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Some Australian business managers don't have eyes on target

Nicki Bourlioufas  |  28 Aug 2017Text size  Decrease  Increase  |  
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Almost half of all Australian businesses do not monitor key performance indicators (KPIs) while almost one in three report under-performance of their managers, a new survey by the Australian Bureau of Statistics (ABS) reveals.


The inaugural survey, Management and Organisational Capabilities of Australian Business, 2015-16, found 48 per cent of all Australian business didn't monitor KPIs at all during the financial year ended 30 June 2016. 
Of the two in five businesses (42 per cent) that did monitor KPIs, 79 per cent of these focused on financial measures, which included profit, sales, market share and return on investment, according to the survey.

KPIs can cover a range of subjects, such as financial measures, production or cost targets, inventory amounts, delivery time, and quality measures.

But not all businesses were laggards. More than twice the proportion of innovation-active businesses monitored KPIs than non-innovation-active businesses (57 per cent compared to 26 per cent of businesses).

A separate report by the ABS, Summary of IT Use and Innovation in Australian Business 2015-16, recently found the proportion of businesses that undertook any innovative activity in 2015-16 was just 49 per cent, or around one in two businesses.

Also concerning for investors, the Management and Organisational Capabilities of Australian Business report found 35 per cent of businesses with 20 to 199 employees didn't have a strategic plan in place. That proportion rose to 51 per cent of businesses with five to 19 employees.

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For organisations with 200 or more employees, 11 per cent reported having no strategic plan in place. Another 18 per cent of those large companies reported having a strategic plan, but not in writing.

A separate survey released this month by Deloitte reveals more worrying results about the performance of Australian management.

The Deloitte survey of what measures Asia Pacific (APAC) companies are undertaking to manage costs and improve margins found Australian companies had the least aggressive cost reduction targets in the region.

The biennial cost survey, Thriving in uncertainty: Cost improvement practices and trends in Asia Pacific, found that 74 per cent of Australian companies cited a cost reduction target of less than 10 per cent and a further 18 per cent cited having no target. Overall, 75 per cent of companies said they weren't meeting their cost reduction goals.

Vanessa Matthijssen, Deloitte strategy & transformation partner, said Australian companies needed to be more aggressive on reducing costs.

"To continue to retain a competitive advantage, companies will need to adopt a more strategic and transformational approach to cost reduction, which is likely to include capitalising on digital breakthroughs such as robotic process automation (RPA) and cognitive technologies," she said.
"These [technologies] are changing the basis of competition and laying the groundwork for massive improvement in efficiency and effectiveness. Companies may soon find themselves needing cost improvements in excess of 50 per cent, not just the 10 per cent improvement that most are currently pursuing."
Matthijssen did say, however, the data could be hiding improvements already made by Australian companies on costs.

"The relatively low expectations for taking strategic action on cost reduction initiatives may be explained by the fact that some Australian companies have already implemented significant actions, such as offshoring or outsourcing, and have shifted their attention to customer-centric growth transformations."
The ABS Management and Organisational Capabilities survey also found diversity remains a big challenge for Australian businesses. Four out of every five Australian businesses reported a male principal manager (80 per cent).
The ABS data looks promising compared to data for companies listed on the ASX. The most recent KPMG ASX Corporate Governance Council Principles and Recommendations on Diversity report analyses disclosures on diversity statistics for financial years ending 1 January 2015 to 31 December 2015.

The report reveals that in ASX 501+ companies, only 6 per cent of board members were women, down from 9 per cent in 2013.

Things looked a little better for S&P/ASX 200 companies, with 22 per cent of board members women, up from 18 per cent in 2013, while for ASX 201-500 companies, 15 per cent of board members were women, up from 10 per cent in 2013.
"Diversity needs to remain in focus for corporate organisations, with the latest statistics of women on boards and at executive level still showing vast imbalance," the authors of the report said.

By industry, the highest proportions of male principal managers were recorded in the construction (95 per cent) and mining (94 per cent) industries.

The healthcare and social assistance industry recorded the highest proportion of businesses with a female principal manager (44 per cent), the ABS report found.

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Nicki Bourlioufas is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

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