#think - UTS Business School by UTS Business School

#think UTS BUSINESS SCHOOL 2014

Redesigning business Medicine for Medicare The leadership dilemma

#think is the official magazine for students, alumni, partners and friends of UTS Business School. Editor Lesley Parker 02 9514 3054 lesley.parker@uts.edu.au

UTS Business School Dr Chau Chak Wing Building Building 8, 14-28 Ultimo Rd Ultimo NSW 2007 www.business.uts.edu.au #think is published by Mahlab Media. Art Director Suzanne Cengia 02 9556 9126 suzanne@mahlabmedia.com.au Managing Editor Martin Wanless 02 9556 9113 martin@mahlabmedia.com.au Managing Director Bobbi Mahlab

369a Darling St Balmain NSW 2041 02 9556 9100 inquiries@mahlabmedia.com.au www.mahlabmedia.com.au Photography Damien Pleming 0402 096 230 damien@dpphotography.com.au dpphotography.com.au Hair and make-up Sahra Bull 0410 458 420 sahrabull1@yahoo.com.au sahra-bull.squarespace.com Printing Webstar Printing ÂŠ All material copyright UTS Business School 2014. Apart from any fair dealings for the purposes of private study, research, criticism or review, as permitted under the Copyright Act 1968, no part may be reproduced by any process without written permission. Enquiries should be addressed to UTS. While all reasonable attempts have been made to ensure the factual accuracy of this publication, Mahlab Media and UTS accept no responsibility for any errors contained in this publication. The views expressed in this publication are not necessarily those of UTS.

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CONTENTS

4 WELCOME 6

HEAD & HEART

The ongoing challenge for fundraisers.

12 BACK TO EARTH

Why don’t more companies test for asset impairment?

15 MORE THAN JUST A NUMBER

Spreadsheets then and now – 25 years on.

16 MEDICINE FOR MEDICARE

Health spending is not in crisis, but it does need care.

20 HOW TO DESIGN A BUSINESS

Why do some businesses better navigate Australia’s high-cost environment than others?

24 COMPLETING THE CIRCLE

The circular economy is more than recycling.

28 SENSE OF SELF

Are leaders born or made?

32 TIGER OR CUB?

Gauging the impact of foreign buyers on house prices.

35 THE HERO MYTH

The “hero entrepreneur” as a mythical creature.

36 MAKING MARKETS

Market design aims to find better ways to achieve the goals of government, business and society.

40 THE MONEY TRAIL

Do business events add up for the economy?

44 SCHOOL FOR SCANDAL

The dark side of celebrity endorsement.

49 THE INVISIBLE HAND

Assigning a dollar figure short changes the value of volunteering.

50 ABOUT UTS BUSINESS SCHOOL

WELCOME

It’s inevitable that the new home of UTS Business School, the Dr Chau Chak Wing Building, will attract attention for its striking architecture. Designed by internationallyrenowned architect Frank Gehry, it joins a family of buildings that includes the Guggenheim Museum in Bilbao, Spain. But right from the start the focus for us – here at the University of Technology, Sydney (UTS) and within the Business School – has been what will go on inside the building. As on his other projects – including educational facilities such as those at Weatherhead School of Management, MIT and Princeton – Gehry designed the Dr Chau Chak Wing Building from the inside out. The arresting brickwork and glass curtain walls came only after he had envisaged an interior that would facilitate a more “integrative” approach to business education. We wanted a building that would bring transformational change to the Business School’s research and teaching. We wanted spaces that would encourage greater interdisciplinary collaboration and cross-pollination of ideas, not only between disciplines and researchers but also with industry and practitioners. In this magazine, you’ll find examples of the thinking that is going on at UTS Business School as we enter this new era of business education. These stories provide just a taste of the education, research and industry engagement that has occurred over the past year across our core disciplines of accounting, economics, finance, management and marketing, and within our diverse research centres. The consulting project involving our Executive MBA students and the Westmead Medical Research Foundation illustrates our approach to “experiential” learning, which occurs not just at the postgraduate level but for our undergraduate students too. Real-world engagement with businesses

and other organisations develops in our students two kinds of skills: practical ones that prepare them for the world of work and what we call boundary-crossing skills – skills that build on technical knowledge to encompass broader capabilities in communication, teamwork, problemsolving, critical and creative thinking. These are the skills employers are looking for as they meet new challenges in a fast-changing, global economy. They are also the skills that will help some of our graduates shape their own destinies through entrepreneurial start-ups. Of course, these projects also have benefits for the businesses and community groups that become involved – allowing them to tap into the fresh thinking of our students and, in some cases, gaining access to the sort of advice they could not otherwise afford. Our research, too, is based in reality. We produce knowledge with impact – impact for industry and also social impact, as you’ll see from the examples inside. Our thinking feeds into commercial and policy decisions being made by businesses large and small, and by government at all levels. It also supports the work of the groups in civil society that help shape those decisions. We hope you’ll enjoy reading this magazine and that among its contents you’ll find themes and issues that provoke new thinking about the role of business in a global context.

Professor Roy Green Dean, UTS Business School

#thinkSTRATEGY

Head

heart

Westmead Medical Research Foundation has a crucial role as a fundraiser. A group of EMBA students helped ensure its strategy was a truly 21st century one.

All charities face the continual challenge of maintaining and expanding their fundraising, with so many causes competing for the financial support of the Australian community. Eric d’Indy is the executive director of the Westmead Medical Research Foundation, which raises money for Westmead Hospital and for Westmead Millennium Institute for Medical Research. Both sit proudly within western Sydney and service a diverse and rapidly expanding population. “The first challenge of fundraising is building trust with the community, by continually delivering on your promise,” says d’Indy. “People need to know that you are bringing genuine value to the cause you represent, and that the impact of the work is easily demonstrable. Then in choosing an approach to take your message public, you combine a compelling articulation of the need and its urgency,

while tapping into the emotive connection that people have with your cause. “If your brand stands for something easily understood by the community, and has some equity, then you are already halfway there,” he says. “Luckily for us, everyone in western Sydney knows Westmead, so that’s a good start.” The calibre of research being funded by the foundation is demonstrated by the recently published work (Nature, 2014) of Dr James Chong from the Institute. In collaboration with scientists at the University of Washington, Dr Chong has succeeded in using stem cells in sufficient quantity to repair damaged heart muscle after a heart attack in a primate. With 20,000 Australians dying each year from chronic heart failure, this is being lauded as a significant step forward and has received worldwide attention. »

EMBA graduate Clare Ferguson and Eric d’Indy of the Westmead Medical Research Foundation

DONOR PYRAMID For d’Indy, the traditional approach of raising money for such work through big charity gala events doesn’t add up. Such events don’t actually generate significant net income and can lead to “donor fatigue”, because re-inventing gala balls year on year is resource intensive and expensive. More important to him is building a “donor pyramid”, with a base of donors who give several times a year, and acquiring donors who are committed to giving monthly. “We’ve recently invested in a regular giving program, commonly referred to as face-to-face (F2F), which involves trained staff approaching the public and asking them to commit to becoming a regular giver,” he says. “In our first year of F2F operation, the campaign acquired 1600 new donors.” These regular givers form the base of the donor pyramid and provide charities with a sustainable funding model. A small proportion of this base will engage in major gifts and bequests, activities that can be extremely beneficial though not as frequent.

THE TRADITIONAL APPROACH OF RAISING MONEY FOR SUCH WORK THROUGH BIG CHARITY GALA EVENTS DOESN’T ADD UP In 2014, students from the UTS Business School Executive MBA (EMBA) program became part of Westmead’s efforts, undertaking a project to develop a 21st century fundraising strategy. EMBA candidates are mid-stage career executives ready to make the move from a tactical to a strategic role. At UTS Business School they are assigned what program director Jim Hutchin calls “real, meaty business problems” to fix.

Students work in teams, engaging in intensive, live consulting projects with clients such as Westmead. Each team is supervised by a project executive who is either a Business School academic with industry experience, or a senior business executive. Paul Thambar of UTS Business School, who has academic and industry experience in strategy and accounting, was the project executive for the Westmead project. “The role of project executive is a key differentiator in our program, because they help students to apply prior learning and to obtain professional, consulting-grade outcomes for clients,” he says. The EMBA program also has an Advisory Council made up of C-suite executives who volunteer their time to review the work done by the students before it goes to the client. One of the Big Four accounting firms, PricewaterhouseCoopers, provides senior staff to serve on this Advisory Council.

CHARITY DOLLAR Clare Ferguson was part of the EMBA group that worked with Westmead. “We looked at what the Foundation and other medical charities were doing and undertook research into the not-for-profit environment in Australia, and competition for the charity dollar,” says Ferguson, who is now an EMBA graduate. “We then looked at the target market of western Sydney, which is very multicultural, with many firstgeneration immigrants. “With the support of UTS, we interviewed people, did our own research, analysed the information and turned it into conclusions, recommendations, and strategies.” After three months’ work, the students presented a 70-page report to the Foundation Board for consideration. A key recommendation was the integration of multiple brands – Westmead Hospital, Westmead Children’s Hospital and the Medical Research Institute – into one campus-wide Westmead brand, to avoid duplication and “donor cannibalism”. »

#thinkSTRATEGY

Executive director d’Indy says it’s a recommendation that’s being discussed. “We see the long-term benefits, and this is a strategy that several organisations have contemplated for longer-term strengthening of the Westmead brand,” he says. “We need to get agreement from multiple stakeholders [to do this], and it is still in negotiation.” Another recommendation was to look at the possibilities for digital campaigning, something the Foundation already had in development with its new “Share Some Love” program. For a small donation, participants can send a digital “heart” and a personal message to a loved one, via the sharesomelove.org.au campaign page – perhaps to the parents of a new baby, or to someone undergoing treatment in the hospital, or even to show their gratitude to a doctor or a nurse for the care they or a loved one received. The message is displayed on a massive monitor in the main entrance to the hospital, which also features a nine-metrelong wall promoting the campaign. The students suggested also creating an app for visitors to the hospital, to tie in with this strategy. Such an app would supply useful information as well as the opportunity to quickly donate. They also suggested exploring non-fundraising revenue streams from the small-to-medium enterprise sector. The Foundation is currently researching and building a business case to launch a corporate health checks program that taps into the resources of Westmead Hospital.

IT WAS A GREAT FEELING TO KNOW THAT THE WORK I WAS DOING WAS HELPING THIS ORGANISATION CONTINUE THE AMAZING WORK THAT IT DOES

“The EMBA students were very professional, very engaged, and put in a lot of hours in rapidly developing their knowledge of the not-for-profit sector – which was foreign to all of them,” d’Indy says. “They were well supported by UTS and came up with well-tested, full financial analysis and well-researched ideas.” Ferguson says: “It was a great feeling to know that the work I was doing was helping this organisation continue the amazing work that it does.”

#thinkSTRATEGY

REALITY DRIVEN Ferguson came to the EMBA program after working in operations roles for 15 years across industries as diverse as cargo shipping, tax consultancy and now legal services. She had found not having an undergraduate degree was holding her back. “I wanted to get a broader business understanding of the industries I was in, and to move myself up the ladder,” she says. She was attracted to the EMBA course mainly because of its cohort model, with students being formed into groups with whom they complete the entire course. “Despite being from Sydney, I worked overseas for most of my 20s, so the course also allowed me to develop a network of local business contacts,” Ferguson says. For another member of the group, Parambir Sandhu, the program was a stepping stone from HR into a career in consulting with PricewaterhouseCoopers (PwC). Lynette Nixon, director, Deals Innovation, PwC Australia, says: “Because Parambir is able to combine the content she has learned via the EMBA with the practical experience of working on the client projects during the course, she begins her consulting career a step up from other graduates in terms of strategic knowledge, knowing the right questions to ask and the overall quality of her thinking. It is always grounded in outcomes for the client versus the ‘theory’ of how something is done – these are terrific attributes for consultants to have.” Associate Professor Hutchin says the value of real-world engagements with clients like Westmead is immense.

“What we’re trying to achieve with this program is very different from a conventional MBA,” he says. “The focus is on practical, experientially-based learning – what we call reality-driven rigour.” Rather than poring over case studies from textbooks, the EMBA candidates work with “live” subjects. “From our perspective, case studies are to business schools what cadavers are to medical schools,” Assoc Prof Hutchin says. “They provide for wonderful learning, but the learning is incomplete because you know the outcome before you start – and you don’t get any live feedback.”

Professor Peter Wells and Dr David Bond

Qantasâ&#x20AC;&#x2122; massive loss last year came after it finally revised downwards the value of its planes. But researchers say it is not the only Australian company with cause to review asset valuations.

Back

earth

#thinkACCOUNTING

When Qantas reported a $2.8 billion net loss for the past financial year, impairment charges – which bring to account falls in the value of business assets – were by far the biggest contributor. The airline recorded an impairment charge of $2.56 billion on its international operations, along with $387 million in impairments on other business assets. The news prompted media reports of a “horror loss” but came as no surprise to a group of researchers who had been working on a project evaluating the asset impairment decisions of Australian companies. “These impairments should not have been a surprise,” says Professor Peter Wells, head of the Accounting group at UTS Business School. Qantas’ book value of equity had exceeded its market capitalisation by this amount for years – an indicator that impairment testing was necessary, Prof Wells says. It also had a record of poor profitability. “So, what was unexpected was not the magnitude of the impairments but that it took so many years for the impairments to be recognised.”

ENDEMIC Accounting standard AASB 136 identifies a range of factors that could indicate impairment and provide a prompt for a business to review its valuations. It also sets out the procedures businesses must follow to ensure assets aren’t booked at more than their “recoverable amount”. »

#thinkACCOUNTING

THE MARKET IS SAYING THE ASSETS OF THE BUSINESS ARE WORTH A LOT LESS THAN THE DIRECTORS ARE SAYING. SOMEONE HAS TO BE WRONG The recoverable amount is the value that arises from the use of the asset (known as value in use) or the amount that could be recovered by selling the asset (fair value). If the recoverable amount falls below the book value of the asset in the accounts, the business must record an impairment loss. UTS Business School researchers have gone through hundreds of financial statements, from 2000 to 2012, to examine impairment decisions. Among other things, they wanted to compare decisions before and after the implementation of the current accounting standard on asset impairment, AASB 136, in the middle of that period. The researchers, Prof Wells, Dr David Bond and Dr Brett Govendir, wanted to better understand how companies were implementing the standard, especially as big gaps between book value and market capitalisation were apparent for a number of high-profile companies – something the current, more prescriptive standard identified as an indicator of impairment. It quickly became clear this sort of gap between market and book value was “endemic”, says Dr Bond. “This marketto-book measure suggests companies should at least be testing for impairment, if not recording impairment losses.” But this wasn’t occurring, or it was delayed. “When there’s a gap like this, in essence the market is saying the assets of the business are worth a lot less than the directors are saying,” Dr Bond says. “Someone has to be wrong.” In the case of Qantas, Dr Bond says that for the past three years – up until

the most recent earnings announcement – Qantas’ market capitalisation was less than half its book value. “It was an indicator of impairment, but up until the earnings announcement in August there hadn’t been a material asset impairment.” Nor was there any commentary from Qantas over this period to explain any decision not to impair assets, he says. The circumstances under which companies should be required to publicly address a decision not to record an impairment may be a question for regulators to consider, Dr Bond and Prof Wells say.

BOOK TO MARKET The impairment announcement by Qantas last August largely closed the gap between its market and book value. Fairfax Media was another prominent example of a company with this sort of gap, Dr Bond says. It reported a book value in excess of market value for a number of years before finally making asset impairments of $2.87 billion in its earnings report for 2011‑12. Altogether, the UTS Business School researchers have analysed 1853 financial reports from companies where book value exceeded market value. Only a quarter of the companies in the research sample recognised an asset impairment. When impairments occurred, they were generally relatively small. On a positive note, there was a greater recognition of asset impairment after the introduction of AASB 136, but the size of the impairments remained generally quite small, the researchers found. Dr Bond says the research addresses several questions: Are firms complying with the new standard? Is there sufficient disclosure about decisions not to impair assets? When impairments occur, do they go far enough, especially with regard to intangible assets? “These questions are of concern to standard setters, financial market regulators and users of financial statements, including investors.”

#thinkACCOUNTING

More than just a number

A ground-breaking accounting degree has been turning out leaders for 25 years. Twenty-five years ago, not many Australians had a mobile let alone an email address, laptops were for people with strong arms, and for most accountants spreadsheets were actually that: large sheets of paper, not a vital piece of software. The Bachelor of Accounting program at the University of Technology, Sydney, is marking its 25th anniversary, having been established a quarter of a century ago as a unique partnership between UTS and the accounting industry. This prestigious program attracts 500-plus applications a year for about 35 places and has graduate employment of about 95 per cent. Today, as in 1990, every student selected receives a full scholarship and all complete internships with “blue chip” industry sponsors. Among them, Lend Lease, Coca-Cola Amatil and Westpac have all been involved since the start; National Australia Bank/MLC, Allianz and PricewaterhouseCoopers have been on board for more than 20 years. “We were always looking for special people,” recalls Arie Sietsma, foundation course director when the first students filed into the room all those years ago in 1990.

While many students come with high ATAR scores, the program has always looked beyond this to other qualities. In particular, the program looks for students with leadership potential. Sietsma recalls one student from an underprivileged background who had made a huge impact at his high school – rebuilding the school’s spirit by leading social activities and projects to improve the school environment. If leadership potential was what the program was looking for, it certainly found it, with alumni including business leaders of the calibre of Kate Goodman (managing director, Kimberly Clark Vietnam) and Courtenay Smith (group financial controller, Lend Lease).

CURIOSITY “My degree made me curious about the world, as all good education should, and also taught me how to think – rather than what to think,” says Adrian Coppini, who was in that first intake and is now general manager of Strategy and Business Services, Wealth Management Advice, at Commonwealth Bank of Australia.

A key attraction for Coppini was being able to complete the course in three years, including professional experience. He interned with Lend Lease and IBM, both consequently providing part-time work that he undertook in tandem with his studies.

REAL WORK “The course sponsors were really good at giving students real work, more like graduate jobs than internships,” he recalls. This sort of work experience meant Coppini was able to complete his CPA by age 21 – at the time the youngest ever to do so. Coppini’s first job on graduation was with AMP, one of the original sponsors. There, he acquired a mentor in Bruce Nation – “always so passionate about accounting”. “If you can get the right opportunity straight out of university, it sets you on the right trajectory.” Ultimately, Coppini believes the program provides students with a very realistic expectation of the world of work, at the same time providing employers with graduates who are quite driven. “It’s all about putting people in the right environment where they can flourish.”

THE COST OF LIVING IS STAYING RELATIVELY LOW. IT’S THE COST OF DYING THAT’S SO EXPENSIVE

#thinkPOLICY

Medicine

Medicare

Is the Medicare system as it exists today sustainable in the long term? Professor Jane Hall says health spending is not in crisis but it does need care.

We are repeatedly told that Medicare as we know it is unsustainable. Treasury modelling shows health care eating up more and more of our national wealth in coming decades. Australia currently spends about nine per cent of its gross domestic product (GDP) on health. The Commonwealth Government’s share accounts for about four per cent of GDP, and this figure is set to almost double to more than seven per cent of GDP by 2050. “Treasurers look at those numbers and they don’t like it,” says UTS Business School Professor of Health Economics Jane Hall. “They think health care is going to eat the Commonwealth budget.” No wonder there’s public concern about whether we’ll be able to count on Medicare to deliver in the future what we

Professor Jane Hall

get today. But research and analysis by Prof Hall and colleagues at the Centre for Health Economics Research and Evaluation (CHERE) at the University of Technology, Sydney, suggests some of the more dire prognoses for our system of health funding may be too pessimistic. The research also points to considered steps we can take to ensure Medicare remains sustainable.

MIDDLE OF THE ROAD So, what’s behind the projected increase in health spending? Demographics is part of the answer – though only part, says Prof Hall. In 1970, one in 12 Australians was aged over 65; by 2050 one in four Australians is expected to fall into this group. “Death really has gone out of fashion this century,” Prof Hall says. “In the past 60 years the death rate has fallen to about a third of what it was just a generation ago. That’s remarkable, and it’s something we should be celebrating not bemoaning,” she says. »

Nevertheless, another compelling statistic is the fact that a 75-year-old man today uses double the Medicare-funded services his father would have used, if he survived to 75, two decades ago. “The question people are asking is, can the country afford the rising cost of health care for this ageing population?” Prof Hall says. Is the Medicare system, as it exists today, sustainable in the long term? In seeking to answer this question, Prof Hall first points to how Australia compares with other developed nations in spending on health. The reality is our health spending is modest by international standards, she says, and even if Australia achieves only moderate economic growth we will have more than enough funds to meet the projected increase. “In fact, Australia is very middle of the road when it comes to spending,” she says. “We’re not seeing a blowout of health-care costs; we’re actually doing quite well in international terms. Compared with other countries, the imposition on our budget doesn’t look unmanageable.” But will that remain the case if healthcare spending continues to grow so quickly? Prof Hall says it’s important to consider that while health spending will grow, so too should our national wealth. The sums improve if we factor in at least a modest increase in GDP. “If we assume that we experience economic growth at a very, very modest rate – at the lowest rate that we’ve seen in the past 40 years – in 40 years’ time we will have a lot of extra wealth to spend,” she says. “Even if health-care spending doubles as forecast – growing at a much faster rate than our economic wealth – it will still be a relatively small proportion of the increased national wealth we’re likely to have. “When I look at the numbers like that, I can’t see the sustainability problem,” Prof Hall says.

END OF LIFE Even so, looking for savings and greater efficiencies in the health system is worthwhile when so much of our national production is at stake. This is not a crisis that needs emergency measures, however, Prof Hall says. Rather, it requires careful and considered strategies. Prof Hall points, for example, to research on health spending at the end of life. This research compares the healthcare costs of over-65 “survivors”, who live from one year to the next, and the over-65s who die in that same year. “What we see is the cost of living staying relatively low,” she says. “It’s the cost of dying that’s so expensive.” Why? “Well, if we look at where we die, what we see is that the majority of Australians die in hospital,” Prof Hall says. Data from a study in which CHERE has been involved, looking at health-care costs in the six months before death, shows there’s not much change in spending on medicines and out-of-hospital health services in that period, and that emergency department visits rise just a little at the end. “It is in-patient hospital care where so much money is being spent in the final six months,” Prof Hall says. That’s despite research indicating that most of us don’t want major interventions as this stage. “A survey of American physicians asking them to imagine they’re in a terminal stage of illness found that the only thing they would really want was pain relief,” Prof Hall says. “All the other more, shall we say, ‘heroic’ interventions – CPR, ventilation, surgery, and so on – most people don’t want them. But that’s where so much money is going,” she says. Finally, what about questions being raised around the degree to which we are “entitled” to government-funded health care?

#thinkPOLICY

SHARE THE RISK Prof Hall says health-care financing requires some form of “insurance”. “The risk of illness is very uncertain. We don’t know which of us will get sick and which of us will get sick with really expensive diseases,” she says. “Therefore we need some form of risk ‘pooling’ – we need to share the risk.” But we know that if we leave health financing to the standard insurance market, some individuals will be excluded from cover because they are deemed too high a risk. “We also know – and can demonstrate theoretically very satisfactorily – that those people who are low risks, in terms of their chance of illness, will buy less cover than the level that would optimise their welfare.” Government financing of health care is also a form of insurance, Prof Hall says. “And it’s perfectly logical and rational to want government to provide that – not as an entitlement, but as insurance paid for by our taxes.” If death and taxes are inevitable, Prof Hall says, then the message is that we need to reclaim death and how we die, and we need to reclaim our taxes and what they are for. “We need to know exactly what we want to happen to us in the last part of our lives, and if we believe the most effective and fairest way to provide health care is through government-provided insurance then that is not an entitlement, it is the government’s job.”

A 75-YEAR-OLD MAN TODAY USES DOUBLE THE MEDICARE-FUNDED SERVICES HIS 75-YEAR-OLD FATHER WOULD HAVE USED TWO DECADES AGO

#thinkINNOVATION

Why do some businesses succeed in a challenging environment when others fail? A different way of thinking may be the answer.

It’s a stark statistic: over the past 50 years the manufacturing sector has shrunk from nearly a third of Australia’s economy to just 10 per cent. It’s no wonder the decision by the big car makers to cease operations in this country between now and 2017 has become engraved on the public mind as “the death of manufacturing”. There’s no denying the challenges Australian manufacturers, big and small, face. Yet it’s also true that some manufacturers have managed to prosper despite hurdles such as relatively high labour costs and the stubbornly strong Australian dollar. Why do those businesses succeed in such an environment when others fail? Why do some better navigate the challenges than others? That’s the question Professor Sam Bucolo of the University of Technology, Sydney, and Dr Peter King of Australia’s national science agency, the CSIRO, sought to answer in research for the federal government. What they found were a number of attributes that these successful manufacturers had in common, centering on what has been dubbed a “design-led” approach to innovation. “In Australia, we are very good at technology-driven innovation and we’re very good at efficiency-driven innovation,” says Bucolo, Professor of Design Innovation at UTS and co-founder with Professor Kees Dorst of its new Design Innovation Research Centre (DI:rc).

But in a high-cost environment there’s little point in trying to compete on price. “In this environment, it’s non-technological innovation – around customer experience, for example – that’s just as important, if not more important,” Prof Bucolo says. In the report Designing for Manufacturing Competitiveness, Prof Bucolo and Dr King, manager of Design Integration in CSIRO’s Future Manufacturing Flagship, look at 14 high-performing, globally competitive manufacturing firms that use design principles in areas as diverse as mining equipment and microphones.

NON-TECHNOLOGICAL INNOVATION IS JUST AS IMPORTANT, IF NOT MORE IMPORTANT These include RØDE, whose awardwinning microphones are used in more than 100 countries; Codan, which supplies sophisticated communications equipment and metal detectors; and Superior, whose flotation devices are used in marine and mining operations. What the researchers found was that these businesses had five things in common. First, they were clear about their purpose. Prof Bucolo gives the example of a business that “killed” 181 projects so it could redirect its efforts into just four. It took clarity – and leadership – to shut those projects down. »

Professor Sam Bucolo

They focused on the vertical integration of their business models – breaking their business models apart and putting them together again in new ways. Finally, they “owned” the change experience, investing time, people and financial resources. “This has to have senior leader support and work its way through the organisation,” Prof Bucolo says. “You can’t outsource this.” All five of these principles need to be present for success, not just one or two, Prof Bucolo says of the framework that came together in the Designing for Manufacturing Competitiveness report.

DESIGN AS A VERB

THEY ALWAYS ASSUME THERE’S ONE MORE ANSWER AND THEY KEEP BUILDING Second, the successful businesses had “become” their market. They’d immersed themselves in the world of their customers, and their customers’ customers. “Every one of them got out of the office and out of their labs,” Prof Bucolo says – not just the sales team but also the C-suite. “It was about actively sharing their ideas and provoking the customer,” he says. In addition, they were the “disruptor”, rather than being disrupted by others. “All of them would actively disrupt themselves, by saying, ‘If we’re not thinking about this maybe our competitors are’. They looked at alternative futures.”

Underpinning this framework is the application of practices borrowed from the design world. Prof Bucolo is a former industrial designer who became frustrated that he was “designing solutions for the wrong problems”. For business, design should not be a noun but a verb, he says. “It’s a process, and quite a rigorous process.” So how do you think like a designer? “Design thinkers” start with empathy, Prof Bucolo says. “It’s a people-first approach.” Design thinking is also integrative; designers try to draw as many threads together as possible, he says. Designers are also very optimistic. “They always assume there’s one more answer and they keep building. They use experiments and they constantly learn – that learning culture is critical,” he says. And designers are very collaborative. With traditional business thinking, “as a leader you are rewarded for getting to the answer first. You rationalise your thought process, take out all the variables and try to get to the one right answer. Design thinkers do something very different.” They constantly reframe problems, he says, drawing out the contradictions and constraints, and they recognise there will be multiple answers.

#thinkINNOVATION

GLOBAL LEADER Nigel Spork, managing director of Centor, a company founded more than 60 years ago by his grandfather, has been through this design-led innovation process. As a result, Centor has journeyed from financial distress in 1997 to become a global leader in window and door systems. It was the business that three years ago cancelled 181 projects to free 23 full-time staff to, in Spork’s words, “design a new future”. The result was not just a new door but a new category of door – the Integrated Door that includes features such as insect screens as part of the design rather than having them separate and visible even when not in use. The project has produced 16 patent applications and recognition including a UK Grand Designs award. Today, Spork is a Design Led Innovation “champion” sharing his experiences through the Design Thinking for Export & Competitiveness Hub, which is an initiative of META (Manufacturing Excellence Taskforce Australia) that is being facilitated by DI:rc at UTS. Another META Design Led Innovation Champion is Nick White, chief executive of Gourmet Garden, who realised about five years ago the company needed to do something different to get beyond the 15 per cent market penetration it had achieved with its herb products, known for their tube packaging. The design-led innovation process that followed resulted in a world-first technology: lightly dried herbs and spices which refresh to their natural state when used in cooking. Their innovative packaging won a “best in category” award in the Australian Good Design Awards. There is evidence that businesses like these, that take the time to rethink, do end up achieving greater growth, Prof Bucolo says. “We’ve seen that in the US, the UK and New Zealand and now we’re seeing it here.”

Driving change Tapped on the shoulder, 10 of BMW’s best engineers were pulled out of its huge research and development campus in Munich and closeted away in an innovation “war room” carved out of a dirty car assembly shop. It was 2007 and BMW had just announced a new strategic plan to address challenges such as rising materials prices, the depletion of fossil fuel reserves, stricter regulation, growing environmental awareness and limits on mobility in densely populated areas. The team of 10 was tasked with “reshaping the future” and nothing was off limits, says Volker Richter, BMW vicepresident for Customer-Focused Quality Management and today an international member of UTS Business School’s Advisory Board. The German manufacturer had decided its strategic objective was to be “the leading provider of premium products and premium services for individual mobility”. In other words, it didn’t just sell cars, it sold mobility; it didn’t just sell products, it sold services. “This was a revolution,” Richter says, and it opened up lots of possibilities. “All of a sudden the car itself was no longer the only solution.” Given the freedom to imagine a new future, the handpicked team focused in on the electric car, lightweight carbon fibre-reinforced plastic (CFRP) as a material and, longer term, fuel-cell technology. The public result of their work was the new BMW i3 and BMW i8. On the factory floor, it was a new production process. The traditional linear movement from press shop to body shop to paint shop to assembly was replaced with the simultaneous production of two assemblies to be joined at the end – halving production time. The third part of the equation was services, with BMW innovating around leasing and add-ons such as parking apps.

Completing the

CIRCLE

Inbuilt obsolescence is obsolete – welcome to the new industrial model known as the circular economy.

The circular economy is an idea that has been gaining traction in business, political and environmental circles. It was the subject of a report released at the influential World Economic Forum in 2014 and it has earned its own chapter in China’s five-year plan. Prominent businesses such as electronics giant Philips and consumer products multinational Unilever are among those building its principles into their operations, tackling natural resource limits with new ways of doing business. In Australia, it’s a concept that underpins the three-year Wealth from Waste research collaboration targeting the $2 billion a year lost to the Australian economy from failure to recycle waste metals. But the circular economy isn’t just about recycling, says UTS Business School’s Professor of Sustainable Enterprise,

Suzanne Benn. This new model of industrial production requires a new way of thinking, from design, through production, and in use and reuse. Currently, the dominant mode of making and using things in our economy involves digging up resources to make products and build infrastructure, then later discarding those materials as landfill or recycling them, says Associate Professor Damien Giurco of the Institute of Sustainable Futures at the University of Technology, Sydney. “This is a ‘take, make and mostly dispose’ economy.” Many people might be surprised – and concerned – to know that, globally, only about 20 per cent of the value of materials used in the consumer goods sector is recovered while 80 per cent goes to waste. In Australia, about half of our waste is recycled but the volume of waste going into landfill continues to rise because our economic output is growing at the same time. So recycling isn’t the answer on its own, Prof Benn says. “Often we are throwing away valuable resources in this linear model.” »

Professor Suzanne Benn

#thinkSUSTAINABILITY

THIS NEW MODEL OF INDUSTRIAL PRODUCTION REQUIRES A NEW WAY OF THINKING, FROM DESIGN, THROUGH PRODUCTION, AND IN USE AND REUSE

Things can only get worse as three billion new middle-class consumers enter the global market in the next 15 years, she says.

CRADLE TO CRADLE This is where the circular economy comes in, building on ideas such as “cradle to cradle design” to address these unnecessary resource losses. “More recycling is part of it, but the circular economy goes much further,” Prof Benn says. “It’s a model of industrial production that involves designing products so they last longer, so they can be repaired and upgraded, so they can be reused or resold, and so their materials can be used in remanufacture.” Carpet companies such as Desso, for example, have created systems to take back carpet from its customers so the company can reuse, sell or recycle the yarn. “It’s a more ‘restorative’ process, where components and materials can be reused many times,” Prof Benn says. In a circular economy, the reuse and remanufacturing of products becomes standard practice, so that companies start to “close the loop” on their operations, Prof Benn says. “It’s an exciting approach because it encourages new business models and opens up opportunities for convergence with revolutionary digital practices like 3D printing,” says Assoc Prof Giurco, who is leading the UTS component of the Wealth from Waste project. But it does require a shift in mindset on the part of businesses accustomed to generating ongoing revenue via planned or inbuilt obsolescence. One example of the sort of switch that might be involved is for businesses to start selling services instead of products – for example, selling “hours behind the wheel” rather than selling cars, which is what happens with carshare schemes such as GoGet, Hertz 24/7 and GreenShareCar.

This sort of change is starting to happen, but the report launched by the WEF and the Ellen McArthur Foundation at Davos was about how to scale up the circular economy model. Towards a Circular Economy spelled out a business case where the circular economy model would lead to at least $1 trillion in savings immediately, and potentially much more in years ahead, in a world economy that’s $72 trillion in size. The allied Project Mainstream, which involves partners such as Philips, Unilever, tech company Cisco and car maker Renault, is designed to promote collaboration in pursuit of the circular economy, particularly across the massive global supply networks of key industry sectors.

MAINTAIN PROFITS The forecast savings would flow from waste reduction and lower capital requirements for businesses, Prof Benn says. Remanufacturing and recycling in Europe, for example, employs more than one million people. Renault, for one, has found that while remanufacturing is more labour intensive, profits are maintained because of reduced waste and lower capital expenses. Other potential benefits include greater innovation, job creation and less volatility in the prices of business inputs. “A number of factors will help drive progress towards a circular economy,” Benn says. “Businesses will increasingly be motivated to do more with less as water, energy and resources become more expensive in coming decades.” Companies have already experienced massive price rises for oil, energy, metals and food so far this century. “In what is a challenging time for many sectors of the Australian economy, unlocking the potential of the circular economy will ensure Australian companies retain their competitive advantage,” Prof Benn says. “The circular economy offers the potential of job creation and innovation and a pathway to a resilient economic growth.”

#thinkSUSTAINABILITY

The CIRCULAR ECONOMY model would lead to at least

$1 TRILLION

IN SAVINGS IMMEDIATELY,

and potentially much more

IN YEARS AHEAD

Wealth From Waste Wealth From Waste is a three-year research program that aims to identify viable options for reusing, remanufacturing and recycling metals from existing products in Australia. Teams drawn from various universities and disciplinesÂ will undertake four distinct but interconnected research programs that draw academics from a range of disciplines to develop a better understanding of possible pathways for change. An international reference panel of 12 industry, government and research organisations has been established to help guide the direction of the work and provide expert review. The Wealth from Waste Cluster will run from 2013-2016 and will seek input from industry, research, government, community and other stakeholders at different times over this period. The cluster partnership is funded by the Commonwealth Scientific and Industry Research Organisation (CSIRO) Flagship Collaboration Fund, with significant investments by partner universities, including the University of Technology, Sydney (UTS), Monash University, the University of Queensland, Swinburne University of Technology, and Yale University in the United States.

#thinkLEADERSHIP

SELF

Sense

Is leadership inherent or learned? The concept of ‘self-leadership’ makes that question redundant.

There’s a long-held view that great leaders are born, not made – that some people come into this world with certain personality traits which will make them leaders in the future. “That doesn’t leave much room for improvement,” says Professor of Management and Organisation Studies Emmanuel Josserand. “Fortunately, there are other theories.” On the other side of the table are those who subscribe to the behavioural theory of leadership. Leadership is regarded as something you can learn, something you can develop. Then there’s the “contingent” approach to leadership, which recognises there’s not just one type of leader or one form of leadership, says Prof Josserand, Director of the Centre for Management and Organisation Studies (CMOS) at UTS Business School.

Professor Emmanuel Josserand

“It tells us that some behaviours are more useful in some contexts than others, and that you have to be able to adapt your behaviours to specific contexts,” Prof Josserand says. “There is not only one type of leader and one set of competencies. There are different leaders in different settings.” These three broad theories converge in “self-leadership”, an approach that acknowledges inherent strengths and personality traits, but only as a starting point from which to develop leadership behaviours adapted to specific contexts. “So, the starting point in self-leadership is to know one’s strengths and to develop a leadership style that will work in your context.”

BORN LEADERS Under the traditional, deterministic view of leadership, some people are born leaders who will rise to higher roles; people will naturally follow them. This involves a “universal” image of leadership, where all leaders are the same, Prof Josserand says. The image is of a Martin Luther King figure – someone born to rise above the crowd. “But there are not that many people who can achieve that level of leadership, and in most organisations it’s not necessarily what you are aiming for,” he says. “You might want a bit of that in your CEO, but there are many other characteristics you might want to develop. »

“The more we progress our thinking about leadership, the more we understand that, actually, one of the key capabilities of a leader is to be able to change your behaviour depending on the situation, on the context, on the people you’re talking to. “And so, progressively, leadership theories have come to include aspects such as situational leadership, leadership that’s more supportive, leadership that’s more distributed. “It’s about leadership as mentoring, coaching,” he says. “We want leaders who have the capacity to develop others as leaders, rather than to just be followed by others. Because at the end of the day that’s what you want if you want your organisation to be sustainable and resilient.” It’s true that some of us might be more naturally gifted at leadership, but it is still possible to develop the right leadership behaviours in specific contexts, Prof Josserand says, which is a more optimistic message than being told leadership is a birthright only for some. “All of us can improve our leadership capabilities by reflecting on who we are, who we are in specific contexts, and the best way to use our assets to develop others and to achieve more positive outcomes,” he says.

OUTSIDE THE BOX That means self-leadership is not a set of generic skills to be learned. It’s not about the five, or seven or 10 “golden rules of leadership”. Nor is it something that can be taught using traditional classroom methods or picked up at a two-day conference.

THERE IS NOT ONLY ONE TYPE OF LEADER AND ONE SET OF COMPETENCIES. THERE ARE DIFFERENT LEADERS IN DIFFERENT SETTINGS

“Leadership is still approached in terms of ‘training’ and I don’t think training is the answer,” Prof Josserand says. “This is about self-reflection and reflexivity – the capacity to question assumptions about others, assumptions about the situation, assumptions about who we are. “If you want to ‘think outside the box’, if you want to come up with new solutions that will be more than a win-lose, zero-sum

The dark side Business bestseller lists are heavy with tales of inspirational leadership, but a group of academics is gleaning lessons for management from the “dark side” by studying the methods of Pol Pot, the dictator responsible for Cambodia’s killing fields. As commander of the Khmer Rouge, Pol Pot orchestrated the genocide of an estimated 1.7 million people, killing one in five in the then Kampuchea in five years, in pursuit of his “utopian vision” of a classless, peasant society. Totalitarian regimes are not only social and political movements but also “organisational projects”, says the Executive Director of the Centre for Management and Organisation Studies at UTS Business School, Professor Stewart Clegg. “The processes that produced [the killing fields] can and should be analysed,” says Prof Clegg, who is internationally recognised for his work on power. “Scholars in the field of organisational studies have an ethical responsibility to analyse not just the best in organisations but also the worst,” so we can avoid the excesses that organisations are capable of. Prof Clegg and his fellow researchers have isolated 20 principles that underpin totalitarian organisations. For instance, leaders within such organisations demand conformity, maintain their distance, are selective in their “mercies” and favour certain people with perks and benefits. They also ensure a ceaseless round of activity leaves little room for reflection. “These 20 principles or rules for constructing totalitarian institutions are phenomena that you might find present in everyday, normal organisations,” says Prof Clegg. “It just needs a little accentuation of some of these aspects to begin to produce ethically very dubious organisations.” Prof Clegg says that, rather than having staff “singing from the same sheet”, very strong corporate cultures are to be avoided. “I don’t think they’re a very good idea. I think it’s from dissonance, from resistance, from polyphony that you get creativity and innovation.”

#thinkLEADERSHIP

Measuring leadership The Centre for Management and Organisation Studies at UTS Business School is leading a project to develop a new leadership “standard” for Australian managers. The 18-month-long project is looking at the individual and organisational factors that drive leadership performance and will involve a survey of Australian managers and business leaders. The findings of this research will form the basis of an Australian Leadership Capability Standard. This standard will provide a benchmark for businesses and inform the development of self-assessment and leadership auditing tools. The project will feed into the work of the federally funded Centre for Workplace Leadership, based at the University of Melbourne.

game but which will actually add value for all parties, you need to be creative, you need to respect others. Therefore one key aspect is to know yourself better.” In the small-group self-leadership programs at CMOS, participants go through a four-stage reflection process over a number of months. Is this sort of leadership development just for the C-suite? Prof Josserand says if we are to close the workplace leadership gap in Australia identified in a succession of reports, starting with Karpin in 1995, it needs to start much earlier. “If we look at what we are trying to achieve in organisations today, I don’t think

we can afford to pay the types of salaries we pay for well qualified and experienced people to just execute orders,” he says. “As soon as you start to allow people to make their own decisions around what they are doing, as soon as you ask them to be creative and develop new ideas, you need to develop in them this type of self-reflection.” Self-leadership is particularly important in environments where people must have the highest ethical standards, he says. “We’ve done some work in the finance industry; if you think about the example of people working in trading rooms, there are things that self-leadership could do that procedures will never achieve.”

TIGER

or cub?

The conventional wisdom is that Chinese buyers are driving up Sydney house prices. But measuring the impact of foreign buyers is more complex than you might think.

#thinkFINANCE

DISCOUNT EFFECT

Australians love discussing house prices. In the past year, though, the focus of public conversation turned from capital gains to concern that foreign purchasers were “pricing out” locals. With anecdotal evidence quickly becoming conventional wisdom, two researchers decided to investigate. “Media attention was focusing on Chinese buying of Australian real estate,” says Dr Adrian Lee, a Postdoctoral Research Fellow at UTS Business School. “We wanted to test whether there was any truth in the belief that the average Chinese buyer was willing to pay more than others.” What he and fellow researcher Dr Lorenzo Casavecchia found in a preliminary study surprised even them: analysis of a random sample of 74,000 sales found that individual Chinese buyers – historically, at least – paid less than the average purchaser. Now, the researchers are in the process of replicating this initial study across a pool of 600,000 transactions, and extending it to more recent sales, with the results of this broader investigation due in early 2015. The researchers will investigate whether increased activity by Chinese buyers as a group increases house prices, especially in light of more recent policy changes in China. “In turn, that will allow us to consider what, if any, impact there would be from a policy shock in China – such as a credit tightening – on a housing market such as Sydney,” Dr Casavecchia says.

In their preliminary study, Dr Casavecchia and Dr Lee used data on Sydney home sales from property information service APM Pricefinder that includes not only the sale price, transaction date and suburb, but also characteristics such as the number of bedrooms, and the buyer’s name. What they found in this first study was that, on average, between 2000 and 2011, Chinese buyers paid two per cent less than other buyers. That was a discount of nearly $14,000 on the average price of $676,300 for the properties in the sample. This was even after making allowances for characteristics such as housing quality. The discount effect held true – though varying in size – when they ran the numbers year by year, peaking at a five per cent discount in 2006. The discount surfaced regardless of whether a location had a high or low percentage of Chinese buyers, a large or small Chinese community, and regardless of whether a suburb was prestigious or not. And this was over a period when there was a significant increase in the proportion of sales to Chinese buyers. In the study sample, Chinese buyers accounted for 6.5 per cent of the year 2000 sales but double that by 2010. “The implication of our findings was that Chinese buyers, on average, do not overpay for housing, as commentary suggests,” Dr Casavecchia says. This will be tested further, however, in the extended study. The researchers admit to being surprised by the outcome of the initial study, in light of the widely held view to the contrary, but say the discount was statistically significant and robust when tested. It also meshes with the view of the Reserve Bank of Australia, expressed at a parliamentary inquiry into foreign investment in real estate, that rising prices in the $5 trillion residential property market mainly reflect increased demand from Australian residents and citizens, partly because of low interest rates. »

Dr Lorenzo Casavecchia and Dr Adrian Lee

#thinkFINANCE

DATA GAPS Dr Lee and Dr Casavecchia also presented their research to the inquiry in 2014, sharing with the RBA the view that there are gaps in our knowledge of whether buyers are foreign. For their study, the researchers had to rely on the surnames that appeared in the APM data to try to identify Chinese buyers. They searched for Chinese surnames, then filtered that list by removing those Chinese surnames that were also common Korean and Vietnamese surnames. “When we appeared before the inquiry we were asked why we were presenting research that looked specifically at Chinese buyers, as the inquiry wasn’t focusing on investors from any particular country,” Dr Lee says. “One reason was the lack of data on whether a buyer is a foreigner. “In fact, the Bureau of Statistics and the Reserve Bank told the inquiry it is difficult to know exactly how much foreign buying there is. The Foreign Investment Review Board told the inquiry it collects approvals but doesn’t know whether all approvals go on to become actual purchases.”

WITHOUT SUCH DATA IT IS DIFFICULT TO MAKE INFORMED POLICY The researchers acknowledge that relying on surnames means their initial study will have captured some local ChineseAustralians. “We don’t know the proportion,” Dr Casavecchia says. “But if local Chinese are a very high proportion, then foreign Chinese buyers are too small a proportion to be of concern. If they are a very low proportion, then it just confirms that foreign Chinese buyers are not aggressive buyers, on average, historically.” Dr Lee says it’s clear from their work so far that better quality housing data is needed. “Without such data it is difficult to make informed policy.”

#thinkENTREPRENEURSHIP

The

HEROmyth

Insights into the real life of entrepreneurs are needed so they get the support they need.

Much of the hype surrounding entrepreneurship today focuses on “hero entrepreneurs” – the stereotypical image of Virgin founder Richard Branson and his extroverted, risk-taking personality. But this picture doesn’t accurately reflect dayto-day life as an entrepreneur, according to research into Australian start-ups. A study by Dr Danielle Logue of UTS Business School busts the myth that entrepreneurs succeed because of inherent personality traits – because they are born that way. Sure, they may be determined and passionate, but they also follow processes and patterns of developing and testing ideas, building support networks and developing certain communication and business skills, she says. For several months, Dr Logue observed and interviewed individual entrepreneurs at leading incubator Australian Technology Park Innovations (ATP Innovations), which counts UTS Business School among its shareholders. She traced the journeys of 20 start-up firms.

What Dr Logue found was that most entrepreneurs didn’t fit the stereotype of being young risk takers.

PROBLEM SOLVERS “What was their typical career journey? Many of the younger cohort emerged from university, mainly from technical faculties like science and engineering, to further develop their own technologies,” Dr Logue says. “But most of the entrepreneurs in the study created start-ups later in their careers, after seeing a problem in their industry and identifying a solution but being unable to implement it within an organisation.” The notion that being an entrepreneur is a high-risk/ high-reward activity was not prominent, she says. “Leaving full-time employment for a start-up is risky, but many do so having been successful in their careers and with the security of a strong professional network and a fallback position.” While these entrepreneurs were more comfortable with uncertainty than some people might be, they were not necessarily what others might consider risk takers.

Rather than being “born” entrepreneurs, the study’s subjects talked about the need to develop specific skills in marketing and networking, such as learning how to articulate a value proposition, how to understand the needs of the market, how to pitch and sell an idea, and how to persuade investors of the merits of an idea, Dr Logue says.

ECOSYSTEM Dr Logue’s research also looked at how entrepreneurs measure and communicate success (to each other and to investors), the art and science of valuing start-ups, and the structure of entrepreneurial networks. Such insights into the entrepreneurial ecosystem are needed as governments consider ways to support innovation in Australia, Dr Logue says. “A better understanding of the realities of entrepreneurial life in Australia will lead to better informed industry policy, and perhaps increased support for an ecosystem that is a key driver of future growth and development for Australia.”

Making

#thinkECONOMICS

There are no ‘one size fits all’ solutions in market design, a relatively new branch of economics aimed at finding better ways to achieve the goals of government, business and society.

platforms, kidney exchange programs, fishing rights, the privatisation of public assets, schemes to reduce greenhouse gas emissions, and voting. Market design draws on insights from game theory, experimental economics, computer science and operations research. “It’s an interdisciplinary field where great synergies are realised when researchers with different backgrounds come together,” Prof Goeree explains.

Markets don’t always work as intended. While deregulation of the phone industry, for example, has brought great benefits for consumers, the global financial crisis shows what can happen when markets go wrong. Some markets just defy the usual logic – the popularity of open-source software, for example, seems counter to standard economic theories about the role of

ENGINEERING APPROACH

incentives and property rights. This is where the relatively new field of “market design” comes in. “Market design studies what makes institutions work and how to fix them when they don’t,” says Professor Jacob Goeree, Director of the new Centre for Policy and Market Design at UTS Business School. Besides studying existing institutions, market design also provides the tools to create new ones, he says. “It’s like the difference between studying biology as an abstract, academic topic and at some point wanting to do something good with it, perhaps by becoming a medical doctor,” Prof Goeree says. “A market designer is sometimes the creator of a market and sometimes the doctor of a market.” Market design can be found in settings as diverse as Google ads, eBay recommendation systems, crowdsourcing

alone,” he says. And just as a newly designed plane wouldn’t be put to commercial use without extensive wind-tunnel testing, proposals to improve economic and social institutions are scrutinised in laboratory experiments before being implemented. This “engineering” approach to market design ensures that newly created institutions work well in practice, not just in theory. “In economics, we have powerful theoretical models about how people should bid in auctions, for instance,” Prof Goeree says. “But then there’s the real world – how people actually do bid. Anybody who has bid for an apartment they love knows they may not have exactly followed the theoretical model. You get excited, you really want to win this thing. You tell yourself, ‘I should stop’ – but you don’t.” »

Professor Jacob Goeree

In market design there are no “one-size-fitsall” solutions since often the devil is in the detail, Prof Goeree says. “Just as the design of a new airplane requires knowledge of many engineering details besides Bernoulli’s basic principle, designing new institutions requires more than theoretical insights

So a new breed of economic scientists is moving their practice closer to the practices found in the natural sciences by conducting “experimental economics”. “In experimental economics, we take people into a laboratory and implement on the computer screen the situation we’re interested in. I work a lot on auctions, for instance. So an experiment might involve having people make on-screen bids under different auction conditions. This way we can compare different auction types in a very controlled way.” This is precisely what he did while at Caltech (the California Institute of Technology in Los Angeles) in the United States, where he worked with the Federal Communications Commission on designing the 2008 auction of the 700MHz spectrum. The auction of this spectrum – airwaves abandoned as US television moved from analog to digital – was described at the time as being the most significant airwave auction in US history.

THE WHOLE PIE Prof Goeree designed a bidding mechanism for one particular part of the auction, using a “hierarchy” of licence packages. Potential buyers could bid for individual pieces of the spectrum on offer or the complete package of licences as a whole. The principle behind the Hierarchical Package Bidding system he came up with is relatively simple: Some buyers will bid more if it’s the “pie” as a whole that they’re being offered; they’ll pay less if forced to bid on individual “slices” in the hope of ending up with the whole pie but with the risk of perhaps falling short. Prof Goeree tested his ideas for this hierarchical auction system in the sort of behavioural lab included in the Dr Chau Chak Wing Building, the new, Frank Gehrydesigned home of UTS Business School. Caltech students were brought into a computer lab, placed in front of screens and asked to place bids under various

parameters. They earned real, but modest sums if they had the winning bid. In the real world, in Auction 73 of the FCC sale, companies were permitted to bid for any of 12 individual licences or for a package deal that would give them coast-to-coast spectrum coverage – something of great value to big telcos like Verizon. This part of the auction ended up generating a quarter of the total $US19 billion raised. The fishing industry is another place where market design is being used around the world, to address the problem of overfishing. The issue here is how to design government buyback schemes that remove the least efficient boats – rather than the best fishing businesses – from the industry, and at not too high a cost to the government, Prof Goeree says.

#thinkECONOMICS

“This industry is special because it includes people for whom fishing is more of a lifestyle than a business, as well as people who fish efficiently and with profit. So how do we design schemes where all of these people know they will be better off, whether they stay or go?” Emissions trading schemes are another area of market design. In the US, Prof Goeree was involved in setting up a “cap and trade” market for greenhouse gas emission permits for a group of north-east states that weren’t willing to wait for a national program on carbon. The Regional Greenhouse Gas Initiative caps and reduces CO2 emissions from the power sector. The funds the states raised from the initial auction of permits – where Prof Goeree advised – were invested in energy efficiency, renewable energy and other consumer benefit programs.

KIDNEY EXCHANGE But market design isn’t always about markets that involve money. Prof Goeree gives the example of a kidney exchange program designed by Al Roth, joint winner with Lloyd Shapley of the 2012 Nobel Prize for Economics for his work on market design. (Prof Goeree succeeded Roth as president of the Economic Science Association, the international society for experimental economists.) “Roth was already a theorist, a big name in what’s called matching theory,” Prof Goeree says. “But he turned to the practical problem of kidneys – the problem of people having to wait, on dialysis, for a donor kidney for a long time.” He knew that while family members would be happy to donate a kidney to a loved one, their kidney might not match. Meanwhile, the same situation might arise in another family, and a third, and so on. Maybe the donor kidney in the third family might be a perfect match for the patient in the first, but why should that family’s donor give their kidney to a stranger?

Roth came up with a system where incompatible donors could be swapped with compatible ones, in single or multiple pairs of donors and recipients. Australia had its first such “paired kidney exchange” in 2014, with a chain of 12 donors and recipients undergoing surgery on the one day. Six kidneys went to six strangers, but each of the donors knew their loved one would get a kidney as part of the cycle. In the US, kidney transplants have soared as a result of this innovation. In Switzerland, where he established the Engineering Social and Economic Institutions (ESEI) market design centre at the University of Zurich, Prof Goeree and his team advised the Dutch and Australian governments on the design of their spectrum auctions too. For the US Treasury, he developed a reverse auction to buy troubled assets at the time of the subprime mortgage crisis that preceded the global financial crisis.

A MARKET DESIGNER IS SOMETIMES THE CREATOR OF A MARKET AND SOMETIMES THE DOCTOR OF A MARKET In Australia, he envisages projects that address major, unresolved design problems such as how government procurement processes could be used to stimulate innovation; how to address the fact that some voters care more about a particular outcome than others; and how the electricity market could be better designed in an era of “smart” meters. “Practical advice for policymakers and for business is a natural and important activity for any market design group,” Prof Goeree says. “After all, this is where our theoretical and laboratory studies are put into practice.”

#thinkMANAGEMENT

The

money trail

Rubbery figures donâ&#x20AC;&#x2122;t do anyone in the tourism industry any favours. Now we have a way of knowing the true value of business events to host destinations.

Dr Carmel Foley and Dr Deborah Edwards

The sorts of dollar figures bandied about in connection with major events can sometimes be eyebrow raising. That much? Really? Frequently, these numbers are based on models that include certain assumptions – for instance, that for every $1 a visitor spends at a venue or event they’ll spend, say, a further $3 elsewhere in the economy. Different models with differing assumptions mean that it isn’t always possible to make direct and fair comparisons between events, cities and even countries when it comes to tourism, yet accurate information is something that’s vital when governments make spending decisions. “Expenditure studies are notorious for inflating the economic impact of events on host destinations,” says Dr Deborah Edwards, a Senior Research Fellow with UTS Business School. Now, Dr Edwards and colleague Dr Carmel Foley have come up with a new measure of the value of business events to host cities – one they say doesn’t “inflate” results by using generous definitions of event spending.

Developed in partnership with Business Events Sydney (BESydney), this new “inscope” expenditure methodology is believed to be the first to accurately measure the value of “new money” generated by business events. It focuses on what’s known as the first-round expenditure effect of a business event. Using this method, spending counts only if it is directly linked to the event. “The inscope expenditure calculations we use are conservative, and we don’t use economic multipliers,” Dr Edwards says. This means spending such as airfares and conference registration fees are excluded, as is spending by delegates who were coming to the destination anyway. “If the industry takes on this methodology as the standard it will allow fair and true comparisons,” says Dr Foley, a Research Associate of the Australian Centre for Event Management at UTS Business School. In particular, it will allow useful comparisons to be made by governments and funding agencies when making decisions about financial support.

#thinkMANAGEMENT

Already, the research by Dr Edwards and Dr Foley has fed into the business case for a new convention centre at Darling Harbour in Sydney. Applying the methodology to recent business events in NSW, the UTS researchers found that international delegates spend an average of $694 a day during an event, and interstate delegates $493. As for local delegates, the measure focuses on what the researchers dub “retained” local delegates: those locals who would have attended the event even if it were held outside NSW – as opposed to those who attended just because it happened to be at home. These delegates spend $319 on average.

OTHER LEGACIES The expenditure study builds on worldleading research by Business Events Sydney and UTS Business School into the benefits and legacies of business events – not just in dollar terms, but also in generating new knowledge and partnerships, and sharing ideas and technologies, among other things.

INTERNATIONAL DELEGATES SPEND AN AVERAGE OF $694 A DAY DURING AN EVENT, AND INTERSTATE DELEGATES $493 “Business events showcase the capacities of a city, they enhance reputations, intercultural bonds are formed and networks are fostered,” Dr Edwards says of the longer-term benefits. The researchers are now working on more fully quantifying the value of these economic and social legacies. “It’s important that governments and communities understand the benefits that conferences bring to their destinations, so they get the right support,” Dr Foley says. “Governments are interested in the bottom line, and the bottom line is important,” Dr Edwards adds. “But it’s not just about short-term dollar gains. It’s also about these less tangible benefits – the ‘long tail’ benefits of business events that can lead to sustained economic development.”

Brands like to attach themselves to celebrities. But they need to know how to react to avoid becoming collateral damage when the local footballer, or international film star, ends up in hot water.

School for

SCANDAL

#thinkMARKETING

Associate Professor Franรงois Carrillat

THERE IS A FEAR REACTION TO ANY FURTHER COMMENT – WHETHER DISTANCING OR SUPPORTIVE

#thinkMARKETING

The roll call of celebrities who’ve found themselves in the news for all the wrong reasons is a long one: Tiger Woods, Lance Armstrong, Oscar Pistorius, Rolf Harris… It’s probably not realistic to expect everyone to be a George Clooney – the actor and humanitarian whose cachet has made coffee pods a household item – but the scale of recent scandals can’t have failed to shock. In the past five years alone, golfer Tiger Woods, cyclist Lance Armstrong, “Blade Runner” Oscar Pistorius and Australian-born entertainer Rolf Harris have been embroiled in allegations around infidelity, doping, manslaughter and indecent assault. Such events raise the question of what a business should do when the positive glow from celebrity – whether local footballer or international film star – turns negative. How should companies endorsed by celebrities react? Should the company issue a statement of support? Should it break off the relationship? Should it say nothing it all?

REPUTATION RISK Celebrity endorsement is a marketing strategy that can bring many benefits to brands. But when the reputation of a celebrity is hurt, brand reputation can be at risk as well, says Associate Professor François Carrillat. That could hurt the bottom line if the lowered opinion of a business results in

consumers forgoing its goods or services. For listed companies and their investors, it can mean loss of value on the sharemarket as investors react to the scandal too. How a business should respond will depend to some extent on whether the celebrity has denied the allegations, whether the public believes those denials, and how closely the brand and the celebrity are connected, says Assoc Prof Carrillat. “When there’s strong evidence that the celebrity is in the wrong, it’s generally in the brand’s best interest to at least acknowledge the allegations,” he says. The decision becomes a little more complicated, however, for a publicly listed company. “Scandals afflicting celebrities have been shown to lower the share prices of firms associated with them,” says Assoc Prof Carrillat, who has been conducting research in this area, investigating the trajectory of scandals for publicly listed companies in the United States – birthplace of the celebrity.

INVESTORS RESPOND MORE NEGATIVELY TO THE REACTIONS THAN TO THE ANNOUNCEMENT OF THE SCANDAL ITSELF These include incidents such as Janet Jackson’s “wardrobe malfunction” at the SuperBowl in 2004 and actor Charlie Sheen’s arrest in 2009 for assaulting his wife. Affected sponsors range from American Express to Nike and McDonald’s. The research looked at how firms responded: whether that was with “silence” (when a business chooses to say nothing), “disavowal” (if an endorsement is cancelled, for instance) or “support” (where the firm stands by the celebrity in some way). In turn, the researchers recorded whether the celebrity reacted with silence, made an apology or issued a denial. »

#thinkMARKETING

RIPPLE EFFECT “What we looked at was the ripple effect on share prices of the reaction by a firm or celebrity, not just the initial impact when scandal strikes,” Assoc Prof Carrillat says. Other studies had suggested that scandals caused “abnormal” falls in share prices on the day the initial news broke. What Assoc Prof Carrillat and his collaborators looked at was what happened on the day the celebrity, or business, reacted to the scandal. They found that share prices experienced abnormal falls even greater than those upon the initial news of the scandal. “This suggests investors respond more negatively to the company or celebrity reactions than to the announcement of the scandal itself,” he says. What’s more, the impact worsens the more closely the brand and the celebrity are connected in consumers’ minds – for instance, when a sports star has endorsed a sports brand rather than a household cleaning product. “Such a ‘match-up’, when the endorser and the brand fit well, can be very potent in marketing, but this research suggests such an association can backfire in the case of a scandal,” Assoc Prof Carrillat says. Perhaps the most significant result was that – contrary to conventional wisdom – silence was golden. Disavow the celebrity or speak up in support, either reaction was more negative for a business’s share price than just saying nothing. “Any more ‘buzz’ following the initial breakout of the negative event causes the market to react in a negative way,” Assoc Prof Carrillat says. “There is a fear reaction to any further comment – whether distancing or supportive.” Therefore, simply weathering the storm in silence may prove the wisest strategy, he says – for publicly listed companies, anyway.

Falling stars Sep 1988

Feb 2004

ATHLETE Ben Johnson disqualified for steroid use after breaking 100m world record

SINGER Janet Jackson’s breast exposed during Super Bowl performance

Jan 1989

Nov 2009

SINGER Madonna’s Like a Prayer video condemned by Pope

GOLFER Tiger Woods admits to serial infidelity

Jul 1991

Dec 2009

BOXER Mike Tyson arrested for rape

ACTOR Charlie Sheen locked up for assaulting wife

Aug 1993 STAR Michael Jackson accused of child abuse

Jan 2013 CYCLIST Lance Armstrong admits to doping

Apr 1996

Feb 2013

ACTOR Robert Downey Jr arrested for drug possession

BLADE RUNNER Oscar Pistorius charged over death of girlfriend

Jun 1997

Aug 2013

BOXER Mike Tyson disqualified for biting a piece out of his opponent’s ear

ENTERTAINER Rolf Harris charged with indecent assault

#thinkSOCIAL IMPACT

The hand One in three Australians volunteer and that’s worth measuring properly. The economic and social value of community-based organisations and volunteering in Australia is being underestimated, according to a group of UTS researchers who have come up with a new tool to better appreciate social impact. Services are being measured only by their short-term, dollar replacement value, the researchers say, rather than factoring in the longerterm and multilayered contributions of organisations like Surf Life Saving Australia (SLSA). The Cosmopolitan Civil Societies (CCS) Research Centre at the University of Technology, Sydney, has been working on a social impact tool with the help of SLSA. Just over 6 million Australians spend time volunteering, according to the Bureau of Statistics. “Every day volunteers develop and implement solutions to address vital social issues such as homelessness, safety on the beach, emergency services and care for the elderly and less able,” UTS Business School researcher Dr Melissa Edwards says. Governments and private donors rightly want to ensure public and philanthropic funds are used efficiently in these often highly sophisticated programs, Dr Edwards

notes. This can involve trying to put a dollar figure on the impact of a program – its outputs and perhaps monetising this as a rate of return on investment. But this sort of measurement doesn’t take into account the other important and meaningful impacts such organisations have, as they create, build and maintain flourishing civil societies.

HUMAN CAPITAL “Impacts are felt far beyond the mere delivery of programs and reverberate into the wider community,” she says. “By trying to monetise the rather qualitative, long-term and multilayered outcomes, the true value of volunteering activities and of the coordinating organisations is largely underestimated.” “People who are active citizens, through volunteering, support and create civil society,” she says. “They are the invisible hands of social prosperity.” The new “ripple model” uses statistical indicators to make visible all the contributions organisations like SLSA make – rippling out from the individual and club to wider networks of people and organisations

and society itself. The Productivity Commission has in the past cited SLSA as an exemplar for its reporting, for example by valuing the direct replacement cost of its beach patrol activities. But a UTS survey of its volunteers – from directors to toe- in-the-sand members – uncovered a much broader and deeper impact. Vanessa Brown of the SLSA says the ripple model has helped the organisation better understand its wider social contribution and develop more effective ways to put a value on it. “We could put a value on the hours volunteered, the lives saved, on the gear and equipment. However, the social impact is not as quantifiable and our surf lifesavers do a lot more,” she says. “The study helped us to define a way in which we will be able to see the benefits members experience from being part of their local surf club … the development of this human capital has effects that rippled out into wider society.” As a result, the SLSA is better able to demonstrate how it is achieving its mission of “saving lives, developing great Australians and building better communities”.

a different school of thought

UTS WORLD RANKINGS

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S 2014 University Q Rankings, Top 50 under 50

47th

T op 100 under 50 universities, Times Higher Education World University rankings 2014

UTS BUSINESS SCHOOL RANKINGS

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F or employer reputation, QS World University Rankings 2014 – Social Sciences and Management

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F or Accounting and Finance, QS World University Subject Rankings 2014

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F or Economics and Econometrics, QS World University Subject Rankings 2014

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hanghai Jiao Tong S Academic Ranking of World Universities in Economics/Business 2014

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INNOVATIVE LEARNING SPACES • Up to 24/7 access to state-of-the-art teaching facilities, labs and learning resources throughout the campus • UTS Business School’s contemporary and collaborative approach to education has been embodied in the design of its new home, the Dr Chau Chak Wing Building, designed by internationally renowned architect Frank Gehry. The Dr Chau Chak Wing Building The new home for UTS Business School features: • a 240-seat public auditorium • a 120-seat collaborative theatre that facilitates multiple forms of engagement including presentations, collaborative group work and technologyenabled activities • 11 seminar rooms, including a special trading room seminar room, featuring interactive white boards and LCDs and flexible learning spaces • Two unique high-tech oval classrooms that enable more interactive engagement between students • Executive Education floor featuring customisable learning spaces • General access computer areas and student lounges that facilitate individual and group study, reflection and relaxation • Over 200 offices and 230 workstations for academic and support staff

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Top 5 with Australia’s strongest rankings for Economics and Econometrics, Australian Applied and producing research at or above world standard in Accounting, Banking, business Finance, Management and Marketing. schools CONNECTING WITH ALUMNI AND INDUSTRY • Solve your complex business problems with our students through a live case study consultancy within our Executive MBA or the capstone units in our undergraduate and postgraduate programs • Develop your staff capacity through short courses, customised learning solutions or whole postgraduate degrees • Tap into our academics’ expertise via accessUTS, the wholly owned consulting arm of UTS to provide independent, relevant and real-world knowledge with impact • Discover, trial and recruit the best emerging talent in your field and tackle specific challenges from a new perspective with either one talented individual or a whole team of diversely skilled undergraduate interns

• Join our adjunct professors and share your knowledge with leading students through guest lectures • Enable the leaders of the future to have the education experience they deserve through our scholarships program • Support the initiatives of UTS and the Business School by making a philanthropic gift to fund scholarships, teaching and learning, and research. To liaise with specific staff about the following areas please visit www.business.uts.edu.au or email business@uts.edu.au • Alumni Relations • Careers and Internships • Development and Donor Relations • Executive Education • External Engagement • International Relations • Marketing, Media and Communications

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