It is an old economy that is dying, and it is the sound of the death throes and squalls of agony from that economy that is keeping the Harvard Business School Deans, Australian property spruikers, and European governments up at night.
I have written quite a lot on why high house prices are not good for innovation (thus growth, and thus economic wellbeing and equity).
Trade.
The economic problem is this: Trade makes people better off.
The social problem is: Monopoly capitalism and large ‘propped up’ institutions make no-one (collectively) better off. And this is what we have had.
Needed: 1 Middle Class
The Ford period of mass-production was based around the insight of creating larger wealthier consumer markets. By paying higher wages, people could afford the company’s products. i.e. cars.
Credit is a poor substitute for a middle-class. Consumer Credit or Mortgage Re-draws just kick the can down the road, and max-out the grand-kids credit card.
Which is fair enough. Perhaps we only get a ‘good decade’ (or less) every so often. The ‘good old times’ were never so ‘good’. (Except a few years here and there).
Answer.
So we must build an innovation economy, because the rules of the game are changing.
Just some thoughts…
Your Innovation Economy Today! Hobby to Killer Product
Now what are you going to build today?
How about you turn a hobby into a killer business… but remember, think about distribution first. How can you get your killer product to market?
Keep innovating,
Christopher Hire
It seems rather old-fashioned to see airline travel as luxurious. Perhaps in the 1950s or 1960s, it was.
Airlines perform a much more important role in innovation.
Airline problems are now a every-man problem, and a business problem. Airlines have become like buses in the sky, and the availability of air travel is an operating assumption of business and families.
But with security probes, x-rays, long queues, lost baggage, re-routed planes and an unpleasant taxi journey airport — airline travel is anything but pleasant. (This poster above captures the lost glory of travel!) Partly this loss of glamour is due to the inevitable move from expensive elite experience to mass transit air-bus.
Now there is the Qantas lock-out. Whatever your views on who is to blame, from an innovation and development view it is troubling for Australia — or any other island nation. It’s also troubling for Qantas shareholders.
Why airlines and innovation?
Innovation is driven by exchange and connection.
In my Innovation Cities Index and City Benchmarking Data work for 2thinknow, I have worked with other analysts to examine the linkages.
Without giving away a professional detailed analysis, a general simple analysis would be as follows.
Primary airline with leading market share (Qantas) chooses not to participate in market. This has a limited direct economic impact. However, as Qantas is the default safe choice (monopoly), this creates tension and leads to reduction in pricing premium. This pushed Qantas air ticket prices down as demand falls at current price. This results in declining performance in Qantas.
There is a limited (approaching zero) probability of improved Qantas performance, as Qantas have significantly damaged the value of their brand to mid and upper-tier customers. If those customers have a choice (Emirates, Singapore, etc) they may choose that.
Most likely upshot is more Asian / Mid-East airlines enter, selling tickets at lower prices (if allowed by Australian government). There are a series of possible scenarios, including the growth of Virgin branded airlines. A possible BA/Qantas or U.S. airline / Qantas takeover may occur. Qantas may be broken up.
This has a variety of impacts on which cities Australian tourism should be targeting, and which operators will succeed (and which will fail), as likely there is a shift to different cities and differing economic connections (based on new airline hubs).
Simply put, this changes the winners and losers in tourism, and has impacts on business co-operation as well.
Innovation, Airlines and Island Nations.
The default airline into Australia also has various national roles. Australia is 23 hours from Europe, and 14+ hours from the USA.
It makes sense to ensure the primary national carrier of an island can (like British Airways for U.K.) deliver the services needed, and provide the capacity to move people and vital goods.
For an island, this exchange and movement matters. In a networked world, people and things still move. Mail may fall, but shipping of boxes and people increases. And tourism has a strange way of leading to business deals.
It is a pity to burn more advertising dollars on advertising without a national airline. In innovation terms, it’s all unfulfilled ideas and promise.
Nationalization of Qantas.
Now there have been some sneaky news stories op-ed pieces floated lately about nationalizing Qantas, and if we see any structural change in growth rates, then the economic basis of a full service airline becomes shaky.
And when the economics become shaky, nationalization sometimes occurs (see railways).
Airline innovation.
That is not to say that it is not possible to run Qantas the business at a profit. It is.
It’s just that without imagine and vision Qantas will be turned into a loss-making enterprise. And when we have loss making enterprises, markets cannot support them. So then you hear about nationalization.
In many cases there are people able to do something, it’s just that the system creates gridlock. Staff, Board Members, Managers, Unions, Politicians. All are responsible.
I believe that with innovation in services, seating, aircraft delivery, lounges — Qantas could revenue grow (not cost cut) the way to success. I believe there are some trends that allow Qantas to make a greater profit.
But it requires re-imagining airlines and the airline business.
Sovereign airlines.
It’s worth noting that most airlines have sovereign (national) ownership — so this means that there is an inbuilt pricing assumption that tourism benefits are part of the profit of an airline for the government. Private shareholders don’t see this investment return (so don’t care about tourism except in a warm and fuzzy way).
Bear in mind institutional investors (a majority) do not do warm and fuzzy. So sovereign airlines can lose money, because their shareholders (government) see returns from the tourism.
In some ways though, this is unimaginative (and anti-common sense). You must not turn a profit making enterprise into a less efficient hybrid political enterprise – if you have the choice. Which the leadership does.
However, they lack the ideas, and it seems unlikely that the old neolithic approaches will create better outcomes.
I still believe Qantas is a viable business — and doesn’t (yet) need nationalizing.
But will we get innovation? Not if this gridlock continues.
Keep innovating,
Christopher Hire
Christopher Hire is Executive Director of 2thinknow, innovation agency.
Are supermarkets efficient markets ? Or are they crowding out innovation?
All the evidence I have seen is that large monopolies prevent the development of new innovative small and mid-size companies. My thesis is broader however. That certain monopolies in consumer exposed sectors can actually block the development of new products and services, reduce opportunities and slow job creation in the economy.
My experience of the supermarket.
When I was a kid, in NSW partly, but also Melbourne and Tasmania I remember fondly our second supermarket.
The first was Woolworths. Although a noble attempt, this was an early 80s supermarket, and never quite delivered on the multitude of goods, glistening on the shelves. We then had a Franklins (discount groceries) which was good for cheap stuff, not so good for quality.
Finally we got our second. A large Coles supermarket (which a decade or so later, expanded). In many ways, this reduced our cost of living, as bonuses, freebies (steak knives and Bohemia Crystal), stock choice and variety made the Coles supermarket super fun, and super value.
Coles forced our green grocers to change. Our local grocers like to put their thumb on the scales. The main local butcher sold a mish-mash of meats, some aged (but not in a good way). So Coles seemed clean and safe, and to a kid — magical (and fun).
But now supermarkets have changed.
Once their purchasing power made them the cheapest.
Now it seems supply costs make them the most expensive.
Where once you went their for range, now it’s dominated by questions such as ‘what happened to XYZ product?’
Where once they were mid-size floor-plans, now supermarkets are huge floor plans.
Supermarkets are also empty more than I recall.
Let’s flesh out the last observation. The number of people per square metre in the local supermarket is lower than the number of people per square metre in the local market, one wonders whether free market theory works at all in this case.
Does the supermarket ‘compete’? As the duopoly now creep from 40% towards 50% of recorded Australian retail transactions, isn’t it time to ask is there a benefit here? Where?
One of the reasons for Victoria’s dominant retail sector is that small retail businesses continually introduce new suppliers to the market. Retail small markets represent the best way to do this — as argued by the market holders themselves in this the Age article.
Monopolistic bureaucracies on the other hand like to deal with bureaucracies. They can slash supplier margin, and make all products more the same (for economies of scale).
From an economic view we may have a collusive monoposony of sorts (in this case, 2 buyers that indirectly set prices for sellers).
In Australia, the government appointed ‘watchdog’ the ACCC have attacked the opposition to the duopoly (IGA-Metcash), but have done nothing against the duopoly.
This is an economic problem, and explains why the retail sector is less dynamic in areas where giant shopping malls or only market stalls dominate.
Reduced transactions.
My own experience of supermarkets is I regularly walk out without buying the products I want. Mainly this is because they replace more and more with pre-packaged fattening pseudo foods. Ice cream without much cream or milk. Meat pies with little meat. Lower price milk of inferior quality.
Value is an issue. Bread that costs 200% more than a baker, and verges on inedible. Expensive vegetables regularly 100-300% more than market prices.
So if the supermarket wanted more of my dollar, it loses around 40-90% every week to the markets, IGA or Aldi.
But it seems the supermarket does not want that money? It would rather decide which products I can or cannot buy, rather than providing it’s presumed mission of being a ‘one stop shop’.
This is flawed analysis by supermarkets. Because the supermarket is not serving customers, and is leaving transactions (and thus GDP) behind.
It is also not rewarding suppliers that develop innovative products. The monopsony only rewards cost reduction of supply, and only temporarily (all suppliers forced to reduce costs). This is a Walmart model.
Are supermarkets creating GDP?
It does seem that the duopoly strategy is more about maintaining a monopoly by occupying real estate, than actually competing in the free market sense on products. And as this is the main motivation, the supermarkets are not maximising sales or national GDP contribution (except by raising prices of targeted goods, but this significantly reduces demand).
It seems that current supermarket strategy also destroys shareholder value mid-term, and customer value right now.
There is a profit and social food opportunity here. Rarely those are aligned.
Trade creating innovation.
Luckily for me, there is a local market or an Aldi nearby.
But in most Australian cities except Melbourne, Hobart and Adelaide, there are no markets.
And where there are no markets, there is little retail innovation.
Keep innovating,
Christopher Hire
Christopher Hire is the Executive Director of innovation agency, 2thinknow.
UPDATE: Following publication of this analysis, on 29 August 2011 Heinz indirectly confirmed the problems outlined within at a US analyst briefing. Heinz pointedly attacked the supermarket industry for creating a inhospitable environment for suppliers, due in part to white label products impacting available consumer choices.
Read here: http://www.theage.com.au/business/heinz-blasts-supermarket-power-20110829-1jie4.html
How has the grand coalition needed to govern Australia changed in 2011?
What got me thinking about this was a piece in the Age (for those outside Victoria — seen as a nominally inner-city Left paper, with the occasional Right balance piece) — outlining Labor’s loss of bedrock support (something I argued here, extended here, and in more length here).
After party officials finalised their numbers earlier this month they found that 2100 members in Victoria – 16 per cent of the 13,000 members of last year – had not rejoined. …
Former finance minister Lindsay Tanner has argued that the primary motivation for government is merely to look like you are doing something while not offending anyone who matters. It is “all special effects, no plot”.
Here’s Ian Munro the full article in The Age
Trend analysis (unique to 2thinknow) explains that coalitions have changed viable plans — and require innovation. Here’s a very short summary of a few more thoughts (consider this a Part 3).
In today’s economy, the Left is not the same.
I have a different interpretation. The Grand Coalition of the Left has changed, as have a few of the values. But broadly speaking, the ideal of lowering costs for those struggling, and giving opportunity to the less advantaged should still be there. But the issue is this — working men (and women) of the trades are now the most advantaged class.
In Australia — butchers, nurses, teachers, police, soldiers, scientists, clerks, I.T., call centre workers, bank tellers — these are the new lower-paid professions. Small businesses once affluent like newsagents, chemists or cafes may be screaming for relief from rising costs.
The largely contract working man or coal miner is doing very well thank you in terms of income. Quite a few earn more than a Masters-degreed manager or scientist. As I said here, a 7-11 job can pay better than entry-level / general non-specialised I.T. Specialized labor does best of all.
For anyone in the 2000s the fastest path to wealth — become a plumber, service affluent clients, buy properties renovate them, churn them — and in 10 years you can be a millionaire in Australia.
Are tradespeople really struggling because they are blue collar? Wages data supports (and also under-reports this), but see this for yourself — ask anyone at a 7-11 who spends the most discretionary money? Tradespeople. Whilst white collar types with families count out the week’s beer money, many blue collar trade-workers keep spending. The construction industry has been responsible for the property boom, so has done well from Howard’s Right, and now Rudd/Gillard/Swan’s Left.
This has reduced broad-based innovation in Australia, as I argued in interview reproduced in Chris Zappone’s article in the Age and explained further here.
It’s the destruction of a true middle class that is why the middle is screaming despite the ‘aggregate numbers’ being OK.
Lessons in changes of the grand coalitions.
The far Right Tea Party in the USA learnt that the grand coalition of Right governments has changed. In Australia, the grand coalition of Right governments — also changed with Howard. Those changes were to create a self-employed ‘White Van Class’ and favour tradespeople (even with the GST, which arguably favors self-employed cash-in-hand tradespeople above all other businesses).
Now the Left has to learn the Left coalition has changed. And it’s not the loudest voices who have the insight.
Also the technology, structures, ideas, ideals, and grand unification of any grand coalition has changed. Unless you allow new innovation and ideas into the Left — you will entrench a 3-way DLP-style (social welfare) plus hard-Left Green split.
To change, political parties must first accept change. The ideas of Demos or the last great Blair-Labor period (not great for the Left in my view, as I have argued since 2006 in many places) — are dead and buried.
So the New Left may need those new innovation ideas. Or, what?
ABOUT: My employer, 2thinknow provide innovative ideas, metrics, innovation training and policy advice as a service to different centrist government’s at a city, state and national level. 2thinknow do this via data, training and analysis. We also publish the Innovation Cities Index – analyzing and ranking the world’s innovation economies at a city level, for 289 cities (including major Australian cities) based on underlying 162 indicators in 2010.
Innovation Books for Ideas.
Often I am asked where I get my innovative ideas from?
The answer is many places. Conversations, partly. Blogs, sometimes. Quality journalism, often. Journals and papers, as well.
But more often than not it’s still reading a good (paperback) book.
With that in mind, for 2thinknow, with interns I recently worked on updating our Innovation Reading List. This is a bookstore you can browse for innovation books.
Some of my favourite innovation books are inside — the innovation books reading list. As well, we have included some friends and colleagues popular titles on innovation, and some obscure classics — or related texts. A few surprises await!
It’s a balanced reading list between what is valuable, and what is popular.
Buying Innovation Books.
If you order the books online we get a few shekels, but I’d encourage you to select your favorites and support your local bookstore.
Or to save some shekels yourself — buy online, second hand books and save pre-loved books from the scrap-heap.
If you like you could take the innovation books reading list to your library — and support your local great lending libraries by borrowing a few of these books.
For those who want to advance the eBook — perhaps purchase the Kindle or other eBook edition, where available.
There’s even a few free classic books — such as some Schumpeter or Smith’s the Wealth of Nations, which are in the public domain for the google-ready.
But if you have a decent income, support the (living) authors of newer texts by purchasing. Royalties are not what they used to be!
Read an Innovation Book!
So you have no excuse not to read an innovation book — tomorrow or this week.
Here’s the innovation books reading list again.
P.S. if you’d like to see a favourite book added, or have feedback, tweet me @christopherhire or @2thinknow
Trends that work against the Labor Left, & how to rebuild with innovation. Second part of a series, analyzing the ALP in Australia. Analysis is applicable also to all parties, and Western elections to some extent.
The Australian Labor Party is generally polling (right now) in what is termed ‘sub-bedrock’ area. The numbers show the actions are not engaging voters.
Now this can change — but only if the change trends driving this shift is understood.
Electoral Trends.
The problem is not a medium or even a communication problem, it is that the process for listening and determining policy is tone-deaf to what voters really want.
1) Networked families.
Pollies act as if a single Anglo-Australia still exists. Or ‘warlord methodologies’ assume ethnic groups all vote the same, like a shop union. A networked world disrupts this pyramid.
2) Fragmented individuals
People are fragmented, communities are weaker. Therefore broadcast voting methods to gather supporters carry less weight, and distort votes.
3) Pyramids are dust
The Pyramid is broken. It’s dust. As a business model it’s not used by any exciting new companies, just old bureaucracies. When the top of the pyramid talks to the top of the pyramid — nothing changes in a networked world.
That’s why quotas and pyramid change strategies fail now.
These are just a few trends impacting politics globally, and in Australia — drawn from my trends analysis work at 2thinknow.
How change now works
Connections between nodes. Not pyramids.
Change models — original innovation models work I have done for 2thinknow — explain why politics no longer is business as usual. This is not unexpected. Airlines, hotels, books — all have been disrupted. This is ongoing.
But arguably, politics is a more critical segment in a democracy. (We divide cities and regions into 31 segments for data analysis).
Fishbowl ways of seeing.
Yet, those inside the fishbowl can’t see the world clearly (except through curved glass).
The preferred academics and poll-masters keep getting it wrong, because they lack the right data, or are stuck in ‘pyramid’ thinking. Technology adeptness is not the measure of success either.
Bias shift.
And this is not just a Left phenomenon, but the assumed bias of the Australian electorate has shifted right. Most people see business taxes passed onto consumers or shareholders (through superannuation) — so not really in their interest.
One of the answers to this is stopping wasteful projects in Government, based on old models — or at least revamping them.
But to do this, you have to understand how the world has changed. And few people do. Academic ideas are out of date — so are management consulting approaches.
2thinknow provide global comparative data on urban locations around the world, and source the best available proven policy ideas for clients.
My work for 2thinknow since 2005 research has been case studies of change, including politics and government for cities and states across the world. This can be seen at www.2thinknow.com or in our Innovation Cities Program: www.innovation-cities.com
The big trend.
Cost of living is now critical for many voters. So raising their cost of living and giving them money back seems wasteful. They don’t want the government deciding to give them a set-top box or pink batts. They want to decide themselves (a right-side idea).
So the Left needs to reshape it’s change dialogue or risk becoming a smaller party. Not healthy for anyone!
@christopherhire
COMPANY DISCLAIMER: I work for 2thinknow, and I/we have also earned fees consulting across government and business. We have at times editorialized also for a candidate on Left or Right (based on innovation potential), met Ministers of both sides, and assisted both Left and Right organizations.We do have contact government ministers, public servants and advisors.
Our innovation view is that political parties must have ‘differing views’ and that it is the tension and compromise between those views that can drives, improve and create innovation as positive change. This is the same view held by the U.S. founding fathers. At times, according to our innovation concepts, some parties and people will at times better drive innovation.
PERSONAL DISCLAIMER — My personal views are centrist — generally socially progressive who believes in business and markets, and that government action is possible in some circumstances and will succeed if based on the best data and frameworks.
The big IPO investment news in the innovation economy this week was LinkedIn and its valuation.
Here’s the story in Fast Company and also in Washington Post, Forbes blogs, with interesting take in The Australian and Technorati about LinkedIn.
Fast company set our some P/E maths:
At the $45 per share opening price, LinkedIn stock traded at 46 times its projected 2011 earnings. Anything above 25 and a company is expected to have unusually high growth projections. Either that, or they’re in bubble territory.
The positives on LinkedIn can be seen in the following paragraph from FC:
LinkedIn’s entire business model rests on amassing as many users as possible–particularly top-shelf professionals–and getting them to invest the time in keeping their profiles up-to-date. That’s because LinkedIn makes its nut from selling services to recruiters and advertisers who want to reach the company’s white collar members.
The Australian creates the negative case (many Australians do on U.S. stocks), in short — cheap money, high tide stocks:
The Fed’s super-easy policy, including the about-to-conclude purchase of $US600 billion ($562m) of Treasury securities, was designed in part to perk up riskier investments, such as stocks, with the view to create beneficial effects in the real US economy.
The final price at $104 seems high, after a launch at $45.
I’m not sure about LinkedIn price, but for 2thinknow I can see the investment in the innovation economy — especially exciting SMEs and start-ups — as good news in net trend terms.
It may not be the end of the world today (!) but nascent trends are now starting.
Network Goods & Geo-think
Actually, from my view, LinkedIn is a ‘network good’. I don’t have a view on the stockmarket price itself, but would observe LinkedIn is a key piece of identity architecture on the internet, that can be leveraged. And the internet can be leveraged to change the value of geography.
The virtual landscape will reshape the value of the real landscape, in a networked economy.
Innovation Economy tool.
So, there’s a lot of life in LinkedIn yet, irrespective of the stock price. Which puts me in the positive believer camp, as there are many new innovative applications for LinkedIn that have not yet been implemented. Those new applications broaden the value of innovation…
Whilst LinkedIn has been around since 2003, the innovation economy is new and in play.
Keep innovating,
Christopher Hire
Why talk of importing more I.T. people is overheated.
We often hear companies complaining there are no I.T. staff available in Australia. Often this is accompanied with talk of rising wages for general I.T. personnel in Sydney, Melbourne and Canberra.
But is this true?
I came across this advert for analysts at $23 / hr with a degree.
This is the same or less than I earned over 13 years ago for entry-level data tasks. And that was through agencies (whose margins are similar).
This also hardly seems generous as working shifts in a 7-11 will earn you a wage of $37/hr (something many graduates know).
If there really is a skills shortage, how can banks offer this pay — and fill the position? Which they do.
Small businesses will sometimes pay slightly more — the banks is selling a ‘career’. That is at least in theory — because banks and financial services have very high rates of candidate churn. But banks as key I.T. employers do ‘make the market’ — so you could argue a social responsibility clause.
The I.T. problem in Australia
If Australia wants an I.T. industry low wage, low industry skilling and over-emphasis on degrees for entry-level tasks are not the way to go.
Sounds to me like an I.T. employment policy is an area that could benefit from some new ideas.
Let me know your thoughts on twitter @christopherhire
Keep innovating,
Christopher Hire
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