The fourth annual KPMG Global CEO Outlook, published today, finds the majority of Australia’s CEOs predict modest growth for their companies of up to 2 percent in the next three years.
Predicted business growth is lower on average than their overseas counterparts, 42 percent of whom predicted growth of between 2-5 percent. A slightly higher proportion of Australian CEOs (4 percent) than overseas CEOs (2 percent) however are very confident and predict 5-10 percent growth.
Australian CEOs also said growth would be harder to achieve in the next 3 years than ever before.
On headcount, the majority of CEOs believed staff numbers would increase by less than 5 percent over the next 3 years, but a higher proportion overseas said it would be between 6-10 percent. Similar to the growth projections, a slightly higher proportion of Australian CEOs (4 percent) than global (1 percent) were in the ‘very confident’ camp, predicting 11-25 percent staff numbers growth.
Encouragingly Australian CEOs reported that their companies are pro-actively recruiting the talent and skills needed rather than waiting to see if they hit growth targets before hiring – unlike most overseas CEOs.
The report shows that Australian CEOs are trying to drive growth against a backdrop of threats and challenges - the top three being emerging/disruptive technologies; environmental issues and the re-emergence of protectionism. The first two were markedly higher than overseas CEO responses.
Gary Wingrove, CEO, KPMG Australia, said: “I would say the survey shows a mood of realistic optimism among Australian CEOs compared to what may have been excessively optimistic in previous years. But it is clear that they are trying to drive growth against strong headwinds of disruption, geopolitics, cyber threats and other strategic issues.”
“It is encouraging that nearly 80 percent of our CEOs saw new and emerging markets as important for their expansion, with the emphasis mostly on Asia-Pacific and secondly, eastern Europe. Emerging markets experts were regarded as the second most important workforce capability to support growth and I believe it is critical that Australian businesses look outwards to the world. This is a notable change from previous years’ surveys when most have given priority to their existing domestic markets,” he said.
More Australian CEOs said that changing tax laws was causing them problems to their operations and business models, than overseas respondents.
Grant Wardell-Johnson, KPMG Tax Partner said: “The Australian tax system is considered very complex both relative to the size of the economy and in absolute terms. Carve-outs and exceptions tend to diminish the effectiveness of a tax and certainly add to the costs of compliance. We therefore should not abandon a goal of simplifying our tax system and transforming and improving the taxpayer’s experience with the tax system.”
He added: “With improving sentiments around the global economy and the US having embraced significant tax cuts, there is a clear need to extend company tax cuts to companies of all sizes. With other high taxed countries also announcing plans to reduce their company tax rates, it will become clear that after these changes Australia will have one of the highest company tax rates amongst advanced economies. In a competitive world for corporate capital flows, this is a barrier to investment and growth.”
The report showed that fears of a return to territorialism also weighed heavily on CEOs both in Australia and overseas, this being second top in ‘threats to growth’ among Australian CEOs and top globally.
Brendan Rynne, KPMG Australia Chief Economist said: “KPMG Economics has recently examined just how serious any sort of trade war would be and our assessment was that several parts of the world could lapse back into recession. This is why we urge policymakers around the world not to raise tariffs but to stick with free trade – and it appears CEOs both here and overseas would support this appeal.”
He added: “Policymakers need to appreciate the importance of a stable and competitive tax system both to attracting inwards investment and generating organic growth. Australia’s CEOs are as equally optimistic about our national economy as overseas counterparts are about theirs, suggesting corporate decision-makers currently believe the underlying economics driving business investment is as good here as other markets.
“This means decisions where to invest locationally-mobile capital will be determined at the margin, and while tax may only matter at the margin, it could be the determining factor whether Australia secures or misses out on an investment funded by global capital.”
A large majority – 86 percent – of Australian CEOs said they were ‘overwhelmed’ by the time needed to deal with disruption and 70 percent said they were struggling to cope with the pace of technological change – compared to just 36 percent overseas. But 96 percent also saw it as an opportunity.
More than two-thirds of CEOs (68 percent) said they were personally prepared to lead their companies through a radical transformation of their operating models in order to maintain competitiveness – although 30 percent expressed a lack of confidence in the ability of their existing leadership team to oversee such fundamental change.
Gary Wingrove said: “CEO’s are being measured on their ability to deliver against a transformation agenda. Business as usual is no longer good enough, leaders are expected to drive change whilst keeping core operations running effectively. In order to do this, they are increasingly looking to make their organisations more agile to enable them to drive these changes.”
“Whilst many of the CEOs surveyed see the opportunity in making radical transformative change, leaders recognise the difficulty in delivering these changes. Capacity and capability to deliver against this agenda is key to success.”
A majority of CEOs (68 percent) also viewed customer data protection in the event of a cyber attack as one of their personal responsibilities in maintaining trust and confidence in the company.
Australian CEOs expected their investment in digital transformation to be realised in the short-term. One-third predicted significant return on investment (ROI) within 12 months, and a further 58 percent within 3 years. Most believed they had a clear understanding of how to measure ROI from digital transformation.
There was some disagreement between CEOs and their boards, with nearly half of CEOs believing boards had an unrealistic expectation of ROI related to digital transformation.
CEOs acknowledged that technology investment has a short-term focus, with 70 percent admitting it had a tactical rather than strategic incentive.
Gary Wingrove said: “It’s very encouraging that a significant majority of CEOs recognise the need for a fundamental rethink of the operating model. Aligning ways of working, front to back technology, and culture are among some of the most critical elements to get right in order to deliver consistently on the digital promise made to customers and citizens.”
“Measuring ROI on digital transformation is a challenge for many organisations, particularly in the short term. Many business cases are still predicated on the assumption that digital channels are inexpensive to build and there will be a significant and rapid uptake in adoption by customers of digital services. This rarely happens as planned. The shift takes much longer and the investments required to build persistent change deep into the operating model are usually greater than expected.”
of Australian organisations are piloting AI in a number of processes, while 52 percent have begun limited implementation for specific processes. Based on this experience, around two-thirds of CEOs at home and abroad believed AI and robotics technologies would create more jobs than they eliminate over the next 3 years – an interesting contrast to the frequently-expressed negative commentary on the effect of robotics on employment patterns of the future.
Half of Australian CEOs believed AI implementation would boost growth by increasing their companies’ agility (compared to 33 percent overseas), while 48 percent said it would improve the customer experience – again a higher proportion than internationally.
The report revealed interesting insights into companies’ growth strategies, which increasingly entail investing in eco-systems to support business objectives. CEOs said top priorities for the next three years included partnering with third-party cloud technology providers (58 percent), data providers (56 percent) and innovative start-ups (54 percent). One of the main barriers to third-party networks was incompatible legacy IT systems.
Gary Wingrove said; “Strategic alliances are increasingly important in the eyes of Australian CEOs, with nearly 75 percent seeing third-party partnerships as essential for organisational agility. By contrast 50 percent believed that acquisitions would have only a moderate impact on their growth prospects. It is encouraging to note that three-quarters of Australian CEOs said they would re-consider going ahead with a partnership if they feared that organisation did not fit well with their own culture and values, even if they were successful in other ways. This shows the importance of trust in the modern business arena.”
For Australian CEOs, the three most important workforce capabilities to support growth are cyber security specialists, data scientists and emerging markets specialists. Sustainability experts came fourth.
Gary Wingrove said: “Australian CEOs are already advanced down the path towards a workplace where everyone will be digital. An augmented workplace where people and machines work together is where we are headed, but we should not underestimate the importance of skills such as the ability to collaborate, be flexible and adapt quickly to change.”
“Looking ahead, the majority of CEOs (62 percent) are pre-emptively hiring for where they see the organisation going, rather than waiting to achieve growth before hiring the new skill sets they need. It is encouraging that Australian CEOs are being more proactive in this area than their peers in other countries.”
Australian CEOs agreed more strongly than their overseas counterparts that ‘we must look beyond purely financial growth if we are to achieve long-term sustainable success’. But more confessed they were ‘struggling to link our growth strategy with a wider societal purpose for the organisation’.
Adrian King, KPMG Australia Head of Sustainability, said: ““Companies are increasingly seeing the importance of looking at non-financial issues in their definitions of success, even though many are still struggling to understand their role in society. But Australian policymakers need to note that nearly half of our CEOs have pointed to environmental and climate change risks as serious threats to their organisations’ growth prospects – this is appreciably more than their counterparts overseas and should act as a wake-up call.”
Australian CEOs were more confident than their overseas counterparts (68 percent to 52 percent) in believing their companies were meeting customer expectations of a ‘personalised experience’ – while 26 percent of Australian respondents believed they were exceeding them – 23 percent globally. By contrast 25 percent of overseas CEOs admitted they were below customer expectations – compared with only 6 percent of Australians surveyed.
A majority of Australian CEOs 68 percent also viewed customer data protection in the event of a cyber attack as one of their personal responsibilities in maintaining trust and confidence in the company, compared with 59 percent globally.
Gary Wingrove said: “Australian CEOs are looking to digital innovation and data analytics to create value across their business and gain a competitive edge. At the same time, they are faced with increasing cyber risk, privacy mandates, regulatory pressures, brand reputation risk, and its impact on shareholder value. Smart leaders are making cyber preparedness and resilience a board priority. They have defined the ‘Cyber Risk Appetite’ for the business and most importantly have increased confidence and assurance in cyber controls deployed to enable digital transformation and ‘protect what matters’.”
Most Australian CEOs believed that the use of predictive models and analytics in strategic decision-making would increase over the next 3 years – more so than their overseas counterparts – and yet a majority also confessed to sometimes using ‘gut feel’ rather than data. Trust in social media as an input to strategic decision-making has also risen, overtaking traditional media, government-commissioned research and other information providers.
The survey covers 1300 CEOs in 11 key markets (Australia, China, France, Germany, India, Italy, Japan, Netherlands, Spain, UK and US) and 11 key industry sectors (asset management, automotive, banking, consumer and retail, energy, infrastructure, insurance, life sciences, manufacturing, technology and telecoms). A third of the companies surveyed have more than US$10B in revenue, with no responses from companies under US$500M. The survey was conducted between 22 January and 27 February 2018. NOTE: some figures may not add up to 100 percent due to rounding.
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