Future Beckoning

Thursday, November 1, 2007 - 11:08

Can the economy's boom continue? Will the skills shortage ease? Can we live with our sluggish technology platform? Will the rich–poor divide widen? Important issues confront Australia in 2008. Four respected business leaders were quizzed on the key economic, education, social/environmental and technology issues facing the nation next year. By Cameron Cooper

The economy

Get used to the golden age. A federal election and debate over workplace laws notwithstanding, Australia is poised for ongoing prosperity, according to Phil Ruthven, Chairman and Founder of independent business research firm IBISWorld.

"For some time I've made the point that from 2006 onwards we'd be into a new golden age for Australia, very similar to what existed after World War II and until the late 1960s," he says. "I think we will see, for the next 25 years, unemployment almost always being under 5 per cent. In other words, we will have a fully employed economy, and that's the first definition you've got to have to make it a golden age."

There are potential speed bumps, including industrial relations policies. Ruthven says business will watch with interest to see if the Labor Party sticks with its push for collective bargaining on the industrial relations front, "or whether we're going to go forward, with the rest of the world, into contractual employment".

"When you get past issues like that, I don't see a lot of danger to the business outlook next year," he says.

They are encouraging words for the business community, although Ruthven suggests one factor may affect these gilt-edged days: the lack of true high-speed broadband across the country.

While South Koreans and Swedes, for example, can download data from the internet at 100Mbps,
IT researcher Ovum notes that Australians labour with speeds of about 20Mbps. Ruthven says that unless the broadband problem is fixed in the next few years, it will spell "some real dangers" to productivity and growth.

"In the business world, the lack of broadband affects some more than others," he says. "Those whom it affects badly now represent about 5 per cent of the business world. Eventually, it's going to affect 25 per cent or 50 per cent if it's not fixed quickly."

However, Ruthven is confident that an injection of funds can overcome the problem. He estimates about $10 billion will do the job, a relatively small fee given that about $52 billion has already been invested in the nation's telecommunications infrastructure.

"It would be more serious if it took a lot of money and a long time to fix."

One of the other big issues for business in 2008 will be the "over-valued" Aussie dollar, says Ruthven. While rising interest rates represent a vexing political and social issue that may burst the spending bubble, it is the exchange rate that will haunt business next year.

Sitting around 85¢ for much of the year, Ruthven says the high level gives consumers "a free kick".

"It is our reading…that it's so far overvalued that it's unbelievable," he says. "We see the most sensible level compared to the US dollar being around 65¢."

Tourism and manufacturing are two sectors that face competitive pressures if the dollar stays high. International inbound tourism could face a downturn if North Americans, in particular, rebel against the buoyant Australian dollar. The domestic manufacturing sector has been in decline for decades, but Ruthven says the exchange rate "is driving that down further, quicker than it should".

While some economists suggest the dollar could reach parity against the greenback, Ruthven doubts
it will exceed the 90¢ barrier. However, business leaders should take heed: he does not think it will hit 65¢ for at least two or three years.

The environment and climate change will also be firmly on the agenda, especially the question of whether Australia turns to nuclear power as an energy source and to cut pollutants from coal-fired plants. Ruthven notes that Australia produces approximately 1.5 per cent of the world's carbon emissions, "which means global warming is not due to us. Not to be seen to be following world's best practice, however, would make us pariahs," he says.

And taking measures to cut carbon emissions will not be a huge burden on Australian business, Ruthven claims.

"Of the total number of companies, certainly it is less than 15 per cent who are directly impacted," he says. "Many of them are now in office-type locations or retail, so there's not a big footprint on the environment from those sorts of operators. I don't think it's going to be an impost on the vast majority of businesses."

In fact, Ruthven contrasts such environment-related costs with the introduction of the GST in 2000, a move that required all businesses to overhaul their accounting systems.

"Whereas the environmental side will affect all of us to some extent, probably only 15 per cent of the companies are going to find it's a fairly heavy load."

Social/environmental

As she watches her 17-year-old son playing World of Warcraft, business consultant Attracta Lagan reckons she is getting a glimpse of the future for business.

The popular online game enables users from around the world to engage in role-playing as they combat monsters and embark on crusades. Although the "ghastly raids" are disconcerting, Lagan marvels at the game's international scope and how it allows people, mainly youngsters, from across the globe to connect and communicate.

"They've been socialised into it by the technological world; they live in the CNN world where they're interconnected," says Lagan, an industrial sociologist and Principal at Managing Values, a national consultancy advising on business ethics, organisational performance and sustainability.

"They care more about what happens in a different country because they see it. And they know people in it, so they seem to have more recognition that we are interdependent, which is the basis of ethics."

A former director of corporate citizenship and ethics at professional services firm KPMG, Lagan speaks regularly to business leaders about meeting their new social responsibilities. The "ethic of care" that the younger generation demonstrates is missing among baby boomers, she argues, adding that CEOs and managers must rediscover their ethical roots if Australia is to effectively engage in globalisation.

Looking to 2008 and beyond, Lagan says government and business need to dismantle the "isolation barriers" that have been erected around Australia.

"Australia is going to be increasingly pressured to accept its global role and step up to the same accountabilities as its global counterparts," she says.

"If you look at what's happening in Europe and the advanced economies – the Scandinavian economies – they're increasingly tempering marketplace supremacy with a more balanced approach to what's good for markets and what's good for society. So they're refashioning the relationship between business and society and saying, at the end of the day, we live in a society not an economy."

Lagan says Australian businesses need to match the deeds of their international counterparts, who are leading rather than following government by "pushing sustainability and social agendas down into their local supply chains and local counterparts".

"They're stepping up to doing triple-bottom-line reporting and volunteering, and accepting that organisations are there to manage all their impacts on society and be part of the solution to some of society's greatest issues," she says. "It's not just about creating economic wealth."

Pockets of examples are occurring in Australia: for example, Microsoft Australia has teamed up with The Smith Family to improve digital and computer access for the disadvantaged, and banking giant Westpac is helping Mission Australia "micro-finance"; a term that refers to the practice of providing financial assistance to the poor.

Business managers must come to grips with the fact that employees, especially younger staff, will eschew bigger pay packets to work for organisations that address environmental and social issues.

"In one sense there's never been a better time to be in business," Lagan says. "You have these employees now with ethical ambitions and with the skills to demand better performance (from) their employer."

Lagan says two-thirds of the top 500 companies in the world are embracing triple-bottom-line reporting "and they're forcing it down their supply chain". The upshot for Australian companies is that they need to look outwards rather than inwards to take advantage of these emerging markets.

"If you want to be in BP or Shell's supply chain you will have to step up to certain environmental and social accountabilities for your employees, or you'll be locked out.

"That's what's happening; we're missing a lot of the global opportunities because we're not moving in tune with the most progressive leaders."

A positive for Australia, according to Lagan, is that it boasts an educated workforce with excellent service skills. The nation should be selling the sorts of skills and creativity that went on display to the world during the Sydney Olympics rather than sticking to old-economy models.

She regrets that few business leaders are pushing the envelope on social and environmental issues.

"I think there will be a sea change soon because quite a few of our leaders are getting older and as they move on we might start to get a change," Lagan says.

"That's why I love it when Americans and Europeans come here [with multinational companies] because they bring a different world view. We saw that with BHP. It immediately pushed out the traditional stuff, flattened the hierarchy, and introduced a more inclusive style."

Opening the nation to a global marketplace will bring further prosperity, Lagan says.

"We'll get world citizens coming to run our corporations who aren't tied to the past and will bring in fresh philosophies. And it will be about including people and growing people, as well as the bottom line."

Education

Big business and universities are increasingly happy to get into bed with each other to form lasting relationships.

While the courtship is welcome, it puts extra pressure on educational institutions to produce graduates with a combination of core academic skills and professional knowledge.

"It is important that students have an embedding of that knowledge; that they understand the (practical use) of that knowledge because graduates are emerging into a workforce that is both strongly internationalised and rapidly changing," says Professor Peter Coaldrake, Vice-Chancellor of the Queensland University of Technology.

"The tertiary experience must not only provide them with their academic and professional skills but also hone their life skills."

To promote this goal, Coaldrake believes social science perspectives should increasingly be embedded into professional degrees so that students can gain communication, language and decision-making skills as early as possible. "It's important they have that broader preparation," he says.

Coaldrake expects more students to enrol in interesting combinations of double degrees – law and creative industries, for instance, or law and sciences – so they can acquire this wider learning base. The willingness of students to embrace such change is telling. "Sometimes students join the dots before the universities," he says.

While government will determine the specifics of higher education "second-order" debates – such as diversity, third-stream funding, governance and industrial relations reform – some underlying issues are foreseeable for universities and the wider business community.

For universities, financial pressures are set to continue, and the skills shortage issue will not go away. While the talent crisis has dominated media, the issue now is how universities and business can help address the challenge.

Coaldrake says: "While some of these shortages resolve themselves as more resources are made available and more new graduates are trained through vocational or higher education, others will remain on the table."

It is problematic, he says, to unquestioningly expand educational infrastructure in high-cost sectors. In the allied health and education sectors, it may be counterproductive to train more people when many currently leave such areas of employment within their first five years of graduation. And he notes the particular challenges faced by the IT sector: employment opportunities for new graduates are again excellent, but the student market remains wary following the volatilities of recent years. Also IT, like engineering, has a particular challenge in improving its attractiveness to young women.

"These factors suggest that Australia will need to rely on combinations of industry reform, including wages and working conditions, skilled immigration and improved funding of educational infrastructure," Coaldrake says.

School-leaver demand for university education is steady overall, although there is significant variation across the different states. However, mature-age demand is soft, a hardly surprising phenomenon given the strong employment conditions.

"This comes at a time when international higher education is also experiencing strong competitive pressures and difficulties in sustaining demand from suitably qualified applicants," he says. "These factors will combine to ensure that the challenging financial road that all Australian universities are travelling will not get any smoother in 2008."

According to Coaldrake, universities need to think laterally about the professional staffing needs of different industries and sectors. For instance, an ageing population will see new occupational groups emerging, and the teaching profession will have to be filled with people from a variety of walks of life, not just young students straight off campus.

Another big-ticket item for universities in 2008 will be the implementation of "research quality frameworks", an initiative to develop the basis for an improved assessment of the quality and impact of publicly funded research. A similar exercise in Britain resulted in major shifts in resource allocation.

Coaldrake believes possible solutions to the ongoing educational resource problem may include greater resource sharing among universities.

"Universities have started to do it better internally, but there's a further dimension," Coaldrake says. "That is, universities must make strategic alliances where there is a strong public benefit."

This can also involve business alliances and will lead to a more targeted delivery of education that benefits students, business and the community.

"The languages area is a case in point: it is absurd for three or more universities in this town to compete head-to-head for staff and students across a wide spectrum of languages. A far more sensible approach would involve collaboration and cross-crediting so that the community collectively has access to a wide range of language education," Coaldrake says.

"The point I make is that universities are increasingly going to have to play to their strengths. There are very few universities that can afford to do everything."

Technology

The fact that more and more consumers are going online is no revelation. What is revealing, however, is their behaviour when they log on: increasingly they are not just buying something but interacting with other cyber-shoppers to discuss what they like and hate about certain goods and business brands.

This next generation of web activity should be a wake-up call for business leaders, according to Martin North, Managing Consulting Director of Fujitsu Australia, a technology adviser to many of Australia's most powerful organisations.

In 2008, he does not envisage a revolution in technology, but the emphasis will be on how technology advances translate into a business context. He cites Web 2.0, for example, the second generation of web-based communities and hosted services, including social networking sites such as wikis and folksonomies, that help users share and collaborate.

"The fact is this is now mainstream," North says. "There's a huge challenge there to break out of the mould of the old static content and one-way communication, and into much more collaborative, information-sharing, web-as-a-platform thinking. I think in the next 12 months that's going to be huge, and my observation is that not many organisations have yet really grasped the full potential of this particular development."

Innovative sectors in this area, North says, include financial services and community-based operations, although in Australia there is a long way to go.

"It's mandatory now. Banks, for example, will need to have a moderated community where their customers and potential customers can discuss with each other the bank's products, the bank's reputation," he says.

North agrees that Australia is lagging behind its Asia-Pacific counterparts when it comes to broadband. It is hurting business and needs to be addressed.

"Look at countries like Singapore or Korea," he says. "They have spent consistently over a long period to be way ahead of us. It's possible to get 95 per cent of the country connected, but frankly that's got to be a top priority."

High bandwidth will promote global outsourcing, diversity in online content and real-time activities, North says.

"I think we're at that tipping point now, and over the next 12 months the accessibility and, hopefully, [the likelihood of] cheaper bandwidth will make a significant difference," he says.

"With high bandwidth connectivity you can virtualise a company. So no longer do you have to have all of your company in one place. You don't even need to have your employees come into work."

A radical transformation of business thinking is required in Australian boardrooms to appropriately apply new technologies, North contends. If they do, the upshot will be that Australian businesses are no longer disadvantaged on the global technology stage.

North argues that managers should be getting their heads around remote sensing and robotics. Such technology can, for instance, enable cars to maintain a safe distance on the road, or for medical devices to explore the gastric tracts of patients for diseases.

"Those things are not out of this world now," he says. "There's a need to raise awareness of what's feasible and possible, so it's not just a conversation about technology but it's the application of technology to business things. I don't think that's done very well; it's particularly bad in Australia."

The present business approach to technology in Australia is steady-as-she-goes.

"A more strategic approach to innovation and how you can apply new technologies over a period of time is a fundamental capability that organisations need."

North says beyond 2008 technology innovations will include the use of 80-core computer chips that will herald new solutions. Another trend will be interfacing with technology. For example, using brainwaves to control computers.

"The interface and the way you interact with the technology will change," North says. "Technology will merge more into the background."