Managing in a Multi-speed Economy The Current State of Play 2011–2012
A study of Australian and New Zealand Business
Table of Contents
1
Overview
3
Annual Update
4
Foreword
5
Key Findings
6
2
Business Outlook
7
Growing unease about business conditions
8
Companies down grading growth forecasts
9
Decreasing confidence in the economy
10
Companies reducing staff‌ again
10
Rising costs placing upward pressure on prices
11
Innovation emerges as key strategic tool to meeting growth expectations
12
3
Challenges, Opportunities and Priorities
13
Leaders concerned about the economy and cost management
14
Skills development, customer service and productivity present opportunities
14
How have these key challenges and opportunities translated into management strategies?
15
The Ageing Workforce: On the agenda?
16
Carbon Tax concerns
16
4
Productivity, Business on Government
17
State of play on productivity
18
Business on Government
19
5
2
Research Methodology
21
Survey questions and demographics
22
About Newport Consulting
23
Disclaimer
23
Newport Consulting
1
Overview Annual Update Foreword Key Findings
September 2011 Š
Annual Update
An annual, up-to-date report on how business is tracking The Current State of Play is an annual analysis which measures business confidence, trends and management behaviour of both large companies and small and medium enterprises (SMEs) in Australia and New Zealand. The study was conceived in 2008, during the height of the global financial crisis and designed primarily to assess the ‘state of play’ of companies, as they emerged from the credit crisis and the subsequent economic downturn. This year’s report, Managing in a Multi-speed Economy (2011–12) – is the third in an annual series by Newport Consulting and follows Managing in Uncertain Times (2010–11) and Managing through a Downturn (2009–10). The report examines how confident companies are in these challenging economic times and asks: Is the outlook for companies more ‘cautious’ than last year? What are the key business strategies companies are adopting to remain competitive? What are the differences between SMEs and large companies in their approach to managing growth and, is productivity a critical business issue in the present climate? The report’s primary objectives are: • Track business confidence and expectations over the next 12–36 months • Report on management behaviour and identify trends between SMEs and large companies • Report on management behaviour and identify trends between Australian and New Zealand companies • Assess business sentiment towards Government policies and reform
4
Newport Consulting
Foreward
Newport Consulting is pleased to present the third Current State of Play report, Managing in a Multi-speed Economy. Since the report’s inception three years ago, there have been significant swings in the business community’s mood. In 2009, there was an upbeat and positive ambiance within the business community, particularly among Australian SMEs coming out of the GFC. Business leaders held a very optimistic outlook with bullish growth expectations, even though the rest of the world was in recession and struggling with difficult economic conditions. This was most likely because the possible collapse of the economy had been avoided. This positive and upbeat mood began to change last year; the 2010–11 report found companies less buoyant and more cautious in their economic and individual business outlook. Despite this however, a majority of companies still expected growth of at least between 10–20%. Very few companies expected difficult conditions or considered reducing staff. Instead, companies were conservative with their forecasts and opted to hire part-time, contractors or consultants, as opposed to hiring full-time staff. In 2011, there were 242 business leaders from Australia and New Zealand surveyed for this report, between 1 June and 31 July 2011, representing both large companies as well as SMEs. The results indicate a heightened sense of unease in the business community. There is a significant increase in the number of companies which expect zero growth this year and some companies are reducing staff. Further, businesses plan to increase prices this year, in reaction to ever escalating business costs.
The aim of Current State of Play is to not only accurately gauge business conditions, but in doing so drive business thinking towards what can be done in challenging times to survive and grow. It is encouraging to see innovation, via the development of new products or services, emerge as a key source of growth for the year ahead. Innovation, across all industry sectors in both Australia and New Zealand, is critical to growth, as is a renewed focus on productivity which is now firmly on the radar in both countries. It is, however, still associated with cost control management, as opposed to innovation and expansion. I’m sure this year’s report will ignite further discussion on the key business issues occupying the minds of organisational leaders and business owners in both Australia and New Zealand.
David Hand, Managing Director
The report indicates cracks are now appearing beneath the surface of Australia’s multi-speed economy, which, to date, has been largely free of the worst of the global economy’s turmoil. Despite increasing economic ties with Asia, business is not buoyant and all indicators highlight the fact that business is far less optimistic and more cautious than three years ago. The picture is the same for New Zealand.
September 2011 ©
5
Key Findings
•
There is heightened unease in the business community, with 26% of surveyed companies expecting difficult conditions in 2011–12, up 6% on last year.
•
Only 15% of Australian companies are very optimistic about their growth expectations. This has noticeably fallen from 39% last year.
•
•
•
•
6
Of the surveyed companies, 14% expect no growth at all this financial year, up 6% from last year. More companies are revising down their growth expectations, with 18% of surveyed companies expecting only 5% or less growth this financial year. This is up 10% on last year. Of the surveyed companies, 25% feel the economy is slowing – up 10% on last year. There has also been a decrease in the number of companies expecting the economy to grow.
•
Innovation has emerged as the way forward for companies to meet their growth expectations. A quarter of the survey’s respondents have identified new product or service development as a strategy to meet their forecasts.
•
Improved service and increasing market share are the next two highly ranked sources of growth for companies for the year ahead.
•
The state of the economy is the highest ranked challenge (53%) for business leaders. This is followed by cost management (51%) and recruitment and retention (44%).
•
Skills development (58%), customer satisfaction (58%) and productivity (51%) are the three most identified opportunities for the year ahead.
•
Productivity is on the agenda for business, however it is generally an area that lacks decisive and dedicated action.
Of the surveyed companies, 11% are reducing staff, up 8% on last year, indicating changing economic times.
Newport Consulting
2
Business Outlook Growing unease about business conditions Companies down grading growth forecasts Decreasing confidence in the economy Companies reducing staff‌ again Rising costs placing upward pressure on prices Innovation emerges as key strategic tool to meeting growth expectations
7
Business Outlook 2011–12
Growing unease about business conditions The resounding message from Australian and New Zealand companies is one of concern. There is a higher level of unease in the business community this year, compared to last year, as companies prepare for both immediate, and expected, tough business conditions. Data reflects this growing unease, with 26% of surveyed companies expecting difficult conditions in 2011–12, up 6% on last year’s figures (see figure 2.00).
Confidence in business growth over the next 12 months 2.00 All companies: 2011 vs 2010 26%
Face difficult conditions
20% 59%
Cautiously optimistic Very optimistic
37% 15% 44%
2011–2012 2010–2011
This is particularly true for Australian companies, with 28% of survey respondents expecting difficult business conditions, up 11% on last year (see figure 2.01). Only 15% of Australian companies are very optimistic about their growth expectations, a significant decrease of more than half from 39% last year. Australian companies which are cautiously optimistic have steadily increased by 13%, to 57%. This has been mirrored in New Zealand, where there has been a sharp fall in companies which are very optimistic with their economic outlook (27% down to 14%) and a 13% increase in the number of companies who are only cautiously optimistic. For SMEs, only 12% remain very optimistic about their growth expectations, down significantly from 33% in 2010–11. More than a quarter (29%) of SMEs expect difficult conditions, up 12% on last year. This indicates clearly that SMEs are feeling the pressures of the current economic climate more than their larger counterparts. A significant finding is the scale of the fall in SMEs’ optimism over the last two years.
2.01 Australian companies: 2011 vs 2010 28%
Face difficult conditions
17% 57%
Cautiously optimistic Very optimistic
44% 15% 39%
2011–2012 2010–2011
2.02 New Zealand companies: 2011 vs 2010 Face difficult conditions
14% 14% 72%
Cautiously optimistic Very optimistic
59% 14% 27%
2011–2012 2010–2011
2.03 SMEs: 2011 vs 2010 29%
Face difficult conditions
17% 60%
Cautiously optimistic Very optimistic
50% 12% 33%
2011–2012 2010–2011
Question: How confident are you about the growth and financial prospects of your company in the next 12 months?
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Newport Consulting
Business Outlook 2011–12
Companies down grading growth forecasts
Business growth expectations
There is a steep, downward trend in the amount by which companies expect to grow – a trend which has continued year-on-year since The Current State of Play reports commenced in 2009.
2.04 Growth expectations: year-on-year comparison
In the last 12 months, there has been a significant increase in the number of companies with far more conservative growth forecasts – 14% don’t expect any growth this financial year – more than double last year’s 6%. Only 4% of surveyed companies forecast growth of more than 50%, down from 16% last year and 21% in 2009, as shown in figure 2.04. Data suggests that close to a third of surveyed companies expect either no growth, or growth of less than 5% indicating a significantly more negative outlook than the previous two years. This year, it is not only large companies who are cautious with their outlook and growth expectations, as was the case in the previous two reports. In 2011–12, SMEs are far less optimistic with their growth expectations; only 5% of SMEs expect growth of more than 50% this financial year, down from 25% in 2010–11 and 17% expect no growth, up from only 4% last year. Those SMEs who were agile and nimble in their approach to surviving 2009’s downturn are now starting to struggle in the present economic environment as they finally succumb to rising cost pressures. In Australia, the Federal Governments’ proposed carbon tax has also left the SME business community feeling unsure, uneasy and unready. Business pundits and commentators attribute such policies to engendering a lack of confidence in the SME market and our data supports this.
More than 50% 10% to 50% 5% to 10% Less than 5% No growth 10%
30%
2011–2012
2010–2011
4% 32% 32% 18% 14%
16% 42% 28% 8% 6%
More than 50% 10% to 50% 5% to 10% Less than 5% No growth
50% 2008–2009 21% 55% 11% 5% 8%
2.05 SME growth expectation: 2011 vs 2010 More than 50%
5% 25% 31%
10% to 50%
39% 29%
5% to 10% Less than 5% No growth
22% 17% 10% 17% 4%
2011–2012 2010–2011
Question: How much do you expect sales revenue to grow in the next 12 months?
September 2011 ©
9
Business Outlook 2011–12
Decreasing confidence in the economy
Business on state of economy and employment
Another indicator which points to a restrained business outlook is the perception companies have on the economy.
2.06 Economic outlook: 2011 vs 2010
Of the surveyed companies, 43% feel that the economy will be stagnant, or slowing, in the next 12 months, an 11% increase on last year. This perception is common to both Australian and New Zealand, with many New Zealand companies shifting their position from the economy flat lining, to actually shrinking. This marks a major turnaround in the New Zealand outlook from last year, where the majority of New Zealand companies were optimistic. The data clearly indicates fewer companies believe the economy is growing. SMEs have completely reversed their outlook and large companies are far less optimistic than last year, when they were still upbeat about the economy. Companies are reducing staff... again There was a mixed response among survey respondents regarding employment, as there was last year. Certain sectors are hiring, while other areas are not, or are reducing staff. This could be explained by the mining boom in Australia, as 10% of survey respondents were from the resources sector. Last year, very few companies were reducing staff (3%), but this has increased dramatically to 11% of survey respondents, who report they will be reducing staff this financial year. The employment situation is further reinforced by the fact that of those respondents hiring staff (59%), more than a quarter are choosing part time staff, contractors or consultants, as opposed to full-time employees.
54%
Growing
65% 25%
Slowing
15% 18%
Stagnant Declining
17% 3% 3%
2011–2012 2010–2011
Question: Looking ahead for the next 3 years, how do you perceive the economy?
2.07 Employment outlook: 2011 vs 2010 Reducing staff
11% 3% 31%
Not hiring Hiring non-permanent staff Hiring full-time staff
35% 22% 25% 37% 37%
2011–2012 2010–2011
Question: Looking ahead for the next 12 months, what is your employment outlook?
Data suggests large companies are reducing staff and SMEs are hiring part time staff, contractors or consultants, or are not hiring. This has emerged as one of the key strategies SMEs are now adopting to navigate the challenging conditions. Rather than replacing full-time staff, they are looking to engage the part-time and/or contracted workers, or simply not replacing staff at all.
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Newport Consulting
Business Outlook 2011–12
Rising costs placing upward pressure on prices Rising business costs continue to place significant upward pressure on business and this has resulted in more companies (53%) increasing prices this financial year, up 8% on last year. Of the surveyed companies, only 44% plan to keep prices stable, down from 50% last year. The SME sector in particular is struggling under the rising cost pressures and is opting to pass these increased costs on to customers. Last year, the data suggested SMEs were managing to absorb the rising business costs. This year, without any indicator of costs easing, businesses are now passing this on via increased prices for their goods and services. This is particularly evident in New Zealand, where last year, a large majority (71%) of SME businesses choose to absorb rising input costs and not change their pricing. This has fallen to 53% this year, an 18% decrease – a sure sign of the tough conditions businesses are experiencing. Last year, companies focused on adopting a management strategy of customer acquisition (volume of sales), customer retention and increased efficiency as ways to combat increased business costs. The resounding message this year is companies can no longer resist increasing their prices in the face of escalating business costs, with a concerted swing to increasing prices. These responses, along with reducing business confidence, suggests economic growth will remain soft in the immediate future, particularly in New Zealand.
September 2011 ©
Pricing outlook 2.08 Selling prices: 2011 vs 2010 44%
No change
50% 53%
Increase Decrease
46% 3% 4%
2011–2012 2010–2011
2.09 New Zealand companies on selling prices: 2011 vs 2010 SME –
2011 2010
Large Company –
2011 2010
47%
53%
29%
71% 57% 60%
43% 33%
7%
Increase No Change Decrease
Question: What are your plans with selling prices for the next 12 months?
This poses the question: What strategies will companies adopt to maintain a positive contribution?
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Business Outlook 2011–12
Innovation emerges as key strategic tool to meeting growth expectations A quarter of the companies surveyed rated development of new products or services as the number one source of growth this financial year, suggesting that innovation has re-emerged for business leaders as a key part of their strategy for meeting forecasts. Interestingly, in previous years, new product and service development didn’t rank highly as a source of growth. In 2010–11 only 13% of surveyed companies rated new products and services as a source of business growth, compared to 25% this year. This renewed focus by business on product or services development poses key questions for companies to consider: • What is your go-to-market strategy and transactional business model for your new products or services? • Are staff engaged around new products or services and is your team aligned to new strategic direction? • How adequately trained is your sales force and do they have the right skills and capability to sell new products or services? • Are your operations aligned to your new products or services strategy?
Sources of growth 2.10 Where will growth come from: year-on-year comparison 25%
New product or service
13% 14% 18%
Improved service
14% 16% 16%
Increased sales with existing customers
14% 8% 12%
Increased market share
17% 14% 11%
New markets
8% 4% 7%
Increased sales via client acquisition
10% 12% 6%
Increased productivity
15% 25% 5%
M&A’s or JV’s
9% 7%
• What is your business strategy for realising this growth and are you operationally equipped to sustain it? Of the surveyed companies, 18% expect growth from improved customer service and 16% expect to grow via increased sales with existing customers – increasing share of wallet. Customer retention takes precedence over customer acquisition, with only 7% of companies expecting to grow through new customers compared to 16% who are focused on growing through repeat business. This suggests businesses are placing more effort on keeping customers through improved service and innovative products/services, with less focus on acquiring customers. This could reflect the struggles business face with the higher costs associated with acquiring new customers.
2011–2012 2010–2011 2008–2009
Question: Where will your growth come from?
Interestingly, while 85% of surveyed companies expect to improve productivity this year, only 6% see productivity as a source of growth, down from 15% last year and from 25% the year before. It appears business leaders still associate productivity with cost control management and not growth or increased sales revenue.
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Newport Consulting
3
Challenges, Opportunities and Priorities Leaders concerned about the economy and cost management Skills development, customer service and productivity present opportunities How have these key challenges and opportunities translated into management strategies? The Ageing Workforce: On the agenda? Carbon Tax concerns
September 2011 Š
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Challenges, Opportunities and Priorities
Leaders concerned about economy and cost management
Challenges and opportunities for business leaders
Organisational leaders and business owners rated a number of issues impacting business as either challenges, opportunities or not applicable or important to their operation.
3.00 Challenges and opportunities for the year ahead
The state of the economy was consistently rated as a key business challenge for more than half of the survey recipients (52%), indicating a possible second global financial crisis a very real concern for business. Only 22% of surveyed companies thought the economy presented opportunities for business – this was largely a view shared by the mining companies who participated in the survey. Cost management, the second highest ranked challenge for more than half of the survey’s respondents (51%), correlates to an earlier survey finding that rising business costs are hurting business and more companies are increasing their prices as a way to survive. It appears controlling increased business costs is part of this survival strategy. Recruitment and retention of staff who meet the business strategy was the major challenge last year, however it is ranked number three this year. It remains a recognised challenge, but one that has to be overcome – especially in the resources sector and those businesses providing services to resource companies. The slight fall in its ranking as a challenge, could be explained by companies not hiring or growing in certain sectors of the economy. This in turn creates a greater feeling of comfort around obtaining or retaining the right staff. Capital expenditure is a challenge for a majority of companies (42%) and this reflects the more conservative growth expectations companies have compared to the last two years. In 2011–12 companies are more wary about challenging economic times and scaling back growth plans and capital investment projects – apart from Australia’s mining sector. Credit availability is also not important or applicable for an overwhelming 58% of companies. This suggests companies are scaling back expenditure and indicates companies have not factored increased funding into their immediate plans. With the trend of revising down growth forecasts, companies are not actively seeking credit from financial institutions, as they don’t have the expansion plans they did two years ago.
14
Status of economy
52%
Cost management
51%
Recruitment & retention
42%
Ageing workforce
33%
Productivity
31%
Credit availability
31%
Sales growth
31%
Customer satisfaction
43%
13%
55% 51%
11%
23%
Environmental credibility
18% 58%
44%
25% 57%
54% 12%
22%
20% 30%
15%
23%
National disaster recovery
Innovation and R&D
26%
25%
Skills development
26%
29%
45%
Capital expenditure
Technology
22%
18% 23% 65%
35%
43%
21% 15%
50% 49%
29% 36%
Challenge Opportunity N/A
Question: What do you consider as your greatest opportunities and challenges for the next 12 months?
Skills development, customer service and productivity presents opportunities In terms of opportunities, skills development is the number one identified opportunity for 54% of organisational leaders and business owners. Companies recognise they need to improve the skill levels and capabilities of their existing staff through highly targeted and results-driven development programmes. The cost of recruitment has been offset against the cost of developing and training staff. Customer service and productivity are also highly identified opportunities for business in the year ahead. This further indicates companies are internally focused as a strategy to improve performance and profitability, while growing through better utilisation of existing resources. Improved service was the second highest ranked source of growth for companies for the year ahead and this corresponds with it being viewed as an opportunity area. This also indicates that in the fast-moving technological era, where online competition is high, customer service is one area where companies can differentiate themselves and stand out. It is a smart strategy to have and encouraging to see there is a trend for companies to view it this way.
Newport Consulting
Challenges, Opportunities and Priorities
Productivity remains a key focus for companies. This indicates that it is not only a macroeconomic issue but a microeconomic one as well. Australia’s poor performance in productivity growth has real meaning locally for survey respondents. The data also suggests that companies need to integrate action on productivity with key business objectives. They also need to realise not only improved service levels, but better use of human resources and greater staff satisfaction. Innovation and R&D is also largely seen as an opportunity (49%), which is not a surprise considering that innovation through new services and products was the highest ranked source of growth for the year ahead. It is encouraging to see business refocus on innovation and R&D as part of their management strategies for surviving these difficult times.
Priorities for business leaders 3.01 Business priorities: next 12 months Operational performance Cost control
50%
Productivity
50%
New markets or products
45%
Cash flow
45%
Skills development
27% 36% 41% 31% 36%
36%
Recruitment and retention
47%
35%
Organic growth
43%
32%
Ageing workforce
14%
Credit availability
14%
Growth via acquisition
How have these key challenges and opportunities translated into management strategies?
64%
9%
40% 28% 31%
18%
9% 14% 9% 24% 19% 18% 22% 28% 59% 55% 73%
Strong priority – not only on the agenda but has been assigned a dedicated action Somewhat of a priority – in focus but has not been assigned an action Not a priority – not on the agenda and no action is being taken
Organisational leaders and business owners rated a number of business priorities in terms of their importance over the next 12 months.
Question: What are your business strategy priorities for the next 12 months?
Operational performance is consistently rated a strong priority (64% of surveyed companies). This fits in with the decline in business confidence. When business is buoyant, operational inefficiency can be covered through good margins and volumes. As confidence declines, companies look to operational performance improvement as a way of eliminating preventable costs without reducing business activity.
This poses the question: How are companies planning to improve their operational performance? Do they have operational improvement targets in place; does their action plan include continuous improvement?
Cost control and management is also a strong priority for 50% of surveyed companies, as is productivity. The data indicates business is focusing on internal measures of operational performance, cost control management and productivity as part of their key management strategies for the year ahead. Business is concentrating on survival through improving its EBITDA essentially, through bottom line improvement; cost reduction and producing more with existing resources. Skills development, recruitment and retention, along with organic growth are priorities on the agenda but companies typically adopt an ad-hoc approach to addressing them. The good news is these key areas are on the agenda rather than not. The bad news is companies typically don’t have a dedicated plan to addressing these priorities. Growth via acquisition, credit availability and the ageing workforce were consistently rated as non-priorities by the surveyed Australian and New Zealand companies for the year ahead.
September 2011 ©
15
Challenges, Opportunities and Priorities
The Ageing Workforce: On the agenda? Interestingly, when the survey respondents were asked whether the ageing work force was a challenge, opportunity or not applicable to their business, a large majority of companies (55%, see figure 3.00) responded that it was not applicable to their business. This suggests that despite the discussion about the ageing workforce and the impact of this on business and the economy, it is still considered something for the future or is unrelated to specific businesses. This view may change over time as the true impact of the ageing workforce unfolds, for example, whether or not baby boomers decide to retire.
Issues impacting business 3.02 Strategies for an ageing workforce Not impacted
46%
Flexible work conditions
39%
Redundancies
5%
Recruitment and retention
4%
Outsourcing
3%
Mentoring and job share
3%
Question: Will the aging workforce impact your business over the next 3 years? If so, what strategies do you have in place or plan to adopt to manage this?
A further 59% (see figure 3.01) said that the ageing workforce is not on the business agenda for the year ahead and 46% said that their business is not impacted by an ageing workforce. For those companies who are impacted by an ageing workforce, 39% plan to offer flexible working conditions as a way of managing for the future. Offering flexible work conditions included working from home, working part-time and working flexible hours.
3.03 Impact of a carbon tax on business
As little as 5% of surveyed companies said an ageing workforce was an opportunity to make older workers redundant and 3% said they would outsource work previously conducted by older members of the workforce.
Question: It looks like a price on carbon is a future reality for business in Australia. What impact will this have on the business?
Only 3% of surveyed companies said they have a strategy of formal mentoring and job share programs to facilitate a transfer of knowledge and skills to younger members of staff. This is an innovative and forward thinking approach which should be considered by more companies as part of their future planning.
Low
46%
High
41%
No impact
13%
3.04 Plans for a low carbon economy Energy efficiency review
36%
Sustainability programs
13%
Workplace review
11%
Promote renewable energy
The Carbon Tax: A concern? There is a mixed response from Australian respondents on the carbon tax. The data indicates that there are more companies who feel the carbon tax will have a low impact rather than a high one on their business and there are still parts of the business community who don’t feel they will be impacted at all, suggesting there is still a degree of ambiguity around the tax. The key difference between large companies and SMEs in relation to the carbon tax is that a higher percentage of SMEs consider the tax will have no impact on their business, while a higher percentage of large companies consider the tax will have a high impact on their business. Energy efficiency reviews and program development was the highest rated strategy for the survey respondents. This raises the question to what extent do companies understand the full impact of the carbon tax on their business and how will they start to prepare for increasing input costs? 16
Carbon offset program
11% 8%
Emission reduction
6%
Purchase carbon offsets
4%
Promote work from home
4%
Carbon tracking technology
2%
Internal environment group
2%
Import more at lower cost
2%
Environmental design
2%
Question: Do you have any plans in place for a low carbon economy?
This poses the question: Are companies taking sufficient action to handle labour demands and flexible conditions when higher proportions of companies’ staff will retire in the coming years?
Newport Consulting
Challenges, Opportunities and Priorities
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Productivity, Business on Government State of play on productivity Business on Government
September 2011 Š
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The state of play on Productivity
Productivity is one of Australia and New Zealand’s looming challenges
So then, what are companies doing to be more productive?
It has been widely acknowledged that without productivity growth there can be no sustainable increase in the standards of living.
Improving the utilisation of existing resources is the highest ranked strategy to improve productivity in the year ahead. This was closely followed by identifying inefficiencies and hidden waste, and improving customer service.
In Australia, there is concern for the country’s true economic prospects beyond the end of the current ‘resources boom’, if the decline in the productivity growth performance is not reversed1. In New Zealand the terms of trade are less favourable than Australia, exposing its economy to a more pressing need to improve productivity in order to drive up real wages. Acknowledging the importance productivity plays in business, a dedicated section of last year’s survey examined what companies are doing about productivity. The productivity section revealed that both Australian and New Zealand companies were grappling with productivity as part of their management strategy but that increased productivity was rated as the third source of growth for Australian companies and the second source of growth for New Zealand companies in 2010–11. However, when asked to define productivity, 37% of Australian companies and 62% of New Zealand companies did not know how. This year, the majority of companies surveyed (85%) are adamant they will be more productive in the year ahead. However, only 5% cited productivity as a key source of growth for 2011–12, significantly down from 15% last year and 25% in 2009. This indicates that while productivity appears to be high on the agenda, in reality it is still undervalued by management and business owners as a key business strategy. This is further reinforced by only 41% of companies having productivity listed as somewhat of a priority, meaning it is a focus area however there has been no action assigned to addressing it. And while, 51% of surveyed companies see productivity as an opportunity for their business, 31% see it as a challenge to achieve. When comparing large companies and SMEs, data suggests that productivity is higher on the agenda for large companies with 9% of SMEs not expecting any productivity improvement at all in the year ahead compared to only 4% of large companies.
Recruitment strategies and investing in R&D appear to be a low priority strategy in driving productivity. These responses suggest that respondents are running out of ideas where they can tighten their belts. Whereas in previous surveys improvements to productivity indicated they believed they could do more internally to meet their customers’ expectations profitability, they do not see this possibility as much in 2011. Productivity improvements and strategies 4.00 Expected productivity improvement over the next 12 months More productive No change Less productive
85% 13% 2%
Question: How optimistic are you about productivity improvement over the next 3 years?
4.01 What companies are doing to improve productivity Utilise existing resources
79%
Identify inefficiencies
67%
Improve customer service
59%
Invest in technology
54%
Training and development
54%
Improve quality
46%
Recruitment strategies Invest in R&D
29% 19%
Question: What is your company planning to do to improve productivity in the next 12 months?
This poses the question: What market conditions will cause Executive Management to focus on productivity to improve performance and growth?
1 Eslake, S and Walsh M, 2011, Australia’s Productivity Challenge, Grattan Institute, Melbourne. 18
Newport Consulting
Business on Government
Business continues to be uncertain of the Government and its policies and reform agenda There has been a slight increase (2%) in Australian companies that think the government has undertaken some key initiatives that support business, but still needs to do more. The picture is vastly different in New Zealand. Last year, companies were far more positive about their Government’s impact on business. Whereas only 7% of New Zealand companies felt that the Government had worked against them, this has increased to 21% this year.
Business on Government 4.02 Government support for business: year-on-year comparison 41%
No, working against
43% 31% 50%
Some action, need more
48% 55% 9%
Yes, beneficial action
9% 15%
Of the surveyed New Zealand companies, now only 7%, down significantly from 34% last year, rate the Government as having introduced beneficial initiatives which have helped business over the last 12 months. It appears New Zealand business have altered their views on the effectiveness of Government in the last 12 months. Last year the report concluded that New Zealand’s Government was getting it right with business, possibly explained by active engagement and tax policy, while the Australian Government had some way to go. This year’s data paints a different picture. Organisational leaders and business owners were asked to name the Government initiatives which have, or will have, the most impact (positive or negative) on their business. The question was open-ended and the responses were categorised as part of the analysis.
2011–2012 2010–2011 2008–2009
4.03 New Zealand government and business: 2011 vs 2010 No, working against
21% 7% 72%
Some action, need more Yes, beneficial action
59% 7% 34%
2011–2012 2010–2011
Question: Is the Federal/Central Government actively supporting business through their policies?
In New Zealand, businesses rated increased red tape and financial services regulation and reform as the key reasons for the fall in their support. Our data also suggests that Australian Government policies are negatively impacting businesses which have operations in Australia but are head-quartered in New Zealand. Fair Work Australia and the carbon tax are the top two initiatives which are having a negative impact.
September 2011 ©
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Business on Government
In Australia last year, it was the introduction of the mining tax which rattled the business community and influenced their view of the Government. While this year the mining tax still rates highly, it is the newly introduced carbon tax which by a huge margin is viewed as the biggest threat to business growth. The government has failed to convince business that there are benefits for them in the introduction of this tax. Interestingly, the data also suggests that the ‘Fair Work Australia’ legislation continues to rate highly as a Government initiative which is not business friendly. The inflexibility of the legislation continues to hurt companies, as they continue to adjust to challenging economic times. On a more positive note, increased government spending and Skills for Growth are the two most highly rated Government initiatives which have been well received by business.
Business on Government 4.04 Policies with negative impact: Australia vs New Zealand 33%
Carbon tax
15% 11%
Budget cuts
8% 9%
Other
8% 9%
Fair Work Australia Mining tax Financial services reform General tax increases Interest rates
15% 7% – 5% 15% 5% – 4% 8%
Health services reform
4% –
National Disaster recovery
4% –
Small business overlooked NBN Red tape
3% 8% 3% 8% 1% 15%
Australia New Zealand
Question: What is the Government initiative that has had the most impact on your business?
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Research Methodology Survey questions and demographics About Newport Consulting Disclaimer
September 2011 Š
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Research methodology
Survey questions and demographics Current State of Play results are based on responses from an online survey canvassing the thoughts and views of SMEs and large companies in both Australia and New Zealand, across a range of business issues. The survey was conducted between 1 June and 31 July 2011 and included questions on business confidence and productivity, as well as covering business expectations for the next twelve months, ending June 2012. The report outlines the findings of each of the questions asked in the survey and presents these in three broad sections: • Business Outlook 2011–12 • Challenges, opportunities and priorities • Productivity and Business on Government Survey participants can be broken down according to the graphs to the left. Survey questions included: 1. How confident are you about the growth and financial prospects in the next 12 months? 2. How much do you expect sales revenue to grow by in the next 12 months? 3. Where will your growth come from?
Demographic breakdown 5.00 Industry Sector 18% Business and professional services 16% Government
9% 9% 9% 8% 8% 7%
Manufacturing Banking, insurance and finance Resources (mining, oil and gas) Retail and wholesale Construction and property Hospitality and Tourism
13% Health, 13% Transport, sport and logistics education and utilities
5.01 Employees
11% 50 to 200
5.02 Revenue 11% $500 mil to $1 bil
8% 10 to 50 29% 1 to 10
17% 2000 Plus 17% 500 to 2000
18% 200 to 500
12% More than $1 billion 13% $5 to $50 million
13% $1 to $5 million
29% $50 to $500 million
23% Under $1 million
4. Looking ahead for the next 3 years, how do you perceive the economy? 5. What is your employment outlook for the next 12 months? 6. What are your plans with selling prices for the next 12 months? 7. What are your business strategy priorities for the next 12 months? 8. What do you consider as your greatest opportunities and challenges for the next 12 months? 9. Will the ageing workforce impact your business over the next 3 years? If so, what strategies do you plan to adopt to manage this? 10. A price on carbon is a future reality for business in Australia. What impact will this have on the business?
5.03 Company Type 10% Non for Profit 12% Government 49% Private 28% Listed Company
5.05 Region
11. Do you have any plans in place for a low carbon economy? 12. Define productivity 13. How optimistic are you about productivity improvement over the next 3 years? 14. What is your company planning to do to improve productivity in the next 12 months? 15. Is the Federal/Central Government actively supporting business through their policies? 16. Name the Government initiative that has had the most impact on your business? 22
5.04 Company Size
18% New Zealand
82% Australia
48% SME
52% Large Company
About Newport Consulting Newport Consulting is an operational management consultancy which helps companies to achieve operational excellence through aligning and optimising existing resources to achieve tangible, consistent and measurable business performance. Newport provides experienced and talented experts to work closely with companies to create sustainable and measurable business improvement.
Please note: The data reported in this paper is based on the responses of the companies which participated in our survey. Percentages are representative of the survey sample. Some percentages may not add up to 100% due to rounding. Large companies are defined as companies with more than 100 employees in Australia and more than 20 employees in New Zealand. SMEs are defined as companies with between 1 and 99 employees in Australia and up to 20 employees in New Zealand. Any reproduction of this material must credit Newport Consulting. For more information regarding the research please contact Gemma Manning at Manning & Co. +61 2 9555 5233 or gemma@manningandco.com.au If you are an executive or business owner and wish to register your interest in participating in future surveys, please visit www.newportconsulting.com.au/business September 2011 Š
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