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From the Desk of the Executive Director

Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Harnessing the power of independent thinkers

Tuesday, June 19, 2012

Last week while Prime Minister Minister Julia Gillard was conducting her Economic Forum in Brisbane, I was in Wellington New Zealand attending the peak international small business conference of the year. The two events provided an interesting comparison in light of Robert Gottliebsen's comments yesterday (When staff cuts aren't enough, June 18).

Robert observed that the decline in Australian productivity dominated issues at the Economic Forum. He quizzed Telstra's productivity expert Anthony de Jong on how firms increase productivity. But, as is typical, the discussion approaches the issue as if productivity is a big business, big government organisational challenge.

That might be true from an individual big business or government perspective but it's not the national picture. I find myself constantly repeating a startling statistic. Of Australia's 11.5 million workforce, around 8 million work in or run small businesses.

The reality is that the big 'grunt' on the productivity picture relates to what happens in the self-employed/small business sector. This has operational implications for big business and government. The deconstruction of employment as the sole workforce engagement method has changed how big organisations are forced to operate.

No big organisation, private or public, can any longer function without a major contribution from small business people. It's commonly called 'outsourcing' but that narrow concept misses what's going on. I've devoted a book to explaining and discussing this changed environment and I'm happy to admit that it's bit of an obsession of mine!

This issue seemed to resonate at last months Reserve Bank forum on small business finance as an unaddressed micro-economic reform item. 'Small business' is starting to feature as a 'big' item needing new eyes.

This is what made several presentations in Wellington last week of particular interest. There's a lot of academic research done around behavioural processes that occur in big business and government. Such research heavily drives management courses, studies and managerial practices. Not so with small business.

The small business research tends to be thin, poorly funded and assumes that small business is just (behaviourally) a tiny version of big business. Wrong! To understand small business it's necessary to understand small business people. 'People' is the operative word. Small business 'people' are more like consumers than they are big business. They behave as individuals and need to be understood as individuals.

I've been involved in working with some academics on pulling together profiling of small business people for this very purpose. There have been some surprising results. For example it's largely a myth that small business 'entrepreneurs' are young. But the investigated work we've coordinated is just a beginning.

In Wellington, three research reports caught my attention (summaries and links here) that add depth of understanding.

The first looked at the motives of small business entrepreneurs. Put together by three researchers one each from Kentucky USA, Montreal Canada and Mexico City they considered cross-cultural motives, between English and Latin-orientated societies.

The desire to be independent (to be one's own boss) shows as a dominant factor across both cultures but stronger in Canada/USA. (The 'independence' motive also shows up as dominant in other surveys of economically developed societies.) Mexican small business entrepreneurs have a comparatively stronger motivation to secure an income for family security.

I was interested in an upward trend evident in self-employed/small business numbers in Mexico and asked the researchers about this. Shouldn't the much publicised violent war by the Mexican government against drug cartels suppress business activity? The researchers felt that the violence was geographically isolated and a general improvement in the 'rule of law' was happening in Mexico that enabled more business activity at the base of the economy.

The second research looked at 'failure' as an essential learning factor in entrepreneurship. The researchers came from Washington DC and Finland. Their conclusion is that entrepreneurs have a primary capacity to use failure to grow and learn in their business activity. This learning capacity is tied to emotional intelligence. The researchers discuss this at length in their paper.

The last group came from Worchester USA, New Zealand and Tasmania. They considered evidence that entrepreneurs have high belief in their own competency. That is, there's an observable psychological trigger that makes entrepreneurs believe in their decisions with strong confidence.

Each of these research reports add pieces to a highly incomplete jigsaw puzzle profiling self-employed, small business people; that is entrepreneurs.

Such early stage research has implications for productivity. It's long accepted that economic growth comes from innovation driven by entrepreneurs. Innovation is the ability to change and adapt and this drives productivity. Stand still and you go backwards!

Here's the productivity challenge for Australia. In a small business-dominated economy, productivity is at risk in subservient employee-management (big business) structures. Productivity more likely breeds amongst emotionally intelligent learners, not fearful of failure and who are strongly independent. The characteristics more naturally reside in self-employed people.

This presents challenges for the standard approach to corporate management of big business/government and to national policy to facilitate innovation and productivity.
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