Intelligence, Innovation & Best PracticeHow organisations are driving growth and profitabilityIntelligence, Innovation & Best PracticeHow organisations are driving growth and profitability

WHERE KNOWLEDGE IS POWER

Phil Ruthven, Chairman

How organisations are driving growth and profitabilityHow organisations are driving growth and profitability

TopicsTopics

1.1. A New Age BusinessA New Age Business

2.2. The Intelligent The Intelligent OrganisationOrganisation

3.3. Innovation & ProductivityInnovation & Productivity

4.4. Keys To SuccessKeys To Success

5.5. Snapshots Of A Changing WorldSnapshots Of A Changing World

1.1.A New Age A New Age BusinessBusinessA New Age A New Age BusinessBusiness

Expectations of a New Age business

1.1. Profitability and growthProfitability and growth

�� A return on shareholder funds after tax of 4 times the bond rateA return on shareholder funds after tax of 4 times the bond rate

�� Growth better than the industry average ( + international?)Growth better than the industry average ( + international?)

2.2. Uniqueness in:Uniqueness in:

�� PProduct, IP and operationsroduct, IP and operations�� PProduct, IP and operationsroduct, IP and operations

�� Organisational cultureOrganisational culture

3.3. World best practice in:World best practice in:

�� Value for money for customersValue for money for customers

�� Respect for the society in which it operatesRespect for the society in which it operates

�� Relations with other stakeholdersRelations with other stakeholders

�� Treatment of the natural environmentTreatment of the natural environment

11.112.512.613.8

15.617.7

19.721.8

24.728.6

35.248.9

158.0

12th 5011th 50

Average10th 509th 508th 507th 506th 505th 504th 503rd 502nd 50

Best 50

Australasian Profitability by Cohorts Return on Shareholder Funds (after tax), Top 1250 businesses 5 years to F2009

23% > World Best Practice (ROSF 22.2%)

42% > Average (ROSF 12.6%)

-2.50.2

1.02.1

3.24.25.66.77.99.09.911.1

-50 -40 -30 -20 -10 0 10 20 30 40 50 60

Worst 5024th 5023rd 5022nd 5021st 5020th 5019th 5018th 5017th 5016th 5015th 5014th 5013th 5012th 5011th 50

PercentSource: IBISWorld 19/11/09

68% > Bond Rate (5.4%)

11% Losses

-128.0-10.5

13.3

13.7

15.2

15.3

17.3

18.9

19.1

19.6

33.7

Average

Finance & Ins

Prop & Bus Services

Transport

Wholesaling

Cult & Recn Serv

Hospitality

Mining

Communications

Profitability By Major IndustriesReturn on Shareholder Funds (after tax), Top 1250 businesses 5 years to F2009

1.8

4.3

7.8

8.9

12.0

12.5

12.5

13.1

13.3

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36

Health & Community

Govt. Adm. & Defence

Education

Utilities

Agriculture

Personal & Other

Construction

Manufacturing

Retailing

Average

Percent

Source: IBISWorld 22/12/09

6.40.4

Intellectual Property

Intellectual property can best be described as a “cocktail” of:

• skills, special competencies, unique systems;

• patents, trademarks & brands;

• organisational culture, customer relation • organisational culture, customer relation protocols;

• vision, plans and documented achievable strategies.

It is the "holy grail" of a enterprise, its core and its most valuable balance sheet asset, whether recorded as such in dollar terms or not.

Unique Organisational Culture

A unique culture is about attracting and keeping A unique culture is about attracting and keeping good people to your business, and helping develop good people to your business, and helping develop ordinary people into extraordinary people.ordinary people into extraordinary people.

This is built on a base of world best practice This is built on a base of world best practice principles of human resources management. But a principles of human resources management. But a unique unique culture goes well beyond the basics: it needs culture goes well beyond the basics: it needs principles of human resources management. But a principles of human resources management. But a unique unique culture goes well beyond the basics: it needs culture goes well beyond the basics: it needs to have special elements of both a tangible and to have special elements of both a tangible and intangible nature.intangible nature.

No matter how often we say it, employees are not a No matter how often we say it, employees are not a firm’s most valuable asset, since slavery has been firm’s most valuable asset, since slavery has been outlawed for some considerable time! outlawed for some considerable time! But in the But in the emerging “sellers market” we need them to stay.emerging “sellers market” we need them to stay.

22..The Intelligent The Intelligent OrganisationOrganisation

The Intelligent The Intelligent OrganisationOrganisation

The Total Environment For Business

A Our

© IBISWorld

A Firm

How much do we need to know about . . .

The Influential Environments (4)

1. The world environment, growth, regions, nations, demography etc. ?

2. National resources,developed (infrastructure, IC&T), natural (resources, ecology) ?3. Our community, its changing demography, lifestyles and spending ?4. The economic environment, the “business weather” conditions ?

The Operating Environments (6)5. The government environment, laws, taxes, policies, incentives ?6. The finance market, equity, debt, exchange/interest rates, treasury ?7. The services market, to outsource none-core activities and functions ?7. The services market, to outsource none-core activities and functions ?8. The labour market, for executives, employees and customers ?9. The purchases market, raw materials, semi-/finished goods, prices ?

10. Its market, local and global ?

The Immediate Environment Our own industry, WBP, size, growth & disposition, competitors?

Our Own BusinessIts IP, financials, sales, operations, TQC, productivity, R&D, HR etc. ?

In the Industrial Age businesses generally planned and operated on an inside-out basis.

The external business environments were largely opaque to an enterprise which tended to be fortress style; and enterprises were opaque to outsiders who saw enterprises as secretive.

In the New Age businesses must now forecast, plan and operate on an outside-in basis.

The business environments are becoming transparent to enterprises, and in turn the enterprises are becoming more transparent to outsiders.

Business IntelligenceExpenditure on data and information, F2010(E)

InternallySourced

64.5%

35.5%

$195 billion in Australia(5.6% of all business revenue)

35.5%

ExternallySourced

IBISWorld 17/11/09

Nearly two thirds of all business data, information and intelligence in Australia in F2010 will be internally generated.

How much value-adding do we do with this, to help with planning, efficiency, revenue growth, CRM and profitability?

ICTCEO

Internally Generated Information?$126 billion in Australia in F2010$126 billion in Australia in F2010

ICTCEO

&

Board

© IBISWorld

CIO?

Over one third of all spending on data, information and intelligence by enterprises in F2010 will be outsource.

This proportion has been steadily increasing from less than 10% half a increasing from less than 10% half a century ago to an estimated 35.5% this year.

We are spending more on information and also outsourcing more of it.

Type Of Outsourced Business Information Australia F2010 (F)

Other1

News/Books/Mags.

1.2%

Accounting

26.2%

Conferences/Meetings2

20.3%

Online Info 2.0%ISPs 1.7%Data Process 1.5%Mkt. Research 1.3%

Cons. Eng. + Architects

Exploratory

5.8% 2.2%

ScientificResearch

3.1%

IBISWorld 18/11/09

$68.8 billion Expenditure(2.0% of national revenue)

Legal Services

AccountingServices

20.3%

10.6%

Note: 1 Public Relations Credit Agencies 0.9%Other 0.7%

2 Includes accommodation, travel, registration fees, speakers etc

Purpose Of Outsourced InformationAbout What? F2010 (F)

Government 1.0%World 0.8%Services 0.5%Resources 0.5%

Own Industry 9.8%71.6% About Our

Exploratory

IBISWorld 17/11/09

$ 68.8 billion expenditure(Australia)

71.6% About OurOwn Company1

From Accounting firms, Legal firms, Management Consultants, Consulting Engineers etc

Spending on information about the external environment ($19.5billion) is 28% of all outsourced spending and 10% of all spending

Of all the business spending on data, information and intelligence -$195 billion - only 10% is spent on issues in the external environment.

But this spending is growing nearly But this spending is growing nearly 2% pa faster than the economy in response to the need to plan on an outside-in basis, displacing the old inside-out approach of the secretive Industrial Age?

The Imperative of Going Up The Going Up The

Information Chain

The Knowledge Pyramid

By ValueBy ValueBy VolumeBy Volume

Vision

Expert Opinion

Wisdom

Vision & Strategy

Unique IP

Wisdom

UniqueIP

Vision

Decreasing Value

Hearsay, Rumour, Scuttlebut

Data

Information

Expert Opinion

Intelligence

Hearsay

Data

Information

Intelligence

Expert Opinion

Increasing Value

Source: IBISWorld 18/11/09

But interesting!

33..The Innovation The Innovation & Productivity & Productivity & Productivity & Productivity

ImperativeImperative

41.8

43.7

45.3

46.9

51.5

53.1

57.4

59.3

81.0

110.7

Iceland

Hong Kong

Ireland

USA

Singapore

Brunei

Kuwait

Norway

Luxembourg

QATAR

Standard of Living 200820 Highest Nations GDP/capita, ppp basis

37.2

37.3

37.4

38.1

39.9

39.1

39.9

40.2

40.4

41.8

41.8

0 10 20 30 40 50 60 70 80 90 100 110 120

Equatorial Guinea

Bahrein

Belgium

Sweden

Australia

Canada

UAE

Austria

Netherlands

Switzerland

Iceland

CIA FactBook/IBISWorld 20/10/09$US ‘000 (ppp)

Business Research & Development(% of GDP)

1.4

1.6

1.8

2

2.2

2.4

2.6

BE

RD

% o

f G

DP

OECD

World Best Practice: nations > 2.5% of GDP(eg. Sweden, Japan, Finland, S. Korea, USA)

Australia 14th in 2008 among 30 OECD member.

Source: DIISR

0

0.2

0.4

0.6

0.8

1

1.2

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

Australia

Year, ended June

BE

RD

% o

f G

DP

NZ (0.5%)

Australian Productivity GrowthGDP per hours worked (4-quarter moving average) to December 2009

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

%

20th Century average was 1.9% per annum

Source: ABS Cat NO 5206.0 IBISWorld 05/03/10

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

%

0.8

1.1

1.3

1.5

2.2

2.4

2.5

2.8

4.9

Govt Admin/Def

Cult & Recn Serv

Transport

Personal & Other

Retail Trade

Agriculture

W'Sale Trade

Finance & Ins

Communications

Australian IndustriesAustralian Industries ProductivityProductivity5 year growth 5 year growth to 2008, % to 2008, % p.ap.a ((IGP / employeeIGP / employee @ 2006@ 2006--07 prices)07 prices)

-7.6

-5.8

-1.6

0.1

0.4

0.8

0.5

0.7

0.7

0.8

-8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6

Mining

Utilities

Education

Prop & Bus Serv

Health

Hospitality

Manufacturing

Construction

All Industries

Govt Admin/Def

Source: ABS & IBISWorld 05/03/09

Percent

Average

44..Keys To Success Keys To Success Keys To Success Keys To Success

What the Best Enterprises Are Doing

1. They stick to one business at a time and do not diversify

2. They aim to dominate some segment (s) of their market

3. They are forever innovative, valuing the business’ IP.

4. They outsource non-core activities to enable growth.

5. They don’t own “hard” assets.

6. They have good and professional financial management.6. They have good and professional financial management.

7. They plan from the outside-in not the inside-out

8. They anticipate any new industry lifecycle changes.

9. They follow world best practice for their own type of business.

10. They develop strategic alliances.

11. They develop unique organisational cultures.

12. They value leadership first and management second.

Positioning

Secure a safe industry position in your Secure a safe industry position in your chosen industry to be chosen industry to be mastermaster--of one’sof one’s--ownown--destiny destiny by dominating something. by dominating something.

Domination can be of:Domination can be of:

�� the whole industry class (being a the whole industry class (being a majormajor); or); or

�� one category in the industry (a one category in the industry (a niche playerniche player); );

oror

�� one product groupone product group1 1 (an (an ultraultra--nicheniche player); or player); or

�� one product ( a one product ( a boutique operatorboutique operator).).

Note: 1 Or a customer segment; and occasionally a geographic area

Industry Share Strategy(positioning for a winnable war)

Major Player

5% 1-5%

No-man’s-land

Source: IBISWorld

Major Player

25-75%

No-man’s-land

No-man’s-land (un-winnable position)

Caught between majors (“sledgehammers”)and niche players (“knee-cappers”)

Outsourcing And A Virtual Corporation

In the Industrial Age, corporations set out to be selfIn the Industrial Age, corporations set out to be self--sufficient sufficient -- apart from obvious subapart from obvious sub--contracting contracting --creating complex and multicreating complex and multi--layered/multilayered/multi--functional functional structures.structures.

In the New Age, In the New Age, all nonall non--core/noncore/non--strategic activities strategic activities In the New Age, In the New Age, all nonall non--core/noncore/non--strategic activities strategic activities areare outsourcedoutsourced11 to specialists in the interest of to specialists in the interest of reduced complexity and to develop focus, lightness, reduced complexity and to develop focus, lightness, flexibility and faster growth of the business: a flexibility and faster growth of the business: a virtual corporation. In 2005, over $450 billion of virtual corporation. In 2005, over $450 billion of nonnon--core activities are now outsourced by core activities are now outsourced by businesses businesses (20% of revenue)(20% of revenue)

1 1 Outsourcing is not to be confused with subcontractingOutsourcing is not to be confused with subcontracting

Business Outsourcing in the New Age

Trucking� Road transport industry.

Cleaning� Office, factory, hotel etc.� Laundry, work clothes.

Canteens, Dining Rooms� Caterers.

Maintenance� Painting .

Accounting� Payroll, Share Registers

� Full contract accounting.� Superannuation administration.

Computing� Software development.

� Computer services (IT outsourcing)

Property� Property trusts, � Painting .

� Engineering.� Carpentry.

Security� Security systems.

� Surveillance services.

Personnel� Recruitment.� Out placement.� Training.

Reception

� Serviced offices.

� Property trusts, � Property management

Marketing� Advertising, media buying

� Call Centres

Distribution� Warehousing & Delivery

Information & Planning� Database services

Strategic and Other Consulting

Franchising� Operations.

Mobile (incl. resellers 2.9%)

Telecom EqptWholesaling

ComputerRetailing

Telecommunications34.5%

11.1% Wired

The External IC&T IndustryAustralia Revenue based, F2009 (E)

17.2%

IBISWorld: 30/07/09

$116.1 billion

Wired

Computer Wholesaling

0.6%Relay,

Satellite

14.3%

4.1%

ITConsult.

ITMaintenance

Databases &Data Process

ITManufacturing

14.3%

The New Age Virtual Corporation

New StructureVirtual Corporation

Traditional Structure

Board, CEO andTop Management

Multi-layered Corporation

Mostly outsourced

Head Office functions

Leader, Senate andTop Management

No Longer

Required

No Longer

Required

Functions provided back to company by firms in new (specialised) industries (e.g IT, personnel, legal, accounting, information, transport, cleaning etc.)

Mostly outsourced

Mostly outsourcedand /or franchised

Middle

Management

Supervisors

& Employees

Implementers

Coordinators& Operatives

Leadership

Leadership sits above management. Leadership sits above management. It demands It demands special attributes such as loneliness in ultimate special attributes such as loneliness in ultimate decision making (decision making (after full consultationafter full consultation), ), often with often with no no voting. And, sometimes, no consensus. voting. And, sometimes, no consensus.

It is nonIt is non--gender specific.gender specific.It is nonIt is non--gender specific.gender specific.

Leadership involves more external focus than internal: Leadership involves more external focus than internal: the opposite of management.the opposite of management.

Apart from listening to experts and confidantes, it Apart from listening to experts and confidantes, it involves communicating directly with major involves communicating directly with major customers at least once a year.customers at least once a year.

What can happen with great leadership, and following the Keys To Success (or most of them)them)

The Leighton Group was mid-sized not that long ago

Leighton Holdings Revenue & Profitability1

Revenue excludes JV & associates share 1962 to F2009

25%

30%

35%

40%

45%

25

30

35

40

45

50

Reven

ue

(A$ b

illi

on)

RO

SF

%

Notes: 1 Net profit after tax on S/F2 Zero data are actually

losses for those 3 yearsROSF

IBISWorld 30/03/10

0%

5%

10%

15%

20%

0

5

10

15

20

25

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

Reven

ue

RO

SF

%

Revenue

Successful Mid-sized Businesses5-year average ROSF (after tax) basis, % to F2009

Allen & Allen & UnwinUnwin 115.5%115.5%

Wotif.comWotif.com 80.1%80.1%

Readers DigestReaders Digest 77.9%77.9%

MiniMini--tankers Aust.tankers Aust. 67.4%67.4%

Nielsen CompanyNielsen Company 66.4%66.4%

Ted’s Camera StoresTed’s Camera Stores 50.4%50.4%

Nick Nick ScaliScali 48.8%48.8%

Bakers DelightBakers Delight 42.3%42.3%

WridgwaysWridgways 38.3%38.3%

Aust Steel MillsAust Steel Mills 35.1%35.1%

55..Snapshots Of A Snapshots Of A Changing WorldChanging WorldSnapshots Of A Snapshots Of A Changing WorldChanging World

World GDP GrowthReal growth (PPP), 1950-2011(F)

-10123456789

101112

Pe

r c

en

t

Past 25 years 3.5% p.a

1950-1969 growthin US$ market terms

Purchasing Power Parity (PPP) terms 2008 3.2% 2009 -2.5% 2010 2.5% (F)2011 2.9% (F)

-11-10

-9-8-7-6-5-4-3-2-10

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

Pe

r c

en

t

IMF/Economist//IBISWorld: 30/03/10

World’s 30 Largest Economies2010 (F)

11th – 20th Nations 14.8%

20.5% USA

Purchasing Power Parity (PPP) terms

Rest of World(198 nations)

15.5%

Poland 1.0%S. Arabia 0.8%Argentina 0.8%Thailand 0.8%S. Africa 0.7%Egypt 0.6%Pakistan 0.6%Colombia 0.6%Malaysia 0.6%Belgium 0.5%

World’s 228 nations

US$ 72.1 trillion

Mexico 2.1%Spain 1.9%Korea S 1.9%Canada 1.9%Indonesia 1.4%Turkey 1.3%Australia 1.2% 17thIran 1.2%Taiwan 1.0%Netherlands 0.9%

4.0%

11 – 20 Nations 14.8%

India

5.3%

3.0

%

2.5

%

CIA/IBISWorld 08/02/10

1.3

-2.5-2.5

-2.2-0.3

0.5

2.6

4.66.5

8.0

USACanadaFranceBrazil

S KoreaAustralia

IranIndonesia

IndiaChina/HK

Economic Growth: 2009 (F)20 Largest Economies (ppp ranking)

-8.0-6.9

-6.0-5.3

-4.9

-4.8

-4.7-4.0

-3.6-3.6

-2.5

-2.5

-8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9

RussiaMexicoTurkeyJapan

GermanyItalyUK

NetherlanSpain

TaiwanWorld

USA

The Economist/IBISWorld 11/04/10

World Growth2008, -2.5%

3.1

3.53.6

4.34.95.0

5.3

5.67.7

9.5

AustraliaRussiaTurkeyMexicoTaiwan

BrazilS Korea

IndonesiaIndia

China/HK

Economic Growth: 2010(F)20 Largest Economies (ppp ranking)

0.71.1

1.31.51.6

1.92.3

2.5

3.03.13.1

-0.3

-2 -1 0 1 2 3 4 5 6 7 8 9 10

SpainItaly

NetherlandsUK

FranceGermany

JapanIran

WorldCanada

USAAustralia

The Economist/IBISWorld 11/04/10

World Growth2010 (f), 2.5%

Economic Growth: ChinaReal growth 19501950--2011 2011 (F)(F)

-4

0

4

8

12

16

20

24

Pe

r c

en

t

8.2% average

-28

-24

-20

-16

-12

-8

-4

19

50

19

54

19

58

19

62

19

66

19

70

19

74

19

78

19

82

19

86

19

90

19

94

19

98

20

02

20

06

20

10

20

14

20

18

Pe

r c

en

t

SSBC/IBISWorld: 24/03/10

3

4

5

6

7

8

9

Economic Growth: AustraliaAnnual real GDP growth (%) progressed in quarters to December 2009 (and forecast to June 2013)

Average long business cycle is 34 quarters (81/2 years)

Forecast

-3

-2

-1

0

1

2

3

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

36 qtrs. 34 qtrs 34 qtrs 33 qtrs 38 qtrs 33 qtrs? 36 qtrs ?

Source: IBISWorld: 04/03/10Years, ended June

Australia’s Industry MixValue added basis Shares of GDP in constant F2007 price terms C2009

Agriculture

2.6%Utilities

2.4%

Mining

6.8%

Govt. Adm. 5.0%

11.3%

Cult & Rec. Serv.

Pers. & Other Serv.Hospitality

(2.2%)

ABS 5206-26 /IBISWorld

GDP $1260 billion (current prices)$1208 billion (constant F2008)

Finance & Ins.

2.8%

Communications

11.3%Prop. & Business

Services

SectorsPrimary

Secondary

Tertiary

Quaternary

Quinary

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