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Speech to the ACCI Breakfast - Connecting Australia: The Big Future of Small Business
It is great to be here to talk about productivity, small business and the NBN.
Thank you to ACCI for putting on this important event.
In discussing these issues I do so with the benefit of this important research being released today prepared by Alpha Beta – ‘Connecting Australia, How technology is levelling the playing field for small business in Australia’.
What I want to argue in my brief remarks is firstly that productivity for small business really matters; secondly, there’s a strong link between smart use of IT and business productivity; and thirdly, the NBN is helping small businesses use IT and be more productive.
Productivity for Small Business Really Matters
We all know that productivity is very important for our nation. As the Treasurer recently pointed out, productivity growth has slowed in recent years. So we need to improve our productivity. That means that we need improvements across the board: not just big business, and medium sized business, but small business as well.
Small businesses are 98% of all Australian businesses by number, and the number of people employed in small business is almost 5 million.
Historically, the productivity of people in small businesses has been considerably lower than in big businesses, in part because of lower investment in technology by small businesses.
We want to see that gap close, and to see small business productivity getting closer to the levels of big business.
The Link Between Productivity and IT Investment
Let me turn to the link between productivity and IT; it is pretty well established.
The Australian Industry Report 2016 found business investment in digital technology results in higher productivity. McKinsey estimates that the further adoption of digital technology could see a GDP increase in Australia of $250 billion by 2025.
The work done by Alpha Beta that’s being released today reinforces these themes. It finds that businesses with a higher take up of digital technology tend to be more successful in growing their revenues, Businesses which increased their internet spending the most, achieved higher revenue growth than their peers over the two year period of the study.
There is also a also strong correlation between the take up of digital technology and employment. In short, businesses that spent more on technology, did better at growing their employees than those which did not.
This report, and work done by Alpha Beta previously, emphasises the strong positive correlation between a fast reliable broadband connection and small business productivity. It is not hard to think of the many ways that better use of IT underpinned by a ubiquitous high-speed broadband network can help businesses of all sizes work more efficiently.
Good quality video conferencing means fewer face to face meetings are required, saving time and money on travel. Efficient online processes to place orders, to invoice customers, to pay invoices - all of these can save time and reduce transactions costs.
Also critically important is that the access to cloud-based applications for small businesses, delivered over the NBN, is making a real difference. For example, by using cloud-based accounting software such as Xero, small businesses are relieved of having to do lots of time-consuming, manual paper-based tasks.
The NBN is helping small businesses use IT and be more productive
Let me turn thirdly then to how NBN is helping small and medium businesses use IT better and be more productive.
I saw a great example recently when I visited a company called Abode New Homes in Darwin. I met the owners, Justin and Karinda Hill. I was amazed as they showed me the digital systems that they used to design homes, to order materials, to schedule their sub-contractors.
They do all this over a 100 Mbps NBN connection to their head office in Darwin. At building sites their staff use tablets connected over the 4G network, to access the systems that they need.
Abode requires all of its sub-contractors to use its systems for quotes, for invoicing and for other interactions, meaning they are sharing the productivity benefits of this new technology with other businesses in the notoriously disaggregated building sector.
But what really impressed me was when Justin and Karinda told me that they are franchising their business to a franchisee in north Queensland. Part of the offering to the franchisee is access over the NBN and the cloud to all of their digital business systems.
This in my view is a powerful example of how a ubiquitously available broadband network to bring efficiency gains to small and medium businesses. Abode is able to use much more efficient cloud-based operating tools because of being able to access the NBN. They can offer their franchisee the same efficiencies because the NBN is available around the country. In turn the NBN gives access to efficient software in the cloud for all of the things that a business like theirs needs to do.
I think we can identify at least four ways in which NBN is helping more small businesses make better use of IT and in turn become more productive.
The first is simply cheaper, better, more widely available broadband services.
Historically what was available for small businesses – indeed available to all businesses – was patchy and it was expensive. Today, thanks to NBN, broadband is now ubiquitously available – 25 Mbps peak speed on satellite, 50 Mbps peak speed on fixed wireless, and of course for premises on the fixed-line broadband network, 90% can get 50 Mbps or more. So the sheer availability of this vital business input, more cheaply, more ubiquitously, is a productivity benefit.
The second productivity boosting mechanism is the way the NBN allows small businesses to use the latest software delivered over the cloud. For quite a long time, using cloud-based applications has been business as usual for the big end of town. But now with the NBN cloud-based applications are available to all.
This is technology levelling the playing field for small business. It’s things like helping tradespeople to automate many of the processes in their business; scheduling jobs with staff and customers; communicating with employees and clients about jobs; recording compliance information; preparing quotes; invoicing customers.
Adobe New Homes is one good example. Another is Forge Pizzeria – a family restaurant in Ballarat, which has grown from two employees to 90 in six years. Their growth has been underpinned by strong online systems, delivered over their NBN connection, such as finger print logins and online timesheet management.
We are seeing more and more Australian businesses tapping into the cloud, putting new tools to work in their business. For example, among Xero subscribers, 35% of businesses with a turnover of up to $2 million and 45% of businesses with bigger turnover than that are using third party apps to integrate with the Xero platform.
A third way in which NBN is helping small businesses achieve greater productivity is because it means that small businesses can access a bigger addressable market. They can use online directories, websites, social media – all of these marketing tools that are available if you are connected and, critically, if your customers are connected.
The data shows that in NBN connected areas, Australians are more likely to do things like online shopping. Online shopping is of course increasing for all Australians, but in NBN connected areas the prevalence is greater. Similarly, consider the way NBN is stimulating distance education. NBN connected users are 1.5 times more likely to use the internet for non-formal learning, compared to non-NBN connected users.
NBN is creating more opportunities for businesses to take their products to market, and also creating more opportunities for consumers to transact. It is a virtuous cycle.
A fourth way that NBN is helping to support productivity improvements is through giving more choice to where people locate their business, and where their employees are working from. For example there is an Australian game development studio called Disparity Games. They have chosen to base themselves in Noosa - because it has high speed broadband through the NBN, and because the founders like to surf.
Similarly I recently visited the Adelaide Hills Business Centre - a privately owned co-working space with a 100 Mbps internet connection. The Adelaide Hills of course is a lovely leafy lifestyle area, in a country that is blessed with many such areas. For quite a few people, to live in the Adelaide Hills and run a business which is fully engaged with the economy, is a very attractive proposition.
It certainly is for some of the people I met at the Adelaide Hills Business Centre, like the business owner whose business is serving small to medium mining companies in registering mining tenements and leases. She is moving around big graphics rich files, maps, geological surveys and so on – and very efficiently using the NBN.
When people are able to locate where they want to, and still do the business that they want to, that is a productivity benefit. When people are able to work from home, that is a productivity benefit. In the regions that are connected to the NBN the figures show a higher growth in people working from home, growing at 4% in 2017 versus less than 2% for those who are not in an NBN connected area.
The evidence is pretty clear: better and smarter use of IT makes businesses more productive. But for a long time there have been real barriers to the adoption of IT, particularly by small businesses.
This new research from Alpha Beta shows that the NBN - along with other developments such as the growth of cloud-based applications - is helping small businesses to deploy the IT capability to win more customers, operate more efficiently and be more productive.
We have worked hard to get the NBN rolled out as quickly as possible - to maximise the footprint where these benefits are available. Next year the rollout will be complete. Already more than 10 million premises able to connect, and over 6 million are connected.
That means more small and medium businesses connected than ever before. In turn that means productivity improvements cascading through their businesses and through our economy.