A Purpose Beyond Profits

In the last 12 months, if you have turned on the TV, visited a news website, or opened a newspaper, you undoubtedly will have noticed the seemingly endless array of organisations being dragged through the mud for poor ethical decision-making as a result of choosing profits above all else.

Rio Tinto blew up Juukan Gorge, a 46,000-year-old Aboriginal heritage site of immeasurable cultural and archaeological significance. They allegedly followed this up by blaming of indigenous landowners for not warning Rio of the cave’s significance (despite doing so on multiple occasions) and then telling employees they were not sorry for destroying the sites, just for the anguish caused.

AMP promoted Boe Pahari to Chief Executive Officer despite allegedly knowing he was recently penalised for sexually harassing a female colleague. Likewise, Alex Wade, the head of AMP’s wealth business, was hit with allegations he sent indecent images to female colleagues.

Westpac allegedly charged ongoing fees to people who were dead and breached anti-money laundering laws 23 million times, with many transactions going towards the child sex trade in South East Asia.

Facebook allegedly allowed the harvesting of over 50 million users’ personal data by Cambridge Analytica.

There is a common thread linking all of these companies. In every case, they clearly communicated that their purpose is the sole pursuit of profits, which lead to an overriding of any concern for ethics or consequences to stakeholders.

What do I mean by “purpose”?

Put simply, purpose is the reason for your organisation’s existence.

Take that Friedman.

Until recently, since 1970, it has been believed that the sole purpose of an organisation is to increase its profits and return value to its shareholders. This economic theory is thanks to the influential leader of the Chicago School of Economics, Mr Milton Friedman. (Friedman, 1970b) Friedman asserted that corporate social responsibility rested on the shoulders of shareholders, and any corporate leaders who pursued a purpose beyond profitability were “unwitting puppets of the intellectual forces that have been undermining the basis of a free society”.

However, Mr Friedman was wrong. Dead wrong. Since organisations started adopting Friedman’s theory, the rate of return on assets and on invested capital declined from 1970 to 2015 by three-quarters. Forty-nine years later, in 2019, the Business Roundtable (a group that represents the leaders of the world’s largest organisations) decided that the purpose of an organisation is NOT to maximise returns for its shareholders but to provide benefits to all “stakeholders”, including the community, employees, and customers.

The Egg in One’s Beer

The data supports the decision of the Business Roundtable. Jim Collins’ best-selling book Built to Last found that companies whose purpose went beyond making money paid six times more dividends to their shareholders than their profit-driven competitors. (Collins, 2005)

According to a study by Baylor University, leaders driven by profits could be damaging their profitability by losing their employees’ respect, who react by withholding performance.

Companies whose employees recognise the importance of purpose have been shown to deliver superior shareholder dividends. As a result, shareholders and the public increasingly are expecting organisations to have a purpose beyond profits. Often purpose statements have been PR exercises, highfalutin terms geared towards recruiting wet-behind-the-ears interns and grads, rather than driving strategy and performance. As reported in an opinion piece on the Environmental Social and Governance (ESG) issues, a generic ill-thought purpose creates neither social nor shareholder value. However, when an organisation develops a purpose aligned with its business, it builds and reinforces that company’s value proposition and competitive advantage.

A report from Harvard Business Review Analytics surveyed 474 global executives and found that organisations with a solid understanding of purpose can innovate and transform more effectively. The surveyed executives who used purpose as a central lever of strategy and decision-making reported an enhanced ability to drive transformational change and innovation and achieve constant financial growth.

The evidence supporting a purpose beyond profitability and serving stakeholder needs, not just shareholder needs, is overwhelming. 87% of business leaders maintain that their organisations optimise staff performance if their purpose goes beyond profitability. Nine out of ten people are willing to earn less money in return for the chance to perform more meaningful work, and staff who find their workplace and role more meaningful are 69% less likely to make plans to resign from their jobs within the next six months.


On the other side of the coin, let’s look at how our earlier examples fared with their focus on profits at the expense of all else.

Rio Tinto – A group of superannuation funds with investments in Rio Tinto and The Australian Council of Superannuation Investors admonished the board for its woeful response to the catastrophe, slammed Rio Tinto and questioned its licence to operate, and called for assurances that this would never be repeated. After the coruscating joint standing committee investigation and report into the actions taken by Rio Tinto, the three executives deemed responsible were summarily fired by the board, albeit with rather lucrative golden parachutes for their troubles. The report said it best: “Collectively, these deficiencies represent more than just a series of ‘unfortunate mistakes’ or mere ineptitude by individuals. Rio Tinto’s conduct reflects a corporate culture which prioritised commercial gain over the kind of meaningful engagement with Traditional Owners that should form a critical part of their social licence to operate.”

AMP – AMP’s shares remain depressed after collapsing from a high of $5.50 pre-scandal to a low of $1.445. Alex Wade resigned after less than a year in his role as head of AMP’s wealth business. Allegations of sexual harassment complaints against Boe Pahari and the mishandling of such claims by the company and the board of directors caused Chairman David Murray to resign, with immediate effect, and the short-lived CEO be demoted back to his old role. For some, it was unsurprising that the Murray departed. Brynn O’Brien, the Chair of the Australasian Centre for Corporate Responsibility, had the following to say, “ACCR has always questioned the suitability of David Murray for chair of a modern ASX50 company. Murray is a well-known climate sceptic. He waged war against the ASX’s inclusion of ‘social licence’ in its Corporate Governance Principles. It is quite ironic that AMP’s catastrophic social licence issues ultimately brought him down. His views on risk and governance frameworks are stuck in the ’80s and do not meet shareholder expectations of modern boards.”

Westpac – The Federal Court ordered Westpac to pay a $1.3 billion penalty for breaching anti-money laundering laws, the largest fine in Australian history. Westpac’s chief executive Brian Hartzer resigned, and chairman Lindsay Maxsted will step down earlier than planned. (AUSTRAC, 2020)

Facebook – After the Cambridge Analytica data harvesting scandal came to light, Facebook’s shares plunged 18%, wiping out almost $18 billion from their market value. Facebook CEO Mark Zuckerburg’s personal wealth fell by approximately $14 billion. The Federal Trade Commission fined Facebook $5 billion (Commission, 2019a), and Facebook paid another $500 million to settle with the U.S. Securities and Exchange Commission. (Commission, 2019b) According to the annual trust report by Morgan Stanley, Facebook is Australia’s MOST distrusted brand.

The Denouement

Purpose beyond profits is not “soft” or “wishy-washy”. It is a critical piece of a company’s long-term strategy that influences both competitive advantage and profitability. Committing to a purpose beyond profits encourages employees to utilise their discretionary energy and ensures the long-term trust of the company’s stakeholders. As I have demonstrated, the results of an unerring pursuit of profits and a disregard of potential negative impacts can negatively and significantly impact growth and profitability. The final word on purpose? It’s intrinsically tied to profitability and success. If your company wants to claim true success, a purpose beyond profits must be prioritised, communicated, and underpin your strategy.

“Profit at any price is not commerce, it’s exploitation.” – Labor Senator Deborah O’Neill

“The sense of being part of something greater than yourself can lead to high levels of engagement, high levels of creativity, and the willingness to partner across functional and product boundaries within a company, which are hugely powerful.” – Rebecca Henderson, the John and Natty McArthur University Professor at Harvard Business School.

Purpose is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose — in fact, profits and purpose are inextricably linked.” – Larry Fink – CEO of Blackrock

Author – Shannon Sedgwick

*This is an opinion piece and does not reflect the opinions of my employer. The information provided within is publicly available.


ACHOR, S. 2018. 9 Out of 10 People Are Willing to Earn Less Money to Do More-Meaningful Work. Harvard Business Review.

ACSI 2020. Rio Tinto Statement 130820.

ASTON, J. 2020a. Ancient cave scandal deepens for Rio Tinto. Australian Financial Review.

ASTON, J. 2020b. Secret recording: Rio Tinto ‘not sorry’ for cave blast. Australian Financial Review.

AUSTRAC 2020. Westpac ordered to pay $1.3 billion penalty. Australian Government.

COLLINS, J. 2005. Built to Last, Random House Business.

COMMISSION, F. T. 2019a. FTC’s $5 billion Facebook settlement: Record-breaking and history-making.

COMMISSION, U. S. S. A. E. 2019b. Facebook to Pay $100 Million for Misleading Investors About the Risks It Faced From Misuse of User Data.

COMMITTEE, J. S. 2020. Inquiry into the destruction of 46,000 year old caves at the Juukan Gorge in the Pilbara region of Western Australia.

DELOITTE 2016. Millennials want business to shift its purpose. The Deloitte Millennial Survey 2016.

FARGHER, I. 2019. How Westpac is alleged to have broken anti-money laundering laws 23 million times. Sydney Business School – Faculty of Business: University of Wollongong.

FRIEDMAN, M. 1970a. A Friedman doctrine‐- The Social Responsibility Of Business Is to Increase Its Profits. The New York Times.

FRIEDMAN, M. 1970b. The Social Responsibility of Business is to Increase its Profits The New York Times.

HBR, H. B. R. 2016. The Business Case for Purpose.

JANDA, M. 2020. AMP chairman, director resign amid shareholder revolt over board’s handling of sexual harassment allegations. ABC News.

KOZLOWSKA, I. 2018. Facebook and Data Privacy in the Age of Cambridge Analytica. The Henry M. Jackson School of Internatipn Studies: University of Washington.

MORGAN, R. 2021. It’s official: Supermarkets are the most trusted brands in Australia.

PORTER, M. 2019. Where ESG Fails. Institutional Investor.

PRESS, D. U. 2015. Shift Index. Deloitte.

QUADE, M. 2019. The influence of supervisor bottom-line mentality and employee bottom-line mentality on leader-member exchange and subsequent employee performance. Human Relations. Baylor University.

RODDAN, M. 2020. New AMP Capital boss accused of harassment. Australian Financial Review.

ROUNDTABLE, B. 2019. Statement on the Purpose of a Corporation. Business Roundtable.

ROUNDTABLE, B. 2021. Available: https://www.businessroundtable.org/ [Accessed].

Why your business is at risk from cybersecurity threats

Business Australia’s conversation with Shannon Sedgwick, Senior Managing Director at Ankura, on how to protect your business from cybersecurity threats.

Q: We are encouraged to broaden our business horizons and develop a global footprint if we want to remain competitive. However, having an international presence and an ever-evolving digital business landscape, will organisations be faced with cyber risks? And will cyber security threats apply no matter what part of the world they operate?

A: The threat from cybercrime is pervasive throughout the world. Indeed, as businesses expand their global reach through more advanced technology and improved transactional relationships and communication, the risk from cyber threats grows. Statistically, less than 10% of cybercrime occurs in the same geographic location as their target. Cyber security is a rapidly evolving landscape for both industry and government, and no matter where you are conducting business in the world cybercrime remains a significant issue.

Q: What types of cyber security threats are present now and what can we expect in the future?

A: I will limit this to three main cyber security threats businesses face presently. The first is socially engineered malware where the user is fooled into installing a malicious program sent from a source or website that they either trust or frequently use, which then compromises their data.

The second is insider threats where there is a threat to the organisation from employees, former employees, or third-party suppliers. They have access to company data, IP, and systems. Those who pose the threat can be either untrained and unknowingly make common mistakes with their cyber hygiene, or malicious in their intent by stealing or compromising sensitive data.

The third risk is outdated and unpatched software. The software used by an organisation has not been upgraded with the most up-to-date security patches, therefore, creating vulnerabilities in their network. Up-to-date cyber security protection and strong risk management are key to avoiding this threat. 

Q: What can we expect from future information security and emerging cyber threats?

A: One of the main threats we will face in the future will stem from the rapidly increasing use of IoT devices* in the workplace and the lack of security architecture in place from the start of the product’s manufacturing roadmap. The addition of IoT within the business can aid in the optimisation of processes, however if it is not secured to the same standard as the rest of the network, cybercriminals can use it as a ‘stepping stone’ to scan for vulnerabilities in more critical systems in the network.

There has also been an exponential increase in the use of business email compromise, where a malicious person sends a team member an email appearing to be sent from senior management requesting or authorising a transfer of funds or sensitive information to a ‘vendor’.

*The Internet of Things (IoT) is a network of physical devices, vehicles, home appliances and other items embedded with electronics, software, sensors, actuators, and connectivity which enables these objects to connect and exchange data.

Q: Does it matter how big or small the business, what industry or sector it is in, or whether the internet only plays a small role in their operations?

A: Certain industries such as banking and the financial sector are frequently targeted, which requires them to have high-security standards. Cybercriminals will often target easier prey such as SMEs who are often aware of their vulnerabilities and unprepared for the threat. Less than 25% of Australian SMEs have a dedicated IT security staff member or provider, and despite facing as many threats as the larger end of town, do not have the resources or training to address and mitigate the risks adequately.

The damage caused by a breach to an SME cannot be understated, with 80% of SMEs that suffer a breach going bankrupt within 12 months.

Q: What cyber security and computer security practices should businesses implement to help protect their data, assets, and network?

A: Cyber security policies, procedures, and frameworks should be implemented throughout the organisation’s structure. From cyber hygiene and employee training to implementing a breach response plan and delegating roles and responsibilities, cyber security should be a top priority. When a company conducts a business impact analysis as part of its business continuity planning, it’s critical that they identify the most significant cyber risks and triage the treatment and mitigation of these risks.

Q: What is intelligence sharing and how important is it?

A: Intelligence sharing is the communication between companies, industry, and government that enhances a greater overall security posture for all concerned parties. 

Sharing of intelligence can benefit an organisation by informing them of new threats and practical strategies. However, it can be difficult to convince organisations of the benefits of security intelligence sharing due to the reputational and financial consequences of admitting a breach or vulnerability. Collaborative efforts against cybercrime should be encouraged, including between competitors, and the sharing of valuable insights that can protect their shared industries.

Q: Do businesses require a cyber insurance policy?

A: Cyber security insurance is an essential aspect of an overall risk management strategy. The insurance should cover liability, costs of cyber investigations, public relations, legal, compensation and regulatory fines. 

However, cyber security insurance does not have 100% coverage. It is difficult to quantify the complete financial loss incurred by an organisation when their customers and the public become aware of the breach. Loss of trust in products and services can cause immeasurable damage to a company’s bottom line for extended periods of time. Insurance providers can aid in encouraging the adoption of cyber security policies and procedures by lowering premiums when an organisation meets specific standards in their cyber security.

Q: Is there an international policy or technology underway to protect businesses from cyber threats?

A: There has been a recent push by government and industry to develop policies and regulatory standards that ensure a baseline of security across the Australian business landscape. 

The introduction of the mandatory data breach notifications laws in February 2018 is one such policy, which provides the accurate and timely reporting of breaches to those who could be harmed by the data breach. 

With the formation of the Australian Cyber Security Centre (ACSC) and the Australian Cyber Security Institute (ACSRI), the Australian government is placing greater emphasis on nationwide resilience against cyber threats by promoting innovation and enhancing cooperation between private industry and government.

Six pieces of gold to protect your business against the risk of cyber security threats

1. Train and educate employees.

2. Create and adhere to a company-wide cyber security policy.

3. Update and patch software regularly.

4. Establish access control measures for employees and vendors.

5. Create an incident response plan.

6. Use strong passwords and multi-factor authentication.

IT Cost and Complexity Reduction: A Balanced Approach

As a result of COVID-related economic impacts, organisations are engaging in cost-cutting efforts and a rigorous review of their security and technology vendor relationships to reduce complexity and identify opportunities for cost efficiencies. With increased scrutiny from stakeholders and regulatory agencies, it is doubly critical that organisations conduct a thorough assessment of products, services, data, and information systems, before ceasing or consolidating engagements to ensure governance, risk management, quality, regulatory, and compliance standards are maintained.

As major contracts come up for renewal, the focus will likely be on renewal options, replacement of products/services, and assessment of risk and compliance. However, business and asset owners are often time-poor and do not have the resources to conduct the necessary comprehensive review and are forced to accept a renewal option that may not provide the best Return on Investment (ROI). Additionally, vendors, and associated contracts and MSAs, may not meet the latest regulatory and compliance standards such as GDPR, Privacy Act 1988, and CPS234/231, requiring a full assessment process to review those security- and privacy-related clauses.

The lack of time, resources, and appropriate governance of vendors, products, and contracts mean an increased risk of falling foul of regulatory, accountability, and compliance obligations. In addition to the increased risk, many organisations are possibly paying too much for services and products they may not need.

Below I have laid out a non-exhaustive list of some steps and considerations for organisations looking to reduce IT costs and complexity.  

Technology Analysis

Below are some key considerations:

  • Identification of technology/cybersecurity products and services currently used to support the organisation’s operations. (High, mid, low-value contracts)
  • Calculation of total cost of ownership for each product/service (including licensing, support, infrastructure, labour)
  • Assessment of fit of each technology/service to its intended objective 
  • Full review of contracts/MSAs with a lens on security clauses to ensure suppliers are compliant
  • Development of strategic modelling tools to streamline future vendor reviews and quality assurance efforts

Vendor Analysis

Assessing the performance of current vendors to determine both the organisation’s dependency and the cost-effectiveness of the services/products supplied, you need to focus on the below fundamentals:

  • performance history, including abatements, response/rectification, and service failures benchmarked against the Service Level Agreement
  • ability to continue to provide the services, including business continuity plans
  • incident response and reporting, including disaster recovery
  • risk management
  • change management
  • quality assurance
  • communication with management
  • system availability, latency, and redundancy, including technical support
  • asset lifecycle management/replacement
  • vendor replacement analysis, including the identification of proprietary systems

Once a decision is made to consider a vendor for replacement, I recommend the following actions:

  • obtain indicative quotes from alternate ICT providers
  • assess the ability of alternate providers to supply/manage/maintain integrated technology and workflow applications, and their ability to upgrade/add new technology to meet industry best practice
  • identify risks to replacing the incumbent such as the ownership of proprietary technology, data governance, and intellectual property
  • establish approximate timelines for replacement
  • provide a cost-benefit analysis of replacement

Capital Expenditure Analysis

Spending on vendor solutions can roughly be broken down into the following key categories:

  • Personnel (FTEs and contractors)
  • Licensed on-premise deployed software
  • SaaS solutions
  • Hardware/facilities
  • Cloud infrastructure (IaaS)
  • Outsourced managed services

Recurring costs vs non-recurring costs – Typically recurrent ICT expenditures would tend to be program-related. In contrast, non-recurrent ICT expenditures would tend to be project-related.

Recurrent – I recommend undertaking a benchmarking analysis of recurrent ICT expenditure in making your assessment. This analysis will enable you to compare the provider’s performance with its past performance and with the performance of comparable ICT services providers. You can use this information to inform your view of if historical ICT expenditure levels are reasonably reflective of prudent and efficient costs. Recurrent ICT expenditures are associated with maintaining existing ICT functions and capacity and would refer to ICT investments made on a frequent periodic basis. Recurrent ICT, for example, would refer to the expenditure associated with:

  1. The costs associated with the ongoing upgrade of ICT hardware – i.e. upgraded on a cyclical or periodic basis. This need not be annually but would be routine in nature (i.e. a regular upgrade frequency).
  2. Licensing and support costs – provider licensing, provider support, in-house support, etc.
  3. Version roll forward costs – all costs associated with the periodic update of existing systems. Again, this need not be annual but should be routine in nature (i.e. a regular frequency of version roll forward); and
  4. Any other ICT costs that are incurred periodically. Typically, non-network ICT assets have a standard life of five years (generally depreciated over five years in PTRM) and will likely be replaced every five years. Given this short asset life, I would consider that these replacement projects are suitable to be regarded as recurrent expenses.
  5. These are typically program-related investments due to their mainly ongoing recurrent nature.

Non-recurrent – Non-recurrent ICT projects refer to major (one-off, infrequent, or non-periodic) investments related to replacing existing ICT assets or acquiring new ICT assets, functions, or capability that is driven by a specific need. These projects can deliver benefits, such as:

  • Risk avoidance/reduction (e.g. due to loss of provider support). 
  • OpEx savings (e.g. through efficiency improvements). 
  • CapEx savings (e.g. through better asset management practices). 
  • Improvements to reliability. 
  • Improvements to customer service/satisfaction. 

Non-recurrent ICT expenditures would refer to major (one-off, infrequent, or non-periodic) investments related to: 

  1. replacing existing ICT assets or acquiring new ICT assets, functions, or capability driven by a specific need. For example, installing major new or replacement software that may require significantly expanded or upgraded hardware to operate, or the replacement of hardware to enable the expansion of data capture needs. 
  2. Examples of non-recurrent ICT projects would be significant upgrades to distribution network management systems, meter data and billing system replacements or any material cost associated with replacing existing ICT systems. 

As a first principle, you need to ensure that such projects are prudent and efficient (i.e. benefits exceed costs). Where the investment does not have a positive business case, you consider if it maintains the service levels in the most efficient way (i.e. least cost for the maintenance of the service level). If the investment is driven by obtaining benefits for your organisation, you identify if the delivered benefits exceeded the cost. If the investment was driven by receiving benefits for the ICT subcontractor, you need to consider how those benefits were being passed on to the organisation.


The leaders of business units under review should view such endeavours not as a threat but as an opportunity to carefully assess their return on investments in vendor solutions. Nearly every organisation will identify operational inefficiencies that inevitably develop as the economic and business landscape evolves, advancements in security and technology emerge, and an entity’s risk profile changes.  Conducting a genuinely objective analysis to identify cost-saving and complexity-reduction opportunities is not easy.  However, done correctly, such an exercise can not only lead to a material reduction in overall cost and complexity but can also result in an improvement to an organisation’s information security maturity and allow for the reallocation of capital to address the changing risk and economic landscape.

Contact me at shannon.sedgwick@ankura.com for more information or if your organisation requires assistance with their IT cost optimisation or cybersecurity.

How to exude values and ethics in the cybersecurity sector – Daltrey Podcast Interview

Blair Crawford: We speak to Shannon Sedgwick about the Cyber Security Strategy 2020 and the importance of ethics and values in business.  

In the dog-eat-dog world of business, it’s easy to forget your company’s purpose and values when it’s time to negotiate contracts. But Shannon Sedgwick, Senior Managing Director at Ankura, says an ethical approach is essential for greater productivity and profitability – particularly for those in the cybersecurity sector. We speak to Shannon about the recently released Cyber Security Strategy 2020, and how ethics and values should be a key driver for all companies in the sector. 

Blair Crawford: Recently the Australian Government released its Cyber Security Strategy 2020. What are your thoughts on the position that puts cybersecurity companies locally?  

Shannon Sedgwick: It hasn’t been getting the best feedback, as it’s been summarily smashed by industry leaders. I don’t think it’s all bad. I think it’s a good first step; it’s better than nothing. A lot of funding has been thrown towards it and it shows the government is taking it seriously. I do wish that some funding had been allocated to helping the Australian cybersecurity industry grow both products and services, and helping us export our services globally. 

Our economy is far too reliant on just a few industries – mining and tertiary education and tourism. And we’ve seen two of those fall over with the coronavirus pandemic and the closing of our borders. Those two industries are struggling, and I feel that innovation, technology, and cybersecurity should go hand-in-hand. It could be a useful arrow in the quiver of the government to diversify our GDP and our economy. And I feel that that Cyber Security Strategy fails to take advantage of that opportunity and to support local businesses, particularly SMBs in Australia.   

Blair Crawford: What do you think the disconnect is?

Shannon Sedgwick: I don’t think they have enough industry representation among those who develop such strategies. The government’s strategy doesn’t encompass all of the requirements, culture, belief and needs of the industry as a whole. It’s taken from a fairly small subset of where cybersecurity touches all industries. 

It has a very heavy focus on telecommunications, defence, critical infrastructure, and law enforcement. You could see that even when Peter Dutton announced the Cyber Security Strategy, his entire focus and his verbiage was around law enforcement and how this strategy would help benefit the government and its intelligence agencies to catch cybercriminals. 

But that’s an extremely small portion of what we should be focused on as an overarching cybersecurity strategy for all of Australia. They missed the mark by quite a bit.  

Blair Crawford: Sometimes an industry will have a fantastic piece of technology and they’ll use a group of technologists to represent it. But what’s often missing is that representation from a commercial standpoint. What’s the functional benefit of an amazing piece of kit? 

Shannon Sedgwick: You’re exactly right. You get these amazing companies who have vast technical expertise, but they lack the ability to translate their offering into a lingua franca that is understandable to the client and to the market. You need to get your message out there and do it in a way that isn’t “salesy” – nobody wants to be sold to. You also have to look at this for the long term – you have to build relationships and chase collaborative projects that can add value to both your team and your client. It can’t be transactional.  

I’ve long been a proponent of having a purpose that goes beyond profits. I think that’s necessary not only for your business to be trusted and to have transparency about what you’re doing in the market. But it also helps to harness the energy of your team, especially when they feel that they’re acting towards a greater good or making a real impact. If you can make them love coming into work and feeling like they’re making a real difference, the output that your business generates and the effectiveness and the work that they do is just so much higher. 

Blair Crawford: You’re a big advocate around this concept of values-based contracts, particularly speaking to the intent of a relationship over and above the functional outcome that you get from purchasing and exchanging. So what is a values-based contract?

Shannon Sedgwick: It’s something I’ve been researching for quite some time now, and it’s one of my pet projects. It taps into my enthusiasm around a purpose beyond profits, living by your values and running a values-based business. 

Now, think about most companies. They usually start with a purpose statement, and then they have guiding values or principles by which they make company decisions and carry themselves in the market. And most companies try to follow along with those. But as soon as it gets to contractual agreements and bringing in internal or external lawyers, that all goes out the window. You never hear anybody talking about how this contractual process is tied to their overall business or their purpose or their values. It becomes adversarial. It becomes a process all about protecting themselves – how can they prevent being taken advantage of, how can they limit their liability, and how can they limit their risk to an acceptable degree?  

But this is a completely adversarial approach. It’s combative, and it leaves a bad taste in everyone’s mouths. To me, for a company that purports to stand by its values and live to this higher purpose, it’s completely counterintuitive. Why would you not embed your values and a collaborative nature throughout the entire lifecycle of your client dealings? It makes no sense.  

So you have these values-based contracts – they are often called ‘relational contracts’ – and they carry much of the same content as a standard legal contract. Except at the start, before you get into the nuts and bolts of the legal contract, you sit down with your client, you sit down with your supplier, and you speak about what you want to get out of the project. You ask the question: what is our joint mission? Complete transparency is needed here. You put all your cards on the table, and then you establish a governance structure around the joint mission together. It really enforces collaboration.  

Typically, it’s mostly healthcare and religious organisations that have been using these types of contracts with any regularity. But the stats and the research that I’ve done and the benefits that I’ve experienced are just staggering. We’re seeing up to a 70% reduction in costs and wastage – not just legal costs, but the costs of running the project. Think about the amount of time you waste on a large-scale project where you’re holding each other up and it becomes a tit-for-tat where one party feels like they’re not getting what they need. Instead of committing their team, they’ll commit to saving on costs. Quality goes down and it becomes this death spiral. 

Having a values-based contract instead actually sets up a collaborative ecosystem. It allows you to live by these jointly established values and be guided by the agreed-upon principles throughout the entire lifecycle of the project.  

Blair Crawford: You’re an expert in your field. You’re also very focused and passionate about driving cybersecurity capability locally and doing business ethically and morally. So if you could give one piece of advice to organisations operating within the Australian cybersecurity market, given the current environment, what would it be?  

Shannon Sedgwick: Two things. Be kind to one another, no matter who you’re talking to, whether it be the CEO or one of your graduates. It takes courage to be kind constantly, and it’s free. And second, “specificity” – find out what you could be the best at and concentrate solely on that. Don’t try to do everything. Find out what you can be the best at and chase it as hard as you can.  

Want more insight into the world of security, identity access management, biometrics and more? Get your weekly fix with the IDentity Today podcast, hosted by Daltrey MD Blair Crawford. You can start on Episode 1 here or listen via Apple Podcasts, Spotify or your favourite podcast app. 

AgTech in Australia – The Key to Success

I distinctly remember, during harvest season in Wahgunyah, Victoria, driving a 1977-ish New Holland combine harvester (not unlike the image below).

This 6 tonne+ monstrosity had no doors, no air conditioning, no suspension, and starting the damn thing required me to climb the ladder and get on the back, pump fuel manually and then place a screwdriver between the ignition points. At which point, the engine would (hopefully) start and I would have to quickly jump down and race to get to the cabin before the harvester started creeping forward due to some unknown malfunction. Cue to 12 hours a day conducting monotonous laps of the paddock by myself, breathing in powder-fine dust. Workplace health and safety would have had a heart attack. Understandably, not long after I decided dairy farming was the better option.

Nowadays agriculture technology or AgTech has progressed leaps and bounds ahead of my days filtering Wahgunyah’s dirt through my lungs. I have continued to keep close tabs on the evolving technology adopted by farmers, with a focus on the potential benefits and risks of such adoption.

Many people do not realise but self-steering and GPS guided tractors and similar technology in agriculture is now decades old. Modern tech in agriculture is brilliant in its ingenuity and its potential in increasing the efficiency, productivity, and resilience of the industry. Some examples of such technology are:

·        Cloud-based applications that assist with farm management, livestock prices, and stock rotation. (particularly useful for farmers who sometimes run their notebook through the washing machine, losing all their data)

·        Imagery and analytics SAAS that employs drones and satellites feeds to capture and record the health of crops, spray timing, and structure and irrigation of soil using NVDI (Normalised Difference Vegetation Index)

·        Blockchain technology for smart contracts, tokenisation and tracking of commodities, and enhancing supply chain visibility from farmer to consumer

·        Digital yield monitoring systems that allow for the creation of moisture maps while planting and harvesting and analyse how paddock conditions affect yield.

·        Livestock feed additives such as asparagopsis (seaweed) that help cattle grow faster and reduce their methane emissions, and thus reduce their carbon footprint. (check out Sam Elsom’s company Sea Forest and CSIRO’s Future Feed)

It is my belief that R&D investment in such technologies and Australian farms becoming data-driven is critical to the success and resilience of the entire industry and our ability to sustain our ever-growing global population. Australian agriculture is worth $60 billion+ to our economy and accounts for approx. 14% of goods and services exports. The industry hopes this will grow to over $100 billion in the next 10 years, however, ongoing trade wars, excessive tariffs, drought, soil health, flooding, and bushfires have all hit our farming communities hard.

However, like all digitisation efforts, there are risks to consider. Cybersecurity remains of paramount importance and agriculture-related industries do not escape the attention of cybercriminals or nation-states. As was evident with the successful ransomware attack against a software company that supplies the wool industry in Australia and New Zealand, there are potentially devastating impacts to farmers, suppliers, brokers, and markets. The software company’s representative stunningly and incomprehensibly refused to admit there were vulnerabilities in their IT systems and stated their users “did not have to worry about their data” because “it could happen to anybody”. But I digress…

By adopting and investing in evolving technology, embracing non-traditional methodology, utilising e-commerce, investing in organisation-specific cybersecurity policies and controls, and improving environmental and nutritional values, Australia’s agriculture industry can overcome the above-mentioned barriers and subsequently enhance international trade and our ability to compete on the world stage. To achieve this, government and government-funded R&D corporations must engage and communicate with private enterprises and have a clear bipartisan approach to AGTech and the sustainability of the industry for generations to come.

Why your incentive scheme is (most likely) wrong

If you have been reading my content and following me on LinkedIn or on my website ssedgwick.com, you will be aware that I am an active proponent of organisations committing to a purpose beyond profits and living by their values, rather than using them as surface-level marketing buzzwords. I strongly believe that this approach harnesses the discretionary energy of employees and leads to a successful, high-performing, and enjoyable organisational culture.

However, the culture and supporting values of a company are only one part of the puzzle. The structure and processes of an organisation must also be engineered to maximise that culture and achieve their strategic intent.

There is no more damaging structure to an organisation’s success than a poorly considered and implemented incentive scheme. If you, like some others, disagree with me and believe that “culture” is an intangible wishy-washy notion or perhaps you struggle to define exactly what culture means, then perhaps this will pique your interest.

When you boil it down, incentives are what motivates staff to produce the effort to achieve an outcome. There are extrinsic motivators such as compensation incentives (bonus, stock options, raises, profit-sharing etc.) and then there are more intrinsic motivators such as recognition incentives (certificates of achievement, awards, accomplishment announcements etc.). My focus in this argument is compensation incentives, particularly performance bonuses.

If you ask any typical CEO or business leader what the purpose of their organisation is, they will likely state a phrase containing one or more of the following: “innovation”, “customer success”, “value creation”, “growth”, “social impact”, “passion”, “sustainable”, “positive outcomes” etc.

Herein lies the problem. Performance bonuses, particularly in sales teams, are customarily geared towards monthly, quarterly, and annual revenue targets. The compensation incentives and associated key performance indicators (KPIs) are in no way geared towards any of their lofty purpose statement catchwords. Nor are they geared towards doing what is best for the organisation in the long-term.

For a particularly poignant example of incentives-gone-wrong, consider the most devastating cyber-attack in history, NotPetya, and its effect on the shipping giant Maersk. This statement is from an anonymous insider in the organisation, “the security revamp was green-lighted and budgeted. But its success was never made a so-called key performance indicator for Maersk’s most senior IT overseers, so implementing it wouldn’t contribute to their bonuses. They never carried the security makeover forward”. The aforementioned “security revamp” was scheduled to be completed before NotPetya destroyed their IT infrastructure and cost them close to half a billion dollars…. Ouch.

Could you imagine if an organisation’s stated purpose actually reflected what their employees were incentivised to do? “Company A is committed to growing our revenue, at the expense of all else.” I think it might be difficult to win customers and motivate or even retain employees with a purpose such as that. But that is EXACTLY the message that is being sent when you engineer your incentive structures for short-term revenue goals.

Speak to any project (whether product or service-based) delivery team and they will freely admit (perhaps after a couple of drinks) that their internal sales team promise customers the world, lower prices to win work to such a degree that the delivery team’s profit margins are in the toilet, and then expect the delivery team to, well, deliver on those promises. This perverse incentivisation leads to communication breakdown and siloing of effort because both teams have different and oft-competing incentives. If your organisation is actually committed to “customer growth” and “positive outcomes” then why aren’t your staff incentivised to achieve that very aim.

Ineffective incentive structures are evident in a company’s relationships with its customers and staff. You will find such companies often have to revert to the contract in its dealings with customers and the persistent arguments about who is living up to their part of the bargain is a never-ending quagmire of pervasive negative consumer sentiment. Staff are typically unmotivated for anything that does not benefit them personally and are so inwards-facing that they are unwilling to accept any risk to the warm little cocoon of bare-minimum effort and complacency they have built for themselves. Monthly and quarterly revenue targets are their sole concern. You will see things such as rounds of applause being given during meetings when sales targets are met, yet there is silence regarding their ever-worsening customer Net Promoter Scores (NPS) and subsequent blown-out budgets and timelines. You will hear statements from staff, behind closed doors, such as “I am just waiting until I reach ten years so I can get my long-term bonus and long service leave, then I am out of here”.

Another real-life example of perverse incentives is from Safi Bahcall’s new book Loonshots, “In the 1960s, the Ford Motor Company was desperate to compete with smaller, cheaper cars from Japan. So, the CEO announced an exciting stretch goal: the company would produce a new car that would cost less than $2,000 and weigh less than 2,000 pounds—the Ford Pinto. The goal and tight deadline, unfortunately, did not leave much time for safety checks. The fuel tank was placed just behind the rear axle with only 10 inches of crush space. The design flaw, as lawsuits later showed, led to a less-than-desirable new feature: on impact, the car could blow up.”

Is this type of environment or behaviour striking some chords with those reading? I am sure some of it is familiar to you.

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Now for the denouement! I promise it is not all doom and gloom and coruscating attacks on a deficient commitment to values. I have the medicine! Although, to implement the solution will take significant structural changes to compensation and incentive schemes, and those who are most comfortable with the status quo will likely lash out and rail against these changes. That is a sure sign you are making the right changes.

I submit that an organisation’s sales, delivery, marketing, and other business units should ALL be incentivised by project success. What do I mean by project success? I define project success as a concinnity of the following measurable outcomes:

·     Customer satisfaction pre, during, and post-project (NPS)

·     Employee engagement and morale

·     Profit margins

·     Customer success (what this means should be pre-agreed prior to project commencement)

·     Delivery within scheduled timeframes

·     Quality assurance

·     Maintenance of scope (don’t draw outside the lines!)

When all staff are incentivised to achieve the above outcomes, an increase in new customer wins and increased revenue will follow. Except, with this approach, you will also enhance customer satisfaction, elevate teamwork and collaboration, create a positive impact, and all without sacrificing profit margins. You will be, in fact, living up to your stated values and purpose.

There is no such thing as a flawless incentive scheme and despite most incentive structures being well-intentioned, you can see how they can motivate the wrong type of behaviour. Consider what your company’s incentives are promoting and what the most likely adopted behaviour of your staff will be. Adjust accordingly.

Put simply, you can’t motivate your staff solely by revenue targets. Making money for someone else will not engage them beyond bare-minimum effort and it will erode relationships with employees and customers. It also sends a clear message that your purported values and purpose are embellished misrepresentations and that inevitably destroys trust. Look beyond revenue. You might find you like what you see.

Purpose is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose — in fact, profits and purpose are inextricably linked.” – Larry Fink – CEO of Blackrock

Consultants ≠ Nihilists

In the spirit of Festivus, I will now commence with the Airing of Grievances. In the wise words of Frank Costanza, “I got a lotta problems with you people, and now you’re going to hear about it!”

Over the holidays, I mostly spent my time reading; Marc Benioff’s Trailblazer, Malcolm Gladwell’s Talking to Strangers, Clayton M. Christensen’s The Innovators Dilemma, Jules Verne’s Twenty Thousand Leagues Under The Sea, Safi Bahcall’s Loonshots, and Marc Randolph’s That Will Never Work. The final book I read over the break, and the subject of my ire, is Peter Thiel’s Zero to One.

Peter is a well-known doyen of the technology industry and rightly so. He co-founded Paypal, Palantir, Founders Fund, and Mithril Capital. He was an early investor in Facebook and Linkedin and is worth approx $2.5 billion. While I give him points for his LOTR-named VC funds and I do agree with his points about capitalism vs competition, I found some of his statements in his book about consultants vs product engineers/designers to be almost an inchoate comparison of the “Proletariat vs. Bourgeoisie”.

On a scale between Nihilism and Dogmatism, he places consultants squarely in the Nihilism range and makes reference to consultants “dropping in and out of companies to which they have no long-term connection whatsoever”. He denigrates professional services businesses and consulting firms in a way that suggests they have zero purpose beyond short-term goals and increasing minor efficiencies in their customer’s organisations. He also aligns consultants solely with low-growth environments.

I find this type of one-sided coruscating analysis to be completely unhelpful. His grandiose image of himself and his up-turned nose at the services industry smacks of naivety. In my experience, product-based technology companies, particularly startups, often desperately need the assistance of strategy/management consultants to help founder/CEOs with little-to-no business experience navigate long-term strategy, finance, risk management, and the tying together of disparate business units while scaling. Not every company can achieve a monopoly and those who face competition often differentiate through more efficient processes, risk reduction, enhanced branding, and competitive pricing models. This is exactly what consultants can provide to businesses, both low and HIGH growth. For Thiel to suggest that consultants are nihilists who care little for the long-term success of their customers is utter nonsense.

While I do agree that some large professional services firms and consultancies do have a surface-level commitment to values and a lack of a purpose that goes beyond profits, I do not believe the entire consulting industry can be painted with that brush. Despite a public “fatigue” with certain large players of the consulting industry and their opaque business practices, there are consulting service providers who provide specialist advice that add a great deal of value to their customers in the long-term and give back to their community along the way. In fact, many consultants go on to start their own successful businesses, using the lessons they learned during their time working with clients. Innovation in technology may change the way we live and work but consultants help make those changes sustainable for the long-term. Whether your career is in services or products, you can build or help build a high-growth successful business and be a respected leader in your industry.

When choosing a career direction or pivoting from your current role, I often suggest to people The Hedgehog Concept from Jim Collin’s book Good to Great. The Hedgehog Concept is based upon an ancient Greek parable: “The fox knows many things, but the hedgehog knows one big thing.” Ask yourself the three questions in the diagram below and if one of your responses overlaps with all three circles, you have your direction.

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In my opinion, specificity is the key to success in a landscape flooded with companies attempting to be everything to everyone, and thus, are nothing to no-one.

Ignore Peter Thiel’s gallimaufry of Blue Ocean Strategy rip-offs and biased rants. Do what you love and what you could be the best at, even if that path is consulting, you Nihilist, you.

Shannon Sedgwick GAICD – ssedgwick.com

Dumb and Dumber: A Study of Management and Decision-Making Structures

Anyone born before the early 1990s is likely familiar with the comedy film Dumb and Dumber, starring the geniuses that are Jim Carrey and Jeff Daniels. If you have not seen the movie or need a refresh, I will give a brief synopsis. Lloyd Christmas (Jim Carrey) and Harry Dunne (Jeff Daniels) are best friends who discover a suitcase full of money after Mary (Lloyd’s eventual love interest) leaves it in Harry’s limo. They decide to travel to Aspen, Colorado to return the briefcase, unaware their lives are in danger because the money is connected to a kidnapping. Harry and Lloyd travel across the country while pursued by assassins and police, to return the money and find love. Hilarity ensures from start to finish. Caught up now? Good.

Arguably one of the funniest scenes in the film is when Lloyd goes to get “the bare essentials” with the last of their money and is subsequently robbed by a “sweet old lady on a motorised cart”. Watch below for the full scene.

Let’s consider Harry and Lloyd’s situation from a management point of view.

Their mission (the WHAT) is to return the money and find Mary. Their strategy (the HOW) is to travel cross-country using the money they are supposed to be returning to cover the necessary travel expenses. Their Purpose (the WHY) is to make us laugh.

Through careful analysis of the above case study (watching it while eating a bag of Kettle chips), it is evident that Harry and Lloyd employ decentralised management and decision-making structures. They operate in a flattened hierarchy where each is trusted with making decisions that are made towards their common goal or mission.

The benefits of decentralisation include flexibility, increased morale, development of expertise, resilience, individualisation, and the ability to process information faster and more accurately. By employing a decentralised management structure, Harry and Lloyd promote recurring values of “success through trusted friendship” and “stupidity”.

Another benefit of a decentralised organisational structure is the granting of greater autonomy and trust. Harry and Lloyd are empowered to use their knowledge (limited as it may be) and experience to innovate and implement their own ideas into their workflows.

However, like all decentralised organisational structures, there needs to be a clear understanding of the mission and a framework/structure for effective and timely decision-making, ensuring it is aligned with the overarching mission, and not exceeding the capacity of the individuals or teams. Here is where Lloyd and Harry come unstuck. It is clear from the above scene that Lloyd’s and Harry’s definition of the strategy and “bare essentials” is not aligned. Lloyd, if he were not robbed by the sweet old lady would have returned with an oversized cowboy hat, a ball and paddle, sparkly paper pinwheels, and a box full of assorted accoutrement (likely booze). This evidently would have contributed little to their mission. There was a breakdown in communication due to a lack of an agreed-upon decision-making process.

If there is a clear understanding of the team’s (or organisation’s) mission, this allows leaders to delegate decision-making to individuals and teams with the implicit trust that the decisions made will be with the intent of achieving the mission. Studies have proven that the more complex an organisation is, the more they must employ a decentralised organisational chain of command, to aid in rapid decision-making and easing the burden of their leadership. Quite clearly, Lloyd and Harry are in a complicated situation. The negative consequences incurred from their lack of an effective decision-making process could have been avoided had they agreed upon what defined “bare essentials”. Additionally, had a policy been implemented that gave clear boundaries for decision-making in unforeseen circumstances (i.e. locking your wallet in a newspaper vending machine), the negative outcome (robbery) could have been avoided.

Harry and Lloyd, through the employment of strict data-driven evaluation of new environments and ideas, could have created an effective blend of both centralisation and decentralisation. Centralisation of mission and purpose, and decentralisation of management and decision-making. As research has proven, individuals given the trust and tools to make decisions and innovate, are far more likely to be successful if the mission and purpose are clearly communicated and understood, and a strict decision-making structure is implemented, allowing for rapid and accurate decision-making in what is an increasingly evolving and uncertain world.

The trust placed in each other through a decentralised management structure and the reliance on rapid and accurate decision-making via a structured framework would give Harry and Lloyd the ability to move with speed, accuracy, and surprise to maintain their competitive advantage. We can learn a lot from Harry and Lloyd.

Are conferences as good as they could be?

It seems every week there is a conference purporting to be the biggest and best industry event of the calendar year. Event sponsors have varying sized booths and banners, and ads littered throughout event collateral, and are sized dependant on their financial commitment to the event. These conferences are not inexpensive! Thousands of dollars and multiple staff over 2-3 days are committed to running their company’s booth. It is a significant financial investment. Vendor staff wear their branded shirts and spend their time trying to gain eye contact with you while not-so-subtly checking your name tag to ascertain whether you are someone worth speaking to. Rinse and repeat hundreds of times per day. It’s almost a kind of awkward dance where each party knows what the other is trying to do but aren’t willing to have a direct conversation about it. A strained conversation is had where the vendor representative asks the attendee where they work and what they do, and when answered is usually proceeded by a sales spin of that vendor’s “market-leading” capabilities.

We all have attended these conferences. I often speak at these conferences. I know the environment well. Some people prefer to attend conferences just for the networking opportunities. Others state they are there just to hear certain people speak. However, I don’t know of anyone that attends conferences to be sold to. Attendees often are not interested in the booths unless they are getting a pen, webcam cover, or are able to test-drive a unique bit of kit like VR.

I admit I am not a professional speaker. I don’t even think I am a good speaker. However, I do understand that stories and an interesting narrative are essential for the audience to engage with your content. If you are a speaker and you attempt to sell your company or it’s products/services, you will lose the audience immediately. Yet it happens constantly. I wonder, would it be better for conference organisers to institute a strict “no selling” policy during presentations?

Are conferences stale? Does the recipe need to be changed in order to give attendees and sponsoring vendors more bang for their buck? I would be extremely surprised to hear of a vendor recouping their investment from a conference. I am sure it happens but not often. Are there more cost-effective ways to market your brand and capabilities at a conference while differentiating yourself from the competitors? You can’t do the same thing as everyone else and expect different results.

What it boils down to is, nobody wants to be sold to. People want to be recognised for their hard work and their achievements and empathised with for their hardships. Relationships and understanding human nature is the key to successful brand awareness and marketing. Are you discussing something that benefits them or does it just benefit you?

I have my own thoughts about how to improve conferences for all involved parties but I would be interested in hearing your opinion on how to tackle the issues I have raised. Or perhaps you disagree with me. If so, I would like still like to hear your opinion. I don’t have all the answers!

Save ‘crown jewels’ from cyber crims

Cybersecurity is, and will continue to be, the hot topic this year, with global cybersecurity spending expected to reach $US124 billion, according to research company Gartner.

Recent cyber attacks against Toyota and LandMark White serve as a stark reminder of the pervasive threat of cyber criminals. The issue becomes dispiriting when you delve into the statistics of data breaches.

An IBM-Ponemon study last year, Cost of a Data Breach, concluded the average cost of a data breach was $US3.86 million and the likelihood of a recurring breach in the following two years was 27.9 per cent. A data breach of more than one million records will cost about $US40m, and a loss of more than 50 million records will cost a staggering $US350m.

Australian small and medium business owners have long had a delusion that they “fly under the radar” of cyber criminals because they deem themselves “too small to bother with”. Recent statistics from Verizon show this is no longer the case, with 43 per cent of data breaches involving small business victims. Unfortunately, more than 500,000 Australian small businesses fell victim to cyber crime in 2017, and research shows that more than 60 per cent of SMBs go bankrupt within six months of a data breach. It is no longer an option for Australian businesses, regardless of size, to do nothing and hope for the best.

So, what can be done? At the outset, every organisation should consider the data and assets they own and identify what is critical to their business operations and their consumers/customers. It is impossible to protect everything at all times, and there is a limit to the capital available for cybersecurity budgets. The identification of your critical data and assets, your “crown jewels”, will enable you to implement appropriate security.

Invest in cybersecurity awareness training for staff. Most data breaches occur because of human error, such as clicking on phishing emails or sending information to the wrong recipient. Promoting a risk-aware culture and ensuring your employees are capable of responding to cyber threats is a cost-effective method of reducing your risk.

The theft of credentials can compromise an organisation’s entire network. Multi-factor authentication requires the user to enter a password, then another form of credentials, such as a PIN sent as a text to your phone, a fingerprint scan or universal second-factor security key. When multi-factor authentication is implemented, it is substantially harder for a cyber criminal to gain access to credentials and networks.

Last, and of equal importance, back up your data. Ransomware is a type of malware that blocks access to your data or systems until a financial payment is made. Many organisations choose to pay the ransom because they do not have their data backed up, and to retrieve it they must decide between making a payment with no guarantee their data will be returned or lose everything.

Australian companies need to make cybersecurity and data privacy a priority and demonstrate their commitment to the trust of their stakeholders, to remain competitive in the digital age

As published in The Weekend Australian on June 15th 2019. https://www.theaustralian.com.au/business/careers/save-jewels-from-cyber-crims/news-story/97bc6ec6b3df03a027849d140e2c7bde