The COVID-19 crisis highlights that social and economic policy are, in fact, two sides of the same coin. 

Lives and livelihoods are intertwined – action on one impacts on the other. Efforts to stem the health and transmission effects of the coronavirus cause a massive and sudden reduction in economic activity. This, in turn, means income and job losses and business shut-downs, many likely to be permanent.

These problems are complex and communal. 

They are not solved by separating social from economic issues. They are not solved by more intense competition, nor by government fiat or even, generous rescue packages. We need policy and regulatory innovation and uncommon collaboration across governments and between business, government, the health system, and community interest groups. 

This global crisis has demanded collective sacrifice, which in recovery, requires a social contract that similarly benefits everyone. All must mobilise to address this common purpose, and ensure that all sections of the community get a ‘fair go’.

For business, this means heightened societal expectations. There will be more scrutiny of the social relevance and contributions of business enterprises for the common good. What businesses do and say in responding to the impacts of the virus will be remembered by consumers and the general public.

Businesses must give greater weight to the non-market aspects of their strategy, making these at least as prominent as action to secure profits post-crisis.

This is the new reality of social purpose in business and of the quest for shared social and economic value.

REFERENCES:

Lesser and M. Reeves, Boston Consulting Group, Leading Out of Adversity, BCG Perspectives, 9th April 2020.

Institute of Public Administration Australia, NSW, IGNITE newsletter, COVID-19 and the frailty of the social contract, reprinted from Financial Times, accessed on 16th April 2020.

We may be witnessing a turning point in history. The shift in business towards fulfilling a social purpose profitably – not just making money, but simultaneously producing social and environmental benefits.

If this is a lasting change where the corporate purposes of businesses are expected to be aligned with their social purposes, then we are entering a new era of capitalism.

The key features of this change are:

• • The rise of business enterprises that operate to secure the public good and societal benefits, as well as advancing their private commercial interests. This social purpose is not altruistic, but a source of competitive advantage and productivity improvement.
    
  • Increasing awareness that it makes good business sense for corporations to serve the needs of a wider group of stakeholders, rather than maximizing profits for shareholders alone. This is being recognised in corporate regulatory regimes in some jurisdictions.
  • The power to drive performance and productivity does not reside exclusively within the boundaries of the firm, its owners and managers. Rather, business success can be determined by the strength and breadth of the firm’s collaborations and relationships with external interests, e.g., researchers, competitors, supply chains, regulators.
  • Similarly, there are increasing calls to widen the measures of business success to recognize the significant contribution of intangible assets. Currently, while financial and material capital is measured, the role of human, social, intellectual and natural capital is under-valued. There is a push to redress this.

Greater prominence is being given to an authentic, positive business contribution to society and to the importance of partnerships and reciprocity between business and the community. This is being driven by the cumulative effects of a number of factors, as follows.

• • Greater stress on business’ social licence to operate, given community mistrust and incidences of corporate misconduct.
  • The mainstream take-up of internationally-recognised UN Sustainable Development Goals embedding practical action by firms on environmental, social and governance standards.
  • Competition for the attraction and retention of talent and being ‘an employer of choice’, especially in the eyes of younger generations who are tomorrow’s leaders.
  • The focus on higher purpose and community collaboration motivates greater discretionary effort and fosters new styles of business leadership required to manage open source innovative business models for transformation and growth of businesses.
  • Disillusionment with the distribution of the benefits of globalization, questioning the orthodoxy that attraction of investment in knowledge-intensive industries and skilled workers mainly in metropolitan areas and innovation hubs will ‘trickle down’ to declining regions, industries and communities and their low-paid, insecure workforces. There is a stark contrast between the advantaged and those left behind which jeopardises social cohesion.

Research and writings by two eminent Oxford University academics, Professor Colin Mayer and Professor Paul Collier, provide a substantial analysis of the forces of change impacting on today’s corporations and on the future of capitalism. Professor Mayer, in particular, rethinks the concept of the corporation and social purpose, and the implications for business strategy and for public policy.

The Australian Institute of Company Directors (AICD) quotes a presentation by Colin Mayer where he succinctly summarises this new understanding of the corporation and its purpose:

Business performance “is not only about producing profits, but about generating profitable solutions for the problems of society and the planet.” 

AICD and other analysis from the Boston Consulting Group distinguishes between a corporation’s mission as “the what”, vision as “the where to” and purpose as “the why”.  Purpose sets out a corporation’s fundamental reason for being. It is founded on the answers to two basic questions— who are we (what are our distinctive and authentic strengths) and what need do we fulfill in society.

A clear statement of purpose guides the evolution and execution of strategy and provides guardrails for decision-making. That is, a clear purpose helps businesses to navigate what to do and not do and where to best allocate resources.

Debate about the changing role of business in society, and hence the redefining of capitalism, is gaining ground. The discussions now seem to be about how, not whether, businesses can operate to maximize shared social and economic value.

REFERENCES

Paul Collier and Colin Mayer, The future of the corporation, economy and society, presentation at Cardiff University, YouTube, 14th May 2019.

Paul Collier, The Future of Capitalism, Penguin Press, July 2019.

Colin Mayer, The future of the corporation: Towards humane business, Journal of the British Academy, volume 6, supplementary issue 1, pp 17-47, posted 19th December 2018.

Domini Stuart, More Than Money, Company Director magazine, AICD, February 2020, www.aicd.com.au

Boston Consulting Group, How to Harness the Power of Purpose, BCG Perspectives, February 2020.

John Tomaney and Andy Pike, The economics of belonging: the hidden costs behind large cities, Prospect Magazine, 19th September 2019, www.prospectmagazine.co.uk

Stephen Bartholomeusz, Business leaders see the light of ‘moral capitalism’ at Davos, Sydney Morning Herald, 23rd January 2020.

24th March 2020

Companies with purpose, jobs with meaning – these twin catch cries are increasingly being advocated as an urgent necessary change for future business success and longevity.

Such calls for shared or blended social and economic value are seen as vital for the ability of enterprises to compete successfully by growing their skills, retaining talented people and adding value to their own commercial results, the economy and society simultaneously.

Jim Collins, author, researcher and adviser on high performance companies and leadership for over 25 years summarised this characteristic of great, visionary, long-standing firms as embracing “both extremes across a number of dimensions at the same time – purpose and profit, continuity and change,….discipline and creativity,….empirical analysis and decisive action….

Yes, they pursue profits. And, yes, they pursue broader, more meaningful ideals….They do both. ….Profit is like oxygen, food, water and blood for the body; they are not the point of life, but without them, there is no life.”

The importance of creating companies with purpose and jobs with meaning has been reinforced at a time when business models are being challenged by digital and artificial intelligence technologies, a greater focus on higher environmental, social and governance standards by business and increased shareholder and consumer activism, especially in light of corporate failures and misconduct.

How to inspire workers and create purpose-driven organisations is featuring more prominently in academic research and in social and mainstream media. 

Robert E. Quinn and Anjan V. Thakor, writing for the Harvard Business Review, noted that addressing the problem of disengaged and underperforming employees by tighter oversight and management control is likely to be ineffective. Connecting them with a sense of higher purpose in their jobs is key. Higher purpose is not just a platitude or mission statement, nor is it just about economic exchanges. 

Quinn and Thakor define higher purpose as “it explains how the people involved with an organisation are making a difference, gives them a sense of meaning, and draws their support.” Thus, leaders can inspire employees to bring more energy and creativity to their jobs, to be more engaged, and to take risks, learn and raise their game.

For example, a call centre for a veteran’s organisation was not driven by numbers of calls handled or waiting times, but by their promise to provide extraordinary service to people who had done the same for their country.

But, business pursuit of shared social and economic value is not without its critics. Some urge business leaders to literally “mind their own business” and keep out of commentary on wider social issues, which they argue concern only elite minorities, and are not of interest to the average person. 

Notwithstanding this, many of the world’s CEOs are exercising their minds about how their businesses can serve the needs of shareholders, at the same time as benefiting a wide variety of stakeholders and the community at large.

• Ginni Rometty, President, Chair and CEO of IBM worldwide, is an advocate of leveraging the power of working at the intersection of seemingly contradictory objectives, namely purpose and profit, human and artificial intelligence, analogue and digital, incumbency and agility. She comments that growth and comfort never co-exist, that you can’t progress without risk. 

IBM has concluded that investment in education and continuous learning and hiring for diversity is where it can have most impact. Securing a deep pool of skills for an uncertain future benefits both IBM and the broader economy and community, especially IBM’s technology pathway programs for disadvantaged areas and ‘returnships’ for women, adoptive parents and others to remain in or return to the workforce.

• Another case is BHP. With its origins in Australia over a century ago, BHP is the world’s largest mining company and the largest company on the ASX. BHP has been a prominent voice for bolder action on climate change and emissions reduction, including a price on carbon. 

BHP’s incoming CEO, Mike Henry, is widely regarded as a safe pair of hands, particularly for his operational and commercial acumen. He has also been at the heart of BHP’s mobilisation program on climate change and advancing social, environmental and sustainability goals for itself and for its coal and iron ore customers. For BHP, after a period of consolidation and cleaning up its asset base, its push now for greater productivity and unlocking more value from the company is matched by persistent action on its environmental and social concerns. 

These social and environmental initiatives are integral to and integrated with BHP’s business strategy. BHP’s approach carries weight beyond the company. Because it is so big, BHP’s actions affect the Australian economy, together with its thousands of direct shareholders and the many more individuals with an interest in BHP through their superannuation funds.

• Then there is Mike Cannon-Brookes, co-founder of the successful Australian tech start-up, Atlassian. He is using his wealth and prominence to lead and promote business efforts to capture new opportunities and solve “wicked problems” that affect both business and the community. An outspoken critic of government inaction, Cannon-Brookes, like many of his generation, sees no contradiction between doing good business and doing business ‘for good’.

In a latest initiative, Mike Cannon-Brookes has partnered with the Federal Government’s Clean Energy Finance Corporation to back a new $30 million venture capital fund for start-ups in the agri-food sector, seeking to boost farm and agricultural supply chain efficiency and reduce waste.

These examples illustrate how efforts at shared economic and social value are playing out in business today. There is no single recipe, but it is a starting point for business enterprises to define for themselves what is needed to be a company with purpose providing jobs with meaning.

REFERENCES:

Jim Collins, ‘Concepts’, see https://www.jimcollins.com/concepts:html

Robert E. Quinn and Anjan V. Thakor, ‘Creating a Purpose-Driven Organisation’, Harvard Business Review, July-August 2018.

Dan Cable, ‘Helping Your Team Feel the Purpose in Their Work’, see https://hbr.org/2019/10/ , October 22nd 2019.

Aimee Chanthadavong, ‘IBM Boss Ginni Rometty urges businesses to widen the hiring pool to fill skills gap’, ZD Net, 12th November 2019.

Nick Toscano, ‘BHP new chief’s countdown to challenges’, Sydney Morning Herald, November 16th-17th 2019.

John McDuling, ‘Billionaire and green bank commit $16m to venture’, Sydney Morning Herald, November 18th 2019

 

 

Is it possible that local communities and their local government councils can turn around the low expectations and lack of faith many Australians have in our parliamentary and political institutions?

The call for a shift to localism to drive Australia’s future prosperity was a key message delivered by Terry Moran AC, former Secretary of the  Department of Prime Minister and Cabinet and eminent public policy analyst and adviser, to an event hosted by the Eidos Institute and the Queensland University of Technology on ‘Reshaping Culture, Reclaiming Trust’.

It is noteworthy because it is rare. Prescriptions for boosting national income and productivity typically feature centralised, arms-length ‘one size fits all’ policies which are spatially-neutral. 

Terry Moran’s contrary view is based on an analysis that public dissatisfaction with politics springs from the fracturing of communities, the lack of a compelling resonant mission for Australia’s future that people can believe in, and perceptions that government’s focus is on serving the interests of business and the well-off, not those of families and wage earners.

Drawing on social research and recent Government program reviews, Terry Moran contends that while Australians are “grumpy”, they do not want to blow up our democracy, rather they want to save it. 

They see the purpose of democracy as ensuring people, including the most vulnerable, are treated fairly and equally, and that our political system should solve problems that matter to improve people’s lives and prospects.

In particular, Terry Moran argued that the decades-old consensus on the benefits of economic openness and reform based on lean government, more privatisation and balanced budgets has run its course. 

This is exacerbated by the loss over recent years of deep-seated subject matter knowledge and expertise in the Public Service and by the narrow backgrounds of most political advisers.

In short, community sentiment has shifted against small government, outsourcing and the primacy of business. Australians, in fact, want stronger government delivering essential services that are affordable and effective. They also see the need for better regulation for fair treatment and for redress when things go wrong.

Structural reforms to rebuild public sector capacity and to change culture take time, so Terry Moran recommends finding new ways of working at the local level.

The public administration term used is “subsidiarity”. Subsidiarity is the principle of devolving decisions to the lowest practical level or closest to where they will have their effect, and the central authority has a subsidiary function.

The hallmarks of this local approach include:

• Local control of decision-making on the use of funds from diverse Commonwealth sources.
• ‘Joined-up’ service delivery, not separate services aimed only at single issues such as employment, health, income security, education and the like.
• Promotion of flexible connections at the local level with networks, service providers, local government and opportunities.
• Localising accountability with an active role for government with specialist local knowledge on the ground, and strengthening the expertise and capacity of local government.

The intention is to facilitate locally-connected, place-based approaches to the delivery of critical services to achieve better results. This will also serve to improve the experiences people have in dealing with government, and hence their engagement and social connections in their communities.

Looking local for the next wave of Australia’s prosperity promises not only more effective use of public money and sound community service delivery, but also an opportunity to boost social cohesion and a sense of belonging that comes with localism.

 

REFERENCES:

See Eidos Institute website at http://eidosinstitute.org/trust-and-culture

Rebecca Huntley, ‘Australia Fair. Listening to the Nation’, Quarterly Essay 73, March 2019

“Don’t bite off more than you can chew” is advice often given. Similarly, businesses are counselled to “stick to their knitting”, that is, concentrate on what they are good at either through natural endowments or because of first mover advantage.

It is often said that the best thing governments can do for the economy is to get out of the way. The argument is that the legitimate role of government is a small one to set the background conditions which allow the private sector to invest and get on with the job of wealth creation.

Now, is there a shift in this conventional wisdom?

Even if controversial, action is being canvassed to change investment decisions in the energy market. There is greater willingness to stimulate economies in the face of global disruptions. We see direct intervention to increase the supply of affordable housing, and subsidies to declining industries and vulnerable regions against business closures and job losses.

Do we need to be more active and ambitious to secure a prosperous future? Being satisfied with minimum operations to make a living or to keep the national economy ticking over may not be enough to succeed in times of fast-paced global technological and social change.

Economist and author of ‘The Entrepreneurial State’, Professor Mariana Mazzucato of University College London, puts the case for activism.

Professor Mazzucato and her research colleagues argue that creating both economic and social value requires innovation-led, sustainable and inclusive growth. Such growth depends on both public and private sector actors investing strategically in solving large-scale problems and big challenges, setting missions that inspire and make a difference and in the process, that create new markets, industries and skills that underpin long-term prosperity.

Collaboration or co-creation of value is the key. Professor Mazzucato is scathing about “the fabricated image of a lazy State and a dynamic private sector”, similarly of “the one-sided myth of the lone entrepreneur”. She rejects the conventional view that governments should only intervene to set the rules for a level playing field and to fix market failure.

Rather, Professor Mazzucato sees governments as agents of transformation. A significant purpose is to create and shape markets; to be a lead investor in innovation and research and funders of experimentation for multiple plausible solutions to big societal challenges; to open up new opportunities and to create a network of willing agents keen to seize these opportunities in mutually-beneficial public-private partnerships. In this way, governments can impact not only on the rate of growth, but on its strategic direction.

Despite popular perceptions to the contrary, the success of activist governments is already in evidence. Mazzucato cites the crucial role of public funding, procurement policies and collaboration initiatives in all recent technological revolutions. Information technology breakthroughs including the internet, the iPhone, touchscreen technology, and even SIRI were kick-started by public funds to research or grants and loans to entrepreneurs. A similar story applies for energy and space technologies and health and medical innovations. This investment lead by government encourages private investment to follow and sets the pathway for success by entrepreneurs like Steve Jobs and Elon Musk.

Public sector leadership and funds can have the effect of ‘crowding in’, not crowding out, private sector investment which otherwise would have been unlikely, given uncertain markets and high levels of risk.

The same debate is playing out in Australia with commentary on superannuation funds using their clout as investors to seek to transform Australian businesses and promote the concept of long-term value. Whether this is radical action or just responsible investor behaviour, the call is on for companies to think about how to sustain value over decades, focusing not only on financial outcomes, but equally on environmental, social and governance performance.

Deciding whether to be bold or bashful in striving for long-term prosperity is a vital and immediate choice for businesses, policy-makers and the community at large.

REFERENCES

Mariana Mazzucato, ‘The Entrepreneurial State. Debunking Public vs Private Sector Myths’, Penguin Random House, 2013.

Danny Davis, ‘Super power: why the future of Australian capitalism is now in Greg Combet’s hands’, The Conversation, 20^th March 2019.

There is one striking insight common to the business quest for innovation, to solving intractable community problems and for turning around public disquiet with the poor state of current political debate. It is this:

Truly original and powerful ideas successfully put into action require unconventional thinkers and perspectives, unorthodox combinations of activities and partners, and an uncommon ability to anticipate and defuse forces hostile to these endeavours.

It is well-known that innovation is more than simply creativity, or new technologies, or commercialising inventions or discoveries. Innovations that transform and endure provide unexpected value to people—customers, users, or stakeholders—and pay more attention to the business model that delivers the benefit and profit from novel ideas, than to the creation of these ideas alone.

We need to understand more about how this kind of innovation works.

An illuminating summary of latest research from the independent business school IMD Professors Cyril Bouquet, Jean-Louis Barsoux and Michael Wade appears in a Harvard Business Review article titled ‘Bring Your Breakthrough Ideas to Life’.  This article makes the case for divergent thinking, the role of outsiders, pausing for reflection, imagining the unexpected and a focus on manoeuvring around the often tacit obstacles to original and unconventional offerings.

These researchers have distilled five practices to bring innovation to life:

1. Attention: look closely and through a fresh lens

Be aware of unconscious bias from your profession or training. Consider niche populations, observe and find ways of detecting unmet needs or unserved customers.

2. Perspective: step back to expand understanding

Reflect and learn. Avoid the rush to problem-solving, try “strategic procrastination”. Pause and make sense of weak signals.

3. Imagination: look for unexpected combinations

Challenge orthodoxy and envision what is not. Make connections between existing strengths and new opportunities. Bring in outsiders with different subject matter knowledge, e.g. the McLaren Formula 1 racing team applying their capabilities to emergency health care systems and air traffic control services.

4. Experimentation: test smarter to learn faster

Test to improve, rather than to prove concepts and prototypes. Be open to sharp changes in direction, be prepared not just to pivot but to reboot.

5. Navigation: manoeuvre to avoid being shot down

Read potentially hostile environments both inside and outside the organisation. Mobilise supporters, especially unconventional allies.

This research, while focused on business innovation, could equally apply to solving persistent and complex social and economic challenges in the community, and to lifting the tone and quality of politics and public debate which is often criticised as being overly partisan and adversarial.

Australia has a case study that demonstrates innovative action on difficult problems by tapping into ideas from diverse and unconventional perspectives and by taking practical steps to implement emerging solutions.

The Eidos Institute (Eidos), a not for profit social enterprise, is a network of partners seeking to change the way Australia’s important social and economic issues are solved, beyond simplistic answers and quick fixes. With the support of philanthropists, Eidos aims to be a place for informed, intelligent and collaborative problem-solving in the public interest.

Eidos operates by conducting a tested process of Challenges with systematic steps to clearly define the problem, stimulate wide-ranging engagement and actively seek out and test solutions. Eidos’ approach draws on the knowledge and expertise of diverse people and organisations that are rarely connected together, and finds a way to open up new ideas and action for solutions in a timely manner and with an unusual depth of evidence and insights.

Eidos models a better pathway for public policymaking and debate by being an incubator of fresh ideas for action and change on problems that matter.

So, the current research from the IMD professors on business innovation and the Eidos case example on better problem-solving reach the same conclusion.

The development and survival of truly original breakthrough ideas – whether in business, the community or politics – relies on exposure to diversity and the unorthodox, plus the adaptability to learn and to successfully turn ideas into action.

REFERENCES

Cyril Bouquet, Jean-Louis Barsoux and Michael Wade, Bring Your Breakthrough Ideas to Life, Harvard Business Review, November-December, 2018.

Narelle Kennedy serves as the Chair of the Eidos Institute Ltd – see website at www.eidos.org.au

Business with a social purpose – a contradiction or the way of the future?

On the face of it, the line is clear-cut between commercial for-profit businesses and not-for-profit enterprises aiming to do social good. Maximising profit and serving the interests of shareholders first and foremost is a fundamental obligation of business managers, directors and owners.

Business by definition is self-interested. Business enterprises, it is argued, only serve the wider public interest by being good at doing business, and thus providing jobs, paying taxes, and contributing to a robust and prosperous economy.

Now, there are signals that the boundaries are blurring, and driving the social purpose of a business is becoming more central for business success and longevity.

The case for corporate social responsibility and environmental sustainability is not new, but there is evidence that such business practices are becoming more sophisticated and rigorous. Greater exposure of and community disquiet about corporate misconduct and unfair treatment of customers, together with rising shareholder activism, is fuelling demands for businesses to meet social standards over and above expectations of healthy bottom line returns.

There are signs that this is more than a momentary trend. Millennials (Generation Y born between 1981 and 1996) and post-Millennials (Generation Z born from 1997 on) are the emerging consumers, investors and decision makers of tomorrow, and they have lost faith in the ability of business and politics to impact positively on society.

The seventh annual Deloitte Millennial Survey for 2018 found that confidence in business and loyalty to employers has deteriorated. Both Millennials and Generation Z doubt the motivation and ethics of business and the priority focus on profits and efficiencies. Rather, those surveyed overwhelmingly felt that business success should be measured beyond financial performance.

They believe business priorities should include job creation, innovation, enhancing employees’ lives and careers and making a positive impact on society and the environment. Deloitte comments that these concerns make it an ideal time for business leaders to prove themselves as agents of positive change.

Fresh ideas are appearing about how to build-in and accelerate the social purpose of business enterprises. These range as follows from:

• Online, peer to peer, ‘guerrilla lobbying’ and activist platforms like Change.org;
• New ways of mobilising flows of capital to tackle large intractable social and environmental problems through entrepreneurial social impact investing;
• Research-rich strategies for businesses to compete on social purpose by building on a brand’s key attributes or new adjacencies and investing in authentic actions to win stakeholder acceptance.

One pathway worth consideration, though in its infancy in Australia, is seeking certification as a B Corp. B Corps (or Benefit Corporations) aim to redefine success in business. B Corporations are established for-profit companies that also look to have a positive impact on people and the planet.

Companies must pass an assessment to become a Certified B Corporation, which gives assurance that the company has committed to meeting the highest standards of overall social and environmental performance, transparency and accountability, and aspires to use the power of business to solve social and environmental problems.

B Corps are part of a global movement which includes over 200 certified B Corps in Australia and New Zealand. (See http://bcorporation.com.au).

In short, the message is that being a business with a genuine and well-thought out social purpose is becoming an imperative. To do well in business means that the business must also do good.

 

REFERENCES:

2018 Deloitte Millennial Survey, May 2018, (see deloitte.com/global/en/pages/about-deloitte/articles/millennialsurvey.html )

Anna Patty, ‘Pessimistic’: Millennials lose faith in the economy, Sydney Morning Herald, 16^th May 2018, (see smh.com.au/business/workplace/pessimistic-millennials-lose-faith-in-the-economy-20180515-p4zfd0.html)

Nick Bryant, Power to the People, Good Weekend, 3^rd March 2018, (see smh.com.au/business/companies/why-change-org-s-army-of-davids-is-neutering-more-global-goliaths-20180228-p4z24h.html)

Danielle Logue, Explainer: the rise of social impact investing, The Conversation, 31^st March 2017, (seetheconversation.com/explainer-the-rise-of-social-impact-investing-73357)

Omar Rodriguez Vila and Sundar Bharadwaj, Competing on Social Purpose, Harvard Business Review, September-October 2017, (see hbr.org/2017/09/competing-on-social-purpose)

 

The biggest challenge for business leaders in 2018 is ensuring that their enterprise culture meets the ‘pub test’ of fair play and community-mindedness.

Eminent director and business executive, Graham Bradley, in presenting the Australian Institute of Company Directors (AICD) 2017 Essential Director Update briefings, put corporate culture and conduct at the top of the agenda for directors and management.

Bradley cited a substantial shift in the business governance landscape, with more demanding standards placed on business reputation and the social licence to operate. The traditional view of the sole responsibility of directors being to serve the interests of the company and its shareholders is being broadened to include businesses’ responsibilities to the wider communities they serve.

This governance shift does not come from a change in the law, but the impact of social media exposure, rising shareholder activism particularly on social and environmental issues, adverse community reaction to high-profile examples of corporate misconduct, and ramping up of regulatory measures for greater director and manager accountability, e.g., higher penalties, more whistle-blower protection.

Bradley said that in the year ahead, there is no more important task for company directors than to win back community trust and respect. This means improving corporate culture and conduct to meet community expectations, the ‘pub test’.

Culture is a nebulous concept, hard to understand and shape.

The AICD explains culture as “simply the collection of standards that a company sets for its internal and external behaviour towards employees, customers and the general community.” Bradley emphasized that in particular, he looks for a culture where bad news travels quickly from the bottom of the organisation to top management and the board.

Culture, though intangible, is an increasingly significant driver of company value. So, it makes sense to focus on those components of culture where most value can be created, or destroyed.

The AICD and regulators recommend directors set and monitor corporate culture on actions such as:

• Reporting and monitoring key indicators of a healthy culture, e.g., customer satisfaction, complaints, staff feedback.
• Culture as a regular topic on board agendas, with documented corporate behaviour standards made explicit.
• Incentive systems that reward adherence to corporate behaviour standards, as well as business performance.
• Director interaction across the company and with partners and other business stakeholders to gain insights and/or dissident views.

Action to ensure a sound culture that enhances a company’s value, reputation and community support relies on business leaders being outward-looking and open to new, even disruptive, ideas.

An essential prerequisite for this is cognitive diversity—deliberately promoting and managing different perspectives, disciplines, and ways of thinking and problem-solving among a board’s directors.

Graham Bradley gave a ringing endorsement of cognitive diversity as a vital pillar of leading-edge governance.

This approach is also a key prescription for business innovation, especially when enterprises are facing fundamental change in what makes business models successful, entirely new industries and jobs emerging, and the challenges of the digital revolution.

Businesses that give a priority to improving culture unlock the value of intangible assets like consistently demonstrated ethical behaviour, rich relationships, and management of divergent sources of knowledge, insights and approaches.

Attention to culture fuels both the licence to operate and the licence to innovate.

REFERENCES:

Australian Institute of Company Directors, Essential Director Update: 17, 2017.

Narelle Hooper, Licence to Lead, Company Director, Volume 33, Issue 11, December 2017/ January 2018.

Suzanne M. Johnson Vickberg and Kim Christfort, Pioneers, Drivers, Integrators and Guardians, Harvard Business Review, March-April 2017.

When looking into the future of work and businesses, the only certainty is change.

Automation is both eliminating and creating jobs. The rise of different jobs requires different skills in the workforce, technical and social. New forms of business, unheard of a decade ago, are now becoming mainstream.

Common themes emerging from recent research on the future of work and firms can help us understand and tool up for change. These themes are:

• The success of business enterprises is likely to rely on a structure that is less traditional managerial ‘command and control’ business units, and more collaborative, open and entrepreneurial teams inside and outside the firm.
• Jobs for the future will be those where interpersonal relationships, not merely transactions, are essential, and those that demand high levels of judgement, flexibility and critical thinking– all reliant not on explicit rules, but on tacit knowledge and intuition.
• The aspirations of different generations of employees and their expectations of what constitutes an ‘employer of choice’ presents managers and organisations with new challenges in recruiting and retaining talent.
• Digital technology is profoundly affecting where, when and how employees get work done, and how business executives harness a common culture and purpose and manage an enterprise’s operations and performance sustainably.
• The importance of advanced technologies and the complexity of today’s business problems makes it imperative for organisations to have the right mix of deep specialist knowledge, especially in science, technology, engineering and maths, and proficiency in social and behavioural disciplines for creative problem-solving and relationship-building.

These observations are drawn from analyses by Bain & Company, Deloitte, and The Strategy Group, among others. These analysts also share their insights about how firms and their workforces can best adapt and take action in the face of such broad-ranging change.

Here are a few of the most potent insights.

Reset for the end of the ‘shareholder primacy’ era

Bain & Company in a briefing to the Australian Institute of Company Directors postulated that shareholder primacy is breaking down, i.e. the premise that firms exist first and foremost to deliver returns on their shareholders’ capital. This is due to the adverse effects of extreme short-termism; increasing business complexity; the changing workforce; and new diverse ownership, investment and business models that open the firm up to other stakeholders, partners and wider community interests.

In short, the firm is not alone, but is interdependent with other allies and actors for its success – a collaborative ecosystem. The implications are that what has made firms successful in the past will not do so in the future, so a reset is needed.

Chief among business responses is to get to know and nurture the distributed ecosystem in which the firm operates and collaborates in order to adapt and grow its business. This is reinforced by Deloitte’s Future of Work survey of C-level executives, with two-thirds of respondents saying it is a strategic objective to transform their organisation’s culture to achieve increased connectivity, communication and collaboration.

Build networks, not hierarchies

The Deloitte survey responses also point to a shift in how workplaces will operate in the future  – from ‘top-down’ to ‘side-by-side’. Executives expect to place more focus on facilitating the exchange of ideas, enabling the flow of conversations across their organisation, and providing greater autonomy for teams and individuals.

Bain & Company extends this further by highlighting the benefits available to firms that deliberately create communities of expertise both within their organisation and within their ecosystem.

Rethink leadership

Bain & Company says less focus on professional managers and more on mission-critical roles in the firm for fulfilling the promise to current and prospective customers. Key new tasks for professional managers are: to support and resource mission-critical roles; to create and facilitate agile talented teams working on successive business projects; and to develop the next generation of leaders for the business.

The Strategy Group says that future executive teams will need a permanent seat for a Chief Entrepreneur. This Chief Entrepreneur may ultimately displace the position of Chief Executive Officer as the top job. The skills of the CEO are well-suited to the continuing implementation of known business models. But more vital for the future is the need to pioneer new innovative business models, which is the realm of the Chief Entrepreneur and of leadership based on boldness of vision, creativity, and the nerve to experiment and push the boundaries.

Invest equally in core business and innovative business

Managing the present while simultaneously adapting for the future is the high priority challenge for business leaders. Bain & Company refer to ‘Engine 1’ as core business and ‘Engine 2’ as more innovative emergent business, and recommend that firms create a specific ‘Engine 2’ incubator, so the present does not drown out the future.

‘Engine 2’ is aimed at seeing around corners, spotting trends before they are well-formed, and mobilising resources rapidly to create new business from changing customer needs, different competitors and new ways to earn revenues and profits.

Taking these insights as a whole, we see glimpses of the future of work and firms and signals for how to anticipate and navigate the change ahead.

REFERENCES:

Bain & Company’s 5 forces shaping the firm of the future, Australian Institute of Company Directors, Membership Update, 28^th June 2017.

Deloitte, Adapting to the Future of Work, Wall Street Journal, 9^th May 2017.

Jemma Parsons, The C-Suite of the Future, The Strategy Group, 25^th July 2017.

Australian manufacturers are experiencing the forces of creative destruction.

Creative destruction is the term used by eminent economist, Joseph Schumpeter, to describe how economies evolve and grow through incessant waves of change that destroy old industries and simultaneously create new ones. The end result is a society that is richer and more productive, but with a price paid in churn and turmoil.

Most of the commentary on Australian manufacturing focuses on the ‘destruction’ aspect—manufacturing’s decline, loss of jobs to automation, erosion of skills and businesses moving offshore. It’s time to focus attention on the ‘creative’ side of Australian manufacturing because signs of a manufacturing resurgence are emerging.

This new wave of creative Australian manufacturing was on display at a recent national manufacturing expo on the theme of Industry 4.0. Industry 4.0, or the 4^th Industrial Revolution, is where digital and advanced technologies converge with innovative business strategy and operations to find new and profitable ways to solve problems and serve the needs of local and global customers.

A few case examples to illustrate.

Anatomics is a manufacturer of patient-specific implants for medical use, including cranial, facial, chest and orthopaedic surgical products, and other skeletal and soft tissue parts. These products are made using new materials developed in collaboration with CSIRO, and leading-edge 3D printing technologies and computer-assisted design.

Anatomics has also developed a range of innovative software products to aid surgeons and healthcare professionals in planning surgery. This necessitates close working relationships with surgical teams in real time in the 24 countries into which Anatomics sells.

Operating out of a dedicated manufacturing lab in Melbourne’s St Kilda, their success is dependent on highly-skilled specialist staff, deep-seated continuous research and development, and strong and close collaborative partnerships, not least of which with the end users of their products.

 

Tinyme is a manufacturer and online retailer of one-off products personalised by name for children’s toys, books, bags, puzzles, stickers and the like. A start-up in a spare bedroom in 2006 by three friends with backgrounds in industrial design and investment banking, Tinyme built and learned its business incrementally, trialling new products in the market through direct customer engagement.

Tinyme is a classic example of mass customisation. It uses automation, digital printing technologies and mass production methods to produce personalised single products co-designed with each individual customer.

Beyond sophisticated machines and equipment, Tinyme credits their success to their constant and direct connections to customers; their great cross-functional staff team and dynamic culture; and their in-house control of the bulk of their functions from web design to logistics. They summarise their performance as “innovation under the hood”—not just in the products and ideas for new products, but what they do to get them made quickly and efficiently.

 

Textor Technologies, a family-owned business from a management buyout, manufactures moisture-resistant materials for the hygiene and healthcare industries, used in baby nappies, wound dressings and personal sanitation products. Previously, Textor Technologies worked in textiles for the clothing and automotive industries, but made a shift in strategy in 2000 anticipating the decline in Australian automotive manufacture.

Key factors in their successful transformation were their intensive research and development collaboration with CSIRO and Kimberly-Clark on technically advanced, state of the art, ultra-absorbent fabrics; considerable investment in a new highly-productive factory; a flexible manufacturing system; and a skilled workforce and highly competent strategic managers in their leadership team.

But, most importantly, the longstanding, market-expanding partnership between Textor Technologies and its leading customer, Kimberly-Clark has been critical to the company’s ability to access and learn about entering and serving global supply chains. They are now exporting to 13 countries worldwide. Through top class delivery, Textor aims to be the best in the world in their chosen field.

 

Tomcar is bucking the trend by manufacturing off-road vehicles for the mining, agriculture, construction and defence industries in Australia, when other car makers are leaving. Tomcar’s vehicles are a niche, high value product that competes on performance, longevity and maintenance, not price. They are made to order vehicles designed for harsh Australian conditions.

Tomcar is different from traditional manufacturers on other counts. It describes itself as a “virtual company” built on its design capabilities and smart outsourcing, the legacy of its origins in 2005 as a lean start-up. Tomcar spent seven years in research and design before producing their first vehicle.

Tomcar outsources production in a close partnership to Melbourne manufacturer, MTM, a former supplier to Holden. Locating production and research and development locally is seen as vital for quality and innovation. Tomcar sells direct from its website. IT and other back office functions are hosted in the cloud, not in the company. To Tomcar, being a successful advanced manufacturer is orchestrating the whole process from research to distribution, not just physical production.

 

Frosty Boy is an Australian manufacturer and distributor of powdered bases for ice cream, frozen yoghurt and beverages, and also provides equipment and a range of business services (such as consumer research, new product development, international marketing and financing) to its clients including fast food chains, cafes, restaurants, clubs and catering companies.

Frosty Boy has experienced strong growth and export sales since 2001. It specialises in short runs and lead times through investment in advanced automation and agile operations, together with a strong market focus. It employs a team of qualified food technologists in a modern R&D testing facility in Queensland. Frosty Boy places a high priority on long term relationships with its clients through customised products, sharing research and development, and commitment to continuous improvement.

It melds products and services seamlessly in its business offerings, and concentrates equally on pre and post-production functions to distinguish itself as a globally competitive, high-value manufacturer, not a simple commodity producer.

Some important themes from these examples for transforming Australian manufacturing:

• Don’t just focus on the production part of manufacturing, but look for opportunities in all seven steps in manufacturing: research and development, design, logistics, production, distribution, sales and after sales service.
• Put the customer and market opportunities at the centre of what you do, not technology, which, though important, is essentially an enabler.
• Know your customer and your customer’s customer directly and thoroughly.
• Employ great people and leaders with the right mix of technical and collaboration management skills, and give them problems to solve which instil an innovative culture and grow the business.

These lessons can help Australian manufacturers ride this latest wave of creative destruction, with more gain than pain.

REFERENCES:

Michael Cox and Richard Alm, Creative Destruction, 2008, The Concise Encyclopaedia of Economics, Library of Economics and Liberty, at www.econlib.org.

Cara Waters, Clear road for our last car maker, Sydney Morning Herald, 10^th-11^th June 2017.

Manufacturing. Making It in Australia. Our Advanced Manufacturing Future, 2017, Australian Advanced Manufacturing Council and Australian Industry Group.