Why mid-size companies need more than just tax cuts to create jobs and growth

By Jana Matthews, University of South Australia

Company tax cuts are a key component of Treasurer Scott Morrison’s plan to drive growth in jobs and wages, spurring on the Australian economy.

There’s no question that tax cuts and lower energy prices will enable companies to keep more of the money they make. But it’s not more money per se, but what they do with that money that will enable them to grow.

Should they spend money on hiring more people, developing new products, do more marketing, change packaging, or expand their factory to manufacture more product for export?

These are the kinds of decisions all chief executives of medium-sized companies must make. But many chief executives are uncertain about what to do to grow and are fearful of making wrong decisions. No chief executive wants to make a decision that sends the company into decline, so there’s a tendency to “circle the wagons” and try to protect what they have, or make incremental moves from which they can quickly retreat if things go wrong.

In these situations, lack of money is less of a gating factor than lack of knowledge. The good news is that when chief executives are taught the basics of growth, understand how to create a growth strategy, and are given tools that enable them to simulate the impact of a decision, they make decisions quite rapidly and begin to grow—and then they hire people and jobs are created.

Two years ago we launched our first growth program at the University of South Australia and began working with a group of 10 companies from all over Australia representing ten different industries. They had revenues between $5 million and $50 million, between five and 200 employees, and the chief executives wanted to grow but weren’t sure how. Over the two years since they entered our program, they increased their aggregate revenue by 93%, profit by 100%, and are exporting into 12 new countries.

But, most importantly for policymakers wanting to create jobs, these 10 companies have added 146 new jobs. That’s an average of 14.6 jobs, over two years, per company.

What if each of the 220,000 medium enterprises in Australia added half as many jobs over the next two years? That would result in more than one million jobs.

Promoting company growth can be achieved by helping managers figure out:

• What’s the best growth strategy for this company?
• What changes are needed in marketing and sales?
• What changes are needed in the way we lead and manage?
• Are the right people in the right positions to drive growth?
• What kinds of people, with what kinds of skills and experiences, are needed for future growth?

Although a tax cut could be the fuel for the growth, company leaders come to our growth program because they need help thinking through which growth strategy makes sense for their business. They want to learn how to improve their leadership, tune their organisation, become more efficient, and generate growth.

Money alone will not create the numbers and kinds of jobs required to boost the economy. Chief executives and managing directors in our programs tell us that learning what to do, when, why, and in what order, has given them the confidence to take the risks required to grow their companies and hire more people.

In short, we need to focus as much attention on the management education of founders, chief executives and managing directors of medium-sized companies as we do on providing them with more money. Once they learn how to grow their companies, they will definitely need money to become the engines of growth, and they will certainly hire more people, creating the jobs we all want.

Jana Matthews is ANZ Chair in Business Growth and the director of the Centre for Business Growth, at the University of South Australia. 

This article was originally published on The Conversation. Read the original article.