Posted December 05, 2018 01:05:59

Photo: Digital transformation, innovation, regulation and "political paralysis" are the chief concerns of executives, according to KPMG. (ABC News: Alistair Kroie)

There are a slew of risks ahead for Australian businesses — from the federal election, to the banking royal commission's recommendations and a mixed economic outlook — but it is pressure to keep up with competitors that is leading to restless nights for some executives.

KPMG's second annual survey asked business leaders about their major concerns heading into 2019, and digital transformation topped the list, despite a lack of consensus on what it actually means.

The 220 executives surveyed ranged from those leading small companies with less than 50 employees, to the top end of town.

They represented industries including financial services, energy, consumer, manufacturing, telcos, property and media, alongside some from the not-for-profit and government sectors — meaning digital transformation could look very different for each of them.

KPMG chairman Alison Kitchen said she thought it was a "natural progression" from last year, when innovation topped the list.

"People actually now need to get on and do stuff," she told the ABC.

"I think in the past people have seen digital and innovation as niche areas.

"What CEOs are now moving to is 'this needs to underpin every part of our business' and a genuine transformation is not one that's led by the IT department."

Innovation and disruption also remained at the front of many business leaders' minds, coming in second on this year's list, representing concerns about keeping up with new competitors and unfamiliar technologies.

However, KPMG said it thought the greatest disruptors facing Australian businesses already existed in the form of international behemoths such as Amazon and Alibaba.

"When these overseas giants move with determination into our market, they will be using the data that they've accumulated on customers and users overseas to drive better results than their Australian counterparts," the Keeping Us Up At Night report said

"This is a very real issue for Australian business leaders."

Regulatory risk high on the list of worries

The banking royal commission has put the regulators — not just the financial services sector — under the blowtorch, so it is no surprise that regulation rated high on the list for business leaders.

The commission's final report is due to be handed to the Governor-General by February 1, 2019 and is expected to recommend regulatory changes and tougher enforcement of existing laws.

As the KPMG report noted, the "regulation avalanche" is not limited to the banks, with ASIC's greater enforcement powers, more prescriptive ASX guidelines and an active ACCC also looming large for businesses.

Photo: As the banking royal commission's final report approaches, regulation is high on the list of major issues for business leaders in 2019. (AAP: Eddie Jim)

However, KPMG said it saw a silver lining amid the increased scrutiny, with an opportunity for firms to enhance their reputations through compliance and a focus on the outcomes for customers.

The effects of the Hayne royal commission pervaded other parts of the survey as well, with Ms Kitchen noting customer centricity and public trust as other areas that ranked in the top 10 for business leaders.

"A lot of the comments were just clear acknowledgment from the royal commission of the need to be customer-centric and to genuinely think about what's the best interests of customers," she said.

"It has come across not just from [the banking sector] but from government, from higher education and from health suppliers, perhaps starting to think about the aged care royal commission."

Business disillusioned with politics

The noise from Canberra was another source of concern for Australian executives, with KPMG finding "political paralysis" a key issue for business leaders ahead of next year's federal election.

Business hates uncertainty, and so far this year business groups and major chief executives have slammed the Coalition's abandonment of the National Energy Guarantee, have seen corporate tax cuts for big business scrapped and witnessed another sitting prime minister ousted.

In recent weeks, the head of oil and gas producer Woodside joined major miners BHP and Rio Tinto in calling for a price on carbon.

Ms Kitchen said the survey results reflected a broad dissatisfaction with the political agenda rather than feelings towards either party, despite increased speculation about a potential change of government.

"The business community seems to be saying, 'Well, we just need to get on and do what we can to make business work', absent support from the governmental process," she said.

"Politics is very focused on politics at the moment, rather than being able to genuinely create an environment in which business has certainty and can thrive and make big strategic decisions."

What's not a top priority for 2019?

Gas and electricity prices have been a major talking point for Prime Minister Scott Morrison and remain a concern for manufacturers, some of which told the ABC that high prices were threatening their survival.

However, this worry was not reflected in the survey results.

"One of the very top issues facing business last year was the cost of energy and that dropped right out," said Ms Kitchen.

"I don't think it's because anyone thinks we've solved the cost of energy challenge … but there is an acceptance that at this point in time there's not a clear policy solution for it.

"Companies are looking at what they can do to improve the efficiency of their own use of energy, what they can do in the renewables space, and what they can generally do to take their own costs out."

Also notably absent from the list were the kind of issues concerning households and economists, including the slowing housing market, stagnant wages growth and cost of living pressures.

Reserve Bank governor Philip Lowe recently noted that flat wages were "diminishing our sense of shared prosperity" and threatening social cohesion.

Ms Kitchen noted a lack of overlap between the top 10 issues facing businesses and those concerning consumers.

"We keep talking about this 27 years of uninterrupted economic growth we've enjoyed as Australia, but most Australians don't feel that they've been beneficiaries of that, and that the beneficiaries have been big business," she said.

Topics: business-economics-and-finance, leadership, economic-trends, australia