Tag: Australia

A consumerist utopia – where does Australia go in the 21st Century?

A raft of reports and media stories highlight the threats to Australia’s continued prosperity but the nation’s business leaders aren’t listening.

Today has been a big day for Australian navel-gazing with a range of reports released on the country’s prospects on in the Twenty-First Century.

One of the reports was the Joined Up Innovation survey commissioned by Microsoft and written by PwC, I wrote a story for Business Spectator on the results.

While the Microsoft report focused on the small business sector, Startup Aus released their Crossroads report that warns Australia is falling behind the rest of the world. Smart Company’s Rose Powell has a more detailed summary of the report.

Alan Noble, head of Google’s Australian Engineering operations warns, “we still lag behind many other nations, with one of the lowest rates of startup formation in the world, and one of the lowest rates of venture capital investment.”

“If we fail to address this, we risk forfeiting over $100 billion in economic benefits from emerging tech companies, and an irreversible decline in Australia’s competitiveness.”

Looking in from the outside

Particularly notable from the two surveys is that the discussion about Australia’s tech competitiveness is the debate is being led by two local employees of US Multinationals.

For a local perspective, the Macrobusiness blog joins the day’s chorus with a long examination of the risks to Australia’s living standards by being too far down the global value chain.

In the Business Spectator piece, I compared some of PwC’s recommendations with the efforts of the UK and Singapore to rebuild their manufacturing industries.

Australia’s collective decision

For Australia, it’s probably way too late to worry about most of the manufacturing industry as in the 1980s the country made a collective – and almost unanimous – decision to shift the economy to being resources and high value added services.

The high value added services haven’t eventuated; mainly because the internet has shifted the global dynamics towards lower cost centres and partly because Australian business leaders decided it was easier to exploit their domestic market power rather than compete globally.

Mining proved to be a better bet, more by the accident of China’s turn of the century boom rather than any deliberate policy, however the industry employs less than ten percent of the workforce and the vast majority of Australians living in the South East corner of the country have little contact with the resources industry.

A consumerist utopia

For most Australians, employment and prosperity relies upon a growing population driving city GDP growth with domestic wealth supported by buoyant property prices. Australia truly is the consumerist utopia.

As a result of a booming, seemingly unstoppable, housing market and an expending resources sector, Australia’s exchange rate has soared while the nation’s productivity has slumped.

Making matters worse is that outside of mining and a few agricultural markets most of Australia’s industry is grossly expensive by global standards and suffering from chronic under-investment.

An unsustainable economic model

That model is not sustainable, it will take one shock to Australia’s housing market to see the good burghers of Brisbane, Sydney and Melbourne impoverished so the nation’s continued prosperity requires something to drive the economy beyond low interest rates and Chinese commodity purchases.

Whether Australia’s business and political leadership are capable of hearing and reacting to these reports remains to be seen, but they will have no excuse to say they weren’t warned.

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Sense-T and the Tasmanian economy

Tasmania’s Sense-T is a brave project to reinvigorate the state’s economy through the internet of things

On Networked Globe I have an interview with Sense-T’s director, Ros Harvey.

Sense-T is a project to connect the entire state to the internet of things using a sensor network monitoring soil, water and other environmental conditions to help the state’s agriculture and business communities.

Harvey’s ambitions for the project are high where she sees Sense-T even having the potential of rekindling the interest of the state’s students in science and technology courses.

It’s a brave project that means a lot to a state that’s doing it tough.

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You can’t cost cut your way to growth

Cosy management leaves a business exposed to disruption as Australia’s Qantas Airlines has discovered.

Yesterday I interviewed Alex Bard, Senior Vice President for Service Cloud at Salesforce for the Decoding The New Economy YouTube channel.

Alex’s interview will be up tomorrow, but during the conversation afterwards he made a comment about modern management saying, “you can’t cost cut your way to growth.”

This is at odds with 1980s management theory where CEOs like Jack Welsh at GE and Al ‘Chainsaw’ Dunlap at Scott Paper slashed costs to bring listless businesses back into profit.

During that period, many businesses were overstaffed and poorly managed so leaders like Welsh and Dunlap were the right men for their time.

To a generation of bean counting executives, Dunlap and Welsh proved that any business problem could be fixed by cutting costs. They were truly men of their times.

Which brings us to Australia’s Qantas Airlines who, at the time Alex Bard and I were having coffee, announced 5,000 job cuts; close to 25% of the company’s workforce.

Qantas certainly does have problems as shown in its $252 million loss and some of them, as with all legacy national carriers, lie with long outdated labour arrangements.

However the airline’s problems are much deeper than a featherbedded workforce and most of the blame for Qantas’ dilemma lies with the company’s management.

Management mistakes have included maintaining an old fleet of Boeing 767s and 747s while pouring investment into their discount subsidiary, disastrous international alliances in Asia that have seen them kicked out of Vietnam and planes for their Japanese venture grounded in Europe.

Probably the biggest mistake though for Qantas though was management’s assumption it had a cosy position in its domestic market.

Like most Australian industries, the nation’s aviation sector is a duopoly dominated by Qantas, a result of the 1980s theory that the country could sustain global champions subsidised by hapless domestic consumers.

This theory has proved disastrously wrong for Australian consumers with the duopolies becoming very good at exploiting their domestic market power after deciding it was simply to hard to compete outside the home country.

For Australia, the consequence of this strategic mistake by the country’s business and political leaders has been to make domestic industries hopelessly uncompetitive as local managers are largely isolated from genuine competitive pressures.

Qantas is the classic case study of Australia’s insular corporate mentality as the airline steadily abandoned its international routes and focused on maximising profits on its domestic operations, particularly those unfortunate rural routes where the Flying Kangaroo has no competition.

Unfortunately for Qantas’ shareholders; Virgin Australia, the other duopoly player in the Australian airline industry, wasn’t going to play by the rules that keeps the rest of the country’s complacent corporate sector relaxed and comfortable.

As a consequence, Qantas found itself in a damaging price war as it sought to protect its 65% domestic market share. Worse still for the airline, its competitor started offering Business Class services and competitive lounge facilities that started to erode its most lucrative fares.

For Qantas, the sensible option is to focus on its strengths and build in its most profitable areas but instead the airline’s CEO, Alan Joyce, chooses to fight for the airline’s precious two third market share while slashing staff numbers.

Alan’s response is classic ‘cutting for growth’ and it won’t work – the airline desperately needs investment and visionary management, both of which it won’t get.

Cosy management can prosper in a cosy market, but it leaves those companies exposed to disruption from keener competitors and that’s what Qantas is learning.

Sadly for Qantas’ management, they aren’t in the 1980s and Joyce is no Jack Welsh. Today, as Alex Bard points out, the game is customer service and slashing your workforce is the wrong starting point.

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You can’t get there from here

What the world can learn from the failure of Australia’s National Broadband Network

I swore – mainly for my own sanity – that I wouldn’t discuss Australia’s National Broadband Network on this site anymore, today though the topic raised an interesting point about business leadership and project management that can’t be ignored.

Australian Communications Minister Malcolm Turnbull today released the Broadband Availability and Quality Report (PDF) along with the accompanying My Broadband website that identifies the nation’s telecommunications blackspots.

Extraordinary failure

“It is extraordinary that in six years of Labor talking about Australians having inadequate broadband they never bothered to do the work of actually identifying where services were good, bad or indifferent,” said the minister at the announcement.

Turnbull’s comments are correct, although the criticism is just as valid of previous Liberal and Labor governments who’ve all made incredibly poor decisions in the telecommunications portfolio without considering what was actually happening outside the ministers’ offices.

A bigger lesson though is that before commissioning a project the size of the NBN – estimates have put its cost anywhere between twenty and eighty billion US dollars – it’s a good idea to know where you are are and where you want to go.

Big Hairy Audacious Goals

To put the comments that follow into perspective, I was a supporter of the NBN concept although I thought it was a Big Hairy Audacious Goal.

In the shadow of the Global Financial Crisis the NBN project ticked all the boxes; it put cash into the economy, it employed an army of workers and upgraded Australia’s telecommunications network that had been neglected by thirty years of incompetent government policies mixed with incumbent telco greed.

Australia could have afforded ten NBNs during the mining boom of the 2000s; it was an opportunity to rebuild the nation’s ports, roads, railways, schools and tax system that all needed reinvestment and reinvention to meet the needs of the 21st Century.

Building a middle class welfare nanny state

Rather than reform the economy or build modern infrastructure, the Howard Liberal government decided to spend the mining boom’s proceeds on building a middle class welfare state.

Keen students of Australian politics crack a wry smile that the recently elected Abbott Liberal government, of which Turnbull is a member, proposes a paid parental scheme that will complete John Howard’s grand vision of a Middle Class Welfare Nanny State.

One of the tragedies of the populist and cowardly Gillard and Rudd Labor governments that succeeded Howard was neither had the courage to dismantle the Liberal party’s middle class welfare state.

At least though both Rudd and Gillard were prepared to make some big infrastructure investments, even if they weren’t fully thought through and chronically underfunded.

Failing to think through the needs, scope and costs of the project meant the National Broadband Network project quickly collapsed into a managerial mess exacerbated by the dribbling incompetence of the company’s executives, government officials and contractors, which bought us to Turnbull’s announcement today.

A project in search of a scope

The project’s failure is a worrying commentary on the abilities of Australia’s management elites in both the private and public sector, however the lesson for the entire world is understanding both where you are and where you want to go to is essential for a project’s success.

Spending on well planned and necessary infrastructure is good, but to avoid disasters like Australia’s NBN it’s good to start with understanding the problems you want to fix and a project scope that clearly identifies the work that needs to be done.

Unfortunately too many governments and businesses don’t know where they are or where their plans will take them.

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The taxing business of options

The Australian attempt to reform the tax system is an interesting exercise in international comparisons.

I’m burning the midnight oil tonight pulling together a story for Business Spectator on reforming Australia’s tax treatment of employee option schemes.

This is a fraught subject as Australia bucked the global trend in 2009 after it became obvious the corporate sector was abusing the existing tax rules that were largely in line with most OECD nations.

In a clumsy, poorly thought out reaction – which is sadly the mark of modern Australian governments of all shades –  the then Rudd Labor government radically changed the rules governing employee schemes that made it difficult for any business to offer stock to their staff.

Last week I spoke to Sydney business intelligence company Encompass and after the video the founders told me about the importance of their share scheme, it illustrated exactly the problem facing Australian startups.

Five years on and it’s apparent the strict rules are working against Australian business and various industry associations, accounting groups and startups are lobbying for reform.

One of the lobbying initiatives is Deloitte’s Retaining Talent project that has some fairly modest proposals in bringing fairer rules back for smaller and younger startups.

The story’s particularly interesting for me in that I’m bringing together a number of previous posts citing how other countries and cities like San Francisco and the United Kingdom have changed their rules on option schemes.

For Australia, the closure of the country’s car manufacturing industry and the struggles of the agricultural sector are bringing home to voters and the government just how seriously the country squandered the massive mining boom of the last decade.

While reforming startup option schemes is a useful start, it’s hard not to think it’s way too little and way too late for the country to begin planning for the post mining boom economy.

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Winning the three-legged race

Merging two trouble companies rarely resolves the underlying problems

Does tying together two lame men give you an Olympic sprinter?

It’s quite common in the business world to see two second rate companies merging in the hope that their combined market share will give them enough momentum to overcoming the market leader.

The tactic rarely works as the businesses running third, fourth or fifth in a market are usually doing so because they have ordinary products or indifferent management rather than any inherited size disadvantage.

Merging two second-rate companies usually results with a pair of competing silos of mediocrity where the former workforce and management of the original business squabble over power in the new entity.

Far from being more competitive, the merged company is even more distracted with internal politics and power plays.

The story that Australian department store Myer proposed a merger with its rival David Jones is a very good example of this as two poorly run companies whose managements that have abjectly failed to adapt to the modern times, try to paper over their chronic problems by merging.

Both companies have failed internet strategies – Myer’s website managed to collapse during the Christmas sales season and no-one could be bothered fixing it for over week.

Along with lousy internet strategies, both companies have underinvested in IT systems leaving their point of sales and logistics systems antiquated and incapable of meeting modern customers’ needs.

Probably the greatest mistake that Myer and David Jones’ management made though was a focus on cutting costs through reducing sales staff.

The resulting lousy and often pathetic service resulted in both brands being seriously tarnished and had the effect of driving high value customers away.

Further damaging the stores reputation was the tactic of offering perpetual sales which trained the customers that would still shop with them into waiting for goods to be marked down rather than paying full price.

Merging the two operations would have done little to resolve any of the long term management failings of the two businesses, although no doubt there would have been some fat advisors fees for some of the boards’ friends.

Nothing fixes poor management better than getting rid of the poor managers, merging two poorly run business like Myer and David Jones does nothing.

Retailers failing as their poor management struggles to deal with changing marketplaces is an international problem, as this story about US chain Sears illustrates. The Australian experience though is a classic case study of two poorly led organisations trying to pretend their failings can be fixed through mergers.

Resolving the problems of troubled companies like Sears, David Jones and Myer involves having good management and smart investment, merging with a similarly troubled organisation solves little except perhaps putting off the day of reckoning.

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What do startup founders really earn?

A global survey of salaries drawn by startup founders illustrates some truths about being a business enterpreneur

One of the myths of the current cult of the entrepreneur is that everyone will be a winner as their startup gets bought out by Google for a billion dollars. The reality is life for a startup founder is a grind.

Startup Compass looked at 11,000 startups across the world to discover what founders really earn and the results show the reality of life when you’re starting up a business is that the wages are pretty poor.

In San Francisco, London and New York, the wages are piddling compared to the cost of living in those cities.

Low pay and business success

This is good news for investors though, as there’s a clear correlation between the success of a startup business and the salaries its key staff members draw – successful businesses are built on the back of founders ploughing everything into the venture.

It’s also high risk as a failed business can leave the founder with nothing to show for several years of hard work, something that’s overlooked by the ‘liberate yourself from your cubicle’ gurus advocating everyone starts up their own venture.

Australia’s high cost economy

Notable in the stats is the high rates demanded by Australian founders, more than 25% higher than their Silicon Valley counterparts and a gob-smacking 60% more than London or Canadian equivalents.

Australia’s high cost of doing business was emphasised last year where a comparison by Staff.com found Sydney was the second to Zurich as a place to base a tech startup. Worryingly, that survey didn’t consider owners’ drawings.

Part of Australia’s high wage requirements are no doubt due to the country’s lousy tax treatment of options and share plans but a bigger problem is property ownership – an Australian who hasn’t bought a home by 35 is destined to be one of the nation’s underclass.

So an Aussie entrepreneur has to earn enough to qualify for or service a mortgage, it also discourages Australians from starting even moderate risk ventures.

The consequence of the need to draw a high salary is that the proportion of investor funds that goes into founders’ wages is almost three times higher in Australia than it is in Silicon Valley. That’s a big disincentive for foreign investors to put money into Aussie startups.

If you wanted an example of how uncompetitive the Australian economy has become, this is a good start.

Regardless of where a startup is based though, the message remains that the road to a billion dollar buyout from Google or Facebook is not paved with gold.

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