Getting Purpose X and Purpose Y on the Same Team

What is Purpose X and what is Purpose Y? How can we get them in the same room, using fossil fuels and energy policy as an example?

Show Notes

Derek is at derekhudson.ca. 
See full show notes at the Essential Dynamics Wiki.

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Reed: 00:19

Welcome back to Essential Dynamics, a show about the principles of business and life itself. I'm Reed McColm, your good looking host, and I'm here with our Essential Dynamics Chairman, if you will, Mr. Derek Hudson. Derek, how are you today?

Derek: 00:35

Reed, I'm fantastic. And you are looking good, I have to say.

Reed: 00:39

Well, thanks. I know that, but it's nice to hear. Derek, I want to start today with talking about the central dynamics and apply it to things that we the larger issues or the larger businesses, if they're willing, Alberta, where we're taping. Alberta, there's nothing bigger than the energy industry. How does the how do essential dynamics apply to that?

Derek: 01:05

Hey, Reid. That's a great question. Been on my mind a lot lately as I try to continue to understand the principles of essential dynamics. So gonna do three things here with that question. The first is, if you really wanna understand the energy industry, you need to listen to Peter Turzakian's podcast, ARC Energy Ideas.

Derek: 01:24

So Peter, is a former classmate of ours. We were all in junior high together. Really interesting guy. Brilliant guy, and he understands the energy industry like nobody. So we're not I'm not gonna try and do anything that he can do.

Derek: 01:39

So go listen to his podcast. They're fantastic. That's first thing. Second thing, we're just gonna walk through essential dynamics really quickly, and then we'll start digging in on how do the principles of essential dynamics help us understand something as challenging as what's happening in the energy industry in Alberta, which actually has application throughout the world in in different ways. So essential dynamics is basically the idea that for the worthwhile things we do as human beings, it's really fun to think of them in the form of a quest of a grand adventure to solve these big problems.

Derek: 02:14

Sometimes maybe they're not even that big, but the idea is that we we have this purpose in mind, this objective, and we're this, you know, unlikely group of people that's plucked out of reality to go on this adventure. The way I frame that up is there's people walking a path to accomplish a purpose. So the essential elements are people, path, and purpose. And the fact that we face opposition is this idea of dynamic forces. And so as we look at the purpose and the path and the people each in their own way, we have to look at how we deal with opposing forces or dynamic forces.

Derek: 02:54

So as we think about the energy industry, the first thing I would say is that one of the things about essential dynamics is that it's it's fundamentally a systems view of things. It's it's app applied systems thinking. So one of the challenges that we have in looking at the industry is that we tend not to think of the big the bigger system. We tend to think of the pieces of it or particular interest groups or something like that. So if you think if you think about a system, one of the things that we wanna do is we tend to break things down into components, and then we try and make each component better.

Derek: 03:43

So if you have a bunch of people working in a company together, you know, I've been in a situation where people come in and say, well, manufacturing is doing fine and we have a sales problem. And other people say, well, human resources is fine. The people are great, but we have an engineering problem. And we're always gonna do better as we as we define the system, and then we look for what I we call the global optimization. Let's make the system work the best for everything.

Derek: 04:14

So one of the things that we need to do then is we have to think about the system at the highest level possible. And that's Okay. That's really challenging because our confederation is made up of constitutionally two forms of government. There's the federal government and the provincial governments. And provincial governments are given the responsibility to manage natural resources.

Reed: 04:42

Okay.

Derek: 04:43

So the problem is is that we've we've got a Canadian economy. And the Canadian economy is defined by some things like we all use Canadian currency and there are trade barriers and there's, you know, I'll pay taxes federally and there's federal fiscal policy. And so I think we've what we one of the things that we've seen for a long period of time is the system's inability to think big, big picture about the role of the energy industry in the bigger system.

Reed: 05:16

And Okay. Okay. Now rephrase that because that's a big important point that I want to be sure we're all understanding.

Derek: 05:25

So we have a tendency to break systems up and then to optimize our part of it.

Reed: 05:31

Yes.

Derek: 05:31

And that ultimately results in sub optimizing the big system.

Reed: 05:37

I see.

Derek: 05:38

The bigger system. And so if if we think about the Canadian economy, the energy industry is a component of the Canadian economy, which has not been, I think, given its due in terms of appreciating the impact that it has on the Canadian economy. So then you you'll have other forces locally looking at trying to optimize, you know, their part of the economy. We do that even within Alberta. And we we do we don't do as well as we could.

Derek: 06:14

So, you know, one of the things about a pipeline, if if you think about it, is a pipeline connects one part of a system to another part of a system and forces you to think about the system instead of just the components. So, you know, I mean, we're not gonna solve it today, but one of the the challenges that, you know, this is this thinking has created is a situation where we have oil in Alberta that can't get to Eastern Canada, and so we buy oil from The Middle East, ship it to Eastern Canada, use it there. So that you know, just in my mind, there's a there's a basic principle there which we can use in all kinds of things, but is illustrated quite clearly that we're not optimizing the big system. We're optimizing locally or maybe even not maybe even not locally. So that's that.

Derek: 07:05

That's one thing. Let me jump to another one, though, Reed, because I think you'll be able to poke at this one a little bit. And that is in the current challenges that the energy industry is facing in Alberta, we could easily come to a purpose x and purpose y. I think we've even used the energy industry as an example in past episodes. Yes.

Derek: 07:27

And my contention is that we have to get solving purpose x and solving purpose y on the same team.

Reed: 07:37

How do you mean that?

Derek: 07:39

Sure. Thanks for asking. So per let's say purpose x is, to make money, for our economy with the resources that we have now.

Reed: 07:51

Okay. I think everyone can agree that's a good that's a widely accepted purpose x.

Derek: 07:57

And purpose y, you know, and and we could, you know, expand purpose y or think of it a little more narrowly. But purpose y is to make sure that we're sustainable in the very long term, that we have both the energy and the clean air and the climate that we need for our children and our grandchildren and our great grandchildren to enjoy a high quality of life.

Reed: 08:23

And that is where most of the debate resides.

Derek: 08:27

So I you know, and what I why I say purpose x and purpose y have to be we have to be on the same team is just like the other, examples of purpose x and purpose y, you know, we've we've gone over. It's not a question of one or the other. And and there's no it's not an average. It's not a there's there's not a way to sort of mathematically calculate that we're gonna weight these two objectives and get, you know this is just the need for creativity and innovation. And when we separate the two, I think we we don't set ourselves up for being able to get to the best solution.

Derek: 09:11

So somehow we gotta get the interests of the current economy and the interest of the future, not just in the same room, although that would be nice, but on the same team.

Reed: 09:25

Okay. So I'm if I understand you correctly, purpose x to make money and purpose y to preserve a future that is beneficial for all have to be in harmony Well, I for the

Derek: 09:47

Right. Like, so if if, you know, our local economy is devastated, you know, that's not an outcome that we want.

Reed: 09:58

All right. So let's say now our local economy has been devastated by the low price of oil.

Derek: 10:06

Well, don't know that been as devastated as we think. So I haven't talked about this much, but I'm I'm getting excited about this group of CFOs that we've put together. My partner, Anne Anne McTaggart, and I have are developing the unconstrained CFO forum. So we right now, we meet weekly by Zoom, and we talk about common issues. And it just so happens that in the people we've reached out to, we've assembled a group that's got three or four companies that are really tied to the energy industry.

Reed: 10:42

Okay. I just want to insert here. If you want to get in touch with Derek about that particular webcast or meeting, find where find Derek on derekhudson.ca. Is that what we're looking at?

Derek: 10:57

Yeah. Derekhudson.ca. We've actually got a a website for unconstrained CFO coming out, but right now, derekhudson.ca is the best way to find us. So, anyway, in this group, these guys are living it. They're living the the low prices that we've seen for the past few years, the supply challenges that have created, you know, the local low price problem, then there's the global problem with the pandemic.

Derek: 11:23

So they're living it, and they're doing far better in the short term than you would think.

Reed: 11:29

Okay.

Derek: 11:30

And part of that is because they've been operating in a cyclical industry for many, many years. And so they've learned that you don't spend all your money in the good times. And they've learned how to adapt to things in the tough times. And so, you know, one of the things that's maybe this is maybe a bit of a digression, but I I appreciate the question is we have really well run companies in Alberta. And I'll just I'll just share a story about that.

Derek: 12:00

One of the guys on one of these one of these meetings said that they were pursuing an opportunity in the Southern US, a state like Kentucky or Tennessee. I might I might have it mixed up. And when they were presented with an opportunity to maybe build a facility down there, When they met with the local officials, they said, oh, you're from Alberta? Okay. That's good then.

Derek: 12:25

You guys know what you're doing. They didn't really they didn't really do any more diligence about, you know, the nature of this company's operations because, that's the kind of reputation that we have and I think we deserve. So it's not devastated. But if we can't get our product to market, if we have policies which artificially, if you want to constrain our output, then, yeah, our current income that we're talking about is impaired and can be impaired for a long time. I guess another thing is that our the public service is based on our expectations of getting tax revenue from that industry.

Derek: 13:13

So the companies may be able to hunker down and survive, but they're not paying as much tax and their royalties are going down as well. So so there's definitely some challenge with that. But, you know, to your point, which I probably have lost because I've rambled. But to your point, there is a local or sorry. There's a short term income imperative that we can ignore, and there's a long term sustainability imperative, which we also can't ignore.

Reed: 13:40

Which I don't believe the energy companies are ignoring. I mean, GM's recent Chairman Walters' recent policy statement, they just recently came out and said that in a few years, they'll make nothing but electric cars. Do more gas powered vehicles. Isn't that correct? I think that's that would change our focus on how to sustain.

Reed: 14:06

Perhaps we put more energy into making those batteries recyclable than do making I don't know. It's up and down. Who knows?

Derek: 14:18

Sure. It's it totally is, Reed, but you you do highlight one key point, and that is that companies are getting better and better at considering, you know, the purpose why kinds of things. So corporate social responsibility is a big thing. Some companies are actually incorporated as b corps, benefit corporations where legally, they're obligated to look at taking care of their stakeholders beyond the ones that make money, you know, beyond the beyond the shareholders. So there's a lot of that.

Derek: 14:48

And one of the frustrations that I have with some of the stuff we're we're seeing is when purpose x and purpose y are on opposite teams. We Yes. We go to the low end of what we're capable of. And when you get them in the same room, like, for example, a company that's dedicated to both returns for its shareholders and taking care of society, then we get to, you know, we get to our best our best selves and our best performance. So if if essential dynamics can teach us anything, it's that we've got to embrace these opposite obligations that we have and and solve the problems creatively together rather than argue back and forth about which one's important because they're both important.

Reed: 15:34

Okay. Say I'm a person who has some sort of innovation in how oil is delivered or perhaps I have an alternative to oil as a power source, energy source. How do I effectively use the central dynamics to to, I don't know, advocate for my stance?

Derek: 16:00

Hey, Harry. That's a that's a great question. And I was gonna go to something else we may talk about another episode, which is the innovator's dilemma. And and you got to that a couple episodes ago, and it was if you're successful of what you're doing now, how can you break out of that and innovate? So I think you've got a really good point in this one, which is I'm not sure that we're gonna see that kind of alternative energy coming from the mainstream oil and gas industry because they've gotta operate profitably in the industry that they're in, and it's very hard to to step away from that.

Derek: 16:34

But but to your question, if you had a innovative product that was an alternative to the mains the mainstream industry, how would use essential dynamics? And I think one of the places I'd go there would be this idea of drivers and constraints. And I would look at what is going to drive demand for the product that I have. And I would go there first before I thought about constraints. So for example, one of the things about energy is it's one thing to have energy, but it's another thing to distribute to where it's used.

Derek: 17:09

So, you know, we distribute hydrocarbon energy with pipelines. We distribute electrical energy with, you know, transmission grids. And so if you have a alter of energy source, how do you get it to the people? You know, is it, you know, is it batteries on railcars? Is it is it just another electricity source that taps into the grid?

Derek: 17:36

And so, you know, why would people want yours? Like, you know, when when we plug our devices in at home, we don't actually know whether that energy was produced by natural gas, coal, or hydro car or hydropower.

Reed: 17:51

Right. Right.

Derek: 17:52

You know, our solar. You know, we we just don't know because energy can be sourced in multiple ways and then and then it's just moving electrons and it's fantastic and we love it. So I would I would think about what's gonna drive consumption of of my particular product. And so some of the things about corporate social responsibility are that companies want to limit their carbon footprint, and they may be inclined to buy solutions that are slightly less economical in the short term because of the way they contribute to that longer term question. So that's something to look at.

Reed: 18:34

I kids, Derek, there was no recycling.

Derek: 18:38

You know, there's no recycling, and I think the Volkswagen Rabbit that I my dad's brother

Reed: 18:45

that I drove him high school.

Derek: 18:47

You know, I think it probably had worse fuel economy than our ten year old Toyota Highlander does. And the Rabbit that I replaced it with, which is a Volkswagen GTI, has probably five times the horsepower of that old green Volkswagen Rabbit, which you guys know about, and far better fuel economy. You know? And so so there's there's economic reasons why everything gets more efficient. But then when I think when we get ideological, sometimes some of those get lost in in bigger questions.

Derek: 19:21

So I'm always gonna be advocate for high level systems view and for trying to get x and y in the same room. I think that's probably one of the the key messages I have from from that question you asked today. We haven't even talked about the people side, but I think I think we've I think we've illustrated that Essential Dynamics does have something to offer, you know, these really tricky questions.

Reed: 19:48

That's really wonderful, Derek, because I'm gonna hammer that frequently. The x and y, getting them in the same room, that's I really like that that metaphor, if you will, because I keep putting x and y in conflict with one another, and maybe I shouldn't.

Derek: 20:06

I you know, I'd say they're it's dynamic and they're different. But if you think about the yin and yang definition that I've used,

Reed: 20:13

opposing Complimentary?

Derek: 20:15

Complimentary is the word. Right? Complimentary is the word.

Reed: 20:19

Okay. Well, I think that's just tremendous. And I think we've touched on a lot of things today that open up the application of Incentral Dynamics in many interesting and exciting ways. And so I'm going to look forward to our future discussions where we explore that even further. Derek, where can they reach you?

Derek: 20:45

People can find me at derek hudson dot c a. And, you know, based on today's episode, I would really like input on how people see this, you know, my assertion that we need to consider both purpose x and purpose y and get them on the same team with respect to challenging issues like like energy. So I'd love to hear from people. Find me at derek hudson dot c a.

Reed: 21:08

That's a great idea. I really would like would appreciate some feedback as well more than the the letters we've been getting so far, which is comment on my good looks. We'd really like to talk about the the content that we are discussing. Please do join us at derek hudson dot c a. And until next time, consider your quest.