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The Resolution

Three lessons from infrastructure about thinking for the long term

Working in infrastructure forces you to take a longer-term approach to business. There are lessons for all companies in longer-term strategic thinking.

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The great challenge of investing in infrastructure is to ensure the asset remains relevant over its entire life. With infrastructure investment that is most often a concession period granted by a government owner that could run for 30 to 99 years. That requires the company and its directors to understand and analyse the value of the asset over that long period of time. Whether it's a physical infrastructure asset or an asset comprised of people, processes and customer relationships, it must remain relevant.

It’s impossible to predict what will happen over the next century, so the challenge for the investor organisation is to create the capacity to look over the horizon, understand what could be coming next, be adaptive, prepared and ready to respond.

From this mindset, there are three lessons about thinking for the long term that can be applied to any organisation.

1. Constantly explore ways to extract more value from so called ‘set and forget’ style assets

Infrastructure assets could be seen as ‘set and forget. A toll road, a port, an airport are all in fact dynamic, driven by changes such as in consumers preferences and social behaviours, technology and environmental factors. They may have a 99-year concession, but to extract ongoing returns over that time period infrastructure operators and owners must keep these assets relevant even possibly beyond their ‘core’ business.

Airports could look like a ‘set and forget’ business. After all, aeroplanes just fly in and fly out and perhaps all that matters are traveller numbers. But aeroplanes only form part of an airport’s business, retail space design, merchandise and tenant selection, traffic flows, parking and property are other variables that assume an understanding of fads and fashion and having a deep understanding of consumers that are not usually attributed to infrastructure managers. These aspects were poorly understood or unexpected at the time most Australian airports were privatised.

Infrastructure investment and management has taught me the value of constantly asking “what new value can we create from our assets this year?” The lesson is that the changing customers and markets we serve and the changing world we face, means there’s no such thing as set and forget. This is relevant to any business, not just infrastructure. Businesses have assets which include customers and customer relationships, systems, processes, beliefs, products and services – all of which need to be remodelled and reset as times change and competition becomes more intense.

2. Don’t predict one future, prepare to react to multiple futures

The future is unpredictable. As politics continually shows us, it’s impossible to predict what will happen with any certainty. What we can do, however, is understand what is changing and what may evolve.

Most of us understand there is no point in having a tactical plan for ten years’ time. There are too many variables to make detailed planning productive. We can’t know exactly how an industry will change, so it would be a mistake to rely on one particular scenario unfolding.

Technology is not the only force at play - social, environmental, economic and political factors can also cause disruption. A strategic plan encompasses the understanding that disruption is possible from many angles and positions the company to adjust to the change quickly when it occurs. It prepares the business for whatever the future holds rather than trying to predict it.

This is self-evident in infrastructure. No-one is crazy enough to think they can predict the future over a 50 or 99 year timeframe. But in other industries there is real temptation to think that it’s possible to plan as if management are able to predict exactly what might happen over a five year or even a ten year timeframe.

Instead of trying to predict the future, companies should prepare to react quickly to a range of various futures. This approach allows you to think strategically over the long-term, without having to pick one ‘best’ view of how the future may turn out.

3. The benefits of real diversity are evident when you’re thinking 10 years +

It’s imperative that every board is able to think in a systemic, long term way. It’s a big challenge to think strategically over a 50 or 99 year term, as investment teams in infrastructure companies try to do. To meet that challenge requires two things from management and the board. The first is a fundamental level of comfort with uncertainty, and the second is value placed on a diversity of perspectives. Maybe there is a third and that is a comfort with thinking as if the company will be around and successful for the next 100 years.  Many of us cringe at the seeming lack of reality in anticipating a 100 year life of a business – yet conversations I have had with government and business leaders in Japan as an example, have suggested this is an expectation they assume and it does change the way you think about it.

As discussed in point two above, I believe that the great challenge for any company is to build the intelligence and agility to respond to multiple futures. Every company is an asset created from people, processes, opportunities and customer relationships as well as the hard physical assets that it may contain. Companies need to build the culture, create the capacity, and nurture the skills to maintain this asset, regardless of which specific future presents itself.

The board will be challenged to understand multiple different futures. It is not what boards usually do well as they prefer to deal with certainty rather than uncertainty and ambiguity. Boardroom thinking is most commonly done in short three to five year chunks which is practical as that particular generation of management and directors typically operate in that timeframe.

Because there’s no right answer over a long term timeframe, this kind of thinking works best when members approach challenges differently and are willing to question assumptions. That can only be achieved by a board that values and invites diversity, particularly new skills and ways of thinking. This gives the board, and the business, a better ability to identify the changing nature of people, technology and society.

Regardless of whether we plan for it, every company will face existential challenges over the next 10, 50 and 100 years. The knowledge base and thinking capacities that enable us to build organisations that are resilient and capable of rapid adaptation and open to new approaches can be informed by an attitude that says - this organisation will be around and successful for the next 100 years and to be sure of that, we will remain constantly vigilant to understand the challenges the future will bring and we will build the capacity to take on these challenges.

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