John Con­nolly

Mak­ing risk pay

The Australian - The Deal - - News - [email protected]

If Fer­rari was listed in Aus­tralia it would be one of our top 20 com­pa­nies.

In a fiercely com­pet­i­tive mar­ket its mar­gins are dou­ble that of the clos­est com­peti­tor. Its stock sells on a PE of 25. It’s in a mar­ket where small car pro­duc­ers nor­mally fail, it’s in an econ­omy where lux­ury brands aren’t ex­actly sparkling and it’s in a niche where one bad model can turn a profit into a loss.

So when Fer­rari de­sign boss, Flavio Man­zoni, pic­tured, talked in Syd­ney a few weeks ago, say­ing “if you don’t take risks you don’t in­vent any­thing”, se­ri­ous busi­ness peo­ple lis­tened. He might just as well have been giv­ing Prime Min­is­ter Turn­bull a good in­no­va­tion line. These days if you don’t have in­no­va­tion it’s like not hav­ing clothes on.

But if you run a pub­lic com­pany of any size in Aus­tralia you would be mad to take risk. The me­dia, at the urg­ing of IPO prof­i­teers and politi­cians look­ing to show how big busi­ness is stuck in a cul­ture of com­pla­cency, have con­di­tioned Aus­tralians to be­lieve the only thing stop­ping CBA be­com­ing the next At­las­sian is in­er­tia and the only thing stop­ping our big­gest com­pa­nies be­ing dis­rupted is time.

Quite sim­ply, the mar­ket and the me­dia don’t re­ward com­pa­nies that step out of the box. In the US, some­one who has failed a few times is a hero. In Aus­tralia some­one who has failed is a bank­rupt and should never be al­lowed near the cor­po­rate steer­ing wheel again. This uniquely great south­ern con­ti­nent ap­proach prob­a­bly means we have been de­prived of first-time fail­ures like Bill Gates, Tom Edi­son, Soichiro Honda and Henry Ford.

Let’s look at what doesn’t work. Trips to Sil­i­con Val­ley are great eye-open­ers, su­per for the Cal­i­for­nian econ­omy and good for show­ing share­hold­ers you get it, but don’t cause real change. Ac­cord­ing to Har­vard’s Beth Al­tringer, in­no­va­tion projects in big com­pa­nies fail 70 per cent of the time. This is sad, but even sad­der for share­hold­ers. Big com­pa­nies have the ad­van­tage of be­ing able to take risks. In a small com­pany if you take a risk and it doesn’t work you’re out of the game. Big com­pa­nies can af­ford to fail on a few risky ini­tia­tives.

And there are big com­pa­nies such as Mar­riott In­ter­na­tional, Visa and Brown-For­man that make the top in­no­va­tors list. So how do you cre­ate a cul­ture of in­no­va­tion? A good start is to think about what a video of a day in the life of your cus­tomer would look like. This is what Honda lit­er­ally did when it suc­cess­fully en­tered the US mar­ket: in a move that would to­day be de­nounced as creepy, ex­ecs set up cam­eras in shop­ping mall car parks to see how Amer­i­cans loaded their cars.

One easy (in the­ory) piece of in­no­va­tion is to see how hard it is to deal with your com­pany. Try ring­ing your own com­pany as a cus­tomer and see how long be­fore you start swear­ing at your own sys­tems and peo­ple. All in re­tail know that Ama­zon will rule the world, not be­cause of price, but be­cause deal­ing with them is fric­tion­less.

If you’re the CEO, how of­ten do you re­ward any sort of in­no­va­tion, or cel­e­brate gen­uine fail­ure?

Fi­nally, be care­ful of con­sul­tants. Michael Porter’s five forces model is an idea whose time has passed – his con­sult­ing firm went bank­rupt. What’s to say your own peo­ple and your own cus­tomers can’t be bet­ter sources of re­newal?

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