Finding wisdom in a binary world

Sometimes I think that the thirst for data, combined with a digital mindset, is reducing our analytical and critical thinking to a highly polarised, binary-driven view of the world.

Rather than recognizing that most ideas and concepts are composed in “technicolor” we are increasingly reducing our options, choices, responses and decisions to “black or white” conclusions. Everything has to be couched in terms of:

  • on/off
  • yes/no
  • true/false
  • positive/negative
  • for/against
  • like/dislike
  • friend/unfriend
  • connect/disconnect

It feels that our conditioning is driven by the need for certainty, the desire to be “right”, and the tendency to avoid disagreement/difference. However, uncertainty is more prevalent than we may like to admit. To illustrate what I mean, here are four personal learning experiences I would like to share by way of demonstrating that not everything can be reduced to black or white thinking:

1. The scenario is the same, but the context, therefore the answer,  is different

Although I was born and grew up in the UK, I completed part of my primary education in Australia. Before returning to the UK, I was required to complete the 11-plus exam, to determine which secondary school I would attend in England. (The exam was mainly designed to test literacy, numeracy and verbal reasoning.) Here’s a multiple choice question which I got “wrong”:

Q. Why do windows have shutters?

I chose “to keep out the sun” as my answer. In fact, the “correct” answer was “to keep out the wind”. The invigilator was kind enough to include a note to the examiners that my answer was based on the fact that I had been living in Australia, where window shutters are primarily designed to keep out the sun (and therefore the heat). Whereas in the UK, shutters are largely used as a protection against the wind.

2. The facts are the same, but the interpretation is different

While studying for my law degree, I had to write an essay on reforming the use and application of discretionary trusts, based on the current legislation and recent court cases. I argued in favour of an alternative approach to the relevant court decisions, and deliberately took a contrary view based on my social and political outlook at the time, and influenced by what I saw were changes in public policy.

To my great surprise, the tutor gave me one of my highest ever grades in that subject – even though she disagreed with my conclusions, she recognised that my reasoning was sound, and my interpretation was valid.

3. The intention may be “constructive”, but someone will always choose to see only the negative

Early in my career, I participated in a TV documentary series about different types of interview situations. As a local government officer, it was my role to advise members of the public on how to navigate the various regulations and policies in respect to accessing council services, as they related to their own particular circumstances.

One interview I conducted was included in the final broadcast. I thought my advice was objective, and based on widely accepted principles, but without advocating or recommending a specific course of action, as I believed it was my job to remain impartial yet factual. I later discovered that another local council used part of the same interview footage to train their own staff in how not to conduct an interview, because it could have been mis-interpreted as a way to get around the system. So, whereas I thought I was being constructive, someone in a position of authority chose to see it as a negative influence.

4. The assumptions may be reasonable, but the results often prove otherwise

Years later, I found myself having to defend a proposal to launch a smaller, and cheaper, version of a global product in a local market. The received wisdom among many of my colleagues was that the proposal would result in less revenue, even if customer numbers grew. As part of the initiative, I also advocated shutting down a legacy local product in the same market – partly to reduce production costs, and partly because very few customers were actually paying for this outdated service. Again, I faced resistance because a number of internal stakeholders thought customers would refuse to pay for a superior service, and that the business would end up alienating existing customers and, by extension, upsetting the local market.

Subject to a detailed customer migration plan, some very specific financial metrics and frequent status reports, the project was greenlighted. 12 months’ after implementation, the results were:

  • Comparable revenue was doubled
  • Overall production costs were halved
  • A significant number of new clients were signed up (including several from new market segments)

The closure of the legacy product did see the loss of some customers (about 10-15% of the legacy client base), but this was mostly non-paying business, and was more than offset by the increased revenue and customer growth. [In my experience, significant platform migrations and product upgrades can result in up to 20% of customers electing not to switch.]

What are we to conclude from this?

It’s totally understandable that businesses want to deal only with certainty (“just give me the facts…”) and often struggle to accommodate alternative or contrary perspectives. But despite the prevailing digital age of “ones and zeroes”, we are actually operating in a more fluid and diverse environment, where new business opportunities are going to be increasingly less obvious or come from non-traditional sources. While we may find comfort in sticking to core principles, we may end up missing out altogether if we are not prepared to adapt to changing circumstances: context is all about the difference between “data” and “knowledge”.

Wisdom comes from learning to acknowledge (and embrace) ambiguity; individuals, teams, organisations and businesses are more likely to benefit from greater diversity in their thinking, resulting in richer experiences and more beneficial outcomes.

 

2015 – A Year for Optimism?

After a very challenging 2014, I am trying to face 2015 with a spirit of renewed rationalism and optimism. It won’t be easy, but if we can remain true to our real purpose, and (re)-connect with those things that bring us a sense of joy with the world, maybe we can get through it together. Now, more than ever, we need a Chief Rational Optimist

 

Australia 3.0 – beyond the mining boom….

In the wake of the G20 Brisbane meeting, Australia’s place in the world has been under scrutiny, in particular our role in Asia Pacific. With the announcement of a Free Trade Agreement with China (following similar treaties with Japan and Korea), a flurry of extra-mural visits by G20 leaders, and our current Presidency of the UN Security Council, you’d be forgiven for thinking that Australia was now front and centre of the world stage. Well, I hate to disappoint anyone, but I’ve recently spent 3 weeks overseas, and the only news I heard from home was the death of Gough Whitlam.

However, this does seem like a timely opportunity* to consider the question: “What’s next?” after the resources bubble has burst. This was the topic of discussion at this month’s Directors Suite luncheon, where I delivered some opening remarks based on the following text: 

Introduction

Our theme of Australia 3.0 is not to be confused with the think tank of the same name. Although it is interesting to note that their four areas of interest are Infrastructure, Health, Government Services and Mining.**

Historical Perspective?

I’m not a political or economic historian, but I would suggest that Australia’s policy agenda has followed a rough but discernible narrative:

  • Australia 1.0 – from the launch of Federation to the 1960’s – post-colonial era, bookended by WWI and the Vietnam War, and despite the dominant figure of Menzies, largely a protectionist, semi-nationalised, highly collective and quasi-socialist mixed economy
  • Australia 1.5 – The Whitlam Upgrade (or Experiment) – radical, short-lived, too much too soon?
  • Australia 2.0 – The Hawke/Keating System Reboot – currency and interest rate reforms, major privatization, re-engagement with Asia
  • Australia 2.5 – Rudd/Gillard bug fixes – a micro-managed response to the GFC, but despite the hype/promise, not much was actually achieved in macro terms, witness the 2020 summit…

What Issues Will Define Australia 3.0?

If we take it as read that there are demographic and environmental challenges ahead, I see that there are 5 Key Drivers for social and economic change, each with their own particular issues and consequences:

1. THE BIG ONE:
Economic activity post-GFC, post-mining boom, post-dollar parity
The “new normal”: slow/low/no growth and the struggle for sustainable growth; sunset on the baby boomer era; how to get internationally competitive, streamline SME regulations, remove the burden of tax administration
2. THE TECH TREND:
The age of mobile, cloud and social technology
Digital innovation backed by a new spirit of Gen Y/Gen I entrepreneurial start-ups; no more “job for life” employment – 1.3m non-employing businesses in Australia…. (40% of US workers will be freelance/self-employed by 2020)
3. THE END OF EMPIRE(S):
Declining respect for/relevance of political structures & public institutions
Minority governments, heightened clash of ideologies, power shift from Federal/State to Regional/Community; also reflects a failure of leadership within political parties, unions, corporations, religious bodies, professional sporting codes, armed forces etc.
4. OUR PLACE IN THE REGION
Free Trade Agreements with Asia, realigning regional interests
At what price? Implications for our traditional political allegiances? Challenges to Australia’s regional relevance if it’s one-way traffic only? Threat to food security?
5. NEW NATION BUILDING
Upgrading declining infrastructure and building capacity for the future
Who decides? Who pays? NIMBY? Too little too late?

Some international perspectives

Based on my recent travels to the UK and Hong Kong, we can make some interesting comparisons with conditions here at home. For example, like Australia, both UK and HK have very unpopular governments at present (but for different reasons); they are currently enjoying relatively higher (albeit still sluggish) GDP growth rates compared to other developed economies; and like the Australian dollar, Sterling has also declined recently against the US dollar (HK’s dollar is, of course, pegged to the US).

I got the impression that the cost of living in the UK has not gone up much since my last visit just over two years ago, although like Australia’s capital cities, London house prices are probably achieving/exceeding pre-GFC levels. (However, GDP growth is mainly due to pent-up demand from continuing austerity measures.) Relations with the EU are strained by budget issues and immigration polices. Following the Scottish referendum, there has been increased discussion on regional devolution, and Manchester looks set to acquire new regional powers (similar to the Mayor of London model). London remains as an important international financial centre, while selected manufacturing and services industries are enjoying renewed growth. There were numerous signs of major infrastructure projects (notably the Crossrail in London) and urban renewal initiatives (such as the Manchester City Library upgrade).

Meanwhile, HK is going through yet another constitutional crisis under the post-handover Basic Law (“One Country, Two Systems”). The Occupy Central protests, aka the Umbrella Movement were the most orderly demonstrations I have ever seen. The protests are multi-faceted; they are not just about Universal Suffrage, but also reflect social, economic and cultural struggles/challenges. There is another (speculative) property boom, fuelled in part by new subway systems, new commercial buildings, and a harbour front tunnel to by-pass the CBD; and in part by hundreds of new apartments (attracting mainland buyers). Property prices are at another all-time high (new developments can cost US$4-5m for less than 1,000 sq. ft.) – no wonder that about half of the population now live in public housing projects, and nearly one-fifth are estimated to be living below the poverty line. But food, clothing, public transport, eating out and general consumer goods can still be bought at modest prices (as long as you avoid high-end brands in high-end malls).

Making The Right Connections

I spent two days at a major Asia Pacific financial services conference in HK aimed at stock exchanges, banks and data vendors, where I only saw a couple of delegates from Australian banks, nobody from the ASX and no-one from the Australian superannuation or asset management sectors.

Does this matter? I think it does.

There was much talk about the convertibility (or internationalization) of the RMB, and one currency broker I spoke to suggested that Australia will be the next target for major RMB investment – it’s not just about Toorak mansions. There are huge RMB deposits sitting in HK, and Australia is an approved investment destination (and Australian-managed funds are an approved asset class) for approved mainland investors. The money has to go somewhere.***

By standalone stock market capitalisation, ASX is ranked 14th globally, but represents only about 2.2% by value. Furthermore, when taking into account recent stock exchange mergers and the new HK/Shanghai Stock Connect trading platform, the combined Hong Kong/Shanghai/Shenzhen market cap will leapfrog into 2nd place globally, and into 1st place in Asia Pacific, displacing Japan from its long-held position. And even though conference delegates often talked about the 4 key regional markets of HK, Japan, Singapore and Australia, the ASX comprises a mere 6% of regional market value, and the only exchange ASX has had serious (but failed) merger talks with is Singapore – which does not even make the global top 20.

The ASX market cap is $1.5tn; total superannuation funds and assets under management are about $1.6tn; while the equity in family owned businesses that needs to be refinanced over the next 5-10 years is estimated to be about $3.5tn.

Even financial market experts in Asia were acknowledging that wealth management, retirement planning and private banking services are gaining more significance than IPOs and equities trading. This in turn places greater emphasis on long-term investments, asset management for future returns, a new role for private equity, and more allocations to fixed income and bonds. But regulatory and operating costs threaten to erode any value that is being created in these asset classes, unless service providers and intermediaries can generate better efficiencies and/or develop additional, high-value products and services.

For our part, do we need to explore the role of alternative stock exchanges and non-traditional fund-raising platforms (especially for emerging companies and infrastructure projects)? And what is happening with Australia’s anticipated role as a regional fund and asset manager?

Implications for NEDs

As Non-Executive Directors, does this mean we should be shifting our focus from the “holy grail” of a seat on a public board, and instead look at how we can help, support and build value in the small businesses that will continue to be the long-term drivers of economic growth, and ensure that the boards of super funds have adequate governance?

Footnotes:

*We were not alone: “Head of PwC Australia addresses National Press Club”

**See my own “3 Pillars of the Digital Economy”

***As part of the FTA with Australia, China has opened a RMB clearing house in Sydney, and granted Australia a portion of RQFII asset allocation. And soon after the FTA was announced, the NSW Treasury issued an RMB bond.

Next week: Managing Big Data Analytics and Visualization

 

Joining Australia Post’s “National Conversation”

In a previous blog, I offered some thoughts on the possible digital future for AusPost. In response, I have been contacted by one of their social media consultants, drawing my attention to the “National Conversation“.

First, I acknowledge that AusPost is attempting to have an “open” conversation with customers, but I don’t see how this is really helping, other than generating a range of (conflicting) opinions, with little cohesion around the key issues. Participation rates in the Topics to date has been very erratic (in terms of numbers, and geographic distribution).

Second, I have read CEO Ahmed Fahour’s latest address, and frankly it did not inspire me. Basically, it was a whinge about the decline in letter volume, and the “challenges” of the Internet (which, as he says, has been with us for 25 years…. hardly a new event!) I also think there are some factual inaccuracies in Mr Fahour’s assumptions: I don’t believe that Australians are any less digital citizens than their OECD counterparts – they have always been reasonably early adopters of new technology (as evidenced by the number of smart phones and tablets). Where they have been slow is in moving to online services, but this is in large part due to poor Internet services (notoriously slow connection speeds and restricted bandwidth, and exorbitant access fees), coupled with a paucity of reliable online platforms – which is ironic given the push towards eGovernment, eCommerce and the digital economy around 1999-2001.

Third, and staying on the topic of eCommerce, the one recurring theme that does emerge from the National Conversation so far is the high cost of sending small parcels. I agree with some of the feedback that it is often cheaper (and quicker!) to order consumer items from overseas online retailers. Shouldn’t Australian consumers expect to benefit from the economies of scale to be achieved from a growing parcel business?

Finally, my previous blog suggested that digital transactions are the future for AusPost (while acknowledging the need to maintain its statutory obligations for letter delivery) – but apart from e-mail and bill payments, Mr Fahour’s address was rather silent on this point. That scares me, as it suggests a lack of vision for an integrated digital strategy. After almost 5 years in the job, you’d think a few more ideas would have emerged by now.

(Afterthought: maybe AusPost should check out what Shomi is doing – a local start-up with some smarts in linking the physical and digital worlds.)