Majority of private companies expect revenue growth to increase in 2019
With disruption rewriting traditional business operations, private business leaders remain steadfast in their optimism about the year ahead, despite market concerns around wage stagnation, the property downturn and looming economic storm clouds.
In its second annual survey, Global perspectives for private companies: Agility in changing markets, Deloitte Private has tracked the plans, priorities, and expectations of 2,550 private company leaders in 30 countries.
Similar to the first survey, the report details that 77 per cent of private companies in Australia – one of the key drivers of the nation’s economy – are ‘very confident’ or ‘extremely confident’ in the success of their company over the next 24 months, despite market challenges. This optimism is shared by private companies globally, reflecting current levels of global interconnectivity. A quarter of Australian private companies also expect revenue growth to exceed 50 per cent in next 12 months.
“Even in an environment of ongoing uncertainty and expanding competition, it’s clear that Australian companies are confident of future success, and they are expecting increases in revenue, productivity, capital investments and full-time employees – as are many counterparts around the world,” says Deloitte Private Managing Partner, Andrew Culley.
“However, local market challenges are forcing private company leaders to balance the long-term perspective that has historically guided their plans and investments with an acute awareness of near-term developments that could disrupt their long-standing business models.”
Balancing confidence and risk
On the risk landscape, a growing number of companies (34%) cite the cost of raw materials and other inputs as a potential hindrance to growth – likely a reflection of foreign exchange rates and companies’ reliance on imported materials. Disruption by a non-traditional competitor (24%) also sits relatively high in the risk column, which speaks to the impact of globalisation and the spread of strategic innovation. The biggest leap, however, is in respondents’ perception of the risk of cyber attacks (31%) – ranked as the second greatest risk by Australian companies.
Culley says that this view is in many ways understandable, as the ever greater reliance on technology means that people are also focused on the risks that come with it.
“The potential impact of a cyber attack on a company’s operations, its trusted reputation and its bottom line can be serious and even fatal. Appropriate and effective cyber security measures remain a challenge for many private companies. Even for those with sufficient resources and the right strategic footing, constant vigilance is the only way forward – it’s part of the cost of doing business in today’s world.”
Making the move from disrupted to disruptor
While technology has brought business closer to its customers, it has also upended business models. It has driven efficiencies, but also fostered uncertainties. So private business leaders are looking to proactively get on the front foot to prepare for anticipated, competitive disruption as they see the opportunity that comes with the changing nature of business.
Twenty-six percent are considering and 34 per cent are implementing new business models to navigate disruption. While 40% say they are exploring opportunities to take advantage of disruption, and 29 per cent have dedicated teams focused on disruption.
“What we see across the board are companies sure of their ability to navigate change, and learning to live by an attitude of ‘disrupt or be disrupted’. Australia’s private companies are very much in tune with their counterparts in the Asia-Pacific region and around the world,” says Deloitte Private Commercial Advisory Leader, Mark Allsop.
In conjunction with exploring new business models, companies are also looking for ways to improve growth and build their competitive advantage. In Australia, the top three strategies for firms are increased productivity (32%), growing existing markets (27%), and new product/service development (20%).
M&A activity top of mind over next 12 months
Regardless of business size or industry, technology has blurred borders and provides every company with the ability to be a global enterprise. The survey found that many private business executives expect to conduct an aggressive merger and acquisition strategy, with 44 per cent believing it is likely or very likely they will participate in an acquisition in that timeframe.
Forty-one percent cited the increased availability of capital as the top driver of M&A activity. An increased risk appetite among market investors (35%), a desire to expand/diversify their client base (34%) and the opportunity to enter new global markets (30%) were not far behind.
“Many private businesses are taking advantage of the favourable conditions in the market – a stable economy with strong long-term performance, abundant available capital, and a supply of successful businesses. These large-scale transactions can open new frontiers – global expansion, new market offerings, new leadership dynamics for owners, and more,” says Allsop.
Any potential expansion faces uncertainties ignited by global trade tensions. While 23 per cent of global respondents view trade barriers as a significant risk to growth, it is not at the expense of private business’ optimism; 14 per cent of respondents cite entry into foreign markets as their company’s main growth strategy over the next 12 months.
Talent investment as a strategic asset
Despite advances in adoption and implementation of technology, private companies are using employee investment as an asset in standing out from the competition. Thirty-eight percent are increasing the number of full-time employees, and 37 per cent are investing in leadership development. However, only 27 per cent are devoting assets to training programs.
In order to attract and retain employees, private businesses are planning to reimagine learning and development programs using experiential formats, develop strategies to build an inclusive workforce, and increase their focus on flexibility and well-being programs.
Social purpose fuels corporate profits
With the influence of social media and the rise of employee activism, the majority of private businesses (81%) recognise that having a strong company culture is strategically important to the success of their business.
Culture encompasses much more than the activity happening within a business and private company leaders today recognise this new reality. Specifically, the concept of social responsibility is resonating with private firms in Australia – more than half (59%) believe this is a top or high priority for their organisation and is reflected in their corporate strategy and employee/customer branding.
To make the most of these initiatives, organisations are focusing on corporate strategy as well as employee and customer branding to separate themselves further from the competition.
“Companies need to recognise the importance of pursuing diversity and inclusivity, incorporating a clear set of values and engaging with communities. Along with simply being a good approach, these actions have tangible bottom line benefits and attract a young talent pool drawn to companies with a clear purpose and impact,” says Allsop.
