Scott Anthony, Senior Partner, Innosight
So why did we launch this research effort to try to identify Australia’s Transformation Champions? Well a couple of years ago we released the book Dual Transformation, we did a paired research study where we looked in global stock markets to try and find examples of companies that had followed the pattern of Dual Transformation and experienced significant growth. We wondered, “would we see similar examples in Australia?” and when we found those examples what could we learn from them to help other companies in Australia confront the challenge of disruptive change.
3 Big Lessons
As we look at Australia’s Transformation Champions we see three big lessons. The first lesson is our champions followed the pattern of Dual Transformation; that is they didn’t do a thing, they did two transformations in parallel. Transformation A, repositioning today’s business. Transformation B, creating tomorrow’s business. Think of Qantas, Transformation A is optimizing its existing business to make it more resilient. Transformation B is Qantas Loyalty, a fast-growing part of the business that almost generates today as much profit as the core business. Another great example of Dual Transformation from our champions is Webjet. Transformation A is adding on ancillary services beyond traditional booking. Transformation B is going into B2B services where they are aggregating hotel rooms and selling it to other travel agencies.
The second key lesson is that our champions demonstrate digital dexterity. When people talk about digital transformation today often that is code word for aggressive cost-cutting. We use digital to take a lot of costs out of the business. Our champions do so much more. They are using digital to change their interfaces with their customers. They are using digital to create completely different business models. Think about Seek, its used digital to create an online learning solution that its selling to universities in Australia and well beyond. Think about Aristocrat, which is moving into social and digital gaming.
The third key lessons from our champions is that they are showing the power of strategic diversification. What does that mean? As they diversify they are not just saying “I’ve generated cash here, let’s use that cash to buy something else.” They’re saying “we have these capabilities here, what new markets does that open up for us?” Consider Caltex, it takes advantage of its retail footprint so that it can get more into convenience stores and related offerings or think about the REA Group which takes all of its online real estate listings as a leverage point to get into home financing and related areas.
These three lessons are things that any company can follow. Any company can do the same thing that our champions has done. And you see from the results they generate that it’s worth it. Over a five year period these champions generated returns over 200%, 6.6 times that ASX 200 index. They turn today’s ambiguity into tomorrow’s opportunity.
As we did the research into Australia’s Transformation Champions, there were two big surprises about who made our final list. The first surprise is who wasn’t on the list. Some of the big household names in Australia the retailers, the banks. They didn’t make the cut. That reminds us that there is still ample opportunity for Australia’s great companies to drive strategic transformation.
The second surprise is the diversity of the people on the list. Yes, there are hot, high-growth companies like Seek, but there are also very old companies like the Downer Group. There are product companies. There are service companies. There are really digital companies and there are companies that aren’t digital at all. This reminds us that strategic transformation really can apply to everyone in every context. It isn’t just one little bit or one little sector of the economy. It’s something that every company can benefit from.