Episode #204

Maria Franzoni (00:15): Hello. And welcome back to The Speaker Show with me, your host Maria Franzoni. In today’s show, we’ll be talking about technological innovation, strategy and future trends. Before we get started, let me tell you that The Speaker Show is brought to you by Speakers Associates, the global speaker bureau for the world’s most successful organizations, providing keynote speakers for events, conferences, and summits. My guest this week is one of the world’s top 40 business professors under 40, an award-winning author and Lego professor of management and innovation at the IMD Business School in Switzerland. He specializes in technological innovation, strategic transformation and change management. His teaching and research focuses on why and how some firms can sustain new growth while others can’t. He’s passionate about helping organizations to become future-ready. He’s the author of the award-winning book Leap: How to Thrive in a World Where Everything Can Be Copied. Please welcome my guest today, Howard Yu. Howard, thank you so much for joining me. How are you today?

Howard Yu (01:26): I’m great. Thank you so much for having me here to have this conversation

Maria Franzoni (01:30): Absolute pleasure. Absolute pleasure. So, I mean, before we get started, I want to understand a little bit more about you and your work. So in the introduction, we heard that you hold the Lego chair professorship at IMD. Can you tell us a little bit more about the work that you do at IMD?

Howard Yu (01:45): Yeah, so I joined IMD almost nine years ago and historically I focus on pretty much on disruptive technology when I was still at Harvard business school. And ever since I joined IMD, you kind of expand your portfolio a little bit and these days I’ve really focusing on future readiness. What we are trying to unpack at IMD with the research center that I lead is to really measure and rank why some company are much more future ready than others. And during the pandemic, we see the huge difference in terms of performance. Those who are future ready, they are much more resilient than others. So in a way that thanks to the generosity from the Lego group, we are able to channel the endow endowment into this research endeavor, and hopefully we’ll be able to contribute to the practice of management field.

Maria Franzoni (02:39): I mean, that’s fantastic. I mean, surely that’s one of the most vital things in anything to be future ready, isn’t it? It must be a very much in demand area.

Howard Yu (02:48): Because what we see is, you know, before the pandemic, people have been talking about digitization for 5, 6, 7 years ago. And before that, it was like, well, as we talk a little bit about eCommerce on the side or digitization a little bit, and now today, what you see in the pandemic is everything is almost putting on a terrible charge. And if you are not ready, you don’t have those deep capability that we are suffering, same thing for flexi work, right? It wasn’t during the pandemic. All of sudden we are talking about remote first and things like that. Companies talk about flexible working arrangement for a long, long time. And now again, the pandemic becomes the stress test to test out which company have the capability to convert on a rapid form. And so you see Spotify going to remote first, even Amazon talking about two days on flexy work at home, and those who couldn’t convert because of historic legacy and cultural barrier and complexity of work, they see they have a harder time to attract the pool of talent. And of course today to become future ready we’ve got to think beyond just bottom line. It’s about sustainability. It’s about diversity inclusiveness, but you know, the whole idea of carbon footprint, we see it really forces company to fundamentally challenge their own business model and reason to exist.

Maria Franzoni (04:16): Wonderful. And actually you’ve gone, you’ve covered so much in that answer already and I’d like to come back to it. So, we’ve seen, you’ve said the pandemic has had an impact and we’ve observed speeding up. Really. You’ve mentioned eCommerce, you mentioned, flexy working, you’ve mentioned other areas too. What else has been accelerated or have you covered the main areas?

Howard Yu (04:37): Well, those are, I would tend to think about technologically related, whether it’s flexi work, company leverage on technology, of course, e-commerce is technology driven and a lot of the carbon footprint, containment is really required technology as well to become future ready. I think among executive these days, we also need to branch a little bit to become much more hyper aware around geopolitics as well. You know, the whole tension between US and China is not gonna go away during the Biden administration. So as companies having global footprint, even if you’ve faced in Europe, for instance, if your product sales is internationally, then it has implication. How do you position yourself? How do we leverage the market development that continue to diverge between the two system so that you could really capitalize the maximum opportunity out there as well as buffer yourself against the worst?

Maria Franzoni (05:37): Absolutely, definitely. So vital, vital, vital. So you suggesting that we’ve got implications for our business models and that there’s going to be new operating models, post, I’m gonna say, post COVID, but probably it’s already starting now, is it?

Howard Yu (05:51): Yes, absolutely. And this is where I always nudge our executive at IMD to really think beyond just peer group benchmarking, right? If you are a specialized equipment provider, it’s so easy that we suffer a blind spot and we keep on benchmarking your peer group. But what we see, more recently, especially organization that are future ready, they almost would borrow and industry logic from others so that they can stay ahead of the curve, for instance, right? The most future ready financial companies, they don’t behave. And we see, can see it in data. They don’t behave like the average bank. They actually behave much more like an IT company and we measure across different firm behavior, right? Even exploitation versus exploration. Are you biased for action? Are you optimistic or are you much more of a threat driven? It’s again and again, we see this peculiar pattern of behavior company that are future ready. They go beyond their own sector logic. And I think it has huge implication about how we train and onboard our executive. How do we expand our apenture a little bit going forward? So yeah, I mean, you know, we see every aspect is changing.

Maria Franzoni (07:12): And actually I want to refer to a story that I heard you tell, because I just thought it was so funny. And it does relate to this and the fact that you’re talking about people being future ready and organizations being future ready, but you were telling a story about beggars in China being very future ready. Could you share that story? Cause it made me laugh out loud when I heard it.

Howard Yu (07:29): I mean, in the west, we kind of take, you know, mobile payment and, you know, mobile app is sort of hip right at the moment that you don’t no longer need to step in your brand, just like, you know, it’s a godsend, but then of course digital payment has been ubiquitous. Ubiquitous in China. And this is one of these instance, right? If you’re financial company, you want to look in the ease to source good idea, and then you can scale in our, in your own home market. So I remember I was, you know, taking a group of German engineers touring around China. And at night I kind of take a nice role at the people’s park in the city of Shanghai. So there are homeless people asking for donation. The only thing is they actually don’t ask for change. They don’t want cash. They hold up a QR code and ask for mobile payment using the mobile app. So you think about that, the beggar in China gone digital. So if we are leader in leading digital transformation, we need to look out from our own comfort zone to source new idea.

Maria Franzoni (08:29): And, you know, I think it’s genius that the beggars have gone digital because actually I was out in, we in the UK here, we have a magazine that the homeless people sell to make money. I’m thinking why don’t carry any cash anymore because we’ve all during Corona, we’ve all been using cards. And I actually said, how can I pay you? You know, so they need to go digital. They need to learn from the Chinese who are leading the way. That’s absolutely. I love that story. It’s fantastic. And actually I wanna digress through, I know we prepared some questions. I wanna digress a little bit because the other thing I found fascinating is that you were sharing that there were sort of four different types of organization business models. And that the value, that we used to put on a business has changed dramatically over the last 10, 15 years that the asset based companies now may not be the ones that were, can you share what those four models were? Cause I’d never understood those so clearly until I heard you.

Howard Yu (09:22): I mean, it also a reflection of some of the long term trend, getting a salary during the pandemic as well. But if you think about today, of course, in terms of valuation of an organization, if your platform, or if your asset light, you are being valued with a much higher price to booking, price to booking Rachel. So simply, you know, the valuation of your company, holding the earning per share constant somehow platform, just shoot off the roof. And if you’re looking at last 20, 30 years, in fact that systemic trend has been happening gradually, and then suddenly. So 30 years ago, if you are an asset builder, meaning you control a iron oil or an oil field, or you have tons of equipment in your factory, you’re king. And physical asset really counts majority of the value of the company. Today, what you see is intangible asset becomes much more important.

Howard Yu (10:25): So things like brand, your IP, or know how, the data, the algol that we build that intangible becomes much more important. The implication becomes in every single industry. There are four types of companies or business model, if you will compete on a, on the whole arena. So there are asset builders, right? So company, when they expand, they need to build up physical asset. So a manufacturing base company, or a shipping line, for instance, right, a shipping line, when they expand a trade route, you build a containership. So these are asset builders. Second type is professional service firm, like a legal firm, a consultancy, like business school like us, right? The moment we span to Singapore, for instance, from Lausanne to Singapore, the first thing we do, we have to hire faculty. We need foot soldier on the ground to start teaching that’s the second type.

Howard Yu (11:18): And the third one is sort of technology provider, think about Intel and IBM provide technology for other sector to use. And the last one is essentially this idea of a platform. These are asset light, that link supply and demand together. So DD, the Uber of China is now going through IP owned today. They’re commanding 67 billion valuation, much larger than Honda, much larger than GM. And all these guys, it’s like, you kind of wonder how did that happen? And in a way it’s exactly what they represent is asset light, data happy. And they really link supply and demand on both side in orchestrating the ecosystem. Now, of course the pandemic, we could say all the online food delivery company and all the ride sharing company are taking off, but again, is this gradually and then suddenly movement. Okay.

Maria Franzoni (12:13): I mean, that’s fascinating that, when I heard first heard you talk about the platform and you’re absolutely right where in fact that the platform owns nothing and it’s literally just matching the supply to the demand. I think it’s very clever. Do you think that this will have implications for other organizations for organizational set up? Do we need to rethink our organizations?

Howard Yu (12:33): Absolutely. Right. So it’s never about whether your product is good or not. It’s really about whether you could differentiate your offering and in order to capture value. So what we are seeing the challenge for a lot of traditional company and our role is to really help executive to see how they can build a capability so that in the future, they can continue to capture value that they created along the value chain. If we are only focusing on the product, offering particular, if it’s only about a physical product, as we already saw, the ability to capture value would get diminished because data becomes more important. The AI behind, becomes more important. If we don’t get access to end user information data, it becomes harder for us to integrate the innovation pipeline. And if we couldn’t doing as fast as some of these digital native player along your ecosystem, then value got leaked out to those players. We see that in the hospitality industry, right?

Maria Franzoni (13:40): Yeah.

Howard Yu (13:40): This booking.com, it’s this Priceline guys that leak, there value leaks away from hotel and airline to this person, to this players, this new entrance. So, whether you are in the pharmaceutical space, in healthcare, device organization, or electric companies, we’ve got to think about this notion so that you can blend in both digital, as well as your heart offering together. And that is the secret to achieve longevity.

Maria Franzoni (14:13): So the secret is to have both, it’s not either, or you have to have both together. Okay.

Howard Yu (14:18): Yeah.

Maria Franzoni (14:20): What about individual behaviors? What about leaders, do they need to take on new skills to be able to achieve that? Would you say?

Howard Yu (14:29): Yeah. So these days, of course I find the most effective executive are intensely curious, right? They are just having this need cognitively to get satisfied. So, you know, Bill Gates famously would read a book a week and Warren Buffett, when he was young, he would, would read, 500 pages of document. And they all say like knowledge works like compound interest. The more you know about a new domain, the more interest that you have, and psychologists have explained, there’s a curiosity gap that in order for you to be interested in something, you kind of need the baseline knowledge. And, you know, I’m not suggesting everyone needs to read like Warren Buffett or Bill Gates, but coincidentally, a former CEO from PepsiCo, she would also read textbook cover to cover. During the holiday, I would read a novel on a beach on my holiday, right?

Howard Yu (15:19): She would read textbook on something that she had a master as a hard skill. So you can think about that the most effective executive, they’re curious, they’re able to build hard skill relatively fast. So, you know, if you are in the IT, you might learn about programming in the past is hot wire classic software programming today’s AI. And I know chairman of Vegas PC manufacturer, he would spend weekend and evening just to learn about this new approach of coding. So I thought this is a really interesting way of thinking about it’s no longer just T talent, that you’re deep in one and broadening others, but it’s more like an N, right. You develop additional deep skill really down or even an M eventually.

Maria Franzoni (16:10): Wow. I haven’t thought about that since actually I take business books on holidays. So not that I’ve had a holiday for the last year and a half, but I tend to do that. So maybe I could have been Bill Gates who knows. Anyway. So that’s very interesting. The N, the T, the M, that really is fascinating. So clearly you can help executives accelerate their learning as well, because you can help them on the executive programs at IMD, but also you are available for hire aren’t you as a speaker. What areas are you working with executives and leaders and organizations when you are brought in to speak?

Howard Yu (16:44): There are two objective. Usually companies trying to achieve one is to inspire, to get inspire so that there is this inner need and momentum to take their own initiative forward. So that’s the individual impact, but more and more what happened is within an organization, what they want is to arrive a share viewpoint, to legitimize a conversation, normally in their board meeting or in their management review meeting doesn’t occur. And this is where I think the intervention would drive most value. So if you’re thinking about every company talk about sustainability, but honestly, if you going inside the organization, there are not a lot of organization have really put purpose to the core of the strategy. And if you unpack any business review meeting, what gets trapped is continually to be a conversation based on historic KPI. You know, whether it’s profit growth or revenue growth. And, you know, the whole big idea outside continues to stay on the fringe.

Howard Yu (17:46): It doesn’t move to the core and what we want to achieve, what client usually want to achieve is an unconventional dialogue, right? Based on outside, in perspective, and then with very tangible and surgical laser focus type of discussion and group work that you legitimize topics that usually be at Habo. And then systematically thinking about the what if scenario, Okay. We don’t believe the world is gonna go, for example, totally electric vehicle by 2035. That’s. Okay. But what about 2040? What about 2050? And how, what is the percentage of each of this scenario, the money that you’re willing to bet, or at the sudden it opens up a conversation it’s no longer yes or no, but it’s a range of possibility with the implication of our investment. In fact, the world will be that stage in 10 years, but the preparation you actually needs to start now. That means that any managers and leaders, they need to change the way they behave right away now as a group. And that’s the power. I think when we conduct intervention for company is to legitimize those unconventional dialogue and with real action, taking away real trade off, real allocation of resources result. And that drives in fact, my own satisfaction too.

Maria Franzoni (19:17): I can imagine. I can also see that you give them a bit of clarity as to the direction that they’re going and you’re helping them to, to see the future and be ready for it in many ways. Is that, is that right?

Howard Yu (19:28): Yeah. And it’s also try to, a lot of the knowledge is inside a room. Someone would have seen it. Someone would have know it. It actually collectively the rooms, the audience will be smarter than me, myself, but I guess as a orchestrator, my role is to really help bring the best of the room to show them. Well, in fact, this is not just some crazy idea out there. You have recognized that, and you’ve seen what is working and what’s not. And then the idea built on one another. We help them to get unstuck in a conversation and we try to help them move in a trajectory that they know they should explore.

Maria Franzoni (20:09): So you really facilitate, you know, the strategic thinking and move them forward. You mentioned something about knowledge being inside a room. And I want to refer back to another story that I heard you tell, which I was absolutely fascinating. It was a strange time you spent six months locked in a cellar, didn’t you, going through papers. And if you would share that story, because that proved that a particular organization that really, you know, had some difficulties, shall we say, knew what was going to happen. Can you share the story about what your research?

Howard Yu (20:39): Yeah. So that was all the way back in the Harvard days that I was perplexed by this idea, like, you know, disruptive innovation and how come so many companies can see what is coming and yet they just couldn’t make it happen. So today, right in front of our eyes, everyone is looking, which car company couldn’t make that EV and connected car transition? Sooner or later, everyone is gonna looking at the oil major and energy company, whether they can make the transition into renewable. When I was still, you know, that must be 15 years ago almost. I was still at, in Boston. I was researching Polaroid. What happened to Polaroid?

Maria Franzoni (21:20): Yeah.

Howard Yu (21:20): Why is gone outta business? So I was thinking it must be arrogance. They were blind to change and so on. So I spent exactly six months down in the archive, in the library in Boston, and it was dark windowless.

Howard Yu (21:34): I was myself. By myself. No one looked at me. It was the saddest time in my dissertation time. And what I find out actually surprises me so much because back in 1987, the company demonstrates ability to take a picture digitally transfer to computer for post-show editing in front of their shareholders in the annual meeting, and then transfer to laser printer to print out all the way back in 1987. They have digital camera technology, but they just choose not to commercialize it. It turns out it’s the board debate that they couldn’t arrive a share viewpoint. This is why the type of intervention I mentioned earlier are so, so critical. The marketers and the researchers know they need a new channel because they couldn’t sell the high end digital camera as supermarket and grocery store where fumes are sold. But then you have key account manager and the CFO things that well, if we go into a high end store and we bypass our middle man, meaning Walmart and Walgreen, we would enraged them.

Howard Yu (22:42): These are big client, we couldn’t afford to do so. And so the CEO were on the fence and rather than bringing the whole team and have a heat debate to get the truth out. He opts for siding with the powerful coalition, of course, his key account manager and the CFO, right? And then the rest is history. So he underscore two things. I think these days, there are so much history that we can learn from, from his, that history. It give us an inspiration, but what is still needed is using this example to instill a rigorous debate. So that as a team, the top management team can really emerge with a share viewpoint. And therefore employees, individual, we have to understand why, because we are not just taking order from top down when we translate the strategic direction into action, that translation requires so much the, not just the know how, but the know why. And I think those conversations are critical.

Maria Franzoni (23:47): Not just the know how, the know why I like that. And that is, I was fascinated that, you know, the fact was they knew the answers, but they couldn’t make that move. And I suppose that is a danger for many companies that they can’t see it. They need somebody from the outside who can put an objective light onto it and show them. Are they companies these days who are constantly experimenting and trying different things and almost trying to break their own businesses so that they can, they can disrupt themselves rather than be disruptive. Can you, are there any companies doing that?

Howard Yu (24:18): Yeah, there are many, in fact, the good news is there are many companies who are capable of doing it all the way to you. Let’s say energy sector, right? We tend to think energy sector are slow moving, this oil major. They’re not imaginative. And they really don’t have true heart into renewable. But there are companies who have gone through that phase. A good example would be an Norwegian based oil refinery called Nestoil, right? They are traditional oil refinery. Today is all about renewable, jet fuel based on used cooked oil. Can you believe that, they collect cooked oil and turn them into jet fuel? And in terms of the production process, they make sure it’s the lowest carbon footprint ever possible by technology and overall, it is transformational. And you have mining company like Umicore, really going into the whole circular economy.

Howard Yu (25:18): All of these does represent two things, they need to basically and incorporate into a new set of knowledge discipline. So we talk about digital is like, whatever you’re good at you add on digital. In this phase, it’s adding on critical capability around renewable, et cetera, alongside with digital, but they also need to go through two distinct phases. The first phase is doing a lot of small, bad experimentation, trying new things expand rises. This is where you want agility, experimentation style methodologies. In fact, we have the whole toolkit to support executive do that. Because these are reversible decision, right? If something doesn’t work out, you can back it out. But in order to make a real impact, at some point, you kind of need to scale, and this require organization commitment. So it’s moving away from just like exploration to exploitation of new opportunity, new knowledge, and new know how. So there’s always a flip from early experimentation into commitment that have trickle down to resource allocation, tough trade off difficult choices. And this is where that honest dialogue becomes very, very critical.

Maria Franzoni (26:32): Yeah, it does. It really underpins everything. You do that honest dialogue and sort of looking through at things through a different lens, really interesting. You wrote a book, called Leap: How to Thrive in a World where Everything can be Copied, which is a scary thought that everything can be copied. Tell us a little bit about, about that book and what people will learn in, in reading it.

Howard Yu (26:53): And it does, right? Because what you see is, you know, IP would expire like our nespresso capsule, their pattern expire, and you see copycat everywhere. Pharmaceutical drugs would turn one day pattern off. And so Lipidor by Pfizer expire and the revenue drop by eight more than 80%, right? Generic drugs come in. Even if you have secret sauce, you can hire people from competitor and learn. Tesla learn about how to build cars also by hiring people from the car industry. So the notion is you have something that you can hold onto yourself and people cannot just replicate is belonging to the pre-internet era. So this number one and second is just because you’re clinging onto your historic knowledge, even when it’s secretive. At some point, the value capture becomes very, very tough because the environment change, right? The Swiss watch industry is facing a seismic shift right now. Not because of another country is building better watch, but because Apple watch is coming in and the wearable that you just show, apparently the revenue of just wearable by Apple is larger than the entire Swiss watchmaking industry,

Howard Yu (28:11): And Apple do co-brand with Hermes and all these guys, right? So, okay. How many watches one can buy? Right. In the end, we just have two wrists. And so is this notion that if we don’t build up a new capability and blend that in, at some point, the ability to capture value becomes harder and harder. So that’s the main thesis in the past. When I was writing that book, I was really just thinking about, oh, how can avoid copycat competition? It turns out the model that we just described and discuss that you need to lead from the old knowledge to the new first by experimentation and then scale. The model that I articulate in the book turns out is really about how you become future ready.

Maria Franzoni (28:54): Yeah.

Howard Yu (28:54): Our company are moving away from mechanical engineering, internal combustion engine to EV vehicle cell driving car capability based on software algol and then connectivity. Traditional bank, building branches with human advisor, giving you advisors to AI robot advisory, mobile app and mobile payment. I could go on forever. And, but you see the industry shift is always the same. And if there’s one thing that I learn clearly is because the pandemic really accelerate a bunch of stuff. That pattern becomes so obvious in our data, dataset.

Maria Franzoni (29:34): Wow. It’s okay. So it all comes back to being future ready. Everything comes back to me today. Listen, I could talk to you all day, Howard, we’ve come to the end. So I wanna ask you because you’re a very excited and enthusiastic man. What excites you the most these days?

Howard Yu (29:50): I think it’s always exciting to see how a seemingly small idea getting planned in, and it flourishing an organization and sustain momentum. And I had this actual observation when we brought a company going to China, just to inspire about the idea of rapid innovation and then that small backdrop of information implanted with the group turns out to be a huge idea that they changed the way they organize the R and D activities across the enterprise. And I’m like, you know, this is what drives what we do. I think, writing helped us to clarify, our executive classroom is our laboratory and the reward and the fruition is to see our method actually can create an impact in organization in changing both trajectory as well as the way they work. And I guess it’s a privilege to see things like this happen.

Maria Franzoni (30:56): That’s wonderful. That’s absolutely wonderful. Howard, it’s been a pleasure. Thank you so much.

Howard Yu (31:02): My pleasure. Thank you.

Maria Franzoni (31:04): And I just need to thank our listeners for listening to The Speaker Show. And if you enjoy this episode, please leave a rating on iTunes. You can keep up with future episodes on Speakers Associate website, which is (speakersassociates.com) or on iTunes, Google Podcast, or your favorite podcast app. And don’t forget to get a copy of Howard’s book Leap: How to Thrive in a World where Everything can be Copied. See you next week. Thank you. And bye-bye.