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Episode Summary

Paul Brody is a Global Innovation Leader in BlockChain Technology and a Solution Leader in the Industrial Internet of Things at EY. Paul has spent more than 15 years in the electronics industry and has done extensive research for his clients on technology strategy. Paul understands that technology is deeply rooted in strategy, but it gets complex as new technologies and disruptions arise in our modern world. For example, the moment self-driving cars are perfected, it will cause a huge disruption in our economy, so how can we navigate through it? Find out more on this week’s episode.

High Stakes Industrial Innovation: A View From Silicon Valley

Hello, this is Mark Bidwell from the Innovation Ecosystem. With me today, I’ve got Paul Brody, who is the Americas Technology Sector Strategy Leader for EY. Hello Paul.

Hi Mark, thanks for having me on.

Paul, good to meet you. We met through Guy Spier, and I was looking at your resume and you’ve started your career in McKinsey, then you worked in several startups, then IBM, and now, as I say, EY, you’re based on the West Coast. I guess you’ve looked at this sector technology for a couple of decades now. How would you characterize the impact that technology is having on established businesses today?

It’s changed so much. When I first joined McKinsey, technology strategy, or just technology was one element of many things that kind of grow the company strategy. At least, for me, I always got passionate and excited about it, but what’s been amazing over the last 20 years is to see that technology is strategy, that if you want to implement change at scale, it has to be done with technology, and that is probably the single biggest transformation is the realization that large enterprises can’t scale unless technology is at the heart of their strategy.

On that basis, I’m sitting here in Switzerland. I do a lot of work with large, regulated, long life cycle businesses which are wrestling with how do they take advantage of evolution or innovation, or even breakthrough in technology. How do you think about that when you go to some of your most established clients on behalf of Ernst & Young? How do you get them to recognize that technology is now at heart of strategy?

I think most everyone recognizes that technology is now at the heart of their strategy. The question is how to deal with that. I think at 20 years ago, the answer was, “I need my R&D department to do better.” Although even then, I had one of my very first clients in Korea who told me, “I know my R&D department is failing because they report no failures to me,” and he knew, instinctively, that the failure to take risks was inherent.

I think there’s more and more recognition that really successful innovation programs embraced all different kinds of ways of capturing innovation, and increasingly, it’s become acceptable, and really a best practice for at least some of that to come from acquiring innovation in the market and scaling it up rather than trying to do it all internally, and I think that’s been probably one of the biggest changes in how enterprises really approach this strategy in question.

You touched on, with the career example, one of the fundamental challenges that executives at large public companies have, which is how should they think about failure, because in many respects, failure is just a word that really isn’t comfortable to use. How do you think companies are getting their minds around that now? Because, as you say, without failure, there is no innovation, essentially.ie031-paul-brody-key1

This, to me, is one of the hardest things. I spent many years in large enterprises, and inside large enterprises, failure is still kind of a bad thing. If you have a really big sales quarter and you blow it on a new technology, or you make the wrong bet, that is a failure and there are negative consequences for that. Yet, failure in the entrepreneurial sense is quite different. I’ve failed. I’ve had years where I worked until December 31st and kind of missed my numbers, and strangely, those were definitely bad failures.

When I left IBM, I left IBM in the middle of my time there about nine years in, and I started an online movie company, and we crashed and burned. We got sued by every major movie studio, which by the way, is a sign that you’re trying to do something innovative. We basically ran out of money. We couldn’t afford the lawyers, and my wonderful husband, who is an attorney and warned that this would happen, has never once turned around and said, “I told you so.”

What was really amazing was after completely crashing and burning, my perceived value in the marketplace was enormous, and IBM hired me back not just to my old job, but gave me a substantial promotion. It’s interesting how we can look externally at entrepreneurs and see failure increasingly looks like good things. It means they tried something. We haven’t yet figured — I think large enterprises haven’t yet figured out how to apply that mindset internally and think about what is a good failure and what is a bad failure internally. They’re just not as good as that yet.

There is a big difference between an entrepreneur that fails, particularly in North America. It’s slightly different here in Europe. But, that’s a sign of progress, it’s a sign of growth. It’s actually almost like a check in the box for an investor because if you haven’t failed, you haven’t been trying hard enough. But, for an organization to crash and burn, with shareholders, that’s a completely different story.

Do you see any examples of companies that are putting in place programs or trying to change a culture around failure to encourage more experimentation? I’ve heard, for instance, investors talk about that they invest, corporate VCs are investing, they have a learning returns as well as financial returns from their investments, which is beginning to get to the idea of failure as something that they’re looking to take advantage of, if you like. How are larger organizations thinking about this from a cultural or from a leadership behavior perspective? Any insight on that, Paul?

So, lots of lip service, very little action. Everybody says, “We want to fail quickly, we want to fail fast,” but there’s not a lot of not just forgiveness, but celebration of failure for the most part. I think there’s two issues: one is cultural. It’s great to say, “Failure is good.” But, the other, I think, is that it’s somewhat contradictory to corporate cultures that are always looking for layoffs or opportunities to cut costs. I think people are most comfortable taking risks in an environment where they feel like their colleagues will do the right thing. I’m not expecting to get a bonus or a raise if I take a risk and I fail, but I’d like to be relatively comfortable that my colleagues will do the right thing and I won’t be fired, or I won’t be top of the list in the next round of layoffs.

I think it’s a culture of commitment to people that helps people to feel confident to take failures. Because, I do think if you look at the demographics of entrepreneurs, and we see this all the time in Silicon Valley, they are remarkably consistently from privileged backgrounds, and I think if I were to isolate it, it’s that these people feel most comfortable taking risks because they know they have family to fall back on. They know that, given their education and their background, that they’ll be able to pick themselves up and find another job.

The consequences for failure are just not that terrible, and they’re not going to get a medal, but it’s not going to be the end of the world, and I think we have to create environments in enterprises where people feel like, “I’m not going to be at the top of the list at the next round of layoffs,” and fortunately, in large enterprises that are overly focused on short-term financial results, it’s hard to avoid thinking a lot about, “How do I stay off that list?”

But, of course, your experience, which is an interesting one is having gone out of large corporate America, setting up your own business, it not going the way you wanted it, and then going back in and using that experience and your previous employers recognizing the value of that experience and bringing you back in and doing something you’re even more significant. That’s a very rare journey, I suspect, or do people in your network relate to that story because they’ve had that experience as well?

It might be a rare journey generally and globally, but it’s astonishingly common in the U.S., especially in Silicon Valley. There’s a lot of movement in and out of large enterprises, back and forth to technology companies. It’s very common to see somebody who’ll say, here at EY, they call them boomerangs, “Oh, I left. I joined this startup, it didn’t work out, I came back.”

It’s like the B 2B, business to business back to banking. That was the old one in the 90s, wasn’t it?

Yeah, exactly. I think it’s common and it’s accepted, and people are like, “That’s really great that you tried that.”

Absolutely. Let’s get into what you’re doing now at EY, because clearly there’s a lot of — you’re right at the heart of some pretty seismic shifts going on in industry based on the West Coast. What’s the data saying about how these large companies are actually dealing with these disruptive technologies? Any insights from your perspective?

This is the most challenging thing about the data. We get up and, all the time, talk about how disruption is coming, it’s going to transform our industries. If you sit down and look at the data, both The Economist and Goldman Sachs have done some very nice research, the truth is large enterprises are doing a really good job of fending off disruption. Industries are consolidating. If you look for example at the average lifespan of a company in the S&P500, people often say that’s evidence of more competition.

ie031-paul-brody-key2Actually, it turns out when you peel back the numbers, a lot of the decrease in the lifespan of companies in the S&P500 is industry consolidation. M&A is, in many years, more than 50% of the reasons for exits in the S&P500 is the company was acquired, and The Economist just did a good study, industries are getting more concentrated, and of course, profits, as a percentage of GDP, are at their highest level, I think, since the roaring 20s.

In this time of tremendous technological transformation, old-school consolidation is driving the business. However, there is a possibility, and I think this is real, this is kind of the last stand of some industries that are on the brink of disruption, of very substantial disruption. I can’t see any way for the automotive industry, for example, to avoid a colossal transformation that will come with the advent of self-driving cars. I like to think of that particular case as literally the highest stakes engineering battle in history when you think about the size of the automotive industry, and the number of jobs, and the amount of trade that depend on it.

What are the metrics around that industry? I remember it post-2008, the statistics were pretty significant. How relevant is it for the U.S. economy at the moment from an employment point of view or GDP point of view?

Off the top of my head, I couldn’t say. My recollection also came to mind around the time of the government bailout for General Motors that it’s millions of jobs. The metric that sticks more in my mind and the one that’s a big red flag is active utilization of an automobile every day, it’s 4%. If you think about it, it’s the second most valuable asset that we own and we use it for 4% of the day. What that tells us is this is a perfect candidate for a shift from a fixed ownership model to a shared ownership model. The problem is it’s very inconvenient. We do it if it was convenient, but it isn’t, especially if you don’t live in a dense urban area.

Self-driving vehicles make that possible. Once you can share that vehicle, the possibilities are very substantial, and if you look at the benchmark: what is the maximum reasonable utilization? I would argue that, at least, the best benchmark that we have right now is New York City where you have what I think of as the densest, most liquid market for taxis in the world, and according to the New York Taxi and Limousine commission, the average New York taxi cab is utilized 50% of the time. That’s about 10x the average utilization of an automobile. You do the math on the number of cars that we need, no matter who wins this race to create these products, the likely transformation is going to be colossal.

That one insight was the insight that created Uber, which is maximizing or optimizing the asset turns, if you’d like. We heard this with Amazon when they were created way back when. Them versus Barnes and Noble, the number of asset turns they had in a year versus Barnes and Noble was I can’t remember, 10, 15 times of their warehouses, so it’s a similar concept. What else beyond the self-driving car or beyond the automobile? What other industries would you be – I wouldn’t say shorting – but certainly looking quite circumspectly at, in terms of making sure your 401(k) wasn’t too heavily invested in them, for instance?

That’s a really hard one to figure out, but in general, where I’ve been looking is what will happen to industries as the Internet of Things takes hold. I think that there are kind of two types of transformation that we can expect to see: one is around asset utilization, and the other is around business process cycle times. On the asset utilization side, if you go talk to companies about IoT, they talk a lot about how to keep things up running 24/7. They’re actually relatively few assets. They’re few, they’re valuable: jet engines, oil platforms. The focus of IoT for them is uptime, but what’s more interesting is if you look in the economy as a whole, we are up to our eyeballs in idle assets. It’s not just cars.

For example, we looked at MRI machines in North America. The average MRI machine in North America is utilized about 25% of the day. So, even if you weren’t running these things flat out, that’s a multi-million-dollars piece of capital equipment that’s sitting on a hospital that’s idle 75% of the time. Over and over again, like trucks, one out of every five trucks in North America on the road is empty, entirely empty, and the other four are only 70% full.

What IoT does, with the Internet of Things, we can start to instrument assets and we can start to know that, right? There was that old joke about 50% of my advertising is wasted. Well, the truth is, in the global economy, 50% of our capacity and assets are wasted. The problem is we don’t know what’s available or where it is, and even if we did, historically, the cost of the transaction, the managing of that availability was too high to be worth it. With the Internet of Things, we can know what’s available, we can know where it’s available, and we can fully automate the process of booking it, and reserving it, and making it available. So, I believe we’re going to see, across many, many industries, floods of capacity being driven into the market to asset utilization.

Which has an impact on price of the assets, but it also, I guess, means that if you’re running these assets today and don’t get with the program and leverage these new technologies, then you’re going to be out of business pretty quickly?

Yes, exactly. So, that’s one, which is asset utilization. The other one is cycle time compression. The analogy I use is this: go to a factory. Go to the Tesla factory, go to a Ford factory. They’ll make a $50,000 car start to finish, stuff goes in the front of their factory and comes out the back in like 40, 50, or 60 hours. That’s a lot of value added in a relatively short period of time. If you want to renovate your bathroom, you can spend less money in about five months.

You’ve had this experience, right? The contractor shows up and he’s like, “I can’t install the toilet if you don’t have the right fixtures,” and then you order the fixtures, they show up three weeks later, it’s a nightmare. It’s really amazing all the precision and performance that we have around synchronizing assets and resources and skills that happens in a factory goes out the window in the real world.

With the Internet of Things, the opportunity the Internet of Things gives us is to have kitchen sinks that say who they are and where they are and they say, “Hey, I just cleared customs and I’m on the truck to your house,” and then order the right, “I need these three fixtures to attach me to the wall, and this is the skill of plumber I need.” I’m simplifying here, but we finally have the ability to bring some of the precision and productivity that we get in a factory out into the real world, and we’ve done mapping exercises for clients here at EY where we’ve literally gone in and said, “Let’s look at the cycle time to actually replace the part.” We’ve compared theoretically minimums to actual averages. In some cases, it’s 10 to 1. 10 to 1 transformation, and so that level of transformation is amazing. I’m not sure that some industries are ready for that level of productivity because it’s a little scary. What if you really could renovate your bathroom in a week?

There have been some great stories in the Elon Musk bio about how quickly they were able to — the cycle times of the testing of the new vehicles, which happened over the weekend versus the traditional sort of German manufacturers that would take a full season, for instance. There are glimpses of that in that book, which I think gives us a strong sense of what’s possible. He, as an individual, has done remarkable breakthroughs in two or three different industries. So, I think that’s a really nice case study for what it could look like. I suppose my question, Paul, is as you go into the executive suite as some of your clients, what are you looking for? What are the warning signs that they’re not ready, or what are the signs that say, “You know what? We can work with these folks and help them prepare for this 10x change in their economics and their productivity, or their profitability.”?ie031-paul-brody-key3

It’s getting much harder to tell. I think when I first went into clients 20 years ago when I was an associate, you’d see clients just say, “We don’t think this internet thing is going to be a big deal.” There was kind of general hostility. Now, people are much more circumspect about technology. So, what you tend to hear is a different story, which is, “Absolutely. We are totally on top of that. We have a team, they’re working on it. We’re going to have a product in market in time.” Then, it becomes much harder because now you have to prove that, yes, you have a team, but no, they’re horribly under-resourced, and when they get their product to market, because it was designed by a committee, it’s probably not going to be that compelling.

It’s become harder to identify which companies are really committed and which ones aren’t. I think, to me, that the marker of serious commitment is two things: first of all, a true portfolio strategy when it comes to innovation. The recognition that, good times or bad, we have to have some chunk of our R&D or our investment budget is driven to A, high-risk projects, and B, we understand that not all of it can be internal. We’ve got to be willing to go and buy companies and invest in startups. So, that’s one piece of it.

Then, the second piece of it is you know it’s real when you hit a recession or a bump in the financials and they don’t axe the program, because those kinds of high-risk, high-reward programs are always the first to be deleted when it’s time to rewrite the budget.

Interesting. You’ve mentioned the Internet of Things. You’re also working on Blockchain, and I think you did quite a lot of work with IBM in that area while you were at IBM. Then, the third area which you talked about when we spoke earlier on, Paul, was the new innovation models. Can we just touch firstly on Blockchain and the experience in IBM, because I think that gives, to the extent to which you can share some details, that gives a sense of some of the challenges of here’s a terribly exciting new technology which, nonetheless, didn’t necessarily fit with the current strategic agenda of the leadership team. Can you just say a little bit about that experience?

Blockchains were really interesting. A lot of people came to Blockchain because they had a personal engagement with Bitcoin. I came to it because we had clients who were asking for old equipments. We had a client in particular that came in and said, “We need some Windows 98 servers,” and it was a funny story because we couldn’t find any, but when we drilled down to the reason why they wanted such terribly old servers, the answer was they had launched the product back in 1999, and more than 10 years later, they still had about 30 or 40 thousand customers who were using it, and they needed it.

The product was going to fold up without these servers, and it led us to start really thinking about, “Okay, why is it so difficult to create technology that’s sustainable over longer periods of time and operate to the very low cost?” and about the same time, we started talking to other companies about, “What would it cost to start managing large numbers of devices, not hundreds or thousands, but millions?” and the answer, at least initially, was a heck of a lot of money.

On the one hand, the salesperson was like, “Wow, this is going to be great. This is going to be a jackpot,” but when you sat down and did the math, what you realized was that if you took something like an LED light bulb, and that’s where we’re headed. We’re headed towards smart connected devices or the smallest light bulbs, the light bulb costs $20, the margin on that light bulb was $5 and it’s going to last for 20 years. Under the old model, the management services, the IoT management services in the data center to manage that device would not just exceed the margin, they would probably have exceeded the price of the device. That’s not a sustainable way to build the Internet of Things.

So, we convened a small research team and a clean sheet of paper and said, “If we were going to start from scratch, what would the Internet of Things look like,” and after a lot of soul searching and many, many bitter arguments about what a smart toaster really should do, we came up with the answer that whatever it does, it’s probably going to be powered by a blockchain.

Interesting. The implications from a financial point of view on that? The lifelong stream of revenues for the manufacturer, how would that work out in that model?

Potentially, much, much lower. I think one of the most contrarian conclusions that I personally came to is that the plans that a lot of companies have to sell data developed by IoT devices, or to mine it, or to build analytics services on top of it are a pipe dream. Their problem with managing IoT is not getting more revenue. It’s about driving cost down. This is one of the areas where I have decidedly contrarian views to most people. I am actually not a big believer in big data, and I’m not a big believer in sort of the advertising or marketing or data mining-driven model of these businesses.

Can you say a little bit more about that? Because a lot of folks in a lot of businesses are built particularly in agriculture, where I came from. The Monsanto acquisition of a data company, Climate Corp, was all around that model. What’s led you to the counter position on this?

Monsanto’s acquisition of a climate company is actually an interesting case where you have — it’s one of the relatively few cases where you have very useful, high-value big data. If you look at most enterprises, they’re just collecting lots and lots of data, and one of the things that people tell them is, “Oh, go collect all the data and our clever analytic system will find patterns in it for you.” I think that’s ridiculous. Analytics is hypothesis-driven, and the greatest value that comes from analytics is not really big data. It’s small data and it’s driven by hypothesis instead of just collecting all the data.

I think collecting all that data, A, it’s terrible privacy policy, B, it creates a huge honey pot and liability for hackers. But, C, it distracts people from the issue of thinking carefully about what their customers are doing at developing hypotheses and testing them. So, that’s number one, which is, I think you must be hypothesis-driven and targeted in your collection of data.

The second issue really has to do with the special characteristics of markets where the product has a marginal cost of 0. Insights that are generated by big data have a marginal production cost of 0, right? I can copy that a million times. So, if you have two players in the market who have identical or similar data to sell and their marginal cost is 0 and it’s a competitive market, then the market clearing price for that data is 0.

ie031-paul-brody-key4I think people don’t think about sort of the economics of supply and demand, but I’d like to point out we have a lot of cases where data is insightful and it’s valuable, but the market price is still 0. Think about all those mapping apps. At the end of the day, no one’s paid for a mapping app on their phone in seven or eight years.

Interesting. Just switching gears a little bit, Paul. A lot of listeners for this show, they might characterize themselves as intrapreneurs. So, sitting in large organizations, maybe frustrated that their leadership is not necessarily embracing or fully investing in, as you say, a portfolio of options and/or some high-risk projects. What advice would you give? I think you’ve been, as I said at the intro, you’ve worked in a number of different organizational contexts.

What advice would you give to these sorts of individuals who are wrestling with getting their idea listened to, moving forward, or a project which might not necessarily be in their formal job description, but nonetheless, they feel that this is something that is really relevant for the future of the industry or their organization, or at least they see a significant career opportunity by pursuing this? Let’s say, maybe, it’s an Internet of Things project, for instance.

I think, maybe, a couple of thoughts. One is don’t give up. I think quite a few times — I remember very, very early on in my career, I was passionate about mobile data. I thought it was the most amazing thing. I bought, many, many years ago, to the company called Metrocom, and you could buy a wireless data modem in San Francisco from them and it had unlimited mobile data at dial-up speeds anywhere in the Bay Area. I thought that was the most amazing thing and there wasn’t a client that I didn’t try to talk to about how mobile data could transform their business. That was 1996, or 1997 or so. I thought it was incredible and really nobody listened. I kept trying to kind of push that forward. It wasn’t until, I think, 2014 or so that IBM did the deal with Apple around mobile devices in the workplace. So, there is the risk, especially if you’re as nerdy as I am that you’re just way too early. The biggest danger is that you give up on an idea and then it comes of age, and you see somebody has to like, “Hey, we appointed Bob over there in charge of our mobile data initiative because he had stood up at the right time and you got burned out.” One thing is like don’t get burned on these ideas. Stay on top of them but play the long game.

The second thing is try to get really good at articulating the value proposition of this technology and keep bringing it back to why it’s helpful for the business and always have your elevator pitch ready. I used to say to people who work for me, “I want to help you in your career, but I’m not a mind reader so you got to keep reminding me of what it is you want to do,” and when I see the opportunity and I remember what you want to do, I’m going to be like, “Hey, that’s just right for you and we should put you into it. Managers and leaders can’t be mind readers, so you got to play the long game, you’ve got to keep your elevator pitch on top of it, and you’ve got to make sure people know that that what you want to do. I kind of am known as a — you’ve got to comfortably being known, maybe, as a little bit of a strange person.

I think one of my colleagues at IBM from the research department said, “It’s really great that everybody accepts you for who you are.” I think what he was talking about was the fact that I can be a little bit bizarre. We had huge fights over why we need to build a prototype of a smart toaster, which I lost those battles, but I learned a lot from having those arguments, and it was a lot of fun.

A related question for that, and I think those are a couple of very good points that you’ve made, Paul, for people, and they’ve been echoed by previous guests, actually, as it happens. You also talk about the new innovation models that you’re working on. To your point around sometimes being early is an occupational hazard, but are you — I’m really curious about business models. We had Alex Osterwalder, the author of the Business Model Canvas, Business Model Generation book on the show a few weeks ago, and I look at Nespresso, which is a model that he talks about very frequently, and that’s basically a Gillette razor blades and razor model. My question, I guess, to you is are there any — and a lot of the big data companies: the Google, the Facebook. These are basically marketplaces. They’re double-sided marketplaces. Are business models actually evolving, or is it just a reconfiguration of tried and tested business models from many years ago, what’s your view on that?

I think my view on that is for the most part, business models are not really evolving. I read this article once that talked about how there’s only nine types of stories that people tell. I think it’s true for business models, as well. However, and this is what’s interesting. I really believe that disruption and technological change go hand-in-hand. Even though people talk a lot about business model innovation, I think, for the most part, you can’t do business model innovation if there isn’t some underlying technology that makes it possible.

What is interesting is how technology has made old business models possible in entirely new ways. We’ve always had business models that swing between bundled and unbundled goods, between packages and services. But, thanks to technology and the internet, we can now do these kinds of things in a way that was just impossible before. If you think about companies like Uber, they’ve made it possible to deliver what feels like a remarkably consistent integrated taxi service without owning a single cab. I don’t think it would have been possible before.

Vertical integration, large enterprises existed for a reason, which was to internalize all the transaction costs and get everybody in the same page. We now can do the same thing with technology without having to have everybody work for the same enterprise. Let’s set aside for the moment the question of whether or not that’s necessarily always a good thing, at least, for the workers. But, it’s the technological change that drives business model innovation, and for example, Blockchain will enable a whole new wave of innovation mixing up existing business models that we already understand in entirely new ways because they enable trusted decentralized commerce among parties who don’t necessarily know each other, and that is revolutionary by itself. We’ve always had integrated companies and trusted relationships because that was the only way to do business. Blockchains allow for decentralized trustworthy relationships without actually having a single point of contact or a single point of trust in that equation.

Which is essentially what the banking industry, going back to whatever the first bank on the planet in Italy. That was what it was all about. It was all about trust, wasn’t it? That’s what Blockchain enables you to do is — I think I heard it described as a distributed trust engine.

It is, and The Economist headline calling it the “Trust Machine” was a great example, and it is sort of amazing if you think about it. Banking crises have been a staple of Western economies since the first bank was created. There’s no long period of time that doesn’t go by without some kind of substantial banking crisis. So, the idea of distributed, sustainable, secure trust is potentially revolutionary in terms of what it enables. Then when you apply that, imagine being able to have, I like to call it — imagine if you had a blockchain for inventory, right? Think about inventory that’s as reliable as the dollars that you have in the bank in terms of accuracy and location, and so on. Imagine we can start to take all of those things and make them as trustworthy and reliable as our bank balance or our credit card. It changes how you think about all of your commercial interactions.

Paul, I’m curious here, because you’re clearly very optimistic about the potential of these new technologies and some of the fantastic sort of operational improvements and the collapsing of cycle times. But, on the other hand, at the beginning of the conversation, you talked about the ongoing consolidation and industries. Where do you land on this? Maybe, I’ll put it in a different way. What advice would you give to your kids about how they should think about positioning themselves, perhaps, when they’re old enough to have these conversations? But, what advice will you give them? Are you fundamentally positive or negative about how the world is going to shake out, and how to position one’s self in front of that?

I’m a short-term pessimist and a long-term optimist. The truth about transformation is — right? Whether it’s global trade or technological change, the fact is every big transformation in industry and technology has winners and losers. If you are an auto worker who has 35 years of experience, it will not be easy for you to change your life. I’m a pessimist in the short run because I believe that we, as a society, do a really bad and grossly inadequate job of helping out the people who are on the short end of transformation and globalization. It bothers me that we, particularly in the U.S. are a little bit, I think, way too stingy in terms to retraining and assistance, and I think that’s contributed to some of the anger around globalization, even though, in the long run, we’ve become a vastly richer society.

I’m a short run pessimist and a long run optimist. I think, in the long run, our lives will be transformed. The ability to not spend $30,000 on a new car or the ability to not spend two hours of your day driving. Self-driving cars alone are going to be transformational in our society and it’s the tip of the iceberg. For most people, it’s a transformational opportunity.

I’ve got two sons, ages 8 and 7, and we haven’t talked a lot about work. We did have one really interesting conversation with my oldest son about where do hoodies come from? How does your little hoodie get all the way from a cotton farm somewhere in the world to the target store near our house. If I had to have this advice to give advice to them and I will end up doing that when I’m sure, because I have an opinion on everything, I think I’d tell them go into a business where interpersonal interaction is at the center of what you do. Machines will do a lot of mechanical stuff for us in the future but they won’t replace interpersonal interactions, and those are the things that will create value, relationships, your ability to work with people, that’s what’s going to create value over time, and not some particular mechanical skill.

I’m thinking of a future guest we’ve got coming on who was telling me that the army piloting an AI which actually helps people deal with post-traumatic stress disorder, and the uptake of offering that service and also the response and the results from an AI-based psychotherapist, I guess, are significantly better than the traditional model. That could be to do with trust and it could be to do with mistrust about the traditional model. I’m just curious about how AI plays out alongside your idea of the interpersonal. I suppose maybe your point will be that there will always be the need for those interpersonal relationships alongside AI and just make sure you’re on the right side of it.

Yeah, I think so, and I think it’s really hard to know how far artificial intelligence or machine learning will go. I think, certainly, at the moment, I’m tremendously optimistic. The one thing I do worry about is for years and years and years, we wanted to have machines with which we could have a reasonable conversation. When I ask my phone, “Is my flight on time,” it doesn’t even know I have a flight entry in my calendar for later today. It’s really basic stuff that if I called my assistant and asked her, she would be able to look that up.

We’re getting so tantalizingly close, right? The voice recognition has improved tremendously, we’re seeing some amazing demonstrations of machine learning. What I worry about a little bit is that Moore’s law, the underlying ability of computers to crunch ever more numbers ever faster is starting to slow down just when machine learning is getting really interesting. I do worry a little bit that we’re going to, having run this incredible marathon, will we sort of end up five yards short of the finish line of something that’s tremendously useful. I’m not enough of a computer scientist to know the answer to that, but I confess to worrying about what will happen if Moore’s Law slows down because so much of what has gone on, all of this technology disruption, it’s underpinned by fundamental changes in computing power primarily on the hardware side, and supported by software as well.

Paul, let’s just wrap this up. It’s been a fantastic conversation, very grateful. I know it’s early for you in the morning. Three questions I sent across for you. Firstly, what have you changed your mind about recently?ie031-paul-brody-summary-framed

To me, the thing I’ve most changed my mind about over the last few years is it’s really human behavior. I used to be sort of politically much more of a libertarian. We should all be free to make really bad decisions if we want to, and as I’ve learned more and more about behavioral economics, I’ve realized that I still fundamentally believe that we should be free to make bad decisions, we should be free to smoke and have as much junk food as we want, but it’s reasonable and appropriate for things like taxes and other incentive to tilt the playing field in a way that makes doing the things that we know are good much closer to the default option. At the end of the day, just piles and piles of evidence is starting to show up that suggest that in some very appropriate respects, human beings are just not great decision makers.

Yeah, and I think we’ve seen in the politics of the UK, and potentially the U.S., without getting into that, there might be lots of evidence at the national level around that point.

For sure.

Second question: what do you do to remain creative and innovative?

I am a serial hobbyist. I don’t have a hobby that I’ve had for a long time, but I tend to pick up hobbies and learn them and then put them down. So, over the years, I’ve learned to fly of an instrument pilot rating. I’m a certified, although lapsed, emergency medical technician. I built a Smarthome, and I’m currently learning how to do triathlons and have finished the half ironman, and I’ve got a full ironman on the agenda for next year.

Every time I pick up one of these hobbies, I come away from it learning all kinds of great insights. I learned a huge amount about process and technology learning to fly. Every day, we get into these basically aluminum gasoline cans powered by unbelievably unreliable equipment, namely human beings, and it’s the single most safest form of transportation on the planet, and in order to get that way, you got to get astonishingly good at thinking about redundancy around process control. I learned a ton from learning to fly, and it’s influenced my thinking about business process since then.

Triathlons have completely reshaped my thoughts about wearables and human metrics, which for all the data I capture on my smart sensors and so on, have been utterly useful in improving my training, and I’ve realized that if I didn’t have any of these smart devices, I would be doing the same thing.

Every time I pick up one of these serial hobbies, these new hobbies, I learn something new about the world and I realized I like the part of learning and coming up the learning curve much more than I like the part about sticking around for another 5,000 hours of practice to become a real expert.

Having said that, a half ironman with an ironman on the calendar, that’s not fiddling around with it. That’s getting quite serious. Maybe you do yourself a little bit of an injustice there.

Maybe, I hope so. My goals are not to win. They’re just to finish, and I had a really good conversation with my kids, who are sort of like all little boys, hyper-competitive, and we talked about why would you do something where you’re going to place 143rd?

I guess you’re on Strava, are you, Paul?

I am, yes, and Garmin as well.

Okay, good. I’ll follow you on that. Final question: to what would you attribute your success in life? Are there any specific skills, habits, or mindsets that you’ve kind of mastered that you really think have had a significant impact?

I would say, number one, good luck. I am insanely fortunate. Probably, number two, the generosity of others. Every time I think about, “To what would I attribute my success?” The answer is, “I’ve been incredibly lucky, incredibly fortunate, and other people have been amazingly kind to me.” I have been given incredible opportunities. It starts with that. I try to remind myself is what separates from a lot of people that have been less successful is good luck and not more than that.

Somehow, I try to also keep in mind I am a ridiculously hard worker, and I don’t know why. One of the things that’s very strange is my parents never applied pressure. They never said, “You’ve got to do this, you’ve got to do that.” I remember coming home and opening the mail and getting a really fantastic score on the SAT, and my mother asked, “Is that good?” because she didn’t know and then nobody had been telling me what to do. Somehow, I’m very driven for reasons I can’t say. I think a lot of that hard work has paid off, hard work and curiosity, but I always come back to I have received incredible good fortune and it is my responsibility to figure out how I deliver that, first to my children, and then secondly, to other people.

Where can people get in touch with you, Paul?

Email or Twitter. I’m at @pbrody on Twitter. My email is paul.brody@ey.com, and you can also find me on LinkedIn. I will confess I am not as quick as I would like to be just given the volume of email, but I really do try to get to all of it.

Wonderful. We’ll put all of that in the show notes. It’s been great having you on the show. I really do appreciate it. I’m sure they enjoyed it as much as I did. Thanks very much for your time today, Paul.

Thank you so much. I’m flattered to be invited to this show. I’ve listened to some of the other podcasts and read the transcripts. I feel I’m in very good company.

I think I’m very lucky I’m able to attract people like you onto the show, because it’s great to be able to put some of this stuff out, because the message that you bring is a very, very relevant one. So, thank you for your time.

Thank you so much, and have a terrific week.

What Was Covered

  • 03:15 – How would Paul characterize the impact technology is having on established businesses today?
  • 04:25 – How does Paul get his clients to recognize that technology plays an important role in business strategy?
  • 06:10 – Failure is still seen as a taboo in large organizations, but we need a bit of failure in order to create innovation.
  • 07:35 – Large organizations have not been able to differentiate between good failure and bad failure.
  • 08:15 – What insights does Paul have on companies who try to encourages a ‘failure culture’?
  • 11:15 – In Silicon Valley, it’s quite common for entrepreneurs to fail and then go back to traditional businesses. Businesses even welcome them with open arms!
  • 16:20 – What kind of industries is Paul paying close attention to?
  • 21:40 – What are some of the warning signs that show a company is not ready to handle a complete 10x in productivity of their industry?
  • 22:50 – It’s getting harder to tell whether companies are prepared for drastic change in their market.
  • 22:52 – For companies that are serious in getting ahead, there are two factors they have to consider and follow through on. Paul explains further.
  • 24:00 – Most people became interested in BlockChain due to Bitcoin, but Paul got involved with BlockChain for different reasons.
  • 27:15 – Paul is not a big believer in big data or in the data-mining model.
  • 29:50 – What advice would Paul give to intrapreneurs listening to this show?
  • 34:30 – Are business models really evolving or is it just a repeat of a tried-and-true method?
  • 37:35 – Bank crises have been a staple of Western economies. This is way technology like BlockChain and trust in the Bitcoin have become rampant.
  • 39:00 – What advice would Paul give to his kids on how they should position themselves in such a dramatically changing world?
  • 41:40 – Machines will do a lot of the leg work for us, but they can not replace that very intimate and personal human interaction.
  • 44:35 – What has Paul changed his mind about recently?
  • 45:55 – What does Paul do to remain creative?
  • 48:20 – What does Paul attribute his success to in life?

Tweetables

[Tweet “Technology is strategy, large enterprises can’t scale unless technology is at the heart of their strategy.”] [Tweet “The Economist and Goldman Sachs research showing large enterprises doing really good job of fending off disruption, consolidating”] [Tweet “The last stand of some industries that are on the brink of disruption. The automotive industry in the highest stakes engineering battle in history”] [Tweet “Average MRI machine in North America is utilized 25% of the day: a multi-million-dollars piece of capital equipment idle 75% of the time”]

Links Mentioned

The Innovation Ecosystem Website
SGV Website
Paul Brody on LinkedIn
@pbrody on Twitter

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