Ross Honeywill

PROFIT WITH RESPONSIBILITY? (A paper delivered by Ross Honeywill to the Exceptional Leadership forum at University of Tasmania – 9 February 2011)

My core proposition today is that the socially progressive men and women at the top of corporate Australia deliver profit with responsibility. And that socially conservative leaders deliver profit without regard to responsibility or social equity.

Let’s start at the beginning…

I’m the leader of a team of social scientists that identified a massive shift in consumer behavior that goes back to the early 90s – and is accelerating in front of our very eyes. We’re the ones who discovered that the world is split into two fundamentally different types of consumers…and that they may as well be from two planets.

But let’s start with the light bulb moment…what drove me to look for a better way of mapping and measuring consumer economics? Well that’s the very word that kicked it all off – economics. Conventional economic modelling simply wasn’t doing it for me and neither did demographics OR psychographics OR pop psychology OR pop sociology OR socio-economics. Every day I watched colleagues working with models of consumer behavior based around age, income or social attitudes. But none of it tallied with what I saw with my own eyes.

I remember a wonderful artisan bakery near my home that was thriving with such a wide variety of customers that it flew in the face of every single one of the conventional models. The owner told me that most of her customers happily paying a premium for authentic Russian rye or incredible croissants shouldn’t really be there – they were driving from right across town…old, young, jeans and t-shirts, suits, hip and buttoned down, anyone looking for something exquisite, regardless of the price, were there. I could see first hand that conventional wisdom wasn’t capturing what was really going on…and I knew we needed to find out why the old ways were letting us down.

The way of looking at consumers that businesses of all size were using, and many continue to use, seemed intellectually sloppy – it was all really unscientific. So I decided I had to look for…had to go out and find an evidence-based approach: something that brought a scientific alternative to a bunch of sociologists or admen or the next guy who wanted to write a book sitting around in a boardroom holding hands and going OM(MMMMMM).

It’s not enough to just observe a small group of people behaving in a particular way and make snap decisions and large pronouncements about society as a whole. My local bakery posed questions not answers.

And most of what we were all reading was observational – top down. A self appointed guru, journalist or a couple of management consultants would observe what was going on around them and then look for a trend that explained it. Curiously…they always seemed to find one!

Now I concede that it fills lots of business magazines, but it doesn’t create a basis to make the sort of business decisions – to pull the levers – that determine if a company, or even the country as a whole, is growing or slipping backwards.

So…we knew we had to go bottom-up, not top-down. I needed to know not only what people were doing but why they were doing it. The prevalent top-down approach always reminds me of Dylan Thomas’s “Child’s Christmas in Wales” in which the young boy receives as a gift a book that tells him everything about the wasp; except why.

So we took a huge number of survey respondents – we started with about 100 thousand on a couple of continents – and the great journey began.

When we ran the modelling I was hoping that no more than 5 or 6 different cohorts or types of consumer would fall out of the analysis. Anything more just becomes unmanageable and somewhere between the research and the application always seems to get lost.

We were looking for factors or human characteristics that ranked highly, but more importantly, those things that discriminated the most. We wanted the factors that made us different, not the things that made us the same.

I’ll give you an example – 93 per cent of us agree with the statement “I consider myself an Australian” so it ranks really high, almost all Australians agree. So ‘being an Australian’ ranked highly but because so many agree, it wasn’t a good discriminator – it didn’t provide any insight into how (or why) people were different.

So there we are…we looked for the things that mattered to people and their values, attitudes and behaviours that made them different. And as we did the analysis we were completely shocked to find that there are only two fundamentally different kinds of consumers in the economy. I couldn’t believe it…it seemed too simple. So back we went and ran the model again, and again and again, and every time we got the same answer. This was, by the way, very sophisticated modelling designed and run by the kinds of people that are normally never let out of their darkened cells. Fortunately I love this stuff.

Eventually, we had to concede that we’d used complex science to discover a simple truth. That the world of consumer behavior, spending, values and attitudes pretty much splits in two. Now it would be entirely disingenuous of me to have you believe that complex life can be that simple. Each of the two separate types have scores at 5 per cent increments, so there are 20 levels of sophistication for each type. But while these nuances can be of real value, like when we helped Lexus launch their first Hybrid onto the Australian market, in an operational sense, the vast majority of the commercial, cultural, social and political clout comes from the two-planet model…so it’s really not necessary to do more (but it’s always there if we need it).

Then we started to apply it and found that one type, the new economic order or NEOs, were significantly more likely to have a college degree; were 5 times more likely to earn more than $100,000 a year; were 6 times more likely to volunteer or to buy a hybrid car; and 93 per cent of them are in the big spender category.

This was a critical factor for us because we knew that income or wealth was a really bad determinant of consumption value. Having money is actually not a great indicator of whether you actually have any intention to spend it and on what basis. After all, how many people do we know with big fat wallets and all they like to do is sit on them. Unless they feel they’re getting an extraordinary deal, or it’s a special event, they have a natural aversion to spending no matter how much they earn or have in the bank. This is the other type of person our research identified, and we call them Traditionals.

Only 4 per cent of the Traditionals are in the Big Spender category. That’s 93 per cent of all NEOs and 4 per cent of all Traditionals are in the top third of discretionary spenders.

As soon as we saw this kind of data – these kinds of radical differences – we knew we were onto something world changing.

We then ran the algorithm or formula over another 100,000 respondents a year for the next 10 years and refined it each year. And it has stayed robust and a highly predictive model even with radical changes in the world economy.

And what we ended up with was something as simple as the two planet premise and something so sophisticated to be the a complete toolbox for business leadership and success, but one not built on observation and trends but a model rooted in the very psyche, the mindset, of consumers and mountains of data. And we saw that these influential and valuable NEOs were very socially progressive while Traditionals were socially conservative.

Once you know this stuff, there’s no turning back. And I can tell you now from experience– you’re either going to get it like a bolt from the blue, or you’re not going to get it at all. And that’s fine. If everyone thought the same way, we wouldn’t have two planets, we’d have just one.

So…what does all this have to do with Profit with Responsibility?

Well, I repeat…my core proposition is that the socially progressive men and women – and social progressiveness is also great determinant of gender equity – at the top of corporate Australia deliver profit with responsibility. Let’s look at the data:

The majority of all NEOs (51.4%) consider themselves socially progressive compared to just a quarter of Traditionals. 62% of Traditionals believe ‘women should just take care of running their homes, and leave running the country to men’. In contrast, 90% of NEOs disagree with that statement.

NEOs are 44% more likely than Traditionals to agree that a percentage of everyone’s income should go to charities.

They are 70% more likely to disagree with the statement, ‘obedience and respect for authority are the most important virtues children should learn’ And are 57% more likely to disagree that there’s too much change going on these days.

NEOs are 48% more likely than Traditionals to have ‘an exciting life’ as their main goal in life.

NEOs are 63% more likely than Traditionals to own shares and have a ‘mean’ share portfolio of $110,000 compared to $81,000 for Traditionals.

More than half (51.2%) of NEOs have completed either an undergraduate or postgraduate degree compared to only 15% of Traditionals. They are 46% more likely to consider themselves leaders rather than followers.

For the first time we can see the stark difference between the fundamentally different economic types in Australia. Traditionals are building security while the New Economic Order are building wealth and as a consequence have a greater proportion of total assets.

According to the head of Private & Institutional Wealth at one of our big 4 banks, ‘Our hypothesis is that NEOs are building their asset wealth by using debt, despite the global economic threat. Even as the financial crisis hit, they kept moving their money around. Their active wealth is in stark contrast to Australia’s Traditionals who account for only 34.5 per cent of assets.

‘Our analysis of asset and debt classifications shows that the financial world is much more sophisticated than just property owning or share trading. The equity held by the New Economic Order in Australian business indicates that they are not only building personal wealth but also the wealth of the nation. This is living wealth not passive wealth.’

So…what does all this have to do with Profit with Responsibility?

Confronted by forensic evidence that the consumer and business world is split into two, let’s acknowledge that for some corporate leaders, corporate and social responsibility are profoundly linked; while for others the delivery of profit is a purely functional exercise disconnected from social or cultural responsibility.

But who delivers profit responsibly? Well the evidence confirms that social progressiveness plays a significant role in financial and corporate decision-making. NEOs and their Evolving NEO cousins account for 65% of total assets in Australia – including superannuation, retirement incomes, managed investments, banking accounts, business investments and direct investments. NEOs are 63% more likely than Traditionals to own shares and have an average share portfolio of $110,000 compared to $81,000 for Traditionals.

They own almost three quarters (73%) of all equity in Australian businesses and critically, when it comes to corporate behaviour, one-third of NEOs are responsible for major corporate decisions. Compare this with just 9% of Traditionals.

We therefore see that NEOs dominate the corporate and business decisions that directly deliver profit.

And that’s who is delivering profit with responsibility.