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CEO of High Alpha Innovation Elliott Parker | The Illusion of Innovation

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In this episode of Get Better Today, host Matt Mayberry interviews Elliott Parker, CEO of High Alpha Innovation, about driving innovation and unleashing radical progress within organizations. They discuss Elliott's journey, starting from his first job at Arthur Andersen, which ignited his passion for creating resilient companies. They explore the failure of Arthur Andersen, the lessons learned, and the importance of building enduring institutions.

Parker shares insights from his book, The Illusion of Innovation, providing examples of resilient companies and the role of continuous experimentation in their success. They explore why modern corporate metrics may fail to measure true success and how businesses can adapt by embracing innovation and decentralization. Parker emphasizes the need for organizations to collaborate with startups and run frequent, low-cost experiments to foster innovation, all while being optimistically future-focused.

The discussion also touches on the contrasting perspectives of Jack Welch and Reed Hastings on business errors and the benefits of embracing chaos for long-term resilience. Parker suggests pursuing intriguing ventures as a means to uncover transformative opportunities.

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About Elliott Parker

Elliott Parker is the founder and CEO of High Alpha Innovation, a venture builder that partners with corporations, universities, and entrepreneurs to co-create startups that solve compelling problems. He built his career in strategy consulting at Innosight, the firm founded by Clayton Christensen, in corporate venturing, and as an entrepreneur bringing new ideas to market. To date, he has launched over 40 venture-backed startups.

Connect with Matt Mayberry
https://www.mattmayberryonline.com/

Elliott Parker Intro

Hi everyone. Matt Mayberry here, your host of Get Better Today. We have a fascinating and inspiring conversation today with Elliot Parker, who is the founder and CEO of High Alpha Innovation, a venture builder that partners with universities, corporations to co create startups that solve compelling problems in the world. This is a fascinating conversation where we talk about driving innovation, maximizing efficiency. Elliot. And so many other fantastic things along with his recently published book, the illusion of innovation, which I had the privilege to read this book already full of wonderful high value ideas, whether you're startup entrepreneur, co founder of a startup right now that trying to get it off the ground running, or you're an executive leader at a large or medium sized company. This book, the illusion of innovation, so many wonderful ideas. I hope you enjoyed this conversation as much as I did. Thank you so much.

Elliott Parker's Early Career and Lessons from Arthur Andersen

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Elliot, your journey has been incredible. one thing that really stuck out to me this, this passion and really intriguing excitement for innovation and driving efficiency throughout organizations. really started during your first job out of college at Arthur Anderson, when I believe one thing went wrong in the company and that caused the downfall of Arthur Anderson. And that really started your passion. I would love to start with you kind of explaining, a little bit of that backstory of, of what fueled this passion for innovation and maximizing efficiency.

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah, yeah, it's a great question. So, um, I was at this, this storied accounting firm, I was part of the consulting division and, uh, really fun job working with, uh, corporations trying to figure out what intellectual property they have that we could commercialize and do an exciting way. It's super fun. And, uh, the company was going well, doing great. I never imagined it would disappear. And over the course of about six weeks, it evaporated. Tens of thousands of employees, billions of dollars in revenue, and just went away. They, um, there was a county team was part of the, uh, Enron debacle. And, uh, as a result of the county firm got indicted and nobody wanted to work with us anymore for good reason, can't work with a county firm that's been indicted by the justice department, ultimately exonerated by the way, but. Um, it didn't matter at that point. The firm didn't exist anymore. So for me, it was a lesson in, uh, just the, how nothing, nothing that seems stable really is even these large organizations that are, uh, you know, maybe have built up over a hundred years can crumble really quickly. And that, uh, boy, there's a lesson in kind of the fragility of large organizations, but also a lesson for me in the importance of, um, Uh, controlling your own fate, not relying on institutions to be the, uh, the source of success for your, uh, your, your path in life.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Yeah. What was the, you know, and we don't have to get into too many specifics, but what, what about just that downfall and that collapse, if you will, what about it as time went on, I'm sure more and more things came to light and came to fruition. But is there one thing that really stuck out in your mind that really drove this passion, for a deep level of just efficiency and building healthy companies that are not only profitable, but also that drive and enhance maximize innovation?

Building Resilient Organizations

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah. Building companies that are resilient, uh, where one little thing doesn't create the collapse. We want our larger institutions, these large corporations, um, universities, governments, uh, even the, to the extent they're producing societal surplus and doing good. We should want them to endure and to, uh, not only endure, but to thrive, uh, and continue to provide that societal surplus. If they're not providing societal surplus, then fine, let's let them go out of business or cease to exist. But if they're doing good, we should want them to endure. It's through these large organizations that we collaborate as people and solve important problems. These large organizations can do things that you or I as individuals cannot or small teams cannot. And so we need them to be effective and, um, I, uh, yeah, my experience at Arthur Anderson started this path of just understanding what makes an organization resilient, what makes an organization fragile. And it turns out that a lot of the work that organizations do to try to be more resilient, ironically, actually leads them to be more fragile and more susceptible to failure. And I think this is something more people need to know about. If they're serious about building resilient and enduring institutions, we're going about it the wrong way.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Out of the most resilient organizations that you've worked with and partnered with and even seen with your own experiences? What would you say is the number one characteristic that they all share in some shape or form?

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

they have an ability, they have a deep care for their stakeholders, their customers, past, present, and future. And this is the difference. I was in Japan last week where we're launching a company. And I went to this temple in Kyoto, um, where the, uh, it's called Kiyomizu Temple. It's an amazing place. Old, I think it was originally built in the 600s. And the process for manufacturing that temple is, uh, is almost a sacred thing. So they're very careful about where the wood is sourced from and the construction techniques that are used. And what I learned from a Japanese colleague we're there with was that the temple actually owns a couple of mountains nearby where the trees are grown to produce the wood for the temple. And they just redid the floors at this temple a couple of years ago. The wood lasts about 15 years, but those trees that they use to do the floor were planted for that purpose by someone 400 years ago. And the people who are running that temple today are planting trees. That will be harvested 400 years from now to replace the floors. That's incredible that they're thinking about that in terms of those timeframes well beyond their own lifetimes and that type of understanding and concern and care for stakeholders past, present, and future is, um, is what leads to these organizations, helps them to be more resilient. There's a, in the corporate world, there's a good example of this too. Um, a few years ago, Jeff Bezos, when he was running Amazon. He was asked, uh, or caused a controversy when he was at a company meeting and explained to the employees of Amazon that Amazon was going to go bankrupt. One day certainly would fail and go out of business one day. And of course that's true, but everyone thought, how as the CEO of the company, how can you possibly say this thing? And that it's important to note what he also said after that to the employees. He said it was their job to prolong the company's existence and to put off that bankruptcy for as long as possible by continuously experimenting in the service of customer needs.

The Importance of Continuous Experimentation

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

So it's continuous experimentation and service of customer needs. As long as the organization can do that effectively, it deserves to stick around and, and to, uh, to, to survive, thrive.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Yeah, I remember a quote I from Bezos where he's talking about, One of the things that that needs to be done is not so much looking at the cup, you know competition I think a lot of leaders and organizations tend to have an external focus on the competition, but I remember him talking about What do we expect the customer to be valuing or doing in 10 years? And how can we beat them there, right? Always placing that emphasis. So I find that fascinating you sharing that, example there, cause I think so much of that quote that I shared that really piqued my interest about just kind of their level of innovation and, this ability to disrupt themselves, if almost. Uh, that's constantly built the Amazon, I believe.

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah, absolutely. And it's, it's a version of the temple in Kyoto, right? It's not 400 years. It's 10 years from now. But what are, what are our stakeholders 10 years from now going to be concerned about? Let's meet them there. Let's solve problems for them. That ability to continuously experiment in service of that is what leads to these organizations to become really resilient. I don't know that.

Historical Examples of Longevity in Organizations

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

You can look at, um, in the, in the book, uh, I wrote, you can, you can, there's examples of organizations, companies that have lasted more than a thousand years, right? Some of these, the oldest company in the world was launched a hundred years after the fall of the Roman empire, 1500 years ago, something like that. And continuously operating, uh, these organizations all do a version of what I think we see in recent years at Amazon being done pretty well, just constant experimentation service customer needs. These organizations that have lasted 1000 years plus. Certain things they have in common. One of those is the ability experiments, knowing what needs to stay constant, what cannot change, uh, and then recognizing that everything else can. So there's certain elements of the operation. There's a example of a, an old, um, in, in Japan that was launched in the six or seven hundreds. And, uh, you know, they accept credit cards now. It didn't do that hundreds of years ago, but there are certain elements of the business that do not change. They've got the sacred Springs that they use for their own son there. And like, that's not going to change. Uh, that's going to stay the same forever. Everything else changes the food, the, the, the, the bedding, uh, right. That's a very small example, but. These organizations are really good at understanding what needs to stay the same, but recognize that everything else should change. Not only can, but should,

Challenges in Measuring Success

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

has to change

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

elliot, what would you say is wrong with the way that we measure success of companies today?

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

You know, uh, it's a great question. The, um, over the last 50 plus years, uh, everybody talks about the financialization of everything and a sign of that. When we talk about companies and their success, primary metrics we use to measure success of companies are things like return on invested capital. Uh, return on net assets, uh, internal rate of return, these financial metrics that, um, prioritize capital efficiency, which is not a bad thing in and of itself, uh, but can be overdone. And what I mean by that is these companies, uh, look at ROIC, return on invested capital, for example, uh, you've got a numerator and denominator in that equation. And if you're running a company, especially a publicly traded company, you can play with the numerator or denominator. Um, if you're looking at return on net assets, uh, boy, it's a lot easier to remove assets from your balance sheet to make your remaining assets more efficient. And what happens is, uh, organizations trying to drive these metrics and trying to drive capital efficiency, make decisions. Where, um, they are good maybe for the short term in terms of spiking that capital efficiency, generating cash, uh, not good for long term resilience of the organization. What those metrics do is they tell an executive, for example, to shut down a factory or close down an assembly line. That's an easier and more appealing thing to do because it drives the metric a lot better than, for example, launching a whole new business, taking some risks. What's good for the organization over the long run may be the latter, right? Starting new things. The metrics don't reward that. And so we make organ, we make decisions, um, about investment that end up as a result being fairly short term oriented and drive fragility. We saw this in COVID, right? Uh, to a great degree where you had, you know, These companies are super efficient, uh, because capital efficiency, there's evidence. This is true, by the way, there's more capital on, on corporate balance sheets than ever before in history, massive amounts of money. And yet these companies are going out of business faster, uh, life, lifetime, their, uh, lifespans are shrinking at the same time. We ought to maybe do something different. Um, I think there are other ways to measure the success of companies, including just sheer endurance, right? I, if you look at the total profit under the. The curve over the life of a company that's more important measure than the spike in any individual quarter a year. Yet somehow we've decided that quarterly and annual metrics are what matter most rather than looking at profitability, for example, over a decade, or maybe over 100 or 400 years. An example of a temple, right? So I think we ought to be looking at these things a little bit differently and consider other metrics in the mix. Um, during COVID all these companies that were highly capital efficient. They built these amazing supply chains, for example, where everything just in time arriving, no waste whatsoever, one piece of that system breaks and the whole thing comes crashing down. So that capital efficiency, it turns out in the long run is not capital efficient when something breaks down all together and stops. The lesson is that organizations need to have some element of redundancy, maybe even some element of capital inefficiency by choice. That can help them to be more resilient over the long run over the long run. Resilience always will be efficiency.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

That's a perfect segue into, what really drove you to your career of, of helping corporations embrace this degree of inefficiency in order to really drive and accelerate growth.

Corporations vs. Startups: Learning and Execution

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah, there's a, there's a, one of my favorite movies on, um, innovation, probably the best movie ever on innovation is four versus Ferrari. Good movie for other reasons too. It's actually an amazing movie on innovation. Because you've got this contrast in the movie. You've got, um, the, the, the plot of the story is Ford motor company, big corporation, massive corporation partners with Shelby, uh, Carol Shelby, who's got this startup, uh, that builds little race cars and together they're trying to beat Ferrari at the, uh, the race in Le Mans in France. And what's interesting is you see throughout the movie, the contrast between what the small startup can do and what the corporation can do. Uh, there's a great scene, for example, when, uh, Shelby shows up at the racetrack and, um, Ford is running the car around the track and they've got a heavy, expensive computer in the passenger seat that's measuring all the, the elements of performance of the car. And Shelby shows up and his team rips the computer out, throws it on the track and then tapes yarn on the outside of the car to measure the airflow. Like just by looking at it through binoculars, see how the car does around the track, cheap, fast, very effective. And then there's another scene in the movie that's, um, where, uh, Henry Ford, the third is sitting at his office in, uh, Dearborn, Michigan. Looking out at the factories Ford operates and Shelby comes in and Ford explains to Shelby how during World War II these factories were repurposed in a matter of weeks to produce airplanes for the war effort, something a startup could never do. And I think it's really, it's a good lesson. We need both. We need startups and we need large organizations, large corporations to both be effective. And the magic comes for me when you can leverage the strengths of both. Corporations have this amazing ability to execute at scale. They're so good at execution, and doing it across the world in some cases. They're really bad at learning. Corporations are designed to propagate what they've already done, to preserve what exists, and to be safe, and to make things predictable. And that's good to a point. Startups on the other hand are terrible at execution, but they're really good at learning. Corporations are really capital efficient. Startups by design are capital inefficient, meaning they have constraints a limited amount of time and capital, but they they're kind of stumbling around trying to figure out something that works. And in the process, they're really good at learning. You could combine the Market understanding the ability to execute a scale of a large corporation without learning abilities of a startup. Not only with the corporation, the startup each be better off, but society would be better off. We could solve some really important problems in more efficient ways. And I think as, um, I think we're in this kind of massive trend of decentralization where due to changes in technology, access to capital communications, the building blocks that exist in terms of technology advances more readily available to people. Small teams and individuals are more empowered to do big things that decades ago could only be done by corporations. Well, we're, we're in this, in this trend of decentralization. Corporations need to recognize that, um, things have changed, that there's a lot more power in the hands of individuals and small teams and that we have to find ways to collaborate and to cross the divide so that everybody's better off.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Absolutely.

Encouraging Innovation in Large Organizations

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

I know, Elliot, a lot of the listeners, this is perfect segue into a lot of the listeners are probably leaders and executives that run large to medium sized organizations. And I think one of the drawbacks or excuses that I always hear, because that's many of the organizations I work with, not many startups is, we're not nimble enough or agile enough to, to operate like a startup. Or if we have 200, 000 employees or 25, 000 employees, how can we start innovating? What would you say is a way that large to medium size organizations can have that level of not only decentralization, but really spark levels of innovation and really develop these, powerful, small, agile teams that you're discussing?

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah, great question. I mean, what we hear often is, um, a lot of these organizations, large corporations will say we need to act more like a startup and in most cases that's actually a terrible idea. So let's start with that. Most startups go out of business. If you're running a scaled corporation, don't act more like a startup. You don't want to put that corporation at risk and go out of business. Um, but to your point, uh, there are some ways that there are some things we can learn and the primary lesson and the primary lesson of the book, if I were to summarize, it is, uh, when you think about ways to run more experiments, fast, cheap and weird and fast and cheap are obvious by weird. What I mean is experiments that challenge the status quo, that challenge assumptions that we have about the way the world works and what we already believe to be true. As a corporation scales, every corporation started out as a scrappy startup, right? Um, came into the market, found a niche, got a foothold, started getting traction. And over time as that organization scales, they develop systems of governance, how we make decisions, um, incentive systems, talent, uh, that we pull in, processes that we use to get things done. All of that is optimized for capital efficiency, for doing things really efficiently, very predictably, very safely. Uh, when you're inside a corporation, you feel like, boy, decisions are made by committee. Uh, we never get anything done that, that, that is by design, that is a system operating as it is designed to do to preserve and to be safe and to not take a risk. Um, the challenge is that we all know organizations need to learn to adapt. And when a large corporation takes that system of governance, incentives, talent process, and tries to repurpose this thing that's been built for execution, repurpose it for learning, uh, we're all surprised when it doesn't work, we shouldn't be. It's a fundamentally different activity. And so what we have to do is find new ways of governance, incentives, new talent, new processes that are optimized for learning. Um, well, those systems exist already inside of startups. The trick for corporations to become more resilient, to develop serendipity, to uncover the anomalies that lead to new insights and new paths for growth is to run as many experiments as they can at the lowest possible cost per experiment. In the world of business, startups are fantastic experiment engines. And so corporations ought to, among the other tools they use to innovate and to run experiments in the hopes of driving more resilience, They ought to consider ways that they might engage better with startups that includes investing, partnering with, and in some cases, building new ventures from scratch outside the organization, again, with different systems of governance, incentives, talent processes, and so on, that are, are optimized for that activity of learning, making mistakes, stumbling along the way until you find something that's right. The difference is we, I'll tell corporations we work with all the time inside a corporation. It's the frequency of correctness that matters more than the magnitude. What I mean by that is you're an executive lead in a corporation. You need to be right all the time. It doesn't matter how, how big that right decision turns out to be. You need to be right. Don't screw up. Don't be wrong. Inside a startup. It's the exact opposite. It's the magnitude of correctness that matters, not the frequency. You can be wrong a lot because when you are right in a startup, the results can be really outsized. So you actually want to be wrong and try a lot of things, see what works, see what sticks so that when you stumble into something that does work, it can have really amazing consequences. So that's a, that's the fundamental tension of innovation and it's corporation frequency of correctness. Matt is more than magnitude. It's really hard to learn in that environment. Startups are great at doing that. So let's, let's find a way to, to team up, combine the two.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

I

The Illusion of Innovation

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

love it. And you, you mentioned your book here and the illusion of innovation, which is a fantastic book, everyone. I highly, highly suggest you pick up a copy of this, whether you are a startup, medium, large size organization. There's a, there's so many nuggets of wisdom in here. of, of driving innovation. Elliot, can you speak about the title of your book, the illusion of innovation? Can you explain a little bit more about that and the underlining factor of that and a little bit more in depth about kind of how you came about the illusion of innovation?

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah, we talk a lot. Here's here's the I'll step back for that for a second. Over the last 25 plus years, I've been working one way or another in corporate innovation and startups and I have been looking for examples of really tangible success coming out of corporate innovation teams. And what I mean by that is these corporate innovation teams are set up standard approach for large corporations in pursuit of innovation. These days, in addition to R and D and M and a, and all the things they do is to set up an innovation team and to give that innovation team a mandate that says, we want you to transform our business model. By going out, coming up with some ideas, running experiments, and, uh, coming up with new business models that we can adopt that will transform our company. Um, I can over 25 years of, of looking for examples of success for those teams. I can find examples on the margins where those teams have successfully increased the efficiency, they've saved expenses, maybe built some interesting little side businesses. I can't think of a single example where that approach has led to fundamental transformation of the business. That employed that approach and yet every company does it and hopes that it will lead to transformation. The fact that it doesn't is telling and we should maybe try something different. So that, that in part is the illusion of innovation. Uh, we, we, everybody knows that large organizations, there's a lot of activity that organizations, corporations pursue in the spirit of innovation. A lot of that feels like theater. Sometimes we're doing it almost virtue signaling to say we're innovative. So we kind of look at what we do. The illusion is going one step farther. Uh, it's doing all that stuff and believing that it's going to produce the transformation that you hope for. There's some organizations that do it kind of cynically knowing like, ah, okay, we got to do this to tell our board of investors it may not produce anything. The illusion is going through the activity, uh, feeling like it's going to produce the transformation, not recognizing that it's actually value destructive in most cases. Uh, that's the illusion and it's dangerous because it, it is value destructive in many cases that, um, it's a distraction to the organization and it, uh, it, it leads them to miss other opportunities that could actually propel them to new, new paths for growth.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Absolutely. And I think, one of the things I would love to get your input on this and insight, I see a lot of large organizations where they have these transformation offices. They, they invest so much into. Whether external sources or how can we, when they hear the idea of running continual experiments and continually innovating, I think a lot of the challenge and a lot of leaders discuss this is that there's so many ideas and generation of ideas and different systems and processes, but a lot of the times, almost 80 percent of the time, especially in large organizations, the people coming up with those new systems and processes and different innovations and insights, they aren't connected to the day to day and execution of a lot of those ideas and insights. So do you have any advice for leaders or what have you seen best as how can we generate these ideas and innovative insights on maybe how we can grow the business, but also ensure that it is connected to operations and driving the execution of kind of our North Star. Any insight on that, Elliot?

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah. That's good. I mean, the innovation activities, they have to produce a financial return eventually. The trick is the challenges that most organizations in the pursuit of capital efficiency are overly focused on the near term capital benefits from innovation that don't materialize. So it's important to separate the near term and long term benefits that can come from innovation in the long term. Innovation has to pay off. But, um, what's more important is the portfolio performance rather than any individual investment that's made. In the near term, innovation's purpose is to drive learning and to create optionality for the organization. It will not, by definition, if it's transformative innovation, produce financial return in the near term. Disruptive innovation always looks financially unattractive to incumbents in the beginning. So it's first important, yes, innovation needs to be linked to strategy, but second, let's consider the near term and long term benefits of innovation. Let's separate and think about the metrics we use to measure our success. Both near term and long term. They need to be different. Um, but then it's also important to recognize, I hear this all the time in corporations too, innovation is everyone's job. No, it's not. No, it is not. You want some people focused on running the company. You do not want to distract them with innovation. So it's also important again to just think about the structures that we use, the governance incentives and talents on. You want some people just focused on running the business. Yes. Incrementally improving the business. And that is a form of innovation, uh, driving more efficiency. But for certain, for a very small group in the organization, transformative innovation is the job. Um, every, nobody else should be distracted by that. And so the, the, the hard part is you've got core transformation, meaning we're improving our core, we're running that better and better. You've got then your more, um, kind of future focused transformation and what the organization is going to become. That's a relatively small investment or should be for most organizations in terms of time, people, and money. Yeah. But the two need to be coordinated. There has to be a translation and a learning that goes back and forth between the two. And for us, that's why I find these large organizations building new ventures, new startups outside the corporation is a fantastic way to run those experiments without distracting the core, but also to design those experiments in a way where they are directly linked to some need in the core business.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Jack Welch used to say that variance in business was evil. He argued that company performance should be made predictable. And one of the things that you say is that he was wrong. For a lot of great things that Jack Welch did in the business realm and during his leadership tenure. Why was he wrong, Elliot?

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah. He was an amazing leader. Amazing in many ways. And, uh, I, um, you know, there's a lot to learn from Jack Welch, but on that one item, he was very wrong. Variance in business is not evil. Uh, and I, you know, I, I appreciate that the time and the moment in which he made that comment, what he was trying to do is to trying to take a large organization, GE that he was running. And get, get errors out of the system. Let's stop making so many mistakes. Let's focus on the business. Let's do things better. That's that's right in spirit, wrong in tone and message, I think, because you can't root out variants entirely. You shouldn't root out variants entirely from the system. An organization that is not making any mistakes is an organization that's not learning anymore. And, uh, an organization that does not have variance in it is an organization in which humans don't thrive either. Um, boy, uh, getting rid of variance, uh, that means what we're asking for is hierarchical, top down, kind of command and control system where everything is predictable and safe. And people don't come up with good ideas in that type of situation. Contrast that with, uh, in the book, I, I contrast it with Reed Hastings, who's the, was the CEO of Netflix, who said in direct opposition to that, he said at Netflix, um, they, they welcome a certain amount of chaos in the way that they run the company. And what he said was that the removal of error from the system is a path to sterility. Sterility is death.

The Role of Chaos in Organizational Success

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Uh, if you think about it, it's not life anymore. An organization that's removed all variants from its system is dying. Even if the executives don't know it yet, uh, it's on the decline. Chaos is good. And what Reed Hastings said was fertile as long as it's productive or chaos, as long as it's productive, uh, produces fertility. Which will always be sterility over time. And so the question for organizations is what, how much chaos do we want to let in the system? What's the appropriate amount of chaos that the thing that's counterintuitive is that the answer is, is not, uh, no chaos. There actually has to be some deliberate amount of capital inefficiency of the system for it to thrive and to continue to learn and to adapt and to go into the new new spaces. Otherwise it's dying.

Corporate Lifespans and Capital Efficiency

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Why, on that, on that notion, what, what is your insights on why corporate lifespans are currently shrieking?

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah, it is a really interesting question. Uh, and there's debate by the way on this, whether that is even a true premise. Um, my personal view on it at the moment is we're actually seeing, um, perhaps maybe a barbell type of situation where for a few companies at the top, think of like a meta right now, driving a lot of capital efficiency over the last few years, they let go, I think a third of their staff. running their company a lot more efficiently and then plowing the capital that's freed up into investment in AI. billion a year into AI investment right now. Which is nobody else can keep up with. And so you're going to bet on who's going to win in that space. It's companies like meta that have the ability to make that type of investment. Even if half that investment is a waste, nobody can invest 20 billion a year in AI, except certain companies. So you can make the argument that boy, they're running a form of experiments at scale with a lot of money, and they'd have a good chance of being more resilient over the long, over the, over the near, near term. My, my, my view is that, um, right now what we're seeing is that it's harder for corporations to compete with the

The Evolution of Corporate Structures

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

world. That's certainly true in this decentralized era. You go back a hundred years, there was an economist named Ronald Coase who ultimately won a Nobel prize for a paper that he wrote explaining why corporations exist. Because as an economist, he looked at the market, looked at the economy, and said in a perfectly efficient market, there would be no corporations. We'd all be independent actors. We would transact with one another. We'd come together to get things done and then dissipate and go do work with others. But corporations certainly do exist. And so why, what are they doing in the market? And what do you explain those corporations exist to aggregate, to collect all the assets and resources they can inside the walls of the corporation to manage the transactions between those assets in a way that's more efficient than they could interact in the open market? And the difference That efficiency is translated into profit for the corporation. Now, the question then is that's, that's true. And that works in an environment where the transaction costs, the ability to communicate and find deals and get things done outside the corporation is more expensive than it is inside the corporation, but in many cases, that's not true anymore. Due to advances in technology and communication, access to capital, transaction costs are often cheaper outside of corporation than inside. Okay. And so the thing is that corporations haven't changed their approach. They're still operating in this world of a hundred years ago, where it was cheaper to do things inside the corporation. In many cases, that's just not true anymore. And so if the old model for a corporation was like a medieval wall city where we pull things in and protect it, I think the new model has to be something a lot more porous where things are going in and out. I think the secret for corporations winning from here on out. It's going to be more about coordinating outside assets and resources rather than controlling them inside the corporation. And that's a very different mindset and very different purpose for a corporation. Actually.

Challenges in Modern Business Education

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

And I mean, that's that's right along the lines of another confrontational like question is, what would you say is wrong with business schools and modern management maybe how they 20 years ago to even now?

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

yeah, um, I love my time in business school and I do it again. Uh, But it's interesting that the lessons I learned at business school or maybe not the lessons that were intended. I learned, for example, that none of the buildings were named after investment bankers or consultants, 100 percent of them were named after entrepreneurs who had succeeded and made a donation back to the school. Like that's, that's a really important lesson, um, that I'm glad I got from business school. Um, the thing about the way that modern management is taught and we're very good at it. Um, and we've gotten better at, I think how much we've learned over the last hundred years about organizational behavior and driving these large scaled enterprises. It's very siloed. You've got finance, marketing operations, these things that are taught as their own independent disciplines. And yet we teach through the case method, often in business school where you're supposed to bring these things together, but still it's, it's kind of separate. And then we run our companies that way too. Uh, where you've got these different divisions and things are in silos. The reality is business doesn't work that way. Um, it's all linked together. It's all, it's all tied together. So that's one challenge with the way we teach management. It's not, it's not as siloed as a school would have you believe. The number two, everything is driving towards, again, these metrics of capital efficiency that seem to have been prioritized over everything else. We prioritize returns to shareholders. Um, like I said, there's a lot of other ways perhaps to measure company success, not only duration, but think about returns to society, uh, returns to the employees. Um, boy, I remember being at a company years ago. Uh, I was just starting out in my job at a business school and looking out of the parking lot of this company, thousands of cars, each of those representing an employee and their loved ones, knowing that this was a company that had been started by a single guy in his garage. And I thought, that's amazing. Surely that counts for something in terms of the measure of success for the company. The fact that you could have thousands of employees earning a good, um, uh, good income and doing things that they and their families, uh, want to accomplish. So there's lots of ways to measure success in business school. We learned that nothing matters as much as our own RNA and ROIC. And maybe over the long run, that's true. But I'd argue over quarterly and annual increments, that's just not true.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Many of the lessons that I've learned, even just in business, came from the game of football and just so many of the great coaches I've had. Obviously, there's there's differences there, but there's a lot of similarities. Yeah. Yeah. Yeah.

Risk-Taking and Entrepreneurial Success

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Would you say that maybe the safety aspect to as it relates to maybe everything that could go wrong. Like, have you noticed with your work with startups, the difference between entrepreneurs and founders who didn't go to business school versus those that did? Is there a difference in risk taking, a level of boldness and courageousness in their decision making? Have you noticed any difference

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah, maybe that's true. I hadn't thought of it that way. There is a, um, certainly I think of some of the most successful entrepreneurs who have accomplished big things, uh, weren't maybe the best educated, um, but were willing to try things and put themselves in a position to do amazing things. So maybe there is a lesson in that. Um, there's a lesson in that.

The Importance of Contrarian Thinking

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

The thing, the thing in business, here's the, the thing to, to remember, is that to succeed in business over time, um, you've gotta be contrary and you've gotta go against the flow and turn out to be right. So we often, in the world of venture capital that I operate in, we think about things in a two by two. We're on one axis, you've got, um, consensus, non consensus ideas. And on the other axis, you've got, you can turn out to be right. You can turn out to be wrong. Well, when you're making bets as a venture investor, or when you're leading a business, if you go along with the consensus and you turn out to be right, you're leading a business. That's actually a path to failure. It's a path to going out of business ultimately, because you're doing the same thing. Everybody else does. You're going to get out competed by somebody who comes in. If you turn out to be wrong, well, that doesn't matter, right? You lose either way, but so the only way you actually win over time is by being contrarian, going against the consensus and turning out to be right. And so that means you have to do things that are controversial to succeed over time. You can't play it safe. It also means you need to think about how do you systematically stumble into those ideas that are contrarian Most of what we do inside of large corporations is designed to reinforce what we already know. Or to help us feel better about what we believe rather than challenge our status quo beliefs or uncover anomalies or tell us where we're wrong. But that's the secret. That's the trick to winning in law long run. You've got to stumble into, you've got to somehow systematically even. Come up with a way to counter those non consensus and adopt those non consensus ideas

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

I love that.

Lessons from Steph Curry for Corporations

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Elliot, one of the things that really fascinated me about the book is, what can we learn from Steph Curry? about running big companies.

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

and learn a lot of things from Steph Curry. That guy's amazing, it's really interesting to look at the, uh, the MBA is fascinating because back in 1978 or so, they decided to change the game pretty dramatically by implementing the three point rule. So. Those who are familiar with basketball, a normal shot in basketball counts for two points. And what they did in the NBA is they drew a line of paint a certain distance from the basket that said, if you can make a basket from beyond this line, it's going to be worth three points. And initially the, the, the, the rule change wasn't, people didn't think it was going to be that big of a deal. Uh, in fact, there's a great quote from, uh, when the announcement came out from the guy, uh, who ultimately the next year became the top three point shooter. He's like, I don't think this is going to change the game very much. He went on to be the top three point shooter that next year. But since then, the game has changed dramatically. Um, if you look even in the last five years, You look at a map of where shots are taken in a, an NBA game. And now they're almost entirely taken right under the basket or just beyond the three point line because teams have learned that probability the way that score you're better off taking more a lot more carefully placed three point shots and So what does this have to do with corporations? What is Steph Curry's ability to nail these three points all the time have to do with corporations? There's often a question of You What matters more? Um, the quality of shots in terms of experiments, things we're trying or the quantity. And the answer is both. And we see this in the NBA, right? The teams that win the most are the teams that take the most shots, but also that do it strategically from beyond the three point line and right under the basket. And I think there's a good analogy for corporations innovating, innovating, where are we taking our shots? How many shots are we taking? What we often see in corporations. is we take too few shots. Those things are too centralized. They're too expensive. It's a, it's a hope and a focus on, on quality over quantity. You need both. It's really hard to predict ahead of time which new experiments are going to pan out and work. And so you need to try a lot of things. And, uh, if you're Steph Curry, you, you know that to be true, uh, and that's how you win games. Same is true of corporations. The best artists in the world are the most prolific, right? Another example is Picasso made a painting every single day of his adult life from the time he was 20 until he passed away in his nineties. He produced a painting. It's viewed as one of the best artists in the world. It's in part because he was so darn prolific. He tried a lot of things.

The Power Law in Innovation and Venture Capital

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

You think about innovating in the world of venture capital, which I operate venture capital is what we call a power law asset class. What you mean by that is one or two bets that you make are going to pay for all everything else. Cause that law, you're going to try some crazy things. Most of the things you try are not going to work out. Uh, you're going to lose money, but boy, one or two bets that you make will pay it more than pay off for everything else. That's a power law asset class. It's different from like public equities, which is more of a standard distribution where if you're going to invest in public equities, you can. You can almost throw a dart at the wall and pick 25, 30 stocks at random. You have a pretty good shot of getting industry average returns. Not true in venture capital. You have to place a lot more bets because you don't know ahead of time, which ones you're going to work out. And so you need a broad and diverse portfolio. The same is true for corporations that are innovating. They ought to think about insights. As a power law asset and the goal of an innovation team in the corporation is to collect as many insights as possible, knowledge compounds over time, and you don't know which insights you're going to turn out to be the most important. So you need to gather a lot of them. You need to treat them like a power law asset class, quality and quantity. Go run a lot of experiments for the lowest cost possible per experiment. You need to gather insights.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

I love that. I mean, I even think writing a book is a lot like, Picasso, like what you said. I'm sure with, your first draft of the illusion of innovation, I'm sure it was much different than the second draft, right. And then the round of edits. So it's, I mean, I just published my third book and it's, it's an unbelievable process, but Hey, there's sometimes five, six, seven different drafts. But if you have this idea of perfectionism, you've already lost the game.

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah. Yeah. You got to try a lot of things. The, uh, Uh, a corporate innovation leader told me once that his company is really good at failing slowly and at scale, meaning they were running very few experiments. It was centralized, whether they succeeded or failed, it was super expensive. And, um, that's very different from, for example, how we see, um, um, innovation happen in naturally resilient, like ecosystems of nature. The Amazon jungle, I explained the books, a great example for how innovation happens. Very effectively in a way when it's not top down, it's not hierarchical. It's almost a random walk. There are no objectives, only constraints, and it works really, really well. It's almost the exact opposite in every way of what we do inside of corporations when it comes to innovating, where everything is top down, it's objectives

The Moral Duty of Optimism

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

driven,

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

why should we be optimistic about the future? Elliot?

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

uh, for a lot of reasons. Uh, Edwin Land was the CEO of Polaroid, founder of Polaroid years ago, an amazing entrepreneur that more people should know about. And he used to say all the time, optimism is a moral duty. And I agree with that. Actually, I think we've got a moral duty to be optimistic because that leads us to think over. Long timelines. It leads us to build things for those yet to come. It leads us to want to be good ancestors. I think we should all want to be good ancestors for, for those yet to come. Um, but the thing about being an optimist, and let me define what it means to be an optimist, by the way, a lot of people have a misconception that being an optimist is believing that everything's going to be great from here on out. That is not what an optimist is. An optimist recognizes there are going to be problems, really important problems. Every solution creates new problems, right? But an optimist recognizes that our ability to address those problems is going to continue to increase. And, uh, one of, one of my favorite charts of all time is the, uh, chart looking at global GDP over time, but it goes, people chart this and it's hard to get the exact numbers, right? But I think directionally it's correct. Looking at global GDP all the way back to the, the middle ages. And we are living in the middle of this exponential growth curve. We're just in the last hundred years, uh, global GDP has increased dramatically. We've gotten incredibly wealthier and there's no reason to believe that that, and that's just one metric for, you know, quality of life. But there's no reason to believe that the trends that caused that exponential growth, uh, are going away or changing anytime soon. There will be little dips and downturns here and there, but over time, we should expect things to continue to get better. for listening to this podcast. In almost every measurable way across long timelines. And so for that reason, we, we should be optimistic too. And here's the other thing that's important. When you look over history, compare optimists and pessimists who turned out to be right more often. Well, it was the optimist in the optimist so far. There's a great quote. I wish I remembered who said it, but, um, the quote is that, uh, pessimists sound smart and optimists make money. And, uh, so there's another reason, yeah, just for like sheer cynical reasons, you want to make money, you should be an optimist. But here's, here's the other thing. We talked about the importance of being contrarian and being right. Optimists are more right over time, and for the first time in a long time, it's actually somewhat contrarian to be an optimist these days. If you, people have done surveys on, uh, society broadly, looking at, uh, whether people feel optimistic about the future. They feel like things are going to be better 20 years from now than they were 20 years ago, for example. And for the first time, since these servers have been done, uh, the majority of people in some cases are not optimistic about the future. It's crazy. We have every reason to be optimistic. There's no better time to be alive and things are only going to get better on average over time. So if you want to be. Non consensus and right. A really easy way to do it is just to be an optimist right now.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

I think being, uh, being optimistic doesn't guarantee success, but you're in a much better advantage than being pessimistic.

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah. Well, it'll help you identify opportunities, right? Um, again, you talked about 10 years building for stuff 10 years from now. If you're optimistic about the future, you're more likely to be right.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Absolutely. Before I get to my very last question, Elliot, and this has been a great conversation today. Very fascinating. As the CEO and founder of High Alpha Innovation, is there any challenges that you're currently working on right now or just any examples, experiences that you feel is very pertinent to this conversation that we're having here now as it relates to innovation? Anything that you're seeing in the marketplace that you've experienced over the past couple of years that you think is, you know, vitally important as it relates to this conversation of innovation.

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

So we, in our work, I mean, we, our, our, my company, what we do is we build startups with corporations, with universities, sometimes with government to, uh, we partner as a way to help these organizations access innovation that would otherwise be hard and build, build startups that are more likely to succeed than your average startup in the wild. And I. Um, we've learned a lot over the years about how to, to, uh, to govern these things, how to set them up right, how to get the incentive systems. Correct. So everybody wins. Uh, what gives me some comfort and makes me feel pretty optimistic about the future. Is that a lot more organizations are looking at venture building as a way to run these experiments, access anomalies, uncover new pathways to growth. And we've got some great examples now in our portfolio of startups that are driving real transformation back into corporations that helped launch those startups. I was at an innovation conference a couple of months ago where 90 percent of the content was probably on venture building. That's not the only path to innovation, but I think it's an important one. It's one that more organizations are recognizing could be a really important tool. And so right now, if there's anything that we are facing in terms of challenge, it's just educating, uh, and telling people why a corporation skilled corporation should want to build external startups where they may be a minority owner in those ventures. It's not intuitive, but once you go through the The reasoning and talk about how these things drive learning and optionality. It becomes clear that it's, uh, it's something most large corporations should be doing

Embracing Chaos for Radical Progress

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

and my last and final question, Elliot, is, and this relates to, I mean, the whole purpose of this podcast is Get Better Today. It's all about actionable things that we could be doing every single day to be 1 percent better than we were the day before. What is the first step a leader can take and really do today to start embracing chaos and seek out radical progress?

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Go pursue what's interesting. Uh, so, and don't feel bad about it. Uh, in the book, there's a great example of Walt Disney, right? How he, uh, went and got sick of making movies, got burned out and decided, got fascinated with model trains. And that led him ultimately to come up with the idea for Disneyland. Sometimes that pursuit of interestingness in its own right is worthwhile, even if it feels like it may be undirected, lacking direction in the beginning without clear objectives, that's okay. That actually produces good things and statistically speaking, you're more likely to stumble into big opportunities if you just pursue what is interesting. So, I think as an executive in a large company, Look at the ways that your company is pursuing things that are interesting. Are we running enough experiments to challenge status quo thinking? And then am I doing that in my own life? Actually, am I pursuing things that are, are interesting so that I can continually learn? Um, set the example, uh, you're going to uncover new ways of thinking. Maybe like Walt Disney and uncover a whole new industry. You do it right.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

I actually put in my most recent book, The Transformational Leader, that just came out. That radical curiosity is a characteristic of all great exceptional leaders that really isn't talked about too much. You know, there's this radical curiosity about even if they're doing something great, right? It's, can we do it better, more efficiently? So I love that idea.

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Yeah. And then boy, people shouldn't feel bad about that. It's a, it's not a, uh, just a means to an end. It's an, it's an end in itself. It can produce really good outcomes. So go do it. Go be curious.

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Absolutely. Well, thank you so much for your time here today. I really do appreciate it here. Everybody go pick up a copy of the illusion of innovation. You will not regret it. regardless of your station in life, this book holds immense value for a skill and characteristic that will benefit your career and your future. So please get that copy of the illusion of innovation. Elliot, where can people go to learn more about you and connect with you and learn more about your services and so forth?

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

Uh, you find me on Twitter X, uh, er Parker, um, or, uh, at my website, er Parker. com

riverside_matt_mayberry 5.23_raw-synced-video-cfr_chicago_podcast stu_0086

Perfect. Elliot, thank you so much for your time. This was a fantastic conversation today. I really do appreciate it. Thank you so much.

riverside_elliott_parker_raw-synced-video-cfr_chicago_podcast stu_0087

appreciate it. It was super fun. Thanks man.

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Matt Mayberry

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