Hello, this is Darren Pulsipher, chief solution, architect of public sector at Intel. And welcome to Embracing Digital Transformation, where we investigate effective change, leveraging people process and technology. On today's episode, Embracing the AI Revolution with author and professor Dr. Michael Lenox. Mike, welcome to the show. Thank you so much for having me there.
Hey, we were we were connected by somebody. I can't even remember who And when I when I read your bio and things like that. Oh, I said I have to have Mike come on the show because you're an author and you're releasing a book on digital transformation, which is awesome. Yeah.
So just today, officially Strategy in the Digital Age Mastering Digital Transformation has been released by Stanford Press that that's awesome. Now, before we talk about that and your expertise, how did you get to be where you are today? Well, let's hear that story. Everyone's got a back story. Let's hear it. You know, it depends how far back you want to go, but. Born and raised. Let's go post.
Let's. Let's go. You know, post adolescence. How's that post? Adolescence. Okay. Well, I was going to say born and raised in a steel town outside of Philadelphia.
But for that kid. That's good. That's good. I'm a reformed engineer.
I did my bachelor's and master's in systems engineering. That's had a lot of influence in the way I kind of look at the world. I always point out that even when I was an undergraduate, we were learning some of the very techniques that we talk about today, things like neural networks and machine learning. The problem was we didn't have the processing power of the data to do what we can do today with exactly the you would decide to go back and get my Ph.D. in economics from MIT.
But with this particular focus on technology, business strategy and public policy. So I'm really interested in that kind of intersection between those those three areas and do a lot on digital transformation and digital disruption. And I also do a lot of work on environmental issues around decarbonization and clean technology as well.
So what made you want to go into more of the management route or was it management business route? Business route? Yeah, more than the technical route. What was it that that made you, you know, move in that direction? Yeah, I think at the end of the day when I was looking at, you know, challenges, either organizations or companies were having with technology or society more broadly, as much as there was always a technical component to it, it almost always seemed to come down to people, right? It came down to incentives, it came down to management. And so that just got me really interested in kind of the business aspect of these technologies and, you know, what are their implications. Yeah, just just like at the beginning of our show, we say people process technology in that order.
Yeah, it's on purpose. You're right. I mean, the people, people's big thing. I actually went back to school. I have an undergraduate in computer science and several minors because I wanted to be a biomedical engineer, which wasn't a degree back in the day. So I took a bunch of crazy classes.
But I later, after getting in the industry, I learned that the people aspect was something that I was in Silicon Valley in the nineties. No one knew how to manage people. Yeah, it was it was a it was a disaster. So I actually went back and got my MBA and learned that no, no one did know how to manage people, especially smart people. And so I feel your I feel your, your pain there with that.
It's one of the things I talk about in the book that I think if your digital transformation effort is being led exclusively by your team, you're probably in trouble, right? Because you need that senior management buy in and you need that vision for how to connect the various business units with your digital transformation efforts. If you think this is just an IT thing that kind of happens off in the dungeons, wherever it does what it does, you're probably in trouble. No, I totally, totally agree. And I've seen that in my career because I go and help organizations do exactly what you're talking about. Digital transformation.
And it always comes down to a people problem. So we look at organizational change, we look at organizational structures, knowledge transfer, knowledge management. Those aren't technical things, Right? Right, exactly. Yeah. So, all right, So you studied all this stuff you're teaching now at UVA. You got your book out.
So let's say I'm a CIO. I hear the buzzword buzzword du jour, digital transformation. Where do I start? Yeah.
And I think this is kind of the primary message of the book is I think a lot of times when people think of digital transformation, they immediately go to what I might call like digital infrastructure. Now, should we be using cloud computing? Should we build a data layer? Right? How do we get our data organized? But I think the implications of digital technology more broadly are much more fundamental. And industry after industry that I study or work with companies and what you find is it's changing the fundamental basis of competition for one could be changing the way you relate to your customers, the underlying value proposition that you create, creating more consistent and long lasting relationships with your customers. It's creating new business models, or at least proliferating different types of business models.
So just selling a product now it might be software as a service, maybe it's a platform play where there's an exchange fee that you get for using your platform. We're seeing the deconstruction of the value chain where maybe digital native companies are coming in and taking little pieces of what you used to do and trying to disrupt those little areas like we see in the in the fintech sector. So it really causes, I think, companies to reflect on not only where they are today, but where are they going and what capabilities do they bring to the to the evolving competitive game that they're that they're finding themselves in? It's interesting because you didn't once once mention in that any roles that the CIO plays at all.
Yeah, yeah. I think the CIO is critical. Absolutely. Yeah, he's right.
Yeah, it's critical, but it doesn't start with the CIO as what you're saying because this is a a chief product officer, this is the CEO, This is your sales organization. Everything's changing when you talk real true digital transformation, that's what you're saying. That's yeah, exactly right there. And I like to believe, like as a business strategy professor, you know, everyone needs to understand business strategy no matter where you are in the hierarchy.
And some of that is to try to maybe influence the overall strategy organization, but at the very least, to see how your work fits into that overall strategy. And I think it's really critical that you are quite explicit about what are you trying to achieve. You know, and I use this analogy, I'm sure I'm borrowing it from someone else. But, you know, if all your digital transformation efforts are are improving the efficiency of the engines on the Titanic, you're still going to hit that iceberg, right? So where you direct, you direct that that ship is really important. And I've seen so many companies fail developing digital applications using technology, that's really cool. But they're not thinking through where are you trying to go with this? And then they have wasted effort, millions spent on an application that isn't actually used.
You know, these are the problems you need to be thinking about and be proactive about, okay, what just popped into my mind and you may not. This is cold. Completely cold.
So you ready for this not generative? I yes. When you said all right, because that's the buzzword du jour and people don't know what to do with it or how to harness it. And I'm starting to see everything go kind of crazy.
Like it almost feels like the dotcom boom. Yeah, in the late nineties, right? Oh, you could do all this. You can do all this. And the scare around it. Companies didn't know what to do with the internet.
I don't have a web presence. I don't have. So this is a paradigm shift. It's happening and use a new technique. So I got to I got to think outside of my normal way of doing things, is what you're saying. Maybe embrace, embrace this? I don't know. What do you think? I think it I think the answer is, you know, this is a good academic answer, but it depends. Right.
And I think it depends on a number of different ways. I, I think you really have to be cautious of all here's a cool new tool. Let's go use it. Right.
Like, you've got to be intentional about, well, wait a minute, what is this tool actually going to do for us? The second thing that I worry about, and I use this all the time with companies I work with, is I hear them say things like, We want to be the Google of X, like we're going to be the leader in generative II. And I'm like, Well, maybe. But I think maybe like Google is going to be the Google of X, right? Like they are far better positioned to do what you're thinking about doing. But, you know, but, but back in the days of Google when they first kicked off, they would have said, well, that's IBM's job.
Right? Right. Well, I mean, isn't that how it's always been, right? I mean, no, no. I think disruptors coming in and really disrupting the whole industry. That's right. And I think for the incumbent firms, maybe even very successful incumbent firms, being thoughtful about how you can take what you do well and evolve it in a way to meet the evolving market needs is a different question than maybe a startup who's pursuing open AI and generative AI and how they might think about the opportunities available to them.
And so in the book, you know, we have a whole chapter, again using an econ term here, but of appropriately, it really just speaks to as you create value. How do you think about the value you're going to capture for your various stakeholders? And it's an important question to ask because, again, history is littered with companies who've gone after a market opportunity and ultimately failed. You know, for every Facebook, there's a thousand MySpace is out there or or there's Kodak and, you know, Codex, the example I you know, I start the book with it's such a simple story at the surface level right? Here's a company that makes digital, it makes film, and then the world goes digital and they go bankrupt. But the fact of the matter is, Kodak was well aware of the possibilities of digital and some of the first patents on digital technology, one of the first digital cameras, and yet they still weren't able to successfully manage the transition. They still suffered from all those behavioral and managerial challenges that a company might run into while trying to to manage this type of transition.
So so would you attribute that that transition failure with Kodak, with the culture? I think so. You think it was directly in the culture because. Yeah, I remember that I was in the middle of all that.
The company I was working with actually got purchased by 3mi innovation and then later spun off into Kodak and then died. Yeah yeah. And again it's it's a challenge and I think Kodak did so many things right in terms of this transformation. But at the end of the day, I think the heart of it was, you know, the chemist where the stars of Kodak. Right. They're the ones who are making the new film and and they weren't seeing a future for themselves in digital.
And it just held them back enough that they couldn't fully embrace and embrace it completely or alternative LTD, I point out Fuji has actually done very well and the Fuji high competitor of Kodak, especially during the 1990s. Yeah, market share in film they went a different direction. They actually kind of leaned in to some of their core capabilities and kind of moved into other industry sectors. So, you know, they they didn't try to become a digital imaging company, but they actually leveraged their expertise to go into things like health care and other adjacencies. Interesting.
So digital, are we just rebranding with digital transformation? Are we just rebranding what happened with the Industrial Revolution? 3.0? Right. Yeah. I think, you know, one of the points I make in the book is that the patterns of let's call it disruption or technology change, those are those are very common and market based economies, like we see this all the time. And so it shouldn't be surprising some of the the transitions that we see, the failures of established companies, the diffusion of new technologies.
And in fact, we can leverage those to help us strategize about how we should position ourselves, you know, where are we in the lifecycle of the technology and the industries like Very important questions to to ask, I think to your to, you know, the broader point about these kind of epics that we see. You know, I do point out like digital transformation isn't new. You know, we can go back 50 plus years and find examples of companies and industries being digitally transform. I think there is a heightened awareness about it, and I think there's a new set of technologies coming to bear that are increasing the impact in the scope of of digitization.
But this has been around again for at least half a century. So so what would you say are those technologies that are catalysts to make this happen? Because it's it's strange because we said at the beginning people in process and technology, right? I mean, you have to get the people line first in order to to get the other two to work together. But isn't technology the driver behind a lot of this? Yeah and I, I talk about, you know, these exponential curves we see in three core technologies, right.
Processing power. So the old Moore's Law, we see it in bandwidth and we see it in storage. And the reason I like to highlight this is because events trends continue. If we continue to see the exponential growth in those three core technologies, let's say for another decade, the world is going to be radically different than it is today.
And ways, to be honest are very hard to predict. I don't I don't claim to be a technology futurist. I can't see where the world is going necessarily, but what I can see is if those continue, we're going to be in a radically different place and you've got to be nimble and able to adjust to that. I do think what's core to a lot of this is this notion of data.
We are we are generating and processing more data today than than we have in the history of the world, obviously. And that just continues to increase. That becomes important because our data and our tools, especially right now, I they're becoming more powerful than they had been five years ago, ten years ago. And that and that's going to continue.
And I think it's why a lot of people are scared. I think it's a lot of people why people are are nervous about like, where is I going? Because I think it is hard to predict where we're going to be in five years. Just look how much we've improved over the last six months since the release of about 3.5. Yeah. Now for oh.
And so I think that's why there's this kind of palpable sense that while this has been around for a while, things feel like they're accelerating now. So in that acceleration is causing a lot of people concern, I'm guessing. I mean, look at Intel. We're going to be producing 18 angstrom wide transistors in the next three years. Yeah, maybe too. I mean, I don't think people understand how small that is.
And and our CEO Pat Gelsinger said will continue Moore's Law until there are no elements left in the periodic. That's my understanding. Right. Like we're starting to run into like the literally like the physics limits. Yeah.
What we're talking about I mean 18 angstroms, that's really small to give people a a perception what that is. The corona virus was 72 nanometers across which is 720 Angstroms. Wow. Wow. Right. Oh no no 7200 angstrom. Sorry I got that wrong.
Send me 200 angstroms across. Yeah. So think think about that people. Yeah. I mean, we're building things smaller than viruses in a repeatable manner and we're building trillions of them every day.
And that's pretty, pretty impressive stuff. And like you said, where is that going to lead to? How much data are we going to generate and what are we going to do with all that data? I think one of the big questions and I haven't seen an analysis that can really answer it yet is I've got to believe there will some point be decreasing returns to data. You know, there's only so much data that you need about us as individuals that you can predict a lot about our behavior and interests and things like that. Where is that number? If it's a pretty big number, which I think it probably is, that's going to give a lot of advantages to those companies who can scale quickly and in essence grab a lot of data.
So this is the big tech players, right? This is where Alphabet's Google. This is where Apple is, where Amazon come into play. If it's a smaller number, then you have more hope that more entrepreneurial startups and other companies can get into the data game and still be able to be, you know, viable players do. Do you think because because of that, do you think there'll be data brokerages that are selling data? There already are, yeah, we know that. But more readily and and do you think laws and regulations will make it so that there's a more even playing field for the small startup to gain access to that data that all the big boys already have? Yeah, I think this is a critical question for us moving forward. I do worry and I talk about in the book a little bit about the power that it's accruing to the small set of players that have this data advantage.
And if we allow that to persist, how it could actually stifle innovation, stifle entrepreneurial growth and the like if we're not careful. So I think thinking very clearly about data privacy, thinking about data ownership is really going to be critical here moving forward. And we should have a lens towards how do we keep this kind of innovation engine moving forward and not and not stifle it because it's controlled by because it's controlled by a handful of people, Right? Yeah, right.
I know Europe because I deal a lot with global governments in my in my job right now. I know Europe is currently looking at giving you you are the owner of your data. Yeah.
So you can sell your own data even if other people are collecting it, you can tell who is allowed to see it and who is not. And and if you say, I want this startup to have it, they have to give it to you. And those are the types of laws there that they're developing right now to really protect data privacy, which does not mean hiding all the data, but it means me having the opportunity to share it with whomever I want.
And I think if Google collects it or if Amazon collects it, I think this could really start to change some of the business models and the competitive landscape. Again, because it could make models that are based purely on advertising. Again, Google and Facebook historically less viable.
It might empower a company like like Apple, right? Because Apple's basic argument is and their business model is they want to sell you a device they still make. Vast majority of their revenues are selling iPhones. So to the extent they're using your personal data to improve your personal iPhone experience, they might be able to sell that. Even in a world where users have a lot more ownership of their data.
If you're in a world where, hey, I'm using your data to sell you advertising and make money off the advertising side, will people give up their data for that? Some might. You know, some might enjoy the customized advertising they receive, but they're going to be many others are like, Yeah, I'm going to opt out of that. But it's interesting when you said that because Apple is in advertising. Yeah, you already are. Because the feedback that they're getting from their device, from their devices and about you they're using to make products better and to offer you specific services. So it's it's a form of advertising or getting to know your customer better and to the point that I don't even need to really advertise because I'm producing exactly what they want.
Well, I would say Amazon is the one who's probably even further along. Yeah, Yeah. Because, you know, they're they're going to be able to customize their recommendations and say, Hey, we really need this and we sell that to you. And here it is.
There is even the idea that they could get ahead of you right there. They're going to understand your wants and needs and know like, hey, you're running low on deodorant. I bet here it is. And it just shows up on your doorstep that you're doing that. They already have. That they have that. I, I do that.
So I'm notorious for changing the air filters in my house victorious. Right? I was supposed to change them every three months or whatever, whatever it is. And my my brand new AC unit that I just bought because I had a 30 year old house, which means my house, he was shot to smithereens.
They contacted Amazon. Amazon said, you know, you should change your air filters every three months. Would you like this to be recurring? Click done. That's right. I'm like, Exactly. Now they show up and when they show up, I just install them. So I'm being I'm being manipulated by Amazon.
I feel like I'm in a tournament, a tournament time by Amazon now, Right? It's telling me what to do and how to do it that. So is that instant transformation? Is that where we're headed as a society where I mean, I have a whole a whole chapter in the book is about kind of the societal and policy implications of digital. And my point to businesses is it's not for me to tell you where your your value should be, but it is very clear that you need to be intentional. In my mind, you need to be thoughtful about what are the implications of what you were doing. I think you see it out there. I think you see both Google and Microsoft in particular right now struggling with large language models.
And general, they are they know that they need at some level to keep pushing the technology. They also know it can it can have some really negative implications potentially. And they're trying to navigate this.
And again, I don't have any great recommendations other than to say be intentional. Right. At least be explicit about understanding, one, what your values are, what you feel comfortable with, and what are you doing with the technology and how are you going to pursue it. You know, Google Long has had the tagline or value statement, you know, do no evil, right? That doesn't provide a lot of guidance, but at least it's at least it's an expression of some thought here about how you should think about a technology like this.
So that brings up another thing that just popped in my head in the dot com boom days when you've done your research about the dot com boom, because there's plenty out there on it, companies, companies that are not known to have lived through it. So yeah, you lived through it too, right? So companies what companies succeeded compared to companies that were complete, that completely dissolved underneath underneath this, What was the big differentiator between the two. Yeah. Ability to address that or because the wrong way, right.
I mean yeah. And look, you know look wrong bets are made all the time, right? And that happens. It's a it's about, you know, I think a couple of things come to mind sometimes you hear, especially during ecommerce, but you still see vessels today, especially in Silicon Valley, about, you know you don't need a strategy, right? Just move fast and break things and figure it out as you go. And I think that's a one level of misunderstanding of what strategy is. And to a bad set of advice. You need to have some vision of what you're trying to achieve and how you're going to get there.
Which strategy isn't isn't some plan you set that it is then set in stone forever, right? It is actually something that needs to be dynamic. You need to be constantly revisiting your strategy, questioning the assumptions, looking at new data and when necessary, pivoting. So I think the companies that are most successful, especially in these kind of disruptive times, are those who are able to build a culture of innovation. They have nimbleness built in. They understand. I talk in the book about humility.
They have an ability to understand, like they don't know exactly where the technology is going to go. So they're able to then build in a culture that understands this and wants to learn and evolve and when necessary, pivot their strategy to meet the evolving technology and market market needs. I think when you looked at the dot com error, you know, when you start seeing things like business models don't matter, you know, all that matters is eyeballs and clicks and it's like, well, you better have a vision for how you might generate income at some point in time and it might change, but you better have a vision of how you're doing that. And there was too many people, you know, pooh poohing the idea that you should even think about those things.
And oh, I did. And everything had to be obviously businesses that weren't going to work. They just weren't going to work. I was saying, yeah, no, yeah, I was doing a startup at that time and it was a integrated development environment for software engineers and every single VC I went to and I was right in the thick of it with, with the morning, the morning elevator pitch staff, the whole thing, right? The red and the red and green panels, the whole thing.
And I got shut down continually because they said, you don't have a web presence. What's your web strategy? I'm like, Yeah, it isn't a web strategy tool. I ended up selling the company, which was good, right? I did okay on that. But are we in the same boat today? What's your ice strategy? Well, I mean, if you look at earnings calls and what analysts are asking of CEOs and the rhetoric, the CEOs are like, well, yes, we are, you know, investigating generative AI and incorporating it into all of our business functions, like, okay, are you really and what does that mean? And what's inside is important for your business. Yeah, yeah, yeah, exactly. And look, I'm of the mindset that these large language models in general is going to be is being disruptive and has lots of potential applications.
But again, that doesn't mean everybody runs out and starts, you know, putting these things out there in the world. I think you've got to be thoughtful about who are you as an organization, what capabilities do you have, what positions are available to you, and then think through how can you leverage AI to then be useful to you as an organization? I'll take you know, I also serve as our chief strategy officer at the Darden School of Business, where I have a professor and an I'm reading our digital transformation. And one of the things that we're dealing with right now, of course, is more broadly like online education. And we look at darted. We're known for a very intensive, Socratic oriented learning experience. We don't lecture, we actually run case discussions and engage our students in a conversation that doesn't translate very well to a like an asynchronous online environment.
That's not going to be our future. We're not going to be that online MBA program that you see proliferating. Now, that doesn't mean we totally askew technology either. The question becomes how do we leverage technology to better deliver the position we do have in the market, which is the number one best educational experience taught by the number one best teaching faculty, right? Like that's who we are as a school.
And technology plays a role in that. But it isn't going to be this other thing that everyone's talking about with this online, pure online degrees. It's Internet and we're at an interesting time for sure. Right? And generative AI is turning everything on its ear, frankly. I talked to another and here's another side question for you.
I have another friend that's a professor of English, and she's a she's a New York Times best seller and the whole thing. Great, great lady. And I said, what are you going to do about Chad Djibouti in your classes? And she looked at her.
Yeah, she looked at me bright red, and I said, You need to come on my podcast and talk about it. So she's going to once she and she goes, But I want to figure it all out first. And this is No, no, no, no. You need to come on before you figure it out. And then and then do it. But right now, her concept is it's a tool.
I'm supposed to teach critical thinking. So it's a tool. We need to use this tool to help people because she feels that in the workplace, they're going to be using A.I.
tools like generative A.I. to help them get their work done. Yeah, I'm actually in total agreement with that. You know, when I hear people say things like, Oh, we've got to prevent students from using this technology to be a little too cute. I always like to say technology always wins. You know, I can think of very few examples where just like, you know, collective will to stop a technology.
Actually, if that technology is is actually creating value and it is creating value. And what it does, I think, for us as educators is it puts the burden back on us. You know, maybe we need to design assessments, exams and the like that for students to use those critical thinking skills. They can't just be plugged into Chad.
GPT and give you the answer we half jokingly have talked about. Maybe we should just move to oral exams, you know, so students are really forced to think on their feet and can't rely on the technology. But at the same time, I also think the point is very well-taken that this is already being deployed in the real world. If you will, to be deployed in higher education as well.
And how do we guide our students? What's the what's the ways in which you can leverage that technology to improve, which I'm not old enough to remember, like slide rules, But there was a time in business education where our students were learning how to use slide rules to be able to do calculations, and then suddenly this miracle innovation called a spreadsheet on word, you know, on personal computer arises transformational to how a lot of business was done from the old ledger days. Again, you embrace the technology, you learn how to use it productively and effectively and you evolve your skill set. And that's something, again, that I talk about in the book is and I'm borrowing from some colleagues at the University of Toronto, they make this great observation that AI and data analytics more broadly are really good at prediction, but you still need judgment to be layered on top of that.
You've had a chat. GPT There still needs to be someone who reviews it and assesses it and makes them the choice of whether to deploy it or not, and that's just going to become actually more valuable because from an economic standpoint, what we're doing is we're reducing the costs of prediction. We're making it incredibly effective and efficient. Well, that actually raises the demand for compliments like judgment.
So the demand for judgment, especially in what's going to go on sophisticated, it's going to just it's going to skyrocket here. You know, I like are you going here and what your what you've said about education is the same for business. If business says we're just not going to allow generative AI to be used at our company, they're crazy If they think that's not going to happen increasingly because people use it already. They've been using it since it came out November of last year. So professors are using it for their own work.
So I mean, it's happening and it would be hypocritical for us to prevent our students, my faculty, or using it in any number of ways. Oh yeah, I use it every day with my job. Now, even writing emails that are highly critical emails at a customer or a boss or an employee. And I'm like, I don't quite know how to word this in the right tone, but it does a great job at those sorts of things.
But ultimately, like, like you said, you have the judgment and same thing with digital transformation in general. It's the people are the eyes aren't going to take over because there's people still involved. We still need to make the judgments.
We still need to use these tools to their most effective way that they can. So one of the things I advise in the book is to come up with digital champions. And the idea to me is, is you have your data scientists, you have those who are technically sophisticated, but I'm actually talking about something different. I'm talking about people who maybe have more domain expertise.
Maybe they're in h.r. Maybe they're in marketing or whatever it might be who have enough knowledge to understand what the technology can do for you and can serve as that bridge between the technologists and the business unit functions. Because, again, no offense to the ceos and the technologists, you know, sometimes we can get into our own heads and it doesn't translate well to the other parts of the organization. So those people who can bridge, I think, are going to be incredibly valuable.
The data scientists will clearly be valuable, but you don't need just not know where you're going. Those it can those it can see how I can leverage the technology to get my job done better or more effectively. Right. They're the ones that are going to succeed. Hey, Mike, this has been wonderful talk and we could talk for another half hour, I'm sure, but my audience will fall asleep because we're having fun. But I know their attention span is about this long. So thanks for coming on the show today.
We most definitely want to have you come back and pitch your book some more and tell us how it how it how it did one last time. Tell tell my audience where they can find the book and the name and so forth. She asked. Let's get to a strategy in the digital age.
Mastering digital Transformation. It is available through Amazon or Barnes and Noble and all your favorite book retailers. And you can find more about me at my personal website, which is michaellenox.com.
So MichaelLenox.com and I actually have my own podcast called Good Disruption with one of my colleagues where we talk about new technology so you can get a link to that as well. And all my Oh, absolutely. Absolutely. Check out our website, links to Mike's book and his website and podcast will be there.
Thanks again, Mike. Thank you so much for the opportunity. Thank you for listening to Embracing Digital Transformation today.
If you enjoyed our podcast, give it five stars on your favorite podcasting site or YouTube channel, you can find out more information about embracing digital transformation and embracingdigital.org Until next time, go out and do something wonderful.
2023-07-18