'Make or break' year for Australia's future prosperity

20 January 2016

Australian CEOs are less confident about their companies’ growth prospects than a year ago, and less optimistic about growth in the global economy, according to a PwC report released today.

PwC’s 19th Annual Global CEO Survey, launched at the World Economic Forum in Davos today, showed that just over one third of Australian CEOs are ‘very confident’ they will see revenue growth in the next 12 months, down from 43 per cent last year.

Just 31 percent of Australian CEOs are expecting an increase in global economic growth this year, down from 38 per cent in 2015. The majority (57 per cent) expect growth to remain the same.  

Forty-nine Australian CEOs and over 1,400 globally were involved in the survey, including Wesfarmers boss Richard Goyder, Mirvac chief Susan Lloyd-Hurwitz, and Airtasker head Tim Fung.

PwC CEO Luke Sayers said the combination of tough operating conditions, an uncertain global outlook, and the growing fiscal deficit have set up 2016 as a ‘make or break’ year for Australia’s future prosperity.

“Australia’s twenty-four years of uninterrupted economic growth is frequently highlighted, but we mustn’t forget the history of difficult reforms that made this record possible,” he said. “If the next quarter-century is going to look anything like the last, it’s crucial that the lessons of the past are applied. In 2016 we need to see a shared vision and a long-term economic and fiscal plan that outlives the next election cycle.”

“The Innovation Statement was a strong start, but the ‘ideas boom’ must be followed by action from both business and government in areas including tax reform, infrastructure development, investment in science, technology, engineering, and maths education, and deeper engagement, beyond simply trade, with our neighbours in Asia.”

“We have a tremendous opportunity this year to address these issues and lay the foundation of a future for our children and grandchildren of rising employment, higher real incomes, and better living standards.”

Mr Sayers’ sentiments are reflected by the findings of the Australian CEO report, which show:

  • Australian CEOs overwhelmingly ranked (82 per cent) the Government’s response to debt and fiscal deficits as the top economic, social, policy or environmental threat to their organisations’ growth, compared to 71 per cent globally, and ahead of their US, Chinese and Japanese counterparts.
  • 61 per cent of Australian CEOs rank a clearly understood, stable and effective tax system as the top priority for government. However only 18 per cent of CEOs see government as effective in delivering on this.    
  • China was named as the top overseas growth market by a majority of Australian CEOs (63 per cent), behind the USA (51 per cent).     

The survey also canvassed CEOs on how they plan to respond to the clouded global economic outlook and domestic growth prospects.

A top priority for the majority of Australian CEOs (73 per cent) is implementing a cost-reduction initiative, ahead of entering into a new joint-venture or alliance (53 per cent).

This focus on cost-control has played out as a substantial shift in hiring intentions, with 41 per cent of CEOs saying they will reduce headcount in 2016, compared with just 12 per cent in 2015.  

However, according to Mr Sayers, corporate Australia may be reaching the point where the balance has gone too far in favour of cost management over investment.

“The cost-cutting cycle has more or less continued since the financial crisis, so you have to question whether organisations are now starting to cut muscle rather than fat,” he said. “You can’t cut your way to growth, so companies that want to prosper over the longer term should be looking at where they can make judicious investments, particularly in innovation, technology, and entering Asian markets.”

Encouragingly, the report shows that Australian CEOs are acknowledging and responding to technological disruption, with all of the Australian CEOs surveyed indicating they will make changes in how they use technology in response to changing stakeholder expectations.  

However, one area where Australia’s CEO were significantly behind the rest of the world was their attitudes towards research and development (R&D) and innovation. More than half of CEOs globally said that in terms of engagement with customers and stakeholders, R&D and innovation generated the greatest return. But less than one quarter of Australia’s CEOs agreed.

“Technology plays a critical role, but without a commensurate focus on innovation companies won’t realise the full potential of their investments in this area,” Mr Sayers said. “Often it’s not the underlying technology that delivers the value to the organisation, but the business model innovation that goes with it. A more holistic understanding of the interplay between innovation and technology will help companies address their growth challenges.”  

One area that bodes well for innovation is the focus that Australian CEOs have on workplace culture, behaviours, and diversity. Almost 4 in 10 of the Australian CEOs surveyed said they are making changes to their diversity and inclusion strategy in order to attract and retain talent, compared to just 22 per cent of their global counterparts.

“A culture that values diversity is critical for any organisation looking to experiment and try new things,” said Mr Sayers. “People that think differently and a culture that supports agility, experimentation and ‘failing fast,’ will be critical for organisations looking to navigate an environment where volatility, subdued growth, and ever-increasing stakeholder expectations have become the norm.” 

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