The world has certainly changed, and this change is affecting the industry in which we work. Australia is not immune to global events, and with many local employers subsidiaries of global multinationals the effects are reaching us.
Working across several hundred companies we have seen some fundamental changes in how medical technology and pharmaceutical companies are conducting their businesses, how they are employing people and what they are expecting of their people; and in a series of articles I’m going to outline how this changing economy is affecting us in Australia.
But firstly, it’s useful to reflect on how we got to be in this position in the first place.
Economies go through cycles, cycles of boom and bust. Sometimes the effect is not significant, sometimes it’s catastrophic. The Great Depression of the 1930s was catastrophic with millions of people out of work and homeless. It’s not that bad today, not yet. Economists are already referring to this period as either the Global Financial Crisis, the Great Recession or the Lesser Depression. Some are predicting further turmoil; others are predicting a slow recovery. The current facts are that across the world financial institutions have collapsed, the stock market has fallen, banks are being rescued by governments, businesses have failed, unemployment has increased and consumer confidence continues to plummet, and this has changed the world.
A number of complex factors have caused this crisis, and it started in the US in the 1990s and early 2000s. At the time there was a great influx of money into the US from richer nations with more money being available for banks and financial institutions to invest. The banks then sold mortgages and other financial products to consumers. At the same time the banking system was undergoing a period of deregulation, with more entrants and relaxed underwriting standards.
Many people increased their investment in the housing market. There was lots of money available, interest rates were low and mortgages easy to come by. With very little documentation and even less financial due-diligence millions of people raised mortgages to buy second homes and investments. They also used the equity in their homes to borrow money to spend on their lifestyle, hence the term ‘debt-financed consumption’. With housing prices going up, equity increased, and they could borrow even more money, increasing their debt load.
The availability of easy money meant that the ‘sub-prime mortgage’ market flourished. Here, money was lent to people who had no credit history, no assets for security and who couldn’t afford the repayments when interest rates increased. When they couldn’t meet their commitments they simply walked away from the house and the banks foreclosed.
During this period the original lenders bundled the mortgages together into new financial products, one of which was called CDOs (collateralized debt obligations) and on-sold them to other investors, both in the US and across the world. These CDOs were given ‘low-risk’ recommendations by ratings agencies and were therefore attractive to conservative investors (pension funds, local councils, not-for-profit organizations, governments). However these CDOs carried a lot more risk than perceived. The original ‘sub-prime’ mortgages were being provided to people who had a high probability of de-faulting. When low introductory interest rates reverted to standard rates people couldn’t afford the higher monthly payments and they defaulted; the value of individual investments dropped; the value of the bundled investments (the CDOs) dropped; and the flow of funds from these investments dropped, meaning that investors were not being paid.
As interest rates began to rise and housing prices began to fall refinancing became more difficult. Many consumers had negative equity in their properties (they owed the bank more than the house was worth). The banks foreclosed on houses and started to accumulate enormous debts. Global investors who held the mortgage-backed securities saw the value of their investment plummet and the entire financial system began to unravel.
The collapse in the US financial market led to tightening of credit around the world. Money was harder to borrow and it became more expensive. Growth therefore slowed.
Because worldwide financial markets are so inter-connected the financial crisis quickly spread to Europe. This ‘financial contagion’ hit European economies which were already not healthy. For years there had been overspending, high-risk lending and borrowing practices, rising debt loads, and less than optimal financial management at government level, with Ireland, Portugal, Spain and Greece notable examples.
Government policy in a number of countries is now focusing on austerity measures (eg decreasing spending and increasing taxes) and this change in thinking has affected business practices worldwide. With many Australian based pharmaceutical and medical technology companies subsidiaries of US and European parents these changes in working practices and thinking are directly affecting us.
Now for an overview of how the global economy is affecting Australia. In subsequent articles we will continue the analysis and provide further updates.
Companies are now focused on saving money:
It’s about cutting costs. Over the last couple of years companies have trimmed fat and continue to trim; and today many companies are running much leaner than they did 3 years ago.
A number of companies have consolidated divisions to save money and to promote efficiencies eg combining cardiovascular and respiratory; or oncology and specialty care. Others are grouping products together and promoting them by the same sales team in order to reduce costs.
Some departments have also down-sized to save money eg Shared Services (IT, HR, Finance), Learning and Development, or have moved off-shore (Manufacturing, Clinical Research), where cost as well as risk and future market opportunity are key decision drivers.
More work is being outsourced so that companies have the flexibility to upscale and downscale, depending on market conditions. More clinical research is going to CROs and companies are forming closer alliances with specialised agencies for pharmacovigilance, regulatory affairs, health economics, medical writing, data management services, recruitment, payroll and learning and development services. To ensure efficiencies in outsourcing new roles are being created to manage the relationships with providers.
People are being made redundant; and roles are being kept vacant when someone leaves. There’s also been a decrease in part-time work. With an available headcount companies prefer to have a full time person to maximise productivity of that position.
Roles are also being combined as companies seek to save money and broaden the skill sets of their employees. For example: there are now fewer Associate Product Manager roles with Product Managers assuming more responsibilities; senior CRAs have monitoring responsibilities; CRMs project manage; sales people are required to develop business as well as account manage; Accounts Receivable staff undertake Accounts Payable duties; QC is doing more QA; Regulatory Affairs more QA. Roles are morphing and skill sets broadening. In short, companies are trying to get more value out of one person.
Companies are keeping tighter controls over their spending. Budgets are being reviewed monthly and quarterly rather than annually. Every line is being scrutinized with additional justifications required. Authority to spend has moved to higher levels with local managers requiring regional or head office sign-off, for increasingly smaller amounts.
Procurement is expecting more from suppliers and are formalising this in tighter Service Level Agreements. This ensures that products and services are being delivered cost-effectively and that the company is receiving value.
There has been an increase in sourcing roles as companies try to eliminate the middle person and deal directly with distributors and end-consumers to cut costs. These Sourcing Managers now require advanced negotiation skills and an in-depth understanding of business and industry issues.
Companies are analysing their business’ more:
A few years ago companies would report to their head offices on a quarterly and annual basis. We have now seen a shift to monthly and even weekly reporting as there is an increased requirement to be on top of the numbers. More so, than ever before, senior managers want to know where the sales are coming from and what specific activities are contributing to those results.
With a need for additional data and additional analyses we are seeing more Analyst roles being created. Companies recognise the need to generate greater market insights if they are going to compete effectively in a volatile and uncertain environment. These Analysts have responsibilities to both report on the numbers and to make recommendations to senior management with regards strategy development.
Through this analysis new technologies are being introduced to increase productivity and efficiency, eg customer facing technology - smart phones for instant emails, iPads for improved knowledge sharing; and back-office technology for instant order processing and effective supply chain management.
Companies are employing people who can hit the ground running. Direct, specific experience in operating systems (eg SAP, Oracle, JD Edwards) is required where in the past clients would have trained up new employees. Further, expertise in specific modules relating to order processing, demand planning and reporting is essential.
These changes have resulted in a change in the culture of companies:
Companies are now more commercially focused. Workplace cultures are becoming more P&L focused with more discussions and reporting on top (sales) and bottom (profit) line actions and results.
This has affected hiring practices. Companies want people to be adding value to their role and adding value to the company as a whole. Within the scope of responsibilities employees need to be seeking out additional opportunities for their companies. This may involve identifying more cost-effective suppliers; alternative streams of revenue; and more effective ways to deliver results. And this requires employees to have strong networking and engagement skills.
To compete companies need to exchange information quickly and this requires communication and collaboration. Being a team player is even more essential today.
Risk taking is encouraged. Employees need to see opportunities and take a risk, even though it’s not the ‘old’ way of working. Competencies now sought include: flexibility, agility, competitiveness, innovation, and assertiveness.
The world has changed and a lot more change is anticipated. Events in Europe and in the US are changing head office working practices. In Australia we are seeing how this is directly affecting the hundreds of companies with which we work. It’s affecting hiring practices and workplace cultures. There’s increased demands on employees to increase their efficiency and productivity and to deliver results.
In subsequent articles we’ll be providing additional analysis of the on-going changes affecting companies in Australia.