Conversation with Chris Kutarna

Deck: 

We need the government to decide on a price for carbon

PUF 2.0 - August 15, 2017

Chris Kutarna is a Fellow at the Oxford Martin School and an expert on international politics and economics. He was a strategy consultant at the Boston Consulting Group and continues to advise senior executives in Asia, North America and Europe.
 

PUF's Steve Mitnick: Please tell us how you came to predict the U.K.'s Brexit vote.

Chris Kutarna: Last year, I didn't get a lot of work done. I spent most of June and July explaining to people in North America why I had predicted Brexit.

Then I spent most of November and December explaining to people in the U.K. why I had predicted the election of President Trump. Both predictions, for me, came out of the same perspective, really the same source.

I applied the lens of my first book, "Age of Discovery" to the world we were living in, and tried to see what was going to happen in 2016. The thing that you look for, when you look at our present moment through the lens of history, and through the lens of the Renaissance, five hundred years ago, is social stresses.

"I spent November and December explaining to people in the U.K. why I predicted the election of President Trump."

The Renaissance was a moment of flourishing genius, of Leonardo and Michelangelo and Columbus and Copernicus. But it was also this moment of flourishing risk. There were dangerous ideas being spread by the printing press, and that yielded a Protestant Reformation that tore Europe in half.

There were populists who tapped a mood of public anxiety about this world that was changing before people's eyes. They were pointing to elites and comfortable leaders in society and saying, "They are to blame. It is their weak and corrupt leadership that just is not able to cope with the kinds of changes we're going through now. That is to blame."

I was looking through that lens at our present day. I was asking myself, "Where's the analog today? Where are the stresses in our society, in our political systems, created by all of this rapid change around us?"

Where are the stresses that are being discounted, and being ignored, until they're impossible to ignore? When that's the question you're asking yourself, then you know, two months before Brexit, before that vote in the U.K., or six months before the U.S. presidential election, it's actually very easy to predict what the outcome will be.

The broad majority of people were saying, "This can't possibly happen." And because most people thought that way - thought that they could take for granted the stability of the status quo - that made shocks to the status quo even more likely. I really had mixed feelings about the outcome of the Brexit vote. I voted in that referendum. It didn't go the way that I wanted it to. Yet I also felt somehow justified, proven right, by the outcome.

For me personally, what those two correct predictions last year did was to give me powerful, personal proof that in a time of rapid change and great uncertainty, finding the right perspective to make sense of events is the most important thing.

What is the broad story we're telling ourselves? What is the broad picture that we see when we look out at the world? Because that broad idea, that's going to determine what signals we focus on, and what signals we ignore. And I think that's why, despite all the social stresses that were right in front of people, that's why most people were shocked by Brexit, and were shocked by Trump's election.

In hindsight, it all makes sense. We see these stresses clearly now. But looking forward, most people were deleting many important signals, and focusing only on the ones they were familiar with.

That can't work. When the world is changing so quickly, we can't expect last year's perspective to be a reliable guide to the future. I think that 2016 helped us all to understand that. We do need to update our mental maps, regularly, if we're going to navigate the time we live in.

PUF's Steve Mitnick: Can you bring some of your perspective about the discontinuities during the Renaissance, to the present day?

Chris Kutarna: In my undergraduate days, I was an intern at the Canadian Embassy in D.C., working for the secretary of energy. So, I had the good fortune to build some interesting relationships in the energy industry.

Also, it's a gift to have a bit of historical perspective on the industry. You talk now about the changes that the industry is going through. But I remember in 1996, 1997, going to Capitol Hill on behalf of the Canadian government, and taking notes on the deregulation hearings that were taking place.

There was a giant change twenty years ago. You have my sympathies! It's been an exciting and challenging couple of decades. It's been wonderful over the last year to have the opportunity to renew some old friendships with the U.S. electric industry.

PUF's Steve Mitnick: Are there lessons that the energy industry can take from the wisdom that we gained five hundred years ago in the Renaissance?

Chris Kutarna: In thinking about that question, I can't help but think about Christopher Columbus and his discovery of the new world. That is a pretty good metaphor for what's in front of the energy industry. Leadership in this industry now, so much of it seems to be about setting out on brave voyages whose outcome is unknown, right?

That's exactly what Columbus had to do. Find the best history of Christopher Columbus and page through that book, because I imagine that captains of the energy industry today would find it relevant, nodding their heads a lot as they looked at his story. (To understand Columbus, I recommend Admiral of the Open Sea, by Samuel Eliot Morison.)

I've never worked in the energy industry, so I don't know the industry the way someone who works in it has. But I have a broad perspective on how I imagine it is inside the industry now.

I imagine one of the challenges is a kind of culture clash. The clash is between a traditional idea of the industry, which is making investments with very long-time horizons where reliability is one of the most important virtues, and a business and opportunity environment where it seems there's a very different set of leadership skills that are being called upon to thrive. People are now more heavily incentivized to be long term risk-averse.

Text on European Deregulation of Utility Market

There are many industries today that are struggling to learn how to "fail fast" and have a "rapid prototype" culture - all of those buzz words. But perhaps nowhere is the culture clash more difficult than in infrastructure, in utility industries.

Think about it. When Columbus was setting sail, captains had already been sailing the Mediterranean for two thousand years years. A whole generation of captains was already sailing down the Coast of Africa into the Indian Ocean.

These were well-established trade routes. Along these routes, being a good captain meant following existing navigation charts meticulously, managing risk, knowing where the pirates were, knowing where the shoals were. And being a very good follower of the accumulated wisdom of many other voyages.

Columbus, though, needed a very different leadership style, which was to say, "Forget about that. I know I can do what's been done. I'm just going to point the bow of my ship westward and let's see what happens." I imagine that he probably also selected a crew that was willing to take that gamble with him.

That's probably one of the first and most basic parallels. What the electricity industry today must think about is: we need different cultures. We need different groups to navigate different voyages.

The trade routes along the Mediterranean and the African coast - they're still hugely important. But if we also want to embark on voyages of discovery, we're going to need some crews that think differently, act differently, and are measured differently. Otherwise they're just not going to be suited to the task.

Modern energy leaders say, "We know we need to explore distributive generation and we need to work on our smart grid. We will think about how we're going to be less a utility and more of a platform to let customers do whatever they want to transact.

We're going to be the Airbnb of energy, and so on. But at the same time, we also need to maintain the legacy and the reliability. We can't just import startup culture wholesale like they do in Silicon Valley. Our challenge is greater than that."

Ferdinand and Isabella, who funded Columbus' voyage, understood that, and one of the ways they managed that risk is they sent off multiple voyages. They didn't bet the empire on Columbus.

I think making several small bets instead of one big bet has always been a good way to balance the very high risk of trying to discover a new world with the very high reward.

Now, one of the common problems we run into when we start up many different new projects, all of which might lead somewhere different, is we begin to lose sight of the broader narrative. We begin to start things up "just because."

The chief executives that win in this environment will be those who hold onto that broader narrative best. Again, I think of Columbus. As the captain of his ships, how does he maintain his crew's faith that this heading is not crazy. That spending another day, another week, another month going farther along a heading than has ever been sailed before is not suicide. He had a simple narrative. "We know the world is round, right? That means Asia (and her spices) lies not just to the East; it also lies to the West. And if we can be the ones to find that Western sea route, we'll all find tremendous profit." That was the big picture that people were holding on to.

Now it ended up that Columbus didn't find those spices. Instead, he found something else, something very different that in the long run ended up being much more valuable. That probably will happen again today. Wherever we end up, it will not be where we think we're going.

The farther energy executives sail into unknown waters, the more voices there will be telling them to turn back. So, in addition to setting off on these startup voyages, you need to build and maintain a strong narrative about, "Why are we doing all this stuff?" to hold it all together, and to hold together investor confidence. Otherwise...well, on the high seas, mutiny happens.

PUF's Steve Mitnick: Do you cast out a lot of nets and hope for the best?

Chris Kutarna: You set sail and in front of you there's just blue ocean. Where do you go? Do you go anywhere? Do you zigzag? Do you go in circles? There's no map to tell you where you're going to. You don't know the destination. How do you navigate?

That's the question that every business is struggling with now. You look out at that blue ocean and there are these storms and there are hurricanes and it's a complex environment. I think that what successful businesses, really in any industry, are going to find is that when you set sail, it's not about trying to understand all the complexity, to absorb all the data.

We run into analysis paralysis when we're doing that. It's not about just sending ships everywhere, because then we run out of resources. It's about setting a couple of smart rules, and navigating by those.

In Columbus's world, at that time, he had no way, no tool, to measure longitude at sea. It was really hard to know how far he had traveled. He set himself a smart rule that said, "I'm just going to sail west. We're going to sail toward the setting sun. What I know about the world that I do understand tells me that if there's something there, chances are I'm going to hit it, so let's do that."

Every industry is going to have the smart rules that cut through complexity for them, but I think that the successful businesses that cut through, they're going to find it now. We sit back, and we figure out there's a lot in the environment, on the horizon, that we don't understand, but what's a good rule?

Maybe it's that we're going to maximize customer empowerment. Maybe it's that we're going to maximize intelligence or the ability to understand what's on the grid, and what's being used for different things.

Again, different industries are going to figure out what it is, but you must craft those rules, just a couple of rules and say, "We're navigating by that. We don't know, so we've got to make bets," and no, it's not about trying everything.

The big bet is really deciding what's the rule that we're going to navigate by. You live and die by that.

PUF's Steve Mitnick: What do you want to learn next or do next?

Chris Kutarna: That's a question that makes me smile. I feel to some extent like I have been in a writer's cave for the past five years writing this book (Age of Discovery) with Ian Goldin while also writing my doctoral thesis. I had two big reading and writing and research projects at the same time. Now that's done.

Here's another sort of lesson from five hundred years ago. When the maps of the world change, when barriers to discovery fall, it's quite often business that does the first wave of brave exploration. Business leaders figure out what are the new roads and what are the right ways of getting there.

How can we bring back the treasures, the benefits, of these discoveries to everyone else and make it possible for other people to follow in our footsteps? Just think of what's happening on climate change, recognizing that we need to figure out how to decarbonize a lot of our energy generation and to electrify the economy.

You know, at a government level, we can set the stage. But it's really going to take a lot of individual and business enterprise activity, ingenuity, and risk-taking to build a pathway for the rest of society to follow us there.

Market Power & Market Manipulation - PUR Books

We live in this rapidly changing world. One thing we know for certain is that the maps that we carry around in our heads to navigate that world are becoming a little less useful every day as the real world changes.

History says that the business leaders are the chief cartographers of the new world. In my modest way, I think I want to take part in that. I think that one of the first things I need to do, having spent five years as a writer, is raise my digital IQ, get myself to Silicon Valley or another place, where a lot of the digital reconstruction of society is happening and just understand it a bit more.

Five hundred years ago, if you wanted to become a leading artist in the Renaissance, you had to get yourself to Florence. That one city produced more famous artists than the rest of Europe combined. That's because although ideas flow everywhere and people can travel everywhere, the resources and the special skills and the special culture that generates innovation, tend to concentrate in specific places.

My next step is to find my Florence in the digital realm or the technological realm. Raise my digital IQ. Just be a student. Work someplace where I can learn a lot and then continue to think, "Okay, how can I help? How can I help be a cartographer of this new world we live in?" That's what's next for me.