The professional services firm’s latest report suggests that a clear set of characteristics are displayed by some of Australia’s most successful business leaders and asserted that halving the gap in management effectiveness between Australia and the rest of the world could lift GDP four per cent, meaning a $70 billion boost to the economy.
Written as part of Westpac’s Businesses Of Tomorrow program, Deloitte’s research argues that Australia’s economy isn’t just about waiting for more favourable conditions or being in the right industry.
Rather, the decisions businesses make internally have the potential to help combat challenging conditions and yield success even when it’s rainy outside, particularly as we transition to a services-led economy, with 2.1 million active businesses across Australia.
So, haven’t we heard all this before? Better productivity equals boosted returns, particularly with the advent of globalisation and digital disruption facilitating newer, more streamlined ways of operating.
But what if the answer was not tech-related – and profits could be influenced more by better business leaders than by tech-enabled efficiencies?
Deloitte’s report has identified the traits of successful business leaders as centred on four areas – a fit for purpose education; a set of core skills, especially management and strategy; international experience; and connectivity.
The research found that our better leaders are well educated, with 43 per cent of top business leaders more likely to have a higher education degree compared with average business leaders. Intriguingly, leaders in fast-growing companies were actually 22 per cent less likely to have a higher education degree compared with the average business. This is perhaps attributable to the aforementioned digital disruption changing the ways businesses operate or other business needs that are less based on traditional education, such as entrepreneurship.
Although clearly not a prerequisite for effective leadership, senior people at top attractor businesses and fast-growing businesses were two and three times more likely to have international experience than a leader at an average business, while leaders in successful businesses tend be more connected with their staff, suppliers and customers.
“Economic conditions are one thing – the other factors that are changing retail, like effective leadership by managers, is obviously the best way to try and respond to those outside challenges,” John O’Mahony, partner and author of the Deloitte report, told Inside Retail Weekly.
“Everyone’s circumstances are a little bit different but clearly what the arrival of more international competitors shows is while it is a very mature retail market, there’s plenty of opportunity for growth in bricks and mortar retail. And that’s what these investment decisions suggest.”
Speaking at Wesfarmers’ post full-year results employee briefing last week, managing director, Richard Goyder said the most important trait for a CEO is the ability to be commercial in understanding the full impact of decisions and their business outcomes.
Goyder also summed up his role as the CEO of one of Australia’s largest companies. “Set direction, make sure the group knows where it’s going, making sure the business knows where it’s going.”
Goyder said these three things apply to everyone in a management position.
“Set direction, be really clear on that; employ great people, make sure you’ve got people around you who are better than you; and then set and live with standards.”
He also said that a big part of his job is not moving paper. “A big part of my job is representing the company. And that’s not just yesterday and today, but that’s all next week.”
Leadership skills more vital than ever
With Australia’s 2.1 million actively trading businesses creating most jobs and responsible for over 80 per cent of Australia’s gross value, Dominique Lamb, CEO of the National Retail Association, said leadership skills are vital in managing Australia’s transition to a services-led economy.
“I know there are many economists out there who are concerned about the shift from high-paid mining jobs to lower-paid and part-time jobs in the service economy,” Lamb told Inside Retail Weekly. “It is estimated that about three jobs in the service sector make up for one job in the mining sector, with regards to income.
“This means that even though new jobs are being created, we are not getting the boost to household income that you would normally expect from strong employment figures. To ensure that these new jobs generate as much income as possible for employees requires strong business models that maximise business productivity.”
Australia’s current productivity is estimated to be 77 per cent of the US level of productivity. Deloitte said about a third of that shortfall can be attributed to management quality, as measured by a range of factors such as goal and target setting, plan execution, talent management and promotion systems.
The productivity boost of $70 billion through effective leadership outlined in the report could be more significant than that of the internet and could lift the World Bank’s ranking of Australia’s GDP per capita from 19th to 14th in the world.
For individuals, this is equivalent to an extra $3000 per person.
Speaking on the importance of international experience, O’Mahony said simple arithmetic dictates that Australia won’t be the overwhelming source of the majority of good ideas in business.
“It’s got to be the source of a minority of the best ideas because we are 23 million people out of 7.8 billion,” he said. “There will be lots of great business ideas in North America, Europe and in Asia. So with many good ideas happening overseas, Australia has to be tapped into those opportunities…those good ideas will come to Australia through those investing here, as we see more international retailers coming to Australia.”
Though international experience is not necessarily a prerequisite of success within retail businesses, the research found that those businesses that had management teams with international experience, were more successful than those without. The average length of time spent overseas was about five to six years.
Though the level of performance of all retail companies will always be dependent to some extent on current economic conditions, the reports findings suggest big decisions at difficult times often means the difference between fiscal gain or pain.
But if you look at retail growth over the last few years, it has actually been less volatile than what it’s been in previous decades. “Retail in the 80s or 90s it was a lot more volatile than its been in the last five, six years where retail has been growing at about three per cent a year, which is fairly similar to the growth of the Australian economy,” said O’Mahony.
“Certain parts of retail have faced tougher economic conditions, but the best response to that is more effective leadership.”
“There are always things that retail businesses can do to try and mitigate the negative effects of difficult economic times,” Lamb added. “It is important for business leaders to be able to adapt to changing economic conditions with clear strategies that are able to be executed easily and effectively.”