Cain Out, Tesla Fleet, Galaxy Fold: CEO Daily for April 23, 2019
Good morning.
I had a good conversation with Genpact CEO Tiger Tyagarajan yesterday on the topic of A.I. and society, as part of Fortune’s CEO Initiative. This wasn’t one of those futuristic tech terminator talks. Rather, it focused very much on the here and now. A key question: Given the enormous potential of A.I. to transform business, why is its adoption moving so relatively slowly?
Tyagarajan, who works across a variety of industries, says a key reason is resistance from customers and workers. The workers’ fear of losing jobs is well known, and actually has declined somewhat in the last 18 months, according to Genpact’s research. Customer resistance, however, is unabated. Taking call centers as an example, Tyagarajan said, “less than 15% of consumers want to be served by an A.I.-powered chat box” rather than a human.
But here was my key takeaway from Tyagarajan’s talk: He says that in his estimation, “80% of business leaders are still approaching A.I. primarily as a cost-cutting tool.” Only 20% are focusing on its ability to create new value for customers. Yet it’s likely the greatest value, in the long run, will come from new value creation for customers. Until that 80-20 ratio flips, it’s little wonder that both consumers and workers are wary.
I had a conversation later in the day with Accenture’s Omar Abbosh, co-author of a new book, Pivot to the Future, and he made a similar point. Cost-cutting may be necessary, but it is not sufficient. “If you think you are going to cost cut your way to success, you won’t succeed.”
Speaking of cost-cutting: slasher king Kraft Heinz got a new CEO yesterday. His name is Miguel Patricio, he’s a native of Portugal who formerly worked at Anheuser-Busch InBev, and thus shares both language and business history with the folks at Brazilian private equity fund 3G, which owns a large stake in the company. But his background is in marketing—he was AB Inbev’s global chief marketing officer—which suggests more of a focus on the top line. (You can read Fortune’s classic stories on cost cutting at Kraft Heinz and 3G here and here.)
Patricio made clear he takes a somewhat different approach. “Great companies are the ones that have the costs in control, that grow the top line and grow the bottom line—it’s not one or the other,” he said in an interview. “I have very good experience on that—on being more efficient every year, which doesn’t mean cutting costs. It means to be more efficient.” Sounds like he could bring a welcome new balance to the food company.
More news below. And save some time to read Polina Marinova’s brilliant deep dive into how the Kleiner Perkins empire fell.
Alan Murray @alansmurray alan.murray@fortune.com
Top News
Cain Out
Herman Cain is no longer gunning for a seat on the Fed board, and it’s not because of congressional pushback. Here’s the explanation from the man himself: “I would have to let go of most of my business interests. I could not serve on any boards. I could not do any paid speeches. I could not advocate on behalf of capitalism, host my radio show or make appearances on Fox Business. Without getting too specific about how big a pay cut this would be, let’s just say I’m pretty confident that if your boss told you to take a similar pay cut, you’d tell him where to go.” Meanwhile, President Trump’s other Fed board pick, Stephen Moore, is under fire over misogynistic columns he wrote in the past. Western Journal
Tesla Fleet
Here’s another wild prediction from Elon Musk: a million Teslas will be capable of driving themselves in a year, and the “Tesla fleet” will become usable as robo-taxis, some owned by drivers, some by Tesla itself. Either way, Tesla would get a cut of the fares. “I’m confident we’ll get regulatory approval somewhere,” Musk said. Auto industry body PAVE is not impressed, warning that it is “damaging to public discussion about advanced vehicle technologies—and potentially unsafe—to refer to vehicles now available for sale to the public using inaccurate terms.” L.A. Times
Galaxy Fold
Samsung is indefinitely delaying the release of its folding-screen Galaxy Fold. The $2,000 smartphone “needs further improvement” before getting into consumers’ hands, said the South Korean firm, which was planning to release the Fold this week before reviewers found the device’s screen was breaking down very quickly. CNBC
Oil Waivers
The U.S. will not renew waivers it granted last year to certain buyers of Iranian crude, such as China and India. From May 1, any buyers of Iranian oil—some of whom were reportedly expecting waiver renewals—will face sanctions. Monday’s announcement by the Trump administration sent crude prices to their highest level in six months. Reuters
Around the Water Cooler
Facebook Counsel
Facebook is taking on a new top lawyer: Jennifer Newstead, who is currently a State Department legal adviser. Newstead also served in George W. Bush’s Justice Department, where she helped write the Patriot Act—a law that placed major surveillance obligations on tech firms. The company is also getting a new communications chief in the form of John Pinette, recently of Paul Allen’s philanthropic organization Vulcan. The Verge
Franklin Cuts
The Californian fund manager Franklin Resources is cutting at least 5% of its workforce in an attempt to save $75 million or more. “Our industry remains in the midst of rapid change, which has put pressure on our business in recent years,” said CEO Greg Johnson and president Jenny Johnson in a previously unreported January 29 memo. “These are difficult decisions, but necessary ones for the long-term health and strength of the organization.” Bloomberg
Belt and Road
Critics of China’s Belt and Road Initiative see the modern-Silk-Road push as potentially exploitative on Beijing’s part. But it may be that the initiative adds pressure to the Chinese economy. Researchers say investment in countries such as Vietnam and India may be accelerating the departure of low-to-mid-end manufacturing from the Chinese mainland. South China Morning Post
Pepsi Dispenser
PepsiCo has announced a new beverage dispenser for the food service sector, colleges and workplaces. The “hydration platform” is aimed at encouraging people to fill up their own reusable bottles, and not with soda, but rather with flavored, carbonated water. This is all part of a push to cut down on plastic use. Fortune
This edition of CEO Daily was edited by David Meyer. Find previous editions here, and sign up for other Fortune newsletters here.
