'Fat, lazy' executives are holding Australia back

“I don’t worry about failure, I worry about the company ending up in the middle and being another fat, lazy ASX 200 listed company,” Hills Industries’ chief executive Ted Pretty told a panel at the Salesforce One business conference in Melbourne earlier this year.

“We’ve lost our nerve in Australia, we were supposed to be like Texans,” continued Pretty in his scathing critique of the nation’s business culture. “We’ve turned into a bunch of softies and we’ve just got to toughen up.”

Last week in Sydney, consulting firm PricewaterhouseCoopers released its Expanding Australia’s Economy report that illustrated just how vulnerable those softies in the nation’s executive suites and boardrooms are to a rapidly changing global economy.

Digital disruption hits home

As previously discussed on Technology Spectator (Uber’s taxi offensive is here to stay, May 2), the changes being wrought on the economy by digital technologies are not just in the obvious areas like retailing, manufacturing and media; sectors like taxi companies and home services that were once thought to be untouchable are now being exposed to automation and global competition.

“It’s been very obvious for a very long time what’s happening,” former Microsoft Australia head and now venture capital investor Daniel Petre said at the PwC report’s launch.

“If you’ve been prepared to look, you could see this. What’s struck me in the year I’ve been back is how insular our thinking has been in Australia and how comfortable we’ve been with the status quo.

“In reality, the world has been changing at a much faster rate than Australia has and we’ve been left behind.”

The end of the middleman

One of Petre’s key points is that the age of the middleman is coming to an end: “The whole idea of intermediaries is now gone; now with the Alibaba model you can get direct access to a manufacturer,” he says. “It’s happening in insurance and stockbroking; if you’re an intermediary, then you’re toast.”

Cutting out the middleman is a big loss for Australian business as John Ricco, PwC’s Digital Change Partner, pointed out when summarising the survey: “The retail industry is an intermediary industry, that’s why it was created -- to provide physical distribution channels. Do we need the retail industry at all in the future? David Jones’ competitor is not Myer; David Jones’ competitors are Nordstrom, Macy’s and UK retailers like John Lewis.”

Petre warns that wherever you are in the business landscape, you’ll be hit by the impact of technology.

“By any measure we are falling off the cliff,” he says. “Right now if you look at Australia’s venture capital market, if we were pro-rata to the US we’d have $20 billion. We have $6bn. We are so far out of the loop it’s not funny.”

Petre believes the role of the government has an important role in changing this, arguing its policy of taxing employee options makes us the laughing stock of the world (Is Australia open for start-up businesses?, February 13).

PwC’s report is particularly scathing of the funds that were wasted in supporting Australia’s vehicle industry over the last decade, with $4.5bn of subsidies paid for the net result of no manufacturer being left in the country by 2016 and close to 70,000 direct and indirect jobs being lost.

“The Australian economy will fall off a cliff if we continue to invest in industries that are not our future” warns PwC’s Ricco.

Australia’s Dad’s Army of Directors

However, blaming politicians and bureaucrats is not the solution for Australia’s productivity and technology malaise. The groups missing in action are the corporate and finance sectors, with government and academia R&D and venture capital spending in line with international standards and private businesses lagging far behind.

Part of this could be due to Australia’s board rooms being the ‘Dad’s Army’ of the international business world -- a term coined by the Australian Institute of Company Directors magazine last year when pointing out that the average of age of local non-executive directors is over 64 years old, as opposed to 62 in the US and 59 in Britain.

One of the things that stood out from the PwC session is that most of the attendees from the consulting firm’s corporate clients are younger staff. These people are smart, savvy and clearly in the executive stream.

However, they are a decade or two away from taking senior management roles -- assuming they keep their jobs and their company is still in business by 2030. Today’s senior leaders were nowhere to be seen.

Blaming the government

Australian business leaders have become very good at calling on the government to do something, but the country’s poor performance in adapting to the new economy is squarely the responsibility of the corporate sector.

We shouldn’t discount the importance of Australia’s politicians raising their game and making the nation’s tax and regulatory environment more favourable towards those prepared to invest and take risks in building productive assets. But the ultimate responsibility for Australia’s risk adverse business structure lies with managers and directors.

Should Joe Hockey and Tony Abbott show some courage and an appetite for reform that governments of the last 20 years have lacked in tomorrow’s budget, then perhaps Ted Pretty’s fat lazy friends on the ASX 200 might be inspired to take some chances on the digital economy to improve Australia’s competitive position.