©Karl-Erik Sveiby 25 September 1995. All rights reserved.
The poor ranking of Australian managers as reported by the Karpin task force occupies a lot of space in the management and business media these days. Myself being a newcomer to Australia I believe that the Karpin report is no doubt correct insofar the old corporate giants in the mining and manufacturing sectors are concerned.
Fortunately the future is a bit brighter than the report indicates. A major shift is occurring in Australian business.
When judged by official statistics Australia has grown into a service society. Some 80% of all Australians are now working in the service sector.
Most people connect service with tourism and retail trade. But another pattern is rapidly emerging. In the last decade the property and business services sector has grown into the second biggest service sector with more than 700 000 Australians currently employed. Australia is growing into a knowledge society, where more and more of the people are working in knowledge companies.
Knowledge companies employ highly educated people whose job it is to solve problems for their customers. Their production process is intangible, it might be advertising, management consulting, financial or legal advice, specialist nursing care, programming, systems design, teaching, energy conservation, etc.
The prime production resources are the knowledge of the staff and their creativity in finding customized solution. Solutions can not be bought like bar of soap or even a car, it takes a close relationship and co-operation between customer and the supplier.
The outcome is not visible and tangible as a product. Rather it is expressed as an improvement for the customer, like a better deal at the court, a healthier body, a less polluted environment, a computer program that performs a task, improved sales or higher efficiency.
The advice and solutions of professionals in the knowledge companies have a great impact on all other industry sectors, but the true and full scope of their production is invisible in official statistics.
The lack of reliable statistics in this area is notorious. Most of the knowledge companies would be labelled "Property and Business Services" in the official statistics. The sector of professional services or business services is therefore a rough indicator of how far the "knowledge society" has developed.
Business services is the fastest growing business sector in Australia as in the rest of the world. The business services sector's share of GNP and employment in Australia has increased by more 50% since 1980 and now amounts to some 12%. The business services sector is the largest net contributor to new employment in Australia. Between 1980 and 1992 the business services sector added 328 000 jobs while the manufacturing sector shedded 138 000 jobs. In the seven-quarter period 1993 to December 1994 no less than 106 000 Australians found new jobs in the sector.
Still, the business services sector is a poorly researched sector. The neglect is unfortunate, because the managers in the business services sector have since decades been forced to tackle many of the issues which are now said to be critical for the success of Australian managers.
The managers of knowledge companies must per force recognize the importance of their employees so they have been practising the art of "coaching" as long as the sports clubs.
They have had to find ways to release creativity, so they cannot build hierarchies or encourage bureaucracy.
Another lesson the knowledge companies have learned - often the hard way - is that knowledge businesses are people businesses and that their most important assets are as invisible in their accounts as their companies are in the statistics. They make their money from selling knowledge so they must find ways to value to visualize and evaluate their intangible assets.
Knowledge companies have problems of transferring competencies both internally and to their customers, so the importance of team building and the features of the "learning organization" are not new to them either.
The customers are often called "clients" referring to the close relationship that exists between the customer and the employees of the knowledge company. The managers have therefore had to practise "relationship marketing" one of latest buzz words among the management gurus.
The growth of the knowledge industries is most visible in the United States. The US business services sector (some 18% of GNP) surpassed their manufacturing sector in 1994. The high activity is probably best expressed by the INC 500 list over the 500 fastest growing companies in the US. No less 50% of them are knowledge companies, i.e. they sell the knowledge and the know-how of their employees rather than manufacture products or provide services. Australia lacks similar statistics.
Do not believe that the knowledge companies are ideals. They have a number of problems of their own, one of the most severe is that their managers live in an environment so heavily influenced by the management style of the "factory" and the mining industry. They have had little guidance from the business schools in Australia and they see few role models on the front pages of the business press.
If we wish to see the future of corporate Australia, we don't need a crystal ball or sophisticated forecasts by economists. All we need to do is to visit some of the small fastest growing and most successful knowledge companies. The management styles they are pioneering and the strategies they are pursuing will be the case stories taught in the standard curriculum of the management schools of Australia.
Source: OECD database Paris
Karl E. Sveiby