Jul 22, 2024 | AI, Strategy
Our brains work on 3 levels.
At the most basic is the ‘reptilian brain.’ This is the ancient wiring that is common with every other animal. It monitors and manages the automatic things that must happen for life. Our instincts, temperature control, heart rate, respiration reproductive drives, everything necessary for the survival of the animal.
The limbic system. This manages our emotional lives, fear, arousal, memories, it is where we store our beliefs. It in effect provides the framework through which we look to make sense of the world.
The Neo cortex, the newest part of our brain that differentiates us from other animals. It is where we make choices, it controls our language, imagination, and self-awareness.
This three-part picture is a metaphor. The parts of the brain do not act independently, but in an entirely integrated manner, each having an impact on the others, and receiving input from the others.
Consider the parts of this complex interconnected and interdependent neuro system that is replaceable by AI. There is not all that many of them, beyond the extrapolation of language and imagery from what is in the past.
Despite the hype, we have a long way to go before artificial sentience will be achieved, if it is possible. (Expert opinion varies from ‘Within the decade’ to ‘Never’).
However, who cares?
The productivity gains from AI are present in some form in every current job, and the numbers of new jobs that will emerge are huge. Nobody had conceived of the job of ‘prompt engineer’ 3 years ago!
These new jobs in combination with the renewal of those currently available, will deliver satisfaction, and a standard of living out kids will thank us for.
Sadly, there is always a flip side. In this case it is the dark downsides we all see emerging from social media, which will also be on steroids, and the social dislocation that will occur to those on the sharp end of the changes in jobs.
How we manage that balance will be the challenge of the 2030’s.
Image by Canva.com
Jul 17, 2024 | retail, Strategy
The pile-on to Coles and Woolworths as protagonists in the ‘cost of living crisis’ and accusations of gouging, is somewhat akin to the ‘burning of witches’ in Salem in 1692. (in fact, most of the 16 executed were hanged, but never let a good story get in the way of a fact). The population just needs a victim to blame for their poor fortune, anyone will do, never mind their lack of guilt.
If there was any guilt involved in the lead up to the current ‘crisis’ it would have been allayed by a factual examination of the supply chains in use by retailers, and the drivers of those chains.
It is true that Coles and Woolworths are amongst the most financially successful retailers in the world. This is a position evolved from a long history of take-overs and mergers in the supermarket industry, endorsed by those with the power to stop them. Coles and Woolworths have by this process, as well as their own efforts to attract and keep consumers, have accumulated the scale that enables them to deliver superior returns their shareholders, a group that includes every Australian with superannuation. Had they not performed in this way, the boards of these businesses would have relieved be MD’s of their role. On occasions over the last 40 years I have been watching, there have been a number of MD’s so sent on gardening duty.
So, where should the blame be laid, if there is to be any laid?
None of the various reports have laid bare the mechanics of the supply chains at work. At best they refer to them in passing. However, the antidote to the unreasonable exercising of power back through a supply chain, which is the hypothesis of all the proponents of the gouging story, is transparency.
It is true that Coles and Woolworths can be brutal with their suppliers. Not every supplier is treated equally, and dumb, insensitive, and even discriminatory choices are made, but that situation exists in every walk of life. You do not address these shortcomings by regulation, you address them with transparency.
I used the two dimensional scale in the header to score Coles and Woolworths based on my experiences over 45 years. Despite the current voluntary code of conduct, seemingly about to be made mandatory, the transparency scores for both retailers are concentrated on the bottom left of the scale.
The first three ‘transparency milestones’ get a tick, as 1 or 2 out of five. They are present but only to ensure some level of quality and to protect the retailers from litigation.
The ‘supply chain scope’ measures for both give solid scores in the internal operations, a pass for direct suppliers, but nothing beyond a passing interest in the final two.
Divestiture will not change any of that. It would simply add cost to the supply chains previously wrung out by scale.
A break-up requires a party willing and able to stump up the capital to complete a transaction. To generate a return on that investment it would be necessary to rise prices to accommodate the increased costs. It is unlikely any domestic group would be a buyer, which just leaves an international chain being handed a stepping stone, which is equally unlikely to reduce process in any way.
If the authorities were really interested in adjusting the profitability of the retailers in favour of their suppliers, who have been scrambling for scale for as long as the retailers have, they need to throw the divestiture story into the bin marked ‘stupid idea’ and consider mechanisms that address the core of the problem: measures that favour those with capital at the expense of those who do not.
Divestiture makes a good headline in populist press, but like many good headlines, has absolutely no substance.
Header: courtesy of HBR ‘How transparent is your supply chain ‘ August 2019 Bateman & Bonanni
Jul 15, 2024 | AI, Governance, Leadership
In a world dominated by discussions around AI, electrification to ‘save the planet’ and its impact on white collar and service jobs, the public seems to miss something fundamental.
All this scaling of electrification to replace fossil fuel, power the new world of AI, and maintain our standard of living, requires massive infrastructure renewal.
Construction of that essential electricity infrastructure requires many skilled people in many functions. From design through fabrication to installation, to operational management and maintenance, people are required. It also requires ‘satellite infrastructure’, the roads, bridges, drivers, trucks, and so on.
None of the benefits of economy wide electrification and AI can be delivered in the absence of investment in the hard assets.
Luckily, investment in infrastructure, hard as it may be to fund in the face of competing and increasing demands on public funds, is a gift we give to our descendants.
I have been highly critical of choices made over the last 35 years which have gutted our investment in infrastructure, science, education, and practical training. Much of what is left has been outsourced to profit making enterprises which ultimately charge more for less.
That is the way monopoly pricing works.
When governments outsource natural monopolies, fat profits to a few emerge very quickly at the long-term expense of the community.
Our investment in the technology to mitigate the impact of climate change is inherently in the interests of our descendants. Not just because we leave them a planet in better shape than it is heading currently, but because we leave them with the infrastructure that has enabled that climate technology to be deployed.
Why are we dancing around short-term partisan fairy tales, procrastinating, and ultimately, delivering sub-standard outcomes to our grandchildren?
Header illustration via Gemini.ai
Jul 10, 2024 | Innovation, Leadership
Roger Federer is the greatest tennis player I have seen in a long life of watching and playing the game. He may have been overtaken by Djokovic as the winner of the most grand slams, which seems to be the public benchmark of the GOAT, but he will remain the greatest to me.
His greatness is not just on the court, where everything seemed effortless. It extends to his demeanour and humility off the court.
In a recent commencement speech at Dartmouth College, he gave the graduates a critical piece of wisdom that applies widely to life:
“Perfection is impossible. In the 1526 singles matches I played in my career, I won almost 80% of those matches.
Now, I have a question for you.
What percentage of points do you think I won in those matches?
Only 54%.
In other words, even top-ranked tennis players win barely more than half of the points they play. When you lose every second point on average, you learn not to dwell on every shot.
You teach yourself to think, okay, I double-faulted … it’s only a point. Okay, I came to the net, then I got passed again; it’s only a point. Even a great shot, an overhead backhand smash that ends up on ESPN’s top 10 playlist. That, too, is just a point.
And here’s why I’m telling you this. When you’re playing a point, it has to be the most important thing in the world, and it is. But when it’s behind you, It’s behind you. This mindset is really crucial because it frees you to fully commit to the next point and the next point after that, with intensity, clarity, and focus’.
Those words resonated with me.
They resonated, not just because I lose way more than 50% of the points I play these days, and must accommodate that in my competitive brain, but because it applies to the way we all should live our lives.
It certainly applies to those I work with, where an obsession with the past often clouds the next move, and the one after that.
We need to understand why what we did worked out differently to the plan, and learn to adjust both on the run, and over time as we alter the mechanics and drivers of activity. Beyond that, the past is irrelevant. It is the past, unchangeable, immutable.
By contrast, what we do with the lessons of the past is crucial.
Jul 5, 2024 | Change, Governance, retail
The undertaking by Opposition leader Dutton, supported by the Nationals leader Littleproud, to break up the retail gorillas Woolworths and Coles is absurd. It is a gross example of stupid, short term populism and fear mongering that exhibit either utter ignorance of the current and proposed laws, how the supermarket supply chains work, or scary levels of ignorance.
Perhaps it is all of these mixed up in a broth of complete ‘short-termism’.
It seems to me that facts and long-term benefit to the economy and communities play no role in this ill-conceived appeal to populist, thoughtless ‘policy’.
Such a breakup is far more likely to increase retail prices to consumers, it will certainly not result in any reduction.
Let me be clear about the failures of this proposal, at least as I see them.
Supply chain mechanics.
- The current voluntary code of practice, and the proposed mandatory standards relate to the chains and their suppliers. In a minority of cases are these suppliers also the manufacturers of the consumer product, as well as being the farmer, and all the associated and necessary middlemen that provide the supply chain with the ‘Oil’ that makes it work. Therefore, the policy if implemented would do nothing for the small scale ‘farmers’ who are often held up as victims of retailer power.
- Scale breeds scale. Suppliers of fruit and veg have over time, built scale to squeeze out transaction costs from the supply chain. The Australian Fresh Produce Alliance is a small group of very large ‘consolidators’ that between them control roughly half the $9 billion fresh fruit and vegetable market. These businesses are farmers only in the sense that they might own, contract, or represent hundreds of individual farming locations. Several of the major players are owned overseas. A breakup of Coles and Woollies would only encourage them to increase prices, as the suppliers would then have greater scale than the chains, and would use it.
- The small, independent farmers of commodity fruit and veg is a part of the past. Believing otherwise is fantasy. Where those who choose to farm a small holding have opportunities are in specialty produce sold through channels other than chain retailers.
Legal considerations.
- Any breakup would involve legal action, probably to the high court. I doubt the retailers would take a breakup order as anything other than an order to self-destruct. This would be resisted fiercely.
- The mandatory Code recommended by Dr Emerson, and widely accepted is only marginally more useful than the current voluntary code. It still requires that suppliers lodge complaints. Whilst there are now to be penalties applicable by arbitration, the likelihood of complaints remains low, despite the ‘protections’ articulated in recommendations 3, 4 and 5.
- The scale of penalties proposed by Dr Emerson is absurd. If the threat of implementation was real, nobody in their right mind would invest in retail of any scale. Imposition of the maximum penalty would send the retailer concerned broke. Assuming they are just ‘regulatory scarecrows’ with little legally independent investigation and enforcement power, they represent little of any real deterrent value, while adding friction to the supply chain. Friction generates costs, which will be recovered from consumers.
Competition falsehood.
- Coles and Woolworths do currently have somewhere around 65% market share of retail FMCG sales. That percentage is being eroded by Aldi, as it opens more stores and successfully takes market share.
- In regional areas of NSW and Vic particularly, but also SA and WA, there are a number of strong independent retailers. Drakes, Ritchie’s, IGA, and others are all competing successfully against Coles and Woollies. None would be able to buy disassembled bits of the gorillas, and even if they were, what would that do to the objective of decreasing retail prices? It would more likely put upward pressure on prices as the purchaser sought a return on the investment.
- It you were to breakup either of the retail gorillas, who is a likely buyer? I cannot think of any, except perhaps Walmart, who are also smart enough to assess the sovereign risk as being considerable, so they would not put anything like the expected value of the broken up businesses on the table.
- Some time ago, under Graham Samuel, the ACCC forced the removal of contractual exclusivity of Coles and Woollies in shopping centres under Section 47 of the Competition and Consumer act 2010. That move was a very sensible one, and has resulted in Aldi opening a number of stores in shopping centres in opposition to Coles and Woollies. (An extension to cover ‘land-banking’ might be a useful consideration.)
- While Coles and Woolworths are immensely powerful, they are far from the only distribution channel that exists. In a court they would point out the multibillion dollar and still fragmented food service channel, as well as the independent specialist retailers who continue to provide opportunities for small scale farming.
A final thought. Every Australian with a superannuation fund: i.e. most of us, would have Woollies and Coles in their portfolio, knowingly or otherwise. These shares have been good investments in terms of capital gain, and throw decent tax effective dividends. A breakup would threaten those investments.
For the Opposition leader to propose legislation, should they be elected to government, to break up Woolworths and Coles is nothing but an idiotic, populist, ill-considered appeal to voters without the knowledge to dismiss it with the contempt it deserves.
It is also an astonishing dismissal of one of the cores of the conservative parties: to limit the intervention of government in the workings of the economy.
We Australians deserve better from our ‘leaders’ than opportunistic and destructive policy statements.
