Higher productivity boosts profits PDF Print E-mail
Monday, 26 November 2012 08:39

Companies that were good at boosting labour productivity were likely to boost their profit margins while those that were not could see their profit margins fall.

That's the conclusion of global management consulting firm Boston Consulting Group (BCG) after a five year study of companies among Australia's top 200.

BCG said the study showed a varying performance on labour productivity, which is the volume of goods and services produced over a given amount of time divided by the total labour cost to produce those goods or services.

"On average, companies with top quartile improvement in labour productivity over the past five years saw profit margins increase by seven per cent, while the bottom quartile saw margins decline seven per cent," BCG said.

"The gap was even more pronounced in the resources sector: top performers enjoyed a 14 per cent improvement in margins, and bottom quartile performers saw margins eroded by 10 per cent."

BCG partner and a co-author of the paper, Frank Budde, said labour productivity growth in Australia over the past decade was at its lowest level in 50 years and was lower than that of Japan, the United States and Europe.

"If Australian firms are to deliver strong returns to their investors, they must take a closer look at how to better utilise their workforces," Mr Budde said.

He said managing labour productivity did not simply involve a focus on overtime, industrial bargaining or outsourcing.

One of the best ways to improve labour productivity was to redefine work required.

For example, a truck fleet maintenance provider had cut man hours by 12 per cent by redefining its maintenance program back to the manufacturer's recommended regime.

A mining company had reduced construction man hours by more than 30 per cent by tightly defining the requirements of its infrastructure, ensuring that there was no "gold plating" or over-engineering.

Companies could also reconsider their workforces structure, making sure that the right people were working in the right jobs.

For example, a diesel maintenance service provider cut unit labour costs by 10 per cent by using semi-skilled technicians for basic tasks such as oil changes and seat repairs, which enabled skilled technicians to undertake more complex tasks.

The BCG paper also said that companies could restructure their management.

It said some companies had too many managers with small teams, too many management layers, and employees that were often misdirected and who spent a lot of effort in vain.


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