ISAMBARD

Yesterday, after 6 years, was my final day as chair of REANNZ (Research & Education Advanced Network New Zealand Limited).  REANNZ has been a fantastic business to be part of.  It is a highly specialised national and international telecommunications company with a very particular technological advantage.  In layman's terms, REANNZ moves heaps and heaps of data very, very fast.  We're talking truly huge data flows - astronomically large files (literally).  Normal telcos are optimised to move lots of small packets of data. REANNZ (like its partner R&E networks around the world) moves data in a different way. A normal network might need to re-transmit 1 out of every 100 or 1000 data packets.  REANNZ has a packet loss rate of 1 in hundreds of millions. That has huge performance implications for large discrete data flows over long distances. What REANNZ moves in an hour can take days or even months on a conventional network.  That means researchers...

Governments, business theorists and business media are obsessed with innovation. Vast sums of money are expended on government-sponsored research. Something’s bound to pay off with a ground-breaking new technology that will increase jobs, wealth and foreign-exchange earnings, won’t it? However, innovation is only the start of the process. We’ve got plenty of innovation, and we aren’t short of new businesses either. The problem is creating better, larger businesses that can foot it internationally (with full overseas operations, not just exporting). The Economist  explored the same issue , reporting on those who question the fear of US companies being overwhelmed by technological innovation coming out of India and China. So does the relative decline of America as a technology powerhouse really amount to a threat to its prosperity? Nonsense, insists Amar Bhidé of Columbia Business School. In “The Venturesome Economy” ... he explains why he thinks this gloomy thesis misunderstands...

Around the world, governments are under increasing pressure from their unions, manufacturers and farmers to re-erect trade barriers and instruct government agencies to buy local. In times of economic crisis, that’s the worst possible thing to do. Buying imports enables others to buy your exports. In general, providing you live within your means, trade tends to balance out, and the more trade the merrier for everyone. You sell more of what you’re good at, and buy more of what others are good at. There’s possibly an argument to be made for temporary specific protectionism when you’re building a new industry which will be genuinely globally competitive once it has achieved scale and the barriers are removed; but generally, protectionism only transfers wealth from consumers and taxpayers to uncompetitive local suppliers. Whether it’s in response to calls for US highway builders to use US steel, the NZ Army to buy locally made wet-weather-gear, or British hospitals schools and prisons...

Why do corporate (and especially government) buyers keep confusing cheapness with value? Time and again I’ve seen the best vendors lose on price because the buyer could “get it much cheaper elsewhere”. The classic example is professional services charged by the hour. Any good manager of people knows that you pay your better staff more because they are more than worth it to you. For example, a good IT designer/developer will work out many times cheaper in the long run. They understand the business need quicker, design quicker, design better, write code quicker, write better code with faster performance and fewer bugs, and their software is cheaper to maintain. That can equate to a 10-30 fold lifetime cost difference - the saving more than outweighing any hourly rate difference. And that’s before you factor in the risk of non-delivery - much lower with better suppliers. But many corporate buyers persist in penny-wise, pound-foolish buying practices. I have interests in several f...

Here's an article I wrote for the Dominion Post newspaper in August 2001, but I think it's still relevant today. “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 recogn...

I stood down from the Institute of Directors Council last month, after 4 years .  While on the Council, I was often asked to speak on governance.  One speech in particular seemed to strike a chord, with multiple requests for copies, so presumably it's worth sharing.  Good afternoon, everyone, and thank you for the opportunity to speak to you today on “The challenges of the boardroom in today’s environment". First, a disclaimer: I’m not a lawyer; I’m not an expert on governance theory; I’m just a practising director. I can’t regale you with inside knowledge of recent corporate failures, and I won't bore you with the details of the current regulatory changes. What I can do is talk about some of the broader issues, what they mean to me, and hopefully offer you a positive perspective on the role of the director. Although I will speak in terms of being a company director, just about all I say applies to any board, be it charitable, sporting, cultural, or institutional ...

I've been prompted to republish this by a now oft-repeated conversation with someone who had a great innovative and valuable idea for a government client, who's been completely frustrated by the procurement process. The simple reality is that selling to government agencies is different to selling to an individual or most companies; not only in the process, but in the time-frame. There are numerous cases where government procurement processes cost more than the achieved price/benefit differential, and that's not including the lost costs of delayed benefits realisation.  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  that they want to solve; 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, managerially AND politically (the b...

Along comes another public holiday, and with it, as in every year in recent memory, the perennial debate arises regarding shopping and other commercial activities on certain public holidays (assuming you’re in a part of the world where they are prohibited). The pro-restriction lobby always trots out the same pieties against crass commercialism and abuse of workers’ rights: it’s one day families can all rely on to get together, it’s a mark of respect to our religious and cultural heritage, it’s one day that sporting and cultural festival organisers can rely on (attracting crowds they otherwise wouldn’t get). That’s fine for those people who want to put aside those particular days for the things they want to do; but why should everyone else be captive to their demands, especially when the vast majority actually take no part in the special events on those holidays? I have a radical alternative which I reckon should appeal to nearly everyone (other than the would-be regulators of my life...

You’ll be aware of the strange phenomenon of the national skills shortage coexisting with high youth unemployment. It’s a problem across the developed world, driven partly by demographics and partly by economic activity. Industries across the spectrum are finding it difficult to attract skilled staff, and frequently the call is for ‘the government‘ to restrict entry into popular courses like law and accounting, and to increase the number of engineering or ICT graduates, plumbing apprenticeships or whatever. While governments have increased funding for technical subjects, it would take a very brave government to start directing who should do what courses, at what level. Who’s going to force your son or daughter to do a course that they don’t want to enter? Last time I checked, we don’t live in a dictatorship. In any case, government workforce planning never works, except either in very macro or micro situations. (By the way, the number of practicing lawyers and accountants in New Zeal...

Ever wondered why governments make the economic choices they do, and why these sometimes seem counter-intuitive?  Then you should read Tim Harford's new book The Undercover Economist Strikes Back .  It will answer a lot of questions for those not trained in macro-economics. British economics journalist Tim Harford rose to fame with The Undercover Economist , which did a brilliant job of explaining micro-economics - the economics of the everyday world, if you like.  It was very easy to read and I liked it so much that I gave copies to my two sons.  The Undercover Economist Strikes Back does the same thing with macro-economics, or the economics of nations. Subtitled How to Run - or Ruin - an Economy , Harford's book takes you through some basic concepts before explaining GDP, inflation, money supply, employment and the like.  He also explores newer concepts such as happiness economics and inequality.  My biggest "Aha!" moment came when he explained the...

I said goodbye today to the board and executive team of the Tertiary Education Commission, where I've been a non-executive board member since 10 June 2002, which must set some kind of latter-day record for government board tenure. I first became involved with New Zealand’s tertiary education system in the late 1990s as CEO of telecommunications manufacturer Deltec: Recruiting engineering graduates and post-grads from the University of Canterbury, and sponsoring research projects & internships; Working with Whitireia Polytechnic and WINZ on an innovative programme to give long-term unemployment beneficiaries the skills to work in our factory, where they could quickly earn substantially more than the minimum wage, let alone the dole; On the board of the Manufacturers Federation (now part of Business NZ) where I became a de facto spokesman on education reform. In 1999, employers were very unhappy with the NZ tertiary education system. When the newly-elected government as...

Some years ago (in 1999, I think), I was invited to address the Royal Society in New Zealand on “The future of work”. I assumed that I’d been invited because of my profile as a tech company CEO, and that I was expected to espouse the vision of technology transforming work and the workplace. My co-presenter was noted New Zealand academic, Dr Norman Kingsbury. Norman’s advice to me was to “surprise them”. Unfortunately, I’ve lost my speech notes, but the gist of my presentation was something like this: The exploding ability to store, find, order, and connect information of all types will radically increase our use of knowledge and enable more innovation and new types of business; Technologies will merge, so that a successor to both the mobile phone and PC will become your primary means of accessing that vast pool of information and services (albeit linked to physically restrained appliances such as large displays, printers and high capacity communication links); The internet and the...

Time and time again you'll hear it: small business employs more people; small business creates more jobs.  It's a mantra that appeals to anti-corporatists of whatever political stripe.  But it's not true. A recent article in The Economist reports that most job growth in the US has come from mid-size firms (US$10m-$1b annual revenues; okay, not my idea of mid-size).  I wondered what the answer might be for NZ.  Using the government's linked employer-employee data tables, I  looked at job numbers by industry sector and firm size in December 2000 and December 2010 (the latest year-end data available). If we look at all industries (including public administration, healthcare and education), what do we find in 2010? Firms employing less than 20 people accounted for 31% of all jobs. Firms employing 20-99 people (mid-size in NZ terms) provided 32% of all jobs. Firms employing more than 100 people represented 47% of all jobs. Firms employing less than 20 peo...

The late Sir Paul Callaghan was very passionate about the importance of science and technology to our future economic success. He made the oft-repeated point that kids will take up science and engineering if they and their parents are excited by the career opportunities.  Creating that excitement is the responsibility of industry, not just “the government”, but I add a proviso: children must be taught maths well in their earlier years. The ability to understand algebra at age 13 is a key indicator of future earnings, whatever career is chosen.  It demonstrates not only mathematical ability, but also abstract reasoning  and logic.   Algebra is good for future artists and lawyers, not just the technically-minded.  But the big worry about algebra is that if children haven’t grasped its basic concepts  by Year 9 of their schooling (the old 3rd form), they’ll turn away from the physical sciences and technologies, choking our future supply of scientists...

I've said before that most service jobs are created directly or indirectly by those who make stuff.  Until the 18th Century, manufacturing was essentially a cottage industry.  Between 1750 and 1850, the 1st Industrial Revolution saw the rise of machine-based manufacturing (especially textiles), enabled by innovations in energy (coal-powered steam engines), materials (especially large-scale iron-making and casting) and logistics (notably canals).  The 2nd Industrial Revolution - also known as the Technological Revolution - gave us low-cost steel,  new materials and chemicals, effective railroads, electricity, mass production and the assembly line. Last month, in a special report on manufacturing and innovation , The Economist pronounced the world to be in a 3rd Industrial Revolution. Additive manufacturing (3D printers), flexible smart production equipment capable of runs of one unit, super-modular design concepts, design visualisation tools, new composite and na...

According to modern Welsh legend: Every time Wales wins the rugby grand slam, a pope dies, except for 1978 when Wales was really good, and two popes died.    The grand slam refers to beating all other teams in the annual Six Nations rugby competition (between England, France, Ireland, Scotland, Wales and, in recent years, Italy).  In 2008, a paper published in the British Medical Journal asserted that there was no statistical evidence for this.  Last week, however, researchers debunked the earlier study for ignoring Coptic popes  Apparently, if both Catholic and Coptic popes are included, there is indeed a very high correlation between Welsh rugby success and papal demise. Now, no-one really believes that any causal link actually exists; it is just a statistical coincidence.  But every day, we see impassioned advocacy for  all variety of causes using far flimsier evidence.  It's no better in business life or, indeed, family life.  We al...

Flashback: first published 29 May 2008 The French have a term usine à gaz or ‘gas factory‘, a metaphor for overly-complex bureaucratic mechanisms that are disproportionate to the problems they are supposed to solve. Ironically, the term seems highly descriptive of the ‘cap and trade’ carbon emissions regimes being proposed by governments in many countries. Every academic, economist, environmentalist, business leader and indeed politician with whom I’ve discussed this has said something along the lines that a carbon tax is the simplest and most effective way to penalise carbon emission, but that ‘cap and trade’ is the only way to get everyone on side. Even oil and coal executives seem to privately support a simple tax system. I assume they must exist, but I have yet to meet someone who actually thinks ‘cap and trade’ is a good way to reduce carbon emissions. It’s as if no-one in a national or international leadership role is prepared to be the first to say this is a stupid system ....

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). Short supplies of timber for fue...

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). ...

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 ski...