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In this conversation we were joined by Dr Pradeep Philip, Lead Partner for Deloitte Access Economics. Pradeep has had a long and successful career in public policy, with deep expertise in economics. He has been a senior bureaucrat, working at the highest levels of public policy, across three jurisdictions in Australia and was the Director of Policy in the Prime Minister’s office for Kevin Rudd during the GFC.
Pradeep was the perfect candidate to discuss with us the new economic scenarios we’re facing and the enduring changes to consumer behaviour Australian businesses must consider.
To consider the new economic scenarios we’re facing into, it is important to understand the factors that have contributed to getting us to where we are today. The end of 2019 saw an already sluggish Australian economy hit by the crises of bushfires and floods, and then Covid-19. It was only a matter of a few weeks until we were in the deepest recession since the great depression.
What started off as a health crisis soon became an economic crisis. The health and economic crises are heavily intertwined, and comprise both a demand and supply shock, which sets this crisis apart from any of the previous crises of our generation. With previous economic crises such as the GFC, government stimulus packages were instrumental to economic recovery. But there is a fine balance between trying to re-invigorate the economy whilst managing within a pandemic where personal safety is a great concern which makes this so different to anything previously.
With all crises we learn much more about human behaviour and leadership and get great insight into how people react. The key similarity we see with previous crises is communication. The clarity, consistency and sophistication of message is vital in successful management of the crisis and the mark of great leadership.
Coming out of this period, what we will see if nothing else, is the acceleration of industry 4.0 and questions concerning the long-term disruption of climate change.
There are four scenarios we should be thinking about that could affect how we operate:
We are in a period of transition of economic growth. And in times of uncertainty, the best antidote is strategy. We need a strategy to deal with the technological changes in front of us and with the environment and longer-term disruption of climate change that will affect productivity. And as part of this strategy we need to be thinking differently, radical thinking to drive innovation and change.
With these scenarios in mind, we asked the audience for input on several provocative statements.
STATEMENT 1: COVID-19 is accelerating us into a future we were already heading towards, just faster than we ever thought?
With everyone in lockdown and working from their living rooms, the way customers needed and expected to be serviced shifted rapidly. As did the ways we worked and interacted. The sophistication required from online platforms to service customers’ changing needs changed dramatically, and quickly. We have not lived through a period of technological change as great and ubiquitous as now. And this acceleration is being felt across all sectors and domains.
There is now a need to change our mindsets to keep up with the speed of change and transition into the driver’s seat. Commercially for businesses, what is now possible that wasn’t previously? For our customers and citizens, what new experiences are available or required that weren’t previously? The anchor points of trust with our customers and citizens have shifted through Covid, so how do we build on this and bring them along this journey too?
STATEMENT 2: Consumer preferences have made a permanent shift towards digital over physical channels.
A few weeks ago, most people would have said that we’re experiencing a permanent shift. This was at a time when everyone was in lockdown working and living permanently from their living rooms. We’ve learnt though that working and living flexibly is more than just changing the location of activity. Replacing physical channels with digital channels will only be successful when we incorporate the sophistication of experience in our digital interactions. When we think about interactions as purely transactional, we lose the richness of the interaction.
The way we choose our next normal as we transition out of lockdown and re-explore the interactions, we are having on a daily basis will be very important. We have the opportunity to choose and redefine the experiences we have with our customers rather than just accepting the way that it was pre-Covid. And this is a great opportunity we should be taking advantage of.
STATEMENT 3: Brands that continue to invest through the cycle will recover faster and ultimately be more successful?
When thinking about investment, it is important to think about the nature of competition and understand which industries and sectors have been impacted before making any moves. If you believe that the whole sector you operate within has been impacted, there may be strategic advantage to being a first mover to gain market share and cement customer trust and loyalty. A different strategy would apply perhaps if you believed only a small part of the sector was impacted.
The next question focuses on how you invest in your brand given the crisis, and how you build attachment, trust and loyalty with your customers. It is a fine balance to ensure your brand isn’t diluted by focussing too much or at all on the crisis at hand as opposed to the reason your customers are associated with you.
STATEMENT 4: Is consumer recovery likely to be a ‘V’?
Many economists globally are expecting a ‘W’ recovery pattern as opposed to a ‘V’. We think it is useful to think less of an alphabet and more of a wave when thinking about the shape of recovery. There are a multitude of factors to consider, and we will most likely see different industries recover at varied rates, particularly as we consider the different scenarios we face.
For example, what if we see retail shut and open again over the following months in response to Covid waves? With just in time inventory systems as opposed to stockpiling, how do we manage our supply chains in response to these waves? It will be important to pay close attention to these waves to consider and pre-empt the impact to business and the response mechanisms that will be required to help respond and adjust.
STATEMENT 5: As many industries digitise, our geographic boundaries will be less important.
Digitisation brings many advantages in the breakdown of geographic boundaries. The ability to deliver services globally and tap into global resources with limited restriction will see many industries benefit.
With the digitisation of these industries, foreign investment needs to be considered carefully too however. The flow of information in digital goods and services raises concerns about national security depending on the type of information involved, who owns that information, where that information is flowing to and the security and governance around use of that information.
Whilst there is discussion around the localisation of supply chains, global supply chains will continue to play a significant role for Australian industries. And because of this continued reliance combined with the digital disruption of industries, it becomes increasingly important that we are engaging in a more sophisticated, business driven debate to understand what geographic borders will mean in the next normal.
STATEMENT 6: Our cities will decline in importance as we realise the potential of remote working.
Fundamentally, people don’t change their basic nature. We have and will continue to identify ourselves in respect to other people. These foundations play a critical role in understanding how and where the shifts in the role of cities, workplaces and places of congregation will be.
We will see a reduction in foot traffic, but people will continue to congregate. It’s human nature. Congregation however will be for different reasons. Many industries have demonstrated their ability to shift to remote working in response to Covid, and further service digitisation will support growth in this area at an accelerated pace. This will improve the remote working experience for workers and customers.
We will though start to see a return to the office as a key place of congregation, however this will most likely not be to its pre-Covid levels, and organisations will need to define what the future of their workplace will look like. As we transition to this future workplace, greater consideration will need to be given to how we support remote workers. We’ve seen a significant rise in loneliness and mental health issues resulting from lockdown. There will be a need for new structures to ensure we are able to maintain productivity, support the mental wellbeing and enable a sense of identity amongst our teams.
Steve leads the Australian Deloitte Digital practice, is a member of the Australian Consulting Executive team, and leads the firm’s digital, customer and marketing offerings for clients across Australia. Deloitte Digital is a pioneer in the Australian marketplace and has been at the forefront of business innovation and digital transformation for over 15 years. Steve specialises in creating purpose-led organisations, making amazing customer experiences, and transforming the way that organisations work. Steve and his team combine leading creative capabilities with deep industry knowledge, business strategy, technology experience and data-driven insights to help clients to see what’s possible, identify what’s valuable and deliver positive, measurable and enduring outcomes for their businesses.
Pradeep is the Lead Partner for Deloitte Access Economics. He has had a long and successful career in public policy, with deep expertise in economics and proven leadership experience. Pradeep has been a senior bureaucrat, working at the highest levels of public policy, across three jurisdictions in Australia. Pradeep’s experience includes: Director of Policy in the Prime Minister’s office, Secretary of the Department of Health and Human Services in Victoria, CEO of LaunchVic – a company established by the Victorian Government to promote start-ups and entrepreneurship – and Associate Director General of the Department of Premier and Cabinet in Queensland. He holds a PhD in Economics and Bachelor of Economics (Hons) from the University of Queensland.
Deloitte Access Economics is united by a passion for economics and a belief that it can create a better future for all. Our deep economic rigour comes with practical commercial advice to help shape public policy, deliver business insights and inform investment strategy.