Latest / The Innovation Show / Navigating the Accelerated S-Curve with Paul Nunes

Transcript

Navigating the Accelerated S-Curve with Paul Nunes · The Innovation Show

0:00
Welcome to episode two of this special series here in Boston at Harvard Business
0:05
School, and we are in for a treat.
0:07
A friend of the show, a friend of mine, the King of the S-Curve.
0:11
Paul Nunes, welcome to the show.
0:13
Thank you, Aidan.
0:14
It's great to be here in real life, as they say.
0:17
Brilliant to have you and.
0:18
You can see Paul's body of work here.
0:20
I haven't included mass affluence.
0:21
That's because we're gonna do an episode or two on that in the future.
0:25
It's nearly three years, man.
0:26
Now, since we covered your body of work yet, it's been a while and I was
0:30
thinking about a couple of things.
0:31
One is you studied S-curves, you've.
0:34
Worked in them in application for over 30 years, but on top of that, you
0:39
study them before you even apply them.
0:41
So you've done a huge body of work, and this includes in jumping the
0:44
S-curve, but in practice in different companies, seeing it in the field,
0:49
you've talked about it since you're out.
0:51
Of Accenture.
0:52
There's a lot of, lot of knowledge there and I wondered what has changed.
0:56
'cause one of the things we kind of nerded out, we went for a coffee yesterday,
1:00
we talked about this, was how there's a verticalization of the S-curve.
1:03
So there's less and less time for adoption of a new technology, or there's a less
1:08
and less time to milk the cash cow if you're on that S-curve in the first place.
1:12
There's a lot in there, but I'd love to talk about that and use it maybe
1:16
as a spine of our conversation today.
1:18
Yeah, I think it's a great question and as we talked about, you know,
1:21
there's a lot of folks that understand the S-curve now and are sort of
1:25
believing it, and we all kind of know that, well, you know, there's,
1:28
uh, a life cycle to every business.
1:31
And then, you know, over time what we recognize is that technology has
1:34
really accelerated that, which we understand that it would, and then.
1:38
So out of jumping the S-curve where we've said, you know, well,
1:41
how do you get to the next wand?
1:43
We recognize that technology was shrinking that and actually
1:46
deforming the shape of the S-curve.
1:48
So now we talk about the shark fin, and I know you love that and
1:51
we'll talk a bit more about the shark fin, but it's this idea that.
1:56
Everything happens much faster and everything happens much faster.
2:01
And the, the nature of even innovation, there's no startup in the, the curve.
2:07
There's no early adopters anymore.
2:10
We can talk some more about that, but either it's right or it's not.
2:13
So you have this big bang disruption and then it, it closes out.
2:17
Now what I've started to hear a lot more about lately is this
2:20
idea that, well, maybe it's just gonna become a continuous cycle.
2:24
Um, it's gonna become, you know, one moment in time, you know, what
2:29
happens if it keeps shrinking.
2:30
So we've given that, I've given that in some of my colleagues, and
2:33
of course this is a. Team effort from a lot of great co-authors
2:38
of mine, Larry Downs, Tim Breen.
2:41
But the idea is, you know, so what comes next?
2:43
And does the S curve ever really disappeared when it becomes a
2:46
completely vertical, um, kind of curve?
2:50
And, and what we've come to, the realization is, and I think
2:52
our point of view it is, it doesn't, it's not, it can't, um.
2:57
People think, well, maybe we're gonna get into this perpetual, and
3:00
we joked about it, even at coffee.
3:01
It's like, well, you know, if it ever becomes perfectly vertical, we're going
3:06
to simply say, well, that was an idea.
3:08
I wish I, I wish I had got it out of the chair.
3:10
Right?
3:11
Um, because like, you'll have the idea, but it's like,
3:13
well, no, it's moments passed.
3:15
So it's like, all right, so it's gonna be short, but it's
3:18
not gonna be instantaneous.
3:20
And so then you're gonna have to think about, well, what do you do?
3:24
When you have the idea, what do you do when you, um, operationalize that and try
3:30
and make it work and make it real, and then you're gonna try and exploit that.
3:34
And what do you have to do to that?
3:37
And then you're gonna have to get out of the business before you spend all
3:39
the money pouring it back in, trying to innovate into the next thing.
3:43
And so that's the fundamental point of the.
3:46
Shark fan of Big Bang Disruption now and pivot to the future.
3:51
'cause you know, this is sort of the cycle.
3:52
We realize, well, what real businesses have to do is manage really three
3:56
or more S-curves at the same time.
4:00
Because you have to have the historical scur.
4:02
You have your old, your now and your new.
4:06
They feed each other.
4:07
So that was the insight there in that we looked again and again when
4:10
we looked at successful businesses.
4:12
And importantly what happened is that the nature of CEOs had to be CEOs
4:16
that managed simultaneous S-curve, simultaneous businesses, not just one.
4:21
And so a good example there, we used.
4:22
Read Hastings at Netflix.
4:24
You know, Netflix was DVDs for the longest time.
4:27
I think now they still have $50 million in business in DVD distribution, but
4:33
for the longest time they maintained that along with their other ones, online
4:36
distribution, and then of course, using the insights from the data from online
4:41
distribution to actually get into the content creation based on that.
4:46
So you're ruining that together, but we think there's now actually a fourth.
4:51
Element of what's happening to, to s curves and it's starting, uh, we left
4:56
a little, I think I mentioned to you is, you know, uh, an Easter egg in.
5:01
Big bang disruption because we only mention it in the conclusion, but
5:05
what happens when you can no longer play the entire curve and be an expert
5:11
or a deliver on the entire curve?
5:14
What happens if you have to become a component of it?
5:16
And that's something that we talked a little bit about yesterday and.
5:20
Something I think we can talk a lot more about today.
5:22
So let's get some terminology so everybody's on the same page here,
5:26
but you've given a big overview of there, what we'll talk about.
5:28
Let's, but let's build towards it.
5:29
So the first is, let's.
5:32
Tell our audience what the S-curve is and maybe then the the three hidden
5:35
S-curves that exist inside the S-curve.
5:37
So this is coming from jumping the S-curve.
5:40
So let's, that's a great point.
5:41
So let's start from the first principles, and actually the first
5:44
principle comes even before the scur when our research, which was
5:48
the question of high performance.
5:49
You remember the Accenture was high performance delivered.
5:53
And so what Tim Green, my co-author and I really worked to
5:55
do, is to try and understand what is business high performance.
5:59
What is it you're trying to achieve?
6:02
What, what's winning?
6:03
And you know, and we have for decades had the argument about
6:06
shareholder value, right?
6:07
Is business all about shareholder value creations.
6:10
And you can argue back and forth, but at some point there's gotta
6:13
be some element of profitability.
6:16
Um, and some element of.
6:19
Renewal and continuation and survivorship.
6:24
So when you look at that, then you say, okay, well what, how does, what
6:27
does that look like in a real business?
6:29
Well, it looks like the evolution of a product or service.
6:33
It looks like the, we think of something people want, we test it,
6:36
we work it, we start to sell it.
6:38
They don't want it.
6:39
Exactly.
6:40
So they don't pay us as much as we'd like, or you know, only innovators buy.
6:44
And then we have the whole Everett Rogers.
6:46
Bell curve of, we have innovators, early adopters, late adopters,
6:52
and, you know, laggards at the end.
6:55
Uh, and so the, the point of that was.
6:59
Um, how do you manage a business across that?
7:01
And in fact, actually if you look back historically, the famous book Crossing
7:05
the Chasm, well Crossing the Chasm, was principled on the idea that you have
7:10
to sell the product and then you can use the money that you get from the
7:13
early sales to pay for the next round.
7:16
Well, what happened in Big Bang Disruption is we found that with what we call
7:23
near perfect market information, people either want the product or they don't.
7:28
So there are no more early adopters.
7:31
So what happens is you fail, fail, fail, and then you succeed wildly and then you
7:36
come out of it and that's the sharkfin and that's what's getting shorter and shorter.
7:42
So just let's explain that because the example you gave
7:45
was, uh, an A rail company.
7:47
Giant Apparel or American apparel.
7:49
Oh, American Apparel.
7:51
American Apparel.
7:52
And they, they, American giant American Giants.
7:54
I knew it was.
7:55
And they had the, this sudden hit and the near perfect information is
8:00
like a social media post or a website suddenly features you or an influencer.
8:04
Kim Kardashian calls you out.
8:06
And so it happened in the example of American Giant.
8:10
I believe it was slate magazine.com.
8:13
slate.com came out and said that one of their sweatshirts with spans and
8:19
you know, rhinestones and stuff was the best sweatshirt in the world.
8:24
Well, what happened was they got overnight from the time that article came out
8:29
online, they got overnight 500,000 orders.
8:35
Overnight.
8:36
And the question is, if you've ever only made 30 or 40 or a couple hundred of
8:39
these, you know, a thousand for different stores, how are you going to make, you
8:43
know, what eventually became 50,000 and 500,000 orders from around the world?
8:49
How are you gonna capitalize on that?
8:51
And the reality is they couldn't.
8:52
They simply, you can't tell people in a fashion business, well, let's wait.
8:56
It's six months into we're gotta make them for you.
8:58
It's like I make 'em for you.
8:59
Do you mind?
9:00
You know, waiting six months, it doesn't work.
9:03
And we call this catastrophic success.
9:05
So we started to live in a world of catastrophic success.
9:09
You know, now's a great season to understand that and Christmas time, right?
9:12
It's like, well the stuff that's gonna be hot right now and the stuff
9:15
that's sold out right now is not gonna mean anything to children,
9:19
to adults, even in three months.
9:22
Six months.
9:23
Um, and then we can talk a bit more about versioning if you like.
9:26
You know, this whole idea of even a, you know, an iPhone 17, right?
9:29
Well, where's 18?
9:30
When's that coming?
9:31
Yeah, we'll just skip this cycle.
9:33
Maybe I'll just skip this cycle 'cause I'm a little short on cash right now.
9:37
And so the whole thing of how it affects the strategy of when technology is
9:41
fast, like that, versioning becomes so important and resale becomes important.
9:46
There was an example I was thinking of, oh, apart from American Joint,
9:50
which was Peloton, for example, or, or we saw a lot with the co, the
9:53
COVID businesses that benefited from the COVID pushed to an adoption.
9:58
So P Peloton had a huge growth, totally overgrew their capabilities, hired
10:03
massively, and then all of a sudden that.
10:06
They don't plan on what happens when the pandemic's over, for example.
10:09
Yeah, exactly.
10:10
And that's the whole thing.
10:11
And that's where technology can help.
10:13
And that's where the nature of how you fulfill market demand shifts is because
10:18
when you're op trying to operate at that sort of speed, and it's one thing
10:21
to try and get in and out of supply chains, in and out of retail venues
10:26
at speed, but then there's also the talent curve, which I know you're.
10:30
Very excited.
10:32
You know, how do you move in and out of a talent curve, whether it
10:34
be the short term sales people you know, that are selling Pelotons?
10:39
Do they know the product?
10:40
Do I have to train these PE people?
10:42
How much is it gonna cost me to train hundreds or thousands of people in
10:47
the product only to find out six or 12 months later that I don't really
10:53
need all those store sales people?
10:55
'cause the, the.
10:56
Floor traffic in the stores has, you know, dropped by 90%.
11:01
So it really is this, this question of operating its speed, changing its speed,
11:07
and doing so in a way that's still, that doesn't disappear, that doesn't get you
11:11
the whole thing that says, well, I'm not even gonna bother to try and sell Peloton
11:15
or whatever it is, because I know in, I know the, the window's gonna be so short
11:22
that I'm not gonna be able to monetize it.
11:24
To make it worth my while.
11:26
And I think that's a real interesting question that's coming into
11:29
businesses too, is I think there's probably a lot of innovation, a
11:32
lot of innovative ideas out there.
11:34
And it, and nobody really talks about the operational challenge.
11:38
They talk about the operational challenges of getting things done and organizational
11:43
pushback and stuff, but they don't really just talk about the, the nature of, you
11:48
know, returns and motivation in short.
11:50
In the short term, it's like, well, is it worth my while?
11:54
So that that curve, so I am Peloton.
11:57
My s curve's kind of gone like that.
12:00
It's also a shark fin.
12:02
So the, the, one of the ones I thought about the shark fin is if, if I see
12:07
a new technology coming, like ai, I, if I was to follow Everett's bell
12:12
curve, I go, I have time to build up the capabilities in my organization.
12:16
See the technology coming, maybe re.
12:21
Reshuffle my stack to be able to be a, an AI first company.
12:26
In the old days, I would've had time to do that.
12:28
But with the shark fin, the way I kind of see it is if
12:31
you see the idea of the shark.
12:32
And I want to give Paul his gift here.
12:34
Now I got him this, uh, and I'll show this on the screen properly,
12:37
but this wasn't shot far from here.
12:39
It's the scene from Jaws where the kid is in Jaws' mouth, and
12:43
underneath it says, stay positive.
12:45
So.
12:46
Thank you.
12:47
I love this so much because I think it's so true and we'll
12:51
talk about it at some points.
12:52
I mean, the idea of staying positive when you are in the jaws of the shadows right
12:57
away, catastrophic success or when you're, uh, worse, you know, the victim of a.
13:03
Like in the book Garmin or Tom Tom, when you're in the, the jaws
13:07
of Google Nav, uh, navigation, it is like how do you stay positive?
13:13
And I think it is interesting.
13:14
One of the greatest challenges, which was actually put to me, it was a great story.
13:18
I used to run a, a chief strategy officer circle.
13:21
It was one of the best things in my life was like 40 different major
13:25
company chief strategy officers getting together quarterly to
13:28
discuss their strategy issues.
13:30
And one of the things I said sort of naively.
13:33
Was talking to one of them was, you know how when you know you're in big
13:38
trouble, how do you keep, you know at it?
13:42
How do you, how do you tell people, let's keep going and stuff.
13:45
And then he was like, well.
13:47
Paul, if you don't believe you can win you, you don't do it.
13:51
And I think he was a little appropriately offended.
13:53
That was sort of like, well, are you saying that I, you know, lie to my people?
13:57
Yeah, yeah, yeah.
13:58
Because I was kinda like, well, you know, the, the big bangs
14:01
coming, you've, you've seen this.
14:03
How do you, and so, but I also think, you know, it's probably a nice thing about
14:07
humans in general is that we have this optimism and we have this belief that
14:11
everything, particularly I suppose as Americans, that everything is conquerable.
14:15
That everything can be.
14:17
You know, we're gonna work our way out of it.
14:19
Um, you know, just like this.
14:21
So when you're in the shark, when you're in the jaws of the shark, stay positive.
14:26
And if that doesn't help, this will help.
14:27
This is alcohol.
14:28
Oh my goodness.
14:29
That's acy that you supposedly cannot get into states.
14:32
So, uh, my goodness.
14:34
You can use that for the Christmas cake maybe.
14:36
And I do.
14:36
Yeah.
14:37
Um, I may apply that directly to, what do they call that?
14:42
Apply directly to the source or exactly the problems.
14:46
Skip the cake.
14:47
So let's get back.
14:48
So, so Sharkfin, let's, let's really give it the Zo.
14:51
It's lovely.
14:51
Thank you.
14:52
A pleasure man.
14:53
Understanding of that shark fin.
14:54
'cause I think that's key and that will help us leverage then if we go Okay.
14:58
The shark fin's compressing, but so is the i s-curve straightening.
15:03
That means the nature of how you manage your S curve totally changes.
15:07
And that's the, and I'll come to this in a second.
15:09
That's the Easter egg at the end of Big Bang Disruption.
15:12
But let's start with the shark fin.
15:13
There's two things that started.
15:15
So the one is when we started to understand the shark fin and how do you
15:18
manage company differently for that?
15:20
And basically what we do is we broke it down into four segments.
15:23
There's the kind of before you sell it, the invention, the getting it
15:26
right, there's the scaling, the rapid scaling, which is the, oops, you
15:31
know, the market really wants it.
15:33
Now what do we do?
15:34
And how do you plan for that?
15:36
Then there's the peak and it's the peak hits in saturation.
15:41
And so there's the, the the bust cycle.
15:44
Yeah.
15:44
Essentially.
15:45
And what most companies haven't, a lot of companies haven't experienced is that.
15:50
The nature of rapid saturation, and they don't even really have the thought of it.
15:55
We, I worked for a cruise company that never thought it, whether they
15:59
didn't think about a lot of things in terms of who the competitors were.
16:02
You know, a big screen TV can be a competitor to a cruise, right?
16:05
And so, particularly if you start to get into the world of saturation.
16:09
But the, you know, how many cruises should you take in a lifetime?
16:12
It's like, well, we're so busy selling cruises to mass affluence,
16:15
the original book that we don't even wanna think about, but you know.
16:18
But yeah, some of our American markets and stuff, we're
16:21
starting to see some saturation.
16:23
People don't want to cruise every year, every month, every whatever.
16:27
And so how do you.
16:28
You know, um, cycle that through for people.
16:30
What are you doing?
16:31
But, um, so this question of how do you innovate?
16:36
What does it mean to be fail, fail, fail, succeed wildly,
16:40
how do you partner for that?
16:41
All things we talk in the book, and then particularly the entropy, which is the,
16:45
well, how do you get out of this now, you know, and I, I like saying in the book,
16:50
you know, and I used it a time before, was that there's no business so great
16:54
that it can't be destroyed by messing up.
16:56
Supply to by messing up inventory.
17:00
If you mess up inventory, you mess up all your profits regardless.
17:04
And so there's a great, you know, example in there where, um.
17:09
Microsoft built a slate, the computers and that, and they had a billion
17:13
dollars in inventory that had to be marked down because it hadn't
17:16
been sold and now it was dating.
17:18
And so your inventory, you know, so that guess of like, well, how
17:21
many am I gonna sell right now?
17:23
What's the risk I want to take?
17:24
And then how much profit can I make off of that?
17:26
And not lose it by creating too much and having to sell it
17:29
at discount and all of that.
17:31
Um.
17:31
Is critical.
17:32
And then there's the last part, which is the entropy,
17:34
which is how do I reuse stuff?
17:36
So that was all of the change in the nature of strategy
17:39
that we looked at there.
17:41
And I think what we were getting to is the, what I call the Easter
17:45
egg at the, in the conclusion.
17:47
And we started a next round of thinking that, uh, we like off the books.
17:51
Yeah.
17:51
The book has it all.
17:52
That we can't go into, we can't create another book.
17:55
That's the next book.
17:56
In some ways I hope it to be the next book.
17:58
Yeah.
17:59
This is like the little cliffhanger.
18:00
Yeah.
18:01
But it's really this idea that, well, can you do vertical integration?
18:05
Now you've got a vertical Yeah.
18:06
Curve.
18:06
Can you do vertical integration anymore?
18:08
Is it even possible?
18:09
And so we started looking into that and we started coming to the
18:11
realization that, you know, it's harder and harder and many industries are
18:15
starting to come to that realization.
18:17
Yeah.
18:17
Um, so in short, what we recognize is that it's not about becoming
18:22
a supplier with your leftover technologies, your leftover capabilities.
18:26
So one of the things we said in the book, big Bang, the structure you don't
18:29
recognize is that well, you can become a supplier after you have your own products.
18:33
So you make it, you know, like a Texas Instruments or whatever.
18:37
You make your own stuff, you make your own products, and then you start to
18:40
become a supplier to someone else.
18:42
And we started to realize, well, no, maybe.
18:44
Being a supplier is a, is a good enough strategy on its own.
18:49
And then, and then taking to the next level, it's like, well,
18:52
there's really only four roles, five roles in this network of.
18:59
Managing an S-curve that are really important.
19:02
And so I'll just go through 'em quickly for you is, you
19:05
know, the first one is creator.
19:06
Uh, it in any order, but it's creators.
19:09
There are creators, there are people and companies that think of great stuff.
19:14
Hmm.
19:14
That people want.
19:15
So they sort of integrate what the market wants, knowledge of the market, but they
19:19
integrate that with the second role, which is what we call the inventors.
19:23
And there are companies that are inventors, they do the pure research, um.
19:27
There are assemblers that then make the stuff and in, and manufacturers that make
19:33
the things that are assembled in bulk.
19:37
And I go through that quickly because I wanted to give an example of
19:40
the whole thing and how it works.
19:41
So you take like an iPhone, apple is the creator, you know, it's like designed
19:46
into, in California, made in China, right?
19:50
Or made in Asia.
19:51
Um, Hong Kong is what it says right on the box, I believe.
19:55
Um.
19:57
So Apple is a creator and it gains tremendous power in this,
20:03
um, horizontal integration by the fact that Foxconn, as we all know,
20:07
is the assembler of this stuff.
20:10
They work with companies like co uh, Corning for Gorilla Glass.
20:15
Corning invented Gorilla Glass at Hard Glass that's on the surface, and
20:19
manufacturers at bulk chips like Texas Instrument, Samsung and everything else.
20:26
To have it brought together through Foxconn.
20:29
Foxconn also handles a lot of the distribution,
20:31
logistics and everything else.
20:33
Now, at the center of all that is the coordinating function.
20:36
So you can, another role is to be the coordinating function.
20:39
You can be the supply chain software, you can be the website, you can be
20:43
the communications provider, you know, where does at t fit in that?
20:47
Somewhere in this coordinator.
20:50
Enabler, coordination, enabling.
20:52
But really if you take those five roles, you recognize that increasingly,
20:56
and we've done research on this, increasingly in industries, that's where
21:00
the focus is becoming, being really, really good in one of those areas, and
21:08
then enabling a more virtual S-curve.
21:13
From all the different partners, suppliers, and how you imagine
21:16
that and coordinate that and think about strategy in that.
21:20
Because the interesting thing is that now I've externalized the strategy.
21:24
It's not just my strategy.
21:26
I have strategy for how to be a good supplier into this network,
21:31
but I also have to deeply understand the strategy of the network.
21:37
The threats to the network, and hopefully I'm in with enough big
21:41
companies in the big enough network that those become kind of less and
21:45
less or more and more manageable.
21:47
But I mean, a quick example sort of is like, well, if I'm a supplier of,
21:52
you know, gasoline engine parts to an automotive industry, that's not
21:56
effectively prepared and I'm not effectively prepared for a battery
22:01
breakthrough, which I don't think we're at yet, we can talk a bit more about.
22:05
How that affects things.
22:06
But, you know, once there's a, a real battery breakthrough,
22:10
we're gonna see a dramatic shift.
22:12
And many of the automakers, you know, they're all, we're all sort
22:14
of, the world isn't, uh, knowing this, but if you're a supplier, it's
22:18
really easy to say, well, you know.
22:21
I gotta worry about how to be the best supplier.
22:23
I don't really have time to worry about where the automotive industry's
22:27
going and what I'm gonna do and who I'm gonna, what I'm gonna make, and what
22:30
I'm gonna sell to the next network.
22:34
So let's bring it back to something you planted the seed earlier
22:36
on, which is the supply chain.
22:39
The supply chain becomes really important if you're an assembler like an apple.
22:44
And I think we talked about this before, the nature of
22:48
apple booking up all freight.
22:50
Months in advance before Christmas.
22:52
'cause they know they're gonna have a massive sale of Apple phones around
22:55
Christmas time or whatever it is.
22:57
They plan for these things well, well in advance.
22:59
And that was part of the orchestration of Apple in the first place.
23:02
But back to your point about the difference between supply chain,
23:05
we had Yassi Sheffy, MIT professor, one of the expert worlds experts
23:09
on supply chain before, and he said the problem with the supply chain
23:12
is there's tears in the tears.
23:15
So if you go down the tiers of your supply chain, sometimes you don't
23:18
know where the outsourcing's happening and what that speaks to me in what
23:23
you're saying about if I'm managing an S-curve and that S-curve now used to
23:28
be vertical integrated and I used to be able to make my own chips, for example.
23:32
Or say for example, I was Apple and I made my own gorilla, my own hard glass,
23:36
so the screen didn't crack, but now.
23:39
That's catastrophic success and that business is screwed.
23:43
I'm left with all this skillset that's no longer needed.
23:47
But on the flip side, if I've outsourced it all and my companies who
23:52
supply me are in trouble and there's tiers and the tiers, I'm in trouble.
23:55
So my strategy and how I approach strategy has to totally change.
23:59
'cause it's not just understanding my strategy, it's
24:02
understanding the strategy of my.
24:04
My collaborators or my partners or my suppliers, but
24:08
also the longevity of those.
24:10
'cause if they go outta business, I'm in trouble.
24:11
Exactly, exactly.
24:13
And that's why I think in some ways, which is really interesting and fun, is
24:16
that being the chief strategy officer strategy is more interesting and more
24:22
fun now and more complicated than it's ever been because exactly to your
24:27
point, what happens is, if you think of that as sort of that triangle, that
24:30
pyramid at the top is the product, and then I've got all these tier.
24:34
But what's interesting is I've also got these other triangles in different
24:37
industries, and so if I'm a down here tier provider, even if I'm the most important
24:42
and I'm supplying, you know, millions of units of pieces that go up into here, I
24:47
also have to think about maybe I should be at the bottom of somebody else's
24:50
pyramid, and who can I knock out there, or one level above or down so that I
24:54
get the volume and the scale across.
24:57
So if I'm a chip provider, well, there's chips for ai,
25:01
there's chips for this and that.
25:03
But there's also chips for military defense, industrial units.
25:06
There's chips, you know, but still, my core competence is in making chips.
25:11
But each of those industries has a different need,
25:15
probably, possibly, you know?
25:17
And so then, well, where do I see the connections as a strategist?
25:22
And where do I see, you know, the ability to, to link those
25:25
so that I can get the scale.
25:27
And so that, you know, my operating of the defense industry really helps the ai,
25:32
you know, ops, ops center, chips, and, and, um, you know, the chips for that.
25:38
So you think of like Nvidia, right?
25:39
It's like you've gotta do it across and then the whole thing of, yeah.
25:42
Does Nvidia have suppliers?
25:43
And it's really fascinating if you look at like Nvidia, so, you
25:46
know, and then we, you use the word before foundry, which I think is.
25:50
Great word.
25:51
One that we actually used when Intel, uh, a number of years ago, you
25:55
know, came to the Foundry Insight.
25:57
It's like, well, you know, because the logic was always, we make chips sure.
26:02
And we don't make everything, we just, but we design and make chips.
26:06
And like, well, what if somebody else designed the chips?
26:09
And now you get back to the five thing because just make a.
26:14
Um, apple and Assembler, and we would say they're not an
26:17
assembler, they're a creator.
26:21
They don't actually build or make any Oh, you can assemble.
26:24
Yeah, exactly.
26:25
And so it's the same sort of question of, you know, Intel and the Foundry.
26:29
It's like, well, do you make the chips?
26:32
Do you design the chips?
26:35
Do you, and so they have those issues.
26:37
They're even talking to, you know, it's like, well, should Intel just
26:40
design chips and outsource it?
26:42
To other makers, or should they actually concentrate on the capability and having
26:47
unique global capability in making chips and then make everybody's chips.
26:53
So you come to us, say, Hey, oh, that's a nice design.
26:55
You know, we, we can make that for you.
26:58
I can tell you that we've spoken about this to lots of different industries.
27:02
Like if, you know, you think of something as basic as soap, right?
27:07
Um, detergents other things like, well, should I invent, should I be
27:11
in the business of having a lot of research and science and making soaps?
27:16
And then if I create a detergent and all of a sudden, what if I
27:19
invent this detergent that really gets out stains, it's brilliant.
27:23
Now, do I have to produce that and sell that and create commercials for that, for
27:28
a cus or should I just sell that to a, a, a soap maker, to a detergent maker?
27:34
And then the question of can I find a detergent maker that has the capabilities
27:40
to make it the way I want it or with the chemicals that I want to use?
27:43
And that, so there's, there is some opportunity.
27:47
So, so I don't wanna be telling people, you know, give up
27:49
all of your, um, you know.
27:53
Vertical integration specialties, your synergies.
27:55
It's like, yeah, there's a lot of synergy to innovating off of certain
28:01
components, capabilities that you know, and then building the solution out there.
28:05
Those will remain for a time, but you really have to ask yourself, do I want to
28:10
put more money into my factories or do I wanna put more money into my innovation?
28:15
And then it's, you know, and if it's in the factories, well then how am I gonna
28:18
use some money to buy other people's innovations or to get, bring them in?
28:22
Because even for Apple, to go to Corning and say, you know, the
28:26
story, if you look at ICE's book.
28:28
You know, the story of Steve Jobs going there and saying, look, I
28:31
need, you know, something hard.
28:33
And they said, and um, Corning said, well, we've got this thing in the lab.
28:37
It, it's on the shelf.
28:39
It doesn't really work.
28:40
It cracks all over the place.
28:41
And anybody who's owned an iPhone knows how Gorilla Grass used to crack.
28:45
Um, and, you know, buying insurance against your credit, why?
28:49
'cause it's super, super hard.
28:51
But if you create the flaw in the crystal structure, it cracks.
28:55
And then the other thing is when you're making the glass.
28:58
A lot of it cracks, so there's a lot of waste.
29:00
So they were like, well, we can make it for you, but you
29:03
gotta buy a million units.
29:05
And that's the only way we're going to be able to pay off figuring out how
29:09
to manufacture this at scale because it's not there yet, and da, da da.
29:14
So that partnering with innovators, uh, with inventors.
29:18
From creators.
29:19
But so we think, and we see, and as we look at different stuff, it's
29:22
like, if you're focused on creation, then how do I get access to all
29:25
the things that are in the labs?
29:27
How do I have the people who can appreciate that, who have the energy
29:30
to go out and find all those things?
29:31
How do I have the relationships to be able to like Steve Jobs to walk and say, well,
29:35
all right, well, I'm not going to meet a, a low level scientist in a coffee shop.
29:39
I'm gonna go straight to the CEO.
29:41
There's gonna be Steve Jobs and the CEO, EO of Corning.
29:44
Getting together and saying, Hey, this is what we need.
29:46
This is what you have.
29:48
Let's put something together.
29:50
One of the things there I was thinking.
29:53
With Clayton Christensen, when he wrote the innovative dilemma, his, it
29:57
was the, the source of his work was understanding the disc drive industry.
30:00
And Kim Clark told him at the time, he said, this drives are
30:04
like the fruit fly of, of industry because the life cycle's so quick.
30:10
And then I thought about how equally say with Nvidia it's the same thing.
30:14
The lifecycle of chips and semiconductors is so quick, the,
30:17
the, the cycle of improvement.
30:19
Say for example, you're saying.
30:21
I'm skipping iPhone 17 because there's an 18 coming out a month later.
30:25
Or M three chip, M four chip and a Mac.
30:27
I'll just wait for the next cycle.
30:29
'cause if it's Moore's Law, the increase in performance is so
30:33
great that I'll just skip a cycle.
30:35
So the thing about those two things and then.
30:37
I was reading about the Nvidia story.
30:39
There's a great new book on Nvidia out at the moment, and how Jensen Wong,
30:44
his whole thing was like, we're, we're always a few months from bankruptcy.
30:48
And actually when you, when you look at your frameworks and
30:51
you go, that is possibly true.
30:54
So the way Nvidia dealt with it is they have this mental model
30:58
of work called hyper speed.
31:00
So they work at hyper speed.
31:02
But he eventually realized that if I have all my teams working on a chip.
31:07
That is for delivery in three months, by the time they build the capability
31:12
and build that ship and it's delivered to the client, there's also the
31:16
need for the next cycle of chips.
31:17
So he, he had separate teams and they're almost working on different
31:21
S-curves at different times.
31:23
So.
31:24
With your work, I found your work very hap so in my head there I can clearly
31:28
see all these S-curves that if I'm a strategist in an organization, I need
31:32
to be managing all those S-curves.
31:34
And they also then affect like Conway's law, the structure of my
31:38
organization and the structure of my capability in that organization.
31:42
And I think that's exactly right because what happens in my mind is reeling
31:47
with a bunch of good ideas or things.
31:49
One is the whole multiple S curves, you know, and that's the whole PI pivot to
31:52
the future thing is perhaps your business has to actually be operating on three
31:55
different generations of disc drives.
31:59
Um, or perhaps you have to make the decision that your business
32:03
is one generation of disc drive and when it's over, it's over.
32:07
And nobody really does that, which is part of the problem.
32:09
Everybody spends the profits.
32:12
Trying to create the next generation or win in the next cycle and they burn all
32:17
the profits from the, the current cycle.
32:19
And there's great stories that are old, but, you know, go back, going back to
32:22
my business school days, but the whole thing of like switches, phone switches.
32:27
And the company's, uh, the name's not at the top of my mind anymore,
32:30
but the different phone companies switches had the same thing.
32:32
It's like, well, are you gonna put in phone company switches that can handle
32:37
a thousand people or a thousand phone numbers versus 10,000 phone numbers?
32:41
And once I put in switches, phone switches that have 10,000 people,
32:45
what about the guy who's coming to me with ones that have a million?
32:48
Switch.
32:49
So you have this versioning thing.
32:51
It's as a strategist, it's a really interesting question and the other
32:54
question that goes along with the keeping the profits and not losing
32:58
it to the next gen investment, you know, the whole milking the cash
33:02
cow question that we talked about.
33:05
This capital investment into a generation of technology and or do I wait for the
33:13
next one, which goes across all strategy?
33:15
I mean, the question really comes down to what I think is really
33:17
interesting is the changing in the nature of who accepts risk.
33:21
Where does the risk reside?
33:23
Who takes it on?
33:24
And I'll give you a great example that we got in China and South Korea, South Korea.
33:31
Certain South Korea chip maker was building a fab plant and one of our,
33:36
um, strategists, uh, chief strategy officers told me, you know, it's
33:41
nothing's real until you put $50 billion of steel in the ground.
33:44
Um, that was a rail company.
33:47
Um, but it's true, right?
33:48
It is like when you put, when you're trying to decide where to
33:50
put $50 billion of rail down in a country, you know, you gotta get.
33:55
The decision, right.
33:57
Well, the challenge for the South Koreans were if I'm gonna
34:01
build a $10 billion fab plant.
34:03
Do I have, how right do I have to get it?
34:05
And can I, is this the right technologies, the right capabilities, and the
34:08
machines and the stuff the size?
34:11
What's a fob Plunges.
34:12
Oh, I'm sorry.
34:12
A fabrication plant.
34:13
Fabrication chip.
34:14
Fabrication plant.
34:15
Yeah.
34:16
And so if I'm gonna have a fit, a chip fabrication plant, it's all
34:19
like the, the drs, the dram, right?
34:22
It's like, it's like the disc.
34:23
It's like if I'm gonna build a disc that can do a gigabyte.
34:27
What about.
34:28
In five years when it's a terabyte.
34:31
And what they realized that, well, they were willing to to sell before
34:35
there was shovels in the ground.
34:38
They sold off the fab plant at 10 years.
34:42
To a Chinese company, so in 10 years.
34:45
So the Chinese company said, we'll take that fab point for you at this
34:48
price in 10 years, which allowed them to finance the original build
34:53
because they had a buyer already who was gonna buy it for, you know, say
34:56
30 cents on the dollar in 10 years.
35:00
But so this putting together so that when we think about risk management
35:03
and when we think about investors and how we think about it for these
35:07
companies that still have, and there are many, many, many of 'em.
35:10
And of course even like.
35:12
High tech, there is a capital investment.
35:15
In many ways, the competition in these scale roles is about, you
35:21
know, large capital investment.
35:23
Then the question is, well, who makes the capital investment?
35:27
Who takes on what level of the risk and can we now start
35:30
to create tiers of investors?
35:34
Tiers of timeframes.
35:35
Now, the hotel industry has known this for years, and we see if you're into
35:39
it a little bit, you see that, oh, you know, hotels get renamed and stuff.
35:43
It's, well, yeah, because when a hotel ages, the hotel was
35:47
beautiful, it's built brand new.
35:48
10, 20 years later, it starts to, you know, look, its age.
35:53
Then you can either sell it to a more.
35:56
Down market brand, or you can spend an enormous amount of money depending on
36:01
its location in terms of rehabbing it.
36:04
But this whole idea of capital asset management across time and across, you
36:10
know, and then technology, the unknowns of the speed of technology, I think is
36:15
making for really interesting things going on in the financial markets.
36:20
Um, that's also worth looking at in terms of strategy.
36:23
'cause if you can't get the money, I mean all of strategy, you know, my point,
36:26
and it's not necessarily mine, is this idea that, and I loved it though, is
36:30
all of strategy is resource allocation.
36:32
Yes.
36:33
If you don't.
36:34
Change the money.
36:35
If you don't change who gets how much money, you're not doing anything.
36:38
You're just talking.
36:39
Yeah.
36:39
Speaking of what you reminded me when you were talking earlier on about
36:42
Robert Bergman who had on the show and he studied in depth, he worked
36:47
alongside, uh, Andy Grove, indel, former CEO Mayor, rest in Peace.
36:53
And how so if you think about this, Grove wrote that book on the Paranoid Survive.
36:58
He was a lecturer in MIT.
37:00
He was extremely well read.
37:03
Uh.
37:04
He had Clayton Christensen essentially on the books working for him,
37:07
understanding the lifecycle of a business.
37:10
So they make this big decision again, on the re source allocation.
37:14
It didn't actually come from the head of the organization.
37:17
It was a decision made in the middle of the organization.
37:19
This is what Bob Bergman was telling us.
37:21
But the, the thing I find so interesting about Intel is they made this major
37:25
transition, this Major S-curve jump.
37:28
But then along comes the opportunity to make the chips for the iPhone
37:32
and they can't see a market in it.
37:35
And they miss.
37:36
They miss the jump.
37:37
And to your point earlier on, it's like.
37:39
It's kind of almost, yesterday we were talking about retirement and pensions.
37:43
It's like, I, I have all my company assets.
37:46
I go, okay, I'm gonna invest them in the markets.
37:49
That could, could go well, it could go very bad badly for me, and if I'm using
37:55
the previous curve's, profits to fund the next curve and I get it wrong, or I miss
38:00
one and that one was so profitable for me.
38:02
Sometimes it's so hard to cover.
38:04
And the reason I share that is it's no wonder so many CSOs are.
38:08
Confused.
38:09
They're not educated for this new world where these cycles are
38:13
all changing and things where you had some advantage in the past.
38:16
You had what our mutual friend, Rita McGraw, would call a transient
38:19
advantage, but to your point yesterday, but I have to be able to take
38:23
advantage of that transient advantage.
38:24
Otherwise, what's the point?
38:26
Well, I think that's a great question because it goes to the first thing I
38:31
started talking about, which is what do you wanna be when you grow up?
38:34
What is high performance business?
38:37
And so, you know, because we also talked about this a little bit, you
38:40
know, in our coffee conversation, because I think there's a real wisdom
38:44
in comparison is the thief of joy.
38:47
There's lots of different words.
38:48
We're talking about life there, by the way.
38:49
Uh, yeah.
38:50
But it's true in businesses too.
38:53
It's like, well, does Intel wanna be Nvidia or does Intel want to be
38:57
a company that gave its shareholders and its workers hundreds of billions
39:02
of dollars over this 20 years?
39:06
And I think that's where a lot of chief strategy officers have to step back
39:10
to first principles and why it's so hard to be a chief strategy officer in
39:14
many ways, because you have to blend all of these different interests.
39:20
And the, you know, the story of it would say, well, what do shareholders want?
39:23
What does the board want?
39:25
What does the CEO want?
39:26
What do the employees want?
39:28
What capabilities do we really have?
39:31
How deep in a hole are we, what's the likelihood of success?
39:36
You know, and that's why it's, it's really easy to throw money on a roulette
39:41
wheel if you're, it's not your money.
39:44
Yeah.
39:44
Um, but that whole question of.
39:48
You know, and, and the whole thing is, can you ever be happy, you know, if
39:50
you win a hundred bucks in a casino or a thousand bucks or whatever,
39:53
can you ever be happy to just.
39:54
Take it and walk away.
39:56
Yeah.
39:56
Say, you know, not a lot of people win at at the casino, especially if
40:00
you have the equivalent of a market looking over your shoulder going, what?
40:04
What's the next thing?
40:05
I mean, you think about Apple now just turned four, $4 trillion.
40:09
Business cook is on his way out.
40:12
They're trying to create the next curve.
40:14
What is that?
40:14
People start talking about an apple car.
40:16
The market is like constantly gimme more, gimme more, gimme more.
40:19
So there's a, there's.
40:21
There's a challenge to just going, we have enough, we're just gonna manage
40:24
the curve where the curves we're doing today because of that pressure.
40:28
But you have to, you have to take it in the context of that and say, well, all
40:31
right, so, and this is where the pivot to the future comes in, is to say, all
40:35
right, well we have history, we have brand value, we have people value, we
40:41
have these curves in our portfolio.
40:45
Then we have to say, well, what's the intelligent way of managing these curves?
40:49
Because the other thing is that it's very hard.
40:52
Unless you really are operating on the new kind of edge of the world
40:55
network business, it's very hard to have the capability to have the
40:59
capital even to start a new business.
41:02
Right?
41:02
So yeah, entrepreneurs can't start new rail.
41:04
I'm not gonna go in and start a new rail line.
41:07
I'm not gonna go in and, you know, almost.
41:10
Changing in pharma.
41:11
I was gonna use pharma as an example, but it's getting easier
41:13
to be a real startup in pharma, and that's part of the risk, right?
41:17
Mm-hmm.
41:17
But there are lots of industries where there's still this capital requirement.
41:21
The question is how do you finance things?
41:23
This was the big question that we looked at for a lot of things,
41:26
is like, you know, do you finance it out of these old businesses?
41:30
Um, and then, you know, and pivot to the future.
41:32
It was really interesting is that for ourselves, even at Accenture, this whole
41:36
thing of like, well, do you reinvest in the innovation in the old business?
41:41
The profits because it's still profitable, but it's profitable.
41:44
Or how do you steal the money?
41:45
You know, how do you steal the profits from this business and
41:47
put it into the next business?
41:50
And then you're raising the great point of is should you Mm. And I
41:53
think the answer to that is, is so.
41:57
Context base that, that I would argue that's why you need a
42:00
great chief strategy officer.
42:02
Yeah.
42:02
And but the other thing about your point, you said you had the
42:05
network of 40 strategists, chief strategy officers, is that you, you
42:10
have to be so outward looking now.
42:12
You have to, you know, the way you would say an entrepreneur has to
42:15
get outta the building as a CSO.
42:17
You have to almost be living outta the building, understanding the strategy
42:20
of all those suppliers we talked about, those people who are helping you.
42:23
The term I was looking for rather than an assembler for Apple is
42:26
more like an orchestrator is if you're more like an orchestrator.
42:29
Yes, yes.
42:30
You have to understand the who plays the instruments.
42:33
Yes, exactly.
42:34
Exactly.
42:34
And there, and I, my take on it is there need to be orchestrators and
42:39
it's a great, I love that term.
42:41
So I think that's because I think the chief strategy officer in many
42:44
ways, I mean the CEO is of course, you know, kind of the chief orchestrator.
42:48
Um, but.
42:52
Unlike where they always say, you gotta be the conductor of
42:55
the orchestra inside the company.
42:57
It's like, yeah, no.
42:58
There are these unique players that kind of see the whole picture.
43:02
And we talked about seeing the inevitable future and the kind of
43:05
nature of jobs, but jobs in some ways was a great example of that.
43:09
It's like outside working with all those outside.
43:14
Understanding, you know, glass, how did he know to go to Corning to look
43:17
for piece glass, you know, and having that vision, and we talk about him
43:20
as visionaries, but I think there's.
43:22
There's that unique role you need, and it always comes down to people.
43:27
A good chief strategy officer in the past, and especially now is a, is really a, a
43:32
unique person in the sense that they are able to do exactly what you're saying.
43:35
They, they read pervasively and everywhere and they, and a lot of times it's just
43:41
the CEO doesn't have time for that.
43:42
Other people in the company don't have time for that.
43:45
The role of, you know, who sees the big picture in all sorts of ways, the
43:49
inevitable future, who's seeing all the little, you know, quiet signals like they
43:54
say, you know, the signals on their eyes.
43:57
And then who also understands what's deeply going on in the company,
44:00
because you have to integrate that with, with what assets do I have?
44:04
What am I working with here?
44:06
What's easily replicable by a competitor?
44:11
What's unique to us and valuable that is never coming back.
44:15
We give up the formula to Coca-Cola, we give up that brand
44:19
value, it's not coming back.
44:21
Um, and it's still valuable a hundred years plus, right.
44:26
On.
44:27
So seeing that and and managing that, that's why I get excited about Yeah.
44:32
You know, just even from my far off perspective, but just gosh,
44:37
to be in that is, it's thrilling.
44:39
I think it's a thrilling job, and you're speaking to the right audience here, but
44:43
the problem is so few people actually.
44:46
Have the time to read this.
44:48
For those of you watching us on YouTube, there's a pile of books
44:50
here, Paul's books on the table.
44:52
Most of you, I would argue, have a pile of them on your bedside table.
44:56
I will get through them.
44:57
At some stage, you just tell yourself it's so difficult with so much
45:00
information coming up people, and that's the other confusing thing.
45:03
We have this.
45:05
Abundance of, I think, or Herbert Seaman said it like this abundance
45:09
of data, but a, a dearth of attention in a time where we actually need
45:14
the, the attention and the attention span to be able to absorb knowledge.
45:18
And then if somebody feels like the, they're on a shark fin curve and.
45:23
By the time I read that knowledge, it's gonna be outta date.
45:25
But one of the things I find fascinating about doing the show is history
45:29
doesn't repeat what it rhymes Like.
45:30
All this information you have given us is in a way if you, if you read it, if
45:36
you understand it, if you apply it, it's applicable now more than ever before.
45:40
It's just different technologies you're dealing with.
45:43
And in a way it's like, you know those, we know when you're a kid and
45:46
you used to cut out the dolls and then you pull them out, you know,
45:48
that pieces of paper, it's more like.
45:50
That's your S curves.
45:52
Now.
45:52
It's not just one that's your transient advantages.
45:56
It's not just one, because you have to understand the entire ecosystem
46:00
and that that's a difficult thing for an organization to do because
46:04
again, back to the point, they haven't been trained for that.
46:06
Well, I think that's perfect and that's, you know, your expertise
46:09
there, Hayden, because I love when you come up with those things.
46:11
That's such a great way to think about, it's like you were cutting, you know,
46:15
the chief surgeon, we were cutting the do paper dolls, we were cutting that person.
46:17
I can just see that image and then you pull it out and it's like, oh my gosh.
46:20
It's not just one.
46:22
It's not just one for that first sitting.
46:23
There're all, you know, there's 20 of them and they're all holding
46:26
hands 'cause they're all integrated.
46:28
It's all networked together.
46:29
Yeah.
46:29
So it's the perfect metaphor I think, you know, when you look at it.
46:35
Everybody only has 24 hours in a day.
46:38
And so what they talk about, I think is important and even in a good
46:41
CSO, is it's focus and principles.
46:45
And so what you wanna do is simply make sure that you're focused on
46:49
the right stuff and limit yourself to what you can control what's
46:55
important and, and be comfortable of, because you can boil the ocean.
46:59
I mean, so the, you know, the, it, it, it's.
47:02
Been said, but the other, the, what I find is the CSO that can
47:05
avoid boiling the ocean, you know, is worth their weight and salt.
47:10
And then the other thing is the principles.
47:11
'cause again, you say it rhymes and I think that's true.
47:14
And so understanding, you know, the principles that you wanna be based
47:18
on, I want longevity over profits.
47:21
I want.
47:23
You know, ethical behavior.
47:25
I want people values, I want whatever it is, but it's what you, what
47:29
do you want out of the business?
47:30
What are the principles and then what are the principles of how we make money?
47:33
We make money by adding value.
47:35
We're generous with our partners.
47:37
We win together as a whole, inside and outside the company.
47:41
Those things, it sounds trite and cliche.
47:43
It's not my usual style.
47:46
But I really do, and maybe I'm just, you know, maturing into it.
47:49
But those are the things that are gonna help you manage the scale of the problem.
47:54
Beautiful.
47:55
Beautiful.
47:55
Always a huge pleasure.
47:57
I wanna thank the team here in HBS Publishing.
47:59
So we have in the back, Simona, Dave and Ellie, thank you to you guys very
48:03
much, and of course, to our sponsor, Kyndryl, who's always been with us and
48:08
driving us to do great things like this.
48:10
Like coming over to Boston and the Hertford Business School, and of
48:13
course also of Big Bang Disruption, jump by the S-curve, pivot to
48:16
the future, and mass affluence, which we will get to the future.
48:20
Paul, the shark fin nun experience.
48:24
It was great.
48:25
It was really fun.
48:26
Always, always.
48:27
Cheers, man.
48:27
Cheers.
48:28
Perfect.
48:29
Mic drop.