Challenging traditional views on how to rebuild Australia’s economy is crucial to encourage businesses to evolve into robust, agile and efficient organisations.
It will require a combination of sustainable economic policy and adaptable business models to begin the rebuild amid uncertainty.
“With significant policy and economic uncertainty, business models need to be robust to get by. They also need time and the ability to pivot to new realities as they become clearer and new policy is enacted,” Professor Richard Holden, Professor of Economics at UNSW Business School said during the recent AGSM @ UNSW Business School webinar Leading Through Times of Crisis: Preparing for the Rebuilding of the Economy.
Professor Holden was joined by Associate Professor Kerry Humphreys, Deputy Head School of Accounting at UNSW Business School and Greg Joffe, Adjunct Faculty member for AGSM and Principal in Business Strategy, Public Policy and Digital Strategy at Nous Group, for the webinar moderated by Professor Nick Wailes, Director AGSM and Deputy Dean UNSW Business School.
“It's important to think about how businesses and organisations respond as we navigate our way out of the crisis – as public and economic policy will change,” said Professor Holden.
The Reserve Bank of Australia (RBA) has begun its forecast of what is in store for the Australian economy. With predictions that Australia’s GDP will drop by 6% overall in 2020 and then regain 6% in 2021 as a result of COVID-19, some economists are sceptical this is achievable given the magnitude and unprecedented nature of the global pandemic.
“There's a lot of uncertainty. Part of that comes from the fact that institutions like the RBA and treasury have large macro-economic models. If you just plug in the current numbers to these types of models, it’s unlikely to give accurate predictions as this crisis is unlike anything we've seen in the post-World War II era,” said Professor Holden.
He also said that the RBA plays an important role in engendering business and consumer confidence, so it may present findings with a more optimistic view. But for people running businesses and organisations, it's better to be aware of a more realistic outlook, so they can prepare for what’s to come next.
Humphreys outlined three aspects to take into account when making financial decisions in an uncertain economic climate. These include flexibility and acknowledging the uncertainties in business forecasts, awareness of potential biases in decision making, and grounding financial decisions in values and strategy.
“During this period where we are developing scenarios for a post pandemic environment, it's more challenging to link our financial decision making to our current strategy. Instead what becomes tremendously important now is to link these decisions back to the organisation's values,” Humphreys said.
This includes using current financials to contextualise final decisions around where the business needs to be.
Hospitality and travel are two industries that have been hit particularly hard by COVID-19. According to the Australian Treasurer, Josh Frydenberg in his mid-May address to Parliament, domestic and international air travel is down by more than 97 per cent. He also said that accommodation and food services saw the largest fall in jobs at 33.4 percent.
On the road to recovery, businesses, particularly in these sectors, will need to make changes that push them back toward profitability. Sensible cost cutting and embracing the benefits of new ways of working are two ways to do this.
“Really make sure you understand your microeconomics. Ask yourself how much would I need to sell in order to be able to break even? And how much to be able to make a profit? How much can I cut my costs down because I'm probably not going to be selling what I was before the crisis,” said Joffe.
Now is the time for redesigning business models, incorporating the benefits and efficiencies gained during the pandemic. Joffe also said that businesses should avoid following standard approaches to cost reduction through organisation design.
“If you go down that road, you’ll be trying to reverse it later when you realise you actually missed the capabilities that you need to run your business.” Joffe said, “What you should do is think hard about the minimum number of layers you can have. And for each role, what is the appropriate span of control, given the complexity of what's being managed.”
The Australian Government has offered $320 billion, or 16.4 per cent of GDP in financial support as a result of the global pandemic. This includes JobKeeper payments which help with the employee salary component, as well as relief for commercial tenants in the small to medium enterprise space in particular. As of 20 May 2020, 910,055 Australian organisations have signed up for JobKeeper which the government said will pay around 3.5 million employees.
As restrictions continue to lift, the Treasury is focused on building confidence and momentum to spur the economy toward growth and recovery. And while this is a significant fiscal response, some experts believe this still may be too small or will be withdrawn too soon. Professor Holden hopes to see a ‘graduated pullback’ using some of the lessons learned so far in terms of economic policy and making them sustainable going forward.
Even though Australians are protected from mortgage foreclosures and rental evictions in the current climate, keeping up once support measures are wound back could see these problems metastasizing through the economy. Professor Holden also said there should be a focus on some kind of jobs guarantee, helping to find meaningful work for people during the recovery period.
“I hope we're going to see from government an acknowledgement that things like universal paid leave are important, that early childhood education and childcare probably need to be more widely provided potentially universally and for free, and there needs to be more flexibility in the workplace.”
Acknowledging that the impact of the last few months is not easily reversible and embracing an agile approach will be necessary to aid a steady rebuild. Business leaders need to be open, flexible and resilient to make it past this next phase and thrive into the future.