Presented to Melbourne Business School, October 24th, 2016
I was lucky enough to be in Rio for the Olympic Games this year.
Like many Australians, I love my sport. Rio was my fourth Olympics and it was a really great experience – I saw Usain Bolt win the hundred metres, I watched the final of the beach volleyball on Copacabana, which was one of the more unique sporting experiences – the game started at midnight.
While I was in Rio I was very interested in the hand wringing going on back home about Australia’s performance. The fact is we punch above our weight in sport. We always have. We are a nation of only 24 million people but we were aiming for top 5 on the medal tally. We finished 10th and you would have thought we failed. We think we should do better than Great Britain despite the fact they have three times our population and they spend twice as much money as we do on Olympic sports.
So now we have this robust debate going on about how we reclaim our natural place in the global sporting hierarchy, and as this went on I couldn’t help but compare that debate against the conversation going on around innovation.
We want to be a top 5 nation at the Olympics, and we consider 10th to be a fail. But consider this – the World Economic Forum ranks us 23rd in the world for innovation. The WIPO Global Innovation Index has us at 19, Boston Consulting Group ranked us at 22 in their latest International Innovation Index. But none of this rates a mention. It’s not front page news. There’s no inquiry. I imagine it would be a completely different scenario if we slipped to the mid 20s on the Olympics medal tally.
Now I’m not advocating that we reduce our focus on sport. It’s part of who we are as nation, it’s part of our national identity, and the tangible and intangible benefits are huge.
What I am advocating is that we can use sport as an example for what we can achieve as a nation when we make something a priority. We can take on the world, we can be fearless and we can hold ourselves to an ambitious standard. If we applied the same scrutiny, expectation and commitment to innovation as we do to sport we could be punching above our weight in this area as well – but the fact is we don’t and the global rankings don’t lie.
So what’s it going to take?
It’s not as though we aren’t talking about innovation. In fact the discussion around innovation has kind of reached fever pitch and that’s a good thing. The fact we are talking about it, the fact we are having open conversations and debates about the best policies and programs and incentives suggests we are heading in the right direction. But there’s one thing we are missing in the entire conversation about innovation – the best polices, regulations, incentives are worth nothing if we don’t have the right culture and in all the debate about innovation this is the one critical piece that I think is missing.
We outperform in the sporting arena not just because we invest money. We outperform because it’s part of our culture. It’s a part of who we are. It’s in our DNA. We make it a priority. We invest time and effort. We invest in our children from the moment they are born. We have unrealistic expectations for our kids, and you only have to stand on the sidelines of Saturday sport to know what I am talking about. As a country we want success and we play to win.
Innovation is no different. At the heart of innovation lies culture and the fact is our culture is not where it needs to be. We’re not making it enough of a priority. We’re not investing enough time and effort and we are not playing to win.
And the conversation about innovation is only one part of a bigger discussion – because the issue at stake here is not just innovation. The issue at stake here is our global economic competitiveness. And that is the essence of what I want to talk about today – do we have the right culture as a country not just to drive innovation but to drive the global economic competitiveness that underwrites the growth and prosperity that we all want.
As a nation I think we have lost some of our edge. We used to be a free wheeling country that acted like we had nothing to lose. Now we are trying to defend what we have rather than boldly going after what we don’t. We used to proudly reject the constraints of authority. Now we let the layers of bureaucracy thicken. We used to solve a problem with a new way of doing something. Now we solve a problem by putting in place a new law or regulation. Our success was built on daring and flair. Now we are trying to protect ourselves from ourselves. Other nations, our competition, have become what Australia used to be – aggressive, hungry, ambitious, not constrained by their past.
If you don’t believe what I am saying consider this. In the 1950s Australia embarked on one of the most ambitious and courageous industrial projects in the world with the building of the Snowy Hydro Scheme. When it was completed in 1974, the Scheme consisted of 7 power stations, 16 major dams, 145 kilometres of inter-connected tunnels and 80 kilometres of aqueducts that continue to play a vital role in the growth and development of Australia’s national economy. Even today the water diverted by the Snowy scheme underwrites over $3 billion in agricultural produce and generates clean renewable energy for millions of homes.
The scheme took 25 years to build and cost $820 million. Over 100,000 workers were employed – two thirds of those were migrants. This was a remarkable achievement and just a stellar example of Australia’s post-war pioneering spirit and our fearless attitude. I pose this question – would the Snowy Hydro Scheme get built today? Or would it get bogged down in red tape and green tape, would it be hijacked by minority interest groups who use the layers of bureaucracy to launch spurious lawfare claims, would out-dated and uncompetitive labour laws make the project uneconomic, and would there be any chance that we would be bold enough to recruit 75,000 immigrants to our country to work on the project?
As a country we are becoming increasingly closed off to change, to risk and to opportunity. There is too much negative rhetoric, too much protectionism, not enough openness and not enough collaboration. We are too quick to find reasons to say “no” and not courageous enough to say “yes”. The naysayers and the disbelievers have too many platforms to shout from, and too many levers to pull to slow down progress. And we let them get away with it. We are not playing to win. We are playing not to lose.
So what needs to change?
I don’t pretend to have all the answers but there are three basic things that I think we need to do:
1. We need to let our leaders lead
In GE we apply the philosophy that you either lead, follow or get out of the way. Australia has a lot of great leaders, and we have an enormously talented workforce that is capable of competing with the best in the world, but the fact is we have too many things getting in the way that are slowing us down.
Everyone is critical that there has been no serious reform for over a decade and we all look back wistfully to the days of Hawke, Keating and Howard, but the fact is the political environment is completely different. Somewhere along the way we have let the politics of negativity and descent become the norm. We have given the Opposition and minority parties a platform to disagree with every decision the Government makes, and the Government has no clean water to get on with the job they were elected to do, which is to govern the country.
Before anyone thinks this is anti-democratic let me state that we have a fine democratic process. If we don’t like the way the government are performing we can vote them out at the next election. If we like what they are doing we’ll give them another term. As it stands we are caught in a perpetual cycle of campaigning and electioneering and its impossible for the Government to get anything done and they don’t get a chance to prove if they are actually any good.
And when you add the three layers of Federal, State and Local Government the constant debate and negativity becomes paralysing. We have another saying in GE that you have to be careful that you don’t overuse your strengths. Democracy in this country, and in many other places around the world, is overusing its strengths and it has to stop because it is no longer serving us. It is holding us back. We need to stop the endless debate and let the government get on with the job of leading the country.
And business has a role to play in this because the interests of government and business should be aligned.
Big business in Australia is responsible for 2 million jobs and $98 billion in annual company taxes and a further $59 billion in income tax paid by their employees. 20% of all jobs in Australia are created by big business. Three in every five dollars of tax revenue in Australia is paid by big business. And hundreds of thousands of SME companies in Australia exist because they supply products or services to business. The wealth and prosperity of the nation, the high living standards that we all enjoy, are underwritten by business.
Yet somehow, over the journey, business has become demonised. It has become a caricature that is easily targeted and used as bait and it is slowing business down from what it does best – creating jobs and building the wealth of the economy.
Business needs to reclaim the narrative and we need to do a better job of explaining what we do and who we are.
There are very few businesses bigger than GE. We employ 350,000 people around the world and operate in 175 countries. And who is GE?
It’s the engineer who is servicing the aircraft engine that will be on the wing of your next flight – the same engine that ensures that you get home safely to your family.
It’s the radiologist who is training the clinician on how to operate our diagnostic equipment so we can properly detect cancer or safely deliver your unborn baby.
It’s the scientist who is working on technology breakthroughs in our renewable energy business so we can reduce carbon emissions, and it’s the technician installing water filtration devices so we can all enjoy clean water and avoid the ravages of water born diseases.
That is big business and that is the message we need to get out.
And this is not a problem that’s unique to Australia. It’s playing out across the world and applies not only to business. The public has lost faith in large institutions generally and it’s enabled populism and protectionism to gain a foothold.
The economic prosperity and welfare of the country is so dependent on the success of not only business, but all our institutions. Government, business, academia all need to be functioning effectively and at full capacity and we should be doing everything we can to help them lead and succeed, not slow them down. The current rhetoric needs to change and we all need to own it.
And we need to look for ways to work together. Last month we launched a facility in Sydney called the Generator. It’s a collaborative space in Redfern where GE teams and customers will work together to come up with new ideas and new ways of doing things. But better than that we are launching a summer program where we are inviting university students to come in and work on real life problems that we are trying to solve for real customers, focused on software, big data and the industrial internet.
I love this program because it brings together universities and big business. It gives students a chance to work on real life challenges, and it gives GE employees a chance to tap into the brains and enthusiasm of the undergrads, who will also get course credits for the work they do.
The other exciting thing is that this is an experiment. I am not sure if it will work, but I said, you know what, let’s give it a try. I can’t stand on the sidelines saying that we need more collaboration between business and universities and not be doing anything about it.
And we all need to be thinking about how we can bridge these gaps, work more together, get the machine cranking and get on with the job of leading the country.
2. We need to put a premium on speed, agility and cost
I came back to Australia two years ago after 7 years working in Asia. The big debate at that time in late 2014 was around Tony Abbott’s decision to send the contract for the building of the submarines up to Japan – one of the reasons being that the Japanese could build the subs significantly cheaper than we could. Now I’ve lived in Tokyo for 7 years over two different stints and I can tell you that Japan is an expensive place, so I was shocked by this.
When did Japan become a low cost country compared to Australia?
We have let the perfect get in the way of the good. In our quest to cover off every single risk, and satisfy every single voice, we have created a strangled and expensive system that is making us uncompetitive with the rest of the world.
GE is a complicated company and reducing layers and bureaucracy is a constant battle. It’s like vines in the Amazon. You cut them down and they grow back just as quickly, so you have to be constantly maniacal about simplification.
You have to constantly be looking for ways of reducing span in your organisation, eliminating layers, increasing speed of decision making, and doing everything with a sense of urgency. We go on crusades all the time to achieve this. We do it because we know that if we don’t our competition will eat our lunch.
Australia needs to go on a crusade with respect to bureaucracy. The three layers of government, working together with the private sector, need to be all in. We need to strip back everything that doesn’t matter, we need to harmonise everything that represents duplication, we need to stop abuses of process and we need to make this a national priority. And we need to start now, because the harsh reality is that our competition, other countries that want what we have, will exploit this weakness, if they’re not already.
3. We need to think bigger
When the innovation conversation started back in 2014 everyone was quick to jump on board and why wouldn’t you – it was exciting, it was different, it sounded like the right thing to be doing. But the conversation was too narrow and it left too many people behind because there was a natural pull towards the start-up community and the consumer app world, which is understandable because everyone naturally associates innovation with the likes of Uber, AirBnB and Facebook.
There is no doubt that the innovation at the retail level is vitally important, and we need to be developing a vibrant and successful start-up community. But there is also a huge opportunity to bring innovation to a wider audience, particularly big industries where Australia has significant size and scale, where our ideas can be exported around the world, and where we have global comparative advantage.
Industries like mining, oil and gas, agriculture – these are industries that have historically been very manual, where there hasn’t been a significant investment in technology, and where a small increase in productivity has the capacity to add billions of dollars to the Australian economy. Consider this – a $1 increase in the price of iron ore adds about $800 million to Australia’s export earnings, which in turn contributes $250 million to the Federal Budget. That’s a lot of schools, roads and hospitals. The same outcome can be achieved if you reduce the cost of production by applying innovative technology that makes miners more efficient.
Policy needs to be set with this mind. I am very supportive of all the initiatives that are designed to help the start-up community, but the dividend for the Australian economy can be far more significant if we also focus on the big end of town. As a specific example, I don’t understand why you would cap R&D tax incentives. The very nature of innovation at industrial scale is that it is going to involve significant investment, but the benefit for the country is potentially huge. Why would we restrict ourselves to swimming in the shallow end of the pool?
We also need to encourage our entrepreneurs to think about the market differently. Too many people only think of the market as Australia, or worse still as Melbourne or Sydney. Why limit yourself to a market of 24 million people when you can have a market of 7 billion people.
We acquired a business this year called Daintree Networks. They make building automation software – they aggregate all the data that comes off a building and can provide insights on how to run the building more efficiently to reduce energy bills and cut carbon emissions. They are based in Scoresby out in the old Caribbean Gardens in Melbourne and they have a team of software engineers there who are writing code every day for their products.
And here’s the thing – they have never sold a single product in Australia. From day one they focused on the US market, selling to Fortune 500 companies, and they did that because they knew they could get to scale so much quicker by going after that market than focusing purely on Australia. And they have been very successful – so successful that we paid $100 million to acquire them this year.
And the reason we liked them is because they developed a global platform and they proved themselves in a global market. It’s unlikely we would have acquired them if they only sold product in Australia. We will now invest in that business and scale it even further.
This is a great Australian innovation story. And the best thing is that, despite having a sales team and office in Silicon Valley, they have kept their software engineers here in Australia because they are smart, talented, less expensive than software engineers in Silicon Valley and much more loyal.
This has to be the template for Australian innovation – think big, think global and take on the world. And we can do it. It’s not unrealistic, it’s not beyond our capability and capacity. We just need to want it and we need to have the right culture to go after it.
The Australia that I grew up in wasn’t perfect. There is a lot today that is much, much better than what was going around in the 1970s and 80s. But as the line goes, back then we were young and free, and the benefit of youth is that they have an unconstrained view of the future and the most to lose from the status quo, so taking risks and driving change is natural.
And as we’ve matured as a nation it’s only natural that our culture has changed. We’re not as lean, we’re not as agile, and we’re not as aggressive. The “have a go” culture that once defined us is a thing of the past and we need to get it back. The outrage that we feel when we slip to 10th on the Olympic medal tally needs to be applied to our competitiveness in business and trade.
We need to get back to being a fierce competitor. A country that benchmarks itself against the very best, that doesn’t accept failure, that looks to ruthlessly exploit any advantage we have and is uncompromising in facing into and fixing our weaknesses.
That cultural shift needs to underpin our investment thesis as a nation. We used to be a low cost, low risk, high return place to invest. We have become high cost, high risk and low return. This is not a winning formula and we have to have the courage to admit that so we can drive change.
The collective leadership of the country – whether it be business, academia, politics, research institutes – all need to recognise and acknowledge that if Australia is going to compete, cultural change is needed. We have to find our voice and call out the things that are holding us back. We have to use our leadership positions to influence and drive change.
It’s a real privilege to be able to contribute to and shape the narrative and ambition of the nation. But it’s actually more than that. It’s an obligation. We need to honour that obligation. Don’t sit on the sidelines and complain. Get into the arena and make a difference. Because that is true leadership, and that is what Australia needs.