Episode Transcript
[00:00:00] Good morning, everyone. Next week is Workday Rising, and it's a big conference similar to SAP Connect last this week. So we're going to be there with lots of things to talk about, and I'll fill you in on what's going on at Workday later next week. But actually, before all that, I want to introduce a bigger topic, which I call business 2030. Now, you're probably tired of me talking about HR 2030. And for those of you that have kept up with this, we've been building a body of research and an architecture for how human resources, as they function, can dynamically enable growth in a company using AI. And it's a powerful, very powerful concept and idea, and it's becoming implemented in technology products now. In fact, I think some of the stuff you're going to see from Workday next week is very much along this line, and it's going to take a few years because the natural inclination of most people when they think about AI, AI is automation. And automation usually infers speeding up something you're doing today, not redesigning it. So automating a robot to vacuum your floor essentially is a robot that does the vacuuming that you used to do. It doesn't reconfigure or redesign how the floor gets cleaned, it just cleans it with a machine. To some degree. The AIs themselves, because they're built around human language, are naturally good at taking things we do now and doing them for us. And even the personal agents like Muse and Autopilot and so forth, are really good at taking a sentence or a command that we give them in our normal human way of thinking and turning them into action. But they won't redesign our thought processes. They're really not very good at that. We have to do that ourselves. And so what we've been doing in HR 2030 is detailing that out in all the different areas of HR and recruiting and training and enablement and so forth. It's very interesting and it's really cool, and hopefully all of you will get a chance to learn more about it, and I will be talking about it at Workday Rising and also at Unleash. But anyway, that's not why I wanted to start this podcast today. There's a bigger framework around it, and it's something that I've actually been thinking about for a long time, because many years ago when I started my work as an analyst, I used to look at the balanced scorecard and I read lots of business books, business theory books and operating model books, so forth. The Lean Books, the Mosaic organization. Some of the things built, actually some of the organization models coming out of Japan were very useful, very powerful. The idea of Holacracy, distributed organizations pushing decisions down, getting rid of corporate headquarters.
[00:02:49] And what I've kind of learned over the years is there's two fundamental strengths in a business. One is really understanding the customer's needs, whatever the customer is defined as, and in a regular continuous basis, not sitting around in headquarters and doing a study and deciding we're going to do this, that or the other thing and go after this market or that market, but really being close to the market so that you can adapt and you look at a company like Nike is a good example that has just floundered the last few years with some decisions that I believe have to do with getting rid of their retail channel, their distribution channel, and then possibly changing where the products are built and how they're designed. Getting themselves pulled away from the sports industry, which is becoming one of the biggest industries in the world. They weren't very close to their customers. And that process of staying close to your customers, it's not a corporate process. It's a frontline process where workers and employees and managers and leaders who are close to the action in the work on the floor get to know what's going on and why things are selling or not selling or why we're winning or losing markets and opportunities. The second is delivering on those needs. Now, most of you've been in a lot of different companies and I've visited many, many companies and I get a chance to really talk to some fascinating companies all the time. And everybody's got their own methodology for the building the thing or the things that they sell. Professional services companies operate as swarms of people with domain experts. Manufacturers have lots of suppliers and supply chain and speed and time to market based on that and manufacturing processes in plants. Oil companies are a little bit slower to move, but they come up with new designs for their chemicals all the time and new market to new distribution channels. It goes on from industry to industry, even the publishing industry, I mean, they're all like this. So this problem of you deliver the thing that you're selling is everywhere. Pharmaceutical companies have to do research and development and spend 10, 15 years to get a product out and then find out that it fails. Other companies, like software companies can develop things in a week or a month and get them out to market very quickly. And the traditional business structure to manage incoming information, decision making and delivery of products and services and support is the functional hierarchy. The functional hierarchy. When you look at the 832 job titles in the BLS database, which we're going to talk a lot about next week, they're in functions. There's sales jobs, there's IT jobs, there's nursing jobs, there's administration jobs, there's creative jobs, there's manufacturing jobs. And all of those functional roles typically go into somebody's job title or their resume. And they define the. Not only the type of work they do and the tasks and activities they do, but, but where they fit in the organization. And from all of my research, I've come to the conclusion that the reason we set our companies up this way was because in the days of industrial business strength, where most companies were industrial in the sense that they were building and shipping some thing, some physical thing, or they were a railroad, where they had very structured operations, this kind of a structure gave you scale. And what scale gives you is increasing margins over time. Because if you can very efficiently centralize your manufacturing, manufacturing, or your distribution, or your supply chain or finance or operation, other operations, those functions can reduce the cost of doing the work and also the cost of the suppliers and the incoming costs that they incur. And that's really the magic of Henry Ford being able to build an affordable car for everybody. With originally the Model T, if you go to the Ferrari factory, you don't see it that way.
[00:06:42] It's completely different in Ferrari. Every car is a product and a solution and a market and a customer and everything. It's all in one car. So, so anyway, along comes AI and, you know, and I've studied ERP and I've worked for IBM, and this functional structure has created massive investments in tools and systems and jobs and ERPs to automate the functional areas of a company. Okay, so now you Fast forward to 2030 or even today. The problem with that whole story is it's kind of slow. If you're Ford and you get your hands on a BYD car and you take it apart and you look under the covers and you find out, holy smokes, what the heck is this? How did they figure out how to do that? And you find out that all of a sudden somebody did something to your product market that surprised you, you got to go through the whole chain to fix what you're doing. You gotta go into product management and product engineering. Then you have to go into product design. Then you have to go into manufacturing. Then you have to go into distribution and sales and support and somehow take this new thing, idea technology, whatever it is, and redo it. And that takes a year or two. And meanwhile that other guy, that BYD guy is already into the next thing. So the problem with the functional organization is not that it's not good at scale, it is good at scale. It's not good at speed or innovation or a personalization of a product or a service to a customer. I mean the personalization. I think the automobile industry is a good one to talk about because we all have cars. I have a Mercedes, actually I have two Mercedes and they're great cars. I mean they're just really beautifully well designed, safe cars. They mostly work very, very well. And then they decided they were going to start selling subscription services because Tesla does it. And Tesla built it into the architecture of the whole company. I mean Tesla, the product itself, the car is a digital product. Well, Mercedes didn't do that. They figured let's figure out how to charge for some of the stuff that we're shipping in the industrial factories and production we already have. So they charge you for a fee now to get the maps to update or if you want to turn your car on by remote control, you have to pay extra for that. And I'm looking at this stuff and I'm thinking, no, absolutely not, I'm not paying for that. It's ridiculous. And it completely diminished my respect for my Mercedes. Now I still like the car. But imagine every time you get in the car you think to yourself my car's missing a bunch of stuff and I paid many thousands of dollars to buy it because I don't want to pay $15 a month for this stupid little thing that they decided to throw on top. They've hurt their brand, they've hurt their reputation. They're not making any money at it, I'm sure of that.
[00:09:40] And it's not built in. It's clearly some add on group that just schemed this thing up. And it's not because they're not smart people, they're great. I'm sure they're very bright people. But this is the way their company is organized. So what I connote or Describe as Business 2030 is rethinking the way the company operates. Just like we're going to be rethinking the way HR operates on. Now in the HR domain we have 161 sub agents and eight super agents. And you're going to see some of these superagents are going to be visibly clear. The use cases. The simplest use case that is easy to understand is redeployment of talent. And I'm going to go through this example in a couple of the talks I'm giving. But you have a business opportunity somewhere for something. Maybe a competitor goes out of business and you want to go put more resources into some geography. And you need to get people up to speed quickly to do that work.
[00:10:34] You could buy a company, you could open a bunch of job racks, you could redeploy people, you could reskill people. There's a lot of things to do. This talent redeployment agent, which has multiple names, could do that for you and give you all the options and the costs and look at the outside labor market and do an analysis in an hour or two. That might take you three months to figure out a corporate headquarters.
[00:10:55] So going back to the business side, think about sales and marketing. Most of the companies I've worked at, the sales organization is sitting out there in front of customers with quotas and all sorts of revenue targets is dependent on the marketing organization. The marketing organization is building marketing materials and doing lead generation and advertising and branding to build demand for the sales organization. But they can't do that until the product organization tells them what the products are. So the product group is, you know, sitting in front of the marketing organization. And the product group is dependent on the manufacturing organization, who's dependent on the supply chain organization. So you've got this chain of stuff that has to happen every time you want to offer something new and smart. Sales organizations are organized by industry or geography or need. They aren't just a bunch of generic salespeople. So you got a bunch of salespeople selling to telecommunications companies and some product comes rolling along down the product pipeline and it gets launched and the salespeople working on telecommunications companies scratch their heads and say, I don't understand how this applies to my customers. So we've got a, this, this matrix problem. Just like we have the matrix problem in HR when there's 18 different opportunities and potential interventions when there's a people thing. Well, again, using the power of AI, why wouldn't we? We build cross functional processes. Maybe these are agents that look at the life cycle of a product from the standpoint of a customer, not from the standpoint of how we built it, who built it, what pieces went into it, and how much it costs. That's got to get done too. But that's really a sub issue. The main issue is how do we make the customer experience so good that they just never stop buying from us, like Ferrari? So what you would want to do is you would Want to have a customer centric agent that knows this customer, knows what they bought, knows what their demands are, knows what their generation of leads looks like, and interacts with these functional areas horizontally across the vertical silos of the business to give you either the information or the resources you need to keep that customer happy. Because if you keep that customer happy, you don't have to go look for another one and they will buy the next thing you decide to sell. Now, I don't think that's very hard. If you think about it logically, when you go to Amazon and buy something, their company operates this way. One of the reasons everybody likes Amazon is we don't know what's going on behind the scenes and we don't care. We order something and it shows up, we return it and there's a process for returns and it shows up and they find a place and they designed a way for us to return it. They are constantly reorganizing and redesigning how they do things and they're not. I'm sure there are functional silos in Amazon, but they're not wired that way as a business. They're wired in the customer experience. And I could give you a hundred examples of this in healthcare, in airlines, in hospitality, in retail, in products, in consumer products and food services. The way this tends to get done in great companies. And by the way, the ERPs weren't designed for this. Even SAP, who's the leading sort of king of ERP. At the meeting last week, Kristen Klein got some questions at the analyst meeting, which I agreed with, like, why is your sales and marketing function way over on the right. You never talk about it. You know, I used to go to SAP meetings a long time and they never talked about HR either. They only talked about supply chain because they really designed their software around manufacturing companies and traditional industrial organizations. That's why they're so strong in those industries. So anyway, getting back to the business 2030 story, so you need this cross functional AI that can do this. Now I would imagine that inside of Amazon there's a lot of systems doing this. When I return something, I'm guessing there's some database in Amazon that knows who I am, it's keeping track of my purchases and it's thinking in some form of AI about what's to recommend next to me and what is the price I should pay. By the way, it's probably going to be priced by the. Every customer is going to get a different price pretty soon too. And they use AI too. But now they have you know generative AI so they can do it even better. So think about that. So you draw this horizontal box, this customer layer, and all of a sudden you see all sorts of magic things happen. I'm a product manager. I used to do product management. It's a really fun job, but it's really hard because you have to generalize or guess what a whole bunch of different market segments are going to want. When you build something, you can build a product against a competitor, you can copy a competitor and just try to make it better. But the better way is to do what Sharkninja does is to look at the customer demand and build something that nobody's thought about before. But where do you get that information from? You already have a bunch of customers, so you got to dig around and try to find that information so that the product manager's job gets better. The supply chain group, for example, who might find out that there's a whole bunch of peaking demand in a certain city or a certain color or a certain size or type of food or whatever it is, would also be able to talk to this agent and say, based on the last three, four or five years of patterns, are we seeing an anomaly here or is this normal? So this cross functional agent, super agent, it would be a super agent for sure. Would help all of these functional groups be much more intelligent and valued and driven in their decision making. And it could compute things like the total life cycle value of a customer. You know, a lot of companies have customers that are bad. I mean, we have a lot. We've been, I've been in business for 30 years and we have, you guys have bought all sorts of stuff from us. And every now and then I look around and I see we have a lot of customers that buy a few things and then we never really engage well with them. We're too small to talk to them or, you know, we didn't catch them at the right time. And we want to sell people stuff that doesn't add value. So I sometimes wonder if people are getting value out of some of the stuff we're selling. Now. If you don't do something like this, what happens is the brunt of the work falls on the front line. And we're going to a frontline summit with workday on Monday and we're going to talk about this. Our new research is called the business of Frontline. Not the HR and talent of Frontline, the business of Frontline. Because if the frontline workers are, you know, nurses or retail salespeople or people that cut Hair or whatever they might be doing or the people in the driving the trucks. If they're dealing with glitches, problems, imperfections that are hurting either their productivity, their lifestyle, experience at work, or their ability to serve a customer, they're doing the work of this AI for you and they're not going to be able to do it well. The example that comes up a lot is in healthcare, the nurses are pushing equipment out of the way, finding medications, cleaning the floors, taking care of the lights, calling the janitorial services on behalf of the patient. Because nurses are maybe amongst the most customer centric frontline workers you're ever going to find. But you know what it's like. You go into a food service, restaurant, fast food or a regular restaurant and something's going on that they, you can see that the person serving you is having a hard time serving your needs. They're papering over this complicated functional silo in the back. Now what's the purpose of me, an HR analyst talking about this? The reason I think this is relevant to the HR world is we've got to be a part of this. We can't stitch together all our talent practices unless the company's moving in this direction. Also in some of the demos that you see of the new AIs in HR you see a lot of job titles, job levels, skills models. We have this concept in HR that a job is sort of like a box and a person is resident inside of the box and the person brings and develops skills and capabilities and experiences inside the box. Well, as I wrote about an irresistible and we talk a lot about in Super Powered, it's actually the opposite. The human has enormous capabilities to adapt and learn. The box is just what they're doing now because of the way the job was structured. So this whole move away from the industrial organization which we talk about, we wrote lots of research on this in the post industrial age, three or four years ago, right around the pandemic is now becoming possible.
[00:19:36] So I think if you're an HR leader or an HR department or a consultant in hr, your opportunity when you go into a meeting to talk about a business process or an AI agent or the development of some new solution, think about this business 2030 approach because we're at a point right now where many more companies than ever are willing to question the way they do things. Not a lot of companies aren't, a lot of companies aren't ready for this. But it's going to happen, it's going to happen. And I don't think the software vendors are going to do it first. I think you as an HR or business person are going to have to think about it first. Now the other thing that of course goes through my mind when I think about this is those of you that are in hr, you're not an HR person anymore. You're a technologist. You need to know the domains of hr, but you also need to think about the business you're in and the company you're in and the market you're in. Because more and more of the real groundbreaking ROI applications of AI are going to be in these cross functional, cross domain problem areas. You can wait for vendors that they will eventually have solutions like this, but the most powerful solutions are going to come from you. Like when I was at SAP Connect, Kristen Klein talked about an example, which I thought was a good example, even though it's a little bit tactical, of a manufacturing organization that sells complex equipment. Sped up the time it took to put together an integrated proposal to a customer by something like five or ten times because they had access to data about the systems and the customers and the costs and the different parts that have to be configured into this device more quickly. That's probably not something SAP thought about, but the customer probably came to SAP and said, you know, if I can get all these agents to work, could I get my products into the market faster, speed up the process of selling and then of course use that data to build better supply chain support behind it. So a lot of this is going to come from you rethinking the way you do things. And we're going to be obviously learning from these companies like Amazon and others that have been doing it for a long time. Okay. So I thought it would be good to introduce this. I'm doing a lot of thinking about it, talking to a lot of people about it, and if you're a chro and you want to understand this better, please call us or join us. We a lot of this is chro type of stuff where you want to be talking to your business peers about it inside of the HR function. You may not have as much opportunity to work on these kinds of projects, but I think you're going to see them more and more and more everywhere. Okay, have a great weekend everybody. There's going to be a lot of things next week to talk about, so I'm excited to tell you about what's happening at Workday Rising and then the following week in Unleash. Bye for now.
