This speech was delivered by BCA President Catherine Livingstone at the Sydney University Business School Alumni Dinner on 3 November 2014.
Check against delivery.
Belinda Hutchinson AM, Chancellor of the University of Sydney.
Professor Gregory Whitwell, Dean, The University of Sydney Business School.
Adjunct Professor Hugh Harley, President, Business Alumni Network.
I am delighted to be here this evening; and particularly honoured to have received an honorary doctorate from the university on Saturday.
Congratulations to the Chancellor for that event and for recognising the importance of role models for emerging women leaders.
I have been invited to speak in my dual roles as Telstra Chairman and President of the Business Council of Australia.
As you know, at the Business Council, our members are the chief executives of some of Australia’s largest companies.
The CEOs join the council not to represent narrow business or sectoral interests, but to contribute to the development of public policy that serves Australia’s long term national interests and that of the community.
In this context, the council developed its Action Plan for Enduring Prosperity, which was released in 2013. That plan identified the 9 things we must get right:
- tax, fiscal and federation
- population and cities
- global mindset
- financial system
- energy policy
- innovation systems.
The plan had a significant impact on national debate in the lead-up to the last federal election, and on the policy agenda since.
The BCA’s focus, following on from the plan, has been to drill down further into how Australia can deliver the next decade of economic growth.
The first report was the what, and we then set about probing the how. This was our study looking at Australia’s comparative advantage.
But before I describe the outcome of that work, I might just spend a few moments on what has been happening at Telstra.
As one of Australia’s largest companies, the changes at Telstra - their nature and their pace - provide a telling perspective on the whole economy and its growth prospects.
These changes are evident in the transformation of the Telstra business model over the past five years.
Our core business has moved from providing voice over phones, to data over devices, and now solutions over networks.
Ten years ago, nearly half of Telstra’s revenue came from fixed line voice.
Today, nearly half the revenue comes from mobiles, and it is predominately data.
That data represents complex solution products, including delivery of apps. In the business segments we have $2bn of network applications and services revenue from products which have only become available in the past 5 or so years.
At a recent technology day seminar, we were talking about technologies which didn’t exist 5 years ago, but which are now becoming fundamental to our product set.
Our business has become fundamentally software based; network technology itself is becoming software defined.
The competitive landscape for the business has changed to include both non-telecommunications and global competitors, some of which are also customers, suppliers and collaboration partners e.g. Apple, Google, Microsoft and Facebook.
The imperative for innovation-led growth in Telstra has seen three critical adjustments in our business model.
The first is in the way the organisation thinks.
• We’ve become customer centric/using NPS extensively – though still a long way to go.
• Our culture and values have evolved through deep and extensive programs over several years: care, courage, simplicity, trust, working together.
• We’ve embraced design thinking at both the product and the business level/wifi network concept.
Telstra as a software company
The second adjustment is in our approach to knowledge infrastructure.
• Our engagement as part of a research collaboration network/NICTA,CSIRO,universities.
• Muru D start up incubator initiative.
• Collaboration with supplier eco system.
The third adjustment is in the way we consider adjacencies.
• Building on the strengths of our core domestic business.
• Growth into Asia, picking up on the demographics and the growing middle class.
• Telstra Health, special implications of an ageing population.
In short, in developing its strategy, Telstra is managing the forces of rapid technological change, globalisation and demographic shifts.
The BCA and comparative advantage work
Bringing this perspective from Telstra, I came into the role at the Business Council of Australia as the organisation was embarking on the study of Australia’s comparative advantages, and how they can be harnessed to build our global competitiveness.
Our starting point for the project was that those very forces that are shaping our world –technological change, globalisation and significant demographic change– are not benign.
It is troubling, but important, for Australians to know that the latest World Economic Forum Global Competitiveness Report has Australia slipping another place to number 22, down from 15 in 2009/10.
While our competitiveness score didn’t change, our competitors overtook us
Malaysia and Austria are ranked 20 and 21 respectively, and New Zealand is at 17.
Our degrees of freedom are rapidly running out as our competitor countries develop their individual growth strategies.
China is using design thinking approach to restructure its economy at the sectoral level, and is developing a 35 year plan to catch up and then leap frog its competitor countries.
That plan will be published early next year.
So Australia still has time to imagine and fashion our future. But only just.
The comparative advantage work builds on the high level economic action plan we released last year by setting a baseline for our competitiveness.
The work is premised on the need for innovation to take over as the main driver of growth: the growth drivers of the past two decades - respectively, economy-wide microeconomic reform and the terms of trade – have run their course.
Drawing on research we commissioned from McKinsey and Company, we found that compared with the United States, Australia is only strongly competitive in one sector - agriculture.
We are uncompetitive in 9 out of 12 sectors and have diminishing or flat competitiveness in sectors where we have a comparative advantage, which include mining and education.
Addressing this trend requires a mindset shift, from government, from business, and from the higher education and research sector.
That shift must take our focus:
• From domestic to global: demand, growth and competition will increasingly be found overseas not at home. And remaining domestic is no protection from global competition: that completion is coming on shore, and consumers are going offshore online.
• From final products to segments. The key to growth will be to compete to sell into global supply chains rather than offering final products – 70% of global trade is now in intermediate products and capital goods, and that is the area which is growing.
• From qualifications and occupations to tasks and capabilities: competitiveness is increasingly defined by the capabilities of the workforce and how effectively these capabilities can be applied to specific jobs and tasks.
The preparedness of business and universities to adopt these mindset shifts, and the level and quality of collaboration between our two sectors, will underpin the capacity of the Australian economy to create the jobs of the future.
The overall conclusion we came to with this work is that while economy wide reform is still very important, there needs to be greater understanding of the reforms required at the sectoral level.
In particular, the role of government in understanding the sectoral impact of the policy levers it controls.
We are acutely mindful of the role of business in responding to the forces shaping our competitiveness. Our member companies are living this reality every day.
But the idea that governments don’t have a role in wealth creation, and can leave it all to business, ignores the reality that government controls key inputs into growth.
Governments regulate, they set trade and immigration policy and design markets; they plan and invest in infrastructure, and wield significant control over state and territory government decision making.
They also have a major role in education and skills development.
Having a sectoral understanding is not about picking winners. It’s all about better understanding across all sectors.
And we are delighted that the Federal Government’s recently announced Industry Innovation and Competitiveness Agenda has embraced the need for this.
Coming out of this work there are two key messages for you to take home tonight if we are to achieve innovation-led growth.
One relates to collaboration and the other to skills.
Currently, the World Economic Forum’s Global Competitiveness Report ranks Australia at number 21 for business and university collaboration - behind countries including Finland, Ireland, Malaysia and Luxembourg.
Collaboration is the behavioural glue which mobilises the elements of the system that underpins innovation.
We are very pleased that the government’s new agenda includes the establishment of Industry Growth Centres as a collaborative model.
This should provide a much better environment for determining the mix and direction of R&D effort needed by each of the nominated sectors
Business and academia must collaborate to build knowledge infrastructure and skills infrastructure, and improve Australia’s standing on that very specific WEF index.
That leads us to the skills imperative.
Human capital is another fundamental element of the innovation system, and business and universities share a responsibility for this.
Business needs to be far more explicit and engaged with the university sector on what skills it needs today, and what skills and capabilities it will be looking for in the future, for example the BCA has an MOU with the Foundation for Young Australians.
The level of youth unemployment in Australia,at over 20%, is a shocking statistic, and it is affecting both disadvantaged youth, and degree qualified youth- who are facing the situation that the entry level jobs in so many professions (law, accounting, engineering, finance) have been moved to lower cost locations.
Universities are facing their own challenges.
• How to shape a university experience that competes with online learning.
• How to respond to drive-in drive-out students - students who take on four or five jobs to put themselves through courses.
However, universities are no doubt thinking carefully about their product offering, especially with deregulation of fees and the implications for much higher student debts.
Are 5-year combined degrees really of benefit to students? Should they be doing multiple shorter degrees, combined with working to gain real world experience?
Business and universities need to collaborate in advising school students on options so that they can make better decisions about their education.
But the skills and capabilities conversation must begin at the primary and pre-primary stages and business must be engaged in the curriculum process.
The Business Council of Australia has entered the debate on the current review of the national curriculum.
We are urging the government to include the Digital Technologies stream from the early primary stage.
The comments from reviewers that these skills are optional, and at best offered from Year 9 completely misses the point that computational and design thinking, disciplined problem solving, computer coding skills are becoming as fundamental as reading and writing.
If we don’t give our young students these capabilities from a young age they will not have core skills needed to engage in an increasingly digital economy.
Ironically, the Industry Innovation and Competitiveness Agenda does provide funding support for STEM, including computer coding at the primary level.
We need business and universities speaking out strongly alongside us on this issue.
Call to action on innovation
Back to the concept of innovation-led growth - I would highly recommend to you the BCA’s submission to the Senate Inquiry into Australia’s Innovation System.
It offers a practical view with focus.
For too long, successive governments have approached innovation narrowly, with endless inquiries and redefinition of what it means.
We have been operating under a fundamental misconception in Australia that having an innovation program is enough, when the real task is to unlock the innovation capability of the whole economy by mobilising the individual elements of the system:
• Skills (human capital) and;
• Knowledge infrastructure.
And the behaviours:
• collaboration and;
Innovation is not a program that can be delivered.
It is the result of a thoughtfully designed system that supports people’s capacity to innovate, and encourages the demand for innovation as a vehicle to identify solutions to problems.
There has never been a time in our nation’s history when it is more important for people to take on the responsibility of mobilising the micro innovation systems of which they are a part.
Specifically, we need engagement from the tax and federation white paper processes which are just starting.
We need to take fear out of the innovation debate by addressing the community’s concern that it will lead to fewer jobs.
We can turn this fear around by providing a vision of how innovation will deliver the jobs of the future.
Because overall we are facing a very difficult conversation about:
• the role of government
• responsibilities across the federation, particularly, expectations around the cost of health, and who pays, because is the time bomb embedded in both the tax and federation debates.
There is no point in doing tax and federation reform without looking at the cost of health because over time it will overwhelm everything else.
The changes that are required here are transformational. Inevitably, they will involve difficult transitions for business, universities, the community and, indeed, for governments.
The core question for us all is what standard of living are we prepared to fight for.
It is crucial that we all individually engage in the policy agenda:
• that we read the tax and federation white papers when they are issued
• that we understand the policy on the National Curriculum
• that we are aware of the ramifications of the various Free Trade agreements that are coming thick and fast
• that we think through the implications of the Direct Action policy on climate change.
The Prime Minister made it clear at the BCA Annual Dinner last week that the Government will respond to the community on key policy platforms, especially tax reform, but will wait for business and the community to take the lead.
For this reason and given the cost of inaction, we need action from the ground up and we need it urgently.