Creativity and resolve needed in productivity push

Industry leaders have called for manpower policies to be tailored to the needs of different sectors. Some say a set of industry-specific productivity indices would make it easier to measure progress in each sector.

Companies have had five years of being prodded and cajoled into spending time and resources on the Herculean task of raising productivity but, like the Greek hero's labours, each task seems harder than the last.

The issue is once again in the spotlight in the run-up to the Budget on Feb 23.

Labour productivity dipped 0.5 per cent in the first nine months of last year after falling in both 2012 and 2013.

The Government has set a target of 2-3 per cent productivity growth over a 10-year period to 2019.

Labour productivity is expected to have risen by just over 2 per cent a year on average for the first five years of that period.

Yet almost all of those gains were achieved in 2010, when the economy recovered strongly.

Beyond the numbers

Economists and government officials point to the fact that headline productivity numbers - typically measured in terms of value- add per worker - are linked to overall economic performance and that has been dragged down by weak global growth.

"The problem is that demand and sales have fallen faster than productivity gains, thus concealing any real productivity gains," said Mr Goh Kia Hong, a lecturer at Nanyang Technological University's business school.

"Some of the gains are eroded by the replacement of more economical foreigners with more expensive local employment."

This has hit some sectors harder than others, with finance and insurance doing better than construction and retail.

Experts also say productivity improvements take time to bear fruit.

A more targeted approach

One key criticism of the Government's approach is that it has not been targeted enough, and that more nuanced, sector-specific measures are needed.

Singapore International Chamber of Commerce chief executive Victor Mills is among those calling for manpower policies to be tailored to the needs of different sectors, particularly those that struggle to hire Singaporeans.

DBS economist Irvin Seah said a set of industry-specific productivity indices would make it easier to measure progress in each sector and in turn develop more targeted initiatives.

Indicators such as square metre per man-day can be used to measure the speed of construction, for example, while table turnover rates might be a better efficiency indicator in the food and beverage industry.

These could then be indexed and averaged to obtain an economy- wide measure, Mr Seah said.

Making growth, not cost-cutting, a priority

Another issue in the productivity drive has been encouraging firms, especially small and medium- sized enterprises (SMEs), to look beyond short-term cost-cutting and firefighting.

"The best way to combat increases in costs is to grow one's business, not hoping to cut costs through productivity measures," said Mr Goh.

Instead, the key lies in seeking out new markets, enhancing current offerings and introducing new lines of products and services, Mr Goh added.

Regional expansion has become an especially pertinent issue for businesses, given that the ASEAN Economic Community is expected to take effect this year.

Encouraging collaboration between larger firms and SMEs can help smaller companies build a track record and provide a base for overseas expansion, said Dr Michael Teng, assistant secretary- general of the Singapore Manufacturing Federation.

One idea is to break projects up into bite-sized portions so SMEs can tender for them.

"The Government might also incentivise multinational and large local companies to use SME products and services in the value chain," he said.

Putting people at the heart of productivity

Ultimately, however, people are the most important factor.

Spending money on machines or training is unlikely to result in significant productivity gains if the fundamental processes of a business remain unchanged.

Beyond equipping employees with the right skills and investing in relevant machinery, Singapore bosses also need to develop deeper, more effective managerial capabilities, said Associate Professor Hum Sin Hoon, deputy dean of the National University of Singapore Business School.

"The ground is finally recognising that this restructuring must take place, but the focus on actually working on improving productivity is just beginning... The key is for top management to want to, and then begin to, act on improving productivity, not just depend on the Government's funding support for machinery purchases and training of manpower."

Dr Teng agrees that companies should make business model innovation a top priority, saying: "It will provide solutions to other challenges."

The upcoming Budget is expected to help firms address some of these issues, but no government scheme will be a panacea for the long, painful process of transformation.

Like Hercules, Singapore firms will need great reserves of perserverance and creativity - and perhaps even a bit of luck - to succeed.

This article was first published on February 13, 2015.
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