dynamics day 2012 the data driven business

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Game-changers

Data-driven Business

Rod Oram’s presentation to Intergen’s Dynamics Day 2012 Auckland, October 31st, 2012

Kiwiki on Facebook / Twitter @RodOramNZ [email protected] / +64 21 444 839

Agenda

•! World •! Revolution

•! New Zealand •! Opportunity

•! Paradox •! Companies

Then…. …Now

•! 2007-09 •! Sudden liquidity crisis •! Big, quick fix

•! Pump in lots of money •! Lots of political will •! Lots of public support •! Worked fast •! Markets re-assured •! Moved on to current phase

•! 2009-20?? •! Long-running structural crisis •! Big, slow fix

•! Restructure economies •! Lack of political will •! Lack of public support •! Will work slowly •! Markets fearful •! Very, very stuck

February 2012 - Brave words…feeble actions

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Saving Europe is simple •! All it would take is:

•! French reform •! German extravagance •! Italian maturity

•! …as The Economist opined May 12

•! Main mechanisms required: •! EU-wide bank regulation and deposit guarantees •! EU bonds (so countries share the risks) •! EU-wide investment in rapid enhancement of economies •! National and collective commitment to change

•! Without these: the eurozone will strangle economies

September 2012 – Hope at last? •! European Stability Mechanism – German Supreme Court approves •! European Central Bank – begins unlimited purchase of member gov’t bonds •! Pan-European Banking Regulation – EU Commission blueprint

LIBOR – dark heart of finance •! London Inter-Bank Offered Rate

•! 10 currencies; 15 maturities •! Global benchmark for US$800 trillion of

financial products (NZ$1,000,000 billion)

•! Barclays fined £290m (NZ$570m) for filing false reports to LIBOR-setting panel

•! Acted to hide its financial weakness •! And favour its derivatives positions

•! 20+ other major banks under investigation •! Criminal and political inquiries underway in UK, US •! Customers, e.g. US cities and other borrowers, preparing

massive damage suits •! Scandal greatly heightens probability US & UK banks will

be split into separate commercial & investment institutions

LIBOR –biggest scandal yet The pre-crisis banking model “was already looking tawdry; now, in the wake of the LIBOR scandal, it looks even more tattered.

“The harsh lesson is that banks cannot be trusted to perform any public function if it conflicts with their own interests. “Barclays staff rigged an interest rate used to price the financial products they sold to customers with a view to ensuring their own derivative bets paid off. “It is hard to think of anything more corrosive of trust in finance – and indeed in capitalism itself.” Financial Times, July 3, 2012, Editorial

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World Economic Forum: Global risks

•  To ensure human needs are met, we need radical new technologies

•  We need to develop and deploy them on a scale and at a speed like never before

•  …with much greater complexity and risk •  …with a need for public understanding and support •  …ways to respond far better when things go wrong

•  This is a fundamental shift in risk and risk management

WEF: Risk map

WEF: Risk relationships WEF: seeds of dystopia

•  …e.g. is The Occupy Movement an anomaly? •  Or a harbinger of social unrest? •  ...the latter, it concluded

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People, planet •! Vision 2050 •! A very challenging roadmap

for corporate development by World Business Council for Sustainable Development

•! …NZ version just released

Finite resources

w •! q

How Green Will Save Us: September, 2009 edition: There is no alternative to sustainable development.

Our research shows that sustainability is a mother lode of organisational and

technological innovations that yield both bottom-line and top-line returns… …In fact, because those are the goals of corporate innovation, we find that smart companies now treat sustainability as innovation’s new frontier.

Innovation

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Agenda

•  World •  Revolution

•  New Zealand •  Opportunity

•  Paradox •  Companies

Business action •  World Business Council for Sustainable Development…member commitments

•  http://www.wbcsd.org/rio-20/membercommitments.aspx

Business action •  Business Action for

Sustainable Development

•  http://basd2012.org/

Voluntary action •  Business commitments

to UN Global Compact: •  http://

www.uncsd2012.org/voluntarycommitments. html

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Natural Capital •! Many global corporates committed to it at the UN’s 2012 sustainability summit in Rio

•! www.naturalcapitalproject.org

Cradle to Cradle •! One product gives rise to the next

•! …waste, by-products and recycling of one, become materials for the next •! …emulating nature’s cycles

McDonough & Braungart •! Founders of Cradle to

Cradle systems

Re-conceiving…footprints •! Positive footprints •! …the insight of Michael Braungart •! www.braungart.com

•! If we change our technology so our resource use benefits the ecosystem

•! Then the more we consume… …the richer the environment

•! Waste = food

•! Four positive footprints: •! Fabric of Airbus aircraft seats becomes compost for growing food •! Formway s bio-plastic chair •! Carbon positive farming •! Ants vs. Humans

•! Positive role in ecosystem vs.negative…how do we make it positive?

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Ray Anderson •  Founded Interface in 1973

•  …15 years later world’s largest maker of carpet tiles •  His “mid-course correction” came in 1994, when he was 60 •  2020 goal: take nothing from the earth that could not be

rapidly replenished, produce no greenhouse-gas emissions, and no waste

•  By 2007 Interface was about halfway up “Mount Sustainability” •  Greenhouse-gas emissions by absolute tonnage were down 92% •  Water usage down 75% •  74,000 tonnes of used carpet recovered from landfills •  Savings of $400m each year from no scrap and no off-quality tiles more than paid

for the R&D and process changes •  As much as 25% of the company's new material from “post-consumer recycling” •  Sales had risen by two-thirds and profits had doubled

•  Ray Anderson’s Economist obituary www.economist.com/node/21528583

Re-conceiving…biomimicry •  Imitating nature •  …the technology discipline

pioneered by Janine Benyus •  www.biomimicry.net

•  Fans, propellers like nautilus shells •  Wire ropes as strong as spider webs… •  …made in cold biochemical processes

Revolution •  Radical new technologies are

inverting old dynamics…e.g. •  Additive manufacturing

overturns mass production •  New materials overturn

commodity constraints •  Iterative design overturns

linear product development

Leader of the revolution •  The Centre for Bits and Atoms at the Massachusetts Institute of Technology

•  Led by Prof. Neil Gershenfeld, www.cba.mit.edu

•  The first Fab Lab…machines making machines •  Science & technology road map to micron-Lego assembly…

…dis-assembly of products

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•  Prof Neil Gershenfeld, MIT…TED talk http://bit.ly/MI7Eur …when information meets atoms

The next 10 years •  Finance and capital conditions

•  Finance more expensive and less available •  Market and regulatory constraints

•  Less benign economic conditions

•  Higher economic volatility; Increased risk

•  Low carbon-economy •  New disciplines & technology •  Far greater resource efficiency •  Technology change accelerating

•  Public losing trust in business •  Scepticism over Anglo-Saxon model •  More government intervention

•  Social and demographic change •  New responses to retirement, pensions •  New business & government solutions •  E.g. more flexible working practices

“The Shape of Business” Confederation of British Industry

www.cbi.org.uk

Agenda




Most of our export markets are holding up

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Slowth •  We’re still recovering slowly…

…helped by rebuild of Christchurch

•  Growth in year to June 2012 was 2.0%... ..could peak at 3% next year …dominated by Christchurch

•  But will then sink back to its

long-run slow growth average of around 2%

•  Why can’t we grow faster, longer by

earning a bigger living in the world economy?

Our economy is constrained •  Despite slow growth, the economy is

constrained by e.g. •  Skills and capital shortages •  Weak business investment •  Limited government investment

•  As a result “potential GDP” (the rate at which the economy can grow without causing inflation) is low

•  Solution: business strategies and investment that build capacity, value, wages…

•  …to grow the economy and living standards faster

Businesses •  Recession and slow growth have been

very tough on businesses… •  …and continue to be so •  Many are hard-pressed •  Business investment remains

very low

•  But big behaviour changes… •  …e.g. retaining more staff than they did

in previous recessions because of skill shortages in the economy

•  Companies need a lot of help to raise their skills, improve their operations, increase their resilience

Consumption…and income •  Households have brought their consumption back into line with their income •  …and have resumed saving

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Household savings •! Households have done a good job chipping away at debt… •! …their debt has fallen since the recession •! Treasury forecasts they will still do that and increase spending.. •! …but that will only happen if wages rise reasonably strongly

We’re growing our exports slowly •! Government programmes and investments are not shifting the needle… •! …e.g. composition, volume and rate of growth of exports are unchanged

Current account •! …so our current account deficit deteriorates further

What we owe the world •! …likewise our net international liabilities keep getting bigger…. •! …2011 an aberration driven by inflow of earthquake reinsurance payouts •! We are one of the most indebted of developed countries •! We need to earn a bigger living in the world economy… •! …Treasury forecasts no change in our performance

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…we must double growth •! We need to more than double our growth rate to at least 5% a year •! …but our non-inflationary growth rate has dropped to 1.9% •! …and the growth trend will remain weak out to 2014, Treasury forecasts

NZ’s exports remain far too small a contributor to the economy…. …and have stagnated at 30% of GDP …government goal of 40% by 2025

The real growth issues

•! Our strengths & weaknesses…

•! …according to the World Economic Forum’s global competitiveness rankings

Value creation •! World Economic Forum – Global Competitiveness Report

•! Competitive advantage measured on a scale of: •! 1 = low cost of natural resources to 7 = unique products & processes

New Zealand scores 3.7 Ranks 48th

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Value capture •  Value chain measured on a scale of: •  1 = role in chain mainly confined to one step, eg resource extraction •  …to 7 = involved all the way down the chain, capturing extra value

New Zealand scores 3.7 Ranks 59th

Value creation & capture

•  1 Fonterra plant in NZ makes infant formula for Pfizer

•  8% Pfizer’s Chinese market share for infant formula

•  US$12bn Nestlé paid for Pfizer’s infant formula brands

= 3 x Fonterra’s net asset value

Grow & diversify exports of knowledge intensive manufacturing & services

Export more high margin food & beverages

A=ract more high value tourists

Create Wealth from minerals & petroleum

$9b

$20b

$8b

$4b

Cross Cu'ng Ac,ons Stronger Interna,onal Connec,ons -‐  NZ Inc regional & country strategies -‐  China and Australia -‐  NZ major event fund -‐  Air ConnecKvity -‐  Outbound Direct Investment

Be4er Business Innova,on -‐  Investment strategies aligned across agencies -‐  refocused to address be=er innovaKon needs of high value sectors

Smarter Capital -‐  Improved flow of quality foreign investment -‐  Stronger firm management capability Compe,,ve Ci,es -‐ Economic development strategy and spaKal plan for Auckland and other ciKes too

Economy and the Environment -‐ Advisory group to recommend ways to develop and leverage New Zealand’s clean green brand

Cri,cal Sectors

$29b

$58b

$14b

$??b

Poten,al Sector Contribu,ons 2025 exports

2025 Goals

Income Parity With

Australia

Increase exports To 40% of

GDP

Government Strategy Mk II: Economic Growth Agenda Some simple maths •  We need to double the size of the economy in 15 years in real terms •  To maintain its role, the primary sector needs to double too •  Government wants primary sector to treble…grow, say, 12%-15% a year

•  The primary sector can: •  Grow volume a bit…but real physical constraints in New Zealand •  Grow productivity a bit…but historic rate of NZ agricultural productivity

increases about 2% a year •  Benefit a bit from higher world prices…but commodity prices moderated

overseas competition and politics •  Earn a bit of a premium for NZ quality and brand…but it would need to break

free from retailers’ stranglehold •  Stave off overseas competition a bit…but the competition gets ever better on

cost, volume and quality •  So, the primary sector’s current commodity model fails on simple maths •  Government’s primary sector strategy: incremental growth of current model

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Government Strategy Mk III: Business Growth Agenda •! The Economic Growth Agenda….is morphing into… •! The Business Growth Agenda…

•! …led by Steven Joyce •! Minister of most things economic…except the money

Government Strategy Mk III •! “Business Growth Agenda”

•! 6 ingredients of business growth

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Government Strategy Mk III: Business Growth Agenda •! Some issues arising: •! Is Joyce too dominant? •! Is Joyce strategic enough?

•! How strategic will the shift be? •! How realistic will the targets be? •! How business-centric will it be?

•! …there’s much more to the economy than just business

•! How committed is the government? •! How committed is business?

Agenda




NZ 2050 •! …by a group of young leaders…

•! …under the NZ Business Council for Sustainable Development…

•! …which morphed into the •! Sustainable Business Council

•! Download at: •! http://bit.ly/PxiG1B

•! NZ site coming soon at: •! http://www.vision2050nz.co.nz

•! Vision 2050 Global report at: •! !http://bit.ly/Ox0HsK

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Agenda




Paradox

Abundance Scarcity

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Re-invention

Scarcity Abundance

Poverty

Cows Scientists

Wealth

Lacto-pharmaceuticals Milk powder

a •! a

a • a

How about creating global centres of excellence in: -! Dairy nutrigenomics -! Earthquake prediction, rescue & recovery -! 21st century city systems -! Antarctic research

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Poverty

No.8 Game-changers

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Wealth

Game-changers No. 8

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LanzaTech…clean tech leader •! Commercialisation agreement with:

•! Chinese Academy of Sciences •! Baosteel; next pilot plant in China

•! Makes biofuel from industrial waste gases •! Turns greenhouse gas liability into profit •! World pioneer of the science

•! Auckland-based; NZ Steel pilot plant

•! Big venture capital backing •! US$100m of capital so far •! NZ: Stephen Tindall •! US: Vinod Khosla •! Chinese and Malaysian investors too

YikeBike: radical reinvention •! Grant Ryan’s radical re-think of the bike •! All-electric; no pedals; 10kg; 20 km/h; 10 km range;

ABS brakes; regenerative braking; 45-minute recharge •! Folds in 15 seconds; Guinness Book of Records

China produced 22m electric bikes

last year

Poverty -&$.15(1>525.:

Weak Strong

Wealth

-&$.15(1>525.:

Strong Weak

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Zespri •  Established brand •  Built marketing •  Innovated – gold •  Innovated – orchards •  Innovated – intellectual property •  Clever, 12-month supply chain •  40% - 100% premium in EU •  1/3 world supply… •  …but captures 2/3 of value •  …and lots more science yet

From exporter to global leader… …decommoditising a commodity

Zespri •  April 2009: Published its carbon life cycle analysis:

•  Orchard operations make up 17% of total emissions for EU exports •  Packhouse & coolstore processes account for 11% of total emissions •  Shipping accounts for 41% of total emissions •  Repacking and retailer emissions amount to 9% of total emissions •  Consumer consumption & disposal comprises 22% of total emissions

•  Bottom line: resource efficiency builds a more profitable, resilient business •  E.G. Kite-assisted ships save 22% of their fuel bills on average

Our future •  NZ Land: 270,000 sq km

•  Australia’s 28x NZ

•  NZ Oceans: 5.8m sq km •  5th largest in the world •  Australia’s 1.4x NZ’s

•  Huge responsibility: •  …to nurture •  …to use responsibly •  …to sustain us

•  We need new values, systems, collaboration: •  …to be sustainable •  …to offer hope to the world

Poverty Simplicity Complexity

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Accounting •! Fra Luca Pacioli •! …Venetian monk, polymath, friend of the clever,

creative, rich and famous •! …including Leonardo da Vinci

•! Published in 1494 Summa de arithmetica

•! …which included the first full, public description of the secret double-entry book-keeping system used by Venetian merchants

•! Basically, we’ve been double-entry book-keeping (assets/ liabilities; credits/debits etc) ever since

•! Financial accounting… •! …brilliant but limited, thus flawed

Management matters •! NZ government-funded study of

large and medium NZ manufacturers

•! Study by London School of Economics and McKinsey… …sub-contracted to University of Technology Sydney

•! Comparisons with 16 countries

Best & worse skills Raising laggards has huge economic impact

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Wealth Complexity Simplicity

New management disciplines •  Relationships: from transactions to partnerships

•  …particularly highly strategic ones

•  Innovation: from incremental to radical •  To meet new needs…in new ways •  Open innovation and other forms of collaboration •  New opportunities for NZ companies to partner with global ones

•  Sustainability: from fringe to mainstream •  Measuring and managing environmental flows through our businesses •  Push down the road to true sustainability

•  Management: from tactical to strategic •  Need to collect, interpret and act on real-time data •  Everything we do today is a piece of our big picture

Integrated Reporting •  The next big initiative by corporates

and accounting bodies

•  Seeking to make financial, environmental and social measures…

•  …much easier, more accessible and more useful to corporates, investors and the public

•  www.theiirc.org

Agenda




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Vanguard NZ companies •! An exciting new class of NZ companies is emerging:

•! Hallmarks: •! Inspired products & services offering unique value •! Originality born of NZ roots •! Smart strategies for international markets •! Astute management skills to acquire & develop

human & technology skills; capital •! Confidence & skills to collaborate with

partners, suppliers, customers abroad

•! Across the economy: domestic; import; export

Quadruple B businesses •! Building •! Billion $ •! Businesses from the •! Beach

•! Rod Drury… •! …serial entrepreneur •! …founder of Xero

Rakon: Sweet spot in value chain •! World leading supplier of

radio frequency crystals for GPS and mobile phones

•! …until recent years, all from Mount Wellington •! 1967: Warren Robinson starts it •! 1972: Singapore subsidiary starts •! 1989: First cellphone crystals •! 1991: Large volume GPS crystals •! 1994: New factory •! 2001-02: Ground-breaking manufacturing process •! 2004: 3.2mm x 2.5mm crystal package •! GPS crystals: mid-1990s: US$35 each to under US$0.70 today •! 12-year sales growth averaged 66% per year •! 2006: Successful float •! 2007: European acquisition •! 2008-09: Indian and Chinese joint ventures •! 2011: Hi-Tech Awards: Company of the year; Company of the decade

Comvita: High science, high value •! 250gm of honey

•! Clover honey…………………………….. 1

•! Comvita wound care……………………. 25x

•! Comvita wound dressing………………. 55x

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Obo: Global community

•! Simon Barnett was an importer… •! Became a manufacturer •! From 0% to 85% of world market in 15 years

•! Intimate internet relationship with users •! Its global fans are its R&D dept. •! All from Palmerston North

Obo: Global community NZ’s distinctive management style •! Why did General Motors pick a New Zealander as CFO?

•! Chris Liddell chosen for his range of experience; management style

•! We are skilled generalists •! We are multi-taskers with knowledge

& experience across a range of functions •! Creative, fast-moving, self-starting, team-working

•! Not expert specialists •! Narrow skills; working in silos; hard to co-ordinate •! Typical of large companies overseas

•! Impact: •! On our companies:

•! Makes them quick, innovative, lateral thinkers •! On multinationals:

•! NZ subsidiaries pioneer new skills, products to take globally

www.3000.org.nz

“You’ll have no future…

…if you don’t make one for yourself”

… Johnny Rotten:

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“You’ll have no future…

…if you don’t make one for yourself”

… Johnny Rotten: