What is the role of the business leader during an economic downturn or contraction? This question is especially relevant for mid-sized businesses (of 50-500 employees) that may not have the agility of their smaller counterparts, nor the scale or resources of larger corporations to outlast tougher times.
MYOB’s David Weickhardt spoke with some of Australia’s leading mid-market CEOs to discuss what’s on the mind of Australia’s mid-sized market and how they plan to navigate uncertain waters. Here are some of their most valuable insights.
Picture: David Weickhardt, chief product officer, MYOB.
Meet the roundtable
David Weickhardt, chief product officer, MYOB: Weickhardt leads product development and delivery across MYOB’s product suite alongside the chief technology officer. Before joining MYOB, he gained extensive experience growing and improving businesses.
Ted Arlt, managing director, Natures Organics: Natures Organics is a family business founded in the 1980s. It manufactures green products in high volumes under numerous well-known Australian brands including Earth Choice and Organic Care.
Rob Lawson, CEO, Balco: Founded in 1990 in Balaklava, South Australia by two farmers and two local businessmen, Balco is now one of Australia’s leading hay processors and exporters. Its export markets include China, Taiwan, Korea and Japan.
Alister Purbrick, CEO, Tahbilk Winery: Tahbilk Wines is an Australian family-owned winery, established in 1860. More recent generations have expanded the business into tourism to cater for a growing demand for food and wine experiences.
What should we expect in the next 12 months?
Weickhardt: Let’s talk about the Australian economy in the next 12 months. What are the main drivers and how do you see it playing out?
Lawson: My view is that spending will become tighter and businesses will have to be focused on their margins and maintaining share. I think we’re in an uncertain time, especially with what’s happening with the US-China relationship. With Balco being predominantly export focused and in agriculture, we’re not expecting a downturn personally, but we are certainly watching what is happening both in the local industry and overseas.
Picture: Rob Lawson, CEO, Balco.
Purbrick: If you had asked me about business confidence 12 months ago I would have been more bullish, given the good profits and sales during the past three years. Now I am quietly optimistic, but there are certainly some factors outside our control that affect the entire Australian wine industry. These include a softening of the China market due to the US-China trade war and an unsettled domestic market, with consumers spending less and tightening their belts. We’ve also experienced some unexpected Mother Nature events such as uncertain seasonal water supply, frosts, hail, drought and bushfires. These result in higher costs, decreased margins and loss of sales.
Picture: Alister Purbrick, CEO, Tahbilk Winery.
Weickhardt: At MYOB we look to monitoring and contingency planning during periods of heightened uncertainty. What indicators are you looking out for?
Lawson: We use data extensively at Balco. I can look at gross margins, production numbers, sales tonnes and the price per contract. We review the previous 12 months compared to current 12 months to determine how we are tracking. Data is critical to our decision making. We’ve just taken on a full-time programmer to develop internal business systems.
Weickhardt: During a downturn, some executives may focus on running a leaner cost base. Others may prefer a more aggressive approach, investing through a downturn to be in a really strong market position when the contraction eases. Ted, what has been your approach?
Arlt: Investing in technology has been one of the critical success factors for Natures Organics. A few years ago, we invested heavily in energy, installing solar panels on the roof of our manufacturing facilities. Significant investment in innovative solar technology at our production facilities has helped us drive efficiencies during challenging times, while also aligning with our green credentials. We’re proud that Natures Organics has always been at the forefront in terms of technology. We’ve continually invested in the latest equipment and our manufacturing reliability continues to improve as a result.
Picture: Ted Arlt, managing director, Natures Organics.
Weickhardt: So your investment in technology has been strategic – both in terms of driving efficiencies and also in supporting your positioning within the market?
Arlt: Yes, we have always had a philosophy about making the planet better and making products affordable for everyday Australians. In the past year, we made a number of strategic decisions to improve our efficiencies, including exiting non-profitable contracts and focusing on our high-value growth categories.
The categories we’re in are growing relative to the growth of the population, so even if the broader Australian economy does suffer a downturn we’ve been relatively protected. We had good years even during and following the GFC, from 2007 through to 2010. Being positioned as affordable and green is a good position to be in.
Weickhardt: Alister, at Tahbilk you also invested in technology during an economic contraction.
Purbrick: Part of our strategy was to modernise equipment, which seems a little counterintuitive, but we worked out we could drive down costs quite dramatically and become more environmentally friendly by investing in equipment. We completely revamped our IT system across the group and also replaced our back-of-house wine club management system. That yielded some really impressive gains in driving down costs, but also let us segment our customers and better meet their needs, which then drove sales.
Weickhardt: Managing through an economic downturn is seen as an acid test for leadership. What do you consider to be optimal leadership?
Lawson: The most important skills for CEOs are people management, financial acumen and truly understanding all operational areas of the business. As a CEO my main focus is on working with our staff, as we keep each other motivated to achieve our targets. Add to this making sure shareholders and board members are appropriately informed. This can be the most challenging responsibility for a CEO –managing up and down at the same time. A CEO also definitely has to have some financial understanding. They don’t have to be an accountant by any means, but they have got to have a solid grasp of the financials. They also shouldn’t be afraid to employ people who are smarter than they are.
Weickhardt: Rob, as a CEO who has managed through two significant events with Balco, the GFC and a potentially catastrophic fire in 2017, are you more confident now in your ability to manage through adversity? What advice do you have for other CEOs?
Lawson: I’m a lot more confident now in the management team’s ability to solve problems. We can own it and work through it together. The advice I’d give others is to take counsel. Don’t be afraid to ask questions, both at a peer level and also with your management teams. Take counsel and then be prepared to make tough decisions – as CEO, this is ultimately your role and responsibility.
“CEOs shouldn’t be afraid to employ people who are smarter than they are.”
Weickhardt: Alister, do you agree? What’s your advice for making difficult choices?
Purbrick: When we were faced with some financial challenges at Tahbilk, post the GFC, senior management came together, along with our board, to determine how to get through in a sustainable fashion. A lot of possibilities were tabled. We worked quite quickly to make decisions and enact changes that ultimately got us through those tough times. The most important issue was to ensure that cash flow was adequate to meet timely account payments and not increase debt, which the agreed changes achieved. My advice would be to consult with your leadership team, review all options and then determine the risk, consequence and benefit of each potential decision.
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