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This is what will keep Australian CEOs up at night in 2020

This is what's keeping CEOs up at night. (Source: Getty)

Australian businesses and their leaders will have no shortage of issues to navigate as they head into a new year and a new decade.

Many of these are long-standing issues, and will pose major challenges – as well as opportunities.

According to KPMG’s Keeping Us Up At Night report, which surveyed nearly 200 c-suite executives, an uncertain global economic environment; climate change; leadership skills; and workforce upskilling have risen up in the ranks of top concerns.

Tackling digital transformation is a major problem that business leaders are losing sleep over – and it’s been at the top of the list for three years in a row.

Here are the top 10 most significant issues Australian leaders are facing in 2020:

1. Digital transformation

By now, business leaders are well aware of the value of digital transformation and what it means for their business – but it’s still a “tough egg to crack”, report co-author and KPMG innovation solutions national managing partner Sarah Vega wrote.

“There are two key drivers for digital transformation: maintaining ongoing relevance in the market by continuing to meet customer expectations, and the reduction of operating expenses.”

The process of digital transformation is complex and requires the entire company to be on board, as well as an overhaul of legacy systems and managing of competing priorities.

2. Global political and economic environment

The impact of an uncertain political and economic environment can hit a business in “multi-dimensional” ways.

“It can affect consumers and sales. It can be operational and disrupt supply chains and production. It can diminish reputation,” said KPMg lead tax partner Grant Wardell-Johnson.

There are economic risks – such as the flow-on effects of tariffs – but also concerns about the rising difficulty in working with businesses from both China and the US. However, the opportunity here is in the new way of thinking about one’s business, according to KPMG.

3. Regulation and regulatory environment

Part of the frustration in this area comes from the regulatory differences across state and federal jurisdictions – then there are inconsistencies between Australian and foreign regulation.

But often, the pressure comes from the heavy volume of regulation itself. “Australia is very much in a regulation ‘on’ phase. If the community and government today believe a sector is not running well, there is a tendency to step in and regulate,” wrote KPMG global head of legal services Stuart Fuller.

The most important action business owners need to take is to ensure they are doing the right thing, and they’re perceived as doing so.

4. Innovation and disruption

The concern with disruptive innovation is no longer that one ‘killer app’ will threaten a market. “Today, we think more about ‘category killers’ – massive entities that reinvent sectors and thereby blur traditional boundaries between them,” said KPMG Innovate national leader James Mabbott.

There is enormous responsibility that comes with creating technology that will shape the future, and leaders are beginning to recognise this. “For CEOs looking to steer their organisation through the fundamental shift of the Fourth Industrial Revolution, consideration of the communities in which they operate should be paramount.”

=5. Sustainability and climate change

When business leaders consider climate change, it needs to be in two categories: physical and transitional.

“Physical risk refers to the immediate and current effects of climate change: higher and more extreme incidences of bushfires, storms, drought, El Nino effects, and similar. It also refers to longer-term effects, like rising sea levels, biodiversity loss, the death of the Great Barrier Reef. The impact of these physical effects on business is clear,” said KPMG global chair of sustainability and climate change Adrian King.

“Transitional risk, on the other hand, refers to how much a business model or product is going to be affected by a carbon constrained society. In a globalised world of complex supply chains and diverse stakeholders this is a challenging question.”

How do business leaders respond to this? In-depth analysis of the potential risks is called for – then you have to consider strategies. But one thing is for sure: it’s an issue leaders can’t ignore.

=5. Public trust

Trust in institutions has declined in the last two decades, but leaders need trust in their organisations to influence lawmakers, attract top talent and maintain customers. So what can business leaders do? A holistic strategy – one that considers every part of the business – is called for.

“An organisation looking to take a more systematic approach to building trust and mitigating risk first needs to break down what is meant by ‘trust’ and then apply this understanding to individual parts of the organisation’s infrastructure,” wrote KPMG Australia chairman Alison Kitchen and KPMG chair in organisational trust Nicole Gillespie.

Stakeholders trust organisations that have three characteristics: ability (‘I can rely on you to be competent’), humanity (‘I believe you care about your stakeholders’) and integrity (‘I trust you to do the right thing’).

=5. Leadership capability, accountability, stability

Organisations have to be conscious of reflecting diversity, and now this is an expected thing among clients and stakeholders.

And greater diversity has to come from the top. “The key to unlocking the abundant value in diversity is leadership.

“The benefit of different backgrounds, perspectives, and experiences cannot be effectively leveraged unless an organisation has leaders capable of harnessing it,” said KPMG Australia CEO Gary Wingrove.

Leaders need to be wary of their tendency to promote people ‘like themselves’, and need to recognise that leadership can come in many different forms.

8. Customer and citizen centricity

Customers are demanding more from brands than ever before: speed and a smooth experience, as well as authenticity and a personalised service. This demands the service provider listen to the individual to truly understand their needs, and respond in an “integrated” way, said KPMG national managing partner of brand and marketing Amanda Hicks.

Service delivery needs to shift to customer-led models, which will mean giving the customer more choice – but also come with a level of risk.

9. Political paralysis and effective government planning and response

According to KPMG national leader of infrastructure, government and healthcare Paul Low, 2020 will actually mark a period of rare stability for Australian politics, with the absence of a looming election in the first 10 months of the year.

“Heading into 2020, however, there is cause for cautious optimism. Governments are increasingly recognising the imperative to work cooperatively with new perspective,” he said. But business leaders are frustrated by the lack of relationship between levels of government.

Organisations can respond to this uncertain environment by becoming civil advocates themselves, which can also be an opportunity to increase trust and legitimacy in the business.

10. Workforce upskilling and transformation

Coming full circle, digital transformations are often unsuccessful – and according to KPMG partner of people and change Catia Davim, “a huge part of the reason for this patchy record is an inadequate focus on workforce up-skilling”.

“Machines can’t drive digital transformations. They might be able to automate a process or two, but that’s not the big game. True transformation requires people with the right skills, the right training, and the right motivation,” she wrote.

To take on the workforce challenge, we need to shift mindsets that plugging skills gaps aren’t important. It’s a commonly held belief that if talent doesn’t exist domestically, we can find it overseas – but this is expensive. Education can play a major part in ensuring a smooth digital transformation.

‘Interesting shifts’ in 2020

According to KPMG’s Kitchen and CEO Wingrove, there are “interesting shifts” in this year’s survey.

“Australian leaders appear to be looking more nervously beyond our shores, with the global political and economic environment debuting in the top 10 at number two, and sustainability and climate change shifting from 14th last year to fifth this year,” they wrote.

And "political paralysis" has dropped lower on the list of concerns, from fourth place last year to ninth place this year.

“Our survey respondents are now, however, grappling with the challenge of leading in the complex and diverse context of modern Australia, with leadership capability now into equal fifth spot.”

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