
50 80
83

40
■ TheEvolution of Manufacturers’ 30
Leadership and Planning 20
10
Four key areas of leadership and planning are directly 0
comparable between the 1997 (Gearing Up) and 2001 1997 2001

surveys. Most of the indicators point to a very slight

improvement or no change in New Zealand no yes
manufacturers’ leadership and planning practices over
the four years from 1997. firms ‘always’ incorporate the requirements of suppliers
in the planning process.
The survey highlights that, although customer
requirements are incorporated into the planning Manufacturers are clearly developing more inclusive
process by the vast majority of manufacturing firms planning processes. In 1997 some 45% of firms were
surveyed (58% of firms ‘always’ and 30% ‘frequently’ ‘always’ and 37% ‘frequently’ incorporating customer
incorporate customer requirements in developing requirements in developing goals, and most firms did
goals), fewer manufacturers consult their suppliers or not consult their suppliers or employees. In 1997 only
employees – although the results are still positive. 33% 5% of firms surveyed consulted ‘all’ of their employees
of firms surveyed ‘always’ incorporate the requirements when planning and 14% of firms ‘always’ incorporated
of their employees in developing goals and 20% of the requirements of suppliers in the planning process.

53
 Measures to reduce the Environmental Impact business over the last three years (although 27%
have been introduced
100 regarded such measures as ‘not applicable’) compared
90 to a comparable 60% in 1997. 12% had or were
40 44
80 planning to implement systems to gain environmental
70 certification – the same proportion as in 1997.
60
%
50 Despite these slightly improving or comparable results,
40 60
there is an area that raises some misgivings. Only 50%
56
30 of manufacturers in this study indicate that they use
20 mission or vision statements compared to 58% of
10 manufacturers in 1997. This may suggest a trend away
0 from setting visions, but it also reflects a general lack
1997 2001
of planning of any sort beyond a 12-month time
horizon.12
no yes

This Business has environmental certification (e.g. ISO 14000) In addition, leadership and planning is also the area of
or is planning to implement systems to gain business practices where New Zealand manufacturers
environmental certification
100 are most behind their Swedish counterparts (see chapter
90 15 – Manufacturing Business Practices and
80 Performance in Sweden).
70
60 88 88
%
50
■ Conclusions on Leadership
40
30 and Planning
20
The picture of leadership and planning across the New
10 12 12
Zealand business sector that emerges is a focus
0
1997 2001 internally and on the short- to medium-term. This
appears to be related to the scale of most enterprises
no yes and a reliance on one or a few people to both lead and
manage businesses. Many firms are not even using
Use of Mission/Vision Statements more broadly defined goals or visions to provide
100 guidance for the longer term.
90
80 42 50
New Zealand businesses are generally more successful in
70
supporting organisational coherence by promoting
60
% organisational values, and getting buy-in and input into
50
their plans from customers and employees. This is
40 58
particularly positive if the improvements in this area by
30 50
manufacturers over the last 4-5 years reflect
20
improvements across the wider business sector. Many
10
firms could gain further advantages if they would
0
1997 2001 consider upstream networks (suppliers) in the same light.

no yes There appears to be a wide appreciation by the New

Zealand business sector of their reliance upon, and
83% of manufacturing firms had donated to or relationship with, the community. However,
sponsored community activities over the 12 months opportunities may be lost in future if greater numbers
prior to responding to the current survey. A similar of firms do not think about addressing the emerging
proportion of firms (80%) indicated that they had ‘triple bottom line’ and environmental management,
donated to or sponsored community activities in the issues that key stakeholders and markets are
1997 survey. increasingly likely to consider in assessing business

Further, 56% of manufacturers had introduced 12

Leading the Way (1994) indicated that 64% of manufacturers with
measures to reduce the environmental impact of their more than 20 employees had a mission statement (the sample was
restricted to 20 FTEs plus) compared with the 2001 results that show
that 60% of similar-sized manufacturers use such statements.

54
performance. The current lack of interest in Zealand businesses have a sufficient strategic focus to
environmental management may well reflect the short- be able to shape their future given the dynamism of
term orientation of most businesses. business conditions, or are they too reactive and being
shaped by changes in the competitive environment?
In sum, there is some question about the strategic
capability of New Zealand firms. That is: do New

55
 ■ Design Mobel NZ Ltd – A Sustainable Future
Design Mobel is a Tauranga-based designer, manufacturer and marketer Customer Focus
of fine quality bedroom furniture. The company is 15 years old, privately-
owned and employs approximately 65 local people. Design Mobel also Customer satisfaction surveys accompany every product and include
featured as a leading manufacturing company in the 1999 Gearing Up questions related to the reasons for purchase. The firm also makes further
study. contact with some of its customers in order to assess their satisfaction
with the product. Design Mobel also has a database from which it can
In the last three to five years, the company has begun exporting to find out the number of repeat customers. From this market research, it
Australia, with the Australian market now comprising 35% of Design has been able to determine that its customers are very satisfied with its
Mobel’s business. The company is now more focused on international products.
markets as the New Zealand market for fine quality furniture is limited.
Quality and Supplier Focus
Design Mobel believes that its point of difference is the quality of its
Total quality management has been recognised by Design Mobel with
products. The products produced by the firm use only New Zealand
international quality standard certification (ISO9001) and international
native timbers from sustainable sources. The distributors of Design
environmental certification (ISO14001). But the company believes that
Mobel’s products are chosen on the basis that they are willing and able
an over-reliance on ISO accreditation leads to bureaucratic systems.
to explain the Design Mobel point of difference to potential customers.
Very few customers require this accreditation and ‘proof of quality is in
the [low] customer return rates not ISO’. Given that Design Mobel’s
The firm’s history of achievement began when it was invited to become
products are assembled by hand, the business’s preference is to train its
an original partner of ‘The New Zealand Way’, a programme designed
staff properly rather than rely heavily on paper systems.
to celebrate the success of top-performing New Zealand companies.
Accolades and many awards have followed for all aspects of its business
In certain areas, Design Mobel seeks long-term relationships with its
– from product design to business success, and environmental awareness
suppliers in order to establish a high level of trust. Many of the company’s
to export market development.
suppliers are located in Tauranga including its freighting company.
Design Mobel chose its freighting company on the basis of quality and
Business Practices not price, and the company’s logo is on the side of the trucks. Suppliers
Excellent business practices are related to delivery performance such as of key raw materials are monitored throughout the year and are graded
timeliness, quality, cost and minimisation of waste (Design Mobel’s on ten different criteria. From the firm’s analysis of suppliers’
production of waste is exceptionally low). Since identifying production performance in terms of timeliness, reliability and quality, it presents
constraints, Design Mobel has been able to reduce its lead-time by half awards to suppliers.
and is now the fastest manufacturer of bedroom furniture in New Zealand
– any item can be produced in eight days (the company can make and Employee Practices
ship a product to Melbourne faster than its Australian counterparts).
The culture at Design Mobel is creative and is characterised by a young
workforce with a very low staff turnover. The company has an excellent
Leadership and Planning social club with the business matching financial contributions by staff.
A monthly management meeting is held which provides the opportunity Employees of Design Mobel remain informed through weekly newsletters
to report on activities accomplished for the month and what is planned that outline what is happening with the company, including new
for the forthcoming month. Regular profit and loss meetings amongst customers and visitors to the company.
managers are also held. Every two to three months, senior managers
meet with the owner to discuss the current strategy and possible changes Every employee in Design Mobel undergoes an annual performance
to it. An annual planning meeting is held for middle and upper appraisal in addition to gaining ad-hoc feedback throughout the course
management where SWOT analyses are completed. of the year. Financial remuneration is skills-based. A bonus system for
all employees exists, which is linked to the financial, operational and
Design Mobel’s leadership is open, transparent and non-hierarchical. health and safety performance of the firm.
Every person is valued and respected and an emphasis is placed on
being fair. Staff training and courses are actively encouraged, with a view to cross-
training where applicable.
An underlying philosophy of the business is a commitment to
environmental responsibility. Design Mobel supports its local community Design Mobel enables employee involvement in setting and reviewing
by sponsoring schools to plant trees. The company was involved in the company goals through monthly meetings, where the management team
establishment of Tauranga’s first art gallery and sponsors local sports highlights recent firm performance and key objectives. Staff focus groups
people, such as New Zealand ironman and triathlete Cameron Brown draw on volunteers from each work area to address questions such as
(named New Zealand 2001 National Sportsman of the Year). staff satisfaction and firm performance, under the guidance of a
facilitator.
Design Mobel only uses sustainable timber resources (from windfall,
dead standing trees and sustained yield managed forestry) and has an Information and Benchmarking
extensive native replanting programme in place (the company plants a
Design Mobel undertakes standard financial benchmarking such as stock
tree for every bed and furniture suite it sells), which has seen tens of
turnover and profitability. Barriers to benchmarking include a lack of
thousands of trees planted. The company is also currently investigating
similar businesses to benchmark the firm against. For this reason, Design
how best to recycle off-cuts of materials such as wood shavings. Shavings
Mobel has looked to benchmark itself against similar sized top performing
are currently compressed into bricks in order to use as landfill, although
companies outside the industry such as MacPac.
in the future Design Mobel may look to sell the shavings.
The firm keeps up with new product developments by attending overseas
trade shows on design, plant and equipment, and searching the Internet.

56
5 - EMPLOYEE PRACTICES
It is widely held that much of a firm’s value resides in I be paid and how will pay relate to performance
its human capital, not in its stocks of raw materials and evaluation?1 On this dimension of employee practices,
capital equipment, and that people provide the BPPS asked respondents to indicate the extent to
organisations with a crucial source of sustainable which performance reviews and pay-for-performance
competitive advantage (Pfeffer, 1994). This has been incentives were used, and the level of training and
particularly articulated by the resourced-based view of development in place.
the firm (Barney, 1991), as employees represent
resources that are often rare, imperfectly imitable and The psychological dimension of employee practices
non-substitutable. relates to more implicit aspects of the employer-
employee relationship, like trust and interdependence,
Employee practices are integral to the Business which underpins employee’s commitment to an
Practices and Performance Model. The capacity of a organisation. This dimensions answers the questions:
business to pursue business improvement is limited by how hard will I have to work, what personal
the effectiveness of people policies. In simple terms, satisfaction will I get from my efforts, are the rewards
employees provide the knowledge, skills, motivation worth it?2 On this dimension of employee practices, the
and energy in a business. Employees can often be the BPPS asked how often employee satisfaction was
catalyst for organisational change, the avenue for assessed, although the firm visits sought information
organisational learning and the source of on other psychological aspects of employer-employee
organisational innovation and development. As such, relationships.
employees are often considered the key link to the
pursuit of business excellence and value creation, with Strebel (1996) describes the social dimension as what
the effective management of human capital, not the business says about its values and the interplay
physical capital, being the ultimate determinant of between business practices and management’s attitudes
organisational performance (Youndt et al, 1996). toward them. On this dimension, the employee tries to
consider the balance between financial and non-
Yet, of all the value adding inputs of an organisational financial objectives: are my values similar to others in
system, human capital is often the most neglected by the organisation, does management practice what it
management, largely because it is difficult to manage preaches?3 On this dimension of employee practices, the
and to measure (Barker, 2001). BPPS considered only the aspect of health and safety
processes, although the firm visits also canvassed other
Developing excellent employee practices requires a ‘social’ aspects of employee practices.
systematic approach to investment at all levels of a
firm, and to all aspects of the employment lifecycle – Top performing companies tend to pay attention to all
selection, management and deployment, and the dimensions of employee practices (see Top
development. Most research suggests that a positive Performers and Staff Management in New Zealand on
relationship exists between key human resource page 58).
practices and firm performance. Enhancing the skill
base of employees – through training, teamwork, job Figure 14 summarises the differences between Leaders
rotation and cross-utilisation, clear and regular and Laggers across the employee practices index.
communication, performance appraisals and
recognition, and group and individual incentives – has ■ TheFormal Dimension of
been shown to contribute to lower employee turnover,
lower costs, and greater employee productivity
Employee Practices
(Rodwell et al, 2000; Huselid, 1995; Bogan and English, Performance and Rewards
1994).
To excel, businesses need to tap the best capabilities
Strebel (1996) outlined three broad dimensions to and creativity of each individual, while helping them to
employee practices, and suggested that excellent align personal goals with business goals, take personal
businesses use all three: formal, psychological and pride in their output and understand how that output
social. contributes to overall firm performance (Bell, 2002).

The formal dimension covers the basic tasks and

requirements for a job as defined by job descriptions,
employment contracts and performance agreements.
This dimension answers the questions: what am I
1
supposed to do, what help will I get to do the job, how Strebel (1996), p 87.
2
and when will my performance be evaluated, what will Ibid, p 87-88.
3
Ibid, p 88.

57
 ■ Top Performers and Staff Management in New Zealand
The 20 Best Places to Work Survey (Unlimited Magazine, World Famous in New Zealand: How New Zealand’s Leading
2002) Firms Became World-Class Competitors (Colin Campbell-
Hunt/CANZ (2001), Auckland University Press)
87 organisations, representing almost 7,000 employees, participated in
this 2001 survey designed to find the best organisations to work for in The study showed that agility has been central to the evolution of global
New Zealand. Respondents were from a range of organisation sizes leaders in New Zealand, and that this requires a distinctive emphasis on
(although most were medium to large firms) and sectors (although the workplace flexibility. The authors identified a number of human resource
majority were in service areas). practices that encouraged the development of a flexible workforce in
New Zealand:
Survey responses were complemented with staff and chief executive
• Work design – the firms in the study almost uniformly demonstrated
interviews in the top 21 organisations, to allow for discussion around
principles of work design that encourage organisational agility –
the policies and practices underpinning high staff commitment levels.
cross training, flexible job profiles, and teamwork.
The top companies, consistent with Leaders from the BPPS, stood out in
a number of areas, including: • Long-term staffing relationships – firms took account of technical
and personal competencies in selecting employees (such as problem
• having a strong sense of alignment to a vision
solving, interpersonal skills and a commitment to organisational
• placing a strong emphasis on looking after people values). There was also a clear tendency for hiring decisions to be
made at the level at which appointees work, and to promote from
• having energy, enthusiasm and a sense of fun
within.
• using a variety of mechanisms that acknowledge contribution and
• Training and development – the companies placed a great emphasis
celebrate success
on competency-oriented training and its application throughout
• using open and honest communications the workplace. Training programmes focused on technical and
personal competencies and on embracing organisational vision and
• investing in staff training and development values.
• having a willingness to involve people in decision making and • Performance assessment and reward management – these firms
planning. regularly undertake performance reviews, although the focus is on
setting clear goals and establishing an environment in which all
The study also undertook to determine which elements of human resource employees can give and receive feedback on performance.
management had the strongest impact on employee perceptions. It is Performance management and reward and recognition are
interesting to note that these key drivers bear a resemblance to a number inextricably linked. The firms make extensive use of contingent or
of the activities that the best firms are doing well. They include soft at-risk compensation such as profit and gain sharing.
aspects of employee management, such as making the organisation a
fun place to work, genuinely caring about employees and engendering Improving Service Sector Competitiveness and Best Practices
a sense of pride. They also include more structural practices; e.g. setting
in Marketing and Managing Service Businesses Studies (Otago
and demanding a high standard of performance, rewarding staff fairly
for their performance, and becoming a high performance organisation.
University, 1999 and 2001)5

The most dominant employee perceptions separating the top and lowest The 1999 survey confirmed that top-performing firms continually
companies were found to be perceptions of working for a successful reinvest profits into improving and developing their core competencies
organisation, pride in working for their organisation, and feeling that and resources to make these advantages sustainable. The 1999 study
their organisation was a great place to work. also found that new service development, brand performance and service
skills were strongly correlated with personnel skills development.
The research suggests that improving employee perceptions does not
have to be restricted to those companies with large human resources The 2001 survey interviews indicated that both high and low performers
budgets. A strong relationship was shown to exist between employee were likely to concentrate efforts on improving functional knowledge
attitudes and commitment levels. and skills, but top performers were more likely to pay for training.
Some firms reimbursed training costs on successful completion, so that
The survey showed that New Zealand organisations did not rate highly there was a joint commitment to training. Both high and low performers
on recognition and reward factors such as employees’ perceptions about use external and internal training, although lower performers are much
whether people get promoted on merit, whether pay and benefits are more likely to upskill through acquiring trained staff, rather than training
fair for the work, opportunities for advancement, and fairness of staff themselves.
performance assessment.4 As shall be seen, a lack of systematic
approaches to performance review and rewards also emerges from the As with leading firms from the BPPS, top performing businesses were
BPPS. more likely to emphasise softer relationship management and basic
skills such as communication skills. They also invested more in retaining
skilled staff through clear career paths, competency-based reward
systems, on-going training and secondments.

4
Further discussion of these policies and practices can be found
online at www.survey-online.co.nz/unlimited/default.asp
5
A description of the methodology employed is given in Appendix C.

58
Figure 14. Employee Practices Q 5.2 Are formal employee performance reviews used within
this business (consistent methods that are recognised and
Question: This business ... Leaders All Laggers regularly used)?
80 75
reviews employee 72

performance at ‘all’ levels 72% 30% 12%

60
has at least ‘a few’ employees %
on pay for performance
40 37
schemes 68% 43% 22% 33
30

conducts in-house training 100% 83% 56% 19

20
14
12
uses external training 95% 71% 39% 9

provides opportunities for 0

at no levels at some levels at all levels
job rotation/exchanges 65% 46% 24%
systematically measures Leaders All Laggers
employee satisfaction 99% 84% 62%
has processes in place to Q 5.3 How many employees are on ‘pay for performance’
schemes (e.g. productivity based incentives, gain sharing,
manage employee health bonuses, etc)?
and safety 97% 84% 54% 80 75

Employees are not only motivated by tangible rewards 60 56

- recognition, a sense of accomplishment, advancement
%
and responsibility are also critical. Performance
appraisal is a critical practice for motivating 40
32 32
employees. The objectives of appraisal are to evaluate 26 25
the contributions and progress made by employees 20
14
towards goals (recognition and accomplishment), help 10 11
7
5
create training and development programmes to 3
0 1
3
0
develop employees (advancement), and set new none a few many all don't know
objectives and targets (responsibility).
Leaders All Laggers
However, research has shown that, too often, businesses
do a poor job of implementing performance evaluation
56% of all firms do not operate pay-for-performance
and reward processes: performance measures may be
schemes. Of those firms that do, most only provide
vague or not well understood by employees; managers
pay-for-performance to ‘a few’ employees. Leading
sometimes try to evaluate too many people at one time;
firms offer pay-for-performance schemes on a more
performance appraisals can be too far apart; there may
regular basis than the average and lagging firms, with
be little relationship between day-to-day feedback and
over two-thirds (68%) offering pay incentives. One
formal appraisals; or managers can tend to rate average
third of Leaders (32%) incorporate all their employees
or below average performers higher than they deserve
in pay-for-performance programmes.
(AusIndustry, 1995; Macky, 2000; Harrington, 1998).
Recent research in New Zealand has found a similar
Evidence of Performance and reluctance by the business community to use more
Reward Systems formal performance management processes, although
Across all respondents to the BPPS, 33% of firms efforts in this area appear to be improving over time
indicated that they review performance ‘at some levels’ (see Leadership, Performance Management and
of the organisation, and 30% of all firms are committed Employee Relations on page 60).
to reviewing performance ‘at all levels’. Unfortunately,
reasonable numbers of New Zealand businesses (37%) It is interesting to note that, while 62% of all firms
are not using formal employee reviews at all. indicated that they conducted formal employee
performance reviews, just over 40% of all firms reward
There is a marked contrast between Leaders and employees through pay-for-performance. This suggests
Laggers. Nearly three-quarters (72%) of Leaders review that performance reviews are being used for more than
employee performance ‘at all levels’ of the business, but just setting rewards.
an even higher percentage (75%) of Laggers do not
review performance at all.

59
 From the firm visits, it was clear that firms typically Overall, Leaders:
recognised the importance of their staff in the success
• are much more likely to review the performance of
of the business but there was wide variation as to how
their employees, giving them a clearer idea of
this was reflected in their processes. Generally, and not
employee performance, development and training
surprisingly, the larger the firm the more formal the
needs
processes used. Most leading firms interviewed had
some form of pay-for-performance scheme in place - • have a clearer idea of their employees’ performance
some schemes were based on individual performance, standards and attempt to reward them through pay-
others on firm or team performance and some on a for-performance schemes.
combination of the two. However, consistent across
leading firms was a commitment to clearly setting Training and Development
performance agreements and targets and relating these
The cost of developing employees is often insignificant
to business plans and goals. A number of Leaders
compared with the cost of new equipment and the rate
stressed that it was important to be clear upfront and
of return. As stated in Gearing Up (1999), an
throughout the organisation about the performance
investment in training and development needs to be
management system so that staff had clear
recognised by New Zealand businesses as such an
expectations. This also created peer pressure within the
investment – not a cost, add-on or extra.
organisations to perform.
Education and training, alongside other human
In addition to ensuring performance appraisals were
resources policies such as recruitment and
frequent (some firms were undertaking these every two
remuneration, are part of an enterprise’s tool kit to
months), Leaders also tended to use a combination of
improve productivity by developing staff, and to attract
monetary and other rewards and recognition to
and retain them through loyalty, pride, team spirit and
motivate their employees. 360-degree feedback systems
personal fulfilment (Gitlow and Gitlow, 1987).
were commonly used in these firms and customer
Empirical analysis suggests that labour productivity
feedback was provided directly to staff involved.
growth, service levels and innovation appear to be

■ Leadership, Performance Management and Employee Relations

Leadership and employee management are obviously inextricably linked. The New Zealand Index of Human Resource Management &
Two recent surveys in New Zealand highlight the importance of good Organisational Effectiveness 2001 (Wevers International Ltd
leadership practices in influencing performance management and for the New Zealand Institute of Management)
employee relations.
This study is the fourth consecutive review of perceptions about the
Deloitte HR – Performance Management Survey – Insights quality of human resource management practices in New Zealand
and Issues facing New Zealand Business (Deloitte Touche organisations. There were 694 respondents from a wide range of
Tohmatsu, 2000) industries, spread throughout New Zealand, although over 50% of the
respondents came from organisations with 100 staff or more. The
This survey provided an analysis of current human resource practice in questionnaire asked managers to rate a series of statements about human
New Zealand. One of the important findings was that, while talented resource management practices in their organisation, comparing what
people may join an organisation because of benefits and training they considered to be the ideal for the organisation against their perceived
programmes, how long employees stay and how productive they are actuality.
while employed is determined by their relationship with managers and
the leadership in the organisation. The study found that, since 1994, there have been several areas of
significant improvement but all were at the operational level. The
Furthermore, the survey shows implementing organisational strategies improvements were related to the more direct management of staff
(28%) and improving organisational performance (46%) as the most performance (performance appraisal systems, approaches to employment
popular reasons for implementing performance management systems. relations, remuneration management).
Implementing restructuring plans (18%) and identifying non-performers
(22%) were also popular reasons. However, approximately 30% of the The study found a desire for short-term results rather than longer-term
survey participants either did not indicate or did not have any strategic gains, with a poor showing in strategic areas, such as integration of
purpose for their performance management system. mission, values and goals and fostering values, which had actually
dropped back since 1994; this is consistent with the short-term horizon
There was also some evidence to suggest that, by and large, performance of most firms in the BPPS. The results indicate that firms pay attention
management practices are likely to be going through the motions, rather to the recruitment and induction process but do not follow-up effectively
than focusing on performance management systems outcomes. to ensure staff ‘come on board’ with the aims of the organisation.
Performance monitoring occurred most frequently on an annual, or
six-monthly basis, uniformly across all groups. The authors suggest that continued focus on operational issues outside
a well thought through strategic framework will result in organisations
The survey showed there were significant opportunities for New Zealand being unable to respond appropriately to changing environments or
organisations to improve business performance through improved markets.
performance management practices – again, consistent with the BPPS.

60
enhanced by the joint introduction of training and Q 5.5 Over the LAST 12 MONTHS estimate the
proportion of employees in this business who participated in
innovation. Significant research also shows that in-house training:
training and development leads to a reduction in errors, 80
absenteeism and staff turnover. Training and multi-
skilling also improve a firm’s ability to cope in an 60
60

environment where technology is constantly evolving

%
(Dwyer, 2000). 41
40
32
However, training for the sake of training will not be 27 26

effective. Training and development that is linked to 20 16

14 14
the needs of the business, of the job, and of employees 13 13 13
11 11

provides the greatest payoff for the investment. 0

4
0
3 3
0
none up to 25% up to 50% up to 75% more than don't know
In addition to external and on-the-job training, good 75%

employers provide a range of opportunities for

Leaders All Laggers
employees to learn, practice and demonstrate new skills
– particularly through job rotation. Job rotation allows
Q 5.5 Over the LAST 12 MONTHS estimate the proportion of
individuals to be flexible enough to undertake a range employees in this business who participated
of activities, and can help individuals understand the in external training:
80
occupational and professional orientation of others in
order to participate meaningfully in teams (Gitlow and
Gitlow, 1987). It also serves to increase task variety and 60 58

job satisfaction. % 47
44

40
Two main factors have been assumed to work against 29
employers investing sufficiently in education and 25
21
training for their workforce. These are often thought to 20 17
11 12
be particularly acute in New Zealand given the 5 6
4
9
3 3 3
relatively small size of the vast majority of businesses. 0
1 0

none up to 25% up to 50% up to 75% more than don't know

First, there is a lack of certainty about the benefits for 75%
business of specific courses or training. Second, there is
the risk of losing the benefits of the investment – either Leaders All Laggers
totally, through staff turnover, or partially, through a
rise in remuneration. Employers have been assumed to Q 5.5 Over the LAST 12 MONTHS please estimate the
guard against these risks by preferring to provide proportion of employees in this business who participated
in job rotations or exchanges:
training in specific, as opposed to generic, skills. Firms 80
73
can also manage their risks by emphasising internal
training and flexibility (multi-skilling within a firm)
60
versus external flexibility (Dwyer, 2000).
% 49

Evidence of Investment in Training and 40

31
Development 27 26
20
20 18
In this context, a very positive result is that most New 11 10
Zealand companies are investing in employee training. 5
3 3
6 7
5
3
1
The majority of businesses prefer to conduct formalised 0
0

none up to 25% up to 50% up to 75% more don’t know

training in-house, with around 84% overall conducting than 75%
in-house training with at least some of their employees.
This suggests quite a focus on firm-specific training. Leaders All Laggers
Under 1% of leading firms do not offer in-house
training, compared with 44% of lagging firms. least some employees - training is concentrated in certain
Importantly, 60% of Leaders offer this training to over segments of the workforce; of those Leaders providing
75% of their workforces. external training, 65% offer it to up to half of their
employees. Most Laggers offer no external training (58%)
External training is used to a lesser degree by firms (72%) but, when they do, it is mostly restricted to fewer than a
in general and tends to be applied to a lower proportion quarter of their employees (73%). With ‘skill shortages’
of the overall workforce. Even with leading firms - and rising in prominence in New Zealand, there appear to be
95% of leading firms provide for external training to at opportunities for the business sector to make greater use

61
 of external training (also see chapter 16 – The Impact of Leadership, Performance Management and Employee
the Competitive Environment). Relations on page 60).

Leaders tend to use job rotation much more often than Respondents to the BPPS were asked how often they
lagging and average firms – though they use this less measured their employees’ satisfaction. Encouragingly,
than in-house or external training programmes. 73% of 86% of all businesses measured employee satisfaction
Laggers did not employ any form of job rotation in the in a systematic way.
workplace at all. Overall, about half of firms (49%) use
job rotation to improve flexibility and skills Leaders measured satisfaction far more regularly, with
development. 73% measuring the satisfaction of all employees at
least once a year. In contrast, one third (34%) of
The survey findings were backed up by the firm visits lagging firms did not measure employee satisfaction at
with almost all firms interviewed providing in-house all, with a further 4% reporting that they did not know
training for employees through a variety of techniques whether it was measured or not.
such as induction processes for new recruits and
‘buddy-systems’. Leading businesses visited showed a Developing and maintaining trust between
commitment to supplement internal training with management and employees was considered crucial by
external training, including using external mentors and leading firms visited. For example, leading firms often
study leave, and often funded a significant proportion provided opportunities for staff to input ideas and
of the costs. suggestions for improvement, newsletters or regular
communications (e.g. emails) for staff to ensure they
were fully informed of business developments, and a
■ ThePsychological Dimension of flexible approach to working arrangements in terms of
hours and leave.
Employee Practices
Employee satisfaction can be seen as a function of the
total work experience. It includes incentives, ■ TheSocial Dimension of
improvement opportunities, a good work environment
and challenging work. Satisfied employees are more
Employee Practices
productive, feel happier in their work, can be more Safety is often, unfortunately, regarded by businesses
flexible in times of organisational need and are less as a regulatory, compliance or government driven
likely to leave. A number of authors have also issue. But attention to health and safety simply makes
highlighted the positive relationships between good business sense – a healthy and safe business
employee satisfaction and customer satisfaction reduces costs in terms of time lost due to sickness or
(Oakland and Oakland, 1998). Leadership and a absence, lost production or service, retraining and
strategic approach to business management also insurance. Being motivated only by the thought that
particularly influence employee satisfaction (see the firm will be penalised if it doesn’t comply is really

Q 5.1 Does this business systematically measure employee satisfaction?

50
45
44 44

40
34

30 28

% 23

20 19
18

14 14

10
4
3 3
2 2
1 1 1 1 1
0
0
never different less than every every year every 6 months don’t know
frequencies every two years two years or more

Leaders All Laggers

62
 Q 5.6 Does this business have processes in place to manage ■ Evolution
of Manufacturers’
health and safety (e.g. an OSH training programme, provision
100 97
of information for employees)? Employee Practices
84 Gearing Up (1999) found, as did Leading the Way
80
(1994), that employee practices were under-developed
and the majority of manufacturers did not manage
60
%
54 their workforce in a manner consistent with building
46
competitive advantage. The BPPS results show an
40
improvement in the formal dimension of employee
practices amongst manufacturers, but a potential
20 16
deterioration in those practices related to the
0
3
psychological dimension.
yes no

Fewer manufacturers are regularly assessing employee

Leaders All Laggers satisfaction than previously, with 15% of manufacturers
indicating in 2001 that they never assess employee
leaving the management of the business to someone satisfaction compared to 5% in 1997; and 11% of firms in
else (Smith and Birchfield, 2001). 2001 responding that they assess satisfaction every six
months or more often compared to 22% in 1997.
Effective health and safety programmes must be
developed with comprehensive employee involvement. However, greater numbers of manufacturers appear to
If the organisation is not serious about employee making use of formal employee performance reviews
involvement, the employees won’t take the process throughout their organisation, with almost a third of
seriously either. If it is simply ‘bolted on’ and not ‘built firms in 2001 indicating that formal reviews were used
in’ to the organisation, it can be costly and disruptive at all levels of their business, compared to 27% in
to everyday processes and procedures (Smith and 1997; and fewer than a quarter of manufacturers not
Birchfield, 2001). using formal reviews in 2001 compared to almost a
third in 1997.
Very positively, 84% of all firms consider they have
processes in place to manage health and safety in the Similarly, increasing numbers of manufacturers are
workplace. This is particularly interesting given the using pay-for-performance schemes throughout their
negative view of occupational, health and safety businesses, with close to half making use of the
regulations by many firms (see chapter 16 – The Impact schemes in 2001 compared to a third of firms in 1997,
of the Competitive Environment). Just over a half of and 18% applying such measures to many or all
Laggers (54%) have such processes in place compared employees in 2001 compared to 10% in 1997.
with almost all Leaders (97%).
A relative lack of effort on employee practices by New
In terms of other ‘social’ aspects of employee practices, Zealand manufacturers (and firms generally) is also
many of the firms visited, particularly leading firms, suggested by the comparison with Sweden, as Swedish
also stressed the importance of building a team culture manufacturers clearly outscore New Zealand
or fostering a team spirit in the organisation. A number manufacturers in this area of activity (see chapter 15).
of businesses indicated that flatter organisational
structures facilitated this, but most referred to having Frequency in which employee satisfaction is assessed
100
space available to allow staff to get together and relax, 90 33
team building exercises and social activities, regular 80 42
morning teas and staff drinks. Firms indicated that a 70
team culture encourages communication, provides an 60 2
9

environment conducive to upskilling, empowers % 50 3

14
employees (or teams of employees) and allows people 40 31 4

to express ideas without fear, and encourages staff to 30

21
1

be accountable for their own work. 20

10 22
13
0
1997 2001

different less often than every year

frequencies every 2 years
never every 2 years every 6 months

63
 Use of formal employee reviews
100 ■ Conclusions on Employee Practices
90 27
80
25
The BPPS points to mixed efforts on employee practices
70 across the New Zealand business sector. There does not
60 appear to be a systematic or long-term approach to
% 41 45
performance management, with significant numbers of
50
40 businesses not utilising performance reviews and,
30 undoubtedly related to this result, not associating
20 32
30 rewards clearly with staff performance.
10
0 Businesses’s performance in this area could well be a
1997 2001
reflection of the short-term focus inherent in many
firms, as described in the results on leadership and
at all levels at some levels at no levels planning. However, if the trends for manufacturers
reflect wider trends across the business sector,
Number of employees on ‘pay for performance’ schemes performance management approaches may be
80
improving.
70 67

60
Despite the fact that many businesses are not reviewing
51

%
50 employee performance, which would identify the
40 training, development and skills needs of staff and
30
30 organisations, the vast majority of firms are providing
23
training opportunities, particularly internally, although
20
10
there is scope for many businesses to look towards
10 8
6
4 external training. Although positive, the question this
0 0
0 raises is: how well linked is the training being
none a few many all
undertaken with the needs of businesses and
employees?
1997 2001

In addition to providing training opportunities, New

Zealand firms are demonstrating a genuine
commitment to the welfare of staff, with regular
assessments of employee satisfaction, implementation
of health and safety processes, and initiatives to foster
a culture of teamwork and communication.

64
■ Nova Enterprises Ltd (Good Beginnings Early Childcare Centre) –
Investing in Staff
Nova Enterprises Ltd is an early childhood care and education facility Employee Practices
known as Good Beginnings, owned by three partners who also work in
the business. The centre has five full-time staff and cares for 25 – 30 Staff work cooperatively as a team at Good Beginnings. There is a
children. Nova has been in operation for nine years. congenial working environment, where all employees share tasks,
undertake common planning and positively interact with the children.
Business Practices
Personnel management is jointly shared by the management team. The
The focus of the company’s current strategy is high-quality care and three business partners take responsibility for the day-to-day
education. This is directly related to having well-trained staff. The quality coordination of the staff roster and allocated staff duties. Scheduled
of the centre and the services provided are monitored formally by the meetings for the staff provide opportunities for dialogue on supervisory
Education Review Office, but also by the business owners in a practical matters and programme development. Informal interactions are also
way day-to-day, through talking to and listening to parents. regular. A staff-only day at the beginning of the year and regular staff
meetings are used to plan curriculum, share professional insights and
Leadership and Planning discuss workplace issues.

Management is cooperative, with the three owners of the business sharing A number of performance management practices have been instituted.
management responsibilities for training, finance, building and Management undertakes a formal annual appraisal with all staff, and
maintenance between them (sometimes on rotation). Staff have employees are also required to self-appraise their own performance.
opportunities to input ideas. Goal-setting and identification of professional development needs is
included in this process.
The business generates plans for both one- and three-year advance
scenarios, and sets goals for finance, equipment and maintenance. There is equitable access to professional development for all staff and a
Management plans are written in measurable terms and show how the budget for staff training has been determined. Opportunities are provided
Centre intends to fulfil its charter commitments. For each of the planned to attend courses, undertake professional development and training to
objectives, there is a cumulative record of the various efforts and activities improve qualifications. The business pays half the fees of staff doing
that have been undertaken to achieve the intended goals. the three-year New Zealand Childcare Association diploma course. Staff
are given the opportunity to share in the professional insight gained by
Goals are also set for the children’s development, and progress is recorded other employees in planned workshops. An annual record of all planned
systematically each week and shared with parents. professional development and courses attended is maintained.

The overall view of leadership in Good Beginnings is that it is about Systems to manage and record employment-related responsibilities and
building enjoyment into the work, providing good working conditions, concerns are well established and documented. These include:
listening to staff, giving the staff time for family business, and
encouraging staff to develop their skills. • a staff handbook outlining Centre provisions, expectations and
guidance for staff
Customer Focus • procedures relating to appointments, professional development, and
work-related entitlements
The customers are the parents of children in the Centre. Their particular
needs and wishes about the care of their children are sought. The Centre • personal files for each staff member, containing individual
also provides additional services to parents free of charge such as employment contracts and a job description relating to their
education and information sessions on topics of concern to parents, designated role.
like first aid and nutrition. Parents are kept well informed about each
child’s development in conversations with the staff and with an annual Staff are provided with good and safe working conditions and employees
formal report. The business is ‘unusual’ in that most customers visit have scheduled breaks to fit in with daily routines. There is a separate
twice a day to drop off and collect their children. This provides the available space for administrative purposes in a detached workroom.
opportunity for any concerns to be addressed immediately, and for All staff are aware of the procedures for handling emergencies and
information to be passed on promptly and directly. accidents, and have first-aid certification. Civil defence emergency drills
are carried out and recorded.

65
66
6 – CUSTOMER FOCUS
A business must have satisfied customers that keep Figure 15. Customer Focus
buying its products, or using its services, to be
Question: This business ... Leaders All Laggers
profitable and to survive. Building distinctive
relationships and a reputation with customers has works ‘quite’ or ‘very’ closely
become a key approach for businesses looking to with its customers to improve
develop competitive advantage (Wylie, 1999). products and/or services 87% 56% 11%
lets staff, other than sales
At the most basic level, profits from customers can and marketing, visit its major
only be increased in three ways: by acquiring new customers 90% 63% 25%
customers, by enhancing the profitability of existing
customers, and extending the duration of customer has set procedures for dealing
relationships (Grant and Schlesinger, 1995). This with customer complaints 97% 75% 27%
sounds obvious, but sometimes businesses do not have measures customer
all the mechanisms in place to ensure this. satisfaction ‘every year or
more often’ 88% 50% 14%
Businesses that do take a customer-focused approach
have practices in place that allow them to do all of the
following (see, for example, Grant and Schlesinger,
■ Working Closely with Customers
1995; Zairi, 2000b; Collins, 2001):
• work closely with customers so they know what Firms who are close to their customers can receive
customers value in their products or services – now important feedback for the continual development and
and in the future enhancement of their products and processes.

• maintain customer relationships Many businesses see their products and services –
• deal effectively with customer concerns and delivery, design and cost – through their own eyes. But
complaints customers’ perceptions represent a wider mix of factors:
price and payment terms, friendly and approachable
• monitor customer satisfaction. staff, the extent of their involvement with the
organisation, quality and consistency of outputs, how
According to Infometrics (1999), recognising the the product or service is delivered, reliability, and after-
importance of customers and market analysis has been sales service amongst others. Thus, the gap between a
one of the most important developments for the New business’s perspective and their customers’ perspective
Zealand business sector over the past decade. It has could be quite large (Bell, 2002).
helped shift business thinking from a focus on
production to a focus on what customers actually want, The only way to get the ‘key’ information about what
how best to deliver it, what competitors are doing and customers value is to get it directly from them via
what relevant technological developments are mechanisms such as general conversation, interviews,
occurring. In other words, New Zealand companies customer surveys, and visits to and from customers.
have moved from a production-driven strategy to a
market-led or customer-focused approach. This was Of course, not all customers want a relationship.
reinforced by the firm visits. Leaders, in particular, Relationships are two-way and customers want
talked about the movement away from a cost-plus relationships that provide them with solutions (Grant
approach to marketing and pricing, towards a market and Schlesinger, 1995). In particular, customers want it
focused approach to meet real customer requirements. to be as easy as possible to access the right people in
the business when they have ideas or need help.
Figure 15 summarises the differences between Leaders, Customer-focused businesses make sure that they are
Laggers and firms overall across the customer focus available to their customers at times and places
index. convenient to the customer – not themselves – and are
able to do so through the use of communication tools
such as the Internet (Bell, 2002).

Firm and customer relationships can exist at several

levels, distinguished by the levels of collaboration and
trust evidenced. These levels include: individual
transactions, repeated transactions, long-term
relationships, buyer/seller partnerships, strategic

67
 alliances, network organisations, and vertical Q 3.4 How much does this business work with customers on
product or service development / improvement?
integration (Grant and Schlesinger, 1995). 80

What is particularly noteworthy is that the Japanese 61

60
(commonly credited with the development of customer 51
relationship management) tend to form relationships at %
the latter end of the above spectrum. Western countries 40 36 35
have historically maintained relationships at the former 27
26
end of the spectrum and, as a result, relationships are 21
20
often characterised by low levels of trust and little 16
12
8
information sharing. 3
0 2 2
0
0
not at all a little quite closely very closely don't know
For New Zealand’s generally small exporting businesses
distant from their overseas markets, maintaining close
relationships with customers can be difficult. Leaders All Laggers
Infometrics Ltd (2002) has found that our leading
exporters are using a variety of techniques to inform
and obtain feedback from overseas customers (see Q 3.2 To what extent do staff other than sales and marketing
staff visit the firm's major customers?
Working Closely with Customers Overseas on page 69). 80
73

Evidence of New Zealand Firms Working 60

Closely with Customers %
39
40 35
A positive result is that, of all firms in the BPPS, more 29 27
than half chose to work with their customers either 20
22 20 16
15
‘very closely’ (21%) or ‘quite closely’ (35%) to develop 10 8

better products and services. A further 26% work with 0

2 1 1 2

not at all a little a moderate a great deal don't know

their customers ‘a little’ in this area. amount

Virtually all Leaders see advantages in working closely Leaders All Laggers
with customers on product and service improvement.
51% work ‘very closely’ and a further 36% work ‘quite
closely’ with their customers. The remaining work with businesses claim they have no staff, other than sales
their customers at least ‘a little’. On the other hand, and marketing staff, visiting the firm’s major
only 3% of Laggers make the effort to work ‘very customers. 64% of businesses have staff (other than
closely’ and 8% to work ‘quite closely’ with their sales and marketing staff) visiting companies at least ‘a
customers on developments or improvements – 61% do little’ (16% visit ‘a great deal’ and 20% ‘a moderate
not work with their customers at all. This appears to be amount’). 1% of respondents reported that they ‘did not
a particular point of difference between Leaders and know’ the extent to which their staff visited major
Laggers. customers.

When developing close relationships with customers, it Amongst this study’s leading firms, over half (61%) had
is important that businesses maintain frequent contact ‘a great deal’ (39%) or ‘a moderate amount’ (22%) of
with them and have procedures set in place to deal contact with customers by staff other than people from
with their concerns and complaints. Many leading the sales and marketing department. Comparatively, in
firms visited as part of follow-up to the BPPS the exemplar companies studied in the World Famous
considered that staff at all levels of the firm should in New Zealand project, the chief executives alone were
have some contact with, or receive feedback directly spending one-third of their time visiting customers
from, customers. Visits to major customers were (Campbell-Hunt/CANZ, 2001).
considered by these firms to be an essential part of
business – they are often one of the few times that Lagging firms left most of their contact with customers
customers get to meet representatives from the business to their sales and marketing employees, with only 10%
and put a face to the organisation. allowing ‘a moderate amount’ or ‘a great deal’ of
customer contact to be made by other staff. 73% of
Although this appears to be recognised by the majority Laggers claimed they have no staff, other than sales
of New Zealand’s businesses, a disappointing 35% of and marketing staff, visiting their major customers.

68
It was clear from firm interviews that customer focus is objectives for the relationship and clarify expectations,
now considered fundamental to business practices in bouncing new product and service ideas around with
many New Zealand businesses. As described in customers, employees trained and encouraged to
Business Improvement Revealed (page 30) almost all educate customers about products and services, social
interviewees, when asked to define business excellence, outings with key customers, and a commitment to
highlighted the importance of long-term customer excellent after-sales service. These firms were also well
relationships. Most firms acknowledged a link between aware of and had processes in place to engage with two
satisfied customers and firm turnover. Many stressed sets of customers – final customers and direct
that face-to-face relationships carry a lot of weight in customers. However, very few firms appeared to be
building strong bonds with customers. considering strategic alliances or vertical integration.

A number of firms’ key strategies were based on the Overall:

customisation of a base product or flexibility in the
• Leaders work much more closely with their
provision of services to provide tailored solutions to
customers than lagging or average firms
meet the specific needs of customers. Leading firms
visited also stressed the importance of early and post • Leaders use these closer relationships to help them to
product/service engagement with customers and open develop better products or services that more closely
communication in developing partnerships or long- meet customer needs.
term relationships. This included joint plans or
agreements with customers that set out goals and

■ Working Closely with Customers Overseas

Firm Level Manufacturing Export Study, A Report for the same is true for final consumer products where brand may be an
Ministry of Economic Development, The Treasury, Trade New important attribute. The need to directly control the distribution process
Zealand (Infometrics Ltd, 2002) relates to the fact that exporters believe that independent distributors
do not devote sufficient attention to selling their products. This partly
This was the sixth in a series of studies since 1991 that have tracked a reflects the relative insignificance, or lack of scale, of the New Zealand
group of successful manufacturing export companies. The studies aim exporter and perhaps the specialist/niche nature of the product. An
to examine the growth process within companies and the role that key important benefit from owning the distribution function is that it
issues, such as innovation, ownership, scale and location, play in provides direct feedback from the market about the company’s products,
determining growth. Thirty companies were interviewed in this study – and the nature of market conditions.
16 for the fifth or sixth time, and 27 for at least the second time. The
firms represent approximately a third of the increase in overall For new exporters or those with a very wide range of products and/or
manufactured export receipts since 1998, and cover a range of firm markets, a mix of owned and independent distribution appears to be
sizes, product markets and ownership types. the most logical approach. This may simply mean having their own
sales person in the market rather than relying on an independent agent,
In previous studies, developing distribution and a customer focus or having retail outlets. This method is also a good source of market
emerged as a critical step in the export growth process. This step can be intelligence.
one of the biggest overhead costs for exporters and is an area where
most businesses admitted to either making mistakes, or having to make Distribution is an integral part of a successful manufacturing export
changes. The size and location of New Zealand businesses means that business, but from the firms interviewed for this study it is apparent
establishing international distribution systems often occurs earlier in a that a good distribution system relies on a number of other areas of
firm’s lifecycle and is a bigger issue than is the case for firms in most firm performance:
other countries. • The product must be credible and be able to stand out in the market.
Companies that have sought-after products find it easier to secure
In this 2002 study, Infometrics was able to identify a number of general good distributors or easier to justify setting up their own distribution.
approaches to distribution and customer focus for exporters. The
characteristics of the product and the nature of the customer base, as • Product support for the distributor/retailer is crucial to backing up
well as the stage of export development, had a major bearing on the good products. There are companies in this study that provide a
distribution strategies employed. great deal of high-quality support to the sales effort via catalogues,
brochures, regular sales seminars, after-sales support, websites, etc.
If the product is a capital item or a niche intermediate good, it will This support encourages strong commitment from independent
generally be sold to a relatively small group of identifiable customers distributors and/or retailers.
who will take large orders. This encourages firms to deal directly with • Reliable and regular delivery is important to overcome worries
clients and avoids the need to invest in expensive distribution networks. amongst distributors and customers about dealing with such distant
The relationships are strong and are based on tightly specified suppliers. Delivery is a major issue for New Zealand exporters and
commitments on quality, cost, delivery, etc. consequently they tend to pay more attention to it than local suppliers
do. There are several examples from this study of New Zealand
Where the product is selling into a larger and more fragmented market exporters being rated by their foreign customers more highly for
(it may still be an intermediate or capital good) the sensible distribution delivery and service than local suppliers.
strategy is likely to involve owning or controlling distribution. The

69
 Q 3.1 Does this business have set procedures (consistent
■ Dealing with Customer Complaints methods that staff know and adhere to) for dealing with
97
customer complaints?
100
External feedback is the echo of a firm’s efforts and the
‘acid test’ for determining whether a business is doing
80
the right things (Zairi, 2000b). In his recent book, Jim 73

Collins (2001) discusses how important it is to 60

companies that they are able to ‘confront the brutal %
facts’ about how well they were doing and what their 40
customers thought of them.1 27

20
Despite the benefits offered by establishing effective
3
processes for dealing with customer dissatisfaction, 0
yes no
many customers continue to be dissatisfied with the
way companies resolve their complaints. Often
customers actually have more negative feelings about Leaders Laggers
an organisation after they go through the customer
complaint/service recovery process (Tax and Brown, impact upon both customer relationships and employee
1998). However, customers that have problems solved morale).2
to their satisfaction (or exceeding their expectations)
can actually feel more positive about a business than
those who never have problems at all.
Evidence of Firms’ Commitment to Customer
Complaint Practices
Successful businesses recognise that customer A positive result is that the BPPS indicates that 75% of
complaints actually represent opportunities for the firm New Zealand firms have set procedures for dealing with
to improve and therefore encourage their customers to customer complaints.
tell them when problems arise and provide feedback.
They recognise that by taking the time to tell them But the overall results hide an important difference in
what is liked or disliked, the customer wants to this area. When the analysis isolates the leading and
continue doing business with them and wants to help lagging firms, there is a significant difference between
them improve (Bell, 2002). the two groups in the way that they deal with customer
complaints. Almost all Leaders (97%) have set
According to business excellence research, dealings procedures for dealing with customer complaints, but
with customer complaints should be based on only 27% of Laggers have similar processes.
consistent procedures that all staff know and adhere to.
This ensures that employees have the skills, knowledge, The leading businesses visited for this study use a
authority and resources to handle complaints and do variety of techniques to ensure they have effective
not have to go back to senior management to find out processes for dealing with customer complaints - they:
how to solve a problem for customers (which can
• set clear expectations and service standards (e.g. free
delivery if a customer does not receive a product by
Q 3.1 Does this business have set procedures (consistent a certain time)
methods that staff know and adhere to) for dealing with
customer complaints? • give responsibility to and train employees to deal
with customer complaints
• support their customer complaint services through
technology (e.g. call centres and the Internet)
25%
• ensure complaints are easy to report, acknowledged,
and customers advised of what will happen next
75% • keep the customer informed of progress during the
process and obtain their input on what the outcome
should be, and
• follow-up customers to ensure everything has been
satisfactorily resolved.

1
Collins J C (2001), Good to Great: why some companies make the
leap ... and others don’t, Random House Business Books, New York.
2
yes no See, for example, Bell (2002).

70
■ Prolife Foods Ltd – A Market Focused Approach
Prolife Foods Ltd is a food wholesaling business that was started 18 Prolife works extremely closely with its customers. It has joint business
years ago by Bernie and Kaye Crosby, in their garage with $30,000 in plans with over 80% of its customers, which set out goals and objectives
equity. The business targeted supermarkets, an industry that in New for the relationship and are specific, challenging and time-bound. There
Zealand is now based around two major players. In this market, Prolife is also a focus on the ‘soft’ side in building successful business
was competing against multinational companies so relied to some extent relationships. Each year the owner takes one or two groups of
on nationalism to get a foothold. In return, it focused on filling niches supermarket owners out fishing for a few days, which is regarded as an
and delivering higher margins to the supermarkets. excellent way to get to know customers.

The easing of import restrictions that came in the 1980s meant that The strength of the relationships with its customers is reflected in the
barriers to entry into food wholesaling were largely removed, which access that Prolife is given to supermarkets’ information. One major
provided a lot of opportunities for Prolife to expand its business. customer sends in sales data from its stores direct to Prolife.
However, the restructuring of the economy also meant that the firm
had to deal with issues such as floating exchange rates and a more The company prides itself on its distribution system. For most of the
open banking environment. North Island, if a supermarket places an order by 3pm, its product will
be delivered to it before lunchtime the following day. To ensure this
Prolife employed an international food-wholesaling consultant to deliver happens, Prolife has an agreement with a freight company that includes
an in-house conference and used this market knowledge to identify a 20% penalty for late delivery. The performance is measured and
opportunities. The company diversified into self-service (bulk foods) monitored monthly and, currently, performance is 98.7% to specification.
because it saw a gap in the market and recognised that it lacked the
capacity to develop sophisticated packaging. Quality and Supplier Focus
Prolife is a large importer (in some cases New Zealand’s largest) of In managing the quality of its products and services, Prolife has an
fruit, grains and nuts and also imports significant volumes of incident system that sets benchmarks on key performance indicators
confectionery. The company also specialises in American style snacks and targets falling levels of non-compliance.
like pretzels.
Prolife is Qbase certified and is looking to become ISO 9002 certified. It
The company is concentrating on its self-service range, which makes already has high self-regulated specifications for products, and codes
up about two-thirds of its business. Prolife generates around 90% of its all inward goods according to their risk profile. Riskier consignments
revenue from sales to supermarkets and believes that there is huge receive more stringent checks.
potential for ongoing growth. At present, the company employs nearly
160 people and is growing strongly. Employee Practices
Employees have clear performance agreements that set out positions
Business Practices and job descriptions. Each month, employees and their team leaders
Prolife’s business culture is based on a can-do attitude whereby every assess performance.
problem has an answer. Being reactive is not enough – in order to
survive, the business believes it needs to adopt a proactive approach. Virtually all employees in the firm are on pay-for-performance schemes.
Prolife likes to keep its employees in the top 25% of the earning bands
The owners consider that business improvement is about ensuring in their respective occupations. When hiring people, the company
employees possess the necessary physical, emotional and intellectual assesses applicants to ensure that they can fit in to the culture (that
skills and then combining these effectively within the company. Success they have the right attitude). Prolife tries to instil an attitude of ‘simple
is based on relationships, knowledge and performance. things done extraordinarily well’ in its employees.

Leadership and Planning Prolife has a team culture and considers that this enables people to express
ideas or differing opinions up and down the company without fear.
As the company has grown, it has become more disciplined and is
doing more formal planning than previously. A great deal of planning Information and Benchmarking
work is undertaken via computer modelling.
The company uses a wealth of statistics and has invested in an
Three or four times a year, days are put aside to set out goals – addressing information system that can go back five years, tracking changes in the
issues like sales targets and marketing strategies. In these meetings, performance of products and stores.
matrices are used to examine the business’s opportunities. These matrices
enable the company to plan what, why and for how long activities are The types of measures that Prolife can benchmark are the percentage of
going to be undertaken. From these meetings the budget and timeline customers that stop and shop in the self-service section, the average
are prepared. value of their purchases, and the number of items purchased. The margins
that supermarkets are making in the section can also be monitored.
Overall, the leadership and management approach is described as being
based on ‘delegation and empowerment’. Innovation
Prolife has been particularly innovative in the area of self-service. It
Customer Focus has worked on (and is part-way towards) turning its self-service section
When it first started, Prolife was a cost-plus company but has moved into a destination area for discerning customers in supermarkets.
away from this to a more market-focused approach that works backwards
from consumers, to supermarkets, and then back to its operations. Prolife Prolife has developed its own bin designs and has patented the concepts.
has a focus on the quality of service it delivers to its customers, and In New World stores, the company has worked with Alison Holst to
recognises the importance of looking after yesterday’s business while brand the self-selection products Alison’s Choice with re-sealable plastic
trying to bring new customers on-board. bags.

71
 Where there are problems or negative feedback, the customers’ needs are constantly changing and
approach is to respond immediately and investigate competitors are constantly pursuing customers,
why these have occurred. Leading businesses also measuring customer satisfaction on an annual basis or
record, track and distribute information on customer less often can be inadequate to ensure customer loyalty.
complaints, and use this information to improve
processes. Evidence of Measuring
Customer Satisfaction
There is a need to measure customer satisfaction more
■ Customer Satisfaction
frequently in many New Zealand firms. At present,
Since the early 1980s, there has been a performance 50% of firms measure customer satisfaction ‘every year
measurement ‘revolution’. Among the growing or more frequently’, but 27% do not measure customer
scorecard of non-financial benchmarks are work- satisfaction at all. This may reflect that firms are
process speed, quality, employee turnover, reliability, working more closely with customers on product and
productivity, innovation, employee involvement, and service development (so there is not such a need to
learning (Bogan and English, 1994). However, customer measure customer satisfaction formally), but it is
satisfaction has emerged as the number one strategic interesting to note that leading companies rely on both
measurement for most firms around the world. a general working relationship with customers and
formal satisfaction measurement.
Information on customer satisfaction tells businesses
how successful they have been in building customer Among Leaders, 60% measure customer satisfaction
relationships, dealing with complaints and problems, ‘every six months or more often’ and another 28%
creating value and keeping up with market changes. measure it ‘every year’. This is one area that is
manifestly avoided by Laggers, as 74% do not measure
There are numerous studies that have looked at the customer satisfaction at all.
impact of customer satisfaction on repeat purchase,
loyalty and customer retention. They all convey two A number of firms interviewed admitted that they do
key messages (Zairi, 2000b): not measure customer satisfaction as much as they
should. However, leading businesses indicated that they
• Satisfied customers are more likely to share their
used a variety of techniques, often in combination, to
experiences with other people – perhaps five or six
collect information on customer satisfaction: everyday
others. Equally, dissatisfied customers are likely to
conversation and contact with staff, questionnaires
tell even more people of their unfortunate
(either delivered with products and directly after
experience.
service, or through separate surveys), focus groups of
• If firms believe that dealing with customer key customers, and market research. They record
satisfaction/complaints is costly, they need to realise customer feedback and discuss and analyse it for
that it costs as much as 25% more to recruit new trends, and maintain contact with customers through
customers. mail, Internet and email.

Leading companies know that it is no longer sufficient

to merely satisfy a customer, nor do they congratulate
themselves if they get ‘satisfied’ ratings in customer
surveys. To these companies, any level of satisfaction
below complete or total satisfaction is not acceptable. Q 3.3 How often does this business systematically measure
customer satisfaction?
They go out of their way to delight and surprise 80
74
customers to achieve customer loyalty, recognising that
loyalty is not the same as satisfaction (Jones and Sasser 60
60
Jr, 1998).

Even though the results of customer satisfaction 40

34
surveys are an important indicator of the health of the % 27 28

business, relying solely on them can be fatal. They 20 16

cannot supply the breadth and depth of information 10
8 9
6 6 6
about customers needed to guide the firm’s strategy or 2 3 3 4 3 2
0
innovation process (Jones and Sasser Jr, 1998). not at all less often than every 2 years every year every 6 months don't know
every 2 years or more

Similarly, many businesses like to wait until the end of Leaders All Laggers
the year to gauge customer satisfaction. But given that

72
These results are also mirrored by significant research New Zealand manufacturers have generally maintained
on service sector competitiveness being undertaken by their efforts on customer focus practices and actually
Otago University (see Customer Orientation in Service improved the extent to which they work with their
Companies below). customers on product and service improvement and
development. Over a third of manufacturers (34%)
Overall, leading firms: responding in 2001 indicated that they work ‘very
• are more likely to have set procedures to ensure that closely’ with customers compared to 27% in 1997. In
customer complaints are dealt with effectively 1994, the number of manufacturers reporting that they
work closely with domestic customers on design of new
• have a more proactive approach to customers, shown
products and services was 28%. Only 17% reported a
by their regular assessments of customer satisfaction.
similarly close relationship with their international
customers.

■ Evolution of Customer Focus As discussed earlier in relation to the general results,

Practices in New Zealand increased and deeper relationships with customers may
Manufacturers mean that manufacturers see formal and regular
measurement of customer satisfaction as less important.
Gearing Up (1999) indicated that customer focus Indeed, the improving trend in working alongside
appeared to be the most highly developed practice customers is accompanied by a declining trend in the
throughout the entire manufacturing industry – even for regularity of measuring customer satisfaction. This has
lagging firms. Unlike the Leading the Way (1994) results, dropped notably between 1997 and 2001, with half
manufacturers appeared to actively seek and use saying that they systematically measure customer
customer input for developing processes and products. satisfaction ‘every year or more often’ in 2001,
compared to close to 60% in 1997.

■ Customer Orientation in Service Companies

Market and Service Competitiveness Studies, Marketing It is interesting to note that, as with the BPPS, the lowest scoring indicator
Performance Centre, University of Otago (1992 – 2001) was measuring customer satisfaction on a regular basis.

A series of major research projects on marketing performance and service For the 2001 study, the top 50 firms from the 1999 survey were identified,
sector competitiveness in New Zealand have been undertaken by the based on their performance scores for brand awareness, customer
Marketing Performance Centre at Otago University since 1992. Two of satisfaction and loyalty, sales, profitability and profit growth. A smaller
the most recent studies, Improving Service Sector Competitiveness (1999) group of 20 less well performing firms was selected to contrast their
and Best Practices in Marketing and Managing Service Businesses (2001), marketing and management practices with the best practices adopted
provide analysis on the state of customer-focused practices in New by the top performers. 27 top performers and 10 lower performers agreed
Zealand service businesses. to take part.

Improving Service Sector Competitiveness was based on a survey of Interviews were held with the firms to gauge what managers considered
2000 firms, with usable responses from 355 respondents (or a response were their main sources of competitive advantage and to elaborate on
rate of 18%) from the full range of service sectors. The majority of firms examples of marketing and management practices, including customer
(55%) had fewer than 50 employees. orientation.

The survey found that the respondents tended to have reasonably high The major differences between the lower performers and the top
levels of customer orientation. Out of a Likert scale of 1-5 (with 1 being performers were that the top performers were more proactive in seeking
strongly disagree and 5 strongly agree), average results on a range of knowledge about their customers, and tended to use more formalised
customer issues were: methods of gaining customer data, including regular customer surveys,
focus groups and mystery shopper trials. So leading companies in this
• 3.99 for encouraging customer comments and complaints because survey were, as with Leaders in the BPPS, measuring customer
they help firms do a better job satisfaction formally and regularly.
• 3.89 for after-sales service as an important part of the business
strategy Top performers used this information, not only to gauge perceptions of
the value of the services offered and to help improve levels of satisfaction,
• 4.49 for having a strong commitment to customers but also to develop new or improved services and to predict the likely
responses to changes in marketing, products and customer service. The
• 3.31 for measuring customer satisfaction on a regular basis, and
top performing firms also tended to have a better appreciation of the
• 4.14 for always looking at ways to create customer value in providing links between customer satisfaction, customer retention, and sales and
services. profitability. They were also more likely to encourage customers to
complain if they had a problem.

73
 How much does this business work with customers on product However, the percentage of manufacturers that actually
development/improvement?
100 measure customer satisfaction has not changed much
27 34 over the two surveys. About 68% of manufacturers
80 indicated that they measured customer satisfaction to
some extent in 1997 and 2001. Similarly, there has
60 been little change in the proportion of manufacturers in
% 43 2001 (78%) to that in 1997 (79%) with set procedures
40
40 for dealing with customer complaints.

20 26 New Zealand manufacturers also achieved comparable

21

4
results to Swedish manufacturers on customer focus
3
0 (see chapter 15).
1997 2001

very closely quite closely a little not at all

■ Conclusions on Customer Focus
How often does this business systematically
measure customer satisfaction? Many New Zealand businesses appear to have taken a
100 ‘customer-focused approach’ to heart. This is evidenced
11 9

by the development of longer-term customer

80 21
24
relationships in product, process and service
5 development, and is consistent with the tendency for
60 4 14
15
businesses to consult with customers in planning (as
% 5
described in the results for leadership and planning).
40 16

44 32 However, these relationships tend to be somewhat

20
restricted to the senior or sales end of most
0
organisations and there may be further benefits to be
1997 2001 achieved (in terms of service, innovation and
information, for example) if firms consider broadening
don’t know less often than every year customer relationships to other staff.
every 2 years
not at all every 2 years every 6 months
Consistent with the desire to build longer-term
customer relationships, the vast majority of businesses
This business has set procedures for dealing
with customer complaints: also have clear procedures for dealing with customer
100
complaints. The main area where there appears to an
21 22
opportunity for real improvement, recognised by
80
businesses themselves, is in relation to assessing
customer satisfaction, with a quarter of firms not
60
79
78
measuring satisfaction at all. Regular feedback would
%
40
enable firms to better assess whether their current
relationships and customer complaint processes are
20
actually working as satisfactorily as they assume.

0 In addition, there is a very large distance between

1997 2001 leading and lagging practice in customer focus and, in
fact, there is the widest divergence of achievement on
no yes this business practice. So although many New Zealand
firms are demonstrating good customer practices, there
is significant scope for a large number of businesses to
improve their performance in this area.

74
■ Southland Credit Union – Deepening Relationships with Customers
The Southland Credit Union (SCU) grew out of a credit union that was Quality and Supplier Focus
established in 1977 at the Tiwai Point Aluminium Smelter. SCU presently
has around 6300 clients and employs 20 staff. As part of ensuring that the services it provides are of a high standard,
SCU has become Qbase certified and has given some consideration to
In the last five to six years, the key focus has been on returning the upgrading this to ISO 9002. Going through the process of becoming
business to a sound financial footing following a particularly trying certified has meant that the documentation of processes within the
period. Doing so has meant having to push the business and its customers organisation has improved, which is valuable for the retention and use
quite hard. Now that this has been achieved, and profits have become of knowledge within the business. Staff have a quality manual against
more consistent, a new strategic focus is developing around improving which they can assess the level of service they are providing.
customer relationships.
Because the quality manual is used as a training tool to ensure that
SCU finds itself increasingly competing with banks and there is an staff have the necessary skills, discussions at weekly staff meetings also
expectation that it will provide excellent banking services to attract feed into the ongoing development of the manual. This means that it
and retain customers. SCU believes that it has several advantages over remains as useful and relevant to the needs of the organisation and the
its competition including: staff as possible.

• the lowest fees in the area Employee Practices

• a back-to-the-people basis SCU runs a team-based profit sharing system. This system is used because
• a belief that it exists to benefit its members. it helps to reinforce a team ethic and because current systems don’t
enable individual performance to be measured accurately enough to
Business Practices calculate specific bonuses from the results.

Information management and benchmarking is considered a key Training for staff is largely on-the-job. During their induction, new
component in achieving business excellence at SCU. This includes staff are introduced to people throughout the organisation and given a
ensuring that there is sufficient documentation of processes within the perspective of the entire business. Staff are encouraged to build their
organisation that will allow knowledge retention, as well as ongoing capability in at least two core areas so that there is some internal
comparison with other credit unions (both domestic and international). flexibility when staff leave, or are away.
Small size is regarded as a challenge to the implementation of business
improvement because progress relies on fewer resources. Hence the Information and Benchmarking
General Manager of SCU is regarded as critical to providing the leadership
to drive and encourage the business improvement process. Internally, benchmarks are set against key performance indicators (KPIs).
Although there is always room for improvement, the General Manager
Customer Focus believes the processes are well documented enough for benchmarking
to set a useful basis for ongoing enhancement of performance.
The previous strategic focus on restoring financial strength meant that
the organisation and its customers were both squeezed quite hard. Gathering comparative information from within the credit union industry
Although credit unions face a relatively unique position in that their in New Zealand is aided by the General Manager being on the board of
customers are all owners and therefore have an interest in seeing the the New Zealand Association of Credit Unions. He would like to see the
credit union succeed, it is clear that some goodwill was spent in this Association pushing for standardised reporting to improve this
process. The General Manager wants to see SCU focus on rebuilding information and better assist benchmarking. There is also some
this goodwill and, in particular, deepening the relationship SCU has information available from Australia and the United States, although
with each of its clients. this must be handled carefully because of the very different regulations
in each country.
For a credit union, SCU has a relatively broad customer base. It has
been able to attract and retain customers from across age groups and To the extent it can be done, comparison with competitors (e.g. banks)
income levels by offering a very low fee structure and by introducing is regarded as important because it is the basis for driving product
new services. Measures of customers’ satisfaction are gathered through penetration and analysing products’ success.
feedback forms, focus groups, and occasionally membership surveys.
Weekly staff meetings have a section set aside to discuss customer Innovation
feedback.
Staff at SCU are encouraged to look for ways to improve the organisation
The personal touch and the focus on the welfare of its members are through the KPI process and the bonus scheme. SCU has tended to be
seen as key competitive advantages for SCU. An example of this focus an early adopter of new products in the banking sector. At the moment,
is SCU’s financial management service, which ‘assists members to right SCU is one of the credit unions testing transactional banking facilities
their financial ships’. This service takes a more hands-on approach to for its customers, which sees each customer given their own bank account
financial management than the typical budget advice focus of number and therefore the ability to use cheques.
government support agencies, and has had such good success rates
(90%) that Work and Income has approached SCU to help some of its An eye is also kept on developments in the credit union and banking
clients. industries overseas. Rather than simply trying to transplant ideas, the
General Manager tries to identify the reasons for what is being done,
ascertain if the same reasons apply in New Zealand, and then look for
what might work in New Zealand.

75
76
7 – QUALITY & SUPPLIER FOCUS
There are many different interpretations of what Figure 16 summarises the differences between Leaders,
quality means in practice. Garvin (1984) is often Laggers and firms overall across the quality and
credited with coming up with the most comprehensive supplier focus index.
definition of quality in specifying eight dimensions:
performance, conformance, features, reliability, Figure 16. Quality and Supplier Focus
durability, serviceability, aesthetics and perceived
Question: This business ... Leaders All Laggers
quality. Businesses do not need to excel in all these
dimensions – the key is meeting or exceeding works ‘quite’ or ‘very’ closely
customers’ expectations in whatever dimension/s they with suppliers to improve
value. Hence it is this broader definition – meeting and each other’s practices 77% 44% 13%
exceeding customer expectations – that has emerged has systems for measuring
over the last decade as the key definition from a the inputs of ‘most’ or ‘all’
practical and managerial perspective (Forker et al, suppliers 62% 40% 9%
1996; Terziovski and Dean, 1998; Adam Jr et al, 1997).
allows non-managerial
There are four broad levels to quality management employees to contact
practices (Sullivan-Taylor and Wilson, 1996): suppliers when supply
problems arise 85% 76% 44%
• inspection/checking – simply identifying sources of
non-conformance and taking corrective actions encourages non-managerial
employees ‘a great deal’ to
• quality control – developing a quality manual, using suggest improvements to
process performance data, product and service products and/or processes 93% 59% 19%
inspection/checking
has, or is planning to
• quality assurance – advanced quality planning, implement, quality
comprehensive quality manuals, use of quality costs, management certification 58% 26% 4%
statistical control techniques and quality
management system development
• quality management – involving suppliers, customers ■ Supplier Relationships
and all employees in the management of quality, a
range of performance measurements, and a full quality As part of managing quality within the value chain,
management system. there has been much interest in how a firm and its
suppliers can improve one another’s performance
Concerted efforts to improve the management of through long-term relationships, rather than the
quality of products and services was one of the first traditional view of pitting suppliers against each other
actions taken by New Zealand firms after the period of to drive prices down.
deregulation and liberalisation in the mid and late
1980s.1 The emphasis initially was on reducing defect/ The saying ‘if pure water flows from upstream, there is
error rates (conformance quality), but nowadays no need to purify it further downstream’ provides a
customers expect low defect rates and this dimension good analogy of the valuable role that suppliers can
of quality has become an ‘order qualifier’, that is, what play in the value-chain. This can only occur when
you have to do to play the game. A recently published businesses link their operating strategies to the
study of manufacturers shows that improvements in capabilities of their suppliers. More and more often,
conformance quality have little effect on business firms are coming to understand that relationships
performance (Corbett and Claridge, 2001). upstream – not just with customers downstream – in
the value chain can provide ideas for better processes
Hence inspection and control techniques represent a and better products and services, particularly as the use
minimum level of quality practice for competitive of outsourcing becomes more common in some sectors.
firms. From a business excellence perspective, the key
components of quality practices that make up a quality As described earlier, the resource-based view of the
management system include: a quality plan that firm maintains that resources that are well protected
contains goals and concrete methods to achieve them; from imitation and substitution can be a durable source
process design and measurement techniques; training of advantage. Suppliers can be a barrier to substitution
in quality techniques for employees and staff involved
in problem-solving and authorised to implement 1
See the series of NZ Manufacturing Futures Project reports by L M
solutions; and suppliers who provide quality materials Corbett (Victoria University of Wellington) and A Season of
and services on time (Kasul and Motwani, 1995). Excellence? by C Campbell-Hunt and L M Corbett, NZIER, Research
Monograph 65, 1996.

77
 if potential competitors must not only develop a Q 4.2 How much does this business work with key suppliers
to improve each other’s processes?
superior product or service to attract customers, but 60
also identify and cultivate a new set of relationships 51
with suppliers (McEvily et al, 2000). 50
44

40
The benefits to the purchasing business in developing %
36
33
31
long-term supplier partnerships are both product and 30 29

logistics related (Tsang and Antony, 2001):

20 17
18

• improved quality as suppliers become more 13 13

interested in final customer needs and are 10 7

4 4
encouraged to rectify problems with the items they 0
1 0

supply (and they are more likely to have a solution) not at all a little quite closely very closely don't know

• opportunities for improvements in the early phases

of product, service and process development through Leaders All Laggers
technical input and expertise from the suppliers
• speeding up of information sharing Business excellence research suggests that quality
procedures should be continuously improved in
• ability to reduce inventories and transport costs
conjunction with suppliers to build in quality and
• enhanced flexibility and quicker response minimise defective items at source. Delivery standards
• stable relationships can lead to stable delivery and should be established in advance so that suppliers are
prices. aware of a buyer’s expectations and then quality of
inputs assessed against these (Dowlatshahi, 1998). The
The supplier also gains – through better planning results of the BPPS show that 56% of all firms
information, greater demand security and also technical measured input quality from ‘most’ (20%), ‘principal’
assistance from the buyer. (16%) or ‘all’ (20%) suppliers, although 16% of firms do
not measure supply quality at all.
Failing to collaborate with suppliers results in the
distortion of information as it moves through the If a firm has set up sound relationship and quality
supply chain, which, in turn, can lead to costly measurement processes with its suppliers, then it may
inefficiencies. Through the more open, frequent, and not need to be concerned about input quality. If a
accurate exchange of information typical of a long- supplier guarantees quality, firms may not measure
term supply chain partnership, businesses can eliminate input quality and potentially be included in the 16% of
many of these problems and ensure ongoing all firms that do not measure the quality of suppliers at
improvement. all. However, if we focus the analysis on leading and
lagging firms, there appears to be little support for this
However, given the effort involved in creating and argument. 62% of Leaders measure quality of inputs
sustaining partnerships, clearly a firm might focus on from ‘all’ (39%) or ‘most’ (23%) of their suppliers, with
the key partners (rather than all suppliers) it considers the vast majority (77%) of Laggers not measuring input
more important in the long run (Corbett et al, 1999). quality at all (39%), or not knowing whether they do
this or not (38%).
Evidence of Relationships and Managing
Quality with Suppliers
Q 4.1 Does this business have systems for measuring the
The BPPS indicates that only 13% of firms work ‘very quality of inputs sent by:
50
closely’ with their suppliers to improve each other’s
processes, though encouragingly 67% are making 40 39 39 38

progress in this area. 31% work ‘quite closely’ and 36%

work ‘a little’ with their suppliers. 30
% 23
Amongst Leaders and Laggers, nearly half (44%) of 20
20 20
17
Leaders choose to work ‘very closely’ with their 13
16 16
14
11
suppliers, while a disappointing half (51%) of Laggers 10
10
6 7
do not work with suppliers at all on process 5
2
4

improvements. 0
some principal most all no don't know
suppliers suppliers suppliers suppliers suppliers

78
 Q 4.3 When supply problems arise do this business's non-
managerial employees have the authority ■ Employee Involvement in
to contact external suppliers?
60 Quality Management
50 47 47
A variety of formal techniques and measures have been
44
41
developed over the last two decades to assist businesses
40 in checking quality and reducing and eliminating
%
rework or re-servicing. Many quality management
30 28 29
practices of the past, however, can be regarded as ‘after
21
20
16
the fact’ control techniques to detect defective items
14
that require reworking. Hence, often past practices
10 8
focused on control and inspection rather than on
2 3

0 quality management.
never sometimes always don't know

The job of improving and ensuring quality is no longer

Leaders All Laggers solely the responsibility of certain people or groups
within businesses – it is the responsibility of all
As one could quite reasonably expect, supply problems can employees (Mehra et al, 2001). This is based on
continue to exist despite the efforts of a firm to ensure the evidence that internal errors or variations accumulate
quality of inputs it receives. When problems do arise, it is from activity to activity and it is good practice to deal
important that staff do not always have to go to with them at the source rather than letting them build
supervisors or management to get permission or find out up before they reach the final customer. This is an
how to deal with them – this can waste time, resources, expansion of the view that ‘customers’ are more than
and can damage supplier relations and staff morale. just those who are external to the business and
purchase the final product or service. A customer is
It appears that New Zealand firms are willing to anyone in the business that receives a part, service or
delegate a reasonable amount of authority to their non- information from another employee (Bell, 2002).
managerial employees to resolve supply problems. Over
all firms, 47% provide non-managerial employees with Non-managerial employee participation in problem
the authority to contact external suppliers to resolve solving and quality is promoted by the quality
supply problems ‘sometimes’. A further 29% ‘always’ movement as one of the most powerful methods for
delegate this authority. improving processes, products and services throughout
the value chain. The Toyota Motor Company was one
There is a clear difference between the numbers of of the Japanese pioneers in this area, and its approach
Leaders (41%) and Laggers (16%) that allow non- was based on the idea that the people who do the job
managerial employees to ‘always’ resolve problems every day are in the best position to improve it.
with external suppliers. Managers in lagging firms have
significantly retained responsibility for resolving Evidence of Employee Involvement
supply problems with 47% reporting that they ‘never’ in Quality
allow non-managerial employees to resolve problems
Findings from the current study suggest that there is wide-
with external suppliers.
spread acceptance of this notion in New Zealand firms.
A number of firms interviewed indicated that they use
Leaders and businesses overall appear to understand
only ISO certified suppliers, using the standard as the
that quality levels can be maximised by encouraging
filter for quality, particularly for key suppliers. This
employees to think about how to meet the requirements
approach seems somewhat inconsistent with the view of
of the next customer (employee) down the value chain.
most firms that saw little value in having ISO 9000
93% of Leaders and 59% of firms overall, encourage
certification themselves (see Quality Management
their employees to identify problems or suggest
Systems and ISO 9000 on page 80). Leading firms visited
solutions ‘a great deal’.
stressed the importance of personal relationships with
suppliers and meeting with key suppliers regularly, and
Even lagging firms seem to recognise the value in
managed suppliers in much the same way as customers.
encouraging employees to actively assess quality –
They looked for win-wins with suppliers (rather than
80% encourage their employees in some way. However,
exploiting suppliers), had supply agreements with key
they generally apply this principle to a lesser degree,
suppliers, wanted suppliers to be on-board with the goals
with 61% of Laggers encouraging employees to be
of the business, and used these relationships to keep
proactive in quality issues to ‘a moderate amount’
informed about new product and service developments
(30%) or at least ‘a little’ (31%).
and to improve the products or services they received.

79
 Q 6.1 Are non-managerial employees encouraged to identify services consistently, rather than on detecting defective
problems or suggest improvements to products or processes?
100 products or ineffective services after they have been
93
produced.
80
ISO 9000 standards and certification is one of the most
60 59
recognised and common methods a firm can use as a
% benchmark to assess the adequacy of its QMS. It
40 provides a standard language for documenting quality
31 30
26 procedures and requirements, and requires a system to
17 19
20 track and manage evidence that quality procedures are
12

2
7
1 2
instituted throughout the organisation.
0 0 0
0
not at all a little a moderate a great deal don't know
amount ISO 9000 became very popular in the early 1990s and
is now a national standard for over 60 countries; i.e.
Leaders All Laggers
some customers or buyers in these countries (e.g. in the
EU) explicitly require ISO 9000 from their suppliers
Many leading firms visited indicated that they use staff (Hormozi, 1995). At one point New Zealand had one of
at all levels to check the quality of the output or the highest rates of adoption of the standards of any
services they produce and identify problems (a country and many firms claimed significant benefits
recognition of the internal customer concept), as well from meeting the ISO standards (Terziovski et al, 1997).
as ‘testing’ of the end product or service. They also
tended to use a range of measures to gauge quality that Although there is little debate on the value of a holistic
were relevant to customers (e.g. response times) – quality management system approach, there continues
recognising that quality is defined by customer values. to be debate about the value of ISO 9000 standards and
certification itself. Inferred in the pursuit of quality
certification is the assumption that quality certification
■ QualityManagement Systems is associated with improved quality systems and real
and ISO 9000 quality improvement to the businesses that apply it.
However, much research reports that the greatest gain
The concept of viewing all employees in the value from quality certification is widening market
chain as customers works hand in hand with the opportunities rather than improvements in quality itself
development of a Quality Management System (QMS). (Wenmoth, 1996; Dick, 2000). That is, does certification
A QMS focuses on defining all the processes and actually represent a commitment to quality or is it just
activities that will produce quality products and a marketing tool?

A great deal of research on the value of ISO 9000 has

■ Qualityand Suppliers and the found evidence of both benefits and weaknesses. The
Evolution of Competitive Advantage benefits are said to be (Gotzamani and Tsiotras, 2001):
World Famous in New Zealand: How New Zealand’s Leading • ISO 9000 offers a well structured tool to start the
Firms Became World-Class Competitors (Colin Campbell- business improvement journey
Hunt/CANZ (2001), Auckland University Press)
• the standards help shift focus from final products
This study also considered how the management of quality and and services to the processes that produce these
relationships contributed to the success of the exemplar firms. The products and services
operational practices of these firms were compared to the processes
regarded internationally as world-class. • they increase employees’ awareness of business
improvement issues
In terms of competing on quality, all the exemplar companies considered
that they gained an advantage through the quality of their products. • they lower quality variations and hence quality costs
They saw themselves not only competing on conformance quality such
as low defect rates, but more importantly on product features or • they encourage continuous improvement via regular
attributes. Most had achieved ISO 9001 certification or some other quality quality audits.
standard.
The weaknesses are considered to be (Gotzamani and
Networks were a crucial strategy for linking suppliers to the firm. The
Tsiotras, 2001; Barnes, 1998; Mo and Chang, 1997):
preference was for long-term suppliers who were expected to produce
superior quality and reliability in exchange for a degree of security. All • they involve following procedures rather than taking
had long-term arrangements with their suppliers, and agreed volume
responsibility
contracts and consignment stocks were common. This enabled the firms
to operate just-in-time deliveries with local suppliers.

80
■ The Benefits of ISO 9000 in New Zealand
Registered Organisations’ Perceptions of ISO Registration • improved internal communications (more than 90%)
(Wei Zhang for the New Zealand Organisation for Quality • promotion of teamwork within the organisation (82%)
(2000), Supported by the New Zealand Association of
Certification Bodies) • enhancement of employee quality awareness (82%) and increased
employee morale (70%).
This research aimed to gauge registered New Zealand organisations’
perceptions of ISO 9000, in order to inform the debate about the positive Other actual impacts that organisations said they received were:
benefits or otherwise of ISO 9000. • access to specific markets such as Australia, Austria, Belgium, China,
Germany, Japan, Singapore, USA (61%) – and this result was more
The survey project involved literature research followed by a survey positive than the organisations had expected.
that covered general questions about costs of ISO 9000 registration,
benefits of ISO 9000 registration, barriers to ISO 9000, and the lessons • positive impact on market share (32%) – although 7% thought it
learnt from ISO 9000. had a negative impact on market share due to impacts on prices,
and 26% said it was too difficult to estimate – this was lower than
There were 31 respondents (a response rate of 37%). About 30% of expectations.
organisations were foreign owned or joint ventures. The majority of
• greater internal efficiency (77%) – this was lower than expectations
respondents (68%) were from manufacturing industries. Fourteen
organisations were registered to ISO 9001 and 17 registered to ISO 9002. • increased operational costs (26%), although 52% said it had no impact
on operational costs and 22% said it reduced operational costs
Internal management improvement (55%) was the prime motivation
• reduced customer complaints (46%) although 50% said it had no
for seeking ISO 9000 registration, followed closely by gaining competitive
effect – slightly lower than expectations
advantage (52%). Other reasons, such as customer requirements (36%),
access to particular markets (13%), and baseline of market entry (10%), • reduced waste/scrap/rework (46%) – consistent with expectations
were also cited.
• reduced human errors – 69% indicated a positive or very positive
In a similar vein, improved internal efficiency was the most common impact – much higher than expectations
expectation from ISO 9000 registration (87%), followed by reduction of • reduced repeat errors – 79% indicated a positive or very positive
repeated errors (54%), lower customer complaints (52%), less waste/ impact – much greater than expectations.
scrap/rework (48%), and increased sales and market share (45%).
• better quality of incoming materials – 48% indicated a positive or
The external benefits that organisations claimed to have gained from very positive impact – much higher than expectations.
ISO 9000 registration included higher customer perceived quality (96%),
enhanced company image (93%), improved customer satisfaction (90%), Of the 22 organisations that reported on the costs of obtaining ISO
competitive advantage (83%), and fewer second party audits (61%). 9000 registration, the range varied from $NZ 6,400 to $NZ 248,000.
However, most organisations were not convinced that gaining ISO 9000 Factors influencing the cost included the organisation’s size, the number
had, in itself, ensured higher quality products and/or services. The and type of products, and the existing state of management. The average
internal benefits that organisations reported they had gained from ISO cost was $NZ 71,500. The cost of employees’ time accounted for about
9000 registration were: half of the costs.

• establishment of a formal management system (100% claimed that More than 80% of the organisations that responded believed the payback
they gained such a benefit to some extent, and more than 70% to a period was less than five years, with more than 30% believing that the
great extent) payback period was less than one year.
• establishment of a consistent documentation system (100% indicated
they had benefited to some extent, and more than 80% to a great Relatively few organisations had met barriers in seeking ISO 9000
extent) registration. The most common barriers related to time constraints,
training requirements and document development.
• support in retaining experiences and training new staff (more than
90% claimed this to some extent) Overall, the survey suggests that the benefits of ISO registration in New
Zealand outweigh the costs, although not all expectations had been
met.

• ISO 9000 is driven by documentation, is bureaucratic ISO has not ignored these criticisms and is in the process
and inflexible, stifles innovation and quickly of gaining international approval for substantial revisions
becomes out of date to the ISO 9000 standard to address many of these issues.
• it focuses on methods and systems not on the
In New Zealand, the evidence suggests that there are real
competencies and skills of people and their creativity
benefits to ISO certification and these can outweigh the
• the costs of achieving and maintaining certification costs, at least for large businesses (see The Benefits of ISO
(registration, consultation and auditing) are too high 9000 in New Zealand above), although recent research
– particularly for small firms. found that ISO registered firms performed below average
on the New Zealand capital market (Aarts and Vos, 2001).
The overall conclusion from the many studies is that the

81
 Q 6.2 Does this business have, or it is planning to implement reduce the chance of errors (balancing this against
systems to gain, quality management
systems certification (e.g. ISO9000)? flexibility) and in documenting activities for the
retention and dissemination of knowledge.

In addition, as stated, firms visited also saw the benefit

26% in ‘other’ firms having ISO 9000 as a means to gauge
the quality of supplies.

74% Overall, Leaders are:

• more quality-focused, and realise that ensuring
sustainable high levels of quality is the responsibility
not only of external suppliers, but also the internal
suppliers who operate within the value chain
• are pursuing quality certification to a far higher degree
than Laggers. Though, in general, New Zealand firms
yes no seem reluctant to pursue quality systems certification.

long-term effectiveness and real value of the ISO 9000

standards is not based on their content, but on the
■ Evolutionof Manufacturers’ Quality
motivation for businesses adopting them and the way
they are adopted and implemented. The key determinant and Supplier Focus Practices
for the success of the standards is the depth to which a The focus on suppliers has seen substantial changes
company desires to proceed in satisfying their since this area was highlighted in Leading the Way
requirements (Mo and Chang, 1997). (1994) as an area that manufacturers should consider
for future performance improvements. Gearing Up
Evidence of Quality Management Systems (1999) found that New Zealand manufacturers were
and Certification beginning to devote serious effort to developing
reciprocal relationships with their suppliers as of 1997,
The BPPS indicates that New Zealand firms seem reluc-
and the results from the 2001 survey suggest that firms
tant to adopt QMS certification. Only one-quarter of all
are starting to rely more on deeper supply relationships
firms (26%) have adopted or are planning to adopt
than merely quality checking at the door.
systems to gain quality certification.
There has been an increase in the number of
However, 58% of Leaders are pursuing quality
manufacturers that work ‘very closely’ with suppliers to
certification as a means of ensuring consistent quality
improve processes (from 8% to 14%) between Gearing
– this compares to only 4% of Laggers. As shall be
Up and the current study.
described in chapter 13 on Competitive Strategy, and
consistent with the marketing advantages of ISO 9000,
There has also been a large increase in the number of
exporters, particularly new exporters, are also adopting
firms that indicate that non-managerial employees
QMS certification in greater numbers.

Although there seems to be a move away from quality

certification in New Zealand this does not appear to Extent to which this business works with suppliers to improve
represent a move away from quality systems. Firms products/services or processes
100
visited often indicated that they believed they could 8
14

achieve the necessary standards of processes without 80

the compliance costs of formal certification (or have 36
38
been down the certification path already and adopted 60
most processes – seeing little value in going further). A %
number of firms visited were actually Qbase or ISO 40 46

9000 certified but this was often because of customer 36

requirements and in the interests of securing contracts. 20

9 10
Leading firms often developed their own in-house 0
1997 2001
quality assurance programmes and saw the advantages
of a QMS as more than just sales-related. These firms
referred to advantages in standardising processes to very closely quite closely a little not at all

82
 When supply problems arise, do non-managerial employees This business has systems for measuring the quality
have the authority to contact external suppliers? of inputs sent by:
100 100
7
9
19
80 80
26
55
36

60 60
29
% %
79
40 40
24

45
20 20 37
25

0 0
1997 2001 1997 2001

some/very
no yes no suppliers few/principal most suppliers all suppliers
suppliers

have the authority to contact external suppliers when This business has, or is planning to implement systems to
gain, quality management certification (e.g. ISO 9000)
problems arise (from 45% to 79%). 100

And, perhaps a reflection of these factors, there has 80

been a drop in the numbers of manufacturers that have 44
62
systems for measuring the quality of inputs sent by 60
suppliers. %
40
Gearing Up suggested that manufacturers were 56
demonstrating a continued commitment towards good 20
38
quality practices. The results from the 2001 survey may
suggest that firms are perhaps looking at wider 0
1997 2001
organisational improvement efforts to maintain quality
than just ‘quality-specific’ practices, as there has been a
no yes
fall in take-up of these practices. This may reflect the
improved relationships with suppliers and customers. Extent to which non-managerial employees are actively
encouraged to identify problems or suggest improvements
100
There has been a large drop in numbers of
manufacturers that indicate that non-managerial staff
80
are ‘always’ encouraged to identify problems or suggest
improvements, from 88% in 1997 to 62% in 2001,
60 62
although the overall numbers of manufacturers that 88
%
encourage employees at least ‘a moderate amount’ has 40
not changed.
20 35

Similarly, there has been a sharp fall in the number of

11
manufacturers that have, or are seeking to have, a 0 0 2

quality management system, from 58% in 1997 to 38% 1997 2001

in 2001.
always/a great deal sometimes/a little/ never
or a moderate
Despite some of the positive results on supplier amount
relationships evidenced by manufacturers, the
comparison with Sweden indicates that there is
significant scope for improvement to come up to
international standards in this area. The average score
in Sweden was appreciably higher than the average in
New Zealand on this index (see chapter 15).

83
 ■ Conclusions on Quality and and Planning). There appear to be real opportunities for
firms to cultivate these relationships and gain the
Supplier Relations potential benefits of improved quality, product and
The New Zealand business sector is generally not service development, flexibility and reduced costs. If
focusing on upstream relationships with suppliers to the the trends shown by manufacturing firms reflect trends
same extent as it is downstream towards customers or in the wider business sector, however, businesses have
inwardly to employees. Less than half of firms work identified these opportunities and are increasingly
particularly closely with suppliers on process paying attention towards building these relationships.
improvements, or allow staff to deal with supply
problems directly. On this basis, we would expect quite a Although there is not a great deal of take-up of formal
reliance on quality checking of supplies coming in the quality management system certification, there does
door and the majority of businesses are indeed doing this, appear to be greater recognition of the need for some
at least for key suppliers. internally consistent approach to quality, and the vast
majority of businesses encourage employees to assess
These results are consistent with the relative lack of and improve products, services and processes. Firms
emphasis placed on consulting with suppliers when may need to reconsider the benefits of certification and
businesses plan (as described in chapter 4 - Leadership look at this from a supplier and exporting perspective.

84
■ Stabi-Craft Marine Limited – Quality throughout the Value Chain
Stabi-Craft Marine Limited began in 1987 as a backyard producer of term, key areas of focus will be leadership and planning and quality
high quality rigid hull pontoon boats, specialising in commercial fishing and supplier relations.
boats. The company has grown significantly since then at around 20%
annually. Now, in terms of number of boats sold, Stabi-Craft is one of Leadership and Planning
the four largest production boat manufacturers in New Zealand,
supplying about 350 boats to New Zealand and about 50 to Australia in Stabi-Craft has a five-year plan, which sets out the goal of doubling
2001. The company presently employs 42 staff. the business every three years and outlines key aspects of how this can
occur, such as expansion of the business in Australia and, eventually,
85-90% of Stabi-Craft’s boats are sold for recreational use, with about breaking into the massive US market. The possibilities for upgrading
18% of production being sold in Australia. At the moment most boats Stabi-Craft’s production technology are also being investigated.
made are under 7.5 metres long. The Managing Director believes there
is huge potential for larger, custom-made boats and is presently analysing The planning process includes quarterly planning meetings of the board.
the profitability of the production of a 13-metre boat to see if further Each of these meetings focuses on a particular area of the business (e.g.
work like this should be taken on. product development, or staff training and development) and also
involves the Managing Director delivering his report on the business
Stabi-Craft has been in a growth phase from day one. There was a situation. This covers areas such as what competitors are up to, and
particularly large jump in turnover from 1999 to 2000 of 85% and specific projects. From these board meetings, action plans are developed
growth of around 20% in the two following years. The current strategy and then put in place by the Managing Director and team leaders.
is to double business in the next three years by expanding in Australia
(and then the US). Once a month, the Managing Director has a meeting with the
management team. Team leaders from the production work-centres run
To cope with the increase in business, Stabi-Craft has a five-year plan through their plans, any kind of resourcing issues (for instance, upcoming
to redevelop its premises over several stages. It has already completed bottlenecks requiring extra staff) and potential cost-cutting opportunities.
the first stage of enlarging the factory area and is looking to add a These meetings are where the Managing Director can pass on ideas or
showroom and possibly a paint facility. Bringing the paint facility in- solutions from the board meetings.
house is seen as a way to reduce bottlenecks. The company currently
owns the land and buildings and is looking to sell and then lease these Stabi-Craft makes sure it meets all environmental requirements and
back to raise funds for expansion. When finished, these developments recycles as much as possible. The company sponsors a local fishing
will allow Stabi-Craft to build over 1000 boats per year. tournament and endorses and supports a boat-building course at the
Southern Institute of Technology. It sponsors a prize, given to the best
The strong growth of the business has also required a change in structure. student that is training on-site.
While turnover was increasing steadily, profitability was not. Outside
expertise was brought in and new structures and systems put in place, The Managing Director views his leadership style as being diplomatic
including a board of directors. rather than dictatorial and he tries to push responsibility and
accountability down the organisation. He sees his vision, ability to get
The business grew further and greater expertise was required, so the things started, delegation skills, and listening as his main strengths as a
original consultant was replaced. The replacement consultant is now leader.
one of two non-executive directors on the board of Stabi-Craft. They
contribute particular skills and especially help with financial Customer Focus
management and strategic planning. The increase in size has driven a
Stabi-Craft sells its boats to its dealerships, which then sell to the final
shift from hands-on running of the business and informal processes to
customer. This means that keeping very close contact with dealerships
greater delegation, formal systems and written arrangements. This has
is crucial to ensuring that final customers are being satisfied. Informal
affected all aspects of the business from suppliers to distribution.
contact with the dealers is maintained and close attention paid to what
they report. The Managing Director makes an effort to travel to each
Stabi-Craft sees itself as a leader in technology, particularly in production
Australian dealership at least twice a year and to the New Zealand ones
and design, in a competitive New Zealand market. The pontoon based
annually. He attends a number of boat shows and sees these as an
boats Stabi-Craft makes are a unique product. In keeping ahead of the
important part of developing the business as well as helping to maintain
competition, Stabi-Craft’s competitive advantages include:
contact with Stabi-Craft’s existing dealers.
• its strong dealer network (in 14 centres around NZ and seven in
Australia) Feedback from customers is received directly from warranty agreements
returned by customers to Stabi-Craft, which include a general
• the design of its boats, which now offer good looks, quality and questionnaire. To encourage people to fill in and return their warranty
functionality
forms, Stabi-Craft offers a free branded polo shirt to each respondent.
• the overall team buy-in to the mission of the business. At present, the Managing Director reads all the warranty forms that
come in, although nothing systematic is currently being done with the
Business Practices information. In future, the aim is to have the warranties on-line, and to
develop a database, which would make collating and utilising the
The Managing Director believes that business excellence involves a information easier.
holistic approach to all parts of the business. Excellence is about
developing internal and external processes, benchmarking them so you Having started from producing boats for commercial uses, Stabi-Craft’s
know what is going on and then focusing on improvement. boats tended to be very utilitarian with little consideration given to
colour schemes or aesthetically pleasing designs. In response to negative
Stabi-Craft is customer-focused but recognises that in achieving this feedback on the boats’ appearance received from one of the first boat
there is a need to balance internal and external processes. In the short- shows the Managing Director attended, Stabi-Craft now focuses much

85
 more on how its boats look, while retaining their performance and A four-level pay system applies to most staff at Stabi-Craft. The key
functionality. This has involved the integration of fibreglass into the criteria for reaching each level are transparent so that staff know what
boats (to complement the aluminium). they need to do if they wish to move up.

Quality and Supplier Focus Stabi-Craft has a good induction process. Staff members are provided
with and discuss all the necessary OSH information and are also taught
Stabi-Craft has written supply agreements with its key suppliers and about the mission statement of the business. They even watch The Goal
also meets with them to ensure the quality of materials coming in. The by Eli Goldratt on video.
agreements include specific supply requirements but are two-way
contracts that place obligations on Stabi-Craft as well as the suppliers. Training is given on standard operating procedures. Further training
The supplies are inspected upon entry and the required standards have requirements are identified through the performance management system
been increased to help make sure the quality of the boats does not and then dealt with. Rotation between jobs is dependent upon the skills
reduce the growth of the business. and desires of individuals but is seen as beneficial in developing internal
flexibility and also providing staff with new challenges.
Stabi-Craft has non-conformance procedures in place for the parts being
produced by each work-centre, which focus on solving the root problem Whenever he can, the Managing Director walks the floor talking with
rather than the one-off issue. Components of the boats are checked as staff to get information flowing. There are also monthly meetings with
they move along the work-centres. To prevent bottlenecks in the all staff and additional ‘high-jump’ meetings. The high-jump meetings
production process, Stabi-Craft has adopted a Kanban visual planning are run in each work-centre and are about lifting performance by
system. This lets each work-centre clearly see when particular identifying the major barrier or task a team currently has, and looking
components are running short so that they can allocate more resources at what can be done to deal with it.
to their production.
Information and Benchmarking
Boat quality is also managed through a system run by the Boating
Industries Association (BIA). It is mostly a self-compliance system but Stabi-Craft benchmarks itself against its competition on an informal
does involve an annual audit. To comply, Stabi-Craft must conduct basis. Information flows in from the dealerships and from board member
tests on its boats for safety and flotation. Stabi-Craft has also completed contacts about what customers are saying. This kind of information
a quality management system. about the market is very important because the company takes a ‘market-
back’ approach to boat production rather than a cost-plus approach.
Warranty agreements for customers cover the hull of the boat for three
years and the upper body for two. However, there are not many warranty Industry contacts are used to keep up with developments across a range
issues and the company will often fix problems outside the warranty of industries, not just boat building. The board structure helps in collating
period. the information gained by each of its members. Stabi-Craft is a member
of MAREX, BIA, and the Canterbury Manufacturers Association.
Employee Practices
Internal benchmarking is also important for maintaining productivity
The Managing Director believes in staff empowerment. He considers in the factory. The Managing Director has a weekly meeting with the
that staff members see Stabi-Craft as a good place to work and that sales and marketing manager to compare actual sales figures (which are
staff moral is at a reasonable level. fed through from the dealerships) against the three-month sales forecast.
Store and stock systems put in place last year make information more
Employees at Stabi-Craft have clear job descriptions and undergo available about where bottlenecks or inefficiencies are occurring. The
quarterly reviews to look at performance as well as address training company also has membership of all relevant magazines and journals
needs. Staff are assessed as being 1/4, 1/2, 3/4, or fully trained in specific and accesses appropriate websites when necessary.
processes or areas. These assessments determine individuals’ ability to
work unsupervised and train others.

86
8 – INNOVATION AND TECHNOLOGY
Innovation is the dynamic process of creation that As most research today points out, the key question for
involves the search for, experimentation with, and firms is thus not: ‘should we innovate?’ but ‘how do we
development and adoption of new and better products, innovate?’2
services, processes and organisational mechanisms.
Joseph Schumpeter’s definition of innovation conveys Figure 17 summarises the differences between Leaders,
the wide-ranging nature of innovation at the level of Laggers and firms overall across the innovation and
the firm (Infometrics, 1999; OECD, 1992a and 1992b): technology index. It is clear that the gulf between
leading and lagging firms across all aspects of the
• product/service innovation – bringing together
index is substantial.
existing technologies or creating new ones and
meeting perceived market demand in order to
Figure 17. Innovation and Technology
develop new, commercially viable product and
service concepts Question: This business ... Leaders All Laggers
• product/service development – bringing new product invested in the following
or service concepts, through development and related to new or improved
production, to the market products, services or
processes over the last
• process innovation – improving existing or
12 months:
developing new ways of using and sourcing
– In-house R&D 62% 28% 6%
resources to produce products or services (e.g. using
– External R&D 37% 13% 2%
the Internet to scan for suppliers)
– Machinery and equipment 78% 50% 21%
• organisational innovation – re-orienting the – Purchase of other external
productive and management components of the firm technology 24% 10% 1%
to accommodate and exploit new product and – Industrial design 8% 4% 1%
process technologies and innovations (e.g. different – Marketing the introduction
remuneration schemes and personnel management) of new goods/ services 56% 26% 12%
• technological acquisition – acquiring the technology – Employee training 81% 46% 12%
necessary for product and process innovation had more than 1.5 FTES
through internal or external research and engaged in R&D in the last
development (R&D). 12 months 36% 7% 2%
‘regularly’ or ‘continuously’
It is clear that this all-encompassing view of
undertook R&D in the last
innovation means that innovation is not driven only
2 years 82% 21% 0%
from the breadth and depth of skills in R&D,
engineering and market research, but also from an has fully up to date core
atmosphere in which people can be innovative and equipment 83% 53% 31%
where this is recognised. Firms’ innovation strategies
must take into consideration existing productive
structures and capabilities, particularly human resource ■ Investment in Supporting Innovation
capabilities. It is this supporting activity, rather than
the level of innovation itself (an outcome), which is The impacts of new technologies and innovations are
measured by the innovation and technology index in uncertain. Innovation involves doing something that
this study.1 has not been done previously. However, it is not
sufficient to simply create a new concept – firms must
These days, no one needs to be convinced of the find innovative ways of making the concept
importance of innovation – intense competition, along commercially viable. Thus, innovation involves costly
with fast changing patterns of market demands and investment in many complementary dimensions, each
scientific and technological developments, has ensured of which has unforeseeable outcomes. It can also
this. Competition in technology and innovation is now involve costly investment to alter the existing
as important as competition in quality and price, production system – new skills, equipment, plant
particularly for those firms that seek international layout, etc. – to make the concept work.
competitiveness (Hine and Ryan, 1999). Developing
technological and innovation capabilities is essential,
1
not just for achieving a competitive edge, but also for Note that this chapter does not have a separate discussion
the survival of many firms. For most others, comparing manufacturing firms’ innovation and technology practices
between 1997 and 2001 because there were no comparable questions
understanding how technology can support and between the surveys.
enhance key operational activities is critical. 2
See, for example, Drucker, 1998; Hine and Ryan, 1999.

87
 Even the adoption of an ‘off-the-shelf’ technology informal innovation practices, such as providing scope
(such as accounting software) still necessitates further for employees to innovate and identify improvements
investment to use and apply it. Such investment often in their work, acting on employee suggestions, and
involves more innovation in other dimensions that are how staff are rewarded for innovation. It is probable
not solely related to the plant and equipment of the that New Zealand firms perform better on informal
firm; for example, investments in human capital in the innovation-related practices. This was evidenced during
form of employee training and development practices. the firm visits and by the positive results on the
These investments, which allow firms to identify and customer focus question regarding the extent to which
exploit innovation, build up what is called the businesses work with customers on product and service
‘absorptive capacity’ of firms. As innovation and development, and the quality practice question on the
absorptive capacity depend on past research and the extent to which firms encourage employees to identify
foundations provided by earlier innovation, innovation problems and suggest improvements.
is said to be ‘path dependent’.3
At any rate, as will be shown in chapter 15, innovation
Absorptive capacity and path dependency are and technology is one of only two areas where New
especially important in New Zealand, where our small Zealand practice, on average, equated with Sweden’s.
firms don’t generally design and develop major The BPPS results also indicate that a reasonable,
technologies. Most of the technologies that firms use although not considerable, number of New Zealand
are not produced in New Zealand; they are accessed firms invest relatively intensively in innovation-
from international sources and have to be absorbed by supporting activities, as is reflected in the fact that
firms (MoRST, 2001). In addition, many of New many firms invest in innovation-related employee
Zealand’s leading companies have in the past been able training, machinery and equipment, and marketing.
to develop their ability to leverage international However, few firms intensively invest in their own in-
technologies because of the protection offered by house or in external R&D (also see Research &
regulation and tariff barriers prior to the 1980s – this Development Activity on page 90).
protection no longer exists (see Innovation and
Technological Learning in Manufacturing on page 93). 75% of all firms invested some amount of money in
activities related to the introduction of new products or
Evidence of Investment in Innovation processes in the 12 months prior to the survey:
Related Activities • 28% of firms invested in in-house research and
As indicated in chapter 3 – New Zealand Businesses: development
Practices and Performance, we consider that the overall • 13% invested in external research
simple index for innovation and technology underrates
the level of innovation-supporting activities in New • 50% spent money on machinery and equipment
Zealand firms. The questions in this area of the survey • 10% invested in the purchase of external technology
were slanted towards formal R&D, rather than more

Q 9.8 In the LAST 12 MONTHS did this business invest in any of the following which were specifically related to the
introduction of new or significantly improved products, services or processes?
100

81
80 78

62
60 56
50
% 46

40 38

28
26
24
21
20
13 12 12
10
8
6
4
2 1 1
0
in-house external machinery purchase of industrial design marketing employee training
R&D R&D and equipment external technology

Leaders All Laggers

3
Ministry of Economic Development (2000), A Review of Investment
in R&D, Unpublished Research Paper.

88
• 4% invested in industrial design • 81% of Leaders invested in employee training related
to the introduction of new or improved products,
• 26% spent money on marketing the introduction of
services and processes – only 12% of Laggers did.
new goods or services
• 46% spent money on employee training. Overall, only 1% of Leaders indicated that they did not
invest any funding in activities related to the
This latter result is welcome, as absorptive capacity and introduction of new or significantly improved products,
innovation depends centrally upon the capabilities of services or processes, contrasting significantly with
individuals and groups in all parts of the firm. 57% of Laggers.

As the graph for question 9.8 shows, leading firms are From the firm visits, it was clear that firms generally
quite clearly investing far more in areas associated with took a more informal and incremental approach to
innovative activity than average or lagging firms (in innovation. Rather than referring to R&D or ground-
fact there is a striking contrast in many of these breaking innovations, most interviewees cited customer
results), which suggests a more holistic approach to feedback, employee (especially sales staff) feedback and
innovation: changing customer needs and values as important
• 62% of Leaders invested in in-house research and drivers of new or improved products, processes and
development – compared to 6% of Laggers services. Firms seem to be well aware of the need to
keep up with new developments in their field, with
• 38% of Leaders invested in external research and most firms using the Internet, magazines, travel, trade
development – compared to 2% of Laggers shows and conferences to do this.
• 78% of Leaders invested in machinery and
equipment – compared to 21% of Laggers Managing directors of leading firms also referred to
their willingness to let people run with good ideas,
• 24% of Leaders spent money on the purchase of including giving them time to work on the ideas,
external technology – compared to 1% of Laggers providing training, and rewarding them for suggestions
• 8% of Leaders invested in industrial design – that led to positive results. In a few cases businesses
compared to 1% of Laggers indicated a tension between innovation and low staff
turnover, signalling that they did not consider there
• 56% of Leaders spent money on marketing the was enough fresh ideas or new skills coming into the
introduction of new goods or services – compared to business.
only 12% of Laggers

■ Degussa Peroxide Ltd – Staff integral to Innovation

Degussa Peroxide Limited’s (DPL) hydrogen peroxide (H 2 O 2 ) 4 financing and technical expertise. It is aiming to improve customer
manufacturing plant at Morrinsville was established by DuPont in the satisfaction, employee performance and logistics channels.
mid-to-late 1980s on the assumption that a boom in demand for H2O2
would result from an expected increase in pulp and paper production. Business Practices
The plant started operating in 1991 and at that time was a partnership
between DuPont and a Japanese firm. In 2000, DPL received a ‘Highly Commended’ award at the Waikato
Business Excellence Awards. It also scored around 370 points and
The increased demand did not eventuate and a number of small producers received a Progress Award at the 2000 New Zealand Business Excellence
entered the world H2O2 market.5 The variable costs of manufacturing Awards. After continuing its programme of business improvement, DPL
H2O2 are very low and many of these producers had source materials plans to aim for silver at the 2003 New Zealand Business Excellence
for H2O2 as a by-product of other production, so could lower their prices Awards. The Managing Director believes that the ‘biggest reward’ for a
whilst maintaining positive cashflows. This meant that, to be competitive, manager from the business excellence process is the opportunity it
the New Zealand operation had to be as efficient as possible. provides for self-reflection on how the business is running.

DuPont decided to exit the H2O2 business and sold the plant to Degussa Leadership and Planning
(a German, specialist chemical, multinational corporation – and the
Eighteen months ago, DPL had no strategic plan other than to generate
second largest H2O2 producer in the world) in 1998. Degussa was looking
profit and ‘not make any serious mistakes.’ The Managing Director
for a good return and the plant has exceeded its original expectations.
recognised that this was significantly deficient and hired a consultant
DPL supplies about 75% of the market in New Zealand and about 25%
4
of the market in Australia (with these each representing approximately Hydrogen peroxide (H2O2) is a powerful and versatile oxidant used
50% of the plant’s production). Over the last few years the operation to bleach textiles and paper products, and to manufacture or process
has been performing steadily with an improved market share. DPL foods, minerals, petrochemicals, and consumer products (detergents).
currently employs 29 people. About half the global production of H2O2 is used in the pulp and
paper industry. In New Zealand this is also the primary use, with
Going forward, DPL is seeking to differentiate itself by adding value to wool scouring and metalliferrous mining the other main uses.
5
the services it provides with the product. This includes providing There are now seven major players worldwide.

89
 to work with the company on improving its strategic capability (as part DuPont had a focus on organisational effectiveness that meant that it
of the business excellence programme). This has resulted in a strategic encouraged a flat ‘no supervisors’ structure at the plant. The Managing
plan that lays out goals and targets, and also includes identifying the Director was able to improve upon this structure and further facilitate
values that DPL has and wants to cultivate. employee empowerment. This focus on building employee capabilities
proved to be good preparation for the change when Degussa took over
Last year, half the workforce at the plant took time out of work for the plant, as it enabled employees to view the change as an opportunity.
three days for strategic planning, taking with them internal data and
global statistics from Degussa. Having asked the question ‘what does DPL introduced an individual bonus scheme last year. This year,
this information mean?’ the team created a list of targets and actions employees will select their targets out of the goals and targets listed in
for the business. This list formed the basis of DPL’s new business plan. the business plan. Targets will be rated in terms of their importance and
A strategic plan was also developed, which included the general areas difficulty in order to encourage work in key areas. 360-degree feedback
of vision, goals and objectives. is used within the performance management system. Staff salaries are
pitched at the level of first-line supervisors in manufacturing based on
DPL has quarterly business reviews, where performance is measured the nation-wide annual salaries survey. DPL has about 3% turnover in
against the business plan. staff annually.

The Managing Director takes a hands-off approach and tries to provide Employees (if they agree) are moved in and out of shift work and into
an environment where others can be empowered. He believes that his administrative tasks for three reasons:
role is in mentoring and providing employees with the tools they require
• personal development from taking on new challenges and tasks
to achieve desired outcomes.
• getting the job done
DPL provides a newsletter to the local community to keep them informed
of its operations and tries to procure services locally where possible. • having manufacturing staff understand how what they do affects
DPL also sponsors science at the local school. the rest of the business.

One notable success DPL had was running evening seminars on business In terms of staff culture building, DPL sponsors 50% of sports
excellence within the Morrinsville community as an outreach exercise membership and provides five- and ten-year service dinners.
to support local business improvement.
Innovation
DPL also sponsors one of four awards in the Waikato Environmental
DPL tries to get as many staff involved in its strategic planning process
Awards and this is regarded as a good association with its business.
as it can in order to make use of their ideas.
DPL was one of the first companies in New Zealand to get ISO 14001
certification.
When people come up with good ideas, the company has demonstrated
on several occasions that it is willing to let employees run with them.
Quality and Supplier Focus This includes giving employees time to work on their ideas to demonstrate
DPL believes its manufacturing processes are probably among the ‘best that they could be beneficial to the company, and, if this is the case,
in their class’ (compared with plants of around the same size elsewhere). implementing the idea.
The Managing Director can say this with reasonable confidence because
of the feedback and information available from within Degussa across For innovation, the advantage of being reasonably small is that the
its operations. organisation can be quick and agile. The Managing Director believes it
is easier to have an effective organisation when it is small enough that
DPL is ISO 9002 certified and generally targets suppliers that are also management can know all facets of the business. Having the backing
certified. Because of the hazardous nature of the materials, there are of a multinational has also been very useful for DPL in business
industry standards that DPL must follow. Key raw materials for the excellence, because it can leverage off the technology, systems, skills
production of H2O2 are given safety checks. Quality is maintained through and finances of its parent company. This is made much easier in DPL’s
ongoing monitoring of the production system. case because it is viewed as being successful and trusted by its parent.

The Managing Director also believes that the New Zealand psyche is
Employee Practices
helpful to innovation and general business improvement. The ‘can do’
When Degussa took over the plant, some of the management functions attitude and a lack of desire for status amongst New Zealanders are
that were previously provided by DuPont’s local head office were moved cited as two examples.
onto the site (the accounting is still undertaken by an external party),
meaning that new skills and processes needed to be developed.

■ Research & Development Activity This is also borne out by the number of firms
indicating how many staff they had engaged in in-
The terms innovation and R&D are often used house R&D and the extent to which they had
interchangeably – but they are distinctly different. R&D undertaken in-house R&D in the two years prior to the
is just one part of overall innovation activity and survey. This most likely reflects the generally small size
represents the formalised process for pursuing of firms in New Zealand (also see chapter 14 - Business
innovative ideas and bringing them to Practices and Structural Issues).
commercialisation (Voss et al, 1994).
27% of firms had no people (full-time equivalents)
As indicated above, investing in in-house R&D was less devoted to in-house R&D in the twelve months prior to
intense than investment in innovation more generally. the survey and a further 27% could not identify how

90
 Q 9.11 In the LAST 2 YEARS how often did this business change (Cumming, 1999). There are two fundamental
undertake in-house R&D?
100 elements of a technology investment strategy:
• First, successful firms have an outward looking and
80
80 proactive approach to acquiring information about
excellent technological practice and potential market
60 needs. This element may include decision-making
% 46
mechanisms for: choosing technology; produce
40 37 36 36
versus buy or scrap versus repair decisions; and
timing of technology introduction.
20 17
14
13
6 7 5
• Second, firms must have internal mechanisms and
3
0 0 0 0
capacities to use technologies that are introduced
not at all occasionally regularly continuously don't know
into the existing production system. These include
mechanisms to transfer technological know-how
Leaders All Laggers between areas of business activity such engineering,
marketing and management, as well as mechanisms
many people were involved in in-house R&D. Only a to ensure skill acquisition through employee training
fifth of businesses (21%) ‘regularly’ or ‘continuously’ and hands-on learning.
undertook R&D in the two years prior to the survey,
with 74% undertaking in-house R&D only Previous business practices studies have found that
‘occasionally’, or ‘not at all’. many New Zealand firms did not have comprehensive
and proactive approaches to technology. Instead, many
Again the contrast between Leaders and Laggers is firms allowed existing technology to drive their
stark. 86% of Leaders indicated they had at least some business, rather than employing a strategy to determine
employees engaged in R&D (i.e. did not answer ‘zero’, their own technological requirements in the context of
‘don’t know’ or provide no response) compared to only their business strategy and human resources.7
8% of Laggers. Leaders also engage in research more
often (81% either ‘regularly’ or ‘continuously’) than Evidence of Investment in Technology
Laggers (97% ‘occasionally’ or ‘not at all’).
Results from this study indicate that this trend has been
partially reversed in many New Zealand businesses.
Most use up-to-date technology and some have
■ Technology proactive strategies to create their own novel
Technology is an enabler of innovation, and investment technologies.
in technology must be undertaken as part of an overall
strategy of competing in innovation and technological Most respondents employ equipment that they
considered to be up to date. 53% of all respondents
Q 9.10 In the LAST 12 MONTHS how many people (full-time equivalents) were engaged in in-house R&D by this business?
80

64
60

40

% 31
27 28 27
24
21
20 19

11 11 11
5 5 4
2 2 3 2
0
1 1
0 0 0 0
zero up to up to up to up to more than don’t know didn’t
0.5 1.5 4 10 10 answer

Leaders All Laggers

7
See Leading the Way (1994) and Gearing Up (1999).

91
 Q 9.7 How does this business's core equipment (that used in
the production of the business’s main goods and services) ■ Conclusions on Innovation and
compare with the best commonly available technology?
100 Technology
83
80 A reasonable proportion of New Zealand businesses are
investing in building up their absorptive capacity,
60 although a significant portion of that investment is in
53
% purchasing innovation from sources outside the firm,
40 such as machinery and equipment, and keeping
31
28 30 29 technology up-to-date (i.e. in keeping up with better
20 15
practice produced outside the firm). We could expect
12
5 6
3 5
this in a small open economy, with predominantly
1 1
0 0
small firms. Businesses have the choice between
fully up up to up to more than don't know
to date 4 years behind 10 years behind 10 years behind developing research and technology internally, or
purchasing technology. New Zealand firms are quite
Leaders All Laggers likely to purchase technologies if they can be produced
better and cheaper elsewhere because of benefits from
employ equipment that they considered to be fully up scale and specialisation. However, this does necessitate
to date and 80% employ equipment that they an invesment in internal capabilities, such as skills, to
considered to be no more than four years behind the support the investment.
most up to date.
Importantly, almost half of businesses are investing in
Of the leading firms in the study, 83% had core employee skills to support the development of new and
equipment that was fully up to date and 98% had improved products, services and processes, a result that
equipment that was no more than four years behind the is consistent with the commitment to training as
best available. In contrast, only 31% of Laggers described in the results for employee practices. Few
indicated they had equipment that was fully up to date. firms, however, are investing intensively in in-house or
29% did not even know where their core equipment external R&D, or have many staff engaged specifically
stood in relation to the best available. in R&D. This suggests a propensity towards less
sophisticated or incremental innovation in New
An interesting picture is obtained by looking at the Zealand.
presence of barriers to new product or process
development. It is clear that Leaders are far more It is also apparent that, even more than customer focus,
involved in investing in capabilities to support the innovation and technology strongly differentiates
introduction of new products, services and processes leading from lagging firms, with substantial differences
and are, therefore, more likely to run into barriers than between the two groups.
Lagger firms, who are not introducing such products
and processes. 46% of lagging firms reported no If we reflect back on the original question posed in the
impediments at all to introducing new products and beginning of this chapter – ‘how do we innovate?’ –
processes, whereas 80% of Leaders reported at least the issue these results raise is whether the tendency
some impediment to the introduction of products and towards more informal innovation-supporting activities
processes (for more information see chapter 16 – The in New Zealand matters in terms of actually
Impact of the Competitive Environment). commercialising innovation and generating value, and
what else could be achieved by a greater commitment
Overall: to more formal R&D activity. This is considered further
when the results on operational outcomes are
• most firms tend to have up-to-date machinery or
discussed.
core equipment, though Leaders are far more likely
to be fully up to date with the latest technological
developments
• Leaders are, in general, more likely to perceive
impediments to the development of new products or
processes than average or lagging firms. This is
likely to be because they undertake activities
associated with innovation on a more regular basis.

92
■ Innovation and Technological Learning in Manufacturing
Infometrics Firm-level Export Study 1999 (Report for The Subsequent phases involved leveraging off the value chain – learning
Treasury, Infometrics Ltd) from customers and educating customers about the innovation, and
outsourcing to local suppliers, which helped build local clusters of
In the 1999 study, Infometrics considered what factors drive innovation capability to support firms’ innovations.
in our leading exporters, and updated findings from its previous 1993
study. Important factors included: For many of these firms, substantial investment in R&D was their major
source of new knowledge and innovation. Government funding of
• Culture – owners were often technically competent and fully aware technology projects helped several of the firms lift their R&D activity.
of the part innovation plays in delivering business success and The firms were also very aware that they needed to equally invest in
therefore encouraged a culture that supported continuous and retain technically skilled staff. This became more important as the
improvement and new ideas, enjoying a challenge, having a go and complexity of the product technology increased.
not being constrained by convention. Infometrics considered that
this might be encouraged by the remoteness of the New Zealand Technology Uptake in New Zealand Manufacturing (Report to
economy from market norms.
New Zealand Manufacturers’ Federation from The Technology
• Exposure to overseas markets – exposure forced companies to confront for Success Research Team - Kolb D (Ed.) (1999), November,
a much wider range of possibilities for their products, processes and Massey University and University of Auckland)6
sources of supply, which helped stimulate ideas and innovation.
The Technology for Success Project was a three-year research programme
• Competition – competition compelled companies to find better ways
funded by the Foundation for Research, Science and Technology. It
of doing things to survive. This was considered the most powerful
involved a collaborative team of six researchers from the University of
driver of innovation. Rapid and sometimes significant innovation
Auckland and Massey University. The research examined the barriers
was often driven from a need to survive.
to innovation in New Zealand manufacturing and the ability of firms to
• Overcoming disadvantages, such as small size and scale – this meant take up new or improved technologies.
firms tended to improvise in terms of capital equipment or processes,
or sought smarter ways to conduct business. For instance, the distance The research employed an in-depth case study approach of companies
from many markets had been a major factor that encouraged managers that actively use new technologies, with more than 20 but fewer than
to integrate new information technologies into their business. The 100 employees, wholly New Zealand owned and autonomous, in three
scarcity and cost of capital forced many businesses to squeeze as industries – food processing, light engineering and plastics. In-depth
much as possible out of what they had – new equipment was often interviews with the management of 12 companies were supplemented
modified to make it perform beyond its original specifications. with a series of focus groups. In all, the research results reflect discussions
with 38 small and medium enterprises.
Interestingly, the study suggests that an important factor that helped
push some New Zealand manufacturers to the sharp end of the innovation From their case companies, the researchers differentiated four distinct
process is the fact that they are run by hands-on owner-operators. Private types of knowledge that interact in the process of technological
owner-operated companies had greater financial freedom and were often innovation in New Zealand:
more prepared to experiment.
• Know Why – in all of the case companies, the motivation for
innovation was clearly articulated, although the reasons were not
World Famous in New Zealand: How New Zealand’s Leading always the same. For some, it was about making a profit and positive
Firms Became World-Class Competitors (Colin Campbell- returns for effort invested. For others, it was a desire to create
Hunt/CANZ (2001), Auckland University Press) something new. Contrasting with these qualities, all the companies
had some means of providing checks or balances to keep them on
The competitive capabilities of many of the exemplar companies in the track with their purpose, based on knowing their constraints of
‘World Class’ study were built partly on their leading edge technological ownership, the environment, and technologies.
products, superior design and management of innovation. All of them take
a holistic approach to innovation, building internal and external capabilities. • Know How – the resources that people bring to a business are fundamental
to any successful business. Specific technical skills formed the basis
Each of the firms had driven themselves through what the authors called upon which each of the case companies was originally built. Development
‘vintages’ or phases of technology and products. The first phase was beyond that starting point had involved leadership plus communication
exploratory. The products were not necessarily that innovative but did and people skills. Know how was also reflected at the organisational
satisfy local demand and allowed the firm to become established. Initial level, where processes and routines had become embedded.
products were often produced under license or copied from products • Know Who – all of the companies had well-established long-term
overseas. Many firms developed import substitutes to exploit the market relationships. These were not only within a company, but also
opportunities provided by protection prior to the mid-1980s. In some included customers, suppliers and other players in the industry and
cases, a large company or government department played the role of a the wider community. Typically these firms relied on co-operation
demanding customer that shaped the firm’s productive capacity. A through networks, alliances and other affiliations. Internally, the
combination of these factors enabled the exemplar companies to learn companies showed a preference for informal, face-to-face
and grow and obtain the cashflow to move to the next phase. communications and management by walking around.

The next main phase involved experimenting with new ideas and • Know Yourself – the study found that self-knowledge of traits,
technologies. In some cases, firms recognised that modifications made capabilities, values, expectations and limitations was essential for
to licensed products for the New Zealand environment had created learning to occur.
enough value to move into new products. In other cases, firms gained
experience with a new technology by choosing an area that was seen as
relatively low risk. 6
Also see Simpson B, McGregor J, Seidel R, Kolb D, Henley-King J and Tweed
D (2000), Learning in the Manufacturing Sector, University of Auckland
Business Review, Vol.2, No.1, p 39 – 50.

93
 ■ International Marine Insurance Agency Ltd – Developing ‘Stars’
The International Marine Insurance Agency Limited (IMIA) was formed Delighted customers have a good relationship with IMIA and want to
in 1990 through an amalgamation of a number of smaller agencies. stay with the company. IMIA concentrates on moving customers towards
This was undertaken to provide the business with scale and to merge the delighted end of the spectrum, with a particular focus on those 20%
the best people into one organisation that had the capacity to achieve of brokers that provide 80% of its business.
impact in the market. Royal & Sun Alliance, through mergers and
buyouts, now owns 100% of IMIA. Royal & Sun Alliance undertakes broker surveys, which IMIA is able to
use to examine how it is performing in its customers’ eyes. A claims
From 1995, this arrangement brought strong growth, with Royal & Sun survey to examine how brokers view IMIA’s claims handling performance
Alliance providing opportunities and IMIA holding the skills to capitalise is also used. In addition to these formal processes, the General Manager
on them, although this growth has now slowed. The company presently invites feedback and rings up insurance brokers on occasion to discuss
employs 34 staff and hopes to increase this to 36. The business is centred their views.
in its Auckland location, but has three staff in Wellington.
To improve or maintain relationships with its brokers, IMIA organises
IMIA’s sole business is the insurance of commercial cargo and commercial social outings, such as taking them to shows or sporting matches.
hulls. The General Manager describes the core competencies at IMIA
that support its aim as its: The team-based system at IMIA also means that an appropriate level of
resources can be put into providing service to IMIA’s most important
• underwriting: IMIA makes its underwriters salespeople as well, so
customers. The yellow team consists of the most highly skilled employees
that brokers get the full package through one contact
in their respective areas so that key clients receive service of the highest
• skills in claims handling and risk management quality.

• a relationship management focus.

Employee Practices
The company’s ongoing strategy is to utilise the skills of its people to People are considered the key asset of IMIA, so strategies are focused
fulfil the needs of its customers. The size of the New Zealand marine on building staff capability.
insurance market is largely determined by the quantity of goods
travelling in and out of New Zealand, so increases in trade are key to The company has been undertaking an audit of its skill requirements.
IMIA’s growth prospects. 450 hours were spent on key performance indicator (KPI) training last
year. Other types of training include having sessions to explain terms
Leadership and Planning (jargon) used in the industry to new people, and taking staff through
broker feedback reports.
IMIA has a five-year strategy, which is supported by yearly plans. The
General Manager, who drafts the plan that is taken to the IMIA Culture plays an important role at IMIA and the company has been
management team, largely drives strategic planning at IMIA. Once the doing work to more clearly define what its culture is. The General
management team has reached a consensus, the plan is considered by Manager believes that important elements of the culture are being quick
Royal & Sun Alliance. IMIA holds a ‘morning tea’ every month where and decisive, having fun, and working hard. IMIA has a system where
staff members are shown how the company is performing relative to its a bell is rung after there has been a ‘success’. If the bell is rung 10 times
plan. in a day then everyone leaves at 4.30pm and the company shouts
champagne. Informal rewards – for example, book tokens and CD
Each year IMIA holds three-day conferences to examine a particular vouchers – are given on various occasions.
aspect of the business. Last year the five-year strategy for IMIA was
drawn up. This year, the focus was on improving relationship Once a year, staff are surveyed about their views of working in IMIA
management. Next year the conference will focus on attracting younger (this is undertaken company-wide by Royal & Sun Alliance). IMIA is
brokers to the business. looking to achieve a 70% staff satisfaction rate this year, which covers
the full spectrum of issues such as location, accommodation, pay, and
Staff at IMIA are organised into three teams (yellow, blue and green). management structures. Results are benchmarked across Royal & Sun
The yellow team is responsible for large customers (which provide about Alliance. The General Manager recognises that it is important to act on
$25 million of IMIA’s turnover), the blue team for middle-sized customers, such reviews to ensure they have a positive bearing on outcomes.
and the green for small customers (both providing about $5 million in
turnover). A coach leads each team. Teams meet each month to examine Bonuses at IMIA are predominantly provided on a team basis. Staff
plans and assess their performance. members have employee development reviews each quarter (two of which
are formal reviews). These compare the objectives that employees have
The General Manager believes that he has an inclusive management against a self-assessed rating that is checked with their manager. Reviews
style. He accepts criticism and is open to change. One such change he is cover influences on performance, career planning and training needs.
focusing on is trying to clarify areas of responsibility within IMIA. This
will enable him to delegate more to managers.
Information and Benchmarking
Customer Focus Statistical information on company performance is made available each
month and is disseminated to staff, based on their requirements. The
Because IMIA conducts its business entirely through brokers, they are General Manager reports on four key categories of performance
its customers. The quality of the service IMIA provides will, in turn, indicators: financial, customer, process, and people. These indicators
allow its brokers to provide good service to the final users of the are benchmarked against previous results, across Royal & Sun Alliance
insurance. in New Zealand and also internationally.

The General Manager views customers along a spectrum from ‘reluctant’ IMIA subscribes to relevant magazines and other media to keep up with
to ‘delighted’. Reluctant customers tend to come to IMIA on price. developments in the marine industry.

94
Innovation and Technology BOSTON MATRIX
Product Analysis
One part of IMIA’s strategic plan is to develop or revamp at least two
products per year. IMIA makes use of a Boston Matrix to analyse its
products and look for improvements. Products are classified according
to the attractiveness of the market they cater for (for example, growth

MARKET ATTRACTIVENESS
rates or profit margins) and the share of the market that they have. Problem Child Star
Basically, the idea is to get rid of ‘dogs’, use money from ‘cash cows’ to
turn ‘problem children’ into ‘stars’, and then hold on to the ‘stars.’ IMIA
does a great deal of market research and puts together focus teams to
work out how to turn its products into ‘stars’.

Staff are encouraged to input ideas on how to improve processes at Dog Cash Cow
IMIA at any time, particularly through the use of a discussion database
that all staff can access and enter comments into. Royal & Sun Alliance
also has a GEM page (for adding ‘gems of wisdom’) where great ideas
for innovation are entered from around the world. IMIA draws on and
contributes to this.
MARKET SHARE

95
96
9 – INFORMATION AND BENCHMARKING
In many businesses not traditionally considered compared its performance with
‘information’ based, the capture, storage and processing competitors on the following:
of information actually represents a large proportion of - Financial measures 60% 34% 8%
activities. More fundamentally, any business’s value - Cost measures 43% 25% 8%
chain actually consists of information that flows - Operational measures 37% 16% 2%
between the firm and its suppliers and customers, and - Quality measures 43% 20% 3%
within the firm – not just the physical activities it - Innovation measures 39% 14% 2%
performs to design, produce, market, deliver and - Human resource measures 43% 13% 4%
support its products and services.
has people whose job it is to
regularly assess whether the
All the practices described in this study depend vitally
business is achieving its goals 98% 77% 35%
on information. When we talk about the value of
customer relationships, for example, what we really
As we indicated in chapter 3 – New Zealand
mean is the proprietary information a firm has about
Businesses: Practices and Performance, we consider
its customers and that customers have about the firm
that the simple overall information and benchmarking
and its products or services (Evans and Wurster, 1997).
index may overstate the average level of this practice
in New Zealand firms. In particular, as shall be seen,
Hence any business needs and relies on a combination
while the results for information management and
of internal information (about employees, products and
performance measurement are relatively positive,
services, costs, quality etc), external information (about
almost half of firms are not benchmarking at all, and
markets, customers, competitors), and strategic
those that are benchmarking are using relatively
information (trends and achievement of goals) to
unsophisticated approaches.
undertake its activities.

The first two describe the current operating situation on

which every transaction and activity depend. They also ■ Internal Information
contribute to the third – strategic information – that Effective management obviously depends on the
tells a business whether it is on track in relation to its effective measure of performance and results. In order
strategic direction (Department of Trade and Industry, for companies to ensure achievement of their goals and
1995). objectives, performance measures are used to evaluate,
control and improve production and service processes.
Figure 18 summarises the differences between Leaders, Performance measures are also used to compare the
Laggers and firms overall across the information and performance of different organisations, departments,
benchmarking index. teams and individuals, and to assess employees.

Figure 18. Information and Benchmarking As described by Ghalayini and Noble (1996), there have
Question: This business ... Leaders All Laggers been two main phases of thought regarding good
performance measurement practices. In the first phase,
has a formal system for during and prior to the 1980s, the emphasis was on
managing the storage and financial measures such as profit, return on investment
retrieval of information 99% 80% 49% and productivity. This was based on the influence of
focused on the following ‘a management accounting and a cost-focused approach
great deal’ when measuring to strategy in many businesses.
performance:
- Financial measures 88% 70% 42% A second phase began in the early 1990s, when cost
- Cost measures 75% 55% 18% focused firms began to lose market share to companies
- Operational measures 63% 34% 7% who were able to provide higher-quality products with
- Quality measures 72% 43% 16% more variety and flexibility. To regain a competitive
- Innovation measures 66% 26% 4% edge, businesses shifted their competitive priorities
- Human resource measures 60% 25% 9% from low-cost production to quality, flexibility, delivery
and innovation. However, the implementation of these
monitored competitors’ changes revealed that traditional performance measures
products ‘very closely’ 56% 21% 4% had many limitations and that the development of new
does not compare its performance measurement systems was required.1
performance with other
companies 23% 52% 87%
1
Ghalayini A M and Noble J S (1996), p 63.

97
 The limitations of traditional financial performance Attention to a wider range of measures, such as customer
measures have been found to include (Johnson and and employee indicators, yields greater insight into the
Kaplan, 1987; Sweeney, 1994; Bogan and English, factors that drive financial performance. Most crucially, a
1994; Ghalayini and Noble, 1996; van Schalkwyk, short-fall in these non-financial indicators may provide
1998): an early warning of an impending shortfall in financial
performance and enable timely remedial action to be
• lagging metrics of past performance – the collection
taken (Butler et al, 1997). In addition, as the measures are
and manipulation of financial data can take so long
derived from strategy, they help measure the success of
that it is ineffective for rapid decision making and
the implementation of that strategy and are used to
steering a business effectively
challenge the assumptions and test the validity of the
• relevance to practice – traditional performance strategy.
measures try to quantify performance and other
improvement efforts in financial terms; yet most The wider range of measures includes not only the
improvement efforts are difficult to quantify (e.g. traditional financial measures and cost measures (e.g.
customer satisfaction) cost relative to competitors, labour costs, materials and
• inflexibility – financial reports typically have a pre- inventory costs, scrap, distribution costs, overheads),
determined format and may not be relevant for but also (White, 1996):
different firms or business units within the same • quality measures – customer satisfaction, reputation,
firm number of complaints, defect levels, returns and
• relevance to strategy – poor financial results may warranty claims, percentage of scrap/rework, cost of
indicate the existence of problems, but offer no quality
insights into the sources of waste or the • operational measures, including flexibility (cycle
opportunities for improvements time, set-up time, ability to perform multiple tasks,
• relevance to staff – the selection of key performance percentage of cross-trained workers) and delivery
indicators impacts on organisational behaviour as measures (on-time delivery, lead-time reduction,
they encourage particular attention to improving the order processing time, response time)
performance of those activities that are being closely • innovation measures – R&D expenditure, value and
monitored; measures tend to drive what people do proportion of new products and services
and shape the results they achieve
• employee measures – employee satisfaction, skills
• lack of relevance to customers – financial development.
information does not come from the client and does
not focus on the client’s needs; financial Evidence of Internal Information
performance measurement systems are typically Management
removed from the customer, and therefore unaware
of the customer’s real requirements or whether the A positive result is that 80% of New Zealand businesses
company is meeting them have formal measures in place to manage the storing
and retrieval of information, with 53% of all firms
• many financial measures encourage managers to choosing to use information technology systems for
adopt a short-term perspective; e.g. deferring this process. Comparing leading firms with lagging
research and development and maintenance, or
postponing training and capital investments.2
Q 7.1 Does this business have a formal system in place to
manage the storing and retrieval of information?
Considerable attention has been paid by academics and 100 99

practitioners over the last decade to developing a more

comprehensive and integrated set of criteria for judging 80
80

and guiding business performance, largely prompted by

Kaplan and Norton’s concept of the balanced scorecard 60
(Butler et al, 1997). These new frameworks place % 49 51

emphasis on non-financial, external and future-looking 40

performance measures.
20
20

1
0
2
Although low performance measures may, in fact, indicate that yes no
firms are currently investing in a long-term strategy that will have
productivity pay-offs only in the future. This is typical of
investments in new technologies. Leaders All Laggers

98
firms highlights the importance of information Performance measures % of all firms using a
management processes. 99% of Leaders have formal ‘moderate amount’ or ‘great deal’
systems in place for managing the storage or retrieval
Financial measures 90%
of information, compared with around half of all
Laggers, at only 49%. This would suggest that Leaders Cost measures 81%
are much better equipped to develop performance- Operational measures 67%
management processes within their firm, because they Quality measures 72%
are more likely to have a system in place to manage
Innovation measures 58%
and apply the information they receive.
Human resource measures 64%
On a reasonably positive note, most firms are using a
broad range of indicators to measure their performance It is clear that Leaders make greater use of a wider
although they are not focusing on the more strategic range of measures than the average or lagging firm,
and leading indicators. The most popular measures for which suggests that they have a more holistic approach
gauging performance are financial, such as profits, to business assessment and development. Over 85% of
sales growth and return on investment. 95% of all Leaders focused a ‘great deal’ or ‘moderate amount’ on
firms used financial measures to some degree, and 70% each of the indicators, although more attention was
of firms used them ‘a great deal’ in the three years prior given to financial and cost measures. Human resource
to the survey. Cost measures, including inventory costs measures also rate highly by Leaders, reinforcing the
and cost per unit of output, are also widely used, with results on Leaders’ employee practices. In stark
81% of firms using them either ‘a moderate amount’ or contrast, few Laggers were focusing on any measures
‘a great deal’ over the three years prior to the survey. other than financial indicators ‘a great deal’, with a
quarter using human resource measures ‘a moderate
Less used measures of performance, but still applied by amount’ or ‘a great deal’ and less than a fifth (18%)
more than half of firms in each case, are operational focusing on innovation measures to this extent.
measures (such as asset utilisation and on-time
delivery), human resource measures (such as job Overall:
satisfaction) and innovation measures (such as numbers • leading firms have in place systems for measuring
of new value-added services) with 67%, 64% and 58% the storage and retrieval of information to a much
of firms using these measures ‘to a moderate extent’ or larger degree than average or lagging firms
‘a great deal’ respectively.
• most businesses focus on lagging indicators to
measure performance, although do pay attention to
wider operational, innovation and human resource
indicators to some extent
• leading firms are more likely to measure
performance using a wide range of indicators
• lagging firms rarely measure their performance
using formal measures.
Q 7.4 Over the LAST 3 YEARS to what extent did this business focus on the following when assessing performance?
80
70

60 55

43
39
40
33 34
32
% 25
29
26 25
24 24
20
20 16 15
14 14
10 10 9
6 7
3 3 3 3 4 3
2

0
financial cost operation quality innovation human resource
measures measures measures measures measures measures

not at all a little moderately a great deal don’t know

99
 ■ External Information The firm visits strongly suggest that the increased
adoption of the Internet has very much aided New
As indicated in chapter 2 – A Model of Business Zealand firms’ information practices. Many businesses
Practices and Performance, the external environment mentioned that they used the Internet to check on
consists of all the elements outside the boundary of the competitors’ developments and prices, rather than just
business, and includes competition, resources, relying on the traditional routes of sales staff, trade
technology, economic conditions, and political and shows and conferences.
regulatory developments. An organisation needs
information from its environment to make decisions Benchmarking
and plan for the future (Dumond, 1994). Among the
potential sources are customers, suppliers, competitors, Firms aiming for ‘business excellence’ often go beyond
employees, publications, business associations and basic competitor analysis. They also search for better
networks, and trade shows. The final result of practices, innovative ideas and highly effective
monitoring is a list of strategic factors that could occur operating procedures that lead to superior performance
and would be likely to affect the business (Safizadeh, - that is, they undertake benchmarking (Bogan and
1997). English, 1994).

In particular, businesses need to understand how well Although definitions of benchmarking vary, basically it
they meet their customers’ requirements compared to refers to the process by which a business compares
how their competitors perform. The aim is to build up itself to other businesses. Its essence is identifying the
pictures of competitors, which, coupled with knowledge highest standards of excellence in products, services
of customers, helps businesses spot trends and gaps in and processes, and then making the necessary
the market and take advantage of them. At a minimum, improvements to match or better these standards
any business should be aware of competitors’ prices, (Francis et al, 1999; Bhutta and Huq, 1999).
positioning in the market, location and who runs the
business. The philosophy of benchmarking is that a business
should be able to recognise its shortcomings and
87% of all New Zealand firms monitor competitors’ acknowledge that other firms are doing a better job,
products and/or services to some degree, which learn how they are doing it and then implement and
compares well with leading firms (98%) – 60% of firms adapt the practices in the organisation. This is not just
monitor these products or services at least ‘quite about transplanting processes. The precise way of
closely’. Lagging firms differ markedly from these implementing practices and processes needs to be
results with almost half (49%) not monitoring or not adapted to the firm’s style and culture (Bhutta and Huq,
knowing whether this occurs. Despite the fact that 1999). In addition, benchmarking is not a static event;
monitoring is of vital importance to the viability of the it is a continuous activity resulting in the constant
business, managers in these firms might be trapped by improvement of key internal processes.
the faulty assumption that somehow the external
environment does not really matter since it cannot be There are three main types of benchmarking described
controlled anyway (Kourteli, 2000). in the literature (Bhutta and Huq, 1999):
• performance benchmarking – the comparison of
performance measures for the purpose of
determining how good the business is compared to
Q 7.5 How closely does this business monitor competitors’ others
products and/or services?
60 56 • process benchmarking – operations, work practices
and processes are compared
50
45
• strategic benchmarking – when an attempt is being
40 38
made to change the strategic direction of the firm
% 33

30
30 and a comparison with competitors’ business
27
strategies and structures is made.
21
20 17

12 And there are four levels at which benchmarking can

10 8
4 4
be performed (Bhutta and Huq, 1999; Francis et al,
2
0
0 1
1999; Matters and Evans, 2000):
not at all a little quite closely very closely don't know
• Internal – comparisons are made between units/
divisions of the same organisation. Many
Leaders All Laggers

100
 organisations are able to obtain immediate gains by confidentiality. Other difficulties include resource
identifying their best internal practices and constraints and staff resistance. Resource constraints
transferring those to other parts of the organisation. include time, finance and expertise (Francis et al, 1999;
Hinton et al, 2000).
• Competitive – performed against the best
competition to compare performance and processes.
In addition, the resource-based view of the firm
Drawing external comparisons to become more
suggests that it would not be in the interest of any firm
competitive often points the way to break-through
that knows that it has a resourced-based advantage to
thinking (Landry, 1993). However, often the
share information through benchmarking when there is
information is very hard to obtain, beyond that in
any possibility that distinctive capabilities could be
the public domain.
copied. Hence, in situations where knowledge-based
• Functional – this compares the technology and resources are important for sustained competitive
processes between firms that share some advantage, attempts to benchmark anything other than
technological and market characteristics but are not non-core capabilities from competitors are likely to fail
in direct competition with one another. The – if such competitors are assumed to understand the
advantage to this approach is that it is easier to reasons for their own success and to be behaving
identify willing partners, since the information is not rationally (Drew, 1997).
going to a direct competitor.
• Generic – a work process is benchmarked in one, or Increasingly, however, benchmarking can be
several, unlike organisations (i.e. in different undertaken effectively through benchmarking clubs or
sectors). It is generally the most difficult form of assessment diagnostic tools and databases. Similarly,
benchmarking, but potentially highly rewarding. best practice resources (such as quality awards, the
Internet and academic articles) can be useful sources of
Some types of benchmarking are more relevant at information for setting the context in which
particular levels – for example, an internal comparison benchmarking can be conducted (Hinton et al, 2000).
of strategy would be almost meaningless. The development of the Business Performance
Improvement Resource (www.bpir.com) and associated
Direct benefits from benchmarking obviously come Benchmarking Club in New Zealand has been a
through the importation and substitution of knowledge. particularly useful step in this direction.
Indirect benefits can also materialise when this process
stimulates a higher level of thinking within the Jarrar and Zairi (2000b), in their global benchmarking
organisation, irrespective of any specific lesson learned survey of 227 organisations from 32 different countries,
or knowledge discovered. In this context, it has been found that there is a clear spread of benchmarking
suggested that benchmarking can lead to improved worldwide and across various industry sectors and
strategy-making processes, better problem solving, and organisational sizes. The results highlight the fact that
continuous improvement, because it exposes benchmarking is applicable across organisations
weaknesses in current practices, indicates to a business irrespective of their location, size, or industry.
and its employees that higher performance levels are
achievable, and fosters pressure to change (Bhutta and Evidence of Benchmarking in New Zealand
Huq, 1999). It may result in a richer network of The results from the BPPS suggest that New Zealand
individuals within and outside the firm and enable an firms most often conduct functional and competitive
organisation to energise and motivate its employees by benchmarking activities against firms from their own
identifying a need and creating buy-in for change, industry, where information on comparable products
determining what changes are necessary, and exposing and processes can be most readily collected (although
people to new ideas (Bogan and English, 1994; Rodwell not always easily collected). 44% of all firms had
et al, 2000; Camp, 2000). benchmarked against firms within their own industry
(equivalent to 91% of all benchmarking firms) in the
But benchmarking is not without its potential three years prior to the survey. However, only 11% of
disadvantages or difficulties. The changes needed to all firms indicated they had compared their
implement benchmarking require a great deal of performance against domestically located firms in the
teamwork, commitment, an objective focus on the three years prior to the survey (23% of all
issues concerned, and the willingness and ability on the benchmarking firms), and 7% of all firms compared
part of the organisation and individuals to change their performance against firms located overseas (14%
(Rodwell et al, 2000). The most common problems of benchmarking firms). Disappointingly, 52% of all
organisations claim to experience when they firms had not compared their performance with others.
benchmark, as they did during the firm visits, are the
identification of suitable partners, as well as

101
 Q 7.2 In the LAST 3 YEARS has this business's performance their industry association, chamber of commerce or by
been compared in a systematic way with
the performance of companies: monitoring competitors’ websites. A few leading
100 businesses were looking for excellent companies
87
outside their industry with similar processes (e.g. a
80 financial institution was looking at processes used by
70
Microsoft) and a small number mentioned the Waikato
60
52 University benchmarking resource. Generally, overseas-
% 44 owned businesses indicated that benchmarking was
40
easier as comparisons were often made between firms
26
23 within the same group.
20
11 11 12
6 7
2
0
4
0 The most popular areas in which New Zealand firms
0
in the in a located located none of compare performance with competitors are financial
same industry? different industry? domestically? overseas? these
and cost measures – lagging indicators. Using financial
Leaders All Laggers
measures is the most common type of benchmark, with
34% of all firms that benchmark using this to assess
their performance against competitors. Cost measures
Leading firms compare their performance with other
are also widely used (25% of businesses who make
businesses to a much greater extent than lagging firms,
comparisons). Only 14% and 13% of firms that
with 77% of Leaders indicating they have benchmarked
benchmark compare themselves with their competitors
in the three years prior to the survey compared to 13%
on innovation and human resource measures
of Laggers.
respectively.
Over all firms, it is disappointing to note that very few Comparisons with % of % of % of
(2%) undertake generic benchmarking and compare competitors Bench- Bench- Bench-
marking marking marking
their activities in a systematic way with firms in other Leaders firms Laggers
industries. Even in leading firms, this practice is rather using using using
restricted with only 6% benchmarking across Financial measures 60 34 8
industries. In lagging firms this practice is non-
existent. Cost measures 43 25 8
Operational measures 37 16 2
A number of leading businesses from the firm visits
recognised that they still had not come to terms with Quality measures 43 20 3
benchmarking, particularly outside of their industry, Innovation measures 39 14 2
and were weak in this area. Most firms that
benchmarked did this in an informal sense and relied to Human resource measures 43 13 4
a major extent on information they could glean from None of these 2 2 1

Q 7.3 In which of the following areas have comparisons been made with competitors?
75

60
60

45 43 43 43
39
37
% 34

30
25

20
16
15 14
13
8 8

3 4
2 2 2 2 1
0
financial measures cost measures operational measures quality measures innovation measures human resource none of these
measures

Leaders All Laggers

102
Leaders are likely to compare their performance with Q 1.3 Is it part of the regular work of one or more people
(either employees or outside contractors) to assess whether
competitors on a broader range of indicators than the business is achieving its goals?
98
average or lagging firms. 100

77
We might expect more explicit benchmarking and co- 80
operation between firms as clusters and networks have 65

developed in New Zealand. According to a recent report 60

on cluster development in New Zealand (Cluster %

40
Navigators, 2001), the number of co-operative clusters 35

(groups of businesses that decide to work together on 23

20
specific projects) has increased over the last decade and
now numbers over 40 throughout the country, albeit at 2
0
different stages of development. Other research also yes no
points to the development of networks, but suggests
that the New Zealand business sector may lack a Leaders All Laggers
culture of ‘shared trust’ or a capacity for cooperation
that might impede the development of information
exchange (Perry, 2000). This could be partially a result return to the planning process at regular intervals and,
if needed, make adjustments to resources and budgets
of the strongly competitive environment effected by the
1980s reforms. and plans of action.

In addition, successful businesses regularly take time

The small size of the majority of New Zealand firms
may also be a key reason. In other economies, large out to review not only their goals but also their overall
customer firms serve as a source of information and, vision and purpose – whether the vision is still what
they want, whether their actions and goals are working,
often, a facilitator of partnerships among suppliers. In
contrast, New Zealand firms often supply final market and whether they can change their plans to reach their
products or supply customers that are not large enough vision and goals in a better way.
to play this facilitator role. Even the larger New
Zealand firms, unless foreign owned, are small by 77% of all firms report having staff or outside contractors
global standards and do not always have the resources regularly assessing whether the company is achieving its
goals. Evaluating progress towards goals highlights areas
to work with local firms to upgrade the capabilities of
the total sector. Hence, the inter-firm relationships that for improvement and is critical for benchmarking. Almost
operate in some other economies, in which firms all Leaders regularly assess their progress towards goals,
but once again lagging firms fall well behind. A little
benchmark their capabilities, discuss operations and
share information, may be relatively weak here. over one-third (35%) of lagging firms regularly assess
their progress towards goals.
Overall:
Although this is positive, as has been discussed, few
• most businesses that benchmark do so against firms firms take this further and seek to benchmark their
in their own industry and within New Zealand goals and strategies with other firms.
• the most popular benchmarks by far are those that
are easy to measure, such as financial and cost
measures, which implies a focus on performance ■ Evolutionof Manufacturers’
benchmarking rather than process or strategic Information & Benchmarking
benchmarking
Practices
• Leaders draw on a wider range of firms when
comparing performance. Gearing Up (1999) found that there were positive
indicators of improved information management
practices across the manufacturing sector during the
mid-1990s. However, there did not appear to be a great
■ Strategic Information deal of advancement in specific benchmarking
As indicated in chapter 4 on Leadership and Planning, practices since Leading the Way (1994).
business planning has to be an ongoing exercise if it is
to reflect the dynamic, ever changing nature of Three main questions on information and benchmarking
business. To achieve their goals and overall vision, are directly comparable between the 1997 and 2001
businesses have to change their plans and strategies as surveys, and they point to some continued improvement
different factors arise. Firms need to be prepared to on performance measurement by New Zealand
manufacturers but a lack of progress on benchmarking.

103
 It is the regular work of one or more people to assess whether Basically the same proportion of businesses – 80% –
the business is achieving its goals?
100 indicated in both 1997 and 2001 that it was the regular
19 20
work of one or more people to assess whether the
80 business was achieving its goals.

60 On performance measurement, the results indicate

% 81 80 slightly increasing proportions of manufacturers
40 utilising financial (77% of firms in 2001 compared to
59% in 1997) and cost measures (63% versus 53%), and
20 a slight positive change in the proportion of firms
looking to a wider base of measures, such as quality
0 and innovation.
1997 2001

With respect to benchmarking, although a similar

no yes
proportion of manufacturers in 2001 indicated that
The business has focused a ‘great deal’ on the following
they compare their performance with other businesses,
performance measures over the last three years there has been a fall in the proportion of manufacturers
100 benchmarking with domestic and overseas companies
outside their industry.
80 77

59
63
■ Conclusions
on Information
60
53
% 46
49 and Benchmarking
41 40
40
27
New Zealand businesses, as a whole, appear to be
24
managing internal information quite well, undoubtedly
20 18 18
aided by advancements made possible by information
0
technology. Most firms have formal systems in place to
financial cost operational quality innovation human manage information and are looking towards a more
measures measures measures measures measures resource
measures balanced approach to performance measurement. There
1997 2001 is still a reliance on lagging financial and cost
measures, rather than more current or leading
This business’s performance has been compared in a systematic indicators related to innovation and human resources.
way with companies from:
100
It will be no coincidence that the types of performance
measures least utilised – innovation and human
80
resource measures – are those related to the practices
60
identified as relatively less developed in New Zealand
54
% 49 firms. This is consistent with the view that firms pay
40 38
41 less attention to the areas of the business they do not
measure.
18
20 16

6 5
11 9 There is less commitment to managing external
0 information, except at a relatively basic level such as
same industry different industry domestic overseas none monitoring competitors’ products or services. Less than
half of firms benchmark and, when they do, it is
1997 2001 performance rather than process or strategy-based, which
is where the larger gains are likely to be made. The firm
visits also signalled that much of what firms consider as
‘benchmarking’ tends to be informal and ad-hoc.

There appears to be significant opportunities for firms

to more systematically look outside their immediate
environment or value chain for ideas and
improvements. It will be interesting to see if these
opportunities emerge over the next few years as further
clusters and networks develop and evolve in New
Zealand.

104
■ George Seymour College of Tourism – Internally Benchmarking Performance
Seymour College Limited (SCL) was founded in Christchurch in 1991. A database of alumni is kept and contact with members is maintained.
The trading name of the college is the Sir George Seymour National
College of Tourism and Travel. From the outset, SCL has viewed education Employee Practices
as a business and treated its students as customers. This approach has
been highly successful, and SCL is now the largest travel and tourism SCL has typically hired more industry people than academics.
education provider in New Zealand. Remuneration is structured to depend upon employees’ qualifications
and performance. When looking for people to fill higher-level positions,
As well as its core travel and tourism education business, SCL has used the company tries to develop people from within its ranks where possible.
its successful Private Training Establishment (PTE) model to start a design
college and a national college of security personnel, both of which The company has developed a performance appraisal system that has
were sold off once they became successful. clear criteria for what each position is expected to achieve and has
revised its employment contracts to match. The new contract is clear
Most of SCL’s growth has occurred in the last three (academic) years. about how people can earn bonuses, which is dependent on the
Expansion has been funded organically through reinvestment of profits. performance of the business, the campus, and the individual, according
SCL has around 780 students annually, employs around 80 staff and to plainly set out percentages. Staff performance is reviewed quarterly.
has campuses in Auckland, Hamilton, Wellington and Christchurch.
SCL has an induction process for all new staff. It is moving into
The Business Development Manager believes that the company has a organising campus social events and has an internal newsletter.
large number of competitive advantages, including being highly
responsive to market signals, having very strong linkages into the tourism The General Manager uses staff focus groups, drawn from across the
and travel industries and with high schools, innovative marketing, and campuses, to examine particular business issues. These have helped to
systems to manage student information. build relationships between the campuses, as well as getting staff
involved in higher level planning for the organisation. Staff are also
Business Practices continually involved in SCL’s ongoing improvement system, which is
run through the campus managers.
SCL has a focus on achieving high-quality practices within its
organisation and tries to set the benchmark in its industry. It has always Information and Benchmarking
had external quality audits undertaken in addition to the biannual
New Zealand Qualifications Authority (NZQA) audits. SCL’s data system for student information provides an excellent base of
information for the company to benchmark its internal performance.
As a PTE, SCL is required to have a quality management system. It has Every week management is provided with a report on enrolments to
put its policies and procedures onto its Intranet to help generate further compare to projections. This shows where enrolments are being generated
standardisation of service across its campuses. The company works and what kind of advertising is attracting the most people.
closely with both the Ministry of Education and NZQA in developing its
systems and procedures. SCL developed its own Intranet system, as off-the-shelf products did
not suit its purposes. This is its main means of distributing information
SCL received a score of over 90% for quality in its latest NZQA audit. throughout the organisation. Email has also transformed the company’s
communications, allowing for far greater and more immediate
Customer Focus information flows.

SCL is intensely customer focused. Students have interviews before they SCL is a member of industry groups like the Tourism Industry Association
start their course, at the start of their course and mid-way through the of New Zealand. The company has entered the New Zealand Tourism
course. Students also have the opportunity to provide confidential Awards since 1995 and was a winner in 1998 and 2002. It is moving
feedback on tutors, support services and course content, as well as make towards the Baldrige criteria as a means of analysing the quality of its
general comments. The company has student representatives for each systems and processes.
class, and assigns a tutor to each class as a contact point.
SCL is starting to consider international benchmarking possibilities, to
SCL considers it has a different type of teaching to most educational build on the comparisons and assessment provided through its external
organisations. It caters for a wide range of learning styles and endeavours audits.
to create an environment where all people can excel. It also offers flexible
timetables to suit the range of customer needs. Staff spend five days in the tourism and travel industry each year so as
to maintain their industry knowledge. The company has also been
The crucial measure of the quality of the education SCL provides is the conducting industry surveys for 10 years to ascertain what employers
employability of its graduates and the quality of the jobs they get. want and the current industry situation. Each campus has an industry
Through its strong linkages with the tourism and travel industries, SCL advisory board to help guide it in the direction that best suits tourism
is able to ensure that its courses are tailored to their requirements. The and travel employers.
Managing Director credits SCL’s 90% average employment success rate
to its linkages with industry.

105
106
10 – INFORMATION TECHNOLOGY
In this study, Information Technology (IT) is considered Not surprisingly then, and following these broader
a facilitator of business practices, not as a business trends, many firms use IT to support their business
practice itself. There are two main reasons for practices. 88% of firms have some proportion of their
considering IT in this way. First, the applicability of IT employees regularly using PCs, with 36% having more
can differ markedly depending on the industry and the than 60% of their employees using PCs.
size of a firm (for example, financial service businesses
would naturally tend to use IT more than farming There is a marked difference between Leaders and
businesses). Second, IT is not a practice per se but a Laggers in their use of IT (and IT was not included in
tool that can be used to assist in developing the range the determination of Leaders and Laggers). 98% of
of practices and processes. Leaders have some portion of their employees regularly
using PCs. Comparatively, only 70% of lagging firms
Some examples of the possible use of IT across could say with certainty that at least some of their
practices include: employees regularly used PCs.2 55% of leading firms
indicated that more than 60% of employees regularly
• leadership and planning – providing a method for
use PCs, whereas only 20% of Laggers indicated this
collecting a wide range of feedback, and
level of PC use.
disseminating vision statements and organisational
material to a wide range of individuals
The proportion of businesses using computers increases
• employee practices – recording performance, with business size. 99% of large firms use computers
maintaining a training record, managing compared to 86% of small firms. The extent of
remuneration payments computer use also varies across industries, with
• quality and supplier relations – testing the quality of between 98-100% of firms in the finance and
products, product tracking and logistics insurance, property and business services and
education sectors using computers, compared to a
• customer focus – maintaining a database of quarter of firms in the accommodation, cafè and
customers, Internet purchasing, customer feedback restaurant sector.
• information and benchmarking – keeping up with
industry developments via the Internet, managing The use of IT remains mainly tied to firms’ financial
finance and information management rather than production-
related activities. The most intensive use of IT is for
• innovation and technology – computer-aided design, accounting, encompassing 80% of all firms. Data
research. processing (60%) and information management (53%)
are also popular uses for IT. IT is least likely to be used
■ Use of IT in New Zealand Firms1 by firms for production and procurement activities,
with only 34% and 21% of all firms respectively
Generally, New Zealand has a relatively high adoption employing IT for these purposes.
rate of IT, with 47% of households having access to a
computer. This is also reflected in the business Leaders are far more likely to apply IT to all the
environment, with the number of people involved in business activities canvassed in the specific question
IT-related occupations having increased by 76% in the (accounting systems, data processing, information
five inter-census years to 2001. management, general management, inventory
management, general production and procurement)
Q10.1 Please estimate the proportion of this business’s total
employees that regularly (at least once a week) use a PC, than Laggers. For example:
workstation, or terminal?
80 • 59% of Leaders use IT for production compared to
9% of Laggers
60 55
• 82% of Leaders use IT for management compared to
18% of Laggers
40 36 36
• 45% of Leaders use IT for procurement compared to
% 27
4% of Laggers.
24
20
20 18
16 17
1
10
A more detailed analysis of results on the use of IT can be found in
8 9 8
6 6 the Statistics New Zealand release: Information Technology Use in
2 2
0 0 New Zealand 2001 (May 2002, www.stats.govt.nz).
up to 10% up to 30% more than 2
none up to 60% don’t know The phrase ‘could say with certainty’ is used because in each of the
60%
three questions a small number of Laggers did not know the extent to
which their employees used PCs (6%), email (4%) and the Internet
Leaders All Laggers (4%).

107
 Q 10.3 In which of the following areas does this business use information technology?
100

80
80

60
60
53
49
%
40
40
34

21
20
11

0
production accounting information data inventory management, management procurement none of these
systems management processing logistics

• 29% of Laggers said that they do not use IT for any Q10.1 Please estimate the proportion of this business’s total
employees that regularly (at least once a week) use the Internet?
of the areas compared to 1% of Leaders. 80

Similarly, the larger the firm, the more likely it is that

60
they apply IT to all the business activities canvassed.
For example, 55% of small firms used IT for data %
44
processing compared to 87% of large firms. 40 39
37 38 36

Overall, the use of PCs and IT is: 19 19

20 15
13 14
• reasonably high overall amongst New Zealand firms,
5 6 6 5
though not particularly intensive 3
0 0
3
0
none up to 10% up to 30% up to 60% more than don’t know
• largely restricted to financial and information 60%
management operations, in particular accounting
and data processing. Leaders All Laggers

Q10.1 Please estimate the proportion of this business’s total

employees that regularly (at least once a week) use e-mail?
■ The Internet, Email and Websites 80

79% of businesses have some portion of their

employees regularly using email and, similarly, 78% 60
have some portion of their employees using the %
Internet. 20% of firms have more than 60% of their 40 38
37
39
37
35
employees using email and 14% have more than 60%
of their employees using the Internet. 20
19
20 18
15
10
97% of leading firms have some portion of their 7 6 6 5
3 2 2
employees regularly using email, and the same 0 0

none up to 10% up to 30% up to 60% more than don’t know

percentage have some portion of employees regularly 60%
using the Internet. In contrast, only 57% of Laggers
could say with some certainty that some portion of Leaders All Laggers
employees use email and 56% could say that some
portion of their employees used the Internet. 36% of Leaders indicated that more than 60% of
employees regularly use the Internet – no lagging firms
Even more striking is the difference between the indicated this level of Internet use.
proportion of Leaders and Laggers who indicated that
more than 60% of their employees used these various As with overall IT use, the use of Internet and email
forms of IT. 37% of Leaders indicated that more than increases with business size. 95% of large enterprises
60% of employees regularly use email – only 6% of use the Internet compared to 75% of small firms, 97%
Laggers indicated this level of email use. of large firms use email compared to 74% of small

108
firms, and 64% of large firms have a website compared Q 10.12 For which of the following does this business
use email for:
to 32% of small firms. 100
85
The use of Internet and email also varies across sectors. 80 76

Over 90% of firms in the accommodation, finance and 69

insurance, motion picture, radio and television, and 60 54

51
property and business services sectors use the Internet, % 48 50
47

compared to about 60% of businesses in the 40 34

30
agriculture, forestry and cafés and restaurants sectors. 26 25

20
11
While the majority of firms (64%) do not operate 8 8

websites, over half (52%) of leading firms do – 0

communication receiving orders ordering goods transmitting and none of these
with customers from customers from suppliers receiving data
compared with only 15% of Laggers. However, a and suppliers files
greater proportion tend to make use of other business’s
websites, with 68% indicating that they performed Leaders All Laggers
information searches on suppliers’ homepages and 32%
accessed government services. Internet represented only 0.3% of New Zealand firms’
total operating income to the year ended June 2001.4
Q 10.4 Does this business have a website? Large firms tend to use the Internet for sales more than
100
small firms. 9% of small firms sold products over the
85

80
Internet in the year ended June 2001 compared to 15%
of large firms. The accommodation industry has by far
64
60
the highest percentage, 84%, of businesses selling
%
52
48 products over the Internet, more than 60% higher than
40 36
the next highest industries – the communications
services and education sectors.
20 15
New Zealand businesses tend to purchase over the
0 Internet more than they sell, with 24% indicating that
yes no
they purchased products over the Internet in the year
ended June 2001. The value of purchases made was
Leaders All Laggers small, however, with 84% of firms indicating that their
Internet purchases represent 5% or less of total
expenditure.
Statistics New Zealand figures indicate that the New
Zealand business sector’s uptake of computers, Internet Of the firms who have websites, the most popular
and websites compares favourably to Australia and features included on their sites are information about
Canada.3 the business (85%), product or service information
(81%) and advertising (65%). The least common
features are facilities for tracking orders (2%),
■ Purposefor Using Email, Internet delivering products in digital form (3%), providing
account information (4%) and being able to procure
and Websites products (4%). Just over a quarter of firms with a
69% of all firms use email to communicate with website could receive on-line orders, with just over
customers and suppliers (87% of businesses that 10% being able to receive payments online.
actually use email use it for this reason). 34% receive
orders from customers (43% of those that use email), In terms of using other businesses’ websites, about a
30% order products from suppliers using email (38% of quarter of firms ordered goods from suppliers over the
those that use email), and 50% (64% of those that use web and obtained data files and digital products. After-
email) use it for transmitting and receiving data files. sales service (8% of firms) and coordination of delivery
Almost half of lagging firms (47%) reported that they arrangements (6%) were less common uses. Leaders
didn’t use email for any of these activities, compared tend to use web purchasing far more than Laggers, with
with only 8% of Leaders. nearly half of all Leaders doing so, compared to 6% of
Laggers.
Very few firms (10%) use the Internet for sales. Of those
3
that do, 98% have an Internet sales value that equates For more information, see Information Technology Use in New
Zealand 2001 (Statistics New Zealand, May 2002, www.stats.govt.nz).
to less than $100,000. Sales of products over the 4
Ibid.

109
 Q 10.8 Does this business order goods or services from
other business’s websites? ■ Barriers to the Use of the Internet
100 94
The main restriction to using the Internet identified by
80 76 firms was simply that it was not regarded as relevant to
their business activity, with 29% of businesses citing
60 56 this reason. Other key reasons are the risk of viruses or
% 44 hackers accessing confidential information (21%), the
40 cost of developing and maintaining an Internet system
24 (14%) and a lack of people with the skills needed
20 (13%).
6

0 Because Leaders are much more intensive and

yes no
extensive users of IT, we observe a much higher
proportion of Leaders indicating impediments to use of
Leaders All Laggers
the Internet. For example, 37% of Leaders indicated
that the risk of viruses or hackers accessing
Overall: confidential information was an impediment to Internet
• email tends to be used more intensively than the use, whereas only 7% of Laggers had similar concerns.
Internet
• a relatively low number of New Zealand businesses
operate their own website, though leading firms are
much more likely to do so
• communicating with customers is seen as the most
important use for the Internet
• the most common website features are company
information, product and services information and
marketing material.
Q 10.11 Which of the following, if any, restrict this business’s use of the Internet?
60

45

39
40 37
35
32
29
%
21 20
20 16
14 13 13
11 11
7 7 7
5 4
3 2
0
risk of viruses/hackers too technical cost of communications slow not relevant lack of IT skills none of these
developing/maintaining or unstable

Leaders All Laggers

■ Micro Business Systems Ltd – IT Solutions

The core function of Micro Business Systems Ltd (MBS) is providing Competition within the IT business solutions market was described as
Information Technology business solutions to small and medium-sized ‘fairly intense’. To combat this, MBS has focused on niche markets and
enterprises. MBS uses off-the-shelf software, which it tailors to the having or developing expertise that is not common within the
specific requirements of each customer, through the provision of various marketplace (both in terms of the products offered and the skills of the
services including consultancy/analysis, hardware/software solution staff). The Managing Director believes that, because MBS aims to deliver
development and implementation, training for the customer’s staff and systems that are precisely fitted to its customers’ needs, it can provide
support and servicing. greater value to its customers than most of its competitors (which MBS
considers provide more generic solutions).
MBS has been operating for 22 years and currently has five employees
(including the Managing Director). At present, the business is in a growth
phase, following a slight decline last financial year, and it is looking at
taking on more staff.

110
Business Practices considers that customer satisfaction levels are high, he believes that
MBS should measure customer satisfaction more than it does currently.
Customer relations and developing strong customer loyalty, and
developing staff to support this, are central to MBS’ business. Arising Quality and Supplier Focus
from this emphasis, the Managing Director sees the core requirement of
MBS as being to continue to develop and hone the skills of its staff. MBS is not trying to be ‘all things to all people’ and therefore uses
skilled subcontractors for quite a lot of its work, particularly in providing
The Managing Director considers the benefit of being small is that MBS ongoing system servicing to clients. MBS has service level agreements
can be highly flexible and is able to react to and take advantage of with subcontractors that are based on key deliverables.
opportunities quickly. However, it also means that often its resources
are stretched. A particular problem is that the overheads involved in Other key suppliers are the providers of software programmes and
bringing a new person up to speed are prohibitive for a company where hardware components. These, in addition to supplying products, are
another person is a 20% addition to the workforce. playing a greater role in keeping MBS informed about new products
and developments than used to be the case. However, it is still important
Leadership and Planning for MBS to check with them on a frequent basis to remain current and
up-to-date. MBS has an emphasis on getting assurances that the products
Through regular staff meetings and discussions with suppliers, the work as described.
company works out where it wants to go and how it is going to get
there. Staff gather a great deal of information (from vendor presentations The company has become more stringent on its suppliers as it has realised
and other research) about what is happening in the IT industry that a wide variance in their quality. If a supplier fails to deliver on
feeds into the direction setting plans. Budgets are prepared on an annual undertakings, they are soon removed from MBS’ preferred supplier list.
basis.
Employee Practices
The Managing Director believes that rigid three- or five-year plans are
not appropriate for the company because the technology the business is Staff are fully involved in the running of the business and have access
dealing with is changing very rapidly. MBS’ mission statement is to all information associated with it. There is joint consultation on
descriptive – based on optimising the value of its customers’ computer where the company is heading and staff provide significant input into
systems – rather than prescriptive, reflecting the need to retain flexibility the company’s strategic direction.
in how it achieves this.
The high levels of customer satisfaction, revenue generation levels, and
There is a consensus approach to leadership at MBS, with different a lack of staff turnover all provide indications that staff are reasonably
people having specific, but often overlapping, areas of responsibility. content in their work. The Managing Director indicates that staff are
The Managing Director sees his role as looking after the financial side paid what the company can afford, and, because they know what profit
of the business and providing an overview to make sure that all the levels are like, can see the relationship between company performance
pieces fit together. In the long term, the Managing Director would like and their pay.
to withdraw further from the business and mainly act as a figurehead
and provide the comfort of experience to customers and suppliers. He The Managing Director describes the staff at MBS as ‘focused and skilled’.
has been working on succession planning at MBS and thinks that solid Training is specific to the expertise the individual requires in order to
structures are now in place that would allow the business to be deliver a service to MBS’ customers. Staff make their own suggestions
maintained successfully by someone else. about their training requirements.

MBS provides assistance to the community in a number of ways. A MBS has a good social culture. Its staff-room has a pool table and a
refugee settlement service use an unoccupied building that MBS owns darts board and staff regularly have dinners together.
for storage. Schools use the business for work experience, and it has
had some ongoing relationships with students that have come through Information and Benchmarking
this. The company also makes donations to charities.
MBS receives a lot of information from its suppliers, and websites are
Customer Focus also very useful for keeping up with latest developments. The person
responsible for marketing at MBS is constantly seeking out new products,
MBS’ client base has shifted from being predominantly small clients to and thinking about ways that MBS could incorporate them into services
now consisting of a greater number of medium-sized businesses. for clients.

The focus at MBS is on delivering a total solution to customers, based The Chamber of Commerce, which MBS is a member of, is a more general
on their requirements and financial constraints. The Managing Director business information source.
considers that face-to-face relationships carry a lot of weight in building
a strong bond with customers. Benchmarking is only undertaken against MBS’ competitors when they
come head-to-head in tendering for business. Internal comparisons are
With new clients, the critical issue is to establish what they want and undertaken on financial and marketing results that are provided by
what resources they are willing to put into the project, and to clearly MBS’ systems. These comparisons are used as an improvement tool.
communicate the solution MBS can offer. There is also a focus on
developing personal relationships. The Managing Director also believes that the financial and administration
management systems at MBS are very strong. This is especially important,
Customer complaints are logged into a system when they are received as balancing cashflow is a key concern each month for this small
to make sure they are dealt with. Although the Managing Director business.

111
 ■ E-Business in New Zealand
In the past two years, seven major surveys have been designed and The 2002 study was restricted to private businesses, and was conducted
undertaken to shed light on the nature of e-commerce in New Zealand, via a telephone interview. The 1,008 usable responses provided a response
and on the frequency of Internet use among New Zealand businesses. rate of 48%. A number of sectors were canvassed in the study:
The Ministry of Economic Development has commissioned research to manufacturing, construction, the primary sector, wholesale and retail
compare and contrast the methodologies and results of these various trade, transport/storage, business services, personal services, ICT, tourism,
surveys, with the aim of improving the design of future surveys.5 An hospitality/recreation, and health and community services. The study
obvious difficulty in comparing the BPPS results for IT with other also examined IT practices across a range of firm sizes, and each size
research is the different samples used. group had the same proportion of respondents: 0-5 FTEs (25%), 6-19.5
FTEs (25%), 20-49.5 FTEs (24.8%), and 50+ (25.2%).
Two of the most comparable surveys are Ministry of Economic
Development commissioned surveys undertaken by BRC Market The study found that 56% of all firms had their own website (some 10%
Research, although even with these surveys some differences can be more than the 2001 BPPS and we would expect this proportion to be
accounted for by the inclusion of small firms (0-5 FTEs) in the samples. lower given the inclusion of very small businesses), though only 41%
These two surveys are of particular interest, as they can be used to of micro firms (five or fewer) had their own website compared to 75%
show changes in IT use over the last few years. A comparison of these of large firms (50+). Across all industries covered, the tourism industry
surveys, and comparing these surveys with the BPPS, points to an was the largest user of company websites.
increase in IT take-up in New Zealand businesses, although the ways in
which firms put IT to use have not changed measurably. Of those firms that operate a website, the site was almost always used
to provide general business information (97% of all websites), this was
Electronic Commerce in New Zealand – A Survey of Business followed closely by using it to provide more specific product/service
Use of the Internet (Information Technology Policy Group, information (94%). Three-quarters of firms (76%) used their website for
Ministry of Economic Development, October, 2000) advertising. Under half of firms (47%) used their website for online
ordering. These results are consistent with the BPPS.
This involved a telephone survey of 506 respondents. Almost half of the
sample were micro businesses (with 5 or fewer FTEs) but the results were The Internet is most commonly used for communication through email
weighted to reflect the national distribution of firms by FTE size. A range – 70% of firms in 2002 reported using email, up from 68% in 2000. This
of sectors were captured, although the majority of respondents were from is lower than the BPPS but, again, can probably be accounted for by
the wholesale/retail, manufacturing and business services sector. the inclusion of small firms in the sample. Almost all (99%) large firms
used email; this proportion drops progressively as firms become smaller.
This survey indicated that, as of the year 2000, over two-thirds of 96% of firms employing 20 to 49 FTEs, and 90% of firms employing 6-
businesses (compared to 80% in the BPPS, but this could be due to the 19 FTEs, used email, whereas only 63% of micro businesses were users
exclusion of small firms in the BPPS sample) were using email, and one of email.
third had their own domain name or website (about the same proportion
to the BPPS). Only 7% indicated they did not use computers at all. The Internet is also widely used as a tool for collecting information and
conducting research, with 59% of firms using it for this purpose, up
After email, the leading use of the Internet was for information gathering from 54% in 2000. About one-quarter of firms sell goods and services
and research, followed by ordering goods and services. Only one in via the Internet and about one-third order goods and services via the
four businesses from this survey was using the Internet to sell goods Internet – both results are much higher than those indicated by the
and services, which was a similar result to the BPPS almost a year later. BPPS in 2001.

Factors cited as inhibiting the uptake of e-commerce included cost, Over the past decade, e-commerce and the Internet have emerged as
lack of proven benefits, lack of skilled staff, and security issues. Cost important mediums for conducting business. One-third of businesses
was not regarded as such a barrier in the BPPS, which again is probably (34%) now see e-commerce as being ‘critical’ for competition and
due to the exclusion of small companies in the BPPS, but the other remaining competitive, the same proportion of firms also see it as a
three factors were also key barriers in the 2001 survey. ‘critical’ information and research tool. 30% of firms see e-commerce
as ‘critical’ for the development of their customer base and 27% and
The survey indicated that although two-thirds of businesses claim to be 23% respectively see it as a ‘critical’ mechanism for maintaining customer
engaged in some type of e-commerce with other organisations, only and supplier relations. 26% of firms see e-commerce as ‘critical’ for
about 10% integrated this activity with their internal business systems. efficiency and cost reduction.

A Survey of Business Use of the Internet (BRC Market

Research for the Ministry of Economic Development, May,
2002)
5
Clark D (2002), E-Business in New Zealand, 2000-2002: Analysis
The E-Commerce and Internet Use study is one of the more recent studies of Major Surveys and Design of Future Survey Research, Waikato
and is a follow-up study to the first E-Commerce and Internet Use Management School, Commissioned by the IT Policy Group of the
study, as outlined above. Ministry of Economic Development (forthcoming).

112
11 – OPERATIONAL OUTCOMES
Results from the study confirm yet again a positive Figure 19. Operational Outcomes
association between a holistic approach towards
Question: This business ... Leaders All Laggers
business improvement and better operational outcomes.
There also appears to be a positive association between has ‘lower’ costs than its
strengths in particular practices and more directly competitors 24% 18% 15%
related outcomes. has ‘higher’ quality than its
competitors 84% 60% 33%
Apart from the caveats already noted in chapter 2 on
the relationship between practices and outcomes (and has a cost of quality of up to
also the ‘circularity’ in comparing Leaders and Laggers 5% of total sales 78% 67% 52%
on outcomes given that outcomes are used to help delivers more than 90% of its
define Leaders and Laggers), it is important to note that goods in full, on time, and
some business practice combinations may be more to specification 81% 61% 39%
likely than others to yield higher operational outcomes,
depending on their inter-relationship with strategy and had zero returns/money back
structural factors (Ahmed et al, 1996). These issues are in the last 12 months 39% 31% 27%
considered in more detail later in this report. had zero defects in the last
Comparing Leaders and Laggers on outcomes is useful, 12 months 23% 23% 20%
however, to gauge those outcomes that might be
particularly influential in determining performance. has a ‘higher’ level of
flexibility than its
In this chapter we consider results from the six broad competitors 83% 54% 30%
categories of outcomes illustrated in our model: has ‘many’ or ‘all’ of its
• cost competitiveness employees who are capable
of doing more than one job 81% 62% 41%
• quality and service
is better than its competitors
• flexibility in terms of order to delivery
• timeliness time 56% 36% 15%
• human resources has a ‘higher’ level of
employee satisfaction than
• innovation. its competitors 79% 48% 23%
Figure 19 summarises the differences between Leaders, has had staff turnover in the
Laggers and firms overall across the operational last three years of up to 10% 77% 53% 30%
outcomes index. spent ‘5% or more’ of its
pre-tax payroll on employee
education and training
related activities 20% 5% 0%
offered new or significantly
improved products in the
last 3 years 96% 61% 8%
offered new or significantly
improved processes in the
last 3 years 98% 49% 1%
spent more than 20% of total
expenditure on innovation
activities 19% 7% 0%

113
 ■ Cost Competitiveness ■ Quality and Service
Emphasis on cost competitiveness will vary to some Although there are a number of different elements to
extent among firms, in accordance with their strategy. quality and service (e.g. reliability, features, durability,
Nevertheless, firms must offer value for money and serviceability, speed) and hence quality and service
therefore what it costs to produce and deliver a product outcomes, we focused on broader quality outcomes in
or service will always come under scrutiny by the BPPS, each encompassing a range of elements, such
management. As a result, relative cost measures (labour as cost of quality (prevention, rework, scrap, errors,
costs, cost per unit of output, cost of inventory, inspection), delivery to specification (reliability and
marketing costs) are a commonly used method for speed), and returns/money back.
measuring operational outcomes.
Consistent with the relatively good quality and supplier
Across all firms, the majority consider that their costs and customer focus practices reported, quality and
are equivalent to major competitors, with 18% service outcomes are generally quite positive.
believing their costs are lower than competitors and
15% indicating costs are higher than competitors. Under 1% of all firms considered that their products
and services were of lower quality than their
Q 12.5 How would you say this business compares to its major competitors. This would appear to be an unrealistic
competitors on costs?
60 perspective. In fact, even lagging firms indicated, in the
54 55
53 majority of cases (48%), that the quality of their
products was ‘on par’ with their major competitors’
products. Most firms (60% of all firms, and 84% of the
40
leading firms) indicated that their quality was superior
% to that of their competitors. Once again, a large number
24 23 of lagging firms indicated that they did not know how
18
20 17 their quality compared – almost one in five.
15 15
12
9
5
Q 12.5 How would you say this business compares to its major
0
0 competitors on quality?
lower on par higher don't know 100
84
80
Leaders All Laggers
60
60
48
%
Most Leaders feel that they are at least ‘on par’, or 40
32 33
compare favourably with their major competitors on
cost (78%) – 17% feel that their costs are higher than 20 14
18

those of their competitors. Lagging firms often do not 3

7
1 1
even know how they compare with their major 0 0

lower on par higher don't know

competitors. Almost one-quarter (23%) ‘don’t know’,
but the majority (53%) felt that they are ‘on par’ with
Leaders All Laggers
their competitors when it comes to costs. Interestingly,
more leading firms indicated that their costs are higher
than competitors, than did average and lagging firms. Despite few firms describing their quality of products
and services as lower than their competitors, there are
The results on costs suggest that there is a relatively some significant differences between leading, average
low incidence of cost-based advantage in New Zealand and lagging firms in relation to the costs associated
businesses. Even among Leaders, few appear to get with achieving product and service quality. From the
advantage from costs. graph of the results on question 12.6, it is apparent that
leading firms have a much lower cost of quality. 51%
All the comparative outcomes need to be viewed with of Leaders estimated that their cost of quality is less
some caution, however, given that (as has already been than 1% of sales and a further 27% indicate that these
discussed in chapter 9 on Information and costs are less than 5% of total sales. 39% of firms
Benchmarking) only about half of all firms formally overall considered that their cost of quality is less than
benchmark. 1% of sales, but only one-fifth of Laggers estimated
their cost of quality at this level, and they are far less
likely to know what their costs of quality are (41%).

114
 Q 12.6 Please estimate this business’s cost of quality (rework, Q 12.8 Over the LAST 12 MONTHS please estimate how large
scrap, error, inspection etc.) as a proportion of total sales: returns/money back have been as a proportion of total sales:
60 80
51

60
41
40 39

32 43 43
% 39 37
27 27 % 40
23 31
20 27 26
20
20
11 14
8 7
7 7
4 5 4 5 4
2 2 2 2 2 3 2
1 1 1
0 0
up to 1% up to 5% up to 10% up to 15% more than don’t know zero up to 1% up to 3% up to 5% more than don’t know
15% 5%

Leaders All Laggers Leaders All Laggers

The majority of businesses reported that over 90% of Q 12.8 Over the LAST 12 MONTHS please estimate how large
defects have been as a porportion of total sales:
their goods or services are delivered in full, on time 80
and to specification. 39% reported that more than 95%
of their goods or services are delivered as required, and 60
60
a further 22% considered that between 90-95% of their
products or services meet delivery requirements. 47

However, 13% of firms reported that less than 80% of % 40 39

their goods or services are delivered in full, on time 29

and to specification. 23 23
20
20 15
9
Q 12.7 What proportion of goods or services from this business 8
6
4 4
6
3
are delivered to customers in full, on time and to specification? 2 1 2

80 0
zero up to 1% up to 3% up to 5% more than don’t know
5%
63
60 Leaders All Laggers

■ Flexibility
39
% 40
29

18
22
24 Flexibility is an important business attribute in a
20
11 12 12
17 17 15 rapidly changing business environment. In general
3 4
8
terms, flexibility refers to a firm’s agility, adaptability
1 2 2
0 and responsiveness. Being flexible means that a firm
up to 50% up to 80% up to 90% up to 95% more than don’t know
95% can be responsive to environmental changes and adapt
its design, products and services, volumes, and
Leaders All Laggers operations to suit changing customer preferences.

Flexibility is a distinct characteristic of leading firms.

Leading firms reported higher levels of delivery – 63% Over 80% of leading firms reported being more flexible
reported that more than 95% of their products or services than their major competitors, compared with only 30%
are delivered in full, on time and to specification. This of lagging firms. Almost no firms reported being less
compares to only 24% of lagging firms. flexible than their competitors, though nearly a third
(28%) of lagging firms and 11% of firms overall did not
On returns/money back, the vast majority (82%) of know.
leading firms reported having return rates of less than
1%. Similarly, 83% of Leaders reported defect rates of If firms want to be flexible and able to cope with
less than 1% of total sales. These results are not greatly rapidly changing technologies, they must develop and
different to firms overall (with 74% indicating return/ maintain a highly skilled and adaptable workforce that
money backs less than 1% of sales and 70% reporting can deal with non-routine and exceptional
defect rates of less than 1% of sales). 64% of Laggers circumstances. A good reflection of a firm’s ability to
report these low return rates (and 26% do not know), be responsive and flexible is the ability of its
and 59% report low defect rates (again over a quarter employees to cover a wide range of roles.
responding they don’t know).

115
 Q 12.5 How would you say this business compares to its major ■ Timeliness
competitors on flexibility?
100
Timeliness relates to the total time required to perform
80
83
all activities from when an order has been made to
when the product or service is delivered to the
60 54
customer. Timeliness is important, as faster response
% times command price premiums, attract more customers
42
40 34
and encourage loyalty, and can economise on
30
28
production or service costs.
20
13
11

1 1 1
3 Most firms (44%) considered that their order-to-
0 delivery time was ‘on par’ with their major competitors,
lower on par higher don’t know
although 36% indicated that it was better than
competitors’ delivery performance.1 18% of firms did
Leaders All Laggers
not how they compared on this outcome. Leaders were
not too far ahead on timeliness, with 56% reporting
Leading firms spend more on developing their that their order-to-delivery time was better than
workforce’s capabilities and this is reflected in the competitors. Only 15% of Laggers thought their
multi-skilled nature of their workforces. A high delivery time was better than competitors, although
proportion – 81% – of leading firms reported that 46% did not know.
‘many’ or ‘all’ of their employees are capable of
undertaking more than one job. Over all firms, there is Q 12.5 How would you say this business compares to its major
competitors on order to delivery time?
a trend towards having multi-skilled employees. 62% 100
of all firms claimed that ‘many’ or ‘all’ of their
employees are capable of performing more than one 80
job. In fact, Laggers also reported that their employees
are reasonably multi-skilled, though in most cases this 60 56

is restricted to ‘a few’ employees (45%). These positive % 44 46

40 36 38 36
results may well reflect the broad commitment to
internal training by New Zealand firms (as discussed in
relation to employee practices), although only a small 20 15
18

proportion of firms extensively use job rotation. 1 2 2

7

0
lower on par higher don’t know

Leaders All Laggers

Q 12.10 How many of this business’s employees are able to
do more than one job?
60

48
45

40 ■ Human Resources
40
35
33
% 30 The key outcomes associated with human resources are
22
staff satisfaction, employee turnover and investment
20 18 levels in training and development.
12 11

Overall, a higher emphasis on employee relations is

2 2
0 0
1 1
associated with higher employee satisfaction in leading
none a few many all don’t know firms. 79% of Leaders felt that their levels of employee
satisfaction are comparatively higher than their major
Leaders All Laggers competitors, although very few firms reported that their
employee satisfaction is lower than competitors.
Although a reasonable proportion of lagging firms felt
satisfaction is relatively good or at least comparable
(46% ‘on par’ and 23% ‘higher’), a high proportion of
Laggers did not know (28%).

1
It was clear from the responses to this question that respondents
regarded ‘higher’ as better rather than longer order-to-delivery time.

116
 Q 12.5 How would you say this business compares to its major Q 5.4 In the LAST 12 MONTHS please estimate what proportion
competitors on employee satisfaction? of your pre-tax payroll was related to employee education
100 and training
80

79
80
60
51
60
% 46 48
% 40 37
39

32
40 36
27
28 24
23 20
20 17
20 15 15
15
10
8
6 5 6 5
1 3 2 2
0 0
0 0
lower on par higher don’t know zero less than 1% less than 3% less than 5% 5% don’t know
or more

Leaders All Laggers Leaders All Laggers

In a similar vein, 90% of Leaders reported employee 2% invest more than 3% of pre-tax payroll, compared
turnover of less than 20%. This is superior to firms with 44% of Leaders.
overall, where 70% reported turnover of less than 20%,
and vastly superior to Laggers, where 45% have this level
of staff turnover. In fact, 31% of Laggers reported ■ Innovation
turnover rates of over 30% and another 14% didn’t know
what their staff turnover was. Although turnover rates can As discussed in chapter 8 on Innovation and
vary due to industry differences – e.g. for firms in low Technology, innovation outcomes refer to the
wage sectors it may be cost-effective to have labour development of new and improved products, services
turnover at around 15% but for firms encouraging high and processes, the extent of technological change and
quality services or organisational learning, turnover rates expenditure on R&D in an organisation. There was a
exceeding 5% might be costly (Boxall and Rasmussen, particular focus on innovation outcomes in the BPPS
2001) – research suggests that turnover rates of around because of the Ministry of Research, Science and
10-15% are ‘optimal’ (Martin, 2000). Technology’s interest in obtaining comparable
innovation indicators to OECD countries.
The differences in training and development practices
between leading firms and average and lagging firms We earlier asked the question about whether New
are reflected in investment levels (percentage of pre-tax Zealand’s firms’ tendency to use more informal
payroll) devoted to training. Virtually all Leaders innovation practices matters for innovation outcomes.
devoted at least some of their pre-tax payroll to Overall, the innovation outcomes appear to be
training (less than 1% do not), though 2% were unsure reasonably positive. In addition, the results are actually
of the exact percentage, with a fifth of Leaders more positive than comparable and prior surveys
investing more than 5% of pre-tax payroll. Over half of suggested (MoRST, 1999; MoRST, 2002). However, we
lagging firms (51%) do not invest in training and only cannot determine the nature of (how ‘innovative’ the

Q 12.9 Over the LAST THREE YEARS what has been the Q 9.1 In the LAST THREE YEARS did this business offer
proportion of staff turnover for this business? new or significantly improved products (goods or services)
100 to its customers?

80 77

60
53
% 39%
40
30 31
61%
20 17
13 15 15 14
10 10
5 6
3 1
0
up to 10% up to 20% up to 30% more than 30% don’t know

Leaders All Laggers

yes no

117
 Q 9.3 In the LAST THREE YEARS did this business introduce differences between Leaders and Laggers on innovation
new or significantly improved processes including new
ways to supply services or deliver products? practices, innovation outcomes most clearly
differentiate leading from lagging businesses. 96% of
Leaders offered new or significantly improved products,
and 98% introduced new or significantly improved
processes, within the last three years. Only 8% of
51%
Laggers introduced new or significantly improved
products and only 1% introduced new or significantly
49% improved processes.

Leading firms are also quite clearly investing a much

higher proportion of their total expenditure than
average or lagging firms in areas associated with
innovative activity, once again reinforcing their higher
commitment to innovation.

yes no Of the firms that are investing in some form of

innovation activity (R&D, equipment, technology,
improvements firms say they are making actually are), design, marketing, training), 54% spent up to 10% of
and the value generated by, these innovations. total expenditure, and only 10% spent more than 20%
of total expenditure, on innovation. 83% of Leaders
61% of all firms report that they had offered a new or have made investments in innovation-related activities
significantly improved good or service in the three that account for up to 30% of total expenditure. Only
years prior to the survey. Of these, 43% developed the 36% of Laggers have made investments that account
products mainly within the business and 31% for up to 30% of total expenditure, with the majority of
developed the products in co-operation with others. these (30% of all Laggers) having made investments
49% of respondents indicated that they had introduced that account for up to only 5% of total expenditure. 9%
a new or significantly improved process in the previous of Leaders compared with almost no Laggers (0.2%)
three years. Of these, 55% developed the process within have made investments related to innovative activities
the business and 22% in co-operation with others. 58% that account for more than 30% of total expenditure.
of firms have introduced both a new product and a new
process, although 32% have introduced neither. Despite these reasonably positive levels of innovation,
a large number of firms rely on long established goods
As discussed in the related Innovation Report (Statistics and services as the major portion of their sales. For
New Zealand, 2002c), this level of innovation is at least almost half of all firms (48%), more than 40% of total
equal, if not higher than European Union countries. sales are derived from long established goods. However,
these results do appear to be quite comparable with
Leading firms appear to be undertaking the lion’s share international statistics.2
of innovation and, consistent with the major

Q 9.9 Please estimate this business’s total expenditure on innovation related activities as a proportion of total expenditure
80

60
60

39
% 40
30 29
26
23
21
20
15
10 9
7 6 6
4 3 4 4
1 1
0 0 0
up to 5% up to 10% up to 20% up to 30% more than 30% don’t know did not answer

Leaders All Laggers

118
 Q 9.6 Over the LAST 12 MONTHS please estimate the proportion of sales that have been from
long established products or services?
60

48
45
42
40
36

18
20
13
12
11 11 11
9
8
6 6
5
4 4 4 4
2
0 0
up to 10% up to 20% up to 30% up to 40% more than 40% don’t know did not answer

Leaders All Laggers

Again, the Leaders in the survey show a much larger

proportion of sales activity being generated from new
or improved goods or services than do Laggers. 17% of
Leaders generate more than 40% of their sales through Q 12.4 In the LAST THREE YEARS have this business’s
management and operating systems changed?
new goods or services and 27% generate more than 60
40% of their sales from significantly improved goods or 49
52

services. In contrast, only 3% of Laggers generate more 45

than 40% of their sales from new goods or services, 40 38

and no laggers generate this level of sales from 31

significantly improved goods or services. Even more % 27

striking was the response that 63%, 66%, and 42% of 20 18

16
Laggers did not know the proportion of their sales 13

revenue that was generated from new, significantly 4 5

improved, or long established goods or services 0 0 0

1 1

not at all to a to a completely don’t know

respectively. minor degree major degree

2
Based on EU figures for average sales from new and improved Leaders All Laggers
products, and estimating averages from the BPPS data using mid-
points of ranges. Our thanks to Pamela Mazoyer, MORST, for
calculating these results.

Q 9.6 Over the LAST 12 MONTHS please estimate the proportion of sales that have been from
completely new products or services?
80

63

60

% 40
35
31

25
23

20 16 17
14
10 11
9 9
6 6 6 6
4 3 3
2 2
0
up to 10% up to 20% up to 30% up to 40% more than 40% don’t know did not answer

Leaders All Laggers

119
 Q 9.6 Over the LAST 12 MONTHS please estimate the proportion of sales that have been from significantly
improved products or services?
80

66

60

% 40

27
25
23

20 17 16 16 16
18

10 11 11 11
8 7 7
4 4
2 2
0 0
up to 10% up to 20% up to 30% up to 40% more than 40% don’t know did not answer

Leaders All Laggers

One might expect that Leaders, with high operational three years prior to the survey, compared to 10% of
outcomes and good business practices, would seldom Laggers.
want to change a winning formula. Consistent with a
culture of continuous improvement, however, Leaders
often change the way they do things to keep ahead of ■ BusinessPractices and Firms’
their competitors. Close to half of Leaders changed their
management and operating systems to ‘a major degree’
Competitive Position
in the three years prior to the survey (45%), and a The BPPS also asked firms to indicate how helpful
further 18% changed these systems completely. In various business practices had been in improving their
complete contrast, half of lagging firms had not competitive position over the three years prior to the
changed their systems at all, or did not know whether survey (this question was not used in the calculation of
they had. Over all firms, the majority (52%) had indices). The results show some similarities but a few
changed their management or operating systems to ‘a distinct differences in comparison to the relative
minor degree’ over the three years prior to the survey. strengths on practices and operational outcomes
already discussed.
Similarly, many Leaders (68%) had changed their
technology completely or to ‘a major degree’ in the

Q 12.2 Over the LAST THREE YEARS how helpful has each of the following been in improving this
business's competitive position? - ALL FIRMS
100

80

60
%
40

20

0
not at all helpful a little helpful moderately helpful greatly helpful don’t know

leadership & planning innovation & technology

employee relations supplier relations
customer relations operations & quality
information & benchmarking

120
 Q 12.2 Over the LAST THREE YEARS how helpful has each of the following been in improving this
business's competitive position? - LAGGERS
100

80

60
%
40

20

0
not at all helpful a little helpful moderately helpful greatly helpful don’t know

leadership & planning innovation & technology

employee relations supplier relations
customer relations operations & quality
information & benchmarking

Q 12.2 Over the LAST THREE YEARS how helpful has each of the following been in improving this
business's competitive position? - LEADERS
100

80

60
%
40

20

0
not at all helpful a little helpful moderately helpful greatly helpful don’t know

leadership & planning innovation & technology

employee relations supplier relations
customer relations operations & quality
information & benchmarking

The three practices rated most highly by firms as helpful for competitiveness than the results on practices
improving their competitive position are customer and outcomes might have suggested.
relations, quality, and leadership and planning – three
practices that firms overall achieved relatively good As would be expected, higher proportions of Leaders
results on. However, information and benchmarking, consider all the practices are ‘greatly helpful’ in
which was also a relative strength (although as noted, improving their competitive position relative to firms
on the information management rather than the overall. Leadership and planning rate highest, followed
benchmarking side) is rated by most firms as being by customer relations and quality. Information and
only ‘a little’ or ‘moderately helpful’, although almost benchmarking and supplier relations are not considered
15% of firms ‘did not know’ how this area of activity by Leaders to be as helpful as other practices in
contributed to their competitiveness. Innovation was improving competitiveness, although almost no Leaders
also considered less helpful by many firms, which considered any of the practices were ‘not at all helpful’.
supports our earlier proposition that most firms tend
towards incremental rather than significant innovation. Quite high proportions of Laggers, on the other hand,
This also suggests that the innovation outcomes might consider that a number of the practices were ‘not at all
be overstated. Employee relations rated more highly as

121
 helpful’ in improving their competitive position over
the three years prior to the survey. In particular,
around 20% of Laggers indicated innovation and
technology and supplier relations were not helpful, and
over a third of lagging firms indicated information and
benchmarking were not helpful. Laggers considered
that customer relations and quality were most helpful
in improving their competitiveness. Relatively high
numbers of Laggers ‘did not know’ how the various
practices contributed to their competitive position.

■ Conclusionson
Operational Outcomes
The BPPS confirms an association between the
attainment of better operational outcomes and taking a
holistic approach to business improvement. There is
also a relationship between a more intensive focus on
particular aspects of business practices, and their more
closely related operational outcomes.

The relatively poor uptake of benchmarking practices

by New Zealand firms, in particular by lagging firms, is
reinforced by the significant number of firms reporting
that they did not know how their business compared to
competitors, even on relatively simple measures such as
quality and service outcomes.

Outcomes related to innovation (for example, the

creation of a new or improved product or process) is
the area that most distinguishes Leaders from Laggers,
and many firms did not consider that innovation had
been greatly helpful in improving their competitive
position. Few firms appear to get any real advantage
from cost-related outcomes, with most suggesting they
are on a par with competitors. Most businesses consider
that advantages lie in their quality and flexibility and,
indeed, the reported outcomes on quality and service
and flexibility are generally quite positive.

122
12 - BUSINESS RESULTS
In reality, important indicators of success and growth Q 13.1 How would you say this business compares to its major
competitors on productivity?
for firms are financial performance and business 100
results. However, unlike operational outcomes, business 10

results are much more susceptible to external 80 37

influences and changes to a firm’s operating

environment. These influences include competition in 60
15
61
the industry a firm operates in, the price of supplies %
and inputs, and market demands for products and 40
services. 45
20
28
Evidence suggests that there is an association between
0 4
internal firm practices, operational outcomes and 0
Leaders Laggers
business results (as described in chapter 2 –A Model of
Business Practices and Performance). This link is
lower on par higher don’t know
confirmed in both the Leading the Way (1994) and
Gearing Up (1999) studies, although these studies were
Q 13.1 How would you say this business compares to its major
limited to the manufacturing sector. Findings from this competitors on return on investment?
study also support this link. In general, it appears that 100
17
leading firms are more likely to:
80
• compare favourably with their competitors in terms 50

of profitability, return on investment and 60

38

productivity %
14
• have increased their market share and profitability 40
over time 39
28
20
• have had a positive net cash flow and increased their
total sales of goods and services 0
6 8

Leaders Laggers
• report a higher ratio of income:expenditure.
lower on par higher don’t know
Financial performance and business results data is not
used in the calculation of Leader and Lagger status
Q 13.1 How would you say this business compares to its major
(unlike operational outcomes). Because this competitors on profitability?
categorisation is independent, we are able to draw 100
11
some clear comparisons between practices/outcomes
33
and the effect these have on a firm’s business results. 80
However, given the various external influences on firm
48
performance, the findings discussed below should be 60 12

%
interpreted as indicating that good business practices
and operational outcomes are associated with good 40
39
business results, rather than demonstrating clear cause 37
and effect. 20
16
3
0
Leaders Laggers
■ Comparisons with Competitors
lower on par higher don’t know
61% of leading firms claimed that they have a ‘higher’
level of productivity than their competitors, with 89%
reporting that their level of productivity was at least
‘on par’ with their competitors. Less than 1% of Leaders
reported that their productivity levels are lower than
those of their competitors.

By contrast, 60% of lagging firms reported having

productivity levels that were at least ‘on par’ with their
competitors. 37% of lagging firms did not know how
their productivity compared.

123
 Leading firms also considered that the return they Q 13.3 Over the LAST THREE YEARS has this
business’s profitability...?
receive on investment is generally higher than their 100 2 6
competitors. 77% of Leaders felt that their return on
investment is at least ‘on par’ if not ‘higher’ than their 80
38
competitors. Half of all lagging firms did not know,
though only 8% felt that it is ‘lower’ than competitors 60 73

(compared with 6% of leading firms). %

31
40
Good business practices and operational outcomes also
appear to be associated with higher profits for leading 20 11
25
firms. Only 3% of Leaders reported their profits to be 14
0
‘lower’ than that of their main competitors, compared Leaders Laggers
with 16% of Laggers. 48% of Leaders believed their
profits were ‘higher’ than competitors compared with don’t know
decreased stayed the same increased
only 12% of lagging firms.

Once again, these comparative results need to be Q 13.3 Over the LAST THREE YEARS has this
business’s total sales of goods and services...?
viewed with some caution, given that only about half 100 1 8
of all firms benchmark to any degree.
80
52
Q 13.2 Over the LAST THREE YEARS has this
business’s market share...? 60 84

100 2 14 %
40
80 21

45 20
60 7
19
8
% 85
0
Leaders Laggers
40

32
20 decreased stayed the same increased don’t know
7
6 9
0 prior to the survey. Less than half (45%) of lagging
Leaders Laggers
firms reported improvements in their net cash flow.
decreased stayed the same increased don’t know
Respondents were also asked to provide estimates of
operating income and operating expenditure over the
■ Reported Results 12 months prior to the survey. A large number of
respondents had trouble filling out these questions, and
Over four-fifths (85%) of leading firms reported that undoubtedly those that did answer the question would
their market share had improved in the three years have provided quite rough estimates. However, as the
prior to the survey compared with under half of only question in the BPPS that asked for concrete
lagging firms (45%). 23% of Laggers reported a figures, it is useful to consider whether the results for
decrease in market share, or that they ‘did not know’, this question are consistent with the trends on the other
compared to only 8% of Leaders. business results questions. A comparison of Leaders
versus Laggers on their estimated income:expenditure
Similarly, Leaders were almost twice as likely as ratios is shown in the related graph.
Laggers to report an increase in profitability over the
last three years (73% compared to 38%). The results indicate that a higher proportion of Leaders
than Laggers (12% compared to 4%) do report
Across all firms, sales of goods and services generally relatively high income:expenditure ratios (>2) and a
increased in the three years prior to the survey. This lower proportion of Leaders than Laggers (9%
trend is particularly apparent in leading firms, with compared to 16%) report low income:expenditure ratios
84% reporting that their sales increased compared to (<1). As indicated, these results have to be treated with
52% of Laggers. Almost three-quarters of leading firms caution due to the low response rate (ratios could be
also reported net cash flow increasing in the 12 months calculated for only around 20% of Leaders and

124
 Q 13.4 Over the LAST THREE YEARS has this
business’s net cashflow been...? Income: Expenditure Ratio
100 1
100 4
8 12
12
8
80 80
14
18
45
60 73 60
% %
54 54
40 40
25

20 15
20
22
16
11 9
0 0
Leaders Laggers Leaders Laggers

negative neutral positive don’t know <1 <1.25 <1.5 <2 >2

Laggers). Future work will attempt to relate the BPPS Overall, firms with better business practices and
data to more robust business results figures obtainable operational outcomes are more likely to report:
from Statistics New Zealand’s Annual Enterprise
• a higher and increasing market share
Survey.
• increased levels of productivity, net cash flow and
Although the data is somewhat limited in the amount profitability
of detail available for the financial results, there is a • a higher return on investment than lagging firms.
clear trend for leading firms (those that apply a wider
range of business practices and achieve better
operational outcomes) to perform better in financial
terms.

125
126
13 – COMPETITIVE STRATEGY
Strategy, as was outlined in chapter 2, is fundamentally ■ Competitive Priorities
about how a business aims to achieve and maintain
competitive advantage. The first element of strategy the Firms were asked how important the five broad areas of
BPPS considered was the set of competitive priorities or competitive strategy were for their business – cost/
the dimensions on which a firm chooses to compete or price, quality, flexibility, delivery and innovation.
excel – cost/price, quality, flexibility, delivery and
innovation. These competitive priorities are closely Overall, and consistent with the relative strengths on
related to Porter’s (1980) concept of generic strategies, customer and quality practices and related outcomes, the
with cost corresponding to cost leadership and the vast majority of firms indicated that pricing of goods and
others corresponding to differentiation. services (82%), quality of goods and services (92%) and
delivery to customers (85%) were very important for their
A firm’s choice of competitive priorities can depend on business. The strategies or competitive priorities of
its strengths, the environment, structure, and flexibility (66%) and innovation (59%) were far less
technologies. emphasised. Again, this appears to be consistent with the
relative lack of emphasis on employee and innovation
Early research in strategy posited that a firm could only practices across firms.
emphasise one or very few competitive priorities
simultaneously. This ‘trade-off’ concept was based on Thus, at a very broad level, there appears to be a
the idea that the skills, equipment and processes needed reasonable degree of internal consistency across New
to excel at one competitive priority might be Zealand firms between the strategies pursued, the
inconsistent with those needed to excel on another practices adopted, and outcomes; i.e. a reasonable
priority (see, for example: Skinner, 1974; Wheelwright, degree of ‘competence’ (see chapter 2 – A Model of
1984; New, 1992; Garvin, 1993). Business Practices and Performance). This is backed up
by some comparisons between scores on certain indices
But further research recognised that changes in and the relative focus on competitive priorities. For
technology, management processes, and competition example, a much higher proportion of those firms that
have to a large extent eliminated the idea that trade- scored highly on the customer focus index rate delivery
offs are necessary. It is possible to achieve great to customers as ‘very important’ than those that scored
flexibility, high quality and low cost simultaneously. relatively low on the customer focus index; e.g. 96% of
This has been illustrated since the late 1980s by the firms that scored over 80 on this index indicated that
cumulative model of competitive priorities, which delivery was ‘very important’, compared to 66% of
suggests that there is a sequence in which competitive firms that scored less than 20 on this index. Similarly
priorities should be pursued and distinctive capabilities 89% of businesses that scored over 80 on the
developed (see for example: Nakane, 1986; Hall, 1987; innovation and technology index indicated that
Ferdows and De Meyer, 1990; Baden-Fuller and innovation-based strategies are ‘very important’,
Stopford, 1994; Noble, 1995; Kasul and Motwani, compared to 46% of those that scored less than 20 on
1995). However, more recent research, including in this index.
New Zealand, has indicated that top performers pursue
a number of priorities simultaneously and that there is However, more sophisticated strategies are needed for
no particular sequence in which capabilities are, or firms to be internationally competitive (whether
should be, developed (Roth and Miller, 1992; Campbell- competing in New Zealand or overseas) and it would be
Hunt et al, 2001). Competitive scope refers to the desirable to see greater numbers of New Zealand
breadth of a firm’s strategy or the number of
Q 1.1 The following types of strategy are ‘very important’
competitive priorities a firm chooses to compete on for this business:
(Stock et al, 1998). 100 94 92
97
91
83 85
82 81
79
The second element of strategy the BPPS assessed was 80
geographic scope or the markets covered by the firm’s 65 66
59 59
strategy. This is examined by considering the 60
%
49
differences between exporting and non-exporting
firms. 40
28

20

0
pricing quality flexibility delivery innovation

Leaders All Laggers

127
 businesses incorporating innovation into their Q 1.1 The following types of strategy are ‘very important’
for this business:
strategies. 100 96
91 91
87
84
Leaders tend to have a broader competitive scope and 80 77 74
pay attention to a more balanced portfolio of strategies, 70
66
with 79% and 81% respectively indicating that flexibility 60 57

and innovation were ‘very important’ strategies for their %

business. This is also consistent with an approach based 40
on focusing on several priorities simultaneously. Laggers,
on the other hand, focus primarily on one strategy ahead 20
of the others, with 83% relying heavily on quality
compared to pricing (65%), delivery (59%), flexibility 0
pricing quality flexibility delivery innovation
(49%) and innovation (28%, although 36% said this was
‘moderately important’).
Overseas New Zealand
The firm visits confirmed these survey results. The
majority of the businesses, when asked to describe their it was vital that they had a deep understanding of their
key strategies, referred to quality and customer-related core business first.
strategies, such as: delivering a quality product, at
minimum cost, and in a timely fashion; customer-centred Interestingly, there is very little difference in the range
growth; being a consistent and reliable supplier of high and emphasis of strategies pursued by firms of different
quality products and services; increasing flexibility to sizes. As shall be described in more detail later in this
change in response to customers’ needs; being the total chapter when we consider market scope, exporters tend
customer interface; and providing a complete package to to pursue innovation strategies to a greater extent than
customers but tailored to their needs. Many businesses non-exporters. Overseas-owned businesses also tend to
talked in generalities, however, without having a very pursue innovation strategies more than New Zealand
specific long-term strategic direction in mind. Leading owned businesses.
businesses did tend to recite their strategies more
specifically and relate these to bases of competitive
advantage such as reputation, differentiation, specific ■ Market Scope – Exporting
areas of expertise, building unique relationships with
suppliers, and strategic alliances with related businesses. It is now a clichè that: ‘in New Zealand’s small and
open economy, exporters make a vital contribution to
Consistent with their definitions of business excellence economic growth.’ They do this by expanding the scope
(see Business Improvement Revealed on page 30), some of markets available to local producers and by
leading businesses visited explicitly stated the need to, discovering the areas of specialisation that can make
as part of their strategies, build the capability of best use of the nation’s resources.
employees to support their customer and quality based
direction. This included staff involvement in planning, Because exporting firms are the most clearly engaged
extensive communication, providing a healthy and safe with international standards of competition, we may
environment, investing a great deal in training, and expect a higher proportion of them to be achieving
providing exceptional customer service and support to world-class standards of business excellence
all staff to achieve this. (particularly those with a significant proportion of their
sales offshore) than those focused domestically. The
For older businesses, brand and image were regarded as data collected in this study offers a valuable
key competitive advantages and part of the strategy opportunity for us to test this assumption.
was to maintain quality and excellence to support and
leverage off these through marketing. Recent assessments of exporting activity in New
Zealand (Campbell-Hunt and Corbett, 1996; Campbell-
Leading firms, in general, also reported that they had a Hunt and Corbett, 1998) have identified a rapid
strategy for, or focus on, growth. In most cases this increase in the number of exporters following
growth was described in sales terms and often reflected deregulation of the economy in the mid-1980s.
a desire to enter new (often niche) markets or develop
new products or services. Importantly, it was However, New Zealand has a relatively low proportion
acknowledged that a long-term approach was necessary of its economy committed to exporting and New
and that the growth process needed to be carefully Zealand’s export value profile is frequently described as
controlled. Despite a desire to grow, firms reported that somewhat like a wineglass (see figure 20); very broad
at the point where most exporters enter (realising

128
Figure 20: Proportion of New Zealand firms exporting: 1995-2001
1995 1996 1997 1998 1999 2000 2001
Total exporting firms 10,207 9,696 9,555 11,094 8,953 8,980 9,306
Total number of firms 192,871 199,757 210,220 223,535 222,062 242,845 234,232
Number of manufacturing firms 19,470 19,637 19,753 20,407 19,893 21,076 20,565
Percentage of total firms exporting 5.29% 4.85% 4.55% 4.96% 4.03% 3.70% 3.97%
Percentage of manufacturing firms exporting 52.42% 49.38% 48.37% 54.36% 45.01% 42.61% 45.25%
Firms exporting over $25m 103 12 109 120 120 136 151
Percentage of firms exporting over $25m 0.05% 0.05% 0.05% 0.05% 0.05% 0.06% 0.06%
Percentage of manufacturing firms exporting
over $25m 0.53% 0.52% 0.55% 0.59% 0.60% 0.65% 0.73%
Firms exporting over $75m 40 36 32 33 35 47 51
Percentage of firms exporting over $75m 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%
Percentage of manufacturig firms exporting
over $75m 0.21% 0.18% 0.16% 0.16% 0.18% 0.22% 0.25%
Source: TradeNZ and Statistics New Zealand

relatively low values) and progressing to a narrow New Zealand’s Export Intensity Profile
‘stem’ of very few large exporters contributing the
largest values (Trade New Zealand, 2002). Contemporary theories of internationalisation are based
on the proposition that building an offshore market
It is the case that relatively little is known about the involves the firm in a learning process. Markets that
internationalisation strategies of the smaller-scale are culturally or ‘psychically’ similar to the home
businesses that typify the New Zealand economy. market will be developed first and the firm will
Academic interest in SME internationalisation is a successively add to these as its familiarity with other
relatively recent phenomenon (Kaufmann, 1995; markets grows (Johanson and Vahlne, 1977). In this
Holmlund and Kock, 1998; O’Farrell, Wood and Zheng, ‘stages’ or ‘stepping stone’ model, a firm’s offshore
1998; Coviello and McAuley, 1999; Autio, Sapienza growth will be relatively smooth, but limited by its
and Almeida, 2000; Zahra, Ireland and Hitt, 2000; capacity to learn.
Beamish and Lu, 2001). The growing frequency of SME
internationalisation has been argued to stem from If New Zealand exporters behave as general
recent changes in technological, economic, and social internationalisation theory predicts, we would expect a
conditions. skewed profile of export intensity among exporters –
most would be at the early stages of building
The BPPS database offers two ways of assessing the ‘proximate’ markets and we would expect to see
distinctive attributes of New Zealand’s exporting firms: decreasing numbers of firms achieve successively
higher levels of export intensity.
• Export intensity – the proportion of total sales
exported. This measure allows us to investigate An alternative model of firm internationalisation, based
differences in practice between non-exporting firms on the experience of New Zealand’s leading exporters,
and those that are more or less established in their has recently been developed (Chetty and Campbell-
offshore business – previous assessments (e.g. Hunt, 2002, forthcoming). This takes into account the
Corbett, 1994; Frater et al 1995) have not been very small size of the typical New Zealand exporter and
designed to estimate export intensity for such a wide the key role played by innovation in opening up
population of New Zealand firms; and international markets to these firms. Where these firms
• Strategic focus – whether or not a firm has focused had achieved a global reach (i.e. were active in 50-60
on new export markets. By asking firms to report the countries and exporting 90% or more of sales), it was
extent to which their business had focused on new always due to a proprietary innovation. Firms that had
export markets over the last three years, we can not produced an innovation of this global nature had
examine the strategies that are most important to focused their offshore activity primarily on Australia
firms seeking to break into new offshore markets. and the domestic market remained important to the
firm’s overall sales.

129
 Instead of a skewed distribution, the model predicts a This representation of the growing international reach
binary distribution pattern. One group of firms will be of New Zealand’s firms suggests a more optimistic
active within a relatively small number of countries assessment of our economic growth potential. Instead
and with lower export intensity; another group will be of waiting the years and decades predicted by the
active on a global scale and with very high export stepping-stones model for exporters to achieve high
intensities. levels of internationalisation, it appears that many
firms have been able to leapfrog the step approach and
The graph of results for question 13.6 shows the profile achieve high levels of export intensity.
of export intensity for respondents to the BPPS
(weighted estimates). One-quarter of all firms (24%) It also suggests, given that the ‘wineglass’ shows there
with six or more FTEs are exporting to some degree. are very few exporters achieving high export values,
5% of all firms are exporting more than 75% of their that there are a large number of small but very globally
turnover – equating to 22% of all exporters. oriented firms.

Q 13.6 Over the LAST 12 MONTHS what was the proportion

of this business’s sales that were exports?
4000 ■ BusinessPractices in
3500 3393
Exporting Firms
3000
No. of firms

As expected, firms who export generally tend to score

2500
more highly across the business practices indices than
2000 their non-exporting counterparts.
1475
1500
1000 933 However, when we distinguish exporters by their
500
521 483 export intensity, some more distinct patterns become
evident.
0
up to 10% up to 30% up to 50% up to 75% more than 75%
With the exception of customer focus, all aspects of
business practice become more prevalent as export
intensity rises. That customer focus does not follow the
As shown by this profile, the skew predicted by the same pattern suggests that the domestic New Zealand
stages model of internationalisation model is evident, market is as competitive and discriminating for those
but the decline in the frequency of high intensity firms devoted to it as offshore markets are for
exporters is interrupted by a marked increase in the exporters. Employee practices also differ little with the
number of firms reaching the highest levels of export degree of export intensity. Other aspects of good
activity, as the binary model of internationalisation business practice appear to grow in importance as firms
predicts. In absolute numbers, some 1500 New Zealand become more active offshore, especially the practices of
firms could be estimated to have reached these very innovation, quality, and leadership and planning.
high levels of internationalisation.

Mean Index Scores

80

62 61
59 59
60 58 58
56 57 57 56 56
55
52 53 53 52 52
51 50 51
49 49
% 45
43

40

20

0
leadership and employee customer quality and innovation and information and strategising/ operational
planning practices focus supplier focus technology benchmarking practices outcomes

Exporters All Non-exporters

130
For those exporters focusing on entry to new export the average firm (61% and 49% respectively). They are,
markets ‘a great deal’, the same associations emerge, however, much more likely than other firms to have
except that, for this group, an attention to customers based these products and processes on in-house or
becomes more important than it is for all other firms, external R&D. The technology content of high-intensity
whether exporting or not. exporters is thus distinctively high.

We should also note that a much higher proportion of Q 9.1 In the LAST THREE YEARS did this business offer new
or significantly improved products
large firms export. Because we have identified (goods or services) to your customers?
statistically significant relationships between firm size 100
and most elements within the Business Practices Model
77
(larger firms tend to have higher scores – see chapter 80
69
14 on Business Practices and Structural Issues), it is 61
important that we control for the effect that firm size 60
%
may have on the significance of differences between 39
40
exporting and non-exporting firms. Using a multiple 31

regression technique to control for firm size, we found 23

20
that exporters’ scores are significantly better than non-
exporters across most indices. The exceptions are in
0
terms of customer focus (where we report no yes no
statistically significant difference) and employee
practices, where firm size is a significant contributor. High intensity All New export focus

Exporting and Innovation

Firms that are already established businesses with very
high export-intensity (i.e. exports making up 75% or
more of turnover) are only slightly more likely to have
introduced new products (69%) or processes (57%) than

■ Exporting and Business Competitiveness

Many empirical studies have found that exporting companies are more more likely to export. He groups the fixed costs of entering foreign
efficient and perform better than domestically oriented companies. The markets as:
benefits attributed to exporting are varied – faster growth, improved
• Cultural differences – necessitating market research and resultant
productivity, increased innovation, improved knowledge flows etc. But
alterations to products and marketing strategies.
while the evidence for this is clear, no studies have determined
conclusively whether exporting leads to better performance or whether • Regulatory costs – each new market has new tariff levels, non-tariff
more capable businesses tend to export, or both (Clerides et al, 1997; barriers, product registration, differences in safety standards as well
Bernard and Jensen, 1999). as new tax systems.

Bernard and Jensen (1999) note that, from a policy perspective, this is • Setting up distribution, marketing and product support – this involves
an interesting question, particularly for informing policies that seek to an investment in arranging transportation networks, warehousing
promote growth through exporting. If good firms become exporters but and retail, as well as establishing and maintaining a brand.
there are no subsequent significant benefits, then a policy that tries to
accelerate economic growth by assisting current exporters will target Perhaps the most frequently heard explanation of the relationship
some of the wrong firms, as it would be the firms yet to become exporters between exporting and firm success is that exporting itself is good for
who would generate the most value from the assistance. But if firms the firm. The basis of this view is that, because competition is fiercer in
increase innovative and productive activity in order to be able to export, international markets than domestic ones, firms must improve their
then assisting current exporters may stimulate such activity in current performance to remain exporters. Potential explanations might include
non-exporters and successfully increase economic growth. issues of technological or knowledge spillovers and learning.

The reasoning behind the statement that good firms tend to become Campbell-Hunt and Chetty (2001) consider the organisational changes
exporters is that there are additional costs of selling goods in foreign required in managing a transition to exporting. They emphasise that,
markets (i.e. transport costs, distribution channel costs, production costs). even once an export order is obtained, the key issue a firm often faces is
These costs represent an entry barrier that less successful firms find a rapid (and proportionately large) capacity increase to cope with the size
difficult to overcome. of the order. This size increase puts pressure simultaneously on many of
the company’s key areas of competitiveness. Human resources is a key
Simmons (2002) cites a range of research that shows that data on area as there is a need to rapidly hire and train a large number of people
exporting firms is consistent with the existence of fixed costs to entering while maintaining the company culture. Firm leadership can also be placed
exporting i.e. when firms do enter and leave exporting, it tends to be under strain – managing a rapid growth spurt challenges the skills of the
for sustained periods and that larger firms, with greater capital, are typical small business owner. In addition, production needs to be scaled
up and this, in turn, can drain the firm’s working capital.

131
 Q 9.3 In the LAST THREE YEARS did this business introduce Few high-intensity exporters report that they do (or can
new or significantly improved production processes including
new ways to supply services or deliver products? do) much to protect these innovations. For example, a
100 mere 8% make use of patents to protect their
intellectual property. The low levels of protection
80 reported suggest that not much can be done by these
73

means to ‘lock-in’ advantages, even though protection

60 57

49 51 is often much more important to these firms than it is

%
43 to others. Several explanations for this phenomenon
40
can be suggested:
27

20 • innovation requires further innovation to establish a

learning cycle that will gradually overcome
0 competitors’ ability to respond (Arthur, 1996)
yes no
• innovation is inherently a short-lived basis for
High intensity All New export focus
advantage that does not typically repay expensive
protection (Kay, 1995)
For firms focusing on new export markets, the • the very high cost of protecting intellectual property
importance of innovation is even more pronounced. across the full global scope of a business is
About three-quarters of these firms have introduced prohibitive for small New Zealand firms
new products (77%) or processes (73%) in the past three
• firms have found other ways to ‘lock-in’ an
years, and these rates of innovation are appreciably
advantage that was originally based on innovation
higher than for other firms.
with a diverse portfolio of sources of competitive
High As % of New As % of
advantage that protect the original gain (Campbell-
Intensity all firms export all firms Hunt et al, 2001).
(>75%) focus

Investment in New export marketers are more likely to try to protect

innovation: their innovations than established high-intensity
exporters, and are twice as likely to do so than the
in-house R&D 43% 156% 51% 183% average firm. 10% of new export marketers whose
external R&D 26% 197% 25% 193% innovations are design-based also register the design,
but the difficulty in using patents is as apparent with
machinery 53% 105% 57% 114%
these firms as it is with established high-intensity
licenses 9% 94% 15% 152% exporters. Although half of these firms support their
innovations with in-house R&D, just 12% take out
industrial design 5% 124% 10% 277%
patents to protect innovations. For both new and
marketing 24% 92% 42% 160% established exporters, the protection of intellectual
property appears to be much less prevalent than its
employee training 34% 74% 46% 100%
creation.
Q 9.13 In the LAST THREE YEARS did this business or its parent company use any of the following methods to protect
inventions developed by this business?
60
56

47

40

%
27
26

21
20 19
16
15
13
12
11
10
8
6
5
4

0
copyright registration secrecy supply reaching the complexity patents none of these
or trade mark of design agreement market first

High intensity New export focus

132
 Q 9.5 In the LAST THREE YEARS which of the following, if any, made it difficult for this business
to develop new or improved products, services or processes?
60

40
34
32
% 31

26
25
22
20
20 19
17
15 15

9
8
6

0
access to market too economic competition in outside core lack of government regulation
capital small or unknown climate same market business activity skilled staff or policy

High intensity New export focus

In most instances, high-intensity exporters appear to Exporting and Quality and Supplier Focus
experience fewer barriers to innovation than the
average firm. Having already achieved high levels of There are several quality and supplier practices that are
internationalisation, access to capital appears to be a distinctive of both high-intensity exporters and new
problem for no more than a fifth of these firms and the export marketers.
same is true for accessing skilled labour. It is perhaps
an indication of the offshore success of these firms that There is a small association between the closeness of
they feel much less constrained by competitive forces relationships developed with suppliers and the export
and market potential than do other New Zealand firms. intensity of firms. This is also true of firms’ focus on
Where high intensity exporters appear to experience new export markets. Additionally, both types of
more barriers to innovation than other firms is in the exporter are distinctive in that they install systems for
effect of government regulation. As highly globalised measuring the quality of inputs sourced from suppliers.
firms, these firms are exposed to regulation from many 31% of both types of exporters have quality systems in
different governments, and we cannot glean from the place for ‘most’ of their suppliers – a rate 50% higher
survey whether the problem is more offshore than at than that of the average firm.
home.
Exporters are also more likely to incorporate the
New export marketers typically reported barriers to requirements of suppliers when formulating their
innovation more frequently than established exporters planning goals. About one-quarter (26%) of high-
and, in several cases, more frequently than the average intensity exporters do this, as do 30% of new export
New Zealand firm. Access to capital is a problem for a marketers. Other aspects of planning are more weakly
third of these exporters (32%) as is the economic associated with exporting. In several ways then, a close
climate (34%). association with suppliers is one business practice that
becomes more prevalent as firms become more active
New export marketers are much more likely than other in exporting.
firms to support their innovations with every kind of
investment. They are twice as likely to spend on R&D – High intensity and new export marketers also rank
both internal and external – and three times as likely to highly in the installation of quality certification
invest in the design of these innovations (although this systems such as ISO 9000. One-third of high-intensity
last is only an area of investment for 10% of these exporters have done this, a rate more than 25% higher
firms). With the exception of external R&D investment, than the average firm. New export marketers are 50%
established exporters are less likely to spend on all of more likely than average to be quality-certified.
these sources of innovation than are new export
marketers. It appears then, that innovation plays a key The prevalence of quality practices among exporters is
role in breaking into new export markets, but that a more widespread than for the average New Zealand
firm’s resources are focused in other directions once firm. These quality practices are, however, emphasised
high levels of export intensity are reached. in only one-third of exporters’ strategies. As we saw in

133
 Q 4.1 Does this business have systems for measuring the Q 6.2 Does this business have, or is it planning to implement
quality of inputs sent by: systems to gain, quality management systems certification
40 (e.g. ISO 9000)?
80
74

31 31 67
61
60
23
%
20 19 20 %
20 39
40
33

26

20

0
most suppliers all suppliers 0
yes no

High intensity All New export focus

High intensity All New export focus

the previous section, innovation is used by twice as Overall, it appears that exporters have adopted a
many exporters, and thus differentiates exporters from longer-term approach to business planning compared
the average firm much more powerfully. The relative with their non-exporting counterparts. This is quite
importance of these and other competitive strategies to possibly due to a greater need for co-ordination across
exporting firms is explored in a following section (see activities when operating in diverse and geographically
page 135). dispersed markets, with a potentially wider range of
products.
Exporting and Leadership
A long-term approach also appears to coincide with a
Being more active in a wider range of markets wider appreciation of environmental management. Over
necessitates a high degree of co-ordination across the three years prior to the survey, 61% of exporters
business practices to ensure products and services are had put measures in place to reduce the environmental
delivered to the right place, at the right time and in the impact of their operations compared to only 42% of
right condition. As a consequence, exporting firms non-exporters. 15% of exporters compared to 7% of
perform better on this index than their non-exporting non-exporters also had, or were planning to gain,
counterparts. The average exporter score of 58% is environmental certification. Taken with the higher
considerably higher than the 51% for non-exporters incidence of quality certification, this suggests that
and the overall average of 52%. exporters are more often required to meet particular
standards before being granted entry to offshore
The higher reliance on planning processes is apparent markets.
when we look at the extent to which firms have formal
planning mechanisms. Despite a reasonably similar
Exporting and IT
amount of short-term formal planning (up to one year)
for both exporters and non-exporters, longer-term The need to be able to communicate quickly and
planning of more than a year is far more evident in effectively with overseas customers, suppliers and
exporters (31%) than in non-exporters (14%). Exporters distributors is reflected in the higher proportions of
are also more likely to see planning as a necessary exporters’ employees using a PC, email and the
business tool, with only one in five claiming formal Internet. Not surprisingly, the existence of a business
planning is ‘not applicable’ compared to one in three website – an important tool for quickly and effectively
non-exporters. communicating marketing information – is also much
more common in exporting firms (52%) than in non-
Exporters are also more likely to incorporate the exporters (31%).
requirements of their suppliers when formulating their
planning goals and, to a lesser degree, their customers. In fact, the use of IT is consistently higher and more
broadly applied in exporting firms than it is in non-
The use of a vision statement also appears to be more exporting firms. This is particularly so in the case of
important for creating a longer-term focus for production, where over double the proportion of
exporters than for non-exporters; 55% of exporters exporters than non-exporters (60% compared to 25%)
make use of a vision statement for guiding their apply information technology. This tends to suggest
longer-term approach to business, compared with 46% that information technologies are necessary in helping
of non-exporters. to achieve the consistency in products and the scale of

134
production required for catering to a wider set of doing no exporting at all to 72% for high-intensity
markets. exporters.

Exporters and Competitive Strategy The key role hypothesised for innovation in the
internationalisation strategies of New Zealand firms is,
The following graphs show the importance of various however, better evaluated in the context of new export
competitive strategies to firms by export intensity and marketers. The hypothesis is not that innovation will
by the degree of focus on new export markets. characterise established exporters, but that innovation
will be important to opening up global markets in the
For established high-intensity exporters, the first instance. 79% of new exporters claim that a
competitive strategies most frequently cited as being strategy of innovation is ‘very important’ for improving
important are (in order): quality, delivery and price. their competitive position (this compares to 59% of
However, this order and frequency of importance is firms overall).
exactly the same as it is for firms doing no exporting at
all. Flexibility, too, is no more important to high- It appears that flexibility, too, is more likely to be
intensity exporters than it is to non-exporters. These perceived as important to a firm as its focus on new
competitive differentiators appear to be as vital in export markets increases – although the increase is
domestic competition as they are offshore. much less marked. Relative to firms with no interest in
new market entry, new export marketers are only 15%
The competitive strategy that does clearly distinguish more likely to cite flexibility as important to their
high-intensity exporters from other firms is innovation. strategy, but 43% more likely to cite innovation.
The frequency of innovation as an important
competitive differentiator increases from 57% for firms
Q 1.1 This type of strategy is ‘very important’ Q 1.1 How important are the following types of strategy
for this business for this business?
100 100

80 80

60 60
% %
40 40

20 20

0 0
zero up to 10% up to 30% up to 50% up to 75% more than not at all a little a moderate a great deal
75% amount

Export intensity New export focus

price flexibility innovation price flexibility innovation
quality delivery quality delivery

135
 ■ New Zealand Pharmaceuticals Ltd – Exporting Innovation
New Zealand Pharmaceuticals (NZP) was formed in 1971 to extract and The firm interacts with the scientific and business community in which
purify biochemicals from by-products of the New Zealand meat it operates by belonging to committees at all levels. The firm has
processing industry. The company’s first products were pharmaceutical sponsored and donated its time to New Zealand Business Week, as well
intermediates extracted from bile acids. Over the next 15 years, NZP as a range of other initiatives.
became one of the major manufacturers and suppliers of these products
to the worldwide market. In the 1980s, the product range broadened to Customer Focus
include a variety of other biochemicals from the meat industry. In recent
years, development has focused on biochemicals and extracts from plant NZP strives to exceed customer service requirements, which has resulted
materials. in many customer relationships exceeding 20 years. NZP has
approximately 40 main customers.
NZP was initially owned by a consortium of meat companies and Tasman
Vaccine Laboratories (TVL). In 1976, ICI NZ Ltd (now Orica) bought TVL The firm has built strong links with the directors of its main customer
including its 40% stake in NZP. In 1994, the meat industry sold its in Japan through face-to-face interaction. This has included visiting
shareholding to ICI, who then owned 100% of the company until a the company on a regular basis and entertaining the directors in New
management-led buy-out was concluded in January 1998. Zealand.

The company, which is ranked in the New Zealand top 200 list of Quality and Supplier Focus
companies, has a strong export focus, with over 95% of its products
NZP is certified to manufacture active pharmaceutical ingredients
being exported to more than 20 countries around the world. In addition
according to GMP, which is equivalent to the European Pharmaceutical
to supplying the global pharmaceutical industry with pure biochemicals,
Inspection Code (PIC). GMP ensures that NZP’s products conform to
NZP also manufactures a variety of different biochemicals and natural
customer specifications and comply with international regulatory
extracts for the international health food, cosmetic, biotechnology and
requirements. However, the firm has set personal standards that exceed
aquaculture industries.
the expectations of GMP, which stems from a desire to exceed customer
specifications.
NZP has grown from a full-time staff of one to 75. This number includes
a research and development (R&D) team of approximately 10 scientists.
The firm’s performance over the last three years has been excellent in Employee Practices
terms of profitability and employee performance. Resulting from this NZP places a lot of emphasis on the working environment and building
performance, company employees have won several awards, some of a team spirit among all employees. The company culture is supported
them national, over the past 12 months. through frequent social activities involving all employees. These social
activities included a trip to the Gold Coast for all staff for the firm’s 30th
The focus of the current strategy is to move away from traditional birthday.
product lines (meat-based extraction and purification) to plant/marine-
based extraction and purification. This is partly due to threats to the
NZP encourages its employees to undertake formal education by paying
meat extraction and purification business such as ‘mad cow’ disease.
for courses if they are relevant to the employee’s work. Cross-training
is also encouraged, so that staff may be versatile in their job. The firm
Business Practices frequently provides small incentives such as movie tickets to staff who
At NZP, business excellence means adhering to excellent Safety Health perform well and large incentives on a less frequent basis. All personnel
and Environment practices, good business practice accounting and are encouraged to buy shares in the company. Every staff member is
administration methods, and the New Zealand Code of Good encouraged to chair meetings.
Manufacturing Practice (GMP) among other initiatives. The firm aims
not just to comply with current practice in these areas but to exceed Every year or second year, senior management have a retreat at which
good practice – the philosophy at NZP is one of ‘continuous they review and set the strategic direction for the company. The results
improvement’. of this retreat are communicated to all staff to obtain staff buy-in and
endorsement.
Leadership and Planning
Driven by the safety vision of ‘No Injuries to Anyone, Ever’, a very safe
The planning process at NZP is driven by the company’s directors, who working environment has been achieved.
have a vision as to how they would like the firm to develop. This planning
supports the budgeting process, which is undertaken in significant detail, Information and Benchmarking
and addresses the allocation and upgrading of resources.
Firm performance is assessed on a regular basis through employee and
Safety, health and environmental issues are fundamental to NZP’s values. business practice surveys.
There is continuous improvement at NZP to improve both safety and
the company’s impact on the environment. Other values important to The company keeps up with new product and process developments
NZP include innovation, customer satisfaction and the personal growth through its R&D section. This section of the firm is responsible for
of employees. searching the Internet and building relationships with Crown Research
Institutes such as HortResearch and Industrial Research Limited (IRL),
A leadership quality regarded as critical for business success is ‘open and universities. Senior managers remain up-to-date with new business
communication’– every employee is able to go to senior management trends through international travel.
with new ideas.

136
14 – BUSINESS PRACTICES
AND STRUCTURAL ISSUES
As touched on in chapter 2, international research Defining the Small Firm
suggests that ‘structural’ issues, such as numbers
employed, the degree of independence the enterprise There is no universally accepted definition of a small
has, and the industrial sector a firm operates within, firm. However, a number of influential reports
will influence the types of business practices adopted conducted when the ‘study of small firms’ was in its
and the outcomes achieved. This chapter examines the infancy have identified certain characteristics that are
relationship between business improvement efforts and common in, and important to, firms that are described
firm size, base of ownership, sector and age of firm. as small.1
• Small firms are typically owner-operated but in
A caveat to note while reading this chapter is that, larger firms shareholding and management are
although there are some associations between business generally separated. The concept of owner/
practices and discrete structural issues, the relationships management forms the core of most small business
are far more complicated than presented in this chapter definitions. This means that the firm is managed in a
because of the inter-relationships between size, personalised way, not through a formal, specialised
ownership type, industry and age of business. For management structure. It also means that it is
example, a greater proportion of large firms are common for one or two people to make all the
predominantly overseas-owned (22%), compared to critical decisions without the aid of internal
small firms (4%). Similarly, a greater proportion of specialists in areas such as marketing, production,
large firms have been operating for more than ten accounting, finance or human resources.
years (80%) compared to small firms (54%). There will
• A small firm is independent and able to make the
be a combination of characteristics associated with size,
principal decisions, in the sense that it is not a
ownership, and age acting on the relationship between
subsidiary of a larger enterprise, and the owner is
practices and performance in any one firm, and the
free of outside control in making decisions. The
strength of these relationships will be the subject of
exception to this rule is firms that operate as
further research by the Ministry of Economic
franchises.
Development.
• A small firm is likely to have a relatively small
market share, serving a local or regional market
■ Size of Firm rather than a national one. The exception here is
firms that take advantage of technology and the
The majority of the business excellence literature that increasing ease in accessing global markets. Even in
developed in the 1980s and early 1990s discussed and this case, the market share is likely to be small
drew from the application of business improvement in relative to the entire market.
larger organisations (e.g. the works of Crosby, Juran,
Deming, Ishikawa, Drucker, Prahalad, Hamel, Peters, It is these characteristics that are important in defining
Kaplan and Norton, Porter). However, in the mid- to certain firms as ‘small’ and different from larger
late-1990s, some debate developed about whether the companies; i.e. they are not just smaller ‘large
concepts and principles of business improvement were businesses’ nor are they necessarily large businesses in-
equally applicable to smaller companies. waiting.

It is generally recognised that size influences However, because collecting data on the characteristics
organisational behaviour. Large organisations tend to described above is so time consuming, most countries
be, for good reason, more bureaucratic and rely on categorise small, medium or large firms in relation to
formalisation of behaviour to achieve coordination. the number of full-time equivalent (FTE) staff they
Small businesses are more likely to be organic and employ. The ‘cut-off’ points are not the same across
have less standardisation and looser and more informal countries, nor do all countries have a single definition
working relationships (Coviello et al, 2000; Ghobadian that is applied consistently. For the purpose of this
and Gallear, 1997). survey, ‘small’ firms are those with 6-19.5 FTEs,
‘medium’ firms are those with 20-49.5 FTEs, and ‘large’
Despite the recognition of the differences between firms are those with more than 50 FTEs. Firms with
small and large firms, there is a dearth of research, fewer than 20 employees will tend to (although
particularly large-scale studies (as opposed to case certainly not always) have the characteristics outlined
management approaches), on business practices in above.
small firm contexts. As a consequence, much of the
general management literature continues to rely on 1
See for example: Bolton J (Chairman) (1971), Small firms: Report of
observations of what occurs within large firms. the Committee of Inquiry on Small Firms, HMSO, London; Wiltshire F
(Chairman) (1971), The committee of inquiry on small business, AGPS,
Canberra.

137
 Small Firms and Business Excellence technology and new thinking in management practice,
and stuck on the treadmill of survival.
The characteristics of small firms (i.e. owner-managed,
few if any specialist managerial staff, small scale of
Practices and Outcomes by Firm Size
operations) mean that there are both advantages and
disadvantages for business improvement efforts. Although the results presented in this chapter
demonstrate that, in a number of areas, small and large
As large organisations typically have several layers of firms performed in similar ways, in many areas of the
management between the managing director/s and survey (e.g. use of IT) there were greater differences
staff, central managers in large businesses can be far (see figure 21). Large firms in this study scored more
removed from operations, service and delivery, and highly on average across all the indices than medium
often lack a good understanding of operational, quality, or small firms.2
supplier and customer issues (Ghobadian and Gallear,
1997). On the other side of the coin, the closeness of It is not possible to directly compare the results from
the workforce in small firms can also cause difficulties. this study with those of its predecessor (Gearing Up),
Smaller firms may be more susceptible to the rapid because the construction of the indices and sample has
dispersion of the hostile views of an individual towards changed. However, a similar pattern of results remains.
business improvement efforts. Restoring the belief and In both surveys, large firms score more highly than (or
commitment required for long-term success may then equal to) firms of a smaller size (i.e. those that are
be difficult (Ghobadian and Gallear, 1997). medium or small) on all of the indices.

Similarly, the limited size of the management team in These results may genuinely reflect current practice,
small firms means that staff can be responsible for a that is, that small firms do not demonstrate
number of different functions with little back-up. They commitment to business improvement in as much
are often busy with managing day-to-day operations depth as large firms. It is also possible that some of the
and have little time left for what appear to be less respondents may have been unsure about the terms
urgent activities, such as business improvement used in the questionnaire.3
activities (Ghobadian and Gallear, 1997). The presence
of greater resources can provide large firms with Small firm respondents were much more likely to
greater opportunities to experiment with different ways answer ‘don’t know’ whenever this was an option. This
of doing things. Employees have the time to access new is surprising, given the nature of small firms, where
ideas and participate in networks where these ideas can one would expect that the activities of all functional
be discussed and developed. areas would be well known to most employees and
certainly to the questionnaire respondent. This trend
Business improvement relies on business-wide suggests that at least some respondents might have
awareness. It is easier for smaller companies to create been saying ‘I am not sure how to answer this or don’t
the kind of atmosphere that shows workers how their understand this, so I am going to tick ‘don’t know’ as
job fits into the overall organisational goals and my response’. Small firm respondents were also less
encourages them to come up with ideas for improving likely to answer ‘all’ or ‘always’.
the business. In large organisations, ‘champions’ have
to be numerous. The likelihood that these will not Most interestingly, the differences between large and
emerge or lose interest is greater in large organisations. small firms on the operational outcomes index are
Only one champion is necessary in small firms and relatively small, which suggests that: i) the reported
employees usually have a very good sense of the practices are not a true reflection of the actual
overall performance of the business and are committed practices; ii) the outcomes for small firms are over-
to trying to improve business because they know it will exaggerated; or iii) there are other factors at play in
directly affect them. In large firms, resistance to change determining operational outcomes from the perspective
is likely to be greater because of the existence of a of the small firm that were not captured by the survey
large number of different interest groups, different and model (and there may be distinct models of
mind-sets and cultures, and the large number of business improvement for small businesses).
employees involved (Ghobadian and Gallear, 1997).

The implications are that small firms can be more

2
flexible, are able to develop and act on dynamic The level of the statistical significance of the differences between
large and small firms is provided in Appendix C.
strategies and have higher potential for innovation 3
The questionnaire was pre-tested by Statistics New Zealand, and a
(Hudson, Smart and Bourne, 2001). The flipside is that number of changes were made in response to respondents’ concerns.
small firms can be isolated from developments in However, pre-testing does not guarantee that all the difficulties with
a survey instrument will have been identified.

138
Figure 21. Distribution of Results for Large Medium and Small Firms
Large firms Maximum Quartile3 Median Quartile1 Minimum Range Mean Mode
Strategising/Practices 91 70 63 55 4 88 62 84
Operational Outcomes 85 68 62 55 30 55 61 57
Leadership & planning 100 79 68 57 0 100 67 87
Employee practices 96 73 60 46 0 96 59 38
Customer focus 100 83 69 52 0 100 65 92
Quality & supplier focus 100 76 61 48 0 100 60 58
Innovation & technology 100 66 50 39 0 100 53 50
Information & benchmarking 100 77 69 61 0 100 68 64
Use of IT 100 78 61 42 0 100 60 86
Business results 100 83 72 56 0 100 68 72
Medium firms Maximum Quartile3 Median Quartile1 Minimum Range Mean Mode
Strategising/Practices 92 66 57 49 4 88 57 54
Operational Outcomes 89 68 61 52 27 62 60 68
Leadership & planning 100 72 60 47 0 100 58 89
Employee practices 100 69 54 38 0 100 53 59
Customer focus 100 77 67 48 0 100 63 92
Quality & supplier focus 100 70 57 43 0 100 57 70
Innovation & technology 94 61 44 33 0 94 47 50
Information & benchmarking 97 73 66 55 0 97 63 70
Use of IT 100 68 47 29 0 100 49 0
Business results 100 78 67 50 6 94 64 72
Small firms Maximum Quartile3 Median Quartile1 Minimum Range Mean Mode
Strategising/Practices 89 60 50 40 4 85 50 53
Operational Outcomes 89 67 59 50 25 64 59 63
Leadership & planning 100 66 53 37 0 100 51 69
Employee practices 100 60 44 28 0 100 44 20
Customer focus 100 75 58 33 0 100 53 67
Quality & supplier focus 100 63 52 38 0 100 52 58
Innovation & technology 100 55 39 33 0 100 43 33
Information & benchmarking 100 70 59 42 0 100 55 70
Use of IT 100 58 36 17 0 100 39 0
Business results 100 77 67 50 0 100 62 72

Mean index scores - By Firm Size On the first point, the survey questions tend to focus on
employee practices
the existence of ‘formal’ systems and ‘systematic’
80 processes – features that might be considered to be less
leadership & planning 60 customer focus likely to exist in small firms, which are more likely to
be characterised by informality and process flexibility.
40
However, the questionnaire and questions are based
20 largely on a quality management practice (Beaumont
outcomes 0
quality & supplier focus and Sohal, 1999) and continuous improvement
approach rather than a formal Total Quality
Management approach; i.e. the questions were framed
around broad and easily implementable practices (do
practices
innovation & technology
you plan for the long-term? how often do you measure
customer satisfaction?) rather than precise techniques.4
information & benchmarking
4
In fact, compared to some overseas small enterprise business
Small Medium Large excellence diagnostics, like Microscope in the United Kingdom, the
BPPS survey questions were less oriented toward formal practices.

139
 Research indicates that these broad approaches are Leaders, Middlers and Laggers – Firm size
100
11 8
supposed to be as relevant to small as large firms. The 14

only index where we consider a strong argument can 80

be made that the questions did discriminate on the side
of large firms is in relation to innovation and 60
technology, and this is discussed further below. % 84 85 83

40
However, the firm visits did provide some evidence that
some small companies did have difficulty in 20
interpreting ‘formal’ and ‘systematic’ on some
2 4 8
questions and what particular terms meant. Although 0
Large Small
Medium
in some cases they did report in the interviews
examples of practices we regarded as systematic, they
themselves did not regard these as systematic. This will Leaders Middlers Laggers

be taken up in the development of subsequent survey

questionnaires. It may also mean that a broader and communication and information across the business,
simpler business excellence ‘language’ is required for customer service (more of a personalised service can be
small firms. provided), and adaptability and flexibility to quickly
take advantage of opportunities. They also indicated
On the second point, as shall be shown, small firms that there are very real capacity and skills issues
perform relatively poorly on information and (particularly a heavy reliance on leaders/managers),
benchmarking practices, so would tend to be less likely and that a more cautious approach tends to be taken to
to accurately know what their operational outcomes are growth in order to ensure control. However, leading
and may be more prone to exaggeration. In addition, small businesses considered that small size did not
the numbers of small firms that answered ‘don’t know’ create any major barriers for business improvement.
to some of the outcome questions is quite high.
Leadership and Planning
On the last point, it is clear that there are some
Because of the key role that the owner/manager plays
structural issues associated with small businesses that
in a small firm, and the fact that there are fewer
mean the relationship between practices and
employees, it is often thought to be easier for small
operational outcomes is not as clear as it can be for
firms to show employees how their jobs connect to the
larger businesses. For example, small firm employees
overall vision of the organisation. Further, they are
are often multi-skilled and able to do more than one
more clearly visible to staff and can lead by example
job as part of their job-description (and recruited from
(Ghobadian and Gallear, 1997). Indeed, some research
this perspective), rather than flexibility being a direct
shows that SMEs appear to be quite good at producing
outcome from job rotation or training.
business plans and giving full consideration to ideas
from stakeholders before decisions are made (McAdam
Overall, we believe that a combination of these three
et al 2000).
factors means that the model and results are not as
robust for small firms as for medium or large firms.
However, another perspective is that in small firms the
However, based on the significance of some of the
leader’s personality can dominate the organisational
differences and the information gleaned from firm
culture. This may lead to a firm being reactive in its
visits, small firms clearly are not as advanced, on
decision-making, dominated by short-term timeframes
average, in business improvement efforts as larger
and demonstrating a lower use of problem solving tools
firms. Often this is shaped by growth intentions.
(Ghobadian and Gallear, 1997; Chapman and Sloan,
1999; Hudson et al, 2001).
At any rate, 8% of small firms are actually Leaders
(compared to 14% of large firms). Obviously a good
It is a mixed perspective that is supported by the results
proportion of small firms are indeed undertaking a
from the study, which show that small firms are less
wide range of business improvement activities as
likely to adopt longer-term planning techniques; i.e. to:
defined in the survey. In a country such as New
Zealand, where small firms make up such a large part • plan for more than two years (8% compared to 18%
of the business population, this is an important finding. for medium firms and 34% for large firms) – small
firms are over-represented in the ‘don’t know’ and
The firm visits confirmed the mixture of potential ‘not applicable’ categories
advantages and disadvantages that being small or large
• have a vision statement (43% compared to 59% and
brings. Interviewees reported that small size enhances
76%).

140
 Leadership and Planning Index - Firm size
40

35
30

25
%
20
15

10

0
0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100

Small Medium Large

However, they are only slightly less likely to adopt However, other studies suggest that owners of small
participative leadership practices; i.e. to: firms are less likely to exhibit good staff practices.
These studies argue that small firms tend to view
• ‘frequently’ or ‘always’ incorporate the needs of
human resource strategies as being less important than
customers (81% compared to 87% and 89%),
finance, marketing and planning (McEvoy, 1984;
suppliers (47% compared to 54% and 53%) and
Savery and Mazzarol, 2001). They also suggest that
employees (71% compared to 80% and 81%) in
there are barriers to the implementation of performance
developing goals
management systems because of the resource paucity
• promote, to a ‘great’ or ‘moderate’ extent, company that is a characteristic of small firms (Ghobadian and
values to their employees (83% compared to 87% Gallear, 1997; Hudson et al, 2001). Similarly, the extent
and 86%). of training and development in small firms tends to be
more limited because of a lack of personnel and
Employee Practices financial and time constraints. This is particularly the
case in times of high growth; the faster the growth
Some research suggests that small firms are more likely
experienced by a small firm, the more likely it is to
to carry out excellent employee practices in some areas.
experience human resource problems (Savery and
For example, communication processes in small firms
Mazzarol, 2001).
can be simpler and easier to manage, as a ‘flatter’
hierarchy may result in a more flexible work
Looking at the employee practices index from the
environment. It can be easier in small firms to clearly
perspective of firm size tends to confirm this latter view
link behaviour, performance and rewards. Smaller firms
and shows that small firms are less likely to
also have a natural tendency for cross-functional
demonstrate good employee practices.
training because they rely on fewer resources for
multiple activities (Ghobadian and Gallear, 1997).

Employee Practices Index - Firm size

40

35

30

25
%
20
15

10

0
0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100

Small Medium Large

141
 Smaller firms are less likely to measure employee transition from incubation to maturity (Ghobadian and
satisfaction on a regular basis (34% of small firms Gallear, 1997). Some commentators also argue that
measure satisfaction every year or more often) than ‘many SMEs practice principles of quality every day
medium-sized (44%) and large (42%) firms. This may without placing such a label on it’ (van der Wiele and
be because larger firms are likely to have greater Brown, 1998).
resources available to dedicate to this process or
because small firms are able to gauge satisfaction levels Looking at the quality and supplier focus index from
on an ongoing basis, without the need for formal the perspective of firm size shows that there is
measurement. Small firms are also less likely to use relatively little difference in the way that small,
performance reviews (58% of small firms used these at medium and large firms score on this index.
‘some’ or ‘all’ levels compared to 76% of medium firms
and 91% of large firms) and, it would seem as a In response to the specific questions on quality
consequence, tend to offer pay-for-performance measures, small firms are only slightly less likely to
incentives less often to their employees (61% of small actively (‘moderately’ or ‘to a great extent’) encourage
firms said no employees were on such schemes, non-managerial employees to identify problems or
compared to 45% of medium firms and 25% of large suggest improvements (84% compared to 90% for
firms). medium firms and 87% for large firms). However, they
are considerably less likely to have, or to be planning
As described earlier, a large number of New Zealand to implement, quality management systems (22% of
firms reported having processes in place to measure the small firms compared to 34% of medium firms and
health and safety of their employees. Encouragingly, a 49% of large firms).
high proportion of small firms report such processes
(82%), although this is significantly lower than the In terms of building relationships with suppliers, small
proportion for larger firms (96%). firms are less likely to:
• have systems in place for measuring the quality of
Quality & Supplier Focus inputs from their suppliers – 20% of small firms said
There is a growing consensus that improving quality is ‘no suppliers’ compared to 11% of medium firms and
important for small and large businesses alike (Drihlon 10% of large firms (small firms were over-
and Estime, 1993). There are convincing reasons for the represented in those answering ‘don’t know’)
small firm to pay particular attention to this strategy. • work with key suppliers to improve the quality of
the processes in each organisation – 41% of small
An increase in outsourcing by large firms has resulted firms said they work ‘quite closely’ or ‘very closely’
in small firms being required to apply the same quality with suppliers compared to 52% of medium firms
standards as would normally be expected of larger and 58% of large firms (small firms were again over-
firms (van der Wiele and Brown, 1998). Hence, small represented in answering ‘don’t know’).
firms are operating in an environment that expects the
same level of performance from any organisation, However, small firms were only slightly less likely to
irrespective of size. There is also a theory that adopting answer ‘sometimes’ or ‘always’ when asked if non-
quality principles can help small firms manage the managerial employees have the authority to contact

Quality and Supplier Focus Index - Firm size

40

35
30

25
%
20
15

10

0
0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100

Small Medium Large

142
 external suppliers (75% of small firms compared to frequently compared to 58% of medium firms and
79% of medium firms and 82% of large firms). 66% of large firms)
• work with customers to improve their products and
Customer Focus services (53% work ‘quite closely’ or ‘very closely’
Small firms are less likely to engage in formal or with customers compared to 63% of medium firms
structured market research activities because they lack and 67% of large firms)
the human and financial resources to do so, though • limit customer visits to just sales and marketing staff
some suggest that this is off-set by the fact that (40% said no staff other than sales or marketing staff
employees of small firms tend to be closer to their visit major customers compared to 26% of medium
customers (Mohan-Neill, 1995; Ghobadian and Gallear, firms and 15% of large firms).
1997). This perception is based on research showing
that small firms are more likely to:
Information & Benchmarking
• be interpersonal in their contact with primary
Evidence of benchmarking by small firms is
customers
uncommon, and it is suggested that managers of small
• invest in personal relationships firms may feel that their firm is too small to gain
anything from the process, or that there is an absence
• conduct marketing at a senior/general management
of comparable firms (Coviello et al, 2000).
level, rather than using specialist marketers
• emphasise marketing communication that is directed This situation seems to exist in New Zealand, with the
to a specific customer segment rather then the mass data from this study showing that small firms are less
market (Coviello et al, 2000). likely to have a formal system for information storage
and retrieval (77% of small firms have an information
A study of New Zealand and Canadian customer system compared to 87% of medium firms and 91% of
practices showed that, although there are some large firms). Small firms are also less likely to:
differences in the way that small and large firms
• participate in benchmarking activities such as
approached marketing, small firm marketing practices
comparing performance systematically with domestic
are not fundamentally different from those of large
and overseas firms (in the same or different industries)
firms (Coviello et al, 2000).
• use a number of different indicators when assessing
However, the BPPS indicates that small firms are less their own performance
likely to demonstrate good business practices in
• monitor competitors’ products/services ‘quite closely’
customer focus. Small firms are less likely to:
or ‘very closely’ (56% compared to 69% of medium
• have set procedures for dealing with customer firms and 79% of large firms)
complaints (73% of small firms compared to 81% of
• have employees, or use outside experts, to regularly
medium firms and 84% of large firms)
assess whether the business is achieving its goals
• systematically measure customer satisfaction (47% (74% compared to 85% of medium firms and 93% of
measure customer satisfaction every year or more large firms).

Customer Focus Index - Firm size

40

35

30

25
%
20
15
10

0
0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100

Small Medium Large

143
 Information and Benchmarking Index - Firm size
40

35

30

25
%
20
15

10

0
0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100

Small Medium Large

Innovation and Technology Others point to the important ‘seed bed’ role in
technological change and industry evolution played by
There has been considerable research on the micro and small firms (Cosh et al, 1999). They add that
relationship between firm size and innovative activity, firm size (as measured by number of employees) is not
although the evidence for either side of the debate is a good indicator for innovation – greater resources do
not compelling. Those arguing on behalf of the not necessarily equate to greater innovation. The key
advantages of the small firm claim that they are factor may be the particular resources, especially
unencumbered by bureaucracy and naturally more people, that the firm employs (Scherer and Ross, 1990;
flexible and inventive. However, large firms can Hine and Ryan, 1999).
provide superior human and capital infrastructure to
support innovative activity (Acs and Audretsch, 1991). Looking at the innovation and technology index shows
that small, medium and large firms follow a similar
Although there is not a great deal of empirical evidence pattern, although small firms are less likely to
on New Zealand firms, there is considerable overseas demonstrate business excellence in innovation as
evidence to suggest that the use of new technologies, measured by the index.
investment in R&D and so on are correlated with size
and market share (Arias-Aranda et al, 2001; Ahn, In terms of equipment, small firms are just as likely to
2001). Small firms (by contrast with their larger have core technology that compares with the best
counterparts) have difficulty accessing knowledge and commonly available. 52% of small firms described their
ideas. Although some have solved this problem by core equipment as ‘fully up to date’ compared to 54%
establishing relationships with other firms through of medium firms and 55% of large firms.
networks and alliances, this is not an easy strategy for
small firms to operationalise successfully (Hine and
Ryan, 1999).

Innovation and Technology Index - Firm size

40

35
30

25
%
20
15

10

0
0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100

Small Medium Large

144
 Q 9.12 How important are the following as a source of ideas and information for
new or improved products, services or processes?
60

51
49
47
46

40
40 38

% 31
29 29 29 29
26
24 25
23

20 19 19 20 19 19
18 18 18

13 13
12 12
11
10 10
9
5 6 6
5 5 5 5 4
3 3 3 3 3 3 3 3
2
0
competitors NZ owners overseas industry or other research universities/ books, banks TradeNZ TechNZ Industry NZ government
owners employer institutes polytechnics journals, accountants etc departments
associations conferences, etc

Large Medium Small Small - Leaders

However, small firms are less likely to undertake formal on external sources of information and networks for
research and development activities. In particular, small ideas and innovation rather than specialised R&D. As
firms: earlier stated, we consider that this index in hindsight
was too slanted towards large firms and more formal
• are less likely to conduct any research and
practices.
development in-house (24% compared to 36% and
49% for medium and large firms)
Indeed, leading small firms place a much higher
• are less likely to invest in external sources of reliance on external sources of information and ideas
research and development (11% compared to 15% for innovation.
and 27% respectively)
• when they do undertake research and development Use of IT
activities, do so less regularly than larger firms. 19% As noted in chapter 10 on Information Technology,
of small firms reported either ‘regularly’ or there is a distinct difference in the practices of small,
‘continuously’ undertaking research and medium and large firms with regard to the application
development, compared to 27% of medium-sized and use of IT.
firms and 38% of large firms.
Large firms use IT for a much broader range of
These last results are not unexpected. We would expect practices than smaller firms and, in fact, 13% of small
small firms, due to their limited resources, to rely more firms claimed that they used IT for none of the usual

Q 10.3 In which of the following areas does this business use information technology?
100 97

87 87
85

80 77 78
72
70
68
62
60 56 55
52
% 47
49
44
41
40 35
32
30

20 16
13

5
1
0
production accounting information data processing inventory management procurement none of these
systems management management
logistics

Large Medium Small

145
 processes. This figure compares with only 1% of large the practices adopted. For example, 63% of small firms
firms and 5% of medium-sized firms. reported that ‘many’ or ‘all’ of their employees are able
to do more than one job, which is slightly higher than
Large firms are also more intensive users of IT. A for medium firms (61%) and large firms (58%). A
higher percentage of employees from large firms have shortage of resources (in terms of staff numbers) and a
access to a PC, e-mail and the Internet. As was earlier need for flexibility across staff may mean that greater
discussed, IT is a facilitator of a number of business numbers of employees in small firms naturally do more
practices. Firms with lower levels of IT use are less than one job (it is actually part of their job description).
likely to be able to develop practices associated with
the retrieval and storage of information and the Small firms, however, achieve a far lower level of
streamlining of production operations, including investment in staff education and training than large
logistics and quality management. firms. 20% of small firms indicated that no investment
is made in employment education and training, with
Operational Outcomes 36% saying that the level of investment is less than 1%
of pre-tax payroll, 26% investing up to 3% of pre-tax
As stated, small firms score only slightly lower than payroll and 7% investing up to 5% of pre-tax payroll.
larger firms when measuring operational outcomes. This may have long-term impacts on the ability of
small firms to retain staff or adapt to changing
No more than 3% of firms in any size group reported conditions, although small firms actually report better
that returns/money back or defects had equated to staff turnover outcomes than large firms. Only 2% of
more than 5% of total sales, although large firms large firms, in stark contrast, are not investing in
certainly achieve superior results on these measures, employee education and training, with 40% investing
with 33% achieving zero returns and 24% achieving less than 1% of pre-tax payroll, 37% investing up to
zero defects compared to 21% and 15% of small firms 3% of pre-tax payroll, and 12% investing up to 5%.
respectively. These figures are encouraging, especially
as small firms also reported high delivery standards. On innovation outcomes, despite a similar proportion
40% of small firms deliver their goods or services to of small firms reporting that their core technology was
customers in full, on time and to specification ‘more up-to-date, there is a significant difference in the
than 95% of the time. This compares to 36% of proportion of small firms – 28% – who reported that
medium-sized firms and 38% of large firms that their technology had changed in the last three years ‘to
reported this level of delivery standards. Despite these a major degree’ or ‘completely’, compared to 35% of
similar levels of operational outcomes across size medium firms and 45% of large firms. Similar
categories, small firms do have higher cost of quality proportions of firms reported that their management
figures – with 38% achieving cost of quality less than and operating systems had changed ‘to a major degree’
1% of total sales compared to 49% of large firms (24% or ‘completely’ over the same three-year period (29%,
of small firms do not actually know). 34% and 44%).
Even though small firms generally have relatively poor As we have seen, smaller firms invest proportionately
employee practices as determined by this survey, their less in research and development activities than firms
employee-related outcomes are fairly positive. This may of a larger size. It seems, as a consequence of this lower
have more to do with the structure of small firms than investment, that small firms reported less innovation -

Q 12.6 Please estimate this business’s cost of quality In the LAST THREE YEARS, did this business introduce new
as a proportion of total sales? or significantly improved products or processes?
60 80
73
70
50 49
62
59
60
40 38
50 47
% %
30 28 40
27
24
30
20
15
20
10 7
5 10
2 1 1 2
0 0
up to 1% up to 5% up to 10% up to 15% more than don’t know products processes
15%

large small large small

146
 Operational Outcomes Index - Firm size
40

35

30

25
%
20
15

10

0
0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100

Small Medium Large

both product innovations (59% compared to 67% of • 57% of small firms and 72% of large firms said they
medium firms and 73% of large firms) and process increased total sales over the 12 months prior to the
innovations (47% compared to 55% of medium firms survey
and 62% of large firms).
In addition, lower proportions of small firms than large
Business Results firms believe that their profitability (25% compared to
40%), return on investment (23% compared to 37%)
The differences between small and large firms in and productivity (33% compared to 35%) are higher
business practices and operational outcomes do appear than competitors’.
to translate into differences in business results:
• 54% of small firms, compared to 62% of large firms, Competitive Environment
reported that they increased market share for the
In relation to sources of funding for innovation or
three years prior to the survey
business expansion, research suggests that small firms
• 48% of small firms, compared to 61% of large firms, are more likely to rely on their own savings and funds,
said they increased profitability friends and family, and banks than any other source.
• 57% of small firms, compared to 68% of large firms, Although this is borne out by the survey evidence,
said they achieved positive cashflow over the 12 there is surprisingly not a great deal of difference
months prior to the survey between small and large firms in sources of funding:

Q 11.1 Over the LAST THREE YEARS, when funding innovation or expansion of this business,
how much has been sourced from... – LARGE firms
50

40

33

30 29

%
23
22
20
20
17

13

10
4
3
2 2
1 1
0 0 0 0

less than 50% more than 50%

banks shareholders angel investors savings or retained earnings

friends or family finance companies venture capital other

147
 Q 11.1 Over the LAST THREE YEARS, when funding innovation or expansion of this business,
how much has been sourced from... – SMALL firms
50

40

30 29
27
%
21
20 19
18

13
10
10
7
5
2 2
1 1 1
0 0 0
less than 50% more than 50%

banks shareholders angel investors savings or retained earnings

friends or family finance companies venture capital other

• 29% of small firms said that up to 50% of funding The major difference is in relation to friends and family
for innovation or expansion had been sourced from – 7% of small firms sourced up to 50% of their funding
banks, and 21% said more than 50% of funding had from friends or family, compared to 2% of large firms.
been sourced from banks. 33% of large firms sourced
up to 50% of their funding and 20% sourced more Very few small firms or large firms used angel investors
than 50% of their funding from banks. (1% for both groups) or venture or development capital
(2% for both) to fund innovation or expansion at all.
• 27% of small firms (29% of large firms) sourced up
to 50% of their funding from savings or retained
When asked about the availability of external funding
earnings and 18% (23% of large firms) sourced more
– again unexpectedly given anecdotal and research
than 50% of their funding from savings.
evidence on the difficulties smaller firms face in
• 19% of small firms sourced up to 50% of their accessing finance – similar proportions of small firms
funding from shareholders (who would typically be to large firms indicate that debt and equity funding is
the owner-operator) and 10% sourced more than not available. Only 2% of small firms and 1% of large
50% of their funding from shareholders. 22% of firms believe that external funding for borrowing is not
large firms sourced up to 50% of their funding and available, and 2% of small and large firms consider
17% sourced more than 50% of their funding from that external funding for equity is not available.
shareholders. Similar proportions also considered that debt and

Q 11.2 Over the last 12 months, when this business has sought Q 11.2 Over the last 12 months, when this business has sought
external funding for borrowing has it been? external funding for equity has it been?
60 57 60
53
51
50 47 50

40 37 40
% %
30
30 30 27
24
20
20 20 17

10
10 8 10
6
4 3
1 2 2 2 2
0 0
readily available not available on unacceptable not applicable don’t know/ readily available not available on unacceptable not applicable don’t know/
terms no answer terms no answer

large small large small

148
 Q 11.6 Which of the following, if any, are barriers to improving Q 11.3 Over the LAST 12 MONTHS when this business has
the performance of this business? sought to employ new staff, there were ‘never’ people available
60 with the appropriate:
20
50 49

40 38 36
%
30 26
11
23 24 % 10
20 17 18
15 15

10 9 8
3
2
0 management access to
1 1
exchange ability to access to none of 0
rate source and finance skills international these 0
fluctuations use technology markets specialist skills general skills work attitudes

large small
large small

equity was available only on ‘unacceptable terms’ – 4% of the identified potential barriers were actual barriers.
of large firms and 6% of small firms thought debt was This might suggest that different factors, such as ‘time’,
available on unacceptable terms and 3% of large firms are barriers for small firms, or that they genuinely do
and 2% of small firms considered equity was available not consider there to be any significant barriers to their
on ‘unacceptable terms’. performance (or that they are not attempting to
improve their performance).
This result, however, contrasts somewhat with the
results on perceived barriers to business improvement. When employing staff, a much higher proportion of
Small firms rate access to finance as a barrier more small firms than large firms consider that people are
highly than large firms, with 23% of small firms ‘never’ available with the appropriate specialist skills
considering this to be a barrier compared to 17% of (11% compared to 3%), though when it comes to
large firms. These results may suggest that some small general skills and work attitudes there is little
firms that perceive finance as a barrier are, as a result, difference. It is unclear whether this is a demand-side
not seeking to use external capital (hence the higher or supply-side problem, although given the relatively
proportion of small firms answering ‘not applicable’) low levels of employee practices in many small firms, it
and/or funding for business improvement is mainly would appear that demand-side issues play a role.
sourced within the firm rather than externally.
On the impact of various government regulations on
Over all size categories of firms, the largest perceived performance and productivity, small firms are under-
barrier to business development is exchange rate represented in suggesting that various regulations had
fluctuations. This suggests, not surprisingly given the a negative effect. This is somewhat unexpected given
characteristics of the New Zealand economy, that firms the higher relative compliance costs faced by small
of all sizes are reliant upon exports or imports to a firms, and may suggest that small firms are not aware
reasonable degree. of all of their requirements.
• 25% of small firms compared to 37% of large firms
Lower proportions of small firms than large firms,
said the Resource Management Act has a highly or
however, perceive any of the factors listed as barriers to
slightly negative impact
business development (with the exception of access to
finance as noted). For example, small firms are less • 33% of small firms compared to 40% of large firms
likely to perceive management skills as a barrier to said local authority regulations have a highly (9% of
improving performance (18% compared to 24% of large small firms versus 7% of large firms) or slightly
firms), despite the fact that their managers often have negative impact
to possess a larger variety of skills than their • 28% of small firms compared to 35% of large firms
counterparts in large firms. This supports our earlier said health and safety regulations have a highly (7%
comments that small firms may tend to have a more of small firms versus 5% of large firms) or slightly
optimistic view of the state of their operations than is negative impact – although this is outweighed by the
the reality. numbers that indicated health and safety regulations
have a slightly or highly positive impact (36% of
A far greater proportion of small firms (almost half) small firms and 38% of large firms)
than large firms (just over a third) indicated that none

149
 • 21% of small firms compared to 23% of large firms In describing the firm’s competition, as we would
said the Holidays Act has a highly or slightly expect, a far greater proportion of small firms than
negative impact large firms described themselves as being in a market
where there are many competitors but none dominant
• 56% of small and large firms said ACC has a highly
(30% of small firms compared to 19% of large firms),
(21% of small firms versus 13% of large firms) or
although similar proportions (just over 20%) of both
slightly negative impact – although a greater
small and large firms said they face one or two
proportion of large firms than small firms indicated
competitors or no effective competition.
that ACC has a positive impact (16% of large firms
versus 10% of small firms)
■ Comparison Across Industries
• 38% of small firms and 56% of large firms said
employment law has a highly or slightly negative Currently, business excellence models are applied to a
impact – with 11% of small firms and large firms variety of service sectors, including the health,
indicating that employment law has a slightly or education, finance, hospitality and public service
highly positive impact. sector. Historically, however, many service
organisations have not attempted to adopt business
improvement methods as they have been
Q 11.5 How would you describe this business’s competition? predominantly drawn from and applied to
60 57 manufacturing firms, and because services were seen to
be quite different to manufacturing. Similarly,
50
implementing business improvement in the services
40
40 sector is sometimes regarded as more difficult, due to
% the intangible nature of services, the more subjective
30
30 nature of measurement, and the increased frequency of
interfaces (Sullivan-Taylor and Wilson, 1996). However,
20 18 19 19
it is clear that the distinction between production or
10 manufacturing and service is becoming blurred, and
5
3 4
1 2 2 growing numbers of traditional manufacturers provide
0 many no response servicing elements, which may make such arguments
captive only one or a number don’t know
market two of key competitors,
competitors competitors none dominant increasingly flawed.
large small
Figure 22. Industry representation
Industry (ANZSIC Classification) Small Medium Large Number of Total Number
firms in this firms with
study >6 FTEs

A – Agriculture, Forestry and Fishing 137 106 48 291 1171

B – Mining 28 11 4 43 97
C – Manufacturing 380 320 253 953 6042
E – Construction 35 38 24 97 3294
F – Wholesale Trade 109 88 67 264 3285
G – Retail Trade 37 43 40 120 6057
H – Accommodation, Cafés and Restaurants 52 46 34 132 3226
I – Transport and Storage 52 33 28 113 1630
J – Communications Services 28 14 11 53 184
K – Finance and Insurance 67 39 52 158 533
L – Property and Business Services 121 104 65 290 4828
N – Education 41 15 9 65 3028
O – Health and Community Services 42 45 33 120 2656
P – Cultural and Recreational Services 27 19 11 57 922
Total 1156 921 679 2756 36953

150
A wide variety of firms, offering a range of products has more than double the average number of leading
and services, were surveyed as part of this study to firms, and a less than average proportion of lagging
allow us to gauge sectoral differences in the firms (in particular the education sector, which had no
development of business practices. In fact, all but three lagging firms in its sample population).
of the one-digit Australia and New Zealand Standard
Industry Classification (ANZSIC) codes were covered in Figure 23. Leading and Lagging Firms by Sector
the sample population. This is important when
% who are % who are
considering the broader aspects of economic
Industry Leaders Laggers
development, because it enables us to better identify
constraints and catalysts for not only firm growth, but A – Agriculture, Forestry and
industry growth as well. Examples include the different Fishing 3.3 14.3
styles of planning practices across industries; the B – Mining 23.2 9.6
ability of an industry to attract and retain employees;
specific barriers to business growth; and an industry’s C – Manufacturing 9.8 8.0
approach to training and development. The industries E – Construction 11.0 7.6
covered and their representation in the New Zealand
business population is presented in figure 22. F – Wholesale Trade 7.9 4.7
G – Retail Trade 10.3 4.8
The three excluded industries are D – electricity, gas
and water supply; M – government administration and H – Accommodation, Cafés
defence; and Q – personal and other services. & Restaurants 3.8 12.0
I – Transport & Storage 11.3 6.5
The results suggest that firms in different industries are
likely to perceive slightly different barriers or J – Communications Services 14.3 6.9
constraints to business growth, and consequently place K – Finance & Insurance 22.7 5.8
an emphasis on different business practices. Though
these differences are not notably distinct, they still L – Property & Business
provide an interesting picture of firms’ strategies for Services 10.4 5.6
development. N – Education 27.7 0.0
O – Health & Community
Leaders and Laggers Services 5.8 4.5
Figure 23 shows the spread of leading and lagging
P – Cultural & Recreational
firms across sectors. The finance and insurance and
Services 13.5 7.2
education industries lead the way in terms of business
practices and outcomes scores. Each of these industries Total 9.1 7.3

Strategising/Practices Index – By Industry

100

80

61
60 57 55 55 57 57 55
53 54
51 51 51 52 52
%
47

40

20

0
A B C E F G H I J K L N O P All

A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E-Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation,
Restaurants and Cafes, I-Transport and Storage, J-Communications Services, K-Finance and Insurance, L-Property and Business Services, N-
Education, O-Health and Community Services, P-Cultural and Recreational Services.

151
 Operational Outcomes Index – By Industry
100

80
67
63 63 64 63
62 62
60 58
60 59 59 58
55
60 59

%
40

20

0
A B C E F G H I J K L N O P All

Conversely, the agriculture, forestry and fishing and sector, although overseas research also suggests that,
accommodation, cafés and restaurants industries have on average, service firms outperform manufacturing
less than half the average number of Leaders and firms in business excellence.
almost double the average number of Laggers.
Interestingly, mining has both a high percentage of It is interesting to note that:
Leaders and Laggers.
• the sectors with the highest proportion of firms
exporting are manufacturing, agriculture, forestry
and fishing, wholesale trade and property (average
Practices and Outcomes and lower performing industries on practices)
There is some variation across industries on the • the sectors with the lowest proportion of exporters
aggregated strategising/practices index. The mean for all are health, accommodation, cafés and restaurants,
firms is 52 and the lowest score is 47 – the highest is 61. construction and communications services (low and
higher performing industries on practices)
The best performing industry, on average, on the
aggregated strategising/practices index is clearly • the sectors with the highest proportion of small firms
education. Finance and insurance, communication are the mining, education, and communications
services, and mining also perform relatively well. The services sectors (high performing sectors)
lowest ranking industry is agriculture, forestry and • the sectors with the highest proportion of large firms
fishing. The fact that service organisations on average are finance and insurance, health and manufacturing
perform better than manufacturing contrasts with our (high and average performing sectors).
prior expectations, given our framework is based on a
model originally developed for the manufacturing
Leadership & Planning Index – By Industry
100

80
67

60
60 56 56 56
54 54
51 52 51 51 51 52
50
% 48

40

20

0
A B C E F G H I J K L N O P All

A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E-Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation,
Restaurants and Cafes, I-Transport and Storage, J-Communications Services, K-Finance and Insurance, L-Property and Business Services,
N-Education, O-Health and Community Services, P-Cultural and Recreational Services.

152
 Employee Practices Index – By Industry
100

80

62 62
60 55 55
53 54
51 51 50
49
% 45
48
47 46 44

40

20

0
A B C E F G H I J K L N O P All

This suggests that industry effects are of consequence, Employee Practices

beyond size and exporting effects (although this is an
area for further research). The two industries that stand out in terms of employee
practices are the finance and insurance and the
In terms of the operational outcomes scores, the pattern education industries. The agriculture, forestry and
is similar, with education, mining, finance and fishing, cultural and recreational services, and
insurance, and communication services achieving accommodation, cafés and restaurants industries have,
relatively better outcomes on average – though there is on average, comparatively low scores for this index.
even less divergence from the mean score. This may, in part, reflect the propensity for casual or
seasonal employment in these industries.
The lowest ranking industries in terms of operational
outcomes are accommodation, cafés and restaurants Quality and Supplier Focus
and agriculture, forestry and fishing.5 Firms across all industries score similarly on this index,
and there is little deviation from the overall mean of
Leadership and Planning 53, with the exception of wholesale trade. This suggests
The mining industry leads the way in terms of a more general and consistent dispersion of these
leadership and planning practices, which may reflect practices across the New Zealand business sector than
the long-term nature of mining operations and other practices.
legislative requirements ensuring attention is paid to
environmental impacts. The communication services 5
The level of statistical significance of the differences between
industry had the lowest mean score at 48. sectors is provided in Appendix C.

Quality and Supplier Focus Index – By Industry

100

80

60 56 55
58
55 55 55
52 52 53 52 53
51 49
% 48 48

40

20

0
A B C E F G H I J K L N O P All

A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E-Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation,
Restaurants and Cafes, I-Transport and Storage, J-Communications Services, K-Finance and Insurance, L-Property and Business Services,
N-Education, O-Health and Community Services, P-Cultural and Recreational Services.

153
 Customer Focus Index – By Industry
100

80
72
67 67
63
61 61
59 57
60 57
53
58
56
52 51
% 46

40

20

0
A B C E F G H I J K L N O P All

Customer Focus Information and Benchmarking

Having a customer focus appears to be regarded as the This index is another relatively strong area for New
most critical business practice for New Zealand firms Zealand firms, and again there is little difference across
and this is reflected in the relatively high scores across industries. Firms in the cultural and recreational
most industries on this index. Once again, agriculture, services industry are the highest scoring on average,
forestry and fishing firms score lower on average on with finance and insurance, communications services,
customer focus than other industries. This may reflect, education and wholesale trade also performing
in part, a more distant relationship with final customers relatively well. Again the agriculture, forestry and
for many businesses in these sectors. fishing industry is the lowest scoring sector on average.

The education sector is the highest scoring industry on Innovation and Technology
average. One might expect the firms in the education
industry to develop closer relationships with their Innovation and technology is a relatively low scoring
customers than many other sectors because the index for most sectors, except education, finance and
purchase experience (i.e. studying) is ongoing and may insurance and communications services. This may
last significantly longer than the purchase experience reflect more rapidly changing demands for different
in other industries. With this type of service, reputation and innovative services in these sectors.
becomes an important competitive advantage.
Use of IT
Finance and insurance and communication services There is a large variance in IT use across industries
sectors also perform relatively well. compared with other indices. In particular, the average
score for agriculture, forestry and fishing (the lowest
Information and Benchmarking Index – By Industry
100

80
67 67
63 64
62 62
59 59
60 56
57
56 56 55
57

51
%

40

20

0
A B C E F G H I J K L N O P All

A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E-Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation,
Restaurants and Cafes, I-Transport and Storage, J-Communications Services, K-Finance and Insurance, L-Property and Business Services,
N-Education, O-Health and Community Services, P-Cultural and Recreational Services.

154
 Innovation and Technology Index – By Industry
100

80

57
60 55
54
50
% 49
47 46
49
45 44 45
41 41 40 40
40

20

0
A B C E F G H I J K L N O P All

Use of IT – By Industry
100

80
69
63
59
60 56 57

% 50

43 42
41 38
40
36 33
31
29

22
20

0
A B C E F G H I J K L N O P All

Q 11.6 Which of the following factors, if any, are barriers to improving the performance
of this business: fluctuations in exchange rates?
100

80

60 55 55

40 36

27 26 27 26
24 23
20 15
11
5 5 6

0
A B C E F G H I J K L N O P

A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E-Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation,
Restaurants and Cafes, I-Transport and Storage, J-Communications Services, K-Finance and Insurance, L-Property and Business Services,
N-Education, O-Health and Community Services, P-Cultural and Recreational Services.

155
 Q 11.6 Which of the following factors, if any, are barriers to improving the performance
of this business: access to international markets (e.g. tariffs, quotas)?
100

80

60
%

40 36

20 15
10
6 5 5
4 3 4
2 2 1 1
0 0
A B C E F G H I J K L N O P

Q 11.6 Which of the following factors, if any, are barriers to improving the performance
of this business: availability of finance?
100

80

60
%
40
32 32
29
26
24
22 22
20 20 20 20
20 17
13 14

0
A B C E F G H I J K L N O P

A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E-Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation,
Restaurants and Cafes, I-Transport and Storage, J-Communications Services, K-Finance and Insurance, L-Property and Business Services,
N-Education, O-Health and Community Services, P-Cultural and Recreational Services.

average) is only a third of the score for the finance and Firms in the construction, cultural and recreational
insurance industry (the highest average). We would services, and communications services industries
expect to see a high variation on this index, as the perceive access to finance as a greater barrier on
applicability of IT differs markedly depending upon average, than firms in other industries.
what type of business a firm is in (one of the reasons
this index was not used to create the overall Accessing leading technology appears to be a minor
strategising/practices index). barrier for firm performance, except in two of the more
technology intensive industries, communication
services and finance and insurance.
■ Barriers to Business Performance
Management skills are not regarded as a major barrier
It is not surprising to note that our major export and in many industries, although they are rated as a barrier
import industries – agriculture, forestry and fishing, by over a fifth of firms in the education,
manufacturing and wholesale trade – feature manufacturing, agriculture, forestry and fishing,
prominently when asked whether fluctuations in property and business services, and accommodation,
exchange rates are a barrier to growth. These three cafès and restaurants industries. Very few firms in the
industries also perceive access to international markets health and community services sector perceive
as a larger barrier than other industries, reflecting their management skills as a barrier to improved performance.
contribution to total New Zealand exports and imports.

156
■ Gosling, Chapman & Co – Service Excellence
Gosling, Chapman Ltd (GC) specialises in business consultancy, advisory The company has a strong sense of community, providing honorary
and training services for corporates, small to medium sized businesses audit services to a number of charitable institutions and making
and private clients. The firm also offers a complete range of traditional donations to charities and schools.
chartered accountancy services.
Customer Focus
Established in 1984, the firm has over 80 staff and seven directors. The
directors are all owners of the business. Since establishment, GC has GC uses a team approach to work with its clients and aims to not just
been growing in terms of sales, profitability and employee numbers. meet but exceed client expectations. Teams will typically consist of a
director, a manager, and accounting and administration support staff.
The focus of GC’s current strategy is taking their clients beyond what Specialist in-house expertise is also available when required, and includes
they think possible in terms of business direction and success. To do taxation, corporate finance, marketing, business planning and human
this requires GC to deliver exceptional client service and develop high resource management.
performing people who deliver the best by being the best.
Critical to GC’s approach is identifying and understanding the goals of
GC has also recently been corporatised so that it is now a company the client, both business and personal, and how GC can assist in the
rather than a partnership. This change has not influenced the way that achievement of these goals. The company recognises that every client
the business provides its services. has slightly different needs, and aims to provide a personalised service
that fits each situation. GC gauges client satisfaction immediately
Business Practices following service delivery through feedback forms.

To GC, business excellence means providing the best possible service The quality of the service is assessed using internal measures such growth
by delivering an accurate, timely product (advice) which exceeds clients’ in fees billed and collected from each client, the number of client and
expectations. It also means recruiting the best people and developing professional advisor referrals and client retention.
them to ensure that they reach their full potential.
Employee Practices
The company is focused on ‘continuous improvement’ – managers are
continually searching for new ideas and innovative ways to improve GC promotes an innovative company culture through staff development
the services provided to clients, and staff input into this process is programmes. Staff induction programmes introduce all new employees
encouraged. Regular forums are held to generate ideas, and systems to the company’s systems and processes, and the company provides an
have been developed to ensure that, once identified, ideas are followed employee manual for further consultation. All new staff are also provided
up. with a ‘buddy’ who provides day to day support. GC also develops
employee skills through a mentoring scheme in which every staff member
Over the past twelve months, GC has worked towards and become is paired with a mentor. The company provides weekly in-house training
accredited with the Investors in People Standard for staff development. sessions, and regularly sends staff on external training programmes. A
Investors in People (IIP) is an international quality standard which formal staff performance appraisal system ensures that staff are
originated in the UK, where nearly 33% of the workforce are employed developing the technical, client service and behavioural skills required
by accredited organisations. This standard provides GC with an excellent to succeed.
framework to assist in the development of a high performance culture,
with a focus on continuously improving the excellent service offered to The company has an ‘opportunity policy’, which encourages staff to
its clients. undertake overseas secondments to help them further their experience.
Over five years, more than 50 staff have been seconded to overseas
Leadership and Planning offices for short-term assignments. The ‘opportunity policy’ has proven
a valuable recruitment and staff retention tool. GC also develops a
At the time of the interview, GC had recently held a two-day planning company culture by sponsoring social activities and staff sports teams.
retreat for the directors of the firm. This was held off-site and focused
on the vision and strategy of the company for at least the next two All employees fill in a timesheet, which allows the company to measure
years. the productivity of each employee on a monthly basis. Other key
performance indicators for staff include: the number of client meetings
Every owner (director) has the ability to influence strategy development held, write-offs, feedback forms completed, training sessions attended
within the firm. There is no need for committees, and decisions are and innovative ideas generated. These measures form part of the quarterly
made on the basis of mutual consent. The shared vision for the future is appraisal of staff performance. Sick pay bonuses are paid to all staff
focused on a number of aspects: high performing people, a client focus, who do not use all of their annual sick leave.
an innovative and proactive culture, balanced lives for employees, and
effective systems. GC recruits only the best candidates and regularly competes with the
‘Big Four’ accounting firms when recruiting staff. For this reason, the
Leadership qualities critical for success in the organisation include the company pays salaries that are above the market averages. It also offers
ability to lead by example in all activities, commitment to mentoring a flexible working environment and an environment where staff can
and developing staff and providing honest feedback. fast-track their development.

157
 Q 11.6 Which of the following factors, if any, are barriers to improving the performance
of this business: ability to source and use leading edge technology?
100

80

60
%

40
31
27

20
20
14 13
12
10 9 9 8
6 6
3
0
0
A B C E F G H I J K L N O P

Q 11.6 Which of the following factors, if any, are barriers to improving the performance
of this business: management skills
100

80

60
%

40

25
22 23 22
20 21
19
20 15 16
18
13 13
11
8

0
A B C E F G H I J K L N O P

A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E-Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation,
Restaurants and Cafes, I-Transport and Storage, J-Communications Services, K-Finance and Insurance, L-Property and Business Services,
N-Education, O-Health and Community Services, P-Cultural and Recreational Services.

■ Overseas Ownership growth prospects of New Zealand subsidiaries.

Unfortunately, a traditional perception among New
As businesses become increasingly global in outlook, Zealanders is that these impacts are negative – that
and the mechanisms for doing business (such as IT) foreign ownership is bad for the business and hence for
become easier to access and more sophisticated, the the economy, particularly as there is a view that
ability for offshore firms to invest in and work with foreigners exploit the profits the local business
New Zealand firms, and vice versa, increases. Foreign produces (Infometrics, 2002). Apart from the fact that
investment and ownership of New Zealand firms is not foreign owners share the losses as well as profits and
a new phenomenon; indeed, over time, increasing most subsidiaries tend to make their profits selling to
numbers of New Zealand firms have become foreign- foreign customers, there is increasing evidence
owned. This particularly dates from the deregulation of (Campbell-Hunt et al, 2001; Infometrics Ltd, 2002;
the economy that began in 1984, which resulted in Scott-Kennel, 2002) in New Zealand that foreign
significant offshore investment in New Zealand ownership has provided resources and opportunities to
business, especially in the telecommunications, generate substantial positive change to the practices
information technology and electronics, wood and capabilities of New Zealand businesses.
processing, and banking and financial service
industries. Firms in the recently completed Firm-level
Manufacturing Export Study (Infometrics, 2002)
Changes to the ownership and direction of foreign suggest that foreign ownership provides them with
parent companies can have a significant impact on the better access to:

158
• finance and investment capital Code Industry
• technical and management expertise A01 Agriculture
• benchmarking information and expertise, which can A03 Forestry and Logging
be used to improve internal operations and
processes. B Mining
C22 Textile, Clothing, Footwear and Leather
In particular, for exporting firms, the study showed that Manufacturing
foreign ownership can provide that much-needed
opening into new markets through providing direct C24 Printing, Publishing and Recorded Media
market access (unencumbered by barriers associated Manufacturing
with quotas and tariffs) and access to valuable C26 Non-Metallic Mineral Product Manufacturing
established distribution channels and supply chains.
Distribution and supply processes are two of the most C28 Machinery and Equipment Manufacturing
critical investments in the export growth process, and E Construction
can be extremely costly and difficult for small-scale
G Retail Trade
New Zealand firms to manage.
Confidentiality limitations have restricted the sample
Similarly, a recent study by Scott-Kennel (2002) on the
group to 58% of the weighted total survey population.
impact of foreign direct investment on New Zealand
The following analysis reflects the responses from this
industry reported many ownership specific advantages
smaller population only.
from foreign direct investment including: technology;
managerial, employment and organisational practices;
In the reduced sample, 94% of firms were New
production processes; and innovation and research. The
Zealand-owned (i.e. they were more than 50% owned
survey findings provided evidence that all foreign-
by New Zealand interests). Only 6% of firms report
owned affiliates benefited from the transfer of these
having a level of foreign ownership above 50%.
specific advantages from their foreign shareholders. An
interesting result of this study was that there also
appears to be secondary benefits to local firms through Practices by Ownership Type
supply and clustering effects. In general, foreign-owned firms out-perform New
Zealand firms on all aspects of the Business Practices
The extent of these benefits appears to depend on the and Performance Model used in this study, particularly
strategic fit of the New Zealand subsidiary with the on leadership and planning and employee practices.7
foreign owner, and in some cases the benefits are
partially offset by a reduced level of strategic control The most distinct difference between New Zealand-
and potentially more complex regulatory issues. owned and foreign-owned firms is in the use of IT. To
some extent, this is not surprising, as one would expect
Defining Foreign Ownership a higher level of information management to be
necessary when co-ordinating activities across national
The measure of foreign ownership for this study is
borders, with varying cultures, customs and
derived from the Statistics New Zealand Business
regulations. However, the significance of the gap
Frame. Statistics New Zealand endeavours to ensure
between the mean scores (70 and 45) raises important
that all large enterprises have their foreign ownership
questions concerning the capacity for New Zealand-
details correctly recorded on the Business Frame.6
owned firms to effectively use IT resources as a tool for
developing their business practices.
The measure for firm ownership in this study was set as
follows:
New Zealand-owned firms compare much more closely
• firms with less than 50% of foreign ownership are with their foreign-owned counterparts in the area of
deemed to be New Zealand-owned
6
However, some data may be missing due to the following:
• firms with more than 50% of foreign ownership are • the enterprise did not respond to the Annual Frame Update
deemed to be foreign-owned. Survey, which asks the enterprise to indicate if it has any foreign
ownership
For the following ANZSIC codes, an ownership • the enterprise may have been ‘birthed’ onto the Business Frame
data base from taxation records and not been included in the
indicator could not be included for confidentiality
Annual Frame Update Survey
reasons. • the enterprise had been ‘birthed’ onto the Business Frame
database since the last Annual Frame Update Survey.
7
For the significance of these differences, see Appendix C.

159
 Figure 24. Descriptive Statistics for Foreign- and New Zealand-owned Firms
Foreign-owned Maximum Quartile3 Median Quartile1 Minimum Range Mean Mode

Strategising/Practices 91 69 64 56 26 65 62 –
Operational Outcomes 84 69 62 55 30 55 61 57
Leadership & planning 100 77 64 55 13 87 63 71
Employee practices 96 77 69 51 11 85 63 66
Customer focus 100 83 69 56 0 100 65 69
Quality & supplier focus 100 77 66 51 7 93 63 63
Innovation & technology 94 61 44 39 0 94 50 50
Information & benchmarking 96 77 71 64 15 80 69 71
Use of IT 100 83 72 59 16 84 70 64
Business results 100 82 72 61 6 94 68 61

New Zealand-owned Maximum Quartile3 Median Quartile1 Minimum Range Mean Mode

Strategising/Practices 90 62 53 43 0 86 52 53
Operational Outcomes 90 67 59 51 27 64 59 68
Leadership & planning 100 65 53 37 0 100 52 59
Employee practices 100 68 51 34 0 100 50 72
Customer focus 100 75 60 40 0 100 57 67
Quality & supplier focus 100 65 52 40 0 100 52 58
Innovation & technology 100 55 44 33 0 100 45 33
Information & benchmarking 100 71 62 46 0 100 58 70
Use of IT 100 66 44 24 0 100 45 0
Business results 100 78 67 50 0 100 63 72

Mean index scores - Ownership status innovation and technology. However, it should be
leadership & planning noted that both groups have reasonably low scores on
80
this index, especially when compared to the average
use of IT 60 employee practices scores for Swedish firms who participated in the
40
Sweden version of this study (see chapter 15). New
Zealand-owned firms also compared relatively well on
20 operational outcomes. Overall, though, it would seem
customer focus
outcomes 0 that foreign-owned firms have a more balanced
foundation of practices from which to improve
organisational outcomes and business performance
over the long-term.
practices quality & supplier focus

Leaders and Laggers by Ownership

information & benchmarking innovation & technology
In the complete dataset, just over 9% of the population
New Zealand Foreign achieved leader status and just over 7% of the firms are
deemed to be Laggers.

Foreign-owned firms (from the sub-population) are over-

represented in the Leaders group, which is not surprising
given their dominance on all aspects of the Business
Practices and Performance Model. 15% of foreign-owned
firms are deemed to be Leaders, compared with just under
9% of New Zealand-owned firms.

160
Only 3% of predominantly foreign-owned firms are The number of years in operation were provided by
deemed to be Laggers. This compares favourably to the survey respondents and fall into the following
overall population at 7% and New Zealand-owned categories: less than one year, up to two years, up to
firms, of which 8% are deemed to be Laggers. five years, up to ten years, and over ten years.

The firm visits confirmed a number of valuable Over half of the firms (56%) surveyed had been in
advantages provided by overseas ownership. Firms operation for ten years or more – a further 19% had
indicated that they can leverage off strong brands from been operating for between five and ten years. It would
overseas organisations, draw on skills that are not be reasonable to expect that these firms, in particular,
available domestically, get access to benchmarking have had sufficient time for good business practices to
data, and share in the technology and finances of the develop into good operational outcomes. Only 5% of
parent company. However, some flexibility-based the responding firms had been operating for less than
disadvantages were also described, such as bureaucracy one year (of those firms, 85% were small firms with
in decision-making (e.g. strategies and business plans between 6-19.5 FTEs).
must be signed off by an overseas head office) and time
zones limiting the amount of meetings and discussion Across most practice indices and on the operational
that can taken place between subsidiary and parent. outcomes index, those firms that have been operating
for less than one year score noticeably lower than firms
However, as indicated earlier, overseas-owned firms that have been operating for more than a year.
tend to be larger and exporting, and further work needs
to be undertaken to differentiate the precise influences. The two indices where this is not so are the quality and
As an initial test, we used a multiple regression supplier focus and customer focus indices, suggesting
technique to control for the effect that firm size might that new firms place a relative emphasis on developing
have on the significance of these differences. The their reputation and relationships with external
results suggest that the statistically significant stakeholders, as opposed to their internal firm
relationships found are related to differences in processes. The most significant differences for firms
ownership structures (though not exclusively), except who have been operating for less than one year are in
in the case of customer focus scores where there is no employee and leadership and planning practices.
statistically significant difference when firm size is
controlled for. This is not altogether surprising. New firms are more
likely to focus on the ‘business basics’ such as getting
their finances in order and securing customers and
■ Years in Operation suppliers rather than devoting efforts to longer-term
business improvement efforts. In particular, there may
Davies and Kochhar (2002), in their review of business have been little time to put in place systematic
practices research, found that few surveys take account planning, training and development, performance
of the time it takes to implement practices, nor the lag review and environmental management processes
between implementation and performance improvement during the start-up phase.
– some practices have longer-term horizons for
impacting upon performance. Although we cannot test That said, figure 25 shows that the relationship
the lag between practices and performance because our between the number of years in operation and the
data is not longitudinal, we can consider whether time adoption of business practices is not linear. That is,
impacts on the development and implementation of firms who have been operating for longer do not, on
business practices by comparing the years a firm has average, score better across all practices indices or on
been in operation to its scores across the strategising/ outcomes. In fact, firms that have been operating for
practices and operational outcomes indices.
Figure 25. Practice and Outcome Scores by Age of Business
Strategising/ Operational Leadership & Employee Customer Quality & Innovation & Information & Use of IT
Practices Outcomes planning practices focus supplier focus technology benchmarking
less than 1 year 48 54 44 42 54 53 40 53 38
up to 2 years 54 60 50 57 55 53 47 60 48
up to 5 years 54 59 53 54 59 53 47 59 40
up to 10 years 53 60 52 51 59 51 44 59 40
over 10 years 52 59 53 49 54 54 44 57 43
all firms 52 59 52 50 56 53 45 57 42

161
 over ten years on average sometimes score lower than
their younger counterparts, particularly in the area of ■ Conclusions
on Business
employee practices, where one may expect that a more Improvement and Structural Issues
established firm would have had significant time to
develop a more comprehensive range of practices. As indicated in the introduction to this chapter, the
differences based on structural characteristics need to
Even then, these results could well be more related to be interpreted with some caution, as the analysis using
size effects than age effects. Using a multiple regression single explanatory variables does not do justice to the
technique to control for firm size, an initial analysis of complexity of the relationships between size, exporting
the effect of years in operation on business practices status, ownership, industry sector and age of
and operational outcomes was conducted, businesses. The results for large firms, for example, are
distinguishing between firms less than two years old likely to also be affected by the fact that more large
and firms older than five years. The only index firms export, are overseas owned and are older. It is
showing a statistically significant difference between probable that all of the structural characteristics have
firms in these two groups was in leadership and some effect on different practices, and our initial
planning (when size was controlled for). Further work exploratory tests suggest this. This is an area for further
is planned to consider age differences in more detail. detailed research.

Despite this caveat, there are some key issues that have
been identified by the analysis:
• As one would expect, smaller firms take a less
formal approach to business improvement across all
the practices analysed. Although large firms
generally outperformed small firms across all
practices, it is not clear why this occurred given that
there were little differences on outcomes. It is
possible that it is not appropriate to apply the
business excellence models and theories of
management and quality gurus to the small firm
sectors. It is also possible that the respondents from
small firms may have answered this survey
differently, either because they were unsure about
the terms used in the questionnaire or because they
were too busy to give the questionnaire the attention
it needed. These possibilities need to be explored
further. Examining business improvement in small
firms may prove to be a more insightful approach
for the economy as a whole than first realised.
• The sector a business operates within is also shown
to have an impact upon the choices a firm makes
about its business practices. Service businesses, on
average, outperform firms from the primary and
secondary industries, particularly on customer focus
and employee practices. There may be opportunities
for cross-sectoral learning, re-emphasising the need
for further consideration of benchmarking in New
Zealand
• Overseas-owned businesses generally outperform
domestic businesses, confirming advantages from
foreign direct investment, particularly on employee
and leadership practices.

162
■ Criterion Group Ltd – Managing Growth
Criterion Group Ltd is a furniture manufacturer that employs about 320 and Marketing sections of Criterion are still pushing this relationship-
employees, with around 200 at its headquarters in Auckland and 120 in based approach. Maintaining an open style of communication with
its Australian operations. Criterion at present has external sales in excess customers is one of the key elements to this. Delivery in-full and on-
of $60 million per annum. Its core areas of business currently include time is another important aspect, particularly with Freedom, which
home, computer, and office furniture, garage storage units, and other penalises suppliers that have poor delivery records.
electrical manufacturing mass produced items like TV stands.
Processes and measures are in place to determine customer satisfaction.
Around 80% of Criterion’s sales are in Australia, 18% in New Zealand To make the best possible use of feedback from customers, Criterion
and the remaining 2% in the US and Singapore. Singapore is a niche logs responses on its warranty cards into a database that can be drawn
market, but is seen as a springboard into the rest of Asia. Criterion has on to examine general trends or specific issues raised.
one major customer in the US to whom it supplies audio racks.
In its new premises, Criterion has a showroom for its furniture so
Criterion Group Limited was interviewed by the Ministry of Commerce prospective customers can examine the products in their final form.
in 1998 for the initial Gearing Up study. Since then, Criterion’s size has
approximately doubled. Organic growth has occurred at about 25% per Quality and Supplier Focus
annum, with the remaining growth coming through acquisitions.
Criterion has a good working relationship with its suppliers, and works
About four years ago (at around the time of the last interview), Criterion closely with key supply groups, according to the Chief Financial Officer.
had reached a stagnation point. A strategy to encourage customer- Agreements with suppliers are renewed annually, and during this process
centred growth led to improved performance within New Zealand. One Criterion’s Procurement Manager sits down with suppliers to discuss
element of this strategy was getting its designers to work closely with how the relationship has been going and any issues that need resolving.
Freedom Furniture in the creation of new furniture. Criterion has also
moved into a new purpose-built manufacturing plant and invested in Criterion has tried to adopt a just-in-time supply chain management
new capital equipment over the last two years. system, but has found that, while it has the advantage of reducing the
amount of working capital tied up in the business, it also means that, at
Until quite recently, Criterion was managed by Wally and Brian Smail, times, Criterion is paying a premium for its supplies.
the founders of the company. However, with the company’s growth
strategy in mind, the founders appointed an external chief executive to Criterion has a position dedicated to production planning. The Production
help escalate the realisation of opportunities associated with this strategy. Planner is responsible for co-ordinating the order of materials with the
This resulted in better accountability lines as well as giving greater expected volumes of sales and organising the production of the
responsibility to managers for managing their respective areas. It also appropriate stock. Replenishment orders arrive fortnightly from Australia
allowed the Smails to focus on the strategic direction of, and innovation and stock updates from Freedom stores arrive weekly. The Production
within, the firm. Planner works closely with the Marketing Manager to consider and
develop likely production schedules. Production schedules are then
Looking forward, Criterion’s strategy involves entering new category forwarded to the leaders of the manufacturing teams.
markets including kitchens, small office/home office and vanity markets,
and securing its New Zealand and Australia markets. Employee Practices
The Chief Financial Officer believes that the culture at Criterion reflects
Business Practices its ‘true Kiwi nature’ and the friendly attitude that permeates
The welfare of staff is the key element of business improvement at New Zealand society. Throughout Criterion, activities to build culture
Criterion, according to the Chief Financial Officer. There is also a focus are undertaken within individual teams. The new building has a bar
on technology and processes. This feeds into many aspects of the way area to allow staff to get together and relax. Criterion also publishes a
Criterion does things, including: quarterly newsletter for its staff.

• getting staff input into the decision making process Criterion has Key Performance Indicators (KPIs) in place for its office
• having weekly team meetings to plan production and ensuring that employees. Managers set these for their employees and they tend to be
the outcomes from these meetings are disseminated to all levels of project based. Bonuses are paid on improvements in Criterion’s Economic
the organisation Value Added (EVA) over and above its targeted levels, with 50% of the
bonuses payable to staff as a whole and 50% based on individuals’ KPI
• driving factory tracking through a computer system that allows ratings. Criterion also works to ensure that staff receive fair market
material to be made to plan, work in progress to be tracked, and rates for the jobs they do and, once a year, Criterion presents an award
efficiency measures be taken to the highest achiever in the factory.
• providing procedure manuals and extensive briefings for new staff
Training needs and wants are identified during performance reviews.
• maintaining a low work injury rate through having a proactive site Each manager has a staff training budget and the FITO provides a range
safety team and a database for all injuries of training opportunities. Criterion encourages staff to become multi-
skilled to create flexibility within their operation. Training on the use
• investing a great deal in training staff through the Furniture Industry of machines within the factory is provided by site services engineers.
Training Organisation (FITO).

Customer Focus
Criterion has emphasised customer relations as part of its growth strategy.
An example of this is its relationship with Freedom Furniture. The Sales

163
164
15 – MANUFACTURING BUSINESS
PRACTICES AND PERFORMANCE IN SWEDEN
Michael Leigh and Per Magnus Wijkman. markets. Nevertheless, it has long been closely
ECON – Centre for Economic Analysis.1 integrated with the economies of Western Europe.

As in New Zealand, processed natural resources and

manufacturing have historically been an important
basis for its prosperity. While transport costs are a
consideration, especially in Northern Sweden, the
‘economic distance’ from its major markets is not
nearly as great as for New Zealand.

Like other Nordic countries, Sweden is a small, open

economy with a skilled and relatively expensive labour
force. As such, it needs to be competitive in aspects
other than simply price, to ensure that its
manufacturing industry continues to be a source of
value and high-wage employment. This is particularly
true for industries where the domestic market is small
and international competition is strong.

2 The growth of many Swedish companies into major

multinationals in the latter half of the 20th century is
often seen as a result of ‘world-class’ management
3 ability. In particular, this has included excellent
management-employee relations. However, the chronic
failure of small and medium-sized firms to grow; the
recent impact of IT firms’ competitiveness; and the
1 increasingly frequent crises in a number of major
Swedish multinationals have cast new light on the
management capabilities in Swedish industry.

The following is a brief description of the results of

three pilot studies performed on Swedish
manufacturing sites. The pilot studies cover parts of the
Västra Götaland Region, Örebro län, and Dalarna, a
major section of Mid-Sweden (see map).3

■ Introduction 1
We would like to thank the Hon. Jim Anderton, Minister for
Economic Development and Industry and Regional Development, and
In addition to the study carried out in New Zealand, a his staff in the Ministry of Economic Development, New Zealand, for
group of researchers in three parts of Sweden also the encouragement and assistance provided in initiating the Swedish
conducted the study. Using the same methodology and pilot projects. The inspiration and counsel of Stephen Knuckey, Amir
questionnaire (barring some minor language changes), Piric and Hayden Johnston have been particularly important.
the Swedish study was developed to investigate the Sponsored by the Swedish Pressure Vessel Association and NUTEK,
Professor Gunnar and LLM Peggy Kullberg initiated the contacts
adoption of business practices in manufacturing sites between Sweden and New Zealand that resulted in this project and
employing ten or more full-time equivalents. This facilitated its progress with unflagging enthusiasm throughout.
chapter compares their results with the sub-sample of 2
The definition of firm size differs between studies. In Sweden, firm
New Zealand manufacturing firms employing ten or size groupings are: 10–49.5, 50–249.5 and 250+ FTEs. In New
more employees.2 Zealand the corresponding groupings are 6–19.5, 20–49.5 and 50+
FTEs (except for the manufacturing sub-sample).
3
The studies have been carried out by Andreas Deniz and Kennet
Samuelsson, University of Göteborg, Jan Sundqvist, University of
■ Background Örebro, and Ragnar Ahlström Söderling with assistance by Tanja
Lehtola, Nicola Knowles and Carina Sanna, Dalarna University,
Sweden provides a good comparator to New Zealand, respectively. They have been funded by The Confederation of Swedish
as the economies have similar characteristics. Sweden Enterprise, NUTEK, regional governments in Dalarna and Örebro län,
Laxå municipality and individual companies (ESAB and ECON –
is also a relatively small nation (approximately nine Centre for Economic Analysis). The pilot studies have been conducted
million people), located on the periphery of major within the network Insikt för Framgång, chaired by Lars-Göran
Eriksson, ESAB Laxå.

165
 Manufacturing is strong and diverse in each of these processes as large companies, in order to be
regions: competitive.
1 Västra Götaland includes most of Sweden’s textile
The main results of the scorecard can be summarised as
and clothing industry; large fish and food processing
follows:
industries; important steel and forestry plants; and
key engineering companies, in particular in the 1. 6% of sites surveyed have scores of more than 75 in
transport industry. both strategising/practices and operational outcomes
and are likely to compare well with the best in the
2 Dalarna has a tradition in mining, steel and forestry
world
production but also in engineering.
2. 40% score over 60 in both indices and can be
3 Örebro County, at the North-South, East-West
considered to have a strong foundation for achieving
crossroad of Sweden, has a varied industrial
world class status
structure ranging from light to heavy industry.
3. 23% score over 60 only in operational outcomes,
The study surveyed 1,127 manufacturing sites with a and generally represent manufacturing sites with
total of 452 responses (a response rate of 40%). In New fewer than 50 employees. These outcomes are only
Zealand, the sample of manufacturers with ten or more likely to be maintainable if these companies choose
FTEs was 862 with a total of 736 responses (a response to remain small. Otherwise, they will be obliged to
rate of 85%). improve their practices as the sites get larger and
become more complex to manage
4. 10% have strong strategising/practices (over 60),
■ Key Results which do not correspond to strong operational
The following summarises the relationship between the outcomes
adoption of practices by manufacturing sites and their 5. 21% of firms have scores on both indices of lower
outcomes in Sweden. Similar to the New Zealand study, than 60 and should consider what they need to do to
the graph below depicts a clear positive correlation improve their performance.
between the two variables.
The picture for Sweden differs considerably from the
The average score on the strategising/practices index corresponding results produced in the New Zealand
(61) and the operational outcomes index (65) suggests study of manufacturing sites with over 10 employees.
that the average firm, in the Swedish sample, has a Only 2% of manufacturing sites scored over 75% on
strong foundation for business excellence. This both indices in New Zealand, compared with 6% in
compares to an average score of 55 and 61 by New Sweden. Those firms that need to improve both their
Zealand manufacturers. business practices and operational outcomes were
relatively more numerous in New Zealand (34%) than
Interestingly, many firms achieve relatively high in Sweden (21%).
outcomes despite low practice scores – these firms are
almost exclusively small. As indicated in the section on Index Results
firm size (see chapter 14, Business Practices and
Structural Issues), this suggests that smaller firms may The Swedish scores on the individual business practice
not need to implement the same kind of practices and indices vary considerably. Swedish manufacturers tend
to be strong in the adoption of leadership and planning
Distribution of Results and quality and supplier focus practices. However, they
100
appear relatively weak in innovation and in
90
3 1 information and benchmarking practices. The variation
80 between mean index scores is greater in Sweden than
70
2
in New Zealand. Sweden’s highest scoring index
60 (leadership and planning) is significantly higher than
New Zealand’s, while its lowest index score
Outcomes

50

40
(information and benchmarking) is significantly lower.
30
The mean score of 74 in leadership and planning
20
5 4 suggests that Swedish companies tend to have excellent
10 practices in this area. Not far behind is the quality and
0
30 50
supplier focus index, at 71. A possible explanation for
0 10 20 40 60 70 80 90 100

Practices
the high score on this index is a Swedish history in

166
Figure 26. Swedish Scores Across Practices and Outcomes
By Nation Leadership Employee Customer Quality & Innovation & Information &
& Planning Practices Focus Supplier Focus Technology Benchmarking

New Zealand 55 51 60 58 48 61
Sweden 74 57 62 71 50 50

By Status Leadership Employee Customer Quality & Innovation & Information &
& Planning Practices Focus Supplier Focus Technology Benchmarking

Leaders 88 70 80 85 68 69
All 74 57 62 71 50 50
Laggers 55 32 36 47 27 24
Mean index scores - Sweden / New Zealand close relationship between innovation and information
employee practices
100
and benchmarking may account for the relatively low
80
scores in both.
60
leadership & planning 40 customer focus New Zealand manufacturers surpass Swedish
manufacturers only in the area of information and
20
benchmarking.
0
Leaders and Laggers
Distinguishing between leading and lagging firms
information &
quality & supplier focus
benchmarking allows us to identify the business practices that are
distinctive for firms achieving better business

innovation & technology Business Practice Scorecard - Sweden

100

Leaders
New Zealand Sweden 90

80
providing quality products. Swedish firms also tend to
70
be co-operative and consensus orientated, which
60
encourages close working relationships with suppliers.
Outcomes

50

While Swedish firms still score reasonably well on 40

customer focus, the figure 62 is a little low given that 30

one might think of it as closely related to a quality and 20

Laggers
supplier focus – there is no obvious explanation for the 10

almost ten point difference in the average scores. 0

0 10 20 30 40 50 60 70 80 90 100

Practices
Employee practices were lower than expected for the
Swedish group (57). Sweden has always prided itself on Mean index scores - Leaders/Laggers
its so called ‘middle way’ and has seen itself as very leadership & planning
100
progressive on the issue of employee relations.
However, there are a wide variety of training and re- 80

training initiatives administered by the government, information & 60

benchmarking employee practices
which may lessen the need for focusing on employee 40
training inside the firm.
20

The weak performance in innovation and technology 0

was a surprise given the large amount of attention

being placed on it at the national level. A number of
innovation &
governmental re-organisations have been carried out in technology
customer focus

order to promote innovation in Sweden, making this a

most interesting situation to track over time. The low
scores in information and benchmarking are also quality & supplier focus

surprising. As will be discussed in the next section, the Laggers Leaders

167
 Figure 27. Leaders’ Scores as a % of Laggers’ Scores in Sweden
Leaders' Scores as a Percentage of Laggers

Information & Benchmarking 292

Innovation & Technology 252

Quality & Supplier Focus 182

Customer Focus 221

Employee Practices 221

Leadership & Planning 160

0 50 100 150 200 250 300 350

%
outcomes. As with the New Zealand study, Leaders are where Leaders distinguish themselves from other firms
those firms that score in the top 20% of firms on both and display a high level of skill. The following section
the operational outcomes and strategising/practices investigates these two elements in detail and examines
indices – 7.5% of Swedish manufacturing firms qualify what particular practices are most distinctive.
as Leaders. Laggers, similarly, are identified as those
sites that fall in the bottom 20% of both the Information and Benchmarking
operational outcomes and strategising/practices indices.
Here too, 7.5% of firms fall within this category. Information and benchmarking scores a firm’s ability
to gauge and react to information it collects or receives
By considering the differences between Leaders and on the current environment.
Laggers, we can see where the competency gaps in
Swedish manufacturing lie. Put simply, the larger the Firms can believe that they are making a serious
gap, the larger the potential benefits there are in commitment to improving one or more of their
closing it. business practices or processes, but without having a
sufficiently advanced system in place for tracking their
Figures 26 and 27 both illustrate the quantum leap in efforts, they cannot make an objective evaluation of
competencies over all practices that must be made by the success of their efforts. Also, more obvious external
Laggers to reach even the average level of competence, comparisons need to be made in order to determine
let alone ‘leading’ practice. Leading firms in most cases what competitors are doing in the market place. This
have a score that is at least twice that of lagging firms. constantly shifting point of comparison is critical to
Leading firms score between 12 and 19 percentage developing a strategy and making decisions.
points higher on each index than the overall average.
Clearly, Leaders consider it important to self-evaluate
The Leaders’ scores compared to those of Laggers shows their systems and performance in relation to the
those areas where lifting competency levels may be market. They are skilled at figuring out how to
most needed. It also suggests what practices are key maintain the ‘edge’ over the competition and are
differentiators between success and failure. Where therefore most likely to be able to respond quickly to
leading Swedish manufacturers most clearly distinguish changes in the competitive environment.
themselves from their counterparts is in information
and benchmarking (the lowest scoring index across all There are a number of ways to evaluate performance,
firms) and in innovation and technology. It would seem and leading firms tend to use a greater number of
that firms that wish to achieve Leader status will need indicators than other firms. It tends to be true that the
to pay more attention to aspects of their business larger the firm, the more likely they are to adopt
operations that fall within these two indices. benchmarking processes.

Innovation and Technology

■ Improving Key Practices in Sweden An overwhelming number of respondents said that
innovation was either ‘moderately’ or ‘very’ important
As stated, the key practices requiring improvement in
to their business. Despite this recognition, there was no
Sweden appear to be information and benchmarking
corresponding high score on the index itself.
and innovation and technology. These two practices are

168
Even though firms seem to understand the need for The low levels of innovative activity, in spite of the
innovation in their strategic focus, this has not been strategic value that firms put on the process, can be
transferred into action at the practice level. When the explained in part by the barriers to innovation that
numbers are broken down, large companies and firms perceive. The top three obstacles to innovation, as
exporters are the types of firms that are significantly identified by Swedish manufacturers, were a lack of
more likely to have innovation-related practices in access to capital (29%), the current economic climate
place than others. (24%), and a lack of skilled staff (20%). These results
are very similar to the barriers reported by New
Zealand firms. As many as 35% of firms felt that none
Q 1.1 How important is a strategy of innovation
for this business? of the factors reported were barriers to their ability to
60 develop new products, services or processes.
50

Innovation is a complex process and hence requires an

40
40
element of sophistication, which in some cases may
% only be possessed by large or export-orientated firms.

20
Firms must maximise the efficiency gained from
processes and products to ensure that they become
10
leaders in their industry. The creation of one
0
innovation often provides a path for further innovation
0
not important a little important moderately very important and may provide direct performance spin-offs, such as
important lower production costs, improved customer satisfaction
and higher product quality.
Q 1.1 A strategy of innovation is ‘very important’
for this business: It is essential that firms are aware of the different forms
80
that innovation can take. Innovation is not restricted to
68 67
the development of new products – process innovations
60 59
are equally important. For example, efficient
52
%
51
48
50 benchmarking of one’s own systems and processes is
40
41 essential in identifying potential bottlenecks, quality
problems and constraints to firm growth. The capacity
27
for innovation, therefore, seems closely related to
20 efficient benchmarking processes.

0
Status By Size By Export Status
Medium
Leaders

Laggers

<50%

50%+
Small

Large

Zero
All

Q 9.5 In the LAST 3 YEARS which of the following, if any, made it difficult for the business to develop new or improved
products, services or processes?
40
35

29

24

20
% 20

14
12
11

0
access to market too economic competition outside core lack of government none of
capital small or climate in same business skilled staff regulation these
unknown market activity or policy

169
 ■ The Importance of Size, Export Sweden. There are many possible reasons for this. We
believe size is important because:
Status, Industry, and IT
• up to a certain point the owner/entrepreneur/
This section looks at other elements of a firm’s strategy manager can control the business alone; this means
or structure that may affect its growth or performance that specialised processes or practices are not
potential. Three aspects are considered; export status, required in the same way that they are in larger
firm size and industry classification. enterprises

Export Status • good practices take time to develop; smaller (and in

many cases newer) firms simply have not had the
Results in both Sweden and New Zealand suggest that time and experience to develop their practices
there is a positive relationship between practice scores
and export intensity. • large businesses have more employees, suppliers,
products, customers and information to manage and
The effects of exporting are quite clear. Any firm that would lose control of operations unless some sort of
wishes to enter, remain or expand its activities in formalised structures were put in place to manage
foreign markets needs to implement practices to a these aspects
higher standard, in order to compete with world-class • one might expect a certain degree of survivorship
standards. This, in turn, gives firms the necessary skills, bias in the data. The ability of a firm to survive is a
cost savings and credibility to remain competitive. reflection of the strength of its practices; for firms
that have been operating for longer, it would seem
Firm size that they already have relatively strong practices
that have enabled them to survive.
The study shows firm size to be the most important
determinant in the development of business practices in

Figure 28. Practice and Outcomes Scores by Size and Exporting Status in Sweden
Exports Leadership Employee Customer Quality & Innovation & Information &
& Planning Practices Focus Supplier Focus Technology Benchmarking

Zero 69 50 57 62 41 41
Up to 50% 74 56 62 71 50 49
50% or more 78 62 66 79 59 58

Firm Size Leadership Employee Customer Quality & Innovation & Information &
& Planning Practices Focus Supplier Focus Technology Benchmarking

Small 71 53 58 68 48 46
Medium 80 64 68 76 52 55
Large 88 72 76 86 67 69

Mean index scores - By Exporting Status Mean index scores - By Firm Size
employee practices leadership & planning
100 100
80 80

60
information & 60
leadership & planning 40 customer focus benchmarking employee practices
40
20 20

0 0

information & quality & supplier focus innovation & customer focus
benchmarking technology

innovation & technology quality & supplier focus

Zero Up to 50% 50% or more Small Medium Large

170
Whatever the reason, it is apparent that, generally relative applicability of these practices to the industry
speaking, small firms perform to a lower standard on in question.
the practice indices than their larger counterparts. This
need not be all that much of a concern to small firms The Swedish study revealed that industry classification
though, because they may well be able to achieve their had very little influence on a firm’s business practices
goals and objectives without all the processes necessary scores – though we must note that these are all sub-
in larger firms. industries of the manufacturing sector and that there
were some significant differences across more broadly
All the large Swedish manufacturers surveyed are classified industry groupings in the New Zealand study.
exclusively found in the top right hand side of the
business practices and performance scorecard. Medium- The largest differences in the Swedish study were found
sized firms score well on the strategising/practices between the food and beverage industry (the lowest
index, but less well on the operational outcomes index. average scores) and the engineering industry (the
While some small firms qualify as Leaders, the general highest average scores). Compared to other structural
trend is for them to score relatively low in terms of mechanisms for distinguishing firms (such as size, or
practices. Consistent with the New Zealand findings, exporting status), the average difference between index
small firms do not fare as poorly on the operational scores of 8 is small. The largest difference was in
outcomes index; while the average score for small firms customer focus, this is most likely to be because the
is lower than that for large firms, it is much closer than end products of the food and beverage industry are
in the strategising/practices index. This would again sold to grocery chains and other intermediaries rather
suggest that smaller firms do not need to rely on the than directly to the final consumer.
formalised processes that larger firms do in order to
achieve similar business outcomes. The mean score for the engineering sub-industry is the
highest across all practices except information and
Industry Classification benchmarking. While the differences across sub-
industries are not distinct, the engineering group may
It is reasonable to assume that firms in different prove to be a useful benchmark for firms in other
industries, which are subject to varying environmental industries seeking to improve their practices and
conditions and resource constraints, will score business outcomes.
differently in terms of practices depending upon the

Industry Leadership Employee Customer Quality & Innovation & Information &
& Planning Practices Focus Supplier Focus Technology Benchmarking

Food & Beverage 70 52 52 65 46 44

Textiles & Leather 75 57 63 70 52 50
Wood & Paper 71 55 58 71 45 52
Raw Materials 75 58 63 71 51 53
Engineering 76 59 66 75 53 51
Other 72 53 56 64 48 47

■ Innovation Research in Sweden

NUTEK, the agency that promotes innovation and technological new products. In Lööf’s survey, the figures were used to calculate what
development in Sweden, recently sponsored a study (Lööf et al 2001) percentage of sales resulted from innovations. This number was then
that shows a strong relationship between low productivity firms and averaged over all the manufacturers in Norway, Finland and Sweden.
low survival rates.4 The study found innovation to be a large component He asserted that innovation was responsible for 36%, 34% and 33% of
of productivity and found that successful innovation could result in each country’s manufacturing sales respectively.5
improvements right across the organisation. Potentially, many areas
can be affected – organisational learning, new ideas, and improved
flexibility can all be results of an innovation process.
4
Lööf, Hans et al (2001), Innovation and performance in manu-
The Community Innovation Survey, which looked at a wide variety of facturing industries: a comparison of the Nordic countries, SSE/EFI
micro-data across Europe, found that spending on R&D accounted for working paper series in Economics and Finance, no.457, August 6.
5
only 1.5% of sales on average. Spending on innovation as a whole, The Community Innovation Study is a comprehensive study of
including R&D, was 3.3% of sales. This means that more money is innovation in European economies. For more information visit their
being spent on improved methods for doing things than on developing website http://www.cordis.lu/eims/src/cis.htm

171
 Use of Information Technologies (IT) Sweden is also the home of Ericsson, one of the largest
international telecommunications companies. This
The current study treats the use of IT as an enabler of provided a solid base for the development and use of
business practices rather than as a practice in its own new technologies over the decades. Sweden is the
right. New technologies have revolutionised the way in foremost producer and user of IT relative to its size,
which a firm can organise its processes and people, and is one of the most highly connected societies in the
production lines and distribution channels. Processes world.
closely associated with the development of IT include
improved inventory management, shorter product Consequently, the Swedish IT index score is high – the
cycles, just-in-time production, supply-chain overall average is 66 compared with New Zealand’s 42.
management, improved knowledge management, and According to Swedish results, this has proved to be
an increasing geographical scope for marketing. quite highly correlated with the use of good business
practices. The correlation co-efficient was 51%. No
As impressive as the development of new technology matter how the data was divided, the IT results were
has been, it is only a business tool – harnessing its strong, except for Laggers. This high score is no doubt
potential is up to the individual firm. Swedish reinforced by the high labour costs found in Sweden,
producers and consumers have been quick to adapt to which encourage the rapid adoption of labour-saving
new technologies and their adaptability is likely to be a technologies. Factors such as size and export status,
major factor in determining how successful Swedish which had a positive effect on strategising/practices
manufacturing firms will be in the future. scores, have a similar, although weaker, positive effect
on a firm’s IT score.
The Swedish government has also recognised the
importance of IT competitiveness. For example it:
• quickly deregulated the Swedish telecom sector ■ Conclusions
• provided tax incentives for employees to purchase The Swedish manufacturing industry possesses a
home computers, and comparatively high level of business practices,
• is installing broadband trunk lines and providing measured by both absolute and relative standards. It is,
incentives for local communities to connect to the however, noticeably weak in the practices associated
trunk lines and for households to connect to the with information and benchmarking and innovation
local loops. and technology. Leading firms and exporters tend to
have considerably higher scores in information and
About 7 billion Swedish Kronor (approximately NZ$ benchmarking and in innovation than the average. It
1.4 billion) has been committed by the state to support thus appears that both information and benchmarking
these programmes. and innovation may play a key role in improving

Use of IT Index Scores

other 67

engineering 67

raw materials 66

Industry wood & paper 61

65
textiles & leather
59
food & beverage

more than 50% 71

Export 66
intensity up to 50%
55
zero

large (250+) 76

70
Size medium (50-249.5)
62
small (10-49.5)

leaders 77
Status all 66

laggers 44

overall mean 66

0 10 20 30 40 50 60 70 80 90 100
%

172
business outcomes. This provides an important insight • develop closer relationships with their business
for policy decisions aimed at increasing business partners throughout the value chain.
capability.
The results of this study indicate that Swedish
In order to regain the relatively high standard of living manufacturing already has a strong foundation for
that characterised Sweden 30 years ago, Swedish achieving the above stated goals, but firms cannot
industry must improve its competitiveness relative to become complacent. Continuous development is a key
other countries. This will require improving the characteristic of business excellence.
business practices employed by Swedish firms. These
firms will have to: An improved focus on benchmarking is critical. It will
help to improve the levels of innovation in Swedish
• produce goods that consumers want
manufacturing, the other critical weakness this study
• be able to take advantage of the competencies of the has stressed. Benchmarking alone will not be sufficient
workforce and keep those skills sharp to improve the level of innovation – firms must look at
• come up with new and better ways of doing things all their practices holistically and attempt to tailor them
to meet their specific goals and objectives.
• evaluate and tailor the best aspects of each other’s
systems as well as those of world-class companies all
over the world, and

173
174
16 - THE IMPACT OF THE
COMPETITIVE ENVIRONMENT
As stated in chapter 2, the strategies a business chooses Laggers than Leaders, on the other hand, indicate that
to pursue, the practices it adopts and the results it they hold a captive market or are in a situation of
achieves are, of course, dependent on how it interacts many competitors, but with none playing a dominant
with its environment. This includes the demands made or challenging role (and results are similar when
in the market, the nature of customers, suppliers and controlling for firm size).1
competitors, and economic, social, environmental,
technological and governmental trends. Examining this more closely by considering results on
some key indices demonstrates that firms that are in or
perceive greater competition have far more developed
■ Competition practices than firms that do not face such high levels of
competition. In particular, firms that consider
As clearly articulated by Porter’s five forces model themselves to be in a captive market pay far less
(1980), competition is dependent on the threat of new attention to customer focus (although note that the
entrants and substitutes, the bargaining power of number of firms that indicate that they hold a captive
suppliers and buyers, and rivalry amongst existing market is quite small).
firms. Different forces take on prominence in shaping
competition for any business. From the BPPS, we are Similarly, firms facing greater competition tend to
able to gauge perceptions of the extent of rivalry emphasise a range of strategies, and higher percentages
between existing competitors. of these firms consider innovation and flexibility
important than those that see themselves in a captive
Rivalry between existing competitors is basically about market. In fact, firms operating in captive markets
jockeying for position, using prices, advertising, place less emphasis on all the broad strategies
product and service developments and customer identified in this study.
service. As described by Porter (1980), when
competitors in an industry are numerous, the likelihood When we compare these findings with business results, it
that some firms will stir up rivalry is great, since firms becomes apparent that higher proportions of firms that
may believe that they can make moves without being are in (or perceive themselves as in) captive markets are,
noticed. Even if there are fewer firms but relatively in a sense, standing still or do not have a clear idea how
balanced key competitors, they may be prone to take they are performing. Larger percentages of firms that
each other on. On the other hand, when a market is reported facing competition (particularly one or two
highly concentrated or dominated by one or a few competitors) improved their business results in the three
firms, behaviour will be relatively stable. Hence, we years prior to the survey, while a high proportion of firms
would assume that those firms confronting, or that reported facing many key competitors experienced
perceiving, greater competition face more pressure to more disbursed business results.
develop their business practices and capabilities in
order to gain an advantage. Overall, it appears that the nature of competition has a
major influence on the development of business
This is borne out by the BPPS. Leaders on practices practices and achievement of outcomes.
tend to be firms that face or perceive a significant
Score on Leadership and Planning and extent of competition
number of key competitors. A higher proportion of
45

Extent of Competition 40 40
39
37
60
55 35
33
50 30 29 30
44 28

40
40 25 24 23
22
% 20 20
30 20
28 18
%
21 15
20 18 18
19

12 12 10 9
10
10 7 6
7
5
3 4 4 5
3 3
0
0 significant number
captive market 1 or 2 many don’t know 0
competitors of key competitors, captive market 1 or 2 competitors significant number many competitors,
competitors none dominant of key competitors none dominant

Leaders All Laggers

0-20 20-40 40-60 60-80 80-100
1
A similar relationship holds for small firm Leaders versus Laggers,
and large firm Leaders versus Laggers.

175
 Score on Quality and Supplier Focus and extent of competition Change in Market Share and extent of competition
45 45 80

40
40 63
37
36 60 58
35 55
33

30 43

26
% 40
25 24 31
27 27
% 21 21
20 23
20 19
20
20
17 16

15 14
6
8 7 6
8
3
10 10 0
10 decreased stayed the same increased don’t know
8
7
6
5
3 3

0 captive market
captive market 1 or 2 competitors significant number many competitors,
of key competitors none dominant 1 or 2 competitors
significant number of key competitors
0-20 20-40 40-60 60-80 80-100
many competitors, none dominant

Score on Customer Focus and extent of competition Change in Profitability and extent of competition
45 70

60 59
40
52
35 35
35 34 34 50 48
45

30 40 37

26 % 30
25 30 28
23 23
23
% 20
21 21
20
21
20 20 19
19 17
18
13
15 14 14 10
13
12 2 2 2 2
10
10 0 stayed the same don’t know
decreased increased
7
5
5

0 captive market
captive market 1 or 2 competitors significant number many competitors,
of key competitors none dominant 1 or 2 competitors
significant number of key competitors
0-20 20-40 40-60 60-80 80-100
many competitors, none dominant

Score on Information & Benchmarking and extent of competition Change in Total Sales and extent of competition
60 70 66

54 59 58 60
60
50
44
50
41
40 39 40
%
35 % 33

30
31 30
30 24
20 20
24 20 18
15
21 12
20 18 10
4 5 4
1 2
12 12
0 stayed the same don’t know
10 9 decreased increased
7
6
5 5
4
2
1
0
captive market 1 or 2 competitors significant number many competitors, captive market
of key competitors none dominant
1 or 2 competitors

0-20 20-40 40-60 60-80 80-100 significant number of key competitors

many competitors, none dominant

176
■ Access to Finance Given that 52% of respondents did not regard this
question as applicable (i.e. had not sought equity
Although there continues to be a general perception funding), and 17% did not answer, this means that 56%
that there is a lack of available capital in New Zealand of those that actively sought equity finance (and
for expansion and innovation, which might constrain answered the question) considered that it was available
business improvement efforts, the results of this survey (on acceptable terms) and only 6% regarded equity as
suggest that both debt and equity capital is reasonably not being available at all (and a further 6% indicated it
accessible in New Zealand – at least for firms with 6+ was available only on ‘unacceptable terms’, and the rest
FTEs. – 31% – didn’t know).
• 48% of firms found that loan finance had been
‘readily available’ over the 12 months prior to the These results initially appear to contrast with those for
survey a related question that asked whether the availability of
finance was a barrier to improving business
• 6% considered loan finance was available only on performance. 22% of firms overall answered in the
‘unacceptable terms’ affirmative (see Impediments to Business Improvement
• only 2% indicated loan finance was ‘not available’ later in this chapter). However, this may actually
(and 7% did not know). suggest that: i) perceptions that it is difficult to access
capital are impacting on firms’ decisions to seek
Given that 34% indicated this question was ‘not capital; and/or ii) internal funding is generally used for
applicable’ (and a further 4% did not answer), these business improvement (rather than external finance)
results actually indicate that 77% of those that actively and a number of firms do not have spare financial
sought finance for borrowing (and answered the capacity for funding improvement efforts.
question) considered it was available (presumably on
acceptable terms), 3% believed it was not available, and These results suggest some improvement in the
9% considered it was available on ‘unacceptable terms’. availability of debt capital since the New Zealand
Innovation Environment Report (Frater et al, 1995) was
Similarly: released, which asked a very similar question on
perceptions of the availability of debt and equity
• 18% of all firms indicated that equity finance was funding (and the 1995 survey respondents were
‘readily available’ reasonably representative of the business population).
• 2% thought that equity was available but on In 1995, some 12% of those that had sought debt
‘unacceptable terms’ over the 12 months prior to the capital considered it was ‘unavailable’, and around a
survey further 12% considered debt funding was available but
‘not on acceptable terms’.2
• 2% reported that equity was ‘not available’ (and 10%
did not know).

2
Full results on access to equity were not available from the BERL
report.

177
 From the firm visits, about a fifth of firms indicated market in New Zealand (See Equity Capital in New
that accessing finance for growth was a barrier to Zealand below).
business development, particularly from a low asset
base (as was the case with most small companies). Most The results on the lack of use of business angels appear
of these firms referred to internal as well as external to contrast with the recent results from the Global
capital – consistent with the points outlined above. Entrepreneurship Monitor (Frederick et al, 2002), which
suggested that New Zealand has one of the highest
The lack of differences between large and small firms rates of ‘angel’ activity in the world. However, the GEM
on access to debt and equity finance, despite prior study included informal investment from friends and
expectations and differences in perceptions of finance family in these figures (not the traditional view of
as barrier to business development, has already been business angels – these are typically independent and
described in chapter 14. take an ownership stake in the business).

Sources of Finance Results on access to finance by size of firm are

discussed in chapter 14.
When funding innovation or expansion, the most
frequently used sources of capital are, not surprisingly,
Access to Finance and Stages of Development
banks. 51% of respondents used banks to fund some
proportion of their innovation or expansion activities There is ample research evidence that indicates that
in the three years prior to the survey, with 22% of newer or establishing businesses find it more difficult
respondents using banks to fund more than 50% of to access finance. There are good reasons for this. There
their activities. are higher relative risks and costs of assessment and
monitoring of finance required in early stage
Savings and retained earnings were also an important investments. Investors and financial institutions are
source of capital, with 45% of respondents using this to often naturally unwilling to lend or invest because new
finance innovation or expansion in the three years firms lack a track record, and those new to business
prior to the survey, and 18% of businesses using this often do not have the capability to promote their
source to fund more than 50% of their activities. projects/ideas to investors. Similarly, there tends to be a
lack of facilitation mechanisms and well-connected
Almost none of the respondents reported using angel deal making experts at the early-stage investment level
investors to any degree (less than 1% using business who understand the problems faced in getting an idea
angels for only up to 25% of funding) or venture developed, and who can effectively link in with the
capital (less than 2%). This latter result is consistent needed expertise and present a proposal for funding.
with other research on the state of the venture capital

■ Equity Capital in New Zealand

New Zealand’s Venture Capital Market (Infometrics Ltd, A propositions to invest in. Gaps were thought to be most likely at the
Study commissioned by the New Zealand Treasury, July, 2000). business start-up stage, where information is difficult and expensive to
find and there is a high level of uncertainty about the quality/
This study was based on interviews with 20 participants in the venture performance of the product as well as market prospects. There was
capital market in New Zealand. According to Infometrics, although the some evidence to suggest that entrepreneurs lack the time, money and
high rate of business start-ups points to a potentially strong demand skills to put together effective business proposals.
for venture capital, their assessment is that probably fewer than 5% of
all small and medium sized firms seek such capital, which is consistent In response to this gap at the start-up end of the market and the evidence
with the results from the BPPS (where around 2% of businesses were of demand-side problems, the Government has, over the last three years,
making use of venture capital). The majority of small businesses do not introduced:
seek venture capital because they neither require high-risk equity, nor • The BIZ Investment Ready Programme, which provides training,
offer a sufficient return to equity investors. Generally, the strongest diagnosis and brokering for small firms and entrepreneurs seeking
demand comes from companies looking to develop new products and equity capital.
markets, for which they require capital as well as good strategic thinking
and contacts. • The New Zealand Venture Investment Fund, which will finance seed
and start-up businesses, focusing particularly on technology and
The study pointed to a growing number of firms that are actively helping high value-added products and services, in partnership with private
small businesses and entrepreneurs secure venture capital, including sector venture capital. The $100 million Fund will be a minority
business advisors, venture capitalists, stockbrokers etc. The supply of investor in five ‘drop down’ funds focused on seed and start-up
capital has increased significantly over the years, with entry of new venture investments in New Zealand businesses, to be established over two
capitalists, large institutions, banks and corporate venture capital funds. to three years starting in late 2002. The five seed fund managers are
TMT Ventures, iGlobe Treasury Fund, No 8 Ventures, IO Fund and
There was no clear evidence from this survey that there is either a lack Endeavour I-Cap.
of venture capital available for businesses, nor a shortage of good quality

178
 Sources of finance for innovation or expansion
70

60 58 57
54
51
50
41
40
% 34

30 29

20 19 19
15 15 14
11 11
10 8 9
6 6 5
3 4 3 4
2 2 2 1 1 2 1 2 2 2 1 2
0 0 0 0 0 0

banks finance savings or friends or angel investors venture shareholders

companies retained earnings family capital

<25% <50% <75% >75% don’t know not applicable

We can test this through the BPPS by considering the Finance is ‘not readily available’ by market development
responses on the availability of debt and equity finance 18 17 17

by age of firm. 16 15
14 14
14
12 12
12
On debt finance, the picture that emerges is that firms 11

10
that are between one and two years old find it more %
8
difficult to access debt (28% of firms in this age group)
6
than firms that are more established and, contrasting
4
somewhat with prior expectations, find it more difficult
2
than younger firms.3 This is consistent with the results
0
on barriers to business performance by age of firm (see existing domestic new domestic existing export new export
Impediments to Business Improvement on page 190). It
is possible that, in many cases, the first year of Debt not readily available Equity not readily available
operation represents an emerging stage of research and
development for the business concept, where owners
rely more on their own funds and are seeking relatively of businesses across age groups (less than ten years old)
modest amounts of debt finance. Sometime after the use bank finance. However, a higher proportion of
first year, when the business is actively trading, it is firms between one and two years of age (23%) also
likely that firms go calling for greater amounts of and look to finance companies than younger or more
more formal loan finance and, due to the factors established businesses do.
outlined above, find it more difficult to borrow. It is
also possible that debt funding in the first year is We can also consider capital issues and stages of firm
secured against personal property and more readily development by looking at the results by market focus;
available than in year two when further debt funding is i.e. whether firms have been seeking to develop new
based on the cashflow and assets of the business itself. domestic or export markets. As suggested in chapter 13,
there can be relatively high fixed cost hurdles facing
It also seems that newly established firms and firms small New Zealand firms attempting to enter export
less than two years of age (15% of these firms) find it markets, and small firms face considerable risks during
more difficult to access equity funding than more the process of increasing their scale and capacity to be
established businesses.4 This result is consistent with able to export. Hence, we might expect that firms
other research on the availability of equity capital (see
Equity Capital in New Zealand on page 178). 3
Note that the graph ‘Debt finance is not readily available when
sought ...’ excludes firms that did not answer or said the question was
This picture is only partially confirmed when we not applicable.
4
Note that the graph ‘Equity finance is not readily available when
consider sources of finance by age of business. sought ...’ excludes firms that did not answer the question or said the
Although a much higher proportion of firms less than question was not applicable.
one year old rely on shareholders funds (i.e. their own) 5
Note that the graph ‘Finance is not readily available by market
than more established companies, similar proportions development’ excludes firms that did not answer or said the question
was not applicable.

179
 Availability of debt finance by age of firm Debt finance is ‘not readily available’ when sought,
60 by age of firm
55
30 28
50
46
42 41
43 25
40 39
36
20
31 31
% 30
26 % 15 14 14 14

20 18 10 9
16
13
11
10 8 9
7
5
5 6
4
2 2 2
1 0
0 <2 years <10 years <1 year <2 years <5 years <10 years 10 years+
<1 year <5 years 10 years+

readily available not applicable

not available don’t know/did not answer
on unacceptable terms

Availability of equity finance by age of firm Equity finance is ‘not readily available’ when sought,
70 by age of firm
60 30
60 56

50 49 25
47

40
40 20
% 31 %
30 29 28 15 15
26 25
15
23
20
20 18 17
14 10 8
8
10 8
5 5
5 5
3 2 2 5 5
1 1 1 1 1
0 <2 years <10 years
<1 year <5 years 10 years+
0
<1 year <2 years <5 years <10 years 10 years+

readily available not applicable

not available don’t know/did not answer
on unacceptable terms

Sources of finance for innovation or expansion by age of firm great deal’ on new export markets during the three
60
56
52
years prior to the survey) find it slightly more difficult
50 47
49
47 47
49 49 to access debt finance than businesses focused on
40
existing domestic, new domestic or existing export
40 39
37
33
markets.5 Both new and existing export marketers
% 30
30
27
appear to find it slightly more difficult to access equity
23 funding than firms focused on the domestic market.
20 17
19
16 17

10
12
9 9 8
7
12
Capability and Access to Finance
0
Research and anecdotal evidence indicates that a
banks savings or friends or shareholders finance
retained earnings family companies significant issue in accessing finance is actually quality
of demand problems; i.e. firms often lack the capability
<1 year <2 years <5 years <10 years 10+ years to present proposals to financiers. We can test this by
comparing the responses of Leaders (who would
represent firms with higher capability) to Laggers
developing new markets might find it relatively more
(lower capability). There is some evidence from the
difficult to access capital because of a combination of
BPPS that capability issues influence access to finance:
factors related to increased risk, stretched management
capability, or insufficient equity invested in the • 61% of Leaders found that loan finance had been
business. ‘readily available’ in the 12 months prior to the
survey compared to 44% of Laggers.
The picture that emerges is that firms at the stage of
• 9% of Leaders considered debt funding was available
developing new export markets (those that focused ‘a
on ‘unacceptable terms’ (3% of Laggers)

180
 Availability of Debt Finance and Business Planning Availability of Equity Finance and Business Planning
70 70
62 61
60 60
54

50 50
43 61
41
40 40
% 32 % 62
30 30
23

20 20 16

10 6 10
4
1 2 2 2
2 1
0 0
available not available on unacceptable not applicable available not available on unacceptable not applicable
terms terms

Has a business plan No business plan Has a business plan No business plan

• only 0.2% of Leaders (2% of Laggers) considered finance and answered the question) – although we
loan finance was not available at all. cannot say the direction of cause and effect. There is
also an association between business planning and
As 19% of Leaders (39% of Laggers) indicated that this firms that sought debt capital, in that only 32% of
question was ‘not applicable’ and 8% did not answer firms with business plans indicated that this question
(1% of Laggers), this represents 84% of Leaders who was ‘not applicable’ compared to 43% of firms without
actually sought finance for borrowing who considered business plans. There are smaller differences in the
it was ‘readily available’, compared to 73% of Laggers perceptions of firms with or without business plans on
(noting the large number of Laggers that did not know the availability of equity funding.
– 11%).
Sectoral Differences and Access to Finance
There are similar results for equity financing, with 21%
of Leaders versus 11% of Laggers reporting equity was There is also anecdotal evidence that some sectors may
‘readily available’ (74% of those Leaders and 34% of find it more difficult to access finance than others. For
Laggers that actively sought equity and answered the example, the venture capital market is highly specialised
question, noting large numbers of ‘don’t knows’) and a in that investors invest in industries that they understand
further 2% (less than 1% of Laggers) indicating it was and have expertise in; many of the venture capital
available on ‘unacceptable terms’. This compared to 1% managers have expertise in high technology industries. In
of Leaders (less than half a percent of Laggers) who addition, venture capital funds naturally tend to invest in
reported equity as not being available. It is also clear industries where they get the best return based on the
that a much higher proportion of Leaders than Laggers perceived risks, and high technology and IT industries are
sought capital in the 12 months prior to the survey. among the fastest growing industries and have the
highest potential to provide the greatest returns.
Not surprisingly, more Leaders than Laggers actually Conversely, for debt finance, businesses and sectors that
indicate that availability of capital is both a barrier to rely heavily on the value of intellectual property, rather
improving the performance of the business (25% of than physical assets, tend to find it more difficult to
Leaders compared to 21% of Laggers) and to secure loans. A particular issue mentioned during firm
developing new or improved products, services or visits was access to capital when the firm is R&D based
processes (29% of Leaders compared to 18% of Laggers) or developing software.
– simply because far more Leaders than Laggers are
actually engaged in business improvement efforts. Focusing only on respondents for which the question
was applicable and that provided a response, the
We can also consider the capability issue by examining sectors that stand out from the BPPS in terms of access
the differences on the use of business plans and firms’ to debt finance are the construction and
perceptions of the availability of debt and equity accommodation, café and restaurant sectors, followed
finance. There appears to be some relationship between by communications services. Relatively high
business planning and access to debt finance. 54% of proportions of firms in these sectors, particularly the
firms with business plans indicated that finance for construction sector (20%), indicated that debt funding
borrowing was ‘readily available’ (actually 81% of was not available or available only on ‘unacceptable
firms that sought finance and answered the question) terms’.
compared to 41% of those firms without business plans
(74% of firms without business plans that sought On equity, the sectors that report most difficulty in
accessing funding are the cultural and recreational

181
 services, communications services and education undertaken by NZIER, Chambers of Commerce and
sectors, with more than 15% of firms in these sectors Employers’ and Manufacturers’ Associations. Firms see
indicating equity finance was not available or only skill gaps as a barrier to productivity growth,
available on ‘unacceptable terms’. No firms in the retail implementing new practices and systems, and using
or health and community services sectors reported any new technologies effectively (Dwyer, 2000).
problems in accessing equity finance.
10% of the BPPS respondents (actually 11% of those
These results are reasonably consistent with the main that answered and that the question was applicable to),
sectors that perceived access to finance as the greatest when asked about the availability of people with
barrier to improving products, services and processes. A appropriate specialist skills over the 12 months prior to
relatively high proportion of construction, the survey, responded that skilled employees were
communications services and cultural and recreational ‘never’ available, and only 10% of firms (11% of firms
services firms rated finance as a barrier to development that answered and that the question was applicable to)
(see Barriers to Business Performance – Comparison indicated they were available ‘all the time’. 28% of
Across Industries in chapter 14). businesses (31% of those that answered and the
question was applicable to) indicated that people with
Overall, actual access to external finance does not appropriate general skills (literacy, numeracy etc) were
appear to be a major impediment to the development of available ‘all the time’; only 1% responded that they
practices and capabilities in the majority of New were ‘never’ available. Only 18% (20% of those that
Zealand firms, although there appear to be greater answered and the question was applicable to) said that
barriers in some sectors and for firms at an early or people with appropriate work attitudes were available
exporting stage of development. However, there may be ‘all the time’; 2% indicated they were ‘never’ available.
some capability issues impacting on the quality of
demand for capital and there are certainly relatively It is clear that firms found it more difficult to find
strong perceptions that finance is a barrier to business specialist skills than employees with general skills or
development, which may be impacting on behaviours. appropriate work attitudes. High proportions of
businesses indicated that all of these skill-sets were
only ‘sometimes’ available.
■ Access to Skills
The difficulties in accessing skills suggested by these
A key issue in New Zealand for the last five to seven results are consistent with the response to a question
years has been the availability of skills and perceived that asked firms to indicate what factors had made it
skill shortages, which has grown in prominence over difficult to develop new or improved products, services
the last 18 months and is emphasised by surveys or processes in the three years prior to the survey. Close

Funding was ‘not readily available’ over the last 12 months, by industry
25

20
20 19 19
18

15 15
15
13 13 13 13 13
% 12

10 10
10
8 8 8

6 6 6
5
5 4 4 4
3 3

0 0
0
A B C E F G H I J K L N O P

For borrowing For equity

A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E-Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation,
Restaurants and Cafes, I-Transport and Storage, J-Communications Services, K-Finance and Insurance, L-Property and Business Services,
N-Education, O-Health and Community Services, P-Cultural and Recreational Services.

182
to a quarter of firms nominated a lack of skilled staff as Laggers perceived general skills as being available ‘all the
a barrier, which was the third highest rating barrier (see time’, and 1% of Leaders compared to 5% of Laggers
Impediments to Business Improvement on page 190). indicated they were ‘never’ available. Similarly, 22% of
Leaders compared to 12% of Laggers regarded appropriate
Comparing these results to the New Zealand Innovation work attitudes as available ‘all the time’, with 75% of
Environment Study (Frater et al, 1995), which asked a Leaders compared to 85% of Laggers regarding these as
comparable question on access to skills, suggests it is ‘sometimes’ available. It also is clear that higher
now harder for firms to ‘always’ find required specialist percentages of Leaders sought skills than Laggers.
skills, but such skills are less likely to be ‘never’
available. In 1995, 28% of enterprises considered Despite these results, however, a far higher proportion of
specialist skills were ‘always’ available (compared to Leaders than Laggers actually rated a lack of skilled staff
11% in 2001) but 20% indicated they were ‘never’ as an impediment to developing new or improved
available (11% in 2001). products, services or processes (see Impediments to
Business Improvement on page 90).
According to Dwyer (2000), the extent to which skill
gaps relate to demand-side problems such as a lack of Over three-quarters of the firms visited noted skills issues
management skills and processes, the price employers as impediments to their development. Many of these,
are prepared or able to pay, the existence of appropriate consistent with the results above, referred to difficulties in
training and development programmes, or the accessing specialist or technical skills. A number of firms
flexibility of existing staff, as opposed to short-term had recruited employees from overseas to overcome this,
labour market adjustments, has not been particularly although some noted that overseas staff (depending on
explored in New Zealand. country of origin) can lack oral and written
communication skills and need to be further trained.
Assuming that management capability plays a part (the
ability to attract and retain staff, and reputation as good Not surprisingly, firms interviewed considered that
employers and good performers), we might expect there was a marked difference in access to skills
Leaders to indicate that they face fewer problems in between industries. For example, recruiting or
employing new staff with appropriate skills than Laggers attracting talented young people into the software
or firms overall. There is limited evidence of this. industry was found to be much easier than in industries
Although there was little difference on access to traditionally regarded as ‘unsexy’ (e.g. agriculture,
specialist skills (7% of those Leaders that this question forestry and fishing and manufacturing, although
was relevant to and answered the question indicated that relative pay is also likely to be a contributor). Other
specialist skills were ‘never’ available compared to 9% of firms raised the issue of a lack of apprenticeships or
Laggers, and 7% of Leaders indicated they were available other suitable training options as a barrier to accessing
‘all the time’ compared to 4% of Laggers), there were talented staff.
wider differences on general skills and attitudes.

Of those firms for which the question was applicable or

that answered, 31% of Leaders compared to 16% of

Q 11.3 Over the LAST 12 MONTHS when this business has Q 11.3 Over the LAST 12 MONTHS when this business has
sought to employ new staff were there people available with sought to employ new staff were there people available with
the appropriate: the appropriate specialist skills:
90 90
83
80 80
69
70 65
67 70
60 55
60
50 50
% %
40 40
30 28 30
20 18 20 17

10 10 11 10
10 9 10 7 7 7
4 5 5 3 3
2 2 1
1
0 0 sometimes never not applicable don’t know/did
all the time sometimes never not applicablee don’t
don't know/did
know/did all the time
not answer not answer

Leaders General skills Work attitudes Leaders Laggers

183
 Q 11.3 Over the LAST 12 MONTHS when this business has Q 11.3 Over the LAST 12 MONTHS when this business has
sought to employ new staff were there people available with sought to employ new staff were there people available with
the appropriate general skills: the appropriate work attitudes:
80 80 75
72
65 65

60 60
%
40 40
29
%
22
20 20
13 14
12
10
4 3 3 3
1 2 2 1 2 1
0 sometimes never not applicable don’t know/did 0
all the time all the time sometimes never not applicable don’t know/did
not answer not answer

Leaders Laggers Leaders Laggers

■ Skill Shortages in New Zealand • undertaking a comprehensive industry needs analysis to identify
current and future labour and skill requirements
A skill shortage occurs when a firm cannot find a particular skill type
at the going wage. The standard source of information on skills shortages • implementing regional strategies to plan and implement employment
in New Zealand is the Quarterly Survey of Business Opinion (QSBO) and skill development strategies across the industry
published by NZIER. A drawback of using reported skill shortages
measures from surveys is that responses may reflect a variety of factors, • working with training providers to improve training and work force
including working conditions and wage rates insufficient to attract people development for persons looking to enter the industry and those
to particular industries, or responses may reflect a lack of particular who have joined the industry
skills where demand exceeds supply. • improving the business and employment management capabilities
of businesses so as to make the industry more attractive to work in,
As reported by the Department of Labour, the June and September 2001 in terms of health and safety and employment practices
quarter surveys (at the time the BPPS was undertaken) both reported a
slight fall in the degree of difficulty finding skilled labour compared with • promoting the industry to children, school leavers and labour market
March 2001. In September 2001, a net 39% of firms reported difficulty participants.
finding labour compared to 44% in March. Despite the slight easing, in a
historical sense, skills shortages as measured by the QSBO remained at Communities must address the fact that, in some cases negative attitudes
high levels. The key reasons for the growth in difficulty finding labour to work exist and that social problems are sometimes deep seated. The
was and is solid employment growth and the low unemployment rate. Department of Labour study on skills issues in the wood processing
industry, for example, noted: ‘it is ironic that in areas such as Tairawhiti
The current situation and Northland, with high rates of unemployment, employers are
reporting serious difficulties in finding willing and suitable workers’.
In the June and September 2002 quarters, skill shortage and labour Possible initiatives at the community level might include:
shortage indicators remained at high levels, as growth in demand for
labour outweighed labour supply growth in the first half of 2002. • developing and implementing initiatives to positively shape the
However, large recent increases in the labour force (due to high net attitudes of young people away from social problems
migration inflows and high participation) have kept the level of difficulty • identifying and supporting programmes and initiatives that are
below the peaks recorded in the first half of 2001. Despite this, more working to assist unemployed people into paid employment.
general labour shortages are increasingly evident as the difficulty in
finding unskilled staff is at its highest level since 1985, and labour as a Employment and training providers need to address the extent to which
constraint on expanding output increased to its highest level since 1975. their activities meet the needs of industry and are focused on achieving
sustainable employment outcomes. Issues that might be considered
By sector, the difficulty in finding skilled labour as of September 2002 include pre-training selection, the need for closer industry and provider
was the highest for the building sector, followed by the manufacturing liaison, particularly in the development and delivery of training, and
sector. Notice that these are the sectors that reported difficulties in the need for more focus on work experience and life skills.
recruiting skills in the BPPS as of June 2001.
Government cannot single handedly solve the skills shortages issues.
Overall, skill shortages are expected to persist with continuing economic However, it can ensure that its policies and operations are not
growth in 2002/03.6 contributing to the problems. It can also:

Problems of labour and skill shortages and their causes involve industry, • target its resources to help improve business and employment
communities, employment and training providers, and government. Any management capacity through current services such as Immigration
strategy to resolve both short and longer-term issues requires ownership Services, Skill New Zealand, OSH, the Employment Relations Service
and co-ordinated action from all. and BIZ. There have been a number of recent government initiatives
in this context, including the Modern Apprenticeship Programme,
The Department of Labour report on Employment, Skills and Training in the Talent Visa and Priority Occupations List
the Forestry and Wood Processing Industry (2001) outlines useful • improve the overall level of coordination between government agencies
contributions that all the key players can make in alleviating skill shortages. providing employment and training services at a sectoral and local level.
6
Industry needs to adopt a co-ordinated approach to improve its attractiveness All the above information has been sourced from Department of Labour
to job seekers and employees. Possible initiatives might include: (2002a and 2002b), Skill Shortages – June and September 2002 quarters.

184
 Specialist skills were available when this business sought to employ new staff, by industry
100
89
90 88
87
82
80 76 76
74 74 73
70 68
67 67
63
60
60
50
%
40
30
23 24
19 19
20 15 15 16 16
12 13 12 13
11 10 11 10
9 9 9
10 7
5
8 7
5
4 3
2
0 0
A B C E F G H I J K L N O P

All the time Sometimes/Never Not applicable

Over the last 12 months, when this business has sought to employ new staff, people
with the appropriate specialist skills were ‘never’ available, by industry
45

40

35

30

25
%
20
17
16
15 15
15
12
11
10 8 8 8 8 8

5 5
5
2

0
A B C E F G H I J K L N O P

A lack of skilled staff made it difficult for the business to develop new or improved products, services or processes
over the last three years, by industry
45

40 39

35
35
30
30
26 26
25
% 21 21 21
20 19
18
16
15
15
11
10
10

0
A B C E F G H I J K L N O P

A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E-Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation,
Restaurants and Cafes, I-Transport and Storage, J-Communications Services, K-Finance and Insurance, L-Property and Business Services, N-
Education, O-Health and Community Services, P-Cultural and Recreational Services.

185
 Sectoral Differences and Access to Skills Obviously, when firms are facing skills shortages, they
also need to review their internal employee practices
The demand and supply of labour in any industry is a and strategies. Internal and external training and
complex system of interactions. Factors affecting a development is a key way of overcoming skills issues in
particular industry’s ability to meet its labour needs the domestic labour market as is outsourcing, recruiting
include the seasonal variation of other industries, overseas, and investing in capital. It is probably not a
people’s mobility choices, the general willingness to coincidence that the sectors signalling relative
work in the industry, relative remuneration, and difficulties in obtaining required skills are also sectors
alternative employment options. that scored relatively poorly on the employee practice
index (see Comparison Across Industries in chapter 14),
Professional, occupational and industry barriers to although you would also expect that there would be
skills can be a further impediment. Examples are the pressure on human resource practices to improve (e.g.
role restrictions in the health and care industries, and staff training) when firms face skill shortages (and
the restrictions on jobs performed in the construction there will also be relative remuneration issues).
and business service industries (Dwyer, 2000).
The lack of major differences on access to skills
The BPPS discloses notable differences in perceptions between firms of different sizes has been discussed in
of skill shortages across sectors, with over 80% of firms chapter 14.
in the construction; health and community services;
accommodation, cafés and restaurants; and transport
and storage industries indicating that specialist skills
were ‘never’ or ‘sometimes’ available, compared to ■ Impact of Regulation
around 60% of firms in the agriculture, forestry and Regulations have a large impact on the way a firm
fishing and communications services industries. conducts business, such as shaping employer-employee
relationships, standards of service, and trading
Once we adjust for ‘not applicable’ and ‘did not answer’ requirements. The compliance costs of regulations have
responses to focus only on firms that actively sought been a significant issue for New Zealand businesses
skills, 15% or more of firms in four industries indicate over many years, with consistent views from industry
that specialist skills were ‘never’ available. These are that these costs impact on productivity and overall
firms in the manufacturing, retail trade, construction performance (see Compliance Costs in New Zealand on
and accommodation, cafés and restaurants industries. page 189).
There were no major differences on the availability of
appropriate general skills or work attitudes across Compliance costs are the administrative and paperwork
sectors, with less than 5% of firms in all sectors costs businesses face in meeting government
reporting that these were ‘never’ available when requirements. They include administrative burdens and
sought. all other associated costs, such as equipment costs,
retooling, buying specialist services, staff training,
These results show similarities with the sectors that monitoring compliance, additional paperwork, and the
indicated that a lack of skilled staff made it difficult to costs of identifying and understanding legislative
develop new or improved products, services or processes requirements (which may be particularly acute when
over the three years prior to the survey. On this question, legislation changes). They are distinct from the direct
relatively high proportions of firms in the health and
community services, manufacturing, construction, and
accommodation, café and restaurants sectors also Impact of Local Authority Regulations and information systems
80
regarded skills as a barrier. The major difference between
the results for this question and the other skills-related 70
question is that almost 40% of firms in the education 60 56 55
sector regarded lack of skills as a barrier to improved 50
products, processes or services, when this sector rated 40
40
the highest in terms of the proportion of businesses that 32

considered specialist skills were ‘always’ available. In 30

this particular sector these results might suggest a major 20
difference between the perception and reality of 10 8
4
obtaining skills, or that firms in the sector consider that 0
negative neutral positive
there is more of an issue with the innovative capability
of existing – not new – skills.
has information systems no information systems
in place in place

186
 costs of any government requirement, such as the Impact of Health & Safety Regulations and information systems
80
amount of tax payable.
70

Regulations can also impact on firms decisions 60

(“regulatory burden”), such as decisions over whether 50
% 44
or not to hire staff or whether or not to invest in a new 40 35 35
development. 30 28
32

23
20
The results from the BPPS suggests that ACC regulation
was, at the time of the survey, having the most 10
negative impact (or perceived impact) on firms’ 0
negative neutral positive
performance, with 56% of respondents reporting that
ACC had at least some negative impact on their
performance or productivity over the three years prior has information no information
systems in place systems in place
to the survey (only 10% said it had a positive impact,
with a third of firms neutral). This may well be related
to the changes in the administration of ACC in the year Impact of ACC and information systems
prior to the survey i.e. regulatory change rather than 80
compliance per se. Other areas where a higher 70
proportion of respondents indicated that regulations 60
61

54
had a negative rather than a positive impact are: 50
• employment law (41% negative and 11% positive) 40
% 31 32
• the Resource Management Act (27% negative and 30
5% positive) 20
12
• local authority regulations (34% negative and 7% 10 5

positive) 0
negative neutral positive

• the Holidays Act (21% negative and 6% positive).

has information no information
In other cases – patent law, commercial law and systems in place systems in place
competition law, businesses generally reported that
regulations have a neutral impact upon their
performance, with health and safety regulations evenly
balanced, (with relatively high numbers indicating that
the regulations positively (32%) and negatively (29%)
affect performance).

Regulations have had a negative impact on performance or productivity

60
56
54

50 47
45
43
41
40
35
34

30 30
30 27
29 29

%
21 21
20 19 19
16
13 13

10 7
9
6
3 3 3
2
0
RMA Local Authority Health & Safety Holidays Act Patent Law Commercial Law Competition Employment ACC
Regulations Law Law

Leaders All Laggers

187
 These results can be compared to those from the New This business is negatively impacted by the RMA
80
Zealand Innovation Environment Report (Frater et al, 73

1995), which asked a very similar question (with the

same scale) on the impact of competition law, patent 60
law, industrial relations law, health and safety 47

legislation, environmental law and tax law on business 40 40

performance. Most items were identified as neutral in %

31 32

26 26
1995, although: 25
20 20
20 19
14
• employment or industrial relations law was 10 11

identified as a positive contributor to productivity

0
and innovation with a mean score of 3.76 (the mean A B C E F G H I J K L N O P
score on employment law in 2001 was 2.62, the
mean score on ACC was 2.36 and mean score on the
Holidays Act was 2.83)
This business is negatively impacted by
• environmental law, including the RMA, was Local Authority Regulations
marginally negative with a mean score of 2.8 (in 80

2001, this received a similar score of 2.7).

60
60
Competition law, patent law and health and safety
46
regulations received similar mean scores in 1995 and 39
44

40 37 37
2001 (around 3 for each). Hence, it appears that the 32
30
36

% 30
major change since the mid-1990s in perceptions of the 26
24
27

impact of various regulations is a deterioration in the 20 16

view of employment-related regulation.

0
A B C E F G H I J K L N O P
As discussed in chapter 14 on Business Practices and
Structural Issues, a revealing result from this study was
that small businesses do not generally perceive more
negative impacts from regulations than large firms.
This business is negatively impacted by
Health & Safety Regulations
What is also interesting from these results is that 80
Leaders generally report more negative impacts from
regulations than Laggers, with the exception of
60
responses on the impact of ACC. Given that Leaders
tend to have more capable systems than Laggers to deal
40 40
with regulatory impacts, these results suggest that these 40
32 33 32
31
impacts are real and the perceptions are not simply % 29
27 27
24
coloured by capability issues. However, it is likely that 20 19 18
22
18
Leaders recognise the impact of regulations more
clearly than Laggers. These results may also suggest
that management practices have been put in place 0
A B C E F G H I J K L N O P
partially in response to these impacts and/or that
Laggers are simply not aware of all their requirements.
A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E-
Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation,
We can consider the capability issue in more detail by Restaurants and Cafes, I-Transport and Storage, J-Communications
comparing responses on the impact of regulations with Services, K-Finance and Insurance, L-Property and Business Services,
responses from firms that indicated that they have N-Education, O-Health and Community Services, P-Cultural and
systems in place to manage the retrieval and storage of Recreational Services.
information; we would expect that firms with such
systems would tend to have less negative perceptions generally (although not always) report negative
of the impact of regulations, if capability plays a part impacts, and correspondingly higher proportions of
in determining impact. firms with such systems in place report positive impacts
from regulations.
There is some evidence that firm capability does affect
perceptions of the impacts of regulation. Smaller Virtually all the firms visited as follow-up to the BPPS
proportions of firms with information systems raised concerns with compliance costs. These appeared

188
to represent views on ‘actual’ compliance costs rather OSH, ERA and the RMA, although IRD issues (and
than the direct cost of the regulations (e.g. IRD form timing of tax payments) were also noted on many
filling rather than the cost of taxation was mentioned occasions.
many times during discussions on compliance issues).
Many firms stressed that time was a major issue for Somewhat ironically, a few respondents also mentioned
small and medium enterprises and a couple of firms the number of, and time required in dealing with,
estimated that compliance costs take up to third of a Statistics New Zealand surveys.
person a week in resources. Consistent with the results
outlined above, the major contentions were with ACC,

■ Compliance Costs in New Zealand

Ministerial Panel on Compliance Costs – Finding the Balance: • Better Regulation – such as the introduction of business compliance
Maximising Compliance at Minimum Cost (2001) cost statements to be published as part of all new legislation that
has compliance cost consequences. Test panels made up of business
Successive governments have worked towards reducing compliance costs, people will also be used when necessary to advise on the practical
with various reports and inquiries over the years leading to changes in implications of regulations.
the way business is regulated. It is clear, however, that the level of
compliance costs continues to frustrate business.
The Costs and Benefits of Complying with the HSE Act, 1992
(Occupational Safety and Health Service and Ministry of
The most recent response to ongoing concerns expressed by industry
on compliance costs was the appointment of the Ministerial Panel on Economic Development (2001) Labour Market Policy Group,
Compliance Costs in December 2000 to advise government. The panel Occasional Paper 2001/4)
was asked to identify the areas where unnecessary and excessive
compliance costs occurred, priorities areas for action, and to provide In response to the ongoing concern that the Health and Safety in
workable and practical solutions. Employment Act 1992, in particular, is imposing unnecessary and/or
excessive costs, the Ministry of Economic Development and OSH
The panel gathered the views of business through 11 regional meetings, established a joint project to research whether the costs imposed on
the release of a discussion document and survey, analysing 86 businesses by the HSE Act are excessive or unneccesary and, if so, how
questionnaire responses and 98 submissions, sector group and agency they could be minimised.
meetings, a review of New Zealand compliance cost initiatives past and
present, and a review of international initiatives. A case study method was used to focus in-depth on the costs and benefits
of complying with the HSE Act. Clothing and fabricated metal
The survey asked respondents to identify their key compliance cost manufacturing firms were chosen. 21 companies were selected and 52
concerns. The most significant concerns – consistent with the BPPS – in-depth interviews with a range of employers and employees were
were tax, ACC, OSH legislation, RMA and employment regulations. undertaken.

Respondents were also asked to identify the impact of compliance costs Previous research had indicated that, generally, smaller companies
on their businesses. Time spent complying was the most frequently consider the cost of compliance as high. This study found that size,
nominated problem associated with compliance. It had two distinct while a factor, was not the key factor in how companies viewed costs.
elements: This is consistent with the lack of major differences between small and
large business’ perceptions on the impact of regulation from the BPPS.
• time spent understanding and keeping up with changes
• time spent on paper-work activities, attending meetings and A key finding of the research was that a firm’s view of whether the
disseminating information. costs of complying with the HSE Act were higher or lower depended on
the company’s perception of the level of risk for its own operation and
Respondents also argued in ‘overwhelming numbers’ that the overall the associated benefits of complying. Businesses fell into three groups
impact of compliance costs on their business was that it stifled innovation according to their perceptions of costs and risk:
and competitiveness. Respondents suggested that businesses were being • inactive – perceive their risk as low, have a low commitment to
hindered in their attempts to expand or innovate, and argued that new health and safety, and perceive the costs and benefits of complying
businesses are more likely to be put off by the time and costs. as low

The Ministerial panel presented its report in July 2001 and made 163 • reactive – perceive their risk as high, are fearful of prosecution, and
recommendations. The government responded in December 2001 on all perceive the costs of complying as high in relation to benefits
the issues raised through its own report Striking the Balance.7 Striking • proactive – perceive their risk as high, are motivated by concern for
the Balance focuses on three key themes from the Panel’s report: employee safety and/or economic incentives, and perceive the costs
• Improving Information – in particular, using the Internet to enable of complying as an investment.
ready access to government information and services and allowing
business dealings with government to be carried out electronically.
• Effective Implementation – improving the ways in which departments
7
implement regulations for which they are responsible (e.g. changing Both reports – Finding the Balance and Striking the Balance – can
forms, training staff) and working with local government to improve be found on the Ministry of Economic Development’s website –
the quality and implementation of regulations. www.med.govt.nz/buslt/compliance.html

189
 Finally, it is clear that some industries face quite This business is negatively impacted by the Holidays Act
80
different impacts from regulations. Not surprisingly,
higher proportions of firms in resource-based industries
– mining, construction and agriculture, forestry and 60
fishing – report that the RMA negatively impacts
productivity and performance. Similarly, as would be
40 37
expected (given, for example, that local authorities 32
%
implement the bulk of the RMA), higher proportions of 23 23
21
19 19
businesses from the mining and construction industry 20 16 18
15 16 16 15 16

also report negative impacts from local authority

regulations – as does the education sector. 0
A B C E F G H I J K L N O P

On employment-related regulations:
• as would be expected, given the nature of work in
the sectors, higher proportions of businesses in This business is negatively impacted by Employment Law
80
mining; construction; accommodation, cafés and
restaurants; transport and storage; health and
community services industries reported negative 60 55
impacts from health and safety regulations 46 47 47 46
45
43 43
40
• higher proportions of firms in these same sectors 40 38 39
35
39 39

(with the addition of manufacturing) also report %

negative impacts from ACC
20
• higher proportions affirms in the accommodation,
cafés and restaurants; transport and storage; mining; 0
A B C E F G H I J K L N O P
finance and insurance; and cultural and recreational
industries report problems with employment law
• higher proportions of firms in the agriculture,
forestry and fishing and accommodation, cafés and This business is negatively impacted by ACC
restaurants sectors report negative impacts from the 80
Holidays Act; again, this probably reflects the nature 66 65
of employment in these industries (casual and 60 58 58
60
58
54
seasonal work). 50
53
48
46
43
40
40 38
Greater proportions of firms in the finance and
insurance industry, not surprisingly given the nature of %
the sector, report negative impacts from commercial law 20
than other sectors. Higher proportions of firms from this
industry as well as mining and cultural and recreational
0
services report negative impacts from competition law. A B C E F G H I J K L N O P

From the firm visits, businesses in the education,

insurance and health sectors noted a range of very A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E-
specific regulatory issues for their sectors (often due to Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation,
standards of required performance). Restaurants and Cafes, I-Transport and Storage, J-Communications
Services, K-Finance and Insurance, L-Property and Business Services,
N-Education, O-Health and Community Services, P-Cultural and
Impediments to Business Improvement Recreational Services.
Firms were also asked to identify key barriers to
skills as barriers to improving the performance of the
improving the performance of their businesses. The
business, nearly half considered that none of the
options in the survey were based on responses to the
factors listed were barriers (others were the ability to
Gearing Up (1999) firm visit programme and general
source and use technology, and access to international
perceptions and anecdotal evidence about key factors
markets). Other surveys have found similar barriers to
assumed to be barriers to business development. The
those canvassed in the BPPS (see Barriers to Business
results are somewhat surprising. Although 28% of firms
Development in New Zealand on page 196).
indicated fluctuations in exchange rates, 23% indicated
availability of finance, and 19% indicated management

190
 This business is negatively impacted by Competition Law When we consider barriers to business development by
80
exporting status, not surprisingly exchange rates (55%)
and access to international markets (27%) feature.
60 Exchange rate variations can have a significant effect
on the margins earned by New Zealand’s
internationalised firms, which become more important
40
as the importance of exports rises in the sales mix. Also
%
of interest is that 55% of non-exporters considered that
20 none of the issues listed were barriers, compared to
12 11 11
10
7
4 5
10
5 7 6
only around quarter of exporters.
2 2
0
0
A B C E F G H I J K L N O P
A couple of revealing issues emerge when we consider
barriers to business performance by age of business.

This business is negatively impacted by Commercial Law First, exchange rate fluctuations appear to be more of
80
an impediment in the first year of operation than in the
next few years. This may be due to the need to import
60 resources for setting up the business in the first year,
before trading begins in subsequent years. As would be
expected, greater proportions of firms more than five
40
years old are also affected by exchange rate
%
fluctuations (given that around 85% of exporters from
20
14
19
this survey have been in operation longer than five
12 12 12 12
7
5
8
10
8
5
years and close to a third of firms over five years old
0
2 2
are exporters). Second, access to resources such as
A B C E F G H I J K L N O P
finance (as discussed earlier) and the ability to source
technology appear to be more of a problem in the
second year of business establishment than the
A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E- previous year, which again may suggest that ‘serious’
Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation, trading begins in the second year.
Restaurants and Cafes, I-Transport and Storage, J-Communications
Services, K-Finance and Insurance, L-Property and Business Services,
N-Education, O-Health and Community Services, P-Cultural and
Differences on barriers to business performance by size of
Recreational Services. firm and industry have been considered in chapter 14.

Higher proportions of Leaders tend to point to all of the Given the large number of firms that answered ‘none of
barriers, except management skills, as issues affecting the the above’ to questions on perceived barriers to
performance of their business. This is likely to be due to business performance, an important aspect of the
the fact that more Leaders are exporters (hence the impact follow-up firm visits was gleaning what other key
of exchange rate fluctuations and access to international barriers may exist.
markets) and innovators (hence the impact on the ability
to source technology). Relatively high numbers of Laggers Apart from compliance costs, and access to skills and
identify management skills as a barrier, which suggests a finance, as already discussed, the only other issue that
more realistic perspective of their own internal capabilities emerged with any frequency was, not surprisingly,
than we might have expected. taxation. This was basically in terms of reducing total
costs for business (lowering corporate, GST or FBT tax
A question that considered additional barriers in rates or changing deductions possible). A number
relation to improving products, services or processes mentioned the recent change in R&D taxation (from 1
points to impediments to business development that April 2001, all R&D spending expensed under generally
firms might have considered in the ‘none of the above’ accepted accounting practice qualified for immediate
category in the previous question. In particular, the tax deduction) as a move in what they considered the
economic climate was regarded as a barrier over the right direction.
three years prior to the survey by close to 30% of firms,
with access to capital, skills and competition (as Other issues considered by a few respondents as key
already discussed) also featuring in around a quarter of barriers were their lack of strategic planning, the small size
firm’s responses. of the domestic market, the time leaders or senior mana-
gers have available, and access to quality infrastructure.

191
 Barriers to improving the performance of this business,
Barriers to improving the performance of this business by exporting status
60 60
55 55
52
50 47 50

40 38 40

30 28 30 27
25 26 25 26
% 22 % 24 24
21 21
20 19
17
19 20 19
17
15 16

10 11
10 8 10 7
6 6
2
0 exchange rate 0
ability to availability of management access to none of the exchange rate ability to availability of management access to none of the
fluctuations source and use finance skills international above fluctuations source and use finance skills international above
technology markets technology markets

Leaders All Laggers Exporters Non-exporters

These results could be interpreted quite positively; they sources of assistance were: competitors (34% of firms
might suggest that close to 50% of businesses in New said they were ‘very important’ and 46% said they were
Zealand do not consider that there are any major ‘moderately important’); books, trade journals,
impediments to improving business performance, and conferences or shows (27% and 48%); New Zealand
close to 30% consider that there are no significant owners and associated companies (25% and 30%);
impediments to innovation. However, it is also possible industry and employer associations (19% and 38%);
that many of those that answered ‘none of the above’ and banks, accountants and other consultants (18%
were not actually seeking to improve their performance and 32%).
or products, services or processes (this could well be the
case given the greater proportion of Laggers that The least valuable sources of assistance were public
answered ‘none of the above’). sector related agencies: government departments (4%
of firms said they were ‘very important’ and 16% said
they were ‘moderately important’), universities or
■ Sources of Assistance polytechnics (5% and 19%), Trade New Zealand (3%
and 10%), Technology New Zealand (3% and 10%) and
Firms were asked to identify which agencies had been Industry New Zealand (3% and 11%). The results
valuable sources of ideas and information for new or suggest yet again (as with Gearing Up 1999) that there
improved products, services or processes. Similar to the is continued scope for developing the relationship
results of the Leading the Way (1994) and Gearing Up between business groups and those government
(1999) studies, the most commonly used sources of agencies delivering industry and regional development
assistance depend largely on relationships with assistance initiatives.
associated companies or networks of firms. The top five

Barriers to improving products, services or processes

50
46
45
40 39

35 33
32

30 29 29 29
27

25 24 24
% 22
20
20 18
19
17 17

15 14
12
11
10
10
7
6
5
5
3

0
access to capital market too small or economic climate competition outside core access to government none of
unknown business skilled staff regulation the above

Leaders All Laggers

192
 Barriers to improving the performance of this business by age of firm
60
54

50
50 47 47
45

40
33
32
30
% 30 29 29

24
23 23
20 20
20 18
19
17 17 18

13
11
10 10
10 7 8 7
9

5
3

0
exchange rate fluctuations ability to source and availability of finance management skills access to none of the above
use technology international markets

<1 year <2 years <5 years <10 years 10 years+

Higher proportions of Leaders make use of a greater and regulatory role. However, around half
range of external sources of ideas and information than acknowledged that providing more direct assistance
Laggers, who tend to rely on competitors; books, was a valid role for government, particularly in
journals and conferences; and banks and accountants. facilitating access to training, encouraging investment,
This also applies to government industry assistance assisting businesses to develop markets overseas,
agencies, with around 30% of Leaders indicating that providing access to mentoring and advice (including
Industry NZ, Technology NZ and Trade NZ are ‘very’ or facilitating links between large and small businesses),
‘moderately important’, compared to just over 10% of supporting research and technology development, and
the general business population. This would naturally facilitating access to finance.
reflect the international business focus of Trade NZ,
technology development focus of Technology NZ, and Many firms were not aware of the government’s
business growth focus of Industry NZ, and the business assistance programmes run by Industry NZ,
tendency for more capable firms to seek out (and have Trade NZ and Technology NZ, and very few had used
the capacity to use) a wider range of such assistance. In them. For example, a number of firms indicated they
hindsight, it would have been interesting to add a thought the government should support research and
category for BIZ, which is focused on building technology development funding – obviously being
management skills in small businesses, to see if unaware of Technology NZ schemes. On hearing about
different results would have occurred. assistance available, a number of comments were made
that more needed to be done to improve awareness of
Exporters, not surprisingly, make use of overseas the existence of business assistance available,
owners and associated companies to a much greater particularly in terms of a better system to signpost the
extent than non-exporters, although they make slightly types of assistance that are available to businesses and
less use of industry or employer associations (15% of where to go for them.
exporters regard industry associations as ‘very
important’ compared to 20% of non-exporters). Even when businesses had not made use of assistance,
there was a general perception (by about a third of the
Large firms tend to make use of a wider array of businesses visited) that government business assistance
sources of information and ideas for improving schemes were too bureaucratic and criteria too
products, services or processes than small firms, which stringent. Where firms had used assistance available,
make greater use of banks and accountants than large many felt the process for application (particularly form
firms. filling) was unnecessarily burdensome and that
government officials did not understand the projects
As part of the firm visit interviews, firms were asked (although there were a few favourable comments about
what they considered the government’s role in assisting improvements made with Technology NZ processes).
businesses should be. Most firms believed this should
be primarily focused on providing a stable
macroeconomic environment and an overall governing

193
 Sources of Ideas and Information that are ‘somewhat’ or ‘very’ important for new or improved products, services or processes
100
88
84 83 83
80 80
80 75

66 65
59
60 55
57
54
% 50
43
39 40
40 34 35
33
30 29 28
26
24
19 20
20 14
13 13
11 10 11
6 5 5

0
competitors NZ owners Overseas Industry or Research Universities Books, trade, Banks, Trade NZ Tech NZ Industry NZ Government
& associated owners & Employer Institutes. or polytechnics journals, accountants Departments
companies associated Associations associations conferences or consultants
companies or consultants or shows

Leaders Overall Laggers

Sources of Ideas and Information that are ‘somewhat’ or ‘very’ important for new or improved products,
services or processes, by exporting status
100

82 81
79
80 74

62
60 54
56 56 57
52 51
% 48

40
40
28 29
24
22 22 21 21
19
20
11 12
9

0
competitors NZ owners Overseas Industry or Research Universities Books, trade, Banks, Trade NZ Tech NZ Industry NZ Government
& associated owners & Employer Institutes. or polytechnics journals, accountants Departments
companies associated Associations associations conferences or consultants
companies or consultants or shows

Exporters Non-exporters
Sources of Ideas and Information that are ‘somewhat’ or ‘very’ important for new or improved products,
services or processes, by size of firm
100
91

79
80 78
74

63
59
60 55 56 56
53
51
%
41 40
40
31
25 24
23
20 17 18
16
18
12 12 13

0
competitors NZ owners Overseas Industry or Research Universities Books, trade, Banks, Trade NZ Tech NZ Industry NZ Government
& associated owners & Employer Institutes. or polytechnics journals, accountants Departments
companies associated Associations associations conferences or consultants
companies or consultants or shows

Small Large

194
■ Conclusionson the Impact of the more acute in particular industries, although some of
these differences could be attributed to the quality of
Competitive Environment demand.
In considering the impact of various aspects of the • With the exception of business law, regulation is
competitive environment, the results have identified considered to have a detrimental impact on the way
external factors that impact on firms’ decisions and that firms conduct business. In particular, industrial
ability to pursue opportunities and improve relations related regulation (ACC and employment
performance, but also confirm that the capability of law) and regulation associated with local
businesses is important in shaping their ability to government (RMA and local authority regulations)
respond to these factors: were identified as negatively impacting on
• Firms that confront, or perceive, greater competition productivity and performance.
tend to pursue a broader range of strategies and
have more developed practices than firms that do There is a range of external sources of advice and
not face such high levels of competition. information that can assist firms in developing their
products, processes and services and to respond to the
• Although accessing external capital does not appear pressures faced in the competitive environment. For the
to be a major impediment, with limited numbers of most part, and naturally, New Zealand firms turn to
firms indicating that debt or equity funding was not business sources (competitors, trade shows and
available or available on unacceptable terms, firms conferences, associated businesses and industry
themselves do consider the availability of finance as associations) for ideas and information. Compared to
a barrier to business development and innovation. leading businesses, there is significant scope for most
This may be related to cashflow, the capability of firms to particularly look at developing their
firms themselves to access capital, or the risks relationships with research-based organisations. There
associated with some sectors and stages of is also scope for government agencies to consider their
development. role in working with businesses in providing
• The availability of skills, particularly specialist skills, information and ideas to address impediments such as
was problematic for businesses, and considered a key regulatory and skill-based barriers.
barrier to innovation. Skills ‘shortages’ appear to be

195
 ■ Barriers to Business Development in New Zealand
SMEs Are Being Left Behind by the Knowledge Economy our results that showed an association between a lack of information
(Simpson B, Lamm F, Lindsay V and Wilson H (2002), systems and perceptions of more negative impacts from regulations.
Chartered Accountants Journal, May)
Lack of knowledge on internationalisation
The researchers collected qualitative data from in-depth interviews with
Finally, the research shows that there are major entry barriers for SMEs
representatives of 32 small and medium enterprise stakeholder
wishing to export, including exchange rate fluctuations, the investment
organisations, ranging from government and semi-government agencies
of time needed to develop an export strategy and knowledge of overseas
to business and industry associations and advisers, to understand barriers
markets. Scale issues, such as the lack of production capacity when
to business success. They identified five main themes:
large overseas orders are obtained, also constrain business development.

Lack of management knowledge Quarterly Small Business Monitor (National Bank (2002),
The most significant problem identified by the study was a lack of June and September Quarters)
management skills in SMEs. The owner-managers of SMEs often have
high levels of industry or company-specific knowledge, but rarely have At the beginning of the June 2002 quarter, the National Bank began a
business skills, nor do they consider they have the time to learn better quarterly survey of over 1,000 firms to gauge, among other things,
management skills. Management skills did not rate that highly in the what is the most important barrier facing firms. They received 712
self-assessment undertaken by firms from the BPPS, but this case study responses from firms of various sizes. Firms of six to 20 staff cited
research was based on the views of the SME support network. This regulation and paperwork as the most important problem for small
suggests that there may be a rosier view of management capability firms, with nearly 30% reporting this as their biggest difficulty. Lack of
painted by the smaller firms in our study. skilled employees, competition from other businesses and the total tax
burden also rated as significant problems for small businesses, with
Lack of financial knowledge over 10% of small businesses reporting these issues as their primary
concern.
The second major barrier identified by the interviews was a lack of
financial knowledge of owner/managers of SMEs. The research suggests For firms of 21 to 50 staff, regulation and paperwork was also the most
that there is an increasing number of funding options and the main cited problem by over 25% of firms. Lack of skilled employees, total tax
issue is the ability of firms to access the funds – a lack of knowledge burden and competition from other businesses also rated as significant
and skills to develop credible business plans and financial projections, concerns for medium-sized businesses, with over 10% of medium-sized
as well as a lack of understanding of the particular requirements of the businesses reporting these issues as most important.
funds that they wish to access.
Large firms, with 50+ staff, cited the lack of skilled labour as the most
Lack of networking knowledge important problem with over 30% of large firms reporting it as their
biggest problem. Regulation and paperwork also rated highly.
This study also identified that SMEs lack an understanding of the benefits
of networking and external advice and tend to be insular in outlook. These results did not change significantly in the September quarter
Once again, this is consistent with the BPPS findings that small firms survey.
tend to use a much narrower range of sources of information for ideas
and innovation. For firms of all sizes, and excluding concerns with the general economic
climate, these results are partially consistent with the BPPS, which, as
Lack of regulatory knowledge stated, found that firms perceived competition and access to skills as
Another major issue identified by this survey was a lack of understanding key impediments. However, access to finance was also signalled as a
of regulations and compliance issues among SMEs. Interviews suggested perceived barrier in the BPPS and it rated very low in the National
that often firms are ‘frozen into inaction by their fear of penalties’ Bank survey. In addition, unlike the National Bank survey, regulation
arising from non-compliance. Consistent with the BPPS, there were rated relatively low as a key barrier for firms in the BPPS. Of course,
particular concerns with employment relations, occupational health and these were the perceptions in mid-2001, and the firm visits undertaken
safety, and accident compensation legislation. This is consistent with during 2002 did indeed stress compliance costs as being of major concern.

196
17 – BUILDING FIRM FOUNDATIONS
At the beginning of this study we set out to determine: • a holistic perspective to the customer and on
customer value creation
• the current state of organisational capability in New
Zealand firms and how capability has evolved over • true accountability, systems and process discipline.
the last decade
This concern led the Ministry of Commerce to
• firms’ commitment to capability improvement and
commission, in late 1992, a study into managerial and
innovation, and
organisational responses to deregulation, leading to the
• the underlying strengths of aggregate firm report Islands of Excellence? (Campbell-Hunt, Harper
performance and firms’ ability to develop sustainable and Hamilton, 1993a). Based on an extensive review of
competitive advantage. the empirical work available at the time, the study
found evidence of quite widespread, but shallow,
In this final chapter we attempt to draw together all the change to the practices and performance of New
available evidence from the survey data, interviews Zealand businesses since deregulation.
with firms and related research to draw conclusions on
these issues as well as what the evidence might mean At about this time, many firms had started to
for those supporting enterprise development. emphasise quality as a competitive differentiator.
Particular emphasis was placed on low defects,
reliability and speed of delivery. Firms’ focus on quality
had been supported by a working over of their
■ Evolutionof production processes and systems in the early 1990s.
Organisational Capability This was particularly evident in the governance of
firms, and in their marketing, operations, and financing
The BPPS provides a snapshot of business practices and practices. Less evident were changes to human resource
performance at one point in time. Although some strategies and firms’ positioning in their value chain
comparisons have been provided with Gearing Up through changed relations with suppliers and
(1999) and Leading the Way (1994) for manufacturers, distributors. In most firms, strategies were still oriented
we need to turn to wider studies of business capability towards a survival phase of adjustment, emphasising
over the last decade in making inferences about the cash flow, with a focus on known businesses and
evolution of capability across the business sector. markets, and limited investment in the future of the
firm.
Capability in the late 1980s and early 1990s
Islands of Excellence? concluded that these changes
In the 1980s, behind protective barriers, firms were able
were, in every respect, consistent with a ‘survival
to build broad product lines, irrespective of efficiency
phase’ and that the New Zealand business sector was
or comparative advantage (Campbell-Hunt and Corbett,
still struggling to find ways to respond effectively to
1996 and 1998).
tougher market conditions. However, there were signs
that a very small group of leading firms were breaking
When protection was removed, there commenced a
out of survival mode and ‘sharpbending’ into a new
wholesale rationalisation of these product lines and
strategic direction. These firms were competing
related processes. But firms’ isolation from
internationally on the basis of design or
international competition meant that, in many cases,
technologically based product differentiation, and
these products and services lacked customer appeal and
investing in their people and their systems.
were not sustainable. Studies of productivity and
performance over the late 1980s showed very little, if
In relation to the Business Practices and Performance
any, improvement. Attention turned to the adequacy of
Model, the assessment suggested that New Zealand
management and business capability, as early research
businesses were moving away from cost advantages
indicated that New Zealand businesses generally
generated by protection towards quality strategies, and
lacked:
starting to develop customer and quality practices to
• strong leadership and growth ambitions support this, but had significant scope for improved
leadership, people, information management,
• appropriate human resource policies and workforce
innovation and supplier practices.
relationships
• useful performance measurement and an ability to Capability in the mid-1990s
close the loop between improvement actions and
their consequences In 1996, the Ministry of Commerce commissioned a
follow-up to the Islands of Excellence? study, to assess
the amount of management and organisational change

197
 that had taken place in the early nineties. This study – responsible and flexible, businesses will be completely
A Season of Excellence? – also involved a detailed at the mercy of the environment without sustained
literature review and surveyed available New Zealand strategies.
empirical studies.
However, most firms have adopted more participative
The review found that, as the 1990s progressed, the planning processes, particularly internally with
initial emphasis on quality was built upon, with new employees and downstream with customers. There are
sources of competitive leadership from product and also signs of an increased commitment to
service innovation and marketing starting to appear. strengthening workforce relations, including internal
These developments appeared to be associated with the training, health and safety processes, and assessments
increasing internationalisation of firms. The incidence of employee satisfaction.
of these ‘new’ strategies was not extensive – quality
improvement was still the standout focus of strategy. There has been a shift in thinking from a focus on
production to attention to the market and developing
Greater emphasis was being placed on improving more participative relationships with customers,
customer focus and tentative steps up the value chain although these are not necessarily at many levels of
towards supplier relations. Internally, there had been a organisations. However, there is a relative lack of
great deal of attention made to improving management attention placed on building relationships with
and accounting systems, with a movement away from suppliers.
administrative leadership to more participative
leadership. The attention given to quality since the early 1990s has
resulted in the majority of firms nowadays appreciating
Within the workforce, an increasing focus on quality the need for an internally consistent approach to
was supported by an emphasis on team-work, training, quality, increased adoption of internal information
multi-tasking and improved communication. systems and the use of a broader range of performance
measures, although the focus is still on lagging
Despite all these changes there remained a large indicators of performance. There is a lack of
number of organisations, likely the majority, which commitment to a strategic approach to external
showed limited adaptation to the new environment. information management, except at a relatively basic
New Zealand businesses had not gone far towards level (e.g. monitoring competitors’ products or services,
specialising in areas of the value chain where they had and informal and ad hoc benchmarking).
an advantage, nor to evolving networks of businesses.
The bases of sustainable development that had been There are positive signals of increasing investment in
developed were limited to co-operative relationships developing innovative capability within firms, but little
with the workforce and distribution chain channels. investment in formal R&D.

In sum, and in relation to the Business Practices and Consistent with the attention paid to particular business
Performance Model, the review suggested that, as of the practices, strategies continue to primarily focus on
mid-1990s, there was a reasonable stock of firms that quality and delivery, and to a lesser extent flexibility,
had developed customer and quality practices, and with the least attention paid to innovation. In terms of
some limited efforts towards improved information market scope, there is a growing number of firms with
management and participative leadership practices. very high levels of internationalisation.
However, most firms continued to have fairly
undeveloped leadership and planning, employee, Evolution of Capability over the last decade
supplier, and innovation and technology processes.
A positive story of business sector adaptation over the
last decade emerges from the collection of research:
Capability in 2001
• In the early 1990s, after the period of cost cutting
What does the BPPS tell us about the state of business
and rationalisation in response to deregulation and
capability as we enter the millennium?
liberalisation, New Zealand firms initially turned
their attention to quality – which became the
There is a continued focus on the short- to medium-
predominant emphasis of firms’ competitive
term, with few firms using more broadly defined goals
strategies. This focus was supported by adjustments
or visions to guide development; having concerns for
to production and operation systems in the early
wider environmental management; or taking a long-
1990s. Firms moved to develop sources of advantage
term approach to employee performance management.
based on differentiated products and services that
Although this might be related to a need to remain
did not have to compete wholly on price.

198
• A second distinctive phase took place during the mid approach to organisational development. Overall, the
1990s, characterised by expanding markets, renewal culture in many New Zealand firms continues to be
of product and service lines, a wider range of insular: firms still have a short rather than long term
competitive strategies, and greater attention to outlook, few benchmark, and few make effective use of
human capital. While efforts on quality and comprehensive performance measurement or
operations continued, attention was given to comparison systems. Although New Zealand firms have
improving customer focus and tentative efforts to moved from a cost-quality focus to a market (delivery-
move up the supply chain. At the same time, a much flexibility) focus, few are yet to take an innovation
greater number of New Zealand enterprises began focus.
exporting and took the first steps towards
internationalisation. A Long Tail of Vulnerable Firms
• During the late 1990s and early 2000s, the redesign The comparison with Sweden on manufacturing
of operations and practices has continued. The focus capability demonstrates that there is quite a difference in
of strategies has expanded to include flexibility and, the relative distribution of leading and lagging firms
in some cases, innovation. For most firms, exporting between the two countries. In Sweden, some 6% of
is still a minor part of the business. But at the very businesses were achieving very high levels of practices
forefront of New Zealand’s business community is a and performance and only around a fifth were identified
small number of leading firms – perhaps a few as lagging behind the general game. In New Zealand,
hundred – which are now competing internationally only 2% of manufacturing firms achieved the same high
with distinctive, innovative products and services. scores on practices and outcomes. Those lagging firms,
which appear to be investing little in their business
Our interpretation of the general evolution of practices and achieving low operational outcomes, are
competitive capability of New Zealand firms in terms also relatively more numerous in New Zealand – at
of strategy, practices and outcomes is illustrated in around a third of manufacturing businesses.
figure 29.
Similar overseas studies on business practices and
Despite the laudable improvements in competitive performance have defined the group of firms with
capability that have been made over the last decade, scores on practices and outcomes below 60 as
much remains to be learned. Few firms have yet to ‘vulnerable’, or lacking the necessary practice and
match leading international benchmarks – no more performance to be effective in international
than 5% of firms are approaching international competition. The BPPS identified nearly half (45%) of
standards of performance and taking a holistic New Zealand businesses in this category. Accepting the

Figure 29. Evolution of Competitive Capability in New Zealand

OUTCOMES
innovation

PRACTICES
flexibility innovation & technology
human
resources benchmarking

supplier relations
timeliness leadership & planning
employee practices

information management
quality customer focus
& service cost
quality

1990s 2000s 2010 - 2020?

pricing
quality
delivery STRATEGY
flexibility
innovation

199
 differences in methodologies across studies, but ■ Foundationsfor
assuming that the various studies do provide a
reasonable representation of the distribution of
Competitive Advantage
capability in particular countries, a comparison Another objective at the beginning of this study was to
suggests that other countries have a much smaller assess the ability of businesses to develop sustainable
proportion of these ‘vulnerable’ firms – typically no competitive advantage, and the extent to which
more than a third of all firms, and often considerably investments in business improvement are providing a
less (see, for example, Voss et al 1998a and 1998b, firm foundation for sustainable sources of advantage.
Cagliano et al 2001).
As noted in chapter 2, competitive advantage for a
What might be key reasons for this relatively long tail business derives from building distinctive capabilities
of lagging firms? or stocks of strategic resources that are accumulated
through a pattern of investments over time, and that
First, the distribution of New Zealand firms’ business cannot be easily imitated or acquired by competitors,
practices and development of distinctive capabilities is nor readily substituted.
probably, in part, a reflection of the structure and
maturity of the economy. Specifically, certain structural These distinctive capabilities can include (Campbell-
characteristics of the New Zealand economy create Hunt and Corbett, 1996):
conditions that may make the development of some
business practices and related distinctive capabilities • a style of leadership that creates motivation for
more difficult: continuous improvement towards a compelling
vision of the future
• One of these characteristics is likely to be the
dominance of primary product processing industries • integrated management processes and maintaining
with commodity exports, and the corresponding coherence across activities and practices
small presence – at least directly - in the most • the network of relationships with the workforce
globally competitive and technology intensive
• the network of relationships with external
industries. Our survey has shown that the
organisations – suppliers, customers and advisors –
agriculture, forestry and fishing industry (as well as
and goodwill, reputation and trust built within these
domestically focused sectors such as restaurants and
cafes), in particular, has some way to go in matching • an openness to new information and ideas from
the capabilities of the average level of business within and outside the firm, and a willingness to
practices and performance in other industries. support and pursue these.
• Another key characteristic is the domination of very
Considering each in relation to the BPPS results:
small firms in New Zealand, with over 96% of firms
employing less than 20 full-time equivalent staff, • Most firms have a relatively unsophisticated
which is unusual by OECD standards. The understanding of continuous business improvement,
predominance of very small firms may limit our do not set formal goals longer than a year ahead,
ability to take advantage of scale economies and to and only around half have more broadly defined
generate the resources needed to upgrade business visions. The firm visits and related research
practices. Factors such as transaction costs - in terms confirmed that businesses need to demonstrate more
of time and financial resources - become more foresight to avoid being reactive and at the mercy of
significant for small New Zealand firms. We consider the environment.
this issue further below.
• New Zealand businesses are becoming more
successful in supporting organisational coherence by
Second, the state of business capability is also likely to
promoting organisational values and ensuring firm-
be a function of managing the transition to an
wide communication, which appeared to be assisted
economy that has become more open and competitive,
by flatter organisational structures. Although there is
as tariffs have been reduced and markets deregulated.
not a great deal of take-up of formal quality
This is an evolutionary process and takes time. It can
management system certification, there does appear
be expected that, as firms move down the adjustment
to be greater recognition of the need for some
path, greater numbers will recognise that innovation
internally consistent approach to management and
supporting capabilities, including investments in R&D
quality.
and new technologies, will become increasingly
important for profitability. When that happens, the • There are mixed efforts on developing relationships
strategy of innovation should become the prime vehicle with the workforce, with attention being paid to
for pursuing advantage. internal training, employee satisfaction, health and

200
 safety processes and initiatives to foster teamwork, examine and consider how they might address the
but not a long-term approach to staff performance issues they are able to influence. Beyond this, however,
management. However, the trends for manufacturers the report’s findings point to a number of issues that
and the related research suggest that performance merit attention at the national level. These are
management approaches may be improving. discussed below, with a particular focus on the role of
enterprise development policy.
• The majority of firms are engaging with their
stakeholders in planning, particularly customers and
employees, but less so with suppliers. Similarly, more Size Matters
than half of firms are working closely with Small firms in the study scored, on average, relatively
customers to develop better products and services, poorly across all the business practices, compared to
but less than half are doing so with suppliers. Most medium and large firms. However, their outcomes and
firms visited were looking to deliver tailored business results were not far off those of their larger
solutions to customers and highlighted the counterparts. In a sense, many small businesses seem to
importance of longer-term customer relationships. be operating somewhat in contradiction to the model of
• There is significant scope for businesses to consider business excellence. For example, they do not plan as
benchmarking and to look beyond a traditional much or as long-term, work as particularly closely with
range of sources (competitors, journals, books and customers, or systematically manage information – but
trade shows, associated businesses) for ideas and they tell us they are still achieving relatively good
information for innovation. Firms also tend to focus outcomes and reasonable business results.
on technology acquisition and informal innovation
internal to the firm, rather than R&D and developing As we discussed in chapter 14, the reported practices
networks supportive of innovation. Certainly, and outcomes for small firms may not be a true
innovation is not a competitive focus for the reflection of their actual practices and outcomes. Small
majority of businesses. firms often appeared to not know how to answer the
questions.
Hence the sources of advantage being pursued to date
have focused largely on relationships with customers, But there are likely to be other factors at play in
and to a lesser extent the workforce (although not determining operational outcomes from the perspective
necessarily long-term relationships), organisational of the small firm that were not captured by the survey
coherence and a consistent approach to quality and model.
management. Even with customers, it appears that
many firms are not necessarily pursuing longer-term In small firms, the same person plays several roles –
partnership arrangements, which does not signal high owner, manager and entrepreneur. Relationships are
levels of collaboration and trust. Strategic leadership often informal and organisational structures organic
and networking for innovation are even less evident and loosely structured. For a number of small
and business performance across many of these areas businesses, success may depend more on (Storey, 1998;
could well be a reflection of the short- and medium- Voss et al, 1998b):
term focus inherent in most firms’ practices. • being flexible and adapting to the changing
environment, rather than carrying the rigidity that
In sum, the bases of competitive advantage continue to more systematic management practices might bring
be widened in a good number of firms. A small and planning for the future
minority, some 2-3% appear to be well underway.
However, there still appears to be a long tail of firms • the skills, background and intention of the owner-
that are not building the foundations for sustainable manager rather than any specific business practices.
competitive advantage. Many of these small businesses do not wish to grow
and expand their business, and hence will not look
The question is to what extent the bulk of New Zealand to make major investments in business improvement.
firms will commit themselves to developing these
foundations, and what factors might be impacting on Hence, the challenge facing a large number of New
their ability to do so. Zealand businesses is an inability to deploy more than
a limited amount of resources, and moving beyond
creating only immediate and short-term advantage.
■ Areas for Further Attention This raises two key issues. First, there may well be
The results of the study raise a range of issues of different model or recipe for business improvement in
interest to individual firms, advisors, researchers and the small business sector. This points to the need for
government. We encourage each of these groups to

201
 further research in this area to discover what • Although downstream customer relationships
constitutes business excellence in small firms. continue to receive attention, and businesses
indicate they are working closely with customers on
Second, for small firms to remain successful over time, product and service improvement, this is often
or if they wish to grow, they must be able to adapt to restricted to sales and marketing staff, and there is
changing circumstances. Failure to adapt to transition the widest divergence of achievement across firms
points induced by growth is a key cause of failure for on customer focus practices.
many organisations (Voss et al, 1998b).
• Only one in ten firms work very closely with
suppliers to improve each other’s processes. The
If small business owner/managers want to grow their
majority of firms work only a little with suppliers, or
businesses in terms of employees, sales and profits, and
not at all.
to begin exporting, they face a number of hurdles. They
are likely to need to invest time and resources in more • Although three quarters of firms invested in
systematic practices, structures and strategies, rather innovation supporting activities, just over 10%
than relying on ad hoc and reactive processes. The invested in external research.
BPPS shows the progressive adoption of business • Of the firms that had introduced new or significantly
practices as firm size increases from small to medium improved products and services in the three years
to large. As size increases, the competitive edge that prior to the survey, less than a third developed the
small firms have in terms of being responsive and products in co-operation with others – this equates
adaptive to customer requirements will diminish unless to less than one fifth of all firms. Of businesses that
the growth in size is accompanied by an on-going had introduced a new or significantly improved
investment in business practices (Voss et al, 1998a and process in the previous three years, only one in five
1998b). As a result, an essential element in preparing developed the process in co-operation with others
for growth includes investment in business (around 10% of all firms).
improvement.
• Just over half of firms do not compare their
This reinforces the need to address awareness and skills performance with other businesses. When they do
in management capability and business improvement benchmarking it is generally within their own
in even the smallest businesses, to underpin any industry, with less than 10% looking to firms
growth ambitions they have (Voss et al, 1998b). The overseas and only 2% looking outside their own
companion guide released in conjunction with this sector. Any benchmarking is generally on financial
study (Foundations for Growth: A New Zealand Guide and cost measures rather than considering
to Business Improvement) is a small step in this operations, human resource issues or innovation.
direction. More focused use of enterprise development • On sources of ideas and information for new or
programmes such as BIZtraining, in areas where small improved products, services or processes, most firms
businesses are particularly weak, would also be are focusing on monitoring competitors’ products
valuable. Promoting practical examples, and and services, rather than through more systematic
opportunities for small businesses to learn from other and cooperative arrangements with industry and
businesses (including foreign owned businesses and employer groups, research institutions and
export businesses), is likely to be an important way consultants, or universities and polytechnics.
forward.
This has continued a theme, at least for manufacturers,
Cooperation, Benchmarking, and from Leading the Way (1994) and Gearing Up (1999). It
Inter-firm Learning appears that, until the very recent past, many New
Zealand businesses were reluctant or unable to enter
As indicated earlier, the resource-based view of the
into longer-term partnerships or co-operative
firm stresses that an important source of sustainable
arrangements with other firms. Broader research on
competitive advantage is a firm’s networks of
networks in New Zealand has shown that, during the
relationships with external agencies – suppliers,
early and mid-1990s, networks were being formed on
distributors, advisors, and researchers. Within these
an internal basis between parent companies and
networks, firms can develop distinctive capabilities of
subsidiaries and on an informal, ad hoc, personal basis,
goodwill and trust that lead to lower transaction costs
as opposed to more formal, structured linkages (see,
and reduced risk.
example, Harper, 1993; Benson-Rea and Wilson, 1994;
Campbell-Hunt and Corbett, 1996).
A common theme in this study has been an absence of
strong inter-firm relationships:

202
The BPPS demonstrates, however, as does other since the early efforts of Joint Action Groups and Hard
research (Campbell-Hunt/CANZ, 2001), that leading Networks facilitated by Trade NZ in the early 1990s.
New Zealand businesses do form co-operative However, many of these are still at their infancy in
relationships with suppliers, customers, distributors, terms of still focusing on bringing the players together
universities, advisors and sometimes competitors. These and broad strategy development, rather than inter-
firms have developed their capability to collaborate, organisational learning and exchange. Similarly, the
recognising that inter-firm networks and co-operative development of ‘sector strategies’ for a number of key
arrangements have a number of benefits, such as industries is still a relatively recent phenomenon.
(Bekar and Lipsey, 2001):
The government can have a role in facilitating
• the emergence of collective resources, such as skills,
information as an input into networks and brokering
market information, training and suppliers
relationships, as shown by its work with sector
• specialisation and subcontracting, which allows the strategies; i.e. bringing the right parties together in
resources of other firms to be draw upon to add to cooperative activities so that they can start to build
internal capability trust. It has been clear from the work in the wood
• pressure to innovate as a result of closer processing, textiles, clothing and footwear, ICT,
relationships biotechnology and creative industries, and cluster
facilitation and regional development initiatives, that
• more efficient ways of innovating through learning the government can usefully play a ‘neutral broker role’
from others and their successes and failures. in bringing sometimes disparate parties together.

Campbell-Hunt and Corbett (1998) suggested that there However, government efforts need to be cautious, in
might be aspects of the New Zealand environment that terms of (Bekar and Lipsey, 2001):
have impeded or are continuing to impede the
development of cooperative arrangements between • avoiding attempts to ‘create’ networks or clusters of
businesses, and between firms and other entities: firms that have no assets or advantages on which to
build. The nature of linkages and knowledge sharing
• concerns about the legal limits to cooperative should be determined ultimately by the private
behaviour participants involved
• a culture of self-reliance • providing direct subsidies to specific firms within a
• a legacy of a regime of protection that fostered a cluster or network (as opposed to a collective
mindset of insularity initiative), as this can hinder knowledge sharing by
restricting trust if the government has been seen to
• the widespread and rapid promotion of competition pick favourites
following the economic reforms
• promoting too much focus on specific sector or
• the geographical isolation of firms, both within New network arrangements - networks that are closed
Zealand, and relative to other firms and clusters may in the long-run hamper, rather than stimulate,
globally innovation in that they can become conservative if
• the small scale of businesses, sectors and markets, they are not open to the wider environment. Both at
imposing limits on the extent of specialisation and the regional and national level, ‘outward’ and inter-
exchange possible. sectoral networking will be crucial, including
international collaborative linkages. The Growth and
Similarly, Perry (2001) indicates that although there are Innovation Framework’s emphasis on horizontal
many aspects of New Zealand business and society that sectors (that have clear linkages and impacts on a
have been viewed as co-operative, such as agricultural range of sectors) is a good example here.
co-operatives and many business network groups such
as Chambers of Commerce, these have operated Are New Zealand Firms Innovative?
differently than sometimes thought or have been For many years now, a consistent message that has
insignificant to business development. Surveys emerged through research and public policy is that
conducted by Perry (2001) of business managers and there is less than desirable R&D and innovation in New
coordinators of business cooperation in New Zealand Zealand.
(albeit with small samples) suggest that shared trust
does not really exist. Previous research and development surveys (MoRST
1999, 2002) have shown that most New Zealand R&D is
As described earlier in chapter 9, the number of concentrated in large firms, with the top 70 or so firms
clustering and networking initiatives has expanded accounting for 65% of the business sector expenditure

203
 on R&D. New Zealand’s business investment in R&D is true R&D activities due to tax implications (Ministry of
at one of the lowest levels by OECD standards Economic Development, 2000). It may well be that the
according to these statistics. For example, in 1999/2000 new tax treatment has encouraged businesses to re-
New Zealand’s gross expenditure on R&D was 1.05% of classify innovation and R&D as actual R&D.
GDP compared to the OECD average of 1.82% (MoRST,
2002). Spending by New Zealand industry as a The other explanation is that New Zealand firms could
percentage of GDP was 0.31%, below the OECD average well be undertaking a lot of what might be regarded as
of 1.53%. more informal or incremental innovation, rather than
radical innovation or formal R&D; i.e. small, stepwise
However, the Business Practices and Performance improvements to products and processes, rather than
Survey shows some contrasting results to this picture. developing substantially changed or new products and
Business investment in innovation-supporting activities processes, or new lines of business. This was suggested
or absorptive capacity appears quite positive, with three by the firm visits, with most businesses referring to
quarters of firms investing relatively intensively, innovation in terms of responding to customer
particularly in employee training, machinery and feedback and providing tailored solutions, a willingness
equipment, and keeping technology up-to-date. to act on staff suggestions and keeping up with
Although the proportion of firms that indicated that developments in their field, rather than invention and
they regularly or continuously undertook R&D in the commercialisation of new ideas. It was also suggested
last two years is only one in five, some 60% of by the low ranking placed on innovation as
businesses reported introducing a new or significantly competitive strategy, the lack of use of innovation
improved product or service in the three years prior to measures in assessing performance, and the lack of
the survey and almost half had introduced a new or strong linkages with some stakeholders, other firms and
significantly improved process. Compared to the EU, research-based organisations in terms of sources of
these levels of innovation outcomes are fairly high ideas and information for innovation. Hence, the
(Statistics New Zealand, 2002c). results from the BPPS on the extent of new or
significantly improved products, processes and services
There are some possible explanations for these could be overstated.
apparently contrasting findings.
This raises a clear need for a better understanding of
First, there are difficulties in gaining meaningful and the precise nature of investment in innovation and
accurate measurements of private R&D expenditure. R&D in New Zealand. If the results on innovation
Cross-country comparisons are difficult due to the outcomes are a good reflection of reality, and New
relative size of New Zealand firms, the industries we Zealand firms’ levels of new and improved products,
operate in, difficulties in capturing R&D in surveys, and services and processes are comparable with overseas
R&D reporting differences generated by different tax countries, are industry development efforts focused on
treatments. encouraging innovation capability within firms aimed
at the right issues? If there is a tendency towards more
This latter issue might be particularly relevant. All informal innovation-supporting activities and reliance
OECD countries except New Zealand have special tax on adapting external technologies, does this matter in
schemes for R&D expenditure such as immediate write- terms of generating value? What more could be
off and various types of tax credit. This may lead to a achieved by a greater commitment to more formal R&D
bias upwards in overseas statistics because tax activity? In this context, the Ministry of Research,
concessions may, unless carefully managed, effectively Science and Technology is developing an ‘Innovation
induce a behavioural response by firms to over-report Survey’ with Statistics New Zealand, which in future
R&D. will provide useful information to help answer these
questions.
The latest R&D statistics report (MoRST, 2002) is based
on figures from 1999/2000. The BPPS results are based Continued Attention to Incentives and
on figures from 2001. In between this time, the tax Constraints in the Competitive Environment
treatment of R&D was clarified - from 1 April 2001, all
R&D spending expensed under generally accepted Regulation
accounting practice qualified for immediate tax The study has confirmed that businesses consider that a
deduction. Prior to this change, the New Zealand tax number of regulations, particularly industrial relations
system may have induced a bias to under-report R&D, related regulation, such as ACC and employment law,
as firms sought to classify R&D as other expenses. and regulation associated with local government, such
Research suggests that businesses in New Zealand have
historically disclosed little or no information on their

204
as the RMA and local authority regulations, have industries that reported the most difficulties in
negative impacts on productivity and performance. The accessing skills performed relatively poorly, on average,
firm visits confirmed that this is due to a combination on employee practices.
of compliance costs and the impact of regulations on
firm decisions, such as whether or not to hire labour or In addition, although the vast majority of businesses
invest in a new development. These perceptions vary are using internal training to develop firm-specific
by industry sector. Somewhat surprisingly, given the skills, more use can be made of job rotation, as well as
fixed costs often associated with compliance costs, external sources of training, with most firms only
small firms did not rate the impact of regulations more providing these opportunities for a small proportion of
negatively than larger businesses. their workforce. Identifying the supply and demand
issues that may be impacting on business decisions to
Although there is some evidence that firm capability less than fully use external training deserves some
impacts on the perceptions of regulation, leading attention.
businesses actually report more negative impacts from
regulation than lagging firms, which suggests there ‘Skill shortage’ issues need to be tackled by a
may be very real impacts. In addition, comparable combination of industry, communities, training and
evidence from 1995 indicates that there has been a education providers and government, again reinforcing
deterioration in the perception of the impact of the need for further attention to be given to
employment related regulation over the last five to six co-operative arrangements and co-ordinated efforts.
years.
Access to Finance
Clearly, improving the clarity, stability and simplicity
The study suggests that both debt and equity finance is
of regulations is of continued importance. There may
generally reasonably accessible in New Zealand.
also be a role, through training and information
However, the results do raise some issues in relation to
initiatives such as BIZ, to help develop business
accessing capital at certain stages of development –
capability to deal with these obligations. The firm visits
both new firms of 1-2 years old, and those focusing on
also suggested that greater efforts by government at
the development of new export markets – and for some
promoting the benefits of good business practices,
sectors.
rather than a ‘compliance’ approach, could be more
effective in improving firms’ perceptions of some
It also appears that there are demand side as well as
regulations; eg. outlining how good health and safety
supply side issues, in that leading businesses found it
processes makes good business sense in terms of
less difficult to access capital, and a positive
productivity and cost savings, rather than emphasising
relationship exists between use of business planning
the penalties imposed if regulatory requirements are
and perceptions of easier access to debt finance. In
not met.
addition, there are certainly strong perceptions that
access to finance is a barrier to both performance and
Access to Skills
the introduction of new products, services and
Skills and human capability are central to business processes, with around a fifth of firms overall, and a
improvement and economic development. The study third of small firms, indicating access to finance as a
confirms the findings of similar New Zealand surveys barrier to development.
over the last two years: a lack of specialist skills is
constraining the performance of many firms. One in The precise nature of these potential constraints is not
ten businesses considered specialist skills were never clearly understood. Apart from a consideration of the
available. The availability of general skills (literacy, developments in the venture capital market prior to the
numeracy etc) and appropriate work attitudes does not introduction of the Venture Investment Fund,
appear to be so problematic, although there are still sophisticated research on both supply and demand
large proportions of firms that indicate that these skills issues related to debt and equity has not been
are only sometimes available. In addition, a quarter of undertaken in New Zealand for the last five years.1 This
businesses believe that a lack of skilled staff has made is a crucial area of future work to ensure that enterprise
it difficult to develop new or improved products, development interventions, such as grants schemes and
services or processes. training initiatives, are targeting the right issues.

This is not just a supply issue, as business capability to

attract and retain employees is important, and the
study has found evidence that leading businesses find it
relatively less difficult to access skills. Similarly, the
1
Since the Hamilton, Austin and Fox (1996) study.

205
 ■ Conclusion The challenge ahead is for all those involved in the
business development process to emphasise:
Business practice and performance in New Zealand has
undergone substantial change over the last 20 years. • the ongoing nature of improvement that a
Many New Zealand firms have done well to develop commitment to growth requires, particularly for
some key foundations for business excellence such as small firms
customer focus, information management, good • the benefits that can result from inter-organisational
workforce relationships, and producing quality networks and strategic relationships
products and services, and they continue to evolve
their capabilities. The steps taken are consistent with • the need for a sophisticated understanding of good
what can be realistically expected about the long-term business practice, business performance and the way
nature of the adjustment process subsequent to that innovation occurs and practices diffuse, if
deregulation and liberalisation. national and regional policy and interventions are to
achieve the positive impacts they are designed to
achieve.

206
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218
APPENDICES

A. DATA COLLECTION AND ANALYSIS

■ Validation
of the Business Practices A summation of many of the diagnostics and
excellence models reviewed in developing the
and Performance Model framework for the survey is in Appendix B.

The original Best Manufacturing Practices Model in

Leading the Way (1994) was based on an extensive ■ Questionnaire Design
review of international literature and major
international quality awards from Australia, the United The BPPS questionnaire was largely based on the
States, Japan and Europe. The Best Manufacturing structure and components of the BPP Model. Prior to
Practices Model used in Gearing Up (1999) adopted this its release to firms, it was reviewed extensively by
with minor adjustments after another review of representatives from the Ministry of Economic
manufacturing literature, surveys and diagnostics. The Development, Statistics New Zealand and the Ministry
Business Practices and Performance (BPP) Model used of Research, Science and Technology. Considerable time
in this study was based on the Gearing Up Model, but was spent revising and refining the wording of the
was revised following lessons learnt from the Gearing questionnaire to ensure that questions were unbiased,
Up study, such as a need to incorporate aspects of easily understood and not subject to misinterpretation,
strategy and the competitive environment, and to did not include ‘business excellence’ jargon, and
ensure the model and questions were applicable to a minimised subjective responses.
wider range of sectors and businesses.
To ensure a high response rate, the review also aimed
A review of leading business excellence programmes, to make sure that the questionnaire could be answered
diagnostics and surveys in Australia, the US, the UK, by one person in the organisation (in most cases, a
Canada and New Zealand was undertaken to ensure our respondent would be able to answer every question
survey and subsequent analysis were aligned with from their own knowledge and there would be no need
internationally-recognised benchmarks. to consult records or other personnel in the
organisation), and that it was not too time consuming.
The criteria used to construct the components of the
BPP Model have all been widely acknowledged in the The evaluation process also included peer review, a
literature, either explicitly or implicitly. For example, feasibility study and a pilot study.
criteria came from the:
Peer Review
• Malcolm Baldrige National Quality Award Criteria
for Performance Excellence Framework Comments on the initial BPP questionnaire were sought
from a number of New Zealand academics and business
• Made in Britain, Made in Europe Studies (IBM representatives who had expressed an interest in being
Consulting, London Business School) involved in this study. Feedback was sought chiefly on
• Promoting Business Excellence (PROBE) tools (CBI, the survey model and key questions to be incorporated.
IBM Consulting Group and London Business School) Comments were incorporated, as far as was practicable,
into the survey questionnaire used in the feasibility
• New Zealand Business Excellence Award Criteria
test.
Framework (New Zealand Business Excellence
Foundation)
Feasibility Study
• European Foundation for Quality Management
Excellence Model The objectives of the feasibility study were to check the
respondent’s perception of the detail and length of the
• Canadian Framework for Business Excellence survey, test the terminology used, and test that the
• International Services Study (London Business correct respondent was targeted and was able to answer
School, Kenan-Flagler Business School, Center for all of the questions.
Service Excellence)
The feasibility study involved the general managers of
• Australian Bureau of Statistics Business Growth and seven Auckland businesses completing the draft
Performance Survey/Business Longitudinal Survey, questionnaire and then providing feedback at pre-
Innovation in Industry Survey, and Business arranged interviews. The businesses involved were
Technology Survey selected randomly from Auckland enterprises.
• Eurostat Community Innovation Survey. Representatives from Statistics New Zealand conducted
the interviews.

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 The main outcomes from the feasibility study were: • it took (on average) approximately an hour to
complete the questionnaire with a range of times
• it took approximately an hour to complete the
from 15 minutes to just over four hours
questionnaire
• almost all respondents (95%) felt that they were the
• respondents were concerned about the length of the
most appropriate person to complete the survey
questionnaire
• some information was unavailable to respondents,
• there were some unclear terms that needed
which necessitated the use of some estimates
definitions or examples.
• there was consistent interpretation of the terms used
As a result, wording changes to some questions were in the questionnaire by respondents.
recommended and the length of the survey for pilot
testing was reduced. The test confirmed that the objectives of the proposed
Business Practices and Performance Study would, in
Pilot Test the main, be met by the data collected.
The purpose of the pilot test was to test all the
processes that would be used in the actual survey and:
■ Population
• re-assess the length of the survey
The target population for the survey was all private
• re-assess the terminology used in the survey sector firms (i.e. excluding government and community
• test that the correct contact respondent was being services) with at least six employees. The target
targeted population includes enterprises from 14 of the 17
Australia and New Zealand Standard Industry
• identify what records were being used to complete Classifications (ANZSIC)1, including manufacturing,
the questionnaire. services and agricultural enterprises. This is a much
broader population than that of previous surveys,
This included contacting respondents, issuing the ques- Leading the Way and Gearing Up, which maintained a
tionnaire, operating the processing system, output editing wholly manufacturing sector focus.
of the data and creating indices of business practices.
The sampling frame for the survey was derived from
The population for this feasibility study was extracted the Statistics New Zealand Business Frame.2 The
from the Business Frame stratified by industry, full- selection and collection unit was the enterprise (as
time equivalent employees (FTEs) and exporting status. opposed to the site). To be eligible for sample selection
From this population, a random sample of 74 units was these enterprises had to:
selected. The final set of potential respondents (45) was
found by cold-calling. From this, a total of 27 • have six or more FTEs (full-time equivalents)
completed questionnaires were received (including one • have an ANZSIC code (Australia and New Zealand
partial response). Standard Industry Classification) that fell within
scope: A, B, C, E, F, G, H, I, J, K, L, N, O, P91
The pilot test questionnaire incorporated changes that
resulted from respondent feedback during the • be either registered with the Inland Revenue
feasibility test. Department, or active on the Statistics New Zealand
Business Frame (registered for GST, or had a
Phone interviews were undertaken to clarify issues turnover of greater than $30,000 per annum).
raised in the feedback form and where it appeared that
the respondent had problems completing the Enterprises with fewer than six FTEs were excluded
questionnaire (e.g. partial non-response, inconsistent from the survey on the premise that a number of the
responses etc.). 1
Industry classifications are as follows: A- Agriculture, Forestry &
Fishing, B- Mining, C- Manufacturing, D- Electricity, Gas & Water
Further follow-up interviews were conducted to probe Supply, E- Construction, F- Wholesale Trade, G- Retail Trade,
the issues that arose from the pattern of responses and H- Accommodation, Cafes & Restaurants, I- Transport & Storage,
J- Communications Services, K- Financial & Insurance Services,
additional comments made by respondents.
L- Property & Business Services, M- Government Administration &
Defence, N- Education, O- Health & Community Services, P- Cultural
The main findings of the pilot test were: & Recreational Services, Q- Personal & Other Services.
2
This is a register of businesses in New Zealand, which is primarily
• there was still a concern over the length of the used to select businesses to be included in Statistics New Zealand’s
survey, although positive feedback was received on business surveys. The Business Frame records details such as names
the layout of the questionnaire and addresses, predominant type of industrial activity undertaken,
employment levels, and the degree of overseas ownership.

220
practices to be studied were not completely applicable Sample Size and Response Rate
to very small enterprises, particularly sole operators
(for example, some practices related to staff and The sample size was calculated so that any sampling
research and development). This decision is generally error from measuring a proportion of units in the
supported by the literature, which indicates that a stratum that have a certain characteristic, is at most +
holistic approach to business improvement requires a or – 0.1 (95% confidence interval limits). Loosely
minimum level of resourcing (and most business speaking, this means that there is a 95% chance that
excellence models are geared towards medium and the true value of the proportion is within + or – 0.1 of
large firms). the survey estimate.

The sampling frame (all firms meeting the above The formula used to calculate the sampling error of a
criteria) was 36,953 enterprises as shown below.3 proportion required an estimate of the proportion itself.
Since Statistics New Zealand did not know the likely
Industry (ANZSIC Classification) Number of Enterprises prevalence of the many characteristics surveyed, they
with >6 FTEs assumed a proportion of 0.5 in their calculation of
sampling errors. This is because, for a given sample
A – Agriculture, Forestry and Fishing 1171 size, using a proportion of 0.5 in the calculation will
B – Mining 97 give the upper bound of the sampling error.
C – Manufacturing 6042 The questionnaire was sent to a total of 3,378
E – Construction 3294 enterprises. From this group 2,756 enterprises
responded, a response rate of 81.59%. Previous surveys
F – Wholesale Trade 3285
show this to be an excellent response rate for a
G – Retail Trade 6057 business survey, even though it was administered by a
central statistics agency (thus carrying with it certain
H – Accommodation, Cafés and Restaurants 3226
obligations for response).
I – Transport and Storage 1630
The response rate for each stratum ranged from 70% to
J – Communication Services 184
93%, as outlined on the following page. A total of
K – Finance and Insurance 533 96.01% of all respondents answered 90% or more of
L – Property and Business Services 4828 the index questions. The average number of index
questions answered by respondents was 74, or 97% of
N – Education 3028 the total number of index questions.
O – Health and Community Services 2656
P – Cultural and Recreational Services 922
■ Weights
Total 36953
The survey is a sample survey of the New Zealand
business population. To make the 3,378 sample
enterprises representative of the underlying New
■ Sample Design Approach Zealand business population, each enterprise was
assigned a ‘weight’ that reflected the number of
Stratified sampling was used for the sample design. enterprises it represents.
Stratification was two-way using enterprise ANZSIC
industry and FTE information. The first level of A firm’s weight is calculated by dividing the total
stratification was by 31 ANZSIC groupings. These number of enterprises in a stratum by the number of
groupings are a mixture of one- and two-digit ANZSIC usable respondents. Thus, if there were two respondents
codes as well as a subset of four-digit ANZSIC codes to the survey in a particular stratum, but there were
used to define some additional ‘high innovators’ strata actually ten enterprises identified by the Business
(used by the Ministry of Research, Science and Frame as belonging to that stratum, then each
Technology in analysing the innovation section of the respondent’s score would accordingly be assigned a
survey). Within each of the ANZSIC groups there was a weight of ‘5’. The individual firm’s responses would be
further stratification by size, using the enterprise’s deemed to represent five enterprises’ responses. All
number of FTEs. The three FTE groupings are: units selected from the same stratum will have the
• 6-19.5 FTEs same weight, equal to the stratum population size
divided by the stratum sample size.
• 20-49.5 FTEs
3
Source: Statistics New Zealand, New Zealand Business Demographic
• 50 or more FTEs. Statistics, as at February 2001, www.stats.govt.nz

221
 Response Rate by Stratum
% of
ANZSIC & Description Response Respondents Derived Estimated
No. in No. Rate by that are Number of Response Rate
Sample Received Strata Exporters Exporters for Exporters

A – Agriculture, Forestry and Fishing – 06-19.5 FTEs 177 137 77.4 41.6 57 32.2
A – Agriculture, Forestry and Fishing – 20-49.5 FTEs 122 106 86.9 53.8 57 46.7
A – Agriculture, Forestry and Fishing – 50+ FTEs 55 48 87.3 58.3 28 50.9
B – Mining – 06-19.5 FTEs 37 28 75.5 10.7 3 8.1
B – Mining – 20-49.5 FTEs 15 11 73.3 9.1 1 6.7
B – Mining – 50+ FTEs 5 4 80.0 75.0 3 60.0
C – Manufacturing – 06-19.5 FTEs 458 380 83.0 40.8 155 33.8
C – Manufacturing – 20-49.5 FTEs 389 320 82.3 61.9 198 50.9
C – Manufacturing – 50+ FTEs 302 253 83.8 81.0 205 67.9
E – Construction – 06-19.5 FTEs 47 35 74.5 2.9 1 2.1
E – Construction – 20-49.5 FTEs 50 38 76.0 5.3 2 4.0
E – Construction – 50+ FTEs 32 24 75.0 16.7 4 12.5
F – Wholesale Trade – 06-19.5 FTEs 132 109 92.6 38.5 42 31.8
F – Wholesale Trade – 20-49.5 FTEs 104 88 84.6 48.9 42 41.3
F – Wholesale Trade – 50+ FTEs 76 67 88.2 59.7 40 52.6
G – Retail Trade – 06-19.5 FTEs 48 37 77.1 2.7 1 2.1
G – Retail Trade – 20-49.5 FTEs 55 43 78.2 14.0 6 10.9
G – Retail Trade – 50+ FTEs 43 40 93.0 15.0 6 14.0
H – Accommodation, Cafés and Restaurants – 06-19.5 FTEs 69 52 75.4 3.8 2 2.9
H – Accommodation, Cafés and Restaurants – 20-49.5 FTEs 56 46 82.1 2.2 1 1.8
H – Accommodation, Cafés and Restaurants – 50+ FTEs 47 34 72.3 5.9 2 4.3
I – Transport and Storage – 06-19.5 FTEs 68 52 76.5 11.5 6 8.8
I – Transport and Storage – 20-49.5 FTEs 42 33 78.6 21.2 7 16.7
I – Transport and Storage – 50+ FTEs 35 28 80.0 35.7 10 28.6
J – Communications Services – 06-19.5 FTEs 37 28 75.7 7.1 2 5.4
J – Communications Services – 20-49.5 FTEs 20 14 70.0 0.0 0 0.0
J – Communications Services – 50+ FTEs 13 11 84.6 36.4 4 30.8
K – Finance and Insurance – 06-19.5 FTEs 83 67 80.7 13.4 9 10.8
K – Finance and Insurance – 20-49.5 FTEs 46 39 84.8 17.9 7 15.2
K – Finance and Insurance – 50+ FTEs 61 52 85.2 17.3 9 14.8
L – Property and Business Services – 06-19.5 FTEs 151 121 80.1 25.6 31 20.5
L – Property and Business Services – 20-49.5 FTEs 122 104 85.2 34.6 36 29.5
L – Property and Business Services – 50+ FTEs 80 65 81.3 35.4 23 28.8
N – Education – 06-19.5 FTEs 56 41 73.2 12.2 5 8.9
N – Education – 20-49.5 FTEs 18 15 83.3 46.7 7 38.9
N – Education – 50+ FTEs 11 9 81.8 33.3 3 27.3
O – Health and Community Services – 06-19.5 FTEs 51 42 82.4 0.0 0 0.0
O – Health and Community Services – 20-49.5 FTEs 55 45 81.8 2.2 1 1.8
O – Health and Community Services – 50+ FTEs 40 33 82.5 6.1 2 5.0
P – Cultural and Recreational Services – 06-19.5 FTEs 35 27 77.1 7.4 2 5.7
P – Cultural and Recreational Services – 20-49.5 FTEs 22 19 86.4 47.4 9 40.9
P – Cultural and Recreational Services – 50+ FTEs 13 11 84.6 27.3 3 23.1
Total 3378 2756 81.6 37.5 1003 30.6

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■ Indices
Indices were constructed using responses to the following questions:

Index Index Questions

Leadership and Planning 2.1, 2.2_1_, 2.2_2_, 2.2_3_, 2.3, 2.4, 8.1, 8.2, 8.3
Customer Focus 3.1, 3.2, 3.3, 3.4
Quality and Supplier Focus 4.1, 4.2, 4.3, 6.1, 6.2
Employee Practices 5.1, 5.2, 5.3, 5.5_1_, 5.5_2_, 5.5_3_, 5.6, 9.8_7_
Information and Benchmarking 7.1, 7.2_1_, 7.2_2_, 7.2_3_, 7.2_4_, 7.3_1_, 7.3_2_, 7.3_3_, 7.3_4_, 7.3_5_,
7.3_6_, 7.3_7_, 7.4_1_, 7.4_2_, 7.4_3_, 7.4_4_, 7.4_5_, 7.4_6_, 7.5, 1.3
Innovation and Technology 9.7, 9.8_1_, 9.8_2_, 9.8_3_, 9.8_4_, 9.8_5_, 9.8_6_, 9.8_8_, 9.11
Use of IT 10.1_1_, 10.1_2_, 10.1_3_, 10.3_1_, 10.3_2_, 10.3_3_, 10.3_4_, 10.3_5_,
10.3_6_, 10.3_7_, 10.4, 10.8, 10.12_1_, 10.12_2_, 10.12_3_, 10.12_4_,
10.12_5_
Business Results 13.1_1_, 13.1_2_, 13.1_3_, 13.2, 13.3, 13.4, 13.5, 13.6, 13.7, 13.8
Operational Outcomes 12.3, 12.4, 12.5_1_, 12.5_2_, 12.5_3_, 12.5_5, 12.5_6_, 12.5_7_, 12.5_8_,
12.6, 12.7, 12.8_1_, 12.8_2_, 12.9, 12.10, 5.4, 9.1, 9.3, 9.9
Practices Aggregate of the following indices (evenly weighted):
Leadership and Planning
Employee Practices
Quality and Supplier Focus
Customer Focus
Information and Benchmarking
Innovation and Technology

■ Imputation for Non-response generation requires that all of the respondents have
answered all of the questions to be used in generating
Unit non-response the indices. No imputation was carried out for
respondents that left a significant number of index
Unit (or complete) non-response occurs where units in
questions unanswered (40% or more overall). If a
the sample do not return the questionnaire. The initial
respondent left a significant number of index questions
selection weight of the remaining units in the sample is
unanswered, then their response was classified as a
adjusted to account for the unit non-response (no
non-response and the weights adjusted accordingly.
imputation occurs for the units who do not return the
questionnaire). For each unit i in stratum h the adjusted
Nearest neighbour imputation was used to impute
selection weight is as follows:
answers for unanswered index questions.

Nh nh Nh Using the nearest neighbour method of imputation, a

wi = * =
nh nrh nrh firm essentially borrows a valid response from another
firm within its stratum. The ‘donor’ is the firm within
the same stratum that most closely reflects the non-
where:
responding firm’s other responses (i.e. it has the most
Nh = population in stratum h
similar responses). In the event of a tie, the firm that is
nh = post-out sample size in stratum h
able to ‘donate’ the most responses is used. If a tie still
nrh = number of received and valid responses in
remains, the donor will be selected randomly from the
stratum h
tied firms.
Item non-response The donor respondent is used to supply as many
Item (or partial) non-response occurs where answers as is possible. When a donor can no longer
respondents return the questionnaire but some supply answers, the next-best donor that can supply
questions are not answered. The method of index answers is selected.

223
 Weighted mean imputation was used to impute answers ■ Leaders and Laggers
for unanswered numerical questions (Internet sales,
income, expenditure). In a similar way to the definitions developed in the
1994 Leading the Way and 1999 Gearing Up studies,
Don’t Knows Leaders and Laggers were defined as sites in the top
and bottom 20% of both the aggregated strategising/
Responding ‘don’t know’ is a valid response in this practices index and the operational outcomes index.
survey questionnaire. Where a firm responded ‘don’t Thus the top 20% of sites on the strategising/practices
know’ to a question, a mean of firms’ responses (firms index were found and matched up with the top 20% of
within the same stratum) was used to impute a sites on the operational outcomes index to form the
response. leading group.

In only two cases a firm was not able to have a mean

imputed for a ‘don’t know’. In these cases, don’t know ■ Firm Feedback
was treated as a zero.
All respondents to the 2001 survey have been offered a
‘firm scorecard’ similar to that offered for participants
■ Assessingbusiness practices and in the Gearing Up study. Feedback from respondents,
and evidence from a number of similar surveys and
performance awards programmes, indicates that the scorecards
Most survey questions were Likert-type questions, provide firms with a useful tool for initiating firm-level
providing respondents with a scale from which to select performance assessment. By providing firms with
the most appropriate response. A firm’s response to information that compares their performance in the
each question was then given a value ranging from survey with other firms in their stratum, we hope to
zero to one, with the ‘worst’ answer receiving a zero encourage them to take the first steps toward external
and the ‘best’ answer receiving a one. For example: benchmarking and ultimately business improvement.
Firms that did not take part in the 2001 survey can also
Q.4.2 How much does this business work with key complete the questionnaire on the Ministry of
suppliers to improve each other’s processes? Economic Development’s website at www.med.govt.nz
and receive immediate feedback on how they compare
ANSWER SCORE with the average firm in their industry (as determined
- not at all 0 by the 2001 survey results).
- a little .33
- quite closely .67
- very closely 1

A similar scoring system was used for most questions

in both the practices and operational outcomes indices.4

A linear regression was performed on the distribution

(the unweighted data), producing a line of best fit:
Operational Outcomes = x + b Strategising/Practices

The coefficient of determination (R2 – measures the

proportion of the total variation in operational
outcomes explained by fitting the regression, or the
strength of the linear relationship) was approximately
26%. This is slightly better than the R2 obtained in the
1994 and 1997 studies and is equivalent to many
studies overseas. This demonstrates that, although the
practices described in the model are an important
determinant of operational outcomes, there are a
number of other factors contributing to a business’s
operational outcomes, including structural issues,
market position, distinctive capabilities, competition
and products and services produced.

4
There were some variations.

224
B. BUSINESS IMPROVEMENT FRAMEWORKS AND
DIAGNOSTIC TOOLS
Business improvement or business excellence models of quality-focused categories to a fully integrated
are frameworks that, when applied within an performance management system. More generally, the
organisation, can help to focus thought and action in a quality movement evolved from a narrow focus on
more systematic and structured way, leading to product and process quality to an organisation-wide
improved performance. The models are holistic in that concern for performance excellence.
they attempt to cover all critical dimensions of an
organisation (in particular, factors that drive The various award programmes and underlying
performance) and note the inter-linkages between these frameworks have tended to become more and more
practices. A number of models are internationally comparable as they improved and adjusted their design
recognised as providing both a framework to assist the and operation. In fact most have several objectives in
adoption of business excellence principles, and an common. All programmes emphasise continual analysis
effective way of measuring how thoroughly this and improvement, and the assessments tend to share
adoption has been achieved. similar, if not the same, criteria (Vokura et al, 2000). The
common principles espoused by these awards have
In general, national bodies have developed business developed over the last 15 years and are based upon a
improvement or excellence models as a basis for award large body of published research (Australian Quality
programmes. For most of these bodies, the awards Council, 2000). Twelve common principles have emerged
themselves are secondary in importance to the and been described by the Australian Quality Council as
widespread take up of the concepts of business the basic assumptions from which most awards and
excellence, which ultimately lead to improved national business improvement models have developed.
economic performance. By far the majority of
organisations that use these models do so for self- Underlying Principles of Business
assessment, so that they can identify improvement Improvement Models
opportunities and areas of strength, and use the models
1. A clear direction allows organisational alignment.
as a framework for future organisational development.5
2. Mutually agreed plans translate direction into
The concept and models of business excellence changed action.
rapidly through the 1980s and 1990s. Initially they 3. Understanding customer requirements and
were predominantly quality-based, being heavily expectations influences organisational direction,
influenced by Total Quality Management and quality strategy and action.
control and assurance concepts that had emerged from
Japan in the 60s and 70s. During this period, several 4. Improving outcomes relies on improving the
countries developed quality awards to reflect these total system and its processes.
quality models. For example, three of the Malcolm 5. A firm’s potential is realised through its people,
Baldrige Quality Awards criteria in the late 80s were their enthusiasm and participation.
Strategic Quality Planning, Quality Assurance of
Products and Services, and Results from Quality 6. Continual improvement and innovation depend on
Assurance of Products and Services. continual learning.
7. Outcomes are maximised when people work on a
Over the 1990s, business excellence frameworks and system, not just in it.
the quality movement evolved together. This came
about as quality assurance practices became pre- 8. Effective use of facts, data and knowledge leads to
requisites for effective competition rather than improved decision making.
optional, and as it became recognised that quality was 9. Variability is inevitable; it impacts upon both
merely one dimension critical for meeting more predictability and performance.
demanding customer requirements. From a focus on
individual quality improvement activities, various 10. Firms provide value to their community.
business improvement frameworks moved to a focus on 11. Sustainability is determined by a firm’s ability to
cycles of improvement and overall organisational create and deliver value to all stakeholders.
learning. From an emphasis on data analysis for quality
improvement, business excellence models grew to 12. Senior leadership has a constant role in modelling
include the review and analysis of key firm-level each of these principles and assisting the firm and
measures (e.g. a balanced scorecard). Overall, the its people to reach their potential.
frameworks evolved from a relatively loose collection 5
From Business Excellence at www.bpir.com

225
 As in the previous study, Gearing Up, the model lead to dramatic improvements in cost and quality. It
adopted for the analysis of New Zealand firms via the establishes that quality improvement is equally
Business Practices and Performance Survey was based applicable to all firms, and that such improvements
upon the model used in the original best practice study, must be management-led and customer-oriented.7
Leading the Way (1994). However, a number of
adjustments were made to: The seven Baldrige criteria are based on the premise
that an organisation’s performance can be measured
• make the model relevant to service-based and
efficiently by certain key indicators (as shown in the
smaller firms
diagram below).
• reflect developments in business improvement
theory and frameworks used internationally. The Baldrige Quality programme provides a road map
for performance, with a step-by-step guide for
These adjustments were based on a review of conducting self-assessment (often regarded as the first
international business improvement models and step toward performance improvement). Many firms
diagnostic tools, including those described below. also use the criteria to build a common language
through which to approach performance excellence.

■ Malcolm Baldrige National Quality The seven core criteria are organised into the following
groups:
Award and Criteria for Performance
Excellence6 • organisational profile – sets the context for the way
the firm operates
The Baldrige National Quality Programme, established
• system – the system is composed of the Baldrige
in the U.S in 1987, is the world’s most recognised and
categories in the centre of the diagram. 1, 2 and 3
well-regarded quality award programme. It is a product
form the leadership triad and 5, 6 and 7 represent
of the U.S ‘Malcolm Baldrige National Quality
the results triad
Improvement Act of 1987’. The Act emphasises that
strategic planning, through a commitment to • information and analysis – is critical to the effective
excellence, is essential, and that an improved management of an organisation and provides the
understanding of business and employee processes can foundation for the performance management system.

Baldrige Criteria for Performance Excellence: A Systems Perspective

Organisation Profile: Environment, Relationships, and Challenges

2 6
Strategic Planning Process Management

1 7
Leadership Business Results

3 5
Customer & Market Focus Human Resource Focus

4
Information & Analysis

6
All information in this section, unless otherwise stated, is derived
from the Malcolm Baldrige National Quality Award literature
developed by the Foundation for the Malcolm Baldrige National
Quality Award (est. 1988). http://www.quality.nist.gov/
7
http://www.quality.nist.gov/

226
The MBNQA Criteria for Performance Excellence
Preface: Organisational Profile Category 4: Information and Analysis
To be completed before addressing the criteria items; this sets a basis Stresses measuring, analysing, aligning and improving performance
for assessment. The profile is the starting point for self-assessment and throughout the organisation. Items include information measurement
for writing an award application. and analysis, data availability and hardware and software quality.

Category 1: Leadership Category 5: Human Resource Focus

Emphasises the senior leader’s role in creating and setting the current Work systems should now incorporate succession planning and focus
and future environment, and reviewing organisational performance. on methods for improving co-operation, communication and knowledge
Items include leadership direction, public responsibility and citizenship. sharing. Items include performance review systems, employee training
and development, and staff well-being and satisfaction.
Category 2: Strategic Planning
Establishes the alignment between strategic goals and challenges Category 6: Process Management
identified in the organisational profile; it also differentiates between This is designed to identify key non-product/ non-service processes
short and longer-term planning. Items include strategy development that lead to business growth and success. Items include supply-chain
and strategy deployment. management, research and development, the management of knowledge
and partnering processes.
Category 3: Customer and Market Focus
Emphasises the key aspects of relationship building: customer acquisition, Category 7: Business Results
satisfaction and retention, and business expansion. Items include Covers customer-focused results, supplier and partner results, human
customer and market knowledge and customer satisfaction. resource results, financial and market results.

■ European
Foundation for Quality results criteria evaluate what the organisation has
achieved and is achieving. Essentially, the model
Management Excellence Model8 conveys that the achievement of excellent business
The European Quality Management Excellence Model results will be the function of the interaction, co-
and European Quality Award (established in 1991) ordination and cohesion of the identified enablers.
recognises firms that are successful exponents of
Quality Management principles throughout Europe. It is The model identifies nine criteria, each with their own
administered by the European Foundation for Quality sub-criteria, and assessment reflects consistency among
Management (EFQM), with support from the European and across criteria. The model is arranged in a systemic
Commission (EC) and the European Organisation for manner, with innovation and learning completing the
Quality (EOQ). feedback loop. It is a non-prescriptive framework,
recognising that a variety of approaches can be used to
The model is largely based on the Malcolm Baldrige achieve sustainable excellence.
Quality Award model, although it has some differences 8
All information provided in this section, unless otherwise stated,
in the scoring system and categorisation. Enabler has been derived from the European Foundation for Quality
criteria describe how the results are achieved, whereas Management http://www.efqm.org/

The EFQM Excellence Model

PEOPLE PEOPLE
RESULTS

LEADERSHIP POLICY AND PROCESSES CUSTOMER BUSINESS RESULTS

STRATEGY RESULTS

PARTNERSHIPS SOCIETY
AND RESOURCES RESULTS

ENABLERS RESULTS

INNOVATION AND LEARNING

227
 The EFQM Criteria
1. Leadership 5. Processes
How leaders develop and facilitate the achievement of the vision and How processes within the organisation are designed, managed and
mission, and how they implement these in the development of improved to support policies and strategies. Processes should be
organisational values. How leaders are involved with customers, partners systematically designed and improved through innovative means as
and members of society. How they motivate and support the needed.
organisation’s people.
6. Customer Results
2. Policy & Strategy What the organisation is achieving with regards to its external customers.
How the organisation is able to implement a vision and mission, through
the use of a strategy that incorporates clear policies, plans, objectives, 7. People Results
targets and processes. What the organisation is achieving with regard to its people.

3. People 8. Society Results

How the organisation manages, develops and releases the knowledge What the organisation is achieving in relation to local, national and
of its employees at three levels: individual, team, and organisation. international society, as appropriate.
How these activities are planned to support policy and strategy.
9. Key Performance Results
4. Partnerships & Resources What the organisation is achieving in relation to its planned performance.
How the organisation manages and plans external partnerships and its
internal resources to support policy, strategy and processes.

■ Made in Britain and Europe This was followed by a series of three ‘Made in Europe’
reports which examined how far European
Research Studies and ProBE manufacturing had progressed towards world class
Diagnostics9 competitiveness: Made in Europe: A Four Nations Best
Practice Study (1996) included Germany, Holland,
The ‘Made in ...’ series of research studies investigate
Finland and Switzerland; Made in Europe 2: An Anglo-
business practices and competitiveness in
German Design Study focused on the processes that
manufacturing. The series now includes specific
create and bring new products to market; Made in
investigation of small and medium enterprises, as well
Europe 3: the small company study: An Anglo-Italian
as cross-country comparisons of manufacturing
comparison (1998) considered whether the adoption of
performance. The series of studies formed the basis of
‘large company’ best practice could benefit the small
the Confederation of British Industry’s ProBE
business sector. The surveys were conducted using very
(Promoting Business Excellence) assessment tools and
similar methodologies to that used in the original Made
the MICROSCOPE diagnostic tool for small businesses.
in Britain study. To date, over 1200 business sites have
been surveyed across the studies.10
Working with IBM and the CBI National Manufacturing
Council, London Business School’s Centre for Research
The framework underlying the studies revolves around
in Operations and Technology Management, under the
the assumption that the four key drivers of
leadership of Professor Chris Voss, produced a series of
manufacturing competitiveness are manufacturing
reports on the maturity of implementation of ‘best
capability, cost, design, and investment, and that a
practice’ in both the design and the manufacturing
positive relationship exists between practices and
processes of European companies.
performance. Practices refer to the established processes
that a company has implemented to manage its
The first study, Made in Britain: The True State of
manufacturing business. Performance refers to the
Britain’s Manufacturing Industry (1993), was based on
measurable outcome of these practices at both the
a model consisting of five key components: Total
operational and business level.
Quality, Concurrent engineering, Lean Production,
Logistics and Organisation, and Culture. Data was
The original 1993 model has been expanded over time
collected through industrial consultants conducting 90-
to include innovation, product development,
minute interviews with owner/director representatives
e-business, environment, and health and safety.
of 202 manufacturing sites across the UK, based on a
Specific issues covered within the broad areas of the
questionnaire where respondents ranked their firms’
model are:
practice and performance between one and five on 46
aspects included in the above categories. Two indices 9
All information for this section, unless otherwise stated, has been
were created on practices and performance. World Class derived from the ‘Made in Europe’ reports published jointly by IBM
performance ranking was said to be achieved if firms Consulting Group, London Business School, and West London
Training & Enterprise Council.
reached a score of 80% + on both indices. 10
A number of other country studies were also undertaken over 1993
– 1996, such as ‘Made in Germany’, ‘Made in Holland’.

228
The World-Class Manufacturing Model
Total Quality

Concurrent
Innovation Product Development

Engineering and Operational Business

Concurrent manufacturing Engineering Performance Performance
information systems
Engineering

Logistics Lean Production

Organisation & Culture

• organisation and culture – vision, management style, ■ The International Service Study11
employee involvement in decisions, customer
orientation, strategy, flexibility, benchmarking, and The International Service Study (ISS) aimed to discover
problem solving what creates global leadership in service. Study teams
conducted interviews in a broad sample of over 300
• quality – quality processes, product reliability, service firms in the UK and US, specifically targeting
warranty claims costs, defects, customer delivery financial service providers, hotels and leisure firms,
commitments met, supplier partnerships, and scrap professional service providers, public sector
and rework organisations, utilities and telecoms businesses, and
• innovation – generation of innovative product retailing firms.
concepts, technology strategy, new product
introduction, and encouragement of creativity The originators of the ‘Made in …’ framework and
studies developed the ISS survey, and the methodology
• engineering – cross-functional involvement, used was hence very similar. The ISS survey instrument
teamworking, data creation and access, integrated consisted of a set of 80 questions that examined each
systems, and the attitude of business towards of the 12 drivers and six performance outcome areas of
engineering the model (see the model on page 220). Each of the
• product development – cost control, monitoring of questions was scored on a five-point scale, with 1
design, industrial design, cycle time, and technical representing the poorest level and 5 the outstanding
performance practice or performance. A trained facilitator visited the
site and assisted with a firm’s self-assessment. The
• performance – customer satisfaction, market share,
facilitator also processed and analysed the results,
employee morale, cash flow, return on net assets,
providing the firm with feedback, including the
productivity, and product costs.
position of the firm across the whole sample and within
its industry on a performance graph.
The studies highlight collaboration and continuous
improvement in the path to world-class performance.
The ISS model is grounded in the theory of how service
firms compete. The starting point for the model was the
The results of the various studies suggest that sites that
service-profit chain (Heskett et al. 1994), which links
employ benchmarking are far more likely to identify
customer satisfaction, loyalty and profitability to
their relative competitiveness and thus better focus
employee satisfaction, loyalty, productivity, and service
their improvement programmes. They also show that
value. Leadership and business performance were added
sites perform better when they interact well with
because of their importance. Other influences were
suppliers and customers and with external sources of
design and development. Internal learning needs to be
11
continuous, with the key contributors being teamwork All information for this section has been derived from Voss C,
and good internal integration. Blackmon K, Chase R, Rose E L and Roth A V (1997), Service
Competitiveness – An Anglo-US Study, Business Strategy Review, Vol
8, No. 1, pp 7-22.

229
 The International Service Study Research Model

Leadership

Organisation & Culture Service Concept & Design Service Delivery Service Value

Leadership Understanding Quality Managing

Customers Management Costs & Value
DRIVERS Employee Service Design Service Recovery Service Standards
Management
Service Processes Service Empowerment Performance
Management

Customer satisfaction
Employee Service Service
OUTCOMES loyalty & morale effectiveness quality Customer loyalty
& retention

Business
Performance

previous work on benchmarking processes and results responding to customer complaints and problems.
in the US banking industry, the European/British Good service-delivery processes, coupled with
Quality Award and the Malcolm Baldrige National customer-oriented employees, deliver service quality
Quality Award frameworks. through a motivated, customer-oriented and satisfied
workforce.
The model outlines a set of linkages between various
• Service value, as perceived by customers, is created
areas of management practice and firm performance:
by a well-designed service-delivery system
• Leadership is regarded as driving the whole service supporting a service concept that addresses customer
delivery process. Good leadership emphasises the needs and is executed with high productivity.
importance of both customers and employees. Its Important elements of service value include how
outcomes are motivated staff, and services that meet well the organisation manages costs and value and
customer needs and are delivered to a high quality. sets service standards.
Leadership also contributes to a customer- and
service-oriented organisation and culture. The The study showed a strong relationship between the
outcome of an effective organisation and culture will management practices of the organisations and their
be high employee loyalty and morale. performance.
• The service concept and design is central to good
service. Elements include understanding customer
needs, designing the service concept to meet ■ Marketing and Service Sector
customer needs and provide differentiation from Competitiveness Studies
competitors, and designing the service delivery
process to support the service concept. A well- Since 1992, the Marketing Performance Centre in Otago
designed service concept results in effective service University has undertaken a series of major research
performance. projects on marketing performance and services sector
competitiveness in New Zealand. This has resulted in
• Service delivery includes practices associated with seven research reports for marketing practitioners:
quality management, service recovery, and employee CEOs and Marketing and The NZ Marketing Manager
empowerment. The service-delivery process must (1993), Marketing Planning in New Zealand (1995),
include appropriate processes for managing and Market Orientation, Pricing and Perceived Performance
(1996), Improving Marketing Performance (1998),

230
Improving Service Sector Competitiveness (1999) and • cost advantages, possibly based on more efficient
Best Practices in Marketing and Managing Service service production and delivery methods.
Businesses (2001).
In turn, competitive market positioning is likely to lead
The Survey samples have been drawn from a database to performance advantages including:
of 3,500 managers, although responses have typically
• greater customer satisfaction and loyalty
been received from 300–500 firms. A wide range of
service sectors have been covered by the survey, • superior sales revenue and profitability
including property, business and consulting, transport • enhanced brand equity and corporate reputation
and storage, finance and insurance, building and trade,
communication, and wholesalers. The majority of • more successful new service developments.
organisations in the various surveys have tended to be
small and employing fewer than 50 employees. The main environmental influences on performance in
this model are:
The model suggests that the main drivers of • market turbulence (changing customer needs and
performance are likely to be: preferences)
• the adoption of more market-oriented business • technological turbulence
practices, in particular ways of responding to
customers’ changing needs, competitors’ actions, • competitive intensity
sharing market information within the firm, • market growth
responding to information in a coordinated and
timely fashion, and tracking the most profitable • barriers to market entry.
service products and customers
The drivers of sustainable competitive advantage
• the development of more effective and efficient service proposed by the model have been largely supported by
innovation/new service development processes the results of the various studies. Market orientation,
• greater investment in service branding and corporate brand management and innovation management are
image management moderately correlated with both differentiation and
cost effectiveness. The results of the studies also
• greater use of web-based marketing confirm the proposed links between better cost-
• attaining superior resources and service skills. effectiveness and/or greater differentiation and
improved organisational performance. The research
Investment in these sources of competitive advantage is also supports the premise that higher performing
likely to lead to positional advantages in the organisations reinvest their profits into improving
marketplace, particularly: skills.
• differentiated service products or service delivery
methods based on superior quality or innovative
features

The studies are based on the research model illustrated below:

Services Competitiveness Research Model

REINVESTMENT IN RESOURCES AND SKILLS

SOURCES OF ADVANTAGE POSITIONAL ADVANTAGE ORGANISATIONAL

PERFORMANCE
• Market orientation • Differentiation
• Brand management • Cost effectiveness • Financial
• Innovation • Customer
• Information Technology • Brand
• Resources • Reputation
• New Service Development
ENVIRONMENT

231
 ■ AustralianBusiness Excellence competitive. The Framework is regarded as linking a
number of business improvement systems including
Framework and Australian Business ISO 9000: 2000, Investors in People, the Balanced
Excellence Awards12 Scorecard, Business Process Re-Engineering and
Organisational Performance Measurement.
The Australian Business Excellence Framework (ABEF)
can be used to assess the current practices of an
There are three levels of entry for the Australian
organisation and to feed improvement opportunities
Business Excellence Awards. The ‘General’ level
into the strategic planning process. The model
provides four levels of recognition and feedback
recognises the inter-related nature of all elements of an
designed to assist in the driving of improvements. The
organisation and also emphasises the importance of a
‘Award Gold’ level is only open to former winners, and
continual approach to performance improvement and
offers re-validation and ongoing improvement
excellence. The Framework is the basis behind the
evaluation. The ‘Australian Business Excellence Prize’ is
assessment of the Australian Business Excellence
only open to former winners and recognises firms that
Awards.
are applying international best practice.
The Australian Quality Council (AQC) first developed
The Australian Business Excellence Framework is quite
the Framework in 1987 – one of the first four global
similar to the Malcolm Baldrige Quality Award
excellence frameworks – in response to both
Framework for Performance Excellence, and identifies
Commonwealth Government and general industry calls
seven categories as being the drivers of business
for Australian enterprises to be more efficient and
excellence.

The ABEF Criteria

Category 1. Leadership & Innovation Category 5. Customer & Market Focus
How leadership uses underpinning framework principles. Areas How an organisation addresses the analysis of customers and
covered are strategic direction, culture, leadership throughout the markets, and how this enables it to meet the current and future needs
organisation, and environmental and community responsibility. of its customers. This includes knowledge of customers and the
formation of customer relationships.
Category 2. Strategy & Planning Processes
Explores the way in which an organisation develops, communicates Category 6. Processes, Products & Services
and deploys strategic plans. This category examines the processes that are utilised to supply
quality products to an organisation’s customers and how the
Category 3. Data, Information & Knowledge organisation improves the processes to increase product quality and
How an organisation obtains and uses data, information and customer service. This may include innovation, relationship
knowledge to support all levels of decision-making. development and the management of the production process.

Category 4. People Category 7. Business Results

How all the people within the organisation are encouraged and Demonstrates the performance of the organisation to date, and
enabled to make satisfying contributions toward the achievement of potential future performance.
organisational goals.

The ABEF Model

People
Leadership
& Innovation
Strategy &
Planning Business
Processes Results
Customer
& Market
Focus
Processses,
Products &
Services
Data,
Information & Knowledge
12
All information for this section, unless otherwise stated, has been
derived from the Australian Business Excellence Framework, designed
by the Australian Quality Council http://www.aqc.org.au/abef/

232
■ New Zealand Business Excellence that constant ‘fire fighting’ is an inefficient use of time
and resources. The NZBEA are assessed using the same
Awards and Criteria for Performance criteria as the Malcolm Baldrige Award, and all
Excellence13 applicants have their entries evaluated by a team of
trained national evaluators.
The New Zealand Business Excellence Awards (NZBEA)
and Criteria for Performance Excellence are
The NZBEF encourages the use of the criteria as a tool
administered and supported by the New Zealand
for business self-assessment in preparation for
Business Excellence Foundation (NZBEF). They promote
continuous improvement processes and application for
a continual improvement focus to business, recognising
the awards procedure.

13
The information in this section, unless otherwise stated, is sourced
from the New Zealand Business Excellence Foundation’s http://
www.nzbef.org.nz/

233
 C. DIFFERENCES BETWEEN INDUSTRIES, SIZE OF FIRM
EXPORTING STATUS, AND OVERSEAS OWNERSHIP
Analysis of variance was applied to see if there were strategising/practices index was statistically
any statistically significant differences across significantly lower (at the .05 level) than that of the
industries, firm sizes, exporting status, and ownership manufacturing, wholesale trade, finance and insurance
types. If that was the case, then it was followed up with services, and property and business services industries.
Scheffe14 tests to determine the statistical significance
of pair-wise differences at the .05 level. In terms of operational outcomes, the difference in
means between the agriculture, forestry and fishing
industry and both the finance and insurance services
■ Industry and education sectors was statistically significant – the
agriculture, forestry and fishing industry was lower.
The data in the table below gives the difference Similarly, the accommodation, cafés and restaurants
between means of different sectors. A statistically industry had a statistically significant lower mean score
significant difference at the .05 level is indicated by ***. than the finance and insurance services and education
industries.
The results suggest that the agriculture, forestry and
fishing industry’s performance on the overall

Industry Classification (Strategising/Practices Index)

Practices B C E F G H I J K L N O P
A -6.4 -5.5*** -4.9 -8.2*** -4.1 -5.6 -7.15 -6.7-10.1*** -5.8*** -9.2 -5.2 -3.5
B 0.9 1.5 -1.8 2.3 0.9 -0.7 -0.3 -3.7 0.6 -2.7 1.2 2.9
C 0.6 -2.7 1.4 -0.1 -1.7 -1.3 -4.6 -0.3 3.7 0.2 2.0
E -3.3 0.8 -0.6 -2.2 -1.8 -5.2 -0.9 -4.2 -0.3 1.4
F 4.1 2.6 1.0 1.5 -1.9 2.4 -1.0 3.0 4.7
G -1.5 -3.1 -2.7 -6.0 -1.7 -5.1 -1.1 0.6
H -1.6 -1.2 -4.5 -0.2 -3.6 0.3 2.0
I 0.4 -2.9 1.4 -2.0 1.9 3.6
J -3.3 1.0 -2.4 1.5 3.2
K 4.3 0.9 4.8 6.6
L -3.4 0.5 2.3
N 3.9 5.6
O 1.7
A-Agriculture, Forestry and Fishing, B-Mining, C-Manufacturing, E-Construction, F-Wholesale Trade, G-Retail Trade, H-Accommodation,
Restaurants and Cafes, I-Transport and Storage, J-Communications Services, K-Finance and Insurance, L-Property and Business Services,
N-Education, O-Health and Community Services, P-Cultural and Recreational Services.

14
Scheffe’s test. After obtaining a statistically significant F-statistic
from the ANOVA procedure, we wanted to understand which group
means were particularly different from one another. Using a series of
t-tests is likely to overestimate the statistical significance of mean
differences, because the t-test is designed to test significance where
only two samples are taken. Post-hoc comparisons, such as Scheffe’s
test, are designed take into account a situation where more than two
samples are taken. A Scheffe test can be used to test the significance
of differences between group means, and is considered one of the
more conservative post-hoc tests for predicting significance (source:
www.statsoftinc.com).

234
Industry Classification (Operational Outcomes Index)
Outcomes B C E F G H I J K L N O P
A -5.5 -2.8 -1.3 -3.1 -1.0 0.8 -5.0 -4.3 -5.4*** -4.1 -8.0*** -1.8 -6.1
B 2.7 4.2 2.5 4.5 6.4 0.5 1.2 0.2 1.4 -2.5 3.8 -0.1
C 1.5 -0.3 1.8 3.6 -2.3 -1.5 -2.6 -1.3 -5.3 1.0 -3.3
E -1.8 0.3 2.1 -3.8 -3.0 -4.1 -2.8 -6.8 -0.5 -4.8
F 2.0 3.9 -2.0 -1.3 -2.3 -1.1 -5.0 1.3 -3.1
G 1.8 -4.0 -3.3 -4.3 -3.1 -7.0 -0.8 -5.1
H -5.9 -5.2 -6.2*** -5.0 -8.9*** -2.6 -7.0
I 0.7 -0.3 0.9 -3.0 3.3 -1.1
J -1.0 0.2 -3.7 2.6 -1.8
K 1.2 -2.7 3.6 -0.8
L -3.9 2.4 -2.0
N 6.3 1.9
O -4.4

■ Firm Size mean score for both medium and large firms. The
difference in means between medium and large firms is
A Scheffe test was also used to determine whether the also statistically significant across all the practice indices,
differences between firm sizes were significant at the with large firms having a higher mean in each case.
.05 level. The data in the table gives the difference
between means of different firm sizes (where small is 6-
19.5 FTEs, medium is 20-49.5 FTES and large is 50+ ■ Exporting Status
FTEs). A statistically significant difference at the .05
level is indicated by ***. A Scheffe test was used again to determine whether the
differences between the exporting status of firms,
Firm Size (Strategising/Practices Index) across all indices, were statistically significant at the
.05 level. The data below gives the difference in means
Practices M L
between non-exporters and exporters, showing that on
S -5.6*** -11.3*** every index exporters out-perform non-exporters,
M -5.7*** except customer focus. A statistically significant
difference at the .05 level is indicated by ***.

Firm Size (Operational Outcomes Index) Exporting Status across all Indices
Outcomes M L Value
S -0.4 -1.0 Strategising/Practices -4.8 ***
M -0.6 Operational Outcomes -2.1 ***
Leadership & Planning -6.7 ***
The results show that small firms’ results on the overall
strategising/practices index are statistically Employee Practices -2.6 ***
significantly lower (at the .05 level) than medium and Customer Focus -0.6
larger firms’ results. The medium firms’ mean
Quality & Supplier Focus -7.3 ***
strategising/practices score is also statistically
significantly lower than the large firms’ score. In terms Innovation & Technology -7.2 ***
of operational outcomes, there is no statistically
Information & Benchmarking -4.4 ***
significant difference in mean scores across the three
firm size groupings.

On all the individual practice indices, the mean score for

small firms is statistically significantly lower than the

235
 ■ Overseas Ownership Overseas Ownership across all Indices

Overseas ownership was determined by grouping Value

respondents into those that are less than 50% foreign- Strategising/Practices -7.3 ***
owned and those that are more than 50% foreign-
owned. A Scheffe test was used to test the significance Operational Outcomes -0.6
between the means of the two groups. Leadership & Planning -9.1 ***
Employee Practices -12.2 ***
The results show that firms that are more than 50%
foreign-owned score better across most indices, on Customer Focus -5.2 ***
average, than firms with less than 50% foreign-
Quality & Supplier Focus -7.7 ***
ownership. However, in terms of operational outcomes
and innovation and technology practices, the difference Innovation & Technology -1.6
in means is not statistically significant at the .05 level.
Information & Benchmarking -8.0 ***

236
D. FIRM VISITS INTERVIEW SCHEDULE
■ PartA – Introductory/General 5. What broad strategies is your firm likely to adopt
over the next three years (Locations of production,
Questions size, exporting, diversification etc)?
The introductory questions are aimed at providing a
background to the firm for considering broad issues
that might have implications for scores on the practices ■ PartB – Theme and Validation
and outcomes indices. Look at issues such as Questions
performance, exporting status, significant changes to
the firm, any lessons learnt. This will provide a context The object of this section is to validate survey
from which to investigate attitudes towards business responses, and understand the reason why these may
improvement and the accompanying business practices. be inconsistent (different respondent, didn’t understand
question, changed practices). It is important to establish
1. How would you rate your firm’s performance over whether self-scoring by the respondent has been
the last 12 months? 3 years? accurate. This can be compared to the validation
To establish how the firm has been performing over question scores and the index scores provided on the
recent years. Will be useful to compare this to the interview cover sheet.
index score for business outcomes as a proxy
validation measure. Business Practices
– Is the firm growing/declining? (number of FTEs, 1. What does business excellence or best practice mean
sales, locations) to you and the firm? (what practices would you
Growth or decline of a firm is likely to have describe as excellent within your firm? i.e. aspects of
implications for operating ability, choice of leadership and planning, employee practices …)
business practices and ultimately outcomes. This question aims to explore what respondents
understand by business excellence, to test whether
– Is firm performance regularly assessed?
our approach is still sound and identify the practices
Evaluation is an important component of
they have been focusing on. You should also use this
benchmarking and an important business activity.
question to elicit whether there has been a sequence
to business improvement efforts.
2. Has the business environment changed significantly
over this period (technologies, demand, competition, – How does the firm approach business
regulation?) improvement? (formal/informal processes)
Look for changes that may have impacted on
– What barriers, if any, do you perceive for business
strategies and practices, or upon the ability to
improvement implementation in your firm?
operate successfully.
– Are there any logistical, technological, legislative,
3. Have there been any significant changes over this resource, financial, employment/skills,
period? (structure, ownership, strategy, focus, management barriers that have prevented business
leadership) improvement? This should be compared to similar
– Can you describe how these may have affected the questions in the survey responses.
business
2. What is the influence of (if relevant):
– How did the firm cope with these changes?
– Size
Want to elicit historical information about change at
– Being part of a larger organisation
the firm, any change programme that may have been
undertaken, and what was the impetus for change. – Overseas ownership
on the development of strategy and business
4. What is the focus of your current strategy (Cost, practices?
Quality, Flexibility, Innovation, Timeliness, Service,
Expansion, Rationalisation, Exporting, Domestic)? This question aims to test some key hypotheses in
Will be useful to compare this to survey answers on the literature on business improvement in that larger
strategies. The choice of strategy impacts on the size, overseas ownership and greater resources are
choice of business practices developed. positively correlated to business improvement
efforts.

237
 Leadership and Planning - Motivate or encourage employee performance
(performance agreements exist, bonus/incentive
3. Could you briefly describe the planning process at
schemes, informal rewards, reward sharing,
this site.
performance measurement and review systems)
(degree of consultation, communication, short versus
long-term, review, links with training and - Develop employees skills (is the focus on multi-
development) skilling and flexibility or specialisation, is training
and the review of training needs formalised, is the
4. Does the firm have a shared vision for the future? impact of training measured)
(what is it? do they regard vision/mission statements
- Enable involvement in setting and reviewing
of practical use? If they have a vision/mission – does
company goals (active staff suggestion scheme,
it include both values and goals? Do they have
staff aware of goals and vision, problem solving
audacious goals?)
teams exist, staff feel empowered)
5. What leadership qualities are critical for business
Information and Benchmarking
success? (inspirational, trusting, committed,
visionary, consultative – how does the firm shape up 10.How does this company compare itself and its
against these?) performance with other companies? (are these formal
practices (i.e. results documented), mainly concerned
Customer Focus with close competitors, within the industry, in what
areas)
6. Describe the processes that are used to work with
customers and meet their requirements (more formal
11.How does the company keep up with new
or informal – site visits, meet with customers, social
developments i.e. product/process developments,
activities, different levels of staff involved, customer
business trends, changes in technology?
satisfaction surveys and assessments, results
analysed and distributed, complaints procedures,
Community and Social Responsibility
loyalty schemes, customers involved in product/
service design) 12.Does this firm have in place any measures to reduce
its impact upon the environment? (is this reactive
Quality and Supplier Focus (i.e. clean-up) or proactive management?)
7. What types of systems are in place to measure the
13.How closely does this firm interact with the
quality of products or services? Who is involved? Are
community in which it operates? (can you give
they effective?
examples, what is the motivation for these – for
(problem solving teams, process documentation
bottom-line or due to regulations or appearance?)
exists, do it right first time policy, quality
measurement systems in place)
Innovation
ISO and quality management systems – how useful
14.What are the key factors involved in developing
do the companies find these? (Is it merely a paper
products and processes in this firm? How does this
driven system or does it have tangible outcomes?
firm encourage creativity? (employee involvement in
Why did the business adopt/not adopt Standards?)
innovation and technology acquisition, reward
systems, training & development, improvement
8. How much of a priority is your relationship with
teams, R&D investment, feedback from staff)
suppliers? Could you describe the role of one or some
of your key suppliers? (suppliers involved in design,
accreditation processes, supplier performance
evaluation, site visits, social activities, few or many ■ PART C – Business Environment
suppliers, real partnerships) The aim of this section is to gain a better
understanding of the underlying business environment
Employee Practices and the role that government plays/can play. We would
9. Describe your employee development processes like to gather some insight into perceived areas of
designed to: difficulty and success for businesses in the external
operating environment, and how this relates to the
- Develop or support a company culture (social development of business practices and firm
activities, communication mechanisms i.e. staff performance.
newsletters, CE regularly talks to staff, staff
induction programmes)

238
1. What is your view on business conditions? economic environment, specific business assistance
Does the firm have a view and at what level (relates interventions)
to environmental scanning and specific questions in
survey) on: 4. What would you perceive as the greatest barriers to
business development in New Zealand?
- general economic conditions, inflation, exchange
Once answer is given in general terms, relate to
rates, interest rates
questions in survey and ask about general views on:
- competition and market conditions – number of
- Access to R&D and technology
players, aggression, demand
- Availability of finance
2. Has your firm used any business assistance schemes?
- Skills (Management and staff) availability
How helpful have these been? (for example those
(including education and immigration)
administered by Industry NZ, Tech NZ, Trade NZ).
Seeking general information that may be used to - Access to international markets (tariffs/quotas)
evaluate components of government assistance - Regulations and compliance costs
schemes; and compare response to survey response.

3. What role do you perceive for government in this

environment, or more generally, for business ■ Firm Tour
assistance? If a tour of the firm is offered, look for validation of
(look for, or prompt, answers related to regulation, the responses by observation. You should be alert to
training and education, research, science and such factors such as evidence of communication,
technology, trade liberalisation, maintaining stable quality of technology and facilities, and the general
behaviour of staff.

239
 E. PROJECT TEAM AND CONTRIBUTORS
Ministry of Economic Development Firm Visits Undertaken
Stephen Knuckey The Ministry of Economic Development would like to
Hayden Johnston thank the following firms and acknowledge the
valuable contribution made by their representatives:
(Firm Visits)
Alan Burns Insurance Brokers Ltd
Jason Leung-Wai
ANZ Banking Group (New Zealand) Ltd
Sol Roberts
AXA New Zealand (National Mutual) Ltd
Hayden Johnston
Barnies Childcare & Education Centres Ltd
Amanda Tullett
Birchfield Coal Mines Ltd
Amir Pirich
Continental Engineering Ltd
Kay Switzer
Criterion Manufacturing Ltd
Datacom Engineering Services Ltd
Stephanie Simmonds
Degussa Peroxide Ltd
Jeremy Stevenson-Wright
Design Mobel New Zealand Ltd
Electrical Importing Co Ltd
Statistics New Zealand
Electriserv Ltd
Mark Jackson Electronic Data Manufacturing Ltd
Ron McKenzie Enermet Ltd
Richard Penny Equinox Ltd
Sandra McDonald Fernz Health and Science Ltd
Peter Mills Gosling Chapman – Chartered Accountants
Rosemary McGrath Hertz New Zealand Ltd
Denise Carlson International Marine Insurance Agency
Jan Thomson Iquest New Zealand Ltd
Jenny Mason Jimmy’s Pies Ltd
Kelly McNeil – Barristers and Solicitors
Expert Comments Kiwi Trophies and Engraving Ltd
Law Mooney Williamson Insurance Brokers Ltd
Colin Campbell-Hunt
Managed Investment Services Ltd
Claire Massey
Markit Graphics Ltd
Ken Carlaw
Medlab South Ltd
Lawrence Corbett
Micro Business Systems
Danny Samson
Mr Electric (Wellington)
David Yarrow
Nelmar Home Support Ltd
Karen Brown
New Zealand Pharmaceuticals Ltd
Ngahere Sawmilling Co Ltd
Swedish Team
Nova Enterprises Ltd
Michael Leigh Pacific Helmets New Zealand Ltd
Per Magnus Wijkman Pacific Horizon Ltd
Gunnar Kullberg Prolife Foods Ltd
Peggy Kullberg R G McLeod & P D Lett Partnership
Lars-Göran Eriksson R & P Pretty Catering
Anders Olssen SCL Electronic Services Ltd
Andreas Deniz Seabreeze Fashions New Zealand Ltd
Kennet Samuelsson The Sir George Seymour National College of Tourism
Jan Sundqvist and Travel
Ragnar Ahlström Söderling Southland Credit Union
Tanja Lehtola Stabi-Craft Marine Ltd
Nicola Knowles System Controls Ltd
Carina Sanna Taranaki Steelformers Ltd
Touchdown Television
Waikato Turnery Ltd
The Wild West Adventure Company Ltd

240
F. QUESTIONNAIRE
Business Practices Survey
BPS/00/01

Business Practices Survey 2000

Please correct any errors in this panel

For help and information:

Phone: 0800 809 464

Fax: 09 357 2195

E-mail: surveys@stats.govt.nz

Mail: Statistics New Zealand

Freepost 10007
Private Bag 92003
Auckland

Return date: Please return this completed questionnaire, in the reply

paid envelope enclosed, within 14 days of receiving it.

Purpose of this survey: The purpose of this survey is to collect information on

the business practices of New Zealand businesses.
The data collected by this survey is needed to quantify
business behaviour, capability and performance
across a wide selection of industries.
The information will help government and other
organisations in developing a better understanding of
enterprise capability and performance in New Zealand.

Compulsory requirement: The taking of this survey has been approved by

the Minister of Statistics and the return of this
questionnaire duly filled in and signed is a compulsory
requirement under the Statistics Act 1975.

Confidentiality of Only people authorised by the Statistics Act 1975 are

information supplied: allowed to see your individual information, and they
must use it only for statistical purposes. Your
information will be combined with similar information to
prepare summary statistics.

Brian Pink
Government Statistician

Please answer the questions on the following pages

241
 Page 2 Page 3

Instructions 1. Strategy

1.1 Tick one circle for each item.

Only include information for the business named on the front page - do not provide consolidated
How important are the following types of strategy
data.
for your business:
Exclude: not at all a little moderately very don’t
Subsidiary or associated businesses. important important important important know
Accounting divisions that operate entirely outside New Zealand.
- pricing of goods and services sold
1 2 3 4 5 0101
Please keep a record of the time it takes to complete this questionnaire. You are asked to record this by this business
in question 15. 2 on page 27.
- quality of goods and services
1 2 3 4 5 0102
Include: produced by this business
The time spent reading the instructions, working on the questions and obtaining information.
The time spent by all employees in collecting and providing this information. - flexibility / ability to make changes 1 2 3 4 5 0103

- delivery to customers of goods

Information Required and services by this business
1 2 3 4 5 0104

- innovation (improvements to
processes and products)
1 If your balance date is: 1 2 3 4 5 0105
Between 1 Jan - 30 Sep use financial data for year ending 2000
Between 1 Oct - 31 Dec use financial data for year ending 1999
1.2 Tick one circle for each item.
Please give the balance date of your financial accounts which you will use
Over the LAST THREE YEARS to what extent did
0001
this business focus on the following:
Day Month Year
not at all a little a moderate a great don’t
amount amount deal know

2 Is the financial year information for a 12 month period? - existing domestic markets
1 2 3 4 5 0109
yes Go to 3
- existing export markets
1 2 3 4 5 0110
no The period covered is 0002 to
Day Month Year Day Month Year - new domestic markets 1 2 3 4 5 0111

Please explain why it is not a 12 month period

- new export markets
1 2 3 4 5 0112

1.3 Is it part of the regular work of one or more people

(either employees or outside contractors) to assess
3 Please supply GST exclusive figures if possible whether the business is achieving its goals? 0113

The figures given in this questionnaire: Exclude GST

- yes
1
0003
Include GST
- no 2

Page 4 Page 5

2. Leadership and Planning 3. Customer Focus

2.1 Does this business have a formal planning process Does this business have set procedures (consistent methods that
(regular meetings and/or written documents) that sets goals for:
3.1
0201 staff know and adhere to) for dealing with customer complaints: 0301

- up to 6 months 1 - yes 1

- up to 1 year
2 - no 2

- up to 2 years
3
3.2 To what extent do staff other than sales and marketing
- more than 2 years staff visit the firm’s major customers: 0302
4

- not at all
- don’t know 5
1

- a little
- not applicable 6
2

- a moderate amount 3
2.2 Tick one circle for each item.
In developing goals how often does this
- a great deal
business incorporate the requirements of: 4

never sometimes frequently always don’t - don’t know 5

know

- its customers 3.3 How often does this business systematically

1 2 3 4 5 0202
measure customer satisfaction: 0303

- its suppliers
1 2 3 4 5 0203 - not at all
1

- its employees
1 2 3 4 5 0204 - less often than every two years
2

2.3 Does this business have a vision statement: - every two years
3
0205

- yes - every year

4
1

- no - every six months or more often

5
2

- don’t know
6
2.4 To what extent does the business promote a set
of company values to its employees: 0206

3.4 How much does this business work with

- not at all customers on product or service development / improvement:
1
0304

- a little 2 - not at all

1

- a moderate amount
3 - a little 2

- a great deal 4 - quite closely 3

- don’t know 5 - very closely 4

- don’t know
5

242
Page 6 Page 7

4. Supplier Focus 5. Employee Practices

Does this business have systems for measuring 5.1 Does this business systematically measure
4.1 the quality of inputs sent by: 0401 employee satisfaction: 0501

- some suppliers - never 1

1

- principal suppliers - different frequency for different employees 2

2

- most suppliers - less often than every two years

3 3

- all suppliers - every two years

4 4

- every year
- no suppliers 5 5

- don’t know - every 6 months or more often

6
6

- don’t know
7
4.2 How much does this business work with key
suppliers to improve each others processes: 0402

5.2 Are formal employee performance reviews used within

- not at all this business (consistent methods that are recognised
1
and regularly used): 0502
- a little
2
- at no levels 1
- quite closely
3
- at some levels 2
- very closely
4
- at all levels 3
- don’t know 5

5.3 How many employees are on “pay for

When supply problems arise do this business’s performance” schemes (e.g. productivity
4.3 based incentives, gain sharing, bonuses, etc.):
non-managerial employees have the authority 0503
to contact external suppliers: 0403
- none 1
- never
1
- a few
2
- sometimes
2
- many
3
- always
3
- all
4
- don’t know 4
- don’t know
5

Page 8 Page 9
In the LAST 12 MONTHS please estimate what 6.2 Does this business have, or is it planning to
5.4 proportion of this business’s pre-tax payroll was implement systems to gain, quality management
related to employee education and training: 0504 systems certification (e.g. ISO9000):
0602
- zero 1
- yes 1
- less than 1%
2
- no
2
- less than 3%
3

- less than 5%
4
7. Information and Benchmarking
- 5% or more Does this business have a formal system in
5 7.1
place to manage the storing and retrieval of
- don’t know information: 0701
6
- yes
1

5.5 Tick one circle for each item.

Over the LAST 12 MONTHS please estimate the - no
2
proportion of employees in this business who
participated in the following:
7.2 In the LAST THREE YEARS has this business’s
none up to up to up to more than don’t performance been compared in a systematic
25% 50% 75% 75% know way with:
if yes 9
- in-house training
1 2 3 4 5 6 0505
- the performance of companies in the same industry 1 0703
- external training 1 2 3 4 5 6 0506
- the performance of companies in a different industry 2 0704
- job rotation/exchanges 1 2 3 4 5 6 0507
- the performance of companies located domestically
3 0705

5.6 Does this business have processes in place to

manage health and safety (e.g. an OSH training - the performance of companies located overseas 4 0706
program, provision of information for employees):
0508 - none of the above
5 0707 Î GO TO 7.4
- yes 1
7.3 In which of the following areas have comparisons been made with competitors:
- no if yes 9
2

- financial measures (e.g. profits, return on investment, sales growth)

0708

6. Quality and Process - cost measures (e.g. on budget, cost per unit of output, inventory cost) 0709

Are non-managerial employees actively - operational measures (e.g. asset utilisation, on time delivery, environmental impact)
6.1 0710
encouraged to identify problems or suggest
improvements to products or processes: 0601 - quality measures (e.g. defect rates, customer complaints)
0711
- not at all
1
- innovation measures (e.g. process innovation, new value added services)
0712
- a little
2
- human resource measures (e.g. job satisfaction, skills development, health and safety) 0713
- a moderate amount 3
- none of the above
0714
- a great deal
4

- don’t know
5

243
 Page 10 Page 11

7.4 Tick one box for each item. Over the LAST Does this business have, or is it planning to
THREE YEARS to what extent did this business
8.3
implement systems to gain, environmental certification
focus on the following when assessing (e.g. ISO14000):
performance: 0803
not at all a little a moderate a great don’t
amount deal know - yes
1

- financial measures (e.g. profits, return

on investment, sales growths) 1 2 3 4 5 0715 - no 2

- cost measures (e.g. on budget, cost

per unit of output, inventory cost) 1 2 3 4 5 0716
9. Innovation
The following questions relate to technological change in terms of new and / or significantly improved
- operational measures (e.g. asset products and processes.
utilisation, on time delivery) 1 2 3 4 5 0717

Please count a product (good or service) as an innovation (new or significantly improved) if it has signifi-
- quality measures (e.g. defect rates, cantly different technological characteristics or intended uses than your existing products. New means 'new
customer complaints) 1 2 3 4 5 0718
to your firm'. An innovation is the result of new or recent developments or applications in software, technolo-
gy or other knowledge areas, or the result of new combinations of existing technology.

- innovation measures (e.g. process Do not count fashion or aesthetic changes.

innovation, new value added services) 1 2 3 4 5 0719

9.1 In the LAST THREE YEARS did this business

- human resources (e.g. job satisfaction, offer new or significantly improved products
skills development) 1 2 3 4 5 0720 (goods or services) to your customers: 0901

- yes
1

7.5 How closely does this business monitor

competitors’ products and / or services: 0721 - no
2 Î GO TO 9.3
- not at all 1
9.2 Who developed these products (goods or
services): 0902
- a little 2
- mainly this business 1
- quite closely 3
- this business in co-operation with others
2
- very closely
4
- mainly others
3
- don’t know
5
- don’t know
4

8. Community and Social Responsibility 9.3 In the LAST THREE YEARS did this business introduce new or
significantly improved production processes including new ways
to supply services or deliver products: 0903
8.1 In the LAST 12 MONTHS has this business put
any money into sponsorship of, or donations to, - yes
1
any community activity: 0801

- yes
1
- no
2 Î GO TO 9.5

- no 9.4 Who developed these processes:

2
0904

Over the LAST THREE YEARS were measures to reduce the - mainly this business
8.2 1
environmental impact of this business in place: 0802

- this business in co-operation with others

- yes 2
1

- mainly others
- no 3
2

- don’t know
4
- not applicable 3

Page 12 Page 13

9.5 In the LAST THREE YEARS which of the following, if any, In the LAST 12 MONTHS did this business invest
made it difficult for the business to develop new or
9.8
in any of the following which were specifically
improved products, services or processes: related to the introduction of new or significantly
if yes 9 improved products, services or processes:
if yes 9

- lack of access to capital - in-house research and development

0905 0917

- market too small or unknown - external research and development 0918

0906

- economic climate - machinery and equipment 0919

0907

- competition activity in the same market - purchase of other external technology (e.g. licenses, trademarks) 0920
0908

- industrial design
- outside core business activity 0921
0909

- marketing the introduction of new goods or services

- lack of, or unable to obtain, skilled staff 0922
0910

- employee training 0923

- government regulation or policy
0911

- none of the above

- none of the above
0924 Î GO TO 9.11
0912

9.9 Please estimate this business’s total expenditure

Tick one circle for each item.
9.6 Over the LAST 12 MONTHS please estimate the
on the items in question 9.8 above as a proportion
of total expenditure: 0925
proportion of sales from this business that have been:
up to up to up to up to more than don’t - up to 5%
10% 20% 30% 40% 40% know 1

- completely new products - up to 10% 2

or services introduced in
1 2 3 4 5 6 0913
the last 3 years - up to 20% 3
- products or services
significantly improved in - up to 30%
1 2 3 4 5 6 0914 4
the last 3 years
- more than 30%
- long established products 5
or services (including
minor changes)
1 2 3 4 5 6 0915 - don’t know
6

How does this business’s core equipment (that used in the 9.10 In the LAST 12 MONTHS how many people (full
9.7 time equivalents) were engaged in in-house
production of this businesses main goods and services)
compare with the best commonly available technology: research and development by this business: 0926
0916
- zero 1
- fully up to date 1
- up to 0.5 2
- up to 4 years behind
2
- up to 1.5 3
- up to 10 years behind
3
- up to 4
4
- more than 10 years behind 4
- up to 10
5

- don’t know
5 - more than 10
6

- don’t know 7

244
Page 14 Page15

9.11 In the LAST TWO YEARS how often did this 9.13 In the LAST THREE YEARS did this business or the business’s
business undertake in-house research and parent company use any of the following methods to protect
development: 0927 inventions developed by this business: if yes 9

- not at all 1 - copyright or trademark

0940

- occasionally - registration of design

2 0941

- regularly - secrecy
3
0942

- continuously 4 - supply agreement 0943

- don’t know - reaching the market first

5
0944

Tick one circle for each item. - complexity

9.12 0945
How important are the following as a source of ideas and information
for new or improved products, services or processes: - patents
not somewhat very don’t 0946

important important important know

- none of the above
0947
- competitors
1 2 3 4 0928

- NZ owners and associated companies 1 2 3 4 0929

10. Use of Information Technology
- overseas owners and associated companies
1 2 3 4 0930
10.1 Tick one box for each item. Please estimate the
proportion of this business’s total employees
- industry or employer associations that regularly (at least once a week) use:
1 2 3 4 0931
none up to up to up to more than don’t
- other research institutes, associations or consultants 10% 30% 60% 60% know
1 2 3 4 0932

- universities or polytechnics - a PC, workstation or terminal

1 2 3 4 0933 1 2 3 4 5 6 1001

- books, trade journals, conferences or shows - e-mail 1 2 3 4 5 6 1002

1 2 3 4 0934

- banks, accountants or consultants - the internet

1 2 3 4 0935 1 2 3 4 5 6 1003

- New Zealand Trade Development Board (Trade NZ)

1 2 3 4 0936 Does this business have computers that are:
10.2
if yes 9
- Technology New Zealand 1 2 3 4 0937
- connected to a wide area network
1004
- Industry New Zealand
1 2 3 4 0938

- connected to a local area network

- Government Departments 1005
1 2 3 4 0939

- connected to a mainframe
1006

- stand alone
1007

- none of the above 1008

Page 16 Page 17

10.3 In which of the following areas does this 10.6 In the LAST 12 MONTHS what was the value of
business use information technology: sales generated through the internet:
if yes 9 Include transactions such as: 1034

- production - Credit card sales transacted directly over the net

1009 - Sales on account over the net and later invoiced $ , ,
- accounting systems
1010

10.7 In the LAST 12 MONTHS what was the

- information management 1011 approximate cost (including salaries) of setting
up and maintaining this business’s website: 1035
- data processing
1012
- up to $10 000 1
- inventory management, logistics
1013
- up to $50 000
2
- management
1014
- up to $100 000
3
- procurement
1015
- more than $100 000 4
- none of the above
1016
- don’t know
5
Does this business have a website?
10.4 1019
10.8 Does this business order goods or services
from other business’s websites? 1036
- yes 1
- yes
1
- no 2 Î GO TO 10.8
- no
2 Î GO TO 10.10

10.5 Which of the following features are offered on

this business’s website: if yes 9 10.9 In the LAST 12 MONTHS what proportion of this
business’s expenditure resulted from purchases
made through the internet: 1037
- information about the business 1021
- 0% 1
- advertising
1022
- up to 5% 2
- product or service information
1023
- more than 5% 3
- online ordering 1024
- don’t know
4
- online payments
1025

10.10 Which of the following, if any, does this business use

- capability to provide secure transactions other business’s websites for: if yes 9
1026

- account information 1027 - information searches on suppliers’ homepages

1038

- tracking orders 1028 - ordering goods from suppliers 1039

- delivery of products in digital form 1029 - obtaining data files and digital products
1040

- procurement facility
1030 - coordinating delivery arrangements 1041
- after sales service
1031
- after sales service
1042
- information about employment opportunities
1032
- accessing government services
1043
- none of the above 1033
- participating in online auctions
1044

- none of the above

1045

245
 Page 18 Page 19

10.11 Which of the following, if any, restrict this business’s use

of the internet: 11. Competitive Environment
if yes 9

- risk of viruses or hackers accessing confidential information 11.1 Tick one circle for each item.
1046 Over the LAST THREE YEARS, when funding innovation
or expansion of this business, how much has been
- technically too complicated sourced from the following:
1047
up to up to up to more than don’t not
- cost of developing and maintaining an internet system 25% 50% 75% 75% know applicable
1048

- data communication is too slow or unstable - banks 1 2 3 4 5 6 1101

1049

- not relevant to business activity - finance companies

1 2 3 4 5 6 1102
1050

- lack of people with the IT skills needed - savings or retained earnings 1 2 3 4 5 6 1103
1051

- none of the above - friends or family

1052 1 2 3 4 5 6 1104

- Angel Investor
(wealthy individuals excluding
10.12 For which of the following does this business use friends and family)
1 2 3 4 5 6 1105
email for:
if yes 9 - venture or development
capital
- communicating with customers and suppliers 1 2 3 4 5 6 1106
1053

- shareholders
- receiving orders from customers 1 2 3 4 5 6 1107
1054

- ordering goods from suppliers - other

1 2 3 4 5 6 1108
1055

- transmitting and receiving data files Tick one circle for each item.
1056 11.2
Over the LAST 12 MONTHS when this business
- none of the above has sought external funding for the following has it been:
1057
on
readily not unacceptable not don’t
available available terms applicable know

- for borrowing
1 2 3 4 5 1109

- for equity 1 2 3 4 5 1110

11.3 Tick one circle for each item.

Over the LAST 12 MONTHS when this business
has sought to employ new staff were there people
available with the appropriate:
all the sometimes never not don’t
time applicable know

- specialist skills 1 2 3 4 5 1111

- general skills (e.g. literacy, numeracy) 1 2 3 4 5 1112

- work attitudes 1 2 3 4 5 1113

Page 20 Page 21

11.4 Tick one circle for each item.

Over the LAST THREE YEARS what impact have 12. Outcomes
the following had on this business’s performance or productivity:
12.1 Which of the following best describes your firm’s
highly slightly no slightly highly position in its main market: 1201
negative negative impact positive positive
impact impact impact impact - market leader
1

- Resource Management Act 1 2 3 4 5 1114 - challenge/follow the market leader 2

- local authority regulations - niche marketer

1 2 3 4 5 1115 3

- health and safety regulations Tick one circle for each item.
1 2 3 4 5 1116
12.2
Over the LAST THREE YEARS how helpful has
- Holidays Act each of the following been in improving
1 2 3 4 5 1117
this business’s competitive position:
not at all a little moderately greatly don’t
- patent law
1 2 3 4 5 1118 helpful helpful helpful helpful know

- commercial law - leadership and planning

1 2 3 4 5 1119 1 2 3 4 5 1202

- competition law - innovation and technology

1 2 3 4 5 1120 1 2 3 4 5 1203

- employment law 1 2 3 4 5 1121

- employee relations 1 2 3 4 5 1204

- ACC - supplier relations

1 2 3 4 5 1122 1 2 3 4 5 1205

- customer relations
1 2 3 4 5 1206
11.5 How would you describe this business’s competition:
1123
- operations and quality
1 2 3 4 5 1207

- captive market / no other effective competition - information and benchmarking

1 1 2 3 4 5 1208

- no more than one or two competitors Over the LAST THREE YEARS has this business’s
2 12.3
technology changed: 1209
- a significant number of key competitors
3
- not at all 1
- many competitors, none dominant 4
- to a minor degree
2
- don’t know 5
- to a major degree
3

Which of the following factors, if any, are barriers - completely

11.6 to improving the performance of this
4

business: if yes 9 - don’t know

5

- fluctuations in exchange rates Over the LAST THREE YEARS have this business’s
1124 12.4
management and operating systems changed: 1210
- ability to source and use leading edge technology
1125
- not at all
1
- availability of finance 1126
- to a minor degree
2
- management skills
1127
- to a major degree
3
- access to international markets (e.g. tariffs, quotas)
1128
- completely 4
- none of the above
1129
- don’t know 5

246
Page 22 Page 23

Tick one circle for each item. 12.8 Tick one circle for each item.
12.5 How would you say this business compares to Over the LAST 12 MONTHS please estimate how
its major competitors on each of the following: large the following have been as a proportion of
total sales:
lower on a par higher don’t zero up to up to up to more than don’t
than with than know 1% 3% 5% 5% know
competitor competitor competitor
- returns / money back
1 2 3 4 5 6 1222
- costs
1 2 3 4 1211
- defects 1 2 3 4 5 6 1223
- quality
1 2 3 4 1212

12.9 Over the LAST THREE YEARS what has been

- flexibility the proportion of staff turnover for this
1 2 3 4 1213
business: 1224
- order to delivery time
1 2 3 4 1214
- up to 10%
1

- product or service innovation 1 2 3 4 1215

- up to 20% 2

- social responsibility
1 2 3 4 1217
- up to 30% 3

- customer satisfaction
1 2 3 4 1218
- more than 30%
4

- employee satisfaction
1 2 3 4 1219
- don’t know
5

12.6 Please estimate this business’s cost of quality

How many of this business’s employees are able to
(rework, scrap, error, inspection etc.) as a proportion 12.10 do more than one job: 1225
of total sales: 1220

- up to 1% - none
1 1

- up to 5% - a few 2
2

- up to 10% - many 3
3

- up to 15% - all 4
4

- more than 15% - don’t know 5

5

- don’t know 6
13. Business Results
12.7 What proportion of goods or services from this
business are delivered to customers in full, on time and to 13.1 Tick one circle for each item. How would you say
specification: 1221 this business compares to its major competitors
on each of the following: lower on a par higher don’t
- up to 50% 1
than with than know
competitors competitors competitors
- up to 80%
2 - profitability
1 2 3 4 1301

- up to 90% - return on investment

3
1 2 3 4 1302

- up to 95% 4 - productivity
1 2 3 4 1303

- more than 95%

5

- don’t know
6

Page 24 Page 25

13.2 Over the LAST THREE YEARS has this business’s Over the LAST 12 MONTHS what was the
market share: 1304
13.6 proportion of this business’s sales that were
exports: 1308
- decreased
1
- zero 1
- stayed the same
2
- up to 10%
2
- increased
3
- up to 30%
3
- don’t know
4
- up to 50% 4

13.3 Over the LAST THREE YEARS has this business’s - up to 75%
profitability: 1305 5

- decreased - more than 75%

1 6

- stayed the same - don’t know

2 7

- increased 13.7 In the LAST 12 MONTHS what was the operating income
3
of this business (use the most recent year end results):
- don’t know
4 Include transactions such as:
- sales of goods and services
Over the LAST 12 MONTHS has this business’s - renting and leasing income
13.4 - government grants received for operating purposes
net cash flow been: 1306

- negative Exclude such items as:

1309 $ , , ,
1
- proceeds from the sale of fixed assets
- neutral - gains on sale of fixed assets
2

13.8 In the LAST 12 MONTHS what was the operating expenditure

- positive 3 of this business (use the most recent year end results):

- don’t know 4
Include transactions such as:
- salaries and wages paid to employees
- purchase of goods and services from suppliers
13.5 Over the LAST 12 MONTHS has this business’s - interest and finance costs
total sales of goods and services: 1307 - renting and leasing costs
- decreased Exclude such items as:
1
- purchase of fixed assets
1310 $ , , ,
- stayed the same - losses on sale of fixed assets
2

- increased
3 14. Business Structure
- don’t know
4 What percentage of this business’s equity is in the
14.1 hands of any dominant family grouping:
1401

- zero 1

- 1 - 25%
2

- 25 - 50% 3

- 50 - 75% 4

- 75 - 100% 5

- don’t know
6

247
 Page 26 Page 27

How many years has this business been in 15.2 How long did it take you to complete this
14.2 operation: questionnaire?
1402 Include:
- the time spent reading the instructions, working on 1502

- less than one year the questions and obtaining information.

1 - the time spent by all employees in collecting and
providing this information.
hrs mins
- up to 2 years
2

15.3 Comments
- up to 5 years Please make any comments that would help Statistics New Zealand interpret
3
the information that you have given 1503

- up to 10 years
4

- over 10 years
5

15. Other Details

15.1 Where respondents agree, some may be visited by the Ministry of Economic Development for an
in-depth study. Businesses who have been involved in such studies in the past have found this
more detailed analysis has been extremely valuable.
To make the follow-up study useful, the Ministry of Economic Development will need the information
given in this questionnaire as well as the name and address of the business. Statistics New
Zealand can only pass on that information in a form that would allow your business to be identified Please provide details of the person completing
if you give your consent.
15.4
this questionnaire:
Name Position
If you ARE prepared to do that please sign the consent below.

E-mail Phone Fax

If you do NOT sign this consent:
- the information from this questionnaire will only be passed on to users of the data in a way ( ) ( )
that would NOT allow your business to be identified and
Signature Date
- the business will NOT be visited for an in-depth study

I consent to this business’s name and address together with the information given in this Thank you for your time and effort
questionnaire being passed on to the Ministry of Economic Development to be used in the
follow up study. www.stats.govt.nz has the main results of all our surveys

1501
Signature Date
/ /
Name (please print)

248