Impact of Demographic Change in Australia

Note to reader: I wrote this piece in November 2005. I am repeating it here because it contains material that is still relevant. For more recent material see:

• 12 October 12, 2006. Demography, Universities and the Trades in Australia
• 30 October 2006. Demography, Universities and the Trades in Australia - a postscript
• 31 October 2006. People Management in Professional Services- the Demographic Time Bomb

In October (2005) some Ndarala colleagues and I attended a Slattery IT conference held in Sydney to celebrate the internet's birthday.

One thing that stood out to me was the failure of any speaker to mention the demographic change now underway throughout the world, a process that is already reshaping life and markets. How, I thought, can you define a business plan if you do not understand the key variables affecting the size of your target demographics?

Then, checking round our own colleagues, I found that even amongst a generally well informed group like this one the topic was poorly understood. I thought therefore that I should provide a briefing focused especially on Australia as a case study.

The material in this briefing is largey drawn from a speech given by the Australian Productivity Commission's Garry Banks, supported by some of our own work. I should note that the views expressed are my own, and should not necessarily be attributed to Mr Banks.

Headlines

To start with two headlines.

Head line one. On current projections, the number of Australian voters 51 and over will pass the total of all voters under 51 in 30 year's time.

Headline two. On current projections, the population of the Ukraine will decline by 43 per cent between now and 2050.

The point? We have already entered a period of population change that will fundamentally reshape the pattern of human life. And the effects are already with us.

A Few Definitions

Before going on, I need to give you a few definitions.

By workforce, I simply mean the number of people available to work. In turn, the size of the workforce is determined by the population times the participation rate.

Not every one is willing or able to work. The participation rate simply means the proportion of the population working or willing to work. We can use this term in a general sense to cover all the people interested in work. We can also use the term in terms of normally defined working ages or of particular age cohorts.

Dependency or the dependency rate simply means the workforce as compared to the rest of the population.

Overview of Australian Trends

We traditionally speak of population as a pyramid, with lots of young people as the base then tapering away to a peak marked by a few aged survivors. As of today we should more properly talk of the population as a beehive, with a smaller base, a bulge in the middle followed by a smaller top. By 2045 the population structure will more closely resemble a coffin, to use Garry Bank's phrase, essentially a rectangle with slight tapering at top and bottom.

Three things have contributed to this structure.

Number one is changing birth rates. High birth rates following the war created the baby boom. The initial effect here was a sharp increase in the dependency rate since the new children had to be fed, housed and educated by the working population. This was followed by a progressive increase in the work force, a sharp decline in the dependency rate, as the baby boomers reached working age. Birth rates then fell significantly. The immediate effect here was to further reduce the dependency rate. The longer term effect was to bring forward population aging.

Migration is the second thing contributing to the changing population structure. The large migration programs after the war added to Australia's workforce, helping reduce the dependency impact created by the baby boom. But now the aging of the migrant population itself is affecting the age structure of the population.

While both changing birth rates and migration have contributed to changing population structures, their impact is in fact dwarfed in statistical terms by a third factor, increased life expectancy.

Between 1971 and 2002, there was at least a 50 per cent fall in the yearly probability of death for every age from 42 to 77 years for both sexes. Without this, we would be looking at an aged dependency ratio of something over 15 per cent in 2005. With it, we are looking at an aged dependency ratio in 2005 of around 44 per cent.

We now need to factor something else into the equation, the changing participation rate.

Between 1946 and today, the participation rate (the proportion of the population in the workforce) rose from around 53 per cent to 63 per cent due in part to changes in the population structure, in part to large scale entry of women to the workforce. So the overall workforce grew significantly as a consequence of combination of absolute increase in numbers in the working age population with an increased participation rate, underpinning economic growth during the period.

This effect now goes into reverse as a consequence of population aging, with the participation rate over the next forty years projected to fall in the absence of change from 63 to 56 per cent. Further, an increasing proportion of the workforce will be made up of older workers less likely to work longer hours.

Economic Impacts

Population change will have significant economic impacts.

Looking at the macro level first.

In the absence of change both productivity and per capita economic growth is likely to be reduced. At the same time, costs associated with the aging population will rise. Here the Productivity Commission has estimated that increases in Australian spend directly associated with aging (health, aged care & carers, aged pensions) will total 5.6 per cent of GDP by 2045.

These costs will have to be funded in some way, or service levels reduced.

These macro effects are well recognized. Less well recognized are some of the distributional effects, including varying geographical impacts across Australia. For example, because population age structures vary greatly between regions so will the impact of aging vary.

To illustrate with just one example.

On the raw data, some areas such as the mid north coast of NSW that have experienced rapid population growth because of retirees face a growing age crisis in areas such as health followed by something close to population collapse. Will this actually happen? Probably not because declines in things such as real estate prices will attract new residents. But those people have to come from somewhere, probably Sydney. This in turn has implications for metro population growth. Will Sydney in fact experience the scale of population increase built into the current planning debate? I really wonder.

Policy Responses

A lot of the policy discussion in regard to the impact of and responses to aging population has focused on fiscal issues. How do we afford it? What do we have to cut? Other discussion has focused on birth rates and on getting the older worker to work more. In fact, if we drill down, we find that the position is far more complex.

To begin with, increasing the birth rate will not affect immediate outcomes simply because of the lag before those kids will enter the workforce. The immediate impact would be an increase in dependency rates followed by a later improvement in population structures.

The effects of immigration, the second often cited response, are also complex. Yes, immigration can reduce the shorter term dependency ratio and play a useful role, especially in meeting key skills shortages. But the actual size of migration required to completely avert the aging impact would give Australia a total population of 110 million by 2050.

Increasing older age participation rates as well as older age working hours is the third frequently quoted response. There is clearly scope for doing more here. However, Australia already has quite high participation rates for both older age males and females by OECD standards. So there will be some increase in both participation rates and average working hours, but the effect is likely to be less than common discussion would suggest.

An alternative would be to increase participation rates among the prime age population. Here I found to my surprise that there is one area where our performance is in fact poor by OECD standards. That area is males aged between 25 and 54. Yes, male participation rates are still higher than female rates. However, whereas our female participation rates are in the middle of the OECD pack, only Poland and Hungary have lower male participation rates. So we can clearly do something to increase work force participation for both prime age males and females.

At the end of the day, however, all these possible changes link back to one collective policy response and that is increased productivity. The more we can increase overall productivity, the less the likely negative impacts from population aging.

Market and Service Issues

My starting point in this report was my surprise at the failure of people at the Slattery IT conference to mention the impact of demographic change. I also suggested that those impacts were already with us. I will finish this report by pointing to some examples.

I have already mentioned in previous reports increasing service demands associated with moves to encourage older workers to remain in employment.I have also mentioned in previous reports the growing interest in business succession planning and associated issues linked to firm acquisitions and mergers. However, I did not bring out the link with the aging population. And there is a direct link.

Recent BRW articles pointed to a general aging among the owners/controllers of small and medium businesses, suggesting that business owners were tending to hang on for longer. That's fine, but I would suggest that it is laying the 'basis for a subsequent crisis.

To illustrate.

Franchising has been a rapid growth area. A number of the more mature franchises are now at the point where franchisees wish to exit. At the same time, new franchises are still being established and are also competing for possible franchisees. I do wonder just where the required franchisees are to come from.

In professional services areas such as law and accounting, the average age of partners has been rising. This is most pronounced in regional Australia where perhaps as many as a quarter of current practices will have to be sold, wound back or closed over the next decade. So there is going to be quite dramatic change and restructuring.

Returning to the Slattery IT internet conference, I was quite astonished at how many presenters were still focused on the static or even diminishing younger age cohorts as the key market, how few were targeting older age groups. And yet this second area is the area where real growth lies in all the western economies. The success of eBay is no coincidence simply because it does target the area where the real money is.

Teleworking - a personal perspective

Sometimes I wonder why I work so often from home because, frankly, sometimes it sucks! At other times, I wonder why the rest of the world does not rush to do it. So in this article I want to share with you both the pluses and minuses of the teleworking life style, focusing especially on the things required to actually make it work.

To do this, I thought that the best approach would be to focus on some of the challenges that must be overcome if teleworking is to work.

Teleworking: The Lonelyness of the Long Distance Teleworker

I have rarely heard lonelyness discussed in the context of teleworking. Yet teleworking can be a lonely and isolating experience.

Think of it this way.

In the normal working life, you say goodby to the family, leave home and go to work. At work you say hi to your co-workers. You sit down and start working. Someone comes up to ask you something. You have a break chatting to colleagues. If, like me, you are still a smoker, then you pop outside to have a smoke often with colleagues. By the end of the day when you come home, you have had hundreds of small personal interactions. Exhausted, you collapse onto the couch in front of the TV and turn into a couch potato.

Contrast this with teleworking. The family leaves. You sit down and spend the rest of day in front of your computer alone. Your only interactions are email traffic and phone calls. At the end of the day your family comes home. You are ready to talk, to interact. They want to unwind, to watch TV.

Now none of this may matter to you. But the point in this story is that if you are a person who does like personal interaction but who wants to telework, then you need to find a way to build personal interaction into your weekly round.

Teleworking: The Need for Discipline

We all require structure in our working lives. In the office this is provided by the routines of daily work. We have to present in a certain way. There are working rules that we must comply with. Often, these things are implicit rather than explicit. But they are always there. We know that they are there and comply without even thinking about it.

At home these rules are all relaxed. Want to dress casually? Do so. Want to want TV? Do so. Weed the garden? Do so. Stay in your pajamas? Do so. Now all this may sound wonderful, but if you are a naturally un-disciplined person like me then you can run into problems. So you need to actively create your own working routines.

In my case, while I normally dress in casual fashion, some days I will put on a suit and tie just to reinforce the fact that I am at work even though I am at home!

Teleworking: Separating Work and Home Life

Going to work creates a natural divide between the home and work environment, a divide lacking for those who work from home. This divide is less than it was simply because the technologies that allow effective teleworking mean that even those working in conventional structures now work increasinglyﾠat home. But the divide is still important.

The danger for the teleworker in forgetting this divide is that personal and work time can simply blur together, adversely affecting both. When the home and the office are the same, the dividing lines blurred, then it is very easy to start worrying about work matters, about the things that you have not done, during what should be personal time.

In the conventional working environment you generally have to put these worries aside because the office is elsewhere. Somehow, the worries become greater if the office is just down the corridor because you know that you can do something about the outstanding issue just by walking a few places.

Teleworking: Managing Family Expectations

Another linked problem is the need to manage your family's unconscious expectations and reactions to your presence at home. You are there, so you are available to do things that would simply not be possible if you were working elsewhere. Would you mind hanging out the washing? Can you pick me up at such a time? And so on.

Now normally you may be happy to do these things. After all, one of the reasons for teleworking is to give you greater flexibility. But at the end of the day you still have to work so many hours to achieve your targets. And every hour taken out of your normal working day makes that more difficult.

Take my own case as an example. I have a 45 hour weekly time target. This is a real time target, not just elapsed time during the normal working day.

Because of the nature of my work I keep time sheets. When I stop work for whatever reason I log off. So when I pick the girls up from school, tidy up the house so that the cleaners can actually clean, or hang out the washing, all this is dead time from a work perspective. The result is that I find that to achieve my 45 hour target I have to work in the early morning and at at weekends. The family then thinks that I am working excessive hours, that I am always working, when the reality is that I am simply trying to catch up.

Now I am not complaining. The point is that if you want to telework, you have to lay down rules with your family so that they understand that just because you are at home does not mean that you are available for other things. Unless, of course, you wish to be.

Teleworking: Managing Unconscious Work Expectations

Now something of the same type of unconscious expectation applies to the teleworker's work colleagues.

I first came across this problem some years ago when I was working with AT&T preparing their first Australian country plan.

AT&T were in advance of their times in that they were prepared in some cases to allow flexible working arrangements. My direct client, the manager in charge of the project, had been given approval to work from home because she had a new baby. She experienced some real problems because of the unconscious expectation at work that she would in fact be available in the same way as an on-site staff member.

Just to tease this out a little. When people work together, the assumption of almost instant availability is built into the working round. I am working on a problem, an issue comes up, I pop down the corridor or even to the next desk to sort it out. Both formal and informal meetings occur frequently, often at short notice.
Now the gearing of work life to this almost instant availability can be a major problem in the normal office because it can waste a lot of time. For that reason, most time management courses include various ways of minimising the problem. However, It remains a deeply entrenched feature of office life simply because it is so easy and useful.

The off-site teleworker can suffer as a consequence. Bosses and co-workers continue to work as they always have. Because the teleworker is not there, he/she may simply be excluded from relevant meetings. Work and responsibilities flow away from the teleworker to on-site staff. The teleworker becomes isolated and alienated.

In this context, it is not surprising that one area where teleworking has spread successfully is among senior managers and partners in professional services firms because they can control the game to some extent. So long as billings and management tasks are maintained, colleagues and staff have to adjust, to learn how to work with the teleworker.

Ordinary staff do not have this type of power position. The only solution is to ensure that the individual teleworker, his/her managers and the organisation itself work through the issues in advance. As part of this, the teleworker needs to learn how to proactively manage relations with colleagues downwards, sideways and especially up.

Teleworking: When Things Go Wrong

Murphy really was an optimist.

While overseas, burglars stole my wife's new computer. Fortunately, they left the office machines simply because they are older. A few weeks later, my main office machine hit problems requiring a full day to fix. As I write, the fax machine is away being repaired.

The point of these stories is that systems fail. In the conventional organisation, quick back-up including other equipment is usually available, minimising adverse impact. The position for the of-site teleworker is more difficult in that equipment loss or failure brings work to a halt until the problem is rectified.

To avoid unnecessary loss of time, these potential problems need to be addressed up front. This includes the organisation of access to service people, arrangements for replacement equipment if required and the development of protocols in regard to security including just what information can be held on a hard disk.

Conclusion

There is no doubt that teleworking can be of mutual benefit to both employer and employee. However, success requires conscious action by both organisation and individual to ensure best results.

Ndarala at Work - Introduction

One the challenges we face as a Group is to explain just what we do. Yes, we can explain the services we provide and the potential benefits. But how does this actually work in practice in an organisation with many very different geographically dispersed member practices and professionals, each maintaining full autonomy, choosing if and when to participate in collective activities? How do we avoid what economists call the free-rider problem, the member that takes generally available benefits without providing anything in return? How do we actually encourage cooperation? And how does the Group itself actually survive with low to zero membership subscriptions?

This article focuses on some of the issues associated with the value creation process.

While the analysis and examples are Ndarala specific, the lessons are of some relevance to a wide range of new organisational types.

Definition of Group as Business: Value Creation

The starting point in looking at answers to the questions posed above lies in the way we define the Group as a business.

We speak of this as the creation of value among members, value that can then be shared between members and the Group. There are many organisational forms seeking to do this. Examples include federations, clusters, service companies, formal and informal networks, COLKENS, incubators, franchises and cooperative marketing operations. Our aspiration is, simply, to be the best in the world at what we do, the value creation process.

We do not pretend that we have yet realised this aspiration. We still have some distance to go. In the meantime, we can say that so long as we do continue to create value, then our members have an incentive to continue to participate and to contribute.

Going on Regardless

Part of the answer lies in the sheer determination of our early members, their willingness to go on despite the absence of immediate returns, to invest time and effort in testing things, in defining policies and procedures, in creating supporting infrastructure. They did so in part because with time they started getting value back, but more importantly because they shared the vision. Many things did not work. But over time we were able to define structures and approaches that did work, that then provided a base for future test and experiment.

Identifying Real Benefits

Perhaps the most important thing we learned during this process was the nature of the benefits themselves.

Unlike a conventional organisation, we cannot order people to do things, we can only persuade. Things will work if and only if they do meet member needs, and in our case that means the needs of independent practices and professionals. These vary enormously between practices and over time. This means that a one-size fits all service and benefits approach will simply not work. so we learned that we had to be very flexible, offering a variety of benefits that change as member needs change.

We also also learned that because member practices and professionals are often isolated and lack the interaction to be found in bigger organisations, friendship, peer group support, information exchange and the sense of belonging to something bigger formed the solid bedrock keeping the Group together.

Independent professional are normally also time poor. This creates very real difficulties in sustaining development projects simply because required resource contributions cannot be guaranteed. At the same time, these projects represent the central R&D function and provide the potential building blocks for future growth among the collective.

Here we learned an important lesson, that while our development project activities generally failed to yield the expected short term benefits, they nearly always had positive longer term paybacks. Our challenge, therefore, was to find a way of sustaining activity until development got to the point that outcomes were of sufficient relevance to members to be taken up and incorporated in their activities. To manage this, we adopted a project approach, focusing available central resources on a limited number of development projects so as to bridge the resource gap.

Oneﾠdifficult trade-off here was to find the right balance between the member support role that provided the Group's glue as compared to the development role providing future returns. If we focused too much on development, then cohesion and involvement suffered. If we focused too much on member support, then development stopped.

We still have difficulties in achieving the right balance here, in part because the balance point shifts all the time as member needs change. However, with experience we have defined a three fold service focus that provides a framework for a wide variety of ever changing member interactions with each other and the Group:

• our member support role - friendship, peer group support, information exchange - helps break the sense of isolation associated with independence and supports individual operations
• our platform role - infrastructure such as this blog, our policies and procedures, our guides and manuals, common marketing and diagnostic tools etc - provides a supporting structure facilitating development and cooperative action.
• our R&D and business development role - industry, market and service analysis, process analysis, cooperative service development, cooperative marketing - assists individual member practices and professionals to improve performance and provides a base for longer term developments.

Members select the elements within this mix that best meet their changing needs.

Contribution/Benefit Ratios - the Reciprocity Principle

Early in the Group's development process we defined what we called the reciprocity principle as a core guiding principle. This stated simply that benefits should follow from and be related to contribution. To this end, we began monitoring both contributions and benefits to try to ensure that this matching actually happened.

The outcomes of this analysis were quite fascinating. Key features included:

• Benefits were indeed related to and followed contribution. Further, the benefit/contribution ratio could be very high. However, the match was not exact in that a particular contribution did not necessarily yield a particular benefit. Rather, benefits flowed over time in often unexpected ways. This meant that a lower level sustained contribution yielded a higher return than a larger but sporadic contribution.
• Both contributions and benefits were directly related to the circumstances and constraints of the individual member practice or professional. Now at one level this appears self-evident. However, there were important elements to this that we had not properly recognised. One was the need for realism in assessing both potential contributions from and benefits to time poor professionals. Attempts to push involvement beyond the limits set by real time constraints simply failed. A second was the very significant difference between those trying to build professional services businesses for whom the business return was central as compared to those for whom their practice was primarily a professional vehicle and who therefore valued personal and professional gains more highly.
• From a collective perspective we found, somewhat unexpectedly, that some of the most valuable contributions came from members with a low level of involvement, members who valued the interaction but participated on an irregular basis. This meant that our growing size and spread, what we call our footprint, had become one of our most valuable assets.
• We also found that we did not have a significant free-rider problem simply because member returns required some contribution even if only the time to read the email traffic!

Conclusion

Ndarala is still very much a work in progress and will remain so because what we do is driven by the changing needs of a changing and growing membership.

Our objective is to create a rich supporting environment offering members a range of choices and options from which they can select those that will best help them meet their personal, business and professional needs.

Ndarala Membership - membership benefits

Group membership offers potential benefits along a number of dimensions including:

• Improved service delivery through access to information and resources, project management advice, project back up including project extranets and problem resolution.
• More effective marketing through provision of marketing tools, access to Group marketing programs, access to broader resources and capabilities, facilitation of cooperative marketing and work from the Group itself.
• Improved service development and delivery via practical advice, cooperative development of new services and intellectual property and facilitated commercialisation of existing intellectual property.
• Greater professional and personal satisfaction through peer group support, mentoring, professional development programs and information/advice on professional issues.
• Improved administration and business management through mentoring, business advice and the provision of templates and guides and common services.

The exact form of benefit received depends upon individual need. Independence can be very lonely. For that reason, many of our individual independent professionals find the greatest benefit in friendship and peer group support. For others the Group is an insurance policy, providing support and back up in the event of client or market change. Our bigger practices value the straight business benefits flowing from the economies of scope and scale associated with participation in a bigger collective.

Benefits also depend upon contribution.

Cooperative action is central to both the delivery and achievement of benefits. Some benefits come from Group services, others from combined member and Group action, still others from our members individually or in combination. Experience since the Group's establishment in April 1996 shows clearly that the achievement of maximum benefits is directly related to active participation in cooperative activities.

Unlike conventional franchise operations, the Group does not take a fixed levy on member fees nor does it dictate specific member business or professional practices. Instead, each member chooses the exact relationship that best meets its changing needs, selecting from the portfolio of activities, services and potential benefits on offer.

The Group's role is to manage the overall value creation process to maximise benefits for both individual members and the Group as a whole.

Ndarala Membership - how to join

Ndarala exists to serve all independent professional practices or professionals dedicated to the advancement of management knowledge and skills and the improvement of business and operational performance in public and private sectors. Our role is to help you achieve your business, professional and personal objectives.

We welcome members from all management related professions including consulting, law, training, engineering and accounting and from all countries. Both practices and individual professionals can join.

Membership is free. The only thing we ask is that you share our vision and values, our desire to help clients, to advance knowledge and to help independents achieve their objectives through cooperative action while retaining true business and professional independence.

To find out more contact ndarala@optusnet.com.au.

Welcome

Founded in April 1996, Ndarala's mission is to help independent management related professional practices and professionals achieve personal, professional and business objectives through cooperation while retaining true business and professional independence.

We have created this blog as a platform to:

• encourage discussion on management, business and professional issues
• facilitate communications among Ndarala members
• facilitate communiction and information exchange between Ndarala members and clients.

We hope that the blog is of value to you.

Ndarala - an international group of independent professionals and professional practices dedicated to the advancement of management knowledge and skills and the improvement of business and operational performance in public and private sectors. For further information about client services, membership and member services contact ndarala@optusnet.com.au