Books For MBAs: Tuck’s Vijay Govindarajan On How Data & AI Will Transform Products, Companies & Business School Classrooms

Vijay Govindarajan, a professor of strategy and innovation at Dartmouth’s Tuck School of Business, says companies will need to employ AI and data to compete in the third wave of digital transformation. Courtesy photo

As Vijay Govindarajan sees it, AI is ushering in a third wave of digital transformation, one that will change everything from how you learn and work, to how you interact with everyday products once considered decidedly offline.

Ever heard of a smart shelf? Well, Walmart and other retailers are now using them to detect when stock is low, predict future demand, and collect real-time data on popular items. If you’ve bought a car in the last couple of years (or a washing machine, a doorbell, or running shoes), you might have been prompted to download the app that goes along with it.

A new crop of sensors, supercomputing, and the rapid evolution of artificial intelligence have the potential to turn any company into a digital company, any product into a smart product, powered by information-rich data once the province of tech giants like Facebook, Amazon, and Google. Govindarajan calls it Fusion Strategy. Companies will either employ it to innovate in this third digital wave, or they will be left behind.

“The third wave deals with asset heavy companies like John Deere and General Motors. A tractor will never become digital. But, the value will migrate from the physical assets to the data, AI, and the insights that come out of those,” says Govindarajan, a world-renowned innovation guru as well as the Coxe Distinguished Professor of Management at Dartmouth’s Tuck School of Business. P&Q also named him one of the world’s top business school professors in 2012.

“That is the question of fusion: combining two things and they become inseparable – steel and silicone, the physical assets and the digital assets.”

A NEW BOOK AND A CHATBOT

Govindarajan’s new book, Fusion Strategy: How Real-Time Data and AI Will Power the Industrial Future,” was published this spring by Harvard Business Review. Digital strategy expert Venkat Venkatraman, the David J. McGrath JR. Professor in Management at Boston University’s Questrom School of Management, co-authored.

Practicing what they preach, even the book is an example of Fusion Strategy. The authors created a unique custom GenAI coach that delves deeper into the book’s cases and applies Fusion Strategy principles to companies not included in the book. It’s a little like having a conversation with the author, Govindarajan says.

Govindarajan, who has taught strategy to business students for more than 40 years, will tell you he’s a strategy guy, not a tech guy. But, tech is a vehicle to innovation, and he’s experimented with VR and other innovations in his Tuck classrooms. He thinks AI will transform education delivery more than anything that has come before it.

Poets&Quants recently sat down with Govindarajan to talk about Fusion Strategy, his custom chatbot coach, and how he’s employing AI in his own classrooms. Our conversation has been edited for length and clarity.

Tell us a little about your background.

I have a deep passion for the topic of innovation, and that really started from my formative years. I was born and brought up in India, and what I saw was lots and lots of problems and our family had very few resources. If you have lots and lots of problems, and a very few resources, the only way you can solve your problem is through innovation. We could not throw money at the problem; we didn’t have money.

In my 40-plus years in academia, I have really focused on how organizations can become better at innovation. That’s what I research, that’s what I teach, that’s what I practice. To me, innovation is also something to do with realizing the full potential of an organization. That also applies to individuals and it’s a mantra I practice.

I am 75 years old now. I am a university professor at Dartmouth; there are no more rewards the organization can give me. There is no incentive for me to innovate, but I always try to search for my own full potential.

Considering your long career, how does Generative AI compare to other big innovations or game changers in business education? Can you put it into perspective?

In education delivery, actually, I would say Gen AI has been the most transformative. Actually, in the education industry, we teach innovation, but we don’t practice innovation. Our model of education delivery hasn’t changed a whole lot in the last 50 years.

We have introduced a lot of technology in education delivery, but they were all more to improve efficiency. Once upon a time we used chalkboards. Then we went to the slides. Then we went to PowerPoints. These are all technologies, but they didn’t change the way we deliver education. They simply made it more efficient. People thought MOOCs were going to change education delivery, but they didn’t. They were going in parallel with universities. Of course, MOOCs were wonderful, but they were catering to a different audience – someone who doesn’t want a degree. So universities simply ignored Coursera and edX and other players.

But I think AI and Generative AI is going to change the way we deliver education. I really believe that absolutely.

Well, let’s dive into your new book first and then we’ll talk about the chatbot coach you created to go along with it. What do you mean by “Fusion Strategy?”

I started at Harvard Business School in the early 80s. As a professor, and at that time, we were asked to do research on the following question: How would information technology change the world of business and the discipline of management? Today, in May of 2024, we are asking exactly the same question: How will digital technologies change the world of business and the discipline of management? In the early 80s, the best piece of computer hardware we had was an IBM PC with a green screen. That is probably in some museum right now.

I put that there are three waves of digital transformation we have seen in the last 50 years. The first wave, which is more information technology driven, didn’t change strategy, it made the current strategy more efficient.

The second wave is where digital actually changed strategy, and that was really based on this one fellow: the iPhone. When the iPhone came in 2007, we as consumers gave permission for companies to collect our data because we checked that box “I agree” to get to the apps. Digital giants have changed strategy based on that. Google changed strategy in advertising. Airbnb changed the strategy for travel. Netflix has changed strategy in the way we watch movies.

The third wave is just starting. That’s what the “Fusion Strategy” book is about. In the second wave when digital giants disrupted the consumer sector, they were either dealing with pure information goods like Google, or they were dealing with analog products, which simply disappeared. Film cameras just disappeared, for example.

The third wave deals with asset heavy companies: John Deere, General Motors, and so on. A tractor will not disappear and will never become digital. But, the value will migrate from the physical assets to the data, AI, and the insights that come out of it. That is the question of fusion: combining two things and they become inseparable – steel and silicone, the physical assets and the digital assets.

That’s how my intellectual partner and dear friend, Venkat Venkatraman, and I define fusion strategy. He comes at it from an interest in digital, I’m interested in innovation. The book features very cool companies like General Motors, John Deere, Rolls Royce, Siemens, Honeywell, etc. How they compete for the future will be more about the digital insights that come out of the physical assets.

And, why did you create a companion chatbot for the book?

A physical book is a static way to deliver knowledge. The book was published in March of this year, but we finished writing the book in March of 2023. That means, by the time the book was published, all the case studies were almost out of date and never get updated. We asked, how do we deliver knowledge real time and customized?

This is a custom AI we created, it’s not ChatGPT 4. We loaded our book, but then we updated all the case studies. So, if you go to the AI coach today and ask a question about Tesla, which is covered in our book, it will also talk about Tesla and what it did in the last four months. We also collected data on 50 other companies in 50 other industries which are not even mentioned in the book, because a book is only a finite number of pages. The coach can not only give you more depth to what is in the book, but it can also show how it applies to other industries.

It is almost like having a conversation with the author. That’s the whole idea. When you’re reading a book, you would love to have a conversation with the author. In our case, you may want to ask what does Fusion Strategy really mean? I cannot be in front of every reader. But my digital avatar can be.

In some ways, the Gen AI is practicing what we preach because, in “Fusion Strategy” we preach that if you’re an automobile company, you should take your physical product and combine it with a digital companion – all the software and so on and so forth – and create a digital automobile. So that’s what we did. And, if you use these two together as a reader, you’re gonna get more out of it.

Do you plan to keep updating the chatbot with new cases?

We plan to update it once every six months because digital transformation doesn’t happen every afternoon. But if something very big happens, we can easily add it to the bot. We plan to update it at periodical levels.

As I was playing around with it, I found myself trying to stump it. To find something it couldn’t answer. I was surprised that when I asked it how the principles of Fusion Strategy could be applied to the career of Taylor Swift, it came up with a pretty good answer. How did it know who Taylor Swift was?

We didn’t write anything about Taylor Swift in the book, for sure. But the user interface we used to create the chatbot uses Open AI as a foundation. So, our custom AI is using two sources of data: It is using the data that I imputed, but it is also digesting all the data in the large language model. Therefore, it also knows about Taylor Swift, so it can answer questions about how she should manage Fusion Strategy in her career if you pose a question like that.

So, how do you think readers of the book should use this chatbot?

I think the best way the reader should use it is, first, you read the book, because that’s the foundational knowledge. What the bot does is to help you, one, to go deeper into the concepts themselves. And, two is all about application. It’s one thing to know a concept, it’s another to know how to apply it. That’s what the bot can help with.

Have you considered creating similarly customizable chatbots for your business school courses?

I actually just finished doing so for a course I taught (this last semester.) I wrote a brand new case on Uber One – which is a brand new strategy for the company. The assignment for students was in three parts: Part one, develop a strategy for the Uber CEO for the next decade without any Gen AI tools. You’re in a two year MBA program, you know all about strategy, you probably want to work for McKinsey, or BCG, or Bain or any of the consulting firms. You know everything about consulting, just use your human intelligence and come up with a strategic recommendation. I call this a first draft.

For the second draft, I created a Gen AI just for the Uber One case. I took the same assignment questions, and put them in the Gen AI coach. For example, “What should be the vision for Uber One for 2030?” I loaded my Uber One case into the coach, and I loaded all my analysis of Uber One. So, it also knows how I think about what the company should do.

But I trained the coach to never answer the question for the student, but tell them the issues they should be thinking about to answer the question. So, after the prompt, the coach will come back and say something like, “For you to really develop a vision for Uber One for 2030, think about the following important issues.” It is a Socratic method of teaching, and is exactly how I would teach the case in class. I created a coach which gives students a lot of issues they need to think about and, based on that, they have to revise their first draft.

The third part of the assignment is a 1,000 word essay on how the coach augmented human intelligence. What I wanted to convey is that as a consultant, you can have your own intelligence, but Gen AI can help you to make it even stronger.

I have 138 students, and 100% of them said the coach really helped them to think about some issues they had missed. Wouldn’t it be wonderful if every case that we have, had a coach like this? Not to give students the answer, but to help them think more deeply.

Anything else you’d like to add?

One final thought: We have lots of technologies that have come about in business education: Online delivery, VR, AR Metaverse, Gen AI, etc. All of them, in my mind, only reinforce the value proposition of an MBA program like Tuck’s and other residential programs. It reinforces the real value of in-person interactions. In fact, when we had Zoom during the pandemic, people craved coming to class, because we are human beings. Human beings are not economic beings, we are social beings. We crave to interact with each other and that is the strength of the Tuck MBA program. Therefore, our in-person interaction is our competitive advantage.

The question, then, is how can Gen AI make our gold standard even better? Technology cannot be substituted for our secret sauce. It cannot replace what we do, but it can complement and augment what we do.

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