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Leading Organisational Change in a Tight Labour Market

Presentation to New Zealand Institute of Management by Angela Hauk-Willis, Deputy Secretary of the Treasury & Manager, Corporate Branch, on 31 March 2005.

Welcome and thank you for inviting me here today.

My brief today is to look at how organisations meet the challenges of the ‘tightest’ labour market in New Zealand history. We have a unique situation where, at 3.6 percent, New Zealand’s unemployment rate is the lowest among OECD countries.

From one perspective, this is good news for the country and for our economy. Not so long ago – in 1991 – we were facing unemployment of 11 percent.

But from another point of view – in particular from my corporate manager Treasury role, but also from a wider economic perspective – this creates a whole different set of challenges.

Low unemployment means New Zealand is facing a shortage of both skills and general labour. How does an organisation, public sector or otherwise, attract and keep staff? What makes my organisation the one that people will want to work for?

I don’t pretend to have found the answer to that complex question, but would like to give a few insights today into Treasury’s experience.

I will start with a little scene setting and give you an up-to-date summary of just what is happening in our labour market, and some of the issues the government (and a large number of people at Treasury) are focusing on.

Then, I want to move a little closer to home: what does this mean for you and me, as employers of staff?

I will look at Treasury’s organisational change experience as an example – both recent and less recent – and explain how we have turned around our 25 percent annual staff turnover rate that was a feature of the 1990s.

The Labour Market

I have already noted our record low unemployment rate of 3.6 percent. Latest consensus forecasts suggest that this will continue at least in the medium term: the forecast unemployment rate for March 2007 is 4.2 percent.

But there’s more to the labour market story than this. We also need to take into account underlying trends ranging from the increasing age of our working population; the offshore lure for some of our best and brightest; to shifts in sectors and regions where people are more likely to be employed.

On top of all this, there are rapidly-changing social expectations – largely around what we now call ‘generation y’ employees expect from a job and how that job needs to ‘fit’ with their lives.

Let’s look at the big labour market picture first:

Slide 2: Unemployment and Participation Rates
Slide 2: Unemployment and Participation Rates

This graph on unemployment and participation rates clearly shows, firstly, what’s happened to the unemployment rate since 1986. But there is also another line – the participation rate – which shows what proportion of the working age population is working or actively seeking work.

You can see New Zealand’s participation rate has improved markedly from 10-15 years ago. But there’s still room for improvement. If we do improve the consistency of our participation rates it would mean that overall we would be performing among the best in the OECD in this area.

It’s not just about getting women back to work, either.

A recent Treasury report (Labour Force Participation and GDP in New Zealand) optimistically calculates that we would increase our GDP by as much as 5.1 percent if we increased New Zealand’s overall labour participation (male and female, all age groups) to the average rate of the top five OECD countries.

Of course, while participation is undeniably important, our labour utilisation rates stack up reasonably well internationally. So Treasury’s big focus in terms of improving economic growth is on improving productivity – where there is far greater payoff potential in terms of GDP. But that’s another, much more complicated story – and not part of my brief here today!

Let’s look at a few of the other, underlying labour market trends.

Slide 3: Projected participation rates by age and sex
Slide 3: Projected participation rates by age and sex

Let’s look at where labour participation rates are expected to go in the future. This graph shows what you and I probably know already – that our workforce is ‘ageing’. By 2011 we can expect to see a much larger number of people – both men and women – aged over 55 and working. As employers, that has to make us think.

We also need to remember that the working age population – those aged 15-64 - is set to reduce over the next 50 years – from currently 66% of the total population to 58%.

And what about the other end of the age spectrum – those born from 1982 onwards – or ‘generation Y’? Research shows that money is not necessarily a primary motivator for this generation, that (like women and young parents) they are looking for work/life balance, as well as dynamic, stimulating work environments.

Then there are the talented New Zealanders we lose to other countries. According to recent newspaper reports, it is estimated that at least 14 percent of working New Zealanders are offshore – top of the list in the OECD and well behind Australia, which worries that it has 2.1 percent of nationals offshore.

What do employers need to pay to attract these highly skilled professionals back home? What else can be done to stimulate the supply of skilled and trained workers? How can we make sure the brain drain becomes a “brain exchange”? Once they are working for us, how do we get them to stay?

The government has recognised the importance of this issue and its response is focused on both supply and demand.

It is working on increasing supply of workers – our participation rate – by targeting women in particular (but also older people/people supporting dependents other than children), people on benefits, immigration

It is also looking at demand. The government is working to encourage industry groups to think outside the box – current examples are the roading and hospitality industries – and actively consider more work/life balance, flexible working practices for their employees.

But what about those of us here today with a much more immediate issue to address?

All in all – there are huge implications for organisations and businesses. How do we meet the new and developing needs of people who work for us? How do we attract/compete for the best staff from an increasingly small pool?

All employers know the cost of ‘onboarding’ and training new staff to get them fully productive. But today’s workforce doesn’t have the same loyalty to a particular organisation that was common in the past. People now are looking for a range of work experiences and even careers in their lifetime.

You and I can’t do too much about in the short-term about the supply side of the labour market equation.

But I can give you some idea of how my organisation has responded to demand – and effectively changed its culture to become a more attractive place to work.

The Treasury

Let me just tell you a couple of things about the Treasury, to help you get a picture of the sort of organisation we are.

We have a staff of around 300 – so we are not a very large organisation. Most of our staff are involved in economic and financial analysis, as the core business of The Treasury would suggest.

One very telling fact is that 40 percent of our staff have Masters or PhD degrees. Only 10 percent have no post-secondary qualifications. And while our staff do have a diverse range of educational backgrounds, the strongest discipline is, as you’d expect, economics – with 36 percent of staff having an economic qualification.

[SLIDE 4: TOM SCOTT CARTOON]

Treasury has also always had a ‘strong’ organisational culture – with a particularly ‘high profile’ in the 1980s. Some of you may well remember this cartoon from the Evening Post in the mid-1980s.

But by the mid to late 1990s, this culture was having some unwelcome effects on the organisation. In 1997 staff turnover overall was 25 percent – with female staff turnover an even more worrying 35 percent.

Senior managers at that time saw this was a serious – and costly - situation. They brought consultants in to identify the problem areas and to make recommendations to halt the trend. These consultants identified an organisational culture which was seen as aggressive, and a ‘blokey’ atmosphere which inadvertently excluded many staff members, especially women.

Professional skills outside economics did not appear to be valued, and there was a focus on avoiding errors at the cost of stifling innovation and debate. Management skills needed improvement and staff indicated they needed clearer leadership and direction from senior management.

Long working hours were a feature of life at The Treasury – probably not helped by a Minister at the time who thought nothing of calling meetings at 10pm. But the expectation of long hours had become virtually institutionalised and many staff perceived they had to ‘be seen to be there’ well into the evening to be valued by the organisation.

To be fair, there is no doubt that Treasury was – and still is, in many respects - a unique beast. We operate under a number of constraints that perhaps result in a naturally ‘rigid’ organisational culture. For example:

  • We need to respond to Minister’s requests at quite short notice and sometimes outside normal working hours;
  • We often have stressful work programmes with tight timeframes (the Budget a very good example here);
  • High levels of confidentiality and security are sometimes required, making work away from office quite difficult;
  • Historically, all of our senior people have worked full time.

So, given these constraints, the problem of our culture – one that had been developing over a long history of 150 years - was not an easy one to address. And most of you will know from their own experience that culture changes only very slowly!

The Response

To start with, a range of initiatives aimed at creating a more welcoming, supportive and responsive Treasury culture were set in place. We wanted to attract and retain the best people, and in terms of retention we had not been able to do that.

These initiatives included upskilling our managers in people leadership and improving managers’ training and support. For example, a buddy system for new managers was established, and performance feedback training was given to all managers to encourage positivity rather than defensiveness in staff.

Another aim was to make senior staff more visible, particularly through modelling expected behaviours. This meant being respectful of others’ points of view, encouraging debate, appropriate meeting protocols, and making sure meetings were held in conventional working hours so that staff with families, or other commitments, were not excluded.

Key human resources systems, including performance assessment, promotion and remuneration were also revised – recognising and encouraging the culture and behaviour we were aiming for.

In 2001, these moves were followed by even more widespread change: we reduced the organisational hierarchy, ‘flattening’ our structure and effectively removing a level of middle management.

We also invested heavily in knowledge management – recognising that a lot of our institutional knowledge was literally walking out the door. We had not previously encouraged formal debriefs, handover notes and lessons learnt. The perception was that we reinvented the wheel too often rather than drawing on previous experience. We had a strong ‘need to know’ culture where staff did not think of sharing what they knew unless there was a particular reason to do so. Our KM programme turned this around in that the expectation is now for information to be made available unless there is good reason not to.

And then our physical workspace came in for change: we moved from a fairly insular office-based environment to one that is entirely open plan. Today, even our chief executive shares an open plan floor space with staff from Treasury’s corporate branch.

The Results

None of these changes were easy to implement – and I want to talk later about what we have learned during the change process - but the results have been worth it.

Let’s look at the figures first.

Staff turnover overall has dropped markedly and is currently at 11.4 percent for the third year running (from that 1997 high of 25 percent and 22 percent in 2000). The average length of service has also increased to almost 6.5 years, from 5.2 years in 2000.

Female staff turnover (at 35 percent in 1997) had dropped to 9.4 percent for 2003/2004.

Slide 5: Percentage of women at the Treasury
Slide 5: Percentage of women at the Treasury

Women now make up about 49 percent of Treasury’s staff, from a low of about 40 percent in 1997. The number of women in senior roles has also increased to 32.5 percent.

In 2002, Treasury was runner-up in the Large Organisation category in the EEO Trust Work-life awards. Recent staff climate surveys also reflect those positive messages.

Slide 6: Overall job satisfaction at the Treasury
Slide 6: Overall job satisfaction at the Treasury

Since 2001, overall satisfaction among Treasury staff has been trending upwards – most recently 63 percent positive, compared with the benchmark of 48 percent for New Zealand public sector and knowledge worker organisations.

In particular, Treasury staff are significantly more positive about career opportunities, knowledge sharing, recognition, communications and senior management trust than their peers in other New Zealand organisations.

Given the labour market pressures I talked about earlier, these trends are particularly pleasing. There is no doubt that the change process we have been through over the last decade or so is largely behind this turnaround – but there also more subtle developments, particularly in recent years.

Recent developments

Providing flexibility in employment is definitely a key factor here. Our most recent staff survey showed that 80 percent of staff felt that there was a lot of flexibility in work arrangements to suit personal lives - across both male and female staff.

 

 30 December
2004
30 June 200430 June 200330 June 200230 June 200130 June 2000
Full-time permanent271259264256276280
Part time permanent404336241515

SLIDE 7: PART-TIME EMPLOYMENT FIGURES

Almost 13 percent of Treasury staff work now part-time – up from just 4.5 percent in 2000. Perhaps a big Treasury point of difference is that, unlike many other organisations, Treasury doesn’t limit its part-time flexibility to non-managerial positions. A number of senior staff – and not just women - use the option of part-time employment.

In addition to part-time hours, we have internally promoted other options for more work flexibility. For example, we have formalised our remote computer access policy to allow staff to work from home when necessary and where possible. .

And staff can ‘buy’ extra annual leave – with managers expected to accommodate this when it is requested and where it is possible.

A similar approach is taken to allowing staff to take short or long term leave without pay. Staff can, when agreed by their manager, have up to two years’ leave without pay to travel and take a break from their career or time-out from employment for family reasons.

There does need to be a balance between business need and staff preference. I also acknowledge that providing the full menu of flexibility options is easier in some industries and in some job families than others. For example, it can be a challenge for a manager with a large number of part-time staff to find a time where everyone is available for a team meeting. What I do want to stress though is the importance of the commitment the organisation has to making flexibility work - rather than saying it’s in the too hard basket and being unnecessarily rigid.

Trying to get as many staff as possible to return from unpaid leave is obviously a priority for us: of those who were on leave without pay in the 2001-2002 year, 40 percent had returned to the Treasury by 31 March 2004. That’s a reasonably good number, but we’re always keen to try and improve it.

Getting women to return from parental leave is another priority. Our work flexibility really helps here. We also offer paid parental leave in the form of an ex-gratia payment six months after the staff member has returned to work. And we offer extra leave for looking after sick children, and a subsidy to help with childcare costs. These are all important in helping us retain highly skilled staff.

One thing that helps us keep in touch with Treasury staff that have left the organisation either permanently or temporarily – and hopefully encourage them to return in the future - is our alumni programme. This is an internet and email-based programme where Treasury alumni are sent regular newsletters with news about the Treasury, and details of current vacancies. This low-cost programme has received very positive feedback from alumni.

All of these factors are no doubt behind some of the improved organisational results we are seeing. But it’s not a ‘done deal’. As I have outlined today, the labour market we all operate in is changing rapidly and we have new and perhaps even bigger challenges ahead. So we are not resting on our laurels and are constantly analysing how we can better meet the changing demands of both our current and potential workforce.

Before I finish today, I’d like to take a quick look at what I’ve found to be some of the management challenges involved in organisational change and development.

Some Do’s and Don’ts

My observations here are based on my experience of organisational change both at the Treasury, and in other management roles I have had over the years.

Firstly, the way change is managed needs to fit the organisation. At the Treasury, we’re dealing with highly analytical staff. So people want to know the “why”, and expect to be consulted. A directive, top-down approach on its own doesn’t work.

Having said that, direction setting is important. In the 2001 Treasury reorganisation, we set out some clear parameters: want we wanted to achieve, and why. Needless to say that these parameters also came up for quite a bit of challenge and debate!

The approach also needs to be comprehensive: reinforcing messages with clear actions in all parts and at all levels of the organisation.

So, at the Treasury, our objective to reduce hierarchy was reinforced by a move to an open-plan office environment, a focus on sharing knowledge, communication to non-managerial staff of our expectations of them to be proactive and seek out opportunities, and a change to our sign-out procedures to give more staff a greater sense of accountability. We also removed a layer of management – but this by itself wasn’t enough to get the cultural change needed.

One frequent problem that’s you encounter in change management is that change is seen as a one-off. But you really need to get staff to accept that change is the norm, not the exception. This is always going to be uncomfortable for some including senior staff!

Painting a picture of what you want to see can really help get people alongside, and help understand why change is needed. We used “vivid descriptions” of what a world-class Treasury would look like to support our organisational redesign.

Finally, there’s a big difference whether change is self-generated or externally-imposed. You do get more control over the process if it’s the former, but it can be harder to create the sense of urgency, and ensure it “sticks”.

Conclusion

That’s just a very potted summary of some of the lessons I’ve learned from my experience of organisational change – I hope they were helpful.

One final point I want to make is that, while I think we have major improvements at the Treasury, and put a lot of effort into leading organisational change, there are still some ongoing challenges for us going forward. It’s not an option for us to take our eye off the ball!

Thank you.

ENDS

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