Agile smaller business focusing on productivity

• Confidence rising among Australia’s smaller middle market firms
• Higher labour costs, operating costs, inflation influencing productivity
• Top strategies: new tech, collaboration tools, workforce initiatives

Australia’s smaller middle market businesses are feeling more bullish about the economic landscape than they did six months ago, with fewer seeing a decrease in productivity compared to larger middle market organisations.

But many companies with fewer than 100 employees remain deeply concerned about their level of productivity, as confidence is steadily eroded among middle market business leaders, according to new data in the Pitcher Partners Business Radar report.

In the first Business Radar for 2024, tracking the sentiment of business leaders across the country, the outlook for growth prospects faded from the mid-2023 highs, as it did for respondents’ expectations for domestic and international economic performance.

More than half of respondents (52%) are extremely or very concerned about the levels of productivity in their business, which swells to 54% for middle market businesses with fewer than 100 employees.

Higher costs of labour emerged as a new factor that was not visible in the previous Business Radar survey last year, the second most nominated negative influence (28%) on business confidence across companies of all sizes.

Increased operating costs were nominated by 32% as a negative influence, up from just 18% in the last survey, while 26% of respondents nominated inflation.

Despite the concerns, businesses at the smaller end of the market said they were faring better in the productivity stakes.

Only 4% of smaller middle market businesses experienced some decrease in productivity, compared to 15% of larger middle market businesses and 14% of medium sized firms.

In addition, the confidence in future success for businesses with fewer than 100 employees lifted to 7.88 points, compared to the 7.64 rating in the previous survey, while medium and larger middle market businesses dropped down.

Gavin Debono, Partner at Pitcher Partners Melbourne, said there could be several factors behind the improved productivity performance of smaller middle market businesses.

“While productivity is a strategic concern across companies of all sizes, for smaller businesses it can be a matter of survival in a competitive marketplace,” Mr Debono said.

“The advantage they have is that extra level of agility, with the ability to quickly adjust their operations and be adaptive to the needs of the business and customers, which often involves greater use of technology.

“While larger businesses may have greater resources to invest in technology, smaller businesses need to be more selective and strategic in their technology investments, and focus on cost-effective solutions that offer tangible productivity gains.”

Government policies that are seen to hinder productivity were a leading external factor that was impacting productivity for small business, followed by labour market shortages and supply chain dynamics.

Common sentiments among respondents were around the increasing compliance cost and administrative burden associated with red tape and negotiating complex regulations.

Among the actions that companies were taking to lift productivity, the top two were focused on technology – employing new technology (38%) and introducing new collaboration tools (34%).

However, initiatives to get people to work harder still made up a large proportion of responses – investing in training (28%), changing incentives (26%), exploring working models (25%), and implementing well-being initiatives (22%) and feedback mechanisms (22%).

Mr Debono said unlocking productivity gains should remain a strategic focus for business leaders, but the focus should be on working smarter, not harder, particularly when it came to people-heavy sectors such as the service industry.

“When your team is working at its peak, your gains are capped and the answer isn’t to push them harder, which can have the opposite effect on productivity.

“Consider strategies and build systems, processes and technology around your people to help them work smarter and more effectively.

“Productivity concerns may relate to how well employees can juggle various tasks efficiently and collaborate effectively within a smaller team.

“Build a culture of innovation and encourage fresh thinking. Innovations don’t have to be ground-breaking – they just have to help your people do more with less.”