PAY ATTENTION TO CULTURE

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.

ANTICIPATING THE FUTURE OF WORK AND FIRMS

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, 28th June 2017.

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

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

AUSTRALIAN MANUFACTURING AND ‘CREATIVE DESTRUCTION’

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 4th 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, 10th-11th June 2017.

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

DIFFERENT PACES FOR DIFFERENT PLACES

Australia’s prosperity is spread unevenly. While measures of economic growth and wellbeing have improved overall, many people and communities feel left behind.

This is understandable given disparities such as:

  • A strong rise in national income in 2016, but very weak growth in the wages of workers.
  • Just ten locations across Australia that are contributing over half of the nation’s economic growth—the largest share comes from Sydney and Melbourne as major cities, but regional centres and outer suburbs are languishing with low or no growth.
  • Greater Sydney (with GDP growth about twice that of Australia’s) has a marked divide, with jobs growth in the centre and East but population growth concentrated in Western Sydney.

This variation in prosperity between different places reflects the naturally-occurring benefits of agglomeration. It also results from the spatial effects of changing patterns of economic activity, with strong growth in the services sectors and the relative decline of traditional manufacturing and some resources industries.

For example, Sydney performs well in financial and professional services which concentrate in and around the CBD, contrasted with the ongoing reduction in manufacturing mostly located in industrial estates dispersed in suburbs.

However, communities on the wrong side of this prosperity divide should not be resigned to being less well-off and disadvantaged in their access to jobs, services and opportunities. These communities can shape their own future, both as an economy and as a society, by learning from what the Brookings Institution calls “the new geography of innovation”.

Brookings researchers, Bruce Katz, Julie Wagner and Jennifer S. Vey, have reported on their investigations into the shift from innovation being dominated by isolated, stand-alone Silicon Valley-like corporate campuses and technology parks, to emerging compact and vibrant ‘innovation districts’. These innovation districts have a mixed use of housing, jobs and social amenities which attracts both employers and talented employees, promoting knowledge-sharing and connections for better economic and social outcomes for these areas.

The rise of innovation districts reflects the growing trend for ‘open innovation’ and creative problem-solving across diverse firms, disciplines and sectors. Innovation districts are also a response to the preference of people to live, work and play in dynamic neighbourhoods that are walkable, liveable, and offer choice and the possibility of serendipitous encounters and relationships.

Innovation districts are geographic areas which foster uncommon connections between firms, people and places, resulting in an innovation-friendly environment for generating and using fresh ideas and knowledge, and spurring the growth of new businesses and jobs.

Brookings finds that innovation districts work by combining economic, physical and networking assets. This acts not only to advance economic development, but for social inclusion, liveability and sustainability of communities.

Economic assets are the organisations that drive or undertake innovation practices including companies, universities, research and medical institutions, entrepreneurs, start-ups, incubators, schools, training bodies, and supporting services and amenities.

Physical assets are the public and privately-owned spaces—buildings, co-working areas, open spaces, streets and plazas, broadband, transport and other infrastructure—designed and organised to stimulate new and higher levels of connectivity, collaboration and innovation.

Networking assets are the relationships between the actors in the innovation district that activate quick and seamless flows of knowledge and the building of trust, essential for collaboration and business alliances.

Innovation districts can take many forms, and are evident in cities from Barcelona to Stockholm, to Seoul, Manchester and London. But, from its analyses in the US and Europe, Brookings identifies three types of innovation district:

  • Those emerging around anchor institutions like universities and hospitals, e.g., Cambridge Massachusetts around MIT.
  • “Re-imagined urban areas” near historic waterfronts and industrial and warehouse districts, e.g., South Boston.
  • Reformed science parks with the inclusion of housing and new activities including retail and restaurants, e.g., North Carolina’s Research Triangle Park.

While innovation districts are a feature of urbanisation, their lessons can be applied to all regions and centres seeking to revitalise their communities.

So, what can communities aspiring to be innovation districts do? Three actions stand out:

  1. Understand their strengths and gaps as an innovation district through rigorous auditing and assessment, and champion a clear vision and action plan to address these.
  2. Strengthen the skills and capabilities of local people and attract talent so their community is well-equipped for the new jobs and industries that match their competitive advantage.
  3. Constantly search out new customers, markets and partners to help realise their opportunities as an innovation district.

The essential ingredients of innovation districts provide distressed communities with a greater chance of sharing in Australia’s prosperity.

REFERENCES:

Australian Bureau of Statistics, 5206.0 Australian National Accounts: National Income, Expenditure and Product, December 2016, issued 1 March 2017.

Matt Wade, Now for the good news: Life got better for Australians in 2016, Sydney Morning Herald, 4th-5th March 2017.

SGS Economics & Planning, GDP by Major Capital City, 2015-2016, December 2016.

Committee for Sydney, Adding to the Dividend, Ending the Divide #3, Issues Paper 14, January 2017.

Bruce Katz and Julie Wagner, The Rise of Innovation Districts: A New Geography of Innovation in America, Brookings Institution, 2014.

Bruce Katz, Jennifer S. Vey, Julie Wagner, One year after: Observations on the rise of innovation districts, Brookings Institution, 24th June 2015.

INNOVATION CREATES WINNERS, NOT LOSERS

It is perilous to dismiss innovation as irrelevant to ordinary Australians. Certainly, innovation is not well-understood, but it is nonetheless vital to how ordinary Australians—not just boffins and tech entrepreneurs—earn a decent living and fight off job insecurity and rising costs.

Critics of Government attention to innovation say it mostly serves the interest of elites, or worse, that innovation equals automation, which equals job losses particularly the more routine, low-skilled and lowly-paid jobs.

But the reality is different. Innovation actually occurs in many different, ‘low-tech’ ways and many successful Australian businesses are innovating not simply with new technologies, but in co-production with customers, supply chain and logistics management, bundling products and services into new business offerings, creating new businesses in the shared economy, reinventing their business model and/or how they deliver exceptional value to customers.

Put simply, innovation means making a change for the better.

It covers more than commercialising new products, technologies, inventions and discoveries. Innovating by successfully implementing a change for the better is open to all and allows potentially everyone to benefit.

This innovation can make ordinary businesses and people winners, because it transforms what Australian businesses can do; it opens up new more flexible jobs and industries; it gives school leavers more options for different careers; it lifts Australia’s competitiveness internationally and our national income; it capitalises and builds on the skills of Australians at work including retraining as necessary; and it can occur in any locality and in any size business.

More specifically, innovation benefits happen by:

  • Solving big social, economic or environmental problems.
  • Recognising and reinventing the skills of people in declining industries for employment in relevant, but unrelated, growth industries.
  • Creating new enterprises, jobs and ways of working online and through social media.
  • Making old communities thrive again with new facilities and opportunities.
  • Helping established small and medium sized enterprises discover and become adept at new ways of doing business profitably in the face of market disruptions.
  • Finding and filling a gap in services people need and are prepared to pay for.
  • Helping people turn hobbies, passions and creativity into a sustainable way to make a living.

From this wider angle, innovation creates winners not losers.

But, to gain these benefits, action on innovation needs to be shifted beyond a focus on start-ups to transforming the capabilities and resilience of all Australian businesses, their current and future workforces. Further, innovation does not stop at the borders of capital city knowledge precincts—action is needed to support home-grown entrepreneurial activity tailored to different regions and localities across Australia.

Tony Featherstone, in a Sydney Morning Herald commentary, argued that Australia’s innovation policy should be rebooted to address today’s problems by focusing on regional entrepreneurship, local government collaboration, and small business. This, he said, is a vision of innovation that is real, relatable and delivers early results.

One practical program to kick start such an innovation agenda that is worth a look are Maker Spaces like TechShop. These are open access, community based spaces providing tools, classes, software, teachers as a DIY workshop and fabrication studio.

Described as a ‘playground for creativity’, it attracts a mix of arts and technical people, including entrepreneurs, small businesses, hobbyists, artists, students and corporate employees. Maker Spaces encourage collaboration and learning, and are used to retrain workers, trial business ideas, test out the business application of new technologies, create artworks or manufactured products, or just for having fun.

REFERENCES:

Tony Featherstone, Innovation not just for inner-city hipsters, Sydney Morning Herald, July 23-24, 2016.

TechShop, go to www.techshop.ws

WHAT MAKES BUSINESSES RESILIENT?

The evidence is growing about what makes businesses resilient in the face of adverse economic conditions and disruption.

There are a wealth of insights from researchers and experienced business executives on the features of business strategy, competitiveness and innovation that are decisive for success when confronting economic boom and bust cycles, new and unexpected competitors and fundamental changes in business practices, technologies and consumer expectations.

Key among the prescriptions for resilient businesses are:

  • An adaptable business strategy: one that balances the improvement of existing business offerings with an eye to future opportunities for growth, new markets and different customers.
  • A strong ‘over the horizon’ radar: priority to finding and using new knowledge and business intelligence, particularly technology trends and capabilities, growth prospects in adjacent sectors, and opportunities from business model change, unrecognised demand and/or unserved, hidden customers.
  • Investing in people: recognition that human capital, perhaps more than financial or physical capital, distinguishes between high-performing enterprises and the ‘also-rans’—making it a smart move to fight for and develop talent with breadth and depth of technical and non-technical skills, diversity and devolution of decision-making.
  • Deep engagement with current and prospective customers: not just the big and lucrative accounts, but understanding non-customers, unarticulated needs and radically different value creation and pricing models.
  • Collaboration in varied external networks: complex business challenges are unlikely to be solved by individual enterprises alone, but need informed and trusted partnerships, including with suppliers, customers and even competitors.
  • Learn by doing: business leaders deliberately providing opportunities for safe, sanctioned business innovation experiments that advance new ideas and commercial prospects without putting the whole enterprise at risk.

The latest compelling evidence comes from a study of the resilience capabilities of 400 small businesses in regional towns in Queensland Australia, affected by the end of the resources boom in local coal seam gas projects.

Conducted by University of Queensland researchers, Jerad A. Ford, John Steen and Martie-Louise Verreynne, this study examined the capacity of these small businesses to respond, adapt and transform in response to changes in the business environment—in this case, the ‘bust’ after the ‘boom’ of investment, construction and transition to operations.

The study found that four key resilience factors significantly contributed to the successful performance of these businesses post-boom. The researchers described these four qualities as follows:

  • Pro-activeness: Proactive small businesses actively seek new product and service niches and reorient their business accordingly. They often are the first to initiate competitive actions such as introducing innovative products new to their industry. They are quick to recognise new business opportunities based on rigorous market analysis. They fully support reorganising business structures and investing in new capabilities.
  • Connectedness: Connected small firms actively cultivate and maintain business network partnerships. It appears that robust external network connections provide the basis from which firms can see, anticipate and exploit market trends. Connected firms are more likely to increase their income in lean times because they use their diverse networks to mitigate against market demand fluctuations.
  • Adaptation: Adaptive businesses find workable solutions to new challenges and accommodate market disruptions by using existing resources in new ways and by quickly shifting things around to ensure that customers are never let down.
  • Access to ‘slack’ (readily available or spare) resources: Businesses with slack resources are more hopeful of surviving into the future. In good times, they actively invest in spare equipment, facilities and other production capacity. They accrue finances and build and maintain new staff, who are looking for new opportunities, not tied to the existing business.

Rather than being at the mercy of the winds of change, this research suggests that businesses can plan for and build up their own resilience.

REFERENCES

Jerad A. Ford, John Steen and Martie-Louise Verreynne, Four qualities that helped small businesses survive the end of the resources boom, The Conversation, 28th July 2016.

University of Queensland, Measuring economic trends and benefits of CSG developments on local businesses, 20th May 2016.

 

PUTTING SMART CITIES TO WORK

Cities, by definition, are magnets for people and jobs. Cities, both metropolitan and regional, and their hinterlands are where most people live and where most economic activity and employment occurs.

Recently, there has been renewed interest worldwide on policies to capitalise on the smart growth of cities for both economic prosperity and social wellbeing.

Chief among the benefits of the density and diversity of cities are the twin advantages of access to jobs and access to labour. Often the challenge for cities is how to ensure the right jobs are in the right places.

Further, as the nature of work is changing, the challenge is how to anticipate and prepare for change. In particular, what can be done to help people make a timely transition from skills more suited to the old economy to ones that fit the new world of advanced manufacturing, knowledge-based services, small high tech start-ups, or disruptive business models like Uber and Airbnb.

One insight is the importance of job density to the productivity and competitiveness of particular localities. Consultants SGS Economics & Planning, in recent studies, have defined ‘effective job density’ in terms of the proximity and accessibility of jobs, measured by the level of employment relative to the travel time to that employment by employees by various modes of transport.

Investigations by SGS Economics & Planning and others by the Victorian Department of Transport show that the doubling of job density can result in productivity improvements of between 4% and 13%. This is due to the sharing of infrastructure and inputs; the sharing of ideas (knowledge spill-overs) that occur due to close proximity and that drive innovation; and the ability to match skilled workers to jobs.

So, creating employment precincts and jobs close to home through smart work centres and co-work spaces should be encouraged.

But, there is also concern about the ‘tale of two cities’. Commentators point to the divide between the growth of well-paid jobs for knowledge workers in the inner areas of capital cities and outer urban areas where population and housing are growing, but with few jobs and poor job access, significantly due to traffic and transport obstacles.

Solutions to this mismatch between jobs and residents include strategies for metropolitan-wide mobility and access to key services, through improved transport connections and better provision of information and communications technologies that diminish the disadvantage of distance.

Single solutions, however, are unlikely to be effective. For smart cities, the natural benefits of agglomeration are just a starting point. Action on a broader front with a mix of policy instruments is necessary to boost access to jobs where they are needed most. Smart cities invest in both the hard and soft infrastructure that allows them to make the most of their existing strengths and their distinctive, if embryonic, local capabilities.

This approach was summarised as ‘smart infrastructure’ factors in earlier work by SGS Economics & Planning as follows:

  1. Factors that reduce investment and operating uncertainty, such as transparency in government processes, leadership directions and economic management.
  2. Infrastructure to support basic production processes such as transport, labour, communications, power.
  3. Workforce skills and accessibility to quality education institutions for ongoing skills development.
  4. Innovation infrastructure and programs that underpin the development and commercialisation of new ideas.
  5. Business cultures that promote competition, collaboration, entrepreneurship, risk taking and openness to new ideas.
  6. Connectedness to other members of the value chain, including relevant research institutions and brokers of market intelligence, capital etc. through clustering.
  7. Quality living environments that offer the necessary services for attracting and retaining knowledge workers.
  8. A strong cultural economy which helps to power the industrial economy with new ideas and which keeps knowledge workers engaged with their local community.
  9. Social cohesion, whereby the various economic and other agents in the community have a strong sense of a shared future and a willingness to support each other’s ultimate competitiveness.

These smart infrastructure factors integrate policies that are typically treated as separate. To secure the right jobs in the right places means acting on initiatives at the intersection of industry and economic policy, innovation and business support, infrastructure, urban and land use planning, and education and employment policy, to name the key areas.

Putting smart cities to work goes beyond technology and data analytics. Cities are smart when they understand their competitive strengths and weaknesses, anticipate realistically patterns of business and jobs growth, and shape their future prospects to meet both the social and economic aspirations of their people.

REFERENCES:

SGS Economics & Planning, Productivity and Agglomeration Benefits in Australian Capital Cities, Final Report, COAG Reform Council, June 2012.

SGS Economics & Planning, Comparing Effective Job Density in Sydney and Melbourne, 2012.

Victorian Department of Transport, Job Density, Productivity and the Role of Transport, 2012.

SGS Economics & Planning, SGS Forum on Agglomeration 12 April 2012, The Fifth Estate, 2012, http://www.thefifthestate.com.au

Place Making — Beyond the Florida Thesis, Urbecon, Volume 4, 2009.

Attracting Jobs to Outer Urban Growth Areas, Urbecon, Volume 1, 2015.

Smart Infrastructure Audits—How Well Placed are Communities for Future Prosperity?, Urbecon, December 2002.