Business outlook for 2007

by 23 Jan 2007

2007 will present business with a number of evolving and complex challenges. Craig Donaldson speaks with IBISWorld chairman Phil Ruthven about these challenges and related issues for HR

With a federal election this year, what do you think will happen with industrial relations?

While the election is unlikely to occur before November this year, there is probably a much more viable opposition against the incumbent government. Had it been Kim Beazley still in charge of the Labor party, business would have largely ignored the fact that it was an election year. But given that it’s now Rudd and Gillard versus Howard and Costello, I think it’s going to be a quite a heavy distraction year for business in that sense.

Kim Beazley had made it pretty clear that he wanted to tear up the government’s IR legislation, and that put Kim Beazley and to some extent the Labor Party back in the dark ages, if I could put it that way. Mind you, the business world wouldn’t have worried about Kim Beazley anyway, because it wouldn’t have expected him to win the election.

When you have got someone like Rudd, who to my way of thinking is more considered and probably smarter, it’s unlikely he will take such a radical approach. While he has to appease the trade unions to some extent, I don’t think he’s going to go as far as Kim Beazley in that respect. I’m not saying it’s going to be smooth sailing for Rudd and Gillard, but I don’t think their approach is going to be as confrontational or regressive as it would have been under Kim Beazley.

Another thing to do with the acceptance of the IR legislation is generational change. More than half the workforce in Australia consists of Generation X and the Net Generation, and there would be very few of those who would have any problems with the concept of contracts for work, for example. The only ones left in the workforce that I think would have any problems with that IR legislation would be what we call the silent generation (those who are over 64) and probably a fair proportion of baby boomers, because they come from a very different era.

What are the main business trends that will affect HR?

I think 2007 is yet another year where business people have to look seriously at the whole contractual style of operation, where they need to be in a sense able to write contracts that are fair, that lead to productivity gains and lead to rewards for both sides of the agreement. I think there is going to be a lot of skill required by the business world in writing contracts, and being able to get what we used to call employees to agree to them. The rate at which contracts are being written suggests that there are not a lot of problems out there, but I think it’s a skill to be able to write contracts that provide for a win-win situation.

Another ongoing challenge for the business world in 2007 will be organisational culture. We are now in pretty much full employment, which we haven’t had since 1977, and I think we are going to have largely full employment for the next 20 years or so. This means that we’re very definitely moving into a seller’s market, rather than a buyer’s market with the employers being in charge. That means corporations really have to work hard on their organisational culture to make sure they have the sort of place where people want to stay with them and where you can attract good talent to come and join you.

Over the next 10 years, I think organisational culture is going to be equal to another challenge, and that’s the intellectual property and the uniqueness of a firm. Competition is going to be so fierce both domestically and internationally, that unless you are very clever and spending a lot of money on innovation and research and development, you are really going to be left behind. So the two most important characteristics of a successful firm over the next few years will be its intellectual property and its organisational culture.

What sort of organisational issues will HR be faced with?

The skills shortage is of increasing concern, and some industries are having to look seriously at bringing in employees from overseas. There have been skills shortages in accounting, engineering, mining and a number of other industries such as hospitality, and it looks like this is set to spread to other industries in 2007.

It usually only takes three years or less to actually correct skills shortages, for one of two reasons. Either the peak demand goes away, taking pressure off that demand for skills, or you start to retrain people through TAFE colleges and the like to make up the shortfall. So you’ll find that skill shortages are never of great longevity. I would imagine that skills shortages in these industries would probably ease by 2008 or 2009, but they will still cause some problems in 2007.

For HR in general, I think it will have quite a number of challenges delegated to it from the board, officially or unofficially. One is the constant need for productivity improvement. A second one will be around the retention of good people. I think that’s very important and, given the role HR plays with the CEO when it comes to culture, HR professionals have often found it problematic when they perceive that the top management or the leader themself has got some deficits in the area of leadership and organisational culture. It is very hard for HR professionals to do much in such cases. It’s important that they’re conscious of the organisational culture in the first place and that they do what they can to at least make the most of the situation.

It’s not always going to be about money when it comes to a good culture and attracting new people and keeping good ones. All surveys I have ever seen over the past 30 years suggest that money is not the number one priority for keeping people happy at work. Money is certainly one of the housekeeping items, but the happiness in being able to enjoy work and look forward to – and physically want to turn up to – work each day matters more. That is the challenge, and how HR assists in cultivating that desire to do this is critical.

Something else that is starting to disturb me in the HR area is the extent to which things like bullying and sociopathy exist in corporations. There are a lot of sociopaths out there who are either not recognised by top management or who are tolerated by them. Sociopaths have already been around, but they have a new sanctuary within many corporations, particularly in the older industries, and their behaviour is being tolerated.

Boards, directors, top management and HR professionals, by delegation, are really going to have to look at this issue of sociopathy, bullying and incompetence in a much more serious light going forward. If you have got a recognised sociopath or bully in the organisation, employees can just walk and that is going to be very costly if they start walking in big numbers. So while bullying and sociopathy have always been around, in a period of full employment it really starts to become a potential Achilles heel of a corporation. And if you have got this problem at the CEO, or close to CEO level, I think it would bode very badly for that corporation in the future.

Skills shortage set to worsen

Australian employers are intensifying their focus on sourcing staff as the skills shortage worsens, according to recent research into HR priorities for 2007. Conducted by Hudson, the research found that attracting suitable staff has almost doubled in importance as a priority from 15 per cent in 2004 to 29 per cent for 2007. Staff development and retention also remains the key HR priority for the fourth consecutive year, with 40 per cent of employers naming it their top priority for 2007.

"It is common knowledge that the current skills crisis gripping Australian business is the worst in decades and it is putting pressure on employers to find the right staff and retain them," says Kimberley Hubble, Hudson's executive general manager, sales, talent management and managed services. "The candidate market is expected to shrink further over the coming years. As a result, employers need to be far more strategic and proactive about how and where they source the talent they need to achieve their business goals."

The research, which took in more than 7,000 employers nationally, also found a corresponding reduction in other priorities. Enhancing productivity and performance, for example, is down from 30 per cent in 2004 to 16 per cent for 2007.

Underscoring these figures is another recent survey, which found that while 46 per cent of professionals in Australia are happy in their current roles, 86 per cent would consider moving to a new job with a different employer in 2007. The single most important reason why professionals are planning to leave their current jobs is the prospect of greater promotion and career development opportunities elsewhere.

"While only a few of the respondents are experiencing 'push factors' from their current place of employment, a much greater proportion are seeking the 'pull factors' that could help to accelerate their careers or make their time at work more enjoyable," says Luke Henningsen, executive general manager of professional recruitment for Chandler Macleod, which conducted the survey.

"Indeed, it is the prospect of greener pastures that is the driving force behind professional people looking for alternative employment. The increased demand for skilled labour, the ease of looking for a new role on the internet, the very public competition by prospective employers to be employers of choice as well as the emerging trend for professional recruitment specialists to act as talent agents for candidates, all mean it's become very easy to look over the fence and see what else is out there," he said.

The research, which took in more than 1,300 professionals, found that in order to achieve greater job satisfaction in 2007, the vast majority of respondents want (in order): better role and planned career progression; salary increases; improved skills and training development; greater recognition and appreciation by management; and a new manager with better management skills.