WHERE KNOWLEDGE IS POWER

Phil Ruthven, Chairman

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

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

Topics

1. A New Age Business

2. The Intelligent Organisation

3. Innovation & Productivity

4. Keys To Success

5. Snapshots Of A Changing World

1. A New Age Business

Expectations of a New Age business

1. Profitability and growth A return on shareholder funds after tax of 4 times the bond rate Growth better than the industry average ( + international?)

2. Uniqueness in: Product, IP and operations Organisational culture

3. World best practice in: Value for money for customers Respect for the society in which it operates Relations with other stakeholders Treatment of the natural environment

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

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

Best 50

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

-2.50.21.02.1

3.24.2

5.66.77.99.09.911.1

12.512.613.8

15.617.7

19.721.8

24.728.6

35.248.9

158.0

Percent

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

Source: IBISWorld 19/11/09

23% > World Best Practice (ROSF 22.2%)

42% > Average (ROSF 12.6%)

68% > Bond Rate (5.4%)

11% Losses

-128.0-10.5

Health & CommunityGovt. Adm. & Defence

EducationUtilities

AgriculturePersonal & Other

ConstructionManufacturing

RetailingAverage

Finance & InsProp & Bus Services

TransportWholesaling

Cult & Recn ServHospitality

MiningCommunications

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

1.84.3

7.8

8.9

12.0

12.5

12.5

13.1

13.3

13.7

15.2

15.3

17.3

18.9

19.1

19.6

33.7

Percent

Profitability By Major Industries

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

Source: IBISWorld 22/12/09

6.4

0.4

Intellectual Property

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

• skills, special competencies, unique systems; • patents, trademarks & brands; • organisational culture, customer relation

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 good people to your business, and helping develop ordinary people into extraordinary people.

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

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

2.The Intelligent Organisation

Our

© IBISWorld

The Total Environment For Business

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 ? 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 Business

Its 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 Intelligence Expenditure on data and information, F2010(E)

InternallySourced

64.5%

35.5%ExternallySourced

Finance & Accounts

R&D,

Innovation

Operational

analyses etc.

Sales analysisPersonnel

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?

ICT CEO

& Board

Internally Generated Information?

© IBISWorld

IC&T

CIO?

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

This proportion has been steadily 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)

IBISWorld 18/11/09

Other1

Associations 6.7%

Mgt. Consulting

News/Books/Mags.

1.2%

Legal Services

AccountingServices

Env. Serv. 7.7%

26.2%

Conferences/Meetings2

Data/Inform. 6.5%

20.3%

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

Cons. Eng. + Architects

10.6%

Exploratory

9.7%

5.8% 2.2%

Note: 1 Public Relations Credit Agencies 0.9%

Other 0.7%

` 2 Includes accommodation, travel, registration

fees, speakers etc

ScientificResearch

3.1%

Purpose Of Outsourced Information About What? F2010 (F)

IBISWorld 17/11/09

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

Own Industry 9.8%

Comm

unity 1.5%

Market 4.0%

Economy 2.5% Finance 3.0%

71.6% About Our Own Company1

Purchases 2.9%

Labour 2.0%

Exploratory

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 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

Information Chain

The Knowledge Pyramid

By ValueBy Volume

Hearsay, Rumour, Scuttlebut

Data

Information

Expert Opinion

Intelligence

Vision

Hearsay

Data

Information

Intelligence

Expert Opinion

Wisdom

Vision & Strategy

Unique IP

Expert Opinion

Wisdom

Unique IP

Vision

Decreasing Value

Increasing Value

Source: IBISWorld 18/11/09

But interesting!

3.The Innovation & Productivity

Imperative

Equatorial GuineaBahreinBelgiumSweden

AustraliaCanada

UAEAustria

NetherlandsSwitzerland

IcelandHong Kong

IrelandUSA

SingaporeBrunei Kuwait

NorwayLuxembourg

QATAR

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

37.2

37.3

37.4

38.1

39.9

39.1

39.9

40.2

40.4

41.8

41.8

43.7

45.3

46.9

51.5

53.1

57.4

59.3

81.0

110.7

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

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

IndiaIndonesia

ChinaBrazilWorld

TurkeyIran

MexicoRussia

S KoreaNZ

TaiwanItaly

FranceJapanSpain

GermanyUK

FinlandDenmark

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

2.93.9

6.0

10.210.411.9

12.814.9

16.127.628.0

31.1

31.3

33.234.034.735.436.536.937.1

Standard of Living 200821-40 Highest Nations GDP/capita, ppp basis

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

Business Research & Development(% of GDP)

Source: DIISR

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

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2.2

2.4

2.6

Australia

Year, ended June

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.

NZ (0.5%)

Productivity Growth (Growth in GDP/ hour worked, % pa)

Source: DIISR

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

-2

-1

0

1

2

3

4

5

6

7

Australia

Year, ended June (Australia), March (NZ)

Gro

wth

in G

DP

/ho

ur

wo

rked

(%

)

New Zealand

4.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. 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 chosen industry to be master-of one’s-own-destiny by dominating something.

Domination can be of:

the whole industry class (being a major); or one category in the industry (a niche player);

or one product group1 (an ultra-niche player); or one product ( a boutique operator).

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

Industry Share Strategy(positioning for a winnable war)

Source: IBISWorld

Major Player

25-75%

5% 1-5 %

No-man’s-land (un-winnable position)

Caught between nichers (“knee-cappers”) and ultra-niche players (“ankle-biters”)

Exotic/boutique operator (0.1%)

No-man’s-land

5-25%

Ultra-niche specialist (1%)

Niche Player

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 self-sufficient - apart from obvious sub-contracting - creating complex and multi-layered/multi-functional structures.

In the New Age, all non-core/non-strategic activities are outsourced1 to specialists in the interest of reduced complexity and to develop focus, lightness, flexibility and faster growth of the business: a virtual corporation. In 2005, over $450 billion of non-core activities are now outsourced by businesses (20% of revenue)

1 Outsourcing 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 . Engineering. Carpentry.

Security Security systems. Surveillance services.

Personnel Recruitment. Out placement. Training.

Reception Serviced offices.

Accounting Payroll, Share Registers Full contract accounting. Superannuation administration.

Computing Software development. Computer services (IT

outsourcing)

Property Property trusts, Property management

Marketing Advertising, media buying Call Centres

Distribution Warehousing & Delivery

Information & Planning Database services

Strategic and Other Consulting

Franchising Operations.

The New Age Virtual Corporation

No Longer

Required

No Longer

Required

New StructureVirtual Corporation

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

Traditional Structure

Board, CEO and Top Management

Multi-layered Corporation

Mostly outsourced

Mostly outsourced and /or franchised

Mostly outsourced

MiddleManagement

Supervisors

& Employees

Implementers

Coordinators& Operatives

Head Office functions

Leader, Senate andTop Management

Leadership

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

It is non-gender specific.

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

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

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

The Leighton Group was mid-sized not that long ago

Leighton Holdings Revenue & Profitability1

Revenue excludes JV & associates share 1962 to F2009

IBISWorld 30/03/10

19

60

19

63

19

66

19

69

19

72

19

75

19

78

19

81

19

84

19

87

19

90

19

93

19

96

19

99

20

02

20

05

20

08

20

11

20

14

20

17

20

20

0

5

10

15

20

25

30

35

40

45

50

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Rev

enu

e (A

$ bi

llio

n)R

OS

F %

Notes: 1 Net profit after tax on S/F

2 Zero data are actually losses for those 3 years

TrendTren

d

ROSF

Revenue

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

Freightways 31.9%

Hollenstein 29.9%

Tower 29.3%

Renaissance Corp 28.3%

Fisher & Paykel 27.2%

Skycity 27.1%

Mainfreight 25.1%

Telecom NZ 24.5%

NZ Refining Co 23.3%

Steel & Tube Hold. 20.8%

Cavalier Corp 20.6%

5.Snapshots Of A Changing World

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

-11-10

-9-8-7-6-5-4-3-2-10123456789

101112

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

Per

cen

t

Past 25 years 3.5% p.a

1950-1969 growthin US$ market terms

Purchasing Power Parity (PPP) terms

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

2008 3.2% 2009 -2.5% 2010 2.5% (F)2011 2.9% (F)

World’s 30 Largest Economies 2010 (F)

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%

France

Ger

man

y

4.0%

11th – 20th Nations 14.8%

Britain

13.3% ChinaItaly

Brazil

Russia

20.5% USA

Purchasing Power Parity (PPP) terms

Japan

Rest of World(198 nations)

15.5%

India

5.3%3.1%3.1%

3.0%2.

9%2.5%

6.0%

21st – 30 th Nations 7.2%

CIA/IBISWorld 08/02/10

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%

1.3

-8.0-6.9

-6.0-5.3

-4.9-4.8-4.7

-4.0-3.6-3.6

-2.5-2.5-2.5-2.2

-0.30.5

2.64.6

6.58.0

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

RussiaMexicoTurkeyJapan

GermanyItalyUK

NetherlanSpain

TaiwanWorld

USACanadaFrance

BrazilS Korea

AustraliaIran

IndonesiaIndia

China/HK

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

The Economist/IBISWorld 11/04/10

World Growth2008, -2.5%

0.71.1

1.31.51.6

1.92.3

2.5

3.03.13.1

3.53.6

4.34.95.0

5.3

5.67.7

9.5

-0.3

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

SpainItaly

NetherlandsUK

FranceGermany

JapanIran

WorldCanada

USAAustralia

RussiaTurkeyMexicoTaiwan

BrazilS Korea

IndonesiaIndia

China/HK

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

The Economist/IBISWorld 11/04/10

World Growth2010 (f), 2.5%

Economic Growth: ChinaReal growth 1950-2011 (F)

-28-24-20-16-12

-8-4048

12162024

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

2018

Per

cen

t

SSBC/IBISWorld: 24/03/10

8.2% average

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

10

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

Economic Growth: New ZealandAnnual real GDP growth (%) progressed in quarters to March 2010

Source: IBISWorld/NZ Stats. 08/04/10Source: IBISWorld/NZ Stats. 08/04/10

Long Business Cycle, average 8 years

New Zealand’s Industry Mix Shares of GDP in real terms Year to June 2008

ABS 5206-26 /IBISWorld 06/11/08

Agriculture 5.8%

Utilities 1.7%

4.8% Transpt.

14.1% Manufacturing

GDP $NZ 179.2 billion (current prices)

Finance & Ins.

7.8% W’Saling

Mining1.2%

Govt. Adm. 4.6%

O’Ship Dwells. 5.8%

6.1% Retailing

4.6% Construction

6.1% 6.8%

Communicns.

14.1% Prop. & Bus.

Services

Educn. 3.8%

Health 5.0-%

Cult & Rec.Serv.

Person. Serv.1.1%

Hospitality (1.6%)

Other 3.4%

2.0%

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