The Industrialist’s Dilemma McMaster University

Robert Siegel - Lecturer in Management and MBA Class of 1973 Lecturer for 2016-2017 Stanford University Graduate School of Business 29 September 2016 @robsiegel

Stanford Graduate School of Business

Teaching and Research

•  Strategic Management of Technology and Innovation

•  The Industrialist’s Dilemma

•  Strategies of Effective Product Management

•  Entrepreneurial Finance

•  Formation of New Ventures

Stanford Graduate School of Business

What Is the Industrialist’s Dilemma?

•  What’s changed – ubiquitous smartphones, data storage, connectivity, low-cost contract manufacturing, role of software in this cycle

•  Impact not on technology companies – car ownership, insurance, payments, banking, healthcare, services to the home

•  Disruptors – No legacy organizational baggage, little regulation, great software talent

•  Completely different operating models and they compete with incumbents

Stanford Graduate School of Business

Products and Organizations Are Transformed in the Digital Era

Renting Assets Digital Products Network Effects Direct Distribution Regulatory "Apathy” Daily Product Updates

Owning Assets Analog Products Scale of Supply

Indirect Distribution Regulatory Capture 3+ Year Prod. Cycle

Efficiency (Six Sigma) Intuition Decisions

Hierarchy Designed for Risk

Management-Centric IT as Cost Center

Responsiveness, Agile Information-based Decentralized Designed for Upside Product-Centric Revenue Generator

PRODUCTS

ORGANIZATIONS

Stanford Graduate School of Business

Some Key Learnings from Our Research

•  Move from interdependence to modularized and now back?

•  With us for awhile due to ongoing touches and constant change

•  Law of unintended consequences on steroids

•  New methods of attack (e.g. Developers as a key to payments)

•  The burden (and potential blessing) of existing assets

Stanford Graduate School of Business

Software and Your Customer – The Changes

•  Software is king in this cycle

•  Not all software is the same

•  The customer isn’t always the customer (23andMe)

•  Revenues can be added later thru new services

•  The customer experience will be distributed

•  Buy a car thru your phone

•  Healthcare at home

Stanford Graduate School of Business

Software and Your Customer – The Opportunity

•  Ability for deeper relations with customers

•  Tesla ongoing touch with customers

•  Uber not just a ride

•  GE ongoing services and predictions of maintenance

•  Netflix – entertainment one likes

•  23andMe – communities and personalized drugs

Stanford Graduate School of Business

Role of Ecosystem

•  Ecosystem – competitive advantage, boat anchor or both?

•  Auto – franchisees and existing suppliers

•  Channel – Cutting them out not always the right answer

•  Nest and installers/retailers

•  How much vertically integrate?

•  Netflix vs. HBO (via pipes)

•  Disruption can come from anywhere in the value chain

•  Legendary pictures – attacks from the very large and very small

Stanford Graduate School of Business

Determine What You MUST Do •  Communication and language

•  GE – Name and claim it

•  New metrics

•  Miles driven, assets under management, healthy life years

•  Stop emulating and start differentiating

•  Make roles for partners – it need not be (and cannot be) zero sum (Stripe)

•  How organize – integrate at some point

•  Incumbents are not necessarily doomed*

•  An executive mandate

•  A creative structure

•  Patient capital

* Hat Tip: George Kliavkoff

Stanford Graduate School of Business

The Role of Time

•  GE and software COE

•  Intel Capital

•  Protection from above

•  Grew over time

•  Board involvement

•  Kaiser Permanente

•  Venture

•  Partnering strategy