Singapore companies do not pay enough attention to maximising productivity within their organisations, a failing that has led to stagnating output growth and a less competitive economy, according to a new report.
It noted that the pace of economic expansion has slowed while wage growth has outpaced labour productivity, resulting in rising staff costs and making Singapore less competitive internationally.
The authors of the report by management consultancy Oliver Wyman called on private-sector firms to build productivity improvements into day-to-day operations, saying: "A real productivity drive should not purely be a reaction to competitive pressure or a result of a national effort."
The report found that some of the largest-listed firms here have grown in size but have not become more productive.
The top 100 companies by market capitalisation listed on the Singapore Exchange saw market capitalisation grow 5.9 per cent annually between 2011 and 2015.
However, there was also a declining trend in key productivity measures over the same period, the report said. Return on total capital fell from 9.8 per cent to 6.8 per cent, and return on equity dropped from 24 per cent to 11.4 per cent.
Annual growth in market capitalisation of the top 100 companies by market capitalisation listed on the Singapore Exchange between 2011 and 2015
Annual rate of contraction of profit per employee over the same period
While these falls may partially be driven by companies holding on to more capital and by investments in expansion, profit per employee also contracted at an annual rate of 9.5 per cent over the same period.
The report noted that falling profit per employee is typically characterised not just by rising operational costs but also by declining revenue. It also found a strong correlation between productivity (measured in terms of profit per employee) and traditional financial performance (return on total capital) across industries.
Private-sector firms have traditionally focused on improving financial performance and often find it tough to track value-added per employee in quantifiable terms.
The authors urged corporate leaders to "reflect on a broad range of issues pertaining to their organisations and personnel, to challenge conventional wisdom where necessary, and potentially to look abroad for inspiration".
Firms also need to engage with staff, invest in employees' career development and offer better incentives for promoting innovation.
If big firms face challenges, smaller ones have it even tougher, companies said.
One of the key impediments to raising productivity for Singapore companies - especially small and medium-sized enterprises (SMEs) - is high operating costs, said Dr T. Chandroo, chairman of the Association of Early Childhood and Training Services.
"In the early childhood education industry or the pre-school sector, we face significant increases in rental fees, which can make it difficult for pre-schools to improve productivity in a big way. Our industry also faces manpower constraints and increasing competition," added Dr Chandroo.
Another hurdle SMEs face is the high cost of investing in new technology, automation or other business processes, said Mr Mark Yong, president of the Singapore Furniture Industries Council.
"Investing in changing business processes or restructuring to improve productivity takes time, funds and good planning, but smaller companies generally do not have the resources to undertake such costly or lengthy programmes," he added.