What do top performing leaders have in common?

chess gameSo, what do top performing leaders have in common? They’ve all received some form of mentoring throughout their careers to get them where they are today.

In fact, Harvard Business Review surveyed 45 CEOs who had formal mentoring in place, and found that ‘71% said they were certain that company performance had improved as a result. Strong majorities reported that they were making better decisions (69%) and more capably fulfilling stakeholder expectations (76%).

While it’s certainly not a new concept in the business world, but it can be lonely at the top and many leaders find it challenging to know how they’re performing – and what exactly they need to do to be more effective in their role.

As a business leader you have to frequently make decisions concerning matters that have never before been undertaken. In such high-stakes conditions, leaders require wise mentoring with apparent rules of engagement to ensure total confidentiality.

Finding the right mentor can sometimes be the difference between success and failure. By working with a mentor, leaders are able to benchmark how they’re performing as well as be held accountable from a wise role model, someone with genuine guidance based on true-life experiences.

Here’s how some of our top performing members benefited in key areas of their business from having a mentor:

Transitioning into the C-suite 

There are a number of challenges involved in transitioning from a functional executive into the C-suite. By engaging with a mentor who has personally experienced such transitions, new leaders can gain access to perspectives that are uniquely contextualised and personalised. These ongoing relationships are often one of the most important when it comes to giving leaders the confidence to tackle new issues as they arise, particularly in areas that fall outside their core expertise and experience.

This is exactly why Director of Save Sight Institute and Professor of Ophthalmology at the University of Sydney Peter McCluskey, was drawn to seeking an experienced mentor.

‘I look after a lot of people, a lot of students and do a lot of administration, plus working as an eye doctor, a researcher and a teacher. Moving to this role was a big, big change and involved a lot of learning on the fly.’

‘TEC has really been a fabulous sounding board for helping me make sure I understand what the problems are that I was facing with personnel, strategy and implementation,’ Peter explained.

As someone who transitioned into a Director role from a research and teaching background, Peter wanted to ensure he had the right skill set, outlook and thought processes to successfully lead the institute, which is where mentoring made a measurable difference.

Building and retaining top talent

One of the many challenges affecting businesses regardless of the industry in which they operate is building and retaining top talent.

Managing Partner of Marsh & Partners Bronwyn Condon found that both external and internal mentoring is essential for retaining and developing employees throughout the firm.

‘We have a mentoring program within the firm where we ensure accounting graduates are getting to whatever level they need,’ Bronwyn explained.  ‘Beyond that is when I get involved directly. That means ensuring they can move from an accountant to a manager role and eventually a partner.’

Bronwyn has experienced firsthand the impact of this talent strategy in action, with a number of different employees advancing their careers within the firm. ‘We’ve got a lot of people who have been here for 10, 12 years who have worked their way up to the manager level. They wouldn’t be here if we didn’t have a strong mentor process in place.’

Having the right mentor that understands the importance of a talent strategy is crucial to business success, and leaders who can implement this strategy will set the organisation up for future growth.

Mentoring extends across the C-suite

Traditionally, mentoring is viewed as a one-on-one connection. While this is a still a valuable way to pass on insight, there’s also merit in extending this connection and bringing it into a group situation. Spending time with a group of senior executives, who share similar experience, insights and challenges associated with their respective industries helps to broaden and develop leadership perspective.

That was certainly the case for WBP Property Group CEO, Greville Pabst. Greville believes that the group connection is one of the most important parts of his mentoring experience. By attending both his monthly one-on-one mentoring session and meeting with his peer network of senior executives, Greville is able to project his ideas and refocus.

‘Not only do I have an experienced business mentor, I also have sixteen or seventeen other CEOs that I can talk to,’ Greville said. ‘We can all speak in trust and with confidence and I just think that is a really understated resource that TEC brings to its members.’

Greville explained that a key component of his mentoring experiences is the ability to help keep him grounded, ensuring his ideas and aspirations remain realistic for the future. On top of this, the members’ diversity means that no two opinions are the same.

‘We keep each other very accountable, that’s for sure. We have a vast wealth of experience from all walks of life. It’s been a great learning experience for me’ Greville explained.

Mentoring remains a valuable and versatile method of enhancing business success and ensuring leaders have the confidence, skills and knowledge necessary to make key business decisions. When business leaders fail to seek outsider input for support, their companies can suffer.

When you can’t go to the CEO, where do you go?

By TEC Chair, Dawn Russell

Succession-planning-key-executivesAs a key executive in an organisation, you want to make your mark. You want to contribute significantly to the overall mission and growth of the organisation and earn the respect of the CEO or Managing Director, as well as the respect of the people who report to you.

Chances are you’ll be shouldering considerable responsibility and making decisions that affect the future of the organisation and the lives of the people who work with you. And, as with any leadership position, there are always challenges.   The thing is, you can’t go running to the CEO every time there’s an issue. To start with, they’re more than busy enough without having to weigh into your issues; and secondly, what aspiring leader wants to be seen as incapable of handling situations that leaders face every day?

Perhaps you have a prickly staff member whose performance has dropped significantly over the last six months and you need to tackle an honest conversation with them. Perhaps you have a progressive idea for meeting your sales target, but want to test its robustness before you pitch it higher up. Perhaps one of your peers is making it difficult for your team to deliver to the expected standard and you need to “call” their behaviour. Or perhaps there’s a new process that is impacting negatively on your department, but challenging it is politically sensitive because its owner has the ear of the CEO.

Whatever the issue, you need a sounding board. As an influential CEO once said to me, “The worst decision I ever made was the one made by a committee of one – me!”

You need someone (or several someones) who will challenge your thinking and play Devil’s Advocate to help you see things from a different perspective. You need to tap into others’ experience when you’re faced with a situation you’ve never encountered before. It makes sense to call on the wisdom of others. The trouble is, whose wisdom do you call on?

You may decide to talk it through with your significant other or a family member. They may or may not have the necessary business acumen, but two things are for sure: they want you to succeed and they don’t want you to get hurt. But the trouble is, they have a natural bias. And because they love you, frequently they won’t tell you it the way it really is. They don’t want to hurt you; they don’t want to hurt your feelings. As a result, they’re not likely to really challenge your thinking or look for the flaws in your argument.

Alternately, you may feel safe enough bouncing ideas around with your colleagues…until the day something confidential finds it way into the greater populace at work, or until your idea is served up to the CEO by someone else as their own. And what will they think of you if you keep going to them for advice?

You may chat to your friends and mates outside of work about it, but do they really understand your role, your industry, your politics or the particular sensitivity of the issue? Besides, you won’t be considered such good company if they have to listen to you talking about work all the time!

Being in a leadership position is a challenge and it can be isolating. It’s also very easy to miss opportunities or reap a sub-optimal result when decisions are made by that “committee of one”. We are often best served by bouncing ideas around with others, but when you can’t go to the CEO, where do you go?

Find out more about KEY membership here

How to get specific and strategic about goal setting

Goal settingAs a business leader do you have a clear vision of what you want to achieve in 2016?

You may have general ideas, however once you return to the daily operations of the business it’s likely your ideas gets buried deep in the demands of the day-to-day.

Many leaders feel as though they work hard both in and on the business and yet they do not achieve the results or the work life balance they need. Often, for a business leader the key reason is they haven’t dedicated the time to think clearly and strategically without interruption on what exactly it is that they want to achieve.

An important step in defining your business and personal goals is to have a clear vision of what your top priorities are, then outlining the results you want to achieve within a certain amount of time.

Goal-setting paybacks

In New York Times bestseller What They Don‘t Teach You at Harvard Business School, Mark McCormack shares an interesting study that was conducted in 1979 on Harvard MBA students revealing the real impact of goal setting. He asked students whether they had clear, written goals for their future and if they made plans to accomplish them; 84% of students admitted they had no goals at all, while 13% had goals that were not written down. In fact, only 3% had specific goals in writing.

When interviewed 10 years later, the 13% of students who had goals were earning on average twice as much as those who had never established clear goals. However, the 3% with written goals for success had salaries that were a staggering 10 times more than the other students put together.

Ultimately, identifying effective goals and setting a strategy to achieve them helps leaders organise resources, streamline knowledge acquisition and raise motivation, particularly on long-term projects and objectives. Whether you‘re a business leader, a top athlete or a high achiever in any other field, establishing goals provides the focus needed in order to outperform.

Putting goal setting in place to move the business forward

An example of using goal setting to move the business forward is in a recent case study with TEC member Annie Flannagan, the CEO and Founder of Better Business Basics (BBB), which offers accounting and financial services to a range of organisations  throughout Australia.

Working in such a competitive market, Annie learnt early on that the company would need to invest heavily in internal processes in order to succeed. To do this, the company approached the goal-setting process as a set of scales, divided between the front-end user experience and the back-end processes within the organisation.

“We see it like an old-fashioned set of scales – those two must be in balance,” said Annie.

‘Whenever we look at setting goals at the front-end, we create a reciprocal set of goals for the back-end.’

‘All businesses have that, but for use they have to be in balance, because if they are not, we end up with either clients that aren’t being fulfilled or employees that aren’t being fulfilled.’

This has also required a unique leadership approach from Annie, especially around the formulation of company goals and strategy. By putting these processes in place, the company has been able to stay flexible and respond to organisational challenges.

‘If you look at strategy, crafting the strategy is one thing, the delivery of the strategy is the bit which needs to be in balance,’ said Annie.

‘It’s about having the right combination of allowing creative thinking, working out what is not necessary, writing your goals down and then focusing to get them executed.’

For a fast-growing organisation, having multiple perspectives on the development and implementation of company processes around goal setting has been invaluable for developing future strategy.

Isolation – Are you lonely at the top?

Business leaders often lament that it is ‘lonely at the top’; with few realising just how truly isolated it can be in the boardroom. But just how pervasive is this problem, what are its potential impacts and why does it need to be addressed?

Feeling distant and isolated at the top is not just a matter of people not understanding leaders’ positions and circumstances – it can lead to depression, stress and a whole host of mental and physical health problems. In order to truly feel appreciated, leaders can often benefit from outside advice that without prejudice challenge and deal with issues relevant to business.

This could be behind the prevalence of executive coaching and peer support schemes today. In its International Business Report from earlier this year, for example, Grant Thornton found that more than a third (35 per cent) of business leaders around the world said they have used a business coach at some point.

For business leaders who are struggling to cope with the lack of support and peers at the very top, seeking the assistance of an executive coach or support group can be a wise step to take.

Why loneliness hurts

For many leaders, constant loneliness can accumulate and spiral into problems far deeper than most people believe. This was highlighted in a May 14 2014 LinkedIn article by Thomas Gelmi, in which the author referenced the suicides in quick succession of two top Swiss executives. As such, Gelmi claimed that personal support “is no longer a luxury” for business leaders, and executives would do well to forge relationships with “sparring partners” who can act as a source of mutual support.

The link between isolation in the workplace and depression is not new, and is something that needs to be given more attention if loneliness at the top is to be successfully addressed. UK organisation Depression Alliance investigated the matter in a study earlier this year, in which it surveyed more than 1,000 employees on how they coped with depression.

Depression is the biggest mental health challenge among working-age people and often leads to considerable loneliness and isolation at work

The survey found that a staggering 83 per cent of respondents said they have experience isolation or loneliness at work due to factors such as depression and stress. However, they may not be coping with it adequately – less than half of those who felt isolated said they confided in a colleague about the situation.

Those feeling depressed at work may certainly find it beneficial to have an ear that can listen to them, as 71 per cent of respondents who did confide in a peer said it helped.

Emer O’Neill, chief executive of Depression Alliance, said finding support is key for depressed and isolated workers.

“Depression is the biggest mental health challenge among working-age people and often leads to considerable loneliness and isolation at work,” she said.

“However, many companies aren’t properly equipped to manage employees who suffer from depression so providing support to these individuals in the workplace is essential.”

Such is the impact of isolation in the workplace that a study from the University of British Columbia suggested it is more harmful than bullying or harassment, and can lead to dissatisfaction and health issues.

“Ostracism actually leads people to feel more helpless, like they’re not worthy of any attention at all,” noted Professor Sandra Robinson, co-author of the study.

Given the potential harm that isolation and depression can bring, it’s essential that business leaders know what steps to take to overcome the problem.

What leaders want

So what should leaders be doing to reduce the chances of becoming lonely at the top? According to the 2013 Executive Coaching Survey led by Stanford University, while the vast majority of CEOs today want advice and support, not many are actually getting it.

Even the best-of-the-best CEOs have their blind spots and can dramatically improve their performance with an outside perspective weighing in.

The study found that nearly two-thirds of business leaders do not receive external leadership advice or coaching. However, practically all respondents admitted they would be “receptive to making changes based on feedback”.

“Given how vitally important it is for the CEO to be getting the best possible counsel, independent of their board, in order to maintain the health of the corporation, it’s concerning that so many of them are ‘going it alone,'” explained Stephen Miles, CEO of The Miles Group, which also played a role in conducting the survey.

“Even the best-of-the-best CEOs have their blind spots and can dramatically improve their performance with an outside perspective weighing in.”

But does having an external leadership coach really generate results? Apparently so, according to the ‘Lonely at the Top: The Importance of Mentoring for Chairmen, CEOs and the C-suite‘ study by IMD and CMi. In the study, the two organisations surveyed a range of business leaders across the UK and Europe and found that 82 per cent reported that receiving mentoring “led to improved leadership behaviours and ability to manage key relationships”.

Mentoring was also helping in other business areas, such as improved strategic performance (71 per cent) and better decision making (69 per cent).

Even in an increasingly time-pressured business environment, CEOs need not go at it alone. By seeking assistance from outside coaches, mentors and support groups of like-minded leaders, they can stay healthy, develop as a leader and drive their organisation to success.

Struggling to Align Company Strategy with Innovation?

Innovation has become an area in which CEOs cannot afford to ignore. The importance of innovation has become a major area for senior executives to address as they look to improve their performance.

The result is that many executives now see the ability to formulate and implement an effective innovation policy as one of the most important aspects of their leadership development.

According to the Australian Bureau of Statistics (ABS), investments in innovation are now widespread throughout the country’s economy. In most recent figures, the ABS revealed 36 per cent of companies had introduced new innovations in 2012-13, while a further 22.8 per cent stated they were still in the process of developing new products and services.

However, innovation is also an area senior executives are struggling to align with company strategy, making it harder for companies to combine their development efforts with internal processes.

This was the finding from a recent study from Strategy&, formerly Booz and Company and part of PricewaterhouseCoopers.

The organisation’s research found that aligning company strategy with innovation is a major concern for companies in coming years, with 20 per cent stating this is the largest obstacle for a successful innovation policy.

A further 14 per cent are concerned about trying to incorporate company culture into their innovation policies, while 13 per cent are looking to build an external innovation network that could improve their performance.

The research found that product innovation is no longer the main area for companies to address, with the majority of research and development spending set to shift away from goods and towards services in the future.

Organisations are also beginning to prioritise radical innovations amongst new products, rather than investing in incrementally improving an existing product or service, according to Barry Jaruzelski, senior analyst at Strategy&.

“With the healthier market conditions, it is not surprising that business leaders say they plan to focus more on big breakthroughs. This will require companies to build new capabilities, an effort which they must not underestimate,” said Mr Jaruzelski.

“It’s not by planning or shifting spending alone that they will achieve this.”

Clearly there are weaknesses in the current approach towards innovation, meaning CEOs are going to need to spend more time aligning strategy with the development of new products and services.

How do different organisations approach strategy and innovation?

Innovation is usually assumed to be a single process, but in fact it will take different forms depending on the composition of an organisation and the different strategies that are in play.

That is the finding from a further research project from Strategy&. The organisation has formulated three unique forms that businesses can take when developing an innovation strategy.

These are:

  • Needs seekers – companies that use customer insights to drive their performance, finding innovative products that are specifically tailored to the needs of the customer.
  • Market readers – companies that are adept at reading shifts in their industry, and will then invest their research and development efforts into areas that are consistent with shifts in the marketplace.
  • Technology drivers – companies that are the most committed to out-of-the-box innovation strategies, relying on new developments and product offerings to offer something new to their customers.

Each of these different approaches to innovation require organisation-wide cohesion, which can then be applied to the specific product innovations that a company is pursuing. Strategy& also suggested that each of these models comes with a unique approach to the innovation process, with each being driven by different stakeholders within a business.
Strategy, not financing the key to effective innovation

Finally, one of the biggest mistakes CEOs can make is to assume that innovation is simply a financial exercise and that by increasing funding into a certain area they will be able to develop new products and services.

A study from the Harvard Business Review (HBR) suggests that the opposite is actually true – organisations that reduce their expenditure in research and development can actually see a greater return from their investments than those with a large budget for pursuing new products.

Using the case study of CISCO, the research suggested that innovation within an organisation consists of two different processes – explorative innovation and exploitative.

The first relates to a company’s ability to pursue big-picture thinking and develop products that are radically different to anything currently on the market. Exploitative research on the other hand, focuses on commercialising existing processes and driving new growth within an organisation.

Importantly, exploitative innovation doesn’t require a significant investment, and can often yield a greater immediate return for a business than explorative research and development.

In the case of CISCO, the researchers found that although overall investment in innovation declined in the early 2000s, the company’s output of patents – i.e. its exploitative innovation – actually increased.

Even more, successful organisations are those that can quickly change gear between these two different forms of innovation. By quickly shifting between philosophies, organisations were able to pursue the greatest number of new products and services.

Strategy underlying innovation

So how does organisational strategy factor into these findings? Well, firstly it illustrates how important company processes and management styles are for supporting research and development within a business.

Building and embedding this flexibility into the way a company approaches its internal processes is a major challenge for CEOs, especially as they look to develop a competitive organisation. Fortunately, the HBR research shows that developing the right strategy is more effective than simply expanding the budget for further innovation.

The research emphasised that effective leadership was essential for managing the strategic shift between the two forms of innovation.

“Visionary leadership is also about helping the company overcome inertia so that it can shift effectively from one frame of mind to another when the time comes. Few companies pivot easily, but those that do position themselves to ride wave after lucrative wave of exploratory, then exploitative, R&D,” stated the HBR authors.

As innovation becomes an increasingly important business function, effective CEOs are going to have to consider how they can align company strategy with innovation initiatives to drive greater value in their company.

Collaborative leadership begins with you

Collaboration: having been bandied about the boardroom for decades, it nonetheless remains an enigmatic concept in business today. Is it merely one of those hackneyed buzzwords that are so heavily frowned upon on CVs and company mission statements, or rather an incredibly relevant concept that applies to the modern organisation?

Businesses of all size and shape today will do well to ensure collaboration is still a major priority – and the onus, no doubt, falls on the organisation’s leader. This seems to hold true across the world, at least according to an extensive global study led by CEO and author John Gerzema.

In the study, researchers polled 64,000 individuals across 13 countries on the qualities they believed led to successful leaders and businesses. One of the most prominent insights garnered in the study was that most people wanted their leaders to be more collaborative, with this trait ranking among the highest, along the likes of flexibility and selflessness.

In fact, an overwhelming 84 per cent believed that greater collaboration and sharing of credit are essential to a successful modern career. So what does this mean for those sitting at the top of businesses today?

It means it’s time to take collaborative leadership seriously, if you aren’t doing so already.

What does it really mean to be a collaborative leader?

The importance of collaboration aside, it can be difficult to pinpoint exactly what it means and entails, especially in a leadership context.

It’s worth having a look around to see how different people define collaborative leadership. According to an infographic from the Collaborative Lead Training Co., the workplace is evolving towards a more collaborative future and thus redefining leadership.

The infographic lays out eight key differences between traditional leadership and collaborative leadership. Among these are the notions that in contrast with the traditional model, collaborative leadership:

  • Believes power is greatest in a collective team, rather than coming from a position of authority
  • Openly shares information and knowledge, rather than imposing ownership on it
  • Elicits suggestions and ideas from across the team – all the time
  • Empowers the team with immediate time and resources, rather than providing these only when necessary

As can be seen from the infographic’s suggestions, a collaborative leader is one who embraces a ‘flatter’ organisational structure, sharing authority and accountability around the team instead of hoarding it themselves.

Additionally, in an April 17 2013 HRZone article, leadership consultants David Archer and Alex Cameron said there are three essential skills and three essential attitudes behind a collaborative leader. Even if a leader possesses the three skills, they will not be able to be fully collaborative if they don’t have the attitudes to match.

According to Archer and Cameron, the three vital skills for collaborative leadership are mediation, influencing and engaging others. Collaborative leaders, they say, are adept at addressing and resolving conflicts the moment they arise. In addition, they are skilled at influencing peers based on the organisation’s culture – which is a critical skill to have if they hope to share control and leadership.

Lastly, engagement and relationship building are essential qualities for a collaborative leader, and this involves clear communication.

So, what are the attitudes that accompany these crucial skills? Archer and Cameron outline agility, patience and empathy as the mindsets that leaders should adopt if they wish to be collaborative.

It is clear that there are some common threads that unite the schools of thought around collaborative leadership. Leaders attempting to follow this model should place emphasis on the team rather than the individual, promote a flat and open company structure and empower their employees. This should be backed up with quick-thinking and the ability to take others’ points of view.

Why it pays to be collaborative

But why is collaborative leadership so important? Especially in the modern business world, where technology is exponentially growing in prevalence and reshaping traditional interpersonal communication, adopting a collaborative culture is essential.

This was pointed out by Carol Kinsey Goman in a February 13 2014 Forbes article. Ms Goman stresses that the dreaded silo mentality is holding back countless organisations today, and not sharing information around the company can essentially “kill” it.

As a recent study by Interaction Associates suggests, not embracing collaborative leadership can also hurt your company’s bottom line. The group conducted a study on what impacts the confluence of leadership, collaboration and trust can have on a business – including its financial performance.

In the study, Interaction Associates ranked more than 150 companies based on how well they embodied these three components. It found that those considered strong across the three traits demonstrated superior financial results – for example, their P/E ratios were 28.5 per cent higher on average for those classed as weak.

Collaboration is not just a vague ideal that companies should aim for – it is a very real concept with tangible results, and it’s time to embed this into your leadership today.

Implementing change in your organisation without risk

We work with a lot of great leaders, but even the most confident among them feel the heat when attempting to execute a serious change agenda.

What makes leading change so demanding?

From your own personal efforts to change a habit or transition from the top of the curve to the next, you know the effort and personal commitment required to make change stick. When you extend that across your organisation and through to your customers, the increased complexity of the groups combined history and entrenched views of the world makes the process much harder. At the same time, your people are instinctively assessing where they will win or lose.

Your executive team may engage and debate the direction you want to take, but it’s easy to confuse agreement and head nodding with a commitment to take the action that delivers real change. If you have good people in your organisation, the chances are they aren’t willing to adapt to every new initiative that comes along.

The pace of change can also be frustrating and non-linear. People need time to absorb what it means for them personally. Teams need additional time to plan how supporting processes, tools, behaviours and culture align to ensure change is embedded.

Let’s assume you have mastered the basics. You have a strategy that tackles key pain points, shaped a vision through consultative engagement, people you trust lead the change and you’ve defined the metrics that will determine success.

These are all essential ingredients, but not a guarantee for success. As you’ll see from the two stories we selected, even with a focus on driving change and some basic principles in place, things can still go wrong.

We have a problem in Houston

We arrived in Houston in the middle of summer. The first mistake was venturing out on foot. Sidewalks often stop for no reason and crossing a parking lot can feel like crossing a desert.

We were implementing a new system and thought most of the challenging engagement work was behind us. We were starting testing when someone had said, ‘you should reach out to the team in Houston’.

We discovered they only had a team of 25, but importantly a team that would be responsible for 95% of all transactions and the majority of data input for the next year. With tight timeframes, the design team had focused on future state, so we had a patchy view of what really happened today. The reality was that this small team was critical to the current stage of the process, but was not a part of the future state vision, hence their limited involvement.

The agenda for the meeting in Houston was to outline the six-week schedule to go live and get commitment for testing. The response we got from a team that had no input to the scope or design was rather abrupt.

In the end, the IT team had to build additional infrastructure and migrate an extra 100,000 documents to ensure that the implementation didn’t cause massive disruption across the organisation in the medium term. The project not only blew out the budget, it was delivered 6 months later than planned.

What was the cost of overlooking a small middle office team that was going to be a phased out in 18 months time? Two of your scarcest resources – time and money.

We’re shutting it down

We were asked to look at the health of a joint venture of two financial firms. The risks posing a threat to the success of the change were flagged to the executive team – culture and leadership. Because both organisations were steeped in years of service guided by the principle of ‘client first’, the leadership team viewed these as internal issues and low risk.

We spent some month’s road showing a combined set of business and leadership principles, including the need to lead by example, and that’s just what happened.

Shortly after the launch of the new business model in the largest division, one of the smaller offices walked out. The media took hold of the story reporting rumours of two other offices at the door. The Chairman took matters into his own hands. He decided the firm’s reputation was at risk, called an ad hoc meeting and announced there would be no new financial model or change to the reward structure, and that the new business model was merely a guide. The CEO was forced to stand in the shadows and watch.

If key metrics rather than instinct had been applied in that pivotal moment, they would have discovered that they were only halfway towards achieving the target size of the new enterprise in line with their strategy – a strategy that depended on voluntary attrition.

But that wasn’t the real price paid. How does one value the cost of leadership that is undermined?

What’s the true cost of getting change wrong?

The senior sponsors in both cases underestimated the complexity of the change and the need to honour a process. They ignored key transition activities, didn’t take the time to consider potential change risks and were unable to hold steady in the storm. Ultimately, they paid a price.

How do you implement change in your organisation? Do you expect your CIO, head of people or project management officer to have the capacity and skill set to anticipate and act upon potential change risks? Do you seek an independent perspective or regularly monitor the health of the change itself to ensure you haven’t missed something that could de-rail the process?

When the cost of change to your organisation, your team and your own legacy is potentially so high, it might be time to take a fresh perspective and re-evaluate the cost of getting it wrong.

Written by Tiffany Jones and Adam Sanford.

Tiffany is a master speaker for The Executive Connection, with twenty years of experience advising institutions and family offices in the art of leading with confidence and building momentum. Adam is a strategic change advisor, with significant experience leading complex, large-scale transformation programs.

Adam and Tiffany work at Momentum Advisory Group, an advisory boutique aimed at helping individuals, teams and families in business to lead with confidence.

Building an agile company: the case of McDonalds

Every business needs to be able to keep up with market changes in the face of widespread upheaval. Maintaining this organisational agility isn’t easy, especially for large companies with an international outlook.

Building an agile company the case of McDonaldsbWhile there are plenty of examples of industries that have been up-ended as a result of new competitors and changing conditions, there are also many that have managed to respond to these changes.

Among these is McDonald’s – one of the world’s largest and most iconic fast food brands that has reinvented itself in recent months by focusing on agility and innovation.

Meeting the challenge of a competitive marketplace

The food sector, and fast food in particular, has traditionally been one of the most competitive industries. The relatively low barriers to entry and large customer base have seen organisations compete on price, convenience and the shortest possible wait between ordering and eating.

While these factors have traditionally underpinned the industry, evolving market conditions and increasing competition from “fast casual” dining experiences that focus on quality have changed the industry.

For companies like McDonald’s, international economic conditions, such as slow spending in Europe, have affected sales while a generational shift away from fast food has decreased the number of young consumers dining beneath those iconic golden arches.

In the case of McDonald’s, the result has been slumping revenue and profits. The company’s revenue has dropped 11 per cent, resulting in a 30 per cent decline in profit, according to a report in Fortune Magazine.

To address this, the company has embarked on a strategy to become leaner. This year alone, the company will close around 700 under-performing stores around the world – double the original predictions. However, this shift is going much deeper than simply closing stores – the company is moving quickly to redefine its dining experience.

Reimagining the consumer experience

To reinvigorate global sales, McDonald’s has unveiled a number of new dining experiences that aim to reconnect with younger patrons, while also creating a higher-quality and more personalised product.

One such innovation has been the introduction of the Create your Taste experience in Australia, giving diners the opportunity to build their own burger from a range of 30 different ingredients. This new way of ordering uses touch-screens in participating stores that patrons can use to customise their meal.

This innovation is currently available in around 30 stores, but will be rolled out to 700 stores over the next nine months – underscoring how quickly this service is being scaled across the business.

While the Create your Taste product has been adopted across a large number of stores in Australia, other innovations have also been launched.

In Sydney, McDonald’s has launched The Corner, a redesigned McCafe that is styled to resemble an independent cafe rather than a chain. The design plays down traditional McDonald’s branding like the golden arches in favour of gourmet, personalised offerings served with metal cutlery and a range of cafe style hot beverages.

While the company has no plans to roll The Corner out nationally or internationally, it highlights the creative directions the company is pursuing in an attempt to reinvent its dining experience. This isn’t the first time Australia has seen the trial of new experiences from the company either – the first ever McCafe opened in Melbourne back in 1993.

Has this shift worked?

Transforming one of the world’s largest fast food services into an agile company that embraces modern trends is no easy undertaking. For McDonald’s, it’s too early to tell whether these organisational shifts will reverse the company’s financial position.

At an organisational level, there are signs this move is being embraced, with the company’s Australian CEO Andrew Gregory stressing these changes are designed to build a more transparent and responsive dining experience.
For other business leaders, the McDonald’s experience underscores how it is possible for even the very largest enterprises to become more agile and innovative. As market conditions continue to challenge organisations, developing, testing and implementing new strategies across multiple branches and departments will be a defining feature of successful companies.

Is your leadership style appropriate for managing change?

Is your leadership style appropriate for managing changeEvery business leader will be familiar with the notion that the corporate world is changing rapidly – faster than at any other time in human history. Faced with this evolving landscape, CEOs now need to think about how they are handling this change to position their company for future growth.

Of course, navigating this landscape also calls for leaders to evaluate their own skill set and determining whether or not they have what it takes to lead a business through a significant change.

Getting the change process right

The pace of change within a company has obviously increased, placing new pressures on organisations to adapt. Rather than simply evolving over time, many businesses are now treating widespread organisational change as an ongoing, permanent process.

While this is certainly the new reality for companies, that doesn’t mean business leaders are responding fast enough. A recent study from McKinsey and Company found that 60 per cent of respondents within businesses have seen an organisational redesign in the last two years, while 85 per cent have experienced one in the last three.

Even though organisational redesigns are occurring regularly, the ability of companies to achieve their outcomes is still muted, with the study suggesting only a quarter of organisational redesigns achieve their stated objectives.

To address this, McKinsey suggested the following nine steps to help navigate this process:

1.    Focus first on the longer-term strategic aspirations
2.    Take time to survey the scene
3.    Be structured about selecting the right blueprint
4.    Go beyond lines and boxes
5.    Be rigorous about drafting in talent
6.    Identify the necessary mind-set shifts – and change those mind-sets
7.    Establish metrics that measure short- and long-term success
8.    Make sure business leaders communicate
9.    Manage the transitional risks

While each of these offers a different angle that companies can use, among the most important steps is step eight – communication from business leaders. Fortunately, this is also the area where CEOs can most directly affect the success of a change strategy.

Managing change from the C-Suite

For leaders that are committed to improving their change management processes, there are a number of steps they can take to begin this process.

Among the most important comes from recognising current limitations imposed by existing workloads and then taking steps to address these so that staff can commit to a major shift in corporate direction.

In fact, research by the Corporate Executive Board found that 88 per cent of workers have seen their workload increase to the point where they are unwilling to put in more work to met organisational objectives.

There are a few other features that can also set a strong change management effort apart from the rest. The Harvard Business Review suggested that staff workloads are just one of four parts of the equation, with the remaining three covering project duration, commitment from senior management and the technical capabilities of the teams involved.

Put simply, companies that embark on short change management strategies, with buy-in from the C-Suite and a highly technical staff who also have the time to commit to a project achieve the strongest results. Those with the opposite qualities on the other hand, proved more likely to fail in the research.

Change management the sign of a strong company

While leading a company through a major organisational change places new pressures on a CEO, there are benefits that come from getting this process right. Business leaders that can actually achieve their stated goals will be able to set their company up for future growth, while standing apart from their competition.

With research from the Project Management Institute last year finding only 18 per cent of companies are successful at leading change initiatives, the opportunities for companies that can make this change will be in a much stronger position long-term.

Is company culture holding back your organisation?

Company culture can be a difficult thing to quantify and measure, especially for an SME that is looking to become more innovative.

While CEOs and company leaders will play a major part in establishing and maintaining a strong internal culture, there are still issues which derail these initiatives.

This is especially challenging if it means that companies cannot remain competitive and stay ahead of the opposition. Innovation is just one area where company culture can play a major role in long-term success or failure.

This issue was recently explored in the Culturing Success report from Microsoft into how widespread innovation is within a small business and what is setting apart high-performers in this space. The research reported that nearly 70 per cent of SMEs in Australia are finding it difficult to become more innovative because of company culture.

According to the report, there are four cultural issues which are undermining the performance of Australian firms. These four are; working in silos, employee distrust, poor collaboration and a fear of failure.

The importance of innovation was underscored by Microsoft Australia’s Managing Director, Pip Marlow, who stated that “innovation is vital to the success of any business, no matter how big or small.”

“However, our research reveals that many businesses find it difficult to develop a culture of innovation.”

While there is clearly a lot of room for Australian companies to improve their processes, the report did highlight features that set highly innovative companies apart from the competition. The 33 per cent of firms that fell into this highly innovative category possessed five key features, including:

A strong customer focus
Awareness of and appetite for innovation
Visible and involved leaders, which in turn create engaged employees
Authentic internal dialogues
A supportive working environment

The result of implementing these processes is a considerable improvement in the performance of an organisation. According to the research, 39 per cent of high-performing firms reported above average growth, compared to less than a quarter of those who are poor innovators.

So how can companies achieve this new focus? The report suggested four strategies that companies can embrace to move closer to the example set by highly innovative organisations:

Attract new staff

The study emphasised that attracting the right staff is an important part of building an innovative business. By bringing in new perspectives, organisations will be able to create great ideas and subsequently see them through to completion.

The advantages of attracting the right staff go beyond boosting innovation, they can also play an important role in realising customer engagement.

Many Australian companies are already aware of the challenges that come alone with attracting and retaining valuable staff members. For fast-growing SMEs like Enablis, finding the right staff members has been the core challenge when trying to scale the business to handle further expansion.

Collaborate with external partners

Creative ideas and innovative solutions don’t just come from within a business – in many situations, creative ideas will actually come from tapping into the skill sets of other firms and working collaboratively.

Business collaboration is also becoming increasingly important across new technology, with collaboration over cloud technologies predicted to double over coming years, according to a study from Research and Markets.

Evaluate performance

Companies that are looking to become more innovative will need to have established and concrete processes to measure performance. Microsoft suggested organisations can audit themselves to understand exactly how well they are realising an innovation strategy at each stage.

One option that companies can use is the assessment tool provided by Microsoft. This quick test was designed to accompany the research and allows businesses to measure how innovative they really are. This sort of information can then be used to identify the areas an SME will need to work on if they want to move up the scale.

The benefits of this system were also highlighted by Pip Marlow, who emphasised the advantages of taking this assessment for small-business owners.

“Microsoft’s new self-assessment tool is the first of its kind to help small and medium-sized businesses identify their culture-related obstacles and then implement tangible solutions to become true innovation leaders,” stated Ms Marlow.

Build a flexible workplace

Staff will often perform better if they have the opportunity to get out from behind their desk and work in a way that best suits them. Not only can making this change ensure that staff are thinking creatively, it can also reduce the amount of stress they feel outside of work.

Solutions like working from home and employees choosing their own hours are easy ways for small businesses to introduce more flexibility, and thinking along these lines is a key ingredient in building an innovative company.

A flexible workplace can also involve introducing new processes to reduce the amount of time spent working on menial or repetitive tasks. For TEC member Alister Haigh, introducing ‘Baxter’ – a robot  designed to take over menial processes – has introduced a new level of flexibility into his family’s chocolate business.

Of course, none of these approaches alone is going to transform a business into an innovative organisation. But, by combining these different factors into a single coherent strategy, businesses will be well-placed to become a highly innovative firm that is also a leader in their industries.

For small businesses, building this sort of culture is going to require constant attention and maintenance. While this might sound daunting, the benefits for SMEs that can embrace this way of thinking are certainly going to be considerable.

From West to East: Australia’s Window into Asia


The focus of the world has shifted east in recent years – the 21st century has been hailed as the ‘Asian Century’ and the center of trade for the world has moved from the Atlantic to the Pacific.

This is certainly not a new trend; however recent events have highlighted increasing strategic options for Australian SMEs to explore.

For instance the internationalisation of the Chinese Yuan is an example of the new economic strength that is found in the Asian region, with foreign companies now experiencing unprecedented access to Asian markets, and vice versa.

With the recent signing of the China-Australia Free Trade Agreement, after a 10 year negotiation period,  it is expected that trade will double from the existing levels as the local tariff barriers have been lifted between Australian exports and the Chinese Markets.

For Australian and New Zealand SMEs, this presents exciting new opportunities being the best-positioned, geographically and in business to make the most of this shift in the world economy.

Of course, with these opportunities comes a new set of challenges. Small businesses will need to start thinking internationally if they want to capitalise on the opportunities presented in coming decades. By being agile and taking the time to truly engage with the new powerhouse economies of the Asia Pacific, businesses will be well-placed to grow throughout the Asian Century.


In recent article released by ANZ, Mark Whelan Managing Director of Global Commercial Banking stated “all too often there is a difficulty in translating such a huge opportunity into success for individual firms or even industries. Today, only a small fraction of our small and medium-sized businesses in Australia export and a recent report by the Economist Intelligence Unit tells us only 19 per cent of businesses have taken advantage of recent FTAs”.

Without a doubt, Asia is the most dynamic and rapidly changing part of the world. Backed by almost half the world’s population, economies in the region are responsible for some of the highest expansion rates globally and will continue to be a major source of global growth into the future.

China is Australia’s largest export market of goods and services, accounting for approximately a third of total exports.

According to a recent report by PricewaterhouseCoopers (PwC), Asian countries will continue to see dramatic growth in coming decades; by 2028 the report suggests that China, which has already become the largest country in the world by purchasing power parity, will be overtaking the US in market exchange rate.

An Expert’s Insight

TEC BRIC Speaker David ThomasDavid Thomas, TEC Speaker and BRIC expert on global hotspots,  suggested  “the Australia-China relationship is about to enter a ‘Golden Phase’ with the signing of the China-Australia Free Trade Agreement, the visit to Australia by President Xi Jinping, and the increasing awareness of Australia’s agricultural resources and services capabilities in particular sectors”.

David regularly works with many wealthy Chinese entrepreneurs, investors and business leaders who are building links into Australia for a combination of business, investment and migration purposes. He highlighted that this is creating opportunities for local financial services providers (wealth managers, insurance brokers, accountants, banks, lawyers etc.) to provide support and services for them on the ground in all of our major cities and regional centres.

“Many arrive with limited or no knowledge of Australia’s complex tax, superannuation, insurance and business environment. Many of them are looking to set up local businesses, local companies, superannuation funds, bank accounts and to insure themselves against a combination of personal and business risks,”

“They also have to decide where to live, whether to buy or rent, where to send their kids to school and how to develop a local network of personal and professional contacts. This is creating enormous opportunities for local SMEs to provide the relevant services, support and advice, and to upgrade their capabilities, language and cross-cultural skills to service this lucrative and rapidly growing market,” said David.

“China’s ‘Going Out’ strategy is in full swing. Nearly half of China’s wealthiest people are planning to move to another country within the next five years and there is already evidence of a sharp increase in numbers, interest and motivation amongst those who have Australia in their sights,” Concluded David.

Clearly East Asia’s importance is only going to increase in the future. For SMEs, though, the question still remains: How can this expansion drive business growth locally?

Why SMEs need to get involved

The rise of new economic superpowers in Asia is going to create radical changes for SMEs in Australia and New Zealand. While the biggest changes will be for exporters that are looking to earn a share of new consumer demand for the Asian region, this change will affect businesses at every level.

Free trade agreements are just one example. The recent deals signed with Japan, South Korea and China – three of the largest economies in East Asia – means the door has already opened for enhanced trade and market access.

Of course these agreements and engagement is a two-way street. SMEs have greater access than ever before to these economies, businesses can now compete directly with local businesses.

This means that competitors are no longer confined to the same town or state. Now, competition is on a global scale, with many innovative Asian enterprises looking to unlock new opportunities throughout Australia and New Zealand.

Hitting the export trail

China is the world’s largest food and beverage consumer in the world with a population of 1.3 billion, capitalising on the ‘dining boom’ across Asia is an increasing trend for Australian businesses.

Recent events in the F&B sector are providing more opportunities for Australian exporters than ever before.  China’s strong economy and wealthy cities are in demand of sanitary high quality meat, dairy, fruit and other products from Australian exporters.

One example of this is TEC member and Managing Director of Beerenberg Farms, Anthony Paech who has expanded his family business into a global operation, exporting an increased percentage of their products overseas. Their premium products are 100 per cent Australian, sourced directly from their farm in Adelaide. This particularly appeals to Asian customers and the five star hotels they supply.

Another shining example is award winning TEC member company Craig Mostyn Group, a leading diversified food and agribusiness with revenues in excess of A$310 million, who operate locally and throughout Asia. With close to 30 per cent of pork products exported to Singapore and the recent investment into abalone farming exporting over 95 per cent of its high value product into Japan and China.

Once you begin exporting into another country you are scaling your business to a much higher level, it is strongly advised to have a formal strategy in place. HSBC states that 73 per cent of Australia’s exports go to Asia and estimates that by 2020, it will increase to 80 per cent.

Many SMEs find it difficult to determine where the best point of entry for their products is. The best approach is to do your homework, undertake research and then approach Asian countries that have the right market conditions and infrastructure aligned to your products and services.

Risks and operational challenges

Cultural differences are also an important factor in effectively approaching business engagement in Asia. Even within a single country, markets conditions are incredibly diverse and present their unique operational challenges, having a strong cultural understanding will prove beneficial and minimise the risks.

According to TEC Chair Max Robertson, “the risks in most of Asia will be from the ‘unknown unknowns’ or the things you are oblivious to. SMEs need to get educated about the characteristics of the individual countries they are interested in. For example, within Indonesia, pork has a good market in Bali but not in Java due to the different religions in the two areas.”

“You need to be aware of the differences between countries and that most countries are not homogeneous. There are enormous cultural and linguistic differences you need to understand. You need to be sensitive and aware of the differences and how they can impact upon business opportunities.”

Cultural factors aren’t the only risks that organisations will need to overcome when approaching a foreign market either – there are also bureaucratic obstacles for companies to navigate.

Tax is just one example. Even as western taxation and accounting standards become widespread in the Asian region, these areas are still less developed than SMEs will be used to in Australia and New Zealand. The same is true for legal practices and many other structural factors that underpin a successful business.

“Get advice from accounting firms on tax and don’t make assumptions about the rule of law and payments. You can’t generalise.”

“There are terrific opportunities in Asia, but there are also major risks if you get the wrong joint venture. There can also be problems in some countries with repatriating profits, as some of the universities have found. Companies need to be acutely sensitive of how difficult it is to move money around,” explains Max.

TEC member and Managing Partner of WMS Chartered Accountants, Aaron Lavell is an example of how Australian expertise is training Malaysia’s accountants. “As Malaysia is currently rolling out the implementation of a new GST, we’ve found there is a market for Australian expertise and training on this topic,” Aaron explains. The training covers areas such as tax rules, legal requirements, cash flow and system issues that arise when a country transitions to a GST regime, as Malaysia will in April 2015.

Businesses looking to address strategic risks when entering Asian markets must remember to expect the unexpected. Often the best way around this is to build partnerships with local companies and embark on joint ventures in order to enter Asian markets.

Not only does this make financial sense for Australian companies, it is also a good strategy for reducing the risk posed by entering a new market.

Offshoring for cost reductions

The potential of Asian markets isn’t limited just to exports – SMEs can also benefit from moving their business processes to East Asian markets in order to become true multinationals.

Currently manufacturers have been the most prolific users of outsourcing to the Asian region, with mainland China firmly established as the ‘factory of the world’. However, the next step is going to involve moving services and other business processes to overseas markets in order to make the most of lower input costs.

While lower costs might be a major advantage, this shift in labour will also allow Australian companies to invest more in their local staff, keeping high-value processes in Australia, while moving low-skilled work overseas.

Many SMEs may never have considered the possibility of outsourcing their processes to another country, especially if they are still focusing on building a strong business. But, with cost pressures rising, it is now more important than ever to look for new growth opportunities.

Here are some of the core benefits:

  • Lower costs
  • Accessing skilled experts
  • Reduced overheads
  • Greater flexibility among staff
  • Increased efficiency

Shorter turnarounds

Of course, offshoring part of a business isn’t a process that can be completed overnight. SMEs in Australia and New Zealand will need to invest time in understanding everything that’s involved and finding partner organisations that can assist with their outsourcing efforts. As with any major development, a strong plan and comprehensive risk management strategy are essential.

There are clearly obstacles that organisations will need to undertake, regardless of whether they are looking to export to Asian markets or outsource their business processes. However, companies in Australia and New Zealand are better placed than many in other countries to capitalise on the coming Asian Century.

For those who commit to this process and truly engage with these markets, the potential for future growth is virtually limitless.

About the Author

David is well known in Asia Pacific for his experience, credibility and passion for identifying, building and facilitating business and investment relationships between developed and emerging countries. David brings personal insights, anecdotes, stories and observations to every presentation to show business leaders and forward thinking organisations how to profit from a fast changing world.

The Opportunities and Challenges Facing Australian SMEs in 2015

Australian businesses are facing increasingly difficult conditions, as fluctuations across both international markets and the local economy create a persistent challenge that companies will need to address.

For CEOs and other senior executives, understanding these developments and positioning their business to make the most of new opportunities will be essential for realising strong ongoing growth. As the economic situation continues to fluctuate throughout 2015, CEOs are going to see even greater demand on their core leadership skills to navigate these changes.

This has been reflected in the most recent confidence index from The Executive Connection (TEC). In the research, we asked both C-suite executives and SME owners what they felt were the largest issues they saw affecting the market, along with how confident they were about the future.

Our survey revealed that although business leaders are confident about the future, 37 per cent feel the biggest barrier to future growth will be their ability to develop new innovation. A further 35 per cent are worried about finding the right staff, while 20 per cent cited difficulty in securing funding and access to capital.

“Uncertain economic conditions and the ability to access capital present SMEs with a challenging business environment. CEOs must rethink their current strategies to find new ways to grow and thrive in a competitive and unsteady market,” says Stephanie Christopher, CEO, The Executive Connection.

“In today’s challenging environment, the day to day management of running an enterprise can often leave business leaders feeling isolated, undermining their confidence. CEOs and business owners are faced with daily make-or-break decisions that could have significant implications on their business; and many leaders without a support network  feel they are making these big calls in a vacuum.”

To get a better understanding of the major trends affecting SMEs, Warren Hogan, the chief economist at ANZ Bank has given TEC an exclusive insight into the trends that will affect business performance in the next 12 months.

TEC ANZ Warren HoganThe Economy and Australian SMEs in 2015 – Warren Hogan, chief economist ANZ Bank

Cheap energy, money and low wage rates mean 2015 is a great year to get ready for growth.

We believe that the business operating environment will improve gradually through 2015, thanks to favourable trends in labour costs and energy prices, lower interest rates and the weaker Australian dollar. Indeed, we have already seen hints of these trends in recent surveys of small business. Eventually, we expect these factors will feed into stronger growth in most sectors outside of mining and related services, so SMEs should already be preparing themselves for a cracking 2016.

Overall, 2015 will continue to be characterised by the transition to a post mining-boom economy. There will be progress and some sectors will do extremely well in certain states. Businesses linked into the NSW construction market seem set for a good year, for example.

However the fallout from the end of the mining investment boom is taking the Australian economy along a lumpy path and 2015 could continue to see some bumps. Conditions are likely to be stronger in 2016 and so this is a good year to get prepared for better times ahead by taking advantage of relatively low costs for staff, energy and money. ANZ remains confident the Australian economy will make the transition from the mining boom back to what we call ‘business as usual’. A steady expansion of the economy lead by business spending, housing investment, consumer spending and employment growth across a wide range of sectors is still the most likely outcome.

The political scene will remain difficult, with the commonwealth and most state governments reluctant to spend – due to their ambitions for fiscal consolidation. There is also pressure for governments to find additional revenue and the GST is vulnerable to being broadened or lifted.

However there is unlikely to be much progress on taxation or Industrial Relations (IR) reform this year. Any big bang on the policy front that might make a material difference for businesses will likely have to wait until the Abbott government’s second term, although a second term for the Abbott government is looking less likely than it was a year ago. Two of our biggest three states will be disrupted by elections, but these will be over and done by the end of March. Both the Baird Government in NSW and Newman Government in Queensland seem likely to hold onto power according to opinion polls and betting markets.

Labour Costs

There are two main components to labour costs; the wage rate and the administrative elements of hiring and firing. We think that overall labour costs will remain steady (or only grow a little bit), driven by softness in wages.

The administrative costs around labour will not really change. The government has stayed away from IR thus far and we can see very little relief from taxes or regulations in the short-term. The labour market remains soft despite some evidence of rising hiring intentions. Ongoing job losses in some sectors and strong labour force growth are pushing the unemployment rate higher. This is hurting consumer and ultimately business confidence.

But the unemployment rate is drifting up and the wages of Australian workers, which were the most expensive in the world a few years ago, are slowly adjusting. Some of that change is happening via the weaker Australian dollar but it is also occurring through wage restraint. Australian wages have failed to keep up with inflation in recent years due to weakness in labour demand. With inflation likely to edge lower this year, and the labour market to remain soft, wage growth will probably remain weak for another year.

The really weak spot for employment is for young people. The unemployment rate for under 25s is now as high or higher than the early 1990s recession. This could be used to strategic advantage by business. Targeting the young and training them for medium-term growth is worth thinking about over the year ahead. Older workers too are a potential source of talent and provide business with a wealth of knowledge. Population ageing can advantage those businesses willing to invest in maturity and experience and the data plainly illustrates that older workers – particularly older women – are keen to stay in the workforce for longer.

In the presence of a soft labour market, a lower headline inflation rate is more likely to filter through to wages and then core inflation as well. We now expect the consumer price index (CPI) to trough at around 1.5 per cent in mid 2015 from 2 per cent previously. Core inflation is now expected to be near 2 per cent in late 2015.

Energy Costs

Global oil prices have started 2015 at about half the level they were a year earlier. Most of this declined occurred over the last six months with the oil price falling by more than 30% in December and early January. This means that energy costs will fall in the early months of 2015 and will likely stay low for much of the first half of the year. We think oil prices will remain low over the course of 2015 and will trickle through the energy complex, putting downward pressure on all energy costs. This is not good for energy producers (countries and companies) but is great news for everybody else. It puts more money in the pockets of consumers to spend elsewhere and it lowers business costs, enhancing profitability and freeing cash flow for investment or debt reduction.

If the fall in energy costs is sustained, we believe it will support confidence across the economy and increase the pace of the non-mining recovery.

Interest rates

The big fall in global energy prices means lower than previously expected inflation in 2015 which then provides scope for lower interest rates.

Interest rates are at historical lows and have been steady for much of the past 18 months. We think that will continue in 2015 with little chance of a significant rise in rates. Indeed, long-term rates have declined in early 2015 and there is a growing probability that the Reserve Bank of Australia will lower the cash rate again in 2015, given the weak inflation outlook and a sluggish non-mining economy. Interest rates and the availability of credit are highly favourable for business in Australia at present, making it a great time to invest.

Australian dollar

The Australian dollar started 2015 at the lowest level in five years against the strong US dollar. At USD0.80, the AUD is well below the five year average level of USD0.97.

Weaker growth and lower inflation in 2015 will provide the Reserve Bank of Australia with a reason and the scope to take the cash rate down 50 basis points to 2.00 per cent over the first half of the year. In our view the Australian dollar is providing support to the economy, encouraging companies that were choked by the mining boom to expand investment and export activity again or compete more easily with imports. This will help growth in the economy.

However, the Australian dollar has not fallen as much against other currencies. The Yen and the Euro have been weak as their central banks continue to expand unconventional policies which are ultimately aimed at weakening their currencies. This is likely to continue. The Australian dollar is a little weaker against most Asian currencies – importantly those of Indonesia and India – but not by much. The other big move has been against the NZ dollar, where the Aussie is at its weakest level in decades.

While the weaker currency helps the competitiveness of Australian companies, it does make imported goods more expensive. With the currency likely to continue to fall through the course of 2015, this suggests companies considering significant capital goods purchases from overseas should lock those in, or at the least the exchange rate, as soon as possible.

Demand in the economy

All these factors should support growth in the economy over the course of the year ahead even if that growth is still a bit below historical norms. The key is that the non-mining economy will continue to improve as headwinds abate and the factors discussed above exert a positive influence on activity. For SMEs it is going to be important to get in ahead of the crowd and take advantage of these positive conditions.

The exception is the mining sector, which is suffering from a wind down in investment activity and weaker international prices. The mining sector will continue to shrink over the year ahead. We do however expect commodity prices to stabilise over the first half of the year, helping the economics of mining down the track.

At the other end of the spectrum, the residential property market – and to a lesser extent the non-residential construction sector – should continue to do well.

Construction approvals suggest that building activity in most of the major cities will remain strong in 2015. This should increase employment in these sectors and have positive spin-offs for related manufacturing activities.

The great bulk of the economy is still just muddling through with business confidence once again softening in late 2014, it may take until mid-way through the year for an improvement in momentum to show up in business spending and employment.

About the Author

Warren Hogan Chief Economist, ANZ Bank

Warren runs Economics and Global Markets Research and is responsible for ensuring a globally coordinated ‘ANZ View’ for internal stakeholders and customers. He has worked as an economist and strategist with Australian and international banks for nearly two decades, joining ANZ in 2005 before becoming chief economist in 2010. Warren’s research focus is on global macroeconomics, monetary economics and financial markets. He is also the Secretary of the Australian Business Economists (ABE) as well as a member of ANZ’s Regional Investment Committee.