Waldek Olbryk: Here on the crossroads of different sectors very interesting things are happening. I work in real estate, Przemek works for a technology company ABB.
Przemek Zakrzewski: Yes, I'm heading right now Research Center in Poland and having very much influence on different types of technology development in ABB and with Waldek we work on slightly different dimensions of implementing technology, our goal is contributing to sustainable development.
Waldek: Our definition of sustainable development is not only environment but also empowering community resilience. So with that being said, I would like to start with the question: how do you define future readiness? And at the same time how do you define the future in today’s world?
Howard Yu: So it really is starting off with a project I began almost five years ago. In the Harvard Business School article, what I would argue is becoming future ready essentially comes down to whether you are capable of scaling up those critical capabilities ahead of others and ahead of time.
So if you are thinking about consumer brand, what is required is direct consumer relationship, omni channel and personalized offering. So those are the capabilities that everyone raise towards. You brought out a very interesting point. How do we see through the future now?
It's impossible to make a prediction in terms of event and outcome. The global pandemic is just one of these illustrations. It's almost impossible to predict a specific event, but it is really important for organization and manager to scale the relevant capabilities.
Waldek: We all find that challenging...
Howard: Everyone talked about how e-commerce is important for almost five, six years and once the pandemic hit, if you're not big on that or data analytics, then it’s over for you. Now looking at areas such as heavy machineries. Of course, people talk about digital twin or B2B channel for a long time but not a lot of companies have managed to stay.
And so my definition is very simple. If a company wants to be future ready it’s not enough to just talk and experiment with pockets of success, but actually scale as the new core competence ahead of time and ahead of others.
Waldek: It's interesting because a lot of people are talking about experimenting like it's a very difficult thing to do because they’re afraid of failure. But you add on top of that the capacity based on the new things, scale up and make a new business space volume wise.
Howard: Exactly. Every single company would have some form of corporate venture. In the world of finance we talk about artificial intelligence, predictive analytics and blockchain. Every single company would have some kind of lean startup methodology, design thinking workshop. Every company would launch an app, that doesn't matter, but it really comes down to, if you are able to scale.
And in the pandemic, you see, every financial company would have an app, but those who grew big are Visa, MasterCard as well as PayPal and some of the leading banks like DBS and JPMorgan Chase. They are the ones who already scaled and so they can pivot. That becomes the source of resilience.
Przemek: So experiment, experiment fast and scale fast. Otherwise, you won't survive, as a natural selection in the business.
Howard: That's exactly right. So there are two phases. Phase one is experimentation, as you described. You need to be agile. You need to allow manager to have this reversible decisions. But at some point, an organization must and this is critical, must make tough trade off.
It require cannibalization. It requires scaling of a new business model. It requires certain expansive CapEx investment. These are irreversible. And big companies all tend to fumble in transitioning from stage three to stage four because they require very different leadership style.
Waldek: I think you have just touched something which comes very often to anything that we discuss with Przemek over our creative collision discussions. It's about courage, acceptance of eventual failure and beginner's mind for the new things to come.
Howard: Yes, that's right.
Przemek: When you're talking about scaling up, I also correlate this with needed capital and resources. How would you define the future of the way of engaging companies with customers and capital investors? Is there anything you see as an emerging new way of dealing with the challenge of scaling up and gathering resources from there?
Howard: Yes. When you're scaling up it's absolutely critical. It requires resources. It requires commitment, which means that whether you are the management team of a company or business unit or whether you are investors, you need strong evidence that your solution works. So this is why when you’re looking at Amazon and similar companies, whenever they begin to scale big, it's not a reckless faith or it's not a blind leap of faith at all. But essentially they already gained traction. They demonstrated the value proposition resonates with the client. There is a list of customers asking for more.
This is when you make that critical commitment to scale but there are times that companies are getting enthralled with a piece of technology and all of a sudden it flips, let's go big! And that's premature scaling. Now, when you have evidence and customer love (Microsoft would call it customer love). When you scale, then you can be creative.
Przemek: So that’s the right moment?
Howard: When a company actually has gathered enough leading indicators, they are in a position to think creatively how to bypass what you just mentioned. The joint venture, you could put towards to your ecosystem, your customer to scale by themselves or even franchise model. So, yes, capital constraint is always present. But it's not an excuse to not take action.
Przemek: You mentioned number of companies who are actually to some extent competitors to ABB, but would you say that the future of industrial companies is the digital platform and mastering their capabilities of dealing with software and application development? Is it more toward the software oriented services and products? What is the future from that perspective?
Howard: Yes. I think this is where industry convergence happens, because regardless of sector, we are in, there’s right adjacency to your sector having machineries. In the auto sector, what you see is exactly that industry convergence already happened. It's not just about mechanical engineering. Going forward, mechanical engineering would be just one of the basic capabilities, but what is the new thing in the auto sector, it's battery technology, it's also software design, it's chipset design as well if you are not engaging in chipset manufacturing.
So these are the critical capabilities. Whether you like it or not, as an automaker, you have to master in-house. In your space, it may not be going as extreme as fast, but you have core domain knowledge around engineering, electrical engineering or electronic engineering. But laying on top is of course the software element, analytical element and we cannot avoid it, this simply is becoming the basic criteria. Key point is, how do you position with Siemens and Schneider and Honeywell. I think you guys are in the frenemy situation. You're looking at banks, Visa and MasterCard and PayPal they are enemies, but they collaborate at the same time. You guys have no choice but to collaborate. Despite all of that.
Przemek: Howard, let me challenge that statement. Does it mean that Apple, Google or Facebook, very digital companies, need to master their capabilities of designing mechanical and electrical engineering to be also positioned better in the future? Do traditional companies need to go digital and learn digital? If I want to expand and grow my company do I need to learn other dimensions of engineering?
Howard: That was a great question about Google and Facebook and if they want to enter your space, do they need to master mechanical engineering? But if they truly want to enter your space, then it becomes a race. Whether the cluster of ABB all the way to Honeywell can master digital fast enough or whether Google can master mechanical electro engineering fast enough. But quite frankly, I don't think Google would enter your space directly, completely, because they even try to get into autonomous driving and it's just a money pit.
But what I would think will happen is forward looking company in your space who scale up to become digital first, data intensive enterprise. They would be the one who commanded disproportional market share going forward and capture value.
It's almost like the smartphone industry beyond Apple and Samsung. There are still a bunch of others, but they never make profit. They're just selling commodity. So this is a highly fragmented market because of the nature of data and digital, it galvanized towards a monopolistic position when it comes down to value capture.
Przemek: Would you change anything to your statement if we put on the table real estate environment?
Howard: When we think about future readiness, for example with digitalization, we are talking about really fast moving, prototyping, implementation, testing against the customer and the trends. But with real estate you buy the land for two or three years, you make the agreement administration for two or three years, you build for two or three years and just right away of nine years, you produce and deliver for the users something that could already be obsolete.
And that's my question, how to be future ready in real estate? Historically, there was no reason to change anything because real estate, by definition, is safe port for money and people do not have the kind of motivation to change anything.
Waldek: Now we are trying to touch how to make something which is stable, historically very safe to be ready for the future.
Howard: In the world, which is changing so fast and it will be changing. That's why we are just thinking whether Google will enter real estate to a certain extent, I assume yes. But how to make our company, our sector future ready with what we said so far? Whether it's Apple or Google, when they enter the physical world, they would try to dominate and become the iOS. So a very concrete example, right?
Przemek: Definitely.
Howard: We just spoke about Google will not become the full stack of ABB, but what they would love is to master the iOS for industrial based Internet. Now they are not quite there yet. But who knows? It's almost like the Apple CarPlay. I doubt they would want to become a full stack of BMW, but already 30% of the consumers say, if the car doesn't have Apple CarPlay, they would not consider the model. So the BMW brand allure for these customers is less than Apple.
Now, if you use that thinking to apply to real estate (the commodity is the physical part) you still need concrete and steel. What is highly valued capture could be around the real estate operation. The end usage, whether it's around maintenance, whether it is about the construction cycle. Could we orchestrate it in our ecosystem?
Waldek: In real estate, I find a lot of the operations are highly manual, highly fragmented, there’s a lot of inefficiency and surprises.
Howard: You could take almost like the beam method, but scale it up to the entire ecosystem? No one has done that before. Now, if the whole sector do not do that, what would be the future result? Like airline, highly susceptible to crisis. Airline is one of these examples where they never invest enough in digital. If you're going into any airline, even Lufthansa, you look behind the desk of the customer desk, the checking counter is the green and black color screen. It's IBM mainframe back in the sixties, like “Back to the Future” in 2023.
Because of that, you see how airline industry as a sector they always go through boom and bust. Right now we see a lot of companies struggling in that sector. So my argument is this, there is a lot of the unfortunate inefficiency in the construction sector that could be streamlined through a lot of automation. That requires sort of an industry based iOS. And so this is where it could be led. I think it's more preferred by a forward looking industry.
Waldek: So, it means that in real estate we need to have a right level of communication with the investors. And on a certain level it might come to cannibalization to make a change in education and technology. Which will help to identify those inefficiencies but at the same time, to propose kind of an alliance with the digital company that will help to create together, something which is not present on the market.
Howard: We need to think about coordination. In the past, in traditional sectors, they tended to think about coordination and joint venture on a manual basis. So we sign a contract and we do something together. What we are describing here is the digital first automated data flow across organization so that the operation becomes seamless.
That has a huge benefit in terms of responsiveness in the supply chain. That in itself is major. We all know that we love demand forecast and demand planning but increasingly it’s becoming useless. It's the responsiveness that matters.
Waldek: How do you see the future readiness in connection with ESG? Which is becoming the new bible for the new reengineering of the organization. Because I can see it became a fashion, but I think with very shallow understanding. When you really try to understand what is behind this it’s really a reorganization of how you do the business. How based on ESG can we be better prepared for the future?
Howard: Yes, so there are three things going on here. One is the fundamental need for ESG it's always there and increasingly more and more important, the current climate needs this. There is certain shallowness around the thinking currently because there are companies that try to move beyond, but there are still a bunch of companies thinking otherwise. And that is the huge challenge for the industry.
www.howardyu.org
* Howard Yu is the director of IMD's Center for Future Readiness, which specializes in technology innovation, strategic transformation, and change management. Established in 2020, the center helps companies to spur innovation and growth in an environment of uncertainty. Howard is the author of the award-winning and best-selling book "LEAP: How to Thrive in a World Where Everything Can Be Copied. He collaborates with "Harvard Business Review" and "MIT Sloan Management Review".
* curioCITY is a series of inspiring interviews on the Re:view platform on the borderline of technology, business, management and design. A joint project of Waldek Olbryk (Archicom) and Przemysław Zakrzewski (ABB), the aim of which is a creative exchange of ideas in intersecting areas. Together with Rafał Romanowski (Re:view), we invite people from the world of business, hi-tech, culture and architecture to talk. We want to draw trails that we will follow in the future.
