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Australia’s Transformation Champions with Scott Anthony

Scott Anthony, Senior Partner, Innosight

 

Interview Transcript

So why did we launch this research effort to try to identify Australia’s Transformation Champions? Well a couple of years ago we released the book Dual Transformation, we did a paired research study where we looked in global stock markets to try and find examples of companies that had followed the pattern of Dual Transformation and experienced significant growth. We wondered, “would we see similar examples in Australia?” and when we found those examples what could we learn from them to help other companies in Australia confront the challenge of disruptive change.

3 Big Lessons

As we look at Australia’s Transformation Champions we see three big lessons. The first lesson is our champions followed the pattern of Dual Transformation; that is they didn’t do a thing, they did two transformations in parallel. Transformation A, repositioning today’s business. Transformation B, creating tomorrow’s business. Think of Qantas, Transformation A is optimizing its existing business to make it more resilient. Transformation B is Qantas Loyalty, a fast-growing part of the business that almost generates today as much profit as the core business. Another great example of Dual Transformation from our champions is Webjet. Transformation A is adding on ancillary services beyond traditional booking. Transformation B is going into B2B services where they are aggregating hotel rooms and selling it to other travel agencies.

The second key lesson is that our champions demonstrate digital dexterity. When people talk about digital transformation today often that is code word for aggressive cost-cutting. We use digital to take a lot of costs out of the business. Our champions do so much more. They are using digital to change their interfaces with their customers. They are using digital to create completely different business models. Think about Seek, its used digital to create an online learning solution that its selling to universities in Australia and well beyond. Think about Aristocrat, which is moving into social and digital gaming.

The third key lessons from our champions is that they are showing the power of strategic diversification. What does that mean? As they diversify they are not just saying “I’ve generated cash here, let’s use that cash to buy something else.” They’re saying “we have these capabilities here, what new markets does that open up for us?” Consider Caltex, it takes advantage of its retail footprint so that it can get more into convenience stores and related offerings or think about the REA Group which takes all of its online real estate listings as a leverage point to get into home financing and related areas.

These three lessons are things that any company can follow. Any company can do the same thing that our champions has done. And you see from the results they generate that it’s worth it. Over a five year period these champions generated returns over 200%, 6.6 times that ASX 200 index. They turn today’s ambiguity into tomorrow’s opportunity.

Unexpected Results

As we did the research into Australia’s Transformation Champions, there were two big surprises about who made our final list. The first surprise is who wasn’t on the list. Some of the big household names in Australia the retailers, the banks. They didn’t make the cut. That reminds us that there is still ample opportunity for Australia’s great companies to drive strategic transformation.

The second surprise is the diversity of the people on the list. Yes, there are hot, high-growth companies like Seek, but there are also very old companies like the Downer Group. There are product companies. There are service companies. There are really digital companies and there are companies that aren’t digital at all. This reminds us that strategic transformation really can apply to everyone in every context. It isn’t just one little bit or one little sector of the economy. It’s something that every company can benefit from.

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How Siemens is Creating the Corporation 4.0: An Interview with Barbara Humpton

Barbara Humpton, CEO, Siemens USA

 

Interview Transcript

Siemens is an incredible company, really bringing technical solutions for the world’s global mega trends from urbanization to climate change to an aging demographic. So when we looked at the strategy for the year 2020, we really had to think about creating capabilities that would address very diverse markets, from power to industry to infrastructure and transportation. Vision 2020 Plus is going to unleash the power of the corporation to address these very diverse markets.

We’ve had to ask ourselves, “What do we need to change at the corporate level to enhance brand and reputation?” Now, what I’ll tell you is that I think what a conglomerate can do today, what the corporation 4.0 can really focus on, is taking a look at those long-term objectives that are going to ensure we continually reinvent and reevaluate our direction. We think we can bring market insights that will help each of the businesses decide, have they really honed their own strategies in the right direction, and do they have the right innovation engine set up to be able to grow and develop profitably in the coming years?

The importance of decentralizing decisions

So all around the world we’re seeing activist investors demanding that companies determine their core and become pure play actors in whatever market they’re serving. It makes you ask, “What’s the relevance of a conglomerate today? Is there real power in a brand? Is it important for very diverse companies in markets like ours, whether it’s industry or energy or infrastructure? Is it important for us to have a common brand and reputation to serve as an underpinning for each of these businesses?”

When the Siemens management team came together to talk about Vision 2020 Plus, we realized we needed to make decisions about the interaction between corporate structures and then these independent businesses we’re trying to create. It really means moving more authority and responsibility out into the businesses themselves. It’s probably the toughest topic, because a team that’s used to getting a lot of central guidance and control suddenly finds themselves capable, but also responsible, for making critical decisions they’ve never tackled before.

Ownership culture is central to everything

Hey, the biggest obstacle to any transformation is literally just the way we’ve always done things. You know the old adage, culture eats strategy for lunch. And honestly, I think any large corporation has to really work hard to create an ownership culture. Making sure that members of the organization first have a stake in the future success of the organization, but then that they also have that opportunity to interact, to have conversations with upper management about the direction we’re taking, and even to feel that they influence it themselves. Ownership culture is central to everything.

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Ørsted’s Move to Offshore Wind: An Interview with Thomas Brostrøm

Thomas  Brostrøm, President, Ørsted North America and CEO, US Offshore

 

Interview Transcript

By way of background, Ørsted was basically founded by a merger of six Danish energy companies back in 2006. We all focused on oil and gas exploration and also producing heat and electricity from coal fired power plants. But when we were standing in 2012, we were basically faced with gas and oil prices under pressure. We didn’t have the cashflow for our business, but the same time, we could see a massive growth opportunity in renewables energy. And we have some expertise from offshore wind that we have built up over 20 years.

Positioning for the new era of energy

We could see that the customer being the rate payers, being the society, wanted to respond more to climate change, certainly in Northwest Europe. So we needed to find a way where we could sort of fuel a new growth strategy, but we simply didn’t have the cash flow coming in. So what we decided to do was essentially a couple of things. We took some major decisions to streamline and divest what we determined non-core businesses. And we also went out and got some equity injection from the capital markets. And by that way, we certainly had a way to basically push the speed for our renewable growth.

Leveraging expertise for new growth in offshore

We basically determined that offshore wind would be our new growth opportunity for our business, because we had some expertise in offshore wind, but we could also see that the expertise we have basically gained from our oil and gas experience were kind of similar and could be transferred into offshore wind. And we could see increasing demand from a number of countries that they wanted to deploy the oceans and harvest the energy they could get from that.

So we took a decision saying, “Okay, we’ve done this before, we know there’s still some way to go.” But we could use some of the workforce we already had and we transferred them from our oil and gas best business into our offshore wind business and starting to ramp up the investments into offshore wind.

How volume and scale are driving down costs

No question that the biggest obstacle has been cost. Offshore wind has been fairly expensive when you compare to other more conventional energy types. But over the last four or five years, we’ve really seen a massive reduction in the cost of this technology. And it’s been basically driven by a number of things. Number one is volume and scale. When you go from smaller projects to bigger projects, you take out a lot of costs due to scale benefits. But also as you see more countries demanding offshore wind, you see the volumes getting up in the supply chain. And I would say above all, the technology has improved. So we had smaller turbines early on, now we have big, more efficient turbines that can capture more of the wind and they’re also taking out what we call CAPEX. So a lot of the investment goes out.

So that has been the main obstacle. We’ve taken out more than 60% of the cost over the last four, five years, and right now we are competitive with most other energy forms.

“We believe in a world that runs entirely on green energy”

When I started 10 years ago, we were like 80 people in offshore wind. We were the cute little team that are working with wind turbines, and today we are 2000, 3000 people working with offshore wind. You obviously have changed a lot in the way the company is looking at this industry.

I think the biggest takeaway is you have to be a little bold when you make these kinds of decisions and you need to set a clear vision, which we did. We basically said we believe in a world that runs entirely on green energy. And we basically believe that this is the way the world is going. So we better get started early on. And I think you have to go all in when you make these kind of decisions, otherwise you cannot follow through. And I really think we did that and we’ve done it very rapidly because we had a clear vision.

The importance of staying the course

I think it’s very important that you have a patient shareholder and management when you go through a transformation like this. And I can happily say that 10 years in it’s been very successful for Ørsted and we’re one of the leading green energy companies in the world, and 10 years ago we were one of the most polluting companies or utilities in Europe. So it’s been a bold move but a very successful one.

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The Transformation 20: The Top Global Companies Leading Strategic Transformations

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Leading Transformation: CEO Summit 2019

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Can You Say What Your R&D Strategy Is?

Read the Executive Summary and Download the 2012 updated report 
Creative Destruction Whips through Corporate America

Lifespans of top companies are shrinking, according to an Innosight study of the S&P 500 Index

61-year tenure for average firm in 1958 narrowed to 25 years in 1980—to 18 years now.
A warning to execs: At current churn rate, 75% of the S&P 500 will be replaced by 2027.
To survive and thrive, leaders must “create, operate and trade” their business units without losing control of their company.
Study led by Innosight director Richard N. Foster, co-author of Creative Destruction.

Get the full executive briefing PDF

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The term “creative destruction” is widely credited to the Austrian-American economist Joseph Schumpeter (1883-1950).  Schumpeter studied the formation and bankruptcy of companies in Europe and the United States.  He concluded that “economic progress, in capitalist society, means turmoil.”  Richard Foster, in his 2001 book Creative Destruction, applied Schumpeter’s theory to the modern practices of management and innovation.

According to Foster, the life span of a corporation is determined by balancing three management imperatives: 1) running operations effectively, 2) creating new businesses which meet customer needs, and 3) shedding business that once might have been core but now no longer meet company standards for growth and return.

download the 2012 full REPORT

 

UPDATE: Read the Executive Summary and Download the 2016 updated report 
Corporate Longevity: Turbulence Ahead for Large Organizations

We’re entering a stretch of accelerating change in which lifespans of big companies are getting shorter than ever, according to Innosight’s study of turnover in the S&P 500.

The 33-year average tenure of companies on the S&P 500 in 1965 narrowed to 20 years in 1990 and is forecast to shrink to 14 years by 2026.
Record M&A activity and the growth of startups with multi-billion dollar valuations are leading indicators that a period of relative stability is ending and that an increasing number of corporate leaders will lose control of their firm’s future.
A storm warning to executives: at our forecasted churn rate, about half of the S&P 500 will be replaced over the next 10 years.
In a related survey on strategic readiness, executives say that growth strategy is being undermined by day-to-day decisions inside companies and that too many companies lack a coherent vision of the future.

DOWNLOAD THE updated 2016 full REPORT

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LEADING TRANSFORMATION: A CEO SUMMIT 2019

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CRACKING FRONTIER MARKETS

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Cracking Frontier Markets

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THE NEW CORPORATE GARAGE

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