BCA Chief Executive Jennifer Westacott gave opening remarks at the plenary session of the Crawford Australian Leadership Forum on empowered consumers in Sydney on 20 June 2016.
Check against delivery.
The key structural change I would like to focus on in my introductory remarks is the rise of the empowered consumer, and how that impacts traditional business models and jobs, and what business and governments need to do about it.
Consumers are calling the shots
What do I mean by an empowered consumer?
McKinsey describes them as consumers “expert in their use of tools and information [so] that they can call the shots, hunting down what they want when they want it and getting it delivered to their doorsteps at a rock-bottom price.”
Consumer sovereignty has always been an essential element of competitive market outcomes.
But we are seeing a step change with the rise of the consumer as a force, enabled by increasing globalisation, digitisation and the greater availability of information.
This is happening at the same time as millions of consumers in China and other parts of Asia shift into the middle class.
While predictions are always dangerous, I think it is safe to say these forces are not going to abate any time soon. The marketplace will continue to evolve from setting up stalls on the village common.
Consumers are benefitting from much greater competition and wider service offerings because the costs of exchange are being significantly reduced by technology.
Australian consumers are among the first adopters - in 2014 Australians were second behind the UK in terms of online purchases.
Almost 90 per cent of households have internet access.
Consumers now search online not verbally on the phone or on foot.
- It is estimated that Google searches reduce the time spent per search by 15 minutes and perhaps more importantly allow many more valuable searches to be undertaken.
- Knowledge workers are estimated to save up to 45 hours a year using online searches.
Information about goods and services – prices, ingredients, product performance – is accessible at the touch of a button.
Consumers can easily compare offerings from local and overseas providers.
At the same time new providers can reach millions of potential consumers simply by setting up a website.
And reputation and trust (which are critical enablers of trade) can be signalled through real-time online performance data (as can poor behaviour).
- Consumer power is strengthened by consumers interacting directly with each other, comparing notes, and acting in concert.
As a result, localised markets can quickly become global with goods and services internationally traded.
Business models that exist to facilitate exchange – particularly those that intermediate between buyers and sellers such as real estate, retail and wholesale, banks, travel agents) – are being severely challenged and many may become redundant.
Business models that rely on regulatory restrictions to maintain returns will increasingly find their customer base eroded as consumers simply bypass them – think taxis, and indeed many government services.
In this sense consumers are becoming the regulators – demonstrating their preferences and appetite for risk using the new tools and information at their disposal.
Structural changes are not novel.
The wholesale sector in Australia has already been effectively displaced – retailers deal directly with producers, the need for large storage facilities has largely been eliminated though better logistics.
But the pace of disruption is arguably unprecedented.
Technologies that empower consumers will also challenge government provider models – many of which are built around a single offering, take-it-or-leave-it approach.
- Consumers armed with information will demand choice.
Greater competition, greater choice and more exchange will unambiguously increase consumer and community real incomes and living standards. (How well these benefits are captured in official statistics is another matter)
But there will be significant disruption for businesses, governments and the people who work in them (who are consumers as well of course).
- This will inevitably create tensions and even fear. There will be pressure to resist change and shore up particular businesses, industries and jobs.
Again, such resistance is not novel, but the chances of holding back the tide are even lower today than for the Luddites. The digital disruption cat is well and truly out of the bag.
So how should business and governments respond?
To be successful, businesses and governments ultimately have no choice but to adopt a relentless focus on the consumer.
Businesses have no choice but to adapt
Businesses have always had to compete to succeed, but being viable has become much harder in a more competitive world.
- Choice empowers consumers to be fickle. Businesses will have to earn their loyalty.
Businesses cannot be solely product focussed.
- They have to look through the consumer lens – what services, characteristics, standards and experiences does a consumer want and expect?
- What will they pay for?
This means they have to be prepared to adapt their business models, to be flexible.
In my role as head of the Business Council, I see examples of this occurring in Australian businesses everyday:
- Banks are investing in new payment services that improve consumer convenience,
- Supermarkets are investing in smarter logistics management to decrease the cost of products,
- Conglomerates are entering new markets to give consumers greater choice.
A consumer-oriented approach will generate benefits for our economy and society through productivity improvements and greater access to new goods and services.
But we have to confront the reality that some businesses and industries will not be able to adapt, and consumers will not be forgiving.
Some business models will effectively be made redundant.
Indeed even the notion of the limited liability company is being challenged by crowd-sourced funding models.
Governments must not resist transition
Governments have two roles – as policy makers and regulators and as service providers in their own right.
In both roles they will face pressure from producers and employees to protect the status quo.
It will be tempting to consider policy responses that attempt to slow the transition.
- To require popular, new services to conform to a regulatory framework that was instituted long before these services were conceived
- To build regulatory or tax barriers to globalised goods and services
- Or to prop up business models that become outdated.
They will have to resist.
- Australia learnt the hard way that protection ultimately doesn’t help either the economy or living standards. Consumers, the community, lose.
Yet there are so many examples of governments trying in vain to hold back forces of change.
- France suspended some Uber services after violent riots by taxi drivers over the last year, while consumers just kept using them.
- Some sections of the US politic are resisting the ratification of trade agreements, on the perverse but immediately appealing logic that potential job losses in manufacturing are worth more than jobs added in other sectors where the US has a comparative advantage
- And, arguably, the British vote on membership of the EU this week is also a textbook example.
But policy responses like this have an even shorter shelf life than before because technology and consumers will quickly devise workarounds.
Many of our competitors get it. And they are putting in place the policy settings that encourage adaptation and agility.
An open and agile economy
I suggest the best policy responses to respond to change and improve our competitiveness should be driven by two main elements.
Firstly, we should enable the transition as much as possible, to unlock the full benefits of empowered consumers.
- Australia must remain an open and flexible economy. We must keep barriers to entry low.
An open economy means we maximise the benefit of
- specialisation and trade
- accessing foreign capital to develop our capital intensive export industries
- access to new technologies.
So our policy settings need to encourage ease of doing business and be capable of attracting investment in an increasingly competitive world.
The ability to attract global capital and the technology it brings is an absolutely crucial part of an innovation-capable economy.
This requires policies including tax settings that encourage capital flows, investment and entrepreneurship.
We need to re-consider existing regulation to determine whether it is still fit-for-purpose, or if it has been overtaken by changes in production and consumer preferences.
- And calls for new regulation in response to new services should be resisted, unless community or environmental protection is at stake.
- At any rate, seeking to impose regulation on new technologies will be a case of chasing redundancy as newer ones continually emerge.
A talent economy
Disruption has potentially serious ramifications for workers in affected businesses.
The important policy question then is: how should we respond to potentially massive disruption of the labour market and the displacement of workers?
- I think it is obvious that we need to support the skills and capabilities of our workforce, not protect particular jobs.
- Trying to preserve current jobs will be an utterly fruitless and very costly exercise. Of course, the key policy question there is to strike a balance between encouraging agility and protecting the safety net.
- Indeed, one of our best assets in adjusting to forces of change will be our human capital, our talent.
We are moving from an environment characterised by qualifications, awards and jobs to an environment characterised by skills, capabilities and tasks.
- And they will be as tradeable as commodities, services and products.
- Businesses and governments both play important roles in training workers and improving their employability.
- Our education market should be designed to equip the workforce with relevant skills, and re-skill employees who experience displacement.
- The more rigid and provider-driven our education market is, the less it will be able to assist workers to be adaptable and resilient in the face of change.
I don’t believe the tertiary system, as it currently stands, is up to the task of coping with the forces of change.
And no matter what successive governments have said, future-proofing VET has not been a national priority.
We need to move away from the rigid ‘product’ delivery model embedded in these systems and deliver more flexible skills and competencies over a person’s working life.
The same goes for our workplace relations system, which currently sets a number of rigidities.
- The system should encourage productive and high-quality workplaces that gives employers and workers choice in how they conduct their employment relationship.
Governments as innovative consumer-focused service providers
Governments as service providers will not be immune from consumer forces.
- They are just like regulated producer–focused industries, which inevitably will be disrupted by new technologies and big information.
They too will have to be become far more consumer and outcome- focussed simply because consumers will demand it.
The key will be using new technologies and information and private operators to provide better services, more efficiently.
The Harper review’s recommendations for greater competition in government services to promote efficiency and better quality outcomes recognise the opportunity to transform government service provision to being consumer led.
- They are arguably the most important in that report.
Redesign of government service provision is the only basis for durable Federation reform – that is, reform based on more innovative and effective ways of delivering services, not simply shuffling provider responsibilities and inefficiencies.
Crucially, more competitive service delivery with a consumer focus is also the key to strengthening our unsustainable budget position.
I have covered a selection of policy areas to highlight the need for a fundamental shift in the mindset within business and government, to embrace the transition occurring with empowered consumers and to prepare for it.
There are many other policy issues including the role and custodianship of information and big data.
- Data accessibility is critical for consumer empowerment.
I am looking forward to discussing some of these issues in more detail over the next two days.
When we are discussing the challenges that come from global change, I think it is incumbent on us to take the lens of the consumer and the citizen.
Because they won’t be taken for granted again.