May 15, 2023 | Governance, Strategy
‘Occam’s Razor’ is the idea that as you progressively eliminate possibilities, what you have left must be the truth, no matter how unlikely it may seem. Some might call it ‘first principles’.
While Occam’s Razor goes back to William of Occam, the 14th century philosopher, there is a recent iteration.
Occam’s broom.
A molecular biologist by the name of Sidney Brenner introduced that addition to describe the brushing of inconvenient truths under the carpet.
Last Thursday night at a ‘workshop’ hosted by a voluntary group, ‘Re-Invent Australia‘ both were on display.
The strategic objective of Re-Invent Australia might be summarised in the words of the great Peter Drucker: “Ideas are cheap and abundant, what is of value is the effective placement of those ideas into situations that develop into action.”
The task set was to identify the major causes of failure of Australian political governance under the headline five general areas nominated from a wide field by the committee: Education, health, innovation, diversity, and aged care, which need immediate attention.
The second, and to my mind even more important part of the exercise is the question: ‘How would we change them’?
The eternal strategic ‘What and How’ questions.
The objective was not to host another gabfest, but to motivate action that might generate results from which we could all learn.
We have just seen a federal budget. ‘Back in the black’ briefly, for the first time since 2007. If ever there was a time for a federal government to seriously address some of the big and growing structural inequities in the economy, it is now. This is where Occam’s broom came in for some extensive use.
First term government, first (sort of) budget, an opposition in total disarray and incapable of tying its own shoes, and it goes soft on anything that might prove combative with vested interests.
In short, they squibbed it based on the expected noisy backlash, rather than taking the once in a generation opportunity to address those structural challenges we all see.
The agreement of the fossil fuel industry to the barely apparent uptick in the PRRT shows how much harder the government could have gone, minimal changes to a taxation system no longer fit for purpose, the ‘palm-off’ of any discussion about the scheduled income tax cuts, or little genuine analysis of the long term causes of the housing shortage with concrete actions and timetables, and so on.
Vanilla.
The politically difficult reality is that if we want to change the infrastructure of the economy to better reflect the country we want to live in, and the world we wish to be a part of, we will need to take some challenging decisions. Many of these will prove to be unpopular with varying noisy and often cashed up segments of the economy, who will not stop at anything to protect their immediate narrow interests.
We cannot afford any longer to exercise Occam’s broom and sweep them under the carpet.
That is what government should be for, exposing and acting on the failures of the market, to shape the future of the country our children and grandchildren will inherit, not guarantee yourself access to commonwealth cars for the next 3 years.
May 1, 2023 | Change, Governance, Strategy
Strategy is all about choice: what we will not do is at least as important as what we will do.
When you dig a level deeper into the generic ‘will I or won’t I’, you come to the question of how do you make what are almost always difficult choices between options in the absence of full information.
At a top level, that choice is driven by two factors:
Cost structure.
There is always a cost to delivering product. Understanding the cost drivers associated with your product and business model is essential. You will then be able to make informed choices about how best to minimise those costs without compromising the value you deliver to customers.
Value creation.
Selling a product of any type depends on a buyer seeing the value created by their purchase as being greater than the cost of the purchase. ‘Value’ is a very personal term. The value of an expensive watch is not in the ability of that watch to tell the time, it resides in a range of psychological drivers that drive individual behaviour and choice.
Until recently, most of the costs involved were of a physical nature, now they are increasingly behavioural. Similarly with value creation, in the past it was the utility you got out of a physical purchase, but physical utility has been usurped by digital and emotional utility.
Understanding both is critical to success.
Apr 27, 2023 | Change, Governance, Lean
While there is no silver bullet, there is a lot of tactical advice around that will increase the dependability and resilience of your supply chains.
Shortening lead times, removing steps in the chain, paying a premium for service to specification, creative logistic management, making information transparent, and many others.
All will deliver some benefit, and together can make a dramatic difference, but miss the essential nature of significantly improving supply chain performance.
When you ‘flip’ the chain, changing the drivers of the chain from supply to demand, the game changes.
Developing a clear view of demand, and responding only to the signals of demand, rather than the often functional signals coming from within the vertical management hierarchies of supply chain participants, alters the nature of the challenges being faced.
It becomes a demand chain, rather than a supply chain, or even a value chain.
In lean parlance, there is the concept of ‘Takt time’. This is a measure of the ‘pull’ put on a supply organisation by the demand from customers. It is the production time required to meet customer demand.
The so called ‘bullwhip effect’, the magnification of fluctuations in orders back through the supply chain will be at least mitigated by application of a metric that reflects real demand from the market.
Remember the panic buying of toilet paper, amongst other things, at the beginning of the pandemic? The underlying demand had not changed, we still all went to the loo at about the same rate. However, the sudden shortage on supermarket shelves created by panic buying resulted in supermarkets increasing their orders on suppliers, who in turn increased orders on their suppliers. At each point in the supply chain because of the uncertainty, everybody was increasing their orders, building inventory, magnifying the boom/bust cycle of supply, creating a ‘bullwhip’ effect. This is where the trajectory at the tip of the whip is progressively magnified by movement back through the length of the whip. Swung hard enough, it will ‘crack’ just like your supply chain.
The challenge is to match the whole supply chain to the real level of demand coming from the marketplace, demand uninfluenced by short term hiccups in the chain. If there is a silver bullet, that is it.
Apr 11, 2023 | Change, Governance
Now we have a legislated ceiling on carbon emissions, ‘The safeguards mechanism’ the challenge is to ensure compliance.
That is the hardest part, yet to come.
The means by which the emissions will be reduced by business are unregulated, but there is no doubt it will incur capital expenditure. This will provide a challenge for business, that generally sees their first priority delivering immediate returns to shareholders.
Where will the balance be between their regulated and long term moral public responsibility, their short-term responsibility, and often the jobs of decision makers fall?
How will the safeguards mechanism be governed for the long-term benefit of all?
There are two ways to govern the implementation.
The first is the one always top of a governments list, regulation. Sadly, it will not work very well. You can regulate, inspect and punish to the letter of the law, and when necessary, regulate further till the sky turns black. The short-term cost of compliance is likely to be less than the profit generated by finding loopholes and screwing the system. In addition, the regulators are in the thrall of the carbon generating industries, and will always be behind the latest discovery of holes through which businesses can squirm if they choose.
The second is the same as the above, with a wrinkle to fill the unanticipated and unseen holes. Publish the results in a form easily understood by Joe Public. For greater effect, add a few extra columns, such as the domicile of the controlling entity, Income tax paid, and profits declared.
This would bring into play a powerful motivator, Social Proof.
Rio felt the weight of Social Proof when they destroyed the Juukan Gorge caves. I suspect the internal culture of Rio has changed as a result. While this is an extreme example, it makes the point.
Such a publicly available register, all data coming from public sources, (compliance reports, Tax department, stock exchange notices) would serve as a resource for those advocating for change. It would also be a source of goodwill and potentially stock market value for those doing the right thing.
Publishing data on all the top 500 polluters would lead, in a relatively short time, to behaviour changes that will do more for carbon emission reduction than regulation by itself can hope to achieve. It might also lead to a few of the most obvious changes to the tax rules applying to internationally domiciled businesses to be made. The irony is that it is also a simple solution, so will probably not be considered.
Header cartoon credit: Again, Scott Adams and Dilbert distil the challenge into a few words and drawings.
Mar 29, 2023 | Change, Governance, Strategy
The government’s $15 Billion National Reconstruction Fund faces a range of strategic and management dilemmas.
The Treasurer Jim Chalmers set out the governments priorities in his essay ‘Capitalism after the crisis’ in February. He called for focus on three things:
- An orderly energy and climate transition of the economy
- A more resilient and adaptable economy
- A focus on growth hand in hand with equality of opportunity.
The response has been roughly equal from those who see his views as the defining principles for development of the economy from the poor relations role currently played amongst the OECD, to those who condemn his views for their generality and naivety.
Given these seem to be about equal, he must be close to the mark.
The dilemma in the deployment of any ambitions public program is governance.
The opposition condemns it, claiming that it will achieve no useful outcome, being just a huge a magnet for rent-seekers. I guess they should know how to recognise a snout-ready trough when they see one. The government seems to dismiss this concern as something that can easily be managed, and while it is an admirable sentiment, the ‘yes minister’ syndrome will play a big role. Again, the very difficult middle path seems to be the ideal outcome.
From my experience running a tiny, micro version of this initiative 25 years ago there are some lessons to be learnt and applied, or at the very least, considered in the design of the management and operational infrastructure:
- There needs to be an accountable board made up of mix of experienced and wise people from outside the vested interests, committed to the outcome of moving Australia up the various ‘industrial complexity’ scorecards.
- It needs to be separated from the bureaucracy and run its own management processes, and grant budgets that are multi-year. Tying the operational and grant budgets to an annual calendar dictated by allocations in the national budget is to ensure its failure as a strategic tool. This choice will be difficult for any government, and will probably precipitate another bureaucratic turf war.
- A company limited by guarantee is one structure that can be useful. This does not in any way compromise the accountability of the management for the financial governance of the ‘business’. The shareholders would likely be Federal government, via Dept. of Industry, CSIRO, and one of the credible business associations with a wide cross-industry membership.
- The board would be chaired by a credible figure like Proff. Roy Green. Board members will represent the shareholders, and include several non-aligned members familiar with the areas of strategic focus from the perspective of the evolving technology, financial constraints and opportunities, business development, and strategic marketing expertise.
- The first job of such a board must be the definition of the strategic priorities of the ‘business’. These are one step down from the general outline in the Treasurers essay and take the form of a priority list of industry sectors that will be eligible to receive funding. Within this pathway there must be some discretion, as predicting the future is a challenging task, and you never know what will bob up in the development process that deserves support. The parameters of ‘deserve support’ should be at the discretion of the board, but widely agreed.
- Staffing and budgeting of the ‘business’ must be from outside the bureaucracy. Bureaucratic rules and conventions need to be taken only selectively when they clearly add value to the process. It is quite likely there will be very qualified people currently within the bureaucracy, who may elect to take a leave of absence from those roles to take up one with the business. This could be regarded as a secondment, but the management of the personnel concerned must be at the discretion of the management of the ‘business’.
- Non-profit, research institutes, and quangos are not eligible for funding unless in collaboration with a viable commercial operator. The business will play a pivotal and catalytic role in putting these two pieces of the puzzle together in ways that may lead to funding.
- Dictate to collaborative bureaucracies that they are required to collaborate and co-operate with the ‘business’. This is not to ensure primacy, but to ensure collaboration within the boundaries of commercial in confidence. The business must be ‘cross departmental’ and seen as a neutral player there only to be a ‘compounder’ of public resources.
$15 Billion is a big chunk of money, although dwarfed by the magnitude of the challenge facing the country. This sort of approach should have been implemented 30 years ago, but better late than never, so long as it is done right!
Header credit: Knicked from the NRF website
Mar 20, 2023 | Governance, Leadership
The dream of every entrepreneur is to have a monopoly, a place where they can set prices without any of those nasty competitive forces impacting on profits.
Monopolies are the poison of public policy, it is why we have the many agencies that seek to ensure transparency, competition and good behaviour by corporations with some level of pricing power.
The management of these two extremes by public institutions has created some really ugly children.
Public assets that have been developed by public money to provide a service and the infrastructure upon which to build businesses has been sold off to the highest bidder. Surprise, surprise, the price goes up.
Natural monopolies and public assets flogged off for the same reason, with the same result. Power, communications, education, roads, rail, land, the list just goes on, and on.
The seeming disconnect in the current election campaigns, both state and federal is instructive. People are sick and tired of the political narrative that all will be well. Just trust us, we will be better than the other lot who are the devil in a shiny suit!!
At our core, we all seem to know that the problems are being swept under the carpet, where they are mouldering and compounding, and at some time will bite us on the arse. This post on the Guardian website looking at the changes in Australia’s tax base over time is instructive. It is now quite old, but the trends shown are not just still evident, but thriving. We all are demanding more, and the pollies are dishing it out to get elected, but increasingly we will not have it. The disinterest and dissatisfaction with our institutions is just magnified by this sort of misinformation, but in the absence of any genuine leadership, we vote for self-interest, with our wallets.
On Saturday, I have no idea who will get my vote in the state election. Neither of the major parties appear capable of anticipating and responding to the tsunami of change coming at us. Both ‘leaders’ are spraying Monopoly money around, making hollow promises to fix current problems that cannot possibly be met, without any reference to the challenges of the future.
I have emailed both the major parties seeking to understand the capabilities and experience the candidates in my electorate brings to the table. The incumbent Labour candidates office sent me an automated generic response that told me nothing beyond the fact that he is a good bloke, with some academic and work credibility, and loves his family. The Libs excelled, by not even sending an auto response. This is probably because they did not have a candidate, a now remedied situation by the nomination of an unknown young party hack last week. If they cannot organise something as simple as that, how can they run the state?
Are the current opposition any more capable? I suspect not.
We will just end up with more ugly children that need to be understood and funded. Somehow. .
Header cartoon credit: Tom Gauld, whose acerbic take on life is refreshing after writing a post on politics.
