Address to Global Access Partners 8th Annual Economic Summit: Think Digital or Become History

08 September 2017

Good morning everyone.
Id like to thank Global Access Partners for inviting me to speak today, particularly managing director, Catherine Fritz-Kalish.
There are a number of other people that Id also like to acknowledge: Phillip Ruddock and Heather Ruddock, good morning to you both.
Some former colleagues in Stephen Conroy and Bruce Billson are here as well. Good to see them both.
Im particularly delighted to be here this morning to speak about things that Ive felt deeply about for a long time.
When people think about technological change and the things were witnessing right now, the needle tends to go from awe to anxiety very quickly.
The challenge for us as a nation is to think about the changes coming but see that there will be benefits that come out of it. And it will be nothing new weve been dealing with this type change for generations but the difference will be the speed and the breadth.
From my perspective it is important to discuss this, particularly at a gathering like this where people are thinking a lot about change and how to prepare for it.
We are meeting at a time where were waiting for the arrival of a behemoth a digital Godzilla in the shape of Amazon.
Everyone seems to have a view about Amazon, some of it good some of it not so good.
If you believe some of the things weve heard so far, we can expect the entire Australian retail sector to be gobbled up in one mouse click. People are looking at what theyve done overseas and theres a bit of trepidation.
If you look at their online presence, within whats described as the online universe, they have 86 per cent reach.
85 per cent of mobile users are tapping into Amazon.
And this figure, while it sounds small is amazing: 2.7 per cent of all digital time is spent on the Amazon store or apps.
That is an amazing rate of market penetration when you consider the multitude of online options and distractions.
Morgan Stanley analysts have predicted retail earnings will drop by 16 per cent when the Godzilla arrives in Australia.
Amazon is predicted to hugely impact the small electrical goods market right off the bat once they set up their one-click shop.
And theyre experimenting with a physical grocery store with no check out.
On a level below the big chains: It was reported that MYOB research showed 27 per cent of Australian SMEs were worried about the arrival of the online shopping giant.
43 per cent believe itll lead to lost customers and 43 per cent think Amazon setting up virtual shop will reduce revenue.
We had Dick Smith, in his very low key way, say this was ultimate greed of Amazon and warning that they would make an absolute fortune in Australia at the expense of doing incredible damage.
Im not here as an advocate or an evangelist as is the term in digital spaces for Amazon.
But I do note in that in the same MYOB research, that 57 per cent of SMEs believed the arrival of Amazon would force them to innovate. This is an important figure they said it would force them to innovate.
Im here to affirm that sentiment as correct.
Australian businesses shouldnt be waiting for the arrival of Amazon to start innovating and investing in digital transformation.
Amazon and their size has made them an easy target but theyve been a loss maker for many years.
Their approach has evolved right before our eyes from selling books online through to selling everything online as a digital marketplace.
They had to transform to give customers what they want.
My argument which upsets a lot of retailers is: why were we waiting? Why werent we innovating in advance?
People now expect to be able to go online and do a lot of what they want to do. Why were we not getting prepared?
In the policy space, when marketplaces emerge from Australian ingenuity here that might butt up against existing traditional frameworks people instinctively say we need to protect the people affected by change.
That is correct but the best way to do it was to collaborate early on, work with them and open up new streams of income for people instead of using a regulatory framework to constrain growth in the interests of trying to avoid pain now and see more pain down the track because we werent ready.
This is the issue with the debate I see around Amazon in this country.
If there is tweaking of competition law needed, we should do that. And Amazon should not have free reign within this country, but we should be using their presence to prepare and change the way we operate ourselves.
When you look at the rate of digital engagement across SMEs in Australia, we dont have a lot to boast about.
The benefit of getting on top of this early is huge for the economy.
Recently work done by Alpha Beta, an economics analysis firm, indicated the economy could grow by $1 trillion by 2030 if businesses invest in digital transformation automation, robotics, artificial intelligence and other services that speed up the pace of business and free up workers from mundane tasks.
That is what is on offer in Australia. The key is SMEs need to be proactive.
The truth is we havent seen that level of engagement yet. There is a surface level of attention to the digital part of businesses, but it hasnt been pulled into focus as much as it should.
Im not calling for corner store robots. But its certainly the case that we need to look at digital engagement.
A 2016 Department of Industry report said data showed a growing gap in terms of growth and productivity between SMEs with a digital business strategy and those without one.
That is the ones with a plan did well and the ones without one didnt.
They also pointed out that most Australian SMEs have a website and are connected to broadband, but most digital transformation stops about there:
Not quite 50 per cent use an e-purchase platform;
Under 40 per cent are on social media;
Just over 20 per cent use cloud computing; and,
Only 20 per cent have digital supply chain management.
A Sensis e-business report in 2016 also found there was a high level of surface level digital engagement from SMEs.
Almost all SMEs own computers of some sort 94 per cent have desktops, 49 per cent laptops and 41 per cent tablets.
But only 45 per cent of procurement was transacted online, only 34 per cent advertise on social media networks.
When you look at what the potential benefits of digital transformation, the increased revenue, increased job creation and increased exports have all been measured.
We do need to do more to ask why we dont have SMEs engaged in the digital space and using these tools which are getting easier and easier to use to hold onto consumers, reach out to new consumers, improve internal operations and export goods or services overseas.
On top of that the over thing that is coming is a wave of technological change.
As I mentioned before, a combination of automation, robotics, artificial intelligence and machine learning will change the nature of work and jobs.
Oxford University have estimated 47 per cent of jobs currently performed could be automated. The OECD took a view that it could be between nine and 15 per cent.
In the Australian context, analytics firm Faethm have looked at all the tasks that could be automated at an enterprise level.
Their findings are worth considering, especially in the SME space:
Financial services could see 40 per cent of the jobs automated;
Manufacturing could witness automation affecting 50 per cent of jobs on top of what weve already seen; and,
Fast food and hospitality the generator of entry level jobs for young and mature workers alike could see 60 per cent of jobs automated.
If you look at what is happening in the Australian context, only about nine per cent of listed companies have declared their plans to spend and invest in digital transformation.
If you look at places like Switzerland, I think its roughly 25 per cent of listed companies are investing in automation and changes ahead.
While it might spare us in the short term, the longer term challenge is this: as companies, particularly those that are export or externally focused, compete against firms that are already improving their operations the danger is well be playing catch-up.
That means we may do it in a roughshod way that doesnt take advantage of what we can get out of this change, and it may also fundamentally disrupt employment patterns, creating a broader social and community unease about the pace of change.
What happens then? Politicians react and in many cases it may be a regulatory response that helps in the short term but hurts us in the long term.
These are serious issues that Im putting forward for your consideration today because that level of automation is going to happen.
People ask how you could go into an automated hotel. Well the answer is you can do that right now in Japan. There are automated hotels where you wont even see a person. Chains in the United States are starting to do that right now.
In fast food preparation there are machines preparing the whole hamburger and putting it out the end for a waiter to pick up and deliver it. Calculations are being done about the impact that has on payroll costs and businesses are considering investing now and watching it pay for itself over time.
So how do we prepare for a situation where many low skilled jobs get wiped out?
There are three cohorts that we need to think about:
The first is the next generation, which we need to prepare for in advance.
The second is the cohort affected by change right now and will watch their jobs get completely transformed. They will have a greater degree of anxiety.
The third cohort is a group of people who want to come back into the workforce or work until an older age.
In a labour market of about 12 million people, 3.5 million jobs could be radically changed due to automation or completely disappear. Thats a huge challenge.
We could be training people right now for jobs that might be gone soon. We could be preparing people for work that could be completely changed.
There is a mode of thinking about education that says Ill go to school, TAFE or university and Ill have a skillset that I might take into one job.
But we know one job for life doesnt exist. Someone will go to a number of jobs over their lifetime.
And the skillset that someone thought theyd use across their lifetime may not prepare them for a range of jobs that now require someone to have completely different skillsets.
Weve been told about life-long learning for years but havent seen much come from that so far. However now we really need to consider how that can happen.
The combination of online learning, changes to vocational and tertiary education, and a focus on shorter spurts of learning that might teach particular skillsets are all things we need to start contemplating.
That isnt important just from a policy perspective but to the individual it will completely change how were used to engaging with the education system.
We cant use a one size fits all approach because we will need to help people with different skills and backgrounds adjust. That poses a particularly big challenge to government.
Ill finish today by considering that: what is the role of government and leadership that should be offered by government?
There are three things government should do:
Scope out what is happening right now and form some sort of idea what is likely to happen in years to come.
Put a spotlight on that and advocate for change. Not grounded in fear but to speak about something people can rally towards.
Develop a roadmap and a sense of vision on where we can go from here.
There is already a little work being done on this at the federal level. Ive avoided taking a partisan angle on this and Ill maintain that as much as I possibly can.
Weve seen a report done by the CSIRO, co-ordinated across numerous departments, that was released last year called Tomorrows Digitally Enabled Workforce that looked at all this.
It was handed over and launched by the nations Employment Minister last year but it has stalled.
The first I heard recently that thought was being given to this was in Melbourne when the Employment Minister indicated they were considering what theyd do after 2020 about the employment services contract the second largest item of procurement in the country and how that system would be geared up to meet the challenges ahead.
Thats a good thing but theres not much else.
I often ask people to name one thing thats preparing us for the future of work and automation and theres not much.
The whole discussion around innovation: gone.
Why? Because in the political realm there was an inability to explain and then build support for the level of change thats coming.
This is selling us short in the longer term. There is reason, given the changes that are happening, to believe a head-in-the-sand approach is going to serve the nation. It wont.
In the political space there is a need to:
Recognise whats coming.
Explain what can be done.
Prepare for it.
Thats one of my biggest criticisms right now. We have no sense of where we are heading on this and it shows.
If I sit in the office of a venture capitalist I hear the same thing as from a senior union official down the road, and that is, what are we doing about the future of work?
People from disparate groups are thinking about it.
I attended a workshop with a number of senior executives and CEOs in the Australian market about the future of work and the moment they thought, What are my kids going to do? the whole mood changed.
Automation isnt just going to hit the blue collar; it will grab the white collar too.
The work of para-legals is already being automated right now. Financial services automated. White collar jobs are completely transforming.
We need to prepare for it and we can be.
This is why I had the future of work element added to my portfolio. We wont just tell the other side of politics to do this and not work on it ourselves. This is something people on my side are doing a lot of thinking about.
One of my colleagues the Shadow Minister for Finance, Dr Jim Chalmers is about to release some work he has done with the former head of the NBN Mike Quigley on the notion of a fair go in the machine age.
There are a lot of people on our side of politics thinking and preparing for this and I very much welcome the opportunity to work with people in this room on this issue.
Thank you to GAP again for the change to speak and to catch up with people thinking about these very important issues.