• Zawacki believes that innovation has paved the way to new business models 
• Successful tech companies are very good at challenging conventional assumptions
• Blockchain is a system of recording the exchange of value without any middlemen

Here is the transcript of the video:

Emmanuel Daniel (ED): I am very pleased today to speak to Mark Zawacki, the founder and CEO of 650Labs.

Mark, you advise a whole range of traditional corporations in terms of how they think about innovation and what they need to be investing in to make that transformation to the new economy. Give us a sense of who you're talking to; the questions they ask you; and what are traditional corporates doing in the change that they have to make today?

Mark Zawacki (MZ): Thanks ED, first of all, it's great to be in Singapore today and have this dialogue with you. There are about 5,000 companies in the world with a billion or more revenue, traditional multinationals, and they all understand they need to make a shift from this old industrial world to this new digital world. Every industry is being digitised at an ever increasing rate. They all open innovation labs. They all get advice from consultants. But the reality is very few are growing. Very few are getting the results of their investment. And I think where they struggle is what we describe as the “what versus the how”.

Look at the banking sector where we are very active. Financial services – they all know – they need to work on blockchain. They need to work big data analytics. They've heard this thing called design thinking, and they're buzz word compliant, and they have all of the themes to work on. But guess what? Every bank around the world is working on those exact same things. They all buy furniture from the same vendor as Google, and they all build very expense labs, and they want to show their boards and management they are working on the right things.

Our view is they need to, more importantly, work on the how. Let's commoditise the blockchain, the big data, and all that stuff, for every sector is commoditised. The “how” is they need to realise that in order to be digital, it needs a very different skill set. How you lead is different; how you motivate employees is different; and where you find talent. All of those softer things are actually what are more important.

And let me leave you with this idea. Four of the world's ten most valuable companies are now in Northern California, the so-called Silicon Valley. And they don't have any particular domain in technology.

I mean they are not doing technology any different. What's different about these companies is their organisation. What we may know about 21st century management in the digital world, I do believe we are learning from the Googles, and the Facebooks, and the Apples, and Ubers, and the Airbnbs, and the Teslas of the world. They have created, not once, but systemically they're creating big global companies that have huge impact. And I think traditional companies can learn a lot from them. So instead of going to Silicon Valley and looking for technology, go there and look at the organisation and how they are managing because I think that is the real secret.

ED: Well, these organisations, they started from scratch.

MZ: Of course. They have an advantage, yes.

ED: And from scratch, means that they started with an original proposition. What is common in terms of original proposition of a Tesla, Airbnb, and so on… some are engineering, some are services. What is that they are able to do with a traditional company – If you take an Airbnb and you compare that to HP or Starwood, one comes with an asset base, which the information on that asset and availability can be made a lot more democratic, and the other doesn't have any assets and have all the democracy in terms of what's available out there.

MZ: There are many differences, but let me give you three. First of all, they are not first. The kinds of companies that are making a huge impact in a market aren't the first one with the idea. They're often very late to the party. Facebook was not the first social media company – before we had Myspace. Google wasn't the first search company. There were a dozen companies on the market, as you know, before Google. Apple certainly wasn't the first handset company. We had Motorola, Nokia, and RIM. In fact, Nokia had a 24% market share globally when Apple came onto the market, and guess what, that is now basically zero.

So number one, these companies aren't first to market, but they're laggers, they are late, and they see an existing idea and they make it better. Second, these companies are very good at challenging conventional assumptions. When you look at a major multinational, they had hundreds of assumptions that run their core businesses. They have assumptions on what markets they serve; how they build products; how they ship products; who they partner with; who they complete with; and how they price products. Hundreds of assumptions.

And when you look at the so-called disruptors, they challenge the very assumptions that run a sector. Airbnb proved to us you don't need to own hotels to be in the hospitality business. And Uber proved to us you don't need to own taxis to be in the taxi business. They are very good at disassembling or disaggregating assumptions that run a sector and then re-creating something from new.

And then third, these companies are world-class at mathematics, computer science, physics, chaos theory, operations research, and behavioral sciences. And they hover up talent from around the world because when you think of digital – digital is just math and software – so the traditional companies that get better at traditional math and software are going to succeed.

The benefits of innovation

ED: How much of innovation is about creating revenue streams that did not exist, and how much of innovation is about productivity gains that a traditional corporate can benefit from and add to its bottom line that makes a difference, profitability, productivity gains, things that – incremental changes that corporate look for.

MZ: In some ways you may have answered your question. The real benefit of innovation, I believe is the more transformative type – it is finding new revenue streams. It is building new business models that previously do not exist. The productivity gains, I view as incremental, a smaller scale. There is a famous McKinsey framework that talks about Horizon 1, Horizon 2, and Horizon 3; three being very transformative, out in the future, and one being kind of a smaller scale, incremental process, and improvement productivity gains.

While the Horizon 1 stuff is important, it can easily be replicated by your competitors. It becomes very much a zero sum game. I think another area where large incumbents struggle is they build large businesses. They have shareholders. They operationalise those businesses. They put key performance indicators four or five decimal points on anything that moves. And they build stability, reliability, predictability, and risk aversion. They need to build those things because they have shareholders that expect quarterly results and they don't want variability in those financial outcomes.

But that very stability, predictability, reliability, and risk aversion, those are the antithesis of innovation. Innovation – often times there's uncertainty and so they get pushed back to doing the Horizon 1 incremental productivity improvements stuff. Not the transformative stuff that they do need to work on.

ED: Of the companies that you work with, give us a sense of the ones that you had helped to make some breakthrough within the organisation, whether it's new revenue stream or a different way of working, to take them from an industrial age to the digital age.

MZ: You know, like a lot of other professional services firms, we don't publicly name our clients, vis-à-vis, the work we do with them. We have lots and lots of logos we can share from all over the world, but we mask the actual naming of the client against the results we've achieved.

I will say that it's extraordinarily difficult for large organisations to change. The inertia is stability, as I said earlier. The executive team is getting paid on this year's performance. Those organisations that do well with truly transformational change are the ones that have a management team young and early enough in their career that they know they need to make a change because they will live with the results of their impact.

For teams that have a new chief executive who may be in his or her early 40s, they know they're going to be around for a decade. These are the kind of companies that have a greater chance of changing. When I see a company where the executive team has been in their roles for a decade, they're in their late 50s, that chief executive may be departing the business in a couple of years. It's been my experience that those organisations find it a lot harder to change because the CEO sets the tone and wants the business to be stable and hand it off to his successor. And they are not typically the one that embraces the need enter transformational change.

ED: At the same time, how is the work that you do different from the work that other players in Silicon Valley do? Plug and Play, for example, takes a position in the companies; locate in their premises, and so on. At the same time they provide that ecosystem where traditional companies can experiment and try different models. How do you provide a similar setting for the traditional players in your –

MZ: Plug and Play is one of about 75 accelerators and incubators in the Silicon Valley region. If you really look closely at Plug and Play – and I know them well, and we partnered on projects together – Plug and Play is a venture capital firm. What Plug and Play uniquely does is to create a marketplace between start-ups and corporates. It charges start-ups to co-work in their facility, and it charges corporate to speed date with the startups. And when enough start-ups, corporates run to a certain start-up, Plug and Play funds that start-up.

They are letting the corporates guide them to the most interesting companies in their portfolio. It is effectively a novel venture play. They are investing in the best startups - that is their business model.

I'm not a venture capitalist. I'm not making investments in start-ups in this systemic way. I know the team very well. They partner with us. They brought us into many of their corporate clients. But when you look at their business model, it is fundamentally a venture capital firm.

The other incubators and accelerators are largely working with start-ups, trying to get equity in them, and they have these programs where the corporates get to kind of watch a play along. For instance, RocketSpace, who is famous for this.

But my model is fee for service. I provide objective counsel and advice on what we are seeing globally, but most of those models are trying to extract equity from start-ups – that is not our business model.

Blockchain and artificial intelligence

ED: And what do you see in terms of innovation around the world? What do you like in terms of what you see in Africa? In Asia? And what do you think we need to put our finger on and watch more closely?

MZ: I think from the technological perspective, the two big trends that certainly the audience has heard about – blockchain and AI – and maybe a third would be the aspects of augmented reality and virtual reality. But blockchain is extraordinarily transformative. If the Internet is an exchange of information, blockchain is an exchange of value. And many people believe that blockchain is bigger than the internet itself – not just financial services. But if you think of this as an exchange of value, it affects identity, trust and property records. It is not just about banks and currency, and it's not the cryptocurrency stuff. It is truly a system of recording the exchange of value, done in a way without middlemen – it's going to affect every business.

ED: Well, every bank that gets into that business tries to create, re-create the middleman function…

MZ: Correct. It's the wrong approach. We need new models, but blockchain is extraordinarily interesting in that regard. AI is equally powerful, and I think – well, it's not a new word, it's actually been around, I think in the English lexicon for about 75 years. It certainly goes back to the 1950. But the thing about AI is that there is this notion of the technological singularity, it's a point in time in the future where "the computer take over."

Can we teach the computers to reason? Can we teach the computers empathy? Tremendous progress has been made in the last five years in this area, so much so that a lot of the leading companies and thinkers in AI appear to be putting their intellectual property in the public domain. They won't want the moral implications of controlling AI. I think we're in an uncharted territory. I think the possibility of AI is breathtakingly interesting and positive on the one hand, but I think it has extraordinarily large moral implication for society, and this hasn't quite been thought through.

I think when you look at what Facebook, what Tesla, and others have done with their AI and IP, they seem to be putting in the public domain saying, "I don't want responsibility for this." This is my take on it.