Workplace relations and Defence Industry growth | KPMG | AU
close
Share with your friends

Workplace relations: How Defence Industry can prepare for sustainable growth

Workplace relations and Defence Industry growth

Australia’s workplace relations system can impact efforts to grow a sovereign defence industry. As organisations gear up for growth they need to take a mature and holistic approach to employment relations to drive productivity, employee engagement and flexibility.

1000

Also on KPMG.com

Defence meeting

With its $200 billion investment in new Defence capability, the Government expects an employment outcome. Not just more jobs, but also the invigoration of a select sovereign defence industrial capabilities.

This vision, which is largely contained within the Government’s Defence Industrial Capability Plan, has many implications for both Australian business and foreign business looking to build their Australian footprint.

A key consideration for the industry is Australia’s workplace relations system. While there are several mature players in the defence industry, many still find that they are underprepared to navigate Australia’s workplace relations system and respond effectively.

The critical test case will be our sovereign shipbuilders, who will soon start work on the nation’s newest naval fleet as part of the Future Frigates Program.

In most cases, immediate steps are required to up-skill the business’ employment relations acumen beyond the traditional approach to Industrial Relations (IR). Failure to do so will mean unrealised productivity gains, poor employee engagement, a distracting trade union, and reputational damage.

Some key considerations to think about regarding workplace relations:

  1. To develop or align corporate culture and mission with workplace strategy.
  2. To up-skill employment relations acumen.
  3. To develop a whole-of-business understanding of the opportunities presented by a strong enterprise agreement and genuine employee engagement.
  4. To align the business on how to engage with trade unions.

Cost of labour and enterprise agreements

The Future Frigates and Offshore Patrol Vessels Programs are coming at an interesting time for the industry. The domestic manufacturing industry is in a state of flux, with several high profile manufacturers recently closing their operations. The biggest difficulty cited by these manufacturers has invariably been the cost of labour. Indeed, KPMG analysis shows that on an international basis, the hourly cost of labour is uncompetitively high relative to the final value achieved for the manufacturing output produced.

Over the last decade, Australia’s hourly labour costs have been increasing disproportionately to that of other countries, with our national minimum wage set at AU$18.93 per hour for the 2018-19 financial year. Compare that to Germany where the minimum wage is €8.84 (approximately AU$13.75) or the United States where the federal minimum wage is US$7.25 (approximately AU$9.80, though some US States do set slightly higher wages). Wage is but one factor when calculating relative competitiveness, but business cites it as important in this instance.

But the real cost of labour is in fact much higher than the minimum wage. This is particularly true in the manufacturing industry, where enterprise agreements reign supreme. Enterprise agreements invariably set higher rates of pay and other employee benefits, such as regular rostered days off, work stoppages for inclement weather and generous right of entry entitlements for trade unions. Layered on top of Australian shipbuilding’s low production management efficiency, we might expect lower performance compared to international peers.

Unsurprisingly, RAND Corporation’s publication “Australia’s Naval Shipbuilding Enterprise”, estimates that domestic production of naval ships in Australia carries a price premium of approximately 30 to 40 percent when compared with similar ships built abroad.

Conversely, robust enterprise agreements can also protect managerial prerogative and incorporate measures such as a broad spread of hours, flexible overtime, suitable supervision arrangements, banding of hours across multiple weeks, and reasonable allowances – all of which help boost productivity and flexibility. A whole-of-business understanding of the opportunities presented by a strong enterprise agreement, underpinned by a mature approach to employment relations, is critical.

Working with the trade union movement

One may think that the role of trade unions in Australia is shrinking into it insignificance. Indeed, data produced by the Australian Bureau of Statistics shows that national trade union membership has fallen from 50 percent in 1986 to below 15 percent in August 2016. However, the power of trade unions stems not only from the size of their membership pool, but from the mechanics of the workplace relations system itself. As a result, trade unions in Australia influence businesses, national policy and employee sentiment with a constant and highly effective undercurrent of power.

Examples of strong unionism are not hard to find. Whether it’s a public boycott organised by the Australian Manufacturing Workers’ Union (AMWU) or protected industrial action lead by the Maritime Union of Australia (MUA), the last few months has seen plenty of union muscle flexing.

Indeed, one only has to read the speech of Sally McManus, current Secretary of the Australian Council of Trade Unions (ACTU), at the National Press Club on 21 March 2018 to see that the trade union movement is “prepared to fight” for greater employee entitlements and security of employment.

The trick for employers, including our new shipbuilders, is to be prepared. Achieving internal business alignment on how to engage with trade unions is an important first step, and should be closely followed by proactive planning, war-gaming and the building of a strategic employment relations toolkit.

Productivity and flexibility

RAND Corporation predicts that Australia’s naval shipbuilding industry workforce requirements (based on Air Warfare Destroyer and the Future Frigates Programs only, not SEA1000) are expected to leap to record highs in 2030 before falling away dramatically.

Being able to flex the size of the workforce to meet operational requirements is critical. Just ask ASC, the Australian based naval ship building organisation, as it undertakes a six-week-long enterprise agreement consultation process to shed approximately 200 employees as the Air Warfare Destroyer project comes to an end.

But it’s not just the measures contained within the ink of the enterprise agreement that matter. The first step for any organisation is to look inwards to examine its values and consider whether it is always honest and transparent. Without these core qualities, everything else is merely window dressing. It has to be a partnership. With this foundation, robust employee relations strategies have the potential to help businesses enhance employee engagement and realise commercial objectives. In practice, this means dedicating time and energy to things like workforce culture, organisational values and internal communication.

The bottom line

Comparatively, the Australian workplace relations system provides strong employee protections and creates a platform for trade unions to exercise significant influence. Companies seeking to participate in the domestic defence industry will soon realise that complying with labour obligations and managing industrial stakeholders can be difficult.

As it stands many industry participants are underprepared and will likely suffer losses in terms of productivity, flexibility and employee engagement. Therefore, as the industry is gearing up, now is the opportune time to proactively develop holistic employment relations strategies that go beyond tradition IR.

Connect with us

 

Request for proposal

 

Submit