Australian companies have signalled intentions to increase salaries.

Some of Australia’s biggest companies have signalled intentions to increase salaries this year in an effort to fill positions for core functions and address mounting tensions over salary expectations. These findings are good news for workers at a time when national wage growth is sluggish.

The findings are from the annual American Express Global Business and Spending Outlook.  The annual global survey, now in its 11th year, explores sentiment of CFOs and senior finance executives from companies with an annual turnover of more than US$500 million.

According to Australian respondents, the real struggle lies in their ability to find talent and then, prevent them from being lured away by competitors.  Half identify at least five core functions they’re currently struggling to fill, and this difficulty limits their ability to do business. These functions include:

• Management (70%)
• Production and operations (53%)
• Administration and support (53%)
• IT (50%)
• HR (50%)

Close to two thirds (63%) admitted their best strategy for staff recruitment and retention will be to raise wages this year.  This puts Australian companies ahead of markets like China, Japan, Hong Kong, the UK and US and well ahead of the global average of 37%.

Measures in addition to wage increases being considered by CFOs include improving retirement benefits (57%), allowing flexible work arrangements (50%) and improving the physical working environment (40%).

The findings from American Express come as welcome news for Australian workers with the Australian Bureau of Statistics latest wage growth figures showing hourly wage rates grew by just 2.1% in the year to December 2017, well below the 4% plus levels seen before the Global Financial Crisis.

When separating out public and private sector employees, private sector workers fared even worse with wages rising by just 1.9%.  With inflation running at 1.9% over the same period, it meant that real wage growth for many Australian workers amounted to zero.

Adapting to a younger workforce

The American Express survey reveals generational tension within some of Australia’s largest companies, with mixed salary expectations between older and younger workers. In fact this was the second most frequently cited cause of intergenerational workplace conflict – behind the use of technology.
According to Barry Fletcher, American Express Global Commercial Services Vice President, in a competitive market and with the rising cost of living, companies need to ensure they’re putting their best foot forward to attract quality talent.

“While money is an important factor for any job seeker it’s not the be all and end all.  Expectations are changing and we are increasingly seeing younger workers place high importance on things like an inclusive workplace culture, a company’s CSR commitment, approach to flexibility and use of technology.  The key is to look at the entire package you’re offering and how it stacks up with others.

“Big business now employs one in five workers aged under 30 according to our survey so the emphasis must be on meeting changing employee expectations.  It’s critical if you want to keep staff engaged and loyal.”

Skilled technology workers a must

A hiring focus for companies over the short-term will be centered on technology.  Around a quarter of Australian respondents (27%) said that over the next five years technology will be a major cause of disruption to the competitive dynamics of their industry and the operation and performance of their organisation – a slightly higher result than the global average.

Among Australian respondents, 77% said they are “kept up at night” by the commercial prospects of artificial intelligence (AI), a class of technology they say is likely to have the greatest impact in the years ahead.  This is supported by a Tractica report which shows business investment in AI was a US$202.5 million market in 2015, but is tipped to hit US$11.1 billion by 2024.

And 80% of Australian financial executives said they’re investing in AI capabilities, signalling their belief that AI has the potential to fuel growth and performance. Only respondents in China (87%) and Japan (83%) said they’re investing more in this area.

“While significant emphasis is being placed on technology improvements, and rightly so, equally critical is having the right people in place to navigate businesses into the future” said Fletcher.

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Investment in innovation has slowed….

Evolving their business is a priority for 80 per cent of mid-sized companies and yet there is an alarming lack of internal investment in innovation, with as many as 40 per cent of CFOs admitting their company has failed to bring a new product or service to market in the past three years.

These findings come from the 2016 American Express CFO Future-Proofing Survey which examines the views of 250 CFOs from Australian companies with revenues of between $2 million and $300 million. It comes at a time when the Government has announced a number of measures to fuel an entrepreneurial 21st Century economy through the National Innovation and Science Agenda.

The research found there is a concerning lack of company investment in innovation that will drive sources of future revenue. Worryingly, 70 per cent of mid-sized businesses say they intend to invest less than $100,000 in innovation in the next year. Based on a business with an annual turnover of $50 million, that’s only 0.2 per cent. Compare that to the average amount spent on research and development by the world’s top ten most innovative companies at 7 per cent which is 35 times that amount.[1]

This lack of investment in innovation is constraining the mid-market at a time when the research shows their number one focus is growth. Of the 40 per cent of businesses that had not brought a new product to market in the previous three years, more than half did not intend to do so in 2016 either.

Success contingent on a strong game plan

Part of the problem, according to the research, is the high number of mid-sized businesses that fail to have a formal business strategy or game plan (23 per cent) or only one for the short to medium term (37 per cent). Half of those with no plan anticipate zero growth for the year ahead. Of the 40 per cent that have a comprehensive, long-term game plan, they are most likely to predict double digit growth, are more likely to prioritise innovation and embark on game-changing innovation initiatives.

According to Martin Seward, American Express Vice President Global Commercial Payments, the majority of CFOs surveyed admit that for the most part, their company’s approach to innovation is ad hoc, rather than strategically planned.

“It’s no longer adequate for Australian mid-sized businesses to have a short term view. Looking at the here and now or only a couple of years ahead is jeopardising their ability to innovate. Businesses need to also consider their long-term roadmap and CFOs have an important role in charting this course for their organisations. It’s clear that those with a long-term strategy are delivering game-changing growth and effectively evolving to withstand aggressive competition in cluttered markets. They are the ones that will survive and thrive.”

Access to capital a factor in enabling mid-market innovation

The research reveals that access to funding could be a key factor stymieing mid-sized companies’ ability to innovate. While 70 per cent say they plan to source external funding to deliver their business plan, with bank loans and overdrafts the number one source, 60 per cent admitted they’d find it challenging to secure the required funds.

Martin Seward said not being able to access funds is holding many businesses back and it’s prompting more small and mid-sized companies to look outside of their bank for finance options that not only fuel innovation but also alleviate cash flow pressures and even provide rewards for business spend.

Other findings of interest

Indicators of future success present among long-term Game Planners:

• More aggressive growth targets and greater confidence in hitting them
• Less fear of failure
• Innovation viewed as a company priority
• Have a framework in place to fund innovation

The white paper Game Plan for Growth is available for a free download here.

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1.http://www.strategyand.pwc.com/global/home/what-we-think/innovation1000/top-innovators-spenders

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Indicators look positive for business expansion.

Buoyed by a sense of optimism in the economy and their own recent performance, finance and corporate executives from some of Australia’s largest companies have signaled their intentions to spend big this year as well as expand and up-skill their workforce to spur their companies to lofty heights.

The findings are from the ninth annual American Express/CFO Research Global Business and Spending Monitor, an annual global survey exploring attitudes and sentiment of senior finance executives from companies with revenues exceeding US$500 million.

According to the research, 64 per cent of CFOs expect to see economic expansion in Australia over the next 12 months and the vast majority, 81 per cent, say that this has given them the confidence to increase investment – 19 percent at aggressive levels. More than a third of CFOs (36%) say their company’s level of spending and investment will increase by more than 15 per cent this year.

A different picture from last year

According to American Express Director, Robert Gunning, this year’s results are markedly different from last year’s survey.

“Last year, Australian big business had applied the brakes to their spending; with Australia the second most reluctant market in the Asia Pacific region to aggressively invest, behind Hong Kong. This year, it’s a different story. CFOs from big business are realising that to remain competitive with other companies, enter new markets and better meet their customers’ needs, they need to relax their corporate purse strings and they’re doing just that.”

Most of this increased investment is being directed at sales and marketing activities, followed by improving production process efficiency and adding capacity for production or service delivery.

Robert Gunning said that the increased investment could also be attributed to company’s projections of sales growth, with domestic and Trans Tasman sales anticipated to deliver the strongest results.

“While CFOs are looking for customers on their own doorsteps first and foremost, they’re also increasingly looking abroad for fresh opportunities for expansion. In fact, around three quarters of CFOs (78%) say exports will be more important for their company’s growth this year compared to 2015 – with most looking to China, a sign that nervousness around China’s economy is not a deterrent.”

In a positive sign for the Government, CFOs signaled praise for the free trade agreements negotiated with markets such as China, Japan and Korea over the past 18 months, saying that these agreements, more than any other factor, are likely to accelerate their company’s growth this year.

Positive hiring intentions

With their sights firmly set on steering their organisation to new heights, it’s perhaps not surprising that the survey revealed spending on labour and headcount would be at greater levels this year for approximately 30 per cent of respondents. Only 19 per cent said they’d decrease their investment in this area, with the remainder reporting flat spending.

According to Robert Gunning around 20 per cent of companies are expecting their workforce to grow by more than 15 per cent this year and most are focused on attracting talent in managerial positions, skilled workers and IT staff.

“Big business is willing to pull out all stops to attract the best talent”, said Gunning. “A third of CFOs said they’d be willing to offer flexible work schedules and an improved working environment to recruit the right candidate. When job seekers are considering one role over another, often it can come down to those companies that have a more progressive approach to their HR policies. CFOs know that having plans to grow their business will only be realised if they have the best team behind them.”

Other key findings from the survey:

• 12 per cent of CFOs expect they’ll increase investment by more than 30 per cent this year
• 47 per cent of CFOs said they’re likely to make greater use of temporary or contract workers to meet staffing needs this year
• 34 per cent said they’d likely move more positions from overseas to domestic locations
• 60 per cent said that optimising cash flow is more important for their company this year
• 33 per cent said their revenues were higher this year compared to a year ago.

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Christine Wakefield

Chief Financial Officers from some of Australia’s largest companies are heralding positive signs leading into next month’s Federal Budget, with reports of strong revenues, export expansion and the belief the economy will positively contribute to company growth.  Despite the bright outlook, CFOs report a 20 per cent year-on-year decline in plans for aggressive investment for 2015.

The findings are from the eighth annual American Express/CFO Research Global Business and Spending Monitor, an annual global survey exploring attitudes and sentiment of senior finance executives from companies with revenues exceeding US$500 million.

Christine Wakefield, Vice President of American Express Global Corporate Payments said that while there had been some loosening of purse strings following the Financial Crisis, spending intentions over the next 12 months reflected more caution.  In fact, Australia was the second most reluctant market in the Asia Pacific region to aggressively invest this year, behind Hong Kong.

“Half of Australian CFOs say their level of investment over the next 12 months will stay flat or increase by less than 10 per cent and an additional three per cent say their investment will decrease”, said Christine Wakefield.  “At a time when the Government is looking to big business to help drive the economy forward, this research shows more needs to be done to give CFOs the confidence to spend.”

Of surprise was the number of CFOs not willing to increase investment to achieve crucial business goals.  These included improving market capitalisation (42%), remaining competitive with other companies (35%), pursuing business transformation and innovation (32%) and better meeting customers’ needs (32%).

The majority of CFOs surveyed said that for fundamental business activities they are likely to invest at the same level as last year or less. This included investment for improving production process efficiency (75%), developing new products and services (71%) and sales and marketing (69%).

Recruitment to support business growth is also not a top priority for three quarters of those surveyed.  Instead, the focus is on up skilling employees and acquiring specialised skills to fill niche positions.

“Companies are looking for ways to do more with less and stretch every dollar further”, continued Wakefield.  “Yet with competition increasing and innovation needed to drive organisations into the future, it’s vital Australian big business doesn’t pull back excessively and forego long-term returns. With our dollar performing weakly against the US Dollar, now especially is a great time for exporters.”

A closer look at the findings:

Positive signs for big business:

• Half of the survey’s respondents report higher revenues compared to a year ago with only 13 per cent reporting declines.
• 60 per cent predict economic expansion over the next 12 months, with only 13 per cent anticipating the economy will take a modest backward step.
• CFOs are confident of increased sales particularly in Asia and locally in Australia and New Zealand. Half say exports will become more important for their company’s growth this year.
• The largest number of companies are looking to expand activities in China, including sourcing, distribution, production and/or outsourcing.
• Significantly more CFOs feel the economy will be positive (42%), rather than negative (10%), for their company’s growth this year.

Cautious approach:

• 68 per cent say their level of spending and investment will be moderate and only 10% say they’ll invest aggressively – down from 31% in 2014.  23 per cent say spending will be tightly controlled to preserve profitability.
• India has the most aggressive investment plans of all markets surveyed in the region, with approximately 4 in 10 CFOs admitting this is their intention for the next 12 months.
• Where spending and investment will increase most will be to protect existing share in current markets.
• The cost of labour in Australia continues to be a concern with 32% of CFOs saying it will have a negative impact on Australian employment.

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