Winning in an uncertain world

Full text of my speech to the Australia-Japan Joint Business Conference on 10 October

It’s fantastic to see so many of you here at the 54th annual Australia-Japan joint business conference - it really is testament to the deep and special relationship between our two nations.

I’d like to thank to David Jacobs, CEO of the AJBCC, for the invitation to speak today on such an important topic - ‘leading through uncertainty.’

When I reflect on my career, it is clear to me that the pace of change today is unlike anything I’ve seen before.

How we survive, and thrive, in environment of constant change and uncertainty is the great question for business leaders in our time.

The history of this conference itself is a good proxy for some of the large-scale change that we are experiencing. For example, if we were at this conference back in 1961, the composition of delegates would be quite different.

On the Australian side, member companies would almost exclusively be resources and energy and agricultural exporters - while on the Japanese side it would be trading houses and steel mills.

On both sides, I would hazard a guess that the audience would have been composed almost entirely men. Unfortunately - a brief look around the room affirms that this still seems to still be the case.  

The mix of industries in the room in 1961 was a reflection of the economy of the day, and the beginning of the great resource boom in Australia which carried our economy for decades.

Looking around today, we still see these companies in attendance, but they are joined by many more - law firms, financial services, technology businesses and others.

The breadth and depth of the relationship between our two countries has grown far beyond the industries that originally bound us together. This is a positive development, but it does reflect the seismic change that is disrupting developed countries the world over.

After a quarter century of uninterrupted growth, Australia is experiencing a slowing GDP, lower real incomes, declining employment, and a growing shortfall in tax revenues.

The resources industry that sustained our economy for so long has hit the headwinds of collapsing commodity prices. Incredibly low interest rates reflect the anaemic growth that seems to be the new normal for most developed countries.

It’s true that some of this downturn may be cyclical in nature, but I think deep down we all know that something important has shifted in the global economy - and it’s not going to shift back.

So how are companies supposed to grow in an environment where the most powerful countries on earth are struggling to grow? How are they supposed to anticipate the next big trend, when companies that are now global giants didn’t exist a decade ago - companies like Uber and Airbnb?

As the CEO of Australia’s largest professional services firm, and the Vice-Chair of PwC Asia Pacific, I spend a lot of time in board rooms across the region. I see first-hand the struggles and anxiety businesses go through as they strive to keep up with this change.

At PwC, we are grappling with these issues ourselves.

Our own research shows that over the next 20 years, 5.1 million Australian jobs – almost half of all current jobs – are at risk from digital disruption. “At risk of disruption” means that there is a greater than 70 per cent chance the job could be automated by technology.

One of the most at-risk professions identified in this report is accounting. This is a concerning finding, to say the least, for a big 4 accounting firm…

So what can we do in the face of these challenges? I don’t have all the answers. But I do have some observations from companies that I’ve seen rising to the challenge.

First - long term planning, while important, will not guarantee protection from disruption. It is impossible to know in the current environment what the ‘next big thing’ will be, and the strategies that were successful in the past will not necessarily work in the future.

Having a strategic framework that sets your direction and supports decision-making is important, but you also need a degree of flexibility and agility when circumstances change. There will be times when we must make decisions quickly, without waiting for ten years of data to back up our choice.

Einstein apparently said that the definition of insanity is “doing the same thing over and over again and expecting a different result” - but in the case of businesses facing disruption this is completely turned on its head. Today, doing things the same way we always have won’t keep delivering the same success.

The best course of action is to diversify, to try new things, and to take calculated risks with investments.

We also need to be open to different perspectives and ideas, which means actively increasing the diversity of our workforces and leadership teams.

I mentioned earlier that it was disappointing to see so few women represented at this event today. But I do want to acknowledge the progress that has been made. I am very encouraged by the young leaders program, which PwC has helped to champion. It currently has ten female participants, from both Australia and Japan. 

The program is a prominent feature of this years conference and is chaired by Penny Alexander who also sits on the Australian Executive Committee along with two other woman.

But there is still much more work to do to improve gender diversity in our workforces - particularly at senior levels.

PwC is no exception to this. Although we hire equal numbers of men and women at graduate level, by the time you get to partner level, roughly 1 in 5 are women. 

We’ve been very focused on this in recent years, and have put a number of measures in place to increase the cultural and gender diversity of our partnership.

This is not just because it is the right thing to do - although it clearly is. The evidence is clear that diverse teams lead to more innovative thinking, and better outcomes for our people and clients. Female workforce participation is also a critical factor in productivity, at a time when both of our economies are struggling with this issue.

We’re also diversifying our service offerings more broadly. For example, our digital business grew from 6 people to 150 in just 18 months - reflecting changing client priorities. As clients demand more certainty around things like cyber security, we’ve had to adapt our business to meet these demands.

We’re also supporting our people to diversify their skills. Experience is incredibly important, but increasingly employees need help re-skilling and upskilling to stay up-to-date with the latest technologies and ways of working.

We recognise that our firm is only as successful the people within it, so we want give them the best chance possible to realise their potential.

But if we’re going to increase our appetite for risk in order to stay competitive, we also need to increase our tolerance for failure.

I know it goes against the grain of many business leaders of my generation to see failure as a good thing. But the truth is with failure comes learning. Business leaders need to create a culture or environment within the organisation that rewards and encourages risk taking and innovation.

Entrepreneurialism need not be restricted to small start-ups with nothing to lose and everything to gain. Larger companies are increasingly fostering cultures where pockets of innovation can flourish even as the broader company maintains business as usual. After all, while Facebook was developed in a college dorm, the iPod was developed by a multinational tech company.

Giving up on the notion of certainty in today’s business landscape means accepting that we will make mistakes as we go along.

The trick is to fail fast, embrace the learnings that came from the experience, and move on quickly. The only certainty in today’s world is that we will never ride the next wave of growth if risk aversion keeps us from trying new things.

In spite of the challenges I feel optimistic about the future.

Japan has an incredible track record when it comes to the history of innovation. The Bullet Train, the Walkman, and the Playstation all come to mind.

Iconic companies like Canon, Sony, Fujitsu, Panasonic and Toshiba have led the way for decades. And the innovations of Japanese auto manufacturers spectacularly disrupted the incumbent auto manufacturers in Europe and North America during the 20th century.

In more recent times, Japanese internet services business Rakuten cracked the top twenty in in Forbes list of 100 most innovative companies worldwide.

SoftBank’s recent acquisition of ARM Holdings was also a bold move that will greatly increase their influence in the growing "Internet of Things" sector. I know our colleagues at PwC Japan are very impressed with their innovation program, which aims to create whole new value propositions by combining SoftBank's technology and resources with other companies' great ideas.  

Here in Australia I’m encouraged by the focus on innovation by our political leaders.

Last year the Government announced a range of measures to help encourage innovation and support businesses to disrupt themselves and take risks. And our own home grown start-ups like Atlassian are growing at a ferocious pace and giving hope and inspiration to innovators all over the country. 

It was also great to see our Prime Ministers reached an agreement last December in Japan to focus more heavily on collaboration in the areas of science, technology and innovation that will help deliver the next wave of economic prosperity between our two countries.

At the end of the day, we can no longer rely on doing things we always did, only better. It is new ideas that will guard against the forces of disruption.

Another factor that will be critical to survival in this new age of uncertainty, is how business navigates and capitalises on the forces of globalisation.

While it’s true that Australia and Japan, like many developed countries, are experiencing stagnant growth, the emerging economies on our doorstep are on the opposite trajectory.

Take the ASEAN region.

The OECD estimates that ASEAN’s growing middle class will account for 59 per cent of global middle class consumption by 2030. The combined population of these countries is already larger than the European Union, and their economies are surging.

It’s critical that business starts to see this region as a major consumer market rather than just an alternative manufacturing base to China. The opportunities are immense - from education, communications, leisure and health services, to meeting the demand for modern infrastructure.

For example, the Asian Development Bank has said that ASEAN countries need to spend $60 billion per year to meet infrastructure needs to 2025.

In this respect, our Japanese counterparts are far ahead of most Australian businesses.

Historically Australia has neglected investment opportunities in ASEAN and indeed Asia as a whole. Over 55 percent of Australia's trade is with East Asia, yet only 4 per cent of Australian direct investment abroad goes into the region. When it comes to ASEAN - Australia has invested more in New Zealand than in all ASEAN countries combined.

In contrast, Japan has been conscious of the potential of ASEAN for years. Its development assistance to the region has been vast for decades, and diplomatic outreach has been strong - decisions which are now clearly bearing fruit.

Overall, at least 58% of Japan’s FDI goes into the four largest ASEAN economies - making it the largest source of foreign capital for Thailand and Indonesia, and the second largest in the Philippines and Malaysia.

The latest Japan External Trade Organisation surveys show there is strong enthusiasm among Japanese firms for expansion into ASEAN, although few firms can be said to have fully positioned themselves to reap the profits of ASEAN’s projected growth.

Still, compared to Australian firms, Japanese companies have been far more effective investors in ASEAN, and are active in many industry sectors across the region.

In PwC’s latest Japan Rebooted report, we make the case that there is enormous potential for Japanese companies to work together with Australian companies to make the most of the opportunities in ASEAN.

Australia’s skills in project management, engineering, Public Private Partnerships, and globally savvy workforce could complement Japan’s world-class technology, expertise in product development, cheap debt for expansion and extensive government support. 

In addition, the scale of Japan’s presence in ASEAN could allay some of the fears of Australian businesses who want to expand but don’t know where to begin. Japan has already done much of the ‘heavy lifting’ with regard to setting up strong trade and investment links.

A great example of collaboration is BlueScope Steel’s joint venture with Nippon Steel Sumitomo Metals Corporation. The Japanese company bought a stake in Bluescope’s coated steel business to supply customers in South East Asia and beyond with material for white goods in these rapidly expanding consumer markets.

I know the AJBCC has been doing some great work in trying to encourage Japanese and Australian firms to be more active in tackling emerging markets together. Events like these are fundamental to building those relationships that could be the key to successfully navigating our globalised world.

One more point about globalisation before I move on.

It’s true that globalisation has not always been a benign force for those who experience its effects. While it is lifting millions out of poverty in emerging markets, in developed countries the benefits have been tempered by the loss of industries and livelihoods for many.

The resentment created during this process, together with the vast cross-continental movements of people in recent years, are fuelling some of the nationalistic, protectionist political movements we are now seeing on the rise across Europe and North America. 

This trend is concerning. The free movement of people, ideas, and trade is critical to a peaceful and prosperous world. Our leaders are having trouble articulating this argument in the face of growing public resentment, and I believe business should not sit on the sidelines in this debate. We should not shy away from making the case for openness and mobility.

We all know that economic growth and job growth will only come if we continue to transform and open our economies - not by locking them down and trying to go back to the way things were. 

Before closing, I’d like to reflect on one last factor that I think is crucial to winning in an uncertain world.

That factor is purpose.

This may sound naive, but I truly believe business these days needs to be about more than just the bottom line. Ask yourselves - why are you actually in business? What are you trying to achieve?

At PwC, our purpose is to build trust in society and solve important problems.

This means something slightly different to all of our people. For people in our Assurance business, it could mean building trust in capital markets, so families and institutions can rest assured that their savings are protected.

For people in our Tax business, it could mean having a role in a very important national debate going on in Australia about tax reform, and the fiscal challenges facing Australia.

For people in our Indigenous consulting business, it could mean working together with Indigenous communities to tackle some of the social issues and systemic disadvantage they experience.

It’s OK that our purpose means something different for everyone, because the important thing is that all of our people feel motivated to come to work every day and do their best for their clients, communities and each other. It binds us together as a firm and gives us the passion to try harder.

Hitachi’s focus on social innovation is I think a perfect example of purpose in action. They talk about technological breakthroughs in terms of the positive impact they have on people’s lives, and their capacity to transform communities for the better. It’s this kind of thinking that I believe will increasingly draw employees and customers to brands in the years ahead.

There is some research backing up this view. The millennial generation are now entering the workforce in large numbers, and they will shape the world of work for years to come. 

Multiple studies of this generation found the value they place in finding ‘meaning’ in their job. Of course everyone comes to work for a paycheck - but it’s no longer the be-all and end-all to motivating people. 

If you talk to people who work at the exciting tech companies that are taking the world by storm you will find that they are almost evangelical about their company and mission. People who work at Facebook really believe in the company’s mission to make the world more open and connected.

Google’s corporate motto “don’t be evil” was often mocked, but they were onto something. They understood that to be successful, people had to trust the independence and integrity of their algorithm.

The trust and support of the communities we operate in is critical to success today’s world.

I want to conclude by thanking the AJBCC once again for hosting me today.

I think forums like this are tremendously important to the future of our countries, and I hope that we learn as much as we can from each other over the next few days.

I hope my observations on finding success in uncertainty have been helpful. There’s no magic formula to surviving disruption, or embracing a globalised world. All we can do is try, and learn from our mistakes as we go along.