Clearing the decks

Whenever a government is sworn in, there are always promises to keep, and lobbyists to manage. Now that the NSW election is finally receding into the rear view mirror, it seems that it is again time for politicians of all persuasions to examine budget black holes, and talk tough on cutting services and spending.

Clearing the decks is a common strategy for leaders thrust into a new organisation, and often used to justify quickly placing supporters in key roles. It is also rather predictable, and can damage a new leader’s ability to achieve change if poorly handled.

ParachuteWhile parachuting key supporters into an organisation can shore up support for leaders in the very short term, there are many disadvantages with the strategy.

If the new executives are unfamiliar with the actual running of the organisation, or have few relationships they can use to influence team members and direct reports, then they will struggle to implement change.

An extreme case was the disasterous long running problems at Telstra under Sol Trujillo. His strategy of parachuting in the executive team, was combined with poorly executed change management. The result was a long running grass roots campaign of disruption to the changes, severely damaging corporate credibility and shareholder value. The gigantic golden parachutes that signalled his team’s departure were further confirmation of major cultural and leadership failures within the organisation, that eventually led to board level changes.

While I am sure the corridors of power in Macquarie street will soon be crowded with lobbyists and hopeful paratroopers, there are still plenty looking for handouts in Canberra.

The ironically named Fair Imports Alliance recently appeared, demanding that small Internet purchases be taxed by customs, echoing the disasterous (and almost identical) demands made recently by Harvey Norman and Myers.

The Australian Industry Group has simultaneously been making the case that manufacturers are doing it tough because of the current level of the Australian dollar, and deserve additional tax breaks. While the Australian dollar volatility certainly makes managing budgets more difficult, a higher dollar isn’t necessarily a bad thing. It is easy to forget that many manufacturers import a significant portion of their raw materials. Very few products qualify for the Australian Made logo – even when they are made in Australia.

According to the latest Australian Bureau of Statistics figures for exports, 536 mining companies generated 48% of all revenue for tangible goods exported in 2010. Travel related services made up 63% of all services exported. Against the backdrop of a rapidly rising Australian dollar, tangible goods exports fell 13% in value, while services exports fell 1% in value.

To my mind this raises a really basic question. Businesses focus their investments in areas that are likely to make a good return. Why should governments be expected to prop up activities which are generating poor business returns?

There are several major areas of industry where Australia has comparative advantages, and is doing well. Government focus on improving efficiencies and infrastructure for those areas of industry should generate strong long term benefits.

Instead of wasting time focusing on dead-ends and handouts, the Australian Industry Group could perhaps direct the government’s attention to their own Feb 2011 report into services related businesses – which clearly shows that services focused businesses are thriving, and experiencing a strong rebound in sales, exports, and confidence.

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