ISAMBARD

Open and honest - if you say you are, you’d better be!

2012-02-12T09:02:00.000+13:00

Flashback: First published 2 May 2007

There’s a lot of comment about so-called ‘openness’. Frankly, I don’t buy most of the hype. You either do it or you don’t. If you don’t deep-down do ‘openness’ and ‘honesty’, you’d be better off not claiming otherwise - you’ll be reviled the minute you show your true colours. Openness and honesty have to come from deep-seated personal values that are lived and demonstrated.

Here are some thoughts :

People respect circumspection when it’s done ethically and consistently.
‘Engage brain before opening mouth.’ Tact, diplomacy and good manners have a place in the world. You can state a criticism or a contrary view or express disappointment and frustration, without causing offence or compromising yourself. (I admit I find frustration challenging, and it shows!) Likewise, try to respect and protect other people’s dignity, especially in trying circumstances.
‘Neither confirm nor deny’ - a useful line in certain areas, but be consistent right from the start. If you squash a rumour when there’s nothing to it, and then say ‘I don’t comment on rumour’ to avoid the question when there is, everyone knows.
Openness and honesty are two values deeply important to me, so when there are some things I can’t tell people, or least not yet (e.g. commercial or individual privacy, public financial disclosure, etc), I’m honest about it. My promise to people is ‘I won’t lie to you; I’ll tell you as much as I can, when I can; but I can’t tell you everything’.

Every CEO gets a nickname and I’ve had some good ones and some bad ones, like ‘Chainsaw’ (I’ve done a lot of restructuring and company turnarounds). Do you know the one I’m most proud of? When I was CEO of power company Electra, having laid off a third of the staff, radically restructured our various businesses, and outsourced a lot of in-house work, the linecrews in our Linework subsidiary (a very earthy bunch) dubbed me ‘No-shit Jim‘. It was a sign of respect, one which I appreciated deeply and one which, albeit imperfectly, I have tried to live up to.

Constituencies of change - be prepared to rip the plaster off.

2012-02-07T10:00:00.000+13:00

Flashback: first posted March 28th, 2008
Two recent conversations about how to drive change drew me to observe that any change agent often has to deal with and manage several constituencies:

The early enthusiasts: eager proponents and advocates, but who want you to fire everyone else who doesn’t ‘get it’ straight away.
The nervous approvers: They need selling on the rationale, and are nervous about the change, but consultation, communication, confidence, consistency, and constancy of purpose will bring them aboard. They get very anxious when others don’t ‘get it’, and expect massive efforts to keep everyone happy, especially those who have yet to ‘get it’.
The passive acceptors: They bitch and moan like everyone else but, as the change gets embedded, just accept it and forget about it.
The late zealots: They fight the change tooth and nail, but as they see things start to work, they become its most ardent enthusiasts, and stop worrying about those who have yet to see the light.
The smart leavers: These don’t like the change, but often can understand its rationale. However, it’s not for them, and they move themselves on to new jobs (where they often adopt new ways anyhow). You remain on good terms with them.
The persistent nay-sayers: These are the ones who hate the change, and constantly bemoan it. They’ll never be converted, yet they stay on, becoming increasingly bitter and twisted, undermining everything and everyone, and constantly demanding your attention to their grievance.

It’s important to figure out which constituency someone is in, and manage them accordingly. If you’ve got a persistent nay-sayer who can’t be turned into a late zealot, try to turn them into a smart leaver. Otherwise, put them out of their misery - get them out as fairly, humanely and quickly as possible. The success and well-being of the team, the change and the business are more important than wasting time and energy on a cause you can’t win. It’s like removing a sticking plaster - a quick rip in less painful in the end.

Hidden Champions of the 21st Century

2012-01-29T19:43:00.000+13:00

A recent New York Times article examined why Apple has its iPhones made in China. The article deservedly attracted a lot on attention for its insights on China's supply chain advantages in manufacturing (far more significant than simple cheap labour) and the USA's continuing shortages of engineering skills at all levels. Unfortunately, the main reactions I've heard can be summed up as defeatist:

the West has lost the "war" in manufacturing, and
anyone thinking of investing in Western manufacturing is crazy.

Both reactions are wrong. While it certainly makes sense for some manufacturers to have Chinese operations, it does not mean that Western manufacturing should throw in the towel. For an alternative and far more upbeat view, I recommend you read Hidden Champions of the Twenty-First Century: The Success Strategies of Unknown World Market Leaders by Hermann Simon.

Simon was a noted academic and today heads an international consulting business. He first brought attention to the "Hidden Champions" - mid-size firms with global leadership positions - with a 1992 article in the Harvard Business Review, followed in 1996 with a best-selling book Hidden Champions: Lessons from 500 of the World's Best Unknown Companies. With Hidden Champions of the Twenty-First Century, Simon has updated his earlier analysis in the context of the rise of China, and finds that his original ideas are even more valid today. He provides examples and data to make his case that mid-size firms can be globally successful, without recourse to management fads and magic bullets.

Simon estimates that 80% of the hidden champions are based in north-west Europe, especially Germany and Scandinavia - most definitely not low-cost regions. He also notes that many of the hidden champions are based in small towns where it is difficult to hire the top talent attracted to big cities and big corporations. That hasn't stopped them being successful; likewise, Simon is dismissive of those who opt for the easy outsourcing route for core activities.

The last chapter is especially useful, as Simon distills his ideas into eight lessons for success:

Effective leadership with ambitious goals
High performance employees
Depth (supply chain and vertical integration)
Decentralisation
Focus
Globalisation
Innovation
Closeness to customer

I strongly recommend anyone thinking about how to improve their mid-size business (or simply wanting to feel good about their potential) to read this book. It could almost be tailor-made for New Zealand's manufacturers.

Disclosure: Isambard receives commissions from Amazon for purchases made via links from this website, but that has not influenced my opinion.

Exports are not enough!

2012-01-24T06:00:00.000+13:00

Flashback: First published 13 August 2001 in the Dominion Post.

“Export or die!” We have heard that message so often - and for many companies, it is the right message. Getting the world to buy a New Zealand product or service is an important milestone for a developing business. Lots of successful exporters are needed for a healthy economy - but they are not enough. The world’s most successful companies do not just export globally - they operate globally. That means having sales, service, logistics, production and development operating around the world. Look at the world’s greatest companies. How many do things only at home to ship out to the rest of the world? I can only think of one - Boeing. The others made the leap from exporting to international operations. Our own Dairy Board/GlobalCo [Fonterra] has substantial and growing offshore development, procurement, manufacturing and logistics. More Kiwi companies need to recognise when to make that change.

Why? To minimise the cost of distance - freight, duties, foreign exchange risk and in-transit inventory; to reduce production costs, through greater volumes, lower material costs and lower manufacturing wages (an unpleasant reality); to get closer to customers for more efficient service and faster reaction to changing needs; to build critical mass for future investment; and to build credibility with large global customers.

I speak from personal experience. Deltec developed an advanced antenna technology for mobile phone networks - Teletilt - that enables network operators to adjust their cell coverage remotely and with improved signal quality. We began in New Zealand and Australia, explored SE Asia, and then expanded sales rapidly in China. Our products were key components of large infrastructure projects. We were the world leader in our niche. But as we grew and started to explore Europe and the Americas, our larger customers demanded the cost and service benefits of in-market operations. By mid-2000, we were getting a consistent message from global customers like Motorola and Nokia: “Set up full-scale sales, service, manufacturing and logistics in North America, Europe, China and Brazil. Do it now. Or don’t expect to get our business in future.”

The time had come to switch from a Kiwi exporter to a global business.

The capital requirements and the risks were large. Then the tech sector went into meltdown, and technology investors took fright. So we decided to sell. Andrew Corporation, a global competitor with complementary products and a similar vision for the future, recognised the value of Teletilt and our expertise. Our Wellington development facility will become their worldwide centre for developing advanced antenna systems. New Zealand will continue to play a key role in the technology. It won’t save the mainstream manufacturing, which would have gone to China eventually anyway, but we can reinvest in new opportunities.

My point is that New Zealand should not wistfully expect its companies to export everything from home. Global companies like Nokia, Vodafone, and Nestlé operate in many countries. The interesting thing is that large numbers of their high-value jobs are still at home - in development, marketing, and corporate administration. They are surrounded at home by a plethora of supporting organisations in banking, IT, law, accounting, advertising, travel, short-run early-stage manufacturing, research, education, etc. Together, they bring home huge revenue and profit streams.

If New Zealand wants a high-value economy, it needs more than just exporters. It needs global businesses that operate offshore in all facets of their business. New Zealand should encourage its businesses to invest offshore, not deride them for it. Without global operations, we won’t get a Kiwi Nokia or Vodafone. With global operations, we look like getting a Kiwi Nestlé. We could sure do with some more.

PS. At the HiTech2000 Awards, Deltec won the High Growth Company of the Year Award, the Investing in People Award and the Supreme Award. When the tech-wreck got even worse in 2002, Andrew’s NZ R&D centre went too, but that could happen under any owner, and only validates my argument that we need our own global players based here. The home R&D is usually the last to go.

It’s stuff that makes the world go around, not money

2012-01-23T10:15:00.000+13:00

Flashback: first posted May 28th, 2008

“… we’re moving back to a world of stuff, whether that’s vegetable oil or copper or zinc or cotton. Stuff that you can hold in your hand and drop on your foot.”

That’s from an article in the LA Times. While that particular article looked at the renaissance of old-economy US commodity firms with the liberalisation and industrialisation of the BRICs (Brazil, Russia, India and China) et al, there’s another interpretation: that the world of stuff has always been the fundamental driver of the world’s economy, and that it’s reasserting its fundamental power over the worlds of finance and services.

I define the world of stuff in a pretty broad way: everything from food, water, materials, energy and manufactured goods through to electrons (power and communications) and those services directly associated with the delivery of stuff (e.g. shops, warehouses, transport networks, utility networks). Things get a bit vague when I start looking at films and bespoke software, but you’re a smart bunch; you can live with a bit of uncertainty. (OK, not the IT guys - never any good with shades of grey).

Although finance and services are essential elements of the world’s economy, and have been ever since their invention thousands of years ago (I’ll even classify politicians as part of the world of services), they are mostly facilitators of our ability to make, sell, buy and use stuff. Yes, we do spend money and time on other things, such as education (arguably so we can achieve the means to get more stuff), entertainment, healthcare, etc., but those are afforded by someone somewhere producing stuff that others want. And when stuff isn’t being produced and purchased, the rest can go hang.

Those who look disdainfully at the world of stuff have a misguided sense of their own importance or self-righteousness. Civilised society owes its very existence to the world of stuff. Those in finance and services (including politicians) would do well to remember that connectedness.

PS. This isn’t an argument for every national or local economy to make manufacturing its cornerstone. The phrase “From each according to his ability, to each according to his need” springs to mind, but don’t mistake me for a Marxist. Each should do what it does best and buy what else it needs

Zealandia: the idea grows

2012-01-17T12:33:00.000+13:00

Suggestions and questions on NZ's mineral and energy opportunities

New Zealand is the visible part of Zealandia - the unofficial name for the sunken continent that surrounds us, and the fifth largest exclusive economic zone in the world (bigger than Europe). Robert Allen's book on the Industrial Revolution prompted me in 2009 to think about what major economic opportunities exist today, especially any hindered by complex technical challenges; (hard-to-solve opportunities offer rich rewards once solved). I identified two - marine energy and submarine minerals, both of which New Zealand has in abundance.

I started talking to people about these ideas in 2010. I generally received positive reactions, and I learnt of others with similar views. However, some inept political PR and and high-profile international incidents meant the environment was not conducive to taking the discussion to a general audience. But continuing economic turmoil has seen a shift in sentiment. In 2011, more people were asking for some real strategy on economic development. Like others such as Solid Energy's Don Elder, I felt the time was right to go public, and I wrote a short article titled "Zealandia - an untapped opportunity", including some suggestions for our government:

Announce that Zealandia is open for business; grab the attention of local and international investors, entrepreneurs, designers, and businesses.
Give resource licence allocation a bias* for creating local operations to discover, harvest, process and productize our mineral and energy resources. (*Bias does not imply giving away resource licence fees to subsidise jobs - that's a mug's game).
Ensure the regulatory regime encourages both resource development and environmental protection.
Significantly increase the proportion of government science funding allocated to discover, harvest, process and productize our mineral and energy resources.
Give IRL (our engineering research institute) a primary focus on technologies to discover, harvest, process and productize our mineral and energy resources (in the same way that our pastoral, arable and forestry science institutes are focused on primary industries and downstream value chains).
Merge GNS (geology) and NIWA (water and atmosphere) to create an integrated resource science institute (possibly merged with the refocused IRL).
Mandate Solid Energy to become a broader minerals business, pursuing coal and non-coal opportunities.
Free Solid Energy from short-term dividend demands and allow it to raise new private capital and enter joint ventures to develop its most promising opportunities.

Although the Zealandia opportunity didn't figure much in November's election, there were some promising initiatives announced by the government, especially the partial privatisation of Solid Energy and the repurposing of Industrial Research Limited into an advanced technology institute focused on key economic opportunities including marine energy and materials. There's also an ongoing review of the Crown Minerals regime, with public consultation due soon. Phil O'Reilly from Business NZ has urged people to make submissions addressing key questions:

Which resources, how much and when, should we access?
Which offer most opportunity to grow high-tech industries with high-skill, high-paid jobs?
What level of royalties and taxes should be paid by enterprises wishing to access our resources?
How much transparency should we demand from those enterprises?
How can we best use the income earned?
How can we have world-best safety standards?
How can we ensure the environment is left the same or better afterwards?

Phil's questions are good, but they mostly focus on the extraction aspects. While extremely important, just being a mineral resource is not the whole answer. Phil's second question is where much value lies: Which offer most opportunity to grow high-tech industries with high-skill, high-paid jobs? Related to that, there's another question that should be asked (although the CMR consultation is probably not theforum): How do we grow NZ-owned businesses capable of discovering, harvesting, processing and productizing our mineral and energy resources, and providing the technologies to do so? This is a not an area where angel investors can help much.

Strategy lessons from the Industrial Revolution

2011-12-19T08:00:00.000+13:00

Flashback: First posted January 2010. Something to think about over the holiday.

One of my best reads recently had the somewhat dry title “The British Industrial Revolution in Global Perspective (New Approaches to Economic and Social History).“ Don’t be put off. Written by Robert Allen, Professor of Economic History at Oxford University, it’s a very readable* and convincing account of why the Industrial Revolution happened in 18th-century Britain, rather than anywhere else. Allen discounts any notions that Britons were superior entrepreneurs or innovators; indeed, other countries enjoyed similar advances in science, education, institutions and commerce. Instead, after setting the scene with societal and economic developments in the 16th and 17th centuries, Allen points to some primary factors which came together only in Britain and nowhere else:

The highest wages in the world (thanks to the Black Death and its effects on British society).
An abundance of cheap energy from coal (albeit not very useful initially, but developed to supply growing city populations).
Ample supplies of iron ore close to that coal.

Those factor conditions did not come together anywhere else, and so there were not the incentives and rewards for creating the wave of technological and business innovation that transformed Britain (and later the world). Allen also shows that the state played very little distinctive role in the British transformation. It was the cumulative efforts of individual entrepreneurs, engineers and other innovators addressing real business problems and opportunities which, because they were common in Britain, also generated classic cluster effects.

While interesting in its own right, Allen’s book reinforced for me much of what is wrong with current economic development thinking. All we seem to hear is more education, more science, more infrastructure, less regulation, less tax, and so on. All well and good (at least up to a point) but these are me-too strategies. Everyone else is following them, more or less. Me-too economies can’t make the step-change that Britain achieved in the 18th century (and sustained for 200 years).

The questions I think business innovators should examine are not only “What do we do to sustain and grow the industries we already have?” but also “What unique un-addressed problems and opportunities do we have which, if resolved, will enable us to build new unique and sustainable global competitive advantage?” And for policy-makers, “Will you adjust your economic development mechanisms to support those new initiatives?”

I can think of at least a couple of significant problem/opportunity combinations where New Zealand could build global leadership. Know anyone with some serious spare investment dollars?

*For those wanting data and/or academic references, Allen provides plenty, but they don’t get in the way.

The power of NOT thinking

2011-12-12T12:00:00.000+13:00

Flashback: first published 23 January, 2008

I wrote earlier that strategic thinking shouldn’t be complicated, providing simple answers to basic questions about your market offer (to customers, staff, business partners and investors):

What is your market offer?
Who is your target market?
Why are you making that particular offer, why that audience, and why will they accept it?
How will you make your offer and how will you fulfill it?
Where will you make your offer and where will you fulfill it?
When will you make your offer and when will you fulfill it?

One of the most powerful strategic thinking tools I know is NOT thinking. No, I don’t mean that you shouldn’t think. Just ask yourself the same questions, but with the word NOT inserted:

What is NOT your market offer?
Who is NOT your target market?
Why are you NOT making that particular offer, why NOT that audience, why will they NOT accept it?
How will you NOT make your offer and how will you NOT fulfill it?
Where will you NOT make your offer and where will you NOT fulfill it?
When will you NOT make your offer and when will you NOT fulfill it?

Deliberately spelling out what you won’t do helps you to better define what you will do, and importantly it helps to keep you and your team on track.

What you’re not is as important as what you are.

Strategic thinking with Rudyard Kipling

2011-12-06T11:01:00.000+13:00

It's been suggested that once a week, I re-publish one of my earlier posts. I decided to start with this one. I hope you like it.

Flashback: First published 22 January 2008

Strategic thinking shouldn’t be complicated. When I run strategy sessions, I often start with a well-known quote from Rudyard Kipling’s Just So Stories for Little Children (The Elephant’s Child):

I keep six honest serving-men
(They taught me all I knew);
Their names are What and Why and When
And How and Where and Who.

You need simple answers to questions like this for customers, staff, business partners and investors:

What is your market offer?
Who is your target audience?
Why are you making that particular offer, why that audience, and why will they accept it?
How will you make your offer and how will you fulfill it?
Where will you make your offer and where will you fulfill it?
When will you make your offer and when will you fulfill it?

Actually, my serving men all share an apprentice, but I’ll introduce Master Not later.

Selling a new idea to government

2011-11-17T19:58:00.005+13:00

Selling a new idea to government agencies is different to selling to an individual or most companies; not in the steps, but in the time-frame. You have to do this with every new idea, but it's especially difficult with government agencies:

Persuade them that they have a problem or opportunity;
Persuade them that there are solutions (and recognise that they will look for alternatives);
Persuade them that the payback from the possible solution(s) is worth the effort economically AND politically (the biggest challenge for novel ideas);
Persuade them that your approach to the solution (not necessarily your particular product/service) is the right generic solution;
Finally, win the RFI/RFP/tender/negotiation (they will seek alternatives to your great idea).

Many new entrants to the government market hope that they can jump straight to step 5, ideally on a single-tenderer basis. It very rarely happens in countries my readers call home. Government agencies would love to be more adventurous, but the media, the government's opposition, and your competitors are remorseless in their hunt for "unfair" deals (ie. ones that don't go through a competitive bid process). I could cite numerous cases of where the government procurement process costs more than the price/benefit differential. Learn to live with it, but price accordingly; ie. govt. business needs to be high customer value AND high supplier margin, or it's not worth it to both parties.

Video chats on leadership and strategic thinking

2011-11-03T12:38:00.000+13:00

In 2003, I was interviewed on camera for the Leadership project run by the Royal Society of New Zealand. They posted the best bits in 3 short videos. The titles are slightly misleading as I cover wider themes, but the videos are still relevant today.

PS. The anecdotes mainly related to Deltec, and I was interviewed in the Isambard office, but for some strange reason the editor inserted a graphic with Fronde on it. Ignore that.

Fast, Fresh & Tasty - a new approach in collaborative brand marketing

2011-10-28T16:18:00.000+13:00

Imagine you're a small or medium-size food business, offering premium quality products for sale through supermarkets. The supermarkets are squeezing you on price, because your sales volume doesn't give you much negotiating power. You need to build demand for your products, but you can't afford a big advertising campaign. What can you do?

That's the problem a new business called Fast, Fresh & Tasty set out to solve. Fast, Fresh & Tasty is a smart-phone recipe application. This is how they describe themselves:

Fast - A recipe app designed for busy people who appreciate good food. Follow the step-by-step cooking instructions. Use the shopping list, which sorts ingredients by recipe or department.
Fresh - We’ve hunted down the best quality ingredients from right here in New Zealand. Our app stays fresh too, with free seasonal updates to keep you as fresh as.
Tasty - We’ve hand-picked the tastiest dishes in the land. We stand by the flavours: we’ve tested every recipe ourselves (thanks to our patient friends & families!)

Fast, Fresh & Tasty was rated by test users as being as good as the top selling apps from the likes of Jamie Oliver and Nigella Lawson, with the added benefit of being seasonally and regionally topical. The pilot version is aimed at New Zealand, with other regions such as Victoria or the tri-state area in the eastern USA to be added as the business expands.

All well and good, but what makes Fast Fresh & Tasty especially interesting is that it offers food brand partners the opportunity for subtle product placement in the recipes. To keep faith with its users - premium food buyers - Fast, Fresh & Tasty imposes strict controls on who can be a brand partner and on the recipes themselves. Even sceptical testers found the product placement acceptable and the links to product information useful. So Fast, Fresh & Tasty earns its money two ways: from shoppers buying the app (at a fraction of a cookery book's cost), and from brand partners buying exclusive product categories to feature their products in relevant recipes alongside complementary ingredients from other brand partners (at a fraction of normal advertising costs).

Fast, Fresh & Tasty is available initially for iPhones and iPads, but a version for Android phones and tablets is planned later.

Disclosure: I am chairman of Click Suite, which designed and developed the Fast, Fresh & Tasty app. Click Suite is a 50/50 partner in the Fast Fresh & Tasty business, alongside the idea's creator Karin Grice.

I like B2B manufacturing

2011-10-12T11:16:00.002+13:00

B2B is internet jargon for Business to Business; ie. a business website that has other businesses as its primary target market. Alibaba.com is a classic example, a website that offers components and finished goods to manufacturers, wholesalers and retailers. OpenBorder.com is another, providing an international marketplace for translation services; its primary markets are firms doing international trade and professional translation firms.

Unlike the much tougher B2C marketplace (Business to Consumer) with its hyper-competition and faddishness, B2B internet businesses seem to have an easier time (although not always, especially if the market is large and lucrative).The same is true in the world of hard goods; it's often easier to define and carve a niche supplying other businesses with products they need for their business, rather than consumer products. Competition is still fierce and all aspects of your business have to be superb; but once you're established, the barriers to entry (knowledge, relationships, etc) give small and medium firms a chance to prosper on a global scale. It's especially so in industrial equipment - stuff that makes other stuff. The markets are global, but small and hyper-specialised, offering myriad opportunities for firms.

This is amply demonstrated by the Mittelstand - Germany's many small and mid-size industrial equipment makers which have done well in the last 50 years, despite the economic winds of change. To paraphrase influential academic and consultant Hermann Simon (see book link below, which I'll review another time):

you don't need to copy Silicon Valley to do well;
small manufacturing niches can still offer attractive global markets;
you can compete with China, etc. if you focus and innovate.

Hidden Champions of the Twenty-First Century: The Success Strategies of Unknown World Market Leaders by Hermann Simon. (Isambard receives commissions from Amazon for purchases made via this website).

Isambard Investments owns shares in several B2B business, including OpenBorder.

100 more companies can transform NZ economy

2011-09-17T09:11:00.006+12:00

Many readers will have seen Sir Paul Callaghan advocating the merits of manufacturing and technology to lift New Zealand's economic performance (as opposed to more dairy farming or tourism, the current favourites, even though we lack the natural resources to lift those land-based industries much further). Sir Paul challenged us to create 100 more companies of comparable size to our existing leading manufacturing and technology businesses. His proposal is based on a simple fact: manufacturing generates 2-3 times more GDP per job than dairying or tourism. Now someone has prepared a graphic tool to extrapolate the economic and job impacts of those additional businesses. I suspect the underlying assumptions and formulae are too crude to make this tool a serious economic predictor, but it does illustrate how manufacturing and technology outperform dairying and tourism in lifting GDP per capita (which flows through to higher wages and better public services and infrastructure).

And in case anyone still mistakenly thinks manufacturing is dead, here's one chart showing current jobs by industry (click image to enlarge).

The workforce of the future

2011-09-14T14:19:00.006+12:00

There's an oft-repeated line that we already have 80% of the workforce we'll have in 10 years time. That's both wrong and misleading. According to the New Zealand Treasury in 2010, our 2020 workforce will comprise:

20% from school-leavers between now and then
20% from immigrants (who may or may not have vocational skills)
60% already in the workforce today.

At least half of those existing workers will undergo a major career promotion or change of career. Add in the school leavers and some migrants and I'd say it's a reasonable assumption that over the next ten years, at least 60% of our workforce will need some very substantial vocational skills education. Not only that, putting a rising star from a local firm onto a one week course - in technical, marketing, leadership or negotiating skills at the right time in their career - should be highly valuable to the individual and the business (whether or not the government subsidises it).

How about the level of skills? Using qualification level as an approximate analogy for skill level, and again drawing on Treasury projections, our current workforce is likely to increase its qualification levels. A marked improvement, but not enough to compete at just the average of OECD country trends (see chart). Whether you aim for the current NZ trend or the far more ambitious OECD trend, these numbers pose some long term challenges – better outcomes for our long tail of unqualified school leavers, building pathways to true vocational skills and careers, and shifting the balance of provision toward higher level vocational skills.

Given the likely 60% fundamental training number and the competitive drivers for higher levels of education, tertiary education will remain a big issue over the next decade. Not only having relevant subjects learnt by the right people at the right level, but also getting value for learners, employers and the taxpayer, so we don't waste those valuable resources - our money and our time.

Disclosure: this is a personal perspective, but you should note that I am a non-executive member of the NZ Tertiary Education Commission board.

Bureaucracy blowout

2011-08-21T05:08:00.006+12:00

Further to my observations on Wellington's bureaucracy blowout, this chart is from NZ's Treasury (courtesy of Roger Kerr). Note the compactness of other small advanced economies, and NZ's position as an extreme outlier in both centralization and number of ministries.

Wellington manufacturing - what jobs?

2011-07-17T12:35:00.001+12:00

Continuing my look at manufacturing in the Wellington region, let's see what product areas together employ over 13,000 people (based on government statistics).

I bet most people didn't realize that food is Wellington's largest product manufacturing sub- sector. And that's not all. Look at these product sub-sectors; they're ones that everybody tells you are all sourced from China these days.

machinery and equipment - 1500 jobs
fabricated metal product - 1330 jobs
polymer product - 1040 jobs
wood product - 950 jobs
textile and clothing product - 910 jobs
furniture - 810 jobs
transport equipment - 520 jobs.

Many of these manufacturing jobs will directly or indirectly be in design-rich product niches, or satisfying customers where proximity, relationships and bespoke design are more important than low cost. These manufacturing jobs have survived 25 years of economic restructuring, globalisation, wild currency fluctuations, and multiple international financial crises. These manufacturing jobs clearly have something going for them.

Steinlager's London ad

2011-07-16T08:50:00.000+12:00

Spotted by John Fowler.

Wellington - making movies or making stuff?

2011-07-11T16:18:00.003+12:00

Wellington's movie industry is sexy. Does that justify the substantial ratepayer-funded resources and official support it receives, compared to say, Wellington's manufacturing sector? I know the movie industry is important for Wellington's self-esteem and international profile, and our elected representatives and their officials obviously enjoy the glitz rubbing off on them. But at 610 jobs in 2010, movie and sound production is only 80 jobs higher than it was 10 years earlier. Likewise, artistic activity (a broad group including actors) only added 40 jobs in 10 years to reach 600 jobs last year.

Many people, elected representatives and their officials amongst them, have fallen for the myth that manufacturing is dead in Wellington, when clearly it is not. Putting aside the public sector, manufacturing is still one of the big wealth-creating sectors of the Wellington regional economy, employing 13,370 people in 2010; far more than the software industry, let alone the movie industry. We all know that manufacturing has faced some challenges; some manufacturing sub-sectors have lost job numbers since their heyday. But so too have parts of the IT sector; internet and data processing operation (as distinct from design and development) has less than half the jobs it did 10 years ago. Technology and outsourcing have played a big part in both sectors' changes, but no-one is suggesting that we shouldn't be building and operating internet businesses.

It's high time manufacturing received more respect. Despite massive economic change and widespread misconceptions and prejudices, it's still here in Wellington. And with the right ideas, leadership, funding and ambition, it can be much bigger in future. This is going to be a developing theme from me.

Government statistics for February 2010 reveal the following distribution of jobs in the Wellington region.

*Note: Because people tend to lump IT operational services with IT development services,
I've reallocated computer design and development jobs from the professional services sector to the Information, media and telecommunications sector. This boosts the IMT numbers considerably, but it's a very diverse sector. IMT jobs in 2010 comprised:

Computer system design and development 5160
Internet portals, data processing services 960
Telecommunications services 2700
Libraries etc 1030
Publishing 1660
Broadcasting 730
Movie and sound production 610

Public service jobs in Wellington

2011-07-10T12:34:00.004+12:00

I've just seen some eye-popping numbers on job growth in the public sector of the Wellington regional economy over the last 10 years. I'm working on some ideas around the product manufacturing sector in Wellington (more on that another time) and wanted to know the make-up of the regional economy. First up, let's look at population and job growth between 2000 and 2010 :

Regional population 11%
Regional total jobs 15%
National population 14%
National jobs 19%

More population implies more public service front-line deliverers, but no more analysts and policy advisers. Public sector jobs should grow at or below the growth in population, unless major additional services are being delivered (and then only if funded by GDP growth above the population growth rate). An excessive public sector sucks up money and talent that should be utilised in wealth-creating sectors of the economy.

So what has the Wellington region's public sector job growth been? I had an awareness that the public sector had grown between 2000 and 2010, but I was staggered by my calculations using the official statistics (counted at February each year).

Social services

Preschool education 142% (expected given the huge funding boost)
School education 4% (age demographics may mean less need for more teachers, but I don't have the numbers)
Tertiary education 41% (reflecting the increase in government funding)
Adult & community education 26% (likely to have come down after the recent funding cuts)
Social assistance services 28%
Hospitals 19%

There are some private sector jobs here, but it's mainly public sector. You can argue whether or not those increases are justified. I suspect some represent poor quality spending, but unless there's a compelling case to the contrary, people seem to like increases in front-line services in health and education. But be prepared to be shocked when we look at the rest of the public sector.

Central government

Central government administration (that's the core public service excluding the other subsectors below) 52%
Regulatory services 62%
Public order and safety 52%
Justice 65%
Defence 45% (there are no regular force units in Wellington)
Heritage 76%

Local government

Local government 53%

None of these are double-counted; they are all discrete sectors with substantial numbers of jobs (typically thousands). I should also mention management consultants and contractors, most of whom in this region will be feeding off the public sector. Get this: 92% growth in job numbers, and it's a big sector!

I don't remember feeling the public service was under-staffed in 2000, so what are all the extra services that all these extra people are supposed to be delivering? There is something badly wrong here, folks, and it's you and I that are paying for it.

Disclosure: I am on the board of the Tertiary Education Commission, which has been working hard to improve value for money from its spend with education providers and has slashed its own job numbers over the last few years.

ISAMBARD's best business books

2011-06-29T16:25:00.000+12:00

I've read many business-related books, and I often refer to them in conversation or in articles here. Not every book is one I'd want to keep on my own library shelf. However, there are some business books I particularly recommend. Many are classics, one or two are less well-known, but all have influenced me significantly. Now, with the new Book shop feature in the lefthand column of this website, you can easily buy them too.

Enjoy!

Disclosure: Amazon pays ISAMBARD a commission for any purchases made via links from here, but that's not a consideration in recommending them to you.

Zealandia - an untapped opportunity

2011-06-19T08:29:00.004+12:00

Governments around the world, including New Zealand, invest in education, infrastructure, civil institutions, etc. That's important and necessary, but it is not sufficient for national competitive advantage. Where are the massive untapped resources that New Zealand has in abundance; that, if developed, could lead to major new industries to rival our farm-based industries in scale. Answer: Zealandia, our continental shelf and the fifth largest exclusive economic zone in the world, bigger than Europe.

Many people do not know that New Zealand is ranked amongst the highest of all nations in its potential value per capita of mineral resources. We are a resource-rich nation, but simply licensing others to utilise our resources will do little to build long-term national wealth and capability. We haven't seized the huge opportunity that our onshore and offshore continental shelf offers. Only a small part of our academic and scientific effort is focused on it. Other than some limited mineral exploration and technology development, there is little new large New Zealand commercial investment and, aside from electricity generators, only one company (government-owned Solid Energy) of sufficient scale to make any.

Inaction or politically inept one-off moves have been the norm by successive NZ governments, but the recent announcement of a new regulatory regime holds some promise of a more supportive attitude. What other actions might government consider?

Announce that Zealandia is open for business; grab the attention of local and international investors, entrepreneurs, designers, and businesses.
Give resource licence allocation a bias* for creating local operations to discover, harvest, process and productize our mineral and energy resources. (*Bias does not imply giving away resource licence fees to subsidise jobs - that's a mug's game).
Ensure the regulatory regime encourages both resource development and environmental protection.
Significantly increase the proportion of government science funding allocated to discover, harvest, process and productize our mineral and energy resources.
Give IRL (our engineering research institute) a primary focus on technologies to discover, harvest, process and productize our mineral and energy resources (in the same way that our pastoral, arable and forestry science institutes are focused on primary industries and downstream value chains).
Merge GNS (geology) and NIWA (water and atmosphere) to create an integrated resource science institute (possibly merged with the refocused IRL).
Mandate Solid Energy to become a broader minerals business, pursuing coal and non-coal opportunities.
Free Solid Energy from short-term dividend demands and allow it to raise new private capital and enter joint ventures to develop its most promising opportunities.

Tapping into our vast onshore and offshore mineral resources and energy potential (including renewable forms) will pose some hard challenges. But we are good at inventing solutions to difficult problems, we have an affinity with sustainability, and we have a rich heritage with the land and the sea. We can develop not only our own resources, but also new technology to sell to other countries, and even New Zealand-owned companies to exploit such resources here and elsewhere.

Good strategy is making choices and meaning it

2011-06-18T08:58:00.001+12:00

I’m often asked to talk to groups and lead workshops on strategic thinking. (I even get paid for it occasionally). In a nutshell, here’s what I say:

Clearly define your offer and how to fulfill it

For the customer, investor, supplier and employee
What, why, when, how, where, who?
What not, why not, when not, how not, where not, who not?

Keep it simple

Consistent, understandable, doable, communicable
Simpler is easier, less risky, concentrates resources for maximum impact

Do it!

Do the stuff you decided to do
Cut out the stuff you decided not to do
Fix problem causes before clearing backlogs
Build the processes, organisation and style
Put in place the people, resources and priorities
Dedicate people to make change happen
Measure, report and communicate progress on the strategy (up and down, in and out)

Think and act for greatness!

Simple, really. Any questions?

First posted April 17th, 2007

The danger in relying on evidence for decisions

2011-06-17T08:13:00.000+12:00

We often make decisions based on the evidence in front of us. That may or may not be a good thing. What about the evidence that we don’t see? Freek Vermeulen gives an example of drawing the wrong conclusion from the evidence in front of you.

During the Second World War, engineers looked at the damage caused by enemy fire on returned aircraft, and increased protection in those areas of the plane most hit. That was completely the wrong thing to do. Damaged aircraft were able to return to base if they were hit in non-critical areas. Aircraft hit in critical areas didn’t return, and it was those unknown critical areas that needed reinforcing. The evidence in front of the engineers not only was insufficient for a right decision but also led them to make a wasteful decision.

What’s the vital evidence that you don’t have?

First posted March 26th, 2009

Why do CEOs get paid so much?

2011-06-17T08:08:00.000+12:00

First, you have to put aside your prejudices and the tone of media reports. Although drongoes will occasionally fluke their way to the top jobs, they’re exceptions; the competition is too fierce. That doesn’t make CEOs perfect human beings - they can be as worthy or as venal as the rest of humanity and some CEOs do work the system to undue personal advantage - but most are decent enough people and good at what they do. But why do they command such big bucks?

A CEO capable of running a $1 billion company is a pretty smart cookie. They could easily run their own business. What would be a reasonable salary and bonus to persuade them to run yours instead? What’s the alternative for that individual?

Now this may come as a surprise to the wage slaves among you, but owning a $10-15 million turnover business is, well, while not easy, also not impossibly hard. Private equity firms are keen to help good executives buy good businesses. (Actually, an executive capable of running a $1 billion business could get PE funding for a business much, much bigger than my example, but let’s be conservative). A $10-15m turnover business doesn’t need much administrative overhead, just good leadership and marketing on top of the basic product and service delivery. A 7-10% EBIT result isn’t an unreasonable expectation in a good business, although clearly it goes up and down year by year. Assuming you’ve paid off the PE firm and the bank, and you don’t get too reckless or lazy, that’s $1 million profit on average every year, and a possible exit value of $3-6 million when you sell. Think I’m kidding? A lot of ordinary business people do just that and more. The chances are, you know some; they just don’t shout about it.

Admittedly, a $1m a year pay package (salary and bonus) doesn’t require anything like the same risk as a $1m a year profit (right now, many business owners will be using past profits to keep their companies and your jobs afloat). However, a $1 billion business is a very complex beast, and couldn’t be run by many people who run $10m businesses. At the risk of offending some people, I suggest that most (but not all) of the few people who can command a $1 million package are considerably ahead in smarts and executive ability compared to the average $10m revenue business owner. A $1 million pay package starts to look reasonable to get a really top manager to not run his or her own business and instead run your $1 billion business. What would you rather invest in? A $1 billion business run by someone paid $200k, or a $1 billion business run by someone on $1 million? And wouldn’t you incentivise them to do even better?

First posted March 2nd, 2009