Setting aside the burdens of the past

Setting aside the burdens of the past The possibilities of technology-driven change in Australia

Centre for the Edge February 2014

Copyright © 2014 Deloitte. All rights reserved. 1

What is the Shift Index

The driver for the Shift Index

To determine if the incredible pace of change and the turmoil in the market today is real, or simply a perception brought on by our hyper-connected, always-on environment.

The Hypothesis

•  Relentless improvement in technology is slashing the cost of communication and data processing.

•  This is creating knowledge flows that are changing the balance of power in the market.

•  Astute individuals and firms are using these knowledge flows to improve their performance.

•  The result is the creation of new winners, and the elimination of firms that are unable to adapt.

The Method

The Shift Index is constructed from from three sub-indices: •  The Foundation Index, the lead

indicator, which measures the improvement, penetration and regulation of computing and mobile technology.

•  The Flow Index, which measures the resulting increase in knowledge flows.

•  The Impact Index, the lagging indicator, which measures that the impact on the people, firms, and the market as a whole.

This approach is based on the framework developed for the US Shift Index.


Key Findings

Business is more intense

The Shift Index shows that the change in the Australian market has been measurable and significant. •  Competitive Intensity of the

Australian market has increased 34% since 2000

•  Stock Price Volatility has increased an average of 1.1% per year over the last 23 years

The development of ubiquitous mobile and global communications networks has driven the Australian market to become both measurably more competitive and measurably more turbulent than ever before.

The balance of power is changing

The change is driven by one of the highest adoption rates for networked and mobile telecommunications, and social media, in the world. •  Local consumers’ rapid adoption of

social media and mobile technology is tipping the balance of power in their favour

•  Improvements in global communications and logistics networks, that allow anyone from anywhere to compete for everything

Adapt or die

The change is creating new winners and losers. •  The gap in financial performance

between the top and bottom firms is increasing

•  The gap in salaries between creative individuals (engineers, designers…) and others is increasing

Companies that cannot adapt are being eliminated from the market at an increasing rate.


For more information…

Peter Williams Chief Edge Officer, Deloitte Center for the Edge Tel : +61 3 9671 7629 [email protected]

The full report Contact us

Robert Hillard National Leader, Technology Consulting Tel : +61 3 9671 7971 [email protected]

Peter Evans-Greenwood Fellow, Centre for the Edge Tel : +61 439 327 793 [email protected]

View the report at bit.ly/1mudcKc

The evidence


The Shift Index

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Foundation Index Flow Index Impact Index Linear (Foundation Index) Linear (Flow Index) Linear (Impact Index)

Australia’s digital infrastructure has seen rapid development, increasing the flow of information and capital, and changing the

structure of our economy as a result.


0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Australia US

Competitive Intensity Herfindahl–Hirschman Index (HHI) for Australia and the US

(down is more competitive). Australia continues to trend toward the same level of competitive intensity as the US,

as the Australian market grows.


0

0.2

0.4

0.6

0.8

1

1.2

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Australia

Stock Price Volatility Short-term stock price volatility (standard deviation in stock

prices over the year) is increasing as firms find it more challenging to maintain a competitive advantage.


0

0.2

0.4

0.6

0.8

1

1.2

1.4

1987 1990 1993 1996 1999 2002 2005 2008 2011

Mob

ile s

ubsc

riptio

ns p

er in

divi

dual

Mobile penetration

Australian consumers’ tendency to have multiple accounts per capita (one person owning a phone and a 3G-connected tablet, for example) and use mobiles to

communicate with devices (such as drinks machines that send an SMS to the supplier when they need to be refilled) accounts for the adoption rate of over 100%.


Wireless Activity

0

20

40

60

80

100

120

140

160

2000 2002 2004 2006 2008 2010

Min

utes

of U

se

Captures the increasing flow of information between individuals (rather than between locations) via the total number of wireless minutes used in Australia per year.


Social Media Activity

0

5

10

15

20

25

30

35

40

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

The number of minutes Internet users spend on social media websites relative to the total minutes

they spend on the Internet generally.


Net-Bohemian Score

-40

-35

-30

-25

-20

-15

-10

-5

0

1971 1981 1991 2001 2011

Shows that the relative proportion (% creative population - % industrial population) of Australian’s with creative

professions (engineers, designers…) has steadily increased over time.


ROA Performance Gap

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Australia US Linear (Australia) Linear (US)

Other than for the period from 1997–2000, covering the dot-com crash and the investment bubble leading up to it, Australia has

had consistently larger ROA performance gap than the US. The gap between winners and losers is increasing.


ROA Performance Top & Bottom Quartile

-50%

-40%

-30%

-20%

-10%

0%

10%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Australia Top Quartile Australia Bottom Quartile Linear (Australia Top Quartile) Linear (Australia Bottom Quartile)

The gap in ROA performance between the top and bottom quartile is increasing. The top performing companies in

Australia are consistently delivering ~10% return on assets, while the bottom performing companies are being cleared

from the market.


Returns to Talent

0

5000

10000

15000

20000

25000

1996 1998 2000 2002 2004 2006 2008 2010 2012

Australia Linear (Australia)

We are seeing increased returns to the creative professionals who are best positioned to leverage increased knowledge flows and create additional value in the gap in compensation between

creative professions and other professions.

Setting aside the burdens of the past

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