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Big Four firm KPMG recently surveyed more than 220 Australian private and public sector C-suite leaders to identify the top challenges facing businesses in the country. The top six strategic priorities identified by executives were digital transformation, innovation and disruption, regulation, political paralysis, customer centricity and cost competitiveness.
unsurprisingly, digital transformation was the number one issue identified by Aussie execs in a survey conducted by KPMG Acuity – the corporate insights arm. “Nearly every CEO has ‘digital transformation’ in mind, but it can mean different things,” said Ian Hancock, KPMG’s National Manager, Management Consulting. “In 2018, the term ‘digital transformation’ means so many things that there is a very real risk that this ambiguity will cause confusion, leading to different agendas and ultimately missed opportunities.”
KPMG states that digital transformation includes not only investments in digital technologies, but also the development of organizational functions, back office technologies and even rethinking of core business models. According to the company, a complete transformation should also include a cultural realignment.
Central to digital transformation must be “connection-based”. This means staying in touch with market dynamics and digital trends, connecting front, middle and back offices to execute growth agendas and connecting with customers and employees with a compelling proposition.
“[CEOs] they know they are being judged on their ability to deliver on the transformation agenda,” Hancock added.
The next most pressing issue for Australian leaders was innovation and disruption. Business leaders are constantly worried that competitors will use new technologies and methods to provide products or services that are better, cheaper and more attractive to consumers. Compounding this fear is the pattern that disruption creates a winner-takes-all environment where only a few firms see spectacular growth on the back of their industry innovations—such as Amazon, Google, and Uber—while holding back the rest of the industry. .
However, the authors caution against attempts to breach for the sake of breaching. “In 2019, the answer cannot be as simple as jumping headlong into big new innovative technologies and organizational practices,” said James Mabbott, director of KPMG Innovate. “This is because a general sense of skepticism has developed in the population as to whether the benefits of ‘innovation’ and ‘disruption’ are really for them, or rather for a small elite who can generate enormous profit. So any business leader who wants to pursue an aggressive innovation agenda is likely to encounter stakeholders who fear what it actually means for them, including employees.
Third place was taken by concerns over ordinance – including the challenges of harmonizing trade regulations, reducing red tape and the capabilities of national regulatory authorities. Leaders are also concerned about new regulation on mortgages, credit cards and insurance policies arising from a possible expansion of the Banking Executive Accountability Regime (BEAR). Even outside of financial services, leaders are increasingly concerned about excessive regulation.
“Although we do not want to see unnecessarily bureaucratic requirements for business, there is a danger that we will see the new regulation as purely negative,” noted KPMG attorney Astrid Raetze. “Reporting can be a powerful discipline to get things done, so we’d like to urge businesses to keep their eyes on the ball and go into a defensive mindset if more regulations are introduced in their industries or more generally in 2019.”
Political paralysis was the fourth most worrisome problem. Business leaders criticized continued political gridlock in the federal government and lacked confidence that the country’s major parties could work together effectively to advance national agenda items.
“Business leaders are concerned about growing political polarization and the difficulty of garnering support for complex reforms,” said Grant Wardell-Johnson, KPMG Geopolitics and Tax Partner. “This is seen as hanging over many of the other issues we face that are damaging to Australia in the long term. In a world where we should be less ideological and more evidence-based and science-based in public policy processes, the opposite seems to be happening. This leads to less bipartisanship. Now more than ever we need full, honest and fearless advice from senior civil servants.’
He was in fifth place customer orientation. Leaders increasingly understand that they must put the customer first and place them at the core of their strategy – just like Amazon for widespread success.
“Successful outcomes put the customer at the center of attention and respond to human needs,” commented Paul Howes, KPMG Partner-in-Charge, Customer, Brand & Marketing Advisory. “Customers talk about outcomes, not necessarily service delivery models.” This means using digital transformation as a means to better serve customers, rather than having new technology as the end in itself.
Companies like Amazon that get it right combine the digital and customer service aspects to create a powerful whole. “These companies understand that they need to have engaged, helpful people who provide excellent service. That these people need to work in harmony with a great digital experience. And that it is this combination that drives loyalty, advocacy and commercial performance,” added Howes.
Number six on the list of the C-suite’s biggest problems was cost competitiveness. The C-suite has identified rising costs for energy, raw materials, taxes and even labor – despite significantly stagnating real wages for workers in an environment of low unemployment.
KPMG Chief Economist Bredan Rynne commented: “Analysis by KPMG Economics has shown that we suffer from poor labor cost competitiveness, particularly in the manufacturing sector where labor costs typically represent 40 to 60% of the cost base.
And while wages have stagnated in Australia, they have also fallen in the rest of the world, meaning the country’s workforce has seen no increase in cost competitiveness. Meanwhile, Australia’s business leaders wouldn’t mind lower corporate tax rates being introduced around the world. “While in some countries (though not all) corporate rates are falling, in Australia it seems to have gotten into the political long grass. This clearly acts as an additional cost burden for Australian businesses,” Rynne added.
Rounding out the top ten concerns were public trust, cybersecurity and data privacy, big data and infrastructure, and livable cities.
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