Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: Can you give an example of a customer where you showed up, and maybe describe the circumstance of their data or their systems or something. Then what you did, what the process is of establishing and building the ontology, which is I think a very good, appropriate, but fancy word for mapping reality onto a system versus jamming reality into a preexisting system. And then what sort of transformation that enabled at that customer that would have been impossible with the former system? Just bring it to life with like a simple example.
· Shyam Sankar
[00:00:00] S1: Two things I just want to put down that will make this make more sense. The first is that we want to make software that makes you more different, not more similar. We think about it as alpha, not beta. The second thing is that we are a wildly inductive company. We would never show up to a customer with some preconceived notion of – this is the aerospace ontology. I'm gonna pick an aerospace example in a second here. It's rather all the values and understanding what makes your aerospace company different than all the others. How do I make you more different there? That's the differentiation you're competing on. When we first came to Airbus, Airbus was in the midst of ramping the A350. The A380 was a wonderful plane, structurally unprofitable program. So the A350 was this bet that the whole company was effectively riding on in 2015. The first time you make an airplane, you're always going to have issues. There's a learning curve to the production. And one of the most important things to figure out as quickly as possible is, what is an issue that is just a nonconformity, like "Hey, I'll give this guy some training and he'll learn how to figure it out. It's teething pain, it'll go away." And what is a recurring issue that is actually a design defect that I need to go work with my suppliers, or upstream? How quickly you can solve that becomes fundamental to the shape of the ramp and the cost of the ramp. The first thing we did is we just started sitting with users on the final assembly line in Toulouse. These are wrench turners effectively. And understanding, hey, what makes your life suck? What's hard about this? What's the challenge in working on these nonconformities? Basically, they're going through Excel. They're looking at reports in SAP, trying to figure out, how do I bucket all of these issues that are coming in? So we just helped them automate all of that. And the ontology at that point was really related to parts, sequencing of work, defect rates, everything related to quality. Once you had this immense quality asset though, you were able to pivot it to realize, okay, now I'm up the learning curve. It naturally leads to the next problem, which is production planning. So quality to production planning to then in service. Now you have the greatest data asset possible for this tail.
· Shyam Sankar, Patrick O'Shaughnessy
As this plane enters service, how do I help maximize the uptime of this asset for my customers? How am I gonna compete against the other aerospace manufacturer? That's the natural evolution that we see with most customers. You start with one problem, but of course they exist in the context of this connected decision chain. [00:00:00] S0: What's the difference between dealing with military customers and government customers, which you did for a long time, and commercial customers?
· Patrick O'Shaughnessy, Shyam Sankar
[00:00:00] S0: What's the difference between dealing with military customers and government customers, which you did for a long time, and commercial customers? [00:00:00] S1: There's a lot more non-market forces in the military. The military is the only institution in the world that profoundly divides up supply and demand. The beating heart of most companies is that integration, that sales and operation planning process. You have the combatant commands, we call them, that deal with real world events. If you're fighting Russia, that's the European command, EUCOM. And then you have the services, like the Army, Navy, Air Force, Space Force, et cetera. Their job is to man, train, and equip. That's the supply side. You have a group that has no responsibility for demand, essentially deciding what to build, how much to build, how am I gonna man, train, and equip this? And then they present these forces to the combatant commands and say, this is what you have to solve this problem. That adds an additional level of complexity. So if the demand side says, hey, I really want this, this is the capability we need, they can't buy it. So how do you kind of square that? So I think you have all these other non-market forces to deal with. But I think one of the things that is really advantageous to being both a commercial and government-oriented company is that the intrinsic rewards on the government side are so high, so motivating. It enables you to get through and solve really hard problems in a way that is kind of like a rising tide for the whole business.
· Patrick O'Shaughnessy
[00:00:00] S0: How would you define the state of our military today? I know it's a big question, but it's an important question. You've gotten to see so many sides of it and serve many aspects of it. How would you describe the state of the U.S. military?
· Shyam Sankar
[00:00:00] S1: We are the best military in the world. Our uniformed service members are better than we deserve. Actually, I had someone tell me, "Hey, when are you going to stop being shocked at how good this E4 is at building this app or doing this thing?" It's like, the amount of talent is eye-watering. I think we encumber them in a lot of process. We deprive them of a lot of agency. And I certainly have a lot of critiques of the bureaucracy. But I think the structural challenge we have is actually something that we just need to observe from a distance from the military we have today, per se, which is the whole point of the military is to deter our adversaries from conflict. If you look back over the last 10 years, we've not been able to deter a lot of conflict. We had the annexation of Crimea in 2014. The militarization of the Spratly Islands – after they told President Obama we will not militarize it, they militarized the Spratly Islands. We've had a pogrom in Israel. We've had the invasion of Ukraine. We have unprecedented gray zone phase zero operations by the Chinese in the South China Sea. I would say arguably in the last year we've started to restore deterrence. Whatever you think about it, Midnight Hammer was a massively deterring operation. Maduro was massively deterring. You have it on multiple levels. With Midnight Hammer, it's obviously the overwhelming strength, the precision of what we're able to do, the incredible complexity of the operations. No other military in the world could have done that. But we need to view that as a single strike and the deterrence capability against a peer adversary is can you generate that strike every single day until the enemy submits to your will? You think about Maduro, it also shows our capability, like literally the raid happened the day the Chinese were in town. Maduro has all these Chinese and Russian weapons, Venezuela, and they don't seem to work at all. And that sends a very strong message to everyone else who thinks that their security is coming from buying Chinese and Russian weapons. Now, I think we trace back – and this is what I really wrote about in the 18 Theses. So if we start, we say we've lost deterrence. Let's be clear eyed about that. In the last year, we’ve started regaining it. What happened? Because we had it for a long time.