Australia’s smaller middle market businesses are feeling more bullish about the economy than they did six months ago, with fewer seeing a decrease in productivity compared to larger middle market organisations, according to the Pitcher Partners Business Radar report for 2024 which tracks the sentiment of business leaders across the country.
According to the report, only four per cent of smaller middle-market businesses experienced a decrease in productivity, compared to 15 per cent of larger middle-market businesses and 14 per cent of medium-sized firms. The confidence in future success for businesses with fewer than 100 employees also increased to 7.88 points, compared to the 7.64 rating in the previous survey, while medium and larger middle market businesses dropped down.
However, 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. Outlook for growth prospects also faded from the mid-2023 highs, as it did for respondents’ expectations for domestic and international economic performance.
52 per cent remain extremely or very concerned about the levels of productivity in their business, which swells to 54 per cent for middle-market businesses with fewer than 100 employees. Higher cost of labour has emerged as the second most nominated negative influence (28 per cent) on business confidence across companies of all sizes.
Increased operating costs were nominated by 32 per cent as a negative influence, up from just 18 per cent in the last survey, while 26 per cent of respondents nominated inflation.
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,” 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,” he added.
The study also noted that government policies that are seen to hinder productivity were a leading external factor that was impacting productivity for small businesses, followed by labour market shortages and supply chain dynamics.
To address these challenges, companies are becoming more focused on technology, such as employing new technology (38 per cent) and introducing new collaboration tools (34 per cent).
However, initiatives to get people to work harder still made up a large proportion of responses from investing in training (28 per cent), changing incentives (26 per cent), exploring working models (25 per cent), and implementing well-being initiatives (22 per cent) and feedback mechanisms (22 per cent).
Debono said unlocking productivity gains should remain a strategic focus for business leaders, but the focus should be on working smarter, not harder, particularly for 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,” Debono said. “Consider strategies and build systems, processes and technology around your people to help them work smarter and more effectively,”
