This is the sixth instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW
The people that made and sold horses and carts didn’t do very well when cars came along, and the people who make cars are not going to do terribly well when electric vehicles come along.
Tom: That’s interesting. Do you think that the problem is that they’re framing what they do in the wrong way, for example they say “I’m a horse and cart company”? Or do you think it’s a lack of capabilities, and companies want to evolve but they are unable to evolve?
Nigel Lake: I think it’s a mixture of things.
I think absolutely it is how they frame what they do. They think they are a horse and cart company, not a person transport company.
If you have a large organisation, the challenge is that you have to switch from investing nearly all of your capital expenditure on things that you’ve done in the past, to invest much more of it on things you don’t yet do. The people who currently run the major bit of the business are suddenly going to be deprived of expenditure and it’s going to go to someone else who’s running something which doesn’t really exist yet. And making that change at an organisational level is incredibly difficult.
We’ve done a variety of pieces of work in the last couple of years with companies where it is abundantly clear that their main prize lies outside their core business. Their core business is great and fantastic, but that’s 1% of their future and 99% of their future is in things they’re not doing.
The other part of it is what my colleague Cassandra Kelly calls the supremacy gene, which is that big companies become very inbred and strongly enamoured with their own wonderfulness, and they can’t see that they have significant inherent weaknesses.
Look at the banking sector and what the likes of Google and Apple and others will do to the payments industry. They will just quietly take over and own payments. And the banks will spend a long time thinking it’s never going to happen, and they won’t stop to think that if you’re Google you can throw 5 or 10 billion dollars at having some fun in payments. There isn’t a bank in the world that can spend 10 billion dollars on payments. None of them have 10 billion dollars of spare capital that they can just burn.
We see this with the Australian banks which are obviously very small in broad terms, but by market value they’re large so that all four of them are in the world’s top 25 banks. I think [the Commonwealth Bank of Australia] understands that you really need to innovate or you will die. As for the other three, sometimes I think that having a fourth weekbix for breakfast is an innovation that they would find hard to stomach.
They really are very very slow moving, but they have tremendously profitable businesses and they will continue to do really well for quite a decent period of time.