Asia Pacific Journal of Human Resource

It is safe to assume, nonetheless, that management capabilities in New Zealand can be enhanced, which leads to the question of what capabilities are necessary in the current environment. Context is an important consideration when assessing capability require- ments, as is illustrated by Hitt, Keats and DeMarie’s (1998) analysis of organisational chal- lenges at the end of the 1990s. These authors observed an impending technological revolution and increased globalisation that, together, would lead to ‘highly turbulent and chaotic (business) environments that produce disorder, disequilibrium and substantive uncertainty’ (Hitt, Keats and DeMarie 1998, 23). They argued that managers would

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need to adopt new paradigms in order to facilitate strategic flexibility within their organisations. In particular, they argued that the most critical management skill would be non-linear thinking, which they defined as the ‘ability to conceptualise (and reconceptualise) different and possibly contradictory information and scenarios’ (Hitt, Keats and DeMarie 1998, 28). This emphasis on the ability to manage environmental tur- bulence has been reinforced by the events of the first decade of the twenty-first century, including political uncertainty and the severe economic challenges posed by the GFC and the great recession (Hitt, Haynes and Serpa 2010).

As is occurring elsewhere, New Zealand is now not only contending with technological revolution and globalisation but facing major economic threats. These challenges can be better understood by seeking the views of the chief executives who must wrestle with them. Yet, the literature appears to lack an in-depth survey of the nation’s chief-executive population on how they perceive their context. In the analysis that follows, we ask what the key challenges are that chief executives see in their environment. These data are then used to develop a set of implications for managerial capabilities.

Method

A survey was sent in June 2012 to the chief executives of New Zealand’s 1000 largest organisations from across the public, private and not-for-profit sectors. These organisations were identified using the New Zealand business who’s who (2013) directory with the number of full-time-equivalent staff being the indicator of organisational size. Most had 100 full-time-equivalent staff or more, although some organisations had less. Nineteen surveys were returned to sender, leaving 981 that reached their destination. Of these, 265 chief executives (135 private sector, 62 public sector, and 68 not-for-profit sector) completed the survey, giving a response rate of 27%. For a chief-executive sample, this response rate aligns with senior-executive studies in top-ranking journals, which gen- erally struggle to report response rates above 30% (Baruch 1999; Cycyota and Harrison 2006). Organisational leaders are notoriously difficult to survey due to time pressures and survey frequency.

The sample was checked to ensure that it contained a wide range of industries and organisational sizes. Where any groups were initially underrepresented, targeted organisations were contacted, resulting in an appropriately representative sample that included organisations from each broad category in the New Zealand Standard Industrial Output Categories (NZSIOC) classification (Statistics New Zealand 2013). The resulting sample included organisations from industries such as banking and finance, professional services, health, media, construction, dairy and agriculture, social services, retail, charity, local government, and central government. The response rates were 24% for the private sector, 29% for the public sector, and 35% for the not-for-profit sector.

The survey included quantitative and qualitative sections. In the quantitative section, respondents were presented with a list of 19 challenges and a separate list of 14 risks, and were asked to rate the intensity of each item using a Likert scale. With regard to the

Ann Hutchison and Peter Boxall

challenges, the Likert scale ranged from 1 to 4, with 1 being ‘among the top three to five challenges faced by my organisation’ and 4 being ‘not challenging’. With regard to the risks, the Likert scale ranged from 1 to 3, with 1 being ‘one of the riskiest issues faced by my organisation’ and 3 being ‘not a significant risk’.

The lists of challenges and risks, shown in the Appendix, were created by the authors first compiling a master list of all possible areas of business risk, opportunity or operation, using corporate governance guides (The Cadbury Report 1992; The Turnbull Report 2005), management consultant reports (Ernst & Young 2012; Grant Thornton 2012), and further material from two websites: http://www.charities.govt.nz and http://www. icaew.com. Following this process, the authors then worked with a team of three senior executives, two of whom had held chief-executive roles, to narrow these terms into a set of risks and challenges that would capture the key issues as comprehensively as possible, while also remaining short enough for chief executives to complete. When the list was ready, it was piloted with an executive MBA class, and, as no problems were identified, no subsequent changes were made. Although the items did not necessarily need to be pre- sented in two separate lists (for example, a risk and a challenge could be seen as the same thing), they were broken into two lists in order to make the survey easier for respondents to complete.

Following the quantitative section of the survey, five open-ended questions prompted respondents to elaborate. These questions were: 1) ‘in the two lists, is anything not included that poses a significant challenge or risk to your organisation? Alternatively, would you like to pinpoint a more specific risk/challenge than was allowed by the above broad categories?’; 2) ‘please list any specific economic issues that currently pose a major challenge to your organisation’; 3) ‘please list any specific political, legal or regulatory issues that currently pose a major challenge to your organisation’; 4) ‘please list any spe- cific emerging technologies that currently pose a major challenge to your organisation’; and 5) ‘please list any specific social changes that currently pose a major challenge to your organisation’.

Results

The private-sector results are presented separately from the other two sectors, as the data differed slightly between those organisations that were primarily profit-seeking and those that were not. For each sector, the quantitative data are presented first, analysed as the per- centage of respondents who rated each item as a ‘1’ (i.e. ‘among my organisation’s top three to five challenges’ or ‘among the riskiest issues faced’). The qualitative data follow, serving to illuminate the quantitative responses.

Private sector For the private sector, market risks were reported as the biggest factor, with 32% of respondents rating such risks as among their top 3 to 5 challenges. Following this were access to finance (27%) and dialogue with shareholders (27%). Finally, 23% of

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respondents rated changes in the economic climate as being one of their riskiest issues, 21% rated doing business across cultural barriers as a major challenge, and 20% listed attraction and retention as a key issue. The full results are shown in Figure 1.

In the survey’s qualitative section, chief executives elaborated extensively on the market risks, describing a rapidly changing environment with emerging technology, changing consumer values, and shallower consumer pockets prompting them to think very carefully about their market(s) and their business model(s). In some cases, market shifts, particularly from technology, were threatening their core business. For example, a print-media chief executive commented that ‘we have full exposure to a market that is in structural decline because of the choices available to customers through electronic media

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Risks faced by directors Threats to business continuity from the physical…

Conflict with the workforce over terms and… Risks associated with tangible assets

Risks associated with information technology Risks associated with intangible assets

Employee health and safety Risks associated with financial security of business…

Enhancing workforce performance Building the flexibility to manage change

Controlling and reducing costs Fostering innovation

Balancing long and short-term returns Risks associated with debt levels

Risks associated with managing property Compliance with government regulations and…

Cost escalation Retaining existing customers / maintaining…

Enhancing the quality of products or services Responding to societal changes

Responding to emerging technologies Creating and/or managing alliances or joint…

Demonstrating corporate social responsibility Engaging in effective dialogue with other… Raising productivity to world-class levels

Achieving desired outputs from outsourced… Identifying profitable opportunities for the business

Attracting and retaining talented employees Doing business across cultural barriers

Changes in the economic climate Gaining access to finance

Engaging in effective dialogue with shareholders Market risks

Figure 1 Private-sector chief executives’ most critical issues

Ann Hutchison and Peter Boxall

and technological advancements’; and a chief executive of a garden-centre chain noted that their revenue had dropped substantially due to ‘people doing less around the home’. In all, numerous chief executives mentioned some kind of market shift, with further examples being ‘a greater awareness of environmental issues’, ‘a move to smaller cars’, and ‘most consumers [having] a drive towards low cost and low value’. Others couched the problem in more general terms: ‘the niche market we used to service well no longer exists’, ‘the biggest risk is failing to renew our offerings’, and ‘different business models need con- sideration’.

Chief executives also noted how difficult it was to grow their business in the current environment, with revenues having been so severely affected. The global economic situa- tion was described by one chief executive as a ‘calamity escalator’, and by another as ‘eco- nomic Armageddon’. Several chief executives noted the ‘knock-on’ effects of the economy from one industry to another, and several conveyed the sense that they were waiting, delaying any radical developmental initiatives until the economy improves. Growth was also constrained by the fact that banks were unwilling to lend, shareholders were display- ing a ‘low appetite for risks associated with business and strategy’, and overseas investors were ‘unwilling to invest in New Zealand’. It is these comments that appeared to be behind the 27% who found access to finance challenging and the 27% who listed dialogue with shareholders as one of their top challenges.

In their answers to the open-ended questions, chief executives confirmed that global staff mobility is posing a critical skills shortage; but they also identified the exacerbating influence of impending baby-boomer retirements, with one respondent observing a ‘daily [baby] boomer retirement from the workforce’, and another saying that ‘a dom- inance of leaders all within a range of 10 years in age difference’ means that ‘care needs to be taken in developing succession plans’. It was clear from the qualitative data that these skills shortages are being experienced across a wide range of levels and professions, and the data – from all sectors – saw mention of shortages of apprentices, qualified tradespeople, social workers, scientists, nurses, managers, senior executives, and board members.

Public sector and not-for profit sector As the public and not-for-profit sectors showed reasonably similar patterns to each other, their results are presented together. Changes in the economic climate were considered the most salient risk, particularly for the not-for-profit sector where 50% of chief executives rated such changes as particularly critical (compared with 26% of the public sector). This focus on the economic environment was combined with a concern about fund raising (26% for both sectors) and escalating costs (24% of the not-for-profit sector, 21% of the public sector). Around one-quarter (24%) of the not-for-profit sector and 18% of the public sector also rated corporate social responsibility as a major challenge, while 23% of the not-for-profit sector and 14% of the public sector rated employee attraction and retention as a critical issue. Finally, both sectors listed access to finance as being a major challenge (21% for the not-for-profit sector and 19% for the public sector); and alliances

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and joint ventures featured strongly for the public sector (23%) while outsourced and shared services were challenging for the not-for-profits (21%). The full results are shown in Figures 2 and 3.

The open-ended questions gave rise to comments about a severe drop in revenue, whether it be in reduced income from local ratepayers not being able to afford rates or whether it be the national government freezing funding. Several not-for-profit organisations highlighted how difficult it was to raise funds in an environment where the charitable spend is the first to go in a household. Fundraising events also held risks, with

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Employee health and safety Risks associated with tangible assets

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Risks associated with intangible assets Responding to emerging technologies Balancing long and short-term returns

Threats to business continuity from the physical… Risks faced by directors

Fostering innovation Achieving desired outputs from outsourced…

Enhancing workforce performance Raising productivity to world-class levels

Responding to societal changes Doing business across cultural barriers

Attracting and retaining talented employees Engaging in effective dialogue with other…

Risks associated with financial security of… Risks associated with debt levels

Building the flexibility to manage change Controlling and reducing costs

Risks associated with information technology Identifying profitable opportunities for the…

Demonstrating corporate social responsibility Enhancing the quality of products or services

Retaining existing customers / maintaining… Gaining access to finance

Engaging in effective dialogue with elected… Cost escalation

Creating and/or managing alliances or joint… Compliance with government regulations and…

Changes in the economic climate Fundraising

Figure 2 Public-sector chief executives’ most critical issues

Ann Hutchison and Peter Boxall

initiatives failing and efforts being wasted. The sample included a number of not-for- profit organisations that contract to the government for social service provision. These organisations are heavily dependent on such contracts for their income, and were locked into arrangements that the government could cancel at any moment. This potential drop in revenue was extremely difficult for them to prepare for.

Alongside these difficulties in funding, public-sector and not-for-profit organisations were struggling with escalating costs. These include increased insurance and building-code

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Risks faced by directors Risks associated with intangible assets

Employee health and safety Enhancing the quality of products or services

Fostering innovation Risks associated with managing property

Retaining existing customers / maintaining… Risks associated with information technology

Risks associated with financial security of… Raising productivity to world-class levels

Risks associated with tangible assets Controlling and reducing costs

Enhancing workforce performance Risks associated with debt levels

Building the flexibility to manage change Threats to business continuity from the physical…

Conflict with the workforce over terms and… Compliance with government regulations and…

Doing business across cultural barriers Engaging in effective dialogue with other…

Creating and/or managing alliances or joint… Balancing long and short-term returns

Identifying profitable opportunities for the… Engaging in effective dialogue with elected…

Responding to societal changes Responding to emerging technologies

Gaining access to finance Achieving desired outputs from outsourced… Attracting and retaining talented employees

Cost escalation Demonstrating corporate social responsibility

Fundraising Changes in the economic climate

Figure 3 Not-for-profit sector chief executives’ most critical issues

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compliance costs following the Christchurch earthquakes and the compulsory Kiwisaver scheme (a recently introduced national retirement fund). More generally, respondents noted how frequently the government changed regulations and noted the costly, some- times crippling, nature of these regulations. Overall, different attitudes towards the han- dling of such costs were evident among respondents. For some, ‘escalating costs mean compromising the quality of service delivery’, that is, doing ‘less with less’; others, on the other hand, considered that escalating costs led to the need to do ‘more with less’. Ultimately, the need to manage resources efficiently has become imperative across all these sectors.

Financial constraints also mean that not-for-profit organisations face particular diffi- culties attracting and retaining staff, with numerous respondents mentioning those diffi- culties when responding to the open-ended questions. These organisations simply cannot compete for talent by paying higher wages, with notable ‘difficulties in creating the ability to reward staff for excellence within constrained funding’. As with the private sector, not- for-profit chief executives noted the trend for good staff to go to Australia, and staff loss was exacerbated by an ageing workforce on the verge of retirement.

Turning to a different area, the quantitative data revealed corporate social responsibil- ity (CSR) to be another salient issue. The qualitative responses suggested that this was not so much CSR as a private-sector manager might view it; rather, it took the form of a trade- off in trying to meet the community’s needs and achieve their organisation’s mission, while also tackling the impact of the economic environment on revenue and costs. Several not-for-profit organisations, in particular, noted how community needs have grown because of an ageing population and growing poverty, both of which heighten the need for their services. Once again, this raised the need to do ‘more with less’ or, where escalat- ing costs make this impossible, provide fewer or reduced services (doing ‘less with less’).

Finally, when analysing the qualitative data, it appears that the dialogue with stake- holders takes the form of explaining to government how difficult it is to operate under these kinds of financial conditions. One respondent likened the government’s approach to ‘squeezing a dry sponge in the hope of water’. Respondents also despaired at how difficult regulations made their operations and highlighted the need to ‘manage regulators’. Much of the dialogue with stakeholders was about ‘gaining political support for what we do’, as well as managing the public’s opinion of their work and mission. So, stakeholder manage- ment, as in the private sector, is currently critical in these two sectors.

What picture emerges when we compare the overall results from the two types of sector? There are broad similarities, particularly in the fact that all chief executives are adjusting to a challenging economic environment and are sensitive to the fragility of stakeholder support in this climate. In addition, they all face the ‘war for talent’, both in terms of the alternative job offers that high-performing individuals can find internation- ally, and in terms of a wave of baby-boomer retirements (with the latter being particularly acute in the not-for-profit sector). However, the overall pattern in the private sector is more externally focused. Here, chief executives are thinking about the relevance of their business model and how to change or reinvent it in profitable ways. Change in markets

Ann Hutchison and Peter Boxall

and technology is fast-paced and its direction is often ambiguous. Moreover, the business environment is international and culturally diverse. Chief executives reported seeking financial backing for new business ideas but the appetite for risk is low. The overall pattern in the public and not-for-profit organisations is more inwardly focused. Here, chief execu- tives are concerned about adjusting to a constrained funding base, one over which they have little control because government, or a cash-strapped public, faces limits and trade- offs in its expenditure. Consequently, there is a driving need to improve efficiency, to find ways of surviving in a climate of high demands but escalating cost and expanding regula- tion. As noted above, this can mean doing ‘more with less’ or, when this is not possible, ‘less with less’.

Discussion

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