Australian CEOs transcend short-term uncertainties with a marked increase in confidence in economic prospects and widespread plans to hire more staff, while navigating the challenges of disruption and innovation, a KPMG CEO Outlook Study finds.
Australia’s chief executive officers are indicating a striking rise in confidence in domestic and global economic prospects for the next 3 years, and crucially, expect to increase hiring and profits more markedly than their counterparts overseas.
In KPMG’s 2015 CEO Outlook Study, which presents insights into the coming 3 years for large businesses around the world, a substantial 85 percent of Australian CEOs expressed greater confidence in their country’s 3-year growth prospects compared with last year, with almost half the respondents saying they are 'significantly more confident'. Seventy-three percent of Australian CEOs indicated a higher level of confidence in the global economic outlook and 85 percent plan to increase their organisation’s headcount through to 2018. Notably, the majority of Australian CEOs surveyed are in non-mining industries, where growth has only recently shown signs of a more convincing improvement after years of persistent weakness.
“The results demonstrate that Australian businesses are capitalising on a policy environment that has become more stimulatory this year. CEOs are seeing positive momentum in the years ahead,” said KPMG’s Australian Chairman, Peter Nash.
“The weaker Australian dollar and looser monetary and fiscal policy are home-grown forces supporting a lift in business initiatives and enthusiasm for the future. In addition, CEOs are taking their cues from the consistent improvement in US and global economic prospects.”
“Plans to increase headcount over a 3-year horizon are especially encouraging for sustained private sector growth and consumer spending. Notably, the confidence evident in this survey springs mostly from the non-mining sector, a sign that the current transition from mining to non-mining activity is set to continue in the years ahead. That is essential for Australia’s economic prosperity,” added Mr Nash.
Australian CEOs’ convictions about economic growth and hiring exceed those of their counterparts overseas. Globally, 61 percent of CEOs are more confident about their own country’s prospects, 62 percent are more confident about global economic growth and 78 percent expect to boost staff numbers, according to the study. Both CEO groups – Australian and global - nominated global economic growth as the issue having the biggest impact on their company today.
Faith in the economy begets greater optimism about company performance. Half of the Australian respondents expect that 2017 will be their most profitable year within the next 5 years, a more rapid achievement than CEOs globally who favoured 2018.
Prioritising clients, productivity and technology in a world of rapid change
Lifting productivity, keeping pace with shifting customer expectations, creating organically-driven growth and focusing on potential new growth in the domestic market are strong messages from Australian CEOs about their anticipated priorities. Seventy-seven percent view operational efficiency as vital to their company’s well-being in the next 3 years.
“Australian CEOs continue to work on eliminating the inefficiencies that had entered companies in the pre-crisis years and have focused on achieving cost efficiencies. A wide range of companies have upgraded their existing efficiency programs or implemented new programs, including new technologies,” said Mr Nash. “This should yield results in productivity and increase sales in coming years.”
Organic growth is expected to be the centrepiece of growth strategies over the next 3 years, according to 67 percent of Australian executives, with 27 per cent anticipating a split between organic growth and growth through acquisitions. Still, Australian CEO’s significantly outrank their international counterparts with regard to deal intentions, with almost double the level of expectations of growth stemming from mergers and acquisitions in the next 12 months as well as 3 years.
Top strategic priorities for Australian CEOs are: a stronger client focus, increasing cash flow, developing new growth strategies and reducing cost structures.
Understanding changing customer expectations is seen by Australian CEOs as their most critical challenge. Respondents noted that the customer-oriented areas of marketing and sales, as well as business models, are likely to undergo the most transformation over the next 3 years with the chief marketing officer expected to become a more important C-level function.
Significant capital will be deployed to the areas of internet and technology, the expansion of facilities, and advertising and marketing – vastly different to the investment intentions of CEOs globally where geographic expansion internationally was overwhelmingly ranked first, followed by expansion within their home countries. Australian leaders, by comparison, see their home market as offering the greatest potential for new growth, followed by India internationally.
Disruption and innovation
Heightened competition, rapid changes in the business environment, escalating cyber security risks and the need to adapt to maximise growth possibilities are among the primary concerns of Australian CEOs.
Notably, only 21 percent said they are very comfortable with their business models – a far smaller proportion than the 50 percent of CEOs globally – with a significant 71 percent saying they are just somewhat comfortable and 4 percent expressing discomfort.
When asked about future uncertainties, 85 percent expressed concern about the potential for new entrants to disrupt their business models. Sixty-eight percent were worried about the relevance of their products and services in 3 years’ time, 59 percent were concerned about keeping up to speed with new technologies and 74 percent noted concerns about customer loyalty.
“Australian CEOs are increasingly worried about the potential for disruption and disintermediation of their businesses. New entrants built on fast, scalable and pervasive technology platforms can win customer hearts and minds by delivering a better customer experience from anywhere in the world. This is the new paradigm all businesses need to deal with,” said James Mabbott, KPMG’s Head of Innovation Services.
While the survey demonstrates that Australian leaders are mindful of the need to adapt and innovate in order for their businesses to thrive, only 23 percent have a fully developed and implemented process for company-wide innovation, compared with 44 percent of CEOs globally. Budget constraints were cited as the primary barrier to innovation in Australia.
“Even more important than company-wide processes is the mindset and cultural attitude an organisation displays towards innovation. Lack of budget to support innovation suggests Australian business culture still has a ways to travel to fully embrace innovation and without funding to support innovation, topline revenue growth will be difficult to achieve,” added Mr Mabbott.
Only 15 percent of CEOs considered their companies to be leaders in using data and analytics to improve performance, compared with 38 percent globally. In 3 years’ time, 77 percent of Australian executives expect their companies to be largely the same organisation as it is today while 23 percent anticipate a transformation into an entirely different entity.
Risks related to emerging technology and information security are also a key concerns among Australia CEOs. Just 35 percent felt they are fully prepared for a cyber-event, versus 49 percent of executives globally, while 58 percent said they are ‘somewhat prepared’. However, plans are underway to fend off cyber breaches with 88 percent saying they have appointed a cyber security team – trumping their counterparts overseas where a comparatively slim 50 percent have taken such action – and 42 percent have upgraded current technologies.
Head of Communications, KPMG Australia
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