Subscribe
Share
Share
Embed
Join Derek Hudson as he explores Essential Dynamics, a framework for approaching the challenges facing people and organizations. Consider your Quest!
Welcome to Essential Dynamics. I'm Derek Hudson, host of the Essential Dynamics podcast and creator of Essential Dynamics. And I'm really excited to welcome back John Munsell. John, thanks for coming back and, continuing the conversation.
John:Absolutely. Derek, good to be back.
Derek:Yeah. It's it's great to have you. And, I've been thinking about I think the main thing that I got out of our our discussion last time is how important it is for the humans to remain the experts in, in our systems and using AI as a tool. So what I'd like to do in this episode is take you out a little bit of the work that you do and to, take your your knowledge and perspective on this, which I think is impressive, and apply it to a different problem. And and they're kind of related.
Derek:So in in our first episode, you you talked about AI as an opportunity for people to do their jobs better. And, we talked about the fact that ideally what you're gonna see is someone with a particular level of expertise, increase their expertise and effectiveness because they're using this valuable tool. And so we have this tool, it's pervasive, it's all over the place, it's getting less and less expensive. We should use the tool well. So I'm gonna switch it around.
Derek:Let's go into the CEO's office. K. And so the CEO has an organization that, they're responsible for. This is where I'm gonna, share some of my Essential Dynamics thinking with you. We we talked about that before we started recording.
Derek:So essential dynamics is a way of thinking about systems in a very simple but rigorous way. And, what I find is that, really I think the leader's job is to design and operate a system for creating value. And a lot of times the problem with our system is that we have a bunch of different components of the system. They don't all maybe understand exactly what creating value is or what their role is or it's hard to synchronize the level of activity. And, so we we end up breaking things into smaller pieces and then optimizing the pieces.
Derek:And then when we optimize the piece of a system, we don't optimize the system. So that's some of the fundamental thinking. Essential Dynamics didn't invent it, but we're, discovering how to communicate it. So here we have a CEO whose responsibility ultimately is not just to create value in the organization, but to have a system for creating value. So we can do it better and better and better using getting more output for less input and serving customers better and providing for stakeholders in different ways.
Derek:So if the CEO has that responsibility, then they have to have a system view. It's not easy to do and that's part of the work that I do. And with that system view, they need to identify where there's a constraint to value flow in their system. They need to be able to communicate that across the organization and help people realize what's happening so that they understand the leverage points that can really make a difference. And if I wanna apply your expertise to that, my question is, what are we seeing in AI today that's gonna help, that level of thinking about an organization?
Derek:So the CEO does not have a defined repeatable task. The CEO has to deal with massive amounts of information. The CEO has to deal with a whole bunch of people who, you know, if you think about their direct reports and maybe the next level down, are very focused on one part of the business because they're the experts in that. And the CEO is trying to stitch it all together. What's the potential for AI to help with that?
Derek:And where should we be looking?
John:So let me give you our background when working with CEOs. Most CEOs who come to us are not that experienced with AI. And they're they're afraid because they know that people underneath them know it better than them, and they don't know how to lead with that, let alone use it and leverage it and build repeatable systems. They've had their feedback up until now, so they understand how their systems operate. But you have to remember that a good CEO hires excellent people who can deliver so the CEO can operate at a different level.
John:Right? So this is so different that the CEO needs to make sure that everybody underneath him or her understand what AI is and how it is different and how to leverage it. And so honestly, I've had a number of CEOs come to me and say, can you teach me and coach me privately? I need to I need to learn about this. Mhmm.
John:And and they don't even want anybody to know that they don't know. And so, you know, we help them with that. The other thing that I I found a lot of CEOs and COOs are caught up in is the sex appeal of an AI initiative that really has impact. Okay? And if you if you read all the research out there, they'll tell you, you know, 92% of all businesses have adopted AI.
John:When you read the fine print on that research, you realize what adoption means to them. Adoption means to them there is something somewhere in the ether of that organization that has AI in it. It could be that they've got somebody's got Copilot in here. Therefore, we have adopted AI. Or we built this customer facing chatbot in here, and we have adopted AI.
John:Meanwhile, 98% of their employees don't use it. Or if there are 4% or 5% that do use it, they're using it on their own licenses. You know? So in other words, it's shadow AI. Yep.
John:So so what you have is you have this vacuum well, vacuum is probably the wrong word. You have this void of expertise in the organization. And the CEO doesn't have the expertise nor do his or her frontline generals nor do anybody underneath them. So there is no collective density of knowledge in there. And so they take on an initiative.
John:And you might have read about MIT's research that said that 95% of AI initiatives fail fail to generate value. That's because I think they got the diagnosis wrong. They said it was because of poor tool selection. I think that it's because well, think about it. You're familiar with the five whys, right?
John:I don't think they asked five whys. I think they stopped at three. Because I think if they went down a little bit farther, they would realize that, you make a poor tool choice because you don't have enough information. You don't have enough, expertise on your own end to determine what you need, what you want and what it needs to be successful. So we have found that when you train all of your employees to use AI with their own fingertips, use generative AI tools with their own fingertips and try to accelerate their own jobs, you have to teach them.
John:You don't you don't just let them figure it out for themselves. If you let them figure it out for themselves, it'll take you, we already figured, it takes you nineteen to twenty four months to get them at a competent level, which we would call Level five. You can train them to get to Level five, six or seven in two months. Mhmm. The businesses that that train them appropriately, they now they have this density of knowledge in the organization that can give everybody feedback all the way up as to, look, if we do this differently, we can really affect value.
John:Okay? And and that's a massive mistake that businesses are made. They get caught up and somebody says, oh, here's what happened. Somebody some AI developer calls them up and says, hey. I'm an AI developer.
John:I can build an AI application for you. And they go, oh, this is amazing. I can probably generate x million dollars or or save x million dollars by building this particular application, but they don't have anybody in the organization that understands what AI needs to to make that application work. And so they rely on this outside vendor, and then that thing becomes a mess because the outside vendor doesn't really know how to structure the prompts and and the system instructions correctly. And then they they don't structure the model connections so the next time a model is updated, the entire thing breaks.
John:All right? And that's a big problem. So you need internal expertise to understand that. And I'll give you one final example, and then I'll shut up. We're dealing with a company that, I want to say they have 70 employees, okay?
John:The guy came to us and he's the CEO and he said he wanted to go through the training first and he wants to put everybody else through it. And in the training, one of the things that we do is we have them develop what we call a capstone project. So they have to build a tool as an artifact or an outgrowth of going through the training that moves them up to that level six or seven zone. He built this tool that I was looking at. I was like, woah.
John:That's that's pretty pretty amazing. And and he brought it, you know, to our we have these things called office hours. And so he was he was walking us through that. And I'm like, man, that's one hairy prompt. And I said, I don't think you're gonna get that prompt to run, but if you break it apart and put it in the knowledge base and then tell AI to execute on that, that'll work.
John:And all of a sudden, we was like, oh, that really worked. Then he brought it back, and it started working. I'm like, okay. Claude just launched Opus 4.6 at at that particular time. I said, I think if you push this through Claude 4.6 instead of Genspark, I think you might see something even better.
John:Because Claude, you know, going back to the spreadsheet discussion from our last episode, Claude builds a pretty mean spreadsheet. So he built it. And then what he has said is it will generate them several million dollars this year.
Derek:Wow.
John:Here's why. What it what it did is they would get all these RFPs in, and they would look at these RFPs. And they're they're 300 pages long. And they would have to figure out where in that RFP was was what they deliver, and then they'd have to do all sorts of analysis. He said it would take him three to five hours just to go through the RFP to decide whether or not they wanted to respond.
Derek:Yep.
John:And then if if if it did, it would take them three weeks and two to three people dumping a whole lot of time into it, upwards of a hundred hours or so, to determine whether it was a go or no go, and then they would finally prepare one. So most of the time, they would they would spend that first three hours and to go, no. We're not gonna reply. We're not gonna reply. And so literally 90% of the time, they would throw away those RFPs.
John:He's now got it to where he's got a nowhere go a a go or no go decision in twenty minutes, and he's got a full on, basically, response to the RFP in two hours. And so now he's like, instead of, you know, ignoring these, we're responding to three to five a month now, whereas before, we were responding to three maybe a year. Wow.
Derek:And
John:each one of those is at least a quarter of $1,000,000. And he said, so we figured this will add another 2 or $3,000,000. And that is is looking at it differently, and he's the CEO. Okay? So he built the tool himself, which is crazy, but he could have delegated that.
John:But now he's like, okay. I need to get everybody up to speed on this. And and what's going to happen if the CEO came up with that idea? Can you imagine if somebody in all the different departments was using it, they would come up with ideas as well? And as we get into this world of AI agents, that company is gonna go leaps and bounds ahead of their competitors.
John:In fact, his brother is the CFO, and he said, oh, I wanna take this to this group and show everybody what we did. And he goes, no. You're not taking this to anybody because we're gonna ride this one as far and fast as we can before anybody else catches on.
Derek:So so, John, there's a lot in there that I I wanna react to and, sort of tie back to the way we talk on this podcast. So the first thing is some of the comments about 95% of AI initiatives fail and things like that. I was at Pricewaterhouse in the 1990s and it was 90% of change management projects fail, 90% of lean initiatives fail, 90% of business process reengineering initiatives fail. And one of the things that strikes me about AI is it is a lot like those flavors of the month that we're coming and going all the time. The difference is that there's a pervasive technology that we can't avoid.
Derek:So you could have a quality system or an employment or employee empowerment initiative because everyone in your industry was doing it and do a terrible job or not do a job at all and just sort of carry on. And your business wasn't any any better as a result of it. And so hopefully, you didn't get distracted too much. So AI is like that in some sense. It's the flavor of the month.
Derek:The difference is that it's actually something fundamentally different in the way we do our business that's gonna happen to you if you don't do something about it. Is that fair to say?
John:Very fair to say. Mhmm.
Derek:So the other thing that I wanna key on, though, is I find that your CEO example is is great. I really appreciate you sharing it. Tell them congratulations for me because I But think that's what I see there is that the most important use of AI in an organization depends on where your flow is constrained. And so here's an organization, I'm just gonna reflect this back in the way we think about organization. Here's an organization that has to do a whole bunch of upfront work before it decides if it's gonna have a discussion with a potential customer about working with them.
John:Mhmm.
Derek:And there's a 300 page obstacle that they've gotta get through. And so they only do so many. The CEO is doing them himself or is you know, it's done at a very high level because you need this level of experience and understanding. And you can't make more of the CEO's time. And if you do get a new project, then the organization has the capacity to deliver on it or you can get the capacity.
Derek:If you price it right, you can get the capacity. So that's I don't know anything about the organization, but I'm working with a client in a very similar situation right now. That's the limiting factor is the ability to respond to opportunities because there's a lot of upfront cost in responding to the opportunity. So in this case, the CEO said, well, I can automate that, get all of the intelligence that we have and give it to a tool that can make the same decision I would make in did you say twenty minutes? Yeah.
Derek:Twenty minutes for the for the go, no go. And and then it can do a lot of our work for us so that we can, in very little time, submit a proposal for which we can get an order. And then that well, now we have an uptick in the revenue because those are coming in faster. Mhmm. And I would say to our listeners, if you're thinking about, boy, John's got me really excited about the opportunity to do this right and not just make limericks and stuff like that.
Derek:I would say, if you can take some time to figure out where your business growth is constrained or where your ability to deliver quality is constrained, put all your time and attention in getting the right AI tool for that, that will make way more of a difference than automating a bunch of stuff that doesn't deal with that issue because at some point that's still gonna hold you back. Is that fair to say?
John:Yeah. Yeah. Are you familiar with theory of constraints?
Derek:Theory of constraints is a fundamental, foundation for the Essential Dynamics work that I do. I got that. I got a chance to study with doctor Golderat a few times. I went to Tel Aviv to Golderat House. So yes, I'm a little familiar.
Derek:It's good stuff.
John:Okay. Well, one of the guys that has gone through our program, I don't know whether you know him or not, he's one of the top five TOC experts in in the world. He's built his own project management system that identifies constraints. It's focused on the aeronaut aerospace industry primarily. His name is John Thompson.
John:He's a great guy, brilliant, brilliant man. What the reason I bring it up is not to talk about John or brag about him, but what happens when you get as efficient as this other business owner that I was just telling you about? A new constraint appears.
Derek:Exactly.
John:Their their new constraint is is people, ironically enough, because they've now got a a new flow of business, and they can't hire people to execute. So this is where things get kind of interesting because I'm I mean, the more I look at AI and the more, you know, I'm kind of on this bleeding edge where I'm learning about it and and getting terrified of it because everybody says everybody's gonna lose their job, and and you can see all that potential. You know? And and and it's real, but at the same time, you know, they always say, oh, but it'll create new jobs. And but nobody seems to tell you what those new jobs are.
John:And the question is how long before that new job is is gonna be taken over by AI. Mhmm. But at a minimum, in this particular guy's case, he's he has identified a constraint in his value production. He has solved that problem with AI, and it moved into another constraint that he has to address with humans. You know?
John:That, to me, is is a a really interesting thing I had not seen before. Most of the time, everybody's like, oh, we just created excess capacity in the organization. And, you know, I always say, look, you're gonna create excess capacity. The question is what do you do with that excess capacity? Do you sell into it?
John:Or do you reduce headcount because of it? I feel like there there's so much hesitancy in in the market to move on AI that you still have a lot of time. But if you're gonna sit on the fence, that competitor who's like the gentleman I just told you about, he's gonna be so far ahead of you, you will never catch him. Yep. And I would rather be that company than the one that's saying, let's let's just wait and see what happens with this thing.
John:You you don't have that kind of time.
Derek:Yes. Yes. And that's why it's not like, the flavor of the month in the nineties. Because this thing's happening. You know, it's it's happening.
Derek:Okay. So, if if we if we've established we've got a little bit of a common vocabulary and theory of constraints, let me let me finish it off with the with this question for you. And it's I think it's fascinating. I've been thinking about it a lot. So you identified the classic, progression.
Derek:The company finds a constraint. They increase its capacity. And so now, you know, flow starts again, but then they reveal the next constraint. And, so management's job is to deal with those constraints. And so Goldrat said, ultimately, the ultimate constraint of an organization is is the leadership's time and attention because anything they pay attention to, they can fix.
Derek:But they can't pay attention to everything. And so now you have to figure out where to focus. And the way I think about that is there's a system for creating value, and there's a physical constraint in there. It's the market. It's a machine.
Derek:It's not enough people. And then over top of that, there's what I call the metasystem, which is the system for looking at the system. And the metasystem constraint is always leadership attention. And so what can AI do to help with the leadership attention constraint?
John:Well, I think if any leader evaluates his or her week or day or hour, they will see things that AI can take off their plate, which gives them more opportunity to focus on those other things. That's that's the key. I you know, like, I I don't know depending upon the size of the organization, I don't know any CEO that doesn't have an assistant. The the assistant is what makes a CEO great because that that one takes a load off. AI is an assistant in a number of ways if you know how to use it.
John:Like I, for instance, I use AI as I mean, I hate to use the phrase thought partner, but but I have I have certain prompts with a knowledge base of everything about our organization in there. And then I'll have AI challenge me on ideas. And I want to think it through. A lot of times, that might be at night, that might be somewhere else. And I'm gonna throw data at it.
John:I don't know. Like, look. I want you to I don't want you to be a sycophant. I wanna know, you know, what I'm missing. I I I give you a bunch of examples, like transcripts.
John:Transcripts. So when we and we do all of our meetings on Zoom, and if we're not if we're doing them in person, I have a thing called applaud note. I don't know if you're familiar with applaud note, p l a u d. That's a an AI device. It's gonna record the meeting and provide you with a transcript.
John:The problem with every tool out there that will give you a transcript is they're they're just looking at it as what are the to dos out of here, what were the topics of discussion, and how do I summarize. That's table stakes. That's know? But if you prompt AI the right way, I've developed my own analyses for transcripts, I have it looking for nuance in the conversation. I have it looking for opportunity.
John:I have it looking for things that would have escaped everybody's attention and bring it to mind. And what it pulls out is absolutely mind boggling. I mean, it's astonishing. Those kinds of things have developed into more opportunities than than I can shake a stick at. As my my problem is I'm your standard ADD h CEO.
John:Right? ADHD CEO. And and so I can't I can't attend a meeting and take notes because the minute I'm taking notes, I'm not hearing what you're saying, and I'm not engaging with you. I'm I'm concentrating too hard on on making sure I can read this when I'm finished scratching it down. But if I got an AI notetaker, I can be fully engaged in that meeting now.
John:And then if I get that AI notetaker to pull out stuff that I would have overlooked, man, that's that's gold. And so those are those are some of the things that you can use AI to do to enhance your ability and give you more time to see the the bigger picture and to see what's going on. And I like today, for instance, like, I have to do all these expense reports and junk. It's a pain, but what I had to do is somebody said, look. We need to figure out what our Microsoft licensing is and what we're paying for Dropbox and all these other SaaS applications.
John:And we need to figure out, can we get rid of a couple of them? Yada yada yada. Alright. Well, I had just finished doing five months worth of expense reports because I'm that guy who delays. Right?
John:And and so I had them each each one of these things has 70 or 90 line items in them. They're all in spreadsheets. So I just use Claude Cowork, if you're familiar with Claude Cowork. I had Claude Cowork go into that directory and then have, you know, twenty twenty five's expense reports and the two from 2026. I said, I want you to analyze all of these spreadsheets and tell me what the recurring SaaS applications are.
John:Now keep in mind, there are hotel bills in there. There are restaurant bills in there. There are electric bills in there. There are all kind of stuff in there. I said, tell me what the SaaS applications are.
John:Tell me what which ones are monthly, which ones are annually, and and which ones potentially we have canceled and build a reconciliation and and a recommendation. I should show you the spreadsheet it created in in less than forty seconds with, you know, four different workbooks or work worksheets inside the workbook, reconciling it all, telling me what the the things were. Every single one of them, Derek, was a SaaS application. It didn't pull out anything else. It was astonishing.
John:Now I could have handed that to an assistant, and I would have gotten it back in two days. I could have tried to do it myself over the weekend, and I would have not enjoyed my family.
Derek:Yeah.
John:I did it in under sixty seconds, and and it was the most amazing spreadsheet I'd ever seen. Now if my assistant did that, now my, you know, if I trained her how to do that, now she's got more time to do the valuable things that I want. So that whole thing is is a one symbiotic relationship if you know how to use it and you're on top of it. And, you know, this morning, I don't know when this will air, but this yesterday, actually, ChatGPT just launched GPT 5.4 and agentic capabilities in it. And supposedly, it will do spreadsheets as good if not better than Claude.
John:I'm you know, I don't know. I gotta build a big financial model over the weekend. I'll let you know on Monday.
Derek:Okay. Hey. Hey, John. Thanks very much for those specific examples. So I just want our listeners to appreciate that, John's got a vast amount of experience, in helping people use helping organizations use technology to do things better.
Derek:He's training organizations in how to use AI and how to govern the use of AI, which I find really interesting. And he's walking the talk because he just avoided doing, mind numbing. And that hits close to home because it was only a couple of weeks ago that I was doing that for my business. And so but the the attention, I guess, with what I'm saying here is that, there are some small investments we can make that can free up our time to put our attention on the right things. And, one of the things I'm working on, and this is, I've had a podcast episode in the past and we'll talk about it in the future is how to use AI when we're using our attention at its best.
Derek:But it's definitely the right thing to do to use AI to do things that we don't wanna do to free up our attention. So with that, John, how can people find you?
John:So they can go to bazooka.com. That's bizzuka.com, which will give you all kinds of information there. That's where our blog is, etcetera. Or they can go to ingrain.ai, which is how you can learn how to access our book and our frameworks. And the the book is ingrain.ai, which is available on Amazon.
John:Theoretically, this weekend, I'll be working on the audio book that people have been asking me for for months and months.
Derek:Okay. Well, I'm glad you're not doing spreadsheets.
John:Thanks. Don't know whether you're up for it or not, but I am this this whole week, I'm going and quarantining myself in a hotel to write a second book. If people wanna go to ingrain.ai/2026 and tell me they heard about us through your podcast, I will give them a free digital copy of the book when it's released. So that gives me a lot of pressure
Derek:to
John:manage the thing. Right?
Derek:Okay. Well, we'll we'll get that in the show notes as well. This this episode will air the, I mean, what, the third Tuesday in March. Is that right? Or the fourth fourth Tuesday in March.
Derek:So you won't be done by then, will you?
John:No. No.
Derek:Okay. Okay. Good. Good. Alright.
Derek:Well, nothing like, putting a little pressure on you. That's one way to get things moving. So John, thanks very much for the opportunity to talk to you on Essential Dynamics. Two great episodes. I really appreciate it.
Derek:All the best and let's keep in touch. For all our listeners, consider your quest.