Nick Greiner

One of the fashionable new positions at a senior level in universities is the head of engagement, or some variation on the title. There’s clearly a perception that relationships with the world outside the academic community are not as developed as they could be.

So is there an engagement issue for universities in general, and business and economics schools and faculties in particular? I would say, yes.

Take the top public companies. Across the boards of the ASX100 there are about 700 directors, but only four are current business or economics professors, and in each case they’re on a single board.

Given the quality of thinking and research experience of our business school academics, their board representation is much lower than one would expect. There are also four health and life science professors on ASX100 boards.

Among large government-owned enterprises, there appear to be no practicing academics on the boards where surely the complex regulatory and economic issues could benefit from their expertise.

Of course, academics frequently conduct public policy research as consultants for governments, make submissions, and do joint studies with corporations, but that’s quite different from having a seat at the table where decisions are made.

Going the other way – from business back to academe – I looked at how many directors of the same ASX100 companies say on their CVs that they’ve got anything to do with universities. The answer is nine, who hold honorary appointments as adjunct professors.

There are also a number of business leaders on university advisory boards, but that’s mostly about helping to raise money.

The era of board vacancies being filled via an old mates’ network has passed. Placements are now made using executive search firms, which comprise a large professional group. My theory is that these headhunters overwhelmingly do not know who exists in universities – such as the brightest people in marketing or finance – and consequently don’t put their names forward.

We need to somehow get the existence and merits of our top academics exposed to the executive search community. They are obviously relevant. For example, there’s a lot of work being done in business schools on risk and risk assessment, which is an issue the banks are very worried about.

Is it that academic is a dirty word at the higher levels of Australian business, and that the instinct about what’s needed is “people who have met the payroll” – basically, CEOs? Perhaps there’s a prejudice against those whose life experience and success has been academic, and they’re seen to be more about theory and process while the business world is more about results.

On the other side, it’s possible academics aren’t putting themselves forward for fear of not doing well, or that they may suffer reputational damage because companies occasionally go broke or are the subject of controversy.

In the US, it’s seen as a badge of honour for an academic to be accepted on to the board of a company that employs tens of thousands of people, a positive thing in terms of promotion and reputation. It may well be that in Australia it’s not.

Much is written about diversity on boards, how it’s very important, yet at the moment it’s mostly defined as gender diversity. True diversity would have different relevant backgrounds. University experts on the boards of our major economic institutions would clearly add to the diversity.

One way of connecting academe with business is through case studies. We could look to the Harvard model which teaches by sending its academics out to firms and writing real-world cases, such as why something may have succeeded or failed. It puts the academics inside the company. This happens to some extent in Australia but not as much as it could.

And then there’s the question of our research programs. Are they sufficiently relevant to industry? It’s appropriate that research is put through the academic filter of peer-review, but could it also be put through a real-life filter? Is the research answering a question that anyone cares about, or just a theoretical question that nobody outside of universities thinks is important or interesting?

Recent data from the Australian Bureau of Statistics on innovation-active businesses revealed that only 10% had a collaborative arrangement with universities. Figures from the level of start-ups, venture capitals and SMEs revealed that only 3% saw universities as a source of innovation.

It highlights that universities are right to be concerned about a lack of engagement with the outside world, and the business community in particular. The disconnect is coming from both ends – we’ve got academics that are probably not putting themselves forward and companies that are not actively trying to attract  them.

It amounts to a missed opportunity all round.

Nick Greiner is a former premier of NSW and a distinguished visitor at the Australian Graduate School of Management at UNSW Business School. A version of this post appeared in The Australian Financial Review.

Julie Cogin

Smart phones are designed to make you feel indispensable. Forever on tap, on line, alert to the beep or vibration of an incoming message, you are chained to the workplace.

Imagine a CEO who is always available, a senior manager who can decide every major operational decision, whether in the office or on holiday.

What is this connectivity doing to workplace culture?

Managing talent and succession planning will fail if executives don’t delegate responsibility.

At an executive education session on talent management I presented recently, each of the 80 or so executives had their smartphone sitting in a prominent position on the desk in front of them.

The room was full of highly committed senior executives looking for the secret to attract, engage and retain the best talent in order to propel their businesses forward or outdo the competition. The behaviour of folks in the room was consistent with every other executive audience I have encountered in recent years. There was good exchange of views and listening to examples of workplace practices or troublesome issues.

Yet everyone leapt out of their chair for all breaks or group work activity to call the office or at the very least check their smartphone for email, text or incoming calls, certain something must have gone pear-shaped in their short absence. Every single person in that room had a smartphone accessible to enable regular (in some cases meant several times each minute) checks for action.

The irony of the situation was that this behavior is a major impediment to talent management – the very topic of the day. Let me outline three reasons why.

First, if you can always be contacted to deal with emergencies, urgent situations or the usual bushfires that come up you’re not encouraging others to make decisions in your absence or assume greater responsibility. By not providing employees with the autonomy to make decisions about how they can best deal with difficult situations you reduce their motivation and ability to take risks, try new things and be creative.

Remember the days when senior executives took leave and someone talented was coached and prepared to “act up” in that role? What a win-win situation for the person on leave who could really experience the benefits of a vacation or professional development opportunity – as well as the individual with the chance to develop new skills, be exposed to matters they may not be in their regular job and gain experience or recognition to prepare for their own advancement. It seems this approach is now lost.

Second, the addictive smartphone behavior I observed during this session (and on many other occasions) where executives immediately answer emails and phone calls any time of the day (and night), encourages that behavior in others. The cascading effects are likely to block the development opportunities of those below and impede succession planning right down the line. Also important is the signal sent across the organisation on managing work and non-work responsibilities, let alone the message this communicates on well-being.

Third, during the session those most addicted to their device argued that they wanted to be “available” to their teams (and boss) or it was an extremely busy time of year, while some confessed to a high sense of wanted to be needed or in high demand. And while I don’t believe anyone is indispensable to an organisation, creating a situation where you are in a high-demand position, invaluable or needed for all key decisions prevents your own progress to more interesting roles. 

A key component of any talent management program is the “make” versus “buy” decision. Irrespective of whether you “make” your talent internally by developing people for roles or “buy” your capabilities in from the labour market, both require a concentration on improving the return on investment efforts (from recruitment or development activities).

This means protecting that investment by creating a work environment where people can thrive and want to remain as well as generating sufficient internal opportunities to enhance skillsets. And there is no better way to improve a skillset than by temporarily promoting talent, where you can also test them by seeing how someone performs before giving them a ‘leg up’ the corporate ladder.

Also – from a purely accountant’s perspective – if you look at the costs of recruiting staff, and the risks inherent in taking on a virtual unknown, it is clear that internal promotion has obvious advantages: firms can save a lot of money by promoting those with obvious abilities, and the only way to do that is if the hierarchy permits a temporary promotion to see how they perform.

Having their boss switch off – both physically and mentally – for a couple of weeks is a great way to do this. The boss won’t be away long enough for any real damage to be done if those standing in prove mediocre, but it’s long enough to give a good test run, and see if promoting talent is a cheaper alternative than ‘buying’ someone new in.

I am a big supporter of smartphones, laptops and other mobile technologies as they can enhance productivity, provide greater freedom and flexibility, however they also may be your organisation’s major impediment to talent management.

However switching off that phone and having genuine time out of the office is the best way of securing talent for the next generation – and saving the company money.

Richard Holden

Tony Abbott has thrown a curve ball at Qantas in refusing to offer up the debt guarantee it wanted, but seeking to abolish Part 3 of the Qantas Sale Act in its entirety. This opens the door to foreign ownership above the current 49% cap and more concentrated ownership by one overseas airline, among other things.

Should the proposed legislation pass, will Qantas inevitably split its international and domestic operations, along the lines of Virgin?

The Air Navigation Act requires that for an international airline to be designated “Australian” it must have majority Australian ownership — limiting foreign ownership to 49%. This provision does not apply to domestic carriers, thus allowing majority foreign ownership of a potential “Qantas domestic”. As an example, Virgin’s domestic operations are 66.9% foreign owned (by Air New Zealand, Etihad Airways and Singapore Airlines).

Fine, so it would be possible. But would it happen? Well, as the great American baseball player Yogi Berra said, “It’s difficult to make predictions, especially about the future”. But here goes.

Qantas CEO Alan Joyce has repeatedly claimed Virgin is being supported by cash infusions from its foreign investors. Those investors: Air New Zealand, Ethiad and Singapore Airlines, clearly see some advantage in holding a majority stake in Virgin, presumably as providing solid linkages with their own networks. And as is often the case in complex industries, such linkages can be more easily and fully achieved by ownership rather than a mere alliance. So does it not stand to reason that British Airways, Emirates A380 Seatmap or other international airlines want to do similarly with Qantas?

Perhaps, but it’s far from clear. In response to Tony Abbott’s announcement last night, Qantas characterised that foreign support as being designed “to fund a loss-making strategy against Qantas”. That loss-making strategy is designed to provide a strong foothold in Australia, which makes the linkages to the foreign owners more valuable. But Qantas already has more than a foothold: it has two thirds of the domestic market.

Why invest in a loss-making strategy to either retain that share or even try and increase it, especially when there is already a triumvirate that seem committed to preventing that from happening?

In short, it’s not obvious that there will be a queue of international airlines eager to throw money at a price war in domestic Australian air travel. If there is not then it makes little sense to split Qantas’s foreign and domestic operations, particularly as there are some ongoing costs to doing so.

If the proposed legislation fails to pass the Senate, which seems likely given the stated opposition of Labor and the Greens (and despite possible support from incoming crossbench senators David Leyonhjelm and Bob Day), what options remain?

For Qantas there seems little to do than push forward with the aggressive restructuring program it recently announced and to revisit its stated goal of maintaining 65% domestic market share, regardless of the short term profit consequences.

It may be that ceding market share to Virgin could lead to an equilibrium with less aggressive capacity expansion by both players, and consequently higher ticket prices. Market share does not equal profit, as Qantas’s recent results are testament to.

Prime Minister Abbott doesn’t want to “let Qantas bleed”.

Perhaps an equally interesting question is what options remain for the Coalition if the legislation fails to pass.

If, when the new Senate sits in July, the legislation still fails to pass then the Coalition will be in a tricky position. Abbott has already made it very clear that the current playing field is not level. The government would then either have to do what Abbott yesterday implored Labor not to and let “Qantas bleed”, or reverse its position on the debt guarantee, or a related option.

• Option A: Holden/SPC Ardmona tough love.
• Option B: the Gonski flip-flop redux. Neither of those prospects seem politically enticing.

What’s next for Qantas? A great deal of uncertainty about its ownership, operational structure and the possibility of support from this or future governments. The only thing that seems certain is that 5,000 loyal Qantas staff will lose their jobs.

Richard Holden is a professor of economics at the University of New South Wales, Australian School of Business.  A version of this opinion piece appeared on the Conversation.

From the Knowledge@Wharton today blog.

“Men have become more egalitarian, but women are more realistic.” That’s how Stew Friedman, Wharton practice professor of management, describes some of the preliminary results of a 20-year study on careers and family life based on data collected from Wharton undergraduates in both 1992 and 2012.

As part of his work with Wharton’s Work/Life Integration Project, Friedman surveyed members of the graduating classes from both years and then compared the results. He also checked back in with the 1992 graduates to see how their attitudes had changed after 20 years in the working world.

Among his findings: In 1992, nearly 80% of men and women responded “yes” to a question about whether or not they planned to have children. That number dropped to 42% for men and women in the graduating class of 2012. “This result speaks to a number of important trends, one of which surely is the challenges today’s young people anticipate in raising children and having productive work about which they feel good, proud, and successful,” Friedman says. While the survey did not ask for all of the reasons that students responded in the ways that they did, Friedman notes that one of the study’s other findings was that while graduates in 1992 expected to work an average of 53 hours per week, the class of 2012 anticipated spending about 70 hours a week on the clock — nearly two work days more than their peers from 20 years earlier.

“Think about … that perception of work demands just in terms of raw time,” Friedman says. “I’m not surprised that people are thinking, ‘I’m not going to be able to have children, or I will have fewer children.’ And the reduced likelihood of having children held true for men and women, which speaks to how the attitudes of men and women have evolved over the last two decades.”

The survey also asked the graduates to weigh in on whether two-career relationships are better able to thrive when one partner is less involved with his or her career. Men in 2012 were less likely to agree with that statement than men in 1992. But women were actually more likely to agree with this view. Two-career relationships are much more prevalent today than they were 20 years ago, when male survey respondents likely expected that they would advance while their female partners slowed down to accommodate a family, Friedman notes. “Men’s attitudes now are increasingly more like women’s,” he adds. “It reflects that more male graduates now expect to be in dual-career relationships, and they want their partners to be pursuing their careers. Over the last couple of decades, we have set the cultural norm more clearly that women’s careers matter, and the advancement of women in society is something we can all expect and should support.”

But what about the reactions from women in 2012? Were they simply more realistic about the realities of integrating work and family than female graduates in 1992 — or more pessimistic? “Twenty years ago, Wharton women graduates were thinking they wouldn’t have to sacrifice career for family, but given the experience of the last two decades, the models they’ve seen and the education they’ve gotten about what they will have to do to be successful, today’s 22-year-old women are more likely to see that someone is going to have to make some sacrifices,” Friedman says.

While there’s no way to know just yet how the 2012 graduates’ attitudes will change, Friedman notes that the definition of career success did evolve for a group of survey participants from 1992 who were queried again last year. “Flexibility was a lot more important to them as 42 year-olds than it was at 22. Where they lived mattered more, but prestige, power and influence, and even enjoyment in work didn’t matter as much as it did when they first started out.”

As attitudes toward work continue to evolve, Friedman says there are numerous possibilities for progress in the area of fully integrating career with family and personal life. “The combination of radical changes in technology and the changing values of men and women with respect to the place of work in their lives indicate that we’re going to see a lot more experimentation and creative alternatives for what work looks like and what families look like and how the two look together,” he notes. “I’m hopeful as a result that there will be new models and solutions that make it possible for people to have more of what they think is ‘having it all.’”

From 1 p.m. to 2 p.m. ET on Tuesday, January 29, Knowledge@Wharton and Friedman will host a Twitter chat to further discuss the changing nature of work/life integration:

Q1 How has your definition of “having it all” changed over the course of your career?

Q2 What life- or work-related factor most influences how you define “having it all”?

Q3 How is the changing nature of work affected your ability to integrate career and the rest of life?

Q4 If you could change one thing about your work that would make life easier, what would it be?

Q5 For whom is “having it all” easier – men or women?

To read the chat, follow @knowledgwharton and @StewFriedman on Twitter and the hashtag #kwchat.

This post was previously posted in Knowledge@Wharton Today Blog: The Changing Nature of ‘Having It All’

Professor Kevin Fox

When it comes to lifting productivity, best management practices can bring significant results.

Stanford economist Nicholas Bloom and his collaborators put this to the test in an Indian study where they offered free consulting on management practices to randomly chosen textile plants and compared their performance to a set of control plants.

They found that adopting these management practices raised productivity by 17% in the first year through improved quality, efficiency and reduced inventory, and within three years led to the opening of more production plants.

In the Indian case, the management consultants started from a low base. So there are unlikely to be those sorts of dramatic productivity gains to be achieved in Australia. But it does provide evidence that good management practices are effective and that business education does matter.

There’s a famous line among economists that says productivity growth is an index of our ignorance – the leftover bit of output growth that we haven’t been able to explain by the input growth. In fact, there are many factors that we struggle to understand in pin-pointing the drivers of productivity. We have an information shortfall.

How can we address this? Better data to analyse would be a good starting point.

The Australian Bureau of Statistics (ABS) should be strongly supported in its productivity program but the detailed data it collects needs to be made more accessible to Australian academic researchers. Unfortunately, the legislation under which the ABS presently operates prohibits this.

It’s a wasteful situation. Our researchers are partly funded by taxpayers yet they regularly have to use data from other countries and try to infer what it might mean in terms of Australian policy.

We are able to get big-picture aggregate numbers for industry sectors but we need to know more about what’s happening at the level of individual firms because it’s from here that productivity springs. This will involve an understanding of how firms are responding to incentives, what talent they have, their approach to innovation and what they understand about best managerial practice.

If we get a clearer view of what’s going on at a firm level, we should be able to design more effective policies, such as how to develop the talent, innovation and firm organisation that will better facilitate the diffusion of best practice in management.

Which brings us back to education. Institutions such as the Australian School of Business can provide an essential foundation in core business skills along with an understanding of the modern business context through research-led teaching.

Such training facilitates the capacity to foresee and react appropriately to changes in the operating environment, including financial crises, making the most of scarce resources and using incentives to effectively manage the workforce.

In the same way that technological breakthroughs can raise productivity and hence welfare, raising the level of management practice in Australia can assist in securing Australia’s future.

Professor Kevin Fox is the Head of School at the School of Economics at the Australian School of Business and Director of Centre for Applied Economic Research (CAER) at UNSW.

Associate Professor John Evans

Dr Amandha Ganegoda

The Rumsfeld classification

In the Finsia Journal of Applied Finance in 2008, we used the “Rumsfeld” classification of risks to identify the different types of operational risks and how to best approach each type of risk from a quantification perspective. The Rumsfeld approach characterised risks into:

• known/known (ie, we know the risk exists and we know how to model the outcomes);
• known/unknown (ie, we know the risk exists, but we don’t know how to model it with any reliability); and
• unknown/unknown (ie, we have no idea what risks might exist and, by definition, no idea how to model the risks).

This classification system, in terms of risk management, implies:

• for known/known risks, it is appropriate for the institution to accept these risks and to manage them through economic capital;
• for known/unknown risks, it would be prudent to transfer these risks to another entity; and
• for unknown/unknown risks, these should not be taken on at all, and are best managed by “positive” contract wording that specifies what risks the institution is exposed to.

The Diebold classification

In their 2010 book on risk management, Diebold et al advocated a slightly different classification system consisting of identifying risks as Known (K), Unknown (u) or Unknowable (U), but the implication of this classification system was the same as our Rumsfeld approach.

Both the Rumsfeld and Diebold classification systems are based on the extent of knowledge available as to the occurrence of an event, and how to model the outcome of the event. Under the Diebold system, K refers to situations where there is a broad agreement between experts on the relevant theories and the underlying models, u refers to situations where there is more than one competing theory or a model in which none of them have reached the status of a paradigm, and U refers to situations where there is no theoretical model.

Our extension of the Diebold classification: Ambiguity

In our soon-to-be-published paper in the Australian Journal of Management, we have extended the classification system to include an “Ambiguity” group of risks, as there are situations in which future outcomes are vaguely defined due to ambiguous behaviour of the market participants, but the risks are neither K nor u. In this particular context, we use the term Ambiguity to refer to the uncertainty created by market participants’ ability to respond differently to certain events and circumstances.

Although often ignored, Ambiguity is an important source of indeterminacy, which is difficult to measure and manage like risk, nor can it be reduced by investing in knowledge as for a u-type risk. A primary source of Ambiguity is the ability to understand something more than one way and to respond differently.

Examples of ambiguous situations are surprisingly common. A classic example of how Ambiguity can lead to disastrous outcomes is the highly publicised and controversial credit rating system of asset-backed securities (ABS), which served as a catalyst to the recent subprime mortgage crisis and the consequent global market meltdown. The originate-to-distribute lending model of the banking industry, which has been partly blamed for the subprime mortgage crisis, heavily depended on the ability of the rating agencies to accurately value ABS. Rating agencies used a scale similar to the ones they used to rate bonds to rate the probabilities of default on ABS. It was only later realised that although a BBB tranche of an ABS may have the same expected loss as a BBB corporate bond, the loss distributions of the two are significantly different. Even though the BBB ABS was priced higher than the BBB corporate bond, most market participants failed to notice this due to the Ambiguity created by similarities in the notation of the rating systems. If rating agencies used a different notation from the one they had been using for the bonds, investors might not have made the false interpretation.

Why introduce Ambiguity?

Whereas previously we included Ambiguity risks in the u category, we feel that these risks have significant differences from the u-type risks and that specific attention should be brought to these risks. Our classification would then become:

• K, where we know the risk exists and can be confident of the modelling;
• A, where we know the risk exists, but recognise that there is a range of outcomes, each of which can be modelled, but where we are uncertain as to which outcome will occur due to the difficulty of predicting human actions and counteractions;
• u, where we know the risk exists, but we are not confident of how to model the outcome; and
• U, where we have no idea what risks exist.

Issues remaining

There are still some issues in using this classification system. First, even though we might have a model for a K-type or A-type risk, care needs to be exercised in understanding the model rather than just blindly adopting it, as the assumptions may not be appropriate in all circumstances. Second, in terms of the implications of this classification (as well as the Rumsfeld and Diebold versions), there is a serious problem in that it would inhibit financial product innovation, as most innovation would involve at least u-type and U-type risks. If introduced as part of a prudential regulatory process, it could result in inefficiencies in the capital markets. To some extent, the effect of the introduction of u-type risks could be ascertained by stress testing, but care needs to be exercised in the acceptance of the results as the process is highly dependent on historical experience. Reverse stress testing, where you search for events that would cause insolvency, can also be useful. It may be possible to manage the u-type risk by spreading it across the capital markets so that the impact on any one institution is minimised, but, as the global financial crisis showed, poor information systems may not detect cumulative risks of this type – with disastrous consequences.

There is also another issue with this classification. It may infer that once classified, a risk remains constant, which is not correct, and there is the possibility of misclassifying a risk as a type K when it is in reality a type u. For example, a u-type risk may, with the passing of time, become a K-type or A-type risk, and it is hoped that it will in fact become reclassified and reduce the risk. Also, once a U-type risk occurs, it progresses to become a u-type or A-type risk.

Matching the correct tools to each classification

While the proposed classification system will highlight the differences between risks, it is then important to develop tools for assessing these risk types. History is littered with misunderstandings of what is an appropriate tool for measuring a particular risk. A classic example is that the models based on the assumption of daily market returns are Normally distributed. Using daily returns of the Dow Jones Average, Estrada pointed out that the lowest of the best 10 daily returns during the period of 1900 to 2006 was 8.6 standard deviations above the mean. If we assume that the life of planet Earth is around 4.5 billion years, under the Normal assumption one return of this magnitude or larger should occur every 223,014 lives of our planet; and yet 10 such returns have been observed during the period of 107 years. The degree of the error is enormous, yet the Normal assumption is widely used in the pricing of derivatives, as well as in economic capital calculations. Furthermore, Estrada showed that for an investment made between 1900 and 2006, by not being invested in the best 10 days of the market, the terminal wealth would decrease by 65%, whereas by avoiding the worst 10 days of the market, the terminal wealth would increase by 206% relative to a passive investment strategy. The aggregate outcome – in this particular example, the long-term performance of the investment – is largely determined by just a few extreme observations, and demonstrates the disproportionate impact of the extreme events on the aggregate outcome and the importance of properly accounting for those extreme events. In other words, in contrast to light-tailed risks, the uncertainty of risk measure for a heavy-tailed risk would be largely determined by the ability to accurately estimate the probabilities of the extreme events. The mean and standard deviation hardly provide any useful information.

In dealing with A-type risks, the analysis must be very different from that for K-type and u-type risks. Cognitive psychologists have studied behavioural traits of humans, including herding, framing, mental accounting, loss aversion, overconfidence, conservatism and anchoring. These behavioural traits can often assist to explain (and maybe even to predict) market anomalies and events, such as bubble formations, erratic trading activities, and overreactions to information. A risk manager who pays attention to the cognitive behaviour of market participants will have a better chance of understanding financial markets and their future direction. The findings of behavioural economics show that financial markets and their participants may not always behave rationally. Hence, it is always a good idea to perform a scenario analysis by relaxing the “rational” assumption of traditional finance theory to see what can happen when market participants behave irrationally.

Finally, when dealing with U-type risk, we believe that the focus should be on proactive crisis management. Even though a solid risk management framework will aid in containing risk, unforeseen events would still occur simply because we are unable to predict all possible future states.

Taleb famously defines such events as black swan events. Even though black swan events are almost impossible to pre-identify, this does not necessarily mean that we cannot prepare for an unforeseen crisis. Diebold et al point out that although crisis events may have unique and unanticipated causes, most of the time the required post-crisis responses are often quite similar. Thus, readiness for a known possible crisis can become useful in responding to a surprise crisis situation. For example, several experts have pointed out that the system redundancies developed in New York city in anticipation of the Y2K bug (which never materialised) became indispensable for the fast recovery of the city’s transportation and telecommunication systems after the 9/11 attacks.

The lesson here is that even if one cannot anticipate the nature of a possible black swan event, it is still possible to have some sort of contingent plan in place to assist in a crisis situation. The ability to steer through a crisis depends more on the decisions made before the crisis than on the decisions made in the midst of it.

We identify four important traits a company should have in order to successfully steer through a crisis. First, it is important to have an established process to monitor near-miss events. Monitoring near-miss events can provide early detection of problems, as well as avoid possible future crises. Second, a corporate culture that encourages the reporting of problems rather than the habit of hiding them is vital for early detection of a problem and appropriate response. Third, flexibility of organisational structure is important, since – similar to the evolution of species – only the organisations with flexibility to adapt and innovate will survive while the others will become extinct. Last, but not least, firms need to maintain good public relations and collaborate with relevant parties. Unless firms develop cooperative relationships with their partners, they will not get preferential assistance during either a crisis or an opportunity.

The message

The message is clear: in developing a risk management strategy, it is critical to classify risks according to their characteristics in order to better understand possible outcomes, and then to build models that are appropriate for ascertaining those outcomes. “Shoehorning” inappropriate models into a situation to save costs will lead to disasters, as we saw in the global financial crisis.

John Evans is an Associate Professor and Head of Risk & Actuarial Studies at the Australian School of Business. Dr Amandha Ganegoda is a Research Assistant at the Australian School of Business. This article first appeared in Risk Management Today.

Tim Harcourt | The Airport Economist

When I went to the University of Adelaide, I received a stroke of luck. Under the Colombo plan, which enabled south-east Asian students get scholarships to Australian universities, the grand old man of Singapore,Lee Kuan Yew, sent a number of very bright Singaporean students, who were meant to go to Oxford to study nuclear physics, to Adelaide to do economics with me. As a result, through having very smart classmates, I got good grades in mathematical economics and econometrics, I helped them with their honours essays, and we had noodles every night.

Of course, we know how well students from south-east Asia and the rest of the region do at university and how much life and vitality they have added to our campuses. But we have a new wave of overseas students from a new frontier, South America, with Brazil at the forefront.

This is one reason I was recently recruited to the University of NSW to teach international business strategy in the Australian School of Business. As part of the MBA programs, I will develop an international business strategy course for South America. This follows on from the book on Brazil and Australia I am co-authoring with Mark Thirlwell from the Lowy Institute and a distinguished Brazilian economist and past adviser to the government in Brasilia, Fernando Carvalho, from the Federal University of Rio de Janeiro. The book will focus on Brazilian-Australian economic opportunity and will be published to take advantage of Brazil’s “double header” hosting of the FIFA World Cup and the Olympics in Rio.

So why all the interest in Brazil and South America from Australian universities in general?

Firstly, the numbers are growing. Brazil’s growing middle-class are hungry for education. For Australia, Latin America now makes up just over 5 per cent of total enrolments, with Brazil ahead of the pack with just over 16,000 enrolments (followed by Colombia at 10,000, Peru at 2200, Chile 1700 and Mexico 1500).

Secondly, South America is coming of age economically, and Brazil is leading the pack. In 2002, on my first trip to Brazil, times were tough. Neighbouring Argentina was in the midst of economic crisis, and Brazil was concerned about contagion. It was also facing a presidential election, with the perennial candidate, Lula (Luiz Inacio Lula de Silva) from the Workers’ Party, running for the fourth time.

Lula won in 2002, was re-elected in 2006 and left office at the end of 2010 with a huge 80 per cent-plus approval rating, which is an amazing result for a democratically elected politician at the end of their term anywhere. Even his successor, Dilma Rouseff, has an equally healthy approval rate of 73 per cent.

Education is a key reason for Lula’s success in Brazil. The success of the macroeconomic and fiscal performance of his administration has been accompanied by a commitment to improving social conditions and human capital – mainly through education. According to Carvalho, there has been “a once in a generation increase in education participation – particularly among the lower classes. Around 32 million people have been added to the middle-class, and education is a key reason”.

To be fair, Carvalho adds, these education measures were part of an expansion of social programs, essentially an extension of the comunidade solidaria started by Lula’s predecessor, President Fernando Cardoso. Carvalho says: “Lula extended the program and made it effective. He also bypassed local and state government and made more use of community organisations and churches for delivery. This policy effectively has doubled the income of the very poor and at the same time has expanded the Brazilian middle-class, adding to the power of Brazilian consumers at the same time. As a result, education retention levels are higher, and the overall standard of living of the average Brazilian has increased.”

Thirdly, education is a key foundation for building stronger economic ties between Brazil and Australia. People ties matter as today’s students are tomorrow’s political, business and community leaders and will be important as Australia forges stronger relationships with Brazil and South America. For example, in Singapore, many of my classmates from the University of Adelaide are now cabinet ministers (even the new President of Singapore, Tony Tan, went to Adelaide), and this pattern has been extensive across south-east Asia as trade and investment ties have followed business and political relationships built at university. Hopefully, we will see similar patterns with South America as more Brazilians and their neighbours study in Australia or participate in MBA courses across Asia, Australia and South America. But there’s work to be done at the Australian end. For as Brazil plays a stronger role in the world economy, and the 2014-2016 World Cup-Olympics double approaches, we will have to do more than just woo the girl from Ipanema; we’ll have to woo the hearts and minds of a globally very strong and popular Brazil.

I am sure many Australian students will now get the positive experience of studying with many students from South America, just as I did from south-east Asia. And with all due respect, there is better dancing in Rio than there is in Singapore but I am sure the intellectual and social benefits will be on par.

Tim Harcourt is the JW Nevile in Economics at the Australian School of Business, UNSW and author of The Airport Economist: www.timharcourt.com

This article first appeared in the Australian Financial Review, 16th April 2012.

Professor Chris Styles

If you can’t measure it, you can’t manage it.

Therefore, managers need a formal, cascading set of KPIs (key performance indicators), KPTs (key performance targets), and annual performance reviews to keep staff accountable. It’s hard to argue with that. And with quarterly reporting, the need to meet market expectations, and bonuses up for grabs, it’s no surprise that this is management’s default mode of operation.

But what motivates our top talent? How do we get the most of out of our high performers? What gets them out of bed every day and late to bed every night? Making budget? Meeting KPIs? And do we really want to “manage” them?

I’m not so sure.

Curiosity, experimentation, achieving the unachievable, and pushing boundaries tend to be the things that turn top talent on. Sure, they have to make their numbers: if we don’t have cash flow today, there is no tomorrow. But that’s not what really drives them.

The traditional corporate mindset drives the need to find answers – tackling the known knowns, and solving the known unknowns, to coin a phrase. But the real challenge – and the challenge top performers love – is to go beyond this. What are the interesting and challenging questions? What don’t we know? How do we discover what we don’t know?

Managers have learnt over the past decade that the world is far less linear and predictable than it ever was – if that ever was the case. Perhaps the true skill of the leader is not to know the right answers, but rather to know the right questions to ask, before creating the organisational environment conducive to experimentation and finding pathways through these challenging questions.

This means getting things wrong is OK. Failing often but failing fast is the catch-cry. Knowing what doesn’t work means at least we know something. If we know it before the competition, we have an advantage.

For many organisations, this requires a change in mindset. A tight style of management through KPTs is comforting and probably an element of that is necessary. But perhaps it is not always conducive to real innovation.

One interesting example is what is happening at AMP. Senior management has recognised that there is a significant level of staff passion for making changes at AMP. They have introduced an innovation program, where one component of it is based on the “wisdom of the crowd” – its staff. This means that everybody can post an idea on a platform that is visible and accessible to all employees. Employees who do not have their own idea can collaborate with their colleagues’ ideas and earn points together, which they then redeem for something tangible. AMP acknowledges every idea that is implemented by recording a short video of the idea owner and announcing it through the organisation. They believe that peer recognition is very important for people who dedicate their time to advocating change.

In addition, AMP has recently established an Innovation Board, but in quite an unusual way. Senior leaders have invited all staff to apply for nine seats on the board and have asked them to submit one page or short video to demonstrate how they are going to make difference at AMP. Two key objectives are set for them: a) to shape an innovation program which will help to reinvent AMP and b) embed a creatively restless culture in everyday activities across AMP. After accomplishing a set of agreed activities, the board members will get funding for their personal leadership development with the leading innovation institutions.

By establishing the Innovation Board, AMP has created innovation ambassadors, who have significant influence among their peers and the capacity to stimulate the crowd to collaborate on making changes for AMP. These ambassadors are the key to exploring the unknown.

Letting go, knowing you won’t know, and creating the conditions in which the unknown unknowns can be explored, is perhaps a big part of the answer.

Professor Chris Styles is Deputy Dean and Director Australian Graduate School of Management (AGSM).

 Professor Chris Jackson

How you answer the phone may influence your chance of a pay rise, your promotion and even your overall career prospects. Here at UNSW we have recently conducted a study which has analysed the personality traits and biological and environmental factors that predict so-called “career maverickism”.

Workers who lift the receiver to their left ear are more likely to be mavericks that bend the rules and foster new ideas, impressing their bosses, and moving up the career ladder much faster. It is important to foster better ways of working in organisations; working smarter, not harder, by doing things in a more efficient way. Those who break the rules and ‘just get things done’ are much better people to have working for you, if you are interested in the bottom line.

The study, based on 458 workers, found that managers can spot “mavericks” simply by assessing how they answered the phone. It details how those who hold the receiver to their left ear denote a preference for using the right side of the brain, which is associated with creative, problem-solving activities.

I’ve noticed that the GFC means that businesses are increasingly reliant on the skills of internal rule-breakers. Australia may have sailed through the global downturn, but there are still firms out there doing it tough. Firms need to be aggressive and competitive in the global market place. They want workers who don’t do it the same way ‘because that’s the way we’ve always done it’. They don’t want people who are cautious, safe or conservative. Maverick employees have been popularly described as independent thinkers, creative problem solvers, quick decision makers, and goal-oriented individuals. It’s all about avoiding ‘group-think’, encouraging workers to be creative and giving them just an extra bit of room to take measured risks.

The research also shows there is a drawback for people who can’t stop breaking the rules. They tend to be poor team players and are generally unpopular. They rub people up the wrong way. You need a manager with vision who can pick up on their insights, and not be put off by the way they do things. In some jobs what may be seen as dysfunctional behaviour, like risk-taking, is crucial.

Interestingly, men are more prone to “maverickism” than women – which I think suggests a further area for productive study.

There are several icons in the business world who don’t follow the rules – and who make great role models.

Just think of people like Richard Branson, Steve Jobs, or Michael Crouch, who has established a Chair in Innovation at the Australian School of Business. He started Zip Industries because he thought that instead of selling what everybody else sold – because it was much easier to sell – he came up with a new product that actually did what people wanted – give instant hot water. Mavericks are good at perseverance and overcoming hurdles.

They are good for businesses and good for Australia.

Chris Jackson is a Professor of Business Psychology in the School of Organisation and Management.

Nina Mistilis

Qantas is facing a further drawn-out battle with the unions, and that may cause yet more long-lasting damage to its brand. The Qantas dispute is settling in for the long haul, now that it has been taken into binding arbitration – a move that could take months to resolve.

This confrontation with the unions has been building for years and seem and has now culminated in arbitration. All of this has taken place in full view of the travelling public. Qantas – in going to arbitration – has won what it was seeking – which is a stay on industrial action – but in the long term it seems to have lost the war.

I believe it has alienated passengers, the industry and the government, and that’s not a good position to be in. The Qantas brand is tarnished.

Negotiations between the airline and the Transport Workers Union, the Australian and International Pilots Association and the Australian Licensed Aircraft Engineers’ Association collapsed just before a deadline set by Fair Work Australia (FWA).

I believe the longer this dispute rumbles on, the more the Qantas brand image will be badly impacted.

That’s a global perception, because passengers all over the world who want to get to Australia for a holiday, or back home for work, are wondering if it is safe to book a Qantas plane, or whether it will be cancelled again. Many are saying they will never trust Qantas again, particularly in business class, because business wants reliability above everything else. Certainly, in the immediate future, the brand is tainted and they’re really behind the eight ball.

I don’t see how they’re going to catch up easily. Even if the arbitration settles on the side of Qantas, it may still hurt Qantas in the medium to long term, although I think it’s really hard to say what the long term damage will be. It partly depends on how events unfold. If it is solved quickly, which seems very unlikely, then the brand will be restored. But if it continues, and if there’s a perception – as the unions are saying – that service will drop due to the “asianisation” of the airline, then the brand will be completely damaged. Will that mean that less passengers book on Qantas? I don’t know the answer to that. Time will tell.

Qantas chief executive Alan Joyce yesterday said while his preferred option had been to resolve the dispute through negotiation, it was now time to let FWA bring the matter to a close.

But it is reliability is an important factor in terms of the branding of an airline. When it comes to the crunch, we need to get to the destination on a certain date and we cannot afford to be stranded at home, or somewhere in Australia, or abroad. So when it comes to the choice, will we choose Qantas or will we choose another airline?

Nina Mistilis is a senior lecturer in Tourism at the Australian School of Business.