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Ride of Your Life

Friday, February 1, 2013 - 12:08

Up and down, that's what you can expect from the economy in 2013, but being prepared can lessen the impact on your business. By Tom Skotnicki

Business is in for a wild ride in 2013 and executives throughout the economy will find it difficult to hold on. While the economy is unlikely to move into recession, the unevenness of it means many sectors are already in decline. At the same time, the federal and state governments, are seeking ways of cutting expenditure, including lay-offs. The expectations on managers will be enormous and consequences of failure are likely to be severe.

The commodity boom that propped up the economy in the wake of the global financial crisis is fading, with prices falling and mining projects and associated infrastructure being cancelled. The dollar remains overvalued, ensuring a flood of overseas products and making local production increasingly uncompetitive. One printing executive recently explained for medium to large-run orders, Asian manufacturers were undercutting local production by more than 20 per cent despite the cost of shipping.

The industrial relations system has made it virtually impossible for local manufacturing and production to respond to the downturn that is decimating industries such as car manufacturing, aircraft maintenance, chemicals and textiles. Many food staples are still manufactured locally, but food manufacturing as a percentage of the economy hovers around 2 per cent.

Australia can take only marginal comfort from the international outlook. Europe, once held up as a model of modern economic prosperity, is once again facing a recession with some countries such as Greece and Spain in desperate straits.

The key reason the United States is showing some signs of recovery is the flexibility of its industrial relations system with businesses able to hire unskilled workers at $12 an hour. But it may never recover its previous status as the world's economic powerhouse.

China and Asia, which have helped prop up the Australian economy with their demand for iron ore, coal, gold and minerals, are also experiencing a slowdown. China looks likely to grow by less than 8 per cent this year barely sufficient to provide for employment growth. In Chinese terms, 6 per cent represents a recession.

In Australia, the strength of the dollar has also had a huge impact on declines in tourism and education. Business must push for the Reserve Bank to rapidly cut interest rates again to help reduce the attractiveness of the currency.

The flow-on effects of the global economy are likely to exacerbate the pressure on Australia. However, the consequences are hard to estimate because it will largely depend on the impact on key growth sectors such as mining and resources, healthcare, investment banking, financial planning and communications services.

In most other sectors, including construction, retailing (where the internet is adding to its problems), transport and real estate, there is every prospect of lay-offs and business closures.

This will place enormous pressure on managers to deliver in the following key areas:

Cost Control
In many businesses, executives will find it difficult to maintain, let alone increase revenue, so it will be essential to ensure costs are kept in check and reduced if necessary. Executives will need to be prepared to fully justify any expenditure on the basis of its bottom- line contribution.

Revenue
Difficult times can provide opportunities for growth with many businesses forced to close or scale back their activities. It is also a time when business relationships are likely to come under strain as clients seek more cost-efficient solutions. Executives who buck the trend and deliver higher revenue should be rewarded.

Productivity
Arguably the most important aspect of business success and failure. On a macro scale, Australia's productivity record over the past decade has been abysmal. However, some businesses in key areas such as scientific instruments, drug manufacture and healthcare products have demonstrated it is possible for Australia to be at the forefront of research, design and development. Provided business can deliver quality products and utilise local intellectual property there will be opportunities for Australian products to succeed in international markets and be part of the global supply chain. At an enterprise level, executives seeking productivity growth should increase their collaboration with the workforce. This has a wide range of benefits, including commitment to a common goal, but is also essential to achieve the innovation required to improve productivity. Productivity growth can also be achieved by a focus on quality control, which can lead to higher margins.

Staffing
Many businesses will be left with no choice but to cut staff in 2013. This is, and should always be, a difficult task, particularly when the departure/s is a result of trading circumstances rather than job performance. It is important this be handled appropriately to reduce the impact on the morale of other staff members. If cuts have to be made then delay is normally inadvisable. Make sure any cuts are deep enough to avoid having to go through the process again in the short-term but not so deep into the skills base that businesses are unable to gear up to meet customer demand as the economy improved. Ensure receipt of all termination benefits and, depending on trading circumstances, provide career counselling, job search assistance and, where appropriate, help with retraining.

Communication
During periods of business stress it is important to increase communication with key stakeholders. It is a time when the absence of information is quickly replaced by negative innuendo and rumour. Communication should not only be directed to shareholders and clients, but also staff.

Training
Depending on business circumstances it can be a good time to invest in training. One of the reasons for the escalation of wages in recent years was a shortage of skilled staff. In periods of rapid growth many businesses were reluctant to invest in training because of the immediacy of their requirements and concerns staff would use the training to obtain better paid employment elsewhere. However, training existing staff can be an effective investment compared with seeking skills externally, and in a slowdown, staff are less likely to move. It may also ultimately provide a cheaper alternative than paying a premium to attract skilled staff many of whom are still in demand. Training also increases staff flexibility and overall expertise that can be a significant benefit in tough times. It should also be noted some surveys of younger workers, including research by AIM Victoria and Tasmania, have found the single largest motivation for switching jobs was a lack of willingness on the part of employers to invest in further training.