Exploring the What Lurks Behind Switching SECRETS OF SUCCESSFUL

Impact of AI Every Breakthrough on Creativity

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MANAGEMENT
The Magazine of the Rotman School of Management
UNIVERSITY OF TORONTO
WINTER 2019

The
Disruptive
Issue II
Lessons
from Alibaba’s
Chief Strategy
Officer
PAGE 92

10 Paths to Growth
PAGE 96

Using
Neuroscience
to Innovate
PAGE 118
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 MANAGEMENT
WINTER 2019:THE DISRUPTIVE ISSUE II

American artist Matty Mo (aka The Most

Famous Artist) is reverse-engineering
art. In his latest project he used artificial
intelligence to create portraits of factory
workers, art dealers, pilots and taxi
drivers — all professions he believes
won’t exist once machines can do better.
He also used a proprietary AI-assisted
computer program to create portraits
of celebrities like Elon Musk, Mark
Zuckerberg (seen here and on our cover)
and others who are helping to propel the
technology. Ironically, at press time, both
Musk and Zuckerberg were proving that
disruption comes in many forms — not
all of them related to technology.

Features

6 18 24
Exploring the Impact of AI: Behind Every Breakthrough The Economics of
Prediction vs. Judgment is a Better Question Autonomous Vehicles
Interview by Karen Christensen by Hal Gregerson by Opher Baron, Oded Berman
The Creative Destruction Lab’s chief Questions are the frame into which and MehdiNourinejad
economist argues that AI works best answers fall. By changing the frame, Will AVs improve social welfare or
when the objective is obvious. you can dramatically change create unprecedented congestion?
When it is not, there is no substitute the range of possible solutions. The jury is still out.
for human judgment.

32
The 2% Company:Excelling
at Efficiency and Innovation
by Knut Haanaes, Martin Reeves
and Jules Wurlod
Companies that excel at both
efficiency and innovation share
some key characteristics. And
there are far too few of them.
52
From Intuition to Algorithm:How
to Leverage Machine Intelligence
by Howard Yu
In our march towards the age of
machine automation, self-taught
algorithms will play an increasing role
in organizing our economic activities.
72
From Start-Up to Stay-Up:
The Art of the Pivot
by Steve Lowry
Today, Finn AI is a leading
fintech with clients like VISA and
BMO; but there were plenty of
twists and turns involved in making
this start-up a ‘stay-up’.
E
I COM
38
AI, Automation and
the Future of Work
by James Manyika and Kevin Sneader
There is work for everyone today
and there will be work for everyone
tomorrow. But that work will
require new skills and a high degree
ofadaptability.
58
The Innovator’s Mindset:
Radical Can-Do
by Ricardo Viana Vargas
and Edivandro Conforto
Brilliant strategy and high-tech
wizardry will only get you so far.
Successful innovation demands
a radical can-do mindset.
78
Fighting Fragmentation
in Healthcare:
A Modest Proposal
by Will Mitchell
If commercial vendors would engage
more actively as value chain partners,
we would see important disruptive
benefits for both health and healthcare.
46
Leadership Forum:Investing
in Disruption
Compiled by Karen Christensen
Six disruptive innovation experts
discuss the opportunities
and challenges facing
entrepreneurs and investors.
64
Switching on Creativity
by Jackson Lu, Modupe Akinola
and Malia Mason
Leaders often struggle to structure
work environments that nurture
creativity. The authors describe
a proven way to help ‘switch on’
creativity.
84
The Next Disruptive Wave:
Human Augmentation
Compiled by Andrea Potter, Gautam Jaggi
and Prianka Srinivasan
Technological disruption goes back to
the first Industrial Revolution. Recent
waves include mobile, social and sen-
sors. Up next: Human Augmentation.
 Rotman Management
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Thought Leader Interview: Editor-in-Chief

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 Exploring the What Lurks Behind Harnessing the SECRETS OF SUCCESSFUL
Impact of AI Every Breakthrough Power of Disruption
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FROM THE EDITOR Karen Christensen
The Disruptive
Issue II
WHILE IT MIGHT SEEM IMPOSSIBLE, consider this: Most experts agree
that the speed of change that we are experiencing today is actu-
ally the slowest it will be in our lifetime. Obviously, organizations
of all shapes and sizes are feeling the effects. And yet, in a recent
EY study, only 50 per cent ofglobal CEOs said they feel prepared
to take advantage ofdisruptive change.
The good news is that disruption is not some mysterious,
random or unpredictable event. By taking steps to understand
how it is currently affecting an industry — and how it might af-
fect it in the future — companies can avoid the fates of Kodak,
Blockbuster and so many others.
Our first issue on disruptive innovation was published in fall
2016, and not surprisingly, much has changed since then. In this
issue we will once again put disruption in the spotlight and ex-
amine the strategies and mindsets ofthe most successful innova-
tors, disrupters and entrepreneurs. We kick things off on page 6
with Exploring the Impact of AI, where Creative Destruction
Lab Chief Economist Joshua Gans argues that AI works best
when your objective is obvious. When an objective is difficult to
describe, there is still no substitute for human judgment.
What are the core assumptions that underpin your current
strategy? What types ofdisruptions are you likely to face? Are you
even in the right business? Questions matter more than ever. On
page 18, MIT’s Hal Gregersen shows that Behind Every Break-
through is a Better Question.
Will automatic vehicles (AVs)improve social welfare or cre-
ate unprecedented congestion? The jury is still out. On page 24,
Rotman professors Opher Baron and Oded Berman discuss
The Economics of Autonomous Vehicles.
Elsewhere in this issue, we feature innovation expert Rita
McGrath in our Thought Leader Interview on page 12; and
in our Idea Exchange, Alibaba’s head of strategy Ming Zeng
explains what it takes to be a ‘smart business’ on page 92; Gal-
lup’s Sangeeta Badal describes how to become a ‘builder’ on
page 103; Harvard’s Francesca Gino shows why it pays to break
the rules on page 134; and Rotman professors Angèle Beauso-
leil, Alberto Galasso, Brian Keng and David Dunne discuss
their latest work.
This past October, the Government ofCanada announced a
$25 million investment in the Creative Destruction Lab (CDL),
a non-profit organization based at the Rotman School of Man-
agement. Headed up by Ajay Agrawal, the Geoffrey Taber Chair
in Entrepreneurship and Innovation, CDL operates across six
locations, including sites at the University of British Columbia
and New York University, merging science-based projects with
business expertise to help young companies scale up into cre-
ators of new jobs, processes and services.
In his announcement of the investment, Minister of Innova-
tion, Science and Economic Development Navdeep Bains said
that CDL “promises to unleash a new wave of start-up innova-
tion across Canada, creating thousands ofmiddle-class jobs and
further securing Canada’s position as a world leader in the AI
field.” This funding will facilitate CDL supporting business ven-
tures that harness emerging technologies such as AI, clean tech,
energy, health, smart cities and space and quantum technologies.
Amidst all of the disruption taking place at the Rotman
School and elsewhere, one thing remains constant: Commit-
ting ourselves to continuous, lifelong learning is the best way
to keep up with accelerating change — both in life and in busi-
ness. We hope this issue contributes to your disruptive learning
journey.
Karen Christensen, Editor-in-Chief
editor@rotman.utoronto.ca
Twitter: @RotmanMgmtMag
rotmanmagazine.ca / 5
Exploring the Impact
of Artificial Intelligence:
PREDICTION VS.
JUDGMENT
The Creative Destruction Lab’s Chief Economist, Joshua Gans,
says AI works best when the objective is obvious. When it is difficult
to describe, there is still no substitute for human judgment.
An interview with Joshua Gans by Karen Christensen
Recent progress in machine learning has significantly ad-
vanced the field of AI. Please describe the current environ-
ment and where you see it heading.
In the past decade, artificial intelligence has advanced markedly.
With advances in machine learning — particularly ‘deep learn-
ing’ and ‘reinforcement learning’ — AI has conquered image rec-
ognition, language translation and games such as Go. Of course,
this raises the usual questions with regard to the impact of such
technologies on human productivity. People want to know, will
AI mostly substitute or complement humans in the workforce?
In a recent paper, my colleagues and I present a simple
model to address precisely what new advances in AI have gener-
ated in a technological sense, and we apply it to task production.
In so doing, we are able to provide some insight on the ‘substi-
tute vs. complement’ question, as well as where the dividing line
between human and machine performance for cognitive tasks
might lie.
At the core of your work is a belief that recent developments
in AI constitute advances in prediction. Please explain.
Prediction occurs when you use information that you have to
produce information that you do not have. For instance, using
past weather data to predict the weather tomorrow, or using past
classification of images with labels to predict the labels that ap-
ply to the image you are currently looking at. Importantly, this
is all machine learning does. It does not establish causal relation-
ships and it must be used with care in the face ofuncertainty and
limited data.
In an economic sense, if we were to model the impact of AI,
the starting point would be a dramatic fall in the cost of provid-
ing quality predictions. As might be expected, having better pre-
dictions leads to better and more nuanced decisions. In terms of
organizations embracing AI, there has been a lot of activity and
discussion — along with a lot of hype. The major tech compa-
nies — Apple, Google, Facebook — have been implementing AI
rotmanmagazine.ca / 7
 AI cannot establish causal relationships, so it must be used
with care in the face of uncertainty and limited data.
in their products for a few years now, and they continue to roll it
out. For the rest of us, not much has happened yet — but there
is huge simmering potential and opportunity. Over the next de-
cade, I believe we will see a lot of activity, but we are still at the
very earliest stages ofthis.
You have said that AI is really good at some things, and not at
all good at others. Please explain.
People needn’t worry: Artificial intelligence is not about replac-
ing human cognition. As indicated, AI really only ‘does’ one as-
pect of intelligence, and that is prediction. The complexity of AI
lies in its algorithmic coding, not so much in its results. Basically,
AI provides us with the ability to make use of the torrents of big
data that are flowing into today’s organizations by using complex
arithmetic to ‘crunch’ the data and make predictions from the
patterns that emerge from it. As it advances, we’ll be able to in-
put even more data, and AI’s breadth ofunderstanding and ability
to learn from data will increase. But it is important to remember
that AI is always restricted by what it knows.
Having said that, AI is often able to nail a prediction prob-
lem in ways that humans cannot. For example, it can now quickly
identify the content of images — so quickly that it can use your
smartphone’s camera to confirm that it is really you turning on
the phone before unlocking it; it can take a string of words in
French and translate them into English at speeds human transla-
tors could never hope to achieve; and it can take long, complex le-
gal documents and identify sensitive information—which might
take a paralegal hundreds of hours. All of this is great news for
organizations, but it’s also all the news — because as indicated,
that is all AI does.
The challenge for leaders is to figure out, ‘What uncertainty
can AI take away for us?’ Can it address something that is really
important to the decisions you make, or would it only provide
something that is ‘nice to know’ but not essential? For example,
a fortune teller does you no good by telling you what will happen
next week ifthere is nothing you can do about it.
Despite all of these advances, you believe humans still have
some very important advantages over machines. Please
explain.
Humans possess three types of ‘data’ that machines never will.
First, we have our five senses, which are very powerful. In many
8 / Rotman Management Winter 2019
ways, human eyes, ears and noses still surpass machine capabili-
ties. Second, humans are the ultimate arbiters of our own prefer-
ences. Consumer data is extremely valuable because it gives pre-
diction machines data about those preferences. Third, privacy
concerns restrict the data available to machines. For as long as
enough people keep their financial situations, health status and
thoughts to themselves, the prediction machines will have in-
sufficient data to predict many types of behaviour. As such, our
understanding of other humans will always demand judgment
skills that machines cannot learn.
In a recent paper you looked at precisely which types of hu-
man labour will be substitutes versus complements to emerg-
ing technologies. Please summarize your key findings.
For one thing, we believe that humans still have a considerable
edge over machines at dealing with ambiguity. AI is good at mak-
ing predictions in cases where there are ‘known unknowns’ —
things we admit we don’t know — but it is no good at all where
there are ‘unknown unknowns’ ( unforeseeable conditions) —and
it can be sent down the wrong track entirely ifthere are ‘unknown
knowns’ involved ( things that are known but whose significance
is not properly appreciated) .
Also, while AI will continue to grow in scope, in the coming
years it is unlikely to be able to make value judgments or predict
anything with data that is not clearly and logically linked to the
core data set ( the ‘known knowns’) . Here’s an example from
daily life: London taxi drivers have to pass a rigorous test on the
best routes around the city before getting their licence. Not sur-
prisingly, they have been significantly impacted by the arrival of
Uber drivers who rely on AI-driven GPS mapping. However, if
you get into a London cab and say, ‘Take me to that hotel near
Madame Tussauds, where Justin Timberlake stayed last week’,
the Uber driver’s GPS won’t be able to help you—but the cabbie
just might be able to. As leaders scan the horizon for threats and
opportunities, it is very important to have a solid appreciation for
what AI can and cannot do.
Talk a bit about how reliant prediction machines are on good
data.
The current generation ofAI technology is called ‘machine learn-
ing’ for a reason: These machines learn from data, and more and
better data leads to better predictions. But data can be costly to
 Our understanding of other humans will always demand
judgment skills that machines cannot learn.
acquire, and thus, investing in it involves a trade-off between the
benefit of more data and the cost ofacquiring it.
To make the right data-investment decisions, leaders must
consider the three ways in which prediction machines use data:
training data is used to generate an algorithm in the first place; in-
put data is fed to the algorithm and used to produce a prediction;
and feedback data is used to improve the algorithm’s performance
over time, as it ‘learns’. How many different types of data does
your company need? How frequently do you need to collect it?
These are just some of the questions every leader should be ask-
ing. It is critical to balance the cost of data acquisition with the
benefit of enhanced prediction accuracy.
Tell us a bit more about the role of human judgment with re-
spect to AI.
As indicated, prediction machines cannot provide judgment;
only humans can do that, because only we can express the rela-
tive rewards from taking different actions. Many decisions today
are complex and rely on inputs that are not easily codified, and
judgment is one of them. Whereas prediction involves ‘informa-
tion regarding the expected state of the world that can be eas-
ily described’, judgment relies on factors that are indescribable
and more qualitative in nature — like emotions and experience.
Figuring out the relative payoffs for different actions in different
situations takes time, effort and experimentation, none of which
can be codified.
Objectives in today’s world are rarely one-dimensional.
Humans have their own inner knowledge of why they are doing
something and why they give different weights to various ele-
ments of it; all of that is subjective. As AI takes over prediction,
we believe humans will do less of the combined prediction-judg-
ment routine of decision-making and focus more on the judg-
ment role alone. As indicated, AI works best when the objective is
obvious. When the objective is complex and difficult to describe,
there is no substitute for human judgment.
You and your colleagues also looked at prediction’s effect on
decision-making. Please describe it.
We assumed that two actions can be taken by a decision-maker in
any situation: a safe action and a risky action. The safe action will
generate an expected ( and predictable) payoff, while the risky ac-
tion’s payoff depends on the state of the world. If the state of the
world is good, the payoff will be X; ifit is bad, the payoff will be Y.
Which action should be taken depends on the decision-maker’s
prediction of how likely the good rather than the bad state of the
world is to occur. As prediction becomes better and better, deci-
sion makers will be more likely to choose riskier actions.
So, we will all be making more decisions—and riskier deci-
sions—over time?
Yes, because as decisions become more complex and we get
more help with the parts of them that involve prediction, the
things we make judgments about can increase in complexity. As
a result, the average person is going to be making different types
of decisions in different contexts, and making them more often.
No matter what type of work we do, we only have as much time
to make decisions as we’ve got time, and from that perspective,
it can work well to have a machine make more decisions to free
us up to do other things. In general, we will see a greater variety
of decisions and actions being taken.
You have studied the workplace ramifications of all this. Tell
us how it will effect, say, an HR manager.
If you think about it, making good predictions is the core of a
good HR manager’s job. These managers must predict whether
a candidate’s CV makes them worth interviewing and whether
based on the interview, the candidate is appropriate for the job,
amongst many other things. While a job that involves hiring peo-
ple seems as though it demands human intuition, objective sta-
tistics have actually proven to be more effective. In a study across
15 low-skilled service firms, my Rotman colleague Mitch Hoff-
man along with Lisa Kahn and Danielle Li found that firms us-
ing an objective and verifiable test alongside classic interviews
gained a 15 per cent jump in the tenure of hired candidates, rela-
tive to those using interviews alone.
As indicated, good predictions feed off of good data, and in
the realm of HR, much of the required data is available. Based
on it, increasingly complex algorithms will be generated to help
HR departments with their predictions — which could reduce
bias and errors and save lots of time in evaluating people. AI
will almost certainly impact HR jobs, along with many others.
But there is good news, too: As jobs transform to accommodate
new technology, the real human element behind them will be
exposed. It may well be, for instance, that a human face will still
rotmanmagazine.ca / 9
 As we scan the horizon for threats and opportunities, it is very important
to have a solid appreciation for what AI can and cannot do.
be required to deliver hiring or firing news — even if that news is
machine-generated.
What does it mean when a company like Google or Microsoft
says it is ‘AI first’?
My economist’s lens knows that any statement of ‘we will put
our attention into X’ involves a trade- off: Something will always
have to be given up in exchange. Adopting an AI-first strategy
is a commitment to prioritize prediction quality and to support
the machine learning process — even at the cost of short-term
factors such as consumer satisfaction and operational perfor-
mance. That’s because gathering data might mean deploying
AIs whose prediction quality is not yet at optimal levels. The
An AI Dictionary for Leaders
Autonomous
Put simply, autonomy means that an AI construct doesn’t need
help from people. Driverless cars illustrate the term in varying
degrees. Level four autonomy represents a vehicle that doesn’t
need a human inside of it to operate at full capacity. If we ever
have a vehicle that can operate without a driver, and also doesn’t
need to connect to any grid, server, GPS, or other external source
in order to function, it will have reached level five autonomy. Any-
thing beyond that would be called ‘sentient’, and despite the leaps
that have been made in the field of AI, the singularity (an event
representing an AI that becomes self-aware) is purely theoretical
at this point.
Algorithm
The most important part of AI is the algorithm. These are math
formulas and/or programming commands that inform a regular
non-intelligent computer on how to solve problems with artificial
intelligence. Algorithms are rules that teach computers how
to figure things out on their own.
Machine Learning
Machine learning is the process by which an AI uses algorithms
to perform artificial intelligence functions. It’s the result of
applying rules to create outcomes through an AI.
10 / Rotman Management Winter 2019
central strategic dilemma for all companies is whether to pri-
oritize that learning or shield customers from the performance
sacrifices that it entails.
Consider a new AI version ofan existing product. To develop
the product, you need users, and the first users will likely have a
poor experience, because the AI needs to learn. A company with
a solid customer base could have some of those customers use
the AI version of the product and produce training data; howev-
er, if those customers are happy with the existing product, they
may not be willing to tolerate a switch to a temporarily-inferior
AI product.
This is the classic ‘innovator’s dilemma’ that Harvard Pro-
fessor Clayton Christensen wrote about, whereby established
Black Box
When the rules are applied, an AI does a lot of complex math.
Often, this math can’t even be understood by humans, yet the
system outputs useful information. When this happens it’s called
‘black box learning’. We don’t really care how the computer ar-
rived at the decisions it’s made, because we know what rules it
used to get there.
Neural Network
When we want an AI to get better at something, we create a neural
network that is designed to be very similar to the human nervous
system and brain. It uses stages of learning to give AI the ability
to solve complex problems by breaking them down into levels of
data. The first level of the network may only worry about a few
pixels in an image file and check for similarities in other files; once
the initial stage is done, the neural network will pass its findings
on to the next level, which will try to understand a few more pixels,
and perhaps some metadata. This process continues at every
level of a neural network.
Deep Learning
Deep learning is what happens when a neural network gets to work.
As the layers process data, the AI gains a basic understanding.
You might be teaching your AI to understand cats, but once it
firms do not want to disrupt their existing customer relation-
ships, even if doing so would be better for them in the long run.
AI requires a lot of learning, and a start-up may be more willing
to invest in that than their more established rivals.
Due to all sorts of biases, human judgment is deeply flawed.
Will AI lead to better decisions, overall?
As humans, our prediction rates are very low, for all sorts of
reasons related to an endless list of unconscious biases. Maybe
AI will make our decisions better — but remember, that means
someone has to define and teach the AI what ‘better’ means.
Since we’re so bad at working that out, it’s going to be interesting;
but I’m definitely optimistic. With better predictions come more
learns what paws are, that AI can apply that knowledge to a dif-
ferent task. Deep learning means that instead of understanding
what something is, the AI begins to learn ‘why’.
Natural Language Processing
It takes an advanced neural network to parse human language.
When an AI is trained to interpret human communication, it’s
called natural language processing. This is useful for chat bots
and translation services, but it’s also represented at the cutting
edge by AI assistants like Alexa and Siri.
Reinforcement Learning
AI and humans learn in almost the exact same way. One method
of teaching a machine, just like a person, is to use reinforcement
learning. This involves giving the AI a goal that isn’t defined
with a specific metric, such as telling it to ‘improve efficiency’ or
‘find solutions’. Instead of finding one specific answer, the AI will
run scenarios and report results, which are then evaluated by
humans and judged. The AI takes the feedback and adjusts the
next scenario to achieve better results.
Supervised Learning
This is the very serious business of proving things. When
you train an AI model using a supervised learning method,
opportunities to consider the rewards of various actions — in
other words, more opportunities for judgment. Better, faster and
cheaper prediction will give the average human more important
decisions to make.
Joshua Gans is the Jeffrey S. Skoll Chair of Technical Innova-
tion and Entrepreneurship, Professor of Strategic Manage-
ment and Chief Economist of the Creative Destruction Lab
at the Rotman School of Management. He is the co-author,
along with Rotman Professors Ajay Agrawal and Avi Goldfarb,
of Prediction Machines: The Simple Economics of Artificial Intelligence ( Harvard
Business Review Press, 2018) . He blogs at https://digitopoly.org
you provide the machine with the correct answer ahead of time.
Basically the AI knows the answer and it knows the question.
This is the most common method of training because it yields
the most data and defines patterns between the question and
answer. If you want to know why something happens, or how
something happens, an AI can look at the data and determine
connections using the supervised learning method.
Unsupervised Learning
With unsupervised learning, we don’t give the AI an answer.
Rather than finding patterns that are predefined, like ‘why people
choose one brand over another’, we simply feed a machine a
bunch of data so that it can find whatever patterns it is able to.
Transfer Learning
Once an AI has successfully learned something, like how to
determine if an image is a cat or not, it can continue to build on
its knowledge even if you aren’t asking it to learn anything about
cats. You could take an AI that can determine if an image is a cat
with 90 per cent accuracy, hypothetically, and after it spent a
week training on identifying shoes, it could then return to its work
on cats with a noticeable improvement in accuracy.
-Courtesy of The Next Web ( TNW) , www.thenextweb.com
rotmanmagazine.ca / 11
 The highest-ranking woman on the Thinkers50 list of the world’s
most influential management thinkers (#10) describes
the new strategic logic that every company should embrace.

Thought Leader Interview:

Rita McGrath
by Karen Christensen

Sustainable competitive advantage sounds like a good thing
to most people—but you believe companies need to stop bas-
ing their strategies on it and embrace a new strategic logic.
Please explain.
The high degree of change in today’s environment means that
organizations have to adapt their strategy to new situations much
more frequently than ever before. Historically, the preoccupa-
tion in strategy has been with seeking a long-term competitive
advantage that is not easily duplicable by others in an industry,
but we must all accept that this is an age of transient advantage.
Previously, the sequencing has been: Identify a unique position
in an attractive industry, throw up entry barriers like crazy, and
then devote the rest of your efforts towards exploiting that posi-
tion. In more and more areas of the economy, this approach no
varied from a Chinese beer company (Tsingtao Brewery) to
an Internet service provider (Yahoo Japan) to a massive con-
struction-oriented firm (ACS Group of Spain). What they all
seemed to do really well was to combine elements of stability
with elements of dynamism. For example, leadership, culture,
values and people might remain quite stable over a lengthy pe-
riod, but resource allocation, job assignments, market explora-
tions and assets were being moved around quite dynamically.
Talk a bit about your concept of ‘waves’ of transient advan-
tage.
This is a shorthand way of thinking about the life cycle of a
competitive advantage. Advantages begin with some kind of
insight that a company has about how it might meet a cus-

PORTRAIT BY SUSAN HINOJOSA (msusanhinojosa@gmail.com)

longer works. Either the position doesn’t have enough entry bar-
riers and it erodes; new forms of competition come in and take
over; customers change; or your position just wasn’t sustainable
to begin with.
What does it take for an organization to thrive in an age of
transient advantage?
I did a study a few years ago of a very unusual group of firms that
I call ‘outliers’. My study population was ‘every publicly traded
firm on any stock exchange with a market capitalization of over
$1 billion’, and ofthat entire population, only 10 companies were
able to grow their net income by at least five per cent per year
for 10 years in a row. Among the interesting things about these
outliers is that they were very different from one another: They
tomer need or invent something new. Peter Drucker once
said that “the purpose of a business is to create a customer.”
From that insight, there will be a period of incubation and
experimentation which you can think of as ‘the innovation
process’. When an innovation is ready, it gets ramped up and
brought to scale. The next phase is ‘exploitation’, in which the
firm gets to enjoy the fruits of its labour and gain an advan-
tage. However, in many industries, competition soon matches
the advantage, customers get bored or something new comes
along and the advantage begins to erode. As a result, between
these exploitation and erosion phases, a firm needs to have
developed a new advantage. This process is ongoing, which is
why I liken it to surfing through successive ‘waves’ of competi-
tive advantage.

12 / Rotman Management Winter 2019

Rather than focusing on the competition within a particular
industry, you believe innovators should be looking at ‘arenas’.
Please explain.
Too many companies are obsessed with traditional industry
analysis and continue to define their most important competitors
as the other companies within their industry — i.e. firms offering
products that are a close substitute for one another. Today, this
is a very dangerous way to think about competition. In more and
more markets, we are seeing industries competing with other
industries, business models competing with other business mod-
els — even within the same industry — and entirely new catego-
ries emerging.
It isn’t that industries have ceased to be relevant; it’s just that
using ‘industry’ as a level of analysis is not fine-grained enough
to determine what is really going on at a consumer decision-
making level. A new, more granular level ofanalysis is required to
reflect the connections between market segments, offerings and
geographic location. Thinking ofcompetition in terms of‘arenas’
helps you do that.
An arena consists of the combination of a customer seg-
ment, an offer and a physical or virtual space of some kind. In
his research on disruptive innovation, Harvard’s Clayton Chris-
tensen and colleagues have written about ‘jobs to be done’. The
basic premise is that customers ‘hire’ a particular product to sat-
isfy a ‘job’ that they need to get done. Jobs can be either functional
in nature ( ‘I need to find something to feed my family for dinner’)
or emotional ( ‘I want to express my individuality’) . At any given
time, we all have dozens ofsuch jobs to be done — and the fact is,
there is more than one way to get each particular job done.
For example, say I need to occupy myself for 20 minutes
while waiting to board a flight. Like most people, I’m armed with
a smartphone, so I have several options at my fingertips: I could
play a game, do some personal banking, read The New York Times
or watch Netflix. Each of these offerings is in effect ‘competing’
for my 20 minutes. We need to broaden the aperture and start to
look at all the various ways that someone can get a particular job
done, because any entity that is capable of doing that job is now
your competition. That’s what competing in an arena looks like.
Talk a bit about how the move from ownership of assets to-
wards access to assets is affecting companies.
Back in the heyday of the dot-com bubble, every company had
to purchase its own computer equipment and hire programmers.
Today, you can get all of that stuff on demand from places like
Amazon Web Services. A technologist friend of mine recently
14 / Rotman Management Winter 2019
told me he is shocked at what Amazon is ‘giving away’ in terms of
artificial intelligence and machine learning applications. There
are all sorts of tools that you can just ‘plug and play’ on your own
system, without having to spend a dime. As a result of this shift,
the total number of things that need to be managed inside of an
organizational hierarchy has shrunk significantly. The upside is,
those few capabilities that remain to be handled within the or-
ganization can become the ‘secret sauce’ that gives it an advan-
tage. Leaders must be very selective about which activities they
choose to carry out internally, versus obtaining them from exter-
nal markets.
Describe a few of the key elements of the new strategy play-
book you recommend.
The first element of the new playbook is a process I call ‘continu-
ous reconfiguration’. In a rapidly changing environment, firms
need to be able to change rapidly, as well. Rather than getting
settled in a particular configuration, they must learn to manage
constant motion. The fact is, change is not the dangerous thing;
stability is.
Another key element is ‘healthy disengagement’, which re-
fers to the way in which companies that can operate with tran-
sient advantages get out of an advantage that is exhausted in
order to free up resources to invest in new advantages. In far too
many firms, there is either no process for disengaging — which
means they cling to exhausted businesses for too long — or disen-
gagement is painful and approached reluctantly.
A third important element is ‘moving resources around’
an organization in such a way that it can deftly grasp new op-
portunities even as it pulls resources out of old ones. Transient
advantage also places a premium on candour and transparency.
You mustn’t analyze an opportunity to death: When it comes to
making decisions today, ‘roughly right and rapid’ trumps ‘overly
ponderous and precise’ every time.
You have called reconfiguration the ‘secret sauce’ of the new
strategy playbook. Please explain.
As indicated, reconfiguration means that you are pulling resourc-
es away from the past and dedicating them towards the future.
A way to illustrate this is to contrast the cases of Fuji Film and
Kodak. In 1979, the price of silver suddenly shot way up and
there came to be uncertainty about supply. All the photography
companies panicked, but a few months into 1980, the crisis was
over, and everyone went back to business as usual.
Except for Minoru Ohnishi, who had just become the CEO
of Fuji. Ohnishi remained uneasy about his company’s reliance
on film processing, which was linked to the supply of silver. His
unease was validated again in 1984, when Sony introduced the
first commercial digital camera, the Mavica. As Ohnishi later told
a reporter, this was the moment at which he could envision ‘a fu-
ture ofphotography without film’. He thus began the reconfigura-
tion process — pulling resources away from film and redirecting
them into research and development of digital capabilities. By
the late 1990s, the company had spent over $2 billion to get into
the digital world. Moreover, Fuji moved its resources into a vari-
ety of other industries besides photography and today is in such
segments as specialty chemicals, medical systems and optical
devices. Sadly, Kodak never managed to reconfigure itself and,
as we all know, it ended up going bankrupt.
Reconfiguration is critical because it enables assets, people
and capabilities to make the transition from one transient ad-
vantage to another. Organizations that get this right are typically
able to embed change into their normal routines, and they also
tend to use an options- oriented approach to explore new oppor-
tunities. At the same time, as indicated, they are able to balance
agility with stability — but stability rooted in ‘softer’ areas like
vision, process and culture rather than in static competitive po-
sitioning or rigid resource alignment patterns.
Compare and contrast a company that has neglected these
principles with one that has embraced them.
With much regret, I think a company that really missed the mark
was General Electric. Over a period of many years, it was more
geared towards exploiting existing advantages and continuing
with what it knew how to do well, rather than embracing new
opportunities. I was shocked to read that it had spent billions of
dollars repurchasing shares. Couldn’t it have taken some of that
cash and used it to define new activities?
At the other end of the spectrum, a company that has really
embraced this approach is Adobe. A few years ago, it sparked
huge amounts of customer outrage when it decided to move one
of its most popular products — Photoshop — to the cloud. It basi-
cally abandoned the previous model of offering shrink-wrapped
software on CDs that people owned, and started offering the
same kind of software experience but on a subscription basis
through the cloud.
Adobe had the courage to say, ‘Our business model is chang-
ing. There is a whole new platform we need to be thinking about;
and ifwe don’t get there with our software by the time it becomes
obsolete and somebody else has beaten us to it, we will lose the
market’. It was very courageous ofthem to leave behind a market
that was, at the time, still very profitable, with very loyal custom-
ers, to make a move to something entirely new.
You advise organizations to measure their ‘innovation matu-
rity’. How is that done?
I have developed a set of metrics that organizations can use to
measure their level of innovation maturity. The ‘Innovation Ma-
turity Scale’ ranks a company on a scale from one to eight on 28
questions about things like governance principals, innovation
metrics, how people are rewarded and what, culturally, is the
best way to get ahead in the organization. We have found that
many companies are practising ‘early stage innovation’ (1-2 on
the scale); some are at the mid-point (3-4); and very, very few are
at a late stage (5-7).
Too many of the companies at low levels of innovation ma-
turity are still partaking in what I call ‘innovation theatre’. Every-
one agrees that innovation is important, but what do they do?
They pack their senior people up on a plane and head off to Sili-
con Valley, where they tour around and get their pictures taken
next to the Google sign. Then they come back and say, ‘Wow,
that was so cool’ — but nothing happens.
Companies that are more mature in terms ofinnovation cre-
ate metrics around it and treat it the same way they would treat
any other significant process like quality or customer satisfac-
tion. For these companies, innovation isn’t some weird thing that
only certain people get to do; it is always part of the conversation
and it’s always on the agenda.
One company that is brilliant at this is SAS Corporation.
It is privately held, which I think in some cases, really does help.
Every Tuesday, its founder and CEO Jim Goodnight gets his top
people together for two to three hours to hear what’s going on
with their various innovation programs. People come in and do
a ‘show and tell’, or to pitch things. Think about that: for half a
day, every single week, innovation is on every executive’s calendar.
We definitely don’t see enough ofthat.
What does living in an age of ‘transient advantage’ mean for
each of us, personally?
Just as firms need to be continuously reinventing themselves and
innovating, there are similar implications for our own lives. First
and foremost, you need to build resilience into your career. Are
you part ofmultiple networks? Do you have other ways ofmaking
money beyond the salary that is dependent on your employer?
Do you have skills that are transferable across different sectors?
rotmanmagazine.ca / 15
 The New Strategy Playbook OLD MINDSET NEW MINDSET

CONTINUOUS • Extreme downsizing or restructuring • Continuous morphing

RECONFIGURATION • Stability or dynamism alone • Stability combined with dynamism
• Narrowly defined jobs and roles • Fluidity in allocation of talent

HEALTHY DISENGAGEMENT • Defending an advantage to the bitter end • Ending advantages frequently, formally
• Exit viewed as strategically undesirable and systematically
• Focus only on objective facts • Emphasis on retaining learning from exits
• Focus on subjective early warnings

BUILDING AN INNOVATION • Innovation is episodic • Innovation is an ongoing, systematic process

PROFICIENCY • Governance and budgeting done
the same way across the business
• People work on innovation in addition
to their day jobs
• Planning orientation
• Begin with our offerings and innovate
to extend them to new areas
• Governance and budgeting for innovation
separate from business as usual
• Resources are dedicated to innovation
activities
• Experimental orientation
• Begin with customers and innovate to help
them get their jobs done

LEADERSHIP AND MINDSET
• Assumption that existing advantages • Assumption that existing advantages
will persist will come under pressure
• Conversations that reinforce existing • Conversations that candidly question
perspectives the status quo
• Relatively few and homogenous people • Broader constituencies involved in strategy
involved in strategy process process, with diverse inputs
• Precise but slow • Fast and roughly right
• Prediction oriented • Discovery driven
• Seeking confirmation • Seeking disconfirmation
• Extending a trajectory • Promoting continual shifts

PERSONAL IMPLICATIONS • Emphasis on analytical strategizing • Emphasis on rapid execution

• A stable career path • A series of gigs
• Hierarchies and teams • Individual superstars
• Infrequent job hunting • Permanent ‘career campaigns’

FIGURE ONE

Are you keeping on top of developments in your field? Have you
taken any courses at a place like the Rotman School to refresh
your skills?
The idea that you can emerge from school, join a company,
work there for 30 years and then retire is increasingly unrealis-
tic. Younger people are asking questions like, ‘If I take this job,
will I be more employable when I’m done? What am I going to
learn here? Who are you going to introduce me to?’ Employers
who can’t answer these questions are really going to struggle to
attract the best young talent.
Above all else, they are very curious. They’re constantly looking
around in the environment for patterns. They’re always looking
for unmet needs and opportunities, or ways to take an under-
utilized asset and put it to work. In their minds, they are con-
stantly asking, ‘Could this be a business?’ Most of the time, the
answer is no, so they quickly move on to the next thing. But
sometimes this lens triggers a really great business idea — and
when it does, they move quickly.

You have said that one way to thrive in an era of transient ad-
vantage is to develop a great set of ‘entrepreneurial goggles’.
Please explain.
I have found that there is one thing that differentiates great serial
entrepreneurs from the rest of us: The way they see the world.
Rita McGrath is an Associate Professor at Columbia Business School
and the best-selling author of The End of Competitive Advantage:How
to Keep Your Strategy Moving as Fast as Your Business (Harvard Business
Review Press, 2013), which was recognized by strategy+business as
the #1 business book of the year. She is ranked #10 on the Thinkers50
list of the world’s most influential management thinkers.

16 / Rotman Management Winter 2019

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Behind Every
Breakthrough is
a Better Question
Questions are the ‘frame’into which answers fall. By changing the frame,
you dramatically change the range of possible solutions.
by Hal Gregersen
FOR THE PAST DECADE, my focus as a scholar and consultant has
been on corporate innovation. In particular, I’ve been studying
the effects of asking new questions in start-ups and established
organizations. Twenty-five years ago, my very first conversation
with Clayton Christensen — the Harvard professor who gained
fame for his theory of disruptive innovation—focused on what
causes people to ask the right questions. Our collaborations since—
which include co-authoring The Innovator’s DNA — have only
sharpened my appreciation for the critical role that questions
play in breakthroughs.
If you trace the origin of any creative breakthrough, it is
possible to find the point where someone changed the question.
Questions can do amazing things: Knock down the walls that
have been constraining a problem-solver’s thinking; remove one
or more of the ‘givens’ in a particular line of thinking; and open
up space for inquiry that had been closed off. We commonly refer
to this as ‘re-framing’.
Stanford Professor Tina Seelig, who studies creativity and
innovation, is a big advocate of re-framing. In her words, “All
questions are the frame into which the answers fall. And by
changing the frame, you dramatically change the range of pos-
sible solutions.” Prof. Seelig suggests that one way to re-frame
things is to think of someone quite different from yourself and
try to adopt that person’s perspective on a situation. For instance,
would a child interpret something differently than you do as an
adult? Would someone from a different country, versus a local,
start out with a fundamentally different set ofassumptions?
Questions are the most effective way to re-frame any is-
sue. In a tentative, non-aggressive way, they crack open taboo
territory and encourage us — individually and collectively — to
re-examine the fundamental assumptions we are making. Elon
Musk’s term for this is ‘first-principles thinking’. When Tesla
landed at the top ofthe list ofForbes’ Most Innovative Companies
a few years ago, the team of us who compile that annual ranking
talked to him about his knack for coming at enormous problems
from new angles.
First-principles thinking, Musk explained to us, hacks away
all the things that have been treated as givens, but shouldn’t be,
getting down to the base layer of incontrovertible truth; then,
it works back up from there. Musk’s example for us came from
the automotive world in which Tesla competes. Why simply ac-
cept that to put lightweight aluminum wheels on its cars, Tesla
must incur the going rate of $500 apiece? Instead, Musk said to
himself: ‘That seems odd, because the cost of cast aluminum is
rotmanmagazine.ca / 19
 Breakthrough solutions start with re-framed questions, and
we are in need of breakthroughs in many, many realms.
maybe two dollars a pound, and the wheel is 25 pounds, so that’s
50 bucks. There are some processing costs involved, so let’s dou-
ble that and now we’re at a hundred. This wheel should not cost
500 dollars.’
Musk is very aware that people don’t normally push back
very hard on what is presented to them as reality. Analysis of a
problem by first principles, as he summed it up, involves trying
to boil things down to the most fundamental truths in a particu-
lar area by asking ‘What are we sure is true?’ The things that you
are highly certain of are ‘base truths’, your axiomatic elements;
and then you apply your reasoning using those.
Re-framing, this example suggests, is almost always a case
of‘larger framing’ — opening up a space ofinquiry that has been
closed down to some extent. This is what Clayton Christensen
does when he advises innovators within firms to stay focused
on the ‘jobs to be done’ by the goods and services they produce.
If, for example, a company produces cars, it should not fall into
the trap of asking, ‘What would make our cars better?’ Instead,
it should take the larger perspective ofremembering that a car is
just a solution the customer ‘hires’ to get a job done, which is to
transport her to where she needs to go. Think in terms of ‘How
could we transport the customer even better?’ and the frame
for innovation in the company’s offerings suddenly becomes
vastly larger.
How to Ask Better Questions
It isn’t simply a matter ofasking more questions; it’s a certain kind
of question that inspires creative problem-solving. As indicated,
breakthrough solutions start with re-framed questions, and we
are in need of breakthrough solutions in many, many realms. In
my own practice I have developed a technique called a ‘Question
Burst’. This is an exercise that you might like to try if you are —
individually or as part of a group — looking for new insights to
solve a problem that you care about. It consists of three steps:
STEP 1:SET THE STAGE. To begin, select a challenge that you care
deeply about. Perhaps you’ve suffered a setback or you have an
indistinct sense of an intriguing opportunity. How do you know
20 / Rotman Management Winter 2019
it’s a problem ripe for a breakthrough, given the right unlocking
question? It’s probably a good candidate if it makes your heart
beat fast. Next, invite a small group to help you consider that
challenge from fresh angles. You can do this exercise on your
own, but bringing others into the process provides a wider knowl-
edge base and helps maintain a constructive mindset. When you
ask others to participate in a question burst, you’re also summon-
ing empathy and energy, which directly support idea generation,
and ultimately, idea implementation. It’s best to include two or
three people who are starkly different from you in terms of their
understanding of the problem and their general cognitive style
or worldview. They will come up with questions that you would
not — questions that might prove surprising and compelling,
because they have no investment in the status quo. They’re also
more likely to point to elephants in the room — because they
don’t know not to.
With your partners in the exercise assembled, give yourself
just two minutes to lay out the problem for them. Once you’ve
gone to the trouble of engaging willing helpers, it would be a
pity to pollute their minds with your preconceptions before
you’ve gained any benefit from their thinking. Quickly sharing
the challenge forces a high-level framing that doesn’t constrain
or direct the questioning. So just hit the highlights: Try to con-
vey how things would change for the better if the problem were
solved; and briefly say why you are stuck — why it hasn’t already
been solved.
Before launching into question generation, it is important
to clearly spell out two critical rules of engagement: First, ask
people to contribute questions only. Explain that those who try
to suggest solutions will be redirected by you. And second, an-
nounce that no preambles are allowed. Explanations and details
— short or long — mainly guide people to see the problem in a
certain way — the very thing you’re trying to avoid.
You will also want to do a quick emotion check up front.
Ask people to reflect on the challenge right now. Are their feel-
ings about it positive, neutral or negative? No need to spend
more than ten seconds on this. You’ll do it again after the session
is over.
 The point is to keep opening up the space the problem occupies —
which broadens the territory of possible solutions.
STEP 2: GENERATE THE QUESTIONS. With the problem now pre-
sented in broad-stroke fashion and everyone apprised of the
rules, set a timer and spend the next four minutes collectively
brainstorming surprising and provocative questions about the
challenge. As with all brainstorming, no pushback is allowed
on others’ contributions. The goal is to jot down at least 15 to
20 questions.
Is there some precise magic about four minutes and 20
questions? No, but it works for several reasons. The time pres-
sure forces participants to stick to the ‘only questions’ rule.
I often see that people find it excruciatingly difficult to resist
responding with answers — even for four minutes — when peo-
ple start throwing out questions. This impulse is understand-
able. But in this exercise, the emphasis is on quantity. Any time
spent answering someone else’s question means less chance
of hitting the 20- question goal. Also, if people are focused on
generating as many questions as possible, they’ll more likely
generate short, expansive questions that are unburdened by
qualifications and assumptions, and will not feel obliged to
explain questions that come from left field.
Throughout the four minutes, you will write everyone’s
questions down. Capture everything verbatim, and ask your
partners to keep you honest on this — otherwise, you might
commit an unconscious censoring that repels lines of inquiry
you don’t immediately ‘get’ or want to hear. As you’re writing,
add your own questions to the mix. Doing so might reveal pat-
terns in how you have habitually framed the problem ( and un-
knowingly perpetuated it) .
Once the timer goes off, do a second quick emotional
check. How does everyone feel about the challenge now? Are
you more positive than four minutes ago? If not, and you’re do-
ing this in a setting that allows, maybe re-run the exercise or get
some rest and try again tomorrow. Or, try it with some different
people. Research has established that creative problem-solving
flourishes when people work in positive emotional states. I am
convinced that much of the initial power of the question burst
lies in its ability to alter a person’s emotions towards the chal-
lenge, by dislodging that negative feeling of being stuck.
STEP 3:UNPACK THE QUESTIONS. Your partners have now done their
job, and you should be feeling more energized by the possibil-
ity of making progress. On your own, study the questions you
jotted down. Be on the lookout for ones that suggest new path-
ways. About 80 per cent of the time, this exercise produces at
least one question that usefully re-frames the problem and pro-
vides a new angle for solving it. Select a few that intrigue you
and strike you as different from how you’ve been going about
things. A few criteria can help as you consider each question:
Is it one you have not asked or been asked before? Is it one for
which you honestly don’t have a good answer? Is it one that
evokes an emotional response, positive or negative? In other
words, subject the questions to a surprise test, an honesty test
and a gut- check test.
Now try expanding those few into their own sets of related
or follow-up questions. A classic way of doing this is the ‘five
whys’ sequence developed by Toyota founder Sakichi Toyoda
— and the variation on it suggested by Stanford’s Michael Ray
in The Highest Goal. Ask yourself why the question you chose
seemed important. Then, having answered that, ask why the rea-
son you just gave is important. And so on. The point is to keep
opening up the space the problem occupies — which also broad-
ens the territory of possible solutions and deepens your resolve
to do something about it.
Finally, commit to the quest — the pursuit of at least one
new pathway that the process has enabled you to glimpse—and
do so as a ‘truth seeker’. Set aside considerations of what might
be more comfortable to conclude or easier to implement, and in-
stead focus on what it will take to get the problem solved. Devise
a near-term action plan: What concrete actions will you person-
ally take in the next three weeks to find potential solutions sug-
gested by your new questions? In my experience, we would all
be more likely to come up with innovative solutions if we made
it a regular practice to engage in question bursts. Think of it as
a sheer numbers game. Most questions aren’t earth-shattering,
but given enough repetition — and I always advise doing three
rounds on a given issue — the technique will reliably yield its
share of great ones.
rotmanmagazine.ca / 21
 Catalytic Questions:A Q&A with Hal Gregersen
How do you define a ‘catalytic question’?
Like a catalyst in a chemical process, some questions knock
down barriers, open up new spaces and send energy down more
productive pathways. In this case, though, the barriers are often
mental ones — assumptions that have become outdated or
mindsets that have framed a problem in a certain way. If your
eyes widen a bit when a question comes at you, that’s a sign
that it’s catalytic.
Mine did, for example, when I heard about how Andreas
Heineke founded Dialogue in the Dark, an amazing experi-
ence in which sighted people are plunged into darkness and
led through complex settings by guides who are expert in
helping them — because they are blind. People trying to place
others with disabilities in jobs always ask, ‘What can they do
well enough despite the deficits they have?’ Andreas switched
that around to ask, ‘How could the job take advantage of this
person’s relative strengths?’
Flawed mental models do not naturally present them-
selves to people. How can we uncover them?
I asked Jeff Wilke, a top executive at Amazon, this very ques-
tion, and he had an interesting response. One way, he says, is
to develop some discipline around the activity of raising ques-
tions that poke at those models that might not be as stable as
you are treating them. My way of getting people to that point is
to have them do a Question Burst, which is focused on drum-
ming up better questions than the ones you’ve been asking
about a problem. [Editor’s Note:See page 20 for more
about Questions Bursts.]
Whether at work or in life, this is a quick way to rapidly
bring different perspectives to bear on a problem you are wres-
tling with — and if you can make it a regular practice, it can
help to create a culture of collective problem solving and truth
seeking.
In closing
Elon Musk is one of those problem-solvers who loves to talk
about the power of questions. On various occasions, he has re-
called reading The Hitchhiker’s Guide to the Galaxy when he was
14 and taking away an important point: A lot of times, the ques-
tion is harder than the answer. And ifyou can properly phrase the
question, then the answer is the easy part.
22 / Rotman Management Winter 2019
You advise leaders to slow down their ‘rush to rightness’.
Why is that so important?
One of the things we value most in a leader is decisiveness, and as
a result, there is strong pressure to push forward with a plan with-
out pausing to consider, ‘Are we missing something here?’ The iro-
ny is that, if the time has come when something fundamental about
an enterprise has to be reconsidered—perhaps it’s an inflection
point in the industry’s lifecycle, or some new technology is brewing
on the periphery that will pose a mortal threat—the top executive
has to see it. Only someone in a powerful leadership position can
present the case for change to an organization and mobilize it to
act. And yet, unwittingly, we have created settings that actually in-
sulate most executives from the changing realities they need to be
attuned to. That’s why chief executives need to make a concerted
effort to be their organizations’ ‘chief questioners’.
What habits can we develop to start asking more
catalytic questions?
I would boil it down to three things. First, we have to dial back our
certitude and spend more time in a condition of ‘sensing that we
are missing something’. Second, we have to get up and out of
our comfortable offices and routines and encounter the world of
the weird and the challenging. And third, we have to switch out
of ‘transmitting mode’ and spend a little more time in ‘receiving
mode’. When we’re in conditions of feeling wrong, being uncom-
fortable and keeping quiet, those are the times when our heads
fill with questions. If you want to ask more catalytic questions, you
need to raise more questions in general. Then, pay attention to the
ones that really challenge your mental models.
— Interview by Karen Christensen
Today, Musk applies his prodigious intellect to summoning
up ever-better questions — questions that knock down assump-
tions and channel energy into new pathways ofdiscovery. Why is
he so much more capable of this than most people? In large part,
because he started early; and he kept at it.
Hal Gregersen is Executive Director of the MIT Leadership
Centre and a Senior Lecturer at MIT’s Sloan School of
Management. His latest book is Questions Are the Answer:
A Breakthrough Approach to Your Most Vexing Problems
at Work and in Life ( HarperCollins, 2018) .
Fast track
into a career in risk
management.
Our eight-month full-time program is aimed
at recent graduates and young professionals.

rotman.utoronto.ca/MFRM
The Economics
of Autonomous
Vehicles
Will AVs improve social welfare — or create unprecedented congestion?
The jury is still out.
by Opher Baron, Oded Berman and Mehdi Nourinejad
AUTONOMOUS VEHICLES ( AVs) are widely expected to radically
change mobility patterns and improve the efficiency ofour trans-
portation systems. The highest level of automation that is cur-
rently being tested allows for vehicles to travel without a human
on board. This concept opens up abundant opportunities in the
transportation industry, but it also has implications for road ca-
pacity — both positive and negative.
As a result of the predicted benefits of AVs — which include
smoother traffic and improved safety — more than 50 cities
worldwide have committed to deploying them in the near future,
and another 27 are preparing for automation by undertaking
surveys of regulatory, planning and governance issues raised by
these vehicles.
Not surprisingly, the private sector is actively pursuing vehi-
cle automation. By now, most car manufacturers have established
an AV division and expect to make the technology available to
the mass market as early as 2025. By the year 2045, AV market
share is predicted to be as high as 87.2 per cent. In this article we
will discuss some of the opportunities and challenges that lie
ahead for this burgeoning sector of the automobile industry.
The Current State of the Art
At present, Daimler AG ( Mercedes-Benz) is considered the
leader among the world’s automakers in the development of au-
tomated driving technologies. Its Drive Pilot system allows the
driver not only to stay within the boundaries of a lane, maintain
a safe trailing distance and stop when necessary while in conges-
tion, it also assists with steering, switching lanes and overtaking
other cars when the driver signals a lane change. Tesla’s Auto
Pilot system, installed on its flagship models, features a similar
set ofautonomous-driving functions.
Turning to Japan, Nissan Motor Corporation has been the
rotmanmagazine.ca / 25
 Semi-autonomous vehicles already exist in the consumer market, and fully
autonomous vehicles are likely to arrive in the next decade.
keenest to develop autonomous technologies, marketing some
models installed with an autonomous driving system called Pro-
PILOT, which features keep-in-the-lane and keep-the-distance
functions for highway driving and follow-and-stop functions
for driving in congestion. Meanwhile, Subaru Corporation has
earned recognition for its EyeSight tool — an emergency braking
system to help avoid or reduce front-end crash damage as well
as keep-in-the-lane and keep-the-distance functions, which are
installed on many of its flagship models.
Many car manufacturers have also recognized the emerging
‘shareability’ of AVs and are planning to initiate their own ride-
sharing programs. For example, Ford recently released a plan
to roll out Level-4 AVs designed for commercial ride-sharing
applications by 2025; General Motors is also developing auto-
mated Chevy Bolts for shared use; and Waymo ( which is owned
by Google) is partnering with Chrysler to create a shared AV
enterprise.
One of the perceived drawbacks of vehicle sharing in the
automated age is the increased traffic that will be injected into
transportation networks as a result of ‘relocation trips’ — where-
by a driverless car returns to its ‘home base’ after completing a
ride. In addition to the increased traffic caused by these ‘zombie
trips’, regular trips may also increase, as passengers will get to
engage in alternative activities while riding. Skeptics of automa-
tion claim that AV trips — both regular and zombie — will worsen
traffic conditions and clog major urban streets. Some even argue
that average vehicle occupancy by humans might get as low as
50 per cent due to zombie trips, and that overall traffic will in-
crease by up to 15 per cent.
In response to the skeptics, advocates ofautomation believe
that AVs will make traffic smoother overall, due to minimized
abrupt acceleration and braking, improved communications
through vehicle-to-vehicle and vehicle-to-infrastructure chan-
nels, and a reduction in accidents. Several studies address this
claim. For instance, journalist Clifford Atiyeh has estimated
26 / Rotman Management Winter 2019
that automation will increase speeds by 23 to 39 per cent under
fuel-economy conditions and by eight to 13 per cent in congested
traffic. In this view, reductions in accidents will also improve traf-
fic, as 25 per cent ofcongestion is attributed to traffic incidents.
Moreover, when AVs reach their predicted high market-
share, systemic improvements may appear in terms of intersec-
tion controls ( i.e. traffic light design) . One futuristic vision is to
have no traffic lights whatsoever at intersections, but instead,
a scenario where cars pass through the area in a synchronized
manner without having to stop.
With recent advancements in automation technology, many
provincial and state governments in North America, Europe and
South Asia are now issuing permits for AVs to drive on designated
roadways. Google has tested driverless vehicles over more than
two million miles in cities, including Mountain View, Austin and
Phoenix. The U.S. is a leader in this testing stage, partly due to
its National Highway Traffic Safety Administration, which
has issued a set of national guidelines outlining the principles of
driverless vehicle pilots. These guidelines streamline the testing
phase and motivate companies to pilot their prototypes in real-
life traffic conditions. Canada has also begun several pilots in
the provinces of Ontario and Quebec by allowing firms such as
Uber to run their driverless vehicles on ‘live’ streets.
Broadly speaking, once the testing phase is complete, the
next step for AVs will be regulation. There are already 17 states in
the U.S. pursuing AV-enabling legislature by passing bills to regu-
late operations and licensing. Regulatory policies include chang-
ing traffic rules to accommodate AVs, land use intervention,
starting new ride-sharing services, initiating ‘pilot zones’ ( where
AVs can be tested) , taxi reform ( i.e. making taxis automated) and
transit automation ( e.g. making buses and subways automated) .
Figure One shows some of the cities that are taking a holistic
approach to implementing multifaceted policies. As Indicated
Austin, Singapore and Helsinki are among those taking the lead
in automation.
 Autonomous Vehicle Initiatives by City
Traffic rules Land use Ride-sharing Pilot zone Taxireform Transit
autonomation

Austin X X X X X X

Boston X X X

Gothenburg, Sweden X X X

Helsinki, Finland X X X X X X

London, UK X X X X X

Milton Keynes, UK X X X

Montreal X X X X X X

Paris, France X X X X X

Pittsburgh X X X X

San Jose X X X X

Singapore X X X X X X

Tampere, Finland X X X

Trikala, Greece X X X

Note: These cities were chosen from a larger pool of 55 that we studied.

FIGURE ONE

One approach that is being neglected thus far is subsidiza-
tion, and we believe this is a mistake. Subsidization — whereby
households would be granted rebates for purchasing AVs — is
a practical policy approach because most households will not
be able to afford AVs due to their high ownership costs and the
expensive embedded-autonomy equipment in the vehicle. At
the moment, the technology used in AVs includes light detec-
tion and ranging systems, sensors, software and other advanced
computing power. These components alone can cost more than
US$ 30,000 (up to US$ 100,000 for military uses). However,
this equipment is expected to become more affordable as AVs be-
come available to the public on a mass scale. Hensley estimates
that 15 years after the commercialization of AVs, their cost will
drop from a US$ 10,000 markup (i.e. the additional payment for
autonomy technology)to a US$ 3,000 markup. Before reaching
these affordable markups, however, we believe that governing
agencies should promote AV purchases by implementing rebates
and subsidies.
The coming trade-off between infrastructure efficiency and
induced traffic has caused a heated debate about the benefits of
vehicle automation, and experts are taking sides based on specu-
lations — without substantial scientific evidence. Of course, this
is partially because AVs are not yet commercialized and no data
is not yet available to support either side’s arguments. Neverthe-
less, the fact is that semi-autonomous vehicles already exist in
the consumer market, and fully autonomous vehicles are likely to
arrive in the next decade. As indicated earlier, AVs are expected
to promote shared mobility because they can be relocated among
multiple passengers in driverless mode. By sharing a ‘fleet’ of
AVs, each user would pay less for mobility and have a higher in-
centive to travel due to the extra free time provided. This paradox
will potentially lead to more traffic in urban areas.

rotmanmagazine.ca / 27
 On the upside, the connectivity features of AVs will enable
them to use road space much more efficiently. This efficiency
would offset the extra traffic from zombie trips and overall de-
crease travel times. Going forward, cities should not inadver-
tently support AVs without an in-depth analysis oftheir impacts.
Our Research
A number of studies have investigated the impact of AVs in
terms of fuel economy, induced traffic, willingness-to-pay, traf-
fic flow, safety, intersection control, parking, and their use as a
shared fleet between a group of users. Among the key findings
to date, researchers have shown that network capacity generally
increases with AV market share because of ‘platoon formation’
and the lower reaction time of AVs. These studies relate capac-
ity to the share of AVs in the network, where the highest capacity
is reached when the entirety oftraffic is automated.
Automotive’s New Value-Creating Engine by J. Brockhaus, J. Deichmann, J. Pulm and J. Repenning
In recent years, the automotive industry has been intensely
discussing four disruptive and mutually reinforcing trends:
autonomous driving, connectivity, electrification and shared
mobility. These ‘ACES’ trends are expected to fuel growth within
the market for mobility, change the rules of the sector, and lead to
a shift from traditional to disruptive technologies and innovative
business models.
Artificial intelligence is a key technology for all four ACES
trends. Autonomous driving, for example, relies inherently on AI
because it is the only technology that enables the reliable, real-
time recognition of objects around the vehicle. For the other three
trends, AI creates numerous opportunities to reduce costs, im-
prove operations and generate new revenue streams. For shared
mobility services, AI can, for example, help to optimize pricing by
predicting and matching supply and demand. It can also be used
to improve maintenance scheduling and fleet management.
These improvements through AI will play an important role
for automotive firms because they enable them to finance and
cope with the changes ahead of them. One expected key result
from the ACES trends is a marked shift in the industry’s ‘value
pools’. This change will primarily affect large automotive original
equipment manufacturers (OEMs) and their business models,
but the impact will be felt throughout the industry and beyond.
The products and services made possible by the ACES
28 / Rotman Management Winter 2019
While research on vehicle automation is growing, the ma-
jority of studies to date have taken an engineering approach by
looking at either infrastructure management or the travel pat-
terns of AV users in futuristic scenarios. Very few studies have
focused on optimal policies for vehicle automation from an oper-
ations management perspective. Among those that have, North-
western Professor Xin Chen et al. propose ‘automated zones’
comprised of a particular set of streets allocated to driverless ve-
hicles. Researchers have also considered policies for managing a
fleet of shared AVs and the implications of parking provision in
an era of automation.
While these policy-based studies are inarguably important,
their findings will be relevant only when a reasonable ratio of a
city’s population has converted to AVs. There has been a gen-
eral lack of investigation into policies that encourage travellers
to switch over to driverless modes while considering the benefits
trends will not only impact the business of all incumbent and
traditional industry players, but will also open the market up to
new entrants. Many companies that were previously focused on
other industries — e.g. technology players— are heavily invest-
ing in the ACES trends and the underlying key technologies.
As a result, a new ecosystem of players is emerging.
New players will be important partners for traditional auto-
motive companies. While automotive OEMs can use new players’
technology expertise to unlock value potential from AI, new play-
ers will have opportunities to claim their share of the automotive
and mobility markets. To master the ACES trends, OEMs need to
invest substantially into each of the four ACES — not just in their
development, but also in their integration.
Our analyses has yielded the following key insights:
• In the short to medium term, there is a substantial
industry-wide AI-enabled value opportunity, which
by 2025, will reach a total accumulated value potential of around
US$ 215 billion for automotive OEMs worldwide. This corre-
sponds to the value of nine EBIT percentage points for the whole
automotive industry, or to an additional average productivity in-
crease of approximately 1.3 per cent per year—a significant value
to boost the industry’s regular ~2 per cent annual productivity
and drawbacks ofautomation.
In the absence of data, analytical methods that provide in-
sight on vehicle automation in different operating scenarios can
be very useful. In a recent paper, we addressed the automation
controversy by using economic analysis based on supply-de-
mand curves, capturing the impact of automation on the supply-
demand equilibrium. Several insights emerged. One key con-
clusion is that we cannot blindly support or dispute automation
without knowledge of a)the transportation infrastructure in a
given area, and b)the vehicle-sharing behaviour of consumers.
Based on these two factors, one of three scenarios will occur:
1. A widespread acceptance that any level of automation is
beneficial for society;
2. A beliefthat partial automation is the best approach; or
3. A recognition that no vehicles should be automated.
aspiration. Most of this value is derived from the optimization of
core processes along the value chain.
• Even in the short term, AI can lead to efficiencies and
cost savings across the entire value chain and can create
additional revenues from vehicle sales and after-market sales.
Most of the value is generated through four core processes. In
procurement, supply chain management and manufacturing,
efficiencies lead to cost savings of US$ 51 billion, US$ 22 billion,
and US$ 61 billion, respectively. In marketing and sales, AI-based
efficiencies both reduce cost and generate revenue, leading to
a total value potential of US$ 31 billion for this process.
• While AI-enabled vehicle features can generate sub-
stantial industry-wide value in the long term, these
features and services will only create limited value at the
industry level in the short term. Nevertheless, generating
value from these features and services is important as individual
OEMs that outperform competitors with their driver/vehicle
features and mobility services can gain substantial market
share. These gains in market share by technology leaders are,
however, small compared to the risk of losing a significant part
of the customer base for OEMs that are falling behind on these
features.
Previous studies of vehicle subsidization show great promise in
fleet electrification, and in our paper, we extend them by devel-
oping subsidization regimes for AVs and comparing them with
two other policies founded on taxation and vehicle-sharing. We
assessed the impact of three policies that can promote automa-
tion once it is deemed to be beneficial to society:
POLICY 1:Government subsidization, whereby a governing agency
subsidizes AVs by offering rebates to buyers from an exogenous
budget.
POLICY 2:Rebates are provided to AV owners using funds gener-
ated from a tax collected from regular vehicle owners.
POLICY 3: The industry promotes sharing AVs among groups of
users to distribute ownership costs.
Four key success factors will enable OEMs to prepare for the
AI transformation and to capture value from AI in the short
term: Collecting and synchronizing data from different sources;
setting up a partner ecosystem; establishing an AI operating
system; and building up core AI capabilities and a core AI team
to drive the required transformation.
OEMs need to begin their AI transformations now by implement-
ing pilots to gain knowledge and capture short-term value. They
should then establish their AI core to develop an integrated view
on AI across the organization. This will enable OEMs to scale up
and roll out an end-to-end AI transformation to systematically
capture the full value potential from AI and build up capabilities
for their long-term ACES strategies.
Jan Brockhaus is a Senior Associate in McKinsey & Co.’s Cologne office.
Johannes Deichmann is an Associate Partner in McKinsey’s Stuttgart
office. Jeldrik Pulm is a Fellow in the Cologne office. Jasmin Repenning is
an Engagement Manager in McKinsey’s Hamburg office. For more, the full
report from McKinsey’s Center for Future Mobility, “Artificial Intelligence:
Automotive’s New Value-Creating Engine,” is available online.
rotmanmagazine.ca / 29
 It is possible to increase traffic and experience shorter travel
times under automation.
Our analysis showed that subsidization ( Policy 1) always leads to
higher social welfare than ‘tax-and-subsidize’ ( Policy 2) . Never-
theless, a higher level of automation would be achieved by the
latter, and this could lead to important secondary benefits — such
as a reduction in accidents and environmental pollution.
We also found that the optimal policy will depend on the
market price of AVs and the ability of the industry’s infrastruc-
ture to service them. Hence, the idea of an ‘optimal’ policy will
change as AVs become more affordable and the infrastructure is
upgraded to better serve them over time. For instance, altering
sharing arrangements ( Policy 3) would not be an ideal approach
when AVs first enter the market because the market-share would
not be large enough to exploit the benefits of sharing; but, as the
market share grows and the infrastructure evolves, this policy
becomes increasingly powerful.
Some of our insights might appear to be counter-intuitive.
First, it is commonly accepted that ‘any increase in traffic will
lead to longer travel times’. However, we found that this may not
be the case when there is a mix of regular vehicles and AVs on
the road. Put simply, it is possible to increase traffic and experi-
ence shorter travel times under automation. Second, since AV
users will experience more free time and comfort when travel-
ling, the induced traffic in the network may increase. Therefore,
as the level of comfort increases ( and the value of time decreas-
es) , automation becomes more harmful to social welfare. This
counter-intuitive assertion results from the predicted tendency
of AV owners to travel more because of the extra comfort afford-
ed by these vehicles.
While AVs are expected to benefit society in many ways,
their high initial cost may hinder their widespread adoption.
Therefore we believe government intervention is required to en-
sure that AVs are affordable for the public. Policies that endorse
automation may use subsidization, taxation or the promotion of
vehicle sharing between multiple users.
The optimal policy for AVs depends on the price gap be-
tween autonomous and regular vehicles, and the ability of an
30 / Rotman Management Winter 2019
area’s infrastructure to service AVs. Therefore, the optimal pol-
icy will change with time, as infrastructure is improved and AVs
become more cost-effective due to mass production.
In closing
Many forthcoming policies in the realm of vehicle automation
remain to be investigated, including changes to traffic rules, taxi
regulation and land use changes. Continued research in these
areas will allow us to better comprehend the future impact of ve-
hicle automation and provide further tools for policymakers to
make effective decisions.
An important next step is to investigate the pricing structure
of households in each group of vehicle sharers or ‘AV coalitions’.
For example, for joint owners of AVs, how should the ownership
costs be equitably divided among the members of each coali-
tion to reach an equilibrium where no household benefits from
switching to another coalition?
In the meantime, we hope that our analysis and the insights
it generates may support government agencies and other regula-
tory bodies in their study and implementation of policies to opti-
mally control the adoption of AVs.
Opher Baron is a Professor of Operations
Management at the Rotman School of
Management. Oded Berman is the Sydney
C. Cooper Chair in Business and Technology
at the Rotman School. MehdiNourinejad
is a Post-Doctoral Fellow at the Rotman School. They are
the co-authors of “The Economics of Autonomous Vehicles:
Formulation and Analysis of Optimal Policies,” from which
this article has been excerpted.
Rotman faculty research is ranked in the top 10 worldwide by
the Financial Times.
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THE 2%
COMPANY:
Excelling at Efficiency
and Innovation
Companies that excel at both efficiency and innovation share
some key characteristics. And there are far too few of them.
by Knut Haanaes, Martin Reeves and Jules Wurlod
VERY FEW COMPANIES excel at innovation and efficiency at the same
time. Of the 2,500 public companies we recently analyzed, just
two per cent consistently outperform their peers on both growth
and profitability during good and bad times. These ‘2% compa-
nies’, as we call them, are able to renew themselves in large part
by driving exploration and exploitation simultaneously.
Being excellent at both exploration (the quest for new ideas
and innovation)and exploitation ( operational efficiency)is par-
ticularly challenging because these activities pull a company in
different directions. They require different skills, different ap-
proaches to performance management, and an ability to drive
success with different time perspectives. Each is also a poten-
tial trap in its own way: Pursuing too much innovation tempts
companies to seek further change before they see the benefits
of the initial change; and conversely, operational success makes
it more difficult to make time to explore. Following are a few
examples of how companies manifest their ‘2% status’ in very
different ways:
• Fashion retailer Zara has developed ‘fast fashion’ DNA that
combines adaptive innovation with speed-to-store. It consistent-
ly taps into unpredictable changes in taste through excellence in
design agility and fosters continuous improvements in efficiency
through a very tight supply chain.
• Amazon CEO Jeff Bezos constantly pushes for a culture of in-
novative thinking through his ‘day one’ mantra—stressing how
the company should never stop behaving like a start-up. In par-
allel, the global retailer is able to drive efficiency by building an
ever-tighter customer insight, logistics and delivery operation.
• Toyota has been on a long-term quest to develop new prod-
ucts (such as hybrid engines)and continuously improve its lean
manufacturing system. By playing the long game, it has shown
that gradual improvements in quality and manufacturing can be
combined with breakthrough innovation and industry shaping.
These and other 2% companies share four traits:
1. THEY ARE HIGHLY SKILLED AT BOTH EXPLORATION AND EXPLOITATION.
They continually rethink and revise their strategies and operat-
ing models while improving their current products and opera-
tions.
2. THEY RETAIN AN ‘OUTSIDE-IN’ FOCUS, EVEN WHEN THEY BECOME
SUCCESSFUL. By bringing outside perspectives in, they avoid
succumbing to the risks posed by success and growth, which,
although they are positive and desired outcomes, tend to in-
crease organizational complication and push companies towards
rotmanmagazine.ca / 33
 Maintaining an outside-in perspective starts by continuously scanning
the market, both demand and supply.
an internal focus. In a rapidly changing environment, any com-
pany with too much of an ‘inward gaze’ will fail to detect funda-
mental external market changes.
3. THEY EMBRACE NECESSARY DISRUPTIONS (EVEN IF PAINFUL). This also
implies deprioritizing previously profitable businesses to bet on
future growth areas and build early-mover advantages.
4. THEY HAVE A CLEAR MODEL FOR RENEWAL. Renewal models help
to manage the inevitable trade-offs between short- and long-
term objectives. They also fit specific business environments
and organizational capabilities. For instance, in industries where
disruption is imminent but directionally unclear and when go-
to-market capabilities are strong, companies can capitalize on
innovation from outside by scanning the market for relevant in-
novations, bringing them in-house and commercializing them.
This allows them to build an early-mover advantage while avoid-
ing the risk of going full steam in the wrong direction.
Becoming Part of the 2%
Having studied these companies closely, we have developed
three principles for getting your organization into the 2% club.
PRINCIPLE 1:MAINTAIN AN ‘OUTSIDE-IN’ FOCUS, EVEN AMIDST SUCCESS
Disruption usually comes from the outside, and being too in-
ward-looking puts companies at risk of missing key customer or
market trends. The 2% companies don’t just excel at both explo-
ration and exploitation activities, they also manage to keep an ex-
ternal (outside-in)focus, even as they succeed. This is not as easy
as it seems, because successful enterprises very often become
‘introverted’. History is paved with examples of companies that
reached the top of their industry but failed to remain there. Just
think ofMotorola, Blockbuster, Dell, Nokia and Kodak.
Some current industry leaders — flush with current success
— might be overlooking emerging threats. Traditional banks, for
example, may be underestimating fintechs. A recent report from
the Bank of England found that traditional banks believe they
can cope with fintech competition without making big changes
to their existing models or taking on more risk — but also that fin-
34 / Rotman Management Winter 2019
techs may cause greater and faster disruption to their business
models than the banks themselves project.
When successful companies grow, so do the breadth and
depth of their business requirements. As a response, they tend
to create dedicated structures, processes, systems and metrics
that increase the complexity factor of the organization. Signifi-
cant resources and attention must then be devoted to internal
management.
Success can also make companies look inward because, by
generating too much free cash flow for allocation, it can exacer-
bate an agency problem. Managers might push to keep as many
resources as possible under their control and thus invest all ex-
tra cash in projects in-house, while in contrast, board members
might want to maximize the payoff for shareholders and thus
avoid investing in projects that gradually become, according to
the law of diminishing returns, less attractive.
Maintaining an outside-in perspective starts by continu-
ously scanning the market, both demand and supply. On the de-
mand side, successful companies must see themselves through
the eyes of the customer and constantly look out for early signs
ofpotential megatrends. On the supply side, they must be willing
and able to engage in partnerships and collaborations.
For example, in 2011, Umicore, a Belgian metals and min-
ing company, wanted to expand its recycling activities in order
to recover rare earth elements from rechargeable batteries. The
company possessed a state-of-the-art battery-recycling process
— the Ultra High Temperature ( UHT)process — but lacked the
capabilities to refine rare earth elements. It thus partnered with
Rhodia, a French chemical company, and together, the two
companies developed the first industrial process that closed the
loop on the rare earths contained in batteries. The fact is, break-
through innovation is rarely performed by a single actor from
end-to-end. Participation in relevant partnerships, platforms or
ecosystems can be key.
PRINCIPLE 2:EMBRACE DISRUPTION
When disruptive shocks hit, they must be fully embraced —
but doing so first requires companies to recognize risks. Stra-
tegic decision-making in the context of risk can be subject to
multiple cognitive biases. One example is loss aversion, whereby
the thought of losing something one currently has is more pain-
ful than not taking advantage of a new opportunity for gain. As
a result of this common bias, there is a tendency to over-value
current business models compared with new, disruptive models
and their opportunities. To sidestep this problem, companies
must be brutally honest and recognize that market conditions
will not remain the same forever; they never do. Profitable busi-
nesses inevitably attract potential entrants with innovative busi-
ness models.
In practice, fully embracing disruption means that at times,
companies must respond by being disruptive themselves, rath-
er than making small incremental fixes to their current model.
Tobacco companies understood this when they invested mas-
sively in electronic cigarettes. Ecigarettes have been around for
nearly 30 years, but they gained strong momentum only recently,
pushed by small emerging players such as V2, Juul and Mig Va-
por. Large tobacco companies decided to embrace disruption by
bringing to market their own solutions. Philip Morris Interna-
tional ( PMI) , for example, invested about US$ 3 billion to devel-
op its Iqos — despite the high cannibalization risk to its current
business. PMI’s CEO André Calantzopoulos has even declared
that this new technology will eventually fully replace traditional
cigarettes. Elsewhere, when telecom companies faced the arrival
of mobile technologies, they could have responded either by in-
crementally refining their old landline business or by using those
innovative mobile technologies themselves to become part of
the disruptive force. In the longer term, only the latter approach
would enable them to realize the full benefits of disruption.
Overall, when disruption hits, major commitments must be
made, and that might mean deprioritizing profitable activities
to focus resources — management attention, talent or financial
resources — on disruptive trends. Neste, a Finnish oil-refining
company, invested heavily in renewable-diesel production, fore-
seeing regulatory changes in the EU that would create a market
for diesel made from renewable sources. The firm developed a
technology that allows it to produce diesel from vegetable oils
and waste animal fats. With this technology, it is possible to slash
CO2 emissions by 40 to 60 per cent. This strategy has paid off:
Thanks to high margins, renewable products have reached close
to 50 per cent of its total operating margin, for approximately
20 per cent of total revenue.
PRINCIPLE 3:HAVE THE RIGHT MODEL FOR RENEWAL
The 2% companies have an explicit model for managing the in-
evitable trade- offs between near- and long-term priorities. The
right model for the subsequent renewal also optimally leverages
the capabilities of the company and fits the organizational cul-
ture. Needless to say, these models are company specific and
there is no ‘one size fits all’; but we have identified a few com-
mon examples.
• THE SPECIFIC TIMEFRAME MODEL. In this model, companies de-
fine a specific time horizon and operate within this window
to optimize their existing product portfolio and pursue ex-
ploration activities accordingly. This can be a good strategy
if, for example, management has limited long-term priori-
ties, can predict the near future fairly confidently, has the re-
sources to invest in the desired product enhancements, and
believes that building these enhancements upfront will de-
liver a competitive advantage. Private equity firms are good
examples of businesses that invest to create value within a
defined time window — usually three to five years. When
taking on a company, they will do the exploration that cre-
ates visible value in the medium term.
• THE NO-REGRETS MODEL. This strategy means making sure that
your company encounters no surprises in its market domain.
Companies need to identify the domain they are playing in
and then, within it, engage a wide variety of technological
options. By adopting this strategy, they guarantee an early-
mover advantage, whatever winning option the market
ultimately picks. Companies need to be able to recognize
winners early by picking up weak signals. A case in point: Es-
silor, the world leader in eyeglass lenses, has proved that it
can stay successful by continuously scanning and engaging
with all novelties in its domain that might disrupt the indus-
try. With this strategy, the company has successfully caught
rotmanmagazine.ca / 35
 Breakthrough innovation is rarely performed by
a single actor from end-to-end.
multiple innovation waves, such as online retailing, plastic
lenses, sunglasses and low-cost manufacturing in Asia.
• THE COMMERCIALIZER MODEL. Companies do not always have
a monopoly on good ideas. The commercializer model
implies scanning externally for relevant products, bring-
ing them in-house and then commercializing them. This
strategy requires strong go-to-market capabilities and the
resources necessary to acquire the targets identified. It also
rests on the ability to scan the market for relevant opportu-
nities and recognize them early, before their market value
shoots up. To some extent, this strategy complements a
strong in-house innovation engine. Most big pharma com-
panies rely on this model to supplement their own drug
pipelines, for instance. By in-licensing products that are
already fairly well developed, getting regulatory approval
and taking them to market quickly, they can ensure a steady
stream ofnew products with faster time-to-market and low-
er R&D risks.
• THE WIN-STAY/LOSE-SHIFT MODEL. Another model is to gather,
screen and test many ideas quickly, with minimal financial
investment in each. This diversified strategy can be far less
risky than one big bet-the-farm commitment. But it requires
the company to identify early on the ideas that prove less
promising and to ‘fail fast’ before too many resources are
spent. It therefore necessitates clear criteria and metrics
and disciplined objectivity. Once a winner is identified,
the company also needs the capabilities to quickly scale
up. Fashion retailer Zara has mastered this model. An-
other good example is Amgen, the biotech company used
to fund as many drugs as possible and hope for the best.
Now, although Amgen’s R&D strategy still focuses only on
breakthrough drugs, the company evaluates drugs quickly,
weeding out candidates that don’t make the grade. This fail-
fast approach saved the company US$ 1 billion in research
spending on just a single drug.
36 / Rotman Management Winter 2019
• THE INNOVATION PLATFORM MODEL. Some companies are able
to create an attractive technology platform on which other
companies can build their businesses. Amazon and Aliba-
ba have made this strategy work to great effect, providing
partners with tools, data and other services to help online
businesses succeed. Key success factors here include a truly
differentiated platform, cutting-edge technology, the satis-
faction of merchants and business partners, and the contin-
uous incorporation of new ideas and improvements. There
must be a clear reason why an outside business would want
to use your platform rather than taking products to market
themselves or through others.
Our Recommendations
We offer the following five recommendations for becoming a
2% company:
1. INVITE CHALLENGE AND COACHING FROM THE OUTSIDE. Welcome dif-
fering opinions and be willing to learn from others. No one can
be right all the time, and welcoming outsiders so that you can
benefit from their unbiased, outside-in perspectives will help
you stay close to customers and nascent market trends. Having
a clear picture of those trends will also prevent your company
from setting out in a wrong direction and provides the confi-
dence necessary to make difficult decisions.
2. THINK IN MULTIPLE TIMEFRAMES. Ask yourself what you’re doing
to best position yourself for next year, five years from now and
ten years from now. This mindset will enable both exploration
and exploitation activities and strike the right balance of the
two. Thinking in multiple timeframes is also a critical first step
towards defining the right renewal model for your company, as
it ensures that your chosen strategy will deliver results for rel-
evant timeframes.
Recognize risk and be brutally hon-
3. GET AHEAD OF ANY CRISIS.
est. Once risks and opportunities have been clearly identified,
 The 2% Cockpit:A Sample View

Are We Addressing Disruption?

5. Organizational alignment
1. Embracing disruption 2. Balancing exploration
and exploitation
Action Action Intent Alignment Score
Reality

2. Balancing exploration
and exploitation
0.0 5.0 0.0 5.0
Reality > Action Intent > Action
1. Embracing
3. Remaining
How Are We Addressing Disruption? disruption
outside-in
3. Remaining outside-in 4. Fitting renewal model
to business footprint
Action Intent Model/footprint fit

5. Organizational 4. Fitting renewal model

alignment to business footprint
0.0 5.0 0.0 5.0
Intent > Action Model > footprint Intent Action

Source:BCG analysis

FIGURE ONE

make sure you address disruption in the way that best positions
your company and takes full advantage of the disruptive forces.
Have the courage to act promptly and pre- emptively. Establish-
ing an early-mover advantage can be instrumental for sustain-
able success.
4. BE SKEPTICAL OF YOUR CURRENT SUCCESS. Never rest on your lau-
rels. Successful companies must remain humble and modest
so as to avoid creating a culture that rests on complacency and
self-satisfaction. Instead, keep a mindset of continuous quest for
improvement and search for novel ideas. This will trickle down
through the entire organization and ensure that key stakeholders
always push the frontier ofpossibilities.
their organizations the way that 2% companies do. Figure One
provides a sample cockpit view.
In closing
As indicated, 2% companies set a high bar. But by emulating
these performance leaders and heeding the recommendations
set forth herein, other companies can achieve and sustain a high-
er level ofsuccess than they currently enjoy. Ten years from now,
we hope to find ourselves talking about new manifestations ofex-
ploration and exploitation and an expanded roster of companies
that excel at both: the 5% — or more.

Knut Haanaes is a Professor of Strategy

5. REVIEW YOUR RENEWAL STRATEGIES EXPLICITLY. Pursuing excel-
and Deputy Dean of the MBA Program at
lence on all four of the previous traits can be exhausting. As a IMD business school in Switzerland. Martin
result, explicitly reviewing your company’s performance is nec- Reeves is Senior Partner and Managing
essary to ensure that all dimensions are tackled and that there Director at the Boston Consulting Group
(BCG)and Director of the BCG Henderson Institute. Jules
are no gaps between intention and action. To this end, we have
Wurlod is a Consultant at BCG based in Geneva and an
built a simple, pragmatic assessment tool that helps executives ambassador of the BCG Henderson Institute.
rapidly weigh their strategies against the four traits. We call it
the 2% cockpit, because it helps to show executives how to pilot

rotmanmagazine.ca / 37
 C O ME
I E
P EA C
IN
AI, Automation and
the Future of Work
There is work for everyone today and there will be work
for everyone tomorrow, but that work will require new skills
and a high degree of adaptability.
by James Manyika and Kevin Sneader
AUTOMATION AND ARTIFICIAL INTELLIGENCE are transforming busi-
nesses and will contribute significantly to economic growth via
contributions to productivity. These technologies will transform
the very nature of ‘work’ and the workplace itself. Machines will
be able to carry out more of the tasks done by humans, comple-
ment the work that humans do, and even perform some tasks
that go beyond what humans can do. As a result, some occupa-
tions will decline, others will grow, and many more will change.
While we believe there will be enough work to go around
( barring extreme scenarios) , society will need to grapple with
significant workforce transitions and dislocation. Workers will
need to acquire new skills and adapt to the increasingly capable
machines alongside them in the workplace. They may have to
move from declining occupations to growing and, in some cases,
brand new ones.
In this article we will examine both the promise and the
challenge of automation and AI in the workplace and outline
some of the critical issues that policymakers, companies and in-
dividuals need to consider.
Opportunities Ahead
Automation and AI are not new, but recent technological prog-
ress is pushing the frontier ofwhat machines can do. Our research
suggests that society needs these improvements to provide value
for businesses, contribute to economic growth, and make once
unimaginable progress on some of our most difficult societal
challenges. Following are some of the key opportunities that lie
ahead.
RAPID TECHNOLOGICAL PROGRESS. Beyond traditional industrial
automation and advanced robots, new generations of more
capable autonomous systems are appearing in environments
ranging from autonomous vehicles to automated check- outs
in grocery stores. Much of this progress has been driven by im-
provements in systems and components, including mechanics,
sensors and software. AI has made especially big strides in re-
cent years, as machine learning algorithms have become more
sophisticated and made use of huge increases in computing
power and of the exponential growth in data available to train
rotmanmagazine.ca / 39
 Only five per cent of occupations could be fully automated
by currently demonstrated technologies.
algorithms. Spectacular breakthroughs are making headlines,
many involving beyond-human capabilities in computer vision,
natural language processing and complex games such as Go.
POTENTIAL TO CONTRIBUTE TO ECONOMIC GROWTH. These technolo-
gies are already generating value in various products and ser-
vices, and companies across sectors use them in an array of
processes to personalize product recommendations, find anom-
alies in production, identify fraudulent transactions and more.
The latest generation ofAI advances, including techniques that
address classification, estimation and clustering problems,
promises significantly more value still. An analysis we con-
ducted of several hundred AI use cases found that the most
advanced deep learning techniques deploying artificial neural
networks could account for as much as US$ 3.5 trillion to US$
5.8 trillion in annual value, or 40 per cent of the value created
by all analytics techniques.
At a time when aging and falling birth rates are acting as
a drag on growth, the deployment of AI and automation tech-
nologies can do much to lift the global economy and increase
global prosperity. Labour productivity growth — a key driver of
economic growth — has slowed in many economies, but AI and
automation have the potential to reverse that decline: Produc-
tivity growth could potentially reach two per cent annually over
the next decade, with 60 per cent of this increase from digital
opportunities.
POTENTIAL TO HELP TACKLE SOCIETAL ‘MOONSHOT’ CHALLENGES. AI is
also being used in areas ranging from material science to medi-
cal research and climate science. Application of the technolo-
gies in these and other disciplines could help tackle societal
‘moonshot’ challenges. For example, researchers at Geising-
er have developed an algorithm that could reduce diagnos-
tic times for intracranial hemorrhaging by up to 96 per cent.
Researchers at George Washington University, meanwhile,
are using machine learning to more accurately weight the
climate models used by the Intergovernmental Panel on Cli-
mate Change.
40 / Rotman Management Winter 2019
CHALLENGES REMAIN BEFORE THESE TECHNOLOGIES CAN LIVE UP TO
THEIR POTENTIAL. AI and automation still face challenges. The
limitations are partly technical, such as the need for massive
training data and difficulties ‘generalizing’ algorithms across
use cases. Recent innovations are just starting to address these
issues. Other challenges are in the use of AI techniques. For
example, explaining decisions made by machine learning al-
gorithms is technically challenging, which particularly matters
for use cases involving financial lending or legal applications.
Potential bias in the training data and algorithms, as well as
data privacy, malicious use and security are all issues that must
be addressed.
Europe is leading with the new General Data Protection
Regulation, which codifies more rights for users over data col-
lection and usage. A different sort of challenge concerns the
ability of organizations to adopt these technologies, where peo-
ple, data availability, technology and process readiness often
make it difficult. Adoption is already uneven across sectors and
countries. The finance, automotive and telecommunications
sectors lead AI adoption. Among countries, U.S. investment in
AI ranked first at $15 billion to $23 billion in 2016, followed by
Asia’s investments of $8 billion to $12 billion, with Europe lag-
ging at $3 billion to $4 billion.
How AI and Automation Will Affect Work
Even as AI and automation bring benefits to business and so-
ciety, we need to prepare for some major disruptions to work.
ABOUT HALF OF THE ACTIVITIES (NOT JOBS) CARRIED OUT BY WORKERS
COULD BE AUTOMATED. Our analysis of more than 2,000 work ac-
tivities across more than 800 occupations shows that certain
categories of activities are more easily automatable than oth-
ers. They include physical activities in highly predictable and
structured environments, as well as data collection and data
processing. These account for roughly half of the activities that
people do across all sectors. The least susceptible categories
include managing others, providing expertise, and interfacing
with stakeholders.
 Automation could exacerbate wage polarization, income inequality and
the lack of income advancement that has characterized the past decade.
Nearly all occupations will be affected by automation,
but only about five per cent of occupations could be fully auto-
mated by currently demonstrated technologies. Many more oc-
cupations have portions of their constituent activities that are
automatable: We find that about 30 per cent of the activities in
60 per cent of all occupations could be automated. This means
that most workers — from welders to mortgage brokers to CEOs
— will work alongside rapidly evolving machines — and the
nature of these occupations will likely change as a result.
JOBS WILL BE LOST. We have found that around 15 per cent of the
global workforce, or about 400 million workers, could be dis-
placed by automation by 2030. This reflects our mid-point sce-
nario in projecting the pace and scope of adoption. Under the
fastest scenario we have modelled, that figure rises to 30 per
cent, or 800 million workers; while in our slowest-adoption sce-
nario, only about 10 million people would be displaced — close to
zero per cent ofthe global workforce.
This wide range underscores the multiple factors that will
impact the pace and scope ofAI and automation adoption. Tech-
nical feasibility of automation is only the first influencing factor.
Others include the cost of deployment; labour-market dynam-
ics, including labour supply quantity, quality, and the associated
wages; the benefits beyond labour substitution that contribute
to business cases for adoption; and, finally, social norms and
acceptance.
JOBS WILL BE GAINED. Even as workers are displaced, there will be
growth in demand for work and, consequently, jobs. We devel-
oped scenarios for labour demand to 2030 from several catalysts
of demand for work, including rising incomes, increased spend-
ing on healthcare, and continuing or stepped-up investment
in infrastructure, energy and technology development and de-
ployment. These scenarios showed a range of additional labour
demand of between 21 and 33 per cent of the global workforce
( 555 million and 890 million jobs) to 2030, more than offset-
ting the numbers of jobs lost. Some of the largest gains will be
in emerging economies such as India, where the working-age
population is already growing rapidly.
Additional economic growth, including from business dyna-
mism and rising productivity growth, will also continue to create
jobs. If history is a guide, many other new occupations that we
cannot currently imagine will also emerge and may account for
as much as 10 per cent of jobs created by 2030. Moreover, tech-
nology itself has historically been a net job creator. For example,
the introduction ofthe personal computer in the 1970s and 1980s
created millions of jobs, not just for semi-conductor makers,
but also for software and app developers of all types, customer
service representatives and information analysts.
JOBS WILL CHANGE. More jobs than those lost or gained will be
changed as machines complement human labour in the work-
place. Partial automation will become more prevalent as ma-
chines complement human labour. For example, AI algorithms
that can read diagnostic scans with a high degree of accuracy
will help doctors diagnose patient cases and identify suitable
treatment. In other fields, jobs with repetitive tasks could shift
towards a model of managing and troubleshooting automated
systems. At Amazon, employees who once lifted and stacked
objects have become robot operators, monitoring the automat-
ed arms and resolving issues such as an interruption in the flow
of objects.
Workforce Transitions and Challenges
While we expect there will be enough work to ensure full employ-
ment in 2030 based on most ofour scenarios, the transitions that
will accompany automation and AI adoption will be significant.
The mix of occupations will change, as will skill and educational
requirements. Work will need to be redesigned to ensure that hu-
mans work alongside machines most effectively.
WORKERS WILL NEED DIFFERENT SKILLS TO THRIVE IN THE WORKPLACE
OF THE FUTURE. Automation will accelerate the shift in required
workforce skills we have seen over the past 15 years. Demand
for advanced technological skills such as programming will grow
rapidly. Social, emotional and higher cognitive skills, such as
creativity, critical thinking and complex information processing
will also see growing demand. Basic digital skills demand has
rotmanmagazine.ca / 41
 Automation Will Have a Far-Reaching Impact

Technical
automation ~50% 6 of 10
potential of current work activities are technically current occupations have more than 30% of activities
automatable by adapting currently that are technically automatable
demonstrated technologies

Impact of Slowest Midpoint Fastest

adoption Work potentially displaced
by 2030 by adoption of automation,
by adoption scenario
% of workers (FTEs) 0% 15% 30%
(10 million) (400 million) (800 million)

Slowest Midpoint Fastest

Workforce that could need to
change occupational category,
by adoption scenario
0% 3% 14%
(<10 million) (75 million) (375 million)
% of workers (FTEs)

Impact of
demand for Trendline demand scenario Low High
work by % of workers (FTEs’)
2030 from
7 select Step-up demand scenario 15% 22%
trends 1 % of workers (FTEs’) (390 million) (590 million)

Total 6% 11%
% of workers (FTEs’) (165 million) (300 million)

21% 33%
(555 million) (890 million)

In addition, of the 2030 workforce of 2.66 billion, 8-9% will be in new occupations
1
Rising incomes; healthcare from aging; investment in technology, infrastructure and buildings; energy transitions; and marketization of unpaid work.

Source:McKinsey Global Institute analysis

FIGURE ONE

already been increasing, and that trend will accelerate. Demand
for physical and manual skills will decline, but will remain the
single largest category of workforce skills in 2030 in many coun-
tries. This will put additional pressure on the already existing
workforce skills challenge, as well as the need for new creden-
tialing systems. While some innovative solutions are emerg-
ing, solutions that can match the scale of the challenge will
be required.
Many workers will need to change occupations. Our re-
search suggests that, in a mid-point scenario, around three per
cent of the global workforce will need to change occupational
category by 2030, though our scenarios range from zero to 14
per cent. Some of these shifts will happen within companies
and sectors, but many will occur across sectors and even geog-
raphies. Occupations made up of physical activities in highly
structured environments or in data processing or collection
will see declines. Growing occupations will include those with
difficult-to -automate activities such as managers and those in
unpredictable physical environments such as plumbers. Other
occupations that will see increasing demand for work include
teachers, nursing aides, and tech and other professionals.
WORKPLACES AND WORKFLOWS WILL CHANGE AS MORE PEOPLE WORK
ALONGSIDE MACHINES. As intelligent machines and software are
integrated more deeply into the workplace, workflows and work-
spaces will continue to evolve to enable humans and machines
to work together. As self- checkout machines are introduced in
stores, for example, cashiers can become checkout assistance

42 / Rotman Management Winter 2019

helpers, who can help answer questions or troubleshoot the ma-
chines. More system-level solutions will prompt rethinking ofthe
entire workflow and workspace. Warehouse design may change
significantly as some portions are designed to accommodate
primarily robots and others to facilitate safe human-machine
interaction.
AUTOMATION WILL LIKELY PUT PRESSURE ON AVERAGE WAGES IN AD-
VANCED ECONOMIES. The occupational mix shifts will likely put
pressure on wages. Many of the current middle-wage jobs in ad-
vanced economies are dominated by highly automatable activi-
ties, such as in manufacturing or in accounting, which are likely
to decline. High-wage jobs will grow significantly, especially for
high-skill medical and tech or other professionals, but a large
portion of jobs expected to be created, including teachers and
nursing aides, typically have lower wage structures. The risk is
that automation could exacerbate wage polarization, income in-
equality, and the lack ofincome advancement that has character-
ized the past decade across advanced economies, stoking social
and political tensions.
Ten Things to Solve For
In the search for appropriate measures and policies to address
these challenges, we should not seek to roll back or slow diffusion
ofthe technologies. Rather, the focus should be on ways to ensure
that the coming workforce transitions are as smooth as possible.
This is likely to require more actionable and scalable solutions in
several key areas:
• Ensuring robust economic and productivity growth.
Strong growth is not the magic answer for all the challenges
posed by automation, but it is a pre-requisite for job growth
and increasing prosperity. Productivity growth is a key con-
tributor to economic growth. Therefore, unlocking invest-
ment and demand, as well as embracing automation for its
productivity contributions, is critical.
• Fostering business dynamism. Entrepreneurship and
more rapid new business formation will not only boost pro-
ductivity, but also drive job creation. A vibrant environment
for small businesses as well as a competitive environment
for large business fosters business dynamism and, with it,
job growth. Accelerating the rate of new business formation
and the growth and competitiveness ofbusinesses, large and
small, will require simpler and evolved regulations, tax and
other incentives.
• Evolving education systems and learning for a changed
workplace. Policymakers working with education provid-
ers (traditional and non-traditional)and employers them-
selves could do more to improve basic STEM skills through
the school systems and improved on-the-job training. A new
emphasis is needed on creativity, critical and systems think-
ing, and adaptive and lifelong learning. There will need to be
solutions at scale.
• Investing in human capital. Reversing the trend of low,
and in some countries, declining public investment in work-
er training is critical. Through tax benefits and other incen-
tives, policymakers can encourage companies to invest in
human capital, including job creation, learning and capa-
bility building, and wage growth, similar to incentives for
the private sector to invest in other types of capital, includ-
ing R&D.
• Improving labour market dynamism. Information signals
that enable matching of workers to work and credentialing
could work better in most economies. Digital platforms can
also help match people with jobs and restore vibrancy to the
labour market. When more people change jobs, even within
a company, evidence suggests that wages rise. As more va-
rieties of work and income-earning opportunities emerge,
including the gig economy, we will need to solve for issues
such as portability ofbenefits, worker classification and wage
variability.
• Redesigning work. Workflow design and workspace design
will need to adapt to a new era in which people work more
closely with machines. This is both an opportunity and a
challenge, in terms of creating a safe and productive envi-
ronment. Organizations are changing too, as work becomes
more collaborative and companies seek to become increas-
ingly agile and non-hierarchical.
• Rethinking incomes. If automation (full or partial)does
result in a significant reduction in employment and/or
rotmanmagazine.ca / 43
 The mix of occupations will change, as will skill
and educational requirements.

greater pressure on wages, some ideas such as conditional In closing

transfers, support for mobility, universal basic income and
adapted social safety nets could be considered and tested.
The key will be to find solutions that are economically viable
and incorporate the multiple roles that work plays for work-
ers, including providing not only income, but also meaning,
purpose, and dignity.
• Rethinking transition support and safety nets for work-
ers affected. As work evolves at higher rates of change be-
tween sectors, locations, activities and skill requirements,
many workers will need assistance adjusting. Many best
practice approaches to transition safety nets are available,
and should be adopted and adapted, while new approaches
should be considered and tested.
There is work for everyone today and there will be work for
everyone tomorrow, even in a future with automation. But that
work will be different, requiring new skills and a far greater
adaptability of the workforce than we have seen. Training and
retraining both mid-career workers and new generations for the
coming challenges will be an imperative. Government, private
sector leaders and innovators all need to work together to better
coordinate public and private initiatives, including creating the
right incentives to invest more in human capital.
The future with automation and AI will be challenging, but it
will also be a much richer one ifwe harness the technologies with
aplomb — and mitigate the negative effects.

• Investing in drivers of demand for work. Governments

will need to consider stepping up investments that are ben-
eficial in their own right and will also contribute to demand
for work (e.g. infrastructure, climate change adaptation).
These types of jobs, from construction to rewiring buildings
and installing solar panels, are often middle-wage jobs —
those most affected by automation.

• Embracing AI and automation safely. Even as we capture

the productivity benefits of these rapidly evolving technolo-
gies, we need to actively guard against the risks and mitigate
any dangers. The use of data must always take into account
concerns, including data security, privacy, malicious use James Manyika is Chairman and Director
of the McKinsey Global Institute and
and potential issues of bias — issues that policymakers, tech a Senior Partner at McKinsey & Company.
and other firms and individuals will need to find effective Kevin Sneader is McKinsey ’s Global
ways to address. Managing Partner.

44 / Rotman Management Winter 2019

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Leadership Forum:
Investing in
Disruption
Leaders from the realms of academia, innovation,
investing and entrepreneurship describe the current
environment and what lies ahead.
compiled by Karen Christensen

Ajay Agrawal
Founder, Creative Destruction Lab and
Machine Learning and the Market for
Intelligence Conference;Geoffrey Taber
Chair in Entrepreneurship and Innovation,
Rotman School of Management

“YOU CAN SEE THE COMPUTER AGE everywhere but in the productivity
statistics.” So stated Nobel Laureate and MIT economics profes-
sor Robert Solow in 1987. Eventually, economists found where
the productivity gains from the computer age were hiding: in the
future. While they eventually showed up, they took longer than
expected because they were tied to investments in ‘complements’
— all of the things other than algorithms/models that are neces-
sary to make commercial-grade AI work (data, redesigned work-
flows, training, regulation, human judgment, infrastructure, etc.).
As in the computer age, the widespread productivity gains
associated with machine intelligence will depend on investments
in complements. As we shift from technical achievements in AI
(‘Look everyone! The AI can read a handwritten address on an
envelope!’ ‘The AI can drive a car!’ ‘The AI can classify a medical
image!’) to large-scale commercial deployment, the design and
implementation ofcomplements will be paramount.
The computer scientists designing AIs are far ahead of those
building the complements — industry practitioners, social scien-
tists, regulators and the like. Now that everyone has realized the
sweeping potential of AI, companies and countries are racing to
create and control the complements. While the algorithms are
software and thus have low barriers to entry (notwithstanding
scale advantages with respect to training data), many comple-
ments require significant capital expenditure and thus have
higher entry barriers. Therefore, competition policy and market
dynamics will move even further onto centre stage.
In other words, we are entering the next phase of the
AI revolution: competition in the market for AI complements.
This will feel different from what we’ve experienced so far. The
genteel competition among computer scientists on display at

46 / Rotman Management Winter 2019

conferences like NIPS that is based on the performance of new
AI algorithms against well-specified technical benchmarks like
ImageNet will give way to competition among firms over the
ownership and control of scarce complements such as data, in-
frastructure, talent and relationships.
For enterprises, competition in the semi-scientific culture of
algorithmic performance against benchmarks was curious and
novel. However, competition over complements is familiar terri-
tory. And given the size of the prize, this competition is likely to
get rough and tumble, as corporate AI strategies depend at least as
Jüergen Schmidhuber
Co-founder and Chief Scientist, NNAISENSE;
Scientific Director, Dalle Molle Institute for
AI Research;Professor of AI, University
of Applied Sciences and Arts of Southern
Switzerland
EVEN MINOR EXTENSIONS of existing machine learning and neural
network algorithms will achieve important super-human feats
in numerous fields, ranging from medical diagnostics to smarter
smartphones that will solve more of your problems. In the not-
too-distant future we will have what I call ‘watch-and-learn
robotics’, where we quickly teach an artificial neural network
to control a complex robot with many degrees of freedom to
execute complex tasks, such as assembling a smartphone, solely
by visual demonstration and by talking to it, without touching
or otherwise guiding the robot. Going forward, this will affect
many professions.
My company recently won the Learning to Run competition
at NIPS, the machine learning conference in Long Beach, Cali-
fornia, going up against over 400 competitors from industry and
academia. The challenge was to learn to control the muscles of a
simulated human torso and make it run as far as possible without
a teacher. Human babies need a year or so to learn to get up and
walk and run, and our runner also needed many weeks of com-
putation time [watch this video at https://www.youtube.com/
watch?v=rhNxt0VccsE].
Elsewhere, in a project with AUDI, we built the brains of
the first model cars that learned how to park from scratch, again
much on complements as algorithms. Intensified competition will
increase the pressure on companies to deliver results. Internal de-
bates like the one at Google regarding whether to abandon Proj-
ect Maven — a collaboration with the U.S. Department ofDefence
to utilize AI for image analysis that could potentially be used to
improve drone strikes — will seem quaint. Furthermore, competi-
tion will not only intensify at the company level. In recent months,
one country after another has announced its national AI Strategy
— and most ofthem read more like industrial than science policy.
Competition over complements is about to become fierce.
without a teacher [watch the video at https://www.youtube.com/
watch?v=C01qVU5E1OI]. We also have AI applications in indus-
try and finance. Our joint venture with Acatis is called Quanten-
stein, with the first purely AI-driven portfolio management.
We believe we can go far beyond what is possible today and
pull off the big practical breakthrough that will change every-
thing, in line with my motto since the 1970s: Build an AI smarter
than myself, so that I can retire. What would it be used for? Ev-
erything. Humans should do zero per cent ofthe hard and boring
work, computers the rest. How far off is this? Not more than a few
years or decades. We are currently witnessing the ignition phase
of this field’s explosion. This is much more than just another in-
dustrial revolution. This is something new that will transcend hu-
mankind and even biology.
People often ask me how to prepare for the future. I tell them
what I tell my daughters: Be prepared to learn new things all the
time, and make sure to learn how to learn. It will always be an
advantage to know a bit of math and physics, because the world
is based on them. In addition to that, acquire something that
I don’t have — namely, social skills. Then you will be able to
quickly master all new challenges.
rotmanmagazine.ca / 47
 Shivon Zilis
Project Director, Office of the CEO,
Neuralink & Tesla;Co-Chair, Machine
Learning and the Market for Intelligence
Conference @ Rotman

ORGANIZATIONS like Google, Facebook, Apple, Microsoft, Ama-
zon, Uber and Bloomberg bet heavily on machine intelligence,
and its capabilities are pervasive throughout their suite of prod-
ucts. But for most organizations, the successful use of machine
intelligence is surprisingly binary — like flipping a stubborn light
switch. Why is it so difficult for companies to wrap their heads
around it? Because machine intelligence is different from tradi-
tional software. Unlike with big data — where you could ‘buy’ a
new capability — machine intelligence depends on deeper or-
ganizational and process changes. Companies need to decide
whether they will trust machine intelligence analysis for one-off
decisions or if they will embed machine intelligence models in
their core processes; teams need to figure out how to test new-
found capabilities; and employees need to be coached to learn
from the data they enter.
Unlike traditional hard-coded software, machine intelli-
gence gives only probabilistic outputs. We want to be able to ask
machine intelligence to make subjective decisions based on im-
perfect information. As a result, machine intelligence software
will make mistakes, just like people do, and we’ll need to be
thoughtful about when to trust it and when not to.
The concept of this new ‘machine trust’ is daunting and
makes machine intelligence harder to adopt than traditional
software. I’ve had a few people tell me that the biggest predic-
tor of whether a company will successfully adopt machine in-
telligence is whether they have a C-Suite executive with an ad-
vanced math degree. These executives understand that this isn’t
magic — it is just ( really hard) math.
I see all of this activity only continuing to accelerate. The
world will give us more open sourced and commercially avail-
able machine intelligence building blocks; there will be more
data; there will be more people interested in learning these
methods — and there will always be plenty of problems worth
solving.

Patrick Wood (UofT BA ’94)

President, Tormont Group
and Founder, The Tormont50

THESE DAYS, THE BIG INVESTMENT BANKS are generally looking for
‘easy kill’. They tend to gravitate towards companies that are
easy to fund over those that would take more time and effort.
We focus on finding the smaller opportunities that they over-
look. The Tormont50 platform features growth opportunities in
the small and microcap space that we believe have significant
growth potential for institutional investors, and we open it up to
a base of about 75 institutions across Canada and the U.S. To be
included, a small- cap company has to have identifiable growth
drivers, whether it be an impressive innovation or the potential
disruption of an industry. Even a change in management can
have a broad impact on a company’s growth. We look out for ev-
erything that can make a company a future winner.
In Canada, the companies getting the most funding right
now include cannabis companies, to the detriment of other seg-
ments. Rather than focusing on the growers, we are looking at

48 / Rotman Management Winter 2019

all the verticals that go around that. In my view, investors should
be a bit skeptical about the rapid rise of Canadian cannabis com-
panies, because meeting expectations will likely be a big chal-
lenge for many ofthem. There’s a lot ofchatter on Bay Street and
Wall Street about that right now. The U.S. is a much more mature
market: Colorado and Washington have been legalized for sev-
eral years now, and as a result, software, branding, distribution —
all the key things that are missing in the Canadian market space
— have really been perfected there.
We’re really excited about Blockchain right now, and we’ve
brought companies like Delphx to Canada through the list-
ing process. It’s one of the pure-use cases of Blockchain and
smart contract technology. Not many of these companies have
been represented in Canada yet, so we’re actively seeking them,
particularly in the U.S., which is generally a much more mature
market by virtue of economies of scale. In terms of other high-
growth industries, crypto had a good run, but it was brief and
Alex Shevchenko
(Rotman MBA ’06)
Founder and Product Manager,
Grammarly
BOTH MY PARENTS WERE UNIVERSITY PROFESSORS, and I became fas-
cinated by educational technology early on. My first company,
MyDropbox.com, was designed to help educational institu-
tions tackle the problem ofplagiarism. My most important take-
away from that experience was the critical importance of focus-
ing on solving a problem that is real, that many people have and
that you really understand. After selling MyDropbox.com [to
Blackboard Inc.], Max Lytvyn, Dmytro Lider and I set out to
solve another real-world problem: To help people communicate
better in English.
As an ESL speaker myself, I had witnessed firsthand how
people like me miss out on opportunities due to a struggle to
write correctly in English. Our vision for Grammarly was to ap-
ply artificial intelligence to help billions of people around the
world communicate more accurately and clearly. We started
with grammar, spelling and punctuation, and today, Grammarly
based purely on speculation, and it officially ended recently.
Software will continue to be a clear winner, and we’re happy to
be presenting smaller, lesser known companies to the Canadian
markets.
With respect to Blockchain and AI companies, Canadian op-
portunities carry with them a lot more risk than their U.S. coun-
terparts. We’re really far behind what is happening in the U.S.
AI is a part of every company we work with, but we have yet to
come across a strong enough pure-play AI start-up that would
make us excited about taking it through the process of listing,
introductions to investment banks, institutional investors, etc.
Some of the larger companies like IBM and Microsoft have re-
ally taken over that space because they were there from the start.
From a smaller company perspective, we’ve considered a few op-
portunities, but nothing that would justify us wanting to go deep-
er. We are certainly looking out for these companies. Hopefully,
they will emerge soon.
also addresses the clarity and effectiveness of our users’ writing.
We provide feedback on issues such as wordiness, vagueness and
hedging; word choice ( including suggestions for more inclusive
language) ; sentence structure and — yes — plagiarism.
We recognized early on that the market for this problem
is enormous: There are close to two billion people in the world
communicating in English, and the vast majority of them can
benefit from our product. Our more than 10 million daily ac-
tive users represent a wide variety of people: They are students,
professionals, job seekers and English language learners. They
include all sorts of professionals, from engineers to marketers
to journalists who write for a living. Everyone can use help from
time to time.
Grammarly was actually bootstrapped for the first seven
years, and I’m proud to say that we were already profitable when
we raised our first financing in 2017. Very early on, we made a
rotmanmagazine.ca / 49
Alex Shevchenko, continued
conscious decision to delay seeking external funding for as long
as possible. We believe that the best possible source of funding
is always your customers, so we focused on building the best
possible product to delight our users.
We were extremely selective when choosing investment
partners. It was important for us to work with people who shared
our mission and values. The funding process took some time, but
it was well worth it. We ended up in complete alignment with our
investors, without having to compromise who we are. We’re hon-
oured to have General Catalyst, Breyer Capital, IVP, Signal
fire and Spark Capital — some of the most prominent VC firms
in Silicon Valley — among our investors.
Charles Plant
Serial Entrepreneur and Senior Fellow,
Impact Centre, University of Toronto
IN CANADA, our start-ups rank very high in the world on ‘number
of exits’, but we don’t rank very high on the value achieved from
those exits. When you look at the return rate for our venture
capitalists, it’s pretty low in comparison to the U.S. — although
it has improved in the last few years, particularly since 2008. We
are now having more successful exits by selling them later, after
higher growth and bigger revenue, so we’re getting more money
for them; but we can do better.
People frequently complain that there’s not enough money
for entrepreneurs in Canada, but I don’t believe that. The fact is,
high-growth companies will attract capital from anywhere in the
world. If our companies aren’t getting that capital, it indicates
that there aren’t enough of them growing fast enough to attract
large-scale capital. Our biggest challenge is to figure out how to
grow companies a lot faster.
In my view, we’re not in large- enough markets — not just
geographically but perceptually. For instance, we don’t tend to
start consumer-based companies. Many large-scale tech compa-
nies are consumer-based: Uber, Airbnb, Facebook, Amazon,
50 / Rotman Management Winter 2019
Putting together an effective founding team is really diffi-
cult because it’s so important that the initial people have com-
plementary skills and work together effectively. Making early
hires is one of the biggest bets a start-up will ever make, and the
process can’t be rushed. To this day, we maintain an exception-
ally high hiring bar.
Another important and difficult thing is staying focused,
which is much harder in practice than it sounds. It is really impor-
tant to keep your eyes on the ball with a clear strategy. My advice
is to do fewer things, but do them extremely well so you can focus
on execution.
Google, Apple. We have BlackBerry, but we just don’t start
enough companies in consumer-based markets. The minute you
ignore those markets, you cut your growth potential down sig-
nificantly.
So, what has to change? First, we have to understand what it
takes to scale. We should be trying to grow companies by a mini-
mum of 100 per cent a year. Second, we’ve got to apply capital
to that, which means we have to change the way our institutions
capitalize. We have too many small funds and not enough large
ones that can write big cheques. Third, we lack the required mar-
keting and sales talent here, so our markets should be foreign
and we should be hiring foreign marketing and sales expertise in
those markets — people who understand the nuances of a mar-
ket. The combination of these three things, I think, would have
a great impact on the growth ofCanadian start-ups.
EDITOR’S NOTE:The Impact Centre’s reports, “The Class of 2008”,
“A Delicate Balance” and “The Land ofStranded Pliots” can be downloaded
at www.impactcentre.ca/discover
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 From Intuition to Algorithm:
Leveraging Machine
Intelligence
In our march towards the age of machine automation, self-taught
algorithms will play a far bigger role in organizing our economic activity.
by Howard Yu

IN FEBRUARY 2011,IBM made a deep impression on the American
public when its super-computer Watson beat human contestants
in the popular game show Jeopardy! About 15 million viewers
watched live as Watson triumphed over former champions Ken
Jennings and Brad Rutter. It was an episode that made clear in
the public mind that machine learning could go beyond the sin-
gle-minded focus of number crunching.
At the end ofthe two-day Jeopardy! tournament, Watson had
amassed $77,147 in prize money — more than three times the
amount its human opponents had accumulated. Jennings, who
had won more than 50 straight matches previously, came in sec-
ond, just ahead ofRutter. “Just as factory jobs were eliminated in
the 20th century by new assembly-line robots, Brad and I were
the first knowledge-industry workers put out of work by the new
generation of‘thinking machines’,” said Jennings at the time.
Watson represented a machine that no longer blindly fol-
lowed instructions. The machine could digest unstructured data
in the form of human language and then make judgments on its
own, which in turn has profoundly changed the way businesses
value managerial expertise. One financial service executive put
it succinctly:
“Consider a human who can read essentially an unlimited
number of [financial] documents and understand those
documents and completely retain all the information. Now
imagine you can ask that person a question: ‘Which com-
pany is most likely to get acquired in the next three months?’
That’s essentially what [Watson] gives you.”
Wise Counsel in the Making
Every day, medical journals publish new treatments and discov-
eries. On average, the torrent of medical information doubles
every five years. However, given the work pressure in most hos-
pitals, physicians rarely have enough time to read. It would take
dozens of hours each week for a primary care doctor to read up
on everything to stay informed. Eighty-one per cent have re-
ported that they could spend no more than five hours per month
poring over journals. Not surprisingly, only about 20 per cent of
the knowledge that clinicians use is evidence-based. The sheer

rotmanmagazine.ca / 53
 The more people that use the same platform, the more
inherently attractive the platform becomes.
amount of new knowledge has overwhelmed the very limits of
the human brain and, thus, rendered expert intuition — once
powerful machinery — powerless.
David Kerr, director of corporate strategy at IBM, recalled
how Patricia Skarulis, the chief information officer at Memo-
rial Sloan Kettering Cancer Centre ( MSK) , reached out to him.
“Shortly after she watched the Watson computer defeat two past
grand-champions on Jeopardy!, she called to tell be that MSK had
collected more than a decade’s worth of digitized information
about cancer, including treatments and outcomes,” Kerr said in
an interview. “She thought maybe Watson could help.”
Being the world’s largest and oldest dedicated cancer hos-
pital, MSK had maintained a proprietary database that includ-
ed 1.2 million in-patient and out-patient diagnoses and clinical
treatment records from the previous 20-plus years. The vast da-
tabase also contained the full molecular and genomic analyses
of all lung cancer patients. But unlike a lab researcher, hospital
doctors routinely make life- or- death decisions based on hunch-
es. A doctor has no time to go home and think over the results
from all the medical tests given to a patient; treatment needs to
be decided on the spot. Unless there is an intelligent system to
mine for insights and make them instantaneously available for
doctors, the deluge of information won’t improve their ability to
make the right call.
In March 2012, MSK and IBM Watson started working to-
gether with the intention of creating an application that would
provide recommendations to oncologists who simply described
a patient’s symptoms in plainspoken English. When an oncolo-
gist entered information, such as ‘my patient has blood in his
phlegm’, Watson would come back within half a minute with a
drug regimen to suit that individual. “Watson is a tool that pro-
cesses information, fills the gap of human thoughts. [It] doesn’t
make the decision for you, that is the realm of the clinician, but
it brings you the information that you would want anyway,” said
Dr. Martin Kohn, chief medical scientist at IBM Research.
For Patricia at MSK, the real aim was to build an intelligence
engine to provide specific diagnostic test and treatment recom-
mendations. More than a search engine on steroids, it would
transfer the wisdom of experienced doctors to those with less
experience. A physician at a remote medical centre in China or
India, for instance, could have instant access to everything that
the best cancer doctors had already taught Watson. And ifMSK’s
54 / Rotman Management Winter 2019
ultimate mission as a non-profit is to spread its influence to de-
liver cutting-edge healthcare around the world, an expert system
like IBM Watson is the essential carrier.
In early 2017, a 327-bed hospital in Jupiter, Florida, signed up
for Watson Health with the precise intention oftaking advantage
of the supercomputer’s ability to match cancer patients with the
treatments most likely to help them. Since a machine never gets
tired of reading, understanding and summarizing, doctors can
take advantage of all the knowledge that’s out there. WellPoint
has claimed that, according to tests, Watson’s successful diagno-
sis rate for lung cancer is 90 per cent, compared to 50 per cent for
human doctors.
For most executives, these technologies still feel foreign.
How can an existing business, especially one in a non-IT sec-
tor, begin to leverage the shift towards knowledge automation?
Among business school academics, the ‘network effect’ is a com-
mon refrain that explains the rise of Uber, Airbnb and Alibaba.
In each case, the company took on the role of a ‘two-sided mar-
ketplace’, facilitating selling on the supply side and buying on the
demand side to enable the exchange of goods or services. The
value ofsuch a platform depends, in large part, on the number of
users on either side ofthe exchange. That is, the more people that
use the same platform, the more inherently attractive the plat-
form becomes — leading even more people to use it.
Consider for a moment any dating site or app ( from OkCu-
pid to Tinder to Match.com) . Men are drawn towards them
because they promise a huge supply of women and the high
likelihood of a good match, and vice versa. Because of this net-
work effect, users are willing to pay more for access to a bigger
network, and so, a company’s profits improve when its user base
grows. Scale begets scale. But beyond that, product differentia-
tion remains elusive. Think Uber versus Lyft, or iMessage ver-
sus WhatsApp. Platforms often look alike, and competition is
reduced to a game of‘grow fast or die’.
This is why Facebook is so obsessed with growth. It is also
why, when Snapchat went public in March 2017, the number of
daily active users became the single most important metric for
potential investors. The more people that hang out on Facebook
or Snapchat — reading news and playing games — the more will-
ing big brands, such as Coca-Cola, Procter & Gamble and Nike
are to buy ads there. Only when a platform reaches a certain size
does its dominance then become hard to unseat.
The Second Machine Age
In my executive classes, managers often express a grave concern
about how fast artificial intelligence is unfolding — so fast that
they become afraid of committing to any one supplier or stan-
dard, since there might be a better solution tomorrow. But pre-
cisely because we are living in a world of accelerated change, as
far as machine intelligence is concerned, it is critical to stay in
the know.
One radical improvement in recent years is how machines
learn. Back when Watson was trained to serve as a bionic oncolo-
gist, it was necessary to ingest some 600,000 pieces of medical
evidence and two million pages of text from 42 medical jour-
nals, 25,000 test-case scenarios and 1,500 real-life cases, so that
Watson would know how to extract and interpret physicians’
notes, lab results and clinical research. Conducting this case-
based training for a brainy machine can be thoroughly exhaust-
ing and time-consuming.
At MSK, a dedicated team spent more than a year developing
training materials for Watson, and a large part of this so-called
training came down to the daily labourious grind: Data cleaning,
program fine-tuning and result validation — tasks that are some-
times excruciating, often boring and altogether mundane.
“If you’re teaching a self-driving car, anyone can label a
tree or a sign so the system can learn to recognize it,” explained
Thomas Fuchs, a computational pathologist at MSK. “But in a
specialized domain within medicine, you need experts trained
for decades to properly label the information you feed to the com-
puter.” Wouldn’t it be nice if machines could teach themselves?
Could machine learning become an unsupervised activity?
Google’s AlphaGo demonstrates that an unsupervised pro-
cess is indeed possible. Before AlphaGo played the board game
Go against humans, Google researchers had been developing it to
play video games — Space Invaders, Breakout, Pong and others.
Without the need for any specific programming, the general-pur-
pose algorithm was able to master each game by trial and error
— pressing different buttons randomly at first and then adjusting
to maximize rewards. Game after game, the software proved to
be cunningly versatile in figuring out an appropriate strategy and
then applying it without making any mistakes. AlphaGo thus rep-
resents not just a machine that can think — as Watson does — but
also one that learns and strategizes, all without direct supervision
from any human.
This general-purpose programming is made possible thanks
to a ‘deep neural network’ — a network of hardware and soft-
ware that mimics the web of neurons in the human brain. ‘Re-
inforcement learning’ in humans occurs when positive feedback
triggers the production of the neurotransmitter dopamine as a
reward signal for the brain, resulting in feelings of gratification
and pleasure. Computers can be programmed to work similarly.
The positive rewards come in the form of scores when the algo-
rithm achieves a desired outcome. Under this general framework,
AlphaGo writes its own instructions randomly through many
generations of trial and error, replacing lower-scoring strategies
with higher-scoring ones. That’s how an algorithm teaches itself
to do anything, not just play Go.
This conceptual design is not new; computer scientists have
discussed reinforcement learning for more than 20 years. But
only with rapid advancement and abundance in computing pow-
er could deep learning become practical. By forgoing software
coding with direct rules and commands, reinforcement learning
has made autonomous machines a reality.
Most remarkable about AlphaGo is that the algorithm con-
tinually improves its performance by playing millions of games
against a tweaked version of itself. A human creator is no longer
needed, nor able to tell how the algorithm chooses to achieve a
stated goal: We can see the data go in and the actions come out,
but we can’t grasp what happens in between. Simply put, a human
programmer can’t explain a machine’s behaviour by reading the
software code any more than a neuroscientist can explain your
hot dog craving by staring at an MRI scan ofyour brain. What we
have created is a black box, all-knowing but impenetrable.
Elon Musk, founder of Tesla, once posted a stirring com-
ment on social media, saying that AI could be “potentially more
dangerous than nukes” and likening it to “summoning the de-
mon.” Musk’s conviction has prompted him to donate millions to
the ethics think tank OpenAI — and he’s urging other billionaire
techies, including Facebook’s Mark Zuckerberg and Google’s
Larry Page to proceed with caution in their myriad machine-
learning experiments. Apple co-founder Steve Wozniak has
equally expressed grave concerns: “The future is scary and very
bad for people,” he argued. “Will we be the gods? Will we be the
family pets? Or will we be ants that get stepped on?”
While such disconsolate forecasts may be exaggerated, few
can deny that, in our ceaseless march towards the age ofmachine
rotmanmagazine.ca / 55
 Transaction costs between organizations are poised to drop
dramatically, if not disappear entirely.
automation, self-taught algorithms will play a far bigger role in
organizing our economic activities. What will happen when the
ubiquitous connectivity ofsensors and mobile devices converges
with such AI as AlphaGo or IBM Watson? Could a bevy of gener-
al-purpose, self-taught algorithms govern the world’s economic
transactions?
“The incredible thing that’s going to happen next is the
ability for artificial intelligence to write artificial intelligence by
itself,” said Jen-sen Huang, co-founder and CEO of Nvidia,
whose graphic processing units ( GPUs) crunch complex calcula-
tions necessary for deep learning. It has been the speedy number
crunching that has enabled computers to see, hear, understand
and learn. “In the future, companies will have an AI that is watch-
ing every single transaction and business process, all day long,”
Huang asserted. “As a result of this observation, the artificial in-
telligence software will write an artificial intelligence software to
automate that business process. We won’t be able to do it — it’s
too complicated.”
That future isn’t that far into the future. For years, GE has
been working on analytics to improve the productivity of its jet
engines, wind turbines and locomotives, leveraging the continu-
ous stream ofdata it collects in the field. Elsewhere, Cisco has set
out the ambition oftransferring data ofall kinds into the cloud in
what it calls the Internet ofEverything; and tech giants including
Microsoft, Google, IBM and Amazon are making their internal-
ly developed machine learning technologies freely available to
client companies via application programming interfaces ( APIs) .
These machine intelligences — previously costing millions if not
tens of millions to develop — essentially have now become reus-
able by third parties at negligible cost, which will only spur indus-
try adoption at a wider scale.
In closing
With unsupervised algorithms quietly performing the instan-
taneous adjustment, automatic optimization and continuous
improvement of ever-more complex systems, transaction costs
between organizations are poised to drop dramatically, if not
disappear entirely. For this reason, redundancy in production fa-
cilities should be radically reduced and the enormous waste that
is so prevalent in the global supply chain today should vanish.
Once the coordination of business transactions within and
outside an organization speed up, from sales to engineering,
56 / Rotman Management Winter 2019
from logistics to business operations, from finance to customer
service, friction between companies will drop and, consequently,
broader market collaboration can then be realized. In an econo-
my where transaction cost approaches zero, traditional proposi-
tions such as ‘one-stop shop’ or ‘supply chain optimization’ will
no longer be differentiating. These propositions will become
commonplace, achievable by even the smallest players or new
entrants in all industries.
This is akin to the cheap and powerful cloud computing
upon which Netflix, Airbnb and Yelp depend. Until very recent-
ly, any Internet businesses needed to own and build expensive
servers and resource-intensive data centers. But with Amazon
Web Services ( AWS) or Microsoft Azure, a start-up can store
all of its online infrastructure in the cloud; it can also rent fea-
tures and tools that are in the cloud, essentially outsourcing all
of its computing chores to others. No need to forecast demand
or plan capacity — simply buy additional services as requirement
goes up. The engineering team of a start-up is therefore freed up
to focus on solving problems that are unique to its core business.
Similarly, when fewer resources are required for organiza-
tional coordination, being big can only slow things down. No
longer will it be credible for big companies to claim conventional
advantages by virtue of their being ‘vertically integrated’ ( an ar-
rangement in which the companies own and control their sup-
ply chains) . Instead, they will be under tremendous pressure to
match smaller players that are able to specialize in best-in-class
services and deliver customized solutions in real time as orders
are made. In other words, in the second machine age, big compa-
nies need to act small.
Howard Yu is the LEGO Professor of Management and
Innovation at IMD business school in Switzerland and the
author of LEAP:How to Thrive in a World Where Everything
Can Be Copied ( PublicAffairs, 2018) . He appeared on the
Thinkers50 Radar list of 30 management thinkers ‘most
likely to shape the future of how organizations are managed and led.’
This article has been excerpted from Leap: How to Thrive in a World Where
Everything Can Be Copied by Howard Yu. Copyright © 2018. Available from
PublicAffairs, an imprint of Perseus Books, LLC, a subsidiary of Hachette Book
Group, Inc.
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 The Innovator’s
Mindset:
Radical Can-Do
Brilliant strategy and high-tech wizardry will only
get you so far. Innovation demands relentless execution
driven by a radical can-do mindset.
by Ricardo Viana Vargas and Edivandro Conforto

WHEN BUSINESS LEADERS are quizzed about what it takes to suc-
ceed today, they tend to suggest the usual suspects. Innovation is
one constant refrain. But, look around. While radical innovation
is a common aspiration, incremental innovation is the more fre-
quent reality. Very few products or services are truly innovative.
Is leadership to blame? Harvard Professor Rakesh Khurana
estimates that anywhere from 30 to 40 per cent of the perfor-
mance of a company is attributable to ‘industry effects’; 10 to 20
per cent to cyclical economic changes; and perhaps 10 per cent
to the CEO. Our experience suggests this is a maximum figure
rather than a mean.
Originality is similarly over-rated. Research by Costas
Markides and Paul Geroski of the London Business School
highlights the myth of the importance of being the ‘first mover’.
Markides and Geroski point out that Amazon was not the first
company to focus on online retailing; nor was Charles Schwab
the originator of online share dealing. The commercial genius of
Amazon and Schwab was to take existing technology and bring it
to the mass market. Hardly original — but hugely successful. So,
if it’s not leadership or originality, what accounts for innovative
success?
The reality is that time and time again, the most innovative
organizations are characterized by what we describe as relent-
less execution driven by a radical ‘can-do’ attitude and aptitude.
They realize that the best strategies in the world will get you no-
where unless you relentlessly make them happen.
Consider how Henry Ford revolutionized the auto indus-
try at the turn of the 20th century. More than 17,000 Model Ts
were sold during the first year of production. Four years earlier,
the world’s entire automobile industry produced 22,000 cars. In
the 19 years of the Model T’s existence, Ford’s production total
amounted to half of the world’s auto. Along the way, the entre-
preneurial crowd that had set out to conquer this new market
became a select few. In 1914 the Ford Motor Company, with its

rotmanmagazine.ca / 59
 Ford’s much-vaunted assembly line had been used in the
food processing industry since the 1870s.
13,000 employees, produced 267,720 cars; the other 299 Ameri-
can auto companies with 66,350 workers produced only 286,770
cars combined. Ford had 48 per cent ofthe American car market,
with US $100 million in annual sales.
Ford’s route to success was not about originality. There
were a host of others ahead of him in terms of technology. The
fledgling automobile market was highly competitive and crowd-
ed. People like Charles Edgar and J. Frank Duryea, Elwood
Haynes and Charles Brady King were all chasing the great au-
tomotive prize.
Ford’s much-vaunted production process was actually an
adaption of something that was already being used elsewhere:
The assembly line had been used in the food processing industry
in the Midwest United States since the 1870s. Ford himself is re-
puted to have toured Chicago’s meat packing plants in search of
inspiration, noting that the meatpackers had an overhead trolley
to speed up production. He also would have noted the operations
of Sears, Roebuck’s Chicago mail-order plant, which opened
in 1906. At the time, it was the largest business building in the
world, with three million square feet of floor space.
Time and time again, when you analyze the route to signifi-
cant commercial success, you find that the magical, sexy stuff of
innovation and entrepreneurialism isn’t the main reason why an
organization succeeded. Innovation and entrepreneurship skills
are, of course, crucial, but successes like Ford and Amazon show
us that there is a premium on making things happen and getting
things done.
Unfortunatley, this is something modern organizations —
backed by the full panoply of technological marvels at their dis-
posal — remain poor at. A full 90 per cent of respondents to a
global survey of 500 senior executives from companies with an-
nual revenues of over $1 billion, conducted by The Economist
Intelligence Unit (EIU), said they had failed to reach their stra-
tegic goals because offlawed implementation. More than half(53
per cent)of respondents admitted that ineffective implementa-
tion of strategic initiatives had a profound impact on the orga-
60 / Rotman Management Winter 2019
nization’s competitive advantage and performance. In addition,
the 2017 Project Management Institute’s Pulse of the Profes-
sion Survey found that for every $1 billion invested, $97 million
is wasted through poor implementation.
The trouble with executing innovation is that, unlike formulat-
ing a clever strategy in a boardroom, it has to take shape in the real
world. And that involves making hard decisions — and taking risks.
The Five Can-Do Capabilities
The relentless execution of innovation has five key character-
istics:
1. CLARITY
The beauty of relentless execution is that it concentrates mana-
gerial minds. At its best, it cuts away superfluous activities and
targets all of an organization’s resources on what really matters
to get things done. While other automakers made their models
more complicated and expensive, Henry Ford provided extreme
clarity: The company would produce just one affordable car, in
just one colour (black). This brand ofsmart simplicity is common
in radical can-do organizations.
Consider the Chinese bike sharing company ofo (always in
lower case, to mimic the shape ofa bicycle). “Ofo was created for
sharing and aims to unlock every corner of the world by making
bicycles accessible to everyone,” says the company’s website.
Ofo began life in 2014 when CEO Dai Wei and his co-founders
saw an opportunity to leverage smart technology to improve cy-
cling as a sustainable form of transportation. As students at Pe-
king University, Wei and his partners convinced about 2,000 stu-
dents to add their bicycles to a private registry. The registry could
be accessed through a mobile app and allowed participants to use
any registered bike, anywhere, any time.
Today, ofo is operating in over 250 cities in 20 countries: Chi-
na, Singapore, the UK, the U.S., Kazakhstan, Malaysia, Thailand,
Austria, Japan, Russia, the Czech Republic, Italy, the Netherlands,
Australia, Spain, Portugal, Israel, Hungary, India and France. It
 Focus is a powerful commercial weapon, but it needs to shift
and change with time.
generates 32 million transactions daily and is valued at more than
$3 billion. In 2017, it raised $700 million of funding from, among
others, Alibaba, Hony Capital and CITIC Private Equity.
Once again, ofo is not breathtakingly original. Thanks to
Airbnb and Uber, the sharing economy is an increasingly main-
stream idea. The Velib bike-sharing network was introduced in
Paris in 2007 and a similar program was introduced in London
in 2010. ofo’s differentiator is its ‘dockless’ technology: Its eye-
catching yellow bikes are hired through a smartphone app and
can be picked up and dropped off anywhere that bike parking is
allowed. In addition, ofo does not require riders to pay a deposit
before use. To access a bike, they can simply download the ofo
app and unlock their nearest bike via Bluetooth. Once their ride
is complete, users close the lock to complete their ride and make
it available for the next person to use. ofo uses ‘geo-fencing’ tech-
nology to ensure that riders use the bikes within the designated
‘Home Zone’ shown in the app.
Such simple, practical technology is driven by a bold sense of
purpose. ofo is engaged in a constant round of raising financing
and opening in new territories. Success in any highly competitive
global market requires constant momentum and relentless ex-
ecution enabled by clarity ofpurpose.
2. REDEFINING FOCUS
“You have to continually prioritize,” says David Marlow, com-
pany transformation lead at Bristol-Myers Squibb. “There are
always competing activities going on in any organization and dif-
fering views of what to prioritize. This requires a senior manage-
ment team to look at the enterprise level, and conduct a prioriti-
zation assessment once or twice a year. This will ensure a focus
on where the big value drivers are and that they are being prop-
erly resourced and prioritized.”
Such focus is a powerful commercial weapon, but it needs
to shift and change with time. Today’s focus will not be appro-
priate tomorrow. This was something that Jack Welch practised
impressively as CEO of GE in the 1990s. Welch had a knack for
distilling down his company’s strategy into memorable phrases:
‘Number one or two in every market’; ‘Getting the work out of
the company’; ‘Dot-com your business’. Each slogan was repeat-
ed endlessly by Welch as he travelled through GE and beyond,
providing focus for the company; but before long he would al-
ways move on to provide the next focus.
A similar approach has been taken by the CEO of Chinese
white-goods manufacturer Haier. As the company has evolved
from a small local player into the world’s leading white-goods
company, its CEO Zhang Ruimin has changed it’s focus time
and time again. “In the last three decades ofdedication to entre-
preneurship and innovation, Haier has been through five stages
of strategic development, each of which represents a major en-
deavour of management innovation,” he explains. “Our most
recent strategic adjustment began in 2012, when we transitioned
from being a traditional manufacturer to become a platform-
based and networked organization in line with the lifestyle
changes brought about by the Internet.”
During the 1980s, Haier dedicated itself to brand building.
Its realization was that to compete internationally it had to raise
the standards of its products. Zhang Ruimin proposed the prin-
ciple of ‘a late starter with a high starting point’. Famously, in
1985, after receiving letters from consumers complaining about
quality problems with Haier refrigerators, Zhang joined em-
ployees in demolishing 76 of the sub-standard refrigerators with
sledgehammers. The point was made: Haier had to match or ex-
ceed the highest-quality standards.
In the 1990s, the company’s focus shifted to diversifica-
tion, with a variety of mergers and restructurings. The Haier
refrigerator brand was extended to a range of other home appli-
ances — washing machines, air conditioners, microwave ovens,
televisions, computers and more. From there, Haier moved to
focus on gobalization, with an emphasis on localized R&D, man-
ufacturing and marketing. Its international moves were bold:
Eschewing easier and closer markets, it headed to the United
States and Europe, where markets were highly competitive and
rotmanmagazine.ca / 61
 If you’re not making mistakes, you’re not trying hard enough.
quality expectations high. Following this stage, the focus was on
Haier’s acceptance as a powerful brand presence worldwide.
In December 2012, Haier announced its entrance into a
fifth development stage: networking strategy. Ruimin explained,
“The Internet has eliminated physical distance and enabled busi-
nesses to become networked. The competitive tension among a
company, its employees and its partners should be defused with
the aim ofbuilding a collaborative, win-win ecosystem.”
3. COMMITMENT TO CHANGE
For companies dedicated to relentless execution, the only danger
is to press pause. Yet this is a fairly regular occurrence. As small
entrepreneurial companies expand into larger ones, there is a
temptation to ‘bring the grown-ups in’ to add bureaucracy and
processes. Sometimes, this works, but it can bring an entrepre-
neurial rocket to an abrupt halt. Just look at Steve Jobs’ initial de-
parture from Apple as the company sought to bring management
discipline to bear.
A commitment to change must be real and constant. The
challenge of change is to instigate it from a position of strength.
Repeatedly, companies attempt to change things as their per-
formance deteriorates or their market strength evaporates. Not
Haier nor the other relentless can-do companies; The more suc-
cessful they become, the greater their appetite for change.
This continuous appetite for change is exemplified by Netf-
lix CEO Reed Hastings. “You have to fight the idea that as you
get bigger, your culture gets worse. At Netflix, we’re significantly
better [than we were] because we have more brains thinking
about the problem. If you have 1,000 really thoughtful people
thinking about how to improve, you’ll make a lot more progress
than if you have 100,” he says. “Some companies operate by the
principle of the product genius at the top. There’s this whole mo-
tif that to be a great CEO you have to be a great product person.
That’s intoxicating and fun, but you’re much stronger building a
62 / Rotman Management Winter 2019
distributed set ofgreat thinkers.”
In 2010, Netflix began operating in Canada; in 2011, Latin
America, Central America and the Caribbean; in 2012, the UK,
Ireland and Scandinavia; in 2013, the Netherlands; in 2014, Aus-
tria, Germany, France, Belgium, Luxembourg and Switzerland;
in 2015, Australia, New Zealand, Japan, China, Italy, Portugal and
Spain; and in 2016, it expanded into more Asian countries. “You
are witnessing the birth of a global TV network,” proclaimed
Hastings as another 130 countries were added to the company’s
reach to take the global figure to nearly 200 countries from Af-
ghanistan through to Zimbabwe.
4. ACCEPTANCE OF RADICAL FAILURE
Of course, with a radical can-do mindset comes the inevitability
of failure. Role modelling failure starts at the top of any orga-
nization, division, team or small company. “If we’re not mak-
ing mistakes, we’re not trying hard enough,” observed James
Quincey when he became CEO of Coca-Cola in 2017. Ama-
zon’s Jeff Bezos has been similarly vocal in making it clear that
failing is an integral part of succeeding. “If you’re going to take
bold bets, they’re going to be experiments. And ifthey’re experi-
ments, you don’t know ahead of time if they’re going to work.
Experiments are by their very nature prone to failure. But a few
big successes compensate for dozens and dozens of things that
didn’t work.”
At Netflix, where the culture is built around ‘radical can-
dour’, Hastings is an outspoken champion offailure. “You should
have more things that don’t work out,” he has observed. “As you
grow, the drive towards conformity is substantial. As a leader,
you want to drive people to take more risks.” Speaking at a recent
conference, Hastings lamented: “Our hit ratio is way too high
right now. I’m always pushing the content team. We have to take
more risks. We have to try more crazy things, because we should
have a higher cancellation rate, overall.”
 For Ford, reconnecting with its original purpose — helping
people move — has brought it to Silicon Valley.

5. GETTING (AND STAYING) CLOSE TO CUSTOMERS In closing

“Innovators and entrepreneurs rarely fail because their initial Getting things done with a relentless can-do attitude demands a
idea was stupid,” observes Alex Osterwalder, co-author ofBusi- degree ofboldness and bravery that few executives and organiza-
ness Model Generation. “They don’t succeed because they fail to tions demonstrate. These characteristics are founded on a deeply
listen to the reality of the market. They fail to iterate their idea held belief that the status quo is not good enough — that things
and adapt their value proposition and business model until it’s can and must get better; that getting out there and connecting
scalable and profitable.” with people is preferable to building internal walls; and that fail-
The radical can-do mindset is not about pressing ahead and ure is inevitable along the way. As indicated by the stories of
blindly doing things for the sake of doing them. As indicated, Amazon, ofo, Netflix, Haier and many others, fortune truly does
it requires clarity and focus, but it also demands an in-depth favour the brave.
knowledge of what your customers want and what they aspire
to. In the most successful projects we have witnessed, there is
a strong correlation between employee engagement and aware-
ness of what customers want and need. “Insight into customer
needs and competitor moves, combined with the speed and agil-
ity to capitalize on this insight, will be increasingly critical for
competitive success,” predict Perry Keenan and his colleagues
at The Boston Consulting Group.
It is especially challenging for companies in fast-moving
markets to connect with the future aspirations and needs of cus-
tomers. Given the identification with customers exemplified by
its founder it is interesting to see the work of the modern-day
Ford Motor Corporation in this area. “Henry Ford’s mission was
to help people move. That’s still at our core, but now we’re look-
ing at the larger scope ofwhat ‘mobility’ means,” observes Jamel
Seagraves, an advanced research engineer at Ford.
For Ford, reconnecting with its original purpose has brought
the company to Silicon Valley. Among its interesting takes on ‘its Ricardo Viana Vargas is Executive Director of
the Brightline Initiative, a coalition led by the
place in the world’ is that tech companies are increasingly auto-
Project Management Institute together with
motive suppliers. In 2015, it opened the Ford Innovation and Re- leading global organizations dedicated to help-
search Centre in Palo Alto. The Centre is led by a former Apple ing executives bridge the gap between strategy
engineer and is charged with exploring ‘the future of mobility’ design and delivery. Coalition members include The Boston Consulting Group,
Bristol-Meyers Squibb and Saudi Telecom, and academic partners include the
with a team of160 researchers, engineers and scientists. Among
University of Tokyo Global Teamwork Lab, Technical University of Denmark
its projects are autonomous vehicles and helping cyclists and and the Blockchain Research Institute. Edivandro Conforto is Head of Strategy
motorists share roads. Research for the Brightline Initiative.

rotmanmagazine.ca / 63
 SWITCHING
ON
CREATIVITY
Leaders often struggle to structure work routines that nurture creativity.
The authors describe a tangible way to help ‘switch it on’.
by Jackson G. Lu, Modupe Akinola and Malia F. Mason
IN A WORLD OF HUSTLE AND BUSTLE, switching back and forth be-
tween tasks has become the default lifestyle — and work style
— for many. Bombarded with emails, phone calls and meetings,
employees constantly shift their attention from one task to an-
other. The propensity to ‘task-switch’ now emerges as early as
adolescence: The average 7th to 12th grader estimates spending 60
PORTRAIT BY SUSAN HINOJOSA (msusanhinojosa@gmail.com)
per cent of the time they set aside for homework switching be-
tween homework and other activities such as email and instant
messaging.
Not surprisingly, the increasing prevalence of task switch-
ing has prompted research into its psychological consequences.
To date, research has revealed that switching tasks increases our
susceptibility to distraction, facilitates error-making, diminishes
learning and heightens social anxiety.
While these studies unveil some of the negative conse-
quences oftask switching, they leave open the question ofwheth-
er there are any positive benefits to task switching. In this article,
we will summarize our research, which indicates that one ben-
efit of task switching is something every modern organization is
seeking: increased creativity.
Creativity at Work
Creativity — defined as ‘the production of ideas that are both
novel and useful’— is critical to both individual and organizational
success. From an interpersonal perspective, creative employees
can inspire ‘outside-the-box’ thinking among their colleagues
to build an inventive environment within the organization. And
from an organizational perspective, creativity empowers an or-
ganization to thrive in a dynamic world ofunforeseen challenges
and opportunities.
Although it is clear that creativity influences critical organi-
zational outcomes, many practitioners struggle to design work
routines that foster creativity. In response to this ‘knowledge
gap’, scholars have increasingly studied job design factors that
enhance or hamper creativity. For example, studies show that
job autonomy makes individuals more intrinsically motivated,
which in turn enhances creativity. Other job design factors that
spur creativity include the spatial configuration of work settings,
job complexity, time pressure and contingent rewards.
One under-explored job design factor that may influence
creativity is task switching. By forcing individuals to temporarily
rotmanmagazine.ca / 65
 People generate fewer unique ideas when they meet as a group
because they fixate on the ideas proposed by other group members.
put tasks aside, a ‘continual-switch’ approach may elevate cre-
ative performance by alleviating the tendency to cognitively ‘fix-
ate’ on ineffective ideas or problem-solving strategies.
Psychologist Karl Duncker was one of the first to research
‘functional fixedness’ — the inability to think beyond the conven-
tional use of a particular object or concept and repurpose it for
a novel task setting. Duncker demonstrated that, when given a
candle, a pack ofmatches and a box oftacks — and challenged to
affix the candle to the wall so that the candle burns properly and
does not drip wax — a large percentage of individuals fixate on
the tack box’s function as ‘a repository for tacks’, failing to real-
ize that it could also be affixed to the wall and converted into a
candleholder ( see Figure One) .
Building on this classic demonstration, researchers have es-
tablished cognitive fixation as a primary barrier to two principal
forms of creativity: divergent thinking and convergent thinking.
Whereas divergent thinking involves the generation of multiple
ideas in diverse directions ( e.g. listing creative uses for a brick) ,
convergent thinking involves identifying the best solution to a
clearly defined problem ( e.g. Duncker’s candle problem) . Both
types of thinking are critical-yet-distinct pathways to creativ-
ity, as identifying creative solutions often necessitates both di-
verging from previous approaches and converging on an optimal
approach.
A wealth of evidence suggests that cognitive fixation im-
pedes both the divergent and convergent aspects of creativity.
In the context ofdivergent thinking, individuals tend to generate
fewer and less-novel ideas when the design instruction is accom-
panied by a pictorial example, because they are apt to generate
ideas that conform to the example. Likewise, people generate
fewer unique ideas when they are part of a brainstorming group
compared to when they brainstorm alone, because they fixate on
the ideas proposed by other group members.
In a similar vein, cognitive fixation is considered a barrier
to solving problems that require convergent thinking. The clas-
sic convergent thinking task, the Remote Associates Test ( RAT) ,
presents three ‘cue’ words and asks the subject to conceive a
fourth word that is associated with each ( e.g., cue words: cheese,
blood, print; solution: blue) . The RAT can be challenging because
people may first think ofand fixate on a non-solution word that is
strongly associated with just one of the cues ( e.g. cheese — cake;
blood — red; print — ink) instead of a word that is commonly as-
sociated with all three of them. Likewise, people commonly fail
to solve insight problems because they fixate on unwarranted as-
sumptions and strategies that interfere with the requisite insight
( e.g. Duncker’s candle problem) .
66 / Rotman Management Winter 2019
An emerging body of research demonstrates that creative
performance on both divergent and convergent thinking tasks
can be improved ifthe effects offixation are mitigated by setting a
task aside — through breaks, distractions or interruptions. Breaks
can free individuals from their fixated mindset by reducing the
‘recency’ value of inappropriate strategies. For example, brief
breaks during brainstorming sessions can increase the number
and variety of ideas generated. Similarly, performance on con-
vergent thinking tasks ( e.g. the RAT) improves as the break time
between attempts is increased, because cognitive fixation ‘wears
off ’ over time.
Numerous studies on divergent and convergent thinking
have found improvements in creative performance when sub-
jects temporarily set aside the focal creative task to work on an
unrelated one. For instance, researchers found that, compared
to participants who started generating ideas immediately upon
receiving a task, those who first engaged in a ‘distractor task’ gen-
erated more novel ideas. The common theme in these studies is
that setting a task aside may reduce cognitive fixation and enable
individuals to approach the focal task with a fresh mind, thereby
enhancing creative performance.
Our Research
The goal of our investigation was twofold. First, we tested our
main hypothesis that creative performance may improve when
people continually switch between tasks. In particular, we hy-
pothesized that continually switching between tasks may help
people abandon initial, unsuccessful problem-solving strategies
and approach each task with fresh angles.
To test this, we examined the effects of task switching on
both divergent thinking and convergent thinking. Participants
attempted two creativity tasks for a fixed amount of time under
one of three conditions: continual-switch, discretionary-switch
or midpoint-switch. In the continual-switch condition, they were
instructed to alternate back and forth between the two creativ-
ity tasks ( i.e., Task A, Task B, Task A, Task B, etc.) ; in the discre-
tionary-switch condition, they switched between the two tasks at
their discretion; and in the midpoint-switch condition, they dedi-
cated the first half of the allotted time to Task A and the second
halfto Task B.
We predicted that creative performance would be the high-
est in the continual-switch condition, as instructing participants
to continually switch between two creativity tasks should miti-
gate cognitive fixation the most. Importantly, evidence that con-
tinually switching between tasks improves performance is partic-
ularly meaningful if the person involved tends to undervalue the
 Duncker’s Candle Problem. Left = puzzle, right = solution.
FIGURE ONE
creative benefits afforded by continual task switching. Therefore,
in addition to testing whether continually switching between two
creativity tasks yields better outcomes, our second goal was to in-
vestigate whether people are aware ofthe creative benefits ofthis
approach. That is, do people choose to switch continually when
incentivized to maximize their creative performance?
We predicted that people would erroneously expect contin-
ual switching to be less conducive to creative performance com-
pared with discretionary and midpoint switching, and therefore
overwhelmingly select the latter two approaches over continual
switching when structuring their work. We also predicted that
differences in switching frequency would translate into differ-
ences in the flexibility and novelty aspects of divergent thinking.
Specifically, we expected participants who continually switched
to generate a greater number of uses that were categorically
unique and novel compared to participants who switched at their
discretion and participants who switched at the halfway mark.
On the other hand, since usefulness is often inversely related to
novelty, we did not expect more frequent task switching to im-
prove the usefulness of ideas generated; thus, we predicted no
significant differences in usefulness across the three conditions.
With regard to fluency, we predicted that continual task
switching would have a negative effect, for two reasons. First,
continually switching between two tasks requires participants to
cognitively switch gears, which carries ‘switching costs’ in terms
of time and attention. Second, we expected participants in the
continual-switch condition to exhibit lower fluency, precisely
because their idea generation would be characterized by dimin-
ished fixation.
We recruited 126 native-English speakers from Amazon
Mechanical Turk, an online crowdsourcing platform with sub-
jects representative ofthe U.S. population. Participants were ran-
domly assigned to one of the three experimental conditions and
had a total of eight minutes to complete two problems: listing
creative uses for a brick; and listing creative uses for a toothpick.
In the continual-switch condition, they were instructed to
list uses for the two objects in an alternating manner ( i.e. brick,
toothpick, brick, toothpick, etc.) ; and in the discretionary-switch
condition, they were instructed to list uses for the two objects
in any order they chose. In the midpoint-switch condition,
rotmanmagazine.ca / 67
participants were instructed to spend the first four minutes list-
ing uses for one object and the next four minutes for the other. In
all three conditions, the two objects were counterbalanced such
that half the participants started with the brick and the other half
started with the toothpick.
As predicted, participants in the continual-switch condition
switched far more frequently than those in the discretionary-
switch condition and those in the midpoint-switch condition
( who, by definition, only switched once between the two tasks) .
Four, independent coders then rated the uses in terms offlexibil-
ity, novelty, usefulness and fluency.
RESULTS: Confirming our predictions, the continual-switch con-
dition yielded more ideas that were categorically dissimilar ( i.e.
displayed higher flexibility) and novel than did the discretion-
Four Paths to Opportunity Identification by Massimo Garbuio and Andy Dong
In our work teaching innovation and entrepreneurship to students
at the University of Sydney Business School and the California
College of the Arts, we focus on four cognitive acts that comprise
‘design cognition’ — the type of thinking that fuels opportunity
identification and formation. Understanding and embracing them
can help to demystify the genius of the entrepreneur and bring
more innovation to organizations.
1. Framing. In entrepreneurship as in design, every situation
has a ‘problem frame’ and a ‘solution frame’. Each frame explains
your point of view on the situation. For example, is the situation
of single-passenger vehicles on congested freeways one of
productivity or personal safety? Framing and re-framing aim to
establish alternative ways of interpreting situations in accordance
with differing perspectives on its various dimensions. In our expe-
rience, this can best be achieved by observing situations involving
user behaviour or user-generated problem statements.
One exercise that we find effective was inspired by the
approach of the Austin Centre for Design. Instructors use
a toothbrush as the object of design and ask students to con-
sider three new scenarios. First, they ask them to re-frame the
toothbrush as it might be used in an atypical environment (e.g.,
in the kitchen, in an airplane, at a conference). Second, students
are asked to re-frame the toothbrush from a different perspective
(e.g., for use by a dentist, a hotel housekeeper or on a blind date).
And third, students must re-frame the toothbrush as a different
type of object entirely. For instance, what if it were a plant,
a spray, or a service? These framing exercises prime students
to come up with novel frames for their own entrepreneurial
aspirations.
68 / Rotman Management Winter 2019
ary-switch and midpoint-switch conditions. Critically, the ideas
generated in the continual-switch condition were rated as no less
useful than those generated in the other two conditions.
Our second study examined whether having people contin-
ually switch between convergent-thinking tasks would enhance
their performance, thereby testing whether the positive effects of
continual task switching on divergent thinking would extend to
the domain ofconvergent thinking.
Just as individuals can be less creative because they tend to
fixate on preceding responses, they may fail to identify the so-
lution to a convergent-thinking problem ( e.g. Dunker’s candle
problem) because they fixate on strategies that should be aban-
doned. When faced with multiple convergent thinking tasks,
persisting with one task may result in fixation on an ineffective
strategy, whereas switching between them may enable the mind
2. Analogical Reasoning. Research shows that new oppor-
tunities can emerge from making novel associations between
existing things, and as a result, analogies have figured prominently
as inspirations for design. Scholars have identified two types of
analogies: within-domain (‘near field’) and between-domain (‘far
field’). As an example of between-domain analogies, when you are
trying to develop a new business model for your mobility venture,
you might want to refer to other platform business models such as
those used by eBay or Gillette. A within-domain analogy occurs
when you apply examples from a similar industry or market in
order to detail the provision of a new solution.
An intriguing application of analogical reasoning lies in
thinking about a new product, service or business model using
the ‘analogs and antilogs’ technique discussed by Mullins and
Komisar in their book, Getting to Plan B. Business ideas do not
have to be revolutionary; rather, they can be developed by look-
ing at ‘analogs’ — what has worked in the past — and imitating
or building on these exemplars. Ideas can also be developed by
looking at ‘antilogs’ — businesses that have been unsuccess-
ful — and avoiding past mistakes. Apple’s iPod helps to explain
this concept. In a reverse-engineering exercise, we could say that
the Sony Walkman is the analog that inspired Apple. Because the
Walkman proved that millions of people were willing to pay for a
device that allows them to listen to music on the go, Apple did not
need to validate this hypothesis. The Walkman is only part of the
story. We can also obtain insights from looking at antilogs such as
Napster which led to the development of a legitimate platform for
downloading music: the iTunes store. The popularity of Napster
as a peer-to-peer music-sharing site signified a growing trend to-
ward downloading music. After piracy and illegal downloading led
to approach each task with fresh angles. Thus, Study 2 examined
whether instructing individuals to continually switch between
two convergent-thinking tasks would reduce fixation and in-
crease the likelihood ofsolving them.
We randomly assigned participants to complete two conver-
gent-thinking tasks under one ofthe three conditions ( continual-
switch, discretionary-switch or midpoint-switch) . To test wheth-
er the effects of task switching are generalizable across different
types of convergent-thinking tasks, we used two Remote Associ-
ates Test ( RAT) problems to examine the effects oftask switching
on verbal convergent thinking, and two insight puzzles to exam-
ine the effects of task switching on visual convergent thinking.
As in Study 1, we hypothesized that participants in the continual-
switch condition would switch at a higher frequency and thus
perform better on the convergent thinking tasks.
to Napster’s ultimate failure, Apple created an online store where
people could download and save music after paying a small fee to
avoid such legal issues.
3. Abductive Reasoning. Unlike deductive and inductive reason-
ing — which seek to produce logically or empirically-true conclu-
sions — abductive reasoning introduces a hypothesis aimed at
explaining observations or data. While the hypothesis is plausible, it
may or may not be true. This uncertainty generates an experiment,
and it is often the experiment itself that leads to the innovation.
Researchers have described two types of abduction: explana-
tory abduction and innovative abduction. Explanatory abductions
introduce hypotheses to explain surprising observations. The aim is
to avoid pattern-recognition bias by explaining observations through
recourse to alternative causes and effects. In a typical instance, we
ask students to explicitly search for surprising facts and observa-
tions that suggest value to users and then propose a testable cause-
effect relationship that explains the observation of the value.
Innovative abduction is a form of reasoning in which we
hypothesize about what to create and the principle underpinning a
class of solutions. In this case, the challenge is not only to under-
stand ‘what needs to be true’ to support the new value for the user,
but also to come up with a new rule that makes the new value come
alive, such as a new revenue model.
4. Mental Simulation. Mental simulation involves reassessing
past events and imagining future scenarios to evaluate and com-
pare their likelihood and profitability.
Once our students identify a new opportunity, we ask them to
mentally simulate in three areas. First, how to make the opportunity
One hundred and four native-English speakers from a large
northeastern U.S. university completed our experiment. In the
first half of the study, they had a maximum of four minutes to
solve two RAT problems of similar in difficulty ( RAT1: cheese,
blood, print [solution: blue]; RAT2: way, mission, let [solution:
sub]) .
In the continual-switch condition, the experimenter in-
structed participants to alternate between the two RATs by utter-
ing ‘switch’ every 30 seconds. That is, participants spent the first
30 seconds on the first RAT, then the next 30 on the second, the
next 30 on the first, and so forth. In the discretionary-switch con-
dition, participants were free to work on the two RATs in what-
ever order they chose during the four minutes.
After the time allotted to the two RAT problems elapsed, the
experimenter administered two insight puzzles to assess visual
work in the marketplace from a business model perspective. Next,
we ask them to simulate scaling-up the business, which might
include expanding into new occasions of consumption or new
geographies. Third, we ask them to mentally simulate competitors’
reactions, identifying which competitors are capable of thwarting
the new venture to stress-test the opportunity.
We encourage students to consider the following questions:
Are these customer needs scalable to other customer segments?
Who are we displacing in the value chain? Do we have the capabili-
ties needed to produce the new offering? Do we need partners? In
sum, mental simulation helps them identify deficiencies and con-
tradictions within the structure of the ‘solution’—and fundamentally
improve it.
As indicated, opportunity identification does notarise solely from
the application of a defined setof activities, butrather through the
application of particular ways of thinking. Through the continuous acts
of framing, making analogies, thinking abductively and doing mental
simulations, entrepreneurs — and all innovators — can learn to recog-
nize evolving needs and adapttheir offerings accordingly.
Massimo Garbuio, PhD, is a Senior Lecturer
in Entrepreneurship at the University of
Sydney Business School. Andy Dong, PhD,
is the Chair of the MBA in Design Strategy
Program at the California College for the Arts.
This is an adapted excerpt from their paper “Demystifying the Genius
of Entrepreneurship: How Design Cognition Can Help Create the Next
Generation of Entrepreneurs,” co-written with N. Lin, T. Tschang and
D. Lovallo, which appeared in the Academy of Management Journal.
rotmanmagazine.ca / 69
 The Nine Dot Puzzle The Penny Puzzle

Left = puzzle, right = solution. How can you move only one penny to make two rows (in any
direction) of four pennies each?
Below are nine dots. Your challenge is to draw four straightlines
thatconnectall of the dots withoutpicking your pen off the paper.
You can startfrom any position and draw the lines one after the
other, butyou can’tliftup your pen.

FIGURE 2

convergent thinking in the second half of the study. Participants

had a maximum of 12 minutes to solve the nine-dot puzzle (see
Figure Two)and the coin puzzle (see Figure Three), which had
been pretested to be similar in difficulty.
In the continual-switch condition, the experimenter in-
structed participants to alternate between the two puzzles by
Solution: Place the top coin on top of the coin in the middle

uttering ‘switch’ every 90 seconds. In the discretionary-switch FIGURE 3

condition, they were free to work on the two puzzles in whatever
order they chose over the 12 minutes, and the experimenter re-
corded how many times they switched. In the midpoint-switch
condition, participants had six consecutive minutes to solve the
first puzzle and immediately after, another six consecutive min-
utes to solve the second puzzle.
RESULTS: As predicted, participants in the continual-switch con-
dition solved more RATs and insight puzzles than their counter-
parts. These results indicate that just as continually putting one
divergent thinking task aside for another enhances performance,
so too does putting one convergent thinking task aside for an-
other.
The creative benefits of continual task switching were fur-
ther corroborated by our finding that, within the discretionary-
switch condition, participants who switched more frequently
were more successful than those who switched less frequently.
Importantly, participants in the discretionary-switch con-
dition on average switched far less frequently than those in the
continual-switch condition, suggesting that individuals tend to
‘under-switch’ when left to their own discretion. Thus, encourag-
ing individuals to switch tasks more frequently than they would
ordinarily may enhance creative performance.
In closing
Despite the premium assigned to creativity in the 21st century
workplace, leaders often struggle to structure work routines that
nurture creativity among employees. By uncovering a bright side
to continual task switching, our research offers a tangible way to
help individuals ‘switch on’ creativity as they navigate multiple
tasks.
Jackson G. Lu is an Assistant Professor of
Work and Organizations at the MIT Sloan
School of Management. Modupe Akinola is
the Sanford C. Bernstein & Co. Associate Pro-
fessor of Leadership and Ethics at Columbia
Business School. Malia F. Mason is the Gantcher Associate
Professor of Business at Columbia Business School and the
recipient of Rotman’s Dean’s Award for Emerging Leaders.
This article summarizes their paper, “Switch On’ Creativity:
Task Switching Can Increase Creativity by Reducing Cogni-
tive Fixation”, which was published in Organizational Behavior and Human
Decision Processes.

70 / Rotman Management Winter 2019

Crisis Prevention,
Management and
Communication
Prepare for the unpredictable
and learn how to prevent
crises before they happen.

Questions? Talk to us.

advisor@rotman.utoronto.ca rotmanexecutive.com
 From Start-Up to Stay-Up:
The Art of
the Pivot
Today, Finn AI is a leading personal banking virtual assistant,
but there were plenty of twists and turns involved in making
this start-up a ‘stay-up’.
by Steve Lowry
WITH THE DRAGON’S DEN EPISODE about to air, Natalie Cartwright
sits on edge. She isn’t nervous about her performance with the
Dragons; the filming went well, and she was comfortable on
stage. Instead, she’s worried that she and her co-founder, Jake
Tyler, are the only people in the room of 40 employees, friends
and investors who know that their company is on the verge ofcol-
lapse. Payso, their free mobile app that sends money between
friends, has only a few weeks ofcash left in the bank.
Natalie and Jake shot the episode a year earlier, when Payso
was on an upswing. And since their contract with the CBC had
prohibited them from disclosing whether they had taken financ-
ing from the Dragons, they decided to throw a party at their Gas-
town office to celebrate the episode and reveal what had hap-
pened. In the Den, they’d had an offer of $100,000 for 20 per
cent of the company, and while the capital would have helped,
it wouldn’t have changed the fact that Payso wasn’t growing fast
enough, so they turned it down.
The episode opens with Natalie pulling out a large knife and
lopping the top off a bottle of champagne to celebrate the Den’s
10th anniversary. Cheekily, she asks the Dragons, “Do you have
any change?” to demonstrate the difficulty of splitting the tab in
an increasingly cashless world. Jake says he has the solution to
their bill-splitting dilemma: Payso, an app that allows people to
send money as easily as sending a text message. The Dragons
seem intrigued but aren’t willing to make an offer that’s rich
enough. The co-founders appear unfazed as they walk off set,
arms around each other.
With the episode over, the office applauds and Natalie pulls
out a ceremonial sabre and energetically shears the top off a
bottle of Beringer. The co-founders sincerely thank everyone for
couches they’ve crashed on, promotional help and their friends’
encouragement through the tough points in building a start-up.
But as the evening winds down, Jake and Natalie don’t say much.
They’re both thinking the same thing: They will need to pull the
team together very soon to tell them they’re shutting down.
The Winding Path to Sucess
Fast-forward two and a halfyears and Jake, now 35, is the CEO of
Finn AI, a blockbuster Vancouver start-up pioneering conversa-
tional intelligence in banking apps on a global scale. Finn makes
artificial intelligence (AI)software for consumer-facing financial
institutions—banks and credit unions such as BMO, ATB Finan-
cial and the Commonwealth Bank of Australia — who host
the company’s technology under their own brands. The software
gives customers better access to their bank accounts and various
personal finance tools.
rotmanmagazine.ca / 73
 Natalie, also in her early thirties, is COO at Finn and has
watched it grow from the two co-founders to over 50 employees
in the past 15 months, with no signs of slowing down. One of the
company’s investors, Hootsuite co-founder David Tedman,
calls it “the fastest growing business I have ever been a part of.”
Finn is competing in a busy space where venture capital dol-
lars are flowing into artificial intelligence with dot-com exigency,
and massive players like IBM and Microsoft are securing much
of the high ground. But as a highly verticalized product, Finn
competes with a relatively small number ofplayers who are map-
ping the specialized needs ofbanking customers. By analogy, you
could think of IBM’s Watson as trying to learn all the languages
in the world at once, while Finn is immersing itself in the local
culture of users in a single region, making its machines more flu-
ent in ‘the language ofmoney’.
While Finn and Payso might sound nothing alike, they are
the same company. The route the company took from fledgling
consumer app to cutting-edge AI platform for big business was
anything but straight. In fact, their story somewhat dispels the
notion of the founder who receives a sudden iPhone-like vision
and then deftly conjures it into being. It does, however, reinforce
the narrative that hustle, persistence, and most crucially, agility
are needed to take a company from start-up to stay-up.
The team’s journey began in 2014 when Jake called Natalie,
his former classmate at Spain’s IE Business School, and asked,
“Do you have Venmo in Canada?” Back in Vancouver, Natalie
replied, “If we do, I’m not aware of it.” Venmo was the market-
leading mobile payment app in the U.S., and Jake saw an opportu-
nity to replicate its business model in another country.
Although the pair had been friendly with each other, they
were really just acquaintances. Nonetheless, Natalie sensed
Jake’s commitment to this idea and told him, half in jest, “If
you come to Vancouver for this, I’m in!” Two weeks later she
was at the airport to greet him with his bike, snowboard and the
wry smile she’d come to know well. Within a few short weeks,
Jake was living a couple of floors below Natalie in her parents’
basement, sketching out the plans for Payso, the app he saw as
Canada’s Venmo. The co-founders’ decisions to save cash for the
start-up by spending an ‘intense’ few months in close quarters
showed them that their relationship as colleagues could handle
the strains of entrepreneurship.
In 2015, there was a growing belief that the large incumbent
banks would suffer — and possibly die — as fintech start-ups grad-
74 / Rotman Management Winter 2019
It started with two:Natalie Cortwright and Jake Tyler,
co-founders of Payso and Finn AI.
ually lured customers away with better customer experiences.
With user traction and some key endorsements, Payso showed
early promise. It was accepted to a national start-up accelerator
called Highline and to pitch on Dragon’s Den. Natalie sought out
some introductions from her brother Jon Cartwright — a suc-
cessful start-up builder in his own right, with key roles at Food.-
ee and Zolo.ca. One of the meetings Jon set up was between
Jake and David Tedman at a bar in New York City, which led to
Tedman writing the first external cheque to fund Payso.
Chatting over coffee at one of Vancouver’s best known
tech hangouts, Tedman is decidedly understated in describing
his role in helping found Hootsuite — one of the town’s biggest
success stories — along with Ryan Holmes and Dario Meli. But
when I ask what it takes to succeed as an entrepreneur, it’s clear
he has given this a lot of thought. His views centre on the ability
of founders to readily accept every challenge that comes their
way and constantly reorient their thinking to stay on the winding
path to success.
Tedman admits that he wasn’t bowled over by the Payso
pitch when he first heard it. He’s often skeptical of founders who
say they’re ‘creating Uber for X’ — assuming that the playbook of
a successful, well-known business will work in another context.
On the plus side, Tedman did like Payso’s diverse, hardwork-
ing team. At the time, Chief Technology Officer Guru Sivana-
nda was living in India and essentially coding non-stop to get a
beta version of Payso out the door for market testing. Tedman
saw that the genial and highly committed CTO was the essen-
tial ‘third leg of the stool’, and he really liked the way the team
displayed humility, a strong work ethic and mutual respect. They
were quite unlike the cavalier, brash founder types that some VCs
are fond ofinvesting in.
In the stories of successful start-ups, it is common to find
founders who started with a deep conviction about customers’
 Finn AI’s clients number in the low double-digits—but their combined
market cap is over $200 billion.
needs, but no objective proof that their business will work. Airb-
nb’s founders, for example, faced innumerable rejections from
investors, who thought the idea that people would pay to sleep
on someone else’s air mattress was ludicrous. Similarly, in the
early days ofSpaceX, Elon Musk couldn’t point to any examples
of private companies building space-ready rockets for less than
hundreds of millions of dollars. Although both companies ulti-
mately attracted hundreds of millions in capital, the vast major-
ity ofthe funding didn’t arrive until after the founders had braved
the ‘pitch-and-pray’ phase — the traverse from ‘zero to one’, as
Peter Thiel put it in his book ofthe same title.
In the Payso team’s case, the classical wisdom imparted at
business school was to extensively research a market before en-
tering it. Yet ifthe founders had followed that advice, they would
have likely been deterred from starting the business. In contrast
to the narrative of the founder who pictures in high definition
how their idea will be used by society, it seems the reality for
many business creators is akin to the role of Bruce Willis’ char-
acter in The Sixth Sense, whose vision is so obscured by a drive
to succeed that he doesn’t allow for the possibility of having a
six-inch hole in his torso. By willing selective aspects of reality
out of their consciousness, these people are capable of feats that
literally defy logic.
The ‘hole’ in Payso’s argument was that Canada was not a
big enough market to create an independent Venmo. Jake and
Natalie recount investor pitches where they would say that, as
first mover, Payso had a good chance of taking the entire Cana-
dian market. Hearing this, some investors would say, in effect,
‘So what? Even if you did, the return you can generate in this
market is not enough to justify the amount ofmoney you want to
raise.’ The founders heard this a few times, and though it nagged
at them, they didn’t truly internalize it until later fundraising
troubles prompted them to face the issue head on.
Meanwhile, the launch of the Payso app went well. As
promised, it enabled users to send money between cellphones
without transaction fees. Their small marketing team was able
to find a number of groups — student clubs at McGill and UBC
— that would have their members download the app in order
to participate in social events and outings. The problem was
that Payso didn’t receive any revenue from its customers, and
it cost an average of $5 in advertising to acquire each new user.
With no immediate revenue model, success would probably
have required the company to be acquired by a financial institu-
tion that could find value in Payso’s users by selling them other
banking products.
When they ultimately shut down their peer-to-peer cash
exchange, the company had 10,000 customers who had made
about $1,000,000 in payments through the network. Today,
Finn AI’s clients number in the low double-digits — but their
combined market cap is over $200 billion. No longer constrained
by a single nation’s economy, the user base spans five countries
and four languages.
A walk through Finn’s Yaletown office shows that they are
clearly expecting more growth. There is a large, unused area at
the front — not far from the desk where, day and night, Sivana-
nda can still be found hammering out code, but now as a perma-
nent resident under Canada’s start-up visa program (along with
his wife and young children).
The company’s business model has evolved drastically since
the Payso days. Instead of paying out-of-pocket to acquire cus-
tomers that might be purchased someday by a financial institu-
tion, Finn now generates regular recurring revenue from banks.
In addition, the exposure it has to millions of banking customers
enables the team to continually enhance the intelligence of its
system. The anonymized data they receive from every consum-
er interaction grows their dataset of global banking customer
needs. As Jake explains, “what people in Nicaragua want from
their banks isn’t drastically different from what people in Cana-
da want, and we see similar trends in Europe and South Africa.
We’re learning from our customers.”
In an even more notable turn ofevents, much ofFinn’s busi-
ness is now financed out of revenue. This has not stopped the
team from raising millions in growth capital from well-known
investors such as Yaletown Venture Partners and Flying Fish
Ventures. Jake and Natalie envision acquiring customers rapidly
and have brought in capital to accelerate marketing. Recent fun-
draising efforts culminated in $14 million financing. Such a mile-
stone would have felt very distant to the founders after their first
few months on the road raising funds for Payso.
To stay on the path to success, start-up operators some-
times need to tell themselves a happy story to keep their spirits
up. Other times, they need others to do it for them. One such oc-
casion was perhaps the turning point in Payso’s fortunes. It was
an enigmatic conversation between Tedman and Natalie over
lunch at a Gastown coffee shop full ofyoung freelancers hunched
over Macbooks. Tedman had asked Natalie to meet him for an
rotmanmagazine.ca / 75
The Finn AI team continues to grow.
update and she had been dreading it. She had no good news to
share: After 24 months of working on Payso, all the funds Ted-
man and his friends had put into the company had been reduced
to a double-digit bank balance.
When Natalie reached a point in the conversation where
she felt she had to acknowledge this, she was surprised by Ted-
man’s ambivalence. She recalls saying, in effect, “Dave, we have
$76 left in our bank account. I’m so sorry.” Looking straight at
her, his only reaction was a slight nod of the head. At the end,
Tedman assured Natalie that the team would somehow figure
this out.
Finding a Way Out
How could a small company with no money and essentially no
staff not only escape oblivion, but emerge with a new identity in
one of the hottest market sectors around? The answer lies in the
art of the pivot — a life-saving swerve that few start-up founders
have the agility and resilience to execute.
Jake returned to Silicon Valley with no remaining preconcep-
tions or inhibitions. At the time, any number of CEOs of estab-
lished tech companies had the resources to muscle into the mar-
ket for AI banking tools, but Jake was among the few who were
truly ready for the next big thing.
Around this time, Facebook had been signalling it would
start offering commerce inside its Messenger service, and at
its F8 developer conference, the company formally invited out-
side developers to build chatbots for the service. With a mix of
good luck and laudable foresight, the Payso team had been ex-
perimenting with similar functionality offered by the workplace
collaboration company Slack, which enabled users to call in a
money transfer while they were chatting back and forth on the
platform. Slack itselfwas actually a good case study for the Payso
team because the product had grown shockingly fast out of an-
other business that ultimately didn’t succeed.
76 / Rotman Management Winter 2019
Slack’s Canadian founder, Stewart Butterfield, had twice
started video gaming companies that shut down after producing
highly popular innovations — first Flickr and then Slack. Simi-
larly, ‘Finn by Payso’ emerged as an offshoot that took far deeper
root than anyone anticipated. Sensing some early changes in the
market, Tedman and Jake wondered together: ‘Could we ride
the crest of Messenger for banking?’ They noticed WeChat, the
equivalent of Facebook in China, was having runaway success
with this model and it spurred them on.
When asked about the key parts of Payso’s recovery, Jon
observed that you need to “listen to your customers about what
they really need. You may find there’s a much larger opportunity
if you take the time to listen.” This trait distinguishes Jake and
Natalie from any number of founders who don’t ultimately find
their way. When critiques pile up, it’s common for people — par-
ticularly driven, intelligent ones — to shut the world out and cling
even more tightly to the views they hold as true.
In early 2016, Payso had been accepted to a fintech accelera-
tor in Silicon Valley called Plug and Play, and Jake found that the
financial institutions he was pitching were really warming to the
idea of ‘WhatsApp for banking’. By invoking the name of the
wildly successful global messaging app that Facebook had pur-
chased for billions, Jake was again using the ‘Uber-for-X pitch’
that Tedman had warned against—but it was working. It became
clear over a number ofweeks that ‘bots for banks’ would soon be
in high demand.
Tedman liked the strategy of ‘selling pickaxes in a gold
rush’ and leaning in to the growing demand banks were facing
— helping them rather than competing with them. Looking at
the market, they found that Kasisto, a company that had spun
out of the research institute that developed much of Apple’s Siri
AI interface for the iPhone, was the only company with a mean-
ingful presence in banking. Other than that, the playing field
was wide open.
 New from Rotman UTP

Despite the fresh new thinking, Finn now faced a major hur-
dle. It needed tens — maybe hundreds — of thousands of dollars
to properly test a chatbot product. Yet it wouldn’t be able to raise “The Innovation
money from new angel or VC investors because too much capital Navigator is both
had already been put into an idea that didn’t pan out — essen- relevant and profitable
totod ay’s bu siness
tially shackling the company to the investors who stood to lose
environment. Th e
their equity ifthe business folded. content pertains to
The leadership team called a meeting of the entire investor rang e of ind u stries
syndicate in March of 2016 to pitch the new story. It was clear to th at canbenefit from
everyone that the meeting would either be the pin to hold the th e framework and
applications provid ed ,
pivot together or the joint that would buckle with the pressure of wh ich h ave alread y
investor fatigue. provid ed maximu m
The team had been working ceaselessly to explore the pivot valu e with intop
and they put everything they had into the meeting. On the wall of companies.”
their boardroom, they mapped out the key themes and potential
MarcoMancini
turning points of the conversation. Jon, Tedman and Jake delib- Bristol-Myers Squ ibb
erated on who to ask first for support and how they might build
emotional momentum as the call went on.
When the hour came and Jake dialled into the conference
line, there was no way to know which way things would go. He
had almost a sense of detachment as he began laying out the “In Design Thinking
company’s new plan. In the end, the group’s efforts were enough: at Work, David Du nne
Cheques started dropping like rain — sporadically at first, and makes a notable
contribu tiontoth e
then in a deluge. The company built up a strong balance sheet as th eory and practice
it climbed through higher and higher tiers of customer approval of d esig nth inking by
— first in Canada and then the world. id entifying th e th ree
fu nd amental tensions
– inclu sion, d isru ption,
In closing
and perspective – th at
Today, Finn AI sits on top ofa sound base oftechnology and data. every d esig nth inker
Nevertheless, it needs to continue moving fast to secure as much mu st constru ctively
of the growing market for financial AI as possible. It could soon neg otiate inord er
seek to raise a large round of capital from leading U.S. VCs to get toprod u ce g reat
ou tcomes.”
the fuel needed to maintain its trajectory.
Roadshows and fundraising at that level will bring a whole Rog er Martin
new set of challenges, but the founders seem as ready as ever to RotmanSch ool of
make the most of their company’s strengths and drive it to the Manag ement
next level. When I recently met Natalie at Finn’s office, we found
ourselves standing in front of a wall that features every employ-
ee’s picture. “The clearest sign of our success,” she told me, “is
the quality of people we are attracting to work with us.”
The ceremonial sabre from the Dragon’s Den is mounted
prominently above the wall of photos. As corporate touchstones
go, it’s quite evocative — bringing to mind legends of brave @u tpress
knights emboldened by their ideals. And perhaps that’s one way
to view the twisty, challenging start-up journey: as a modern-day
mythic quest that requires both courage and resilience. Those u torontopress.com
without a sword need not apply.

rotmanmagazine.ca / 77
Fighting
Fragmentation
in Healthcare:
A MODEST PROPOSAL
There is widespread agreement that greater incentive alignment will be
valuable to the healthcare system. The question is, who will lead the way?
by Will Mitchell
GIVEN ITS COMBINED IMPACT on economic development and human
health, few would argue that the healthcare sector is the most im-
portant industry in the world. Together, the annual economic im-
pact of the hospital, healthcare professional, assisted living and
commercial sectors totals multiple trillions ofdollars, accounting
for more than 10 per cent ofglobal gross domestic product. In the
U.S., Canada and other countries, the sector is the number one or
number two employer, and it is marked by ongoing innovation:
Seven ofFast Company’s top 25 innovators in 2018 — Apple, Am-
azon, CVS, AliveCor, Novartis, OneOme and Peloton — have
active health or healthcare programs that, among many others,
are helping to grow economies around the world.
Looking beyond economic impact, healthcare in almost
all countries has made amazing progress in the past 50 years in
terms of helping people stay healthy, solving major health prob-
lems, reducing infant mortality and contributing to longer lives.
World Bank data, for instance, reports that from 1960 to 2016,
average life expectancy at birth in the world increased from 52.6
to 72.0 years, while average infant mortality fell from 121.9 to 30.5
deaths per 1,000 live births.
Although there is huge variance within and across countries,
the trends in almost all countries show at least moderate gains.
Innovations and diffusion of drugs, devices, clinical procedures,
fitness programs, and many other facets ofhealth and healthcare
products and services — introduced by traditional healthcare
firms and by a vast range of new ventures and diversifying en-
trants — underlie these improvements.
Despite all ofthis, we are far from realizing the potential ben-
efits of even our existing healthcare knowledge — let alone the
impact that viable healthcare innovations might have on human
life. Studies by the Commonwealth Fund and others highlight
major shortcomings in equity, efficiency and health outcomes
throughout the world. Individuals and organizations in the sec-
tor often struggle to achieve the ‘triple goal’ that thoughtful
rotmanmagazine.ca / 79
 Supply-side challenges commonly overwhelm what should be a demand-side
focus on what is actually valuable for patients.
stakeholders in all healthcare systems aim to achieve: To provide
services with a strong combination of quality and innovation, to
as many people as possible, at an appropriate cost. If we are to
achieve this triple aim, we need disruptive changes.
The Challenge:Value Chain Fragmentation
The core challenge to reaching our potential in healthcare impact
is not a lack offunding, commitment or individual skill. All devel-
oped countries invest substantial resources in healthcare, attract
people in both the public and private sectors who are deeply com-
mitted to providing and supporting effective care, and have high
levels of training. Lack of money and skill are bigger problems
in many lower and middle-income countries ( LMICs) , yet even
there, resources are often used poorly. Instead, the key issue
demanding disruption — both in traditional developed markets
and LMICs — is that healthcare systems are highly fragmented.
Collectively, they face ‘silo’ problems within and across the value
chain of institutions that create, supply and deliver healthcare
products and services.
Figure One provides a simplified summary of key actors in
the healthcare sector that together comprise major elements of
the chain of activities that ultimately deliver value for patients:
Science, in both academic settings and clinical practice, cre-
ates new products and procedures; commercial suppliers bring
the products and procedures to market; public agencies provide
regulatory oversight on safety and efficacy; healthcare providers,
including clinicians and administrative staff, manage and recom-
mend products and procedures; and payers, whether public and
private third-party payers or individuals providing out-of-pocket
payments, underwrite the costs.
Two major issues are depicted in Figure One. First, patient
needs are often an afterthought. Although patients are present in
the diagram — and all actors on the supply side universally refer
to patients as the primary driver for their decisions — the reality is
that the supply-side challenges of developing, supplying, admin-
istering and paying for goods and services commonly overwhelm
what should be a demand-side focus on what is actually be valu-
able for patients.
80 / Rotman Management Winter 2019
Second, the actors are typically connected only at arm’s-
length, emphasizing formal contracts and suspicious relation-
ships, with only limited knowledge sharing. And the money and
knowledge that do flow through the system suffer from major dis-
continuities. Too often, we develop and pay for products and ser-
vices that do not address the most important patient needs and
miss opportunities to contribute to systemic value. Individual ac-
tors commonly make decisions that are best for their own goals
and budgets, but are far from optimal for the health system as a
whole or for the needs ofindividual patients. Put simply, the mul-
tiple actors in the healthcare system lack the incentives to make
decisions that are best for patient needs — and for the strength of
the healthcare system itself.
Make no mistake, individual actors — whether they be sci-
entists, commercial vendors, physicians and other healthcare
professionals, regulators or others — truly do care deeply about
the needs of patients and the healthcare system. But at the same
time, they also care deeply about their own needs for profits, ca-
reer advancement and the viability of their own organization.
The result: Local needs too commonly trump systemic benefits
and the needs of individual patients.
The Goal:Incentive Alignment
So, what would a more robust value chain structure look like?
Figure Two provides a simple depiction, addressing the two
major problems identified in Figure One. First and most impor-
tantly, patients are now central, in practice as well as in our lan-
guage; and second, there is stronger alignment in the interests
ofhealthcare actors, resulting in better use offinancial resources
and more sharing of information.
To be clear: the incentives among the different actors in
Figure Two do not fully align, as there will always be some con-
flict in individual priorities. Yet, with at least moderate overlap
of incentives for innovation, cost sharing, lifecycle benefits, and
other patient and system needs, we would unquestionably have
stronger healthcare. Quite simply, we would gain far greater
leverage from the skills, commitments and passion of people
throughout the healthcare system.
 Health Sector Value Chain: The Current Scenario
Patients
Payers Providers
• Money
• Knowledge
Science
Suppliers Agencies
FIGURE ONE
What I have said thus far will not be particularly contro-
versial to anyone with knowledge of healthcare systems in any
country in the world. Fragmentation, silos and lost opportuni-
ties are topics in almost every conversation or analysis of health
system needs. The benefits of greater integration and incentive
alignment are central to current healthcare policies and strate-
gies, whether it be value-based pricing, community-based care,
beyond-the-pill initiatives, digital health, command centre plat-
forms or the many other programs that flourish through the pub-
lic and private healthcare sectors. The key question is not wheth-
er greater incentive alignment will be valuable. Instead, the core
issue is, who will lead the alignment?
Each of the nodes in the figures has the potential to be an
active partner in achieving greater value chain integration.
Government agencies such as regulatory bodies can push for
greater evaluation of systemic value when they assess efficacy;
third-party public and private payers can pay more for products
and services that offer patient and systemic benefits — and less
for those that do not; healthcare providers can work harder to
tear down the walls that separate professional specialties from
each other and from administrative practice; people who devel-
op products and services can pay greater attention to systemic
impact, such as focusing more of their attention on products,
services and procedures that have stronger lifecycle benefits;
and commercial vendors can put greater emphasis on products
and services that improve patient outcomes, both at a particular
point in time and over a patient’s life. There are also multiple
complementary options that would increase the value delivered
through their synergy.
These are not novel insights. We have long recognized these
potential improvements and have made some real efforts to-
wards them, but are still waiting for many of the major benefits
to occur. The reason? It is not clear which actors have both the
Health Sector Value Chain: The Goal
Payers Providers
Patients
Suppliers Science
Agencies
FIGURE TWO
systemic knowledge and incentives to push forward successfully
with integration.
Commercial Vendors Can Lead the Way
My argument is about to become more controversial: I believe
that commercial vendors such as medical device and pharma-
ceutical firms — including both manufacturers and distributors
— are positioned to play lead roles in helping to achieve greater
integration and incentive alignment in our healthcare systems.
This suggestion may strike some readers as absurd, in a
world where pharmaceutical firms are commonly viewed as
price gougers and biased innovators. Indeed, in 2018, the U.S.
Gallup survey on industry reputation placed the pharmaceutical
industry ahead of only the federal government in terms of pub-
lic reputation, with a net negative rating of 23 per cent ( 30 per
cent positive, 16 per cent neutral, 53 per cent negative) . Medical
device companies tend to fly somewhat less visibly under the ra-
dar ofgeneral public perceptions, but are often viewed with deep
suspicion by those who purchase their products. Why would
such untrusted companies be credible as active partners in value
chain integration?
The core reason that we should see vendors as value chain
partners is that they tend to have unusually broad-based knowl-
edge of healthcare systems and opportunities to create patient
and systemic value. By their nature, they typically deal with mul-
tiple hospitals, clinics, pharmacies, assisted-living facilities and
other healthcare actors, often in multiple countries and com-
monly across multiple medical specialties. Other reasons to fo-
cus on vendors include:
• They are often at the forefront of digital initiatives that cut
across institutions.
• They have extensive databases of product usage and, in
many cases, health outcomes.
rotmanmagazine.ca / 81
 • They often have experience in supply chain management
and skills in other industries that offer insights for health-
care.
• They observe clinical and administrative practices in a wide
range of settings and have the potential to draw together
insights to help their customers make substantial advances
that can reduce costs and improve outcomes.
Consider a few examples. Drug companies sell their products
in multiple countries for patients with a wide range of indica-
tions. Increasingly, moreover, they are bundling drugs with other
health services such as nutrition, exercise, early stage diagnosis
and outcomes evaluation. The insights from these activities are
relevant for most or all oftheir customers, whose practices are in-
evitably more local and focused. Likewise, medical device com-
panies commonly deal with a wide range of clinical practices.
In the same vein, healthcare distributors have a broad base
of experience and knowledge about which products and services
offer benefits in particular settings, which can help reduce costs
across a healthcare system, and which are most likely to be ben-
eficial over a patient’s life. While no single vendor has universal
knowledge, any one vendor has sufficient knowledge to help cli-
nicians and administrators make more robust decisions about
healthcare costs, quality innovation and access.
Currently, vendors do play a relevant role in helping to
shape such decisions by many of their customers and other ac-
tors throughout the healthcare value chain. Device producers,
pharma companies, information technology vendors and others
often work closely with their customers in specific therapeutic
areas and, increasingly, are helping to bring different specialties
together to seek shared value. But we are far from the frontier
in taking advantage of their knowledge. The challenge lies, in
part, in recognizing that vendors possess valuable knowledge,
but even more in trusting them to have the incentive to use that
knowledge for systemic benefit rather than private gain. What,
then, would create the incentive for vendors to use their knowl-
edge for systemic benefit and, in parallel, for other decision-
makers to trust vendors’ recommendations?
82 / Rotman Management Winter 2019
Following are four suggestions for aligning vendors’ incen-
tives with those of other actors in the healthcare system.
• TRANSPARENCY: All recommendations and promotions
should be recorded and publicly visible. This will allow de-
cision-makers and external analysts to compare and con-
trast recommendations, provide oversight and evaluation.
• SHARED DECISION MAKING: Rather than being the primary
drivers of value chain integration, vendors need to view
themselves — and to be viewed — as value chain partners,
sharing the responsibility for identifying system and patient
benefits with other actors. Each actor in the system needs
to bring its knowledge to the discussion.
• SHARED BUDGETS:One of the major issues that currently in-
hibits systemic decisions is the fragmentation of budgets
within and across organizations. The central problem is that
those who must pay for products and services that will pro-
vide systemic gains in costs and quality often do not reap the
benefits, and as a result, they often do not make systemic
choices. The solution is easy to identify, even if difficult to
implement: Actors with oversight over multiple budgets in
their hierarchy and in their network of more informal rela-
tionships need to push those responsible for the budgets to
make joint decisions, reward them for doing so, and penal-
ize them if they do not. The role for vendors here is to help
identify budgets that need to be aligned, both within depart-
ments ofindividual clients and across the multiple organiza-
tions that they deal with.
• A SENSE OF PERSONAL RESPONSIBILITY: Senior executives and
operating staff members of commercial vendors need to
view themselves as ‘system stewards’ who will be rewarded
for decision making that advances both the interests oftheir
companies and the strength of the healthcare system. Ca-
reer advancement needs to be tied to system outcomes as
well as to corporate success.
 A proactive strategy of value chain partnership is a pathway
to commercial success.
A key question here is whether, in addition to contributing to
system strength, these suggestions are consistent with corpo-
rate strategic interests? The short answer is Yes. Companies that
successfully become trusted partners will gain sales compared
to competitors that are not able or willing to do so. A proactive
strategy of value chain partnership is a pathway to commercial
success.
Looking Ahead
To some, these suggestions will seem naive. What will it take
to encourage people who, even as they care about patients and
healthcare systems, also need to care about their own goals and
needs? The answer to this question has two parts: low-hanging
fruit and effective leadership.
First, we are not going to completely transform healthcare
systems overnight. However, all healthcare systems contain op-
portunities to bring together focused sets oftwo or three current-
ly uncoordinated activities that have real potential for systemic
and patient improvements. The opportunities will vary by con-
text and could include linking decisions about surgical activities,
post-op procedures and out-patient follow-up more effectively;
shifting activities that traditionally take secondary/tertiary care
settings to primary care facilities; taking advantage of the grow-
ing sophistication of pharmacies as first-line providers; pulling
together drug treatments with lifestyle and nutrition programs;
tying emerging digital initiatives with traditional care platforms;
and an infinite variety of other prospects. There is no shortage of
opportunities with potential for major impact.
Second, though, we will need effective leadership by people
who will be affected by the changes. Bringing two programs to-
gether to make a joint decision requires that leaders from both
programs believe in the benefits and are willing to commit the
time and energy to negotiate solutions that are viable for both
programs — to share the initial costs and, in turn, to share the
subsequent benefits. To get to this point, leaders who do not
traditionally work with each other must begin to do so. As a first
step, this might mean identifying a small project that offers a
win for each of the parties involved, bringing together a few staff
people to deliver the project, and developing a shared language
and respect during the course of the project.
Historically, we have been most likely to undertake such
cross-functional projects within institutions — hospitals, agen-
cies, companies, and other silos in the system. What we need to
do now is look for opportunities for inter-institutional projects.
For instance, to bring a couple of people from a vendor togeth-
er with a couple of people from a clinical practice and a couple
of people from an administrative team to devote a few hours to
achieving a targeted goal. Then, evaluate what has been learned
about the goal and each other to help set up another, ideally big-
ger, goal.
Bringing vendors into the mix as key partners in creating
patient and system value may appear controversial. But if we do
not do so, we are leaving important knowledge on the floor and
missing opportunities for improvement. By contrast, if vendors
do engage more actively as value chain partners, we can gain im-
portant disruptive benefits.
Even if many stakeholders do not yet trust vendors’ incen-
tives, it is not as if the rest of the healthcare system has much
stronger credibility. The same 2018 Gallup poll that ranked the
pharmaceutical industry as second from the bottom in reputa-
tion ranked healthcare only one step higher, at 14 per cent net
negative ( 34 per cent positive, 18 per cent neutral, 48 per cent
negative) . Actors throughout the healthcare value chain need to
improve their public perception, and a central way to do that is
to work together in stronger partnerships. As indicated herein,
commercial vendors offer key knowledge and, potentially, ap-
propriate incentives as central actors in these partnerships.
Will Mitchell is the Anthony S. Fell Chair in New Technologies
and Commercialization and Professor of Strategic Manage-
ment at the Rotman School of Management. He is also Co-
Director of the Rotman Global Executive MBA for Healthcare
and the Life Sciences.
Rotman faculty research is ranked in the top 10 worldwide by the Financial
Times.
rotmanmagazine.ca / 83
 The NextDisruptive Wave:
Human
Augmentation
Technological disruption goes back to the first Industrial
Revolution. Recent waves include mobile, social and sensors.
Up next: Human Augmentation.
by Andrea Potter, Gautam Jaggi and Prianka Srinivasan
PARI AWAKENS IN LONDON to the smell ofwaffles hot from her kitch-
en’s 3D printer. Her virtual personal assistant, Martin, says good
morning and mentions that it’s cold outside. He tells her that he’s
purchased the sweater she’s been admiring and it has just been
drone-delivered. After she gets dressed, her driverless taxi ar-
rives. During the commute, she enjoys a virtual-reality ( VR) call
with her husband, who is travelling overseas.
When Pari arrives at her shared office space, she is notified
that three different companies have requisitioned the services
of the freelance collective to which she belongs. One request
originated in China and has already been translated. On her way
home after work, Pari’s implanted microchip alerts Martin to a
high cholesterol reading. Martin announces that he has booked
an appointment with a virtual doctor and has pre-emptively re-
vised her menu plan. That evening at home, Martin ports Pari
into her favourite VR video game. Later, as she goes to bed, Mar-
tin plays a soothing soundtrack. The songs have been composed
by an agent that understands Pari’s musical tastes and current
emotional state. As Pari sleeps, Martin plans her next vacation.
Welcome to the era of human augmentation. Few would ar-
gue that we live in interesting times. Surrounded by the everyday
miracles of smartphones and sensors, we are so inundated by
stories about driverless cars that they already seem like old news
— years before anybody in the world has even owned one. Now,
consider something that is further in the future but truly unprec-
edented and revolutionary: We are entering the era of human
augmentation.
While technology has always augmented human capa-
bilities, the technologies that are now coming into their own,
including artificial intelligence ( AI) , robotics, autonomous ve-
hicles ( AVs) and Blockchain, promise to go further. These break-
throughs are in turn generating new products and services, such
as AVs, drones, robots and wearables. For the first time in human
history, technologies will be able to act autonomously on our be-
half, with far-reaching consequences for everything from work to
marketing to regulation.
On a daily basis, we are bombarded with more data than our
brains can process. AI already acts as an intelligent ‘consultant’,
helping us make sense of this cognitive burden, from curating
reading lists to navigating driving routes. Human augmentation
technologies will soon assume even more agency by driving cars,
automating jobs and making retail purchases. In doing so, they
will blur the line between humans and machines, realigning soci-
etal norms and challenging entrenched perceptions ofourselves.
rotmanmagazine.ca / 85
 Technologies will be able to act autonomously on our behalf,
with far-reaching consequences.
The Rise of the Super Consumer
The evolution and interplay of AI, machine learning, ever-pres-
ent sensors, smart devices and new computing interfaces will
take consumer empowerment to a whole new level — giving rise
to tomorrow’s Super Consumer. A little like the fictional super-
heroes of comic books, super consumers can be defined as those
who embrace new technologies such as AI, virtual reality, wear-
ables and robotics to create smarter and more powerful exten-
sions of themselves. Whether working, playing, eating, shop-
ping, learning or pursuing healthier lifestyles, tomorrow’s super
consumers will be augmented by technology in the service of
achieving more informed and rich experiences across these dif-
ferent categories ofliving.
The expectations of today’s consumers are already high
and rising: People expect their brand experiences to be unified
and elegant across all touchpoints; they want to be recognized
as individuals, have their likes and dislikes understood and re-
membered, receive advice perfectly aligned to their interests and
purchase highly personalized products and services. They expect
technology to help, not hinder, their quest to get what they want,
where and when they want it. And, the price of a mistake is high.
Forrester reports that consumers who experience disgust, anger
What’s Next? by Frank Spencer and Yvette Montero Salvatico
Most of us cannot fathom the profound changes that are at our
doorstep. Following are just some of the disruptions that will
transform the nature of innovation and breakthroughs in today’s
organizations.
Post Citizenship.. Today’s landscape of megacities, hyper mobility
and digital economies is driving the move to ‘global citizenship’. As ex-
perts have noted, the adage that“geography is destiny”is giving way
to the idea that“connectivity is destiny.”In this new world, nationality
and citizenship no longer determine economic and social success.
Digital Values. Traditionally, values have been created and passed
along through families, communities and associations. However, the
rise of the Internet is changing the way values are formed, dissemi-
nated and adopted, and the landscape of the digital environment
is even fostering new ideals that may or may not translate to the
physical world.
Digital Identities. Beyond the entirety of an individual’s online
activity, a digital identity is a set of attributes used by computing
86 / Rotman Management Winter 2019
or a feeling of neglect during a negative brand interaction are
eight times more likely not to forgive that company than those who
experience other forms of poor interaction.
While consumers’ expectations are high, reality lags behind
— and some of the mismatch is technology-related. Today’s AI
is good at performing narrowly-defined tasks, but less adept at
completing generalized intelligence tasks that require human-
like reasoning: The multitude of ‘smart’ devices and systems on
the market cannot inter-operate and quantum computing is im-
mature and cannot, at present, meet the massive demand for ad-
ditional processing power that increased data flows and sophisti-
cated algorithms will require.
The rise of the super consumer will be a worldwide phe-
nomenon, but could play out at different speeds and levels of
complexity across the world. AI investment and adoption has in-
creased dramatically in both China and India over the past few
years, suggesting that Asia might well lead the way in terms of
generating new super consumers. At the same time, persistent
economic inequality and infrastructure disparities across the
globe ( and within nations themselves) could lead to a class ofdis-
empowered consumers who fail to benefit from the AI revolution.
In Europe and the U.S., concerns about privacy and the
systems to represent and authenticate any person, organization, ap-
plication or device. In other words, your digital identity is your online
avatar. Many are suggesting that we will soon need to make sure
that everyone is given a digital identity at birth in order to protect our
information, participate in economic systems, or live in the increas-
ingly ubiquitous world of the Internet.
Robotic Relationships. Beyond the popular conversations that
envision these machines as our teachers, caregivers and even
sexual partners, robots are now being leveraged to socially engineer
dormant emotions and values in their carbon-based creators.
Many educational and organizational researchers are finding that
increased relationships with robots enhances the human tendency
and capacity toward creative collaboration.
The Datification of Nature. Unmanned aerial vehicles (UAVs),
better known as drones, are already reshaping the way we see the
world. As scientists use UAVs to gather data on the Earth in order
to better understand the forces of nature, we’re seeing a shift in
the way that we interpret the world around us through the eyes
 Will becoming a super consumer involve monetizing
one’s own personal information?
ownership of one’s personal data are more than just a rumble,
especially amid stories about high-profile data breaches, fears
of government abuse of personal data and tales of personal vir-
tual assistants spying on their owners. Will consumers continue
to relinquish control of their data to providers in exchange for
free services? Or, will part ofbecoming a super consumer involve
monetizing one’s own personal information?
Generational differences may blunt some of these concerns.
After all, digital natives have grown up in an environment where
personal data is readily exchanged for convenient services and
unique experiences. And, empowerment may not look as it does
now. With the arrival of the Internet, consumers became direc-
tors of their own lives while sitting at keyboards and tapping on
phones. But it’s a different kind ofempowerment when people opt
to become passive as computers make decisions for them. Some
consumers may resist becoming ‘owned’ by one of the emerging
AI ecosystems or delegating decisions to these ecosystems.
Rising expectations put the onus on companies to innovate
now with tomorrow’s super consumer in mind. Seamless deliv-
ery of pleasing experiences across physical and digital realms,
as well as disparate channels and devices, is the goal. Reach-
ing it will require the right mix of new technology investments,
of drones. The ‘datafication’ of nature could lead to an ‘Internet of
Nature’, leading to vast disruptions in agriculture, sustainability, and
the way we live on our planet.
Networked Matter. The ever-growing network of cars, buildings,
clothing—and every other physical object you can imagine—will be
connected and speaking to one another through the use of sensors,
software and smart technology.
Brain-to-Computer Interface. The direct communication
between an enhanced or augmented human brain and any external
computational device, including the use of information technology,
neuroprosthetics, cybernetics, and genetic engineering.
Genetic Modification. Long before gene-editing kits became a
common feature in the kitchens of citizen scientists, governments
and innovation labs across the globe began to wrestle with the
advancements of crop manipulation, designer babies and artificial
wombs. There are ethical questions to answer, but the impact of
bioengineering will be undeniable.
especially those that will yield valuable data on current and pro-
spective consumers.
Beyond determining the right mix of technology invest-
ments, companies must also re-engineer their business pro-
cesses and operations to achieve a holistic view of the consumer
across the entire brand journey, connecting fragmented tech-
nologies and data silos as part of this effort. The ecosystem of
data providers and agencies that support marketing should also
be integrated. But, ultimately, companies that thoughtfully con-
sider what it means to be human in an intelligent machine era will
create the brands that attract super consumers. Humans are ver-
bal and conversational, as well as emotionally driven. From their
providers, they want relevant and trusted interactions, friction-
less transactions and rich experiences. The companies that can
leverage technology and design to meet these criteria will be best
positioned to serve tomorrow’s super consumer.
The Role of Behavioural Design
In recent years, two trends have moved the discipline of
Behavioural Economics — which identifies biases in human
economic behaviour — from the corridors of academia to main-
stream market applications. First, many societal challenges
Intelligence Amplification. Some of the most brilliant scientists
and technologists have warned us about the dangers that Artificial
Intelligence poses to humanity, but a few are beginning to espouse
a world where humans and machines converge to enhance the
mind and body.
Digital Immortality. The age-old idea of immortality is getting a
21st century reboot with digital platforms and new technologies
allowing us to live forever in a cyber sense. The implications to social
norms and often lagging regulations will be significant as our notions
of humanity are challenged when death can be cheated with a
software update.
Frank Spencer IV is the Founder & Creative
Director of Kedge, a global foresight, inno-
vation and strategic design firm that empow-
ers companies to pull the future into their
organization. Yvette Montero Salvatico
is Managing Director of Kedge. Their clients have included NASA, Charles
Schwab, LEGO, Kraft, Marriott, Mars and The Walt Disney Company.
rotmanmagazine.ca / 87

Some Behavioural Design Principles
We expect the following behavioural design principles to
become commonplace as human augmentation takes hold.
1. Designing for cognitive biases:Behavioural Economics
will inform successful design for human augmentation tech-
nologies. Designers may need to include design elements
that provide choice and user control, for example. Marketers
could frame these designs by emphasizing what users lose
by failing to adopt new technologies (leveraging the bias of
loss aversion). Similarly, they could incorporate messaging
on adoption rates by others in the community to encourage
uptake (social norms).
2. Differentiating for social contexts:Since users en-
dow anthropomorphic products with human-like attributes,
these products exist in specific social contexts. Developers
will need to design differently for each context. For instance,
users might prefer that homecare robots assisting them with
bathing be less lifelike than those helping them with financial
planning; Users in China view privacy and control differently
from those in Europe; and different generations will bring
different levels of acceptance to their adoption of new
technologies.
3. Learning based on the stages of adoption:Since
human augmentation technologies are a new space, compa-
nies will continuously adapt designs and incorporate the les-
sons they learn. Indeed, user biases themselves will change
at different stages of the adoption curve. Fears of technology
and the need for human control could dissipate with time;
designs will adapt. On the other hand, other cognitive biases
will become more important with time. One example is auto-
mation bias, which is the tendency to rely excessively
on automation over human judgment.
aggravated by behaviour — climate change, chronic diseases and
excessive debt — are becoming increasingly urgent and expen-
sive. Second, mobile and social platforms are making it possible
to measure and guide behaviours in real-world, real-time condi-
tions like never before.
The next wave of technological disruption, human aug-
mentation, will raise this challenge to a whole new level. While
mobile and social platforms have been transformative in chang-
ing behaviour in real-time and real-world conditions, they still
rely on human intervention. Human augmentation technolo-
gies promise to change that. Today, individuals managing their
diet may need to constantly remember to enter meal details and
88 / Rotman Management Winter 2019
calories in an app. In the future, AR could eliminate this step as
smart eyeglasses and smart dishes automatically identify and
capture meal data, enabling motivational ‘nudges’ based on
more accurate and complete real-world information.
AI could enable personalization to a degree never before
possible. For example, ‘digital twin’ avatars could show individu-
als the long-term consequences oftheir health decisions. Achiev-
ing this vision would deliver significant societal benefits, but
getting to this optimistic future will require tremendous focus on
behavioural design: designing products, features, interfaces and
messaging that account for the cognitive biases that human aug-
mentation technologies are likely to trigger.
Behavioural Economics offers three important insights for
organizations as they enter the realm ofhuman augmentation.
1. WE ARE PREDISPOSED TO FEAR NEW TECHNOLOGIES. Human aug-
mentation is sparking fears about everything from job losses
to AV safety to the prospect of self-aware AI that threatens
humanity. While every new technology creates some risks,
several cognitive biases predispose humans to overestimate
such threats. Probability neglect leads us to focus on the mag-
nitude of outcomes ( e.g. dying in a car crash) rather than
their associated probabilities ( e.g. automated vehicles are
statistically safer than human drivers) . To the extent that we
process probabilities, we tend to overestimate small chanc-
es. The availability heuristic leads people to focus on and
exaggerate the importance of readily available information.
So, the barrage of news coverage about a single Tesla crash
drowns out a sea of underlying data about AV safety. AI and
AVs are already triggering such fears, and we expect more as
technologies such as passenger drones and brain-machine
interfaces come into their own.
2. CONTROL IS IMPORTANT. The illusion of control bias predisposes
us to want to feel that we have control, even in situations
where we don’t. The ‘close door’ button in many elevators,
for instance, does not affect how soon elevator doors shut;
it merely gives users a sense of control. This aspect of hu-
man psychology will become increasingly relevant as hu-
man augmentation technologies start acting on our behalf.
For instance, AVs could, in theory, enable a complete rede-
sign ofautomotive cabins to look more like living rooms, but
the need for control might instead dictate retaining steering
wheels and brake pedals. Similarly, virtual shopping assis-
tants could reinvent the shopping experience, but it is not
yet clear whether consumers will be comfortable with sur-
rendering control over their purchasing decisions.
3. LIFELIKE INTERFACES TRIGGER HUMAN PSYCHOLOGY. As AI assis-
tants, robots and VR become increasingly lifelike, they could
 The Emergence of the Super Consumer Questions for Leaders

Super Consumers will communicate with markets, compa- • Do you understand your customers’ behavioural barriers
nies, governments and each other in a very different environ- to adopting innovation?
ment than exists today.
• How are you incorporating behavioural design in products,
• Voice will drive interactions. Super consumers will be services, interfaces and messaging?
largely liberated from keyboards, screens, taps and swipes.
While text will still have a place, voice will be the predominant • How could we design technology to be less addictive
means of future interaction among consumers and compa- and polarizing?
nies, given that it is a natural and faster communication mode
for human beings. • How could augmented and virtual reality nudge real-world
behaviours?
• Machines will augment human decision-making.
Virtual digital assistants will play multiple roles in people’s
personal and professional lives as concierges, executive
assistants, coaches and the like. Imbued with emotional
awareness, these assistants will know their human owners
profoundly as individuals and will make decisions on behalf
of those they serve.
short run. Our tendency to anthropomorphize also raises con-
cerns that our behaviours with lifelike machines might influence
• Access to technology will be ever-present. Enabled how we behave with other humans. For instance, will the license
by an invisible and unobtrusive internet of things, consum- to behave cruelly towards a robot desensitize us in the way we
ers will be surrounded by intelligent physical environments treat each other?
that are sensitive and responsive to their needs and desires.
Wherever consumers happen to be, they will have access to In closing
the technology required to execute their demands. Disparate
Besides freeing us from mundane work, the combination of ar-
environments (homes, cars, stores and work spaces) and op-
tificial and human intelligence will drive breakthrough discov-
erating systems will be bound together in seamless fashion.
As consumers criss-cross and inhabit various spaces, these eries. Human creativity and judgment augmented by the brute
spaces will recognize and interact with them in personalized computational power of AI has already led to breakthroughs in
and contextual ways, sometimes assisted by AR capabilities. energy generation and storage, drug therapies for genetically
caused diseases and space exploration. Next, it could yield solu-
tions to some ofhumanity’s most intractable problems.
What lies beyond could be even more transformative: A con-
vergence of information technology, biotechnology and nano-
technology that promises to overhaul the very definition of what
it means to be human. Neuroprosthetics, brain-machine inter-
trigger cognitive biases. We have a deep-seated tendency to
faces, DNA editing, ingestible nanobots and embeddable radio-
anthropomorphize — to attribute human-like qualities to—
frequency identification ( RFID) chips are still in labs. But, in the
inanimate objects. Designers have embraced this tendency,
not-too-distant future, they may become the tools that upgrade
for example, with car grills that subtly evoke a human smile.
us from organic to bionic. Only one thing is certain: The era of
Robots and AI assistants will take anthropomorphism bias
human augmentation is just beginning.
to a whole new level, with implications for user adoption and
engagement.

Anthropomorphic design insights are already emerging. For

This article has been
instance, studies find that digital assistants are more likeable if adapted from EY’s report,
they make small mistakes instead of operating flawlessly — a re- “The Upside of Disruption:
sult known as the pratfall effect. Another bias, the uncanny valley, Megatrends Shaping 2018 and
Beyond”, which is available
leads people to feel repulsed by robots or VR implementations
online. The sections excerpted in this article were written by Andrea Potter,
that appear almost, but not quite, human. This suggests that de- Gautam Jaggiand Prianka Srinivasan, analysts at EYQ, EY’s global think
velopers might keep products from becoming too lifelike in the tank dedicated to exploring ‘what’s next after what’s next?’

rotmanmagazine.ca / 89
informs and inspires millions of social change leaders from around the world and from
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Idea Exchange
92 MING ZENG what it takes to be a Smart Business

96 TIFFANI BOVA what’s your Growth IQ?

100 ANGÈLE BEAUSOLEIL a recipe for innovation

103 SANGEETA BADAL how to build something great

106 GONZALO ROMERO on innovative supply chains

109 JIM STENGEL on partnering with start-ups

112 NICHOLAS BAYLEY harnessing the power of disruption

115 BRIAN KENG on the role of the Chief Data Scientist

118 MICHAEL PLATT on using Neuroscience insights for innovation

121 DAVID DUNNE on mastering the tensions of Design Thinking

124 STEPHANIE WOERNER on creating your digital business model

128 DANIEL MARKOVITZ on the perils of internal disruption

131 LIRAN BELENZON on his start-up journey

134 FRANCESCA GINO why it pays to break the rules

 QUESTIONS FOR Ming Zeng, Chief Strategist, Alibaba Group

Q
&A A digital business pioneer
describes the keys to be-
ing a ‘smart business’.
Interview by Karen Christensen
Why is it important for every Western businessperson to
be familiar with Alibaba’s business model?
Alibaba’s business model provides key insights into the fu-
ture of strategy. The sources of competitive advantage have
shifted dramatically, and companies need a new strate-
gic approach that fits into an era where networks and data
dominate. For us, strategy is no longer about analysis and
planning; it is a process of real-time experimentation and
customer engagement. Going forward, a big challenge for
leaders will be to delegate more and more work to machines
— especially in routine operational decisions — so that peo-
ple are freed up to become more creative and innovative.

Is Alibaba China’s version of Amazon?

Definitely not. Alibaba first grabbed global attention with
the biggest-ever initial public offering on September 19,
2014, and today, it has a market cap that is on par with
Amazon; but that is where the similarities end. Alibaba has

92 / Rotman Management Winter 2019

 Businesses need a new strategic approach that fits
an era where networks and data dominate.
a unique business model. We are not a retailer in the tradi-
tional sense. We don’t source or keep any stock and logistics
services are carried out by third-party providers. From the
beginning, Alibaba has been an open ecosystem that em-
powers millions of sellers to do business on our platform.
Alibaba is what you get ifyou take every function associated
with retail and coordinate them online into a data-driven
network of sellers, marketers, service providers, logistics
companies and manufacturers. We have succeeded in con-
necting and coordinating all ofthese players, relying heavily
on machine learning technology to achieve scale and man-
age complexity. We basically do what Amazon, eBay, Pay-
Pal, Google, FedEx, and a good portion ofWholesalers and
Manufacturers do, combined — with some elements of the
financial sector thrown in.
Many people still think of China as it was two decades
ago — as the world’s factory, undeveloped and filled with
copycat businesses. This impression is a dangerous mistake.
Chinese companies are creating world-class products and
consumer experiences. China is now a virtually cashless so-
ciety. Everything is paid for with the swipe of a smartphone.
Chinese companies are not just catching up anymore — they
are innovating in parallel and even leapfrogging Western
companies in some areas. The pressure is on for these com-
panies to become ‘smart businesses’.
How do you define a smart business?
Smart businesses use machine learning to gather data from
their networks of participants to automatically respond to
customer behaviour and preferences. A smart business al-
lows the entire value chain to be reconfigured to achieve
both scale and customization, using a combination of two
forces: network coordination and data intelligence.
Network coordination is the breaking down of compli-
cated business activity so that groups of people or firms can
get it done more effectively. Functions that were once locked
into vertically integrated structures or rigid supply chains
are now easily coordinated through online connections. As
the network of business actors coordinates online, business
activities are also getting smarter. Constantly flowing data,
created from real-time interactions, creates a continuous
feedback loop that automatically generates decisions that
are increasingly ‘intelligent’.
Data intelligence is the business capability to effec-
tively iterate products and services according to consumer
activity and response — and it is a radical departure from
how most firms generate products and services today. A
simple example of data intelligence is recommendation
engines, but the capability I am describing is much more
sophisticated than that. Companies can now develop more
highly evolved applications of data intelligence if they
automate decision making and constantly run real-time
data — say, supplier’s shipping times, fabricators’ finishing
notices, logistics tracking or customer preferences. This
automation is achieved through machine-learning algo-
rithms that enhance coordination and optimize every link
in the value chain.
You believe automating decisions is a five-step process
(see sidebar). Which is the toughest step to achieve?
Every step is difficult, but I think the most difficult part is
the first step — ‘datafying everything’. For the last 200 or
300 years in the industrial economy, we have been deal-
ing with physical products and a physical environment;
but now, you have to transform your business into a digital
one, and that requires very deep knowledge of the domain
of your industry and also, a deep understanding of all the
new technologies and ways of operating. For leaders in a
traditional industry, the challenge at hand is to embrace
the smart-business mindset.
How is Alibaba using artificial intelligence?
Artificial intelligence is an example of‘general technology’,
which means a technology that has so many applications
rotmanmagazine.ca / 93
 Smart businesses use machine learning to gather data from
their networks and respond to customer behaviour.
Five Steps for Automating Decisions
1. Datify the physical world
2. ‘Software’ every activity of your business
3. Get data flowing and introduce application
programming interfaces (APIs)
4. Record data in full (‘live data’)
5. Apply machine-learning algorithms
that it can be applied in almost any context. Of course, this
process takes time. Companies need to develop the tech-
nology and find innovative ways to use it, and we are in that
same process.
Take search, for example. Search is powered by early
AI technology, but over the last five years, we have devel-
oped a great recommendation- engine capability. We can
tailor make offers to anyone who visits our website, in real
time. We’re also exploring automation in warehouses, lo-
gistics and deliveries. This includes robotics, self- driving
tasks, smart warehouses and smart production facilities.
All of these require artificial intelligence.
Data scientists are continually uncovering new ways
to model problems and program machine-learning al-
gorithms to make them more powerful. Most machine
learning algorithms learn by processing huge amounts of
data before they are unveiled to the public. Once the al-
gorithm does a good job, a company can put it into opera-
tion in real time, with real customers. These algorithms
continue to improve as they use the data stream gushing
from online events like our 2017 Singles Day. On this one
day, the Alibaba platform handled 325,000 transactions
94 / Rotman Management Winter 2019
per second at its peak — the equivalent of 20 million
transactions per minute.
Talk a bit about your foray into financial services.
China has not had a sophisticated financial system, be-
cause banking has historically been a government function
designed for large state- owned businesses and individual
savers. Lending to small and medium-sized businesses
( SMEs) was beyond the scope of most Chinese banks. In
2012, we saw this unmet need and realized that we had
all the necessary ingredients to create a high-functioning,
scalable SME-lending business. Today, our microloan busi-
ness is called MYBank, and it is a completely virtual bank
with no offline locations.
The key to MYBank’s success is that our data scientists
are able to compare groups of ‘good borrowers’ with ‘bad’
ones and isolate common traits from both groups, calcu-
lating a credit score for each client. What is revolutionary
about our approach is that such comparisons are done by
algorithms automatically on all borrowers using their be-
havioural data — thousands and sometimes hundreds of
thousands ofpieces ofdata—in real time. At the same time,
the algorithms that calculate credit scores are themselves
evolving in real time, improving the quality of decision
making over time.
Despite all of these advances, you believe that the indi-
vidual is more powerful today than ever before. Why?
In the traditional economy, organizations operated like
well- oiled machines, and a person’s place as a cog in the
machine was more or less fixed. There was little room
for development or change. Network technologies have
changed all that. Large platforms prosper only because
they enable individuals to grow and succeed. At the same
time, individuals can increasingly access and utilize capa-
bilities and other assets that they do not own themselves.
Overall, the principles of smart business apply to
individuals as much as they apply to firms. My advice for
 The principles of smart business apply to individuals
as much as they apply to firms.

The Three Cornerstones of a Smart Business

Adaptable Products. Algorithms cannot iterate without

individuals is to be flexible: Think carefully about your po-
sitioning within an organization or network and explore how
data technologies can maximize your contribution. Choose
roles and partners that give you the most leverage and bring
the greatest future potential. At the same time as advanced
technologies appear to be taking over the world, they are
coalescing to unleash individual creativity. They need not
swallow the individual, but can instead propel you forward
to greater heights.
What is the greatest challenge on your plate at the mo-
ment?
Keeping up with the waves of innovation! We will see more
and more exciting changes in the coming decades, and
we are doing our best to keep up. That is my key message:
Smart business is the emergent paradigm ofthe future, and
it will likely become dominant in the next decade. Everyone
has to understand the fundamental principles of operating
in this environment and find their own way to survive.
the products—the online consumer interface that delivers
customer experience directly while gathering consumer
feedback to adjust algorithm models. Google’s search
bar is a classic example of product design. Customers
enter keywords into a simple bar and then immediately
see the product—the search result page. Google puts
tremendous resources into designing this product so that
customers can find what they want in less time and with
less effort.
Datafication and Live Data. The starting point for
the smart system that underlies MYBanks microloans is
capturing business problems in digital form. How should
offline business activities be rendered into data? Beyond
simple operations and sales metrics, which present
numbers that are easily digitized, other valuable questions
can be answered through the use of more indirect data
points. For example, to gauge how committed and active
a seller is, Alibaba’s earliest microloan product looked at
how many seconds a seller takes to respond to customer
queries and comments on products and services. Datifica-
tion is not easy or cheap, but it is the most important step
in data intelligence.
Machine Learning: Iterating Algorithms. Data can
only create value when it is processed through a machine-
learning engine. For a business, algorithms must make
explicit the underlying product logic or market dynamics
that the business is trying to optimize. Besides constantly
refining themselves, algorithmic engines can also test
various scenarios to improve business performance. For
example, MYBank’s data scientists embed an experiment
into the lending interface, giving different groups of sellers
different interest rates and measuring real-time response
rates. Each time the model gives a seller a particular rate,
the platform records the seller’s reactions in real time.
This data in turn is used as input for the lending model to
adjust its parameters in a constant stream of calibration.

Ming Zeng is Chief Strategy Officer and Chairman of the Academic

Council at Alibaba Group. He is the author of Smart Business: What
Alibaba’s Success Reveals About the Future of Strategy (Harvard Business
Review Press, 2018) and co-author of Dragons at Your Door: How Chinese
Cost Innovation is Disrupting Global Competition (HBR Press, 2007).

rotmanmagazine.ca / 95
 QUESTIONS FOR TiffaniBova, Growth and Innovation Evangelist, Salesforce

Q
&A An innovation expert de-
scribes 10 proven paths to
growth for a fast-changing
business environment.
How would you define ‘Growth IQ’?
Growth IQ is a holistic approach to finding the path to growth
for an organization, based on three inputs: the market con-
text, the right combination of elements and the sequencing
ofyour actions. Your context includes current social and eco-
nomic conditions, your existing product portfolio and the
competitive landscape. The right combination is about se-
lecting key actions and initiatives that — when done together
— will positively influence outcomes; and sequencing is the
act of assigning priority, order and timing to those actions.
A company might try to duplicate the visible elements of a
rival’s growth strategy, but it is rarely able to figure out the
combination and sequencing that led it to succeed.
Interview by Karen Christensen
You have identified 10 paths to growth — three of which
revolve around customers. Please describe them.
If you look at the most successful growth stories, one com-
mon theme is ‘innovative ways ofdealing with and engaging
with customers’. That’s why Customer Experience is the first
path on my list — and it should serve as the foundation for
all the other paths. If companies aren’t almost maniacally

96 / Rotman Management Winter 2019

 79 per cent of consumers prefer to purchase products
from a company that operates with a social purpose.
focused on what people value, they might acquire customers
once and never sell to them again.
A second path is Customer-Base Penetration, which is
all about mining the ‘gold’ that you already have. It costs six
to seven times more to acquire a new customer than to re-
tain an existing one — yet many companies get completely
caught up in acquiring new customers and forget about the
ones they already have and how they can continue to deliver
compelling value to them.
Customer and Product Diversification is a third path to
growth whereby you increase the number of things that you
sell to customers. Say you used to sell doughnuts, and you
decide to start selling doughnuts and coffee; or you used to
sell running shoes and you decide to start selling shoes and
running apparel. You’re basically expanding the footprint
of the products you offer. The commonality of these three
paths is that the customer lies at the centre of each and acts
as the ‘True North’ for every decision you make.
Optimize Sales is another path to growth. What are some
of the keys to achieving this?
Companies often believe that to improve sales, they need
to invest in a new CRM application or some new market-
ing technology. But I would advise people to step back from
focusing on technology and ask questions like, Do we actu-
ally have a people or process problem and not a ‘systems’
problem? Are we using the right sales and market coverage
model? Are we enabling our sales people to be as productive
as they can be? Research shows that 50 to 60 per cent of a
10 Paths to Growth
1. Customer Experience:Inspire additional
purchases and advocacy
2. Customer Base Penetration:Sell more
existing products to existing customers
3. Market Accelleration:Expand into new
markets with existing products
4. Product Expansion:Sell new products
to existing customers
5. Customer and Product Diversification:
Sell new products to new customers
6. Optimize Sales:Streamline sales efforts
to increase productivity
7. Churn (Minimize Defection):Retain more
customers
8. Partnerships:Leverage third-party alliances,
channels and ecosystems (sales, go-to-market)
9. Co-Opetition:Cooperate with a market or industry
competitor (product development, IP sharing)
10. Unconventional Strategies:Disrupt
current thinking about how to grow
salesperson’s time is actually spent on non-sales activity —
which I think everyone would agree is far from optimal.
Before you try to improve sales performance with some
kind ofexternal input — whether it be technology, additional
sales hires or a change to your brand strategy — do an inven-
tory of the things you are currently doing with the resources
you already have. In my experience, you may find that you
can improve quota attainment by two-to-five per cent just
by optimizing what you’re already doing, which in a large
sales organization can deliver significant returns.
rotmanmagazine.ca / 97
 The best time to create the next big opportunity is when things
are going well—not when you are struggling.
Tell us a bit about the two paths that involve joining forc-
es with other companies:Partnership and Coopetition.
Cisco would be an example of a pure Partnership strategy.
You can’t go to Cisco.com and buy Cisco products; the com-
pany only sells to its customers via its vast partner ecosystem.
They rely on 90 per cent oftheir overall revenue from various
kinds of partnerships. Co-Opetition is a newer kind of part-
nership. Across industries, we are seeing companies joining
forces with partners they would have viewed as competitors
in the past, in order to serve common customers in a better
way. Coopetition is about finding ways to work with competi-
tors to accomplish things that neither of you could achieve
alone. Recent examples of unlikely bedfellows include Best
Buy and Amazon getting together to sell Fire TV; Nike sell-
ing its apparel on Amazon — which it swore would never hap-
pen; and Sears selling its home appliances on Amazon.
What does an Unconventional Strategy look like?
When I started working on my book [Growth IQ], I had
originally intended for this path to be about how compa-
nies stimulate growth in unorthodox ways; but the past two
years have exposed me to a different interpretation of what
‘unorthodox’ really means. ‘Doing well by doing good’ has
become more important than ever, and in today’s environ-
ment, it is enabling growth. That’s because 79 per cent of
consumers now prefer to purchase products from a company
that operates with a social purpose.
When Mark Benioff started Salesforce 18 years ago,
the model he came up with was very disruptive at the time:
One per cent of the company’s time, revenue and software
would be donated to not-for-profit organizations to make the
world a better place. In recent years, influential companies
like Unilever and BlackRock have started to contribute to
society through their business models. In fact, early in 2018,
98 / Rotman Management Winter 2019
BlackRock leader Laurence D. Fink said that his firm will
no longer invest in companies that ignore this imperative.
The New York Times called this a ‘watershed moment’, and
in my mind, it’s still very much an unconventional stance.
Tell us about the fine line between Product Expansion
and Market Acceleration?
Market Acceleration means putting your foot on the gas of
what you’re already doing, but in new markets. Let’s use
Starbucks as an example, taking its model to London but
using the same layout, concept and products. That’s classic
Market Acceleration. Product Expansion means selling dif-
ferent types of products within your current environment.
For example, Starbucks recently launched a new lineup of
salads and sandwiches.
Tell us a bit about the cautionary tale of Starbucks.
Between 1987 and 2007, Starbucks opened an average of
two locations every single day — which is the very definition
of Market Acceleration. Starbucks also pursued Product Ex-
pansion and Customer and Product Diversification by selling
snacks, CDs, gifts and other retail items, stretching them be-
yond just coffee over the years.
But not all growth is good growth: By 2007, it had rough-
ly 13,000 stores, but unfortunately, it had alienated many
loyal customers with its product diversification choices. For
example, in many stores, the smell of its breakfast sand-
wiches completely overtook the aroma of freshly-brewed
coffee. Starbucks had lost its focus on customer experience
— and some might say, its soul. When Howard Schultz
was brought back as CEO in 2008, he admitted: “The most
serious challenge we face is of our own doing. We became
less passionate about customer relationships and the coffee
experience.”
 The good news is that Starbucks was able to course- a way to improve growth. Hopefully, one day soon, the rigor
correct by returning to its roots, which had always been that goes into acquiring new customers will be equal to the
about delivering a memorable and value driven Customer rigor of managing your existing base.
Experience; and along the way, it has figured out how to do The best leaders know that growth needs to be coun-
Product Expansion right, through Partnerships with a wide ter-cyclical. That is, the best time to create the next big op-
variety of packaged-food providers that work seamlessly portunity is when things are going well — not when you are
with its operational model. struggling. Too many companies have failed because they
worked on yesterday’s context for tomorrow’s business.
Should companies always use a combination of paths? I hope to play a small role in encouraging less of that.
In most cases, a combination of paths will make each indi-
vidual path more likely to succeed. For example, Customer
Diversification, Product Expansion and Customer Experi-
ence often go hand in hand; and as I indicated earlier, Cus-
tomer Experience must be the foundation for all 10 paths.
The question is, which combination of paths will work best
for you?

Are any of the 10 paths being underutilized?

As indicated earlier, companies are spending a lot oftime try-
ing to get new customers in the door, and not nearly enough
time focusing on the ones they’ve already acquired. This ties
in with the Churn path, which basically means, growing by
minimizing customer defections. The fact is, every business
is going to lose a certain number ofcustomers over time, and
‘the bucket is leaking out of the bottom’: For every custom-
er you lose, you basically have to add two to cover the one
you lost, plus one to grow. The best way to beat the reality
of Churn is to think more about the long-term value of each
acquired customer — not just one-time sales.
Creating a sense of being in an ‘exclusive club’ is one
way to minimize churn. As big brands such as Adidas ( with
TiffaniBova is the Growth and Innovation Evangelist at Salesforce
its Avenue A subscription program) and Starbucks ( with its and the author of the Wall Street Journal best-seller Growth IQ:
Reserve Roastery) continue to expand the ‘membership Get Smarter About the Choices That Will Make or Break Your Business
economy’, there will be more focus on this particular path as ( Portfolio Penguin, 2018) .

rotmanmagazine.ca / 99
 FACULTY FOCUS Angèle Beausoleil, Professor of Business Design and Innovation, Rotman School of Management
The Era of Human +
Machine Innovation
Interview by Karen Christensen
In today’s environment, organizations that don’t keep up
with customers’ evolving needs are doomed. What is the
best way to get a handle on these evolving needs?
The first step in understanding your cus-
tomers is to accept the fact that you know
very little about them. That way, you will
remain open to learning. This point is crit-
ical, because customers are continuously
evolving and adapting.
Once you are aware that you have a lot to learn, you can
begin to observe customers: Simply watch, listen and en-
gage with them. The concept of empathy is critical here —
and must be practiced. Document what they say and do, and
how they respond to different situations and contexts. Then,
gather your best insights by grouping them into themes and
categories that make sense to your company. Convert these
insights into educated guesses, and you can then begin to
test assumptions. As indicated, this all starts with being
humble about what you know and allowing yourself to be a
bit ‘strategically naïve’ up front.
What is the more commonly-embraced approach to in-
novation today?
Through my academic research and by engaging in the in-
novation process for over 25 years as an industry executive,
100 / Rotman Management Winter 2019
I have learned that most companies tend to ‘jump right
in’ to innovation in direct response to a negative situation.
The trigger could be a financial company facing changes to
foreign-investment policies that narrow or eliminate a mar-
ket for its current services; or a beverage company seeing
its sales decline due to a growing number of entrepreneurs
providing newer, tastier choices. For these and most other
situations, the important questions to ask before jumping
in are:
1. What problem are we really trying to solve?
2. Who is directly impacted by this problem?
3. Why do we believe it is a problem, and why does it mat-
ter to our customers — and to us as a company?
The aim of these questions is to kick-start a dialogue — not
a directive. Once the questions and potential answers are
explored, then you can begin to orient yourself towards the
type of innovation you need to pursue.
Every innovation team needs to be super clear about ex-
actly what they are seeking to change, because there are at
least five types of innovation. If you seek to change WHAT
you offer, you are pursuing product or service innovation;
if you want to change WHO you are offering your product
to, that is market innovation; if you seek to change HOW
 Every innovation team needs to be super clear
about exactly what they are seeking to change.
you design and deliver your product, that is process inno-
vation; if you seek to change HOW and WHERE you offer
your product, that is positioning innovation; and if you seek
to change the WHY, HOW and WHAT ofyour offer, that en-
tails paradigm or cultural innovation.
Talk a bit about the mix of quantitative and qualitative
methods that creates the best innovation.
When you observe human behaviour in a natural setting, the
end result is a detailed narrative description that constitutes
qualitative ( ‘thick’) data. Combining this with numerical,
pattern-validating data can be very powerful. The thick data
explains the why and the how of the numerical ( ‘big’) data,
which provides the what.
Even in our increasingly digital economy, field work is
critical. You must observe your customers in their natural
state, behaving as they do without any artificial probing.
The observations that come from this provide insights that,
when further researched, can lead to an innovative solution.
The good news is that ifit is well researched and well stated,
your problem is already half-solved.
You have devised a ‘basic recipe’ for innovation. Please
describe it.
My basic recipe involves a few key ingredients and three
stages or steps. The ingredients are:
• A group of ‘problem owners’ or users;
• One perceived problem or need; and
• A handful ofrisk-taking problem framers and solvers.
The three steps or stages are: problem or need finding;
problem framing; and problem solving. This recipe is easy
to customize, as all organizations have access to multiple
perceived needs or problems. At least one should be re-
searched, framed and re-framed, solved and then formally
brought to market.
Here are the directions:
1. Ask yourself what needs to change. Is it your product/ser-
vice, market position, process or culture?
2. Gather a team that represents all of the key stakeholders
that would be involved in that change across functions, sys-
tems and markets.
3. Prepare an ‘innovation intent framework’ that is part need-
finding, part problem-framing and part problem-solving.
4. Collect and combine need-finding data.
5. Form insights.
5. Wrap your insights into problem-framing ideas ( proto-
types) and let stand until all stakeholders have had a chance
to reflect.
6. Whisk customer feedback into the prototype mixture.
7. Prepare a final prototype for implementation.
8. Bake the innovation and test for rejection or adoption.
9. Save your recipe and continue to experiment with new
ingredients.
Apart from the usual suspects, name two companies that
‘get’ how innovation works, and two that have missed the
mark.
Adidas is one example ofa company that innovates through
collaboration — with Japanese and British fashion designers
and hip hop artists for shoe and clothing design, and more
recently, with plastic a recycling company for textile innova-
tion. Nature’s Path is a Canadian company that started with
a few breakfast cereals and now has a portfolio ofmore than
150 products to suit the evolving tastes ofconsumers and or-
ganic food choices.
Companies who have missed the mark include Target,
which failed to understand the needs of Canadian shoppers
and provide a merchandise mix and pricing strategy needed
for north of the U.S. border. Also, Nortel was once a leading
telco that was slammed by increasing changes introduced
through digital technologies. It failed to evolve its busi-
ness model to keep up and lacked proper integration of its
rotmanmagazine.ca / 101
 Marketers and researchers can now ‘see’ how people think
and observe the context where their choices are being made.
acquisitions. This could be seen as a paradigm or cultural in-
novation fail.
You have said that the cognitive process involved in ‘sen-
semaking’ is moving from being ‘mostly in the head’ to a
collaborative process that occurs partly in the head and
partly in computer-based tools. Please explain.
Over the past 20 years, we have basically outsourced our
short and long-term memories to technology: We put our
meetings and appointments in our Outlook calendars and
we share moments on our Facebook and Instagram ac-
counts. What is so exciting about this shift is that technology
has made the inner world ofour thinking much more visible.
Marketers and researchers can now ‘see’ how people think
and observe the context where their choices are being made.
Technology is also facilitating our ability to make sense of
those thoughts, actions and choices. We can now outsource
our processing power to machines that can numerically
identify patterns at a faster rate than our brains ever could.
Describe how innovators are tackling the ongoing ‘data
tsunami’ via the emerging field of Visual Analytics.
As both a designer and a design thinking educator, I am
always eager to introduce the next generation of mixed re-
search and analysis methods that involve human-machine
integration. Visual Analytics is an emerging and interactive
way of collecting and visually processing data sets using
computer processing with human perception. The input is
data and the output is visual displays such as text clouds or
maps ofcorrelated words, phrases and themes.
With this technology, Design researchers can now col-
lect data from field visits and interviews and input it into
platforms that can detect patterns. A simple example is
plugging in your field notes into the Wordle platform to see
the word frequency count. Long unstructured texts can
be analyzed in a variety of ways to surface themes and ul-
timately, insights. Another notable visual analytics tool
102 / Rotman Management Winter 2019
is Tableau, which offers big data narratives—converting
numerical sequences of data into powerful stories and strat-
egies. I see this as the evolution ofbusiness intelligence soft-
ware.
How do AI and machine learning fit into the innovation
and design thinking picture?
My colleagues and I embrace the possibilities of what ma-
chine learning and artificial intelligence can offer us — now
and in the future—but it is important to remember that tech-
nology is still a mediator or enabler for humans.
As a result, innovation will always involve humans, but
I predict that pairing human-centric methods with AI tools
will be very powerful. Using design thinking to actually de-
sign these AI systems will be critical, and that’s one of the
key challenges ahead. Even if you have the best technology,
innovation doesn’t just happen; it is designed by humans for
humans.
Angèle Beausoleil is an Assistant Professor of Business Design and
Innovation at the Rotman School of Management. She teaches the
School’s Business Design Practicum, Creativity and Business Innova-
tion, Design Research and Data Storytelling, and leads the International
Design Study Tour. She has also taught at UC Berkeley’s Haas School of
Business and the University of British Columbia’s Sauder School of Busi-
ness and until recently, was the Academic in Residence at CreativeBC.
Rotman faculty research is ranked in the top 10 globally by the
Financial Times.
QUESTIONS FOR Sangeeta Badel, Principal Scientist, Gallup

Q
You believe entrepreneurship is better characterized as
building, and that ‘builders’ are quite different from the
rest of us. Please explain.
When people talk about entrepreneurship, a stereotypical
image often comes to mind: A college dropout from an Ivy
League school who started a tech company in his dorm or
garage and now makes billions in Silicon Valley. The prob-
lem is, it is very difficult for most people to see a place for
themselves in that stereotype — so they assume that they
don’t meet the criteria for entrepreneurship. That simply
isn’t true.
At Gallup, we think about ‘builders’ much more

&A
broadly: A builder is anyone who starts out with a prob-
lem or an unmet need and tries to find a solution to it. It
could be an actor starting up his own theatre company,
rather than waiting around for roles to fall into his lap; a
college student who notices an unmet need in her local
environment and jumps in to fill it; or someone starting a
non-profit to address an unmet need that they see in their
community. All of these examples — and many more — fall
under our builder definition.

Describe the four principles that must be addressed to

An entrepreneurship
expert explains how
to become a ‘builder.’
Interview by Karen Christensen
build something successfully.
Most of what we hear in the media about ‘helping entrepre-
neurs succeed’ focuses on the external challenges they face,
such as lack of financing, inadequate management train-
ing or unfriendly governmental policies. But this lens fails
to account for the individual differences between builders.
Instead, my colleagues and I take a uniquely psychological
approach and focus on unlocking the power ofthe individual
at the centre ofall this activity. When a business fails, it is not
usually due to resource scarcity, organizational challenges
or other external factors — it is due to the decisions and ac-
tions of the individuals involved.
We have found that there are four principles for build-
ing successful businesses. First of all, self-awareness is criti-
cal, because your venture must be closely aligned with who
you are as a person. When we work with budding entrepre-
neurs, we help them become aware of their capabilities,
motivations and true passions in life. As individuals attain
psychological clarity, they also tend to gain confidence in

rotmanmagazine.ca / 103
 A builder is anyone who starts out with a problem
or an unmet need and tries to find a solution to it.
their ability to build something sustainable and successful.
Next, we move on to opportunity recognition. Opportuni-
ties are all around us; some are visible — such as a process
that needs to be improved or a gap between ‘what is’ and
‘what should be’; while others are just waiting to be discov-
ered. That’s why the would-be builder needs to be alert to
the changes taking place around him or her: Developments
in technology, new regulations, even unexpected events or
demographic shifts can present opportunities. Cultivating
‘builder alertness’ is critically important to discovering op-
portunities.
Ofcourse, an idea is worthless unless there is action be-
hind it, so the third principle is figuring out the process of
building your idea into a product — what we call activating
on ideas. An effective way to do that is to create a minimally-
viable solution to the problem you have chosen to focus on,
test drive the idea and take the initial steps to build a cus-
tomer base.
The fourth principle is building your team. As I said ear-
lier, there is still this idea that entrepreneurship is an ‘indi-
vidual sport’ where a lone genius builds something all alone.
That just isn’t the case. The reality is that there is no ideal
builder — just ideal teams. It is important to make sure your
team has the distribution oftalent needed to build a success-
ful venture.
Tell us about the three roles that are critical to every
start-up team.
The first is the Rainmaker. This is the revenue generator
and the main customer creator. He or she has excellent sales
talent and an uncanny ability to manage risks. The second
role is the Expert — an innovator with a focus on product
development. This individual usually has expertise in a par-
ticular area that fuels product development. Experts tend to
be highly independent and are constantly reimagining new
possibilities.
The third role is the Conductor, which requires a high
level of managerial talent. If a business wants to grow in
scale, you need the glue that holds all of the pieces together
— from hiring employees, to positioning them in the right
roles, to making sure processes are set up so that the prod-
uct can be delivered on time. Conductors have the ability to
manage all aspects ofthe business so that it becomes a well-
oiled machine.
104 / Rotman Management Winter 2019
Each of these types can start or grow a venture inde-
pendently; but the real magic happens when the three come
together as a team.
Having studied many start-ups as they get off the ground,
what have you learned about the path to opportunity cre-
ation?
The most important thing we have learned is that everyone
can improve their ability to recognize opportunities. Becom-
ing alert and sensitive to the shifts happening around you —
whether it be shifts in the market or shifts in customer needs
— is something we can all learn to do.
We have identified three steps to becoming more alert
to opportunities around you. The first is to start with your tal-
ents. Look at what you do in your day-to-day life and think
about which particular activities lead to a very high level of
engagement, genuine satisfaction or a state of‘flow’. Ifall of
these conditions are met, you are in your ‘talent zone’.
To discover yours, we recommend keeping an ‘oppor-
tunity journal’ for three to four weeks and recording all of
your activities on a day-to-day basis. At the end ofweek four,
go through it and you will start to recognize what really puts
you in the zone. You will also notice the things that are ‘per-
formance-drainers’. Once you identify your talent zone, you
can move on to the second step, which is connecting the dots.
What do you mean by ‘connecting the dots’?
As you identify one or two activities that are in your talent
zone and get more involved in them, you will begin to devel-
op an awareness about the problems, gaps and issues related
to each activity. This awareness can lead to ideas that can
change or improve the situation.
In the book [Born to Build], we use the example of a col-
lege student who loved coming up with new recipes and cook-
ing them for her friends. As she got more involved in doing this,
she realized that her campus dining services offered really bor-
ing food. She also knew that most of her friends were open to
diverse food experiences. So, she connected the dots between
her culinary talent, the college dining environment, and her
experience ofdining with her friends, and an idea took shape:
What if she could provide her campus dining service with
some unique recipes that were easy to prepare? Maybe they
would be open to offering new things on the menu? In short,
she started with her talents, was aware of her environment
 Create a minimally-viable solution, test drive the idea
and take the initial steps to build a customer base.
and connected the dots to create an opportunity for herself.
The third and last step on the path of opportunity rec-
ognition is to use your networks to further your idea so that
you can take action on it. We suggest starting with people
you trust — immediate friends, family and people you look
up to, like coaches, mentors or any other individuals in your
life who can be a sounding board for your ideas. Then, you
not only get feedback on your idea from them, but you also
tap into their connections and resources.
In the example of the college student, her academic
advisor introduced her to the director ofdining services via
email and her mentor introduced her to a doctoral student
in Nutrition Science, so that she could assess the calorie
and nutritional content for each proposed entrée — which
strengthened her pitch to the director of dining services.
Any parting advice for readers with a simmering idea?
If you have an idea that is keeping you up at night, my ad-
vice is to build a minimally-viable solution to the problem
you are trying to solve. Find your first customer, and test and
validate your hypotheses. As indicated, your route to the so-
lution will be influenced by who you are, so become more
self-aware and in tune with your interests and strengths.
Always remember: Make time to dream big, even as you
take small steps towards your goals. Some people will build a
for-profit venture, while others will build a social enterprise.
Still others will build new products and services within exist-
ing companies. When you do any of these things, you create
economic energy that didn’t exist before — as well as good
jobs and all the things that build a strong economy. My hope
is that many of your readers will ask themselves, ‘Is it time
for me to build something?’
Sangeeta Badal, PhD, is the Principal Scientist for Gallup’s Building
Initiative, where she is responsible for translating research findings into
interventions that drive small business growth. She is the co-author with
Gallup Chairman and CEO Jim Clifton of Born to Build: How to Build
a Thriving Start-Up, A Winning Team, New Customers and Your Best Life
Imaginable ( Gallup Press, 2018) .
How to Maximize Your Talent for Risk-Taking
1. Know what you do know and what you do not
know. Understand the limits of your knowledge. Recog-
nize the preferences and biases inherent in your world-
view that can affect your judgment about the results you
expect. Resist predicting outcomes based on limited
evidence. Gather all relevant information before you take
action.
2. Take risks incrementally. When exploring a new
venture, a new market or a new product, minimize risks
by making a small initial investment and evaluating the
idea at successive stages in the development process.
Consider it an experiment. Build a prototype, test the
market and collect information. Then decide if the idea
is worth investing in further.
3. Beware of confirmation bias. Your extremely posi-
tive self-image may lead you to favour information that
confirms your beliefs and opinions, while discounting
information that contradicts your viewpoint. Do not let
this bias influence your decision making. Ask people with
opposing views to counter your initial idea or concept.
4. Construct different scenarios to guide your
decision-making process. Envision how things will
unfold in the future, analyze the different directions a
project can take and estimate the outcomes in all direc-
tions. When you bring potential risk factors to light, you
can choose the least risky path.
5. Don’t gamble. Take careful, calculated risks. Before
an exciting idea sweeps you away in anticipation of what
you will accomplish, impose a cooling-off period of a few
weeks before you commit any funds. This will give you
time to calculate the odds of success and put a plan in
place to mitigate the risks.
6. Kill unimportant projects. You might overestimate
your ability to succeed at multiple projects simultane-
ously. With your team, analyze all the projects in your or-
ganization. Keep your focus on the ones that strengthen
and build your core mission and purpose. Ditch the rest.
rotmanmagazine.ca / 105
 FACULTY FOCUS Gonzalo Romero, Professor of Operations Management, Rotman School of Management
The Power of
Innovative Supply
Chains
Interview by Karen Christensen
How do you define social entrepreneurship?
I like the definition given by Nobel Peace
Prize winner Muhhamad Yunus, who
founded Grameen Bank: Social entre-
preneurship is a form ofentrepreneurship
that seeks to create organizations that
serve a social purpose while still being
able to cover costs from operations. However, this classic
view of social entrepreneurship is limited, because it sees
financial profit maximization and social profit maximization
as opposites.
My research builds a more nuanced view of social en-
trepreneurship — one where financial profit maximization
and social profit maximization are not at odds. There are
many opportunities to harness technology and operational
innovations to enable organizations to pursue both, simul-
taneously. Many of these opportunities lie at the base of the
pyramid — a term that denotes the poorest consumers in the
world, which is a very fast growing market. Organizations,
small and large, must look beyond ‘charity’ when serving
this market. There is a huge opportunity for innovation,
profitability, and positive social impact at the base of the
pyramid.
Over the last two decades, there has been increased
interest in life-improving technologies and products for
the base of the pyramid (BoP). Can you describe the sup-
ply and demand situation?
There is a huge demand for life-improving products — every-
thing from water filters to solar panels to ‘green’ or smoke-
free cook stoves — that address fundamental human needs.
On the supply side, these technologies already exist. There
106 / Rotman Management Winter 2019
are hundreds of companies producing solar panels that are
specifically designed for the world’s poorest consumers, and
the same applies to water filters and green stoves. There are
between 12 and 20 different brands in India alone. So, the
supply and the demand are there. Yet somehow, these prod-
ucts are not reaching the consumers they are designed for.
This is a crisis situation.
Tell us about your work with the innovative social enter-
prise, Essmart.
My research partner Andre Calmon met this company’s
founders, Diana Jue-Rajasingh and Jackie Stenson,
while they were studying at MIT and Harvard, respec-
tively. They had set out to develop ‘the next generation
of socially responsible technologies’. After finishing their
degrees, they travelled around India and Africa, and they
were shocked to find that none of the innovative products
that they and their friends were building were being used.
Diana developed her master’s thesis around this subject,
with a focus on rural southern India. It became clear to
them that the key issue was operational, and specifically,
distribution. There were major issues with the logistics
of how these products were being presented to potential
customers.
My personal opinion is that the incentives to do this
properly have been lacking. Most of these companies work
on the technological side of things; they’re engineers, and
their main goal is getting the next grant to develop the next
patent on the next iteration of solar panel. The problem is,
even the products that are already available are not reach-
ing consumers. If you don’t address the distribution gap,
you’re not addressing the main problem.
 Financial profits and social profits do not have to be at odds.
Clearly, business opportunities are being missed.
Definitely. The traditional mindset of a designer creating a
product for the BoP is: ‘This new product will be so good that
it will sell itself; I just have to put it out there, and people will
buy it’. But that is rarely the case. Distribution in these mar-
kets is extremely challenging. Furthermore, these products
cost between $10 and $30, which is a significant amount of
money for the people at the base ofthe pyramid. It would be
the equivalent of someone in Canada buying a new fridge,
or even a car. We don’t make these decisions lightly, and nei-
ther do BoP customers.
Companies were also missing out on two other critical
pieces of the puzzle: educating consumers and providing af-
ter-sales service. On the one hand, consumers need to know
that these better and safer products exist, and how they
can improve their lives. But on the other hand, if the prod-
uct breaks down or doesn’t fit into the buyer’s daily routine,
there was no way to return it. Think about that for a moment:
If you buy a fridge and it doesn’t fit in your kitchen, at least
you know that you can return it and get another one. Un-
fortunately, when someone decides to buy a green stove in a
low-income region of India, the idea of returning it is nearly
impossible. Consumers know this, so there is a lot of risk
aversion involved, which leads to low adoption rates.
You and your colleagues have developed a solution to
this problem. Tell us about your Value Access Paradox
model.
The Value Access Paradox addresses four main issues as-
sociated with this problem. First, the lack of product afford-
ability. In many cases, people have to resort to micro-loans
to afford these products, which only increases the cost many
times over. Second, the lack of access to the products. Most
ofthese consumers buy everything they need at a local ‘mom
and pop shop’ — particularly in India, where retail is domi-
nated 85 per cent by these local shops. Most of the time it is
impossible to buy a solar panel or a water filter in these shops
— and there are good reasons for that. These are sophisti-
cated products that are relatively expensive; they also take
up a lot of room. These small retailers can’t afford to have
a slow-moving product that costs $30 taking up space.
Third, our model addresses the lack of understanding
of the value of these products. Green cook stoves, for ex-
ample, reduce the smoke from combustion, addressing the
4.3 million estimated deaths each year due to cooking over
biomass. One million of these deaths occur in India alone.
These consumers are not always aware that if they buy a
green stove, there will be long-term benefits for their family.
These products can actually save lives.
The fourth point that our model addresses is the lack
of after-sales service. Assume that a consumer can afford
the product, they can find it at their local shop and they
understand that it will be good for them and their family.
Even with all of this, would you buy a car if it didn’t come
with any guarantee? The companies producing these prod-
ucts are doing great work, but they have spent little time on
resources around distributing the product and providing
after-sales service.
Tell us about the alternative approach that Essmart uses.
Let’s start with what they don’t do. Many non-profit orga-
nizations will get a grant from, say, the Bill and Melinda
Gates Foundation and then they go to different villages and
sell their product door-to-door. They literally knock on every
single door in a village and try to educate consumers and sell
the products at a highly subsidized price to address the lack
of affordability. After–sales service is not a focus; it’s mostly
about product adoptions. This type of approach is actually
very effective; the problem is, it’s not efficient: Usually, they
get a high percentage ofadoptions, but once the money runs
out, that’s the end of it.
Essmart and some other social enterprises are looking
at this problem in a very different way. They’re saying, ‘We
want a strategy that is scalable and self-sufficient so that we
don’t have to depend on grants. Their approach involves
using the existing supply chain: The network of vendors,
which in this case is the small retailers. They asked a ques-
tion that no one had asked before: ‘What do we need to do to
convince local mom and pop shops in India to start carrying
these products?’ There was this one way of doing things —
the non-profit approach that was dominant for decades. But
social enterprises like Essmart are breaking the mold and
saying, ‘We can do this and be financially sustainable’.
The first thing they realized is that they had to remove
the inventory risk for local retailers, and they accomplished
this by using a very low-tech approach: catalogue sales.
Rather than selling the products directly, they give each
store a few sample products and a catalogue with details
rotmanmagazine.ca / 107
 There are huge opportunities for innovation, profitability
and positive social impact at the base of the pyramid.
about all of the products. Then, if there’s a sales opportu-
nity, the company delivers it within the next two days via a
network of motorcycles that drives between the warehouses
and the local retailers.
The other aspect they addressed was the lack of under-
standing of product value. They follow an approach that is
more scalable than knocking on every door: Instead, they
have a presence at local markets. Every day, the same people
who deliver the products — their ‘sales executives’ — take
their motorcycle with a portable kiosk to local markets and
run demonstrations. They might bring one or two of the
most popular products and have them there for people to
touch and try. If someone is interested, they refer them to
their local retailer. As a result of this approach, they have
great relationships with the mom and pop shops. They don’t
want to compete with them — they want to channel their
sales through these shops. Moreover, the sales executives
use their cellphones to collect data, which allows Essmart to
use analytics to come up with efficient ways to utilize their
limited resources.
Jackie and Diana thought that their initial distribution
model would be enough; but they weren’t seeing the results
they wanted, so they added the ‘presence at local markets’
element. Then, they realized that still wasn’t enough. So,
they surveyed consumers directly and found that people
were afraid to make the leap. They would say, ‘What if the
new stove doesn’t fit into my life?’ These consumers were
used to cooking close to the ground, crouched on their knees,
but the new stoves were about waist-height. The first green
cook stove that Essmart put out was the best ever in terms of
smoke reduction, but when people tried it, they didn’t like it.
They wanted to return them but didn’t have any way to do
that, which triggered the development ofafter-sales service.
Now, if a product fails, there is a technician available to
fix it; and if they can’t fix it, they will exchange it for a new
one. Essmart deals directly with the manufacturer. They
have the scale and the connections to do that. They also
offer refunds for consumer returns.
Did Essmart consider designing a stove that was closer
to the ground?
Yes. They listened to what they were hearing from people
and all the stoves are now much closer to the floor. They
also started to curate these products. As indicated, there are
108 / Rotman Management Winter 2019
hundreds, even thousands, of different products out there,
so they use their experience to reduce them to a small cat-
alogue of ‘Essmart-approved’ products. In doing so, they
have reduced the search costs for consumers and retailers —
which is very important, because small retailers don’t have
the time to assess hundreds of products.
What is the biggest challenge for a company that wants
to address consumers at the bottom of the pyramid?
The main challenge is that most companies try to replicate
what works in developed countries. Replication is good, to
some extent. But the fact is, technology allows for products
that ‘leap-frog’ in terms ofchange. Take Africa, for example.
Over the last five years, mobile payments have caught on
throughout the continent. African consumers went directly
to a mobile solution — completely skipping landline tele-
phones and computer-screen access. That’s an example of
what is possible. The idea of simply replicating models that
have been used in developed countries for more than 20
years just won’t work.
At the same time, as indicated by the Essmart example,
this is not about reinventing the wheel. Essmart has em-
braced two very old-school concepts — after-sales service
and consumer education. It’s not only about using the new-
est, high-tech tools. Developing countries come with their
own structural constraints, and businesses need to under-
stand them — and find ways to overcome them. There are
significant opportunities for businesses to be creative and
come up with business models with high social impact that
are tailored for India and other developing countries. The
demand is definitely there.
Gonzalo Romero is an Assistant Professor of Operations Management
and Statistics at the Rotman School of Management.
Rotman faculty research is ranked in the top 10 globally by the
Financial Times.
QUESTIONS FOR Jim Stengel, Author, Unleashing the Innovators

Q
&A A marketing expert
and author describes
the approach to innovation
that many large
You have said that many big, established corporations
are in trouble. How so?
A few things are going on. First of all, many of these ‘lega-
cy companies’ have failed to keep up with their customers.
I was recently chatting with some of Facebook’s leaders,
and even they said they’re having trouble keeping up with
people. Things have been changing so quickly that lots of
companies have fallen behind — in particular, many of the
established consumer packaged-goods companies.
The second reason legacy companies are in trouble re-
lates to the first: They have been far too rigid with their busi-
ness models and haven’t been agile enough in reacting to
change. A third thing I would mention — and I’ve witnessed
this in just about every firm I’ve worked with —is that the top
leaders of legacy companies are spending their time on the
corporations are embracing. wrong things. They are not nearly focused enough on what’s
coming around the corner. They fail to ask, ‘Given what’s
Interview by Karen Christensen coming, do we have the right talent in place? Is our strat-
egy right? Are our executives spending enough time with
customers?’ A recent article by Harvard’s Michael Porter
showed that less than three per cent of the average CEO’s
time is spent with customers — and 72 per cent of their time
is spent in meetings. That’s a real problem.

rotmanmagazine.ca / 109
 By working together, legacy companies and start-ups
can learn a great deal from each other.

might actually turn out to be one of the keys to surviving in

What Motivates Established Companies
to Partner with Start-Ups?
Increase level of innovation
Solve a particular problem
Leverage start-ups technology knowledge
Bring new products to market more quickly
Learn a new way of doing something
Fill in gaps in the product portfolio
Experiment at low cost and risk
Nurture new profitable entities
Get around the corporate bureaucracy
Connect more closely with customers
Change the corporate culture
Protect against disruption
For the PR value
an increasingly complex world.
What do these partnerships look like?
67%
There are a few interesting models out there. Motorola So-
64%
lutions — the public safety technology company created
54%
when Motorola split in two — has been partnering with a
52%
bunch of start-ups on ventures that are often outside of its
51%
areas ofexpertise. For instance, it recently started setting up
49%
an incubator in Israel to stay on top of the latest tech trends.
46%
And Wells Fargo, which was established 165 years ago, has
44%
its own in-house accelerator that selects dynamic young fi-
39%
nancial technology companies to work with to develop prod-
37%
ucts that push the frontiers offinancial security and custom-
35%
er service. The head of its innovation initiatives admitted to
26%
me that some of the best ideas come from start-ups.
18%

You argue that such partnerships are replacing tradition-

The last thing I would touch on is something that is
well-documented among legacy companies, and that is their
rampant short-termism. Former Rotman School Dean Rog-
er Martin has been writing about this for years, and Warren
Buffet and others have spoken out about it — but we haven’t
broken the cycle yet.
The bottom line is that older brands need to acknowl-
edge that the world has changed — and start acting more like
start-ups. The good news is that most of these companies
know they’re in trouble, and they’re trying to figure things
out. That’s the first step in any transformation.
In addition to acting like start-ups, you believe they
should partner with start-ups.
More and more companies are beginning to interact with
start-ups, establishing powerful new kinds of alliances.
Those who don’t — and who continue to struggle on their
own, repeating the same outdated habits — are literally gam-
bling with their future. By working together, legacy compa-
nies and start-ups can learn a great deal from each other.
Start-ups can teach older companies how to move faster,
take more risks and learn from failure. On the flipside, estab-
lished companies can teach start-ups how to build a brand
that fosters a lasting emotional bond and how to set up an
organization to support global expansion. Bridging the dif-
ferent worlds and experiences of young and old companies
al acquisitions. Why is that?
Partnerships allow an older company to acquire expertise in
a particular area or to add to a line of business. But a lot of
these companies use partnerships with start-ups to ‘fish in
new waters’ and see what the tides kick up. The most for-
ward-looking legacy companies are trying to remake them-
selves from within, relying on young companies to teach
them some basic lessons in how to innovate better, take
smart risks, develop new products quickly and draw the best
and brightest employees and customers to the company.
Many of the executives I speak to now treat acquisitions as
more of a last resort.
In addition to partnering with start-ups, you found that
some of the most successful legacy businesses routinely
‘blow themselves up’. Please explain.
Dell is one company that has gone through cataclysmic
change. It quickly became an iconic company when it start-
ed out, but then it got into a lot of trouble. All of a sudden it
went private and made some enormous acquisitions. Since
it rebooted itself, its bottom line has been growing and
the organization is much healthier, because its leaders are
spending more of their time on the right things. It recently
announced that it might go public again, or at least make
some of its shares available to the public. Adobe is another
example that proactively blew up its own successful model.
It used to sell its software discs packaged in cellophane-
wrapped boxes, but a few years back, it suddenly stopped

110 / Rotman Management Winter 2019

 IBM, Levis and Estée Lauder — all iconic legacy brands — are slowly
and elegantly becoming very different companies.

doing that and began offering its services in the cloud. That
is a case study of outstanding business transformation.
Start-ups’ Motivation to Partner
Sometimes — as with Dell and Adobe — the change is
with Established Firms
cataclysmic, and other times, it’s more elegant and subtle.
Access to resources 23%
If you look at companies like IBM, Levis and Estée Laud-
Funding 21%
er — all iconic legacy brands — they are really turning their
Drive sales/revenue 20%
models upside down. They’re doing this very deliberately,
Access to customers and markets 15%
strategically and extremely well. Slowly and elegantly, they
Access to distribution 13%
are becoming very different companies.
Gain scale 12%
The smartest companies realize that nobody has a mo-
Gain credibility 11%
nopoly on ideas, and there are some incredible ideas out
Raise profile 10%
there. They find a way to filter through all of that and find
Access technology 10%
people to work with that are complimentary to them and
Leverage marketing skills 7%
that can enhance their strategy going forward.
Longer-term sale in mind 2%

On that note, your alma mater, Procter & Gamble, was

FIGURE TWO
known for creating innovative new products like the
Swiffer in the early 2000s, but it’s been a while. What was
happening at P&G then that isn’t happening there now?
In the late 1990s and early 2000s, there was a huge com-
mitment to innovating outside of the company’s estab- for the future. They know precisely which areas they want
lished categories. P&G was a pioneer in developing a ven- to compete and win in, and they pursue these few areas with
ture fund internally to fund innovative ideas, and it also great energy.
actively looked externally for ideas. There was a dedicated One start-up they work with is Eyefluence, which fo-
group figuring out how they could solve new problems, cuses on virtual reality and augmented reality eye control.
get into new categories and even create categories. The When the CTO of Motorola met its founders, he wasn’t in-
CEO at the time [A.G. Lafley] was obsessed with disruptive terested in eye-tracking per se — but it suddenly occurred
innovation. to him: ‘Holy crap, that’s the answer; I can use my eyes as
Over time, that dedicated group and its funding were a mouse.’ His next thought: ‘If I can put that together with
reduced, and resources were transferred to the business a head-worn display, now I’ve solved a problem for my cus-
units. Certainly, we are still seeing great innovation in the tomers.’ Police officers and firefighters often need to have
company’s baby care, feminine care and fabric care prod- their hands free, and he saw an opportunity to go out and
ucts, but it’s typically more incremental innovation versus test the Eyefluence’s capabilities with his own customers.
creating whole new categories. Interestingly, they seem That is a powerful way to innovate.
to be going back to that earlier strategy in some ways, but
it takes a while to get the disruptive innovation wheel
spinning.
Clearly, there is more than one way to engage with start-
ups. Which is the best approach?
I wouldn’t say that one approach is better than the other; we
can learn from each ofthem. Personally, I’ve been impressed
with Motorola Solutions, which is not in the headlines much
anymore because its customers are now primarily public
Jim Stengel is the co-author of Unleashing the Innovators: How Mature
safety organizations, first responders and the military. But
Companies Find New Life with Start-ups (Crown Business, 2017). He is the
they have an extremely coherent and consistent way ofpart- former Global Marketing Officer at Procter & Gamble, where he worked
nering with start-ups that are important to their strategy for 25 years.

rotmanmagazine.ca / 111
 POINT OF VIEW Nicholas Bayley (Rotman MBA ‘02), Managing Director, Accenture
Harnessing the Power
of Disruption
IN THE FACE OF INDUSTRY DISRUPTION,busi-
ness leaders often present themselves
with a false choice: Should they cling
to the stability of their legacy business
and risk missing new opportunities? Or
should they abandon the legacy model
in a proactive dash for the new? Finding the right balance
between these two extremes has become one of the central
leadership challenges of our time.
The companies that thrive amidst disruption are able
to shift with speed and confidence into new markets and
activities — constantly re-inventing themselves in an ef-
fort to make their business relevant to the future. However,
in a recent Accenture survey of 1,440 C-level executives,
we found that only six per cent of companies have embraced
this challenge decisively. For the other 94 per cent, com-
mon factors that prevent progress include capital-intensive
infrastructures, contractual agreements, outdated technol-
ogy and relentless devotion to legacy products, services and
brands.
Our survey, which spanned 11 industries and 12 coun-
tries, revealed that 54 per cent of large companies optimisti-
cally expect new business activity to generate more than half
of their revenue within three years. In reality, around 70 per
112 / Rotman Management Winter 2019
cent of companies currently generate less than half of their
revenues from new business activities. We define ‘new busi-
ness activity’ as new investment and venture activities that
tap into previously unexplored markets and offerings that
the company has not yet explored at scale.
In our report, “Make Your Wise Pivot to the New” ( avail-
able online) , we recommend that companies follow the lead
of the high-performing six per cent. We refer to this group
as ‘Rotation Masters’, and they differ substantially from the
other companies we studied, both in the percentage of rev-
enue they have generated from new business activities in re-
cent years and in their financial performance. Most notably,
64 per cent of them achieved double-digit growth ( above
10 per cent) in sales, while 57 per cent achieved the same
growth results in EBITD.
In addition to impressive financial performance, these
companies stand out from the pack by creating three pre-
conditions to help reinvent their organization.
1. Build Sufficient Investment Capacity for Change
Rotation Masters understand the level of investment re-
quired to drive change, so they fine-tune their existing
business activities by reducing costs, divesting non-core
businesses and streamlining assets. It’s no surprise that
 Pursuing new business opportunities does not have to come
at the expense of your legacy business.
70 per cent of Rotation Masters have the investment capac-
ity needed to scale their new businesses, in comparison to
46 per cent of other companies. Canadian companies fared
slightly better in our survey: 56 per cent said they have suf-
ficient investment capacity to scale new businesses and rein-
vigorate their core business.
Rotation Masters are also more likely to make invest-
ment decisions that create a deep-seated readiness for
change. Our study found that they focus on enhancing inter-
nal efficiency by building external networks. These activities
include new or improved strategic alliances, migration of
technology infrastructure to the cloud, increased workforce
efficiency and cost reductions. In contrast, other companies
lagged behind and hesitated to consolidate tangible assets
or divest select business lines.
In the next three years we expect the gap between Ro-
tation Masters and other companies to close in, as the lat-
ter group has told us it intends to follow many of the steps
taken by the masters. We also found that companies with
profitable core businesses are more likely to generate and
sustain strong investment capacity. Those who reported
better EBITD performance had a stronger focus on decisive
restructuring of core business lines and operating assets.
Clearly, companies must continually replenish their invest-
ment capacities by creating healthy cash flows through their
existing business operations. A strong core business is cru-
cial in order to fuel investment for a shift to new business
opportunities.
2. Enable the Entire Organization to Innovate
Most companies recognize that they need access to a con-
tinuous stream of big ideas, but Rotation Masters foster in-
novation throughout the organization and purposefully iden-
tify and commercialize the best ideas effectively. Compared
with their peers, they are more deliberate about structuring
their organizations to innovate by design and get the most
out of their innovation efforts. How? By concentrating in-
novation capabilities under a strong leadership team, with
dedicated investment and a discrete structure that enables
them to embed innovation into their corporate DNA.
Most Rotation Masters will have adopted concentrated
innovation strategies three years from now, and 63 per cent
of other companies will follow suit. This approach secures a
clear advantage: The ability to spot promising innovations,
prototype, test them and then commercialize them far faster
than their competitors.
For example, U.S.-based Ecolab has been an early
pioneer in driving innovation through digital technology,
introducing its 3D Cooling Water Technology. This technol-
ogy combines chemistry, remote services and sophisticated
monitoring/control to improve a range of industrial opera-
tions. Using connected sensors, nearly 30 billion data points
are collected and analyzed across 36,000 systems at cus-
tomer sites annually. The data is used to make adjustments
to the ‘dose’ of chemicals needed to keep the water clean
and owing efficiently.
As of March 2018, the company had more than 1,600
R&D personnel (scientists, engineers and technical special-
ists)in 19 global technology centres, developing highly spe-
cialized solutions that improve product quality, safety and
efficiency while simultaneously reducing energy and water
usage and waste. In five years, Ecolab expects to generate
more than US$1.2 billion in total annual revenues from prod-
ucts and services in its 2017 pipeline.
3. Create Synergies Between the Old and the New
Pursuing new business opportunities does not have to come
at the expense of your legacy business. Rotation Masters
seek synergies between the two. For example, they are more
than twice as likely as other companies to recognize the po-
tential oftheir new business activities to reshape the culture
oftheir legacy business; they cross-sell between their legacy
and new businesses; and they are almost twice as likely to
collaborate with third parties to expand into new markets.
CVS Health has a long history of pursuing growth
strategies and building new businesses alongside its strong
core pharmacy business. Established as a discount health
and beauty store in 1963, CVS added in-store pharmacy de-
partments four years later. The company pursued a steady
transition of its business model in subsequent years, which
rotmanmagazine.ca / 113
 Expanding into new businesses demands
a strong appetite for collaboration.

accelerated in 2006 with the acquisition of MinuteClinic, ditions ( such as multiple sclerosis, Alzheimer’s, Parkinson’s
the pioneer of in-store health clinics. This move created a and Lou Gehrig’s disease) .
highly innovative network of in-store walk-in clinics offer- As Govinda Bhisetti, head of Computational Chemis-
ing affordable non-urgent, acute healthcare with extended try at Biogen, notes: “Collaborating with researchers at Ac-
hours. centure Labs and 1QBit made it possible to pilot rapidly and
Change at CVS Health is a continuous and deliberate deploy a quantum-enabled application that has the potential
journey. Notably, through the transformative merger with to bring medicines to people faster.
Caremark Rx, Inc. in 2007, the company created CVS
Caremark, the nation’s leading Pharmacy Benefit Manager. In closing
Furthermore, it rebranded itself as pharmacy innovation Among executives, ambition to accelerate a shift into new
company ‘CVS’ in 2014, and the committed investments businesses over the next three years is high. By focusing on
show that its change journey continues. In September of setting up the three pre-conditions discussed herein, a com-
that same year, it became the first pharmacy retailer to stop pany will be more likely to successfully make a ‘wise pivot’—
selling tobacco. In addition, the company has invested sub- and have a real chance to get ahead of disruptors and em-
stantially in digital technology and analytics tools across the brace the future on its own terms.
enterprise to help facilitate patient care. coordination and
improve health outcomes.
Expanding into new businesses clearly requires access
to investment, but it also demands a strong appetite for col-
laboration, particularly when seeking synergies to build on
the strengths of a legacy business. Rotation Masters know
how to leverage the power of external networks, such as in-
novation consortia, collaborative partnerships and joint ven-
tures. Such collaborations matter, because they enable these
companies to innovate at higher speed. Nearly 80 per cent of
Rotation Masters consider it essential to support innovation
activities with a wide network ofpartners and customers.
Consider the collaboration between biotechnology in-
novator Biogen, 1QBit ( a quantum software company) and
Accenture Labs. The early phases of drug design and dis-
covery require comprehensive molecular comparisons to
predict the likely effects ofa new drug. This process depends
heavily upon intensive computational methods. To support
that, each partner brings unique and vital capabilities to the
relationship— such as pharmaceutical research and devel-
opment, quantum computing capabilities, business optimi-
zation and application development.
In just over two months, team members designed, test-
ed and developed a new quantum-enabled application that
generates molecular comparison results with unique, deep
Nicholas Bayley ( Rotman MBA ‘92) is the Managing Director, Accenture
insights about how, where, and why molecules The collabo- Strategy Canada. Accenture is a global professional services company
ration markedly reduced costs and time-to-market while with 4,000 employees in Canada. The full report, “Make Your Wise
accelerating drug discovery for complex neurological con- Pivot to the New,” can be downloaded online.

114 / Rotman Management Winter 2019

FACULTY FOCUS Brian Keng, Adjunct Professor of Data Science, Rotman School of Management
Putting AI to Work:
The Chief Data Scientist
Interview by Karen Christensen
In addition to teaching at the Rotman School, you work
for a successful start-up. What problem is your company,
Rubikloud Technology, trying to solve?
Rubikloud is a venture-backed start-up
company in Toronto that uses AI to en-
able intelligent decision automation for
some of the world’s largest retailers. Our
goal is to build AI software systems that
can take the hundreds of decisions that a
retailer has to make every day and automate and optimize
those decisions. We’ve been working with some of the larg-
est retailers around the world, from Asia to Europe to North
America. Our most recent venture round, led by Intel Capi-
tal, led to a total investment of $45 million, which we hope
will enable us to change the technology landscape for enter-
prise retailers.
Can you describe what exactly your product does?
There are two main functions. First, on the customer life-
cycle side, it provides an understanding of the customer on
an individual level for targeted promotions and marketing
activities that encourage them to shop at a particular store.
Second, it addresses the mass market and merchandising
side, where we help retailers forecast and optimize the dif-
ferent promotions they do in-store. When you are at the gro-
cery store and you see that a certain brand of milk is on sale
for $2.99, there is actually a complex process in the back-
ground to make that happen. We help retailers select the
right products to put on promotion, determine what those
promotions should be, as well as forecast to make sure they
have the right inventory at the stores.
As the company’s Chief Data Scientist, what is your role
in all of this?
I’m responsible for all the data science functions, which pri-
marily revolve around building out our machine learning
and artificial intelligence capabilities. We have two key areas
of focus: applied R&D and fundamental R&D. The applied
team is responsible for researching and building out the core
of our AI system in the kind of products I mentioned earlier,
which include machine learning models and the underlying
software systems that allow us to automate, scale and store
all the data and models.
The fundamental research side is more focused on
strategic long-term issues for the company. The things they
work on may not even appear in our products in the next five
years, but we recognize that we need to be looking ahead
and have a long-term roadmap as to what our products will
be able to do one day. We’ve also begun to engage with the
academic community and are hoping to publish some ofour
research in the near future.
Tell us a bit about your career path, and what led you to
this role.
I joined Rubikloud early, in the first year of its existence.
There’s a popular saying, that ‘one year at a start-up equals
three years at a bigger company’. I’ve been here four years,
so maybe that really means 12 years? But seriously, one thing
that really helps to accelerate a career is being involved at an
early stage with a high-growth start-up. There are opportu-
nities to grow and learn that frankly, you can’t find anywhere
else. I have basically watched this company grow from a half
a dozen people to over 100 in a very short time span. We’ve
rotmanmagazine.ca / 115
 The elephant in the room is that it is impossible
to have good AI without good data.
been doubling our headcount pretty much every year. In that
time, I’ve done some engineering work and even some cli-
ent facing stuff in addition to my data science work.
The key thing about hyper-growth start-ups is that if
you’re going to thrive in one, you really have to be quick to
adapt and learn. In terms ofmanagement, the approach that
worked with 25 people will need to change when you get to
50 people, and that approach will not work when you get to
100 people. You really have to pay attention, not just to the
technology, but to the organizational and management as-
pects. I’ve been very fortunate along the way, because I’ve
had great mentorship from our CTO, Waleed Ayoub, whom
I report to — and who gave me the opportunity to step up and
run the data science side of the business.
What does it take for an organization to make the most of
its data? Are there some principles you can share?
It actually takes a lot. The elephant in the room — especial-
ly with respect to AI — is that it is impossible to have good
AI without good data, and good data is a really hard thing
to achieve. From collecting it, to cleaning it, to building the
right technology platform so that you can access it in a scal-
able way — it’s very complex. To give you some context, for a
large enterprise to modernize its data practice, it could take
tens of millions of dollars and involve dozens of people over
a multi-year time span.
In my experience, most of the challenges companies
face around AI are really around their data. The first step for
leaders is to understand and accept the complexity of get-
ting good data, and start treating it seriously. The focus on
this should be on the same level as financial reporting and
results. If you are going to become a data-driven company,
it takes a lot of work.
Are businesses embracing AI and machine learning to
the extent that they should?
I work with enterprise retailers, but what I see with them is
probably typical of most industries: They are approaching
this new technology carefully and with measure. The hard
part is that they are getting squeezed from both ends. A few
116 / Rotman Management Winter 2019
really big players are dominating the industry, like Amazon;
then, there are all ofthese smaller start-ups targeting niches
that are also gaining a lot of traction—and both sets of chal-
lengers are using AI. This has really opened them up to mak-
ing the transition.
In many cases, it’s difficult for an organization to do
these things internally. Changing existing business process-
es and legacy systems and hiring the right people is very dif-
ficult. That’s why a lot of companies are willing to partner
with smaller companies to help them make the transition to
AI and the next generation oftechnology.
Tell us how you became involved at the Rotman School.
A good friend ofmine introduced me to Mihnea [Moldove-
anu], the Vice Dean ofInnovation and Learning at Rotman.
We both have an engineering background, so we got to chat-
ting. He was especially interested in the AI work that I’d been
doing, and he identified a couple ofrelated initiatives at Rot-
man: the new Master ofManagement Analytics ( MMA) Pro-
gram and the newly created Management Data Lab. He told
me they could really use someone from the industry with AI
expertise. From there, I met with Dmitry Krass, academic
director of the MMA, as well as Susan Christoffersen, Vice
Dean of Undergraduate and Specialized Programs. We all
agreed that it would be great for students to have someone
with industry experience helping out with the program, as
well as in the data lab.
I started working with them last April. Everyone is re-
ally passionate about trying to make the MMA Program as
good as it can be in order to help students bridge the gap
between technical expertise and the management side, as
well as bringing the School’s data science practice into the
next generation by building up the Management Data Lab.
On the MMA, side, I’ll be teaching a couple of modules on
deep learning and neural networks, which have been all the
rage in the past little while. And I’m also working with the
Management Data Lab to try to understand what the needs
are within Rotman, and helping build out the hardware and
software capabilities to support data science teaching and
research at Rotman.
 For a certain category of problems, the future actually does
resemble the past, and in such cases, data is helpful.

Some people argue that data can’t solve problems be-
cause by its very nature, it is information about the past,
not the future. How do you react to that view?
I’ve heard that before, and I agree with it to some extent. It’s
kind oflike what Yogi Berra said many years ago: ‘It’s tough
to make predictions, especially about the future’. What is
missing from this perspective is the idea that data can be
used in many different ways — and for a certain category of
problems, the future actually does resemble the past. Obvi-
ously in such cases, data is helpful.
However, I would argue that even when the future is
more uncertain, data can help a problem solver quantify
that uncertainty. For example, it can’t tell you, ‘it’s definitely
going to rain tomorrow’, but it can tell you ‘there’s a 70 per
cent chance of rain tomorrow’. In the realm of business, it’s
not able to say ‘this customer is definitely going to buy this
product’ — but it can say, ‘there is a high chance that this
customer will buy something’. Even ifyou’re not sure exactly
what’s going to happen, it can inform you about something
that otherwise would be left to intuition.
I do agree that we shouldn’t blindly use data to solve all
our problems. We need to understand the ways in which data
is useful and use it judiciously. It’s not like we’re ever going
to throw away human judgment, but the fact is, data can be a
huge boost to many ofthe decisions we are making.
Some people still fear that machines will take over most
of our jobs, but in my view, they needn’t worry. Take medi-
cal diagnosis as an example. Already, machine learning al-
gorithms do a pretty good job at diagnosing — and in some
cases, they do even better than human doctors. But my wife
is a physician, and she understands that diagnosing a patient
is not just a mechanical set of decisions. It involves a lot of
human interaction and observation, which a machine can
never replace.
Furthermore, the technology is nowhere near being
able to provide ‘artificial general intelligence’ — whereby a
machine could potentially replace a human mind. And as in-
dicated, many organizations are limited as to what they can
accomplish, given the type of data they have. A machine is
only as good as the data used to train it, and we have a long
way to go on that front. There are also some things that we
just can’t collect data for, or that it’s too hard to collect data
for, and as a result, at the end of the day, a machine is never
going to have the judgment that a human has. Having said
that, humans have their own biases and other deficiencies,
so I believe the strongest approach is a union between hu-
man and machine capabilities.
If you could change something about the current entre-
preneurial landscape, what would it be?
Especially in Toronto, I would have a lot more Silicon Val-
ley-type venture funding. The culture and calculus of how
Canadian investors think is fundamentally different from
their Silicon Valley counterparts. I’m generalizing a bit here,
but in Canada it is much more risk-averse. Investors tend to
be looking for a ‘high likelihood investment’, whereas in the
Valley, they are very much focused on finding ‘the next big
thing’ — the next Facebook or Uber—and that leads them
to invest in more risky propositions. They truly do not care if
19 out of 20 opportunities fail, as long as one results in a big
win. That’s the mindset we need to have if we’re ever going
to generate the next big tech start-up in Canada.
Brian Keng, PhD is an Adjunct Professor of Data Science at the Rotman
School of Management and the Chief Data Scientist at Rubikloud, a
venture-backed AI startup in Toronto. He teaches in the Rotman School’s
new Master of Management Analytics Program.

rotmanmagazine.ca / 117
 QUESTIONS FOR Michael Platt, Director, Wharton Neuroscience Initiative

Q
&A A neuroscience expert
describes how our
understanding of the brain
is impacting business.
Tell us about your work at the Wharton School’s Neuro-
science Initiative.
Our lab tries to understand how the brain makes decisions
and motivates behaviour. We use an array of techniques, in-
cluding psychophysics, intracranial recordings, brain stim-
ulation, pharmacology, eye tracking, pupillometry, brain
imaging, genomics, and epigenomics to answer these ques-
tions. An important goal is to translate some of these tech-
niques into wearable devices that will allow us to take neuro-
science into both natural and consumer environments. We
believe these new areas of exploration can be translated to
improve business, drive new discoveries and applications,
and enhance the education of future leaders at the nexus of
business and brain science.
Interview by Karen Christensen
Neuroscience research has provided some important in-
sights about innovative thinking. Please explain.
Over the past decade or so, we have discovered that there
is a fundamental neural network in the brain that serves to
generate exploratory and creative behaviour. Basically, its
sole role is to get your brain ‘unstuck’ from ruts and default
patterns of thinking and behaving.

118 / Rotman Management Winter 2019

 Seemingly unproductive time away from your desk can actually
help you come up with your best ideas.
Early in the evolution of life on this planet, our brains
evolved the capacity to repeat behaviours that led to some-
thing good and to narrow our focus on those options. The
problem is, when you become overly focused on repeating
something that is reasonably good, you will miss out on op-
portunities to find something better to explore. That’s really
what this newer brain circuit is all about. We have found that
stimulating this circuit can literally cause animals to move
away from a default option and try something new that they
wouldn’t otherwise have tried — and we possess the exact
same circuit in our brains. This circuit is mutually opposed
with the brain circuit that enables us to focus on routines and
tasks, so there is a sort of‘yin and yang’ going on in there.
We now know that the relative balance of activity in
these circuits ‘sets your dial’ for how focused and routine
your behaviour is, or how exploratory it is. And we’re start-
ing to recognize that individual differences in the balance
between creativity and focus are associated with differences
in these biological circuits.
Not surprisingly, there are implications for organi-
zations. The main one is that each person comes into the
world with their dial set in a slightly different place. Iden-
tifying where that dial is set for each individual could be
extremely helpful in identifying what people are going to
be good at, how they might target their career path or what
kinds of training they might benefit from. I also think we
can leverage the neuroscience to engage in interventions
that can at least temporarily promote release from focus
and allow more creative and innovative thinking to occur.
You have come up with four ways to stimulate this brain
circuit and increase innovative thinking. Please describe
them.
The first one is the idea of stepping away. One of the worst
things you can do for your innovative capacity is to sit at a
computer punching numbers into an Excel spreadsheet, or
writing emails. These are things that turn up your focus but
at the same time, they turn down your innovative capacity.
So, stepping away from your computer and getting up and
walking around — taking breaks — is really important for
stimulating innovative thinking.
Walking itself has been shown to increase creativ-
ity, because it allows your brain to wander and daydream
— which is what researchers call ‘active problem-solving
mode’. By stepping away and removing yourself from tech-
nology and other distractions, seemingly unproductive time
spent away from your desk can actually help you come up
with your best ideas.
That leads directly to the second tip, which is to com-
pletely unplug and do things that reduce stress. Exercise and
practices like meditation and mindfulness are especially
good at allowing one’s brain to relax and promoting the
health of the exploratory brain circuit. And we are finding
that these same benefits can be enjoyed while performing
monotonous everyday activities. Google Global CCO Lars
Bastholm has advised people to “Vacuum the house. Get on
an elliptical at the gym. Paint a fence. Anything that will al-
low your brain to work in the background.”
A third tip is to mingle and encourage social interactions.
We know from research that the innovation/exploration cir-
cuit is very active when we interact with others. That’s prob-
ably because it actually requires a lot of exploratory think-
ing to predict how others are going to respond to what you
say or how you behave. We also know that creating social
bonds with others is really important for physical and men-
tal health, and that it reduces stress. At IDEO, colleagues
get together for lunch on a regular basis ( think ‘soup on Fri-
days’, ‘tea and cookies on Tuesday’) ; and at Virgin Airlines,
groups of colleagues go on outings to sporting or music
events. London-based PR Agency PHA Media lets its em-
ployees make the call themselves: They actually provide a
quarterly budget for staff to use for activities of their choos-
ing— whether it be paintballing or attending the theater.
The fourth tip is to accept the biological reality of indi-
vidual variation in the balance of exploration and focus,
and structure your teams accordingly. That means putting
people who are creative types together to work on your most
innovative challenges, and putting others together who are
really good at carrying out tasks. This was very aptly dem-
onstrated by the restructuring Google did a few years ago
when it created an umbrella organization, Alphabet. It now
has highly-innovative divisions like Google X and other
rotmanmagazine.ca / 119
 Google has its own neuroscience team,
as do Facebook and Amazon.

divisions that are more orientated towards carrying out What I don’t think will happen is that people will need
functions and keeping them highly efficient, like Google to get an MRI snapshot of their brain to identify where they
Mail, Google Ponder and Google Search. These are things ought to be plugged into an organization. The science isn’t
that they’ve been doing for a long time and they just want that strong yet. But I do believe we can develop better mod-
to maintain and improve them — which does not necessarily els for the selection process that achieve much greater pre-
require new ways of thinking. dictive accuracy, because the models will be informed by
Not surprisingly, Google actually has its own neurosci- neuroscience.
ence team, as do Facebook and Amazon. All the big tech
companies are thinking really hard about this. What’s next for your research?
We not only want to help businesses make great hiring deci-
How can companies embrace neuroscience to assess sions, we also want to help them create a supportive envi-
people? ronment in which people can thrive. I truly believe that brain
Traditionally within business, people have relied on the science has enormous potential to inform — and transform
Myers-Briggs test or the Big Five personality test. The prob- — business.
lem with those approaches is that they are based on self-re-
porting, and people don’t have good access to the reality of
what is going on in their brain. Often, they want to answer
in the way they think they should. You can address this bias
by giving people tests like the Alternative Uses Test, which
asks people to come up with as many uses as possible for
common household objects like a brick or a pencil within a
limited time. This and similar tasks activate the exploratory
and creativity network.
One thing we’re trying to do in the lab is to find other
kinds of biological measures that might provide improved
predictive power for identifying peoples’ talents. If we can
incorporate things like brainwaves and measures ofpupil di-
lation in response to certain kinds of questions, that would
add to our ability to accurately predict what a person will be
good at. We’re very eager to work on this with companies in
the field, because the science is already solid in the lab.

One day soon, will neurological testing be a part of every

hiring and promotion process?
I think so. There are ethical and legal concerns that come
with any application ofbiological or health data to the hiring
process, but I think as people become motivated by the de-
sire to advance and find the right position within an organi-
Michael Platt is the James Riepe University Professor of Marketing and
zation, they will want to take advantage of this opportunity Director of the Neuroscience Initiative at the Wharton School, Univer-
— as long as everything is done in a, private and secure way. sity of Pennsylvania.

120 / Rotman Management Winter 2019

FACULTY FOCUS David Dunne (Rotman PhD ’96), Professor of Marketing Emeritus, Rotman School of Management
Design Thinking:
Mastering the Tensions
INNOVATION AND DESIGN have been part of
my life for decades. As a former inno-
vation manager in the packaged goods
industry, I worked closely with creative
people to design products, packaging,
communications and services; and as a
professor at the Rotman School ofManagement under then-
Dean Roger Martin, I was exposed to design thinking as
a way ofapproaching the world and coming up with creative
solutions. I immediately saw great possibilities for this ap-
proach in management education and in business.
Over the years, I would see many organizations em-
brace design thinking. While some succeeded, many floun-
dered. Before long, some designers started accusing busi-
ness leaders of turning design thinking into a management
fad — and I began to wonder whether, for all its appeal, it
had been oversold. Perhaps, in spite of the best efforts of its
advocates, design thinking was just too big a departure from
regular business thinking.
I would find that elements of both were true: Design
thinking had indeed been oversold and misunderstood,
and it was very difficult for managers to get their heads
around it.
Designers have long known that they have a dis-
tinct way of thinking, and they coined the term ‘design
thinking’ long before it caught the attention of the busi-
ness community. The aggressive selling of design think-
ing seemed for many designers to trivialize their profes-
sion — packaging it into an easily-digestible form for
managers. Worse yet, many organizations have been seduced
by a dumbed- down version of design thinking, seeing it as
being all about idea generation and glossing over the deep
analysis and reflection that are required to come up with
creative solutions.
Ultimately, the trivialization of design thinking got it
into trouble. When it did not reach the impossible heights
claimed for it — literally, to change the world — some wrote
it off. In 2011, Bruce Nussbaum, then the assistant manag-
ing editor of BusinessWeek and one of design thinking’s erst-
while advocates, dismissed it as a ‘failed experiment’.
rotmanmagazine.ca / 121
 Years later, and despite all of these challenges, many
people — including me — still believe that there is much
more to design thinking than ‘the latest business fad’. I have
found that design thinking initiatives in large organizations
live in a persistent state of tension around three issues: their
cultural engagement with the organization; how radical their
innovations are; and taking on the user’s point of view. I call
these the tension of inclusion, the tension of disruption and
the tension of perspective. Let’s take a closer look at each.
TENSION 1:INCLUSION. Every successful design thinking initia-
tive I have ever encountered had what one person I inter-
viewed termed ‘air cover’: Explicit and consistent support
from the top of the organization—often, though not always,
from the CEO. Yet, even with such unequivocal support, in-
novation can fly in the face ofestablished organizational cul-
ture. Successful organizations are often ‘doing’ machines,
built to accomplish clear goals as quickly and efficiently as
possible. While innovation deals with ambiguous and ill-
defined problems, ambiguity in the daily business of manu-
facturing, financing and human resources can be toxic. Re-
flection, iteration and non-linear thinking may be fine for a
design firm or a consultancy, but are not helpful, if you are
trying to run a manufacturing plant or get an aircraft off the
ground.
This tension was particularly visible at the Mayo Clin-
ic, where physicians’ formal dress and way ofaddressing pa-
tients were designed to put patients at ease — confident that
they were in the hands of ‘competent professionals’. The
design team at Mayo’s Center for Innovation, on the other
hand, dressed casually and communicated less formally.
Their demeanour and appearance broadcast their difference
from the Clinic’s healthcare teams. In response to such ten-
sion, there is a temptation to build walls — physical or virtual
— around an innovation program, to protect it. Some orga-
nizations move their lab to an offsite location, for example.
However, the risk in doing that is that innovators can
122 / Rotman Management Winter 2019
become isolated from the organization — speaking a differ-
ent language, dressing and behaving differently. Ultimately,
this often leads to irrelevance based on ‘in-group vs. out-
group’ thinking. To survive and thrive, innovators need not
only the organization’s resources, but access to information
and moral support from the grassroots, not just from the top.
Put simply, design thinking programs need to maintain some
independence from the organization, while at the same time
being thoroughly engaged with it.
TENSION 2: DISRUPTION. ‘Disruptive innovation’ has become
a buzzword in business and even in the non-profit and pub-
lic sectors. Disruptive trends in technology, demographics
and social behaviour create the need for products and ser-
vices that respond to them. Innovation initiatives are often
set up with such a response in mind. Yet establishing a de-
sign thinking program does not make disruptive innovation
easy. Embracing design thinking means revisiting the core
assumptions that underpin your organization’s offerings.
It involves ‘problem finding’ to identify hidden issues that
the organization and its users are not aware of; it requires a
willingness to engage in abstraction; and it takes time.
On the other hand, innovators within any organization
need to work within deadlines and budgets that arise from
real-world constraints. Many take on ‘incremental’ proj-
ects — tweaking current offerings or experimenting with
variations on existing ways ofdoing things — to demonstrate
short-term results. The problem is that it is easy for this level
of activity to take over, and to get derailed from the disrup-
tive innovation they were set up to do. The problem is, the
more successful the program is, the more demands there
will be for incremental work. The core of this tension is that
design thinking programs need to be both incremental and
disruptive at the same time.
TENSION 3: PERSPECTIVE.Design thinkers develop products
and services centred on the experience of the individual
 Design thinkers need to be both user-centred and system-centred.

Organizations’ Top Five Goals

in Implementing Design Thinking

Innovation. Facilitating innovation, particularly ’disruptive’

innovation.

Internal change. Changing mindsets, perspectives

and behaviour.

User experience. Developing better experiences

for customers.

Collaboration. Fostering internal teamwork and breaking

down silos.
Talent. Attracting and retaining highly creative people.
Systemic change. Bringing about fundamental changes
in organizational and social systems.
user. Innovations, however, have to do more than engage us-
ers: they need to consider related products and services, re-
lated activities and experiences, and the impact on the social
and environmental system. In addition, the organizational
ecosystem is tasked with the implementation of ideas: tech-
nical support, logistics, plant trials and dealer relationships
are all part of this system. As a result, design thinkers reg-
ularly get caught between the perspective of an individual
user and that ofthe system as a whole.
This tension applies in both the public and the private
sector, wherever there are multiple stakeholders to consider.
Since the early 2000s, the Danish Government’s MindLab
has worked to develop projects for citizen engagement and
system improvement. Since its founding in 2002, MindLab
has found that it is not enough to facilitate idea genera-
tion. It is also essential to engage the bureaucracy. As a re-
sult, MindLab has progressed from workshop facilitation to
strategic partnership with government departments, and
ultimately aspires to be an enabler of systemic and cultural
change within the broader bureaucracy.
In closing
To be a design thinker in a large organization today is to live
with paradox. It entails cultivating relationships and con-
ducting subtle negotiations around tricky issues. Design
thinkers need to be as cognizant of the workings of their or-
ganizational system as they are with the realm of products
and users—and be prepared to get involved in the design-
thinking implementation process. Put simply, they need to
be both user-centred and system-centred.
My own personal tension around the term ‘design
thinking’ was ultimately resolved by bypassing its varied
definitions and focusing on its substance. Most of the orga-
nizations I spoke to were living with the three tensions every
day, and figuring out ways to make it all work. While there
is no single, definitive way to resolve the three tensions, the
best design-thinking organizations — like the Mayo Clinic —
have developed practices for dealing with them that we can
all learn from.
David Dunne ( Rotman PhD ‘96) is a Professor and Director of MBA
Programs at the University of Victoria and Professor of Marketing
Emeritus at the Rotman School of Management. He is the author
of Design Thinking at Work ( Rotman-UTP Publishing, 2018) , from
which this is an adapted excerpt.

rotmanmagazine.ca / 123
 QUESTIONS FOR Stephanie Woerner, Research Scientist, MIT and author, What’s your Digital Business Model?

Q
You have said that digital transformation is actually not
about technology. Please explain.
It’s really about change — and technology is just one aspect
of that change. Before the internet, businesses operated
primarily in a physical world of place, but today, all indus-
tries are shifting towards a world of digital space. Every
organization must examine how it will move from place to
space and engage its customers digitally. This will require
new kinds of skills, resources and capabilities. In the end,

&A
the question is not, ‘What kind of technology do we need?’
but, ‘What makes our enterprise great, and how can we use
digital to optimize that?’

You have found that digital disruption comes in three va-

A digital business model
expert describes the key
questions today’s leaders
need to ask.
Interview by Karen Christensen
rieties. Please describe them.
The first type of disruption happens when a new entrant—
typically a start-up like Uber or Airbnb—comes into an
existing market space and offers an exciting new value
proposition. In banking, for instance, we are seeing fintech
start-ups going after certain aspects ofthe big banks’ profits.
At the moment, they’re really going after loans, which are
particularly profitable for the banks.
The second form of disruption comes from a tradition-
al competitor within your industry, but that organization
changes its business model to become a much more formi-
dable competitor. For example, Nordstrom has morphed
from being a traditional department store into an attractive
omni- channel business, combining the best of place ( tan-
gible, product based, customer- oriented transactions) and
space ( intangible, service based and oriented towards the
customer experience) . Banking, insurance, retail and en-
ergy companies are all struggling to find that perfect mix of
place and space.
The third form of disruption involves crossing industry
boundaries. It’s what happens when challengers come from
completely outside ofyour industry. This form ofdisruption
is the most difficult to predict. For example, think about the
consortium of Amazon, JPMorgan Chase and Berkshire
Hathaway that is trying to figure out what it can do in the

124 / Rotman Management Winter 2019

 The Digital Business Model Framework
Omni-Channel Business
• Competes on: Customer Experience
• ‘Owns’ Customer relationship
Complete
• Integrated Value Chain
e.g. Banks, retail companies
Customer Knowledge
Supplier
• Competes on: Content
• Sells through other companies
Partial
• Potential for commoditization
e.g. Electronics producers (Apple,
Samsung) via retailer
Value chain
Business Design
healthcare space. These are not healthcare companies, but
together, they have some very strong capabilities, and they
believe they just might be able to do something to improve
healthcare in the United States. People were very surprised
when they announced what they were going to focus on.
Tell us about your Digital Business Model Framework
(DBM).
Our research shows that digitization is compelling com-
panies to change their business models along two key
dimensions. First, they are moving towards a better under-
standing of customers, including their needs and life events.
It’s not just about demographics or purchase history any-
more — but instead, what are their motivations for buying,
and what kind of problems are they trying to solve?
The second key dimension involves moving from a con-
trolled value chain orientation to a network orientation, or a
web of relationships. This entails recognizing that you may
not be able to provide everything your customers need, and
Ecosystem Driver
• Competes on: Customer Experience,
Content and Platform
• Provides great customer experience
• Branded platform
• Customer knowledge across all data
• Matches customer needs with providers
e.g. Amazon, Fidelity
Modular Producer
• Competes on: Platform
• Plug-and-play products/services
• Able to adapt to different ecosystems
• Constant innovation of product/service
e.g. Paypal, Kabbage
Ecosystem
©2018 MIT Sloan CISR
that you can add value by partnering up with others who can
provide complementary services. These are the two key di-
mensions of‘creating the next-generation enterprise’ — and
if you put them together in a standard two-by-two matrix,
you get four business models.
Please describe those four business models.
The first one is the Supplier, and this is a traditional business
model where a producer sells through other enterprises. For
example, TVs made by suppliers like Sony and LG, which
are sold via a retailer like Best Buy; or firms that sell insur-
ance via independent agents ( e.g. Chubb Group) . Firms
in this quadrant have, at best, a partial knowledge of their
end customer and typically operate in the value chain of
another, often more powerful enterprise. This model is not
going to disappear, but as enterprises continue to digitize,
suppliers are likely to lose more power and be pressured to
continually reduce their prices — perhaps accelerating in-
dustry consolidation.
rotmanmagazine.ca / 125
 Six Essential Questions
1. What is the digital threat — and opportunity?
2. Which business model is best for your enterprise’s
future?
3. What is your digital competitive advantage (content,
customer experience or platform)?
4. How will you connect using mobile and the Internet
of Things?
5. Do you have the crucial capabilities to reinvent
the enterprise?
6. Do you have the leadership to make your transformation
happen?
The second is the Omni-Channel. These are business-
es that provide customers access to their products across
multiple channels, including physical and digital channels,
delivering greater choice and a seamless experience. Great
omni-channel businesses like Walmart and the big banks
control an integrated value chain that offers multi-product,
multi-channel customer experiences to address life events.
The challenge for these companies is to move further up the
vertical axis of the DBM, acting on increased knowledge of
customers and their goals and life events.
The third model is the Modular Producer. These are
Businesses that provide ‘plug-and-play’ products or ser-
vices that can adapt to any number of ecosystems. To sur-
vive, they have to be one of the best producers of their core
activity. For example, PayPal can operate in virtually any
ecosystem, because it is ‘hardware agnostic’, mobile en-
abled and platform-based. While there may be many modu-
lar producers in an industry, typically only the top three or
four make significant profits, while the others struggle, as it’s
ultimately a commodity business.
Finally, there are Ecosystem Drivers, which establish a
digital ecosystem — a coordinated network of enterprises,
devices and customers that creates value for all participants.
This model has higher revenue growth and net profit mar-
gins than the others, and not surprisingly, it is the toughest
business model to achieve. Ecosystems are particularly pow-
erful in retail ( e.g. Amazon) , but healthcare ( e.g. Aetna) ,
online entertainment ( e.g. Netflix) and wealth management
( e.g. Fidelity) all have powerful ecosystem-driver business-
es. Going forward, customers of all kinds will increasingly
prefer the efficiency of a ‘go-to’ digital ecosystem driver to
conduct transactions in every domain.
126 / Rotman Management Winter 2019
Does every company need to pick one of the four
models?
They need to pick at least one but in fact, most large en-
terprises embrace more than one of these models. For ex-
ample, not only is Amazon an Ecosystem Driver, it also
provides services to other businesses, including fulfillment
( it handles the warehousing, packing and shipping of one
billion items) and technology capability ( through Amazon
Web Services) , making it a Modular Producer as well.
Most banks operate in several quadrants—and often
in all four. The typical big bank acts as a supplier, selling
mortgages and investment products. Most also work hard
to improve their omni-channel offerings by reimagining the
branch to be more of a customer acquisition, sales and advi-
sory location, with most transactions done digitally. These
same banks operate as modular producers, offering various
services including payments and foreign exchange to many
other enterprises. And finally, many banks have made forays
into the ecosystem-driver model by offering more complete
services for life events such as buying a house, owning a car
or preparing for retirement.
Talk a bit about how an omni-channel business like
Walmart interacts with an ecosystem-driver like Amazon.
Here’s an example: My colleague recently ordered some
barbecue coals on Amazon, not noticing who the seller
was; and, a few days later the package arrived in a box from
Walmart.com. That’s the power ofa great ecosystem, and it
offers insight into how Walmart is both competing against
and partnering with Amazon by providing products as a
modular producer to Amazon’s ecosystem-driver model.
You recommend that companies make an effort to move
up and right on your DBM framework. Why is that so im-
portant?
Companies need to focus on two things: learning more
about their customers and changing their business design
to emphasize more partnering and more porous boundar-
ies. At the moment, most businesses find themselves on
the left side of our framework. Among the larger companies
we studied, 46 per cent were suppliers, 24 per cent were om-
ni-channel, 18 per cent were modular producers and 12 per
cent were ecosystem drivers.
Retail and IT services have the highest percentage of
ecosystems, while manufacturing and service industries
are still early in their move up and to the right on the frame-
work. Interestingly, smaller enterprises (with revenues less
than $1 billion)are already further up and to the right on our
framework than larger enterprises, with 31 per cent in the
ecosystem- driver model and 36 per cent in the omnichan-
nel model.
To move up and to the right, you can begin by enhanc-
ing the collection, consolidation and generation of insights
about your customers — resulting in better customer experi-
ence and more targeted and successful offers. Then, you can
start to move to the right by moving from providing services
directly to the customer to becoming part of a web of rela-
tionships that provide a broader set ofservices, via partners.
Leading insurance company USAA did this brilliantly
by helping its customers find their perfect car, but they didn’t
stop there. They linked people to car dealers with the de-
sired car in stock, helped them negotiate the price, provided
financing and sometimes facilitating delivery. The average
savings for a USAA member is $3,385 off the recommended
retail price. That is a prime example of how a digital model
can create value for people.
You have identified three key sources of competitive ad-
vantage in a digital business environment:content, cus-
tomer experience and platforms. Please describe each.
Content is more than just news stories. It is whatever you
provide to your customer. If you’re selling physical prod-
ucts, that would fall under content, as would information.
With Amazon, part of their content is the product itself, and
part of it is all the information around the product, like user
manuals, and customer reviews. Whatever the customer is
consuming, that is content.
The customer experience is everything that wraps
around your content to make dealing with your company
a delight. Doing this well requires continually monitoring
what customers are doing and what they say they want. That
means investing in good user interfaces and creating oppor-
tunities for collaboration with customers.
Finally, your platform is the method by which you pro-
vide your content to customers. Companies need to devel-
op and reuse — i.e. share across the enterprise, rather than
reinventing for each area — digitized platforms. Without
platforms, the IT units in companies might implement a
new solution in response to every business need — creating
a maze of systems that meet current needs but don’t scale
enterprise-wide. Worse yet, the customer experience suffers
as the customer gets a fragmented, product-based experi-
ence rather than a unified, multi-product experience. Think
about your online banking experience today, where you can
see all your accounts in one place — and how you used to re-
ceive individual paper statements for each account.
Any parting advice for leaders?
Given the level ofturmoil being caused by digital disruption
of all varieties, addressing it has become a business impera-
tive. It is time for leadership teams to evaluate the threats,
understand the opportunities — and start creating new op-
tions for the future.
Stephanie Woerner is a Research Scientist at the Centre for Informa-
tion Systems Research at MIT’s Sloan School of Management. She is
the co-author of What’s Your Digital Business Model?: Six Questions to
Help You Build the Next-Generation Enterprise (Harvard Business Review
Press, 2018).
rotmanmagazine.ca / 127
 POINT OF VIEW Daniel Markovitz, Lean Expert and author, The Fit Organization
The Perils of
Internal Disruption
THESE DAYS, if something is said to be ‘dis-
ruptive’, we assume that it is highly in-
novative and therefore good — although
industry incumbents might disagree. But
when it comes to an organization’s in-
ternal operations, disruption can be very
bad, both for the business and for employees.
Taiichi Ohno, one of the fathers of the Toyota pro-
duction system, described three manufacturing ‘evils’ that
every company should avoid: mura ( unevenness) , muri
( overburden) and muda (waste) . Not surprisingly, the three
are interrelated: unevennness is often a cause of overburden,
which leads to much ofthe waste that companies are so eager
to eliminate.
Unevenness in any aspect of a business — customer de-
mand, process time, quality of raw materials, staffing, etc.
— results in overburdening some resources at the expense
of others, or alternating between overburdening and unde-
rutilizing a resource over time. For example, the spike in toy
demand at Christmas puts enormous pressure on factories,
warehouses and logistics providers, to say nothing of front-
line retail staff. Similarly, unevenness in machine availability
will cause workers and machines in downstream processes
to be alternately starved and overburdened with work.
The widespread quest for innovation across industries
is only making matters worse: While pursuing industry dis-
ruption for a better share in their market, leaders are often
oblivious to the disruptions that their personal actions and
business practices are creating for their organizations. These
128 / Rotman Management Winter 2019
disruptions generate enormous unevenness for employees
and processes, making it more difficult for the organization
to excel.
Following are five types of internal disruption that can
undermine a company’s performance.
MANAGEMENT BY WALKING AROUND. In their seminal book In
Search of Excellence, Tom Peters and Bob Waterman pop-
ularized the concept of ‘management by walking around’
( MBWA) , encouraging leaders to get out of their offices and
randomly walk around the company to see firsthand what’s
going on. They specifically advise managers to make their
walks unpredictable, both in terms of where they go and
when they go. Peters and Waterman believe that if front-
line workers are expecting management’s visit, they won’t
see what’s really happening on a regular basis. They argue
that frontline staff will work differently; they’ll clean up their
work area; they’ll cover up small problems. Leaders won’t
get an accurate picture of how the processes are operating.
This kind of unpredictability can be a powerful form of
disruption for the worker. If a senior leader randomly shows
up, the workers will inevitably be anxious and stressed.
They’ll work differently under the watchful eye of the boss,
possibly creating variability in the quality of their work. Or
worse — they’ll stop working while they answer questions,
affecting the timing of a production line, and creating un-
evenness for downstream workers.
In contrast, organizations that have embraced lean
thinking, like JD Machine, Stanford Medical Centre and
 Leaders are often oblivious to the disruptions that their personal
actions and business practices can create.
Lantech, a substitute standardized ‘walks’ for random
MBWA. At these places, the leadership team has a regu-
larly scheduled walk through the various departments to
see firsthand what’s happening. There are no surprises for
the staff—they know who’s coming and when, with the re-
sult that these visits are smoothly integrated into daily work
without disruption. Moreover, it’s both helpful and reward-
ing for front line staff to know that they’ll get to talk with the
CEO or VP ofOperations on a regular basis.
SALES INCENTIVES AND VOLUME DISCOUNTS. These practices cre-
ate tremendous disruption in a company’s business by dis-
torting both incoming market signals and outgoing orders to
suppliers. Sales incentives — for example, bonuses to meet
monthly or quarterly revenue goals — cause salespeople to
stuff the company’s distribution channels with inventory far
in excess of consumer demand. Volume discounts have the
same effect, by encouraging customers to order more prod-
uct than they need in order to get a larger discount. Both
these practices wreak havoc on the supply chain through the
“bullwhip effect.” Hau Lee, professor at the Stanford Grad-
uate School of Business, illustrates this problem with a story
about Volvo: in the mid-1990s, the Swedish car manufactur-
er found itself with excess inventory of green cars. The sales
and marketing departments began offering special deals
to clear out the inventory, but no one told the manufactur-
ing department about the promotions. It read the increased
sales as a sign that consumers had started to like green cars,
and ramped up production.
The former president of Wiremold, Art Byrne, ex-
plains in his book The Lean Turnaround that he eliminated
volume discounts and incentives for sales to book the larg-
est possible orders. Instead, he pushed his sales team and
his customers to provide a steady flow of small orders that
would smooth demand and reduce disruptions. Large cus-
tomers received cash rebates at the end of the year as a re-
ward for their business, but without the supply-distorting
incentives for large individual orders.
BATCH PROCESSING. It may be counterintuitive, but long pro-
duction runs and large batches create disruptions in the flow
of work compared to one-piece flow or small batch sizes.
During the batch there’s little disruption, of course. But at
the changeover, everything and everyone stops to move
machines, change out dies, put different raw materials in
place, etc. And it’s not just an issue in manufacturing —
large batches create disruption in office and administrative
processes as well. Shutting down a warehouse for two days
to do physical inventory, for example, is incredibly disrup-
tive, with ripple effects throughout the business, from sup-
plier to customer. Similarly, most finance departments in
large companies cut their activities to a bare minimum dur-
ing the month- end close of the books, which often can take
up well over a week.
Toyota, most notably, has demonstrated the financial
and quality benefits of one-piece flow over large batch pro-
cessing in manufacturing. But working in smaller batches
and avoiding disruption in office processes yields signifi-
cant benefits as well. For example, many distribution cen-
tres use cycle counting to manage their inventory, avoid-
ing the need to shut down the facility. Boeing’s finance
department processes some of their financial information
on a daily basis, rather than waiting to process a large batch
at the end of the month. They look at what shipped each
day, what materials were received every single day, and
what bills were paid every single day. As a result ofthis ( and
other) changes, they reduced the time required to close the
quarterly books from nearly one month to five days. In HR,
too, many companies are getting rid of the annual perfor-
mance review in favour of shorter, more frequent discus-
sions as often as once per month. This not only provides
more timely and effective feedback for employees, but
it eliminates the massive time commitment imposed on
managers in November and December.
KAIZEN EVENTS. What company wouldn’t want to reap the
benefits of process improvements? Yet, kaizen events — in
which employees in a given area stop their regular work for
a full week in order to improve a given process — are the
epitome of disruption. Kaizen events were invented by the
original Japanese consultants who came from Japan to work
with U.S. companies in the late 1980s. It made no sense for
consultants traveling all the way from Japan to the United
States to work with a company for just a half-day or a full
rotmanmagazine.ca / 129
 Unpredictability is a powerful form of disruption for employees.

day. Instead, the consultant stayed for a full five days. To be As Graban writes, using PBCs prevents leaders from ob-
sure, the benefits are real ( if often unsustained) . But kaizen sessing over every up and down in the data ( no matter how
events overload people in the week or two before the event insignificant) , and instead leads them to ask, “What was dif-
by requiring them to produce extra in compensation for the ferent?” when there are actually meaningful signals in the
upcoming downtime. Ironically, a weeklong event implicitly data. The result is less disruptive overreaction and empty
sends the signal that kaizen, which means ‘continuous im- explanations (what Dr. Don Wheeler calls ‘writing fiction’)
provement’ in Japanese, is actually discontinuous. ( ‘We’re and more time spent on value-creating work.
doing improvement this week. Next week it’s back to busi-
ness as usual.’) In closing
Companies that realize the greatest benefits from lean Companies that create truly valuable disruptive products
thinking don’t do kaizen events. Rather, they make kaizen and services rightly reap outsize economic rewards. How-
a daily activity. Cambridge Engineering, an HVAC manu- ever, the headlong pursuit ofexternal market disruption can
facturer near St. Louis, for example, has explicitly carved out blind leaders to the existence — and the cost — of internal
30 minutes everyday for employees to do “lean and clean.” disruptions caused by their own business practices.
Other companies are less structured about it, but still benefit To be sure, some internal disruptions can be beneficial
from embedding improvement efforts into the fabric ofdaily to a company and can significantly streamline processes.
activities without disrupting the overall flow ofwork. But when the disruptions lead to excessive unevenness in
daily operations, they create distortions that stress employ-
REACTING TO NOISE IN THE DATA. A final cause of internal dis- ees, systems and supply chain networks. So, by all means,
ruption is management’s overreaction to ‘noise’ in the data pursue disruption for competitive advantage. Just be careful
it measures. Managers can now capture all kinds of metrics, not to disrupt yourself.
from the number of patient falls in a hospital ward, to the
first pass yield in a production line, to the number of hits on
a website, to the time it takes to repair a bicycle. They cover
walls with graphs and launch investigations when a number
turns red or a trend turns downwards. However, not every
change is meaningful. Too often, leaders react to every up
and down in the metrics, asking for explanations and root
causes that don’t actually exist. This kind of overreaction
disrupts the organization and leads to activity that is more
‘busy’ than useful.
The fact is, some changes in metrics are just noise in
an otherwise stable system. Mark Graban, in his book
Measures of Success, makes a compelling argument for more
use of Process Behaviour Charts ( PBC) rather than bowling
charts, bar graphs or a table of numbers. PBCs ( also known
as statistical process control charts) provide a holistic view
of a system’s performance over time, allowing us to hear
the ‘voice of the process’. This context enables manage- Daniel Markovitz is the author of Building the Fit Organization and
A Factory of One. He founded Markovitz Consulting to help organizations
ment and frontline workers to determine whether a change
become more agile through the application of lean principles to knowl-
is significant, indicating that something has fundamentally edge work. He has taught at the Lean Enterprise Institute, Stanford
shifted in the system and is worth investigating. University and Ohio State University’s Fisher School of Business.

130 / Rotman Management Winter 2019

QUESTIONS FOR Liran Belenzon (Rotman MBA ’16), CEO, BenchSci

Q
&A A successful
entrepreneur and
recent Rotman
graduate provides
What is a bench scientist?
Bench scientists are biomedical researchers that work in
either pharma companies, biotech, academic institutions
or not-for-profits. Their job is to conduct biological experi-
ments to try and understand how different diseases work.
The hope is that their experiments lead to breakthroughs or
even cures for a wide variety ofdiseases.

advice for getting a start-up
off the ground.
Interview by Karen Christensen
How did you and your co-founders come up with the idea
for your company?
BenchSci has four co-founders, and I am the only non-
scientist on the team. Two of our founders [Elvis Wianda,
Chief Data Scientist and David Chen, Chief Technology
Officer] are computational biologists with PhDs in Neuro-
imaging. The other co-founder is our Chief Scientist Tom
Leung, who actually came up with the idea for the company.

rotmanmagazine.ca / 131
 The most important thing to remember
is that you only need one ‘Yes’.
Dr. Leung has a PhD in Epigenetics and was previously
a bench scientist conducting cancer research. He was really
struggling to find the best antibodies for his experiments. Be-
cause biological compounds have a high failure rate, there is
a lot of trial and error for these scientists. He would do what
most other bench scientists do — which is turn to biomedi-
cal papers that contain information about which compounds
to use under different conditions. He was used to spending
months and thousands of dollars per project. Frustrated, he
looked around for a database that aggregated published data
for antibodies to support his purchasing decisions, but was
surprised to find that none existed. One day he wondered,
Why not create one?
When we started the company over three years ago,
there had just been a huge breakthrough in a deep learn-
ing at the University of Toronto, led by Professor Geoffrey
Hinton. So, the technology was finally available to make our
goal possible.
How would you describe how BenchSci works to a lay-
person?
Imagine you’re baking a cake and you have to buy flour.
When you get to the grocery store, there are 4,000,000 dif-
ferent types of flour, and you have to choose the right one
for your specific cake, or it will fail. This is the situation that
scientists are in when buying ‘ingredients’ for their experi-
ments. To buy the right products, they can review the scien-
tific literature, but that takes up a lot of time. So we taught a
computer to read scientific papers the way a scientist does,
and make connections between their experiments and spe-
cific products. Now, the computer can show them which
products are likely to be the best for their experiments. It
brings down their options from 4,000,000 to a few dozen,
greatly reducing the cost ofexperiments.
Thousands of scientists are now using our platform ev-
ery day, saving anywhere between two and six months in the
discovery process. Before using BenchSci, they would have
to buy a dozen different compounds and test each one indi-
vidually, which can take weeks. We have decoded millions
of scientific papers and extracted over two million antibody
usages in the form of published figures. Scientists no lon-
132 / Rotman Management Winter 2019
ger have to go on a wild goose chase to get the answers they
need. We help them make informed decisions much faster—
and we are hopeful that this will lead to more breakthroughs
and important discoveries.
Tell us a bit about your involvement with the Creative De-
struction Lab at Rotman.
CDL has a special place in my heart. I did my MBA at Rot-
man, and in the summer between my first and second years,
I worked there part-time. I have a background in entrepre-
neurship, so I was really interested in everything that is go-
ing on there. My summer job was basically to find start-ups
and convince them to apply for the program, and one that
I targeted was BenchSci. I met with the three co-founders
and convinced them to apply. Then, as a second-year MBA
student, I took the Creative Destruction Lab elective course,
and I was able to work directly with the founders. A month
after I graduated, they asked me to join them as their CEO
— and we set out to raise money from investors and get the
company off the ground.
You’ve been very successful in raising financing. Can
you talk a bit about your approach to what can be a huge
challenge for entrepreneurs?
It takes a lot of hard work and learning, but I truly believe
two things made a difference for us. First, we became world-
class at the skill of storytelling. In my view, that is the most
important skill that the CEO of a start-up needs to excel at.
I was very fortunate to go through a kind ofstorytelling boot
camp for three or four months at FounderFuel, an accelera-
tor based in Montreal, and I really developed my skills there.
The second thing we had on our side is an understand-
ing of exactly which VCs to target. It’s important to stay up
to date with who is meeting with who, pay attention in the
data rooms, and check out the financial models being pro-
posed. All of that is key to having your proposal extremely
well-organized — which is very valuable because it shows
empathy for the investors. You need to provide everything
they need to make a good decision as to whether to invest in
your company or not.
In our case, I actually relocated to Silicon Valley for
 We are trying to build the greatest Canadian success story in history.

three weeks. I had about 30 meetings lined up, and I met
personally with everyone. I told them that I’d be returning
to Toronto in a few weeks, but that in the meantime I would
make myself as available as they needed. When I flew back,
I already had a few offers from companies including Google
and iNovia as a part ofour A-round.
How is your product different from the Google search
engine?
Google is an incredible tool for searching for general interest
documents by keyword. But it doesn’t understand scientific
concepts, or the relationship between biological entities,
have access to non-public data, or display results the way
scientists want to see them. BenchSci, on the other hand,
uses machine learning, bioinformatics, closed-access scien-
tific papers, and the display of scientific figures to provide a
tool specifically for biologists. If you search for ‘mouse anti-
body’ on Google, for example, you’ll get a Wikipedia entry.
If you search for ‘mouse antibody’ on BenchSci, you’ll get
published figures for antibodies from a mouse host that you
can then filter by 16 experimental variables.
When did you first know that you’ve wanted to pursue en-
trepreneurship?
I’ve always been interested in entrepreneurship. When I was
doing my undergrad in Israel, I started a company and sold
it before I moved to Canada. My dad has had a small busi-
ness since I was around 10, and my brother also had a start-
up. I love the challenge of it; I love the freedom; and I love
to create. Also, importantly, I can deal with the stress. I did
my service in the Israeli army, so I can definitely handle the
stress levels that come with entrepreneurship. This vocation
fits well with the environment, values and culture that I grew
up in.
You and your team have created around 30 million dollars
in equity value in less than three years. Looking ahead,
what is the plan for BenchSciin the next few years?
We really want to go as far as we can. This may sound gran-
diose, but we are trying to build the greatest Canadian suc-
cess story in history. That’s why we raised money from top
VCs like iNovia and Google. We have big dreams, and we’re
working really hard to accomplish them.

Based on your experience, what is the most challenging

aspect of getting a high-tech start-up off the ground?
Every start-up has its own challenges, and in each case, there
are many. I think the most important thing to remember is
that you only need one Yes. It really doesn’t matter how
many No’s you get; at the end of the day, you just need one
person out of a hundred to say Yes. To get through this, we
had to have conviction, perseverance and an amazing work
ethic. That’s what helps you achieve success. It’s a very
tough business and you’re meeting people who may not see
the world in the same way you do. You need to accept that
not everything is a good fit.
When we did our seed round, it was way more difficult
than our A round. I think we met with a hundred VCs, and
we only got one Yes. That’s why you can never give up; you
have to have conviction. Even if someone says ‘No thanks,
that is a stupid idea, it’s never going to work’, you can’t let
Liran Belenzon ( Rotman MBA ‘16) is the Co-Founder and CEO of
other people challenge your confidence and your belief in BenchSci, whose mission is to decode the world’s biological data to
the company. reduce the time, uncertainty, and cost of biomedical research.

rotmanmagazine.ca / 133
 QUESTIONS FOR Francesca Gino, Professor, Harvard Business School

Q
&A A Harvard professor
explains why it pays
to break the rules.
How do you define ‘rebel talent’?
Rebels get a bad rap. We mostly think of them as contrar-
ians — colleagues, friends and family members who com-
plicate seemingly straightforward decisions and disagree
when everyone else agrees. But rebels also change the world
with their unconventional outlooks. In an environment that
is demanding more and more innovation and reinvention,
we can learn a lot from them.
I spent over a decade studying rebels at organiza-
tions around the world, from high-end boutiques in Italy’s
fashion capital, to the world’s best restaurant, to a thriving
Interview by Carolyn Drebin fast-food chain, to an award-winning computer animation
studio. From an early age, we are taught to follow the rules,
and the pressure to fit in only increases over time. But when
we mindlessly accept norms rather than questioning and
constructively rebelling against them, we ultimately end up
stuck and unfulfilled. Rebels — those who practice ‘positive
deviance’ at work and in life — might be harder to manage,
but they are good for the bottom line: their passion, drive,

134 / Rotman Management Winter 2019

 Encouraging the right kind of rule-breaking is exactly
what today’s leaders need to do.
curiosity, and creativity can raise an entire organization to a
new level. Encouraging the right kind of rule-breaking is ex-
actly what today’s leaders need to do to help their organiza-
tions adapt and thrive.
You found that rebels come from all walks of life, but they
share certain characteristics. Please describe them.
I was able to identify five core elements of rebel talent. The
first is embracing novelty — a desire to seek out challenge
and the New. The second is curiosity — the impulse we all
had as children to constantly ask ‘why?’ The third element
is perspective, the ability to constantly broaden your view of
the world and try to see it as others do. The fourth is an ap-
preciation for diversity, a tendency to challenge predeter-
mined social roles and reach out to those who may appear
different. And the fifth is authenticity, which rebels embrace
in all that they do, remaining open and vulnerable in order to
connect with and learn from others.
Tell us how rebels challenge the ‘status quo bias’.
Most people naturally avoid tension and conflict, but reb-
els embrace it. Instead of asking ‘what should I do here?’ —
based on what they’ve seen others do or what they’ve done
before — they ask, ‘what could I do here?’ The fact is, many
of the traditions and rituals we encounter in organizations
and in society are a product of routine rather than thought-
ful deliberation. This preference for the status quo leads us
to choose activities we are familiar with, missing the oppor-
tunity that novelty presents. In my research I have found
that the more frequently people experienced novelty in their
work, the more they felt satisfied with and energized by their
job. Stability, by contrast, did not bring these benefits.
Are there companies that actively challenge the status
quo?
Definitely — and I wish there were more of them. Pixar is
one company that challenges its status quo by proactively
drawing out tension and conflict. The company actually has
certain days set aside where people stop doing their usual
job and instead spend an entire day thinking about what is
not going well at the company — on their team, in their job or
in the organization as a whole. Their notes are then shared
across the organization in an effort to improve things.
You can also hire for dissent and opposing views: Ra-
chael Chong, CEO of the New York-based nonprofit orga-
nization Catchafire, told me she actually seeks out dissent-
ing opinions when she interviews job candidates, looking for
people who disagree with her on some key issues.
How can we know when it’s appropriate to push the
boundaries and when not to?
It’s a matter of judgment. Organizations that have done this
successfully make it clear when rules should be broken and
when they should not. The leaders of Ariel Investments, a
Chicago-based money management firm, encourage rebel-
lion in all sorts of ways. They want people to be authentic,
which includes feeling free to disagree with each other, but
everyone in the firm knows which rules should never be bro-
ken. For example, before a letter goes out to a client, three
people must review it for clarity, because the company’s rep-
utation with its clients is so important. Consistency on rules
such as this one helps employees know where the boundar-
ies are.
Can curiosity be actively fostered?
Our willingness to explore and remain curious tends to de-
cline the longer we’re in a job. When people are under pres-
sure to complete their work quickly, they have no time to ask
questions about broad processes or overall goals.
It takes thought and discipline to start fostering creativ-
ity and curiosity. In most organizations, leaders and employ-
ees alike receive the implicit message that asking questions
is an unwanted challenge to authority. People are trained to
focus on their work without looking closely at the process
or their overall goals. But maintaining a sense of wonder is
crucial to creativity and innovation. The most effective lead-
ers look for ways to nurture their employees’ curiosity to fuel
learning and discovery.
rotmanmagazine.ca / 135

Do enough of today’s leaders value rebellion?
Many leaders say they value rebellion and rule-breaking, but
don’t encourage it for fear that it will result in chaos. I have
met many leaders who, in the end, push for conformity be-
cause of this fear; but I’ve also met leaders who have mod-
eled rule-breaking and encouraged it in their organizations
quite successfully.
One of the companies that comes to mind is Intuit. Ev-
ery year, the firm gives out awards for great innovations that
employees have come up with. But there is also an award for
the Best Failures: explorations that didn’t turn out well, but
helped the company to learn something. The failure award
even comes with a ‘failure party’. This sets up a system
where people are comfortable asking questions and break-
ing rules, as they know they won’t be punished for experi-
ments that falter.
Can anyone be a rebel?
Absolutely. You just have to be willing to take risks that can
be uncomfortable. My goal is for people to become more
comfortable being uncomfortable. I began this project by
trying to understand rule-breaking in the workplace. But
breaking rules, I discovered along the way, enriches every
aspect of our lives. Most of us are not born rebels. But if
you’re like me, after trying the rebel life, you won’t want to
go back.
Francesca Gino is the Tandon Family Professor of Business Admin-
istration in the Negotiation, Organizations & Markets Unit at Harvard
Business School and the author of Rebel Talent: Why it Pays to Break the
Rules, At Work and in Life (Harvard Business Review Press, 2018). She
is formally affiliated with the Program on Negotiation at Harvard Law
School, with the Mind, Brain, Behaviour Initiative at Harvard, and
with the Behavioural Insight Group at Harvard Kennedy School.
136 / Rotman Management Winter 2019
The 8 Principles of Rebel Leadership
1. Seek out the new. It’s important to break away from
routine and find inspiration in unlikely places. For business
leaders, this could mean introducing employees to things
that aren’t obviously related to the organization.
2. Encourage constructive dissent. We often seek
out the opinions most likely to match ours, but rebels
fight that instinct, finding ways to encourage conflict
and disagreement.
3. Open conversations, don’t close them. Rebels are
willing to keep an open mind.
4. Reveal yourself – and reflect. Rebel leaders focus
on their strengths, but are honest about their weaknesses
and make an effort to be mindful of both.
5. Learn everything – then forget everything.
Successful rebels understand the importance of
mastering the fundamentals of their industry,
but never become slaves to the rules.
6. Find freedom in constraints. Many people think
they can’t innovate because the parameters of
their job are too rigid. Rebels work through and even
find inspiration in constraints.
7. Lead from the trenches. Rebel leaders are willing
to get their hands dirty, and their employees respect
them for that.
8. Foster happy accidents. Rebels know the value of
a happy accident. They believe in workspaces and teams
that cross-pollinate, and realize that a mistake can unlock
a breakthrough.
What is your Rebel Quotient?
Find out at www.rebeltalents.org.
The website also includes stories
and case studies of rebel leaders.
Learn from
the best
Each year, the Rotman School of Management
hosts almost 1 0 0 public talks by bestselling
authors, executives and other thought leaders.

Highlights

january 15, 5:00-6:15 pm february 19, 5:00-6:00 pm

Michael Bloomberg Rahaf Harfoush
Founder, Bloomberg LP; former Mayor, New York City Strategist; Author
Hustle & Float:Reclaim Your Creativity & Thrive in a World Obsessed
january 29, 12:00-1:00 pm with Work (Diversion, Feb. 1 9 , 2 0 1 9 )
Ken Auletta
Staff Writer, The New Yorker;Author march 6, 5:00-6:00 pm
Frenemies:The Epic Disruption of the Ad Business (& Everything Tom McCullough
Else)(Penguin, 2 0 1 8 ) CEO, Northwood Family Office; Adjunct Professor, Rotman;
Co-Author
january 29, 5:00-6:00 pm Wealth of Wisdom:The Top 50 Questions Wealthy Families Ask
David Rosenberg (Wiley, 2 0 1 8 )
Chief Economist & Strategist, Gluskin Sheff + Associates Inc.
Becoming More Disciplined, Discerning & Defensive in march 12, 5:00-6:00 pm
Late-Cycle Investing William Eimicke
Professor, Columbia University; Co-Author
january 30, 3:00-4:00 pm Social Value Investing:A Management Framework for Effective
Elisa Birnbaum Partnerships (Columbia U Press, 2 0 1 8 )
Social Enterprise Expert; Author
The Business of Change:How Social Entrepreneurs are march 13, 5:00-6:30 pm
Disrupting Business as Usual (New Society Publishers, 2 0 1 8 ) The Invisible Heart
Film screening of a documentary about social impact bonds
february 6, 5:00-6:00 pm
David Burkus march 18, 5:00-6:00 pm
Associate Professor, Oral Robarts University; Author Efosa Ojomo
Friend of a Friend:Understanding the Hidden Networks That Can Research Fellow, Christensen Institute for Disruptive Innovation;
Transform Your Life & Your Career (Houghton Mifflin Harcourt, 2 0 1 8 ) Co-Author
The Prosperity Paradox:How Innovation Can Lift Nations Out of
february 11, 5:00-6:30 pm Poverty (HarperBusiness, Jan. 1 5 , 2 0 1 9 )
No Belles
A play about the gender imbalance in the awarding of Nobel Prizes

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