Improved Productivity Starts with Understanding

On 14 September, The Australian published an article titled “Why our productivity crisis has millions locked in cost-of-living pain”, once again highlighting the critical role productivity plays in determining a nation’s prosperity.

The article described productivity as “the most important determinant of an economy’s health”, a view shared by many, including policymakers and business leaders. If this assertion is correct, then productivity figures become far more than just a fiscal statistic; they influence government strategy, shape Reserve Bank decisions, affect business investment and ultimately impact the living standards of every Australian. Given the significance ascribed to the numbers, it is essential they are measured accurately and understood clearly.

As far back as I can remember, I have not fully comprehended the measure of productivity and the outcomes associated with its weakening score. If I am to be honest; my interest in the standard has been cursory, at best. While I am aware productivity is one of the three key drivers of economic expansion, alongside population growth and workforce participation, I have not fully grasped the methodology used in its calculation. In this month’s Builders Bulletin I thought I’d share my search to be educated and where I need to focus my own organisation.

At its most basic, the calculation evaluates the volume of output produced from a given amount of input. Those inputs may include labour, equipment, capital, materials, technology and management effort. A productive organisation produces more value without necessarily increasing the resources it consumes. Importantly, productivity is not about working harder, doing longer hours or placing greater pressure on employees. Rather, it is about working smarter through better systems, improved technology, stronger skills and more efficient processes.

Let me use one of our timber yards to outline an example. A forklift operator currently loads twenty customer orders per day and, through improved stock locations, better yard design and technology advances, the same man and forklift loads twenty-five orders per day. Without additional hours, productivity has increased by 25 per cent. Similarly, if a residential builder can complete twelve homes using the same workforce, over the same construction timetable that previously completed ten, productivity has improved 20 per cent. In both cases, the gains come from eliminating waste and improving the way work is performed.

We are told productivity matters because it is the foundation of business success and economic prosperity. Businesses with higher productivity generally enjoy lower operating costs, stronger profitability, better customer service and greater competitiveness. At a national level, productivity growth enables wages and living standards to rise sustainably. When workers produce more output per hour, businesses can pay higher wages, governments collect more tax revenue and inflationary pressures are reduced. Conversely, when productivity stagnates, economic growth slows, wage growth weakens and living standards come under pressure, as discussed by the Productivity Commission.

My challenge in understanding the ‘productivity score’ begins beyond the calculations listed above. Measuring a company’s forklift movements, or the number of homes one builder hands over seems relatively easy to follow. Getting my head around how to score an entire economy is more of a challenge (for me). According to the Reserve Bank of Australia, “Australia’s productivity performance is primarily measured by how much Gross Value Added (or GDP) is produced per hour worked (labour productivity), and by how much output is produced from the combined use of labour and capital (multifactor productivity).” Sound simple enough? One of my questions: how does the Government measure the working hours of all Australians? I can’t remember our government overseeing my clock-on and clock-off times.

The ABS do not follow my somewhat cheeky guide to tracking the time worked by Australians. They compile hours-worked data from several statistical collections, with the most important being: the Labour Force survey, the Labour Account Business surveys and administrative data sources used in national accounts statistics. Who am I to judge? Even so, it all seems a bit ‘inexact’.

As acknowledged on the Productivity Commission’s own website in February 2025, the measure for Australia’s ‘failing’ house building sector is even “more convoluted”. The Productivity Commission acknowledges Australia has no official productivity series specifically for dwelling construction because houses, apartments and townhouses are not classified as a single industry within the national accounts. Consequently, researchers create productivity proxies using residential construction, output, labour hours worked, construction value-added measures, dwelling completions and commencements. [https://assets.pc.gov.au/research/completed/housing-construction/housing-construction.pdf]

I say “failing” because The Commission considers from 1994-95 to 2022-23 new dwellings built, per hour worked, fell approximately 53 per cent – the gross value of dwelling construction (added) reduced by 12 per cent, while the broader Australian economy’s labour productivity increased 49 per cent over the same period. Stating the obvious, if the Federal Government uses this number as their key determining factor for making decisions consequential to the industry’s future, we have a problem. For instance, has it led to their bloody-minded focus on substantially growing off-site construction? (I am convinced a significant move in this direction will lead to direct imports of whole houses from overseas – thus cruelling Australia’s traditional domestic building industry. I’ll leave this subject for another day.) 

Getting back to the Productivity Commission’s calculation of a major retraction in building productivity … for me, the comparisons made are spurious. Quite clearly, modern homes are built differently to those of thirty years ago. They require more energy-efficiency inputs, greater compliance, more services and technology, better quality finishes etc., not to mention the additional time spent in meeting various planning requirements. The Productivity Commission concluded that while measurement challenges exist, they do not fully explain the long-term decline in housing productivity. I believe they are underplaying the differences.

For Bowens, I like the Japanese approach of Kaizen, the philosophy of continuous improvement, encouraging workers at all levels to identify inefficiencies and eliminate waste. Small improvements in stock placement, traffic flow, loading processes and inventory management can generate substantial gains. And then there is Ai. From what I understand, Ai amplifies existing strengths and weaknesses. Companies with strong cultures, effective governance and efficient processes are more likely to realise benefits. We have committed to redesigning processes and developing workforce capability, alongside any technology implementation. Even so, I have made it clear with my leaders, we need to see real results, not just play with the different engines or produce better written reports. Real improvement has to be Bowens’ goal, starting with measuring all elements of what we do. Assessing progress without a scoreboard is fraught.

Speaking at the 2026 NAB Business Summit, their CEO, Mr Andrew Irvine, said Australia should be optimistic about the longer term: “We have the resources the world needs, abundant energy, strong institutions, world-class businesses and talented people. And we have enormous opportunities to drive growth in energy, agriculture, infrastructure, technology and housing. The ingredients are there.” However, he said the country was at risk of getting stuck in a low-growth trap: “Without urgent action, we’ll be locked in a slow lane – sitting in the rear-view mirror as other advanced economies surge past us,” said Mr Irvine. “Areas needing attention include declining productivity, housing supply, energy costs, tax settings and red tape. At the top of the list is productivity, as it is the engine that powers higher living standards.”

As a new student in the study of productivity, I have questions about the methodology being used to assess performance. Even so, it is hard to argue against the trend. And of course, I need to accept the views of experts who have studied, lived and breathed the discipline and are arguing for greater focus to ensure Australia maintains business performance, wage growth and keeps pace with international competition.

Whether I fully understand the measure of productivity, or not, Bowens’ pathway lies in embracing continuous improvement, leveraging technology, simplifying processes and developing great people. If we can calculate domestic construction meaningfully, our industry has a responsibility to engage and contribute with improvements, too. In an increasingly competitive landscape, with an expanding cost base, productivity gains, more than growing immigration or working longer, is how Australia’s standard of living will advance. It is the key determinant.