Australia Is An Innovation Laggard (Nigel Lake, Part 10 of 10)

Australia, The Innovation Laggards

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This is the tenth 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

Tom: There has been a lot of support given to entrepreneurs in the UK in the last few years which seems very promising. Do you think that Australia is perhaps falling behind in that area?

Nigel LakeNigel Lake: Australia is 11 hours ahead of GMT, and about 10 years behind at least.

It is not a question of “is Australia falling behind?” Australia is massively behind.

I moved [to Australia] in 2003 and was amazed by the almost complete lack of online anything. Wind the clock forward and the online businesses of the big companies are still terrible. So there has been an amazing lack of innovation.

[Pottinger is] quite plugged into the entrepreneurial universe here through the universities, through some of the people who have invested in those companies, and through the incubators and so forth. We have put a fair amount of time into trying to support the evolution of that whole ecosystem because we think it’s amazingly important.

[Australia has] a political environment where there is a significant disaffection with science in general. There is a real love of things which are steeped in the past. There is a great unwillingness on the part of business here to embrace things which are new.

The poster child for success is Atlassian, the tech company, which sold its product in 10 or 15 countries to dozens of large companies before an Australian company would buy any of its products.

They are based in Sydney and had a fantastic platform for making your own wiki. They had a similar platform for managing agile software development programs, which is now used in many large companies around the world. Australian companies were at the end of the queue, despite the fact that the company is actually based in Australia.

Tom: So it sounds like there may be a cultural issue that Australia needs to overcome. I know that after finishing university a lot of the smartest people either leave Australia or take plum jobs in the established order of things. There appears to be a missing segment of the economy which exists in the UK and the U.S. And that is, young people trying to change things and create new businesses.

Nigel Lake: You just need to look at the university world. In most countries around the world, university students are pretty radical and protest about everything all the time. I have never heard an Australian student protest about anything apart from whether the temperature of their cappuccino is quite right.

There is an endemic acceptance of the status quo as being nice and comfortable and really quite reasonable, which to a significant degree it is. But you don’t have a change the world mentality, and people who want to change the world, as you said, they just get on a plane and they go somewhere else where they feel more welcome.

The only way you can change Australia is by changing its leaders. And that is about political leadership and business leadership. It’s an absolutely massive endeavour to attempt to do that. The challenge is that the political leadership comes out of the party system, which is breaking down in Australia as it is in the UK, but it is hard to see where that inspirational change the world leader will come from in Australia.

Ongoing Innovation in Digital Media (Nigel Lake, Part 9 of 10)

Innovation in Digital Media

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This is the ninth 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

Tom: One of my friends used to work at a large management consultancy in Sydney and was involved with providing advice to The Australian on the implementation of its subscription model.

In my view the subscription model is a crazy model because on the Internet the things which are scarce are attention and the ability to connect with people. Content is very cheap and increasingly free.

How can it be a good strategy for large newspapers, which are in the business of content creation and distribution, to be restricting access to that content? Meanwhile Google, LinkedIn and others are producing huge amounts of content and giving it away for free. What are your thoughts on that?

Nigel LakeNigel Lake: I couldn’t agree more.

What many of these organisations have done is say, “look, we are a newspaper”, and the world is going digital so we need to place the newspaper online.

So they take the physical newspaper and then they put it into an Internet version which is still the exact same thing as the physical newspaper. All lined up around the masthead of whatever the title is, and it has sections which are the sections that they used to have before.

After about 20 years they realised that if you’re online you can actually have video in a newspaper, which is a very modern phenomenon. Papers like the New York Times still don’t have much in the way of video content which is kind of bizarre because it works really well on a 4G network.

They have just not in any way reinvented themselves for the digital world.

The challenge is that to do that properly and to be able to figure out what you should actually do, you need to understand the media industry and what it is that people actually want to go and read. Secondly, you have to understand what makes a profit and what makes a return on capital. And thirdly, you need to understand what is really going on in the evolution of technology and where will it take us.

This goes back to why we set up Pottinger in the first place. If you have a strategic consulting set of skills but you don’t have financial or transaction skills then you only have part of the equation. And if you’re an investment banker who likes doing deals then you only have part of the equation. So we brought together the whole strategic thinking mindset with very robust financial analysis and over time we have added the big data analytics piece so that we have a much more holistic view of what you need to do.

In the world of media the technology part is incredibly important.

The lack of understanding about what is really going on in technology in some of these large media companies around the world is mind blowing. It’s almost impossible to put into words how little they know.

Tom: I couldn’t agree more.

Nigel Lake: Just on newspapers, the one that is very interesting to watch is The Guardian.

The thing that The Guardian has done which is very interesting, beyond the fact that they don’t have quite as many amazing typos as they used to, is that they are the world’s first global newspaper.

They have the full editorial staff in the UK, they have a pretty decent editorial staff in the U.S., and they now have quite a strong editorial staff in Australia having picked up some of the better journos who got kicked out of other things. They have a model which is free in terms of ability to access the content, and they have still retained a level of focus on the quality of the writing.

This is the other part of the media journey that newspapers have been down, which is they’ve said, we have got to get online, everything is so cheap online, we’ll just make the content as cheaply as possible. And the underlying business is really profitable because people come there and click on all the ads. But the thing is people don’t go to a newspaper website to read the ads. And so, if the content is not what people want they will just go somewhere else. Particularly if they have to pay for it, then they will definitely go somewhere else.

The Guardian has followed a different model which is about saying we’ll try to keep the quality of the journalism up, we’ll provide a much broader view of the world, and it’s not a subscription model at this point in time. Well, it’s a subscription model for things like the crosswords which is kind of interesting.

For me that feels like intuitively a model which is much more likely to be successful. Now I have never worked with The Guardian and I’d love to get under the hood of their profitability and metrics on usage and so forth. But they are an example of a paper which is going the other way, and I’d be interested to see whether it is working for them.

Where Should the CEO Focus His or Her Attention (Nigel Lake, Part 8 of 10)

CEO Focus

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This is the eighth 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

Tom: In my mind one of the problems with innovation is that it can require a kind of schizophrenic approach. Focusing on the present business model and current needs can be all consuming, and thinking about the future can similarly be all consuming. Do you think that it may be helpful for companies to divide those roles? Or, do companies just need a business leader who has the foresight to see the future as it’s unfolding?

Nigel LakeNigel Lake: I think that’s a very interesting observation.

The advice that everyone gives entrepreneurs is that make sure that you don’t spend all of your time working in the business, you actually have to work on the business. And the same very much applies to large companies.

The CEO should not be spending much of his or her time running the business day to day. They absolutely should be looking much further out into the future and making sure the business is well positioned by taking the long term and difficult decisions now that will ensure that the business does well over the longer term. That isn’t always the case, but that for me is very clearly what the CEO role is all about.

In terms of how do you deal with this, in many organisations you end up with most of the management infrastructure focused on running the business, and that’s fine, and you have a preferably very small team of people who are focused on the longer term strategy of the business.

An interesting example is Tata Consulting, the big Indian IT services business, one of the world’s largest IT businesses. They have a workforce of hundreds of thousands of people around the world, and what they do is all about reliable delivery of technology which is very driven by process and reliability.

In that kind of entity how on earth are you going to embrace radical innovation and change? And so, what they have is a whole separate ecosystem internally called the Co-Innovation Network, which has quite a significant headcount in it and which is entirely focused on radical innovation and new technologies. And so, they have part of their business which is not constrained by today and is entirely engaged with what is happening that will change the world in all sorts of ways. That part of the business reports in directly to the Global Chief Technology Officer, who is one of the key guys in the group.

Tom: I guess, at the end of the day, change needs to come from the top.

Nigel Lake: You can’t make change happen from anywhere other than the top. If the top isn’t interested you’re wasting your time.

How to Anticipate The Future (Nigel Lake, Part 7 of 10)

Anticipating The Future

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This is the seventh 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

Tom: If you were the CEO of a bank, say National Australia Bank, and you see [innovation in the payments industry] coming, but you don’t have the capital to invest, and you don’t have the technology people. How do you respond to that?

Nigel LakeNigel Lake: You have to get in a darkened room where you feel very safe, and you have to say “what does the world look like when these people have taken over one of the most profitable parts of my business? What are we going to do? How are we going to compete?”

The payments part [of the banking industry] is somewhat invisible from the outside but it is a very high margin business. And so you have to say, “if we lose all of that, what are we going to do? How do we organise ourselves? How do we continue to be relevant in a very different world?” And you need to make all your decisions working back from that.

That’s an archetypal example of why thinking about the long term first is incredibly helpful because trying to work out what you might do incrementally starting from today is quite hard when you’re saying look it’s all too difficult. But if you say, okay, well, whatever is going to happen is going to happen let’s think about the world after that, then you can start making decisions where everything you do along the way lines up with making sure that you’re well positioned over the longer term. And you can then get out and start to tell some of that story publicly.

Tom: So in a certain sense it’s having the foresight to see what’s coming, accepting that, and then working accordingly.

Nigel Lake: Absolutely.

I spoke at a strategy conference a month or two ago, and I got there just a bit before I was due to speak and the last session was still going. It was a guy from the management consulting world talking about how companies couldn’t really deal with a strategy that looked out two or three years any more. It was all too hard; the world was moving too rapidly; they could only really deal with things for the next three months. And I just thought to myself, wow, how can I find companies like that which are only thinking three months at a time? I just need a client on the other side and we’ll go take their business because they have no idea where they are going.

People like to reassure themselves that understanding the future is just too difficult, so you had better focus on the near term. But there are all sorts of areas where actually the future is very very predictable over vastly long time horizons.

Anything to do with demographics you can predict quite reliably decades and decades ahead. If you want to know what the population of some country is going to be in the year 2050 we have already a pretty good idea now because most of the people have already been born who will be alive in 2050 in that country. Things like that are predictable.

The TVs that will be on sale in the year 2020, we know what they are now and what the specifications are now because you can’t invent new technology and bring it to market in four and a half years.

The things that will go on sale in 2020 have already been in the product development pipeline for some time and they are part of a longer term evolution of products. So in the world of technology you can predict five or ten years in the future as to what things will be like. Many of them are on relatively predictable Moore’s law price curves.

What is energy going to cost in ten or twenty years time? Well, we have fifty or sixty years history of the evolution of solar PV prices, and they will continue to decline on more or less the same basis for a period of time. Before long they will come to drive the cost of power, and so predicting the cost of power in the future becomes rather easier than it has been in the past where it was all dependent on oil and commodities cycles.

There is lots of data you can use to understand the future but businesses are not necessarily brilliant at doing that.

The Challenges of Pursuing Organisational Change (Nigel Lake, Part 6 of 10)

Challenges of Organisational Change

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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

Nigel LakeNigel Lake: Major incumbents have historically struggled to reinvent themselves.

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.

The Need for Continual Innovation (Nigel Lake, Part 5 of 10)

Continual Innovation

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This is the fifth 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

Nigel LakeNigel Lake: If you watch what happened with the iPhone. Jobs had very particular views about the size and shape of phones. The iPhone had evolved quite significantly over time but it was still basically a very similarly shaped device.

When Jobs died the whole organisation sort of thought, we’ve just to keep on making the phone the same way because that’s what Steve Jobs would have done. But that wasn’t really who he was because he was someone who was continually reinventing all these things.

Apple got into a really pretty dark place with the iPhone 5, which just looked so kind of yesterday, and then impressively re-discovered its mojo and ability to say, look that was yesterday and we have to reinvent ourselves. They then created the iPhone 6, which is a tremendously good product and has sold incredibly well.

Tom: So they weren’t responsive to the needs of customers and what people were telling them.

Nigel Lake: That’s right.

People in senior roles got sort of hung up on “there was this guy, and he told us to do everything, and that’s what he would have told us to do” without realising that the world had moved on.

[Steve Jobs] was someone who could do something one day very very passionately, and then have the kind of whatever it takes to say, “that was then and this is now and the world has changed, and maybe we should think differently”.

When he died it left quite a shadow over the organisation but it has somehow reinvented itself. If you think about what happened the first time around when Jobs was booted out, it was a complete disaster. This time around they have managed to continue, reinvent themselves, reinvent the phone product, and bring the watch to market to what seem like quite strong reviews so far.

Tom: I guess it’s yet to be seen how things will play out. One question mark over Apple is that Tim Cook is an operations guy whereas the whole company’s magic is based around innovation, being nimble and being willing to change.

Nigel Lake: It’s going to be an amazing story to watch for the next five years or more to see what happens to that business.

It’s a fascinating thing, because on the one hand it’s hard to think of organisations which have really dominated some particular segment that have survived radical innovation in their segment. And yet on the other hand, you look at the world’s largest companies from a few decades ago and there haven’t necessarily been huge changes in those names. But that’s partly because things like oil and gas are still very big industries.

It’s starting to change quite rapidly now.

The Importance of Having A Strategic End Goal (Nigel Lake, Part 4 of 10)

Strategic End Goal

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This is the fourth 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

Tom: Do you think that public companies are disadvantaged in being able to take a longer term view because they’re driven by the quarterly earnings cycle?

Nigel LakeNigel Lake: I’ve spent most of my career in and around public companies advising them on various things. I don’t think that the earnings cycle itself is a problem at all. I think the problem is in how leaders have responded to that earnings cycle.

When analysts and other commentators come begging for some short term faddish response, too many CEOs and management teams have tried to deliver up something which looks a bit like the latest fad with no sense of where they are actually trying to end up as a business.

An example of this is lots of companies which talk about strategy and strategic direction, but the whole notion of a strategy or a direction is completely meaningless unless you actually know where you are trying to end up.

Think about the analogy of getting on a boat or a yacht, and you sail out into the harbour and ask the captain where you are going. The captain will give you the name of the port you’re trying to end up at. She’s not going to tell you that you’re sailing North-North-East because that doesn’t really matter very much right now.

Many companies have got what they would call a strategy, which is some sort of vague sense of direction but with no enunciation whatsoever as to where they are trying to end up in five or ten years time.

Tom: I suppose in some sense it’s very difficult. From the interviews I’ve read, it seems like Steve Jobs didn’t always know exactly what the next thing would be. He had a strong emphasis on fast cycle times, paring the initial products back as much as possible to be as simple as possible, and then seeing what worked and what didn’t work and being very responsive to customers. And yet, he was probably quite a good strategist?

Nigel Lake: It’s fascinating, I think the whole Apple/Jobs story is an absolutely fascinating story, and there is a very interesting tension between exactly what you say.

There is at the same time this deeper guiding purpose or obsession [that Apple has] which is to deliver a product which completely revolutionises an entire industry, globally, by creating a product that is essentially perfect.

It’s not that it’s better than what someone else has got; it’s just the perfect thing.

The major things that Apple has done: the reinvention of the Sony Walkman effectively as a portable music player, the iPhone and then tablets are all things which have – and now query the watch, I have not yet formed views on the watch, but I’m not going to criticise it given the company’s amazing track record – they have completely revolutionised complete industries by delivering products that are essentially perfect.

That is an amazingly high ambition, and it’s difficult to think of other companies that have really set about to do something that dramatically transformational on a world scale.

Finding The Courage to Overcome Vested Interests (Nigel Lake, Part 3 of 10)

Courage to Overcome Vested Interests

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This is the third 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

Tom: The problem for decision making is partly about short term thinking, but it seems like the problem might also partly be a result of the principle-agent problem. For example, Steve Jobs was a founder who could make tough calls and bet the company based on his vision of the future; whereas if you are a CEO taking a bonus then you might be very incentivised to ride the current business model and underinvest in new innovations.

Nigel LakeNigel Lake: That’s absolutely spot on.

So, one of the other broad areas that I deal with in my book is the whole concept that we might all believe that the free market is a wonderful thing, but of course there are all sorts of structures in place in the world in which we live which set up all sorts of vested interests in various different ways which then inhibit sensible decision making.

And I absolutely agree with the point that you make about CEOs being in a world where they are probably only going to last three years.

They’re trying to maximise their pay over that period of time because most CEOs of listed companies never get another job. And as a result, the people in those sorts of roles get lured into the belief that taking a short term approach will work really well for them.

Now the irony of course is that that doesn’t necessarily prove to be the case, and that the most successful CEOs are often those that have thought rather long term and have not been the people that have chased the quarterly reporting figures.

But that requires a very different sort of individual, who has the courage to say, look we actually need to go and do this big picture thing which will completely transform our company over the next five years. We’re going to go from a business where none of our value is, in Apple’s case, phones to where a huge part of the value is in the design of phones. And Apple doesn’t even make mobile phones, Foxconn does that.

Conversation with Nigel Lake, CEO of Pottinger

PottingerI recently had the good fortune to speak with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia.

Nigel is a truly original thinker who combines a good sense of humour with sharp strategic insights and clarity of thought.

I had originally intended to ask Nigel some questions about Pottinger and its recruitment process, but I thought better of it. I was interested to learn more about his book “The Long Term Starts Tomorrow” and we ended up having a very interesting conversation.

Our discussion touched on various fascinating topics including:

  1. The importance of thinking about the long term first
  2. Looking beyond short term financial metrics
  3. Finding the courage to overcome vested interests
  4. The importance of having a strategic end goal (rather than just a general sense of direction)
  5. The need for continual innovation
  6. The challenges of pursuing organisational change
  7. How to anticipate the future
  8. Where should the CEO focus his or her attention
  9. Ongoing innovations in digital media, and
  10. Australia’s unenviable position as an innovation laggard

Please bookmark this initial post, subscribe by email or follow the conversation on Twitter via the hashtag #nigellake.

I will post one instalment from my conversation with Nigel Lake every weekday for the next two weeks.