Hard work is good but smart work is better NOW that GM Holden has announced its 2017 withdrawal as a manufacturer from Australia, we need to have some strategies as a community and business sector to guide our next generation of economic progress. Looking back, only a couple of hundred years ago most people worked in agriculture, making sure they grew enough food to feed themselves and their families. The industrial revolution and automation moved most working people into factories and then over the past 30 years, with manufacturing becoming efficient, most work and workers moved to service industries. Now, even services are increasingly becoming automated, such as with internet banking, and what is not being automated is increasingly being "offshored." Our main problem in Australia is that doing business here just costs too much. Hence the massive offshoring, including Ford, Holden, the whole tyre industry, many call centres, most back office operations and service centres - but hopefully not Toyota in the near term. Given that we don't want to have a recession, and none of us want to reduce our standard of living, we can only do two other things to prosper: namely increase our productivity, or find new innovative ways to create goods and services. On productivity, there is good news if we are smart enough to act on it: our evidence is clearly that fully one third of what organisations do is actually a waste of effort - which we call "noise" - and is a large prize is waiting to be recaptured. Indeed, the best of firms, such as Toyota and GE, have spent the past 50 years eliminating those forms of waste, yet most business leaders, most government bureaucrats and to my knowledge all politicians fail to be able to appreciate what is actually possible in terms of directly improving productivity through carefully reorganising processes and ensuring that work is done efficiently and "right first time," systematically. If only our businesses and government departments were wasting one tenth of their work efforts instead of one third, we would all be living much better and Holden and Ford would still be manufacturing at a profit in Australia in perpetuity. On innovation, our national system is very poor compared with Singapore, Taiwan, Israel and many others. Only the very few firms at the pinnacle of innovation capability are systematically good enough at it so as to make up for the cost disadvantages that our wages structures and overhead costs bring to our enterprises. We need to massively educate and train those next generations who we now know won't be working for Ford, Holden or their suppliers about how to be entrepreneurial and innovative, to use their ingenuity and energy in creative ways to take services and products to the world's markets. If we don't do that, and continue down the slippery slope of declining manufacturing, services offshoring and slowing mining and agricultural value creation, then I fear for my (yet to appear) grandchildren's standard of living. When I was working at the Holden Engine Company many years ago, the CEO at that time, the late Peter Thomas, made a very succinct and wise comment, "Australia has no business plan" and I think he was right. Thailand has built a thriving automotive industry from scratch, while ours severely declines. They were guided by government. Japan's growth and South Korea's too were guided by firm partnerships between government and industry: yet we seem unable to achieve traction in that regard. We don't have the market scale and depth of capital markets to do it the American way and copying Silicon Valley's model wouldn't work here anyway. We need to massively create innovation and entrepreneurial capabilities in our communities, including social entrepreneurs and businesses. And because we are Australian and can't wait for government to lead us with a national vision (unlike Japan, Korea, Taiwan, Singapore, Thailand), we need to do it essentially "bottom up." It has started: every day I hear or read about entrepreneurial business start-ups and the key question is of how we can accelerate that. Our research at the University of Melbourne shows that innovation success is based on strong leadership, energy and enthusiasm, risk taking and risk management, marketing acumen - and that it needs seed funding. When those are in place, both big and small business can thrive. Cost disadvantages can be overcome. I fervently hope that Toyota doesn't up stumps from Australia for a long time and their track record globally demonstrates a longer term approach and commitment than GM or Ford: Toyota has only ever closed one plant in the world, called NUMMI in California, and it did so after its joint venture partner, GM, pulled out. But with the reduction of the automotive sector, and with it a fair bit of manufacturing in general, we had better get Plan B formulated and into action. And once again, there are only two aspects to what that plan must comprise: productivity increase and strong innovation capability. Otherwise we will inevitably face a reduced standard of living. Professor Danny Samson is an academic in the Department of Management and Marketing/Faculty of Business and Economics at the University of Melbourne