The race towards Australia’s future prosperity
At the 2016 Rio Olympics, Australia ranked 10th in the world in the final medal tally. Cue: national outrage at our substandard result. But what if our nation continues to slide down the rankings for the next 30-odd years? What if we plummet past more and more nations, below Nigeria, then Thailand, the Philippines, Vietnam and Bangladesh?
You can imagine the response: Media outcry. Repeated inquests into what went wrong. Heads rolling at the top of Australia’s sporting institutions. And massive injections of public and private money to reverse the decline.
Now consider this: On current form, Australia’s place in the global economy is set to crash from 19th to 28th by 2050.
Source: PwC's 'The World in 2050', 2017
Luke Sayers, PwC Australia CEO says, “As in sport, this decline will damage Australia’s prestige and influence – but it will also dramatically damage our hopes of ongoing prosperity too. Unemployment and poverty will rise, social inequality will increase and older Australians will be priced out of aged care.
“To achieve economic growth at a basic level - 2% annual GDP growth - our $1.6 trillion economy needs an extra $32 billion pumped into it every year. And right now, we’re not even close.”
So, whose job is it to secure this $32-billion-dollar injection? Who’s responsible for ensuring Australia’s prosperity?
At PwC, we believe everyone has a role to play. Government. Educators. And business too. That’s why we’re calling for action on a nation-building scale to get the economy moving again. We cannot hope to hit that $32 billion by doing things as we’ve always done them. We need to find new ways of working to create new value.
New ways of working such as embracing technology, reinventing the workplace, and educating workers of all ages and backgrounds. Technology is racing off at breakneck speed and business leaders must drop the legacy systems that are holding their organisations back. Automation is quickly changing people’s careers beyond recognition, and our workforce must be agile enough to keep up.
PwC research indicates that action in three areas, in particular, will put Australia back on track: collaboration, culture and commercialisation.
“Australia is blessed with some of the finest researchers and brightest business minds in the world, yet this translates into very few new-to-market innovations,” says Trent Lund, PwC’s Head of Innovation.
“Australia is ranked third in the OECD in terms of research, yet we come in at 33rd when it comes to patents,” says Lund. How is it possible such a paltry proportion of our research translates into commercial outcomes? “Because Australia is also last in the OECD when it comes to collaboration between companies and universities and research centres.”
The cost of collaboration is prohibitive in Australia. “We have neither the industry systems, nor the management capabilities to facilitate it,” says Lund. “The payoff appears too low as we still only ever consider collaborating within – not beyond – domestic markets.”
This is despite 88% of Australian CEOs rating collaboration as very important to their organisation, and rating increased collaboration both internally and externally as one of the top three benefits of promoting talent diversity and inclusiveness.
PwC modelling shows that, when it comes to international collaboration, Australia ranks just 27th in the OECD, with only 7.7 percent of businesses collaborating while improving or creating products and/or processes. Moreover, we’re passing up major productivity gains. PwC benchmarked Australia against other OECD countries and found that Australia’s gross domestic product (GDP) would increase $8 billion over the next 10 years, if Australia reached just the OECD average for collaboration.
If Australia reaches the collaboration levels of the top five OECD countries, the increase to GDP over the next 10 years would be $23.5 billion.
So how do we make this happen? “The secret is to make collaboration global in scope, so that the payback warrants the investment,” says Lund. “By focussing on bigger markets like China or the US, Australian industry leaders immediately tap into markets of approximately 1.4 billion and 319 million respectively, versus 23 million at home.
“We must also incentivise research that delivers commercial outcomes, and encourage the cultural shifts required to achieve this. Businesses must open their doors to one another and work together to solve common problems. In schools, we must teach our young people how to collaborate as a core skill, and in our wider education system, we must reward knowledge sharing and alliances. And government support must be targeted where we can achieve critical mass and scale.”
Make no mistake: it’s going to take a seismic shift to reinvent the Australian economy. We must challenge and change the way we work.
Australia’s culture around achievement is wrong. In the same way we interrogate our Olympic athletes, while ignoring our economic stagnation; we focus our efforts in the wrong places, too. Commonwealth spending on science and innovation has declined by 20 percent as a share of GDP over the past 20 years. STEM (science, technology, engineering and maths) disciplines still suffer an image problem when compared to alternatives, such as medicine or law, which are perceived as more worthy or higher status. And yet 44 percent of jobs that we’re training for now could cease to exist in the short-to-medium term future.
“Business, government and academia exist in separate vacuums from one another at the moment,” says Lund. “But they must work together to future-proof our workforce and prepare our young people for the jobs of tomorrow.”
We must shift our aspirations, but also we must broaden them if we want to make any headway on growth. “Australia suffers from a risk-averse culture that is reinforced by the homogenous composition of our boards,” says Lund.
Australia does have success stories, such as Atlassian, Cochlear and CSL, yet C-suite incentives, remuneration and tenures don’t usually reward commercialisation. Instead, short-term incentives are the norm with ‘caution’ and ‘governance’ the language of analysts.
PwC’s 2017 Global CEO Survey found Australian CEOs are positive about their own growth prospects and economic conditions, more so than international peers. The ‘how’ is less clear with 93% planning organic growth, and 60% planning new mergers and acquisitions. But 73% still plan to implement a cost reduction activity and 22% plan on outsourcing to drive growth.
Is this more of the same, with less risk taking?
“The safest path for many mature businesses is actually to embrace risk,” says Trent Lund. “Clinging on to tried and trusted channels and models leaves a business wide open for disruption. If Australian firms don’t find new ways of working, then they will be picked off by overseas competitors with more courage and ingenuity.
The focus in corporate boardrooms needs to shift from protecting the established way of doing things, towards creating new ideas, and then commercialising these new ideas.
“After all, if we don’t believe we have the commercial ability to compete globally, why should the rest of the world?”
In other words, Australia must act. We have the knowledge; we have the skills. We certainly have the talent. If we can connect all these components together, Australia’s innovation engine can roar into life.
The age of automation is upon us, and dramatic change is coming with it. Our nation’s economic future will, in large part, hinge upon the question: How can technology solve our customer’s problem?
PwC’s 2017 Global CEO Survey found 52% of Australian CEOs are already exploring the benefits of humans and machines working together, while 42% are considering the impact of artificial intelligence on future skills needs.
From robotics to artificial intelligence (AI), smart machines are increasingly capable of doing things that are equal to, or better than, human capabilities. And the impact will be unprecedented.
“This isn’t something to fear – in fact, this should be seen as a time of great opportunity for Australian businesses,” says Deb Eckersley, PwC’s New Ways of Working Partner. “If history shows us anything, it’s that technological progress leads to higher living standards and increased consumption, rather than causing mass unemployment.”
Source: 'The rise of the robots webcast'
So robots are not coming for our jobs? “Yes, but not in the way that some people might have you believe,” says Eckersley. “If automation takes place on the scale that’s predicted, then we’ll need to mobilise people to work alongside the machines if we’re going to achieve the sorts of vast improvements in productivity that look possible.
Results from PwC’s 20th CEO Survey show this to be the case. Globally, only 16% of CEOs plan to cut their company’s headcount over the next 12 months, with only a quarter of them saying it’s primarily because of technology. Conversely, 52% plan to hire more employees.
Complementary jobs will arise, and could offset those that are lost. In fact, most of the jobs we’ll be doing in the future haven’t even been invented yet.
As a society, we need to approach what will be a seismic shift purposefully if this positive future vision of is to have a strong chance of success, If not, we run the risk of many people not being able to make a living.”
This leaves Australian business and Australian workers with a choice: change and prosper, or be left behind.
First, Australians need to fundamentally rethink our approach to technology in the workplace, says PwC’s CIO Hilda Clune. “Any progress towards improved productivity requires us to think carefully about what it takes to bring technology and people together in a meaningful way. We need to enable an approach of agile adoption if we’re going to create a truly digital culture.”
In Australia, we’re keen consumers of technology, but we’re not creators by world-class standards. Our computer science graduates comprise only two percent of the domestic total of all graduates each year, and our total number of tech graduates is 30 percent lower than our international counterparts.
“But education alone cannot carry the burden, Australian employers need to adapt too,” says Clune. “That means anticipating technological change and helping your workforce to adjust. If you want to attract and retain the best and the brightest talent, you know this: they will be hungrier than ever to learn on the job. Their livelihoods will depend upon exposure of, and expertise with, the latest technology. If you can’t provide access and training to that, the best talent will go elsewhere.”
An increasingly tech-literate workforce will also expect employers to be flexible with technology too, says Clune. “Business leaders need to focus on the democratisation of technology at work. That means giving people choice. Proactively empowering employees when it comes to tech.
“Employers should obviously establish guidelines,” says Clune. “And protect their data at all costs. But wherever possible, they need to provide optionality and encourage digital uptake, such as inviting employees to bring their own devices to work and then finding inventive ways to use them.”
Then, we need to take a step back and reconcieve of technology and the workplace. This means putting digital transformation at the very heart of every organisation. “Many businesses still operate on legacy systems that simply aren't fit for purpose in the 21st Century,” says Clune. “You can’t keep patching up problems on the periphery – these legacy systems must be torn down. That requires guts and foresight, and it’s essential. What we're talking about here is businesses disrupting themselves from within, otherwise they won’t survive.”
Technology is fundamentally shifting the way we work, and the type of organisations we work for. It’s now easier than ever for people to coordinate themselves, as seen by the rise in small-scale operations in the gig economy and the sharing economy. Large corporations can still thrive but, as London Business School’s Lynda Gratton has pointed out, they’ll be increasingly surrounded by smaller businesses and start-ups in a complex system of alliances.
“At PwC Australia, we’re embracing such alliances and we’re one hundred percent in the Cloud,” says Clune. “This allows us to be part of a broader ecosystem of innovation where ideas and best practice thrive. We’ve also recognised the need to disrupt ourselves, and our work practices. That meant radically reshaping our business structures, processes, and even our actual office space to suit our clients and co-create solutions for customer problems.”
A disruption mindset is required if Australia is going to break the incumbent models, and begin working in a truly 21st Century way. “At PwC, we’re constantly challenging the dominant logic when it comes to the rules and structures that govern the way we work, and technology is a core part of this,” says Eckersley.
When it comes to the future of work, it’s all about the art of the possible.
For the past two decades, Australians have been surfing on wave after wave of continuous economic growth. But if we’re going to keep catching those waves, our workforce is going to have to become nimble – because the conditions are changing around us. Collective action must be taken now by government, educators, employers, and individuals.
Australia will not be prosperous unless it has a productive workforce that can support its ageing population. We must also consider the spectrum of the workforce into the future. It is no longer just those aged between 25-60 that should be the focus of ‘working age’.
The Golden Age Index says that compared with other OECD countries, older Australians are underutilised in the workforce. "If we get our participation rate up to that of, say, Sweden, we would add $78 billion to our GDP," says PwC’s Global Managing Partner - People and Organisation, Jon Williams. PwC estimates this could take 10 years, and would require Australia to lift participation rates of workers over 55 by 10 per cent.
But if the nation continues its current trajectory, the only growth will be in government budget deficits.
The labour market is changing. Jobs for life and careers for life are already becoming extinct. The jobs of the future will be unrecognisable from the past; shaped by automation, robotics, digital disruption and the breaking down of geographic barriers. Australia’s workforce must compete with international talent like never before.
Employers will increasingly seek skilled contractors, for shorter periods of time. Workers will need to become highly productive, as their performance will be judged not on minutes billed – but value created. Increasingly, professionals will require a flexible portfolio of relationships and projects.
That is going to require a lot more agility on the part of workers. PwC’s 2017 Global CEO Survey found the top skills Australian CEOs believe to be very important for their organisation are leadership (91%), collaboration (88%), problem solving (86%), and adaptability (80%). These will be the currency that workers carry in the new labour market.
Source: 'PwC's 2017 Global CEO Survey'
“The increased casualisation of work is going to impact millions of people across Australia’s workforce,” says Williams. “To thrive in this environment, workers will need to continually learn and relearn, and to train and retrain. That means rethinking how Australia’s education systems are set up. The idea that we can cram education into the early years of long lives makes no sense: we must embrace lifelong learning.”
Williams says workers will be hungry for new kinds of qualifications, such as online ‘microcredentials’ and ‘nanodegrees’: “This won’t just apply to millennials – it will also apply to people well-established in their careers too. Careers advice will be required across the generations and social classes. It’s a totally different way for people to think about their lives.”
The danger is that most Australians are not prepared for the changes heading their way. “At present, the nation is stuck in old ways of thinking and our institutions are as well,” says Williams.
Australia’s workforce won’t be able to adapt unless its institutions adapt too – across government, education and business. All parties need to get together to solve this problem.
The focus must be on equipping Australians to be agile so that they can exploit the new roles of tomorrow. Politicians needs to look beyond populism, and beyond the three-year election cycle, to develop a comprehensive long-term strategy.
“Government and the business sector need to listen to each other and work together to prepare the nation’s workforce for the future,” says Sara Caplan, CEO at PwC’s Skills For Australia. “Businesses have access to data on trends in industry and the labour market. Policymakers can use that to anticipate future market needs and help bring about systemic changes in education and business culture, incentivising and facilitating greater collaboration across academia and business.”
That collaboration is crucial, says Caplan, to avoid a dependency culture where skills training only happens where there is government funding. “Right now, State government funds vocational training and schools; Federal government controls tertiary education. We need a joined-up approach that establishes training systems and makes them self-sustaining. Having created that momentum for employers to invest in skills, government can often step away.”
At the same time, the education sector needs to rethink its approach so that the focus is on employability and transferable skills.
“If you think about most workplaces, almost all the outputs are the result of teams collaborating,” says Caplan. “Yet our education system rewards students for work that they undertake individually.
There is growing evidence that, if people are taught in a project-based approach, they develop a lot more of the skills that they will need professionally. But most schools and universities in Australia aren’t yet built for project-based teaching, from an organisational, physical or curriculum point of view.”
And the focus on reshaping education can’t stop with schools, vocational trainers or even with universities. Careers education and support structures must be available for young and old, for blue collar and white collar. “We have to equip all workers with the skills and knowledge to help them make important decisions about transitions in their careers,” says Caplan.
“Everyone needs to know what industries are growing and how they can develop the skills to step into these. They need to know how their existing skills can be used in a different context and be able to identify any gaps and how to fill them through additional training.”
Retirement planning, superannuation and property ownership will also require a re-think. “Because Australians’ working lives will be longer and more varied, their incomes will fluctuate as they retrain and switch between careers,” says Jon Williams. “Being tied to traditional mortgages will hamper workers’ ability to step off the treadmill, study and transition to new industries.
“Today’s worker needs to be flexible. They should no longer be defined by a role or profession but consider the bundle of skills and capabilities they hold because the job descriptions of today are looking very different."
Business leaders often lament that the current education system fails to provide work-ready candidates. Now it’s time that they became part of the solution. “Employers must step up and make their voices heard on the skills people are being trained in,” says Caplan. “Business leaders must give politicians and educators a steer.
That means looking at what is happening in industry sectors, joining forces with other industries to find common ground, and then driving the agenda. Industries must advocate for policy and education courses that deliver a talent pool they can all fish from. It’s no use sitting back and waiting for government to solve all the problems.”
Employers must also accept responsibility for some of the ongoing vocational training that workers will need. “Attracting good people is all well and good, but you won’t keep them in the new economy unless you invest in their development as well,” says Caplan. “We must create pathways into business, with or without tertiary qualifications, and deliver more training in the workplace. More young people may need to get jobs straight from school, with employers providing ongoing training and support structures to achieve a qualification while earning.”
In other words, business leaders must now look at what is happening in their sector, anticipate the waves of change, then stand up and prepare their workforce for the ride.
As we’ve seen, the waves of change bearing down on the Australian and global economy are coming . Businesses that change to suit these unchartered waters will be set fair for growth. Businesses that don’t will sink without trace.
For business leaders, there is no time to lose. Decisive action is needed now. So, where do you start?
First and foremost, by accepting that your organisation’s current systems and ways of working need to change. Then by focusing on six high-impact areas to transform:
1. Operations – Disrupt your business before someone else does it for you. Challenge your history, your strategy, and your value proposition. Be prepared to kill your darlings.
2. Culture – Be crystal clear about how that value is created in your business, and reward your people accordingly. Recruit people for their ability to adapt and create; empower them to take risks; and play your part in their lifelong learning.
3. Technology – Tinkering around the edges won’t cut it; you must embrace digital transformation at the core of your business. Legacy systems must die if you want to be flexible enough to harness breakthrough technologies like robotics and AI.
4. Workforce – Don’t wait ten years for diversity to work its way through your organisation. Tackle inclusion at middle and senior management levels now. And recalibrate your business to harness the latent talent in the economy: millennials, older workers and women alike.
5. Collaborative Workplace – Build your workplace around your customers and your people - consider the impact the physical property and technology could have on your culture. Throw out the rule book and start again. If people can work anywhere, anytime now, and collaborate inside and out of the workplace, then how can your premises maximise that?
6. Operating Model & Organisational Design - Constant disruption means your systems, processes, structure, information and people must be fully integrated and aligned to strategy yet agile and ready to change at speed. Old organisational hierarchies don't get the right people solving problems and creating ideas quickly.
Explore our interactive tool for details, tips and inspiration.
Partner, PwC New Ventures, PwC Australia
Tel: +61 (2) 8266 0686
Executive Director, PwC Australia
Tel: +61 (2) 8266 0000
Partner, National Skills Lead, PwC Australia
Tel: +61 2 8266 3882
National Markets Advisor, PwC Australia
Tel: +61 (2) 6271 3025