Over the last two months, I’ve had the pleasure of interacting with Gerd Leonhard, CEO of The Futures Agency, Futurist, Keynote Speaker, and Author. He is the co-author of the bestselling book titled The Future of Music (2005), and the author of The End of Control, Music 2.0, The Future of Content, and Friction is Fiction.
In 2015, I will continue my focus on disruptive scenarios and their likely impact on the world over the next two decades. What better way to start the year, than to pick the brain of someone who knows a thing or two about disruption – given his time spent in the highly disrupted media and entertainment industry. Here is a summary of our very enjoyable conversation.
To kick off our call, Gerd and I discussed the challenge of driving leaders towards a level of urgency and focus on the disruptive period that lies ahead. Our discussion started with the problem of viewing things through a technology lens versus a business model lens, and the mistaken belief that case studies and recipes exist to solve these emerging problems – versus requiring our collective resolution. Gerd used examples from Europe, where leaders look for proof, and invention is not the norm. We discussed the importance of iterative, experimental cycles that explore the unknown, and Gerd’s belief that this approach is not fully embraced in Europe. He did see the Banking Industry as an example of an emerging shift from focusing on changing into something better, to transforming into something new. But for a number of reasons, Gerd felt that at least in the short term, innovation will still come from the U.S. and China, where there is an openness to inventing.
I expressed my concern that I don’t see a sense of urgency in the business and IT community, and a feeling that executives are grossly unprepared for what is coming. Gerd shared my concerns and used a Telco example, where as he described, it’s still about better technology or efficiency. To underscore the point, he said in the music industry, the feeling was that if the music and distribution were good, they would be OK – we know how that story ended. In closing out his initial thoughts, Gerd said that the future is about the convergence of industries and the defining of new business models.
And now, to the questions.
Are we entering the most transformative period in History?
Frank: Given your role, and what you do, I think I can predict your answer. I am a big believer that the next 20 to 40 years will ultimately be viewed as the most transformative period in history. It will be ushered in by a convergence of forces and a new general purpose technology platform. The exponential progression of technology and innovation, the digital phenomenon, and the ability to rapidly combine building blocks (combinatorial) to create value will make this transformative period unlike any other. Do you agree? If so, why do you believe so?
Gerd: We were not there for the printing press, so it’s hard to compare. The technologies we have been playing with for 50 years are finally going to be possible. You know the Internet of Things is a whole order of magnitude more disruptive than the Internet. Everything we have been looking at, including energy, connectivity, and speed, puts us very much in an explosive period, which is both a benefit and an extreme danger. For example, artificial intelligence in this transformative period could be setting the stage for something that is inevitably going to be determined by what we do now. For example, self-learning artificial intelligence could have side effects that can never really be fixed. Clearly, we are living in a period where in the next five years, a lot of companies will need to re-invent about 25 to 50 percent of their revenue streams.
Frank: do you think companies understand that, or do you see a wait and see attitude?
Gerd: depends on who you ask within the organization. There is always someone who understands this, but the question is do they make decisions? Part of my job, and probably the same for you, is to instill a little bit of fear that this is actually happening. It’s not just a scene from Blade-runner, it’s actually here. If you look at what is happening in the world of technology and science, and the breakthroughs that we are seeing on a daily basis, if you just observe that, you have to be worried and excited at the same time. In Europe, this shock and awe strategy is needed, because otherwise you don’t feel the need to move because it looks like you are going to be OK. In this transformative period, it is good to spend the first 10 to 15% looking at the more scary things, those things that may worry you. But worry isn’t a very good driver of change, because it eventually just depresses you when you have too much of it. Most companies then fall into a state of paralysis. The other 85% should be the idea of saying this is very exciting; what new things can we contribute? That requires a certain amount of imagination. This is one of the biggest differences between the U.S. and Europe, we have imagination, but we don’t let it run free on the business issues. Business imagination is crucial.
Frank: How much of the situation in Europe is impacted by the economic situation – forcing a short term focus?
Gerd: I don’t think it has much of an impact, it’s more of a cultural issue. We tend to think that if we plan and execute right, then we will be successful. But in an exponential society, in a world that is completely becoming networked and inter-dependent, if we plan, execute and roll-out, we don’t get the speed, we very likely always struggle with something that is already obsolete. So this is a very tough environment for us, because Europeans tend to work more according to plan, and less of a VUCA (volatility, uncertainty, complexity, and ambiguity) environment.
The Exponential versus linear discussion
Frank: I’ve spent time with your material, and I see that you also focus on exponential progression. We’ve always focused on Moore’s Law and the technology side, but clearly we’re seeing the exponential rise of innovation, and those two things combined have really done a lot to create this speed dynamic that we see. You also talk about the fact that most businesses move linearly. So, I clearly see the same things, and the biggest message in my executive discussions is that I don’t believe traditional companies are structured in a way that enables them to remain viable in the future. The need for speed, responsiveness, resiliency, flexibility and agility is just not part of the DNA of most companies. Would you agree and if so, what kind of structural changes do you envision?
Gerd: I always say (a quote from somebody) that the true test of intelligence is determined by an ability to have two opposite things in the mind at the same time. This is very important, it’s a hybrid approach that is needed here. We have the current linear approach based on gradual development. Then we have the new stuff, start-ups and crazy Google things, people that are risking everything when they go out and do something. Those companies are exponential, whether you’re talking airbnb, Uber, or Twitter. We have to live in both worlds, even though it can be uncomfortable, because as humans, we are not going to be exponential. It is not humanly possible for me to have an exponential speed of reading, or understanding of facts, we can’t do that because our brains are not set-up in that way. Humanly speaking, we are going to be linear and emotional, we have a body, and it’s much more complex. What we need to do, is to create a duality where we can at least imagine what it would look like to be exponential. That requires a certain creative license, to say this is not certain, it’s not proven, but I can easily imagine that to be the case. That’s how I look at it. When I talk about exponential, say five years from now, we are talking about a Moore’s Law effect that could be 4X or 10X. How are you going to scope that out with the current range of experiences that you have? You have to go into the realm of imagination.
Frank: I 100% agree with your thoughts on imagination. But our management structures, incentive plans, processes, policies, procedures, and so on, date back over a century plus, and were developed in a different era dominated by manufacturing. I don’t see how those structures are conducive to imagination, or how they can remain viable. Do you have a sense as to what kind of structural change may be coming?
Gerd: It is very Darwinian to me. Any company that is going to stick with this model of plan-ability and not be part of that change process – going from planning to imagination – and from return on investment to return on involvement, in my view, in very few cases, will survive. Because of speed and inter-dependence, it’s those that can see at least one, or two, or three steps beyond the obvious that succeed – and that requires a creative approach. So I believe that creative people will make a big comeback in business, taking a creative license to invent. This is what Apple did originally, and you can see that happening with Tesla, using creativity to re-invent how all of that works. You see it in journalism with the Washington Post, or what Bezos is doing, and so on. That is a paradigm shift back to the right brain – what I call the right brain shift.
Frank: couldn’t agree with you more, and when I get the question about critical future skill sets, creativity is right at the top.
Gerd: I really can’t answer how companies would do that, I think this is a leadership question. If you can unlock this potential and take the risk, the rest falls into place. Again, in Europe we don’t do that because it feels very foreign to us to take those kind of assumptions and leaps, hunches so to speak.
Frank: Do you see a tipping point coming in Europe that drives the urgency around making that mental model shift?
Gerd: I think we are already there. This year, as you can see with oil prices falling like they are, the first oil companies may very well decide to get out of the oil business. The whole thing that is happening in this shift is that Europe will be forced to look at a more proactive way of transformation, and you can see that in various places like Banking. The transformation of Banking is in full swing here, especially in Switzerland. It’s driven by pain, and realizing that you may be heading for the wall.
Frank: Just wondering when the accelerator happens for that realization of pain. I know you are talking about Europe being behind in terms of thinking here, but I have to be honest with you, I see the same thing in the U.S.
Gerd: The U.S is a lot easier because of the large unified market and the “you have to go west, just do it mentality” that we just don’t have in Europe. In Asia you have state capitalism in many places, and there doing very much the same thing, except that there are only three people deciding on it. They can move exponentially because they decide.
The Shifting Economic Paradigm
Frank: I see that you have been following Jeremy Rifkin’s work. He’s talking about the ultimate undoing of capitalism, driven by the extreme productivity that it enabled. In his view, the zero marginal cost phenomenon will drive a new economic paradigm, or what he is calling the collaborative commons. You are talking about sustainable capitalism. I’m not sure what the difference in your view versus his is – if there is one. Is your view comparable to Rifkin’s, and if not, how are they different?
Gerd: I think that we are close, I talk to him quite a bit. I wouldn’t go as far as Jeremy as saying that the collaborative commons will be the dominant system, because I believe that a version of capitalism that is more complete, and not as singularly focused on profit and growth, will suit just fine. There really isn’t much of an alternative. There are several key factors here. One is that within 20 years, we are going to see rapid automation, virtualization, and robotization, eating up half of our jobs. So the whole logic of working for a living, having a job to pay for what you want to buy, and the capitalist notion of working harder, making more money, and spending more, is going to be completely gone. At that point, we may have basic income guarantees, like we are already discussing in Europe and Switzerland. We may have things like 50% of all college graduates starting their own jobs and inventing their work. So that will really change how we consume, and what we own, which will probably be more asset-light. You will be living a lighter life, sharing houses, using public shared cars, and so on. The whole principle of capitalism was essentially based on increasing consumption. That is not going to last, because at a certain point, we will have everything. We will have abundance, unlimited energy, unlimited food resources because we can solve those problems. With abundance, the whole logic of having more, to consume more collapses.
Frank: So, clearly you are a believer that ownership models give way to access models. There is that debate that says the economic pressures of our last 5 or 6 years have created the sharing economy, but it will unwind itself when the economy improves. I don’t personally believe that.
Gerd: I don’t think it is going to be either or. The sharing economy is difficult right now, there are a lot of issues with doing so, but in 20 years, we will have overcome all the practical issues, like why we need our own car. It is fun to have our car, so some of us are likely to still have them, because we are human. I think in general this concept of extreme capitalism, which means profit and growth at any cost, is very suicidal. It’s been said for 10 years. Ban ki Moon said 8 years ago, that we are living in a suicide economy. It’s not new, it’s just that we are finally discovering that there is money in another way called the “Triple P” approach (people, profit, and planet) which Jeremy Rifkin speaks of as well. It has become sort of a theme or a mantra to look at business or the economy as a biosphere. You can be a major player in the biosphere, but you can’t own the biosphere. That’s where everything is going. You can see already, the entire world is becoming inter-dependent. Terrorism for example is a huge inter-dependent issue that cannot be solved by having more soldiers, or having more data surveillance. This is a very inter-connected issue. So the economic paradigm will be in my view much more like an ecosystem. But we should not look at that to naively in the sense of saying that it will be like an egalitarian nirvana or something, I don’t think we will have that. But the suicidal approach of increasing consumption at any cost, and passing that on to the developing countries, that is collapsing.
Frank: I do find Rifkin’s work fascinating. His recent book on the zero marginal cost society was very good.
Gerd: I do work with Unilever, Proctor & Gamble and others, who are saying that sustainable is the new profitable. The stock market does not reward that really, except for Unilever. The stock market does not reward you thinking sustainability at a higher cost, so in my view, we will have an alternative stock market probably in 5 or 8 years. We will see a new stock market emerge, probably an entirely new stock market based on the “Triple P’ paradigm.
Frank: Along those lines, what does it do to our notion of GDP, and maybe new ways to measure?
Gerd: well everyone knows that GDP is a rather useless measurement. Big data is the same thing. You have a lot of data, but most of it is ultimately totally dumb. You can’t actually do anything with your big data because it’s big, but it’s very stupid. So it is not enough to just have it. GDP is basically the same thing, it measures everything, but most of the things are not really worthwhile measuring because they are very simple data points. I prefer to talk about gross national well-being. Which has been used as an alternative. I think we will find there are 50 different factors there, including freedom of press, freedom of education, and so on. At that point you can solve issues like terrorism. If you had well-being, you wouldn’t have terrorism. In the end, gross national well-being, will be the global way of measuring success. It generates new industry. If you have well-being, then you have less cost, you have less conflict, and you have higher innovation. It’s a question of reversing the paradigm in a way.
Frank: Do you think the appetite is there from a political stand point to actually address that, or do you see GDP being the method of measurement for some time now?
Gerd: I think we have two large issues there. One is the U.S. – in a positive way as I lived there for 17 years – a cowboy mentality or pioneering – the sense of purpose. Then you have the Chinese mentality, which is to buy anything, and conquer anything so you can compile and rule. I think both of those are difficult to change because they are very cultural. Europe has a pretty good balance with that. We may be more collectively oriented for example. Basically, on the economic paradigm that talks about your own gains, it is much harder to create a collective system. This is the problem that Jeremy Rifkin has in the U.S. In Europe, it’s just normal.
Frank: so where there are weaknesses on the Europe side, there are also some positives where Europe is better positioned than the U.S.
Gerd: absolutely. I think in this paradigm shift, we are actually better positioned. Because in this economic paradigm, we never had this extreme personal gains scenarios. In some cases we did, but by in large, that wasn’t OK.
The Focus on Disruptive Scenarios
Frank: You recently used one of my visuals on disruptive scenarios. The intent when I first developed it was to show the acceleration and convergence of the digital platform and the innovation accelerators that build on that platform. As that convergence happens, it spawns all these disruptive scenarios that collectively, even if they each play out 10%, are massively disruptive. The intent here is to get executives to start thinking about the impact of these scenarios, sooner rather than later. To begin to understand opportunities, risks, and potential responses. The discussion therefore is one of scenario thinking, response generation through iterative cycles, and rapid experimentation. Your thoughts on the visual and if I am missing anything in terms of disruption that you are seeing, or innovation accelerators that I am not seeing?
Gerd: I like the way that you’ve put this together, it makes a lot of sense. I use this as an opener sometimes for my keynotes, as a way of saying, guys, you’ve heard about this stuff, I’m sure. You may not know what it all means, but this is a compound scenario, and therein lies the difference. This is not coming one after the other, it’s all happening at the same time. The compoundness doesn’t really come across in the current shape, I don’t know how you would graphically layer that. I’ve been using the valley of death curve, where I say here on the left we are descending into the valley of death because of all these changes, revenue erosion and hyper-efficiency – like we saw in the music, film and publishing businesses. On the other side of the valley of death, we clearly are going to have 6 billion people connected and heading towards nirvana. But in the meantime, we are going through this valley of death, and this kind of disruptive scenario curve could be super-imposed over the valley of death. You would essentially say yes, when we have smart homes, smart cities, automation, connected healthcare, etc., the business implications of that are basically nirvana, more or less. The social implications of that could be difficult, but clearly there’s a lot of money in this. Until we get there, a lot of the old stuff that used to work, like for example the car business, with people buying cars as a status symbol, some of that will collapse. That’s basically the valley of death. So the question is; how do you build a bridge across this valley? For example, if you take a dotted line from big data over to the maker economy – like a bridge – then you say the mission right now is to understand this is happening, it has a compound effect, and you can’t escape. Then identify where your valley of death is. For example in the movie business, where I do quite a bit of work, not selling DVDs for the major studio is a serious valley of death. Because if you aggregate all of the streaming on-demand services, you get a pittance for your movie, compared to the DVD – it’s a 98% revenue loss. So what do you do to build that bridge? I think that could be a way to work this into your visual. But I like the visual pretty much as it is, I wouldn’t make it much more complicated.
Frank: It’s a complex discussion. I talk to the compound effect as I present it. I like your notion of the valley of death, I want to think about that some more. The bridge you referenced is a good way to think about crossing the valley.
Gerd: I like your visual because it is so simple. I’ve actually used the visual super-imposed on the valley of death in the past to drive the point that companies may see less revenues before they see more. So we need to build that bridge.
Frank: As we think about disruptive scenarios like the connected car, the smart home, and connected healthcare, they are really more about horizontal ecosystems, where industry boundaries mean nothing. To create value, you move from a firm-centric business model thinking, to an ecosystem thinking that involves creating shared value, where value creation and capture are important across an ecosystem. I find that companies are not very good at that kind of thinking, or the collaborative skills required to succeed with an ecosystem model like this. You talk about hyper-competition shifting to hyper-collaboration. Is it the same thing as the shift to ecosystems?
Gerd: I always say that businesses were built on what I call “Egosystems” rather than ecosystems. Which describes it pretty well because it is basically about what they can control, what they can deliver, what they can keep for themselves and so on. That worked well for a while, before we were actually really connected. Now businesses are so inter-connected. For example the fate of Tesla rides squarely on the battery issue. There are thousands of companies dealing with the battery of the future. So, the inter-dependence is becoming the standard. If you look at IBM, HP, Cisco, and all the companies including Google and others that want to dominate the Internet of Things, there is nothing more inter-connected than that, as it goes across all of those industries and all of the disciplines including security, privacy, and culture. So the best thing that you can do today is to build a new ecosystem or to complete one – rather than to fix an existing one. That’s the challenge, because it is not always possible. For example Tesla has built their own ecosystem, and being the first one, they are a big player in that new ecosystem. Energy companies are now saying, well if we are going to have these breakthroughs in technology, and we are going to say goodbye to oil, wouldn’t it be good if we were the oil company of renewable energy, one of the big 4. That opportunity is there for the taking, but you have to build the ecosystem, and then you have to complete it, because one of the issues with ecosystems is that it is cool to have one, but if it is not complete, then it always fails.
Frank: you are touching on a big difference though, between closed ecosystems that are Apple-like, versus open ecosystems. There is an MIT model that talks about ecosystems, where either you are an ecosystem driver – what you were describing – or you are a modular producer into existing ecosystems. So for example, the Insurance Company that has data could monetize that data asset and provide it into a number of different ecosystems. They are not driving those ecosystems, but they are creating value within them. Thoughts?
Gerd: It can work in different ways. The likelihood that you can do something like Apple is sub-zero. It’s difficult to copy that. Facebook has an ecosystem, where they are very dominant, but there are many pieces to that system. The more pieces, the more fragile you are. The whole car industry in the future will be an ecosystem consisting of hundreds of different components of who does what, it’s just not going to be 4 or 5 companies who do all of it. I think ecosystem thinking goes together with this whole idea of shifting towards a triple bottom line approach. Because you have to further, and compliment, and build, and maintain the ecosystem, otherwise it collapses. For example, the ecosystem of entertainment and music has collapsed, because nobody was willing to build the new system without owning it. When you take out more than you put in, eventually the system collapses. The new thinking is that everyone puts in something, everyone gets to participate in it, and that means you have to consider the collective benefit of the ecosystem. So in the future, in 20 years, transportation and cars will be based on a very large ecosystem, including public cars, like the city of Singapore having 200,000 public self-driving vehicles. There won’t be one company that does all of this, there are lots of components and everyone can make money together, but it won’t be like having a fleet of the same Mercedes Benz buses or something.
Frank: But much as you said earlier, this notion of a collective system and the thinking that goes behind that, I find most companies, at least here in the U.S. are challenged to think that way, versus the firm-centric approach, or value creation for us.
Gerd: I think it is inevitable, because there is only so much value that you can create for yourself before it starts getting diminished by others who are quicker. That sort of system only makes sense when there isn’t enough invented yet, or when there is a vacuum in the market. You have lots of opportunity and it doesn’t really matter, because you can do this one, or that one, there’s enough room, but when it gets really crowded fast, and inter-dependent, you can’t win. Because you will always either be too late, or too short.
Frank: so you do see a tipping point coming?
Gerd: yes absolutely. I think people agree that the era of hyper-capitalism is ending. It has topped out in so many ways, that now we have to think more lateral, we have to create value that goes beyond the immediate benefit. This is not at all a socialist agenda. This is just economic theory – a system that doesn’t replenish itself, eventually depletes and explodes. We have had those warnings in the last few years. The recent financial crisis and the Internet bubble back in the late 90s. Now we are looking at the energy bubble, which is saying we found other ways, and that is a huge $5 Trillion bubble that is shrinking.
What happens when no one needs to work anymore?
Frank: here is the last question. We touched on this earlier, but I wanted to get a further thought or two on the notion that no one will need to work anymore. It’s not just Rifkin that is talking about it, but Andrew McAfee in his book “The Second Machine Age” talks a great deal about this. He proposed a living wage, which you mentioned earlier in our discussion. So you see the same thing coming, where the notion of work changes significantly?
Gerd: not the notion of work, but where we say I am doing something because it makes a living. Many of us self-employed already don’t really feel that way. We work, but the remuneration would not necessarily be attached to it. Our work may be all about passion, or our challenge, and we get paid in other ways. Some of it would be additional resources, or standing and credibility. So the current measurement is how much money you make, how much you work, how much time you have to spend that money. That will no longer work in a society where most of the work is being done anyway. I think what has been referred to as BIG – the basic income guarantee – is probably unavoidable as part of this discussion. It would replace the idea of people being marginalized. You can’t marginalize 50% of 25 to 30 year olds because they don’t have work. How will you deal with that at the social level? Redistributing that money, and creating environments where people do work that they want to do, because they can. For example paid entrepreneurs – we pay them to invent. That’s not that far away from what we have now in Silicon Valley. Incubators.
These questions are pressing questions, and people like you do a great job of helping people get clarity around these challenges, so I appreciate your time today. I will follow this post with a similar discussion that posed the same questions to IT Futurist Thornton May. It will be interesting to view these same challenges through a different lens. Gerd, once again, thank you very much for your time!