Australian CEOs are more confident about their companies’ growth prospects, but less optimistic on prospects for both their country’s and global economic fortunes than their overseas counterparts, according to a KPMG global study of CEOs.
KPMG International today released its 2017 Global CEO Outlook based on indepth interviews with nearly 1300 CEOs of some of the world’s largest companies. The report provides insights of CEOs’ expectations for business growth, the challenges they face and their strategies to chart organisational success over the next 3 years.
65 percent of CEOs see disruptive forces as an opportunity, not a threat, for their business. By investing more in cognitive technologies and skilled labour CEOs are aiming to lead the market with the development of innovative products and new ways of doing business. Three in four (74 percent) say their business is aiming to be the disruptor in their sector.
“This year we see the CEO looking to be a disruptor, not the disrupted, harnessing uncertainty by challenging their own role to better lead their business to success,” said KPMG Australia CEO, Gary Wingrove. “CEOs are focusing on core strengths, but at the same time innovation and disruption remain key priorities for the future.”
KPMG’s study found that CEOs are disrupting or challenging their own role in order to better lead their business, with 70 percent of respondents taking steps to disrupt their role in the last 12 months.
CEOs are evolving their skills and personal qualities to better lead their businesses. 91 percent of Australian CEOs (compared to 70 percent globally) say they are more open to new influences and collaborations than at any other point in their career. 61 percent of Australian CEOs (compared to 45 percent globally) believe their emotional intelligence is as important as their technical skills.
Mr Wingrove added: “It’s an opportune time for CEOs to rethink what they stand for. In the space of a year, the world has become a far more complicated place – economically, geopolitically and technologically. This complexity and uncertainty breeds opportunity, to which leaders must respond.”
70 percent of Australian CEOs and 41 percent of global CEOs said they were confident they would achieve 2-5 percent top line growth in their own organisations over next 3 years. “This is a big shift in mood from last year’s report which showed 43 percent in Australia, and 48 percent globally believed they would achieve this growth,” said Mr Wingrove.
Two-thirds of Australian CEOs believed their company would increase headcount by up to 5 percent over the next 12 months, while almost a quarter said it would be between a 6-10 percent rise. This was considerably higher than their overseas counterparts, of which 40 percent believed their business’ headcount would not grow at all.
There was less certainty surrounding economic growth over the next 12 months, with only 2 percent of Australian respondents very confident of Australian economic growth. This was lower than the expectation of global CEOs, 30 percent of which were very confident of their own country’s growth.
Overseas CEOs were also more confident about the next 3 years of global economic growth. In total, 65 percent of global CEOs were confident of growth, compared to 43 percent of Australian CEOs.
“With 91 percent of Australian CEOs expecting their company to grow and a majority expecting an increase in headcount and recruitment investment, it seems possible that Australia’s stagnant wage growth may regain some momentum if these outlooks translate into a drop in unemployment,” commented KPMG Australia Chief Economist, Brendan Rynne.
CEOs expect to primarily focus investment in existing markets for the next 3 years, with less attention given to new international markets. These new geographic markets were only a high priority for 17 percent of Australian respondents and 21 percent of overseas CEOs. By comparison 67 percent of Australian CEOs saw home-market penetration as a high priority (compared to 53 percent of international respondents).
Mr Rynne also noted: “To the extent that Australia has ‘desynchronised’ from the global growth uplift, as recently suggested by an international investment bank, then adopting a largely domestic focused market strategy will limit business growth, and ultimately economic growth.”
The main geographical markets Australian CEOs are anticipating growth for their companies are Australia, Central Asia, Asia Pacific and then the UK.
Notably, more than 70 percent of Australian CEOs intend to use joint ventures and collaborative partnerships to execute their growth plans in new and local markets. This is in stark contrast to their global counterparts, at just 31 percent.
“This finding rings very true with me. We’ve adopted a deliberate, longer-term strategic approach for our own business, with a renewed focus on alliances as part of our growth strategy. Traditional acquisitions take a long time to identify, finalise and embed. Alliances with the right partners can provide quick access to new capability and new markets,” commented Mr Wingrove.
One of the most striking changes in this year’s study is the rise in the number of global CEOs citing reputational and brand risk as a current concern. This has become one of the top three most important risks they face today (out of 16 in total), after not featuring in the top 10 in 2016.
Reputational risk was perceived to have the greatest impact on business growth by 11 percent of global CEOs, surpassed only by global economic factors. This shrank to just 7 percent for Australian CEOs, with geopolitical and regulatory risks among the five more impactful threats.
Geopolitical uncertainty and regulatory changes are cited as the biggest threats to company growth, while half of all CEOs here and overseas expected protectionist policies in their country will increase. A majority said political uncertainty has had greater impact on their company in the past year than for many years – and a big majority of Australian CEOs (76 percent) are spending more time on ‘scenario planning’ as a result.
Nearly half of Australian CEOs believe the election of President Trump will have a negative effect on the global economy, a view shared by only 24 percent globally. The impact of Brexit had largely neutral responses.
On tax rates, most CEOs (54 percent Australia, 67 percent global) expected these to increase, while 41 percent of Australia CEOs thought they would remain roughly the same, and only 6 percent expected them to decrease.
Mr Rynne said: “The study reveals a heightened perception of geopolitical risk in Australia in 2017. To date, the market has had trouble pricing geopolitical disruptions. Binary outcomes such as a won or lost elections, the start or cessation of international conflict or success or failure of terrorist attacks have seen higher volatility in the market. Understanding the social implication of political and military events has proven too difficult to accurately predict how they translate into changes of economic behaviour.”
“On the effect of regulation, it is clear that most Australian CEOs are pessimistic on the chances of tax reductions. Given that our corporate tax rate is uncompetitive, it is a major concern that there seems little confidence of downward movement.”
52 percent of Australian CEOs said they were struggling to keep up with the pace of technological innovation in their sector, compared with 37 percent of global CEOs. Australian CEOs also had significantly greater expectation of a major disruption because of technology innovation (74 percent), compared to their global counterparts (48 percent).
In terms of investment aimed at boosting innovation over the past 12 months, 56 percent of Australian CEOs said they undertook either substantial or incremental investment in new products, services or ways of doing business, while 44 percent maintained current business needs.
Overall, the biggest areas of Australian investment were digital infrastructure (83 percent), cyber security (80 percent), followed by physical infrastructure (78 percent). Australian firms investing in technological innovation were most highly focused on Internet of things (IoT). 94 percent of Australian CEOs had a high level of IoT investment in the past 12 months, compared to 77 percent of global CEOs.
Contrary to the popular view, CEOs actually expect cognitive technologies to increase their business’ headcount in the immediate future. Attracting highly skilled talent is seen by CEOs as the top challenge in implementing cognitive technologies.
More generally, Australian CEOs expect headcount to continue growing, but to grow in lower numbers than in 2016. Last year 73 percent expected their number of employees to increase by more than 6 percent in the next 3 years. In 2017, 69 percent expect this level of growth.
67 percent of Australian CEOs believed their company would increase headcount by up to 5 percent over the next 12 months – compared with 39 percent globally. 24 percent of Australian CEOs said staffing levels would rise between 6-10 percent. This compared with 19 percent overseas.
Mr Wingrove commented: “It is very significant that most CEOs do not believe their high investment in tech solutions such as robotic process automation and cognitive technologies will lead to job cuts, as is often supposed. On the contrary, the majority of CEOs expected headcount growth into the future. Australia needs to grow the pie, not slice it in different portions.”
Around three quarters of global CEOs (74 percent) say their organisation is placing greater importance on trust, values and culture in order to sustain their long-term future.
More than 7 in 10 (72 percent) global CEOs correlate being a more empathetic organisation with higher earnings – this rises to 83 percent agreement for Australian CEOs.
Despite its perceived importance, two in three (65 percent) Australian and global CEOs believe that levels of trust in business will stay the same or decline, rather than improve in the next 3 years.
“There has been significant investment in regulatory compliance, risk and governance capacity, with more expected. While Australian CEOs are focusing on growth in the next 3 years, they are doing so with appropriate caution. This may help in boosting public trust in business,” concluded Mr Wingrove.
The survey covers 1,261 CEOs in 10 key markets (Australia, China, France, Germany, India, Italy, Japan, Spain, UK and US) and 11 key industry sectors (automotive, banking, infrastructure, insurance, investment management, life sciences, manufacturing, retail/consumer markets, technology, energy/utilities and telecom). A third of the companies surveyed have more than US$10 billion in annual revenue, with no responses from companies under US$500 million. The survey was conducted between 21 February and 11 April 2017.
There is an urgency to ‘disrupt and grow’ amongst Australian CEOs as new challenges and uncertainties impact the global business landscape.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 152 countries and have 189,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.