Tesla 'ranks no. 1’ in future capability with autonomy, chip building: Innovation expert

Howard Yu, IMD Business School LEGO Professor of Management & Innovation, joins Yahoo Finance Live to break down the most future-ready companies in the electric vehicle, payment, and retail sectors.

Video transcript

- Well, what does it mean to be ready for the future? Not so different for companies compared to people when It comes to being prepared for change on the horizon. And that was the focus of a new report that reveals how prepared companies will be after the pandemic from IMD Business School. And for more on that report and ranking, I want to bring on the professor behind it. Howard Yu is IMD Business School LEGO professor of Management and Innovation.

And Professor Yu, appreciate you taking the time here to chat with us. It's an interesting ranking because it's not just overall preparedness and readiness but kind of sector by sector. You take a look at which companies are best positioned to really innovate and move forward in the future. Talk to me about some of the rankings here, too. And I guess we can start with automotive. Maybe not surprising to see Tesla atop all the other companies and traditional automakers in that category. But what metrics did you look at to choose which ones really are best poised?

HOWARD YU: Yeah, so we have quite a specific definition around becoming future ready. We are essentially looking at how organizations are able to scale and build up capabilities that are most relevant for future competition. So you talk about automotive sector. And of course, it's no longer just about building the electric vehicle. These days, everybody can build electric vehicles. But it's really this idea, how do you able to scale up the software capability, autonomous driving, as well as building chipset around the electronic component?

And the late lead shortages of the global semiconductor sector really just exposed how important these new future capabilities are. And from that perspective, Tesla, obviously, rang number one. And you're looking at Toyota. They have been able to stockpile, in terms of chipset, until most recently because of their supply chain digitization.

And so what we are trying to do is to have a balanced viewpoint around a health core business as well as how ready they're well poised to future capability. That is the methodological perspective that we've been using.

- And what's interesting is that just going back to past year reports and seeing Tesla climb the ranks to the number one spot, I think back first in 2019. So that's pretty interesting to see. When you shift over to just the tech sector, in general, one of the sectors I think that is normally thought of being always prepared for the future because they build it, interesting to see Apple kind of left out of your top fang names, pretty far down the list. Talk to me about maybe how that company stalled out relative to other peers on.

HOWARD YU: Yeah, I mean, the tech sector is really of high speed and sort of the fruit flies of industry, right? If you miss a product life cycle, then you are really in a precarious position. If you miss twice or three times, then you send home packing. And what we've been seeing is organization that can stay on top of competition in this particular sector are the one who are very entrepreneurial. Meaning, they are able to branch out to new services, bringing out new business model as exemplified by Amazon, and going through many, many of these moonshot innovation as well.

But it's no longer just the fang or the big tech giant are winning you see there. But it's also semiconductor companies are winning as well. Companies like AMD or Nvidia are doing pretty well as compare and contrast the slower moving companies down to rank. So from this perspective, what we're trying to achieve, again, is to looking at the health, the core business as well as the diversity of the board because you need diverse perspective to think outside the box, all the way to innovation trajectory, how much of the new innovation are able to gain traction across all geographical market, all the way to how open they are. Are they able to invest in start-up or to new partnership, et cetera?

So from that perspective, we see Apple historically been very, very strong. But just to compare and contrast to others, in terms of bringing new products as we do hot counting across the public available information, they seem to be falling a little behind.

- Yeah, I mean, you can only make so many iPhones, I guess, until you come on with a big next product to really climb in those ranks. And it's been a while. When we look at maybe some of the other sectors, too, you got two more for us to hit. And one of them is financials. And I was looking at MasterCard and Visa being top the list here for preparedness, future readiness.

I wonder how much that might be tied to their embracing crypto or if there's other things? Then you got Square, which is so prepared for the future. They change their name. They're now Bloch. And we've got to update that, too. What do you see when you looked at financial companies?

HOWARD YU: I mean, 2021 is really the fintech year because when people shop at home, people are staying at home and not visiting branch of a retail bank, fintech take off. And remember almost 10 years ago, Zack, people talk about these retail bank. Like HSBC, Citigroup, or JPMorgan Chase would be the one who are able to reinvent because they own that customer relationship. Turns out, collectively, all the retail bank are squandering opportunities turns out is the middleman in a way or the middle person. Visa, Mastercard are able to embrace this idea of frenemies. And they're able to forge all these partnerships with their enemies at times.

So it's this idea, sometimes you're friends, sometimes you're enemy, but you've got to grow the overall pie. This is when and why MasterCard and Visa card working collectively together with PayPal, they're historic enemy. And they enable Bloch, now is previously Square, to really taken off. They invest so much on API, application programming interface, so that they're everywhere. So today, of course, they're going into crypto and any of the next generation of payment mode.

Look, fundamentally, what we see is MasterCard and Visa card their incumbent. But they have shift also to identity. Once a point in time, they're being seen as credit card company. Today is simply payment company. And that's the key takeaway. As companies continue to become future ready, they need to shift their identity, they need to embrace frenemies as we see. And the idea is, how can I grow the overall pie of the industry rather than being obsessed about competition, of taking this bigger slice along the way?

- Yeah. And they've got more competition, too, as we've been talking pretty much all year about buy now, pay later competitors popping up and growing quickly as well. The last one to wrap up here, Professor, is the look at fashion and retail names. Of course, we've talked a lot about Lululemon and athleisure, maybe less so from the future readiness piece, and maybe more so from just the way the people want it to be comfy in the pandemic.

But you got Lululemon and Nike atop that list. And Nike, too, one of those companies that's really leaned into the metaverse, buying artifacts. One of those companies that's really building out digital fashion. I wonder if that maybe is a piece of maybe why they're so high? Or are there other things just maybe thinking more web, too, the way they've invested in really that shopping experience online?

HOWARD YU: Nike is a wonderful example as you describe. I mean, they are always constantly thinking about what the future brand looks like and feel like. And this is why they are investing in NFT and multiverse and things like that. But this is also ranking that display and reminded us, being future ready requires a long-term commitment.

15 years ago, Nike already experiment with this Nike Sensor, where you put it in the back of the shoes and beam you data and connect with the iPod. That is the first generation of this idea of direct-to-consumer and sort of building this online community. And 15 years later, fast forward, they are thinking about multiverse.

So it's this idea that it's not enough just talking about e-commerce, and omnichannel, and personalized offering. Every retail brand talks about that. But what market distinguishness news of Lululemon and Nike is they don't just talk, but they actually scale ahead of time. And during the pandemic, it's the stress test. When all the retail stores are forced shut down, Nike can actually pivot big time into e-commerce. In China, they embrace live streaming. As a result, they're revenue do not decline but in factorize during the most stressful time. That defined future readiness, how it translates into resilience.

And 2022, we seem to be well poised to great opportunity for brand to capture more revenue. But our world is increasingly more and more uncertain. But one thing we know, if your future ready, then you are much more capable of navigating uncertainty going forward. So I think it contains some key lessons learned going forward in the new year as well.

- Now, pretty interesting to break it all down, very thorough in looking at how prepared some of these companies are for everything, the uncertain future that lies ahead. Appreciate you coming on here to chat with us Professor Howard Yu, IMD Business School LEGO Professor of Management and Innovatioon there.