How Big Business Performs: Private Performance and Public Policy : Analysing the Profits of Australia's Largest Enterproses Drawing on the Unique Data of Ibis Business Informat

207 Pages·1999·1.28 MB·English

by  Peter Dawkins

How Big Business
Performs
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HOW BIG
BUSINESS
PERFORMS
PRIVATE PERFORMANCE AND
PUBLIC POLICY
ANALYSING THE PROFITS OF AUSTRALIA'S
LARGEST ENTERPRISES DRAWING ON THE
UNIQUE DATA OF IBIS BUSINESS INFORMATION
Edited by
PETER DAWKINS, MICHAEL HARRIS and
STEPHEN KING
Allen & Unwin
in association with
Melbourne Institute of Applied
Economic and Social Research
© Individual authors for their chapters, 1999.

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means,
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system, without prior permission in writing from the publisher.

First published in 1999 by
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National Library of Australia
Cataloguing-in-Publication entry:

How big business performs: private performance and public policy.
Includes index.
ISBN 1 86448 867 0.

1. Organisational effectiveness — Australia. 2. Corporate profits — Australia.
3. Industrial management — Australia. 4. Corporations — Australia.
I. Dawkins, Peter. II. King, Stephen. III. Harris, Michael.
IV. Melbourne Institute of Applied Economic and Social Research

Desktop publishing by Melbourne Institute of Applied Economic and Social
Research, The University of Melbourne (Nellie Lentini and Rosy Qin)

Printed and bound by SRM Production Services,
SDN BHD, Malaysia
Foreword
Phillip K. Ruthven
Big businesses, employing over 200 persons or with assets over $200 million, number
less than 3,000 of Australia's over 1.1 million enterprises or just 0.2%. Yet they account
for some 62% of the nation's expected revenue of $1.6 trillion in 1999. This is big
business. Further, these enterprises employ around 3.4 million (40%) of the nation's
workforce and account for nearly half of Australia's gross domestic product (GDP) of
close to $590 billion in the 1999 calendar year.
Big business is deserving of close analysis in terms of performance and public
policy. This book is a landmark study, with high praise due to the Melbourne Institute of
Applied Economic and Social Research for its initiative and the book's many
contributors. My own firm is delighted to be associated with its production in terms of
providing reference data.
Perspective is always useful in an age of increasing specialisation, new and old
vested interests, yet in a world that is becoming borderless. While small and medium
enterprises are lauded as vital to an economy — which they are in terms of employment
(60%) and entrepreneurism — their share of the nation's revenue is less than many
would have us believe: small enterprises (<20 employees), 26%; medium enterprises
(20-199 employees), 12%.
And, surprisingly, big business is no longer synonymous with government which
now accounts for just 19% of the nation's revenue of which government business
enterprises are under 8% and general government around 11% — both being reduced
through continuing privatisation and outsourcing.
Overall, these data and trends tell us that private sector big business is a force to be
acknowledged, and a sector to understand better in terms of performance. Even more
important is how good performance is achieved; and this book tackles this question with
precision and insight.
How Big Business Performs vi
Mindful of the retreat of government from the production side of the economy, albeit
retreating more slowly from the expenditure or consumption side of the economy, Part 3
of this book addresses public policy: governments are not about to abrogate their over-
arching responsibilities to electorates.
The concept of big businesses is not new of course. In feudal times, regents and the
aristocracy at large controlled big endeavours. However, in the Industrial Age,
entrepreneurism and meritocracy began to displace plutocracy; and the freemarket
marshalling of large amounts of capital gave birth to corporations.
With the advent of yet another new age in the mid 1960s — the post-industrial or
infotronics age (of service industries and IT&T) — coupled with the emerging
borderless world of trade, information, finance and investment1 we are seeing radical
changes to corporations. These changes include internationalisation, outsourcing, flatter
structures, franchising, leasing (rather than ownership) of hard assets and much more.
Many of these changes are addressed in this book also.

Source: IBIS November 1998.
Figure 0.1 Industres in Australia Economy (Share of GDP by Broad Sector)
Foreword vii
The economic arena in which all enterprises now operate is unrecognisable from that
of a century ago. Competition is more fierce and global. Businesses are becoming more
conscious of the wider environments in which they operate, taking more of an outside-in
approach to planning and strategy compared with the more insular inside-out approach
of defence and tactics in the Agrarian and Industrial Ages. As profound is the changing
industry mix in modern economies, shown in Figure 0.1 representing Australia's
economy from 1800 to 2030 (forecast).
It shows the simple evolution of industries, aggregated into seventeen industry
divisions and, in turn, aggregated into five sectors: primary; secondary; tertiary;
quaternary (information based); and quinary (personal and household services based).
It is the quaternary and quinary sectors that are in ascendancy — diluting the relative
importance of primary and secondary sectors — and creating growth in opportunities for
investment, exports and jobs. Indeed, over half of Australia's 8.7 million jobs at the end
of 1998 have been created from new service industries since 1965; and these new
industries and emerging modern corporations will create over 80% of all new jobs over
the next several decades.
Interestingly, the tertiary sector has remained a somewhat constant share of GDP and
employment over the past two centuries. This suggests that this cluster of industries —
commerce, transport and public administration/defence — is a core infrastructure of any
economy at any time.
Over 100 years ago, in the mid 1890s, the biggest 100 enterprises (of which only
fourteen remain in 1999!) were predominantly in the tertiary sector; in 1997 this was still
the case, but less so. Table 0.1 (below) makes for an interesting comparison. At least the
quaternary and quinary sectors now have more than token (if any) players compared
with 1894.

Table 0.1 Largest 100 Enterprises (on Net Assets Basis)
Industry Sector 1894 1997
Primary 11 6
Secondary 14 33
Tertiary 74 51
Quaternary 1 5
Quinary 0 5
Total 100 100
How Big Business Performs viii

Table 0.2 Top 30 Listed Companies by Weighted Return on Equity (%)
1993 1994 1995 1996 1997 Average
US 10.4 20.5 20.5 23.3 22.3 19.4
UK 10.7 14.4 16.6 18.0 17.4 15.4
Australia 8.3 11.1 12.4 11.4 9.7 10.6

This book, however, concentrates on performance. The authors suggest focus and
innovation are two of the vital characteristics if not precursors to sustained high
performance. This is timely given Australia's tardiness in the big business group to
match results coming out of the US and the UK. Taking just the 30 largest enterprises
(on a market capitalisation basis) in the US, UK and Australia over a five year period,
the findings are sobering as Table 0.2 (above) reveals.
So what are the US and UK corporations doing differently? My own firm puts focus
at the top of the list of reasons; and we could be persuaded to lift `pursuing intellectual
property' (innovation) higher up as the findings of this book does.
1. They are focusing on single industries rather than diversification (conglomeration).
2. They are outsourcing non-core activities and functions.
3. They are jettisoning hard assets from their balance sheets (land, buildings and
equipment plus stock and debtors) via securitisation, operating leases, `just-in-time'
inventory systems and factoring.
4. They are pursuing intellectual property, that unique cocktail of systems and skills,
with high R&D.
5. They are aggressively globalising their new age service industries, and utilities.
6. They are leading first and managing second.
7. They are alliancing, networking and franchising.
Among the 100 most successful large Australian enterprises (in return on equity
terms) over the five-year period 1993 to 1997, 86% were highly focused (predominantly
in one only of the 465 classes of industry in the economy) and enjoyed an average return
on shareholders'
Foreword ix
funds (after tax) of 34.4% over this five-year period. The 100 most diversified big
businesses languished with an average return of just 8.6% over the same five-year
period!
As suggested earlier, the arena for big business is changing dramatically with
terrifying attrition rates as we prepare to enter the 21st Century. Just fourteen of the 100
largest corporations of 1894 are still with us in 1999, the rest being absorbed by
predators (or gone broke). In recent decades, one-third of the Top 100 enterprises drop
out each decade. Of the 1980 Top 100 list, just 33-34% of the players will remain as
parent corporations by the year 2000.
These facts make the reading of this well-researched book compulsory, if not a
condition of survival.
Endnote
1. Note the development of the Multilateral Agreement on Investment and the formation of the
World Trade Organisation.