Mar 29, 2023 | Change, Governance, Strategy
The government’s $15 Billion National Reconstruction Fund faces a range of strategic and management dilemmas.
The Treasurer Jim Chalmers set out the governments priorities in his essay ‘Capitalism after the crisis’ in February. He called for focus on three things:
- An orderly energy and climate transition of the economy
- A more resilient and adaptable economy
- A focus on growth hand in hand with equality of opportunity.
The response has been roughly equal from those who see his views as the defining principles for development of the economy from the poor relations role currently played amongst the OECD, to those who condemn his views for their generality and naivety.
Given these seem to be about equal, he must be close to the mark.
The dilemma in the deployment of any ambitions public program is governance.
The opposition condemns it, claiming that it will achieve no useful outcome, being just a huge a magnet for rent-seekers. I guess they should know how to recognise a snout-ready trough when they see one. The government seems to dismiss this concern as something that can easily be managed, and while it is an admirable sentiment, the ‘yes minister’ syndrome will play a big role. Again, the very difficult middle path seems to be the ideal outcome.
From my experience running a tiny, micro version of this initiative 25 years ago there are some lessons to be learnt and applied, or at the very least, considered in the design of the management and operational infrastructure:
- There needs to be an accountable board made up of mix of experienced and wise people from outside the vested interests, committed to the outcome of moving Australia up the various ‘industrial complexity’ scorecards.
- It needs to be separated from the bureaucracy and run its own management processes, and grant budgets that are multi-year. Tying the operational and grant budgets to an annual calendar dictated by allocations in the national budget is to ensure its failure as a strategic tool. This choice will be difficult for any government, and will probably precipitate another bureaucratic turf war.
- A company limited by guarantee is one structure that can be useful. This does not in any way compromise the accountability of the management for the financial governance of the ‘business’. The shareholders would likely be Federal government, via Dept. of Industry, CSIRO, and one of the credible business associations with a wide cross-industry membership.
- The board would be chaired by a credible figure like Proff. Roy Green. Board members will represent the shareholders, and include several non-aligned members familiar with the areas of strategic focus from the perspective of the evolving technology, financial constraints and opportunities, business development, and strategic marketing expertise.
- The first job of such a board must be the definition of the strategic priorities of the ‘business’. These are one step down from the general outline in the Treasurers essay and take the form of a priority list of industry sectors that will be eligible to receive funding. Within this pathway there must be some discretion, as predicting the future is a challenging task, and you never know what will bob up in the development process that deserves support. The parameters of ‘deserve support’ should be at the discretion of the board, but widely agreed.
- Staffing and budgeting of the ‘business’ must be from outside the bureaucracy. Bureaucratic rules and conventions need to be taken only selectively when they clearly add value to the process. It is quite likely there will be very qualified people currently within the bureaucracy, who may elect to take a leave of absence from those roles to take up one with the business. This could be regarded as a secondment, but the management of the personnel concerned must be at the discretion of the management of the ‘business’.
- Non-profit, research institutes, and quangos are not eligible for funding unless in collaboration with a viable commercial operator. The business will play a pivotal and catalytic role in putting these two pieces of the puzzle together in ways that may lead to funding.
- Dictate to collaborative bureaucracies that they are required to collaborate and co-operate with the ‘business’. This is not to ensure primacy, but to ensure collaboration within the boundaries of commercial in confidence. The business must be ‘cross departmental’ and seen as a neutral player there only to be a ‘compounder’ of public resources.
$15 Billion is a big chunk of money, although dwarfed by the magnitude of the challenge facing the country. This sort of approach should have been implemented 30 years ago, but better late than never, so long as it is done right!
Header credit: Knicked from the NRF website
Mar 20, 2023 | Governance, Leadership
The dream of every entrepreneur is to have a monopoly, a place where they can set prices without any of those nasty competitive forces impacting on profits.
Monopolies are the poison of public policy, it is why we have the many agencies that seek to ensure transparency, competition and good behaviour by corporations with some level of pricing power.
The management of these two extremes by public institutions has created some really ugly children.
Public assets that have been developed by public money to provide a service and the infrastructure upon which to build businesses has been sold off to the highest bidder. Surprise, surprise, the price goes up.
Natural monopolies and public assets flogged off for the same reason, with the same result. Power, communications, education, roads, rail, land, the list just goes on, and on.
The seeming disconnect in the current election campaigns, both state and federal is instructive. People are sick and tired of the political narrative that all will be well. Just trust us, we will be better than the other lot who are the devil in a shiny suit!!
At our core, we all seem to know that the problems are being swept under the carpet, where they are mouldering and compounding, and at some time will bite us on the arse. This post on the Guardian website looking at the changes in Australia’s tax base over time is instructive. It is now quite old, but the trends shown are not just still evident, but thriving. We all are demanding more, and the pollies are dishing it out to get elected, but increasingly we will not have it. The disinterest and dissatisfaction with our institutions is just magnified by this sort of misinformation, but in the absence of any genuine leadership, we vote for self-interest, with our wallets.
On Saturday, I have no idea who will get my vote in the state election. Neither of the major parties appear capable of anticipating and responding to the tsunami of change coming at us. Both ‘leaders’ are spraying Monopoly money around, making hollow promises to fix current problems that cannot possibly be met, without any reference to the challenges of the future.
I have emailed both the major parties seeking to understand the capabilities and experience the candidates in my electorate brings to the table. The incumbent Labour candidates office sent me an automated generic response that told me nothing beyond the fact that he is a good bloke, with some academic and work credibility, and loves his family. The Libs excelled, by not even sending an auto response. This is probably because they did not have a candidate, a now remedied situation by the nomination of an unknown young party hack last week. If they cannot organise something as simple as that, how can they run the state?
Are the current opposition any more capable? I suspect not.
We will just end up with more ugly children that need to be understood and funded. Somehow. .
Header cartoon credit: Tom Gauld, whose acerbic take on life is refreshing after writing a post on politics.
Mar 15, 2023 | Change, Governance
One of my sons is a radiographer, working in a large public hospital, carrying some management responsibility while still being ‘on the tools’ in an under-resourced, bureaucratic and highly structured environment.
On one hand there is the health system, hobbled by rules, work practises inherited from another century, wrapped up in extreme risk aversion. On the other you have the doctors, ranging from the juniors who are hospital employees, to the specialists who after years of study and work have the opportunity to ‘cream’ the system.
Of interest here when considering the role of AI, is the relationship between the radiographers, who construct the images, and the specialist radiologists. The radiologists carry complete responsibility for the interpretation of those images, along with the directions for treatment to other medical branches that carry out the hands-on care of patients, from nursing to surgery. The radiographer just takes the ‘pictures’, and is prohibited from diagnosis, no matter how experienced they may be.
Being a commercial bloke, for years I have been asking my son, where to from here?
Being a public servant for life is not all that attractive to him, overworked, frustrated and grossly underpaid. On the other hand, to go into business for himself, the combination of the capital required for the imaging gear, and the simple fact that the regulations require that only a specialist radiologist interpret his ‘pictures’, means they have the private radiography game completely sewn up. No private radiography studio can set up without a Radiologist locked in to sign off every image.
However, AI is happening.
One of the earliest uses of AI has been to read medical images. Their ability to ‘learn’, and consistently improve means that the room left for interpretation by a human is being squeezed into an increasingly narrow field loosely described as, ‘So what now”. As this continues to evolve, the need for the specialist radiologist in diagnosis will disappear. With this increasing irrelevance, in a free market, my son could start his own radiography business. This should be free of the regulatory constraints that dictate diagnosis is only to be done by a Radiologist, whose role will be little more than to ‘sign off’ an AI generated diagnosis. Radiology is a medical speciality whose only role within a very short time will be answering the ‘so what now’ question, and that will be increasingly answered by AI, informed by the outcomes of previous cases.
I am sure the ‘Radiologist union’ will fight tooth and nail by lobbying, to prevent that from happening. They are a part of a very smart and very highly educated cohort who have made a huge investment of time and energy into their future, and are unlikely to easily let the rewards from that investment trickle away.
We have only just begun to think about the impact of AI in the wider strategic context, but it seems evident to me, just based on this small example, that huge changes are afoot, many of which will be hobbled by the past, making the changes necessary to leverage the capabilities of AI extraordinarily challenging.
Mar 6, 2023 | Governance, Strategy
The first is to have a monopoly, preferably a regulated one, such as a public asset that has been privatised.
Sydney’s Kingsford Smith airport was flogged off by the government to a private operator who makes obscene profits, not just from the landing rights, but parking, retail concessions, and every other opportunity to gouge. What are your options… catch a train to Singapore?
The second is to be in a market where the person shelling out the money for your product is not the decision maker in the purchase.
The Australian publicly funded pharmaceutical benefits scheme is such an opportunity. Once on the list, the pharma companies sell to the doctors, persuade them to prescribe their magic to their patients, who pay a consistent subsidised cost, whatever the price of the drug to the public purse. Perhaps inconsistently, I am in favor of this scheme, despite the obvious rorting potential it delivers, just disturbed by the lack of governance and oversight. During the height of the Covid pandemic, champagne must have been popping in the boardrooms of Pfizer et al as the governments delivered a marketing nirvana.
I am always caught between amazed laughter and despair when I hear a politician whining in the lead-up to an election about the prices of some commodity, the ownership of which they have flogged off to private enterprise, who then proceeds to make an outrageous profit, because they can. When the buyer is a multinational, you often see that profit disappear, as corporate financial engineering kicks in, and the tax havens suddenly appear as key corporate players.
Just look at what has happened to power prices since the privatisation of the poles and wires, the toll costs of driving from the western suburbs to the cities east, both done in a strategic vacuum for short term political gain.
The reason given was to free up capital to apply against community priorities of education and health. This is a fine aspiration, unmatched by the outcomes.
No matter what words are used, what they have done is subsidise private profit from the public purse.
The Northern beaches hospital at French’s Forest is a prime example. The NSW state government poured 2 billion dollars into the hospital and surrounding infrastructure, in a so called partnership with Healthscope, then an ASX listed company, and all but closed the alternatives in the area, Mona Vale and Manly hospitals. Subsequently, Healthscope was acquired by Canadian group, Brookfield, that featured in the Panama and Paradise papers as protagonists in tax avoidance via trusts located in tax havens. Meanwhile, chaos reigns in the hospital and public health outcomes are compromised.
So much for the competition, community outcomes, and for the tax on the resulting profits.
What a great way to make a bob!
Feb 20, 2023 | Change, Culture, Governance
Lifelong employment is a thing of the past, casualisation, remote work, and the gig economy have consigned that idea to the dustbin of history.
It seems to me that there should be a revision to the way we seek to employ people, on whatever basis that employment occurs.
When recruiting for my clients as I do from time to time, I use a checklist that has a number of elements not usually obvious in most recruiting processes I have seen, or indeed been subjected to. The checklist assumes that anyone you are speaking to has the required domain qualifications and experience to in theory, get the job done. After that I look for ‘the 3 C’s and E’
Curiosity. To my mind curiosity is essential to be able to see alternatives and options from outside the domain. A wide span of interests, hobbies, reading, and an apparent ‘let’s just see’ attitude are signposts.
Critical thinking. To be able to subject opinions, data, and so-called facts to a process that strips away the inbuilt bias, self-interest, ‘short- termism’ and just bullshit, to reveal the foundation assumptions and facts. ‘How would you approach……..’ Type questions and resulting conversation surfaces this ability quite quickly, as does asking about times they have failed to reach an objective, and what they learnt as a result.
Collaborative capacity. Collaboration has unfortunately been turned into a cliché. However, the reality is that we are in a knowledge world, and most of the valuable knowledge is elsewhere, so you better figure out a way to get access to it. Generally, those who demonstrate they take responsibility for problems in their area of responsibility, while passing on praise for good work by others will find themselves as a ‘node’ in communication networks, rather than being just a receiver or originator of input. The number and distribution of ‘Nodes’ drives collaborative outcomes.
Education, in its broadest sense. STEM education is vital, from cutting-edge technology to basic trade skills. These technical skills drive productivity. Just as important are the ‘soft skills’, the capacity to see through the eyes of others, engage in constructive debate, and accommodate conflicting ideas in your brain at the same time. Education powers the three ‘C’s above
The recent changes have been profound, and the train has not stopped. One of my concerns for the world my grandchildren will inherit is what we are going to do with those who are displaced by technology? The argument that they will find new jobs created by the changes as has always happened in the past, may not happen as smoothly this time. The chances are in my view, that we will see increased levels of pain and anxiety.
We have an emerging social disruption over the next 20 years we have no idea how to manage, and really are not even considering the challenges in any meaningful way.
Header cartoon courtesy Tom Gauld. Originally published in New Scientist magazine.
Feb 8, 2023 | Governance, retail, Strategy
We all need to eat, but we seem to take for granted the access to processed and fresh food and groceries. To consider the ‘food industry’ as one entity ignores the entirely different strategic drivers of the three main components: Raw material production or ‘farming’, Manufacturing, and retail.
They should be treated separately as while interdependent, they are driven by entirely different forces.
In addition to food products in the FMCG basket, you have many non-food items from cleaning and homewares to health, beauty, and personal and pet care categories. Go into any supermarket, and these non-food categories take up somewhere around 20% of shelf space.
Farming.
The ‘family farm’ used to dominate the farming sector, but that is diminishing as scale enabled by capital takes the place of family intergenerational ownership. Costs come down with corporate ownership, but you are most likely to see agricultural monocultures emerge, as short-term financial returns creep up the priority list.
The register of foreign ownership, flawed as it is, records in the latest report June 2021, that 14.1% of agricultural land is in foreign hands, up from 10.9% the previous year. The National Farmers Federation estimates that 99% of farm enterprises are owned by Australians. Clearly the big are getting bigger at the expense of the small.
The infrastructure necessary for the management of farm production requires substantial investment, the rail networks have broken down, and the roads are a mess. This is a long-term problem, and the logistic costs of farming will increase faster than the inflation rate.
Manufacturing.
A report from the AFGC concludes that profitability is declining, due largely to the concentration of retail, and that imports will gain ground as a result. Currently the food & beverage manufacturing industry employs 276,000 people, 40% of them in regional areas, and has an output value of 127 billion, 32% of total Australian manufacturing output. In other words, it is big and diverse both geographically and demographically, and therefore should hold a significant place in the thinking about how we educate and groom future leaders.
The gross figures for the industry indicate that there is almost 30% of production value exported. Problem is that the vast majority of this is raw or minimally processed meat and grain, employing few people, anywhere in their supply chains, and competing in commodity markets.
Of The 8 directors of the Australian Food and Grocery Council, the industry’s ‘representative’ body, one is the CEO of an Australian beverage company, the other 9 are all the chief executives of multinationals. This is not a bad thing beyond the obvious fact that it perpetuates the lobbying and resulting policy positions of government in favour of MNC’s vs the locally owned industry.
As a young bloke coming into FMCG in the late 70’s after a few years as a nomad, there were many businesses of a whole range of sizes and types to work for. Over time, the number and diversity has been radically reduced. Significant industries like dairy are now almost complete branch offices of multinationals. The exception is produce, where there are still many farming suppliers, although there are now a few very big consolidators, like Costas, who dominate the supply chain into retail. There are no proprietary produce brands in retail, beyond a couple of minor organic brands. Retailers have ensured that they absorb all the proprietary margin in produce.
If there is a light in the tunnel starting to be seen evolving as a result of the disruption of supply chains, and the low profitability of FMCG manufacturing, it may be Bega. Bega Cheese, which was rescued from the clutches of the receiver by now foreign owned Dairy Farmers Ltd way back in (about) 1991, has been able to expand by buying the Port Melbourne site of Kraft, as it was taken over by Mondelez, and ending up being able to buy the Vegemite brand, and more recently the rebranded peanut butter business. Perhaps this is the beginning of a resurgence?
Retail.
Grocery market size and share in Australia is debateable depending on what is included. By most analyses, Woolworths has around 37% share, Coles 28%, and Aldi, now the real third force 11%, and the wholesaler supplied groups around 7%. The remaining 17% is made up of a patchwork of fresh and farmers markets, direct from farm delivery, small independent retailers, and convenience outlets.
In addition to grocery, there is the huge food service market, varying from the local owner operated restaurant and takeaway, to fast food chains and five-star dining. This sector consumes a large amount of product and employs thousands of people.
The power wielded by this bloc of 76% of grocery sales is immense. As they have scaled out of the ruck that was the retail playing field in the 70’s and 80’s, taking over or leaving to the receiver less robust competitors. They have squeezed manufacturer margins by a range of strategic weapons that are a classic case study of Michael Porters 5 forces. In response, manufacturers have similarly scaled by using regional manufacturing hubs, most often in Asia. The impact on domestically owned manufacturing has been dramatic, accelerated during the period where the $A was above parity with the $US, which encouraged wider adoption of house brands manufactured overseas, wiping out what remained of locally owned manufacturing. With a couple of notable exceptions, (San Remo, and now Bega, and Sanitarium who do not pay tax, for example) Australian owned food manufacturing is down to sub scale cottage manufacturers relying on the fragmented but still difficult 24% not controlled by the three retail gorillas.
It is fair to acknowledge the strategic failure of local management, while throwing rocks at the retailers. There used to be major FMCG brands owned by domestic businesses, built up over extended periods that failed to recognise the long-term strategic importance of maintaining their brands. Instead, they surrendered to the tactical demands of retailers for short term promotional dollars that assisted retail margins while keeping prices low. Short term, consumers may have benefitted from the price competition while having significantly less choice. Long term, they face the impact of an economy that has only a tiny proportion of its biggest manufacturing industry being able to make strategic choices driven by domestic priorities.
A few thoughts about the future.
Technology cannot do anything but increasingly impose itself on the industry, in all its components. Australia is already a world leader in the development and deployment of Agricultural technology. Failure to accelerate the rate of innovation will find Australian agriculture losing the current productivity edge we have, as while we are really good farmers, the soils of the continent are old and poor, subject to significant climatic risks Therefore to keep our position, we must continue to be smarter.
Innovations in retail are happening elsewhere. ‘Amazon Go’ type technology will transform the shopping experience, and home delivery will not be going away. Meanwhile Australian retailers are wedded to optimising the business model that has made them successful in the past. This will open up opportunities for alternative retail formats and processes.
Retailers are good at retailing, but have been proven to be lousy at product innovation. In the past, product and category innovation has come from businesses tapped into the consumer psyche. Unfortunately, those businesses are virtually gone, so where is the next innovation going to spring form? Certainly not from the office of a buyer whose KPI’s are all about margin today
The logistic infrastructure so vital in a country as large and diverse as Australia is in poor shape. Rail networks are broken, roads are going the same way, a trend recently accelerated by flooding, and you cannot get drivers of heavy and long-haul equipment easily. The median age of all transport drivers is approaching 50, and long-haul semi drivers is now 55, and they are not being replaced. When considering specialised driving jobs like picking up cattle from farms, the situation is already dire.
In summary, the Australian food industry is faced with a series of significant challenges that have evolved over a long period. They will not be effectively addressed by industry or public authorities that think in terms of only a four or five year strategic horizon.
Note: this post was first published in the auManufacturing Linkedin group in December last year.
