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IR system must not stifle innovation and…

IR system must not stifle innovation and…

Driving innovation at the national and organisational level must be a central element in the design of any changes in Australia’s approach to workplace laws.

Much has been written about the important role that universities and higher education play in an innovation system. Much less discussed is how innovation is applied at the organisational level, or the intersection that exists between a nation’s innovation system and its industrial relations systems.

Innovation is central to the success of any organisation, whatever role that organisation plays in the life of Australians.

Innovation is the manifestation of the new ideas that make their way into our daily lives through improved products, services and processes, and is the essence of the organisational differentiations that somehow enables some organisations to succeed when others in the same industry don’t.

But why some organisations innovate and others don’t is not a secret.

Toyota publishes books detailing how it innovates and how its continuous improvement system works.

But it’s not easy to improve an organisation’s overall performance through innovation because creating an innovation culture within an organisation challenges the fundamental behaviours of everybody within that organisation.

For innovation to flourish within an organisation demands a sense of mutual obligation between the leadership of that organisation and everybody else.

Toyota realised eight decades ago that success in innovative and consistently high quality products and services to its millions of customers needed the continuous support of all its people, and all of its suppliers.

But Toyota’s leadership also understood that if it wanted its people and suppliers to be involved in continuous improvement, they needed to match it with a sincere commitment to the ongoing development of its people and its suppliers.

For example, this commitment by Toyota included continuous training of its people, whether they were on Toyota’s production lines, in its design studios, in its accounts offices or in its showrooms.

Toyota and a range of other innovative companies turned the normal business formulas on their head.

It also included helping suppliers to improve their own performance and innovation practices, and sharing in the productivity gains that came from this commitment to each other’s welfare.

Toyota also came to understand that management and unions needed to listen to and empower people on the shop floor, who are often in the best position to identify an improvement, and to implement it in an efficient and expedient way.

As a result, Toyota and a range of other innovative companies turned the normal business formulas on their head.

Instead of the future price of products to consumers being determined by the estimated future production cost of a product or service plus a margin, the pricing formula for Toyota products and services became based on the existing production cost of that particular product or service minus the benefits of the sustainable, innovation-induced productivity gains.

This is the fundamental source of the benefits to society of innovation-induced productivity gains.

This is the link between a nation’s industrial relations system and innovation at the organisational level.

It is simply not possible to have an innovation system that, day by day, facilitates productivity improvements through mutual obligation between the company and its workers and suppliers, if the personal relationship is inhibited by the inappropriate and intrusive involvement of third parties, such as employer organisations, industrial tribunals or trade unions.

This is not to argue for the removal of all industrial regulations or to limit the role of trade unions in legitimately supporting their members. Far from it. But Australia is now grappling with decades of poor national productivity performance and needs an industrial relations system that sees the need for mutual obligation at the organisational level to support innovation and productivity.

The industrial relations system should be designed to discourage any intervention by third parties that hinders, discourages or inhibits the consensual improvements that are essential to Australia’s escape from the low productivity trap.

It should be alert to old practices and industrial agreements that interfere with the rights and willingness of employers and employees to continually co-operate to create new ideas, products and processes for the betterment of the organisation, its people, and its clients and customers.

The link between Australia’s innovation efforts, our productivity performance and our industrial relations system is not the only matter that needs to be considered in reforming Australia’s industrial relations system.

But unless reforms are symbiotically linked to the underlying drivers of innovation at the level of the individual company, they will not lift productivity and/or produce the real wage increases that all Australians deserve.

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