Australia’s lost business agility

The latest IMD digital competitiveness ratings show Australia sliding down the ranks, how can we address this decline?

The recent digital competitive index by Swiss business school IMD, flagged a worrying trend in Australian industry, reporting the nation’s commercial sector is falling behind its international counterparts in digital competitiveness.

Overall the IMD’s digital competitive rankings weren’t terrible for Australia with the nation only sliding one place to 15th globally from its 2018 place — albeit down from ninth five years ago.

But the indicators that kept Australia in the top 20 were in the nation’s international student numbers and the national credit rating, hardly the mark of an economy on the leading edge.

Jarringly, the survey ranked the nation’s business agility, 45th out of the 63 economies surveyed.

IMD’s definition of an economy’s business agility includes the local industry’s adoption of big data, IT integration, concentration of robots and local companies’ ability to respond to opportunities among other factors.

For those of us who’ve spent the last two decades proselytising about the importance of investing in technology, the fall was disappointing but unsurprising as Australia has long been lagging in its digital investments.

The answers to why this is happened over a twenty year period that saw Australia become one of the world’s richest economies lies mainly in the investment priorities and opportunities of the nation’s small business and corporate sectors.

With the exception of the mining industry, Australian corporations aren’t globally focused. Most of the nation’s large corporations are domestically facing service providers like banks, telcos, toll road operators and supermarkets which sees them focused on maximising local profits rather than competing in international markets.

Most of them also operate as duopolies or monopolies, so much so that in most sectors, Australia can be described as the ‘Noah’s Ark of business’.

Added to that, those dominant local corporates have shareholders addicted to high dividends., in turn reducing the funds available for reinvesting in the businesses.

When Australian corporates do invest in digital technologies, it’s almost always to slash costs. A mindset which leads them into disastrous deals with global IT outsourcers and tech vendors.

Of course continual failure on that level doesn’t matter when you can pass the costs of failure onto customers by increasing milk prices or credit card fees.

For the small business sector there’s a slightly different set of constraints, however with most SMB’s also being local service providers they haven’t needed to invest to stay competitive.

But small businesses trying to compete in global markets, or looking to invest invest, face another problem — accessing capital.

Over the last 30 years, Australia’s small business sector has been frozen out of bank lending with loans only accessible to proprietors able to pledge 100% collateral — usually home equity — against their loans.

For providing effectively risk free loans Australian banks charged handsomely, helping make them the profitable banks on the planet, something that was missed in the weak, and dare one say naive, conclusions of the Hayne Royal Commission into the nation’s finance industry.

The upshot of the banks’ refusal to lend to small businesses means their investment and subsequent productivity has stagnated and fewer have been able to compete in global markets.

So Australia’s fall in competitive indexes isn’t surprising and it’s an added handbrake on the economy as the government struggles with flat income growth, stagnant private sector employment rates and declining GDP per capita.

Fixing these roadblocks is wholly up to government — the banking system needs to be reformed, taxation policies need to be overhauled and serious consideration has to be made about breaking up the nation’s more inefficient and dominant corporates to stimulate domestic competition and innovation.

Sadly, there’s little recognition of the problem among Australian’s politicians, bureaucrats, business leaders or media and, one suspects, there’s no appetite for meaningful reform.

So Australia will muddle along for the moment, but its hard to see how living standards can be maintained as the country’s business sector stagnates.

Which is the real warning from the IMD.

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GE’s Predix predicament – an industrial giant finds software is hard

GE’s IoT predicament illustrates just how complex the engineering and management challenges of the Internet of Things really are.

Industrial giant General Electric is finding software is hard, reports Business Insider.

The company, which former CEO Jeff Immelt declared was a ‘digital industrial company’ is finding its Predix software system and associated cloud services are far more complex and difficult to manage than expected.

Back in 2015, I toured the head office of GE Software outside of Silicon Valley and interviewed the division’s boss, Bill Ruh.

Ruh was upbeat about the internet of things – or Industrial Internet in GE’s terminology – with an estimate the IoT was worth $14 billion to the company as it found new efficiencies and markets.

Today that vision’s looking a little tarnished as the company struggles with a 25% share price drop and a self imposed ‘time out’ on Predix’s development.

GE’s IoT predicament illustrates just how complex the engineering and management challenges of the Internet of Things really are.

The software needs of a sensor in a train brake pad are very different to that of fuel pump in a jet engine or the blade controllers of wind turbine.

Added to that is the challenge of organising, storing and securing the information these devices collect. This is the main reason why GE is moving its data management services to AWS and Microsoft Azure.

That a company with the resources and top level commitment of GE is struggling with this underscores the complexity of the internet of things. That complexity is something every IoT advocate and connected device vendor fails to consider at their, and their customer’s, peril.

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Twitter’s curse of management

The story of how hashtags came to Twitter shows the greatest barrier to the company’s success is its management.

Today Twitter celebrates the tenth anniversary of hashtags.

What’s notable about the story is how Twitter’s management thought hashtags were a ‘nerdy idea’

Twitter has been consistent in ignoring its user community despite every successful feature of the service coming from the platform’s grass roots.

It’s hard not to think Twitter’s greatest barrier to success is its leadership.

 

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A monument to a modern pharaoh: Links of the week

Some of this week’s highlights included the auto industry’s changing business model, inside Microsoft’s Vista mistake and Apple’s memorial to a modern pharaoh. 

Starting a new job makes keeping the website up to date difficult but it is possible to get some reading done. Some of this week’s highlights included the auto industry’s changing business model, inside Microsoft’s Vista mistake and Apple’s memorial to a modern pharaoh.

A monument to a modern pharaoh

Apple Park is an anachronism wrapped in glass, tucked into a neighborhood says Wired’s Adam Rodgers. However his main point is Apple’s new five billion dollar new headquarters is really just a memorial to Steve Jobs and his ego.

Dissecting a dying business model

The car industry is one sector in a perfect storm of disruption and Australia’s General Motors Holden is slashing its dealer network to deal with declining demand and technological change.

Notably in the story is what happens to the dealers when their contract with GMH is cut with the franchisees having to hand over tools, signage and manuals. It shows just how the corporation controlled its franchisees.

Where Vista went wrong

This blog has long maintained that Microsoft’s release of the Vista operating system was not only the biggest mistake the company ever made but also gave an opening for Apple, Google and Amazon to seize the computer market.

So a post from developer Terry Crowley a former Microsoft developer is an insight into how the process went wrong. His view on internal cultures for companies facing market disruption is telling.

“In fact, the more power you hold, the more accountable you need to be to open yourself to honest challenge on either facts or logic. This is even more critical in times of rapid change because the facts and consequential logic might change. Accountability and transparency means you are able to reassess your conclusions and react quickly.”

The Life and times of Jerry Brown

An excellent interview between US political commentator David Axelrod and California governor Jerry Brown ranges over topics from Ronald Reagan’s rise, today’s hostility to government and his Asian travels while in the political wilderness. It’s worth a listen.

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Clash of car cultures

The partnership break down between Ford and Google shows how hard it can be for conflicting cultures to work together

With tech companies piling into the automotive industry – with varying results – it’s not surprising the established auto manufacturers are looking at making alliances with their potential Silicon Valley competitors.

Ford’s alliance with Google was one of the most promising in the sector, however it fell apart in a classic clash of cultures as Automotive News reports.

One of the key differences in the cultural crash was the priority of the two businesses – for Ford this is about the future of the company while for Google autonomous vehicles are just another moonshot.

Coupled with that, Ford are locked into their traditional products and have a sceptical Wall Street to keep happy as Automotive News describe when the two company’s CEO’s met.

In early December 2015, Fields came to Silicon Valley to discuss the deal with Google co-founder Sergey Brin. In a region where there are so many electric cars that office workers often argue over charging stations to plug in their Teslas and Nissan Leafs during the workday, Fields showed up at Google with an army of staffers in a fleet of Lincoln Navigators. Sources said Fields and his team were armed with a plan to make a big splash out of the partnership news, and much of the discussion centered around making an impression on Wall Street.

With Google being generally secretive about their ‘moonshot’ programs, it’s not surprising Sergey Brin and his team were perturbed by Ford planning to make a big announcement about the partnership. Had the auto maker done its due diligence, their delegation would have been a lot less ambitious and lot more circumspect.

Ford’s casting around for tech partners also illustrates the management didn’t understand the tech industry’s politics and dynamics, not only do they have a long standing agreement with Microsoft on their Sync product but they were also touting an alliance with Amazon to incorporate Alexa into their cars.

While there’s undoubtedly some revisionism in the Automotive News story – there’s always some airbrushing of history when a new CEO takes over – the tale does illustrate the difficulties facing business owners and managers when building alliances with others who don’t necessarily have the same objectives.

A clash of cultures is always tough to overcome and that’s often the biggest challenge facing industrial giants like Ford as they deal with a rapidly changing world.

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The myths of dead brands – busting disruption stories

Blockbuster, Nokia and Kodak are cited as victims of digital disruption. Things however are not so straightforward.

“These three brands have one thing in common – they’ve all been destroyed by digital disruption,” says one business commentator in a recent presentation.

He cited three names; Kodak, Nokia and Blockbuster.

It’s a nice, and often repeated meme, which is only really true of Blockbuster which failed to adapt to a changing market and could be a perfect example of a transition effect although some don’t buy the digital disruption reason for the company’s demise.

Giving lie to the idea the company was a victim of Netflix’s rise, a former Blockbuster executive puts the chain’s bankruptcy down to management not understanding the company’s role in the market, and that it was in decline long before the streaming service’s arrival.

A more fundamental problem with the statement is both Nokia and Kodak are still in business too, the latter having come out Chapter 11 financial in late 2013.

Finland’s Nokia is somewhat more complex than Kodak or Blockbuster, having been founded as a paper pulp mill in 1865.

The company became a global brand thanks to being a leader in mobile phones prior to the iPhone disrupting the market but the name faded as the Apple and a new breed of East Asian manufacturers came to dominate the market.

Despite fading as a consumer brand, the company is still a major player in telecommunications – being a major supplier of cellular base stations – along with a range of other technologies.

Both Kodak and Nokia are still very much alive, albeit no longer being recognised by the average consumer.

There are major lessons from both companies for those studying the effects of technological disruption on brands and businesses. Even Blockbuster’s mistakes in the face of a changing and declining market has many lessons.

Citing them as examples of ‘digital extinction’ though is untrue and almost certainly unhelpful in understanding what management can do to respond to new technology or societal shifts.

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Being an industrial revolutionary

The World Economic Forum’s Nicholas Davis on being an ‘industrial revolutionary’ in the digital age.

“The future isn’t pre-determined, technology doesn’t come from some outside force. It’s created by us. Some people have more power than others in that system, such as the big tech entrepreneurs, but at the end it’s people and organisations that have the power.”

Nicholas Davis, the World Economic Forum’s Head of Society and Innovation, was discussing at the recent Sydney CeBIT conference how we can take control of the digital economy and where workers fit into an increasingly automated world.

Technology and online platforms aren’t neutral system, Davis observes. “It’s not just about how we use them, but the values that are designed into the systems, technology is not just a neutral thing. During a conversation like this if I put my iPhone between us, it’s proven that reduces our memory of that discussion and our sense of connection.”

Politics and addiction

“The purpose of the technology, the design of it, affects us in different ways.” Davis says, “if we design technologies for addiction, if we design business models that involve us being sucked into systems at the expense of other things in our lives, then that is a value choice that companies make and that we as users are trading off in our lives.”

“In understanding that technology is not neutral then the question is how we, as revolutionaries have that political discussion? I don’t mean political like ‘Left’ and ‘Right’ but these are value decisions that we need to engage with.”

“The difficulties about having discussions about technology is not getting sucked into a left-right divide and letting one group of people own innovation, but to say what do we want, How do we get there and how do we avoid the mistakes of previous industrial revolutions where the environment suffered, kids suffered and vulnerable populations suffered.”

A change in thinking

“One of the biggest problems is we don’t have regulatory or even democratic institutions where we can make collective decisions about technologies,” says Davis.

“The average AI researcher, at the top of their game anywhere in the world, would only understand a small percentage of the AI space. So how do you expect a politician or a voter, to come to grips with it.”

One of the key discussions missing in the public sphere is around automation and concepts like the Universal Basic Income, Davis believes. “We should have a serious chat about giving everyone the space to build up their skills.”

In the development policy, Davis sees growing inequality and applying last century’s thinking to today’s challenges as among the biggest risks facing governments and communities.

Rippling beyond business

For business, the imperative is to recognise the effects of decisions on the wider community.

“The big thing for business is understanding the technology decisions you make have a ripple effect beyond your company, you need to look forward to new ways of value adding.”

Davis warns we are seeing a backlash against innovation and technology with concerns about privacy and security growing.

“So much of the world is build on their use of data. Most companies and organisations don’t have good data hygiene or ontology to classify their information. People say data is their greatest assets – some say it’s the new oil – but it’s also their greatest liability. So understanding information security at the board level is critical.”

The power of individuals

For individuals, Davis believes the power lies with us in the choices we make as consumers.

“Don’t underestimate your own power, but also don’t underestimate that more and more products around us are designed to influence our behaviour in ways we need to be aware of.”

“In most cases, if the product is free then you and your data are the product, understand that and on what terms is important.”

Conscious choices

“Understand the externalities of these services as well. Appreciate the effects it has on your family, your mental health, on the ability to connect is important. Being able to make conscious choices about these things.”

“Supporting open data standards and competition – not just accepting Android or Apple for instance – rather than allowing politicians and big business to fight over these things.”

So in Davis’ view being an ‘industrial revolutionary’ in the digital era is a matter of being an informed, and empowered, consumer. Will that be enough?

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