The technology do or die for CEOs

Shareholders must be alert to the signs of chief executives falling behind. As Australia catches up on new technology such as cloud computing, whole sectors will be revolutionised and those who ignore the change will nosedive.

Tony Abbott’s massive deregulation campaign will help Australian productivity if he wins the election but it will not be the main productivity driver – to really lift productivity Australian CEOs will have to become world class at tapping into the new round of digital technology and cloud computing developments.

And unfortunately they are being beaten by their global counterparts. Unless we catch up it will affect the performance of the ASX compared to other markets.

In traditional corporate terms Australian chief executives tend to blame unions and governments for the low productivity in Australia. Very few of them blame themselves. That’s why two interviews at the ADC Hayman Retreat were of particular significance. The first was my interview with Chris Bradley, Australian principal of McKinsey and the second with chief executive of the Bank of Queensland Stuart Grimshaw.

There is no doubt that government actions including industrial relations legislation have contributed to the poor Australian productivity as has the large recent investment in mining, which is yet to bring forth revenue returns and therefore holds back our productivity figures. But McKinsey’s Chris Bradley, explained that productivity in the future is going to be about analysis of data and the new digital age.

Bradley believes Australian managers are behind their counterparts in many other parts of the world, so catching up is going to be absolutely essential in the future. The digital divide has already separated media companies and organisations but it is going to separate a vast number of other companies too. In the next decade we are going to see more and more intelligent computers able to perform functions that are currently performed by the middle class. Companies are going to have to adapt to this new environment. In other words the process is going to accelerate so those that are behind now are in grave danger in falling further behind. It also enables smaller players to match much larger rivals. Nowhere is this more important than in the banking industry.

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Bank of Queensland’s Stuart Grimshaw believes he can now match the majors in technology because cloud computing gives him the ability to economically use systems that he simply could not have afforded three or four years ago. And it also means that some of the investments by major banks that were planned ahead of cloud computing may be over capitalised, although the large banks would vigorously deny that.

The banking regulators have been nervous about allowing banks to input too much key data on the cloud because they fear that in a banking crisis it could jeopardise survival of the key Australian banks. This means that Australian banks will have to be smart in how they use these new technologies. But of course that applies to all companies. Many of you would have seen my discussion with MYOB’s Tim Reed, who explained that by using cloud technology MYOB was now able to offer small businesses to run their ledger of bank accounts

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Others are doing the same thing and so productivity in Australia has become much more than simply industrial relations. But industrial relations are also important. If the Coalition wins they will foster independent contracting, which will enable a lot of the problems that many businesses encounter to be simplified. And for industries such as food and automotive the new General Motors agreement with its work force gives managers the right to manage. It is a right they have negotiated away in previous agreements.

Shareholders need to watch carefully what their CEOs and boards are saying for clues to whether the companies are falling behind.