AI Is Rewiring Organizations — McGrath, Osterwalder, Amla & Sheikh

One developer. Six months. An $80 million sale to Wix. That's not the future of work — it's already here.

In this special panel from the Kyndryl Institute and The Innovation Show, host Aidan McCullen brings together four of the world's sharpest minds on strategy, innovation and disruption to explain why most leaders are using AI completely wrong — and what to do instead. Rita McGrath (Columbia, author of The Entrepreneurial Mindset and originator of "transient advantage"), Alexander Osterwalder (creator of the Business Model Canvas, CEO of Strategyzer), Ismail Amla (SVP at Kyndryl, author of From Incremental to Exponential) and Usman Sheikh (author of Frame Break, MD of High Output Ventures) map how work, value and power are being redrawn.

In this conversation, the panel reveals:

• Why painting over a rusty gate explains how most companies are misusing AI
• How a single developer sold an $80 million company to Wix after six months of solo work
• What Jensen Huang does every Sunday night to stay connected to NVIDIA's front line
• Why Bayer put its whole workforce on 90-day cycles — and how it kills office politics
• The "verification bottleneck" that quietly cancels out every speed gain from AI
• Why one firm tracking staff AI logins for promotions missed the point entirely
• How the billable hour is dying — and what replaces it
• Why labour arbitrage flipped from advantage to liability in just twelve months
• What a Korean fintech founded by a dentist (Toss) teaches us about permissionless teams
• Where incumbents still hold a moat that AI-native startups can't touch

Chapters: 00:00 AI Moment Opens

00:35 Meet The Panel

02:20 Rewiring Organisations 

03:36 Rusty Gate Lesson

04:25 Entrepreneurial CEO Return 

06:28 Permissionless Transition

08:39 One-Person Unicorns

10:13 Power Redefined

13:17 Verification Bottleneck 

15:46 Agents In The Enterprise 

20:22 Gaming AI Metrics

22:54 Death Of The Billable Hour 

24:23 Electricity Era Analogy

26:18 Business Model Fundamentals 

28:04 Rethinking Business Models

29:04 AI Native vs Legacy

29:49 Services Industry Upended

33:40 First Steps For Incumbents

Episode Transcript

(00:00):
welcome to this special podcastbrought to you by The Kyndryl
Institute and The Innovation Show.
We are at an interesting point intime with likely the most powerful
technology to ever grace the planet.
It is a reshuffling of howwork is done, value is created,
and permission is granted.
It is a puzzling time for leaders,as their initial temptation is to use

(00:21):
AI to optimize existing processes.
Luckily for you and for us, we have adiverse panel of experts, authors, and
practitioners to shine some light on thechallenges and the opportunities ahead.
It is a pleasure to welcome to the showUsman Haque, who is the author of Frame
Break and the MD of High Output Ventures.

(00:43):
It's great to have you with us, Usman.
Great to be here, Aidan.
Long time follower.
Glad to be on the show.
Great to have you on the show.
Also, good friend of the show,prolific author, globally recognized
expert on strategy and innovation.
Her work goes back decades.
She's influenced so many of us, so manypeople all over the world, saved companies

(01:03):
that she doesn't even know that she saved.
She is the author of multiple titles,and a new book coming down the line.
She is Rita McGrath.
Welcome to the show.
A pleasure to be here, Aidan.
Always great to learn from you, Rita.
And another person I've learnedfrom, a person I met during the
pandemic because he was in lockdown,'cause it's hard to lock him down.

(01:24):
He's traveled all over the world.
He's an SVP at Kyndryl now, buthe wrote a brilliant book, From
Incremental to Exponential.
He is Ismail Amit.
Welcome to the show.
Thanks for having me, Aidan.
Very excited to be here with this panel.
And finally, friend ofthe show and good friend.
He's become a good friend of mine.

(01:45):
He's the creator of theBusiness Model Canvas.
He's written tons of books.
He's always out in the fieldworking with clients, learning
from clients, and leading his ownbusiness as CEO of Strategizer.
Alexander Osterwalder,welcome to the panel.
Thanks for having me, Aidan, and thankyou for organizing this conversation.
It's awesome.
It is, and I've told you before,I'm so selfish with this.

(02:07):
I learn so much from both the discussionswith you individually, but also I love
the interaction that happens and thelearning that happens between us because
we have a group of humble leadershere who are open to learning as well.
I thought we'd get kickedoff with something.
I had a chat behind the scenes withIsmael recently, and Ismael, you

(02:28):
casually, I hope you remember this youcasually said something that I thought
would spark us today and talk to someof the things we'll discuss when you
shared how this technology is somewhatdifferent, and it's changing the structure
of organization and the structureof decision-making in organizations.
Yeah.
Yeah, absolutely, and I think weall talk about, this technology

(02:52):
being, , life-changing, literally.
And, , by the way, I'm a great fan of thework that Rita has done over the years.
And as we think about strategy,it's difficult to think about-
Technology being so dominant in thatstrategy discussion as it is today.
And then, if you double-click justone level, you then very quickly

(03:15):
get to, but this isn't about boltingtechnology on to make change.
This is about rewiring everything.
And I think that is really the fundamentaldiscussion, that not all organizations
and individuals have got to, but reallythat's where the value will come from.
I think that's the sortof chat we were having.

(03:36):
When you said that to me, I thoughtabout, a learning that I had as a child.
My granny was brilliant atteaching me the hard way.
And she said, "I'll give yousome pocket money," which wasn't
very much back then in Ireland.
We had punts.
We had our own currency back then.
And it was like, I would get apound, which a pound note was huge.
And my job was to go outand paint a rusty gate.

(03:58):
And of course, she gave me a tin of paint.
I went out and I painted over allthe rust, and quickly she came out
and she goes, "Okay, you're gonnahave to give me a pound 'cause now
I have to do this all over again."
So I had to get a wire brush, cleandown the gate, and start over again.
And it's exactly what I thought of aboutwhat we do with these new technologies.

(04:18):
We try to use them to cover up whatwe're doing, or the inefficiencies
we have, or the structures wehave that are no longer useful.
And Alex, I actually thought about you inthis where you and I were talking recently
about your work, your current work, andyou're always out in the field working
with clients, as I said in the intro.
And you said about how you've seen ahuge shift in how organizations do work.

(04:41):
CE- CEOs, CTOs now, in particular, whohave a better seat at the boardroom
table than ever mo- before, but they'reworking with other senior leaders out
with clients in the trenches to learnhow to apply AI and AI-related value
propositions directly with customers.
I thought that was fascinating, thatshift, 'cause we rarely see that

(05:03):
Yeah, it's, it's been quite impressiveto see that the best leaders I get to
work with, they're really understandingthat this is challenging their business
model, but also their customers'business models and value propositions.
And they have to go, get out of thebuilding and work with customers to deeply
understand, for example, in B2B, thework we do where the CEO needs to deeply

(05:25):
understand the P&L of the customer andhow are they with AI and what AI c- can
or could do, you know, gonna help them.
So it's not enough to manage whatyou have anymore, is you really
need to get into the trenches.
So I think it's this, revival ofthe entrepreneurial CEO almost,
Steve Jobs style, maybe not with thesame kind of, aura, but definitely

(05:45):
that kind of working where CEOsare becoming product people again.
And I think that's very healthy.
Like we know that from the startupworld, but we don't know that
from the, you know, Fortune 100.
So I think this is really afundamental shift in how we
need to lead our organizations.
I was reading recently, there's a newbook about the Steve Jobs Next Years,
and just because you mentioned himthere, it was really interesting how

(06:09):
he was revered by technology providers.
So Canon, for example, flew him outto Japan because they thought that he
would see some use for technologiesthey had created or invented that they
wouldn't know, and that's how theycame along with the optical drive.
And just because you mentioned that,but it brings to mind Rita's work.
So Rita has a new book coming out, roughlythis idea of a permissionless organization

(06:33):
where the decision-making is changedto those people who are at the edges,
those people who are working at the edgesof of the organization in the field,
learning at the point of fi- and havingto make those decisions at the time.
And Rita, I pulled a quote froma comment you actually left on
somebody else's post recently.
You said, "The old model of the firmreplete with hierarchies, bureaucracies,

(06:56):
and the mechanisms of control that mademass production feasible is no longer fit
for purpose. In a digital world or an AIworld, companies centered around a common
mission or values have a strategic edge."
I thought that was absolutelyimportant because it talks to
everything we're talking about here.
It's not just a case of understandingand deploying this new technology.

(07:19):
It's not just a case of what Alex saidthere, where you're getting out and
you're making decisions with your clients.
It changes the entirestructure of your organization
We were talking a little bit before thisbegan about, where are we in historical
terms, and I would argue that we arein the midst of a great transition
from the world of mass production,where hierarchy and bureaucracy,

(07:42):
are actually a pretty good way ofconnecting things if your goal is making
a million identical widgets, right?
In which case you want everybodydoing exactly what they're supposed
to do at exactly the right time.
You want decisions to be centralizedbecause advantage comes from economies
of scale, and, and, and, and, and.
And the world we're moving into iswhere we're seeing services replacing

(08:03):
products, where we're seeing, youknow, units of value creation are
small teams and even individuals.
We've got our, fabulous story of a guy,a single Israeli guy who worked for six
months by himself to create a productthat got sold to Wix for $80 million.
Uh, d- like, where is that inthe world of mass production?
It doesn't exist.

(08:23):
So we're right in the middleof a transition, and these
transitions are incredibly messy.
And all the things we're seeing, youknow, massive income inequality, political
turmoil, the rise of populism, all thatha- we've seen this before at least five
times in these transitions in capitalism.
Alex, you talked to me before aboutthat when we had a chat recently about
the idea of a one-person unicorn or atwo-person unicorn, where you're using

(08:48):
all these agents to run your company,to market your company, et cetera.
Maybe we'll say a word, onthat before we come to Usman.
Yeah, I, I think, you know, what,what you have at your fingertips
as an individual, without actuallyhaving a ton of technological
knowledge is pretty amazing, right?
So, you know, the web was made accessibleby Tim Berners-Lee and then Netscape

(09:09):
and then all that came afterwards.
Then Amazon, with Amazon WebServices made, web infrastructure,
really powerful web infrastructure,accessible to everybody.
And then, with ChatGPT we kinda launchedsomething that was around for a long
time, but it became available to amuch larger group of people, these
powerful AI tools that anybody can use.

(09:29):
So I think today, as a small team,maybe individual, definitely as a
small team, you can do things thatwere only accessible to hundred
or thousand of people before.
That is exactly what,Rita is talking about.
That's a fundamental shift, andyou will see a lot of people
who have to reorient, right?
They're gonna lose their jobs.
Are they gonna get new ones?
Are the same people gonna get new ones?

(09:50):
So it's a fundamental shift.
It's a huge opportunity for anybodywho's entrepreneurial, and it's a
real challenge for anybody who, youknow, can't or doesn't want to adapt.
'Cause it's , a question of wanting to.
Some people just can't becausethey don't have the means, you
know, access to all these things.
So it's a, it's an interesting time,but definitely, as Rita said, it's gonna

(10:11):
be quite turbulent, this transition.
You were talking there about thereskilling or unlearning actually that has
to happen for a lot of people, and manypeople don't have a great experience of
education, but also we've been educatedfor that world that no longer exists.
And Rita, I wondered about this.
So if you have- Leaders givingdecision-making power to the edges of

(10:34):
the organization, they may question,"Well, where does my power or status
come from if that's the case now?"And I wondered how you're seeing
leaders deal with that conundrum.
Oh, well, this was actually abig surprise in the research
I've been doing for the new book.
So I guess I went into it with theassumption that it would be the, you
know, Lee Iacocca principle, right?

(10:56):
Which was, my success in life comesbecause I hire people that are smarter
than me and I get out of their way.
And that's what I thought I'd find, andit turns out that's not the case at all.
What I see is leaders thatare deeply, deeply into the
weeds in terms of the business.
Now, what's interesting isthey're not command and control.

(11:16):
So if you take somebody like, JensenHuang at NVIDIA, everybody in the
company at the end of the week putsout a memo which is their top five
things they're gonna do the next week.
It's called TFTs.
And, these are all posted to,distribution lists, and Huang has
access to these distribution lists.
And what he does on Sundaynights is he takes a couple of
hours and he just randomly goesthrough people's top five things.

(11:37):
And it could be somebody on the frontline, it could be somebody more senior.
It's kind of random.
And he personally makes comments on them.
He makes observations.
But what I think is the key thing ishe's directly connected to the edges.
So we're seeing a differencein the way power is defined.
It's influential power.
It's not command and control power,and it's definitely not perks and,

(11:59):
you know, all that kind of thing.
So an interesting organizationaldesign is something they're
experimenting with at Bayer.
And, Bayer's been through terrible times.
Horrible acquisition, bad lawsuits,really tough competitive challenges.
And, Bill Anderson was brought inas their CEO to turn things around.
And my friend Michael Loureyis sort of his right-hand man.
He's their chief, chief transformationofficer, I think his title is.

(12:22):
But one of, one of the things thatthey're doing is they're putting
the company on 90-day cycles.
What they've done is they've separatedout your work into your professional
home and your task activities.
And your job, your promotion, yourpay, all that stuff is decided
by your professional home, not bythe exact tasks that you're doing.

(12:44):
And why I think this is sointeresting is it reduces the
return on politics tremendously.
You know, if you're not brown-nosingthe person to whom you report
theoretically,, what is yourincentive to spend time on politics?
You might as well do the best work youcan because that's what's gonna get
acknowledged in your professional home.
It's so interesting, that, becauseit's the biggest challenge for
innovation officers or transformationofficers is there might be creative,

(13:08):
they might know how to get thingsdone, but they can't speak politic or
navigate the corporate maze that ismost organizations' political status.
But I wanted to come to Usman because,Usman, you wrote a brilliant article
recently, and I loved the title of yourblog, Frame Break, this idea, because
I love the saying, "It's hard to readthe label when you're inside the jar."

(13:30):
But also a guy called Chuck House,a brilliant innovator who was at HP,
he told me there's even a better one.
He said, "It's hard to see the picturewhen you're inside the frame." And
I pulled a little quote from that.
You said Speaking to this idea, the timesaved on a specific output that requires
twice the review time is not time saved.

(13:52):
And what you're talking about here iswhen this structure is used where now
I can use these technologies like AI,I can use agents to do my work faster,
but then it has to go to a layer where Idon't have the permission to actually act.
And we've seen some people gotcaught out from that badly, which
has scared a lot of organizations.
But this idea of overly trackingpeople or not giving them the

(14:18):
permission to actually go and shiptheir work is a huge constraint.
I'd love you to talk to this,and particularly this article
that you recently wrote.
Yeah.
In the article, I was talking aboutspecifically this verification problem
where we've sped up the work withthe technology that is available to
us, but the ability to now reviewthe work and see whether it's the
correct work is lagging behind,and the competence and the judgment

(14:42):
required to review the work is thebottleneck in a lot of these places now.
So how do we sort of like create theinfrastructure for this to happen?
And the second part is you can speedup the work, which like a lot of firms
are equipping their firms, their peopleto use these tools to produce faster.

(15:02):
But if it's not impacting, becauseeveryone's moving towards this outcome
orientation way of billing and theunit of value, and I think these
two factors are causing problems.
One, the speed of work is increasing, andwe don't know whether it's correct or not.
Second, even if you speed up and it'snot impacting the outcomes that it's

(15:22):
been created for, I think that's creatingtension within the firm, and it's
causing a lot of problems that Rita spokeabout, like the leverage ratio is being
challenged now because, there was so much.
The pyramid was constructed so that youcould pro- build for that production time.
But if the cost of production compresses-The pyramid has a lot less to offer now

(15:46):
And how, how are you seeingthat, Ismail, in your work?
How, how would you see that playout when it comes to, like, a CTO?
I mentioned now, like, a, aCTO should have always had a,
a place at the boardroom table.
A CHRO should have a board- aboardroom place at the table, and they
haven't n- always in most companies.
And technology is often treatedlike an expenditure rather than a

(16:11):
competitive advantage, and I wonderedthere, like, one of the things I was
trying to get at with that idea ofthe rusty gate, I loo- recently was
trying to get the max out of my Wi-Fispeed at home, and I rang the company.
It was paying for a gig power onmy Wi-Fi, and I wasn't getting it.
And the guy goes, "Oh, you need toplug in, and you need to go through
the g- through the LAN." And I waslike going, "Okay." So I did that.

(16:34):
It's still not working.
I'm only getting about 500.
And he goes, "Okay, well, whattype of wire are you using?"
So I had this idea.
I was like going, "Oh my God." Sofirstly, the technology has to be
capable of running that through itself.
They don't tell you this stuff, of course.
You're paying for a gig, of speed.
But I thought about that disconnectand, say, for example, the savvy

(16:54):
CTO who's listening to this show andgoes, "I have been trying to tell
them that for ages, that we need toupgrade our stack to be able to even
run this powerful technology upon us,and that's the competitive advantage
if we get ahead of other people."
What's happening out there in the field?
Yeah, I mean, there's, there'stwo or three things here I
think worth thinking about.

(17:15):
One is when we talk about this technology,this technology is a team now of
agents and people working together.
And, when you think about that, the roleof HR and IT is changing, even to the
point where some organizations are lookingat bringing the CHR and CIO together

(17:38):
because the role becomes one of treatingagents as you would an individual.
You train them, you onboard them,you reinforce behaviors, you exit
them when something new comes along.
And so, the technology peoplewill be managing agents as if
they were part of the team.
So that, that, that's one point.

(17:59):
Secondly, the role of the individualthen in that loop, and there's lots
of discussion, and there's some greatdiscussion on what is the role of the
human in the loop of a bunch of agents.
And I really like the view of thehuman adds meaning to the loop.
So technology can do whatever itwants, but it can still meet its

(18:21):
measurable objective, and I thinkthis is maybe what Usman was referring
to, and miss its intended one.
So this agentic drift discussion, right?
Where, for example, in procurement,you've told the technology, "Go and
get me the best price, reduce costs."
And in doing that, it reduces partnershipswith organizations that are really

(18:42):
important to you, with organizations whereyou've got, um sustainable relationships,
or whatever it might be, right?
So it's giving you what you askedfor, but in doing so, you've gone
away from the strategy and themeaning of what you were trying to do.
So I think that b-becomes really important.
And then the third aspect, and I'msure the panel will have a view on
this, is what our customers are worriedabout is This technology is amazing.

(19:08):
It's easy to set up.
Agents are almost free to create.
The magic is in the workflow.
But if you've now got hundreds ofthousands of agents, autonomous, working
in your production environment, and you'rein a regulated industry, how can you go

(19:29):
back and have an audit trail and say,"Actually, w- not only are they behaving
the way I'm asking them to behave, butthey're behaving as our organization
mission and purpose needs them to behave"?
So I think as we go from brillianttechnology to production-ready
environments, there's some quiteinteresting people-related stuff.

(19:53):
It's not, these are not technology, right?
I think there's some people-relatedstuff we need to fix, and if
anything in the world is doable now,that is the idea of imagination.
What does native AI enterpriseand processes look like?
So everyone we're talking to, Aidan,is going back almost to base zero.

(20:15):
If you're an insurer, what doesa native AI insurer looks like?
What's the role of the people and the role
? Absolutely love it.
I was thinking about something.
There's a quote by Tolstoy, and hesaid, "Everybody thinks of changing
the world, but nobody thinks ofchanging him or herself." And that
I, you know, think it's easy to go,"We should do that," and then you go,
"But your role's gonna have to change.
Your status, your power is gonna have tochange." And your colleague, great guy,

(20:38):
Tom Rourke, he, he talk he said to meone day about how people resist change.
He said, "You can't waterboarda horse." You know that idea of,
like, dunking, dunking the horse.
"You'll drink, God damn it." AndI was thinking about that with
resistance to using the technology.
And Usman, you wrote about this recently.
Uh, it was fascinating, and Imentioned to the panel, many of

(21:01):
the panel hadn't heard this, wherethere's now metrics about using AI,
so people are being measured on it.
So what are they gonna do?
They're gonna game the system to beusing it just for the sake of using
it versus actually seeking real value.
And that forcing peopleto change never works.
I'd love you to shareyour thoughts on that.

(21:21):
Yeah.
I think the firm that we're referring towas in the FT (Financial Times) and, it's
a large, firm that was tracking whethertheir employees were logging into AI tools
and linking that to their promotions.
And it just goes to show that thereis this very large narrative to
be AI-enabled and how much you'readopting the technology, and there

(21:43):
are metrics that you can put, like somany of my people now use AI tools.
But I think that confuses what, Ismailwas talking about, that we have to start
measuring how the work is changing,how the pricing structure is changing.
Because if you're just simply tackingthis on and saying utilization of AI

(22:03):
tools has gone up without the invoicechanging or without the delivery
mechanism changing, then it's short-lived.
And I think that's where the realopportunity is when I'm talking
to companies, is that how hasyour pricing strategy changed,
or how are you delivering this?
And in the article that you werementioning, there was a legal AI company

(22:26):
that I referenced which, started to billfor their work on the documents that they
provided versus the hours that it took.
And these are starting from Rita's,snow melts on the edges, and I
love that saying because it's gonnastart with these wedges that are in
relatively deterministic workflows.
But eventually the patterns will catch upand, you'll start to see this drift even

(22:50):
further within, more complicated cases.
Speaking of snow melting from the edges,it's a natural segue to come to Rita.
Rita writes a lot about this idea.
But Rita, I noticed one of your mostpopular articles, I follow your thought
sparks, avidly, and one of your mostpopular articles was recently about

(23:10):
how the value of work changes with AI.
And I'd love you to shareboth what you wrote about, but
also the great interaction youhad with people about that.
Yeah, the, the article was, Ithink that one came out in The Wall
Street Journal, and it was AI andthe Death of the Billable Hour.
And the billable hour is, inmany industries, in law in

(23:31):
particular, is almost sacrosanct.
You split your hour into six intervals,and then you bill clients for each
of those intervals that you consumed.
Well, with AI, that becomesa meaningless metric.
And the billable hour hasa lot of negatives, right?
It punishes efficient work.
It, causes people to lookat the wrong outcomes.
It causes people to, uh, you know, spendmore time than they actually need to.

(23:53):
It's sort of subject to gaming andall kinds of things, and increasingly
clients are pushing back on it.
And so the consequences for, as wetalked about, the pyramid structure
of a lot of the professional servicefirms is going to be challenged.
And people are gonna be billingmore for outcomes rather
than, rather than the intent.
So , the locus of value really changeswhen you're billing for what's the

(24:16):
outcome that you created rather thanthe time it took you to get there.
And I think that's a huge, huge shift.
So the way that I look at AI and theproductive capacity of organizations,
the analogy I would use is it's verymuch when electricity was introduced.
So before you had electricity, , youdesigned your production facilities in a

(24:37):
linear fashion because you relied on onepower source, so a steam engine or a river
or a windmill or something, and everythingwas interdependent, and that was the
logic that dominated factory productionsince the first factories were ever built.
Well, once you had electricity, eachmachine could now operate independently,
and it was a completely differentorganizing logic that was needed.

(24:58):
And the factories that were built eitherafter the electric- introduction of
electricity or those that converted overachieved massive productivity gains.
But it took 40 years beforethat became the norm.
And the reason, I think, and I thinkwe're in this moment with AI, is, you
know you have to write off an awfullot of stuff that you've learned to do.
You have to depreciate alot of, existing assets.

(25:18):
You have to unlearn a lot ofpainfully gained tacit knowledge.
I mean, there's just all this stuffthat you have to, you know, segue,
into the past in order to capture theproductive capacity of what's to come.
And I think we're in that moment of, youknow, a lot of organizations, they won't
tell you this, but, you know, they'redeeply afraid of having to admit how

(25:39):
much is tied up in these legacy systems.
And a place that that shows up is atotally reshuffling of the business
model, Alex, and how the verybusiness model that might have got you
competitive advantage today is now gone.
To Rita's term, it's transient.
It's gone much quicker than itused to be, and dealing with that.
So firstly, you're looking at thetechnology, going, "We have to, we

(26:01):
have to integrate this technology someway to have a competitive advantage."
But doing that without looking at theentire structure and below the, the,
the rust, the rusty gate, removingthat rust to see what, what's at the
surf- at, what the base of it, iswhere a lot of companies go wrong.
That's … It's quite interesting,you know, that- With this change

(26:22):
in technology, we kinda repeatthe, the mistakes from the past.
Like we, we need to go backto the fundamentals, you know,
the business fundamentals.
They do not change.
Who's the customer?
How are we creating value?
How are we capturing valuewith the business model?
And then hopefully, you know, how arewe creating value for the society?
Those fundamental questions do not change.

(26:43):
Now, with AI and, and, you know,everything that comes with it, I
think those… the content of thosefundamentals is really, really
changing, but the questions aren't.
Now, when you have a- an establishedbusiness model, it's extremely hard
to challenge those fundamentalsbecause the shift, you know, will
require you to completely revampyour business model, you know?

(27:06):
And we can go back to thisreally boring example.
Everybody talks aboutKodak, but think of it.
They actually committed innovationsuicide because they invented a
technology, the digital camera, but theyforgot to reinvent the business model.
So they never shifted their assets fromthe old world of analog film to the

(27:27):
new world, and it's more complicatedthan that, but they didn't do that.
Now, today, look at, youknow, the big service firms.
You take Accenture, Deloitte, and so.
They're facing an enormous challenge,and some of them will say, "Yeah, but
we do AI." Yes, but if your businessmodel is fundamentally changing, you
might actually be committing innovationsuicide like, uh, Kodak did because

(27:51):
you're changing, you're adopting thetechnology, but you're not fundamentally
changing your business model.
So when your business model ali-relies on hundreds of thousands
of people, well, guess what?
It's gonna change radically.
So it's not enough to actuallylook at the technology, to embrace
it, to create new products.
You need to fundamentally questionyour business model, and that's the

(28:13):
leadership that's required today, is tolead your company from today to tomorrow.
And that's not gonna happen with theways we've done it so far because many
business models are gonna get disrupted.
And to some extent, it's interestingto see some of the physical companies
are probably less prone to disruptionthan the technology companies.
So you'd be surprised.

(28:33):
I, I think we're gonna see someinteresting companies disappearing and
some that we would've thought, oh, they'reold school, they're gonna disappear.
They might actually rise if theyhave the… they do the right moves.
I love that.
I had this vision of, uh, I shouldactually get this… I should generate
this with AI, this idea of arranging thedeck chair, chairs on the Titanic but
using those Boston Dynamics dogs to do it.

(28:56):
Just push them around the placepowered by AI, do it quicker.
But it, also raises a nice juxtaposition.
So I was thinking about this.
So we're, we're talking here a lotabout reshuffling or reorganizing or
recalibrating an existing incumbent firm.
But maybe we'll compare it to whatdoes an AI native firm look like?

(29:17):
M- Rita mentioned, for example, thatguy with his 80 million, uh, startup
in a few months sold on to Wix, butI wonder what does that look like?
So the, the value of being born intothis AI as an AI native means you don't
have any of that legacy we talked about.
You don't have any ofthat psychological debt.
We talk a lot about technological debt.

(29:39):
But Ismail, from your perspective,what are you seeing that's AI native,
AI first, where you don't have anyof that legacy and you can just
build and get out of the blocks?
Yeah.
And, you know, Alex, I think I, I'm gonnabuild on what Alex is saying around my own
industry and what's happening with that.
You know, only 12 months ago, if youhad hundreds of thousands of people

(30:01):
and you could do labor arbitrage,you had competitive advantage.
Now it's a competitive disadvantagebecause you've got to get rid of
hundreds of thousands of people.
Because the customer expectations is thatwhen you used to turn up with 10 people,
seven of them undergrads, you know,on the pyramid, now their expectation

(30:21):
is you turn up with three people anda consult tool who does the work.
So the whole economics of, how you do thework How you yourself, and Usman's done
a ton of work in this space, how you'regonna cost for it, and then how you're
gonna share some of that value with thecustomer, 'cause there's an expectation

(30:42):
that some of that value will be shared.
And yet you still end up with abusiness where, you're meeting market
expectations, albeit market expectationsare changing in that the margins
for this sort of business, I thinkare gonna be closer to a software
business than a services business.

(31:02):
So, you know, you talk about disruption.
This is about as disruptive as itgets in our own industry, and I think,
you know, somebody on the pan- panelmentioned the winners and the losers
might not be what we think they are.
You know, what… You know, you know,we're sat with 20,000 people offshore
thinking, "How do we compete with 800,000people sat in competitor A, B, and C?"

(31:24):
And now we're saying 20,000 people,that's amazing, 'cause we can compete.
We don't need more than 20,000 people.
, And so I think as you think aboutnative AI, again, in our industry, we're
thinking about autonomous operations.
So our customers expect… They usedto have managed services, outsourcing,

(31:44):
loads of people doing DevOps, doing, callcenter management, et cetera, et cetera.
Basically, you've just gotpeople adding meaning to what the
technology does is what a native,environment is gonna look like.
We've got, more and more requirementfor curiosity and creativity to

(32:07):
help our customers think about whata native AI insurer or a bank or
a manufacturer might look like.
And it doesn't look like anything we'veimagined in the past, and that's where
our customers are going to need help.
They don't need help in developing code.
They don't need helpin running operations.

(32:28):
They need help in imaginingwhat it might look like.
And then when they're running theoperations, they need guarantees that it's
gonna be secure, it's gonna be scalable,it's gonna be transparent, and it's
where it's regulated, you can provethe audit trail around regulation.
So I think the places at which we addvalue for us as an enterprise native

(32:51):
service provider changes to the twoends of help me imagine and help me run,
'cause everything else is, automated.
And the customer, who are buying now,what we're finding is technology,
budgets used to sit predominantly in IT.
Of course, CMO and lots ofbusinesses have some budget.

(33:11):
The AI budget is sitting allwith the business units 'cause
it's all about outcomes.
So the customers who aretalking to the service providers
also, are changing as well
That's a really interestingpoint that the, the, the owner
of that budget also changes.
Like even in your consulting work,that changes how decisions are made and

(33:31):
who is responsible for that decision.
And decisions get made faster,which I always find so annoying for
the poor person who was trying toget the budget in the first place.
Alex, maybe we'll link to you onthat before I come to Usman, because
you're experiencing this firsthandout in the field and also with your
own company, where you're changingstructures inside the company.

(33:52):
But I thought there about whatIsmail was saying, if you're AI
native- Or even if you're trying tobe, you have to take a first step.
And what is that first step?
Is it I start with some type of, atrial, I start with some process that
I'm gonna get out of the blocks with,and understand that, and then go,
"Okay, now I have a feel for this.
Now, I can scale it," just like you wouldwith product development, et cetera.

(34:15):
Even take a step back.
So, I'll give you a silly example.
Like, if you're a skincare companyand you have an established brand,
well, you better be afraid of theskincare company that's going to have
access to personalized health databecause you're gonna have consumers
who are gonna want to have skincare, inparticular the young generation that,
you know, know what technology can do.

(34:37):
They want skincare that is for them.
Now, we're still far away from havinga drug developed for your personal
DNA, but definitely recommendationengines can do much better.
So, if you don't know that and youdon't create alliances to have the right
partnership, you might actually buildstuff that's not gonna have impact because
you were just blocked from market access.

(34:58):
So, before building anything, I'dtake a step back and ask, "How is
AI going to disrupt your company?"Because I'll tell you, the startups,
you know, they're gonna do it, andbecause there are 100 or 1,000 in your
field, well, one's gonna get it right.
And now you're one big companytrying to get it right.
Well, you better, you know, kindof start, start from the strategic

(35:19):
lens because as an establishedcompany, you have some assets.
You better use those becauseyou don't have the speed.
Like, I don't know any largecompanies who have the same
speed as the startups, you know?
So, I'd go back to some strategicthinking, then of course not
overthink, but then get started.
And I think, you know, take the startupapproach and what Rita said, get, you

(35:41):
know, like, 100 teams out there to start.
Ah, but 100 teams,that's a big investment.
No, it's not.
Like, because startups, they start small.
So, you need, you know, maybe a milliondollars, which is nothing for a large
company, and have 100 teams trying out.
One of them is gonna get it right.
So, you do the same kind of investmentslike a venture capital firm.
So, you know, first think, create astrategic frame, and then get as many,

(36:06):
you know, people in your company andmaybe partnerships going so that one
is going to emerge as the winner.
Because no leader can pick the winner.
Venture capitalists can't pick the winner.
They invest in a portfolio.
So, the same kind of thing, andreally, you know, emphasizing what
Rita said before and what you'reworking on, Rita, in your new book,
the power structures are gonna change.

(36:28):
You do need to decentralize.
So yes, you need a top-down leaderin the sense that they understand
product, they can give the strategicdirection, they can give the vision,
but they don't pick the ideas.
You have teams out there who aremuch closer to the customer, who
are much closer to the technology.
You need to enable hundreds ofteams and hundreds of partners,

(36:48):
and the winner will emerge.
So, you know, I don't really see thatreally happening yet with established
companies, you know, at scale.
Few have gotten close, um, but I thinkit's gonna be fun to see how leadership
changes and how, you know, what Ritais talking about that's complete
change of, of of leadership structures.

(37:09):
Uh we are gonna see, you know,some unexpected winners, I think
And I wanna come to Usman.
I wanna come to you about theincumbent advantage that Alex said.
What, what assets do you havethat, that can be used or
redeployed in a different way?
But Rita, while Alex mentioned thatthere, that decision-making pushed
down to the edges that we talked about,I wonder what are you seeing, so in

(37:29):
your work even in executive education,w- how are leaders reacting to this?
Because there's gotta be some resistanceto that because maybe I could back
ideas that I liked or products thatI liked in the past, and everybody
feels that of me inside the boardroom.
I may think that it's a democracy, butI'm actually having a huge influence
on what gets picked or what's notversus what Alex talked about there.

(37:51):
Courageous companies are those that aredoing what Alex said, which is you get
out there, you introduce things to themarket, and then the market sends you
signals about whether you, you know,whether that thing is,, liked or not.
So one of my favorite examples, youtalked about a born-digital company, is a
South Korean fintech company called Toss.
And they were founded by a dentist,and they're organized around solving

(38:14):
this friction problem in money.
It's like, why is moneyso hard to deal with?
And they were successful in gettingthe South Korean government to change
the way that they were regulated,which is a huge advantage, and they
have no sort of formal hierarchy.
They're organized around, teamswith what they call directly
responsible individuals, and theteams take on and release work

(38:36):
as the market suggests to them.
So a great example of this is they hada YouTube channel, so regular financial
advice, and then a- another team hadthe idea of, "Well, wait a minute.
There's a whole nother side ofmoney." It's cultural, right?
So how do ballet dancers get paid,and how does money filter into sports,
and what do rock bands do with money?
And so it's like, a culturalside of money YouTube channel.

(38:56):
Now, in a typical bureaucracy,right, what you would've had would,
you would've had a YouTube czar,and the YouTube czar would've given
the thumbs-up or thumbs-down towhatever was introduced to the market.
In Toss, they, they try it, andbecause they're all digital, and
they'll tell you 50% of what theyintroduce to the market doesn't,
doesn't stick because the, for whateverreason, the customer doesn't want it.
But this particular YouTube channelhas now been a huge success, and it's

(39:19):
gaining traction with people who reallydon't care about financial advice
but are very, very interested in howtheir favorite rock band makes money.
I think it's a beautiful exampleof what's possible when you do give
this sort of freedom to operate atthe operating level of the company.
I think, you know, what Rita'ssaying really illustrates something
that we're gonna see more of is…Industry boundaries melting down.
So, you won't be able to say, "Well,I'm in retail banking." Well, now

(39:43):
that sounds to me like entertainment.
So what I think, you know, hashappened in some sectors like
technology is gonna happen everywhere.
You're not gonna be able tothink industry anymore, right?
Or industry forces.
You know, that's 1985Michael Porter Five Forces.
Like, that's great stuff, but that's 1985.
Like, with, with AI, you know, theworld has changed, and you are not

(40:04):
the victim of any force anymore.
If you are a leading company,you're creating the spaces.
And today you have these differentcompanies competing in similar spaces.
If we take entertainment, you havelike a bank competing against a
Apple, competing against Amazon,competing against Facebook.
And it's really thoseboundaries are melting down.

(40:26):
And again, it goes backto business basics.
Who's the customer?
How are we creating value?
How are we capturing value?
That's the unit of analysis, whichsounds basic, but it's not, because
when industry boundaries are gone,you have hundreds of thousands of
choices to make every day as a leader.
What is my business?
And that's becoming fuzzier and fuzzierand, and AI's gonna accelerate that

(40:50):
Is not the huge problem though, Alex,that you've created an advantage.
You have had an emergent strategy andthen maybe you post-rationalize it as,
"No, that was deliberate." And it rarelyis deliberate in the first instance.
And to Rita's point there aboutToss is that they found what worked.
They didn't actually go outwith a deliberate strategy.
They actually… it emerged whichworked out of all these different

(41:12):
experiments, and that drag, thatorganizational drag is huge.
And I wondered, Usman, fromyour work working with clients,
what does it look like?
Where do they start in your view?
What, what have been themost successful ones?
I know you can't give away secrets, butsome themes that have, arisen for you.
in my writing, I've been differentiatingbetween the incumbents and the newcomers,

(41:38):
naturally, as, both Rita mentionedand Alex, that when you have less of
that drive, you can definitely movefaster, reach those points easier.
For the incumbents, they have thedistribution, they have the brand.
That's their advantage right now.
I think the biggest thing wouldbe the incentive structures within
these companies to change over there.

(41:59):
In lots of services companiespartner leverage, how the firm
goes, promotions based on tenure.
Like, lots of the way that thefirm is set up right now from an
architectural point of view isgoing to continue to create drag.
You know, the example that we weresaying earlier about checking logins
of AI tools is a symptom of this.

(42:21):
We are trying to fit this changewithin the structure because,
let's face it, these incumbentfirms make a lot of money still.
Clients are still paying for them, andI think, we're also discounting clients
don't necessarily want to change aswell because lots of them like the
predictability of the billable hourbecause it provides procurement an easier

(42:43):
way how to bill and get things done.
So the supply and demand side is changingwhat Alex said, going and looking at
a person's P&L, understanding theirbusiness, seeing how that's changing,
and I think that's the challenge.
So for the incumbents, I think you cantake m- the measures like the hire or very

(43:04):
recently what Block has recently done.
Jack Dorsey sort of like has famouslysaid, like he's going to get rid
of the middle management loop.
He's going to replace it with whathe's calling an intelligence layer.
Humans are going to go to the edges wherethey're going to make judgment calls.
That might work for a company which has10,000 people, but as Ismail said, if
you have 100,000 people or 200,000 orin some cases 800,000 people- I don't

(43:30):
think that it's going to be very easy.
And the second point Ismailmade was around accountability.
Are you going to stand behind the answer?
What happens when themachine makes a fault?
Who's going to take responsibility?
I think large incumbent firms, especiallyin the services area, have large
reinsurance, books already in placeto protect themselves from this, and

(43:50):
clients trust that advice from thesefirms because they know that they
have that backstop available to them.
So for the professional servicesarea, it's definitely going to
be a lot slower from the largercorporate side for this change.
And a lot of the existing revenuepipeline was sold on the old model,

(44:12):
and I think that will also take awhile for those to play out until they
have new contracts based on new terms.
So they're in a transitionary periodwhere they've got to hold onto the
old model, all while doing what Alexsaid, like, okay, you've got to spend
the money, do all of this, but, youknow, there's a incentive problem
that needs to get solved, and thishas to start from the top, I believe,

(44:34):
isn't that it, though?
As a startup, you can't compete on scale,so you have to compete on innovation.
And one of the things you're competingon is actually not legacy mindsets
that exist inside organizations.
Ismail, I thought about your bookand the idea of from incremental to
exponential, and it, how difficult…
And I have so much empathy for anincumbent, how difficult it is not

(44:56):
to get stuck in the incremental trapbecause oftentimes they think they're
being innovative, they think they'reinnovating, but, like, to the customer,
there's no difference to the product.
But they're putting all this time intoactually driving down costs, putting a
bit of extra technology in there to makeit a little bit more efficient, but the
customer just sees the same product.
But it ultimately comes down topeople, and it ultimately comes down

(45:19):
to their resistance, how they'reenergized, how they're come around.
Like, I mentioned that Rita'scomment earlier on about this
common purpose or common mission.
What are you… You're a leader.
You have a huge group of peopleunder your, under your umbrella.
How, how… What are you seeing there?
What was the message that you wouldlike to get through to them to be
able to thrive in the world of AI?

(45:42):
Yeah.
I, I, I think, uh, and just toconnect couple of dots with what Alex
said and what, Usman said, I thinkif you're an incumbent, you've got
inherent advantages that had previouslymaybe had not been advantages.
So to go back to, Alex's point aroundindustries merging The other thing

(46:03):
that's happening is everybody hasaccess to the same technology, the
same learning models, the same data.
So that's not where the competitiveadvantage is gonna come from.
The competitive advantage and wherewe're gonna build moats, if you
like, is specific data, businessdomain expertise, and context.

(46:25):
And generally, if you're lookingat a large enterprise, if we talk
about some, you know, we're, we'reworking with 80 of the top 100
largest organizations in the world.
When we talk to them, and yeah, theyhave disadvantages, they're slow,
they're bureaucratic, takes ages toimplement new technology, but they
have access to information abouttheir clients and their industry

(46:45):
that nobody else in the world has.
They have access to data that in the pastyou'd have to have a 12-month project
to create a data pool, and now you cancreate an agent to go and get the data
and do the work that you want it to do.
So some of the competitive thingshave changed because of the
technology, which I think allows largeorganizations, if they can get out of

(47:09):
their own way, to create vertical AI.
You know, use what's availableas commodity, use everything that
everybody else has, but then takeadvantage of what only I have.
Only I know how a pharmaceuticalworks for these customers.
I've worked with them for 80 years.
I have all the data and theecosystem that nobody else has.

(47:30):
How do I use that in the contextof this new technology to provide
native services that nobody else can?
And that's the discussion we're havingwhere we are getting the C-suite to
go from, "This is a huge threat," to,"Actually, if we think smartly, we
may create new competitive advantage."
I thought I'd come to everybody just withyour final thoughts that, as you wish

(47:55):
here What would be your elevator pitchto somebody who goes, "Hey, man, I don't
know what to do about this AI stuff.
It's, it's threatening my business.
It's an opportunity, but I don't knowwhy, how…" How do they get started?
So maybe as, as anincumbent in particular.
Maybe we'll, we'll go fromwho I can see on the screen.

(48:16):
So Alex, I see you first there.
Yeah.
I think, you know, you gotta askyourself, where is competitive
advantage gonna come from in thenext couple of years or decades?
And I think very clearly it's gonnacome from your ability to reinvent
yourself all the time, right?
So Rita has pioneered this thinking,you know, like transient advantage.
So if you look at, you know, you can loveAmazon or hate Amazon, but one thing that

(48:40):
they have systematically done is reinventtheir business model all the time.
They created new P&Ls, likewith Amazon Web Services.
So the competitive advantage is not gonnacome from a specific strategy anymore.
To a certain extent, you know, stillfrom a business model, like think
App Store, that's pretty dominant.
It's hard to disrupt.
But ultimately it's gonna come fromyour ability to reinvent yourself

(49:02):
all the time, and that means you'rerunning your business, you're
doing incremental innovation.
Nothing wrong with that with improvingproducts, but it's not gonna be enough.
At the same time, you know,simultaneously, you're
inventing the future.
And if you see the companiesdoing that, I mentioned Amazon.
Netflix, No Rules Rule,the book by, Reed Hastings.
… These are the companiesthat are gonna stand out.

(49:24):
They just, know the world is changing.
We need to reinvent.
And that goes for individuals as well,and that's gonna be probably the hardest.
The world is gonna change, so whatare the life skills we're gonna get?
I think most of it is actually notgonna be the skills we learn at school,
have a good, fight nothate the other person.
Have a good, conversation.
Be able to give andprovide and take feedback.

(49:44):
Those are the ultimate skills thatare required to constantly change
and adapt and reinvent yourself.
So reinvention, I think we're alltired of hearing those kinds of
words, all those buzzwords, but thereality is that's the, gonna be the,
the ultimate competitive advantage,the ability to reinvent yourself.
I'm still working on it, Alex.
Still working on it.

(50:06):
We all are.
We're always works in progress.
Usman, what's your piece of advice?
I think for the incumbent, the advice islooking at a particular service line and
figuring out whether the 50th- Clientfor that service is markedly better
than the first by encoding the work intosoftware and systems instead of headcount.

(50:29):
So if you can actually decouple thatrevenue growth, get costs down as a
function of that, then I think thatyou're building a system that learns.
And I believe that's going to be wherea lot of the alpha is gonna come from.
Like, Ismail mentioned that there's alot of data that gets unlocked as you
do this work, and if you can actuallyuse that to make every next deliverable

(50:50):
better, that error correction loopactually becomes extremely valuable.
For the individuals, I thinkit's getting closer to impact.
Both the Alpha School and what Alexmentioned, it's, it's going away from
necessarily the classroom to actuallyputting yourself out there, putting
work out there, getting feedbackloops running from doing the work.

(51:12):
And, we've created too manyabstractions for young people today.
They're too far away from the impact.
If they can get closer to that impact,they're gonna accelerate the rate at which
they will learn and reinvent themselves
I love it.
Rita, I was thinking there what Usmanwhen he said about the, the data that
Ismail mentioned, the data that youhave, and that's almost like breadcrumbs.

(51:34):
And in your book, The EntrepreneurialMindset, you talked about this idea
of stepping stones and scouting.
And I'll come to you because you haveso much experience not just talking to
executives and coaching executives asa prof- college professor in Columbia,
but also your own work with Valize.
You work with clients, you givekeynotes, you run workshops.

(51:55):
What are you seeing there from thepeople who are most primed to succeed?
There's a balance of investment, andthis has been alluded to before, but
I talk about investing in your core.
That's absolutely important.
That's job one.
But then you need to be thinking aboutwhat are your new platforms that are
candidates to be the future core.
So if you look at a company like Adobe,when they went from selling shrink-wrapped

(52:17):
software that you bought on disks toselling software that you could use in
the cloud, that was a huge transition.
It was a platform for futuregrowth, and so you have to make
a commitment to those things.
And then you have options, whichare small investments, as Alex said.
You could have 100 of them.
But they're tiny.
They're small investments youmake today that buy you the right
but not the obligation to makefurther investments in the future.

(52:39):
And I think the companies that aregetting this right have a really good
feel for what's being invested inthat spreads across their, portfolios.
Where I see companies really gettingstuck, and this is something you can work
on, is a disconnect between strategy,which when it's done right, is pulling
you into the future; budgeting, whichall too often is just an anchor in the

(53:00):
past; project governance, which is oftennot connected to either strategy or
budgeting; and what people believe isgonna get them ahead in the organization.
Unless you can bring those things intoalignment, you're gonna have a great deal
of trouble, getting anything to happen.
One final thought is, you know,we know what disruption is, right?
It's when something that usedto be really hard to do becomes
easy, and when something thatused to be really inaccessible

(53:23):
or expensive becomes affordable.
And that simultaneously interferes withincumbents because it often, removes the
value from a lot of their existing assets.
But it also creates enormous growthbecause if something's now, simple to
do and cheap, a lot more people can doit, and so it drives enormous growth.
So I think you've really gotta belooking for what are the spaces in

(53:44):
which those dynamics are playing out.
Ismail, we'll come to you for yourfinal word to incumbents in particular.
I think there's two or three things.
One is, this idea of organizationswanting to pass on the risk of
introducing new technology toservice providers That time is gone.
You know, nobody's done this before.

(54:06):
There's no- nobody has got 10 references.
So I think there's a, there'san opportunity for organizations
to understand that this isgonna be a collaborative journey
where you are understanding andmitigating the risks together.
The second thing is, I think,as I said before, I think the
incumbents have this potentialadvantage of deep domain expertise.

(54:29):
And so as a service provider, I wouldbe saying, "Don't spend too much time
thinking about what you're gonna be as anative AI organization. Go and understand
what your customer's gonna be as a nativeorganization, and help them understand
how they're gonna get there." And thethird point, being, I think one of the
biggest, dangers in getting there isseparation of business and technology.

(54:51):
I think those days have gone,and if you really want to do a
technology project, that's fine.
If you want to do a transformation, theintegration of what it means for business
and technology is gonna be critical.
I've been talking about this.
This is a leadership decision.
It's not an unknown in the sensethat we actually know what kind
of organizational structures weshould starting to be put in place.

(55:13):
It's really a question of courageand leadership, nothing else.
So yes, there's a lot of unknown,but we actually know which structure
would, which would be required.
So I think that's the keymaybe that was missing.
… Leadership, courage, and action iswhat's gonna make the difference.
Those who step ahead are going to lead.
It's, it's pretty straightforward.
I am so grateful to our brilliantpanel for joining us on this

(55:36):
inaugural, the very first one of thesecollaborations between the Kyndryl
Institute and the Innovation Show.
It's been an absolute pleasure.
I hope you've learned a lot like I have.
It's been a pleasure to have you onthe show, Alex Osterwalder, Ismail
Amla, Usman Sheikh, and Rita McGrath.
Thank you for joining us.