Scott Foster
Founder & CEO, Shape Executive · 9 May 2026 · 15 min read
For the last 30 years, Australia built an economy around falling interest rates, cheap capital, expanding asset values, rising leverage, and relatively stable inflation. That environment shaped almost every major business decision: investment, hiring, expansion, valuations, acquisitions, labour structures, and growth expectations.
Then the environment changed. Fast. And many Australian businesses are still operating like it didn’t.
Over the last few weeks I went back and read more than 30 years of Reserve Bank of Australia monetary policy documentation — from the introduction of inflation targeting in the early 1990s through to today. What emerged was not a story about interest rates. It was a story about how entire operating environments change. And what happens to businesses, employees and entire economies when they fail to adapt quickly enough.
Australia Didn’t Just Experience Interest Rate Cycles
It experienced multiple completely different economic systems.
1990s–Early 2000s
Australia enters the inflation-targeting era. Rates progressively decline. Capital becomes cheaper. Confidence expands.
2000s–Post GFC
Global liquidity accelerates. Asset values inflate. Debt expands. Businesses increasingly optimise around growth and leverage.
2010–2019
Persistently low inflation reshapes policy thinking. Cheap capital becomes structural. Low rates stop feeling temporary.
2020–2021
COVID triggers the largest monetary intervention in modern Australian history: near-zero rates, quantitative easing, yield curve control, direct bond-market intervention. Liquidity floods the system.
2022–Today
Inflation returns aggressively. The narrative flips — “support growth” becomes “suppress demand.” And suddenly businesses are forced to operate in a completely different environment. That shift matters enormously. Because many businesses were built for a world that no longer exists.
The Biggest Economic Distortion Wasn’t Inflation. It Was Liquidity.
For years, liquidity disguised operational mediocrity. Cheap money allowed many businesses to absorb inefficiency, tolerate weak systems, carry bloated structures, delay operational reform, overhire, underperform operationally, and still appear successful. A rising tide of cheap capital allowed many businesses to confuse growth with capability.
Asset values expanded. Debt stayed inexpensive. Valuations rose. Revenue growth masked execution weakness.
Australia did not suddenly become inefficient. It simply stopped being able to afford inefficiency. And that changes everything. Because once margins tighten, reality surfaces quickly. Suddenly weak systems matter, poor leadership matters, bloated structures matter, slow decisions matter, low accountability matters, and operational mediocrity becomes brutally expensive.
China Was Always Competition. What Changed Was The Nature Of The Competition.
Australia has competed against China for decades. That is not new. But the basis of competition changed materially. Historically, many Australian businesses could still compete despite higher labour costs, smaller manufacturing scale, and geographic disadvantage, because they offset it through relationships, service, local responsiveness, domestic positioning, and relatively strong margins.
But around eight or nine years ago, while travelling through mainland China, I remember a conversation with the founder of a very large manufacturing operation. For the first time in all my years travelling there, he used a word I had rarely heard Chinese manufacturers focus on previously: productivity.
Chinese wages were accelerating rapidly. Margins were tightening. And suddenly the conversation shifted from cheap labour to automation, throughput, systems, process discipline, efficiency, waste reduction, and industrial productivity. That moment stayed with me. Because it felt like the beginning of something much larger.
China was no longer simply becoming cheaper. It was becoming sharper. Faster. More disciplined. More efficient. More operationally aggressive.
And Australia now appears to be entering a very similar phase — except we are entering it with one of the highest cost bases in the world, increasingly complex organisations, growing governance layers, rising wage pressure, and businesses that in many cases have never truly been forced to confront operational efficiency properly.
Australia Talks Constantly About Productivity. But We Rarely Talk About Efficiency.
These are not the same thing. A business can have people working 7.6 hours a day and still create very little economic value. Modern organisations have become exceptionally good at manufacturing activity: meetings, internal reporting, approval layers, manual administration, process duplication, poor systems, slow decision-making. All create movement. But movement is not productivity.
Efficiency is the ability to convert labour, systems, capital, inventory, data, and time into meaningful output with minimal friction and waste. And this is where many Australian businesses are now getting exposed. For years, growth and liquidity masked operational weakness. Now higher wages, higher capital costs, margin pressure, and slower growth are exposing inefficient operating models very quickly — because globally, the tolerance for inefficiency is collapsing.
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Run The Diagnostic →The Real Risk Isn’t AI. It’s Businesses Digitising Inefficiency.
There is enormous optimism around AI right now. Some justified. Some wildly unrealistic. AI will absolutely improve workflow automation, reporting speed, forecasting, data visibility, and administrative efficiency. But AI alone will not fix structurally weak businesses. It will not solve poor leadership, weak execution, fragmented systems, low accountability, bloated structures, poor pricing discipline, or operational complexity.
In many businesses, AI may simply accelerate inefficiency faster. Technology layered over broken operating systems does not create transformation. It creates faster dysfunction. The companies that genuinely improve over the next decade will likely combine operational discipline, efficiency, execution speed, technology, labour effectiveness, systems integration, pricing discipline, and strong operating cadence — not simply software adoption.
History Is Full Of Businesses That Failed To Adapt Fast Enough
The taxi industry underestimated how quickly customer expectations would change once technology improved convenience and user experience. DVD rental businesses believed physical distribution protected them — then streaming arrived. Netflix completely changed consumer behaviour while Blockbuster became one of the most recognised examples globally of a business that failed to evolve quickly enough.
Kodak invented much of the underlying digital photography technology itself, yet still failed to adapt commercially fast enough. Nokia and BlackBerry dominated global handset markets before smartphone ecosystems changed the economics of the industry entirely.
The lesson is consistent: size does not protect businesses. Historical success does not protect businesses. And strong market position rarely protects businesses from structural change. Markets do not care how successful businesses used to be.
The businesses that survive are usually the ones willing to challenge their own assumptions, simplify complexity early, improve execution speed, disrupt themselves, and evolve operationally faster than the market around them.
Boards Need To Evolve Faster Too
One of the least discussed risks in Australian business today is governance inertia. For decades, many boards operated in relatively stable economic conditions — falling rates, expanding liquidity, predictable growth, and long-cycle planning assumptions. That environment no longer exists.
Today, boards are overseeing businesses dealing with AI disruption, supply-chain instability, labour shortages, productivity pressure, margin compression, geopolitical volatility, and rapidly changing customer behaviour. Yet many Australian boards are still heavily weighted toward leadership experience built in a fundamentally different economic era.
That is not criticism of experience. Experience matters enormously. But experience alone can become dangerous when the environment changes faster than the assumptions underpinning that experience. Many directors built careers during periods characterised by stronger margins, lower global competition, slower technology cycles, cheaper labour globally, less operational complexity, and decades of falling interest rates.
Today’s operating environment is materially different. The pace of change is faster. Technology cycles are shorter. Labour structures are evolving rapidly. AI is changing workflows. Global competition is more aggressive. Margins are tighter. And operational inefficiency is exposed far more quickly than it was historically.
This is where governance risk begins to emerge. Because businesses can become trapped trying to solve modern operating problems with legacy thinking. Boards that evolve too slowly often unintentionally create slower decision-making, resistance to operational change, delayed technology adoption, excessive hierarchy, risk avoidance, and strategic complacency — while global competitors continue adapting aggressively.
There is also another shift occurring quietly inside modern businesses. Frontline employees today are often significantly closer to operational reality than leadership structures realise. Employees see duplicated workflows, inefficient systems, unnecessary reporting, approval bottlenecks, customer frustration, process waste, poor technology integration, and low-value activity long before many boards or executives do — because they live inside the operating system every day.
Some business units are now evolving operationally significantly faster than their broader group structures — adopting technology faster, simplifying workflows earlier, improving reporting cadence, integrating AI quicker, removing inefficiency, and improving execution speed ahead of the wider organisation. But instead of those higher-performing operating standards becoming the benchmark across the group, many organisations unintentionally pull those businesses backward toward legacy operating norms. Because large organisations naturally optimise for governance consistency, standardisation, risk management, reporting alignment, and organisational control.
The most advanced operating business inside a group can sometimes become treated as the outlier instead of the blueprint. And when that happens, innovation slows, execution weakens, and organisational productivity improvement becomes constrained by governance friction rather than enabled by leadership. That is a dangerous position for businesses operating in increasingly competitive global markets.
Declining Productivity Eventually Becomes A Living Standards Problem
This is why the productivity discussion matters so much. Weak productivity does not stay isolated inside businesses. Eventually it flows through the entire economy. When productivity stalls, wage growth weakens, investment slows, innovation declines, global competitiveness erodes, margins compress, tax pressure rises, and living standards come under pressure.
And countries rarely notice the decline immediately. Because deteriorating competitiveness often happens gradually before it becomes obvious structurally. By the time it becomes visible nationally, the damage is often already deeply embedded operationally. This is why productivity matters far beyond economics — it ultimately shapes wages, opportunity, investment, business formation, employment quality, and national competitiveness itself.
The Biggest Risk To Australia May Not Be Recession
It may be complacency. Industries rarely collapse all at once. More often, margins compress slowly, complexity expands gradually, productivity stalls, execution weakens, and competitiveness erodes quietly over time. Then eventually a faster, leaner and more adaptive competitor changes the economics of the market completely.
That is the real risk. Because Australia’s operating environment changed dramatically over the last decade. And many businesses are still operating like the old environment is coming back.
It probably isn’t.