Productivity (see text at end of this article) is a measure of how effectively Australia uses its labour, skills, financial capital, land and raw materials to produce goods and services. And this number has stagnated over the past 12 years under successive governments.
Low productivity growth seemed less worrying while offshore investors were pouring money into the economy, commodity prices were high and jobs were plentiful. And there are arguments that the mining boom has made the productivity numbers look worse than they really are.
But the economy has looked increasingly vulnerable as the resources boom fades, and many economists worry that our poor productivity performance will soon begin to hurt.
The importance of productivity is often underestimated. It seems to many an arcane concept, but it underpins economic growth. As Nobel Laureate economist Paul Krugman once famously noted, “Productivity isn’t everything, but in the long run it is almost everything.”
So the push is on to boost Australia’s productivity. And one place people are looking is business services – including accounting.
Rising to the occasion
Business services have often been overlooked by policymakers in the search for productivity gains.
But, as a recent analysis by Reserve Bank of Australia officials shows, they are a significant part of the economy. The RBA found business services activity has grown by an average of 5 per cent a year since the late 1990s, pushing its share of nominal national output from 21 per cent in 1997 to 26 per cent in 2012 (see graph, page 19 of Public Accountant magazine). Yes, business services now make up more than a quarter of the entire Australian economy.
Not only that, but business services are now a big employer, providing almost one in every five jobs – and good jobs, at higherthan- average incomes.
The sector’s size and its strategic position – it supports many other industries in their day-to-day operations – make it a logical target for efforts to boost stagnant national productivity.
The more cost-effective and efficient that accountants and other business service providers become, the lower the cost base becomes of their exporting and import-competing clients.
That is why the Institute of Public Accountants believes its members can play a crucial role in delivering the productivity improvements the nation needs.
As the IPA points out in its Australian Small Business White Paper, Australia has many opportunities to lift productivity. More appropriate tax, regulation and competition policy, better access to small business finance and more open access to overseas markets will all help.
Productivity drivers
The White Paper also singles out the power of innovation and technology to drive productivity. A host of recent reports agree this represents a huge opportunity for Australia’s business services firms to kick-start productivity growth.
Businesses can draw upon the nation’s enviable depth of skills: according to consultancy McKinsey & Company, 44 per cent of Australians are assessed as having high-level problem-solving proficiency, compared with 34 per cent of US citizens.
There has also been a shift in the profile of work, away from tasks directly involved in production or transactions toward what McKinsey describes as interaction jobs – where there is less routine and more depends on individual judgement and complex interactions.
These jobs, many of them in smaller business service providers, are ripe for transformation by new communication and data management technologies. A 2013 PricewaterhouseCoopers report found small and medium enterprises that were regarded as leaders in the adoption of technology increased their revenues 15 percentage points faster and created jobs at twice the rate of less progressive rms, between the years 2010 and 2012.
As the White Paper says: “The latest wave of technological advancements, such as mobile communications, cloud computing and social media … is providing SMEs with access to capability that was previously only affordable to large corporations.”
Taking the lead
Many accountants and finance professionals are already alert to the possibilities. A survey by the global Association of Chartered Certifed Accountants (ACCA) found Australian accountants were more primed than most to accept that technology will drive major changes in the way they work in the next decade. Indeed, 93 per cent expect great or total transformation, compared with 70 per cent of their US and UK counterparts.
And they are bringing this knowledge to their small business clients: a majority of ACCA members surveyed provide advice to clients on the use of technology in their business.
While many accountants and other business service providers recognise the potential benefits of innovation, it is not always an outlook shared by those they advise. SMEs have tended to lag behind larger firms in terms of labour productivity and innovation.
Just a third of very small firms (fewer than five employees) are considered to be actively focused on innovation, compared with more than two-thirds of those with 200 or more staff.
Some of this is due to ignorance, but often it’s practical concerns that deter small businesses from adopting new technology – a lack of IT skills, uncertain benefits, privacy and security concerns and slow or unreliable internet connections.
The silver lining
But if there is just one innovation small firms should be ready to grasp, says Grattan Institute productivity growth program director Jim Minifie, it is cloud computing.
Minifie and others believe cloud computing, more than any other technology, has the potential to level the playing field for small firms by giving them access to sophisticated IT functions that have, until now, been the preserve of large organisations. Its advantages for small enterprises include lower fixed costs, the ability to work from multiple locations, lowered security risks and the ability to easily scale up the business.
The adoption of cloud technology is likely to spread as clients and customers demand more immediate access to services and the pressure builds on laggards to emulate cloud-enhanced rivals if they want to remain competitive.
Other IT innovations are also promoting innovation and increasing productivity.
Along with cloud computing, mobile technology unlocks the potential to work anywhere, anytime and supports collaboration, notes the ACCA. The rise of social media gives firms new ways to engage with clients and investors and to gather market information.
New data analysis tools can help firms understand the new streams of data the technology is producing. Accountants and business service providers are freeing up resources and improving their efficiency by automating routine tasks and processes, like basic bookkeeping and transaction coding.
The adoption and use of such technologies is not without risk (see box above left), but the rewards for innovation are plain. And the alternative – to simply keep on doing things the same way – is not a viable long-term strategy.
Bookkeepers without borders
Overseas providers of Australian accountancy services, such as Filipino and Indian bookkeeping firms, are part of a national services trend. Figures confirm that the range and value of business services sourced from overseas is rapidly expanding. Imports of technical and other business services surged 21 per cent in 2013 to reach $6.2 billion, according to Department of Foreign Affairs and Trade analysis. That’s about the same sum as Australia spent on imported computers.
This outsourcing puts pressure on accountants to innovate. Used cleverly, it can also boost local productivity, as less productive work is shifted to cheap offshore providers.
What is productivity?
Productivity is a measure of how effectively we use our resources to produce goods and services. It compares outputs to inputs used in the production process. You can measure the efficiency of both capital and labour this way; ‘multifactor productivity’ combines the two.
A primitive society might work sand and metal-rich rocks for a few hours to produce a piece of glass and a crude hunting knife. A more productive society can use the same inputs to make transistors. Today’s society can use them even more productively, to make an iPhone full of powerful apps.
