Disruption a threat and an opportunity

Craig Stobo, CEO at the Local Government Funding Authority says technology "making swathes of middle management redundant". Photo / Paul Estcourt

When asked to assess the future of business across the mid-term, irrespective of industry, technology is seen as the great leveller among our CEOs. Seventy four per cent said they expected technological advances to have the biggest impact on business over the next five years — far and away the top choice.

Gary Langford, chief executive at Eagle Technology captured the mood, saying "technology is moving very fast and is disrupting many business models. Change is coming quickly and businesses are having to adapt to new ways of doing business."

"Major digital disruption and disintermediation to traditional business models, especially service based industries is both a threat and opportunity for New Zealand," explained Franceska Banga, chief executive at the New Zealand Venture Investment Fund.

As the likes of Uber and AirBnB continue to dominate their respective markets, toppling taxi and hotel operators around the world with close to zero tangible assets on their balance sheets, businesses have been forced to take notice.

"A key challenge that is already affecting our industry, and will increasingly affect others, is the impact that rapidly changing technologies can have on regulatory frameworks, especially where 'weightless' digital businesses are involved. We are seeing this in areas such as taxation," said Simon Moutter, chief executive at Spark.

The speed of change caused by the digital economy has been impressive. Legislators, regulators and competitors are in constant catch-up mode, with mixed results for everyone except the consumer so far.

South Pacific Pictures chairman John Barnett says it's that pace which can make technology so tough to contend with. "Technological change seems to occur with a speed we've never seen before. Other factors can be observed as they occur, but unheralded technology can arrive tomorrow and change an industry."

That rapid change isn't limited to the online economy either. Tesla seems on the brink of bringing electric cars to the mainstream, with significant progress on using the same battery technology to power a house through solar. As price points become increasingly palatable, the technology has the potential to force a total rethink on electricity and oil.

KiwiRail chief executive Peter Reidy looked to technology as the one true game-changer for boardrooms to contend with, saying "disruptive technologies will force business business to rework their business models".

Craig Stobo, chief executive at the Local Government Funding Authority said "technology is enabling more direct and cheaper transactions between consumers and producers. It is making swathes of middle management redundant".

But while many CEOs viewed disruptive technology as a major factor, a number also saw the opportunity to make it a catalyst for more minor step changes and improvements.

Minter Ellison Chair Cathy Quinn said "technology opens up the opportunity for efficiency, innovation and supporting our people to work more flexibly".

That fit with what the majority said, with 61 per cent of those surveyed saying that they expected to make strategic changes in their digital infrastructure in the coming year.

The global economy still did rank as the top concern for a number of boardrooms. 17 per cent of CEOs thought it would have the greatest impact on business over the next five years. One Agribusiness chief explained that Europe in particular has been troubling: "The Greek crisis and the expectation that they will eventually default has been unsettling globally. I've heard people say it's not a question of whether they will default, but when it will happen."

Despite those most concerned about the global economy coming from a variety of sectors, those chief executives shared a dim outlook for the economy in the coming year compared to their peers. Only 38 per cent were expecting to improve profits in the coming year (average was 69 per cent) and 77 per cent thought an economic slowdown was coming (average was 68 per cent).

Of equal concern to a large number of boardrooms are global demographic shifts. One prominent strategy advisor explained, "the growth of countries such as China, India and Indonesia have massive demographic changes occurring. The skilful companies will be the ones who can identify the changes and trends early, in order to capitalise."

Chief executives are having to contend with rapid population growth in fast-rising economies. At the same time, labour pools are continuing to represent an increasingly smaller proportion of populations in more developed countries.

Demographic shifts are a trend usually talked about in terms of decades into the future, but a significant number of chief executives see it having a large impact on business in the medium term.

What will certainly be to the dismay of environmental proponents: resource scarcity and climate change ranked last among factors set to impact business. Only two chief executives thought it would be the biggest factor to contend with over the next five years.

What is keeping CEOs awake at night?

Being a chief executive isn't easy. Not only are there internal pressures, shareholder expectations and competitors to worry about, but a host of international factors have the potential to pose issues in the future. So what are the issues keeping our CEOs awake at night?

• Despite over-riding confidence from the majority of chief executives surveyed that revenue and profit would rise in the coming year, achieving top-line revenue growth remained the factor most likely to keep them awake at night. Just over half of those surveyed listed it as a factor, nearly identical to last year. With increasing numbers of chief executives expressing apprehensions about the prospects for the economy as a whole, it's surprising not to see this number rise.

• The impact of technology has come through strongly in this year's survey; it appears the unique pressures and challenges it brings with it are worrying our boardrooms. Digital disruption rose six places to tie for second place as the issue most commonly keeping our chief executives awake at night.

• Cyber security was also brought up as a troubling factor, with a number of respondents suggesting that it should be added as a category for next year's survey.

• Sourcing and retaining talent was seen as just as big a headache for our chief executives to solve. A third of respondents reported it was an issue they were facing, with an even higher number saying they were proactively addressing it. 70 per cent of respondents said they expected to make strategic changes to how their business manages talent over the next 12 months, with an acknowledgment across the board that changes are needed to the methods used to attract and retain talent. It seems to be part of a larger trend which is seeing significant changes to how businesses organise themselves and their employees.

• For the second straight year, strategic changes to organisational structure ranked as a top issue, with an identical 56 per cent expecting it to be on the boardroom agenda in the next 12 months.

• challenges were seen as the third most common issue for chief executives last year, but the Government's push to raise regulatory standards is hitting the right notes in our boardrooms, as the percentage of respondents noting it as an issue nearly halved.

• One factor clearly not seen as a threat was mergers and acquisitions. Only a single chief executive reported it as a factor affecting their sleep, the same as last year. The past 12 months have seen some major M&A deals completed in New Zealand and activity in Australia is on the rise. If the NZD remains low, this could become a more prevalent factor in next year's survey.