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

Centre for the Edge February 2014

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.

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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.

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For more information!
The full report
View the report at bit.ly/1mudcKc
Peter Williams Chief Edge Officer, Deloitte Center for the Edge Tel : +61 3 9671 7629 pewilliams@deloitte.com.au

Contact us

Robert Hillard National Leader, Technology Consulting Tel : +61 3 9671 7971 rhillard@deloitte.com.au

Peter Evans-Greenwood Fellow, Centre for the Edge Tel : +61 439 327 793 pevansgreenwood@deloitte.com.au

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The evidence

The Shift Index
250 200 150 100 50

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 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Foundation Index Impact Index Linear (Flow Index)
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Flow Index Linear (Foundation Index) Linear (Impact Index)
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Competitive Intensity
0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05

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 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Australia
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US
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Stock Price Volatility
1.2 1 0.8 0.6 0.4 0.2

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 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Australia
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Mobile penetration
1.4 Mobile subscriptions per individual 1.2 1 0.8 0.6 0.4 0.2 0 1987
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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%.

1990

1993

1996

1999

2002

2005

2008

2011

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Wireless Activity
160 140 120

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

Minutes of Use

100 80 60 40 20 0 2000

2002

2004

2006

2008

2010
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Social Media Activity
40 35 30 25 20 15 10 5 0 1993
10

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

1995

1997

1999

2001

2003

2005

2007

2009

2011

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Net-Bohemian Score
0 -5 -10 -15 -20 -25 -30 -35 -40 1971
11

Shows that the relative proportion (% creative population % industrial population) of Australian’s with creative professions (engineers, designers!) has steadily increased over time.

1981

1991

2001

2011
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ROA Performance Gap
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1

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.

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Australia
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US

Linear (Australia)

Linear (US)
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ROA Performance Top & Bottom Quartile
10% 0% -10% -20% -30% -40%

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.

-50% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Australia Top Quartile Linear (Australia Top Quartile)
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Australia Bottom Quartile Linear (Australia Bottom Quartile)
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Returns to Talent
25000 20000 15000 10000 5000 0 1996

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.

1998

2000

2002

2004

2006

2008

2010

2012

Australia
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Linear (Australia)
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