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.
Mar 8, 2023 | Collaboration, Leadership
We are all familiar with Darwin’s theory of natural selection. The forces that drove our evolution drive much of what we do, personally, socially, and professionally.
If you apply the idea to the marketing process, where we are dealing with qualitative factors that are really difficult to turn into numbers, you by necessity implement what is accepted as the ‘scientific method’. Form a hypothesis, test it, and revise the hypothesis to retest in a cyclic process, trying to disprove the hypothesis. In the absence of evidence that the hypothesis is wrong, accept it, at least for the moment.
It is the same process as Natural Selection, with some wrinkles.
In marketing you are entering a world where you have a fair idea of where you want to go, but no concrete roadmap. Therefore, you experiment with different approaches, ideas, treatments, whatever you choose to call them, using a combination of data, instinct, domain knowledge and A/B testing to progressively select the best options and improve on them.
Creative selection.
Every project I have been involved in, of any type, has risks.
On most occasions, the only risk that is really considered in any depth is the business risk. Can we make a bob? The answer to this relies absolutely on the forecasts of cash flow, which are usually on the optimistic side. More often than not, I have seen the other key risks we always face in marketing underweighted or completely ignored. Risk factors such as competitive reaction, failure to closely define the real customer problem you are solving, which product will customers stop buying to buy yours, and many others. Failure to consider these sorts of externalities constitutes a significant and often underrated risk to any project.
Without this sort of rigorous analysis and its countermeasures, you are often just left with a cheaper price as the attraction to a customer, and that is not good for anyone in the long run.
Thinking about our marketing as a risk management tool is a useful way of thinking.
Risk for us is reduced when we reduce the risks facing our potential customers, we can guarantee the outcome of using our products.
Creative selection shares another characteristic with natural selection.
It requires sex.
Not physical sex, but intellectual sex, the type that happens when a range of engaged and creative people collaborate deeply to solve a problem, to map an alternative course. Collaboration, real collaboration, not the organised type where a boss throws together a ‘team’ and instructs for a solution. That is never a real team, it is people working in close proximity. A team is one where minds meet to address what all members see as a truly worthwhile challenge that may deliver something great.
When you have that creative ferment, the focus on outcomes for customers, that is where you find great marketing.
Again, a bit like great sex.
Easier to talk about than to find and participate.
Header cartoon credit Scott Adams and the Dilbert crew.
Feb 5, 2023 | Change, Leadership
Every individual and group on the planet has in their heads a set of parameters built by the personal experiences they have had, and those that are passed on by the parents, grandparents, all antecedents, and their social circles.
The formulation of strategy intersects with these stories, beliefs, and biases, which greatly influences our behaviour in the future.
Throughout our history, great advances have been made by those few brave enough to call out the metaphorical emperors clothes when they (don’t) see them.
Like many, I am of the view that we face an existential crisis caused by the human emission of carbon dioxide into the atmosphere. Demonstrably, the planets climate has changed many times over geological history, remaking itself at the expense of what has gone before, but never at anything like the pace that is happening currently. For perspective, the origin of homo sapiens is around 300,000 years, or .007% of geological time. If the geological life of the planet was a 24-hour clock, we have been around for only tiny fractions of a second of the available 24 hours.
As we seek answers, nuclear power is, at least in this country, off the table. The fact that it is not off the table in other countries makes Australia’s position somewhat ridiculous, as we are all part of the same planet.
However, it is off the table here due to the political problems of waste, and risks of disaster exemplified by 3 Mile Island, Chernobyl, and Fukushima. Somewhat irrationally, we are nevertheless prepared to sell the raw material to power these plants to ‘approved’ buyers, recognising the commercial reality that if we do not, someone else will.
I know absolutely nothing about nuclear technology beyond the stuff I had shoved down my throat 50 years ago at school. However, I do know that like every other branch of technology, nuclear has undergone incredible and compounding advances since the first demonstration of its power in the New Mexican desert in 1945. As the father of the theoretical science that led to that explosion, Albert Einstein noted, ‘Compounding is the most powerful force in the universe’. Our knowledge of atomic science has grown at a compounding rate since that first explosion, and the subsequent opening of the first power plant in Obninsk, 100 k’s from Moscow in 1954, and should not be discarded.
If we are to stop the self-induced implosion of our world, we should not rule out any potential solution by kow-towing to our collective prejudices and emotional response to technology 70 years old. Rather, we should seek out the truth, understand the developments in nuclear technology that have evolved, are likely to evolve, do reality checks, and ramp up investment in rapidly evolving understanding of the physics surrounding ‘science fiction’ ideas like Fusion. We must know if the general perception of the risks of nuclear are still valid, or if they are just the projection of our fears of a 70 year old technology.
Are our collective heads stuck in the sand, or can we have a rational debate that recognises the sceintific developments over the last 70 years?
Jan 26, 2023 | Change, Governance, Leadership
January 26 again, how quickly it comes around. It seems only yesterday I was scratching my brain to put together the 2022 missive without being too rude, utterly distracted by the stink coming from the then government and its tin ear. My distrust of the body politic has not gone away, but the new crowd in Canberra seem to be going about the job in a sensible and disciplined way. That allows me to be a bit broader in this commentary, and there will be no snarky comments on the looming election in NSW where the choice is, well, between a couple of groups, neither of which should be allowed anywhere near a decision-making apparatus more complex than a bathroom tap.
Industry policy
I wonder if we have any focus sufficiently long term to rate as an industry policy. We do have a plethora of disconnected grant programs that suit the political stance of whoever is in government today, but we do not have a national investment focus that is above petty politics. Maybe it is time, so where should we be heading? Following are a few pointers from your scribbler:
Quantum.
Australia is a leader in quantum research, conducted by a consortium of universities, led by the University of NSW. In some form, Quantum technology will change just about everything over the next 100 years, and we need to keep our lead, so the capex comes our way in time. Just for example, researchers at the University of Adelaide recently demonstrated the charging advantages of a Quantum battery leveraging the characteristics of Quantum entanglement. (I do not understand it either) The result is that theoretically a car battery can be recharged almost instantaneously, possibly while not even stopping, just driving through a recharge station. While I will certainly not see this in my lifetime, who would not like the lead in that technology?
Sovereign supply chains.
Covid brutally brought home the message that resilience in supply chains was a necessity, and Australia’s were inadequate in some critical areas. Some sensible steps have been taken to plug the obvious holes, but a wider awareness of the need to be self-sufficient in critical items needs to be high on the national agenda.
We must break our dependence on imported fuels. Having a ‘strategic reserve’ several weeks away by ship in the US would be laughable, if it were not so stupid.
There is significant investment going into the area around Whyalla SA, with its over-supply of sun and wind. A deepwater port at nearby Port Bonython is easily adapted for export of ammonia, there is a world-wide tender for construction of a Green Hydrogen facility to leverage that wind and sun, and the existing steelworks undergoing a massive upgrade to facilitate so called ‘green steel’. This will use the renewables powered ‘green hydrogen’ production and nearby quality Magnetite iron ore held in the Middleback ranges just to the North. The area is also connected to the east west rail line, ready-made logistics.
The result of this investment will be competitive sustainable steel manufacture for domestic use and export, power to the national grid via the multibillion dollar electricity interconnector to connect NSW and Victoria to deliver power to the east states.
The current argument about supply of gas in the eastern states defies logic. There is plenty of supply, it is just that the companies who have drilling rights, who pay no income tax, can sell the gas for more overseas than they can get for it domestically. The management of the facts in this immoral argument makes my blood boil. I have no objection to companies maximising their profits, but doing so at the expense of the communities that deliver those profits to them is immoral in the extreme, and they should be penalised, not slapped on the hand with a feather, as is happening. If nothing else, it is a clear demonstration of the power of money to get your own way via lobbying, and threats of massive politically damaging advertising, and to hell with transparency and truth
Critical minerals.
Australia is blessed with an abundance of the many minerals most of us have never heard of until recently, that have come to the fore in new technology, particularly renewables. We are at risk of, again, being the worlds quarry, while doing little of the second and third level processing ourselves , the stages where the value is really created and captured. If you just take Lithium for example, Australia currently supplies more than 50% of the worlds lithium, but 90% of that goes to China for processing. Australia does have deposits of the 17 rare earth minerals, but not a lot of them, and no processing. China has a stranglehold on both mining and production based on significant deposits, and a forward looking plan to leverage those assets. Like it or not, the world needs China more than China needs the world as technology advances.
Semiconductors.
The Australian Manufacturing forum in Linkedin did a terrific series during 2022 on the history and current shape of the semiconductor industry in Australia. We had one, in some areas leading the world, but the opportunity was fumbled badly, and we are now just another customer of overseas manufacturing. Given the importance of semi-conductors in just about every manufacturing application, not having a domestic manufacturing capability is a huge black mark. We have little hope of being a supplier at the leading edge of chip technology, but that does not rule us out of innovative use of more commonly available technology, the sort of innovation we used to do well.
Tax reform.
There is little argument that over the last 20 years, the rich have become richer, at the expense of the rest. This is not just an Australian challenge, it is global, and many are much further down the track than us.
Tax reform has two sides, domestic and international. Clearly the domestic tax regime is in a mess, the only debate about that statement is from those who have the most to lose by change. We are demanding more of our governments; at the same time, we are motivated at the ballot box by tax cuts. This is unsustainable, all we are doing is building a compounding hurdle for our grandchildren.
The second side is international. It is easy to get emotional about multinational corporations taking advantage of differing rules in jurisdictions, and paying no, or little tax as a result. The problem is what to do about an international problem that occurs in national boundaries. To date, all that has happened is that jurisdictions compete for business residency for tax purposes on low rates. The UK and several states in the US are amongst the worst offenders, along with the island nations typically known as tax havens.
In October 2019 136 countries signed up to an OECD plan to implement a global minimum tax rate of 15% starting in 2023, this year. Predictably, the implementation timeline is being pushed back by a combination of lobbying, and national jurisdictions simply not getting their shit together, but it is happening. Do not expect big results quickly, but any improvement is both worthwhile and will compound.
The recent decision to allow Santos to rape the Pilliga Forest around Narrabri for gas is just another example of how deeply the fossil fuel companies are embedded for their benefit in the Australian political system. I have no argument about the profit motive driving investment decisions. However, when the Cost of Goods Sold after the capital invested is effectively zero, at the long term expense of the community, and no tax is paid on profits I do have a problem. Businesses have a responsibility to make a contribution to the social and economic infrastructure of the community that owns the resources they use. In this case, Santos is avoiding that responsibility, as well as risking irreputable damage to fragile eco and hydro environments, so I do have a real problem on behalf of my grandchildren.
Science and research.
We underspend in aggregate, and what we do spend is uncoordinated across universities, states, research organisations and private investment. We have not yet figured out how to align the expenditure in such a way that there is a cumulative benefit from the whole investment. Australia is slipping downthe various lists of innovative countries is the outcome at least partly of this decline in the importance placed on science, and general research. As a marker, CSIRO in the 40 years I have been actively observing the breadth and depth of its activities, has shrunk to a shadow of its former self.
Education.
As with the point above, it seems we are falling behind what is required to at least maintain our relative position in the world, while standards are falling behind our major competitors. This is particularly evident in the work I do in advanced trade skills necessary to manufacture complex products. It is not a matter of pay, the trained personnel you need are simply not there, and with the difficulties of international movement, and the idiotic complexity and cost of the visa systems, we are missing opportunities. Perhaps it is for the better, as it removes from consideration the moral question of our right to plunder the educational outcomes from economies usually less able to educate their own people, and more in need of them than us.
Evolving over a long period has been a shift of education, from pre-school, to post tertiary, to advanced trade skills and back, from being a publicly funded foundation of a prosperous society, to a for profit industry. This is to my mind a hugely damaging erosion of a core principle of a successful economy.
Climate policy
The new government has, in my view, started well on climate change policy. After 20 years of unforgiveable hubris, we now have a direction. Not as specific or aggressive as many would like, but nevertheless a huge improvement from the previous lot, whose antidote to a thrashing at the ballot box is to move further to the right. How insensitive to public opinion, scientific reality, and just plain stupid must they be?
After several years of fires then floods, during the chaos of the pandemic, we have come out of it OK, unless you are one of those directly affected, in which case, you have been whacked. A mate has a house near Lismore, well above previously seen flood levels. He will no longer be able to insure it, so the future of Lismore must be in question, along with a number of other areas in NSW. However, we do need to remember that many areas in the state are called ‘flood plains’ for a reason, and stop development in those areas, rather than allowing short-term focussed development to build, only to find an unwanted swimming pool in the kitchen at some point in the future. This is a political web of influence that goes to the heart of the ingrained ‘gravitational’ pull of politics in this country.
Technology commercialisation
Commercialisation of technology is accelerating at an unprecedented rate. With that comes both benefits and costs. It seems the benefits will be accrued by a few, while the costs spread widely, socialised if you like. This can only accelerate the rate at which the wealth of the community migrates to the top and bottom, at the expense of the middle. The equitable distribution of the benefits of technology is a question tangled up in our education, infrastructure, and social priorities, and presents a Gordian problem to legislators who would much rather kick the can down the street than try untangling it. This is a short-term strategy that will haunt us in the long term.
Cyber security
Cyber security has been an emerging issue since the birth of the net in 1993, when Tim Berners-Lee released the first version of HTML. The breeches of Optus and Medibank last year brought it into public focus in a way that it had not been before. On November 30 last year ChatGPT was released. Like many, I have played with this and been blown away by the capabilities, and when added to the graphic capabilities of Dall-E2 released by the same research group, it is I believe an inflection point in our relationships with automated creative and intellectual work. Suddenly digital tools can create value, rather than just regurgitating what they have been given. We have yet to see the uses that crims will find for the emerging technologies and capabilities. At the very least, ChatGPT will correct the scam give-away spelling and grammatical errors that are often present in mass scamming emails and messages.
Fit for purpose
In ‘Venture Capital land’ there is a core idea that there must be a product/market fit for success.
Product/market fit in a commercial context assumes there is a strong demand for the product being considered, and assumes the ‘Purpose’ has been defined.
It seems the purpose of politics has devolved to a fight every three years for the trappings of power and incumbency, and while I cannot get into the heads of those writing the constitution, I am pretty sure that was not their intention. Rather, they intended for there to be a system that governed behaviour and the allocation of resources for the best long term interest of the country.
Given the constitution was drafted over the 7 years between 1891 and 1898, and was fit for purpose at that time, it would be a brave person to suggest that the environment in which we live has not changed dramatically over the following 125 years, and perhaps the degree of ‘fit for purpose’ has been depreciated substantially.
The coming referendum ‘debate’ on a ‘voice to parliament’ will test that proposition. The political heat is being wound up currently. The PM has been roundly criticised for a combative performance on Sydney radio 2GB, where the host sought more and more detail on the manner of implementation of the voice to parliament, and held the view that in its absence, the vote should be ‘No’.
Common sense says that if the detail is included in the referendum, then passed, it becomes part of the constitution, changeable only with another referendum. To address the complex challenges we face with the equality of first nations people, the notion that we cannot experiment to progressively improve the social and economic position they hold is absurd. We need to acknowledge their right to a voice in the constitution, then leave it to parliament over time to evolve the best ways of delivering on that constitutional responsibility, and hold parliamentarians accountable.
SME funding.
While we acknowledge that SME’s are the backbone of the economy, employing and training thousands, and spawning innovation, sourcing funding if you are an SME has never been harder.
Borrowing is difficult, as institutions require security which many SME’s and almost all start-ups do not have. Finding equity funding is a full time job, one that cannot easily be done while building and scalinga successful SME. The grant programs that are around can be a lifesaver, but the time and effort necessary to secure one is significant, and the chances of missing out for reasons that are often opaque is high. Even when you are successful, there are often limitations that are onerous. Rarely can grant funds be used for Capex which is often the tipping point for success, variations to the plan funded can be difficult to have agreed as is required, and in most instances, the grant funds must be matched, and then the funds are counted as revenue for tax purposes. Somehow, we have to do better.
VAD laws
All states now have Voluntary Assisted Dying laws on their books, although the details do differ.
These VAD laws have had a difficult road to walk to confirmation, cutting across as they do a range of deeply ingrained practices. Our life expectancy has gone up substantially in the last 50 years, driven by a better understanding of what is healthy, and medical science. Sometimes, a life is driven beyond what can be deemed as worth living, the hugely emotional challenge being, who is doing the deeming.
Our collective retirement funds.
Over the year the stock market fell 5%, affecting the retirement incomes of most Australians. Our compulsory super system relies on the contributions we make through our working lives to fund retirement, and there are not enough of our children coming through to do it for us. The demographic changes are slow, long term, and utterly inconsistent with our short election cycles, and temptation to spend money as it arrives in our pockets. The compulsory nature of the super regime, for all its flaws, is saving us from ourselves.
Our global impact.
We remain somewhat insulated from world affairs. The war in Ukraine, fuelling economic stagnation in most countries as fuel prices rise, the lunacy of Brexit, and the revolving British political door that makes ours look stable and sensible, the pressure being generated by China’s political re-engagement with the world after spending 25 years pulling hundreds of millions out of poverty, an extraordinary feat. We feel the winds of these changes, but are not as directly driven by them as most OECD countries.
Despite the problems we have, the economy is strong, amongst the best around on the back of the exports of iron and coal to China. When, rather than if, the China bubble bursts, we will be deeply in the poo if we do nothing, which makes the thawing of relations with China that the new government has undertaken so crucial.
On a brighter note
I continue to be encouraged by the reports of innovative manufacturing across many sectors that seems to be popping up, despite the best efforts of the status quo to keep them from happening.
On January 1, we had another annual windfall as the copyright on many major works came to an end. Copyright in most developed countries is conferred on the creator at the point of creation, and lasts for the life of the creator plus 70 years. We can reasonably expect a host of adaptations and newly ‘freed’ works to appear this year.
In addition, to the joy of the few supporters left, the Wallabies performance shortfall over the past few years has been fixed. We brought back a coach we fired 17 years ago. For an old Rugby tragic like me, despite my cynical response to the phoenix like re-appearance of Eddie Jones, he will at the very least liven up the back page of the dailies.
Finally I ask you, where would you rather be?
Living with the political chaos and divisions of the US, in Europe, where the economies have been going sideways for years, despite being the centre of culture and the ‘good life’, England, a basket case hung by the balls in a basket of their own making, China, where any sort of criticism, whoever you are, (Jack Ma, are you listening) can land you in quicksand, and vulnerable to the tsunami of Covid about to hit them?
I would pick to be exactly where I am, despite the shortcomings.
Go and put another chop on the barbie, open a coldie, hug your loved ones and get ready to do it all again in 2023.
Have a great day.
Header photo credit: ABC.
Jan 20, 2023 | Leadership, Strategy
Monty Python would struggle to come up with the tangled mess that is the Liberal party, nationally and in most states.
Nationally, retreating as contemplated by their leader to the right, seems self-defeating, especially while the ghost of the recent past hovers on the back bench. In WA, the next meeting on Monday is in the phone box on the corner of Hay and George streets, while in NSW the merits of a Hugo Boss designed dress uniform from 1938 is front page news.
Everywhere I look, it appears to be a re-run of the battle of Karansebes.
The ‘Battle of Karansebes‘ took place in 1788, in what is now Romania between the army of the Hapsburg empire, and itself.
In summary, a formation of Austrian Hussars was sent to reconnoitre the terrain and find the Ottoman army, the intended battle opposition. Instead, they found a bunch of Romanian gypsies who sold them some barrels of the local booze, which the Hussars took to be serious opposition, setting about the task of conquest.
Some time later, a platoon of Austrian infantry came upon them, and wanting to share in the spoils of war, a request that was vigorously opposed, leading to a drunken and chaotic shooting.
Somewhere into the chaos the main Austrian force thought the Ottomans were attacking, and opened fire on their own troops, then panicking, withdrew to try and restore a fighting stance.
2 days later, the Ottomans turned up and found nothing but the dead and wounded from the battle.
It seems to me to be a wonderful parallel for the war obviously going on in the liberal party. What can only be described as friendly fire adding mightily to the chaos after the destruction of the last election.
Header drawing: Battle of Karansebes, drawn in 1795 showing Ottoman forces advancing to Karansebes
Dec 22, 2022 | Change, Leadership
This is the last StrategyAudit post of 2022. Thanks to all my readers over the last year, it has been a priviledge to be able to share a few minutes and some ideas with you over the year.
Rather than add to the tsunami of posts that are predicting what will happen in 2023, or the ‘best of’ type posts, I thought I would be different. In line with my views on accountability, I would score myself on the trend forecasts I made in a post on January 3, 2022, which is reproduced below with commentary and scores.
There are more predictions posts than you can poke a stick at written at this time of the year. This is not one of them to add to the pile.
The following is a review of the forces and trends I see at work that will impact on all businesses in Australia in the coming year, most specifically the small business sector.
So here goes, in no particular order, and use the insights as you see fit.
Technology.
We are in the early stages of a move from bits and bytes to something else that will power the green revolution, medicine, and new materials with currently unimagined characteristics, that will enable all sorts of further innovation. We are seeing early signs that quantum computing is about to blow in, and blow everything else away. It is a bit like the point in 1948 just before the transistor was invented by William Shockley et all in the Bell labs. To that point ‘computers’ had been powered by vacuum tubes that were slow and tended to burn out a lot. Suddenly the transistor led to the development of the integrated circuit that has powered us since.
The rapid development of Covid vaccines is a direct result of technology, and will change the face of medical care. The Pfizer vaccine is the result of decades of perfecting the processes developed with the smallpox vaccine in the mid 1700’s first in the Ottoman empire, then in western Europe via the well-known story of the milkmaids and Edward Jenner. The mRNA Covid vaccine of Moderna is another story. It is a combination of proof of concept originally conceived by Francis Crik , one of the identifiers of DNA in the early 50’s, and CRISPR technology developed by two scientists, Emmanuelle Charpentier and Jennifer Doudna in 2007, for which they shared a Nobel prize in chemistry in 2020. Since the initial breakthrough, gene editing technology has advanced at a compounding rate. It is now at a point where a scientist friend of mine described it a few months ago as ‘almost as routine as editing a document in word.’ This technology will not only offer protection against Covid, but will be extended to any virus and parasitic driven affliction. In a short time, it will deliver the vaccine for killers such as malaria.
Score: 7/10. A bit hard to score this, but the trend is right. During the year, my wife was diagnosed with Lymphoma, just a short time ago a death sentence. In this case, she is now clear after chemo that was tailored to attack the specific characteristics of her situation. While it was not pleasant, she did not spend 6 months nauseous, did not lose her hair, and life was for the most part almost normal. To my mind, a graphic example of the speed of the advances made in medical science.
Politics.
There will be an election this year, and lots of pork will be promised, but for SME’s who cannot assemble a block vote that will change the outcome in an electorate, there will not be much beyond reassuring words about how well the economy is bouncing back. I do not think it will matter who wins, unless there is a hung parliament, in which case, there might be some sensible debate and actions that will benefit small business.
We desperately need a federal ICAC with teeth. However, it seems unlikely we will get one, even if the current opposition wins government, the version they install will be a vanilla version, rather than the robust body we need. They, like the current incumbents know how much they may lose personally from installing such a body, and to heck with the electors.
Score: 7/10. It was not hard to accurately predict that there would be an election, but the rest I only got partly right. The economy has bounced back, but is now being slammed with the duo of inflation and wage suppression, not considered possible in classic economic theory.
We did get a federal ICAC, yet to be operational, but the legislation is in, and it seems to be a model with teeth, so I got that bit wrong. Perhaps cynicism overtook me at the prospect of another election campaign.
Regulation of social platforms.
This is coming, but I suspect not in this coming year. Besides, the major platforms are the biggest bullies in town with huge lobbying resources, and politicians will not want to annoy them. Facebook made the point by closing access for a day, February 17, causing chaos, before acceding to the governments Mandatory bargaining code passed in early 2021. Assuming a government does have a go, chances are it will be another fenced dog, good only for barking. The argument that a platform ‘smart’ enough to direct an ad to a highly specified audience in a geographic location cannot equally train algorithms to tell the difference between a fake account, set up in a post factory in Ukraine, and one owned by a kid in Blacktown is utter nonsense.
Voluntarily, Facebook and Google are retiring third party cookies, trying to build ‘social responsibility’ credentials with regulators. This means you may not be chased around the net quite as much by so called ‘remarketing,’ but given the profitability at stake, of Facebook particularly, it would be naive to believe that the changes will be too aggressive. Some added work will be required by SME’s to productively invest in digital ads.
Score: 5/10. Regulation of social platforms is coming, sometime. It is probably further off than I anticipated, and to some extent market forces will drive change, as is happening with Twitter currently.
Digital security.
This will become a major pain in the arse for small business. The big end of town has made the investment in security, and while they are still vulnerable, most SME’s by contrast are an easy target. The crims are very smart, way smarter than almost every small business operator, so it becomes a matter of time before you are targeted. Taking basic measures of security has become an essential cost of being in business, so ignore it at your peril.
Score: 10/10. Look no further than the massive breeches of Medibank and Optus, and the tsunami of scams hitting your inbox every day.
Supply chain sovereignty.
Supply chains have been heavily disrupted over the last two years and will not go back to ‘normal’ any time soon. The opportunity for SME’s to step in and deliver quality product and services reliably to a timetable will increase as a result.
If the various governments decided that domestic procurement was a real priority rather than a press release, and took steps to make it so, there would be a substantial and instant increase in business. This new business will not just arrive on the doorstep, small business must invest in marketing to secure it, a skill set missing in most SME’s.
Score: 6/10. The concern over supply chain sovereignty has been widely discussed, hand on heart, by governments and institutions. However, action is not following. Public sector procurement has not shifted one bit it would seem, despite the well-meaning press releases, and SME’s under financial pressure have not ramped up their marketing efforts sufficiently.
Labour
Finding and keeping skilled labour is a huge problem for most SME’s. In the midst of unemployment, we have pockets of extreme demand that must be met if the economy is to grow. This is not about imported labour doing the menial jobs Aussies frown on, it is the high value technically skilled jobs required for manufacturing and the digital transformation happening around us. The tight market taken as the average will increase rates, increasing pressure to digitise, or go out of business.
Score 6/10. Finding and keeping skilled labour is a key hurdle for every SME I have interacted with over the last year. However, the pressure to address the challenge by increased digitisation has been dampened by shortages of cash, and affordable management capability.
Retail’s last mile
The retail ‘last mile’ has been comprehensively disrupted over the last 2 years. While we have been locked up, we also looked increasingly to ‘instant gratification’ in everything from the routine purchase of groceries to major purchases, investments, and entertainment.
The metaphorical ‘last mile’ typically the most expensive part of the logistics chain, as well as being subject to all sorts of dead ends and side paths, is being completely rebuilt by technology and VC investment.
The number of start-ups around the world, but particularly the US that have market valuations in the billions and revenue numbers akin to a kid’s pocket money is enormous. Gorillas, Jokr, Gopuff, Getir, Zapp, and a host of similar all looking to knock the king of logistics, Amazon, off their perch. It is beginning to look like the dot.com boom/bust of 1999 all over again.
Score: 8/10. The difficulty of the last mile remains, and Amazon remains king, although the number of businesses now using on line channels as a normal part of their commercial development has increased.
Climate change.
Irrespective of individual views, climate change is a scientific reality. Argue if you like about the extent, but the sources are indisputable: humans have screwed the pooch, and are continuing to do so. In the absence of change, our great grandchildren will not enjoy life as we have. Even though we can reasonably expect technology to continue to accelerate and deliver benefits, without a place to live those be benefits will be claytons benefits.
Despite the determined effort by the current government to deny this reality, and double down on fossil fuels, they will continue to look like King Canute keeping the tides at bay. There will be a tsunami of change happening in areas from vehicles to devices that capture and store power, science will not be denied. There will be huge opening for SME’s who identify a niche in the sustainable/renewable energy supply chain, and fill it.
Will the pace of global warming continue, the story of the last couple of years, fires, drought, flood, cyclonic activity, all indicate not just a continuation, but an uptick on the rate. A natural barometer of this is the rate at which coral reefs are bleaching. Numerous studies of the great barrier reef, and others around the world over the last 20 years clearly indicate the warming of the waters.
Space has become a tourist destination. Captain Kirk, alias William Shatner became the oldest person to go into space, courtesy of Jeff Bezos.
Score: 8/10. Not much to see here, although things have not progresses as fast as I anticipated. The new government seems determined to take positive action, encouraged by the infusion of independents into the parliament whose platform included very specifically action on antidotes to climate change. The new opposition has faded into almost total irrelevance on most issues, and in relation to climate change policy, are an absolute joke.
Non-Fungible Tokens. NFT’s.
The definition of ‘Fungible’ is that it can be replaced by an identical item, there is absolute interchangeability. Therefore, a Non-Fungible item is irreplaceable, there is no substitute. The token part of ‘NFT’ is the proof of ownership held on a blockchain. NFT’s have created a new way to create value. The essential characteristic of a buy/sell relationship is that the seller has the right to sell, and that the buyer is not just buying the original item, they are also buying the right to resell it. Blockchain, on which NFT’s are stored, and ownership tracked, has created a way to make this determination for the original of a digital product. JP Morgan recently put the current market value at 7 $billion, from nowhere a year ago.
Those who can claim ownership now have a new way to monetise that ownership. Consider the Mona Lisa. There is just one Mona Lisa painting, housed in the Louvre, but there are millions of reproductions, from photos people have taken on their phones to professional reproductions. The original painting is non-fungible, there is only one irreplaceable painting. That great photo you took of your new product prototype before it sold millions, or that sporting moment when your 6-year-old, who ended up playing for Australia scored his first try, may suddenly have value as an NFT. If I was the marketing manager of Soccer worldwide, I would be creating a store of NFT’s of the great stars of soccer in the form of photos and gifs, of their great moments. This is a new asset class that will only grow as we come to grips with it.
Score 1/10. How wrong can you be? Despite my best efforts to be immune to the new shiny thing syndrome, I fell for this one hook line and sinker. NFT’s came and went with the spectacular speed and light of Haleys comet, matched only by the recent implosion of crypto currency ‘bankers’.
The Cloud.
Cloud infrastructure is a race for the dominant position currently held by Amazon, spending massively to retain that position, but being chased by Meta (Facebook) Microsoft, currently in second place, and Alphabet (google). Between these 4, they spent $40 billion in the year to September 2021
What the internet did to music and newspapers is being repeated everywhere else.
TV viewing and advertising has been remarkably resilient in the face of digital ads and streaming, but the advent of net connected smart TV and streaming will kill TV as we knew it quickly. The attraction is the 4 billion ad dollars currently going into live TV in Australia. We are followers, the impetus will come from the US, where the ad pool prize is massive.
Some bets here, Netflix, the current market leader will be taken over by one of Amazon, or Disney, who have multiple revenue streams to pump out content, and Disney has many other brands, like Marvel, 20th century, Pixar, national geographic, and an unparalleled back catalogue. HBO is currently owned by AT&T, so will probably be sold, and then there is the Chinese platforms, Tencent and Baidu, Huge in China and Asia generally, who will be looking towards the US and Europe with acquisitive eyes. It will be interesting.
Many small businesses have migrated to cloud accounting software, and a specialist application or two, without making a real commitment. The pace of development means that you are either on the cloud, leveraging the tools to scale productively, or being left behind. For most SME’s it is a big capability gap, and again, most have been bitten by salespeople making big promises, but delivering little, but it is time to go again. Find a person or firm you are comfortable with, and have them beside you for the journey.
Score: 5/10. I got the timing wrong, but am prepared to stick it out, and say there is a shake-out in streaming services coming, perhaps 2023? SME’s still must move to the cloud, although it is now almost automatic as many of the emerging applications are cloud only.
Demography.
The developed world is getting older, and more demanding of governments, while there are increasingly less people to pay for the demands. The currently developing world is on the other end of the continuum, they want what we have, but are lacking the resources to get it, so are migrating, jumping the stages of technical development we older developed economies went through, such as going straight to mobile in Africa, jumping the infrastructure costs of fixed line. Human beings have migrated since the beginning of our evolution. Just because there are now national boundaries in place, that migratory drive will not go away in a flood of nationalism and self-preservation, it is exactly self-preservation that will drive it.
Score: 6/10. again, not much to say other than the trend remains, and the demands for structural reform have not been met, anywhere.
Resource access.
We can live with all sorts of shortages, except those of food, shelter and water. Specifically water, without which, we humans die in a few days depending on temperatures. Beyond those three necessities, we need a whole range of other resources to maintain a standard of living. Those with the access will be the owners of the world in the future.
The huge challenge is how do we allocate our limited financial resources against the various demand for spending? The inclination is to spend it to address the short-term irritations and public demands, tactical stuff, but unfortunately they win elections. It is the long-term stuff we need to really consider, as they are expensive, risky, but important, despite not biting us on the arse today. Broken down is it driven by the simple fact that some have it, and most do not, and the forces to equalise will, over time, play a key role in the shape of the world.
Score: 6/10. As above. The trend remains.
The economy.
Who really knows what will happen? Certainly, the politicians do not, and economists can only make a best guess based on what has happened before, and current theories about how the past will impact the future. There are many diabolically difficult decisions to be made on the allocation of shrinking resources against increasing demand, with voter and lobby groups opposed to the changes in the tax regime required to increase the tax base. The fundamental mismatch between the short-term focus of government and the necessity to invest for the long term, with the increased risk profile such long term decisions require will remain an intractable problem in the absence of a sense of common purpose amongst all Australians. Clearly the current political leadership is across the body politic, incapable of meeting this challenge.
Closer to home, inflation will kick along which may prick the housing bubble in Sydney and Melbourne, or not, depending to some extend on the truth to the claims that prices are supported by international tax money seeking refuge in our lax regulatory environment.
The frenetic building activity of the past few years will probably cool off as demand slackens, which might see the cost of trade skills soften. The continued absence of migrant agriculture workers due to Covid will see the cost of produce increase significantly, leading to many smaller farming enterprises to merge to fund automation.
Then, you have the uncertainty of the trading relationship with China feeding into our economy in all sorts of ways over which we have no control at all. It seems unlikely any fences will be mended soon. We are being both taught a tough lesson, and being held up as an example to others, and the collective impact on our economy is substantial, and likely to increase. Currently China imports about 60% of its iron ore from Australia, and 20% from Brazil. Imagine the impact as that equation switches, as it will, as China diversifies its supply away from Australia. They have demonstrated that a bit of domestic pain is irrelevant by squeezing imports of Australian metallurgical coal, switching to supply from elsewhere, and simply using less. The bans imposed on wine, barley, meat, and lobsters will be pocket money by comparison.
Having said all of that, look forward to 2022 with optimism. Australia is still the best place in the world to be despite the challenges.
Score: 7/10. Again, not much to see, as little has changed, in any direction. Australia remains the best place in the world, but the structural changes necessary to ensure that remains the case seem a long way off, although the new government does seem more inclined to action that the previous lot. Not a high bar!!
Header photo credit: The photo is of ‘Black Jack’ crossing the line first in the 2021 Sydney Hobart. I have reproduced this photo accredited to the ABC, but somebody owns the original. It can transfer onto an NFT platform, and traded. Meanwhile, I can reproduce it, but never own it.
I again used the photo of ‘Black Jack’, adjusted, as there is good money on them again taking line honours in about 14 days from now.
