Stephen Shapiro uses basketball as a metaphor to explain where companies should innovate. His framework from "Pivotal" divides business activities into support, core, and differentiation levels, arguing you should focus innovation on what actually sets you apart, especially as AI changes the game.
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Basketball. It's a great metaphor for business. In the world of business, we often talk about pivoting. Well, in basketball, there's a move called a pivot. And basically, with a pivot, you've got one foot that is moving, changing direction, going in circles. And in business, we've adopted the term pivot to mean a shift in in strategy, a change in direction. The pandemic hit. People can't come to our restaurants, so we bring the restaurant to them through food delivery. And then we had supply chain issues, inflationary concerns. We had the war for talent. There's always something happening that's forcing us to shift and pivot. And now we have AI. Now, here's what's fascinating, is let's go back to basketball for a moment. Anytime we're looking at a pivot, everybody's thinking about the foot that's moving. And in business, that's what we're focused on. But the reality is there's also a foot that doesn't move. There's a foot that is firmly planted to the ground. And that's what we're going to talk about. And that is the focus of my book, Pivotal. Pivotal is a play on the word pivot. Pivoting means to spin around in circles, whereas pivotal means to become irreplaceable. That planted foot. In a world of AI, that planted foot is going to become even more important. That's what I want to talk about. In this particular video, I want to explore the power of the planted foot. For AI to do that, I want to share with you a framework that is in the book. This framework is simple, but incredibly powerful. And basically what we do is we explore three different levels of activities. Now, before I go any further, I just want to say that these are activities. They aren't departments, they aren't functions, they aren't people or roles. Every person in your organization does a combination of all three. At the lowest level, we have activities that are support in nature. Now, what support means is these support the business. They do not create external customer value, but they're important potentially for internal value. Your customers wouldn't pay for it. Therefore, your goal is to, if possible, eliminate it. And if you can't eliminate it, at least find ways of minimizing it or outsourcing it. And to me, a very simple example of a support activity is payroll. Payroll is a great example because your customers don't care that you have the world's best payroll system. So spending millions of dollars trying to create the world's greatest payroll system would be a waste of your time. But you need a good payroll system. It has to be efficient, it has to be optimized. And so of course, the strategy companies use is typically to outsource that. It's the next two levels where things get more interesting. At the second level, we have activities that are core in nature. Core activities are not the reason why someone does business with you. They are important because if you get them wrong, it might be the reason your customers leave. So we need these to be a well oiled machine. They need to be optimized, they need to be efficient, they need to work exactly the way we want them to operate. But again, we don't want to invest in having the best. So if you're in a hotel, if you run a hotel, your hotel better have great WI fi, it better be clean. You might have to have some really good reservation systems that allow you to make sure that when you book something, you get the room that you requested. But most people don't stay at a hotel because it's clean. But if your room isn't clean, they're probably going to leave. So for things that are core, you want these to work incredibly well. You can't tolerate any errors. But again, you don't have to be the best in the world. You don't need to differentiate on this. So for things that are core, what you want to do is in some cases you want to partner, you want to find a third party that will do this for you. In other cases, you want to use proven practices, you want to find ways of leveraging what others have done to make them a powerful part of the way you do business. And in some cases, maybe you want to optimize. And in that case you might use Six Sigma or Lean or some other technique. Now I would encourage again, partnering is probably one of the best strategies. I'll give you a very simple example here. In the automotive insurance industry, none of the insurance companies said we have to be the world's best at having claims software, but you better have good claim software. So 25,000 out of 40,000 repair centers use the same exact software. And the insurance companies mandate that this software is used in those service centers, the repair centers. And there's a company called ccc and they provide the backbone, the technology for claims handling. For most of the insurance companies, the highest level is differentiation. You need to innovate where you differentiate. So when you understand what you do better than anyone else, you want to put your energies here. Now, the reason why I'm sharing this framework is because I think it's really important for us to get clear on this before we dig deeper into AI.
