Productivity choked by red tape

Entrepreneurs and small business owners are often motivated to start their own business to set themselves free of rules and bureaucracy and embrace the autonomy and agility that comes with running their own enterprise. However, as their business grows, they can unwittingly find themselves bound up in their own red tape.

In a new report, Get out of your own way: Unleashing productivity, the fourth edition in our Building the Lucky Country series, we have calculated the cost of complying with rules and regulations at $250 billion annually across the private and public sectors.

The costs aren’t confined to big organisations. Employees of private businesses spend an average of six hours a week complying with self-imposed red tape; less than their counterparts in the public sector, but more than those working for listed companies.

Notably, employees in private businesses spend more time on self-imposed rules in areas such as human resources, information technology, finance, legal and corporate governance than their counterparts in listed companies. What does this mean for entrepreneurs and small business owners?

As businesses grow and evolve, owners and entrepreneurs often apply internal policies, procedures and processes to help them manage, control and maintain the performance of their business. Over time, this rule-making gathers momentum and, if left unchecked, can put a private business at risk of choking on its own rules, negating the very autonomy and agility for which it was first established.

The figures paint the picture. On average a small business employee spends about six hours per week complying with internally imposed rules. Up to 21 per cent of this time is spent on rules which are unnecessary and add no value. Extrapolate this and it means employees in Australian private businesses are spending two hours per week (about 100 hours per year) complying with rules that are not necessary and serve no good purpose. More than two weeks ‘work’ for no gain. That’s dumb, costly and impacts productivity, staff morale and profitability.

Private businesses regularly voice their concerns regarding government-imposed rules and regulations However, according to the research by Deloitte Access Economics, the level of self-imposed rules created by the private sector is double that attributable to government.

Private businesses often view government-imposed red tape as unnecessary and something that costs them money. Paradoxically, they view self-imposed red tape as necessary and something that saves them money. Our research challenges this. It contends that private businesses are often guilty of getting in their own way, with self-imposed rules more of a handbrake on productivity and performance than anything government can do. The good news is that we can do something about it.

Private businesses have the opportunity to cut their own red tape and quickly get out of their own way. They are smaller and have fewer management layers, so they should be more agile. As such, it should be a relatively easy task to ask staff what ‘dumb things’ they do that are not necessary and should be stopped. The benefits of asking such a question and following through with decisive action will be found in higher productivity, profitability and staff engagement.

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This post can also be viewed on  on the Sydney Morning Herald MySmallBusiness

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