Paul Wallbank – Brilliant Communications

Category: future

  • I don’t get it

    I don’t get it

    “I don’t get Twitter or Facebook” says the talkback radio caller, “why would you want to tell the world what you’re having for dinner?”

    Once upon a time people didn’t get the motor car. There were many good reasons not to – compared to a horse a steam or petrol driven vehicle was expensive, unreliable and restricted in where it could go.

    The motor car ended up defining the 20th Century.

    Those who didn’t get it – like the stage coach lines and later the railway companies – eventually faded into irrelevance.

    Something we should remember though is that many of the entrepreneurs in the early days of the motor car who did “get it” went broke. As did those in earlier times building railways and canals.

    “Getting it” is one thing, but it doesn’t guarantee it will make you rich or guarantee your business’ survival.

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  • Super connecting cities

    Super connecting cities

    I’m chairing a panel this week in Newcastle for the New Lunaticks on How Cities can Become Super Connected where we’ll look at how a city can develop its broadband infrastructure and how the local economy can grow in a global, connected marketplace.

    The challenge for a city like Newcastle is great as in many ways the city’s economy is a microcosm of Australia’s – a massive restructure of the local economy over the last forty years has left the region with a consumer driven suburban society and the massive coal resources of the region have made the city the biggest coal exporting port on the planet.

    Much of the wealth flowing out of the port to India and China isn’t being distributed into the city and the Newcastle central business district is suffering from years of underinvestment and neglect by the business community and governments of all levels.

    So the rollout of the National Broadband Network offers an opportunity for the city and the local economy to reposition itself. The question on the panel is how?

    Waiting for Godot

    The first aspect is that waiting for a government agency or telephone company to come to town is risky; recent history shows Newcastle gets no favours from state or Federal governments so expecting the region to be a priority for the National Broadband Network is unrealistic.

    Indeed this has proved the case so far with no planned rollout locations for the NBN announced in the Hunter region to date.

    At present higher speed Internet access comes through ADSL over the telephone lines and Telstra’s 4G mobile network in the downtown part of the city.

    So it’s up to the community to create the conditions and demand for faster broadband.

    Building the infrastructure

    One way to make Newcastle more attractive to the providers of high speed internet is to make the supporting infrastructure easy to access. The local council can work on this by making streets, building and underground services like conduits accessible and available.

    Part of encouraging investment in the local telecoms infrastructure includes an attitude from council that doesn’t put unnecessary barriers in the way of developments.

    This isn’t to say local residents’ views should be over-ridden; if a city is going to be successful then it need the support of the residents.

    Who funds the network?

    While the city waits for the NBN or expanded 4G services to arrive, what happens in the interim? Should local and state governments build a temporary Wi-Fi network to cover the Central Business District?

    If so, why just the CBD? Why not key industrial, commercial and shopping centres in the suburbs? Over the last forty years, Newcastle residents have shown they prefer to work and shop outside the city centre.

    Of course the biggest question is who is going to pay for such an interim network. Putting the load on already stretched local governments guarantees the project will be strapped for capital.

    Open data, open processes

    An area where local governments can encourage growth is by being open and innovative themselves.

    By making data available they encourage local developer communities and attract entrepreneurs who see a welcoming environment.

    More importantly, having open procurement and recruitment processes that encourage local business to apply for government work and suggest innovative ways to work is one way industries in the region can be encouraged.

    Connecting communities

    Even with the best infrastructure you’re not going to build a vibrant economy without the community working together.

    If we look at successful industry clusters such as Silicon Valley or the Pearl River Delta today, or historical successes like Birmingham in the 18th Century, we see industries built around a small core of determined entrepreneurs utilising local resources.

    For Birmingham this was access to coal, iron ore, skilled labour and waterways to ship the products out. Silicon Valley’s role developed because of its access to high technology defense spending, good quality education facilities, a highly educated workforce and a free wheeling capital market.

    Cities like Newcastle have to identify what the local economy’s strengths are and how these can built upon. It needs government, business and educational groups to be co-operating.

    A liveable city

    The key to all successful cities is making them attractive to entrepreneurial, skilled and younger workers. In some respects Newcastle has aspects that can attract these groups.

    For Newcastle, and other centres, the challenge is to use their advantages to attract the human talent that will build the networks that matter.

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  • The evolving business

    The evolving business

    This story originally appeared in Smart Company on February 2, 2012

    Woolworths’ announcement earlier this week they are exiting the Dick Smith Electronics business ends an interesting study in how a business can evolve as their industry changes.

    In the thirty years since Dick Smith sold a stake in his business to Woolworths – a few years later they bought out the rest of Dick’s equity – the electronics retail business has changed immensely.

    At the beginning of the 1980s, the CB radio boom that had fuelled the growth of stores like Dick Smith Electronics was coming to an end, as was the hobbyist industry which supplied those building their own computers and other electronic devices.

    In the US, the hobbyist industry included people like Paul Allen and Bill Gates – who founded Microsoft – along with Steve Wozniak and Steve Jobs, the founders of Apple Computers. Both of these companies had a lot to do with the growth of the DSE business later.

    While those two industries were fading at the time Woolies bought the chain, the availability of consumer electronics was taking off as Video Cassette Recorders, car hi-fi and, later, CD players started entering the market.

    At the time these were high margin items so the transition from a hobbyist store to consumer electronics chain was a lucrative move for Woolworths – something helped by Dick Smith’s penchant for publicity even though he was no longer with the store.

    Eventually the steam ran out of the early wave of consumer electronics but in the mid 1990s the PC revolution took off which allowed Dick Smith Electronics to diversify again.

    As personal computers were taking off, so too did the next wave of consumer technology, particularly in mobile phones, games and big screen TVs which initially had big, fat margins.

    Over time, these margins began to fade as prices dropped but for Woolworths this wasn’t a problem as the beginning of the 2000s saw an explosion of easy consumer credit, allowing stores to move more products to willing consumers.

    Very quickly, the consumer electronics industry became more like the low margin, high volume FMCG – Fast Moving Consumer Goods – sector that is Woolworths’ core business.

    The global financial crisis heralded the end of the credit boom and now cautious, credit shy householders meant consumer electronics were no longer fast moving.

    Dick Smith Electronics aren’t the only chain affected by this, Harvey Norman are suffering the same way and in the United States Best Buy and Radio Shack are in desperate straits for the same reasons.

    Making things tougher for Australian retailers are store rents that are among the highest in the world. Woolworths’ decision to shut down a third of the Dick Smith outlets is a wise move as many of those stores probably have lease renewals pending.

    Woolworths has done well from Dick Smith Electronics over a quarter century as the consumer electronics industry has evolved. Their story is a great example of how a business can adapt in a changing sector.

    Hopefully Woolies will find a motivated buyer – one hopes not one of the clueless private equity asset strippers that have destroyed so many other retail icons in recent years.

    Perhaps we’ll see a buyer who can steer the business well into the phase of consumer electronics retailing with some innovative and fresh thinking that the Australian retail sector needs right now.

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  • The battle between the old and the new

    The battle between the old and the new

    “We will build an America where ‘hope’ is a new job with a paycheck, not a faded word on an old bumper sticker” – Mitt Romney, US Republican Presidential candidate

    “What immediate measures can be taken to protect jobs?” – French President Nicolas Sarkozy

    “We want to be countries that made cars” – Kim Carr, Australian Minister for Manufacturing

    Around the world the forces of protectionism are stirring to shield fading industries, businesses and fortunes from economic reality.

    The most immediate target in this battle are the new industries that threaten the old.

    It’s no coincidence US lawmakers want to introduce laws that will cripple the Internet in order to favour music distributors, that the US and New Zealand governments work together to shut down a cloud sharing service or that failing Australian retailers call on their government to change tax rules in order to prop up their fading sales.

    The old industries appear to have the advantage; they are rich, they have political power and – most importantly for politicians – they employ lots of voters.

    We shouldn’t under estimate just how far the managers and owners of the challenged industries will go to protect their failing business models, unwanted product lines and outdated work methods, which isn’t surprising as their wealth and status is built upon them.

    Eventually they will lose, just as the luddites fighting the loom mills and the lords fighting the railway lines did.

    The question for society and individuals is do we want to be part of yesterday’s fading industries or part of tomorrow’s economy.

    We need to let our political leaders know where we’d our societies to go before they make the wrong choices.

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  • Losing the supply chain

    Losing the supply chain

    The New York Times’ weekend feature on Why Apple Manufacture iPhones in China focused on the underlying reasons why manufacturing has become concentrated in the PRC.

    While much of the commentary on the article has – correctly – focused on how US manufacturing move to China is destroying the economic bases of the American working and middle classes, there’s also another serious consequence of the story; the destruction of the US supply chain.

    The story itself emphasised this;

    In part, Asia was attractive because the semiskilled workers there were cheaper. But that wasn’t driving Apple. For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.

    While wage costs are important, far more critical are the surrounding supply chains. Without those, even if you want to manufacture in the US or anywhere else you’ll struggle to find suppliers and skilled labour.

    The amazing thing with the United States is the world’s most powerful economy has managed to dismantle most of their supply chains that took a century to develop inside twenty years whil China has built up most of theirs since they joined the World Trade Organisation in 2001.

    For the United States economy, the effects are more subtle and dramatic than they first appear. The accompanying video to their story illustrates how the multiplier effect, the number of jobs created in the wider economy for each industry worker is as much 4.7 for a manufacturing job, while a service sector worker is less than 1.

    That means less employment and less wealth.

    For the US, and most the Western world, we were able to avoid the effects of becoming less wealthy over the last decade by spending big on credit cards. Homes that would have been out of reach to the average American – or Australian, Brit or Irishman – were kept accessible by easy, cheap credit.

    As that credit dries up with the end of the Twentieth Century debt supercycle, the economic basis of this model is eroding.

    For most of us in the Western, developed world it means we are going to become poorer. Chinese and Indian workers might catch up with our living standards, but that standard will be at a lower level that we anticipated a decade or two ago.

    The most interesting consequence of the New York Times’ story is what happens to the managerial classes?

    Right now they appear to be riding high as their companies’ profits increase and they award themselves trips to the Paris Ritz and receive 50 million dollar payouts when caught cheating on their expenses.

    Over time though this cannot continue as the senior managers themselves have become major cost centres which will eventually have to be reduced.

    Indeed Apple, the leader in the outsourcing trend, is unique among US companies in that it had a driven, visionary leader and doesn’t have a bloated, self indulgent cohort of bureaucrats managing the business.

    With every stage of the deskilling of America and the offshoring of supply chains, there’s been the belief that “it could happen to me” to various groups of workers – we’re now seeing the same process happen in white collar professions like the law are subcontracted to Indian and Philipino service providers.

    Senior managers should have no illusions the same will happen to them as the search for cost savings runs out of targets in the rest of organisations.

    The biggest problem though is that loss of supply chains and industry knowledge. The question is, can you rebuild that capacity in decade in the way China did?

    Supply company image courtesy of Stock Xchange and Andy McMillan.

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