The news that Murray Goulburn would be acquired by Canadian dairy giant Saputo, taking out the largest of the few remaining Australian owned FMCG manufacturing businesses is not welcome, while probably an inevitable result of the failure of Australian management and our institutions to meet the challenges of change and globalisation. It leads me to consider what is next for manufacturing and specifically FMCG manufacturing in this country.
It is not a pretty sight, coming on top of the final closure of the car industry a few weeks ago.
Having said that, manufacturing that will be profitable and provide the foundations of our economy for the rest of the 21st century will look nothing like the manufacturing we grew up with, so my greater concern than the demise of what we had, is how grossly unprepared we seem to be for what is coming.
The tsunami currently washing around our ankles seems to have three characteristics:
- The gigantic increases in the volume of data available to us, should we be willing and able to collect, communicate, analyse and leverage it via the analytics and business intelligence tools emerging in parallel.
- New forms of machine/human interface being driven by touch and voice.
- New ways of transferring the digital tsunami into the physical world, by means such as robotics, artificial intelligence, augmented reality, and additive manufacturing.
It seems to me that we are ready for none of these except in isolated pockets, inhabited by a few really smart people unwilling to be drowned, and prepared to bet the farm on the future.
So, the questions to be faced by those who will either survive, or more likely emerge from the rubble (assuming the ‘policy-makers’ do not stuff it up entirely) may be something like the following:
1. How can we capture and make better use of information. The currency of the 21st century is information, but by itself, it is just lead in the saddlebags. What counts are the insights and leaps of logic that can be gained from the information that leverages it into useful knowledge that can be monetised.
2. Which strategic questions should we be asking ourselves? Which questions will offer the opportunity to make the right choices and develop the insights into what may happen next, as the value of using the past as an indicator of the future is long gone?.
3. What might the new business models look like? It is certain that the business models of the past are as redundant as a Model T in an F1 race, so we need to be actively developing and testing a new breed.
4. What sort of capabilities will be needed to compete sustainably? Where are we going to find, train, and retain the people with those vital capabilities? The tools and technology are increasingly becoming commoditised, the people who use them will be the differentiator. At the core of this question is how we manage the education of our kids. it seems to me that education is viewed as a cost to the budget, a line item to be argued and manipulated with a short term focus, rather than as an investment in future prosperity, which by definition will be generational. We need to teach our kids to think, to be critical and analytical, while trusting their instincts and domain knowledge, and if we fail in that, we will have failed completely.
5. How do we collaborate? This question has caused many sleepless nights to date and we still have no real idea beyond the clichés and academic prognostications. Australians are lousy at collaboration, we see the bloke next door as the enemy, or at least someone to be avoided, you certainly do not invite them to dinner, and to date your daughter. However, we need to get over this and be prepared even to collaborate with competitors in some areas, and the regulators need to get used to the idea by taking a broader view of the definition of competitive advantage.
All this is a long way from the demise of the Australian FMCG industry, as I have variously chronicled in these pages, but it is also tangled up with our collective failure to see the future through any lens that gave us the insights necessary to dodge the hand grenade of change, and take advantage of the subsequent explosion.
Only by questioning the status quo, recognising it will not be an indicator of the future, and genuinely setting out to make the often radical changes necessary will Australian owned manufacturing survive as a significant contributor to our continued prosperity.
The success of any manufacturing firm ultimately depends on it achieving returns above that predicted by Theories of the Firm under perfect competition. But of course the ACCC sets out to try and ensure returns are minimised by rightly outlawing various non competitive behaviours. To achieve above normal returns firms will rely on innovation providing IT barriers to competition or other means such as capital barriers or scare resources to limit other market entrants. The future where robotics and new technologies such as 3D printing are expected to dominate, will rely heavily on product design skills and the capacity to patent such designs. The game is always about limiting competitive pressures and providing pricing power, but of course in ways that always adhere to anti-competition laws. One only has to examine the ASX 200 to observe which organisations are achieving above ‘normal’ returns and then examine their business models.
Allan,
Absolutely correct. Every business if they thought about it would aspire to a monopoly, a place where there was no competition, and the demand was inelastic to price.
As you point out, regulators chase the opposite outcome.
This tension is a very strong ‘feeder’ for innovation.