Real AI Transformation Costs HALF of Everyone's Salary for 2 Years | Chris Blackburn, Liatrio

28:30And it really raises awareness to the folks of what this looks like and where their challenges are at in the org. You know, kind of maybe taking a sidestep, though, is I think that the AI one that's going on right now, like, I actually love it. I don't think that many organizations are seeing true bottom line or system improvement with AI. But I feel like everybody sees that it has to happen here soon. And at least that's giving them time to experiment and try things out and learn from it. So I think AI is more than just like, if it's just a catalyst today, a catalyst to change management for efficiency sake, to look at the end to end system, I think that's super successful.

29:12But so anyways, going all the way back to our numbers, if our average customer is operating at 5 % to 6 % efficiency, which means they're doing three or three and a half hours of value added work in a given week, you could leverage that with AI or you could look at expanding that. And I think that's where a big focus is at is let's expand that opportunity so people are doing more value. I mean, remember, the value is the fun work, too. If you're a builder of a system, you don't want to be sweeping the floors or servicing the drill bits or welders and stuff like that. You want to be building the product.

29:44So increasing the time that they get to spend on value-added tasks and then add the second dimension of leverage through technology and AI to it is what our primary focus is across the board. This starts leading into so many different other areas, though, that's really complex is, you know, looking at the end to end system, you start wanting to cut parts of the system out to improve the flow. And today that means cutting out a lot of existing practices and bureaucracy and handoffs that were there for a reason where you kind of wanted a human in the loop to validate, to confirm, to align, to coordinate and all of that.

30:21And I think that part's going to be difficult, but I think that's going to be where the biggest opportunity space is at with AI is to reduce the human in the loop on everything there. So almost that you're always in approval, you're always being coordinated, you're always being organized and all of that. I think that's where a huge opportunity is going to be. And I think ultimately that's going to mean more people are going to move into jobs that have been considered individual contributors, more builders, more people that are actually value producers versus the overhead. And that means, in my mind, likely a shrinking in the organizational hierarchy, less middle management.

31:03And this gets back into the passion part of it and all that as well, where this is a real spaghetti system for sure is, do people that made their way into management want to go back into being an individual contributor, knowing that's where the only place where true value is created? I think there's going to be a hierarchy for a bunch of people that sit on top of individual contributors and become the player coaches and the motivators and all of that type of stuff to the team where you're actually leveraging your skills to the broader team. But on average, I think it's going to be a significant reduction in that hierarchy and the coordination in the middle layer there for sure.

31:42And I think that's going to be a very interesting thing to go through. You speak to a lot of CEOs or C-suites, and I know you've been critical of, you know, there's a lot of talk about AI transformation, but as you said, a lot of it's on the margins. when you go into an organization what's what's your process uh and what are the the things that you see over and over again that despite the uh the ambition people are doing wrong yeah uh yeah so you're you're you're absolutely right is you know i think in any technology we saw this in the in the devops space is that you know devops was a purity thing to start with and then all of a sudden the term got overused and everybody was doing DevOps and DevOps kind of meant nothing.

32:36And I think that that's just an unfortunate reality of our industry. The same thing happened with Agile early in the days and all of that as well, right? So it's like, are you doing the actual behaviors and the systems that kind of align to that guide and all of that? So you're right. I see, a dozen news articles a day about an organization transforming with AI or deployed 30 ,000 seats of chat GPT. So we have enabled the organization on AI. And there's a major disconnect of what that really means. Now, is that a step in the right direction? Absolutely it is. Does it mean you're transformed? Absolutely not.

33:18And depending on how you define transformation, you could think of it in a very small subset, or you could think about it across the entire organization. I tend to think about it across the organization, which means I see very few organizations, if any, that are truly transformed, but they should be on the journey of transformation in general. So to your question, what do we do? How do we come in? When I talk to C-suite executive leaders and all of that, the number one problem I find is they personally are so disconnected from the work on the ground. And this again goes back into the Toyota production system and lean manufacturing and all that is, are they walking their factory floor?

34:00And I don't believe they are in almost any case. And I think that's going to be one of the biggest enablers of what the future is. Because otherwise, all they're doing is they're getting a delivery of a message through the hierarchy from the bottom to them. And you know, it just gets rosier and rosier as it goes up type of thing. And so they just want to believe that they're doing all the right things. But I think if executive leaders start walking the factory floor, talking to the operators, the individual contributors, the builders of software, the builders of the system overall, they'll really start understanding how far away they are from the utopia state or whatever they're trying to go after.

34:39So we encourage a ton of that. We encourage leaders to get involved in it. there was a book out from McKinsey called Rewired or something like that. It's a few years old, actually. And it says in there that they believe that the CEO should have something between two and four days a month of focus on the transformation. That's a significant commitment. And I don't think many places are doing that at all. And if it means that the CEO should have that much, then down a layer should be even more in all of that. And I just don't think there's enough of a commitment towards the transformation. I don't think there's enough of an understanding of what it truly means to change.

35:20I don't think there's enough of spending time on the shop floor and looking at value stream mapping and other things like that to see where bottlenecks are in the system. So that's what we do is we come in and we talk through that and we talk about why that's important and all of that. And then we start encouraging organizations to start looking at what they're doing, how it's working, where bottlenecks and handoffs and struggles are at in the organization, and then find a small area of motivated people that are excited about it, that can go after this and make a change and use it as a kind of use case, a starting example of what this can look like across the organization.

36:01And that's what we usually do. That's what we do as Leatrios, we either guide them on their mission to start or we do it with them. And I think the doing it with them is something that's very unique for us is, you know, you said this a minute ago about BCG as an example. And I look up to them in a lot of ways for certain. They advise and now they build. And I think what's important for us is we advise and build with. And that's the most important thing is we don't build for, we build with. And do I think building for is important in some areas? Absolutely. It's just not a focus for us. Our goal is to enable the organization.

36:38So we want to come in on products where they want to build with so that they are uplifting and guiding their org. And I think that just helps a lot of the parts of the organization that are being challenged. Yeah. And so you put engineers into the organization while you're there to understand the processes and it's it's not uh you know sitting in a boardroom and and talking about you know the problems that they're having that's exactly it absolutely so yeah we deploy engineers and consultants uh in the same way and they're they do the same thing just as at different layers in the organization as the engineers will get right into the system of building uh see where the struggles and difficulties are at.

37:29I mean, we see it at every customer we go into, how long it takes us to get a client laptop and get access and get into their building system and source control management. It's just bureaucracy after bureaucracy over there type of thing. So that's what the engineers do. And the consultants immediately get into, all right, let's start seeing how you're doing planning and coordination and organization and how you're enabling your teams and all that. So it's immersive. And that's what we want to do more than anything is not, have a group of people that are assessing and then giving boardroom feedback.

38:01We want to have a group of people that are doing. So our consultants and our engineers or our builders do the work so that they could report back on the struggles and the challenges inside the organization to then build a strategy and help them build a game plan for changing that. Yeah. You know, you're talking about collapsing the hierarchy and having the CEO on the shop floor. Organizations resist change. I mean, there's, you know, people naturally, whenever changes in the wind kind of retract to protect their turf. So how do you get through to an organization? Yeah, it's not easy and it's not just like a simple kind of playbook to do it.

39:02You know, every organization is unique. It's unique in some way of, you know, where they're doing well at, where they're struggling, you know, what has come in and allowed them to do things in a better way or not. The culture of the organization. We go into some organizations that are like so friendly. They even call it like friendly to a fault. Friendly to the point where they can't give each other feedback and things like that. So you walk in and you're like, wow, everybody's really excited and really motivated here. And then they can't tell anybody else the truth or changes and things like that.

39:36We go into organizations where, you know, feels very political and political games and all of that. Our approach is the same every single time. We're just going to embed in there. We're going to show you all what we have learned through, you know, many, many other customers and how we've made them work, how we've had experience in the outside industry. and just start applying that to the organization in their unique case. And we see this all the time. I'm sure every other consulting firm on the planet sees this a lot as well, is it depends on where you start out on the org. You could get inside of a business unit or a team or whatever it is and have success in that team and then be blocked or challenged by the larger part of the organization as well.

40:23But our goal is always that we are never going to be blocked forever. We're going to see the block and then we're going to work a way up the organization to try to challenge those other aspects of it. And bring people along on the journey is the most important part is the worst thing we could do is be one part of the organization where we run into, I don't know, let's say a architecture review board or something like that that slows down the system and then just go tell them what's wrong with it. we would want to go over to that organization, ask them to come over to our shop floor and walk it with us and show, like, see what we're going through and ask them to partner with us on what this can look like in a better, you know, more efficient way for the outcomes that we want to go after.

41:05And it's really just bringing, trying to bring everybody along on the journey. I don't go into very many organizations at all. I wish I could say zero, but I don't go into very many organizations at all where I believe there are actually people in there that are trying to harm the system. Everybody believes they're in there to try to make the system better for sure, but they're there because of something that has happened before. And if my role isn't here, what if you know that that time we didn't review the code goes live again and we have a data problem or something like that? And so they put all these systems in place for things that have happened in the past, instead of trying to build that from the ground up.

41:45And, you know, this is what things like continuous delivery and all of those aspects we're trying to do back in the day is build a lot of those fundamentals and the expectations into the platform, into the pipeline so that it flows through there. I think the same thing is going to happen now. It's just, it's people understanding the end-to-end system, seeing where they can improve it, walking the shop floor so they understand it and being excited and motivated about the change for for the increased productivity and outcomes of that organization. Yeah. How do you get a handle on an entire organization?

42:23I mean, a lot, there's a lot of talk of digital twins. I mean, and, and do you, do you go in and, you know, investigate audit or whatever and then put together a plan and present it to the c-suite or do you go in and and and just start operational operationalizing your ideas uh sort of incrementally yeah and i mean one of your people sent over the analogy of uh uh like uh you know i used to live in asia these fig trees that they're vines that take over a tree and then they drop air roots and they build a new tree around the old tree the old tree and the center eventually dies a strangler fig pattern yep absolutely yeah so how do you uh how do you do that is that you know you you you make a plan and present it and then execute it or is it more organic that you're just changing things from inside?

43:37Yeah, I think it really depends. It depends on the customer. It depends on the opportunity that we are going after there. As a smaller boutique firm, I wish we got invited in by the C-suite to say, hey, help us transform. But that's not the reality. As a smaller firm, what we do is we get in and show success that becomes noisy, becomes excited, that works its way up the hierarchy and we get invited in to talk about bigger and bigger things. That's been our journey forever type of thing. To answer your question, it's actually changing right now quite a bit and changing with the dynamic of the excitement around change and transformation and all that, that I think that we haven't seen in a long time, is typically the way that we have done in the past is we come in underneath an initiative of something where they want to do something specific and the outcomes of it.

44:30And we build with them. We build a platform, applications, whatever it is for them that they want from us. And we show them how to do it in a different way. And we always do our assessment while doing. Another four-letter word of consulting is assessment. And it's like, pay a bunch of money for them to give you a PowerPoint presentation. And we just don't want to do that. We want to build something. And while we're building it, it's easy for us to assess the organization and then give a recommendation for change and how you would scale that through an org. You said it to begin with. I mean, these are humongous organizations.

45:06Our average customer that we go into has 5 ,500 people in technology and 12 layers of hierarchy. That's the average. So we have plenty of other ones that have tens of thousands of people in there. Changing an organization of that size is a, you know, significant task over many, many years type of thing. Our goal is to truly just build the momentum and excitement for that. You know, our goal with we leave every customer is, are they on the transformation journey without us, is where we ultimately want to get to, is where we want to see our customers succeed through that. So, you know, yes, that's not just six months.

45:44That's usually, you know, the order of years to get them on that journey, but that's where we want to leave them. To your question about, this idea of the strangler fig tree, the strangler fig pattern that we've been talking about. It was an old architecture pattern. The idea was almost like the either mainframe or monolithic application is don't try to rewrite the entire monolithic application at once is how do you just pull off bits and pieces of it? Maybe even keep the old one running while the new one's running and validation and verification between the two. And then when you could shut down small pieces of the old monolithic application, you could run it in new services outside of that.

46:25We've actually been applying that same thinking and we're calling it either strangle the enterprise or strangle the organization. We believe that because things are moving so quickly right now and how hard it is in change management for these large complex organizations to truly operate in a new way is what we try to do is strangle away a part of the organization and literally build a net new division or business or practice inside the org that has as little restriction in the old way of operating as possible. You know, we call it like a tax-free zone as an example. The reality is, is any size organization, you will never get tax-free.

47:05But is it like low tax zone where you don't have all of the existing expectations and bureaucracy and things like that in there? But more than anything, it's to get the people, the customers' people over to the new organization and have them have the freedom to act and operate in a new way. So we've started to see quite a bit of success in this so far is when you just say, hey, we're building a new org over here. And day one, the org is one person. And what does that mean that we're going to do differently in this new and modern world? Well, some of the first things we would do is we would have very small teams.

47:43You know, this idea of two pizza teams historically in the past, I don't know what a two pizza team really is, but our customers we're in, that's like eight to 15 people. That's a ton of people. New teams in this new modern world, I believe are two or three person teams where they have autonomy, where they understand the customer, where they work really closely there. So is this a product owner that is hands-on plus a couple of builders? I think so in a lot of cases, right? And so you would start with literally a three person team, and then you could build up a second three-person team next to them.

48:18And then maybe you need a platform team to support it or whatever it is, but you slowly just start pulling pieces over rather than just saying, hey, this giant group of people, you're going to start acting and operating in a new different way. And we've seen a ton of success in this already and where it scales really quickly over there. Now you got to be cautious. You don't want to just grab people and bring them over and don't have them understand the new ways of acting and operating. And this is where I think enablement and uplift is really important. And I, you know, another challenge I think is going on right now is, you know, how much investment do you really have to put in the people for them to be part of this new way of operating?

48:57One of the most frustrating things we do is when we go into organizations and we talk about AI uplift or AI enablement, and we have different service offerings that range from a couple of weeks all the way up to a couple of months in time. And the most frustrating thing I here is, oh, no, you know, like we were hoping for something for like a couple of hours. And it's just like the feeling of, oh, my gosh, do you not understand how much is in front of you? And OK, maybe all you have is budget for a couple of hours to start with. And that's better than nothing type of thing. But really need them to start thinking so much bigger of what the what is needed for these organizations to transform.

49:34So going back to the strangle the organization, that's something that's really important to us as well is when we bring people over to the new org that's going to act and operate in a modern way, they go through an uplift. They go through some of our service offerings that are deep and detailed for weeks or months to have them learn about the new ways of acting and operating in a modern AI first, small organization, small team, quick iteration, fast feedback style way of acting and operating. Yeah. And you mentioned, you know, budget and whether they're, you know, an organization is willing to commit the people you advise them to commit to this kind of transformation.

50:17So what does real transformation actually cost? Is it spread out over years so you're not demanding too much? I think we're still figuring it out, but I'll share some kind of information that's right in front of us. But I want to maybe preface all of this with, I believe that the potential of AI is so great that spending lots of time, lots of energy and lots of resources should almost be looked at as a strategic advantage to learning on the journey that's going to come our way. is we have this new technology and you look at it and you say, I understand this could be significant, but we don't exactly know how to get there today right now.

51:05And spending just time and almost just R &D for no real ROI to start with, I think is an okay activity right now. I know that's hard to justify. I'm sure every CFO on the planet will hate me saying that type of thing, but I think it's a real thing for certain. Here's what we are seeing, and we practice what we preach as well. And so, you know, what's unique about Liatrio that we always try to push is our people are constantly learning. They are constantly trying net new things. We spend a ton of time, we always have since the beginning of Liatrio, we spend a ton of time on all of our people to make sure they have time to improve, learn, and practice new ways.

51:47Real early on in Liatro's history, we built a program called Flywheel. And Flywheel meant we were going to pull our deployed engineers and consultants off of the customer for a week, a quarter, and have them try new practices, technologies, and techniques to improve and then go back to the customer with those new skills. It gets them out of the, you know, customers' ways of acting and operating, almost frees them from that. So right there alone was four weeks a year that we were spending on this, right? That's not nothing. That's a significant cost, especially for a consulting firm where that means we're not billing that time and all that as well.

52:26And we had done that forever. And we see the value to our customers where our engineers and consultants are always sharp and they're always learning the latest and greatest. I think just again today, things are just on hyperspeed. is if you go away and get deep into a customer for six months, it's almost like being under a rock for six months, you would come out and the world would look nothing the same at all. So we're spending even more time on that. We have an internal program of AI fluency that we build that we call Forge. And the Forge is somewhere between two and six weeks per person on our team that we just invest in.

53:04is we take our people and run it through this program here because, and I think our folks are already starting at a higher level. You know, if this is a zero to 10 or whatever, our folks are already at a four or a five and we spend two to four weeks on having them go through the system to get even higher than that. If you're starting at a zero or a one, you know, if you're just a pedestrian user of ChatGPT or something like that, you have a long ways to go. So it's more than just the individual. It's the system. So what does transformation cost? We've been doing this in a couple of different customers now, some very large engagements and like a just like wet finger in the air rule of thumb to me is to transform an organization into modern ways of working with AI is you are likely going to spend the equivalent of everyone's salary over a two-year period.

53:58So if the average employee is$150 ,000 a person, take that and divide that over two years for everybody inside the organization, those dollars are huge. I mean, that's like, you know, seven, 800 person team is like$100 million. These numbers are absolutely insane. So I think we're going to be going through this big period. And I think CFOs are going to play a big part of this as well, is how do we calculate the ROI? What are we going to do better coming out of the end of it? And I think this is unique to every organization as well. There are plenty of organizations out there that could do a lot more.

54:38They could have more digital products and digital services. So I think the sale there would be like, hey, our team is going to be modern. And with the same size team, we're going to do four times as much. But I don't think every organization is like that. I think there are plenty of organizations that don't have uncapped potential, uncapped opportunity for product. And they're likely going to have to look the opposite way for, we're going to do the same amount of output with one fourth of the team size or something like that. And I understand that's scary. And that's, you know, not something that we want to talk about.

55:11I do believe, I'm just so excited about the future and so positive with the belief that's going to get there is that there's going to be so many more new jobs, so many more new companies. And hopefully that passion part of it will allow people to go work in an industry or in a job or whatever that is much more passionate to them. But going back to the question, wet finger in the air is take the entire total cost of compensation for your organization and you're going to run that, divide that in half. And that's what you're going to spend for a couple of years in a row for sure. and it's a tremendous number.

55:46Yeah. One of the things that struck me about your reading about you guys, that you're tool agnostic. You're not tied to one ecosystem. And if you have AWS come in, they have a consulting arm. They're going to sell AWS products and services to your organization. So do you have partners or how do you decide? And this is also goes to sort of the internal education, sort of ongoing education. It's hard for any of us to keep up with the research, let alone the applications and the tools that are coming off the research. So, yeah. Can you talk about that? Just where do you look for solutions? yeah uh yeah at the beginning we are tool and kind of product agnostic for sure um i believe that there's a lot of tools that we would maybe recommend against and things like that but you know you're talking about the major cloud service providers and all of that first of all every large enterprise has all of them almost to begin with you know what i mean different pockets of their organization and things like that you know they they mostly all use uh some of the greatest software delivery platforms, GitHub, GitLab, and other things like that.

57:13So we usually come in and say that, hey, what you have today is likely going to work. And let's build upon that and learn from that until we get challenged and say, maybe something else can be better. And that's one of the biggest things as well is if you get people into this kind of continual learning and continual assessment and continual trial thing is, and you build your system, all your systems where things can be swapped out and are not so hard quoted to a single platform. I think that's going to be something that's going to be really huge in the coming years. I would be scared to death to sign three and five year term commitments to a lot of these providers of any sort right now, because I think things are changing so rapidly.

57:57And what's probably going to happen is you're going to go from one to the other, then back to the first one and to a net new one and all of that. And that just makes an organization comfortable with change. And I think having comfort with change is probably one of the most important things that they could do. And if you build the organization and the systems comfortable with change, I think that's really, really critical. On the partnerships, Tati, we have a few partnerships. I think that if you look at a lot of smaller consultancies. I think a lot of them get started and get built through relationships as partners and that's totally fine.

58:35That's their approach. But I think that it just kind of sends you in one direction and then you're kind of beholden to the partner. And I don't like that. I don't want to be beholden to them. I want this to be a win-win-win scenario. If our customer can win first and foremost, and as the tool or product provider and Liatrio can win, that's what I want to have and I want to make sure that everything works in that direction. And that's not always the case. I will say, especially now things are moving so quickly, some of the newest tools and things like that that are coming out there, the folks are much more partner focused for benefit of the customer.

59:15I think back in the day when you were selling seats or licenses and all that type of stuff, you actually didn't care if the person used the seat or license all that much. You just cared to sell it. And we've heard all the horrible stories of the federal government and how they have hundreds of thousands of seats licenses that aren't even being used. But I think in this new world of tokens and usage and all that type of stuff, I believe those partners are squarely excited and motivated by their customer using more of it. And not more for waste, but more for value. And that's where I think Liastro can play a big picture in there is building that kind of triangle relationship between the customer is going to win first.

59:56And then if the provider and Liatra win because of that, that would be awesome together. So we're seeing a lot more positivity in partnership plays now than we have in the past. Yeah. You know, I've been talking to people about the C-suite and how the C-suite's approaching this. And, you know, it seems to me that a CEO should have a digital twin of his organization connected to a very focused, fine-tuned reasoning LLM that he can brainstorm with alone in his office, ask crazy, stupid questions, and come up with ideas. Do you ascribe to that idea and do you do that yourself? I mean, when you look at an organization, how much do you use AI as a sounding board?

1:00:58Yeah. Great question. And like a million different avenues that I could think about it is, I think that this digital twin idea, this intelligence layer of an organization, kind of all these things are coming together that we're going to learn a lot about here in the near future. Jack Dorsey, CEO of Block, had a kind of a white paper recently talking about where he sees the future of large organizations going. And wow, it was crazy. It's like, you know, this hierarchy of one type of thing is like he thinks that everyone is going to report directly to him. You're going to have like an intelligence layer for middle management and then all individual contributors type of thing.

1:01:42You think about that future and maybe that's like the idea of the vision of where it could go and we'll never end up there, but we'll end up somewhere that's better than what we're at today. But you think about that, you think about the digital twin, you think about intelligence layer across the board. And it's very interesting to think about. I think the complexity is these enterprise organizations are so complex is like, how do you digital twin something that you can't even take a picture of today? Right. And, and I think that that's where maybe it's challenging for that, but can you do that in smaller areas for sure?

1:02:16So maybe not the entire enterprise, but specific groups and teams and all that. And as you improve them and they get more mature or what better connected, uh, you could do that across the entire board. You know, like where do we ever go into an enterprise and they have a CMDB that is completely accurate? And it's like, never, like literally never. And if you don't have a CMDB that is accurate, how are you going to have a digital? Save for listeners what CMDB is. A change management database or configuration management a database it more or less is a definition of all systems and services and uh like how they were put in place to be there so the very simple one is you spin up a new server you put spin up a new vm it goes into the cmdb to be tracked uh for the future so people know why it's there what it's serving uh and all of that and then as you start connecting systems together it builds a map and everything there.

1:03:20I mean, I like since the beginning of my career, I've been on CMDB projects and wanting that to be perfect data. And I think that it's one of those things where, you know, it's got to be almost perfect for it to be valuable and anything less than that, it's just a nuance and it's just in the way. So if you can't have a CMDB, how can you have a digital twin of your organization, which is, which is the people and the teams and the communication boundaries of all of that. So yes, I think that's a vision. And I think that's exciting of where it's to go. I believe you could do less of that. You could do, and we've started to do this inside of our organization where we hook our LLM and some automation and customization we built in there into our entire system.

1:04:09And our entire system is pretty simple, which makes it easier. So Slack, Slack is our digital office. Everything starts in Slack. We have email, we have calendar, we have source control, and we have a dozen other tools. It's really easy for us to integrate all of that together so that our intelligence layer can see an email come through, see a new lead in HubSpot come through, and translate and connect that directly to conversation that's going on in Slack. We also regularly record all of our internal conversations over Zoom and all that. So the transcriptions all captured there. And that's all fed into the knowledge base that gives us so much information.

1:04:49So we do exactly what you were saying. We sit around and not just me, but everybody in the organization. What if this was going on? Like, tell me about bottlenecks in the system. Tell me where we have opportunity because our system is pretty darn well connected. I would not say it is not perfect either because it's so hard to have perfection. You know, you have a phone call with somebody or you have offline conversations or whatever it is. You have a conversation in a private Slack channel that can't make it into the larger knowledge set. And I think ours is pretty good and gives us a lot of that opportunity.

1:05:22And yes, we show that off. We show what that could look like at a large enterprise and what it can mean to them for the future. Yeah. Okay. You