Understanding the businesses that drive Australia’s economy pitcher.com.au2022ISSUE03REPORTSUMMARY BUSINESS RADAR
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01 thisAboutreport 06 The perceptions and advantages of flexible work 02 Meet businessesmid-marketour 07 cybersecurityinnovationTechnology,and 03 Optimism in the face uncertaintydisruptionofand 08 initiativesESG 04 termcriticalholdingDay-to-daybacklong-planning 09 Pitcher Partners Making personalbusiness 05 The battle to find and keep great staff 10 About TRA INSIDE ISSUE2022033
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SMEs, start-ups, larger enterprises and listed organisations are well-represented in business news, industry studies and government investigations, businesses in the middle market are often overlooked, despite being Australia’s largest segment. MID-MARKETBYEMPLOYEDWORKERSJUSTTOCONTRIBUTIONMID-MARKETECONOMY–UNDER25%THE MID-MARKET BUSINESSES ARE THE ENGINE ROOM OF AUSTRALIA’S ECONOMY ⊲
KEY INSIGHTS FROM PITCHER PARTNERS' EXPERTS
Along with the results, you’ll find interpretation and actionable insights from business and financial experts at Pitcher Partners. As Australia’s leading accounting and advisory firm for the mid-market, we’re uniquely positioned to offer this analysis. $ 898 B 2.84 M ABOUT THIS REPORT 01
HELPING MID-MARKET LEADERS STRENGTHEN THEIR DECISION-MAKING
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Independently commissioned, this research investigates the key challenges, opportunities and trends facing mid-market organisations. It’s based on responses from 402 business leaders and owners in private, public and not-for-profit sectors across Australia.
Using qualitative and quantitative data, this report aims to drive conversation and help businesses understand their broader environment so they can plan with more certainty. It explores themes of business confidence, staff shortages, the changing expectations of workers, the challenges of long-term planning, tech disruption and the uptake of Environmental, Social and Governance (ESG) initiatives.
Proactively addressing these challenges will ensure mid-market businesses continue to thrive, as will Australia’s economy.
This report defines mid businesses-market as employing 20–200 people with annual revenue of $2–$500 million. While their operating models, sizes and industries vary widely, these businesses can be categorised into four lifecycle stages.
MEET OUR MID-MARKET BUSINESSES
MEET OUR MID-MARKETBUSINESSES
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OF RESPONDENTS ACROSS BUSINESS LIFECYCLE STAGE
20827
NUMBER OF RESPONDENTS BY STATE 54 WA 46 SA 75 QLD 110 NSW 117 VICNUMBER
Operating for less than two years. Focus on ofandbusinessestablishingmodelreinvestmentprofits.
SEED
GROWTH
Gaining traction in market with recent, consistent growth. Reinvest profits to support expansion.
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TRANSITION
Focused on evolving the business model, or selling / winding down the business.
MATURE
162
Consistent and stable basis.business-as-usualWorkingrevenue.ona
AUSTRALIA'S MIDDLE-MARKET BUSINESSES | | | | | | | | | | | | | | | | | | |||||||||||||| ||||||||||||||| | ||||||||||| TYPICALLY EMPLOY STAFF AUSTRALIA'S MIDDLE-MARKET BUSINESSES … HAVE AN ANNUAL RE VENUE OF $2M TO $500M WITH A AND THE ABILIT Y TO ADAPT QUICKLY CONTRIBUTE 25% OF TOTALAUSTRALIA’SREVENUE ($898B) NUMBER OF RESPONDENTS ACROSS BUSINESS STRUCTURE NOT-FOR-PROFIT 22 PUBLIC 65 PRIVATE 310 * 5 UNDISCLOSEDISSUE20220304
THE PERCEPTIONS AND ADVANTAGES OF FLEXIBLE WORK
If you were lucky enough to be an essential business, or one whose market experienced an increase in demand due to COVID, the outlook has been very positive.
OVID-19 slowed or halted in-person business dealings, closed borders to travellers and squeezed staff availability. More recently, inflation, rising interest rates and global events have compounded these issues contributing further to the volatility being experienced by the mid-market . And the pace of technological advancement has added both opportunity and uncertainty for business. Despite that, business confidence remains up compared to pre-pandemic 2019, but perhaps the question is how long will this optimism last.
Despite all this uncertainty, there are opportunities for mid-size businesses in the Australian market to be opportunistic and agile when many think it is time to wait and sit back until it all passes. This current market is full of opportunities. We have seen and experienced this with several acquisition activities in our sector, new capital and investor interest, and on an operational level, the opportunity to pivot into new and emerging business opportunities
It’s perhaps surprising that businesses overall were more optimistic about future growth prospects for their industries and the wider economy than they were over two years ago, but dissecting the numbers shows a more nuanced story.
The pandemic has benefited some businesses much more than others. 27% of growth businesses rated their confidence in the highest bracket, 9–10/10. This is significantly more than mature businesses with only 19% rating themselves as in this bracket. Comparing what was deemed to be an essential business to nonessential businesses during our recent COVID lockdown experience, there is an even greater difference: 31% and 15% respectively rate business confidence as 9–10/10.
It’s an understatement to say the last few years have come with upheaval, challenge and opportunity for Australia’s mid-market businesses.
OPTIMISM IN THE FACE OF DISRUPTION AND UNCERTAINTY
BUSINESS CONFIDENCE: CASH FLOW, LEADERSHIP AND A BIT OF LUCK
RON ERASMUS, THE PALLADIUM GROUP, PITCHER PARTNERS'
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BUSINESS CONFIDENCE 2019-2022 (Rating out of 10) CURRENT SUCCESS FUTURE SUCCESS 2019 7.24 2021 7.61 2022 7.42 2021 7.68 2022 7.69 2019 7.26 n BUSINESS CONFIDENCE 9–10 n BUSINESS CONFIDENCE 7–8 n BUSINESS CONFIDENCE 0–6 ▲ ▼ SIGNIFICANTLY GREATER / LOWER THAN NON-ESSENTIAL / MATURE HOW CONFIDENT DO YOU FEEL IN THE CURRENT SUCCESS OF YOUR BUSINESS? 27%20%53%19%27% ▲ 54%ESSENTIALGROWTHMATURENON-ESSENTIAL HOW CONFIDENT DO YOU FEEL IN THE FUTURE SUCCESS OF YOUR BUSINESS? 27%22%46% ▼15%31% ▲ 58% ISSUE20220306
20 % RELATIONSHIPSCUSTOMERSTRONGTALENTQUALITYHIGH2031%% EFFICIENCYOPERATIONAL ANDMANAGEMENTHIGHMANAGEMENTCASHFLOWSTRONGFUNCTIONINGTEAMSTRUCTURE2527%%
Looking at high-confidence businesses, the second and third most important drivers are different to the overall mid-market, being:
In a world that is experiencing speed of change greater than any time before, it is heartening to know that the fundamentals of great, successful businesses continue to hold true.
Across all mid-market businesses, the top three drivers are:
▲ SIGNIFICANTLY GREATER COMPARED TO BUSINESS CONFIDENCE 0–8 SURVEY QUESTION: Which of the following have been the largest drivers of success for your business? WHICH OF THE FOLLOWING HAVE BEEN THE LARGEST DRIVERS OF SUCCESS FOR YOUR BUSINESS? CONFIDENCEBUSINESS9–10 MANAGEMENCASHFLOWSTRONGT 27% 1712%%25 % CONFIDENCEBUSINESS0–8 STRUCTURETEAMMANAGEMENTFUNCTIONINGHIGHAND “My clients who have enjoyed success (and been lucky), generally avoid complacency at all costs. They have an investment maintenance program in terms of people and processes, and are well disciplined in business fundamentals. They understand there’s no growth without discomfort and the only constant is change." KYLIE LAMPRECHT, PARTNER, PITCHER PARTNERS BRISBANE 07
STRONG DRIVERS OF BUSINESS CONFIDENCE ARE PERENNIAL BUSINESS BASICS
THE PERCEPTIONS AND ADVANTAGES OF FLEXIBLE WORK OPTIMISM IN THE FACE OF DISRUPTION AND UNCERTAINTY
In fact, the impact of COVID has been so pervasive, a third of mid-market businesses who identified COVID as a positive also saw it as having some negative impact on their business (31%). The common themes of these positive impacts of COVID for mid-market businesses were that it increased or opened new market demand and accelerated innovation and change.
29% of our mid market businesses named unforeseeable events as their main barrier to success and only 15% say they’re happy to plan further out than five years. Respondents suggest this is likely from the experiences of disruption during the height of the pandemic, leading to a feeling that longer term planning is less valuable.
There’s a degree of luck involved in whether businesses saw the global pandemic and all its spin-off impacts as positive or negative. There is also an attitudinal element. Businesses that were able to identify and respond to market forces and demand, and adopt new technologies or ways of working likely found more opportunities than challenges through the pandemic.
INSIGHTS FOR BUSINESS
Our findings reveal that the global pandemic continues to have the most negative impact on business confidence. The second and third most impactful are labour shortages and inflation, both of which can be partly tied to the effects of the pandemic. More recently, the response to inflation, rising interest rates, is starting to bite. All the more reason to focus on cashflow management and capital structures. Respondents also identified the global pandemic as the third most positive impact on their business confidence.
DARREN AND LEWIS ONLEY, AUS STEEL, PITCHER PARTNERS' CLIENT
Uncertainty is really the thing that makes things difficult for us. If you know what is coming, you can plan for it, but not knowing means you need to prepare for everything […] which is impossible
The COVID linked tech advancements and a shift in consumer preferences were also ranked as the two most positive effects on business confidence.
On the flip side, globally some businesses have overestimated demand, or overordered to address the supply shortage, and consequently have needed to write down or store excess inventory. That has meaningful negative implications for business profitability particularly in sectors where gross margins tend to be low e.g. consumer discretionary.
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THE UPS AND DOWNS OF THE GLOBAL PANDEMIC
Estimating both supply of, and demand for, goods and services takes on increased importance in this disruptive environment. The disruption to manufacturing and logistics caused by COVID has led to supply shortages and left many businesses short of materials to meet the demand of customers.
THE WORRYING TALENT GAP
GRAPPLING WITH UNCERTAINTY
Perhaps most worrying to businesses is the difficulty of retaining and attracting talent, two sides of the same issue and named as both the second and fifth biggest barriers to success respectively. 31% of respondents also identified labour and staff shortages as negatively impacting their business confidence, second only to the global pandemic (37%). Businesses know this is an issue, ranking high quality talent as the second most important driver of success.
It could also reflect an increasing unease with the volatility of the business environment, with supply chain difficulties and increasing operating costs identified as top barriers to success.
Given the uncertainty still lingering over mid-market businesses, supply chain management, retaining or nurturing flexibility, adaptability and nimbleness will be key. However, businesses shouldn’t overlook the critical importance of getting the basics right – great staff retention, excellent leadership and tight control over cash flow.
Talk to most business owners and they’ll tell you long-term planning is an essential part of business success.
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DAY-TO-DAY HOLDING BACK CRITICAL LONG-TERM PLANNING
Dedicating time to develop these long-term plans, however important, remains difficult. 68% of our mid-market business decision-makers agree –they wish they were able to spend more time planning and thinking about ‘big-picture’ decisions for the business. And the main reason they can’t? They’re spending their time and attention on urgent, day-to-day matters – 64% say this is the biggest barrier. Similarly, when considering succession planning, over half of the mid-market businesses (52%) said a lack of time was the key barrier.
Interestingly, those businesses that are planning five years or more ahead are more likely to have the founder involved (61% vs 48% total sample). Businesses planning six months to one year ahead are less likely to have the founder involved (37% vs 48%).
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BACKDAY-TO-DAYHOLDINGCRITICALLONG-TERMPLANNING
Perhaps unsurprisingly, three-quarters (75%) of respondents said there are parts of the business they cannot delegate and they’d like to spend a third of their time on long-term planning. It’s reasonable to assume that these tasks that seemingly can’t be handed over are filling decision-makers’ planning time. Delegating or outsourcing day-to-day tasks seems to be key to planning big-picture decisions. Discussion with clients support this, with some businesses reporting that their systems unlock time for owners and decision-makers.
aving long-term plans in place gives assurance and direction, as demonstrated by a correlation between higher confidence and the likelihood that the business has developed a formal succession plan.
NO DELEGATION, NO TIME TO THINK
THE PERCEPTIONS AND ADVANTAGES OF FLEXIBLE WORK
During COVID, we learned that your plans can be easily interrupted. We learned to be more flexible to unknown events. It may take a moment to adjust to that.
LACK OF KNOW-HOW
AVI RUBINSTEIN, LITHO SUPERPAK, PITCHER PARTNERS' CLIENT
Similarly, only a quarter of mid-market businesses have a succession plan – over a third of respondents (38%) said their main barrier to developing one was that succession planning was too far off, and therefore not seen as an urgent consideration. However, we know from experience and observation of current events that succession planning helps businesses prepare for the unexpected. Succession planning is a journey, but it's important that you start the process to ensure you’re opportunity ready.
16% of businesses said they needed advice or guidance to build a succession plan –a barrier we can also assume applies to long-term planning in general, when we consider that almost half of businesses (49%) struggle to find useful advice. Over a third (35%) want external help to provide ideas and guidance to help with their business and look for this through business networking with people in decision-making positions as much as, or possibly more than, external advisors.
DARREN AND LEWIS ONLEY, AUS STEEL, PITCHER PARTNERS' CLIENT
NO POINT IN PLANNING
n BUSINESS CONFIDENCE 9–10 n BUSINESS CONFIDENCE 7–8 n BUSINESS CONFIDENCE 0–6 ▲ S IGNIFICANTLY GREATER THAN TOTAL SAMPLE
For some businesses, the barrier isn’t so much about time but about whether there’s any point to long-term planning at all. Only 15% say they’re happy to plan further out than five years, a discomfort mostly likely stemming from the COVID-19 disruptions.
TO WHAT EXTENT HAS YOUR BUSINESS THOUGHT ABOUT OR PLANNED YOUR SUCCESSION STRATEGY?
27% 19 % 38 %▲ ISSUE20220310
We have put in systems and processes for our management, which makes the way we do things clear. This really frees up our time to think more long-term and plan for contingencies.
SURVEY QUESTION: To what extent has your business thought about or planned your succession strategy?
GAVIN DEBONO, PARTNER, PITCHER PARTNERS MELBOURNE
“My client knew their business needed to change in order to meet the continued increase in demand for their products and services. Whilst it was relatively informal, their mindset had changed. They began talking about this internally, and then with us as their advisors, and together we identified the deficiencies in the business, including the management structure and capabilities, location, machinery and set about taking steps to plug these gaps. A merger was not something they were searching for however the opportunity arose and because of the planning and critical thinking that had been done, even though informal, they recognised the opportunity and were ready to act."
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DAY-TO-DAY HOLDING BACK CRITICAL LONG-TERM PLANNING
We know from on-the-ground experience that creating long-term plans, adjusted over time, can be a key driver of success – this research indicates that it’s a driver of business confidence.
Include succession as an element in your overarching strategic plan. If you have internal candidates for succession bring them into the plan early to increase engagement and development opportunities.
Be prepared to be flexible to adapt to, and capitalise on, current market conditions. Developing scenario plans for different external factors can allow your business to adapt and change direction more quickly.
Translate the plan into a realistic action list and clearly identify owners for each of the actions. Then track your progress against plan, reviewing on a regular basis and adapting as needed to the current environment.
A documented but flexible long-term plan can help provide a framework for quicker and more effective business decisions while ensuring resources are allocated to the highest-value opportunities. It also means the business is aligned and operates with a common understanding.
68% of respondents wish they could spend more time planning, and another group don’t see the value in it at all, meaning very few businesses do so. This makes long-term planning an opportunity to get ahead of competitors.
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Invest time to build your professional networks. Different perspectives can help evolve your strategic thinking and help to highlight potential opportunities, issues and risks in your planned direction.
While it’s easy to see how a lack of time to plan could be improved with better delegation, the stickier issue is the attitude of those business decision-makers who don’t value planning in the first place. The research tells us this is because they’ve been burned by derailed plans or see long-term planning as simply too long-term to bother with, given the operating environment’s volatility.
ACTIONS YOU CAN TAKE:
OF PLANNING.SPENDWISHRESPONDENTSTHEYCOULDMORETIME68% ISSUE20221203
Take time out to set a clear vision and plan for your business. Involve your people in creating your vision to achieve a shared understanding and commitment to achieving the plan. Utilise their front line knowledge to identify opportunities and solve problems within the plan.
Create systems and processes to streamline decision making and operations to free up time to for leaders to focus on strategy and planning.
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INSIGHTS FOR BUSINESS
TOBATTLETHEFIND&KEEPGREATSTAFF
THE BATTLE TO FIND AND KEEP GREAT STAFF
Given the still parlous state of net immigration flows (recovering but far below pre-pandemic levels) we estimate it will take some time before the labour force expands enough to put downward pressure on wages. In the current situation worker bargaining power is at elevated levels relative to recent history with the underutilisation rate (a measure of unemployment plus underemployment) sitting at levels last seen in the early 1980s. This will add to wage pressure in the near term with a tighter labour market tending to predict accelerating wage growth.
We would suggest that businesses be prepared to measure the cost of investing in their staff (their human capital) and weigh this against the value of future growth those workers are needed for. It is not a situation we expect to improve in the short term.
THE PUSH AND PULL OF HIGH STAFF TURNOVER
As much as 52% of mid-market businesses have seen an increase in staff turnover, and only 20% have seen a decrease. Respondents say the main factors for the increase are poor work-life balance (38%), lack of opportunity (30%) and workplace culture (27%), while staff are also being pulled by higher compensation (44%) and flexibility (34%) offered by other companies.
“ I have not experienced the ‘wage stagnation’ that is supposed to be happening in the economy. We pay really well, but many in the industry are jumping around for better pay.
AVI PITCHERLITHORUBENSTEIN,SUPERPAK,PARTNERS' CLIENT 13
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lmost every industry is facing staffing shortages. Respondents said they had challenges with attracting the right staff (49%) and/or retaining good staff (48%).
Businesses rate high-quality talent as the second most important driver of their success and 31% of respondents said labour and staff shortages were negatively impacting their business confidence. This is second only to the related pandemic at 37%, with retaining talent (22%) as the fifth biggest impact factor on business confidence.
MAKING DO WITH WHAT THEY HAVE
Businesses are working around these challenges with inventive solutions. For example, 58% said they’ve considered outsourcing, while others have refocused on upskilling existing or less experienced staff (56%). 60% of respondents have changed their recruitment practices employing staff they wouldn’t have hired previously.
REWARD EMPLOYEESRECOGNISEAND 35 % OFFER FLEXIBILITY 37 % WORK-LIFEPRIORITISEBALANCE 32 % MONITORENGAGEMENTEMPLOYEE 30% DEVELOP CAREER PATHS AND OPPORTUNITIES TO GROW 27 % ISSUE20220314
STEPS TAKEN TO ADDRESS INCREASED TURNOVER
Whatever the causes, staff shortages and higher turnover are also directly impacting the bottom line, customers and growth. 45% of our decisionmakers say higher staff turnover is negatively impacting that hard-to-measure but all-important morale and business culture. However, there are also obvious and direct commercial implications with mid-market respondents delivering poorer customer outcomes from the disrupted workflow (42%) and covering increased HR costs (39%) – both of which will have an impact on profit margins. Perhaps most significant is that staffing shortages and high turnover are stagnating growth for nearly half of all Australian mid-market businesses. 46% of those businesses with increased staff turnover say that they’re unable to expand because of staff shortages.
91% of respondents have taken at least one step towards improving staff retention. Offering flexibility and prioritising work-life balance are the steps seen as being most successful.
HOLDING BACK PROFIT AND GROWTH
This issue, therefore, is fundamental, and best solved holistically – retention and attraction are two sides of the same coin. Businesses must look at both the practical – ease of processes, efficiency, how domain knowledge is captured and accessed, remuneration and working conditions, for example – and the intangibles of a supportive, positive culture, attractive values and an inspiring mission all of which is driven by strong leadership.
THE BATTLE TO FIND AND KEEP GREAT STAFF
On the opposite end of the spectrum, we’re likely to see compounding negative outcomes – poor culture and processes will see more people leave, making it harder to attract new staff and offering little room for upskilling less experienced people.
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As is often the case with challenging times, managing staff shortages will likely separate weaker businesses from the rest. Those with strong, positive cultures and established processes will find they have lower staff turnover, can more easily attract good people and are also better able to train and support inexperienced staff.
INSIGHTS FOR BUSINESS
Drive business efficiency which may allow you to do more with less.
There is no scope for inefficiency in times of worker shortages. Targeting effort may also result in a happier workforce because efforts are valued and recognised making all stakeholders happy.
Support your employees’ wellbeing . Consider programs to build connection, create a culture of open communication and build a positive and resilient mindset.
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Track and measure your culture with regular employee engagement surveys to identify pain points and issues in the employee experience. Build initiatives to address the pain points and gaps in expectation.
Use automation tools to replace the mundane parts of people roles. In doing so free them up to do more value add / roles that they find more rewarding.
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Consider the use of staff digital journeys in support of your EVP/employer brand.
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Ensure employees are working in the most effective manner
Build a strong employee value proposition (EVP) based around the type of employees you want to attract and what you’re able to deliver. Be clear about where your value lies, you’re unlikely to be able to compete on all elements of remuneration and benefits, so invest in and promote those most important for your business.
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Work to operationalise any new ways of working –make sure people understand what technologies are available to them and how to use them.
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Ensure your remuneration profile is competitive.
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ACTIONS YOU CAN TAKE:
Use technology platforms to measure and track engagement and well being to ensure you are living up to your EVP.
Provide clearly defined career pathways supported by effective learning and development programs to help your people achieve their goals and career aspiration, at the same time as addressing the skills shortage within the business.
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&PERCEPTIONSTHEADVANTAGESOFFLEXIBLEWORK 17
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FLEXIBLE WORK HAS GROWN THROUGH COVID, BUT STILL
THE MINORITY. ⊲ n Working completely from the office (no working from home) n Almost always in the office, but with working from home permitted from time-to-time (on a case by case basis) n Some working from home allowed, but mostly in the office n Mainly working from home with minimum days in the office n Employees can pick and choose when they want to work from home or the office n Completely working from home WHICH OF THESE BEST DESCRIBES YOUR PRE-COVID AND CURRENT WORKPLACE ARRANGEMENT? PRE-COVID 22%33%21%15%3%6%Traditional ArrangementsWork 76% TOTAL Flexible ArrangementsWork 24% TOTAL CURRENT 28%18%19%22%5%7% Traditional ArrangementsWork 65% TOTAL Flexible ArrangementsWork 35% TOTAL ISSUE20220318
he changing face of work has been much chewed over since office workers were sent home to their dining tables and bedrooms at the height of the pandemic. Businesses that had resisted flexible working were suddenly forced to have staff working remotely, and many found that it worked well, or at least adequately.
For the purposes of this research, we defined flexible work arrangements (FWA) as employees working completely or mainly from home and/or being able to choose when they work at home or in the office. Traditional work arrangements (TWA) are when employees always or mostly work in the office, with working from home either not permitted at all, or only case by case. REMAINS
THE PERCEPTIONS AND ADVANTAGES OF FLEXIBLE WORK 25%33%33%38%40%43%48%PRODUCTIVITYGREATER 40%
TWA businesses showed a slight edge over FWA in staff engagement (38% vs 34%) and communication (33% vs 28%), although these differences are not wide enough to be considered statistically significant.
WHAT ARE THE BENEFITS OF FLEXIBLE WORK (FWAARRANGEMENTS?vsTWA) n Flexible work arrangement n Traditional work arrangement GREATER RETENTIONSTAFF 30% RECRUITMENTBARRIERSGEOGRAPHICREDUCEDFOR 15% OVERHEADSCHEAPER 18% ENGAGEMENTSTAFF 34%38% ATTRACT THE RIGHT STAFF 22% COMMUNICATIONBETTER 28% POOLEMPLOYMENTWIDER 15% OR 19
THE B ENEFITS OF FLEXIBILITY
Businesses with staff that work flexibly and those with traditional working arrangements both perceive that the models work well for them, indicating that either can work. However, it appears that FWA businesses believe their arrangement is working better; FWA businesses show 10% more confidence and rate the benefits of their model more highly. For example, 48% of FWA businesses say they benefit from greater productivity, compared with 40% for TWA businesses.
That pattern continues with FWA seen as delivering greater staff retention (43% vs 30%), reduced geographic barriers to recruitment (40% vs 15%), cheaper overheads (38% vs 18%), attracting the right staff (33% vs 22%) and a wider employee pool (25% vs 15%).
These results reflect perceived rather than actual outcomes for the businesses. Although one can expect these to be somewhat aligned, there are factors which may distort the perception vs reality of flexible work productivity.
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BUSINESSES ABLE TO WORK FLEXIBLY
WHAT FLEXIBLE INARRANGEMENTSWORKMEANPRACTICE
59% OF BUSINESSES LETTING EMPLOYEES PICK AND CHOOSE WHEN THEY WANT TO WORK FROM HOME OR THE OFFICE HAD MORE SUCHARRANGEMENTSTRADITIONALPRE-COVIDAS
ISSUE20220320
Businesses with a more flexible arrangement are more likely to have made a change to this model since or during the height of COVID. As a matter of human behaviour, it’s possible that the higher positive sentiment towards FWA reflects (to some extent) their desire to confirm their own strategic decisions.
WORKING COMPLETELY FROM THE OFFICE
POST-RATIONALISATION
Work flexibility is not just a matter of discretion of the managers or owners; there are simply some businesses that cannot allow their people to work flexibly. Workplaces that remain strictly at the business’ location tend to be those with bricks and mortar premises, such as retail, hospitality or manufacturing. Flexible businesses tend to be newer, operating online or via e-commerce, consisting of a large volume of processing-type work and providing professional services.
SOME WORKING FROM HOME ALLOWED, BUT MOSTLY IN THE OFFICE
23 1422%%%
While the story for flexible work seems positive at first glance, it may hide a more nuanced reality influenced by the following factors.
ALMOST ALWAYS IN THE OFFICE
We define flexible work as ‘mainly working from home with minimum days in the office’ or ‘employees picking and choosing their working arrangements’ or ‘completely working from home’. Of these complete flexibility (‘employees can pick and choose…’) is the smallest group before and after COVID (5%, only slightly larger than pre-COVID at 3%).
PERCEPTIONS VS REALITY
THE CHALLENGES OF FLEXIBILITY
The experiences of FWA are not positive in all respects and do come with their own challenges. For example, 37% of FWA businesses see integrating new staff as a challenge, compared with only 23% in TWA. Diluting the workplace culture is also more of a challenge for FWA businesses (35% vs 21%) as is reduced collaboration (33% vs 23%) and data security (24% vs 15%).
OF FLEXIBLE WORK ARRANGEMENTS? (FWA vs working completely from the office) n Flexible work arrangement n Working completely from the office NO BENEFITS AT ALL 36% 1%18%21% 21
WHAT THE CHALLENGES ARRANGEMENTS?
Along similar lines, compared to FWA decisionmakers, those operating completely from the office overestimate the perceived challenges flexible work has on productivity (37% vs 22%) and quality of work (49% vs 17%). Interestingly, they underestimate the challenge of integrating new staff (23% vs 37%).
ARE
ARE
OF FLEXIBLE WORK
Despite the benefits that some decision-makers see in FWA, those working completely from the office are less likely to expect the benefits of flexible work, particularly in the areas of productivity, morale and retention. Over a third of those businesses do not perceive any benefits at all in switching to more flexible arrangements.
PERCEIVED OVERESTIMATEDCHALLENGES:
These are not insignificant areas for mid-market businesses. Workplace culture, team connectedness and collaboration are key components of innovative workplaces. Also, despite flexibility being perceived as a remedy for challenges with hiring and retention – onboarding and workplace culture appear to suffer. In some instances this is causing the 'essence' of a business to change, meaning the current business is not the same as it was pre-COVID. This could lead to longer term issues requiring pro-active management for businesses to continue to meet their objectives and customer needs.
(FWA vs TWA) OFINTEGRATIONNEWSTAFF 37% 23% COLLABORATIONREDUCED 23%33% DILUTION OF CULTURE 21% SECURITYDATA 15%24%
PERCEIVED UNDERESTIMATEDBENEFITS:
THE PERCEPTIONS AND ADVANTAGES OF FLEXIBLE WORK 35% STAFFINCREASEDMORALE 44% GREATER RETENTIONSTAFF 22% 43% PRODUCTIVITYGREATER 48% n Flexible work arrangement n Traditional work arrangement
New research and data continues to be made available and a deep dive into particular industries or business models could provide valuable insights in the future. So watch this space
WHAT THE PERCEIVED BENEFITS
How will monitoring and measuring performance be achieved?
How will culture be managed?
Businesses that have leaped into flexible work are seeing more benefit than their TWA counterparts and consider the accompanying challenges as far less.
When these questions have been answered, its important to develop a clear communication strategy to set exceptions with staff.
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Document and develop programs to showcase your culture and values to your people. Ensure your leadership team role model the behaviours.
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Review your cybersecurity systems and training to ensure the increased risk of remote working arrangements is minimised.
ACTIONS YOU CAN TAKE:
Build a structured onboarding process to ensure new starters understand the culture and values, create connections across the business and are provided with the right technical and systems training to set them up for success.
For those businesses able to move along this continuum, it is important to ensure that this is clearly defined to suit your organisation:
INSIGHTS FOR BUSINESS
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Key factors seen as creating higher staff turnover were poor work-life balance, poor workplace culture and the offer of better flexibility elsewhere.
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It is also important that the potential downsides of FWA are monitored and minimised:
What requirements will there be on managers to ensure continued connection with direct reports and the team?
Post-pandemic staff shortages and changing expectations of workers mean offering this flexibility is becoming more urgent, especially when taken alongside our findings around retention and attraction.
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Develop mechanisms to measure productivity and track over time to be alerted to and manage potential declines.
All of these factors are linked and could, in part, be solved by shifting along the broad continuum from traditional towards flexible working arrangements.
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Will there be set days in the office? minimum number of days?
CYBERSECURITYINNOVATIONTECHNOLOGY,& TECHNOLOGY, INNOVATION AND CYBERSECURITY 20% of our inrespondent’sthatandacceleratedmainlythebusinesspositiveCOVIDrespondentsmid-marketidentifiedashavingaimpactontheirconfidence,thirdlargestfactor,duetohowitinnovationchange.Weseeplayoutinourinvestmentinnovationinitiatives. 23
All mid-market businesses see investment in technology as vital, but is rated more highly
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n average, respondents report having recently invested in multiple types of innovation initiatives. These go further than bringing on or developing new technology: process improvements, product development, and innovation training or strategy, were all commonly adopted. But it’s technology that had the biggest uptake (44%) and is also the factor that correlates with business confidence.
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AGREE INVESTMENTTHAT STRATEGY.BUSINESSOFASPECTISTECHNOLOGYINAVITALTHEIR
AGREE INVESTMENTTHAT STRATEGY.BUSINESSOFASPECTISTECHNOLOGYINAVITALTHEIR TECHNOLOGY.TOSTAYINGISBUSINESSTHATAGREETHEIRNOTUPDATEWITH
TECHNOLOGY.TOSTAYINGISBUSINESSTHATAGREETHEIRNOTUPDATEWITH
INVESTMENT IN TECHNOLOGY BUILDS CONFIDENCE
by high-confidence businesses (89%) than lower confidence businesses (75%). Similarly, when asked if they thought their business wasn’t staying up to date with technology, more lower-confidence businesses agreed (46%) than higher-confidence businesses (33%). Investing in technology can also assist with automation, realising efficiencies and eliminating laborious, inefficient, or undesirable repetitive tasks. Automating, or making these tasks more efficient, could free up capacity to assist with the current labour constraints. This may also increase employee satisfaction and improve retention, particularly if the tasks are replaced with more fulfilling or valuable work. CONFIDENCE BUSINESSES
Undertake a maturity assessment to ensure you have the low hanging fruit covered.
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• Fear professional or industry embarrassment
Undertake a desk top exercise to consider how your business would respond to a cyber incident
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• Want to avoid the impact of all of the above on the bottom line
We have upgraded a bunch of our equipment and technology – this has included all of our office work and analytics existing in the cloud. However, now we need to think about how we keep that secure […] like how we have protocols for the shop floor – we need to think of our cloud that way.
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Increased business confidence aligns with increased confidence in cybersecurity, which on the surface could imply better preparation. However, there could be an element of overconfidence – with an assessment of risk based on optimism or not knowing all of the potential threats. It is important to engage experts to strengthen your organisation's cybersecurity defences.
Surprisingly, those who have experienced an attack don't take a significantly greater number of preventative steps than those who haven't.
Aligntogether.thebusiness
Just because they are an IT company doesn’t mean they have their cyber act
Lower confidence businesses feel more exposed – confidence in being protected from cyberattacks increases as business confidence increases.
• Worry about reputational or brand damage
A quarter of mid-market businesses say they have experienced a cyberattack of some kind, from low-level attacks like text message phishing to encryption or ransomware attacks. However, even if this one-in-four figure includes very low-level attacks, to many it will still seem high.
PREPARING FOR CYBERATTACK
• Assume it’s a one-off misfortune and unlikely to occur again
with a cyber maturity framework – Essential 8 is a great starting point.
Whilst a move to the cloud for a lot of people is the start of their transformation journey, it comes with risks. Completing a vendor assessment focused on where the data resides, who has access to it, and how they will respond in the event of an incident is imperative.
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Mid-market businesses mostly invested in technology around cloud-based software (42%) and data and analytics software (35%). Unsurprisingly, having more business operations in the cloud has come with an increased awareness of cybersecurity threats.
w
Cyber really is a people issue. It doesn’t cost much to educate your staff and increase their awareness.
2 Make sure you are using multifactor authentication.
Cyber insurance is getting harder to obtain especially if you don’t have the basics right. Its not a case of limiting how much you will be covered for, you simply won't be covered if you don't have the right frameworks in place.
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The reality is that the real number may be even higher – many mid-market businesses may be reluctant to speak up or seek help after a cyberattack because they:
• Worry their clients or investors will lose confidence in them
THE PERCEPTIONS AND ADVANTAGES OF FLEXIBLE WORK TECHNOLOGY, INNOVATION AND CYBERSECURITY
INSIGHTS FOR BUSINESS
ACTIONS YOU CAN TAKE:
AVI RUBINSTEIN, LITHO SUPERPAK, PITCHER PARTNERS' CLIENT
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PETER LAWRENCE, PARTNER, PITCHER PARTNERS NEWCASTLE
Thankfully, my client was able to contact the customer, and the bank and have the account frozen. My client eventually received the funds, however, it was a couple of months after they were originally anticipating payment. During this time, they had to fund the shortfall out of working capital, and rely on delaying payments to Simplecreditors.steps, such as calling suppliers to verify any change in bank account details, can prevent a lot of pain and disruption.”
“I recently had a client subject to serious cashflow constraints when a customer of theirs paid an invoice into an incorrect bank account. The customer received an email from a false account notifying the customer that the bank account details had changed. The customer did not verify the bank account details with my client prior to paying the invoice.
Radar 3.0 asked mid-market businesses how they were thinking about, implementing or reporting ESG (Environmental, Social and Governance) initiatives.
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Which
business’
Notably, over half of all respondents are planning (36%) or thinking about it (18%). We define ESG reporting to mean reporting practices that seek to manage the broader impact of the business on society and the environment as a whole.
(Compared
SURVEY QUESTION: Which of the following best describes your business’ use of ESG initiatives to improve business performance? of the folloW ing best describes your use of esg initiatives to improve business performance? to total sample)
ESG INITIATIVES
ESG INITIATIVES – A MATTER OF WHEN, NOT IF
After the rocky few years in business our respondents have had, perhaps it’s to be expected that only 18% have created and are reporting on initiatives surrounding ESG (environmental, social and governance) practices, with highconfidence businesses more likely to be in this group.
ANDIMPLEMENTINGREPORTING 18% ENGAGED PLANNINGAND 36 % NOT AWARE 22% AWARE BUT NOT TAKING ACTION 6 % THINKING ABOUT ESG IMPACT 18% ENVIRONMENTAL,SOCIAL&GOVERNANCE
SURVEY businessesconfidencetend more likely to ESG initiatives.
have implemented
Once implemented, the reported benefits from ESG initiatives are more business related. 50% said it reduced costs, 47% said it improved revenue and growth and 43% said it increased employee engagement.
YOUR
40 % 47% 20 % INITIATIVESENVIRONMENTALGOVERNANCEINITIATIVES INITIATIVESSOCIAL ISSUE20220328
OR CONSIDERED?
QUESTION: Which ESG initiatives has your business implemented or considered? High
WHICH ESG INITIATIVES HAS BUSINESS IMPLEMENTED
PERSONAL REASONS FOR BENEFITSADOPTION,FORBUSINESS
The reasons decision makers consider ESG in the first place are quite personal: community pressure (41%) or alignment with personal values (54%).
Environmental issues have the lowest adoption among businesses implementing and reporting ESG initiatives (20%), with much higher numbers for social initiatives (47%) and governance initiatives (40%). This is still a developing space within the mid-market and with a sample size of only n=30, we need to be wary of any conclusions taken from these results.
to be
Having an authentic and strong ESG framework is a not just a “feel good” piece; it can also be a great business development and talent attraction tool.
It’s not always clear what the future requirements are going to be in terms of the environmental compliance […] Once you have implemented one new thing, there is another and then another. It can be hard to know the true commitment up front.
AVI RUBINSTEIN, LITHO SUPERPAK, PITCHER PARTNERS' CLIENT
Most businesses already running ESG initiatives experience fewer challenges compared to benefits, businesses who are still considering adopting them are worried about increased cost, tracking the benefits and how they’ll respond to future standards and requirements.
JYOTIKA RANGEL, PARTNER, PITCHER PARTNERS, SYDNEY
ESG ADOPTION HELD BACK BY UNCERTAINTY
ESG INITIATIVES
Businesses can sometimes fear that starting the ESG process is, ‘writing a blank cheque’ for future regulations or standards.
I’ve seen a number of my clients and even our own practice become more attuned to the importance placed on an organisation’s purpose and ESG initiatives. Clients and staff are increasingly wanting to do business with organisations with values that align to theirs.
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INSIGHTS FOR BUSINESS
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Globallyactions.ESG is taking on increased prominence with some estimates suggesting assets invested in ESG strategies may reach $41 trillion by 2022 and $50 trillion by 2025, one third of total assets under management globally according to Bloomberg Intelligence4.
Promoting corporate responsibility and managing a company’s broader ESG impact are taking on increased importance across both public and private markets. This matters for businesses because:
GOVERNMENT INVOLVEMENT & ESG INITIATIVES 4.
With fast evolving community sentiment following fires, floods, health concerns with the pandemic, and a likely increase in federal and state regulations relating to ESG (the Modern Slavery Act being an example of this) it appears to be a matter of when, not if, mid-market businesses should step-up their
It can improve employee engagement and talent attraction. global-esg-assets-to-hit-50-trillion-by-2025https://m.bankingexchange.com/recent-articles/item/9103-
Currently ESG reporting is not mandatory for ASX listed companies, however, regulation is accelerating globally, trickling down through to mid-market businesses via sourcing and supply chain, access to finance, merger and acquisition and community and customer knowledge and expectations.
It can impair potential sale value in an exit strategy if a business has meaningful ESG risks, conversely it can increase a business value if it has meaningful strategies in place.
It can deliver differentiation in brand, products or services creating a competitive advantage.
It can spark customer alienation, hitting business sales and profits.
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• How does ESG align to the business’ purpose and strategy
If thinking about implementing ESG initiatives, businesses should consider:
How businesses approach ESG can be influenced by their personal beliefs (54%) or level of understanding and certainty in ESG factors. Less certain organisations can conduct a risk focused scan of their customer expectations, sourcing, supply chain and operating environment to assess the risk to the business of not adopting ESG factors.
• Which ESG initiatives will have the most significant impact (e.g. cost savings, risk mitigation, differentiation)
• What is the likely cost and benefit of implementation (financial and non financial)
More mature organisations should be looking to consider how to generate value out of their ESG initiatives, whether that be to reduce costs by reducing their energy or resource costs, more effectively engage their employees through social or environmental initiatives or growing their customer base through promoting their ESG initiatives to become more appealing to consumers that value this.
ESG is no different to what Pitcher Partners already sees at the core of most mid-market businesses strategy and practices, underpinning the trust they built.
• What mechanisms need to be in place to monitor and report (e g. tracking sentiment)
• Governance is about controls and procedures, compliance and effective decision making.
• Social factors are about the community they serve, their customers, reputation, or their people.
Mid-market businesses have typically worked hard over years and decades building trust with their community and stakeholders, and they don’t want to undo that good work by misjudging important shifts in expectations.
• Environmental factors are about being efficient in the use and costs of resources.
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• What additional capability is required to deliver the ESG approach
• The risk of not implementing ESG (e g. sales, contract renewal, access to finance)
6INDEPENDENTMEMBERFIRMSPARTNERS140+ PEOPLE1300+
PITCHER PARTNERS – MAKING BUSINESS PERSONAL 33
T
hat’s why Pitcher Partners takes the time to understand our clients’ needs, with personalised service and advice to help them achieve their goals.
BUSINESSMAKING PERSONAL
It’s part of what has made us the leading accounting and advisory firm for the mid-market in Australia, across privately-owned, government-owned and not-for-profit organisations. With access to the resources and depth of expertise of a major firm, and the highest level of personal service and attention, our clients get the best of both.
Business is personal –it’s run by people, after all.
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Nigel Fischer Managing Partner p. +61 7 3222 8437 e. nfischer @pitcher.com.au Making business personal pitcher.com.au Adelaide Brisbane Melbourne Newcastle Perth Sydney Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Brett Headrick Partner p. +61 7 3222 8444 e. bheadrick@pitcher.com.au Cole Wilkinson Partner p. +61 7 3222 8444 e. cwilkinson @pitcher.com.au James Field Partner p. +61 7 3222 8444 e. jfield @pitcher.com.au Jeremy Jones Partner p. +61 7 3222 8444 e. jjones @pitcher.com.au Kylie Lamprecht Partner p. +61 7 3222 8437 e. klamprecht@pitcher.com.au Peter Camenzuli Partner p. +61 7 3222 8437 e. pcamenzuli @pitcher.com.au Karen Levine Partner p. +61 7 3222 8389 e. klevine @pitcher.com.au
