Ten Years Hence: Innovation, Part 2: Resilience

Episode Topic: Resilience (https://go.nd.edu/c558d4)

What will the process of creation and renewal look like by 2035? How will we leverage innovation to meet the challenges of the future in areas from our power grid and collaborative intelligence to community health and resilience building? Explore questions, ideas, and trends likely to affect business and society over the next decade. Let these ideas serve as a springboard for structured speculation about emerging issues and the next ten years.

Join Elliott Parker, CEO of Indianapolis-based venture studio High Alpha, for a discussion about how to prepare for a future we can’t predict, the unique perspective of extreme long-term thinking, and how to design organizations with resilience in mind.

Featured Speakers:

• Elliott Parker, CEO, High Alpha Innovation

Read this episode's recap over on the University of Notre Dame's open online learning community platform, ThinkND: https://go.nd.edu/db85a2

This podcast is a part of the ThinkND Series titled Ten Years Hence: Innovation. (https://go.nd.edu/ae57ae)

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Transcript

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Good morning everyone. This is 10 years since

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our focus this morning moves from collaborative intelligence to resilience. Our speaker this morning is Elliot Parker, who comes to us from Chicago. Elliot is CEO of high alpha.

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A Bachelor of Science and Finance from Brigham Young University and an MBA from the UCLA Anderson School of Management. LA had built his career and strategy

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consulting an in the firm, founded by Clayton Christensen, whom I met, have worked with at Harvard. Genius of a guy. he helped dozens of Fortune 100 companies build and execute their innovation

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strategies. Elliot had joined, his friends in Iowa, the Indianapolis Space Venture Studio, to lead business design and corporate innovation. After some years of building within the event

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studio model, they spun the team out to bring their playbook to corporations, universities, and governments. LA is the author of the Illusion of Innovation, escape Efficiency, and Capture Radical Progress. Bolt highlights the for scale organizations to unlock transformation through rapid experimentation. Ladies and gentlemen, please help me welcome Kelly Parker. Hey,

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Tim.

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nice to be here with you all today. This is a, it's a fun opportunity on the, the syllabus online. You may have seen my, my colleague Matt, who listens also being here. We run a venture fund, a venture studio with called 18. I'm happy to be here. This is a topic 10 years, hence is a really interesting idea. I wish I could stand up here and tell you exactly what the weather in 10 years, I wish I knew. All I know is the world is gonna be much weirder than we could possibly imagine. I'm gonna explain why. And I think the best strategy in preparation for that is simply to prepare for, anything that we can, because we can't predict what problems are gonna arise. We just need to take a stance of problem fixing rather than a stance of problem. I'll explain why to you. Let me start with that with two stories. first story about my friend named Paul. Paul is from Haiti. And back when Paul was in college in Haiti in the early 2000, one of his professors was asked by the. And this professor like Paul, and so asked Paul to be part of this group that was gonna put together the plan for the country of 80 to be prepared for anything that might arise, any type of natural disaster that would've come up. And so this group got together and thought, the first thing we need to do is we need to think about what type of natural disaster are we going to imagine? And so they sat down. We thought about, volcanoes. I haven't been volcano eruptions and Haiti for tens of thousands of years, maybe longer than that. So maybe not that. hurricanes, hurricanes happen often enough, and people know what to do. That's not serious enough. Earthquake. now earthquakes happened from time to time in Haiti. they sat there. the very worst natural disaster they could imagine as a prompt for designing their emergency response plant was this is gonna be funding people at South Bend. Of snow in 24 hours, 12 inches of snow fell on Haiti in 24 hours. This would be a disaster, right? It wouldn't be a disaster. Now it's a crazy far fetched thing. And they selected this for that reason because it was gonna push their thinking in terms of what was possible. But the plan consisted of kind of the steps you would take to prepare for a big snow storm. You're gonna need shovels and you're gonna need blankets. And where we get these things and where would we store'em? And all these things came up with a great plan for the country. They put it on a shelf somewhere. Now, the irony of it is that years later in 2010, there were earthquake in modern history hit Haiti, and the country was very unprepared. 7.0 earthquake, estimates are that at least a hundred thousand people died. The main road in HA just was blocked for 10 days. It took a week for radio stations to come back online. Just a terrible disaster. In some ways predictable, but. And they were not ready. I'm gonna come back to this because a lot of our large organizations are similarly unprepared for the types of problems that they're gonna experience in the next decade. Story number two, last year I was in Japan, where we're launching companies right now. And I had the opportunity to go to Kyoto, where there's this amazing ancient temple that was, built, if I remember right, 1400 years ago, something like that. It's incredibly old. And this temple, to maintain the kind of, the aspects of the temple, they, they used traditional construction. And so every 15 years wooden floors are replaced with these ancient techniques. And when we there back in of year, they just finished replacing the wooden floor in this temple. the floors were replaced with wood that is harvested from cfer. Trees grown in the hills surrounding this temple that had grown specifically for this purpose. And the trees that they harvested were planted back in the 16 hundreds to be used on the flooring last year. And what they told us was really interesting is that at the same time, they were planting trees to be harvested in the 25th century for the same purpose to be used in the floor. And I think that type of long term thinking is really remarkable. It's unusual, but it helps provide that a really unique perspective. It's a unique way to interact with Bill Ro. I don't know about you, but I wanna build things that last a long time and have a positive impact. I wanna be a good ancestor for people who are yet to come. I think inside of us, we all have a desire to build things that can endure. The problem is most of our organizations. Are designed to endure. They're not designed to be resilient. They're not designed to be able to deal with the types of unforeseen problems that can arise. So I'm gonna talk about, why that's important, why we're gonna see an acceleration of this in the next decade, and then what we can do about it. So we'll talk about three things today. First is the importance of messiness and embracing messiness. Number two, how critical it's to be running experiments. Those experiments help us learn, uncover anomalies, gather knowledge, and it's that knowledge that leads to serendipity. And it's through serendipity that our organizations become resilient in the face of crises or opportunities. We'll talk about some stories from major, ancient history a little bit, and we'll talk about a company called Val, which is a really nice business. Anybody know what Val does? Val makes, parts for automobiles, so they're in the automobile supply chain. Back during Covid, I was doing some research into companies. as you mentioned, we, I run a business that build startups for the corporations as a way to help them be more resilient and innovate, whereas they can't on their own. And so I was doing some research during covid into companies, how they were dealing with the crisis. And I thought it might be fun to go back and look at press releases from companies just before Covid happened because nobody expected this. This was a surprise and it was interesting, right before Covid is all the things you would expect, how amazing our companies performing, all the things we're doing. in the case of Vallejo, talking about what they're doing in China, the new plants they were opening. And then right after the crisis hit, of course the press releases were very different, took on the. In the case of Vallejo, Jack Asberg was the CEO at the time. He said Before Covid, we produced 8 million products a day. 3 billion components, 191 plants around the world. That is crazy. That is remarkable. that is an amazing feat of human ingenuity. If you think about it. Tens of thousands of people dedicating their careers to incremental improvements in the system. That led to a system where globally you would have 91 factories in all these different countries around the world producing 8 million parts a day in a super capital efficient way. And I think about the, we think a lot about the great pyramids of Egypt. That's, sure, those are amazing. They'll get the chance to go. They're amazing. This is also amazing enough, her, it, this supply chain was remarkable and it was incredibly capital efficien. There's very little waste, very little error in the system until all of a sudden the crisis hit. That system was now no longer capital efficient. It failed. The system wasn't resilient. It was so efficient, in fact that it was actually really fragile. And when a crisis came, it failed. A lot of our organizations are in a similar state, but they're universities, corporations, governments. They're so optimized for efficiency and avoidance of error that they've become very fragile. Let me give you an example of why I believe this. If you look at right now, we've decided in the last 50, 60 years that the primary method by which we measure the success of companies is a formula. Culvers. We're not investing capital. So formula that says you put a dollar in and you get a dollar plus something back out. and because that's become the primary metric by which we measure the success of companies, our companies have become very good at generating capital. There's more money on corporate balance sheets than ever before. The history of humanity, as of a couple years ago,$6.9 trillion on the balance sheets of companies. So companies are making more money than they ever have before, but at the same time, they're also going out business faster. That's a really interesting paradox. You would think that they're making more money, they'd be thriving and surviving and enduring longer. The opposite is true. They're making more money, but also going outta business faster. On average, what do we make of this? what we can learn is that our corporations are indeed very good at managing for capital efficiency, at generating profits, but perhaps that pursuit of profit, so much capital efficiency, like to f. Our corporations are not able to deal with the things in front of them. And I think you could argue, we all have a sense that this might be true, right? We can all think of stories where large institutions, governments, corporations, whatever they might be, somehow seem more capable of dealing with change with opportunities with challenges 50, a hundred years ago than they are today. All sorts of fun anecdotal stories about that. we need our corporations to succeed. There are certain types of problems that can only be dealt with through massive human coordination, and corporations are a vehicle through which we do that. So as long as corporations are generating societal surplus, we need them to exist and to succeed. They'll in the room right now from the technology, for example, these are things that only being created by corporations like Vallejo with their supply chains. The startup can't do this. and so it's important that corporations drive as long as they're generating that societal surplus. The problem is. We're optimizing our corporations for the wrong thing. We can really good at managing them, and we're managing them for the wrong outcomes, for capital efficiency rather than for resilience. and this is the formula that gets applied. we think that we can simultaneously reduce the errors we encounter in a system or avoid errors while increasing the number of insights we're going to gather as a group. This formula does not work. This is impossible. In fact, as you reduce errors in the system, you also reduce the amount of learning that system is producing. after you get outta school, you go work for a company. If you were working in a company where there is no errors, you're working at a company that is dying. I tell corporate executives all the time, it may feel good in the short term to have a company that avoiding errors, but the reality is you a corporate worker, you in a sterile environment, sterility is death. Mistakes that make us human, make us alive the same as true of organizations. Errors and mistakes generate the insights we need to learn. Whether that's individually or as organizations since that learning I'll talk about helps produce the resilience that we need. They give you an example. Anybody knowing this is seen, this guy before, he is semi-famous. this is a guy named Hathor, sometimes called the Mountain is his nickname. He is, six nine inches tall and in this video he weighs four 50 pounds. That is not his, normal weight. He, he over a couple of years put his body through tremendous stress so that in this video he could break the world record for heaviest deadlift over 1100 pounds. He's lifting right here and the funny part about his story is. He did. This is outta spite. There. A guy in England who previously held the record, story, he wanted to beat him, just to show this guy that he could better. So he beat him by a kilo. The old record was 500 kilogram and did 501. After he got done with lift. He said he could done more, but he wanted to just be this other guy. Now, to prepare for this, he had to put his body through just a crazy amount of difficulty that he had to choose on purpose for a couple of years. He had to eat 10,000 calories a day. One example, that's five or six enormous meals every day that he was eating. That sounds oh yeah, that'd be fun. No, this is not fun. That was a hard work behind eating 10,000 calories a day for a couple of years. You would be so sick of it. He had to do, go through these strenuous workouts where he's tearing down muscle so that the muscle could rebuild, creating new connections between his brain and his muscles so that he could break the world record for. Now he had certain qualities that made him more likely than any of us in this room to break the world, right? Six nine. At the time, the lift his four 50 pounds. But he still, he had to choose hardship. He had to choose difficulty to be able to do this incredibly amazing thing that nobody had ever done before. the same is true of any endeavor in our wives. If we want to learn, if we wanna accomplish big things, we have to be willing to put the system under stress in our organizations if we want our organizations to grow and to learn and adapt. The same is true. We also need our organizations to undergo some stress deliberately. hopefully sometimes it's not deliberate, but the organizations need stress in order to learn. This is really important because the world is changing quickly. Anybody seen these pictures before? I think this is remarkable. That's chief of Communication for the Vatican Guy Press office. And that's, I saw this about 2015 and it was just astounding. It's, there are, so I put these pictures up because this is one example of many where the world is changing around us really quickly. And when we're in the middle of it, sometimes we don't notice it. But here's an example. We've all lived through, I think, I don't know, has anybody born after 2005? So we all arrived during this time period. One day that won't be true enough. It's showing these pictures too. But in 2005, if you look at that picture of the people at St. Peter's, you can see that some signs of what was to come. You could see some people holding up foot phones. Eight years later, nearly every single person in that room has a smartphone that is changing the way these people interact with the world around them in a pretty fundamental way. And if you'd asked people back in that moment, it was pretty gradual. You didn't feel the. And look over that eight years. This is a remarkable change in the way that humans interact with each other. There's so many things like this happening right now that in the moment it's hard for us to see. I'll give you a couple more examples. The future is gonna be, this is coming back to the 10 years. Hence, what can we say about the world 10 years from now? All I can say is the future's gonna be much weirder than any of us can imagine. It's gonna go, gonna get here a lot faster than we think. lemme explain why. I love ancient history. I was just with my, my, my parents last week. My mom is a doing graduate work in Egyptology, which is a passion of her shed of book called, innovation during the re of Can't, which Egypt, every Ancient Civilization. And the reason is that those civilizations did not innovate fast enough. And what I mean by that is they didn't gather enough knowledge and wealth to be able to deal with the problems that arose. The problems stacked up over time. And ultimately, some problem came in the form of some other people or some natural disaster that the civilization was incapable of dealing with because they did not have the wealth, the needs, the will or the knowledge for how to deal with this. And the civilization failed. If they had innovat fast enough, if they'd gathered enough knowledge and go along the way, they would've been able to deal with these problems. So a couple things to learn from this. This is also true of our companies. By the way. No company ever went out business because it learned too fast or too much. If you look at, what happened through ancient history and these civilizations that failed, one of the lessons takeaways that problems number wiring. All problems are solvable within the laws of physics. And you might argue as well that if every problem that comes is beneficial in its ability to drive progress in society. So problems are inevitable, all problems are solvable, problems are beneficial drivers and progress. Now if you recognize that's gonna happen, we're gonna encounter problems we can't yet predict. Like my friend in Haiti, the only thing you can do to prepare is to focus on gathering as much knowledge about how the world works and as much wealth to be able to be prepared for anything that might arise and things that you can't yet predict. And so this thing becomes an important way to think about how we operate our corporations as well, maybe even how we operate our lives. Focus on gathering knowledge and to be prepared for any problem that might arise. the futures not predetermined. our society that exists right now. It isn't predetermined that society will exist forever. It's important that we collectively focus on gathering knowledge and wealth to ensure our society continue to thrive and solve problems that might arise. Asteroids hitting your reflect on that, maybe? So what, why is the world gonna be weirder than we can imagine? We just walk through what, what drives pace of innovation, because I think this is foundation help understand what we do about it. Go back to ancient Egypt. Ancient Egypt survived for three, let's call it 4,500 years, and that civilization was relatively static, right? If you were, an ancient Egyptian living in 3000 VC or a nation Egyptian living in 500 vc, it wasn't all that different. Similar religious beliefs, similar clothing, similar technology and tools. Why did it progress so slowly? The reason is when Egypt started out, they had to invent things like spoons. Tables. They invented marshals too, by the way. They invent things like this that didn't exist before. They didn't have the building box that we benefit from now, and they also didn't have the connectivity. They just, there weren't that many people and it wasn't easy to communicate. So they weren't able to share ideas. So what drives progress is, number one, the amount of connectivity in a system. How many people were in that system and how well connected are they? How able are they to share ideas? Number two, how many building blocks do they have? Or how many ideas do they have to share with each other? As those two things increase, the pace of innovation increases. Alright, so there's a futurist that and way coach stated this pretty well. I said The rate of change of progress accelerates because humans can use the technology at their disposal progress faster than previous generations could without the technology. Now note that he does not say the amount of technology increases, the amount of progress increases. He says the rate of change accelerates. This is a linear growth. As you get more connectivity and more building blocks of ideas, the pace of change goes like this. And so think about the world that we're living in right now. back on a second, there is, there's more communication, more nodes in the network, more people more ability to communicate than ever before, and more ideas to share what happens in the world when anyone can share any, that deal with anybody else on the planet, anytime for free. The answer is, we don't know. This has never happened before, but we're living in it right now. Think back to the picture of the phones. This is an example of a growth, an exponential growth curve. That living processing, lemme give you an example of a couple of growth. Interesting. When I was growing up, you had to be careful about which phone numbers you dialed. Because, if you dialed a number outside your local area into another area code, the phone company would charge you extra money for that phone call. And it's a crazy thing to think about now. if you look at the history of communication in the United States or around the world, it's pretty interesting to see the drop in the price. If you were, let's imagine you were living in 1860 and you're in New York and you wanna have a conversation with someone in San Francisco face to face for voice communication, the only way to do it was to hop on recovered wagon drive across the country, or take a boat around South America, over to San Francisco. That would cost about$20,000 in today's one direction. Now you get to San Francisco, you deliver your message and have to find 20,000 in four months to now go back to New York. Incredibly expensive. Time consuming. long come telephone in, late 18 hundreds. The, even in the brigade telephones are pretty expensive. So back in the beginning of telephones to make a 10 minute phone call from New York to the West Coast cost about$2,000 of today's dollars. Now, the technology development infrastructure was built out. That price dropped precipitously. So much so that in the early two thousands the government struck, stopped tracking the price altogether, but it because it became pretty much free. Now again, lemme ask you a question and we can communicate with anyone in the world for free anytime. How does that change things? The answer is, we dunno, yet we're gonna find out over the next decade. It would not surprise you that when I arrived here as an instructor. I was given a blank sheet and I had to fill one out every month. I had to keep a log of my telephone calls elapsed time, and someone then in another office would estimate the cost of these things and it would come back, it would come out of my budget for every phone call. Oh, I see. Yeah. So I found it easier to take, some quarters and go down to the payphone. Yeah, they don't do that anymore. Lucky us. Lucky us. Lemme show you another one. This one's a little bit hard, maybe a little bit hard to read on the screen, but this is, this may be my favorite chart of all time. Now, this is calculating will GGDP over the last 2000 years. This is an impossible number to calculate, but it's probably directionally correct will. GDP, meaning how much, how wealthy are we as humanity? Over time, and you'll see this chart, this is not linear growth. Part of the chart where we are living now, today, we're dramatically wealthier than people were a hundred years ago, even 50 years ago, even 20 or 30 years ago. And when I look at this chart, what I realize is there's no reason to expect that the fundamental causes of that growth in wealth have changed. And it's interesting to think about a hundred years from now, how much more, how much wealthier our grandchildren or grand grandchildren will be. It's hard to comprehend, but what we do know, again, the world is gonna be much weirder than we can imagine. It's getting here faster because of these exponential growth curves. This is a, a good way to think about it in the moment when we're living through these things, it feels like slight changes, steady changes. If you're, you're aware enough to pick these things up, you'll see the changes, you'll think about. And number, maybe 20 years ago, people around me were eating different food or whatever. it feels like gradual growth was actually happening. As things are changing exponentially, our brains just have a hard time perceiving and understanding it because our brains don't work that way. The world is gathering a lot more knowledge and a lot more wealth, and I take effort in that knowing that the will as a result, is hopefully better prepared for unpredictable problems that are gonna arise. Now let's go back to running big corporations with small companies for that matter too. There's kind of two approaches you can take when you think about. They know Jack Welch was. Yeah, Jack Welch was a famous, CEO of General Electric. If you want a fun experience, listen to the audio version of his book on excellence. He does the narration and his thick New York accent, which just not shared very often anymore. It's fun. He's an amazing leader, was able to get people to do incredible things, but on this point, he was incredibly wrong. And in fact, I would say that what he says here was actually evil and it's our way unintentionally. He meant well, but she said variance is evil. When she said that, what he meant was in General Electric, their goal was to remove Error tire entirely from the system of the company. We wanna get rid of variance. We wanna make everything as predictable as possible because in making the business predictable, that will ensure its duration for a long time, we can steer clear up problems. the reality is that these systems that are so sterile that avoid problems like that. Are not places where people, it's not places where people innovate. It's not a place where people learn. That organization fails to learn. And I would argue that he did tremendous damage to long term durability of General Electric with this stance. I interviewed him on a stage in New York and I said, is there work off balance for the employees of General Electric? And in his, Providence, accent, he said, we have work life balance at GE hitching numbers. And so you knew which side of that he came down on. He, there was clarity around what he expected. And as a result, people didn't stay very long. A lot of good managers had GE in their DNA, they learned all they think they can learn or all they could take, and

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they moved on.

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Yeah. I think, I think he did a lot of damage to US corporations broadly because of that.

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Actually

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I

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would great.

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I contrast this with, what re Reed Hastings says here. Remember Reed Hastings is the founder of company called Netflix. Yeah. Now, yeah. Good communications case study. So Reed founded Netflix and helped scale the business and Netflix is an example of a large company that's gone through three fundamental transformations from one primary business model to another, right? They started out doing shipping physical DVDs and then they started doing digital delivery controversially. So at the time, their stock price changed when they announced it, and then they went from digital distribution of content to now production of content, major shift in their business model. Now Netflix, you would argue, is at a point where they probably need to transform again with AI generated content and gaming and all these things Competing for what they do. Will they be able to make that transformation again? I dunno. Reid isn't there anymore. We'll see. But Reid had a philosophy of Netflix that said in the long term, fertile would be sterile. What he meant by that, he used to say, we're willing to embrace a certain amount of chaos as long as that chaos is fertile because in the end, fertile will be sterile. What he realized was that chaos, that fertility is what exists in a company that is aligned, that is learning, that is able to adapt and deal with any problems or opportunities that might arise. Contrast that with GE and organization that is sterile, that organization is not learning. That organization is exceptionally prepared for the way the world exists in this moment right now. But the second a crisis comes, think about Val or anything changes that company is not prepared and. So a few years ago I had the opportunity to go to the Amazon jungle. This is a picture I took. It's an amazing place. My oldest son is currently a student at Purdue. getting ready to go do his PhD in entomology, which is the study of insects, not words, sometimes gets confused. Ever since he's three years old, he's been fastened by bugs. And so when he was graduating from high school, he said, I really would want to go down to the Amazon and hunt for insects. And I thought that sounded insane, but I went and did it and it turned out to be amazing. Do you ever get the chance We went down to this place in Peru about a 60 square mile area that was more bio diverse than any other place on the planet because the climate in that little area stayed relatively stable for eos. A lot of the other, the rest of Amazons drive out, gotten wet again, gone up and down. This little part has stayed relatively stable, so there's more species like insects of birds and monkeys in this little 60 square mile area than anywhere else in the world. It's an amazing place. And so we went looking for insects. And the way you do. If you are crazy enough, you go out and you stretch a bedsheet between two trees and you shine a light on the sheet and within minutes it's covered by insects. Now, at the time I had no idea I would ever be using these pictures of a presentation. I would've dated by the photo if I'd known that. But this was taken right after he turned the light on. Within a couple minutes after this, the thing was covered. I was out there with like head to toe, just covered up. The only thing visible to the air. My eyeballs, my son's out there in shorts and a t-shirt, just loving it, FARs all over. It's crazy. But what was interesting is we saw insects of every kind of variety you could imagine. some insects designed to blend in, some insects designed to stick out. cultures are crazy, weird appendages, and it is amazing to see the type of variety of life that exists in the Amazon jungle. I would argue that it is this variety of life from the Amazon jungle that makes that. Ecosystem. So ecosystem resilient, despite what we might do as humans to the Amazon, the animals gonna do it for a very long time because of this variety. And so the question is, what leads to this variety? How does this happen? If it's this variety, this experimentation that leads to the resilience? What causes this experimentation? And this is evolution, in the Amazon. And what's interesting to observe is that this evolution, it's not done in a planned way. there's no central committee in the Amazon determining which organizations you're gonna do what. It's a random walk from where ecosystem exists. Right now, it's experimentation in the form of mutation happens at the level of organisms or even individual cells. And these mutations lead to new discoveries by the ecosystem of what forms of life are possible. If you mutate enough, eventually you discover that light exists, for example. And having eyeballs can be. Now, some people would say, there is a point in this evolution, and it's how the best form of a, an organism that can survive and thrive in this environment. I would argue that's not true. the best form of an organism in this environment is probably single cell organisms that are incredibly hard, and that really well, if that were the objective, this evolution would've stopped with single cell organisms. So all this variety is a testament to the fact that something else is going on. This is the ecosystem gathering knowledge about the way the world works through a random log of experimentation. Now, just think about that for a second, because I'm gonna contrast it with the way that we innovated inside of our organizations in pursuit of resilience. We do everything in the exact opposite way from how this happens in natural systems in the Amazon. There are no objectives, only constraints, meaning there is no objective to that evolutionary process. There are constraints. There's only a certain amount of water, of food, of sunlight that the organisms have to compete for. And it's that competition that leads to, increase in fitness, these organisms that survive in our organizations. Innovation is always objective driven, meaning similar pursuit of specific goals, and, as a result, it's far from prolific. Now it's hard to imagine ways in which if we had more time for a whole other lecture, what we might do is talk about how do you innovate? No way where it's not objectives driven inside a company. We do have constraints in our companies in terms of the amount of capital and time we can spend on different things. So there are constraints like in the Amazon way, but we need to think about ways that we might do more innovating without objectives. There's some amazing stories in history. Some of the greatest inventions that we enjoy came from that type of random walk and discovery. Number two in the Amazon experimentation happens at the margins, as I talked about, to set the level of individual cells or organisms, and if that experimentation, that mutation fails as two bad for the organism or a cell involved, right? But if it succeeds, the ecosystem is poised to adopt it and let it proliferate. Inside of our large companies, because we're so focused on capital efficiency and safety, what happens is we centralize innovation and experimentation, and whether it succeeds or fails, it's incredibly expensive. A friend of mine runs innovation inside a huge multinational company, me company, he said. That is not like what you want. That's not what you want, not Amazon does. Number three, novelty compounds over time. What I mean by that is that mutation that happens leads to a about sub form of life that's possible. And then that form of life tates further that novelty, that gathering of knowledge compounds over time and becomes useful. Jim mentioned I used to work with this amazing man named Clay Christensen. one of my heroes, just as a quick aside, my, the book I Away the Most Often is a wonderful book he wrote called, how Would You Measure Your Life? Cannot Recommend It Highly Enough. clay was a professor at the Harvard Business School and an expert in innovation came up with the idea of disruptive innovation in his doctoral thesis back in 1997 and Clay. An amazing thing about clay. In fact, so much so that he had a sign that he had made outside his office. He used to love doing woodworking. He had a sign outside his office that said he had carved in the wood anomalies wanted, and he took that very seriously. If you could come to him and tell him some way, which his theories were incorrect or wrong, he loved it because it was that process that made the theory stronger, more applicable to the real world. We should be in the search of that type of anomaly of learning. It's that novelty, that knowledge compounds over time and becomes very important. So the way that you make serendipity happen, that serendipity, that drives resilience is you run experiments. Experiments designed to uncover anomalies. Now about what? What? experiments is some action take where on. In all personal lives, we run experiments all the time. Often the experiments that we run are designed to reinforce what we already know to make us feel better about our decisions or what we think. The same is true in our companies. When I did this presentation to corporate executives, they say, oh, that we run lots of experiments in our company. The problem is most of those experiments are designed to reinforce what the corporation already believes about how the world works. Experiments should be designed to uncover anomalies, to challenge the things that we know or think about the way the world works. That is how we learn being back to our weightlifter fret, put the system under stress and challenge what we think as a way to learn those anomalies, generate knowledge. Just that knowledge that leads to insight as it compounds, and it's the insight that generates serendipity that enables us to be in the right time, at the right place to do new things with the opportunities and problems that arise. So just a word on experiments. We'll go questions here in a second. Experiments should be fast, cheap, and weird. And what I mean by that, a fast, quick iteration cycles, especially in a world that's driven by AI and the rate of change, of progress increasing, we have to get faster and faster at learning to be able to stay on top. Experiments should be cheap. They should be an expensive, the equivalent of happening at the level of cells or organisms, but in our own lives by the way, as well as in our organizations. Number three, which should be weird, what we make of the experiment at cn, that was hundreds of billions of dollars from a micro momentary glimpse of a proton. Yeah. We'll see how useful that is over time. Okay. we'll see. Relative to I'll give you a quick example of this kind of a learning that can generate from, from small experiments. Let's do it by experiment for a minute. Let's imagine you could travel back to the. You go back to the 1850s and you tell people in 2025, we had this amazing intervention called a microwave. It's awesome. They heat up our food really quickly. It makes life so much easier. You all need microwaves in the 1850. You should have read microwaves. And so what they would do is they'd set about, okay, microwaves are a big objective. Let's invent microwaves. That does sound really useful. 0% chance with microwaves in mind that they would be able to invent microwaves if you told them about it. Because a microwave is based on all sorts of building blocks that had to happen along the way. Someone has vacuum tubes and then electricity and all these things that collection of building blocks over time. So these little experiments, these little things that direction lead to the big mine wrote. Highly recommend that he's a researcher at Open ai and Ken not open AI anymore, but big AI researcher named Ken Stanley, wrote a book, white Greatness Cannot Be Planned about that. He learned and trained computers how to think about how to achieve big outcomes and found that, and documented with amazing. It's just a, it's a counterintuitive idea. You're taught to set big goals and do big things, and that's how you achieve big things. What he found is that random walk is more likely to achieve big outcomes and it's cool. Anyway, so weird experiments, you should be running experiments and challenge status quo. Thanking. Alright, so just to summarize, this is important as 10 years. There is no data now in the future, you can sit and go look for as much data to predict the world as you can. That data only tells you about the world as has existed in the past or exists currently. The only way you get data about the future is by creating it and you create data about the future by taking act action creates data. That data creates knowledge. That knowledge compounds over time, like any asset, it's the experiments that help us uncover knowledge that we need, the knowledge and the wealth that we need to deal with any problem that might arise to run fast, cheat, weird experience. Okay, one last quote. I live in Indiana. This you all do too. John Wooden, famously grew up in Indiana. I also went to UCLA where John Wooden is a big deal because he was a basketball coach there for a long time ago. But he had a quote used to say all the time, but he learned from his basketball coach at Purdue. The team that makes the most mistakes usually wins because doers make mistakes. That is a counterintuitive idea. The team that makes the mo, the only thing for a coach to say. But he's right. The team that makes the most mistakes wins because doers make mistakes. Action creates data. So if you wanna be prepared for the future, what you need to be doing is taking action to gather as much knowledge and wealth as you can to be prepared for anything that might arrive. That's true at an individual level. It's true at a company level is true. A societal level action creates data. We're gonna make mistakes along the way. Problems are inevitable, but it's an uncover problems. Those problems become the drivers of progress that we need on to, to rely on in advance. Okay. Nothing, me talking, how about some questions? I'll put my contact info here. the pandemic obviously was, but experiment since. Need to experiment and the stakes were high, but what do you think we learned out that three, four year period? I don't know. It's a good question. We'll see how much we learned, over the next decade. My, in my conversations with corporate executives, I will tell you the shift from that focus on efficiency to resilience resumes because of the direct experience they had during covid, take supply chains as a specific example. You go to supply chain conferences right now. if you come to supply chain conferences five, 10 years ago, all anybody talked about was supply chain efficiency. You go to conferences, now they're talking about some redundancy is okay because you leave resilient supply chain turns out to be more important in the long run. I don't know. there's structural impediments. We think about, return on invested capitals, the primary successful companies, I don't think it should. But there are structural to changing that. I did a, did some interesting research over the last couple years into the world's longest lived companies as a way to just understand what are they doing differently. lived company in the world, by the way, was started a hundred years after the fall of their own empire. back in, started a Japan family owned construction company. Congo Society started in Japan in the, in the six hundreds. And you think about a business like that, what they had to overcome and do to last and do it that long. the business, by the way, just a quick side note on that, did effectively go outta business in like 2001, 2002 because they were burdened by debt that they couldn't pay off in the middle of a crisis. There's still an operation, but they got acquired. They're not operating as an that company. I think a lot of that, the guy who was the 41st person in that family. Was watching the business when it, that pressure knowing your family run since the six anyway. But if you ask, you look at some of these companies, there are certain things in common that enable them to, and last, in the case of a lot these Japanese companies, which a lot of you look at the list of the hundred longest companies in the world, a good portion of them are Japanese. And, some of the things they do are really interesting. There's this idea, among companies that's quite common called samo. Yoshi, which is you run a business to, benefit not just your owners, but your customers and all things, and you sees profitability in benefit. Don't. They can earn too much profit. And something the society determines that they're earning too much money, they're not producing enough surplus for society. They get shut down either because their shuts down or something else happens. These companies, Japan also was interesting to watch. They do, they, they understand that crises come regularly. If you move through enough big crises like the Covid, you recognize that you need to be prepared. there's a professor in, Korea who was looking at some of these companies in Japan coming outta Covid saying like, how did you prepare for this? They said, oh, we knew big crises like this come about every 15 years, and so we maintain a stockpile of cash just for the types of events. And talked to you, talked to one manufacturing company in Japan that said, without any revenue at all, we've got enough capital on hand to last for 22 years. Now that's probably extreme, but it shows the mentality. There's this other really interesting idea too. in these organizations that go through multiple crises like this, when we were, a couple years ago, we had, we do a big innovation conference every year I just film my company. And one of the speakers who came, was in charge of innovation for the queen of, she got up on stage this amazing British accent. she literally, her job was to figure out how to have the queen of humans for royal family innovate. And to boil it down, her job was to determine what needs to stay fixed and never change. And then what do we put in the category we deliberately need to adjust and change? We find in organizations that do it for a long time, they've got a pretty good sense of what must stay the same and remain true always, but then also recognizing that everything else has to change and they're pretty good at doing that. I could go outside, gone and on, so I, we learned that. I think there's some that. Open to the idea that resilience manage efficiency. Right now, I think there are structural impediments to that broadly adopted. relative to that, we had a conversation about, at the University of Pennsylvania, she said one of the things she learned, she won the Nobel Prize in 23 for the Covid vaccine. One of the things she learned was she said, we are taking far too long to prove things we already know. And I said, but don't you wanna be careful. She said, Jonas Sok took 12 years. I took 12 months. yeah. 12 months to develop this, way to change the protein. Yeah. Yeah. I tell my team all the time, safety isn't safe. Yeah. That's playing not to lose almost, which is a certain path to failure and. Questions. Yeah, sure. I'll ask, what's your take on, like a lot of companies right now deciding just cut like huge amount of their workforce, let's say like Twitter for instance. Yeah. Like a lot of other tech companies doing that. Yeah. It depends on what the objective is. Facebook's a great example. this, they went through and reduced their workforce by a third, a few years ago, purposefully as a way to generate more capital. Now you could argue that they were doing that just for the purpose of giving that back to investors in the near term. That wouldn't be a good idea. That'd be an example of capital efficiency got awry. But what they did instead, they took the cash flow from that operational change and they're now plowing it into AI experimentation. So meta, invested 40 billion last year in AI experience. That is a crazy number. and even if, having that ends up being wasted, okay, they invested 20 billion AI experimentation last year. That is hard for almost any other organization to compete with that is driving. But doing that to drive resilience, you think about it that way. I wouldn't wanna compete with meta head on when it comes to AI the way that they're trying to do it. They may be wrong over time, other ways, other approaches, but I think they've got a pretty good shot of succeeding in the next decade, hopefully doing so. It depends on the objective. I think GE did the same thing, the eighties, right? Got their workforce way down to a kind of bare bones as a way to drive capital efficiency for the of, to distribute back and doesn't create long

2: 46:23

resilience. Thank. Thoughts, things

1: 46:27

on your mind? Yeah. I like your example of the Amazon sort of asset metaphor for innovation. One of the things I've seen in big companies is when the experimentation does happen and innovation does happen at, there's sort of a rejection where there's, it's hard to get it to bubble throughout the rest of the organization. Have you seen any companies that, big companies that are doing that very well? And if so, what's different about that? Yeah, it's really hard. I, the idea, if you think about kind of mental framework, thinking about these big companies, right? Every, every one of these big companies began as a startup with some secret. They discover and began exploiting and doing something different. The world loved and rewarded them for there companies and they grew systems of governance, decision systems of incentives. They hired certain types of people and put in place processes designed to preserve what had been built to propagate what had been built to make things safe. it's interesting if you look at, anybody working inside the big company will complain all the time how it takes so long for us to make decisions. That bureaucracy, it's stifling, that is a feature of those systems that is not a bug because those systems are designed to operate safely, to make decisions slowly. Now, that is completely opposed. That type of system is completely opposed to what you need to do to innovate. Innovation is not capital efficient. Innovation requires making mistakes. As we've talked about. Innovation requires learning, challenging status quo. Startup do really well now. So when I look at it, when we work with large organizations, I'll tell you, working with Clay Christensen. So we spent, I spent seven years with him going around, working with large organizations, trying to help them be more innovative. And these companies would come to us and say, we need to transform our business, because we're worried about the future. There's this new competitive threat. And so our standard answer at the time was, okay, let's set up, so first of all, let's develop a strategy or how been approach these threats or opportunities as in some cases set up an innovation team that's gonna focused on focus on identifying new business models and things you might do differently, and give that innovation team some budget, let them workings to work, whatever, and they'll come up with things that will help your business transform. there's not a single every corporation in the world, Abess, and there's not a single example that I can think of that approach leading to the fundamental transformation of corporation, not one. And that is extremely distressing to me. And it was extremely distressing to Clay when we would talk about it because we thought that would be the solution. It turns out that innovator's dilemma is a secure harder problem than anybody thought. The innovator's dilemma is the idea that management companies can do everything right in terms of expanding what they deliver to their best customers and growing profits. And that will 100% of the time lead to the failure of the business. And so the challenge is, as you move that market, you serve your best customers ever more profitably. You leave yourself exposed at the low end to new entrant. You can come in with a good enough, the market themselves, the, it's a really hard problem to we, about this problem for the last 15, 20 years. I designed my current business, high out innovation and direct response to that issue. We built startups outside of that system of governance, incentives, people process that has been designed for optimization of, for preserving this thing that's already exists, optimizing for capital efficiency. What we realized, it's, we've given up on, you can't change that system. You can't repurpose it to do certain types of innovation. You can for sure innovate on the margins and do things incrementally better. Corporations are exceptional at that. But when it comes to fundamentally different business models, you can't, you, I've given, you just can't do it inside a corporation. I'm of the mind now where you have to take it out entirely. We do it through the vehicle startups because startup firm really quickly, startups, which corporation has a minority interest. They do enough of these things. They learn a plug those plow those lessons back into. Strategic optionality for the future. I think it's not perfect, but it's the best solution. I, so far, it's hard to get those things to go because well established, very large, complex organization resists that. I was on a, an advisory committee at McDonald's some years ago, and one of the things that they knew was certainty was that the great innovations in this massive restaurant operation didn't come from the Oakbrook headquarters. It came from the operators. An operator put together the first Big Mac, an operator put together the egg McMuffin because he was dealing with, who wanted breakfast. Hey, cook me some eggs. he's got the guy right there at the counter. The folks in the headquarters would, they would test it and they, it would take forever to roll it out to the whole corporation. A fellow who sent his kids to school here said, why don't we put a certain amount of innovation in the hands of the operators? And it turns out they were going up with good ideas, but the organization itself was killing them. Yeah. Yeah. you want variance? There's a, I, I love baseball. Any baseball fans in here? There's a good example of this. So Ted Williams? Yeah.

2: 51:45

Last man.

1: 51:46

Last man in battle. About 400 in major league baseball bat. I think it was 1941 when he did it. he, 1960

3: 51:54

was, that's the 400

1: 51:56

career. he, he went out hitting a home run in, October of 60. Okay. Yeah. Everybody. Amazing player. Everybody wants to go out like 10. Yeah. He went and he took chances. And that, that last season where he last, last player, major league baseball. That four. Oh, it was the last game of the season was at. Which you wound up to 400. We four out 10 times he was at bat. He got a bit right and his coach said, don't go play on the game. Don't go bat like you're good bench you for the game today at 400. This is a big deal. People have done this so you can lock it in. He said, no way. I gotta play the whole season. I'm gonna play the game today. I think that day he went four for six and got his, something like that, got his average up to 4 0 6 for the season. Last person to do it. And the thing that's interesting about that is baseball players have only gotten better since then. If you took a baseball player from 2025 and flopped him back down to 1940s, they'd crush it. They'd be so good. So what's happened over time was that as performance has increased among baseball players as a set, the pitch has gotten better, the hitter's gotten better, the band of performance has also gotten narrower. Meaning there're fewer, there's fewer, there's less variance, there's fewer outliers in terms of performance. And as a result. You don't see that broad spectrum of super amazing feats of performance like you did back in the 1940s. The same is true in our companies. In a company like McDonald's gets better at operating this global system of restaurants. Performance gets better, but the band of performance gets narrower. You have less variance in the system. And so as a result, you're less likely to learn things. You're less likely to have a franchisee somewhere who has the freedom to do some crazy thing that gets picked up by the system. It's huge problem. You need variance. I'm sorry, to meet, to challenge

2: 53:44

interviews. and I love your Amazon exam because, so I wanna make a mistake. that's biology. And I would say if I take that, biological. Rules that you had? I can't go with those series. I would make my own rules because businesses are made of organisms, they're made up of us and we're made of organisms. And we are biology. And if we could find a more, I don't wanna say appropriate, but just something closer to what biology is. And I would dare say that might be being value set and mission, if you did that will allow all. You led to people by that and that's what those insects are doing in Amazon.

3: 54:32

Yeah. Very few rules. Yeah. Fact, a rules popping.

1: 54:38

Yeah. Yeah. I think there's in that, a lot of truth in that. The, I back to the, what's the primary objective for those companies? There's a great, just a couple days ago actually in the Financial Times on this, the headline of the article, large manufacturers have forgotten what they exist for. And the article talked about in the, one, I know Rita Mc great. She, the article talked about how these large organizations have decided that their objective, the reason they exist is to generate profit. And they've forgotten that there was a time, not long ago when their purpose was to generate technological advancements for society. Actually, a profit was a byproduct of that. And in that flipping, they've lost a sense of who they really are.

2: 55:20

and that's what those Japanese companies do it too.

1: 55:22

yeah. No, they are very good of the memory water, just what needs to stay true in work. I agree. Yeah. A good example of this modern, Jeff Bezos as CEO of Amazon used to say, that Amazon's competitive, edge was that it had gotten really long time cycles. Their goal was just to outlast everybody, and he was comfortable getting pilled by the markets for years because he was plowing every set they had back. He said, we're playing a long game. He, I famously, I remember he went to a town hall with his employees. He says, Amazon's just crushing it. They're doing amazingly. He gets up in front of the employees at the town hall, says Amazon's going bankrupt, and said, whatcha talking about? He said, yeah, Amazon's gonna go outta business day. Know, I know seven years was an officer at Sears out in Thes Chicago, suburb when I was a boy. Everybody either shopped at Sears or knew somebody who worked there and they were the universal retailer. And Ron and I were having a drank after dinner not long ago. He said we had the catalog with the stores, with the employees, with the supply chain. Hell, we could send you a house, you could put it out. He said What? We didn't have imagination. He and could Amazon. We could have been Amazon and the people at the top. No imagination and a refusal to take chances. Yeah. Yeah. and some of those come along. Maybe one of you will figure out a way to disrupt Amazon, help with something better. Amazon will say, we shoulda, we could have been that. Yeah. I worked for Xop for 30 years. And your point about it's hard innovate in a big company or corporation, and we tried to expand the organization and we started Exxon Nuclear and we were selling typewriters. We were making graphite golf clubs and tennis rackets. And none of it worked and none of it made any money. We just struck it all back to our core business and got rid of a lot of people and, because it just didn't, we never went. That's interesting. Yeah. it's, when I executive on this. It's very easy to draw the wrong conclusion. Chaos is good. Okay. We've been operating in an efficiency mindset. The other end of the spectrum, full on chaos, right? Complete is also bad. There's a, I sorry, I'll do a sports analogy for a second. But, three point rule on BA is a great example of teaches the lesson on principal where you wanna be on a spectrum of full chaos or full efficiency. There's, the NBA, that three point rule didn't always exist in the NBA. It was started in the 1979 season, quite controversially. This was introduced. That's a way to make the game a little more exciting. And, the three point rule, there's a line drawn. The court says it's beyond that point. If you make a shot, you get three points. So if you're in front of the line, you get two points. And when it was first introduced, people thought, this isn't really gonna change the game. In fact, this, there's a funny quote from the guy. That first year was the top three point score in the country. It's I don't think it's gonna beat up a good deal. But if you look at the game all the time, it's radically changed. Probably the biggest change to a professional sport you will change, in the last 60 years and what's happened to the game of basketball. Now, for better, for worse, all the shots are taken right by the net or just on the three point line. In fact, the last company to win, or the last team to win a game without taking any three point shots at all was back in 2014. That's never gonna happen again. you've gotta get really good at taking shots strategically and taking a lot of that. So the point of this is what the companies that, so teams that win in this era of the three point rule are the teams that take the most shots and that take them strategically. So often people misinterpret this, think, just need to run more experiments. The reality is you gotta do it within your constraints and with your strategy. Companies. Yeah, for sure need to be taking more the equivalent of three point shots. It's more experiments, but also strategically you might argue maybe graph tennis that wasn't strategically aligned or other experiments could have been performed more strategically. That would've driven more who

2: 59:34

questions common stuff. Okay, we'll give you one more chance, ladies and gentlemen, your partner.

3: 59:41

Thank you. Thank you for being here.