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.
May 16, 2024 | Change, Governance, Innovation, Leadership, retail, Strategy
The recent declaration of “A Future Made in Australia” by the Prime Minister has put the future shape of the nation’s manufacturing sector back on the agenda.
There was however, nothing specific on the importance of agricultural innovation and value adding through the manufacturing sector, or the strategic value of food security.
The decline in Australian owned manufacturing in the food industry has been close to total. The FMCG manufacturing industry has seen input prices increase by 49% over the decade to 2020, while the wholesale prices received have increased by only 24% over the same period (Source: AFGC Sustaining Australia Food and Grocery manufacturing 2030 report) This downturn, and the 20 years prior which display similar trends has seen locally owned businesses either go bankrupt, or become subsidiaries of foreign conglomerates, relegating them to mere outposts.
From an era where medium-sized businesses thrived across various product categories, employing significant numbers in quality, engineering, the trades, and R&D, today these businesses have largely disappeared. This transition has been marked by a shift towards centralisation of product development and scientific research abroad, leaving Australian operations with minimal operational and decision-making authority.
This trend raises critical questions of how we feed ourselves, and make a useful contribution to the global food supply.
Notwithstanding the international ownership of most of food and beverage manufacturing, it contributes 6.5% of GDP, 32% of total manufacturing output, and employs 240,000 people, 40% of which are in regional areas. (source AFGC)
By any measure, the food manufacturing sector is profoundly important to Australians. Its future resilience and growth of sovereign capability should be paramount.
The lack of sovereign control of the resources and capital needs to generate growth is disturbing.
Central to an innovative and resilient manufacturing industry is the capacity to generate intellectual capital that translates into manufactured product. The progressive ‘internationalisation’ of company R&D noted above, has been matched by a progressive emasculation of the sovereign capability to generate the Intellectual capital necessary for long term growth. There is a significant number of SME’s in the sector, but collectively they contribute very little to the total of manufactured product. They are typically mixing often imported ingredients in low tech environments with a few employees and casuals. Distribution is largely through secondary channels like farmers markets, and local retailers and food service. They do not have the resources to compete with the R&D capability of multinationals, and the previously available intellectual assistance from federal and state institutions has been removed.
Take for example the CSIRO that in the past worked closely with business. Often this was in an informal and personal collaboration between individuals that enabled a thriving environment for problem solving and innovation. CSIRO’s sites in North Ryde, Werribee, and Canon Hill have either been downsized or sold off, and skilled, experienced employees made redundant. Contributing to this erosion of the collaboration that in the past generated much of the ‘ideation’ that sets the stage for innovation, has been the demands of successive governments for a ‘productivity dividend’. This was typically 2% annually which compounds quickly to a killer blow to capability. It is code for removing those informal but fundamental creative collaborations with domestic companies, and encouraging the multinationals to centralise R&D elsewhere.
The power of the supermarket chains, currently under scrutiny has also played a key role in this process. SME’s simply do not have the deep pockets required to generate and maintain traction through the retail FMCG oligopoly.
To be successful, SME’s need to be able to absorb the reality of this gross power imbalance with retailers. Financial capital is necessary to enable the generation of the Intellectual Capital that underpins genuine innovation. Further investment is required to design, build and install the equipment to produce the innovative product. Deep pockets are then required to meet the retail trading term and promotional demands, as well as investment in the advertising necessary to attract consumers to a new product. As the power of the retailers has overwhelmed the diminishing group of domestic suppliers, we have been left with multinational suppliers and retailer house-brands, themselves often manufactured offshore.
The focus of government policies remains short-term, driven by electoral cycles rather than the decades required to bridge the gap between science and commercial success. Differing jurisdictions follow their own nose, resulting in a siloed and fragmented effort across the country, rather than a coherent and coordinated effort. The outcome is a mix of differing priorities, investment plans and initiatives around the country, sometimes used as incentives for business location. The commercial equivalent would be if a conglomerate allowed divisions and locations to compete for resources with declining levels of investment in the total absence of a coherent strategy. No sensible commercial board of directors would put up with such a self-defeating arrangement.
Grant programs send the wrong message and encourage behaviour that rarely delivers the outcomes touted in the press releases.
Culturally and politically risk is toxic to the body politic. However, the acknowledgement and management of risk is a fundamental element in successful innovation.
Successful risk management becomes a function of the extent to which a whole range of data, combined with qualitative assessment of what the future will look like is considered. Removing the capacity to make those assessments severely compromises the value of any conclusion reached.
The only potential solution to those institutional blockages to innovation in manufacturing industries generally is a confronting one.
Government needs to ‘upskill’ itself to be in a position to substitute early equity funding for grant funding.
Such a change requires a cohort of skills and experience not currently available within government and bureaucracies, but selectively available in industry. The early equity would be recoverable by those that are successful at a pre-agreed point, at a pre-agreed rate. This removes the inertia and rent seeking evident in grant funding, replacing it with a modified form of Venture Capital.
In addition, FIRB needs to adjust the guidelines that currently rely on an intense focus on the economics of ‘Comparative advantage’. These rely on projections of current and past quantitative models of industries that usually bear little resemblance to what ultimately evolves. They never reflect the strategic value of sovereign manufacturing.
In the absence of meaningful strategic change, what remains of the domestically owned food manufacturing industry of any scale will disappear, and current and new SME’s will have no hope of replacing them.
Notes.
- The budget delivered on Tuesday night included a number of measures that should serve to give manufacturers some confidence that the government has recognised there is a problem, and that action was long overdue.
- A slightly edited (and improved) version of this post was published on Wednesday morning on the AuManufacturing website and Linkedin group.
Apr 22, 2024 | Governance, Innovation
Suddenly, everyone is interested in batteries.
When mobile devices took off after the launch of the iPhone, the demand for batteries with a longer life than the then existing chemistry could deliver took off as well. Panasonic held a dominating position in this new market, being the major supplier of batteries made using Lithium as the power store.
Then along came Elon Musk. The first Tesla cars, the initial roadster and early models of the series 1 and 2 sedans used what was in effect just large-scale Panasonic batteries. Individual units were linked together with cooling tubes assembled into the pack to dissipate the heat generated by the lithium, which otherwise led to spectacular fires.
Musk in collaboration with Panasonic envisaged a ‘gigafactory’ in Nevada that would supply the packs. As has become a pattern, Panasonic found the task of working with Musk all too much, and were bought out. However, to the point, an essential part of a lithium battery is a range of rare minerals, amongst them Cobalt.
The Democratic Republic of Congo (DRC) hardly democratic, holds almost all the worlds known reserves of Cobalt. Rapid development was inevitable, as was the corruption of local power brokers, and the human rights blindness of the major corporations. Cobalt is a dangerous material, yet much of it is mined by kids in holes with a pick and shovel, dying like flies. There is a registration process designed to monitor and outlaw these practices, but they are useless.
The challenge of replacing Cobalt is therefore the focus of much scientific attention. It is the chemistry of batteries that will deliver a power to weight ratio that will guarantee longer charge life, in everything from your phone to your car, and all the other uses to which Lithium batteries are suddenly being placed.
The world as a choice of three strategies, which should be mutually exclusive:
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- Find an alternative to cobalt, and quickly.
- Find alternative sources of Cobalt, leaving the DRC out of the picture.
- Internationally strengthen and enforce the existing regulations on the mining and processing of Cobalt to remove the incentive for the current corruption and exploitation that occurs.
The first two options are clearly the best. However, the challenge of replacing Cobalt requires a scientific breakthrough that while probable, is yet to be made, and the DRC remains the primary supplier. The third option seems to be beyond our joint capability.
The first to find and commercialise a solution will reap the rewards.
Dec 15, 2023 | Branding, Innovation
A year ago I stumbled across ChatGPT for the first time, had a poke around, and wrote this post. Over the following few months, I tried to keep up with what was happening, but at addendum 20, called it a day.
Generative AI became the fastest growing product group in history, with ChatGPT the leading runner by several furlongs, a lead that has been cemented over a year of frantic activity.
The release spawned several major competitors from the neighbours, and hundreds of unexpected applications built on top of the core (Large Language Model LLM) technology. This is a trend that will continue to accelerate.
Depending on who you listen to, we are either a year or two from ‘sentience’, the passing of Alan Turing’s test, or at least several decades away, and possibly will never get there.
The corporate rumble at OpenAI is a bit like Mad Uncle Henry turning up at your kids birthday party, drinking all the red cordial, and going bonkers. The structure as it was set up could not absorb the unprecedented growth. One lot wanted a slow orderly, and safe evolution of AI that did not repeat the mistakes of social media, the other basically said ‘stuff it’, let’s make a few billion!!
It seems like order was restored between the warring parties when the landlord stamped and said ‘Enough’. Capitalists won, and Mad Uncle Henry has been carted away to a comfortable retirement. Who would have guessed?
So far, the resurrection at OpenAI, the return of Sam Altmann (it was 3 days) seems to be working, but who knows what is going on in the minds of those in charge. This blended family model was bound to have difficulties, it just happened way faster than anyone anticipated.
Meanwhile, those not invited to the party continue to rave about the output, while complaining that it is wrong a lot of the time. They just do not understand the difference between an answer that is fact checked and therefore accurate, which is what we expect, and one based on probabilities, which is what your ‘artificially intelligent’ probability models are giving them.
There is no list of pre-programmed answers available from a database as is the case now for the various precursors like the Alexa’s of the previous generation. You are based on a huge volume of stuff on the web, which is why they are called LLM’s, and as we know not everything on the web is checked for accuracy. If it was, my bank account would now be in the billions after all those Nigerian princes I have helped.
Your answers are, as I said, based on the probabilities of an approximate answer built up as you trawl the training sets extracted from the web.
Alexa will give you an answer to your question, so long as the question has been anticipated, and the answer programmed in. You by contrast, will give an answer, but it will not necessarily be the ‘right’ answer. Many questions in life have a range of potential answers, sometimes that is all that is needed, they can be helpful, but AI machines cannot give ‘The’ definitive answer, the one and only, to many of the complex questions we are tempted to ask.
No silver bullet there!
This is very difficult territory for many, as the answers given are in natural language, the language we use every day, so they appear to be exactly as expected. This gives confidence in an answer that does not deserve that confidence. Without critical examination any so called Artificial Intelligence will deliver you rubbish as often as not. However, it can be extremely useful rubbish, able to provide a framework, provide ideas, and do much of the ‘grunt-work’ so often shuffled aside.
Smarter people than me are unable to offer much insight into what might happen next, and it is of no use whatsoever to ask Chat or any of his mates. They have no idea either. Two things I do know. It will be fun, and somewhat scary watching. Secondly, our world has changed, and becoming a dinosaur in your market can now happen almost in the blink of an eye.
Don’t blink first.
The header is courtesy of DALL-E, the sibling of Chat. I asked it to give me an impression of the OpenAI logo exploding, with a Gothic/surrealist feel. I chose this one from a pretty scary lot generated in about 15 seconds.
Dec 8, 2023 | Change, Innovation
We make many types of investments in the future, brand building, capability development, process optimisation, building the foundations to scale, and significantly, R&D.
Each is aimed at generating future cash flow.
The management and strategic challenge is how we justify investments today in something that may or may not occur tomorrow.
In relation to R&D, we have a specific dilemma, in both private and public sectors.
Capitalising R&D is a problem, as it makes us very sensitive to the sunk cost syndrome. We have real trouble walking away from it when the outcomes are not as expected, and the experiment is clearly a failure.
R&D is experimental, most things you try will not work. When you have capitalised them, and they do not work, you have a balance sheet write-off to explain. In this situation, the propensity of humans to resist an admission of being seen as having been wrong is heightened.
Much better to expense it, then there is no sunk cost to write off, fewer egos and personal agendas to be managed, although the sunk cost syndrome is alive, powerful, and often hidden in jargon.
On the flip side, research is long term, and needs the certainty of long-term funding. It should be immune to the vagaries of the short-term profitability fix, that typically stalks expenses.
Take the marketing investment in brand building as the prime example.
Building a brand takes a long time, is incremental, and sensitive to short term fluctuations and changes in direction that can be influenced by the profitability this quarter, the demand for a discount from a significant customer, or a change in personnel. Being an expense makes investments in marketing the target for a short-term fix for a short-term problem, at the expense of the long term.
There is no right answer to the question, it always ‘depends’ on something.
For example, private enterprise typically has a much shorter time frame than government, and therefore, does less of the long-term exploratory science. By preference they take the output of publicly funded labs and apply it to problems they see in the marketplace.
Somewhat cynically, we see the time frame of government as being the election cycle. However, almost all the key discoveries in the last 75 years that I can think of have evolved in one way or another, from publicly funded science. The irony is that such funding is subject to annual budget pressure. In this country that has resulted in public science being gutted over the last few decades, which erodes the foundation of innovation.
I did not answer my own question, and it remains a key one to be considered. However, despite the recent announcements by the Albanese government, I suspect we are circling the drain.
Header photo: Monticello dam drain glory hole. USA
Nov 29, 2023 | Governance, Innovation, Leadership
Of the many objections to the inequity and shortcomings of the tax system I harbour, the most egregious is the seduction by the fossil fuel industry of governments of all persuasions over the last 30 years.
I have two profound objections.
The first: They have known of the impact of CO2 on the climate for at least that long, and have not only not addressed it, but have aggressively sought to ensure that regulators and the general public do not get the facts, just bilious dystopian stories of what they are preventing from happening to us in the absence of their visionary management. The public are therefore unwilling to demand of regulators and lawmakers that the hard choices need to be made.
Scientists have been telling us for 30 years that the longer we wait, the harder and more costly the necessary changes will become, but what would they know?
On top of that, the fuel companies pay no tax on the billions of revenue generated in this country as a result of quite legal, but in my view absolutely immoral structuring of their tax affairs.
This avoidance is well known, they hold an honoured place in the top 40 tax avoiders list, collated by Michael West media. Along with property developers and various lobby groups, the political donations add up to 6 or 7 million dollars.
The second: Clearly, the fossil fuel industry has bought their favoured place in the political arena, but I am astonished that the price has been so low. A few million dollars in donations, and I would be pretty sure an equal amount in various tactical ‘softening’ of politicians and their advisors, and the threat of adverse advertising, in return for billions in tax free revenue.
What a great wicket they are on, paying for a cheap scooter and being rewarded with a Ferrari!
Another way of looking at it is that if you are going to be a whore, you may as well be an expensive one so you can be properly comforted for the loss of dignity. Clearly, there is very profitable leverage being wasted.
Obviously, the pollies and hangers-on need a bit of marketing and image building in order to properly leverage the key position they hold in the generation of tax free cash flow of fossil fuel companies.
The 20213 Budget delivered 9/5/23 amended marginally the PRRT and promised to impose the 15% minimum tax rate on MNC revenues in line with the OECD recommendation, a good start. Sadly, it does seem that the 15% minimum will not be imposed for some time, if ever. The power of the large multinationals with tax bases scattered around idyllic islands across the globe, does not reside just in Canberra. It hides in plain sight in London, Brussels, Dover (capital of Delaware), Reno, and many others.
Meanwhile we struggle with investment in the future productivity of the economy we are leaving to our children due to lack of public funds.
