The defence sector in Australia is facing many challenges, not least of which is transitioning its workforce to a ‘smart workforce’. This is a clear and present challenge for all sectors, but the Defence Department’s and defence industry’s dependence on technology provides an opportunity for them to better connect ‘Industry 4.0’ with workforce outcomes.

Workforce shortages are a global issue, but Australia has some specific challenges such as very low unemployment and high growth in some sectors. But we shouldn’t think just in terms of the availability of people; we need to think about why an organisation needs people and what they—and only they—can contribute to the organisation’s outcomes.

The fourth industrial revolution isn’t simply about advanced technology. It’s also about how we rethink what’s needed and how we apply technology to support people. Industry 4.0 will enable small-scale, point-of-distribution or point-of-use production and allow products to be tailored to meet specific needs. Smart innovation is underpinned by a smart workforce.

My ASPI report on Industry 4.0 ^[1] earlier this year emphasised a range of opportunities as well as some big challenges to solve. The report highlighted that the high level of innovation by small and medium-sized enterprises, particularly those based outside the major cities, and a focus on collaboration were key success factors.

However, Australia is starting from a low innovation and skills base. We’re ranked 25th in the Global Innovation Index ^[2], just behind New Zealand, and eighth in the OECD ^[3] skills for employment index. Australia has also historically rated poorly among OECD countries for its management capability. Poor performance in these areas not only hinders Industry 4.0 opportunities but also adversely affects workforce capability.

When people refer to the ‘workforce of the future’ they give the impression there is a skilled-up workforce waiting in the wings. Given Australia’s low unemployment rate of 3.4% ^[4], there isn’t an excess of skilled people, which means the ‘future workforce’, in large part, is in our organisations today.

Retirees continue to be a valuable untapped resource. A lot has been invested in those who have now retired from the defence sector and related sectors such as national security, technology, engineering, law and innovation. Many are willing and able to contribute but are seeking flexible and tailored opportunities. Generation Y (those born between 1980 and 2000) will increase as a proportion of the Australian workforce to comprise 75% ^[5] of our workforce by 2025, but without supplementation, a significant productivity load will be placed on that one age cohort.

Australia is experiencing very high job vacancy rates ^[6] and some sectors stand out. In healthcare and social assistance, for example, there are around 68,900 vacancies; in accommodation and food services, the estimate is around 51,900 vacancies; and for professional, scientific and technical services it is 42,900.

In a tight employment market, people have choices and they are exercising those choices.

While the government’s renewed focus on skilled migration, including through the Pacific engagement visa ^[7] program, is welcome, it’s only part of the solution and unlikely to address the nation’s technology capability shortfall in the short or medium term. The shift in workforce capability must be done by transitioning current workforces from obsolete sectors to technology-driven ones.

The Jobs and Skills Summit ^[8] in September 2022 recognised the challenge and highlighted a range of new and existing measures. These initiatives are worthwhile, but years will pass before we see results. So, what do Defence and defence industry need to do today?

The first thing is to radically rethink what various parts of Defence do and how Industry 4.0 opportunities will be optimised. There are savings to be made that can be reinvested in upskilling the workforce.

Next, the defence sector needs to understand what only people can and must do. Most organisations do this badly or not at all. Continuing with Industry 2.0 people-heavy internal workforces and Industry 3.0 efficiency drives is not what’s needed in an Industry 4.0 world.

After that, the sector must focus on being the place where people want to work. It’s important to appreciate that pay has shifted down the list of reasons for leaving ^[9] a job: employees say the top three reasons are ‘lack of career-development potential’, ‘meaningless work’ and ‘uncaring leadership’. It’s much easier for someone to say they’re leaving for more pay rather than because they weren’t treated well, their contribution wasn’t valued or their manager was terrible.

Finally, Defence and defence industry need to join forces with other sectors and across regional Australia. In practice this means secondments, joint teams, joint delivery and even sharing commercial opportunities. It may also mean investing in local communications infrastructure to facilitate virtual engagement with regional workers. The benefits include evening out demands on local workforces, more efficient delivery and enhanced workforce capability. To be successful, it will require a deliberate blurring of management lines.

The emphasis on recruitment and retention also needs to be changed to ‘build, borrow and then, if you need to, buy’. Building is about actively developing people to upskill and retaining them.

Borrowing requires working with others to share capability. It means thinking about common skills in allied sectors, particularly if there are peaks and troughs in demand. There may also be opportunities to partner with others to develop creative ways to even out cross-sector demand. Borrowing isn’t about poaching; it’s about working together.

Buying means recruiting new people. But studies continue to show that it is far more effective (and much cheaper) to keep a workforce than to recruit a new one. In a tight labour market this is more relevant than ever. It’s also important to avoid the trap of paying people more to stay with or join an organisation—that’s a short-term fix that often ends in tears.

The workforce of the future is here, but it needs upskilling to fit within reimagined organisations. For Australia to be an Industry 4.0 success story, we need to rethink job design and embrace the potential rather than stress about the challenges.

Employees are motivated by more than a decent wage and an impressive job title. People want to be treated well, they want their contributions to matter, and they want to know they have a future in their organisation.

If Australia’s defence sector can achieve these three things, it will be ahead of most.