How AI Will Change Competitive Advantage with Doug Stephens

Speaker A: Welcome to the Future of Less Work, where we explore how work is transforming one conversation at a time. I'm Nurit Cohen, and today we'll be asking a question. I return to almost every conversation about AI and work. When everyone has access to the same intelligence, what makes you you? We've been asking this question about people. If AI can write, analyze, research, code, and create, what makes a person's contribution more valuable than another's? We've also been asking this question about companies. If every organization can buy the same tools, automate the same processes, and access the same intelligence, where does differentiation come from? Today, we're going to take it one step further into the market itself. What will customers still choose to pay for when companies use AI to generate services, to provide customer service, to personalize experience? And what happens when consumers also have AI, when they can compare every option, challenge every claim, filter every message, and make better decisions with their own intelligent agents? In fact, maybe their own intelligent agents will make the buying decisions. So my guest today is Doug Stephens, globally recognized retail futurist, founder of Retail Profit, and author of several books on the future of retail. His latest book is titled the Future of Competitive Advantage, which makes him the right person to ask what competitive advantage looks like when intelligence becomes widely available. Doug, welcome to Future of Less Work.

Speaker B: Thanks so much, Nariet.

Speaker A: So let's actually start there. Everyone has access to the same tools. Where does competitive advantage come from?

Speaker B: Yeah, that's the perfect question to ask. And really, every corporate leader right now should be asking the same question because it's a story that's played out over and over again across history. I was with a group recently, uh, doing a talk, and I asked the group, how many of you feel that Microsoft Office provides you with a competitive, you know, a distinct competitive advantage over your rivals? And of course, no hands went up. Um, how many of you feel having a Facebook page for your brand or, you know, social media accounts or computers in your offices? So you're quite right. Technology, uh, becomes table stakes very, very quickly. But I believe, and I maintain this belief that the advantage is always human, the advantage is always cultural. And generally speaking, with any tool, the advantage is how creatively we use the tool. And that comes back again to human capacity. But I'll give you an example of, of, of. I think one that will resonate with, with listeners. Um, we could look back in time and say that the moving assembly line was a significant advantage for manufacturers. In particular, it was Ford Corporation that developed a moving assembly line. And, um, the interesting thing about that is that the moving assembly line itself was something that became table stakes within the automotive industry and across manufacturing, frankly, within about three to five years of Henry Ford innovating the assembly line. And yet for years and years and years, Ford derived a competitive advantage. What a lot of people miss is that the advantage was not the technology. It was that very early on, Henry Ford realized that this technology was going to boost productivity at, uh, Ford exponentially. Now, instead of making 100 cars potentially in a year, they could make thousands upon thousands of automobiles in a year. That would reduce the price, the unit price of an automobile. It would create enormous margins. Now here's where he got smart. Rather than just pocketing all of that

Speaker A: excess productivity, uh, uh, I think it was the five dollar an hour or something like that.

Speaker B: Yeah, there you go.

Speaker A: Yeah.

Speaker B: He went from 250 to $5 an hour.

Speaker A: Yep.

Speaker B: People were lining up in the streets, sometimes sleeping in the streets, waiting for jobs to open up at Ford. And he did several things. First of all, he drained the market of labor. So his competitors were scrambling to try and find good people. They were scrambling too, to try and match that kind of a wage increase. The second thing he did was he turned the, the auto manufacturer into an auto consumer. Now all of a sudden, that person who was building the car could afford to buy the car. And that really transformed modern society. So it isn't the technology. It's how we decide to socialize and galvanize people around the technology. And my belief is that that is fundamentally a question of trust and faith, fairness more than anything.

Speaker A: So, so let's, let's kind of just, you know, stay with that little bit longer because I, I think what a lot of people are struggling with is the very big difference between, you know, the example you gave where the technology was, was clearly owned by the manufacturing, the company, the organization. Right. Um, and people were labor. And I actually always tell the story that the way, the reason we think it will replace AI or will replace us is because we think of ourselves as working hands and thinking minds. And then, you know, um, Forbes assembly line is an example of where the working hands got replaced by technology. Right. Now, AI is supposedly replacing thinking minds in terms of a lot of stuff that knowledge work, um, has done. And so we assume that's all we are. And there we go. Right? And I, I know that's not the case, but when you see leaders replacing people with AI and talking about, um, productivity gains and talking about, um, it's almost like a replacement, not a one to many, right. Um, we see terminations in the name of AI and we see, um, hiring freezes in the name of AI. They're basically assuming that technology does replace people. Mhm.

Speaker B: Well, you know, and I think we have to appreciate that there are a few things going on as well. Um, two things can be true obviously at the same time. Right. And one thing that is true is that through the pandemic and coming out of the pandemic, there was a tremendous amount of hiring, over hiring, frankly, in the tech sector. So a lot of those initial layoffs that we saw where, you know, there were 10,000 people at Meta being laid off, or thousands of people at Google being laid off, there is a belief that some of that was just sort of recalibrating the workforce to meet current, uh, demand. So if we separate that out, what we are seeing in a real way is we're seeing entry level workers having a lot of difficulty getting work. Now we're seeing double, maybe even more than double the unemployment rate among that cohort compared to the rest of the workforce. But when we think about it from a pragmatic standpoint, what does university really and truly prepare you to do? Right. What does our current education system and our current model for education prepare the average student to do when they leave school? You go to school and you learn principally how to research, how to analyze information and how to report that information in a coherent way. Right. The average, uh, three or four year program, that's, that's what you're getting. Right.

Speaker A: I actually say it probably worse than you do in terms of saying, you know, you, somebody assumes there's an answer, they teach you the answer, they expect to get that answer back in a test and you get an eight. Right? Right. And then you go out in the world and there are no, it, uh,

Speaker B: doesn't work that way. Right. Yeah, so, so we to some extent, we've set a generation up for failure through the education system that we've put them through. What we don't teach enough of is critical thinking, problem solving and creativity. If anything, we have bent the school system in such a way as to constrain those things. We don't encourage debate, we don't encourage people to develop creative solutions to problems. We want, as you quite rightly said, we want the answer, that is to the test. We teach to the test. So my belief is that we ultimately are going to have to rethink what intelligence actually means in the workforce. And a lot of the things, it's quite interesting when you look at the sort of List of hard skills. What we considered to be hard skills, you know, people that could translate languages, people that could program code, people that could, you know, had advanced accounting degrees and that sort of thing. Those hard skills now are the very things that AI can do quite handily. The things that we accepted as being sort of complementary skills or soft skills in most evaluations. Things like communication skills or, you know, able to create creative solutions or he's a great problem solver. Those things are now the, the things where there is true equity in the workplace. There's going to be huge demand for those skills and there's a shortfall in terms of supply.

Speaker A: Right. And that in terms of the individual. I, I agree with you. I think the way I always think about this is because of the hard skills were the criteria, um, we didn't pay attention to, nor do we have the full terminology to describe the nuances of human contribution that went into the work as you were doing the Excel or the code or, um, the hard skill stuff. Now that we're moving the hard stuff or the hard skill stuff off to, um, technology, we will start understanding better that nature of human value which exists. And for organizations that don't think that them, they can replace, replace people with agents, I think they'll realize at some point that they lost that essence of what made them unique. Right? So there's the, the individual level, but there's also the organizational level, the possibly advantage, right. That comes from the way your particular people ask the question and your particular people approach the problem. And everybody has the same tools.

Speaker B: Well, this is, this is interesting too because, you know, there's a great scene in the movie, um, Apollo 13, where, um, the astronauts have communicated back to Earth that there's a problem in the capsule. And there's a moment where Ed Harris, who plays the flight commander, goes down to all these engineers at NASA and he says, he dumps out a box of stuff onto a table and he says, okay, here's what the astronauts have on board. You've got one hour to figure out basically how to construct a device that we can use as a substitute for a piece of broken equipment and get them home. And you see the process that they go through, this iterative creative process where they're not only great engineers, but they have that mental dexterity to come up with a creative solution. And that is really a parable, I think, for the, the predicament that most organizations find themselves in all the time, right. We encounter situations, competitive situations, where we have to make a decision and arrive at A solution. And we fundamentally, to your point, are dealing with precisely the same tools that our competitors are. But it comes down to how creatively we create the solution. What kind of creative horsepower do we have in the organization? And the fact is, we've been drumming out creativity out of organizations for the better part of a hundred years of work. We have been draining people of their creativity through the organizational process. And there's good evidence of this. You know, young children are innately creative. You know, you, you, you give them a paperclip and they'll tell you 15,000 things that that paperclip could be made into. But by the time we're 25, only about 2% of the population is still divergently creative because the school system drains it out of us, the higher education system drains it out of us, and then corporate life drains it out of us. So creativity is key. But, uh, I'll add one other thing, Nurit, to what you were saying. And I think it happens even before we get to the point of saying we want to implement, uh, AI and which jobs, um, are most, uh, logical, um, substitutions. There's something that I think is important for organizations to understand before you even come to that point, and that is that any technology revolution that you're hoping to manifest within the organization is really dependent on two things. The organization must trust you, your employees must trust you. And we are living right now in an absolute vacuum of trust. Trust in corporations on the part of the public, on the part of employees, is at an all time low. Trust in institutions, trust in technology companies, all time low. And in order for you to be successful in any innovation, you need to have your people on board, both intellectually and spiritually. And that comes down to a matter of trust and what trust depends on. I believe, anyway, the equation to arrive, uh, at trust is you need to treat people fairly as an organization. There needs to be an innate sense within the organization that you are a fair, deep dealer with your people and that in all circumstances you use fairness as a filter to arrive at decisions. If you don't have those conditions, what you're going to find is that your people are going to undermine your innovation efforts. And we're already seeing this happen. There was a survey done recently where they determined that about 40% of Gen Z workers right now are actively undermining their own corporate initiatives as they pertain to AI because they don't trust the corporation and they're fearful for their jobs.

Speaker A: So I think what's really interesting is we started the conversation with Competitive advantage. And you're telling leaders, competitive advantage right now comes from how you treat your people because the tools are the same and the only differentiator you have to your competitors is your people and engaging their hearts and minds.

Speaker B: Uh, absolutely. And I feel, and this is really the cornerstone idea behind the book, is that we see all around us the signs that trust has been lost. Uh, the Wall Street Journal just last week published an article saying that trust in both capitalism and democracy is at an all time low. And why is that? Well, look, look no further than income and wealth polarization. When you know, 20% of the population controls 70% of the wealth, 80% of the stock, almost all of the gains in income over the last 45 years. You have this enormous contingent within society that loses faith in the system. And so that begins to sort of metastasize as a loss of trust and faith across all of society. Where now we don't trust institutions, we don't trust politicians, we don't trust corporate leaders because we think they're in cahoots with politicians. And we don't trust the media because all of them are telling us not to believe what we're reading in the newspapers. So we operate in this vacuum of trust and that makes its way into corporations. And it's a real sort of malignancy that we need to treat before we can just expect that we're going to be able to do marvelous things.

Speaker A: And so, and suddenly I see a new connection to the $5 story of ForBed. Right? Because we're also talking about the fact that AI, um, creates productivity. Right? So technically, in the, you know, in the Ford example, a company with AI might be able create 10x or 100x of what they generated before. Who owns that value?

Speaker B: Exactly.

Speaker A: You know, I have been arguing that if a person with a 2040, $60 UM tool taught themselves to do something faster and they're now completing their job in half the time. They're actually, we see this in the data, they're actually negotiating who gets that other half. Right. Does all of it go to the employer? As in, you own my time and therefore, um, I need to do 2x now or can I take some of it back to create more learning or create more time for myself?

Speaker B: Exactly. And this is why when I hear tech leaders today positioning our future as one where we are going to see, you know, this endless prosperity and bounty as organizations become vastly more productive and the spoils of that productivity are shared widely with society and we lift people out of poverty and everybody can just sit at home with their feet up, uh, you know, take pottery classes and earn a good living. And I say this is absolute nonsense because you only have to look back at the last 45 to 50 years to know that this is, this is absolutely ridiculous. We, we've seen this movie before. You know, we saw it through the automation of assembly lines in the 1970s. We saw it through the computer revolution. We, we've seen the fact that we've, we've seen it through offshoring. You know, we talk about AI agents today and giving work to AI agents. Well, what's the difference between giving my job to an AI agent or giving my job to a, uh, to a factory worker in China? It's the same principle. So organizations have indeed become more productive, but almost all the benefit, almost all of the rewards have gone to shareholders, and almost nothing has gone to the average worker. Why would AI be any different? Unless governments take action. And I am not seeing many governments stepping into this.

Speaker A: I agree, but here we can circle back to that previous conversation. I think that organizations that think that outsourcing to AI agents is like outsourcing to China will discover that they've ended up losing their competitive advantage because again, it's the people that make you. You know, I actually wrote a Forbes article when McKinsey published that they decided they were giving their AI agents worker ID and you know, email accounts, et cetera. And I'm thinking, sitting there thinking, uh, having worked on the side of the corporation that paid a lot of money to the McKinsey's of the world, why in the world would I pay money to, uh, the McKinsey's of the world if what I know I'm getting is AI agents to do the work? I can get my own AI agents to do the work. What I need is somebody to help me figure out the questions, to ask, you know, the important issues, the potential that I'm not seeing, you know, not crunch the numbers and create beautiful PowerPoints, right?

Speaker B: You want critical thinkers, you want problem solvers, you want creative thinkers. And so, yes, you're right, we come full circle once again, these innately human skills. And the fact is, um, and, and if people listening don't believe me, try it out. Ask ChatGPT or Claude or any other AI to create something that has never been created before, to ideate something that has never existed. They cannot do it. They can't do it. They don't have the capacity to do it.

Speaker A: And they can think differently. Right? I mean, I've actually seen this really interesting exercise about a chair. So when you and I say chair, we have a mental vision of what that means. But if you ask AI driven design tools to create a platform that you can sit on that you'll be comfortable and it would be safe. Right. What they generate might not quite look like what we call a chair, but might hit the bill. Yeah. Um, so I think they can ideate,

Speaker B: they can iterate, they can't originate.

Speaker A: Yep, yep, yep.

Speaker B: Because anything they originate, anything they attempt to originate is just an amalgam of, of their training database. Yeah.

Speaker A: Which is, yeah. So, so, you know, let's add the, the consumers into the mix because it's not just you and your customer and your competitors have the same tools. And then the question is, what's the competitive advantage? It's also your, your customers have the same tools. Actually the McKinsey example is a really good one. But you, you get from retail. Right. And um, suddenly I can think of it as a consumer, all the bots I have to go through when I want service with someone. Right. Um, that don't solve my problem. What does that look like? How does that change competitive advantage?

Speaker B: So I'll just give you, I'll answer your question in a roundabout way. I'll give you sort of what my view of the future looks like from a consumer standpoint. I believe that within the next, I'll say three to five years, we are going to see, uh, a complete reworking of the advertising ecosystem. We know even today that programmatic advertising is becoming increasingly expensive and increasingly ineffective, um, as the media ecosystem just becomes so congested with messaging that consumers barely have the capacity to even, um, absorb what's being put in front of them. So that's sort of the backdrop. But I think what we're going to see in the next three to five years is a confrontation play out between truth and advertising. And put it this way, uh, I was doing um, a presentation recently for Nestle, ah. In Switzerland. And um, prior to the presentation I just as an, as an exercise, I searched one of their most popular products. That's Nescafe coffee, instant coffee. And I just said to Google, find me great instant coffee. And sure enough, one of the first search results in the sponsored area of the page was Nescafe. And then I went to Perplexity, that doesn't use paid advertising. And I said, find me great instant coffee. And it brought up a whole number of different choices and Nescafe was not in the decision set. And so I asked it why and it said, well, It's a very popular coffee, but it's not very good. It doesn't test well in taste tests and so that's why I didn't recommend it to you. So we're seeing already this confrontation between truth and advertising beginning to play, play out. Fundamentally, AI is looking for empirical, objective, verified data first before it starts sifting through your emotional, you know, beautifully written ad copy and imagery. So where does that leave us? Well, we're it, it puts us in a position where AI companies are going to have to fund their platforms somehow. And we're seeing uh, OpenAI already experimenting with ad placement and sponsored uh, results. My belief is this is what the future looks like. I believe that people of means, people who have the financial means will be subscribing to not just shopping agents, but life agents. They will have an agent that they trust with their finances to do their taxes, to plan their vacation book a, uh, table at their favorite restaurant, etc, etc, etc, all the way up to making significantly high valued purchases. Ads are going to go to people who don't have the means to spend maybe hundreds or potentially even thousands of dollars a month for an AI life agent. And so we're going to have information and truth for the wealthy and we're going to get ads for the poor.

Speaker A: Interesting, because I was going to ask you to add into the mix not just the consumer has AI, but actually the consumer let the AI do the work. So why are you even, you know, paying for an ad? To change my mind. I'm not the decision maker anymore and

Speaker B: I don't need it.

Speaker A: We said that's going to work for some people, not others. And you're drawing the line at the ability to have access to the agents that we trust to do the work.

Speaker B: Exactly, yeah. It's going to be divided along economic lines. And the sad part is it's going to enable wealthy people who have the means to afford, uh, and Again today an OpenAI account or a ChatGPT account is 20 bucks a month. Um, I see a future where it could be several hundred or potentially even several thousand dollars a month for a very complex and capable uh, life agent. Um, but it's going to reinforce income and wealth polarization once again because

Speaker A: the

Speaker B: people who are less fortunate are going to be put in a position where they are more susceptible to advertising instead of getting really good, solid, objective information and decision making criteria.

Speaker A: Yeah, which circles right back to education and the need to learn, critical thinking, et cetera, et cetera. Because um, the same way that we said don't copy from Wikipedia and we still assumed it was okay because, you know, somebody looked at the content and verified it, um, copying from the tools. You know, it's really interesting what went into designing that response that you just got. Mhm.

Speaker B: Exactly.

Speaker A: Yeah.

Speaker B: So the world's going to look very different. And I think for corporate leaders as well, we have to keep in mind that it's not just product evaluation. Uh, that is going to be, you know, the principal consideration set here. As I become more intimate with my AI, as m, my AI begins to understand not just my, you know, what I value in terms of product quality and that sort of thing, but my values, you know, I, you know, I'm against child labor, I'm against deforestation. I want to support companies that are, you know, operate on a fair trade basis, all of these things that becomes part of the shopping criteria. And so an AI is going to be going out to the marketplace and it's going to be examining companies not just from the standpoint of do they make a good product and does it fit within the budget of my, my customer. They're going to be potentially looking at your labor records, they're going to be looking at lawsuits and litigation against the company and parsing, you know, reams of, uh, legal jargon in a matter of seconds and putting that into the mix. So there are no more secrets.

Speaker A: Yeah, we did talk about, um, uh, um, your corporate brand and your employer brand, um, being the same. Um, and you're now saying you can't hide anymore, you can't protect.

Speaker B: That's right.

Speaker A: Um, so if you, if you kind of take this down to what you think is going to happen to the roles in the world of retail, um, looking into the future, what do you think is going to happen?

Speaker B: I think that almost any job that is principally around the function of moving information is going to be supplanted by artificial intelligence. The only thing that would prevent that, and this certainly is going to apply in the white collar realm, is that there can be a creative multiplier or a human type of multiplier. So, um, for example, um, an accounting job, you know, is principally about the movement of information, right? It's just taking numbers in, analyzing them and spitting numbers out in a way that the organization can understand them to, to operate strategy against it. However, there will be people within the accounting realm that are incredibly creative, you know, that have a way of looking at things that can be instrumental in terms of the organization's strategy. If you can apply creativity, critical thinking, problem solving, gut intuition, dare I say to your job, your job is more safe than if it is simply about the movement of data.

Speaker A: Yeah. I think if we go back to, again, to the history of what happened to brick and mortar stores when we brought in, uh, shopping on the Internet, we can now access. We know who sells it for the cheapest rate. Right. We know the prices. Sometimes we still go into a store and we will pay a little bit more because there's something about that interaction that makes us feel right, whether it's touching the product or talking to a person or just, uh, the immediacy or whatever. So if you look at that most valuable part of the customer relation or the competitive advantage, and if you could think through a few years forward, what is that going to be that will make people still contact you?

Speaker B: So it's happening today. I'll give you an example. Um, there's a store in New York City, you may be aware of it, called B and H Photo and Video. Yep, it's a legend. It's an iconic store in New York City. It occupies about a square block. It's been around since 1973. Um, it's a very quirky store, but the focus in the store is and always has been on knowledge. I think the initial, uh, credo or training program for the company was, um, you know, know the merchandise, uh, don't be pushy and. And always be helpful or something like that. It was that simple. But what they hire is not people who, you know, have a pulse and are willing to work weekends, which is usually the retail criteria for hiring.

Speaker A: And they're actually closed on Saturday. B and H stands for, um, God willing in Hebrew.

Speaker B: Yeah, exactly. And, um, it also stands for Blimy and Herman Schreiber, which is their name. But, uh, um, yeah, very quirky business. However, wherever I go in the world, uh, if I'm talking to audiences, I will often ask, has anyone ever heard of BH photo and video? And invariably, no matter where I am, somebody puts their hand up. Because these guys are so notorious, not just for rote product knowledge that I could get from reading the back of a, uh, you know, a box. They're experienced. They're people who have experience in the music industry or recording industry. There are people who are experienced videographers and photographers. And so they're saying to you, you know, you could buy this lens, but I'm a wedding photographer. And I can tell you that from my standpoint, this would be the better product for you to buy. So information is a commodity. Experience is a luxury that's what people are going to be looking for. And so if I go to a Patagonia, I want to talk to somebody who is a hiker or a climber. If I go to a cycling store, I want to talk to someone who cycles in races. So we're going to pay for experience that AI cannot give us.

Speaker A: Yeah. And here we are, right back with the nuances of human contribution. Um, so as I wrap this up, because we can go on forever, but I'm watching the time here. Um, I want to ask you a question I always ask for. And what do you think is the question we should all be asking ourselves about the future of work?

Speaker B: Uh, I think that the question that we should all be asking ourselves as we sit behind our desks today as we make decisions about our businesses and appreciating that those decisions that we make in, in, um, in concert with the decisions that are being made across hundreds of thousands or millions of businesses today is what do we want the world to look like when we're finished with it, when we're finished our work and we're handing the world to future generations? What is it that we want it to look like? And as I look around the world today, I can say very sincerely, I am ashamed of what we have done. I. I would be ashamed to leave this world to someone else. I want to believe that my grandchildren are going to be inheriting a world that is more fair than the world I got, that is more trustworthy than the world that I got, where they have a fair shot at getting a good education, and they don't feel victimized by technology or corporations. Uh, and they believe that everyone has an equal chance at a happy life.

Speaker A: That.

Speaker B: That is the world I want to give to my future generation. And, um, I think we're not conscious enough about that. And we think about the things we do as just being so small, so incremental. Okay, maybe we weren't completely honest about our pricing on that product, but hey, it's one product and who gets hurt, right? But you multiply that out a million times across all the competitors that are going to follow your lead, and all of a sudden it starts to change the world in a way that I don't think we'd be proud of. So I think that would be my thing. That's the question we should be asking.

Speaker A: Thank you. And I think if we can end on a hopeful note, I always say that because I deal with trends and I see them the bigger picture. Um, I think even the conversation we had today on the fact that human is the essence of the competitive advantage just strengthens the fact that we will figure out how to get there. Might take us a little bit, the transition might be bumpy, but we will figure it out.

Speaker B: Well, and this is one of the things, I'll just leave this thought. Uh, that was one of the, uh, first things that when I began writing this book, I thought, this book cannot just be a moral soapbox where I'm telling business leaders to be more fair, to be more trustworthy, to invest in people, because we've been beating that drum for an awful long time to no avail. What I make the case for in the book is that if you do very specific things to manifest those behaviors in your company, you will not only become a better company morally, you will outperform your competitors financially. And, and there's a 15 page business plan at the end of the book that tells you exactly how to do that. And I think that is, you know, it's great to think these thoughts, but ultimately we need a plan and there is one.

Speaker A: Absolutely highly recommended. Doug, thank you for joining me today.

Speaker B: Thanks for having me, Nuri. Appreciate it.

Speaker A: Thank you. And for more about Doug Stephens and his new book, the Future of Competitive Advantage, check out the links in the episode description. If you've enjoyed today's conversation, don't forget to follow the Future of Less Work, where you get to your podcast and remember your best people do not work because they have to. They don't work because you tell them to or because you measure them on it. They work because they want to. Because by working for you, they're doing what's important to them in life. Till next time,