Confidence IndexDECEMBER, 2017

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CO N F I D E N C E I N D E X – D E C E M B E R , 2017 2

About the Index

Executive SummaryHiring, growth and effective decision making were the key challenges that kept corporate Australia on its toes throughout 2017. According to the key findings from the December 2017 Confidence Index by The Executive Connection, technology, culture and productivity will test CEOs’ ability to evolve and adapt their businesses in 2018.

As CEO of the world’s leading CEO network, I’ve seen first-hand the variety of business issues faced by leaders and how they adapt, evolve and overcome the unique business challenges – 2018 is set to be no different.

Despite their challenges, CEOs around Australia are upbeat about the future and have growth in their sights; with sales, profitability, headcount and revenue expenditure all expected to see an increase in the next 12 months.

Those rewards however, will only come from setting the business up for success, with most CEOs spending the first part of the year getting their house in order. From identifying the areas of the business that require the most attention, to ensuring that the processes which offer the greatest opportunity for growth are optimised and working seamlessly.

Cyber security is weighing on the minds of CEOs, and those who don’t have a cyber security strategy in place need to make it a priority given the recent introduction of the Mandatory Data Breach Notification laws.

As technology continues to push the boundaries of the traditional business environment, leaders are looking to leverage technology to maximise productivity, while simultaneously managing the threats it poses to the workforce and its operations.

As our members look to navigate their way through an environment of disruption, The Executive Connection remains dedicated to supporting CEOs in making decisions that positively impact the business in the short and long term.

The Executive Connection Confidence Index is a quarterly survey measuring the confidence of Australian business leaders of small-to-medium enterprises. The results provide insight

into the challenges and opportunities faced by leaders and their confidence in the Australian business environment. The Executive Connection members are CEOs

and business leaders of predominantly small-to-medium enterprises (SMEs) with up to 200 employees and annual revenue of between $2 million and $100+ million per year.

The Executive Connection Confidence Index December 2017 includes 94 responses from Chief Executives and business owners around the country.

Stephanie Christopher

CO N F I D E N C E I N D E X – D E C E M B E R , 2017 3

Business forecast upbeat

CEOs are optimistic about their projected business performance in 2018, with leaders of small-to-medium enterprises (SMEs) confident they’ll see an increase in profitability, sales and employee headcount.

A strong global economy could be buoying confidence. According to the World Economic Forum, many parts of the world saw broad synchronised growth throughout 2017; whether in

the shape of employment, business growth and steady inflation.

Even ongoing political turmoil on home soil hasn’t dampened spirits, in fact one third of survey respondents (33 per cent) believe economic conditions will get better during the next 12 months.

Overwhelmingly, 86 per cent of CEOs believe that sales revenue will increase in the next year, while 73 per cent expect profitability to increase within

the same period of time. Sixty-five per cent also expect their company’s total number of employees to increase.

This positive sentiment felt among SMEs is also echoed across the corporate community in Australia. The NAB Quarterly Business Survey revealed that in December 2017, business confidence increased to its highest level since July 2017 and strong gains were seen across all sectors with the exception of retail1.

“Last year we invested heavily in developing new products and services and this year we are optimistic that we’ll start to see that come to fruition in the guise of revenue and sales. We’re also expanding those new products and services offshore, into existing and new international markets.

This positive outlook also comes from the fact that the global economy is looking good right now including America, where we are seeing the flow-on effect of their lower corporate tax cascading through the international business community; bringing with it new opportunities for growth.”

Nick Southcombe, CEO, Frontier Software Pty Ltd

33% 65%73%86%expect economic

conditions to improve in the next 12 months

expect to increase their total number of employees

in the next 12 months

expect an increase in profitability in the

next 12 months

expect an increase in sales in the

next 12 months

33+67 73+2786+14 65+35

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CEOs get their house in order

The first quarter of every year brings an opportunity to reassess how current business processes are performing and prioritise focus for the year ahead.

For CEOs around Australia there are three key decisions they’ll be making regarding their business in 2018.

Ranking highest on the agenda for CEOs is strategy; including planning, succession and mergers and acquisitions. In an environment where change can come at any time, from any direction, developing strategies that keeps the business focused yet agile, will help organisations evolve and adapt to external influences.

The second priority for CEOs is optimising business processes, including sales, operational efficiencies and managing customer expectations. Leaders know that to underpin growth, operations must be

streamlined to boost productivity and offer a strong foundation for scale.

Lastly, HR decisions continue to be a priority for CEOs; with culture, productivity and hiring at the forefront of decision making.

CEOs of Australian SMEs are in-step with shifting market expectations and the re-emerging focus on culture and leadership in corporate Australia.

In early 2018 the Australian Securities and Investments Commission indicated its plans to incorporate firm culture into its risk-based surveillance reviews2. That combined with daily headlines which are negatively impacting corporate reputations, makes it essential to address and design a culture that complements and enhances business performance.

With big decisions to be made, CEOs can optimise their decisions by improving judgments and expanding on their perspectives.

“As we continue to expand interstate a key goal is to ensure we don’t lose the efficiency and culture we have built up over time at our head office - both of which are essential to our long-term success.

The nature of our business means we have a highly distributed workforce, who often work onsite at our clients’ offices. This means that essentially, we have to optimise our business to operate remotely from anywhere and for our staff have the ability to communicate and collaborate regardless of where they are based.

Our biggest challenge is to undertake our strategic change programs of interstate growth while maintaining our existing business.”

Cameron Tuesley, Managing Director, Integral Technology

Strategy Culture

Processes

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Keeping an eye out for new talent

Quarter one sees a seasonal uplift in talent movements as workers look to take on different challenges in the new year.

Businesses know now is the time to seek out fresh talent with 30 per cent of CEOs planning to increase their company’s headcount by the end of March.

Strong gains have been made across a ripe employment market; ANZ revealed that in January, newspapers and online job ads rose to their highest level in a decade pointing

to an ongoing healthy demand for labour3.

Despite a strong hiring outlook, sourcing the right skills remains an ongoing challenge. CEOs are struggling to attract new talent and have decided their previous approach wasn’t working.

In Q3 2017, CEOs were focused on boosting wages to attract skilled workers. However, salary incentives are not enough as wage growth remains sluggish and falls below the rate of inflation4.

This unsustainable approach has forced CEOs to consider what else can be done to ensure they have the right skills and talent that can help achieve business growth.

As CEOs charge their business forward this year, over 75 per cent of CEOs have turned their attention on developing the skills, ability and experience of existing employees; putting upskilling and its benefits ahead of sourcing new talent.

30% 75%35%27%of CEOs plan to increase

their company’s headcount by the end of March

of those having difficulty hiring, are upskilling

current staff

of those having difficulty hiring, are adding employee benefits

of those having difficulty hiring, are

boosting wages

30+70 35+6527+73 75+25“Hiring has proven tricky for us in the past. If you want good candidates you have to pay a premium to secure them; the phrase ‘talent wars’ has never been truer.

For us we also struggled to find people who not only have the right skills but also fit with our culture. Our approach has had to change and has become more focused on

upskilling the employees we currently have.

We have found that proactively planning to identify new career development opportunities for employees means we have a more engaged and productive workforce, which in turn helps business growth. ”

Gavan McKenna, Vice President and General Manager ITW Construction

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Managing business threats

Business threats over the last five years have predominantly stemmed from the evolution of technology. Security, innovation, disruption and the emergence of competitors in the form of agile, nimble start-ups are changing the competitive landscape.

One threat that has been slowly working its way onto the leadership radar is cyber security. In early 2018, the World Economic Forum put it firmly at the top of the CEO’s agenda by establishing a new Global Centre for Cybersecurity; designed to safeguard the world from hackers and the increasing volumes of data breaches.

The move is not without cause. According to a recent report from PwC, Australian CEOs cite cyber threats as the greatest threat to their business, with 89 per cent identifying it as their current biggest concern.

Interestingly however, 37 per cent of organisations surveyed by The Executive Connection do not have a cyber security strategy that is documented or communicated to executive leaders. A further 20 per cent do not have a cyber security strategy, but are actively working on putting one in place.

As CEOs struggle to keep pace with the rate of cyber threats and rising sophistication of cyber criminals, the growth and evolution of technology in the business environment is challenging the traditional business model.

In the area of business operations, technology is one of the top three issues CEOs plan to address in the next 12 months.

The automation of a range of jobs and workplace functions is fundamentally

changing how workers do their job. To some, this could be seen as the darker side of the technological revolution, however, to others technology provides the tools to enable workers to engage with their employers and their jobs in an entirely new way.

The findings suggest that CEOs are acutely-aware of the threats and challenges that new technologies bring; both to the security and the evolution of their business, but also see the opportunities and productivity benefits it could offer.

The role of technology in a changing workforce is not to be feared and is likely to be embraced by most employees around the world.

By understanding how the benefits of technology apply to business growth, leaders can use it to their advantage in the year ahead.

“The whole landscape is changing rapidly; from businesses using their own internal systems to the adoption of cloud-based applications and the continued evolution of bringing your own device into the workplace. We not only have our own business data to take care off, but sensitive client data too, and so cyber security has the potential to be a huge risk for us.

We are fortunate enough to have a cyber security expert to advise us on best practice; who undertakes penetration testing, checks for any open back doors and ensures we have preventative measures in place before anything happens. As technology is constantly evolving, our cyber security strategy must be constantly reviewed to keep pace.”

Bryce Gammon, Director, C-Net Pty Ltd

1. NAB Quarterly Business Survey, December 2017 2. Australian Securities and Investments Commission 3. ANZ Job Advertisement series 4. Australian Bureau of Statistics, Wage Price Index

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