Business Radar 2023 Understanding the businesses that drive Australia’s economy

Confidence holding strong, especially for bigger businesses

Respondents gave an average score for confidence in their future success of 8.14 out of 10, a drop from June 2023’s 8.44, but still well above February 2023’s 7.73 and 7.69 in 2022. The pattern repeats when considering their confidence in the current success of their business – 8.11 out of 10, which, while showing a drop from June, still towers over the previous surveys.

Again, these figures speak to the resilience of the mid-market overall, but an interesting split appears when comparing location, size of businesses (by number of employees) and the respondent’s age.

As in the June survey, medium (100-200 employees) and large (200+ employees) mid-market businesses say they’re more confident in their future success (8.5 and 8.18, respectively) than their smaller (under 100 employees) mid-market counterparts (7.65). This is perhaps unsurprising, with smaller businesses less likely to have the cash reserves, market spread and operational buffers that make it easier to ride out troubled economic times. Nor the human capital and management breadth to work through less immediate challenges. This makes them less likely to be able turn challenging times to their advantage – instead of out manoeuvring competitors, they may be battening down the hatches.

When we split results by age of respondents, it shows that ages 35-49 are more confident (8.29) than those aged 18-34 (8.04). Two factors could explain this result – older managers may be more likely to oversee those larger, more confident businesses and be more likely to have experienced – and survived – economic bad weather. They feel proven and believe they can continue to deliver results.

The results show a surprising split by location, with businesses based in Victoria rating their confidence in future success at 8.37, while in New South Wales, it’s significantly lower at 7.84. This may be partly due to a higher representation of financial, admin and support services in the survey in Victoria, compared to NSW’s higher prevalence of retail businesses, which are more likely to be impacted by the cost-of-living pressures.

Victoria has had a few headwinds in recent times with the long COVID lockdowns and government budget challenges but despite this, it remains a strong economy leading to confidence in planning for the future.

When asked about 12-month growth prospects, we see business leaders’ confidence in their industries and the Australian economy take a dip from our June report (8.23 to 8.00 and 7.53 to 7.37 respectively), but still up from previous years. When asked about the global economy, confidence has nudged up slightly (7.22) on the already high May responses (7.20).

So long COVID-19 – tech and inflation are making waves

Asked about the external positive or negative factors impacting business, mid-market leaders show they’ve finally stopped worrying about COVID-19. It’s dropped out of the top five.

Changing interest rates and environmental, social and governance (ESG) initiatives fill the void. Delving deeper into the data we see there may be low understanding of ESG or its lack of clear definition leading to misinterpretation – a number of respondents considered government policies as opposed to internal governance as an ESG factor. This could mean ESG importance could be slightly inflated.

While interest rates have had both a positive (19%) and negative (23%) impact on business confidence, inflation is only seen as a hindrance. Over a third named inflation as having a negative impact. Conversely, consumer preferences had an entirely positive impact – identified by 31%.

People and relationships are making the difference

While the previous two 2023 reports name business basics of cashflow, people and process efficiency as core drivers to business success, in this quarter, strong customer relationships sit way out in front. A third (33%) of respondents say this is the main success driver. Talent remains important – 25% said having high-quality talent is a driver of their success, and 32% say attracting talent is a major barrier.

While supply-chain management remains a headache for the mid-market, the next four barriers appear to be about financial management and its outcomes – lack of capital (23%), low investment in marketing (22%) and technology (21%), and cashflow problems (21%). It’s interesting to note that the barriers are all short-term, existential questions – ‘Do I have the people, supply and capital to keep the doors open?’

By contrast, the drivers of success appear to be future-focused. The top factors, such as strong customer relationships (33%), high-quality talent (25%), investment in technology (26%), operational efficiency (25%) and a clearly defined vision and strategic plan (21%), deliver results in the long run.

Businesses think they’ll be ok

While not all respondents are predicting a downturn, business leaders remain wary about the impact it could have. 50% predict it would have a moderate to significant negative impact on businesses in general.

As we’ve seen play out in business confidence figures, respondents are more confident in the resilience of their own businesses than in others – only 13% believe a downturn will have a significant negative impact on their business, compared to 20% for other businesses.

While 1 in 10 respondents think some will see a benefit from a downturn, most respondents expect that consumers (27%) and small businesses (25%) will be most impacted.

Larger mid-market businesses are less worried and can focus on the long game

Leaders managing smaller (under 200 employees) mid-market businesses are more worried than those managing larger organisations.

More of our smaller mid-market businesses feel they would be negatively impacted (64%) than our larger (200+ employees) mid-market businesses (41%). This may be due to the greater resources and reserves larger businesses can call on to sustain them through turbulent times.

Smaller mid-market businesses’ most immediate concerns in a downturn are all financially focused. Topping the list of worries are supplier price rises (47%), declining revenue and cashflow (47%), debt and repayments (44%) and higher operating costs (44%).

In contrast, larger mid-market businesses still have an eye for the future. Beyond weaker consumer demand (37%), these businesses are most concerned about the prospect of stricter government regulation (33%), employee retention (33%) and de-prioritising innovation (29%).

These concerns, should they materialise, have far reaching implications for businesses in the future. Stricter government regulation, while benefiting some sectors, also creates barriers to entry which can lead to higher costs and a dampening of business progress.

Equally innovation is the life blood of a dynamic, adaptable and growing economy. In a globally competitive environment, deprioritising innovation could set Australian businesses back in the medium to long term.

Seeing opportunity in adversity

Many mid-market businesses (45%) are channelling their concern into preparing their business operations to see them through turbulent times.

More confident businesses tend to feel more prepared – while 45% of respondents overall say they are mostly or very prepared, for high-confidence businesses that number jumps to 64%.

Other businesses that are more prepared tend to be:

• Larger in scale with a higher turnover providing a perceived buffer
• Led by middle-aged managers who’ve likely been through it before, and
• Based in Victoria. Strategic planning is the key element here and it could be said that Victorian-based businesses have actively engaged in planning since the upheaval of the COVID-19 response. We also saw proportionally higher representation from financial services respondents compared to other states, with this sector currently less impacted by the cost-of-living pressures and changes in consumer spending.

When asked what they’d focus on to prepare for a downturn, most businesses said it was all about business fundamentals: strengthening customer relationships (29%), building cash reserves (26%) and reducing operating costs (26%) were top of the list.

Those businesses that felt prepared for a downturn had a different outlook from those that didn’t. These leaders see an opportunity to strengthen their market position and operations. Beyond building cash reserves (30%), they’re expecting product/service diversification (29%) and productivity improvements (28%) to see them through challenging economic times.

Compared to less prepared businesses, they’re also far less likely to reduce headcount (10% vs 20%), and more likely to increase marketing (25% vs 13%) and debt repayments (22% vs 10%).

It seems early preparation may give these businesses the luxury to chase opportunities and gain market share in a challenging time, emerging stronger than when they entered it compared to the competition.

When asked to consider their greatest assets, businesses rated a strong customer base (35%) and skilled workforce (32%) as the top two. Followed by diverse revenue streams (25%), strong brand and reputation (24%) and effective debt management (23%).

More prepared businesses have a slightly different top five, with effective debt management coming in higher at number three (28%), followed by market research and insights (22%) and innovation and creativity (22%).

Having manageable debt seems to free these businesses to focus on areas that will set them up well for the future. Market research and insights are crucial to informing business strategy and decision-making, from building understanding of what’s going on in the market – with customers and competitors – through to identifying opportunities for more effective marketing, whether that be improved pricing, expansion opportunities or product/service development.

Armed with these insights, businesses can channel their creativity and innovation efforts into areas that will have the greatest impact and help them stand out in the market.

Taking into consideration what respondents see as their greatest asset, it’s logical, then, that businesses see protecting customer relationships (33%) and retaining employees (23%) and key people (23%) as core areas to protect in turbulent times.

Rebuilding a customer base and recruiting and training new people are key drivers that can hold businesses back from being able to capitalise on improving business conditions. Being able to secure your share of the market as it expands again, along with having the people to deliver your products or services will go a long way to ensuring your business is not only resilient, but on a strong path to recover as economic conditions improve.

Unsurprisingly, our more prepared businesses are also looking to protect their future planning and strategy processes. This yet again reinforces the long-term outlook that these prepared businesses value so highly during challenging times.

Insights for business

For resilience: hang on to your people and customers

In usual form, mid-market business leaders retain their confident and optimistic attitude, while keeping an eagle eye on the economic outlook.

Some of our mid-market businesses seem to be taking a slightly happy-go-lucky approach, hoping either that Australia avoids economic downturn or that they’ll get through with a strong customer base and skilled workforce.

For all businesses, turbulent economic times present both challenges and opportunities, and it’s important to take both defensive and offensive actions to set your business up for the greatest chance of surviving, and even prospering, during a downturn.

Strong relationships will be fundamental; actively managing your relationships with your customers, your people, your suppliers and financiers will be key to future success.

GenAI? Yeah, they know it.

Almost all business leaders we surveyed claimed at least some knowledge of GenAI – with 98% saying they’re aware of the technology and 83% saying they’re familiar with it (either a little or a lot).

Unsurprisingly, over a third of respondents say they’re already using GenAI in their business, with another four in 10 preparing to do so. Segment the responses to just those businesses with high confidence in their future success, and the figure shifts, with over half – 51% – saying they’re already using GenAI.

This indicates mid-market owners and decision-makers are dialled into new and disruptive technology and are well-practiced at pivoting operations to make better use of it. Using GenAI to improve efficiency and output could soon become not just a competitive advantage but an existential requirement.

A small start to something big

Despite the wide-reaching potential of these technologies, when asked about existing or potential uses, our business leaders generally limited their thinking to back-office support – admin, analysis and content creation.

This suggests that most businesses have not fully operationalised the technology into business as usual. They are using it – or think they could – to help write reports, communications and marketing materials, as a research alternative to Google or for non-specific ‘admin’ work.

Business advice and guidance, training, knowledge management, innovation, and bookkeeping and accounting are among the lowest uses named by respondents. This perhaps can be attributed to the risk around data security and the complexity of these functions.

These responses show us that despite the buzz, the mid-market’s use of GenAI is still very much in its infancy. This makes sense. While the barrier to entry is almost nil for the ad hoc use of ‘public’ GenAI tools, fully operationalising them into business processes can be a long and expensive undertaking. Significant investment is often required to adapt and apply the tools to your business’s environment and to recruit people with the skills to both develop and maintain them.

A rose-tinted outlook

On average, 77% of our business leaders feel GenAI will have a positive overall impact on their business, with high net positive scores for impact on products and services (82%) and industry (83%). The impact on employees (68%) and personal life (68%) was seen as being less positive driven by a larger portion of leaders who felt it would have no impact.

Most respondents see positive applications for business, agreeing or strongly agreeing that “It will lead to new products and services” (84%), “It will streamline operations and processes” (82%) and “It will free up more time to focus on business strategy” (79%).

The impact on the types of jobs that are available (78%) and the reduced need for human labour (75%) – could be seen as either positive or negative, depending on your perspective.

The negatives were predominantly around adding complexity for management (60%) and the corresponding need to upskill (80%).

Unsurprisingly, positivity scores jumped even higher for those already using (87%) or planning to use (84%) the tools and those businesses that scored themselves confident in their future success (84%) against an average of 77% across all respondents.

Challenges, risks and preparedness

Business leaders know that GenAI comes with challenges. Those who plan to, but aren’t yet, using the tools name data security and accuracy as the biggest of these – 39% have yet to fully trust either. Those using GenAI see things differently, with 37% saying cost is their biggest challenge. This cost is often incurred as businesses move away from ‘public’ GenAI tools to develop their own applications, and therefore sidestepping issues of data security and privacy.

36% of all respondents named data privacy concerns as their biggest challenge, and 19% named putting safeguards in place. However, the survey also suggests many business leaders are underestimating risks to their business, as we saw in our previous Business Radar survey on cybersecurity. Only 12% agree there is a risk with implementing GenAI and that they’re concerned about it. Almost half said they weren’t worried about the risk (33%) or that there was no risk at all (16%). The biggest group, 39%, agreed there was risk, but couldn’t yet define it.

A quarter of those already using GenAI say they haven’t put in any safeguards, and a further 25% are only thinking about it.

These statistics are worrying, especially when you consider the probability that most businesses will have staff already using GenAI on their own initiative. And that’s a problem – confidential customer or business information is entered into tools, making it available in the public domain. Even businesses that aren’t or won’t ever use GenAI need to address and mitigate the risks it poses.

Insights for business

EMBRACE – AND RING-FENCE – GEN AI

Even if you could avoid GenAI, it’s unwise to do so.

It’s time to be proactive and ask what processes, systems and training your business needs to extract the huge benefits from these tools, while safeguarding your business, data and clients against their risk.

As more businesses build the tools into their business as usual, they’ll set new standards for customisation, delivery and cost.

This is an inevitable paradigm shift. What you do now could be a matter of survival.

Find out more about Gen AI and what it means for the mid-market

Discover how Generative AI is being utilised by mid-market businesses, potential areas for cost savings and how to ensure responsible and ethical AI implementation in this webinar.

Concerned but maybe not concerned enough

While 81% of businesses are allocating budget to cybersecurity and 80% are considering it at a strategic business level, only 55% have it as a regular agenda item at management meetings.

Almost half of businesses agree or strongly agree that their business, “isn’t an attractive target for a cyber-attack, so the risk of an attack is low.” This suggests that many businesses see cybersecurity as a risk in general, but one that doesn’t much apply to them.

After recent high profile cyber incidents, mid-market businesses may feel that larger organisations are more attractive for cyber criminals, but the reality is much different. Many mid-market businesses are not direct targets, but simply the victims of random phishing attacks, meaning they’re still vulnerable and may not realise it.

Even so, the number of businesses insured against an attack (65%) is encouraging, but less confident businesses are less likely to be insured (58%) versus those who are confident (71%).

Those who don’t have insurance say it’s because they didn’t have the funds, didn’t know about insurance options or didn’t think they were at risk.

While it is pleasing to see mid-market businesses taking the right steps to protect themselves in the event of an incident, if businesses don’t have cyber as a regular agenda item for discussion, they need to ask themselves, why not?

Additionally, 41% of businesses are also working without a response plan in place and 45% aren’t confident that they could recover from a significant attack.

Outsourcing your IT doesn’t outsource your risk

Worryingly 45% of mid-market leaders believe outsourcing the IT function removes the risk for their business. While making use of experts can reduce your risk through improved prevention tactics, it doesn’t remove it entirely. It is still your brand and bottom line that will be damaged if any attacks successfully get through the measures put in place by your providers.

For any outsourced services utilised it’s important to ensure they apply as rigorous cyber security protocols as you do.

Insights for business

While it’s pleasing to see cybersecurity high on the radar for most business leaders, the results show worrying inconsistencies that may indicate that some businesses are less prepared than they think they are, and underestimate the risks they face.

Perhaps most interesting and more concerning, is the high number of businesses who see outsourcing IT as a way to remove risk (not just decrease or limit it). This isn’t true both legally and practically and could show a contradiction to respondents’ confidence in their management’s expertise and awareness.

It’s worth remembering that even small and medium sized businesses can be targets – potentially representing an easy access point to much larger fish in their supply chain or holding volumes of highly sensitive data themselves.

Business leaders would do well to look at their business as usual approach to cybersecurity to ensure people at all levels of the organisation understand their role and their responsibilities.

Less worry, more action

While it’s clear Australian leaders of mid-market businesses know they should be considering cybersecurity risks, in many cases this has not translated into practical defences or planning. Their responses suggest that a lack of understanding may be causing businesses to feel they’re better prepared than they are.

As cyberattacks continue to increase and businesses become more and more reliant on connected networks and data, it’s time for businesses to take a clear eyed, informed look at how they’re preparing for and protecting against the inevitable.

Mid-market businesses range in size, employing from 20–200 people with an annual revenue of $2–$500m. They include private, public and not-for-profit organisation, across the whole business lifecycle – seed, growth, mature and transition.

While their size and operating model vary, one thing they have in common is a growth mindset and the ability to adapt quickly.