Clay Christensen: Hi, this is Clay Christensen and I want to welcome you to a podcast series we call the Disruptive Voice. In this podcast we explore the theories that are featured in our course here at HBS "Building and Sustaining a Successful Enterprise". In each episode we'll talk to alumni of our course and others who are trying to put these theories to use in their lives and in their organizations. It's great fun to hear from them and they hope that you find these conversations inspiring and useful. If you have an idea about a topic or a speaker that you'd like to hear more about or if you'd like to comment on our work, please reach out to us here at the school.

Clifford Maxwell: Well, my name is Clifford Maxwell I'm the Chief of Staff to Clayton Christensen here at HBS and also the strategy consulting firm Innosight which Clay co-founded nearly 20 years ago now and I'm joined today by Ned Calder. Ned is a partner based in Innosight global headquarters outside of Boston and a leader of the industrial and technology solutions practice. Ned is a thought-leader, speaker and author on various topics related to technology driven industries including the future of the automotive industry, R&D, industrial IOT and digital services and business models. His perspectives have appeared in Harvard Business Review, Sloan Management Review and Forbes. And prior to joining Innosight Ned worked with a range of scientific and engineering based organizations such as NASA and Atlas Scientific. And he also co-founded a number of startups including a Cambridge based biotech firm that is developing biological systems for energy production. Ned, welcome to the show.

Ned Calder: Great. Thanks to be here today.

Clifford Maxwell: We thought it'd be fun to take a deep dive into the automotive industry where you have been leading a lot of the work at Innosight for some time now. But before we do that, I'd love just to hear a bit more about Innosight. What brought you here or what brought you there to Innosight and what it's like helping leading companies apply Clay's theories day in and day out?

Ned Calder: Yeah, that's great. So my longer term background is in physics and engineering. I spend a number of years in the aerospace industry and the startup world before joining Innosight. And really the idea was to take a deep knowledge of technology and help organizations think about how that can enable them to transform or create value for consumers in different ways and just think more holistically about the business that they're wrapping around technology.

Clifford Maxwell: And how does Innosight structure their work as it pertains to a lot of Clay's research and disruption and innovation and other work that he's done. How does that work at Innosight?

Ned Calder: Yeah, as you said, was started by Clay about 20 years ago and are still very much grounded in a lot of his ideas and theories. We use Jobs to be Done, for example, a lot in our work with clients. But really at Innosight we focus on helping large organizations that are facing some sort of disruptive or transformative threat, reinvent themselves in fundamental ways and think longer term about strategy, think more broadly about business model and what it's going to take to drive disruptive change in markets.

Clifford Maxwell: That's awesome. So from your technology background, you've kind of led into a more focused on the auto industry as of recently. Is that true or what's been your experience there?

Ned Calder: Yeah. So we serve a fairly wide range of industries, but obviously industries that are facing disruptive forces are ones that are a good fit for the solutions and value that we bring in. So automotive is really at a unique point in the industry's history where they're facing a wide range of disruptive forces, whether it's electrification or autonomous vehicles or mobility, shifts to emerging markets. It really is a perfect storm for change.

Clifford Maxwell: So I want to dive into a lot of that today. And before we do, I thought it'd be fun as a starting point, actually just to reflect on something Clay wrote now over 20 years ago and in the Innovator's Dilemma, Clay introduces a Theory Of Disruption and at the last chapter he says, now let's apply it to completely separate sector, the electric car industry and see how these theories as Clay would say, let's put them on like a set of lenses and see what we see. And he has this quote where he says, "Performance oversupply indeed seems to have occurred in autos. There are practical limits to the size of auto bodies and engines to the value of going from zero to 60 and fewer seconds and the consumer's ability to cope with over choice and available options. Thus, we can safely predict that the basis of competition and customer choice will shift away from these measures of functionality toward other attributes such as reliability and convenience."

Clifford Maxwell: So here we are 22 years later, is Clay right? Is he wrong? What are you seeing in the auto space and more broadly in terms of the competition?

Ned Calder: As it relates to electrification particularly?

Clifford Maxwell: Or just the broader competitive trends within the space?

Ned Calder: Yeah. I'd say the answer that is he's right in a lot of ways and in a lot of ways reality is complicated. So if you take electrification, there's been quite a bit of talk of this. You see adoption happening in a bunch of different places. Big pieces in the luxury market where there is a willingness to pay that can account for the performance issues. And consumers may have access to alternative vehicles, which allow them to compensate for some of the early deficiencies in those vehicles in terms of recharge and those sorts of things. So you see it happening at the high end and then also in certain places, particularly in China you see it starting to take place at the low end. So people are coming at the problem from a lot of different angles.

Clifford Maxwell: Speaking of China, I know Clay at his research institute, the Clayton Christensen Institute recently published a paper looking at the Chinese market. What's your sense of that low end opportunity that you're seeing China and globally in the electric space?

Ned Calder: Yeah, it's his space that you don't see them too much in US or Western Europe. But it's certainly starting to play out in China and I think the argument and they had a compelling paper on this listed. In China you do see a subset of firms using fundamentally different processes and resources for building vehicles that give them different basis of competition. And so that is the theory would say much more direct disruptive and potentially allows them to compete in asymmetric ways to large incumbent organizations. The thing I often think about electrification though is that you can't look at it in a vacuum.

Ned Calder: Tesla is not just an electric vehicle that's one part, one aspect of why it's a force for change. But there's also the autonomy component, there's also the consumer experience associated with that, there's the buying piece and how they've structured their sales process. So it's much more holistic in that and that's where the reality starts to get complex, is that on some dimensions something can be more sustaining in nature and other aspects it can be disruptive.

Clifford Maxwell: Right. So when you mentioned Tesla, I don't know if you're aware that Clay had a brief Twitter exchange with Elon Musk actually?

Ned Calder: Yes. I did see that.

Clifford Maxwell: Clay is for years now and just described to your point, what Tesla is doing is sustaining, getting into that luxury or high end space, a place exactly where incumbent organizations want to get into and compete for. What's your sense of Tesla and in that more luxury space that you talked about earlier and where's the competitive force going?

Ned Calder: Yeah, so I think it's a great example from a purely electrification standpoint, I think you'd argue that it's more of a radical innovation on traditional vehicles. It's offering a lot of the same performance benefits but they're building cars in the same way that we sort of make cars today and a lot of the benefits they offer from that aspect of the vehicle are just major leaps forward. Whether it's shifting from continued fuel economy to you don't need fuel at all but that's on that same trajectory.

Ned Calder: I would say on the other side of the things, if you think about what they're doing from a driver assist perspective and continuing to take more control of the vehicle and allow the user to enable them to do other things. That's a much more disruptive trajectory. I think it's disruptive to the driving experience. It allows over time for consumers to get different jobs done, when they don't have to be preoccupied with driving the vehicle. If you think about what they're doing from a software perspective they have a set of capabilities that enable them to deliver different experiences as well as that semi-autonomous functionality. It is quite disruptive to the market. So again, in reality these things are kind of always complex.

Clifford Maxwell: You touched on two things I think I'd love to ask you about, the first is you mentioned, Jobs to be Done, obviously a theory that we've talked about on this podcast and Clay talks about and you too use it at Innosight every day. When you think about the auto market and Clay often would talk about the notion of having vehicles based on a Job to be Done in helping organizations think about, you're not just selling a vehicle, you're selling a vehicle that ideally is helping a customer get a job done in their life. Whether that'd be a mobile office or a place to feel safe. How have you seen firms more recently think about Jobs to be Done and the solutions that they're offering in terms of the vehicles that they're producing?

Ned Calder: Yeah. I think a lot of automotive companies try and connect their products to what consumers are trying to get done. They might not always use the jobs language but there's some intent there. I think some segments you can see it quite clearly for example, if you look at the truck market, particularly in the US there's clearly a focus on this job of getting work done. And if you look at the features and functionality that they're building in they really are targeting that challenge, that progress that people are trying to make along that dimension for that buyer. I think implicitly in some sense the auto industry does a pretty good job around the social and emotional Jobs to be Done.

Ned Calder: So jobs aren't always functional. They can be social, emotional things that people are trying to get done in their life as well. And so if you look at what does a car signal about me to my peers, that's a major driver of why people choose one vehicle over another. And I think the auto industry caters to that. Certainly performance segments are focused on the emotional experience associated with driving a vehicle or at least the prospect of how you could drive the vehicle. So yeah I haven't seen quite the full office on wheels but certainly people are trying to solve problems.

Clifford Maxwell: And is that, would you say when you apply that theory now looking at mobility more broadly and looking at even things like electric bikes and scooters and lots of different modes of transportation and ways to get that job done. How are incumbents thinking about just the whole range of offering now in mobility and transportation?

Ned Calder: Yeah, that's where I think the Jobs to be Done concept is quite interesting because I think with all the disruptive forces in the industry, most of the large OEMs have had to step back and really ask a fairly existential question about why are we here? What job do we solve? Is it purely related to building and selling individual ownership vehicles or do we want to be engaged more broadly in this job of mobility and helping people get from A to B? And over the last 100 years they haven't really had to ask that question and now they're wrestling with pretty fundamental issues about what business they are in and what jobs they want to solve.

Clifford Maxwell: You spoke a bit when you were referencing some of these Chinese players that they have different processes, different resources to really go after some of these opportunities. When you look at the landscape of particularly incumbent organizations responding to these disruptive mobility threats and other opportunities, who's actually set up to succeed here and how do people respond just from a structural standpoint of having the right resources and processes in place to go after some of these markets?

Ned Calder: Yeah, it's a big question. I think in some areas what you see is where the new business opportunity is just clearly different from what they've done in the past so mobility solutions versus building vehicles. You see them trying to drive a lot of organizational separation between those units because they recognize the capabilities, the skill sets, the business models associated with mobility are just fundamentally different than building vehicles. And so there's clear logic to separate and build those organizations separately. I think it's the gray areas in the middle which are more challenging and electrification is a good example of that. Where I think for a period of time I think people said, well electric vehicle is largely just a different power train. And so there's a lot that's the same. And so we can have the same people in groups design and build and take electric vehicles forward.

Ned Calder: What I think they've run into with that is that while there are a lot of vast attributes that are the same, there's some things about it that are pretty different. And not just in the vehicle manufacturer itself, but really how you think about driving adoption and bringing a vehicle like that to market. There's pieces on consumer education that are different, there's pieces on the behavior change, there's obviously the ecosystem that goes around electric vehicles, which doesn't exist today whether it's charging at home or charging away from home. So there's all these other things that go around electric vehicle and I think companies are wrestling with, well because of those differences, do we need to create further separation in how we build, adopt, scale electric vehicles from a business perspective than we do from the traditional vehicle perspective.

Clifford Maxwell: Yeah, no, that makes total sense. Clay often I know talks about the value networks and value a network disrupting a separate value network entirely just because at the end of the day you're having to do something so fundamentally different that you actually need different distributors, different manufacturers, different customer education, different suppliers. Are you seeing the rise of a separate value network in terms of the electric space relative to the traditional manufacturer dealer market that we've been accustomed to?

Ned Calder: In some places, yes, in some places, no. So, certainly if you look at charging I think of a lot of that value chain is now shifting to new entrants who are offering charging at different places and different business models around that and how you pay for that. So there's an entirely different value chain that's cropping up around that. Some of the companies that are in the existing value chain are trying to figure out whether they can transform and pawn over, but even if they do it's fairly different. And then there are other places you don't see significant amount of change. So I think the distribution service parts, a lot of that really hasn't transformed yet because of electrification. If you want to buy an electric vehicle outside of Tesla you still have to go to a dealership for the most part. Now there's OEMs that are experimenting with subscription models and other types of things that have the prospect to create different value networks where at least just intermediate aspects of the existing value network. But there's still a lot of incumbency I think in the existing value network.

Clifford Maxwell: I want to talk a bit, just get your perspective on the business model side of this whole deal. We look at both the electric vehicle market but also I think more pointedly in the shared space or in the autonomy space. You have players losing money everyday trying to figure out how to make money at this. [crosstalk 00:17:43] is losing money every day and even you have groups like Ford and GM who have tried some of these more mobile solutions in some of these pockets around the world. But it's just hard to do from a business model standpoint to make money in a more shared, in a mobile solution space. Are people are going to figure this out? Are people going to figure out how to make money in a different world of mobility?

Ned Calder: Yeah. Recently there's been a lot of talking in the news media about the realization that autonomy and true autonomous level four, level five vehicles are probably much further off than maybe the hype would have suggested over the last couple of years. And while somebody who loves technology and would love to see that technology advance and show up in markets in responsible ways. I think a lot of companies were looking that as the solve for the business model. If we can remove some of the costs by having an autonomous vehicle take over and increase the utilization and all that, that that would unlock a lot of these mobility models.

Ned Calder: Now I think because of that being pushed off, I think what you're going to see is a lot of companies really having to scratch their head and think harder about how actually do we make money on these things because we can't persist forever and in a period of just lost income.

Clifford Maxwell: We've for the past 20 years or so, obviously in the electric vehicle space, we've had a world of hybrids these halfway, both adopting some of the disruptive technology, but in a sustaining way. And then the context of autonomy, as you pointed out, taking many more years to come to fruition. Are we going to see hybrid organizations and hybrid solutions for the foreseeable future?

Ned Calder: Yeah, I think probably in part because I think there's the incumbent organizations are highly motivated to remain relevant. And so whether they've got it figured out or not, they're all making fairly significant investments and trying to build the capabilities to continue to be relevant in this world. And so because of that, I think the future will probably be some of the firms that we know and exist today as well as some new firms that crop up. But that dynamic will give us for a period of time companies that still continue to operate the existing model. Because that's what provides the cash and funding for these new things. And over time we'll see the focus of their business models evolve from one model to another.

Clifford Maxwell: In your work at Innosight, how do you help particularly a large firm manage that type of transformation by doing both things at once, sustaining your core and also building this disruptive new opportunity? What's the point when you work with an organization to do that?

Ned Calder: I think the starting point is getting clarity on ... really getting outside of this two to three year planning window and trying to have a longer term perspective on where markets are going and the role that they want to play in those markets. Because you need a North star, you need something that's guiding you over time with that transition and giving you clarity on, we're in today's business, the future's not going to be there. Let's articulate where we think we need to get to. And once you've got alignment among the leadership team in an organization on that then you can start to back out, okay, well how to actually manage that transition in the most efficient way.

Ned Calder: And that issue of getting alignment among a senior leadership team is fairly foundational and oftentimes what you see in organizations is fairly superficial alignment on the future. So I'll give you an auto example because we're talking auto here. It's a little bit less true today, but five or six years ago if you talked to senior leaders in an automotive company about electrification, pretty much everybody would've said, "Yeah this is important in the future we'll be more electrified and we need to think about that." Nobody would really disagree with that statement. But if you click down a couple levels and said where's that phenomenon going to start? Is it going to start in China? Is it going to start in Europe? What part of the market is it going to start in? Is it going to be luxury trickled down historically in the auto industry with new technology? Or is it going to be more classically bottom up as the theory of disruption might suggest.

Ned Calder: So if you go through all these issues underlying it, that that's where you would find significant amount of just difference of opinions, different assumptions people were making. And when you have that level of misalignment in a leadership team, it's very difficult to sort of get critical mass behind programs if there are difficult to maintain support and commitment for something that may not pay off for a while. So when we work with leadership teams, not just in automotive but really any organization going through transformation that's a foundational starting point. Is to really get the team aligned on a common view of where we think the world is going. And a common view of what our aspiration is in that environment.

Clifford Maxwell: So now five years later you have virtually every auto OEM now has declared they will be fully electric by said date it seems right?

Ned Calder: Yeah.

Clifford Maxwell: So what are the issues of misalignment today relative to five years ago? I think people seem to have predicted and now believe that electrification is going to happen, but what's the misalignment now five years hence and what are you seeing from incumbent leaders in that space?

Ned Calder: It's a funny dynamic. It's almost completely flipped where five to 10 years ago electrification seemed like this far out thing and will slowly get there. Whether it's Tesla, whether it's some of the regulations in European cities. There's lots of causal factors but I think you've seen a pretty fundamental switch in leadership teams that now there's a sense that this is much closer and it's much more inevitable. And if we want to have a leadership position we've got to move quickly to establish that before others do. And so if you just look at the number of vehicle announcements at the investments it's billions and billions of dollars being poured into this space and a whole slew of new vehicles dedicated, battery electric vehicles coming out.

Ned Calder: Their challenges now the opposite, whereas before it might've been a lack of supply. Now there's going to be probably an abundance of supply and the question is, will there be demand to meet that supply? As companies start to try and go, how do we get beyond sort of the adoption that's happening in luxury segment and really cross the chasm and get more mainstream adoption of electric vehicles and get to the scale to really drive profitability. You start to see a divergence between the amount of supply that's going to be in the market and the demand. So I think that the real challenge for companies is how do they avoid that gap which will just be a drain on business performance unless they're able to bend that demand curve up.

Ned Calder: And I think the thing that you see is a lot of the emphasis has been on building really great product and that's important. If you look at a lot of the electric vehicles coming out, they don't have a lot of the trade offs. It feels like a good high quality vehicle that just happens to have a Bev and the range is pretty good. And so they're actually really nice vehicles that are coming out. But that in and of itself I don't think is enough to completely bend the adoption curve unless they think about how they're going to really reinvigorate the distribution system to help educate people on this, help deal with some of the behavioral barriers. These issues that you hear about Runge's anxiety that through one lens are irrational. But if that's the perception in some sense that's reality. And so there's all these other things that have to go around a really great vehicle in order to probably accelerate that adoption curve in a way that's going to minimize that gap between the amount of supply that's coming in and where demand is today.

Clifford Maxwell: Yeah. That reminds me of another one of theories that Clay speaks about quite heavily is this notion of interdependence, right? Is that when things aren't yet good enough, you've got to really wrap your arms around the entire solution, around the entire problem. And only then will the customer then have the notion that this is good enough for me and then we're going to raise adoption in that way.

Ned Calder: Which I think is spot on if you look at ... we keep coming back to Tesla and obviously they've got their own challenges but they really have thought about that. They've got a compelling vehicle, they've got a distribution system that's optimized for selling that vehicle, they've got the best charging network out there today. So they have a much more integrated system around that vehicle.

Clifford Maxwell: Where does the shared economy start to fit into this? And you look at Uber and the Lyfts of the world and just the adoption particularly urban areas of people that don't own ride and just use these networks. Are we going to see a series of mergers between auto OEMs and these players and where does those two worlds collide?

Ned Calder: Yeah, it's a great question. I don't know if you'll see a lot of mergers necessarily, but it'll be a small number of firms that win in the day. Just given the nature of some of these businesses, whether it's the capital intensity or the network effects, I don't think you're going to see hundreds of firms similar to other points in the auto industry where it's gone through transformation. You'll see a range of experiments and people trying new models. But then ultimately a subset will filter out and the firms that are optimized for those models will be the winners.

Clifford Maxwell: We talked about a handful of companies I think on this conversation, but what companies most excites you? Thinking of either disruptive entrance, people figuring out a new solution or even an incumbent that looks to be responding in a really compelling way? What keeps you up in the morning or what gets you up in the morning and excite you in the space?

Ned Calder: Well, I'm excited just generally about the amount of change in the industry as somebody who just loves the space. It's great to see all the innovative things that are happening. One company that I think is quite interesting is Rivian, a battery electric company. They're based out of Michigan, but I think they've got presence in a bunch of places. And to me, the interesting thing about them going back to the jobs notion is that they're not just launching an electric vehicle, but they have a clear audience and target for it. And a purpose, a mission and everything that they do is organized around this notion of people who are seeking adventure and doing that in a responsible way. And so it's a, I don't know if they'd use the term, but it feels like a very job-centric approach to building not just a vehicle but an entire value proposition and experience around that that one particular problem. They've also done I think creative things from a business model perspective where they've been sharp and focused on who their customer is and what problems they're solving for this customer.

Ned Calder: But then they've done some smart things with leveraging the technology that they've built to other companies they've signed I think deals with Ford and Amazon and a few others. And so they're clear on where they want to win and for others they've found creative ways to get to scale and license out their technology. To me it's a compelling story both from a creating value for a consumer perspective and having a job focused view of who they're targeting but also doing some smart things with the business model. Given the realities of this business and launching something like an electric vehicle.

Clifford Maxwell: So Ned you mentioned some recent reports both from auto execs and technology experts saying the autonomy is easily still another 10 years or more away in full scale autonomy. So what does that mean? Thinking about all these incumbent organizations, thinking about the future of their business models and the future of their auto market. What does that mean for them and how did they respond to that type of news?

Ned Calder: It's really interesting example in a case where I think theory would have been quite helpful to organizations as Clay talks about. Because what you see is the main target of autonomy was in some sense the most difficult market to go after. Trying to create an autonomous vehicle and apply it in an urban setting, we've got a lot of moving parts is very difficult. Where the theory would have said the way these disruptive technologies advance is they start in foothold markets where the requirements are low. So for autonomy, if you think about things like low speed, closed fixed routes, things that make it much easier from a technology perspective to have a functioning and safe electric vehicle.

Ned Calder: So one of the things I think you're going to see is a shift from focusing on these ultimately larger markets around mobility to much more targeted markets, whether they're retirement communities, university campuses, military bases things that have those attributes of a good foothold market where the technology today is actually good enough to create value and there may be a business model there. And then as the technology gets better over time, it'll start to move into some of those larger, more challenging markets.

Clifford Maxwell: We've actually seen a handful of startups approaching exactly this retirement communities and in other places. How do these firms with that fixed route go from five square mile radius fixed grid line route to downtown LA. How does that technology from someone who studies technology and has a background, how do you go from autonomy in that setting to an urban setting and full scale that we'd hope to have 10 years from now?

Ned Calder: I think it's a parallel path in the sense that you'll be collecting data from the real world, applying the technology and you get learning from that. I don't think that turns off the need to continue to develop technology and algorithms and hardware and sensors that are targeted at those more complex applications. It's a mechanism to drive business and drive application of a technology without sort of trying to hit that home run.

Clifford Maxwell: Ned thank you so much for being here.

Ned Calder: It's a pleasure. It's always great to talk about Clay's theories and their application to the real world.

Clay Christensen: Thank you for listening to us at Disruptive Voice. If you like our show and want to learn more, please visit us at our website or leave us a review on iTunes. Until next time, good luck everybody.