Australia is presently a multi-speed economy, with some sectors experiencing strong growth and others addressing systemic risks. The higher performing companies are all reconsidering how they can tweak operations to maintain and even increase profits. Here, leaders from two leading professional services businesses explain how they are responding to the risks in the economy.
Shaking up the market
Professional services is an area that is ripe for disruption, and indeed is constantly being challenged by new business models. It’s something Ernst & Young (EY) CEO, Tony Johnson knows only too well. One of the steps the business is taking to counter disruption is a series of acquisitions.
“Innovation is at the heart of decisions we make around acquisition,” says Tony Johnson, EY CEO.
“Over the current financial year, we have completed seven acquisitions with more planned. These acquisitions allow us to offer new and expanded capabilities to the market, particularly in growing areas of predictive analytics and advanced analytics, sustainability advice, market research solutions and energy market modelling,” he explains.
The business has also invested considerable time in understanding what its staff and clients expect from EY. “We are not about disrupting our clients’ businesses – we aim to work with our clients to future-proof their businesses and ensure we too remain ahead of the curve as an organisation,” Johnson says.
EY prioritises innovation and its global innovation hub includes more than 600 people spanning finance, engineering, business and science.
“We continue to challenge ourselves and have internal teams dedicated to disrupting ourselves. We have also launched Innovation@EY, which focuses on promoting, supporting and recognising innovation activity across our business,” Johnson says
Another professional services business that is conscious of how it needs to adapt to today’s conditions is PwC. Trent Lund is its innovation and ventures leader. He acknowledges disruption is an immense challenge that represents both opportunities and threats for his business, as well as his clients’ businesses. Lund is responsible for leading the team responsible for driving innovation in the business.
“We have been embedding processes in the business to tackle disruption for the last three years. Disruption is a poor spectator sport, you need to participate in it,” he adds.
An advantage for a professional services firm such as PwC is its global connections across the business and also in the client base. Says Lund: “It allows us to keep our finger on the pulse and also keep abreast of the trends are going to have the biggest impact, which keeps us ahead of the pack.”
PwC also ensures its strategy reflects the innovation environment and that it is constantly training staff to ensure they are also ahead of the curve.
One example of the way PwC does this is its collaboration with Queensland University of Technology. PwC has funded a Chair in Digital Economy, which allows it to be close to technology as it shifts. It has also co-created a course on innovation and leadership with the university, which 300 PwC staff have completed. Clients have also undertaken the two-day, executive course.
“It means our people at the coal face can sense where there are opportunities for change,” he adds.
Navigating macro-economic conditions
Its focus on innovation notwithstanding, EY acknowledges it is not immune from changing market conditions. “We are continually adapting to client needs, managing their risk, and providing innovative solutions,” Johnson notes.
He says EY has maintained firm growth despite the complex global environment “We expect to see demand for services continue to grow.”
Johnson explains the firm expects Australia’s economic growth to increase gradually over the next two years. “A further increase in household incomes and demand is anticipated, supported by rising employment, low interest rates and lower petrol prices.”
However, he notes there is uncertainty around the upcoming federal budget, particularly given this is an election year.
“Heightened hope for tax reform is being weighed against the uncertainty of its design. This is creating some uncertainty around business investment and consumer decisions, but the combination of low interest rates, healthy corporate balance sheets, strong growth on housing wealth and robust employment growth will hopefully offset some of this and maintain the momentum towards stable and sustained economic growth.”
Johnson points out Commonwealth and State government balance sheets remain fiscally challenged. “At the same time important investment in Australia’s infrastructure is needed. Investments should be sustainable and strategic. They need to not only contribute to current economic activity, but also provide an ongoing benefit. Infrastructure investment should be about enabling services, supporting productivity and enabling economic development..”
The role of the consumer
Consumers now have much more power than they had in the past and businesses such as EY and (add other Professional Services ) are shifting their approach in response to this new dynamic.
“Consumer power has been augmented by a recent increase in household consumption growth – close to the decade average – supported by low interest rates, increasing employment and, to some extent, increased household wealth,” says Johnson.
“However, growth in labour income has remained relatively subdued. Strong employment growth has also been supported by a protracted period of low wage growth,” he adds.
As Johnson goes on to explain, low interest rates and ongoing growth in employment are expected to lead to a further pickup in household incomes and demand. “Forecasts for growth in household incomes have been revised up, in line with a slightly stronger forecast of employment in the near term. Consumption growth is also projected to increase to be a little above the long-term average over the forecast period.
“This should provide the demand signals needed by businesses to commit to additional or new capital investment.”
Professional services business are some of the most advanced when it comes to embracing disruption. it’s worth following their activities to work out where this trend is headed.