June 14, 2025 • 60 mins
In this episode, long time friend of the show, Clark Gilbert joins us to discuss his book 'Anomaly Seeking Research, 30 Years of Development in Resource Allocation Theory,' co-authored with Clayton Christensen and others. Gilbert elaborates on key themes from the book, including Joe Bower's groundbreaking 1970 resource allocation model, and how this framework has shaped decades of strategic management research. He provides valuable insights into the iterative and multi-level nature of resource allocation processes and how they influence organizational strategy. Real-world examples from various industries, including media and academia, are used to illustrate core concepts. The episode also explores the impact of customer dependency and non-consumption on resource allocation and strategy formation. Sponsored by Kyndryl, this episode offers a deep dive into how innovative strategies are developed and executed across different sectors.
00:00 Introduction and Sponsor Message
00:34 Purpose of the Book and Key Insights
01:59 Clark Gilbert's Journey and Joe Bower's Influence
03:21 Resource Allocation Theory in Practice
08:19 Anomalies and Theoretical Insights
09:46 Real-World Applications and Case Studies
18:33 Personal Reflections and Broader Implications
29:04 BYU Pathway and Dual Transformation
31:38 Gary Hamel's Insight on Resource Allocation
32:10 Challenges in Media Transformation
32:38 Digital vs. Analog Dilemma
33:15 Resource Allocation in Practice
36:23 Sales Team Resistance to Digital
38:39 Disruptive vs. Sustaining Innovations
42:24 The Role of Resource Allocation in Strategy
54:42 Non-Consumption and New Markets
58:03 Empathy and Organizational Change
59:15 Conclusion and Acknowledgements
Previous Episode with Clark Gilbert:
https://theinnovationshow.io/episode/clark-g-gilbert-on-dual-transformation/
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Before we start with part two offrom resource allocation to strategy.
This time with the co-author of thisbook, Clark Gilbert, I want to thank our
sponsor Kyndryl, who run and reimagine thetechnology systems that drive advantage
for the world's leading businesses.
With a unique blend of AI poweredconsulting, built on unmatched
managed service capability.
(00:20):
. Kyndryl helps leaders harness thepower of technology for smarter
decisions, faster innovation,and a lasting competitive edge.
You can find Kyndryl atK-Y-N-D-R-Y-L Kyndryl dot com.
Our guest's purpose inwriting this book is twofold.
First, to describe the process bywhich theory is built using an example
(00:42):
of the 35 years of research thatcommenced with Joe Bower's 1970 model
of the resource allocation processthat we talked about in part one.
Second is to familiarize the audiencewith a series of important findings
concerning the management of strategicprocess that enabled researchers to
think about the model in new ways.
(01:03):
He and his co-author hopes thatthe pattern of research process
presented here might provide a commonlanguage that helps us to visualize
independently derived insights onthe resource allocation process.
This episode is from the book thathe co-authored called Anomaly Seeking
Research, 30 Years of Developmentin Resource Allocation Theory.
(01:25):
Which he co-authored with his greatfriend and a gent that we did an entire
series on The Great Clayton Christensen.
It is always a pleasure to welcome friendof the show, and co-author of this baby,
from Resource Allocation to Strategy.
Clark Gilbert, welcome to the show.
Ah, it's great to be back with you, Aidan.
It's always brilliantto have you on the show.
(01:47):
was trying to prevent you from givingaway some of the gold before we came
on air about how this came about, howyou co-authored this with Joe, Yves
Doz, clay, who we mentioned as well.
Give us a little bit of a helicopterview of how this came about.
Yeah, at the time I had just graduatedfrom the Harvard Doctoral program and
(02:09):
I was Joe's latest doctoral studentto, we started looking at all of Joe's
doctoral students and over about a 15year period, almost every other year,
Joe's doctoral students had won thebest paper in the Academy of Management.
How could one person, Joe Bower, haveso many students built their whole
(02:35):
careers over research, under Joe'sinstruction and have so many of them be
recognized to Monda, Tom Eisenman, Don?
So me, clay Christensen, itwas just, back to back to back.
And you know, some of us would liketo think, well, it's 'cause Joe
had really smart doctoral students.
But I think there wassomething to the pattern.
(02:58):
Joe had arrived at a framework in his1970 work around resource allocation that
just a series of us were able to follow onand pick up have unique insights by using
that original lens of resource allocation
, It says on the coverthat, , here's my copy.
(03:21):
From resource allocation to strategyand it said, if you wanna understand
an organization's strategy, don't lookat their formal statement of strategy.
Look at how they allocate resources, andmore specifically, what are the criteria
(03:41):
that shape the decisions around resourceallocation and embedded in those criteria
is the real strategy of the organization.
Joe hit onto that insight.
He mapped how the resourceallocation process worked.
He showed that it wasn't a budget meetingdecision, it played out over time.
(04:04):
It was multi-level.
Joe described it in a way that openedit up intellectually for the rest of
us to come along and start to applyit to other questions of strategy.
With Clay Christensen, Clay tookJoe's research on resource allocation
(04:24):
and showed how customers can capturethe resource allocation process.
and therefore he connected resourcedependency theory to resource
allocation theory, and thatled to the innovator's dilemma.
Don Sull had shown how capitalmarkets could do the same thing.
(04:45):
Tom Eisenman showed how big betsin industry shifts meant that
corporate allocation processes didn'twork as well as entrepreneurial
founded CEO led companies.
And I had used it to show howdependency theory could capture
(05:06):
the resource allocation process.
So every one of us brought new insightsto new phenomenon, and in the book
we call 'em anomalies to the theory.
But it all started with that originalinsight from Joe, that resource
allocation processes shape strategy.
(05:27):
And they aren't one-timeevents, they're a process.
It's not the resource allocationmeeting, it's the resource allocation
process, which is iterative.
plays out over time and it's multi-level.
Amazing man.
I can't believe you pulled that off.
all of my work now is I work withecclesiastical efforts in our church
(05:51):
and I help our universities, but, Ispent so much time in these, theories
and pulling it together I think what wedid in this book is this had happened
organically, but no one had gone backand looked at why did this happen?
How could Joe produce so many?
(06:11):
Award-winning doctoral students.
And yeah, a few of them were geniuseslike Clay Christianson, but other
guys like me, we had a powerful lensto look at problems that gave us
insights that other people had missed.
And the same humility you showed there.
I saw in Joe, I called him the hitmaker because I like, he's like
(06:35):
Simon Cowell picking people inAmerica's Got Talent, you know?
He is like, made so many people who aregreat business leaders, thought leaders,
authors, yourself, clay, Eisenman.
I will say, and all of those peopleyou mentioned, they're bright and
they're talented, but Joe gave usa framework to look at a problem.
(06:57):
That I think the strategyscholars never understood.
And so it gave us a unique insight youhad all these strategy scholars looking
at applied organizational economics and,IO theory, applied to kind of decisions.
(07:17):
And Joe, because he had said,no, it's not a decision.
It's a iterative process of repeateddecisions that's embedded in an
organization that's multi-layers, whereroles are inevitably in conflict and
people have differing perspectives.
And it just, it let a group ofpeople who I think were hardworking
(07:39):
and smart and well-trained.
But on top of that, it gave usa lens to see things that maybe
other people might have missed.
the way I liked you put it in thebook, in this chapter was, it's like
a. Relay race and you're passingthe baton to the next person.
And actually sometimes there'smultiple people running the race at
(08:00):
the same time, running the same race.
And you have this layerkeeping going, going, going.
And that's part of the role is toactually pass that bat on to the next one.
And if the baton falls,that's actually anomaly.
And if you see it not as a failureand you see it as a deviation,
then it can lead to better places.
Maybe we'll say a word on that.
That idea of anomalyis key to this chapter.
(08:22):
Look,
anomaly
seeking research, that idea came fromClay Christiansen looking at a lot
of our work, and he is like, Hey.
What we did is we took anomalies and thenused the lens of the resource allocation
process to look at the anomalies.
(08:43):
So it was like taking Clay's insight aboutanomalies and Joe's, uh, years of work
of mapping how the resource allocationprocess works, when I described Joe,
what Joe did in 1970 was it was like,hey, strategy is not you know, you talk
(09:03):
to the consultants at McKinsey or theMichael Porters of the strategy department
at Harvard and they're like, strategyis like a one-time you do a study.
Joe's like, no, that's not how it works.
Strategy's embedded deep in anorganization and it's multi-layers.
It plays out over time.
It's not a single decision andit's invariably connected to
(09:27):
how resources are allocated.
that was Joe's big insight.
we're gonna use a resource allocationprocess to go in and look at that anomaly.
So that's where Clay's point is, wesee an anomaly Joe's contribution is,
and we're gonna explore it throughthis lens of resource allocation.
And I knew, resource allocation theoryfrom Joe I was working with Clay
(09:54):
why leading firms fail in theface of disruptive innovation.
my anomaly was Clay's theory,the innovator's Dilemma said
the incumbent will never investin the disruptive innovation.
That current customers wouldcapture the resource allocation
(10:18):
process and trap the incumbent firm.
we were looking at theinternet and newspapers.
They weren't missingthe innovator's dilemma.
They knew it was coming.
They could see it loud and clear, and theywere telling everyone, we are committed.
So that was the anomaly.
The existing theory from Clay saidjust miss it and never fund it.
(10:42):
I was seeing newspaper organizationslooking at the internet in a
panic, they weren't missing it.
They were pouring billions into thisnew technology and it wasn't working.
I remember, so that was my anomaly.
And I was looking at it through, youknow, the resource allocation process.
(11:04):
And there were two literatures, Aidan.
One was the, the the psychologist likeKahneman and Tversky, said, in the face
of threat, incumbents become risk seeking.
actually gonna take more riskwhen they feel threatened.
we could see that going onwith the newspaper industry.
(11:28):
But the social psychologist, not thepsychologist, the social psychologist.
So this was like Jane Duttonat university of Michigan.
Her scholarly heritage said No inthe face of threats, incumbents
lock in and become rigid.
(11:49):
And I was saying, wait a second.
These two literatures aresaying just the opposite.
So I had an anomaly.
Psychologists would say fund it,but they'll fund it aggressively.
The social psychologistswere saying they'll fund it,
but they'll be very rigid.
And I was like, okay, none of thesetheories explains what's really happening.
(12:12):
And I remember I was sitting in adoctoral seminar with Clay and Joe
and we were, look, we were readingthe literature on Kahneman, Anderski
and Risk Seeking in, in Threat.
all of a sudden I said, wait a second.
They're talking about different things.
Kahneman and Tversky seerisk as willingness to spend.
(12:38):
And Dutton and Jackson and theircolleagues saw risk as a willingness
to change underlying routines.
And the right there thatday, I said, they're, these
literatures aren't in conflict.
measuring different constructs,threat is creating risk seeking
(12:59):
spending, but it's risk rigidity.
Routines.
And I, that's what led to my, youknow, routine versus resource rigidity.
And suddenly, I, I was sitting inthe doctoral seminar, I hadn't even
collected my data yet, and I'm like, anyidiot from this point on is gonna find
(13:24):
something really compelling in this data.
And that was, it was my eureka moment.
And I knew I didn't have to be assmart as Clay or anyone else because
I had stumbled into an anomaly.
And there was a theoretical wayto explain what was going on.
and that was my eureka moment.
(13:44):
But Clay had it with resource dependency.
that led to the Innovator's Dilemma.
Tom Eisenman with capital markets,Don with customer dependencies.
So each one of us, because Joe had givenus a framework to say, Hey, strategy
is not a moment of decision making.
(14:07):
Strategy plays out over time.
It's multilevel, it's iterative, androles are inevitably in conflict.
And we ended up all seeingsomething no one else had seen.
And it wasn't 'cause we weresmarter or more insightful than
those who came before we lookedat the problem in a different way.
(14:27):
I love what lenses do, the lens of theory.
I remember Clay saying this beforethat everybody's using theories
even though they don't know they arebecause they have a lens or a paradigm,
and it's not until somebody comesalong and challenges that paradigm.
This is what you talk aboutin this chapter, that this
is the Thomas Kuhn stuff.
This is people coming at itfrom a different ways, and
(14:48):
usually it's an outsider.
Yeah.
and if you look at the history of this,Aidan, we were seeing anomalies in
two different ways we were outsidersbecause the strategy literature was
looking at this as a strategic decision.
By a single decision maker atthe top of an organization.
(15:13):
So before any of us got started, we hadalready come at it with a completely
different lens from Joe Bower, whichis the idea of a decision maker at
the top of an organization completelymisses how strategy is really made.
First of all, it happens throughthe resource allocation process.
(15:34):
And second of all, it is notan event, it's a process.
That was Joe, you know, andJoe drew all these charts.
And I just wanna explain it through,implied industrial organization, economics
and I want to put it into a formula.
I watched Joe went in and spent years.
Watching how strategy is made,and he realized it's made through
(15:58):
resource allocation decisions.
They're complex, they're multi-level,they iterate over time and
decisions and information is spreadasymmetrically across the organization.
And that one that, so first ofall, our whole lens to looking at
(16:20):
strategy problems was anomalous tothe strategy theories at the time.
Even today, I have a son going towork at McKinsey and they'll do
all this brilliant strategy work,but we have to remind them, hey.
IT strategy is not a McKinsey projectand it's not a CEO's one-time decision.
(16:46):
Those are important.
they make a big impact, butstrategies play out in everyday
decisions deep in the organization.
That insight led Clay to the innovator'sDilemma led Tom Eisenman into seeing
how big bets had differential impactsdepending on how you were organized.
(17:06):
Tomo Nota showed capitalmarket dependencies.
Don Sull showed customer dependency.
I showed resource versus routine rigidity.
Every one of us gotsomething novel out of that.
But it all started 'cause we were lookingat this in a really different way.
You mentioned there, eisenman'sframing of it, but your framing,
(17:28):
. Cognitive framing becomes important.
Many of our audience, Clark, as you know,were you in the media industry, they were
the change maker trying to drive change.
They met this resource rigidity,threat rigidity, constantly.
one of the reasons I do the show, asyou know, is I want to help people,
give them a language for this tounderstand it a common language.
(17:49):
this is why this book is soimportant, and I don't want it to
get lost to the annals of history.
I love that you're doing this.
'cause we wrote this book reallyfor a largely academic audience and
maybe a reflective strategy thinker.
but what you're doing with these seriesis taking these to a broader audience,
(18:09):
and I think they're really important.
I think it's important for CEOs tounderstand how strategy is made.
I think it's important for headsof organizations to understand how
strategy is made and for consultingfirms, you know, all of the
McKinseys and the BCGs of the world.
If they could understand how strategy'sreally being made inside of their clients,
(18:30):
they would be so much more effective.
And look, even for me inside of areligious organization, I run the Church
of Jesus Christ educational system withB-Y-U-B-Y-U, Idaho BYU pathway, a million
students in our educational system.
But if I think strategies madejust by me and a few others at
(18:51):
the top of the organization,I will miss what's happening.
And the dependencies and the asymmetriesof information, the asymmetries of
decision rights inside the organization,I was in a meeting recently with
one of our leaders in the church,and he said, where will this lead?
and he wasn't concerned just about thedecision that they were about to approve.
(19:17):
and we think these leaders areprophet, seers and revelators, and
he's saying, where will this lead?
And he was saying, it'snot this one decision.
will put in process a series ofdecisions that might change direction
of the church educational system.
And so, I find even in my ecclesiasticalsettings, this is important.
(19:39):
And, and Clay, in his book howwill you measure your life?
did such a beautiful application of Joe'soriginal insight, and Clay said, look,
if you wanna understand an individualstrategy, just like we've done this for
organizations, you know, I'm studyingmedia and Tomo Noto studied cell
(20:01):
phones and clay studied disc drives.
Don Sull, studied the tire industry, andJoe Bower studied the cable industry.
Clay said, what about us as people?
If strategy isn't a single decision, isn'twhat you say your strategy is, but it's
how you allocate resources, Joe said,don't look at, you know, Intel or, , and
(20:26):
see what their CEO says the strategy islook at how they allocate their resources.
sometimes resources is money.
Sometimes resources are the peopleyou hire, but sometimes resources
is how you spend your time.
that was Clay's insight withhow you measure your life.
He just took this work we've donein industries and he said, at
(20:49):
all the Harvard Business Schoolgraduates over a 25 year period.
None of them starts out and says, mystrategy in 15 years, in 20 years,
I'm gonna be estranged from my wife,have no relationship with my children,
be filthy, rich and miserable.
No one started with that.
Maybe there are a few, crazies,but, most people didn't say that.
(21:13):
But Clay said the resource allocationprocess for individuals cause them
to every day , if , their criteriais, I'm gonna do what makes me
feel accomplished and successful.
in the short term, that means Imiss my daughter's soccer game.
I miss anniversary.
(21:33):
I'm up late.
I take another flight on theweekend because it's making
me feel like I'm successful.
the cumulative pattern of those decisionscauses people to drift away from what
they would've said was a real strategy.
the actualized strategy camefrom these everyday decisions
(21:55):
that played out over time.
Joe's students have used that originaltheory around resource allocation drive
insight to industry, evolution andinsight into human behavior and what
really makes people have successfulfamilies and successful lives.
I'm so glad you said that, man.
I was only thinking about this duringthe week about my own allocation of time.
(22:20):
One of the things I did, so I live inIreland, which is famous for alcohol.
Unfortunately.
I don't drink.
And one of the reasons people askme why I don't drink, and I was like
going, I have so few weekends, ifyou think about it with my children
for before they're 18 and they don'twant anything more to do with me.
Certainly not for the whole weekend.
And I was like, and if you're, if you'regoing out on a Friday or you're having
(22:43):
a few glass of wine, you're not yourselfon the Saturday, you're not real, you and
you're not, certainly not whole present.
And then a guy I had on the show,you probably know Paul Nunes, who
wrote the book, jumping the S-Curve.
He said in that book, he quoted,he was a massive Hemingway
scholar and he wrote that there'sthat book, the Sun also rises.
(23:04):
There's a quote where it says, how didyou go bankrupt slowly then quickly?
And it's this kind of slow drifttowards wherever you're going,
but it depends on the decision.
And I'm coming back to the bookhere because one of the decisions
Joe talked about in part one was I.
Take for example, Opel, the companyin Germany and the case study of
(23:25):
that, that the decision did comefrom on top, where this local guy
was asked by his boss, what are yougonna do about the East German market?
And that was it.
And then he took action.
And I'd love you to riff onthat a little bit, Clark.
It's so funny youbrought up the Opel case.
I remember reading, doingthat case just being livid.
(23:48):
I'm like, why is this middle manager inEast Germany setting strategy for the
entire Global General Motors organization?
I'm like, this is crazy.
Joe wasn't saying it's good orbad, he was just saying that's
where decisions are made.
(24:09):
If you understood this about everydaydecisions deepen an organization, then
you can actually start to shape strategy.
some people would read Joe and that Opelcase and think it's deterministic and
that it takes away the agency of thesenior leadership, but the fact that
(24:30):
decisions are dispersed, informationspread across multiple levels, and
these decisions iterate over time.
They don't take away the power of seniorleadership, they should shape how senior
leaders create and manage strategy.
I remember Clay did another case study.
(24:52):
Where a middle manager, deep insideof gm, a country area manager,
is shaping corporate strategyfor the whole organization.
I was like, as a student when Iread that, I'm like, this is crazy.
I'd worked in strategy consulting.
I thought all decisions are madeby the CEO and the consulting firm.
And then, you know, you studyJoe Bower enough and you
(25:14):
see this happens everywhere.
and at first I was frustratedand mad and then I realized, no,
means if A CEO is cognizant ofthat he can shape the context.
one of the things Joe says, and wehighlight in the book, ex Ante Before
Fan, it's impossible to know whichdecisions are strategic and which ones
(25:41):
aren't, and that's what was maddening.
And the Opel case, you didn't know whenyou open up the factory in East Germany
that you were changing the very heartof corporate strategy in General Motors.
But if you know this can happen,then you can, two things.
One is you can create the contextthat shapes strategy and two, you
(26:03):
know, where and how to intervene.
One more example of that fromClay's work was with Intel.
I remember we would teach the Intelstrategy case on the move out of
memory chips into microprocessors.
And, you know, IntelInside came out of that.
You know, tens of billions of dollars.
(26:25):
And this guy who, Andy Grove,the CEO, probably didn't even
know this guy's name, right?
And this guy said, because determinewhat gets space on the manufacturing
floor and what determines thatgross margin per wafer square inch.
And so Andy Grove never made adecision to get out of Drams and
(26:50):
to go into microprocessors, amiddle manager deep inside of,
Intel in the manufacturing floor.
Looked at the data and said, wellgive more space to microprocessors.
They have 60% margins anddrams have 20% margins.
They moved the entiremanufacturing production of
(27:13):
a, you know, what was it then?
$60 billion company from Drams tomicroprocessors without the CEO or the
VP of Strategy ever being involved.
And the MBA students wouldsay, that's brilliant.
Every company should have that rule inhow they allocate manufacturing space.
(27:35):
And then we'd show 'emthe next Intel case.
Intel's trying to get low end microprocessors, Andy Grove's screaming
to everyone, were being disrupted.
By the Asian firms and we gotta knowhow to play in the low end space.
(27:56):
he can't get anyone to change behavior.
it's such a brilliant case studybecause in the, a case the CEO
doesn't do anything and the firmmoves from memory to microprocessors,
billions of dollars of product shiftswithout a CEO ever making a decision.
(28:18):
in the B case, the CEO makesa decision and he can't get
the organization the change.
'cause the low end microprocessors hadlower gross margin per wafer square inch.
The MBA students thought that was abrilliant rule they should have said
no, it's just a rule and it will leadyou to one place or it will , keep
(28:39):
you from going to another place.
and so Joe wasn't deterministic, Aidan.
He said, senior management needs tobe aware that decisions are happening
like that deep in an organization,then they need to lean in deeper in
the organization when those come up.
Because you can't anticipate allof 'em, you have to manage the
(29:01):
context around decision making.
And, you know, I found this with what wedid to create BYU pathway at BYU Idaho.
BYU pathway today, has over 80,000students in almost 200 countries.
But early on, I couldn't get anyoneat BYU Idaho to work on the curriculum
(29:27):
because they thought we started withcertificates and BYU Idaho is like
a certificate that's beneath us.
we're focused on bachelor's degrees.
I had to realize.
can't create the strategy to make thiswork inside of the resource allocation
process that's in the main organization.
(29:49):
So the reason we created, you know,in disruptive technology, you create a
separate group, isn't because they'remore creative or more innovative.
it's the only way to get outside of theexisting resource allocation process.
And I had to create an organization whosaid, we love certificate education.
(30:10):
Give me a job skill certificate,that's the highest and best use
of my time and talent and I'mgonna work on that all the time.
And so it wasn't that I wrote a brilliantstrategy for BYU pathway, I created a
new context where a different resourceallocation process could be built.
(30:32):
Who valued the new product, inthis case, certificates for first
generation and low income students.
And 'cos we created that new context,suddenly it could thrive and grow.
So all the work I've done, you dida session a few years ago on dual
transformation that Scott Anthonyand Mark Johnson and I wrote.
(30:55):
All of that was simply an applicationof Joe Bower's resource allocation
theory and said to create the newcontext for the dual transformation,
you needed to be able to allocateresources in different settings with a
different resource allocation process.
So it's amazing like all of thesescholarly insights and all of this
(31:19):
academic insight that's come, stillgoes back to Joe Power's original
observations about how strategyis really made in organizations.
And you were so instrumental ininfluencing me to do this, man,
because we spoke about it and , Imentioned this idea, and you go,
oh, that would be brilliant idea.
So your little nudge helped me get there.
(31:41):
I'm currently still recording a serieswith Gary Hamel, who, you know, and
Yeah.
covered all Gary's tome of work and I'mon the last book, but he had a great line
that you reminded me of there where youcreated the right conditions for people
to nudge towards the decisions you wantto, the resource allocation that you want.
He said you can't bottle lightning,but you can build a lightning rod.
(32:05):
beautiful.
gravitational pull towards thedirection you want people in.
But I, I wanted to lean into a coupleof things, Clark and, and things
that you would've seen in industry.
So when you were working in mediatransformation in newspapers,
I also worked in media ata decade long career there.
Some of the decisions made.
(32:26):
That was so hard to explainto the organization.
So giving access to your contentto Google and Facebook to
drive your page impressions up.
So access to your sites.
One of the biggest challenges Ihad as the digital guy was digital
diamonds versus analog dollars.
So that, that, that real paradox.
(32:49):
And then the sales guys had so muchof the power, it didn't matter about
strategy, it was all about sales.
'cause they were given the money despitethe iceberg melting and melting, and
them actually turning up the heat.
. Well, I love this 'cause I livedit, you know, it was one thing
for me to write this, you know,this book where I'm looking at
(33:10):
all these theories with Joe Bower.
It was another thing when Ihad to do it in practice and,
But you're right, I used to take a slideAidan where I'd say, here's the resource
allocation process, and inside of thisbox is the finance department, the
product department, and the sales teamAnd they're in the newspaper business and
(33:35):
this digital disruption's coming along andlook at how their strategy is shaped, by
the way each of them allocates resources.
So the finance guy saying, like you said,digital dimes compared to analog dollars.
And they're like.
We don't have enough customersto stack these dimes up.
(33:57):
So I'm not gonna fund the internetbecause it, it can't work in my model.
So, know, the CEO might have said, Hey,the internet's the future, but the finance
guy's saying, there's no way I'm givingmore resources to the internet team.
Right?
And then the product team is like,the highest form of journalism
(34:20):
is a Pulitzer Prize winninglong form piece of journalism.
and people were consuming things soquickly on the internet and sharing
things used to say, in the world ofthe internet, if you aren't the best,
you're a click away from someone else.
But in a printed newspaper, you kind ofwere all things to everyone who subscribed
(34:42):
to you a digital world, if you weren't thebest, they just, wouldn't read my beloved
Boston Red Sox in a Salt Lake newspaper.
They'd go to the Boston Globe site orboston.com and for us, we tried to do
work on faith and the family and poverty.
I'm like, guys, we canbe the best in that.
But they wanted to just do one morestory on every city council meeting.
(35:06):
the product team, you would tell themhey, do short roundups that link off
to other people's content and thenembed our links in other people's.
And they were like, no, no, weare the source and everyone will
come to our site to read it.
And the internet teamknew every story page.
So when you and I open up a webpageand read a news story on CNN or New
(35:29):
York Times, or the London Times, youknow that page I came in, what we
called the side door, I didn't go to,you know, the, the times of London and
say, I'm gonna start on the homepageand I'm gonna read this for 45 minutes.
I came in through a social link inTwitter or Facebook or a Google search.
(35:52):
now that I'm on that one page.
my new homepage.
And so we had to merchandise content onevery story page a totally different way.
and the journalists were like, what?
What are you doing to my page?
You know, why are you puttingall this other content?
So they, they wouldprioritize the internet.
(36:14):
And then the sales guys, I have a storywe tell in the dual transformation book
called The Parable of the 11th Floor.
And I had given all of thesales leads to the internet team
that, that had no print analog.
So if you they didn't buy any print, theprint Salesforce would let that go away.
(36:37):
And we were growing internet saleslike crazy through that channel.
But the print newspapersales team held on.
To all of our traditional clients.
And one of a big traditionalclients of a newspaper for
advertising were car dealerships.
we went in and met with the CEO of one ofthe big billion dollar car companies here
(37:01):
in the Intermountain West, in Salt Lake.
I was there with the head of print'ssales, and I'd been telling him, you
guys aren't prioritizing digital.
And he is like, oh, we throw it in,you know, but they weren't doing it.
And we won the account with theclient and I said, now we'll do
all the print advertising this way.
And who do we talk to aboutthe digital advertising?
(37:24):
And he says, well, we don'tdo any of that on this floor.
It's all done on the 11th floor.
And my head of sales for the newspaperand for the TV station, they didn't
even know where the 11th floor was.
But I can guarantee you autotrader.comknew where the 11th floor was, it
was in that moment where I saidthe sales team just lost digital
(37:49):
sales the print sales team.
And so, but, But it wasn'tthe CEO making the decision.
It was in the finance team, in theproduct team, in the sales team.
You know, every day a salesmanager saying, do I pull out of my
sales bag what I'm familiar with?
(38:09):
What gets a high margin?
What gets me immediate success?
Or do I pull out somethingthat's new and hard to sell?
And, and so the salesperson wouldput, put the digital product le
he'd leave it in his bag and he'dpull out the newspaper product and
that's what he'd sell every day.
Deep in the organization.
(38:29):
Everyday decisions were keepingthe newspaper industry from
ever winning in the internet.
And I had to create anew context for that.
And you know, clay used to tell the storyof the CEO of a medical device company
yeah.
Sono site.
(38:50):
And they're trying to sell adisruptive ultrasound device.
the CEO is trying to promote the newdevice and he is on a sales call with
the sales rep and the sales rep's tryingto sell the big high margin device.
'cause that's, he's used torelationship selling where
every device sold for 200 grand.
(39:13):
the sono site device, you know, theportable ultrasound, it, it sold
for 10 K and 15 k and you had tosell 'em at much more rapid pace
and they were in the sales call.
And, And the CEO saying, takeout the new disruptive product,
and the sales rep won't do it.
(39:33):
And the CEO's like, I'm the CEOand I'm telling him to do it.
This low level sales rep won't do it.
And that's when you realize,oh, Joe Bower was right.
Is made deep inside an organization atall levels iterative decisions over time.
(39:55):
And I'll just tell you one more whereagain, you are, such a good scholar of
clay and disruptive innovation, but Ihope you're seeing like all of this still
goes back to its root insight is Joe
Bower's it.
allocation
why I love Go.
you see how the theory built
it, and a story Clay used to love to tellwas Toyota trying to launch the echo.
(40:19):
echo was a low end disruptive car.
Toyota tried to come out with, andClay tells the story of going to
the Toyota dealership for tryingto buy a car for his teenage son.
and the sales rep, you know, inCambridge, Massachusetts at the
Toyota dealership said, clay says,I wanna see that low end, highly gas
(40:45):
efficient car that's only 15 grand.
And the sales rep's like,well, that's good, but.
you looked at the Highlander, and thesales rep steering him away saying, oh,
the Echo's not a safe vehicle for yourson, you don't know if he can drive.
and yeah, it gets better gas mileage,but the Highlander in its category gets
(41:07):
good gas mile and it's 20,000 more.
But, you know, don'tyou care about your son?
And Clay said some sales rep, you know, ahundred thousand miles away from to Toyota
headquarters, who the CEO will neverknow has control of Toyota's strategy.
(41:29):
It's not deterministic that peoplewould, you know, most people don't get
this insight, but then if they do getthe insight, they say it's deterministic
and the CEO is not in charge.
Well, the CEO just needs to understandhow decisions are made, and he'd say
the resource allocation process willnot let a sales rep in this far flung
(41:53):
location sell the disruptive product.
So I've gotta move it where a resourceallocation process will value it.
And by the way, Toyota eventually createdthe Scion, and so the finance people
could value it, and the product peoplecould be thrilled to make a cheaper car.
(42:14):
a sales channel could be developed thatcould sell cars that were $15,000, right?
And that, that's the insightfrom Clay and Clay's using it.
Now most people today would see itas a disruptive innovation insight,
but the deeper is resource allocationtheory and how it shapes strategy.
(42:36):
I wanted to share Miles.
I shared it with Joe as well.
I, made this image using chat, GPT, butwhere you stand depends on where you
sit is the main finding Rufuss miles.
But I think, this is why I want toshare this so much that the book
was written in an academic sense,but it's so vital to understand from
any position in the organization,including if you're the change maker.
(43:00):
when I worked in media, I studiedyou, I studied Desiree News because
you guys were having so much success.
I wanted to ask that same problemthat they had in Socy, the same
problem you had with the 11th floor.
How did you solve it?
Because how do you get somebody to sellthe Echo when they can sell the Highlander
(43:21):
and get an extra 10% , on 20 K uplift?
I was wondering as well, I don'tknow if you know, I interviewed
Matt Christensen here in Ireland.
I was like, going, I don't thinkhe would've fit in in an echo.
that's right.
Well, you know, Aidan, theanswer is don't solve it.
you create a new context a new resourceallocation process can be built.
(43:45):
Because it will never make sense.
you're asking someone to dosomething defies all logic.
not that, you know, clay's biginsight is sustaining innovations.
It's not innovative versus non-innovative.
It's disruptive innovationversus sustaining innovation.
(44:06):
it's like, okay, a sustaining innovationwill work in this resource allocation
system, but a disruptive innovation won't.
so, rather than try to solve orrather than try to fix this problem
in a system that was designedto solve a different problem.
(44:30):
I'm gonna design a systemto solve this new problem.
And you know, one of thebrilliant insights of clay was
the distinct difference betweensustaining and disruptive.
people had thought allinnovation's the same.
And we just need to teachpeople to be creative and
innovative and have new ideas.
(44:52):
And Clay said, well, you can be creativeand innovative and have new ideas.
And if they're sustaining,they'll work in the system.
Incumbents are really good atsustaining innovation, or you can be
creative and innovative and come upwith new ideas that are disruptive.
(45:13):
And then no matter whatyou do, they won't work.
I could tell you certificate firsteducation would never work for BYU Idaho.
And I had to, ratherthan trying to convince.
Classroom faculty, who are someof the best teachers in the world.
(45:33):
That online learning focusedon certificates was better.
I just needed to move to a new contextwhere I could create a resource allocation
system valued that to begin with.
And in the newspaper, I was wasting mytime to explain to the finance team or
(45:56):
the sales rep or the product team thatthe internet was going to be the future.
actually needed to let them keepmaximizing what we had while it
created a new context for the future.
They're like, I remember I had anoperations professor at Harvard
say to me, Clark, you know, youand Clay just wanna go start new
(46:19):
things over everywhere, you know?
and he is like, you know, we.
Just give it to the operations facultyand we can, we can improve it to
the point that it's good enough.
and I was like, you can improvea sustaining technology in your
current resource allocation system.
In fact, I trust you.
I have total confidence in you.
(46:41):
I had total confidence that I couldget the DESE news to do more, what
we called high-end journalism aroundfaith, family care for the poor.
They were, they were great at that.
And I could get them to do that.
I could get BYU Idaho to find newteaching approaches to classroom teaching.
(47:01):
So it wasn't newness,creativeness, hard work.
That wasn't the constraint.
The constraint was the decision rulewould allow certain kinds of new ideas
and not allow other kinds of new ideas.
And that's the role of seniorleadership is to recognize that.
(47:22):
And then create context that will do that.
in the case of disruptive innovation,what makes it even harder is the
investment in the new is asynchronouslytimed the viability of the old.
And that's why disruption createdthe failure of so many industries
(47:45):
is you were asking people to dothings that didn't make sense.
Like I still have the headof sales in our TV station.
We're great friends.
Even to this day, he is retiredfor now, and I am back in
education, but he believed tohis retirement that I was wrong.
(48:07):
Now he was right for TVsales and TV clients.
But he couldn't have been more wrongabout the future of the internet.
when I realized I need to stop convincinghim he's wrong, I need to let him be
successful in that old world, whereresource allocation decisions reinforce
(48:28):
what he is doing while I go investin the new, in a different context.
and that was the birth of dualtransformation was, I'm gonna let both
evolve in the right times because itmight take 30 years till TV's gone.
But if I don't start investingin the internet now, I'll
never be a player there.
(48:49):
And it might take, and educationcampuses might never go away.
So if I wait to prove to the campusfaculty that online and certificates or
the future, I'll never win that argument.
In fact they're still viable today.
BYU Idaho, where I waspresident, having its largest
(49:12):
enrollment growth in its history.
Meanwhile, pathways more than twotimes the size of BYU Idaho, right?
So it, and the mistake senior leadersmake is I have to change people's logic.
And you're like, their logicworks within that system.
(49:33):
Let it keep working.
if they can innovate withinthat system, let 'em do it.
But don't try to get them to do thingsthat don't make any sense in that context.
And the resource allocation, I hunt whenI create organizational change, I hunt
(49:54):
does the resource allocation system.
Reward the behavior and incentthe behavior we need here.
If it doesn't, I gotta eithercreate something new or it's
broken, then I need to fix it.
Right?
BYU is an R one school.
BYU Idaho is a teaching school.
(50:15):
BYU pathway is an onlinecertificate, first program.
They're all awesome in theirown realm of what they do.
And rather than convince any ofthem that the other one's good
or bad, I just reinforce themin their own resource allocation
decisions and look what it's done.
(50:35):
we now have 150,000 students.
We educate and we do itreally well at each place.
Beautiful.
And I'm gonna link to dual transformation'cause I recorded with Clark before
on the idea of A and B. And I usethis all the time in my work that
you can't, I have two children.
I, I can't show either one thatI love one more than the other.
(50:57):
So you treat them both with the same love
It's like the parent who says privatelyto the one, you're my favorite child.
And then separately to the otherone, oh, we love you so much.
You are our favorite child.
And the truth is, I love all of theuniversities that are under me, but
I love them for what they do, andI don't want them to be each other.
(51:19):
Have you got 10 more minutes?
Yes,
Okay, so the one, I just don't wanna letthis one go, which is in case I don't
get to it, because it was really one ofthe things I learned from Clay's work.
But you worked with him on it was,if I am, say for example, the Timken
case is almost a part of this, is thatyou can become captive to a customer,
(51:44):
but that can totally redirect yourbusiness away and you can miss the gold.
So the echo for example,
Yeah.
the echo example that yougave versus the Highlander.
That the Highlander, the Highlandermodel appeals to a certain somebody
who might be upgrading, but the echoappeals to somebody whose option is
nothing else, which is a non-consumer.
(52:05):
There's customer captivity,but also non-consumption.
Yeah, the, the, andthe customer captivity.
And this was theoretically, I mean, clayclay's disruptive innovations theories
became popularized and everyone knowsit, but the theoretical contribution
to the academic literature of clayhe connected resource dependency
(52:30):
theory that had come outta Stanfordto resource allocation theory.
This idea that the customer takes overand actually controls the way resources
are allocated inside of the organization.
And, when I first read resource dependencytheory, I am a believer in human
(52:53):
dignity and in personal moral, agency.
So when I see things that lookdeterministic, or be Skinnerian
Behavioral, like, you know, Skinner'slike, well humans are just like birds
and rabbits that we can control and test.
and it used to make me mad when Iread resource dependency theory that,
(53:16):
you know, that they had looked atinstitutions and who funded them and
that institutions were beholden to thefunding sources for their strategy.
And I was like, well, yeah, but if I'ma president of a university, I wanna
take the university where I wanna go.
Clay showed that how acustomer outside of the firm.
(53:40):
Can capture the resourceallocation process and really
control the strategy of the firm.
And there's all kinds of implicationsfor this and evolutionary
theory and how species evolve.
and it's always, the new speciesevolves in a place where they don't
have to compete with the old species.
(54:01):
And probably the old species ismost fit for that environment.
and when the world changes, itusually changes at the boundary.
And so new customers show up in thecase of customer dependency and they're
not attractive to the old model.
usually the winners in a disruptivemarket win they found a way
(54:27):
to serve a different customer.
And then that customer grows andthen they move up market and start
taking the bottom of the old market.
Brilliant.
And I mentioned non-consumption as well,which is a. Key concept to understand
within the family of the theories.
(54:50):
Yeah.
look, the industries I've spent so muchtime in, in news, like I lived in Boston
for 10 years and I could never read thenews of my beloved BYU Cougar Sports the
Boston Globe and the internet came alongand I'm, I, up until that point, I'd
(55:11):
been a non-consumer of the desert news.
And suddenly I could read aboutBYU athletics every single day.
I'm a daily consumer of the Desert News,so it's a new consumption use case.
And, but the Desert News is still coveringUniversity of Utah sports and Utah state
sports and the Utah Jazz and all, youknow, and if you live in Utah, that's
(55:34):
great, but suddenly they opened up thediaspora of LDS people all over the world.
And the desert news is reaching peoplein Africa and in the Philippines and
in Boston and they couldn't figure outwhy 70% of their traffic was around
BYU athletics and so little from theother universities because they had
(55:56):
suddenly reached a non consuming market.
and in academia, studentswho go to a campus.
And pursue their degree.
make up more than half of apopulation, but the universities
can't see all the people who needto be educated, who can't come and
(56:18):
there's this huge non consuming market.
And, for them to consume the model, justlike the internet changed the way I could
suddenly consume prior to the internet.
I could, I mean, you could mail me anewspaper, but it's too much money and
too late and too difficult to get it.
Suddenly the new model changed theconsumption behavior and the, when
(56:42):
we created online learning withcertificates out of BYU Idaho,
suddenly people who could nevergo to college became consumers.
Clay had that insight, but he had itbecause of what he learned from Joe
Bower about how resources are allocated.
And Joe could have told Clay long beforewe had the phrase disruptive innovation.
(57:06):
the current resource allocationprocess won't prioritize a
consumer who doesn't exist.
And you needed to create new contextswhere this could actually work.
I think the theory of disruption is oneof the hallmark theories in the last 50
(57:26):
years in academic business scholarship.
But I think few people realize it sits onthe bedrock of resource allocation theory.
Absolutely beautiful.
I have loads more to askyou, but I'm not gonna.
Do that to mind.
'cause you, you put a beautifullittle capstone on it.
Beautifully, beautifully done.
there's so much more, I just wannasay Clark's work, dual transformation
(57:49):
along with his friends that hewrote that book, Scott, Anthony is
an absolute gem of a book as well.
And that, particularly the idea of framingit, and one of the reasons Clark, I
just wanted to so much share this is it.
There's also people in the middle of theorganization trying to drive change and
they're met by rigidity and they thinkit's the person, they blame the person.
(58:13):
and this, what this work does is it givesyou empathy to see miles, laws at play,
Yeah.
rigidities at play, resource allocationprocess and, the theories at play.
And when you see through thetheory, you can almost role play
those situations and try and havea bit more empathy to get inside.
And you might just have moresuccess and less frustration.
(58:34):
Yeah.
And I like what you said,you could have more success.
'cause yes, it will give you moreempathy, but it will also tell you, I
cannot be successful in this context.
I used to tell online managers innewspapers, I'd say, where do you report?
And if you have to go through the verticalfunctions of the legacy organization, it
(58:57):
doesn't matter how smart you are or howhard you work, you cannot be successful
in this resource allocation system.
so it would also give them thecourage to say to their leadership.
I need to be set up ina different context.
And, Aidan, I just, I can't tell you howmuch I appreciate you doing this series.
(59:23):
I think it's really important foracademic reasons, but also for all of
the practitioners who are trying to makegood strategy and lead organizations.
And you do such a good job of thescholarship, but bringing it to the
everyday leader in an organization.
And it's always a delight to be with you.
(59:45):
Always a delight to be you with youauthor of, from Resource Allocation to
Strategy, along with the person we'recelebrating, Joe Bower, Clark Gilbert.
Thank you for joining us.
Thank you.
Nice one brother.
Great to be with you.
Thanks once again to our sponsor,our benefactor Kyndryl, who run
and reimagine the technologysystems that drive advantage for
(01:00:07):
the world's leading businesses.
With a unique blend of AI poweredconsulting, built on unmatched managed
service capability, Kyndryl helps leadersharness the power of technology for
smarter decisions, faster innovation,and a lasting competitive edge.
You can find Kyndrylat Kyndryl dot com.
Before we start with part two offrom resource allocation to strategy.
This time with the co-author of thisbook, Clark Gilbert, I want to thank our
sponsor Kyndryl, who run and reimagine thetechnology systems that drive advantage
for the world's leading businesses.
With a unique blend of AI poweredconsulting, built on unmatched
managed service capability.
(00:20):
. Kyndryl helps leaders harness thepower of technology for smarter
decisions, faster innovation,and a lasting competitive edge.
You can find Kyndryl atK-Y-N-D-R-Y-L Kyndryl dot com.
Our guest's purpose inwriting this book is twofold.
First, to describe the process bywhich theory is built using an example
(00:42):
of the 35 years of research thatcommenced with Joe Bower's 1970 model
of the resource allocation processthat we talked about in part one.
Second is to familiarize the audiencewith a series of important findings
concerning the management of strategicprocess that enabled researchers to
think about the model in new ways.
(01:03):
He and his co-author hopes thatthe pattern of research process
presented here might provide a commonlanguage that helps us to visualize
independently derived insights onthe resource allocation process.
This episode is from the book thathe co-authored called Anomaly Seeking
Research, 30 Years of Developmentin Resource Allocation Theory.
(01:25):
Which he co-authored with his greatfriend and a gent that we did an entire
series on The Great Clayton Christensen.
It is always a pleasure to welcome friendof the show, and co-author of this baby,
from Resource Allocation to Strategy.
Clark Gilbert, welcome to the show.
Ah, it's great to be back with you, Aidan.
It's always brilliantto have you on the show.
(01:47):
was trying to prevent you from givingaway some of the gold before we came
on air about how this came about, howyou co-authored this with Joe, Yves
Doz, clay, who we mentioned as well.
Give us a little bit of a helicopterview of how this came about.
Yeah, at the time I had just graduatedfrom the Harvard Doctoral program and
(02:09):
I was Joe's latest doctoral studentto, we started looking at all of Joe's
doctoral students and over about a 15year period, almost every other year,
Joe's doctoral students had won thebest paper in the Academy of Management.
How could one person, Joe Bower, haveso many students built their whole
(02:35):
careers over research, under Joe'sinstruction and have so many of them be
recognized to Monda, Tom Eisenman, Don?
So me, clay Christensen, itwas just, back to back to back.
And you know, some of us would liketo think, well, it's 'cause Joe
had really smart doctoral students.
But I think there wassomething to the pattern.
(02:58):
Joe had arrived at a framework in his1970 work around resource allocation that
just a series of us were able to follow onand pick up have unique insights by using
that original lens of resource allocation
, It says on the coverthat, , here's my copy.
(03:21):
From resource allocation to strategyand it said, if you wanna understand
an organization's strategy, don't lookat their formal statement of strategy.
Look at how they allocate resources, andmore specifically, what are the criteria
(03:41):
that shape the decisions around resourceallocation and embedded in those criteria
is the real strategy of the organization.
Joe hit onto that insight.
He mapped how the resourceallocation process worked.
He showed that it wasn't a budget meetingdecision, it played out over time.
(04:04):
It was multi-level.
Joe described it in a way that openedit up intellectually for the rest of
us to come along and start to applyit to other questions of strategy.
With Clay Christensen, Clay tookJoe's research on resource allocation
(04:24):
and showed how customers can capturethe resource allocation process.
and therefore he connected resourcedependency theory to resource
allocation theory, and thatled to the innovator's dilemma.
Don Sull had shown how capitalmarkets could do the same thing.
(04:45):
Tom Eisenman showed how big betsin industry shifts meant that
corporate allocation processes didn'twork as well as entrepreneurial
founded CEO led companies.
And I had used it to show howdependency theory could capture
(05:06):
the resource allocation process.
So every one of us brought new insightsto new phenomenon, and in the book
we call 'em anomalies to the theory.
But it all started with that originalinsight from Joe, that resource
allocation processes shape strategy.
(05:27):
And they aren't one-timeevents, they're a process.
It's not the resource allocationmeeting, it's the resource allocation
process, which is iterative.
plays out over time and it's multi-level.
Amazing man.
I can't believe you pulled that off.
all of my work now is I work withecclesiastical efforts in our church
(05:51):
and I help our universities, but, Ispent so much time in these, theories
and pulling it together I think what wedid in this book is this had happened
organically, but no one had gone backand looked at why did this happen?
How could Joe produce so many?
(06:11):
Award-winning doctoral students.
And yeah, a few of them were geniuseslike Clay Christianson, but other
guys like me, we had a powerful lensto look at problems that gave us
insights that other people had missed.
And the same humility you showed there.
I saw in Joe, I called him the hitmaker because I like, he's like
(06:35):
Simon Cowell picking people inAmerica's Got Talent, you know?
He is like, made so many people who aregreat business leaders, thought leaders,
authors, yourself, clay, Eisenman.
I will say, and all of those peopleyou mentioned, they're bright and
they're talented, but Joe gave usa framework to look at a problem.
(06:57):
That I think the strategyscholars never understood.
And so it gave us a unique insight youhad all these strategy scholars looking
at applied organizational economics and,IO theory, applied to kind of decisions.
(07:17):
And Joe, because he had said,no, it's not a decision.
It's a iterative process of repeateddecisions that's embedded in an
organization that's multi-layers, whereroles are inevitably in conflict and
people have differing perspectives.
And it just, it let a group ofpeople who I think were hardworking
(07:39):
and smart and well-trained.
But on top of that, it gave usa lens to see things that maybe
other people might have missed.
the way I liked you put it in thebook, in this chapter was, it's like
a. Relay race and you're passingthe baton to the next person.
And actually sometimes there'smultiple people running the race at
(08:00):
the same time, running the same race.
And you have this layerkeeping going, going, going.
And that's part of the role is toactually pass that bat on to the next one.
And if the baton falls,that's actually anomaly.
And if you see it not as a failureand you see it as a deviation,
then it can lead to better places.
Maybe we'll say a word on that.
That idea of anomalyis key to this chapter.
(08:22):
Look,
anomaly
seeking research, that idea came fromClay Christiansen looking at a lot
of our work, and he is like, Hey.
What we did is we took anomalies and thenused the lens of the resource allocation
process to look at the anomalies.
(08:43):
So it was like taking Clay's insight aboutanomalies and Joe's, uh, years of work
of mapping how the resource allocationprocess works, when I described Joe,
what Joe did in 1970 was it was like,hey, strategy is not you know, you talk
(09:03):
to the consultants at McKinsey or theMichael Porters of the strategy department
at Harvard and they're like, strategyis like a one-time you do a study.
Joe's like, no, that's not how it works.
Strategy's embedded deep in anorganization and it's multi-layers.
It plays out over time.
It's not a single decision andit's invariably connected to
(09:27):
how resources are allocated.
that was Joe's big insight.
we're gonna use a resource allocationprocess to go in and look at that anomaly.
So that's where Clay's point is, wesee an anomaly Joe's contribution is,
and we're gonna explore it throughthis lens of resource allocation.
And I knew, resource allocation theoryfrom Joe I was working with Clay
(09:54):
why leading firms fail in theface of disruptive innovation.
my anomaly was Clay's theory,the innovator's Dilemma said
the incumbent will never investin the disruptive innovation.
That current customers wouldcapture the resource allocation
(10:18):
process and trap the incumbent firm.
we were looking at theinternet and newspapers.
They weren't missingthe innovator's dilemma.
They knew it was coming.
They could see it loud and clear, and theywere telling everyone, we are committed.
So that was the anomaly.
The existing theory from Clay saidjust miss it and never fund it.
(10:42):
I was seeing newspaper organizationslooking at the internet in a
panic, they weren't missing it.
They were pouring billions into thisnew technology and it wasn't working.
I remember, so that was my anomaly.
And I was looking at it through, youknow, the resource allocation process.
(11:04):
And there were two literatures, Aidan.
One was the, the the psychologist likeKahneman and Tversky, said, in the face
of threat, incumbents become risk seeking.
actually gonna take more riskwhen they feel threatened.
we could see that going onwith the newspaper industry.
(11:28):
But the social psychologist, not thepsychologist, the social psychologist.
So this was like Jane Duttonat university of Michigan.
Her scholarly heritage said No inthe face of threats, incumbents
lock in and become rigid.
(11:49):
And I was saying, wait a second.
These two literatures aresaying just the opposite.
So I had an anomaly.
Psychologists would say fund it,but they'll fund it aggressively.
The social psychologistswere saying they'll fund it,
but they'll be very rigid.
And I was like, okay, none of thesetheories explains what's really happening.
(12:12):
And I remember I was sitting in adoctoral seminar with Clay and Joe
and we were, look, we were readingthe literature on Kahneman, Anderski
and Risk Seeking in, in Threat.
all of a sudden I said, wait a second.
They're talking about different things.
Kahneman and Tversky seerisk as willingness to spend.
(12:38):
And Dutton and Jackson and theircolleagues saw risk as a willingness
to change underlying routines.
And the right there thatday, I said, they're, these
literatures aren't in conflict.
measuring different constructs,threat is creating risk seeking
(12:59):
spending, but it's risk rigidity.
Routines.
And I, that's what led to my, youknow, routine versus resource rigidity.
And suddenly, I, I was sitting inthe doctoral seminar, I hadn't even
collected my data yet, and I'm like, anyidiot from this point on is gonna find
(13:24):
something really compelling in this data.
And that was, it was my eureka moment.
And I knew I didn't have to be assmart as Clay or anyone else because
I had stumbled into an anomaly.
And there was a theoretical wayto explain what was going on.
and that was my eureka moment.
(13:44):
But Clay had it with resource dependency.
that led to the Innovator's Dilemma.
Tom Eisenman with capital markets,Don with customer dependencies.
So each one of us, because Joe had givenus a framework to say, Hey, strategy
is not a moment of decision making.
(14:07):
Strategy plays out over time.
It's multilevel, it's iterative, androles are inevitably in conflict.
And we ended up all seeingsomething no one else had seen.
And it wasn't 'cause we weresmarter or more insightful than
those who came before we lookedat the problem in a different way.
(14:27):
I love what lenses do, the lens of theory.
I remember Clay saying this beforethat everybody's using theories
even though they don't know they arebecause they have a lens or a paradigm,
and it's not until somebody comesalong and challenges that paradigm.
This is what you talk aboutin this chapter, that this
is the Thomas Kuhn stuff.
This is people coming at itfrom a different ways, and
(14:48):
usually it's an outsider.
Yeah.
and if you look at the history of this,Aidan, we were seeing anomalies in
two different ways we were outsidersbecause the strategy literature was
looking at this as a strategic decision.
By a single decision maker atthe top of an organization.
(15:13):
So before any of us got started, we hadalready come at it with a completely
different lens from Joe Bower, whichis the idea of a decision maker at
the top of an organization completelymisses how strategy is really made.
First of all, it happens throughthe resource allocation process.
(15:34):
And second of all, it is notan event, it's a process.
That was Joe, you know, andJoe drew all these charts.
And I just wanna explain it through,implied industrial organization, economics
and I want to put it into a formula.
I watched Joe went in and spent years.
Watching how strategy is made,and he realized it's made through
(15:58):
resource allocation decisions.
They're complex, they're multi-level,they iterate over time and
decisions and information is spreadasymmetrically across the organization.
And that one that, so first ofall, our whole lens to looking at
(16:20):
strategy problems was anomalous tothe strategy theories at the time.
Even today, I have a son going towork at McKinsey and they'll do
all this brilliant strategy work,but we have to remind them, hey.
IT strategy is not a McKinsey projectand it's not a CEO's one-time decision.
(16:46):
Those are important.
they make a big impact, butstrategies play out in everyday
decisions deep in the organization.
That insight led Clay to the innovator'sDilemma led Tom Eisenman into seeing
how big bets had differential impactsdepending on how you were organized.
(17:06):
Tomo Nota showed capitalmarket dependencies.
Don Sull showed customer dependency.
I showed resource versus routine rigidity.
Every one of us gotsomething novel out of that.
But it all started 'cause we were lookingat this in a really different way.
You mentioned there, eisenman'sframing of it, but your framing,
(17:28):
. Cognitive framing becomes important.
Many of our audience, Clark, as you know,were you in the media industry, they were
the change maker trying to drive change.
They met this resource rigidity,threat rigidity, constantly.
one of the reasons I do the show, asyou know, is I want to help people,
give them a language for this tounderstand it a common language.
(17:49):
this is why this book is soimportant, and I don't want it to
get lost to the annals of history.
I love that you're doing this.
'cause we wrote this book reallyfor a largely academic audience and
maybe a reflective strategy thinker.
but what you're doing with these seriesis taking these to a broader audience,
(18:09):
and I think they're really important.
I think it's important for CEOs tounderstand how strategy is made.
I think it's important for headsof organizations to understand how
strategy is made and for consultingfirms, you know, all of the
McKinseys and the BCGs of the world.
If they could understand how strategy'sreally being made inside of their clients,
(18:30):
they would be so much more effective.
And look, even for me inside of areligious organization, I run the Church
of Jesus Christ educational system withB-Y-U-B-Y-U, Idaho BYU pathway, a million
students in our educational system.
But if I think strategies madejust by me and a few others at
(18:51):
the top of the organization,I will miss what's happening.
And the dependencies and the asymmetriesof information, the asymmetries of
decision rights inside the organization,I was in a meeting recently with
one of our leaders in the church,and he said, where will this lead?
and he wasn't concerned just about thedecision that they were about to approve.
(19:17):
and we think these leaders areprophet, seers and revelators, and
he's saying, where will this lead?
And he was saying, it'snot this one decision.
will put in process a series ofdecisions that might change direction
of the church educational system.
And so, I find even in my ecclesiasticalsettings, this is important.
(19:39):
And, and Clay, in his book howwill you measure your life?
did such a beautiful application of Joe'soriginal insight, and Clay said, look,
if you wanna understand an individualstrategy, just like we've done this for
organizations, you know, I'm studyingmedia and Tomo Noto studied cell
(20:01):
phones and clay studied disc drives.
Don Sull, studied the tire industry, andJoe Bower studied the cable industry.
Clay said, what about us as people?
If strategy isn't a single decision, isn'twhat you say your strategy is, but it's
how you allocate resources, Joe said,don't look at, you know, Intel or, , and
(20:26):
see what their CEO says the strategy islook at how they allocate their resources.
sometimes resources is money.
Sometimes resources are the peopleyou hire, but sometimes resources
is how you spend your time.
that was Clay's insight withhow you measure your life.
He just took this work we've donein industries and he said, at
(20:49):
all the Harvard Business Schoolgraduates over a 25 year period.
None of them starts out and says, mystrategy in 15 years, in 20 years,
I'm gonna be estranged from my wife,have no relationship with my children,
be filthy, rich and miserable.
No one started with that.
Maybe there are a few, crazies,but, most people didn't say that.
(21:13):
But Clay said the resource allocationprocess for individuals cause them
to every day , if , their criteriais, I'm gonna do what makes me
feel accomplished and successful.
in the short term, that means Imiss my daughter's soccer game.
I miss anniversary.
(21:33):
I'm up late.
I take another flight on theweekend because it's making
me feel like I'm successful.
the cumulative pattern of those decisionscauses people to drift away from what
they would've said was a real strategy.
the actualized strategy camefrom these everyday decisions
(21:55):
that played out over time.
Joe's students have used that originaltheory around resource allocation drive
insight to industry, evolution andinsight into human behavior and what
really makes people have successfulfamilies and successful lives.
I'm so glad you said that, man.
I was only thinking about this duringthe week about my own allocation of time.
(22:20):
One of the things I did, so I live inIreland, which is famous for alcohol.
Unfortunately.
I don't drink.
And one of the reasons people askme why I don't drink, and I was like
going, I have so few weekends, ifyou think about it with my children
for before they're 18 and they don'twant anything more to do with me.
Certainly not for the whole weekend.
And I was like, and if you're, if you'regoing out on a Friday or you're having
(22:43):
a few glass of wine, you're not yourselfon the Saturday, you're not real, you and
you're not, certainly not whole present.
And then a guy I had on the show,you probably know Paul Nunes, who
wrote the book, jumping the S-Curve.
He said in that book, he quoted,he was a massive Hemingway
scholar and he wrote that there'sthat book, the Sun also rises.
(23:04):
There's a quote where it says, how didyou go bankrupt slowly then quickly?
And it's this kind of slow drifttowards wherever you're going,
but it depends on the decision.
And I'm coming back to the bookhere because one of the decisions
Joe talked about in part one was I.
Take for example, Opel, the companyin Germany and the case study of
(23:25):
that, that the decision did comefrom on top, where this local guy
was asked by his boss, what are yougonna do about the East German market?
And that was it.
And then he took action.
And I'd love you to riff onthat a little bit, Clark.
It's so funny youbrought up the Opel case.
I remember reading, doingthat case just being livid.
(23:48):
I'm like, why is this middle manager inEast Germany setting strategy for the
entire Global General Motors organization?
I'm like, this is crazy.
Joe wasn't saying it's good orbad, he was just saying that's
where decisions are made.
(24:09):
If you understood this about everydaydecisions deepen an organization, then
you can actually start to shape strategy.
some people would read Joe and that Opelcase and think it's deterministic and
that it takes away the agency of thesenior leadership, but the fact that
(24:30):
decisions are dispersed, informationspread across multiple levels, and
these decisions iterate over time.
They don't take away the power of seniorleadership, they should shape how senior
leaders create and manage strategy.
I remember Clay did another case study.
(24:52):
Where a middle manager, deep insideof gm, a country area manager,
is shaping corporate strategyfor the whole organization.
I was like, as a student when Iread that, I'm like, this is crazy.
I'd worked in strategy consulting.
I thought all decisions are madeby the CEO and the consulting firm.
And then, you know, you studyJoe Bower enough and you
(25:14):
see this happens everywhere.
and at first I was frustratedand mad and then I realized, no,
means if A CEO is cognizant ofthat he can shape the context.
one of the things Joe says, and wehighlight in the book, ex Ante Before
Fan, it's impossible to know whichdecisions are strategic and which ones
(25:41):
aren't, and that's what was maddening.
And the Opel case, you didn't know whenyou open up the factory in East Germany
that you were changing the very heartof corporate strategy in General Motors.
But if you know this can happen,then you can, two things.
One is you can create the contextthat shapes strategy and two, you
(26:03):
know, where and how to intervene.
One more example of that fromClay's work was with Intel.
I remember we would teach the Intelstrategy case on the move out of
memory chips into microprocessors.
And, you know, IntelInside came out of that.
You know, tens of billions of dollars.
(26:25):
And this guy who, Andy Grove,the CEO, probably didn't even
know this guy's name, right?
And this guy said, because determinewhat gets space on the manufacturing
floor and what determines thatgross margin per wafer square inch.
And so Andy Grove never made adecision to get out of Drams and
(26:50):
to go into microprocessors, amiddle manager deep inside of,
Intel in the manufacturing floor.
Looked at the data and said, wellgive more space to microprocessors.
They have 60% margins anddrams have 20% margins.
They moved the entiremanufacturing production of
(27:13):
a, you know, what was it then?
$60 billion company from Drams tomicroprocessors without the CEO or the
VP of Strategy ever being involved.
And the MBA students wouldsay, that's brilliant.
Every company should have that rule inhow they allocate manufacturing space.
(27:35):
And then we'd show 'emthe next Intel case.
Intel's trying to get low end microprocessors, Andy Grove's screaming
to everyone, were being disrupted.
By the Asian firms and we gotta knowhow to play in the low end space.
(27:56):
he can't get anyone to change behavior.
it's such a brilliant case studybecause in the, a case the CEO
doesn't do anything and the firmmoves from memory to microprocessors,
billions of dollars of product shiftswithout a CEO ever making a decision.
(28:18):
in the B case, the CEO makesa decision and he can't get
the organization the change.
'cause the low end microprocessors hadlower gross margin per wafer square inch.
The MBA students thought that was abrilliant rule they should have said
no, it's just a rule and it will leadyou to one place or it will , keep
(28:39):
you from going to another place.
and so Joe wasn't deterministic, Aidan.
He said, senior management needs tobe aware that decisions are happening
like that deep in an organization,then they need to lean in deeper in
the organization when those come up.
Because you can't anticipate allof 'em, you have to manage the
(29:01):
context around decision making.
And, you know, I found this with what wedid to create BYU pathway at BYU Idaho.
BYU pathway today, has over 80,000students in almost 200 countries.
But early on, I couldn't get anyoneat BYU Idaho to work on the curriculum
(29:27):
because they thought we started withcertificates and BYU Idaho is like
a certificate that's beneath us.
we're focused on bachelor's degrees.
I had to realize.
can't create the strategy to make thiswork inside of the resource allocation
process that's in the main organization.
(29:49):
So the reason we created, you know,in disruptive technology, you create a
separate group, isn't because they'remore creative or more innovative.
it's the only way to get outside of theexisting resource allocation process.
And I had to create an organization whosaid, we love certificate education.
(30:10):
Give me a job skill certificate,that's the highest and best use
of my time and talent and I'mgonna work on that all the time.
And so it wasn't that I wrote a brilliantstrategy for BYU pathway, I created a
new context where a different resourceallocation process could be built.
(30:32):
Who valued the new product, inthis case, certificates for first
generation and low income students.
And 'cos we created that new context,suddenly it could thrive and grow.
So all the work I've done, you dida session a few years ago on dual
transformation that Scott Anthonyand Mark Johnson and I wrote.
(30:55):
All of that was simply an applicationof Joe Bower's resource allocation
theory and said to create the newcontext for the dual transformation,
you needed to be able to allocateresources in different settings with a
different resource allocation process.
So it's amazing like all of thesescholarly insights and all of this
(31:19):
academic insight that's come, stillgoes back to Joe Power's original
observations about how strategyis really made in organizations.
And you were so instrumental ininfluencing me to do this, man,
because we spoke about it and , Imentioned this idea, and you go,
oh, that would be brilliant idea.
So your little nudge helped me get there.
(31:41):
I'm currently still recording a serieswith Gary Hamel, who, you know, and
Yeah.
covered all Gary's tome of work and I'mon the last book, but he had a great line
that you reminded me of there where youcreated the right conditions for people
to nudge towards the decisions you wantto, the resource allocation that you want.
He said you can't bottle lightning,but you can build a lightning rod.
(32:05):
beautiful.
gravitational pull towards thedirection you want people in.
But I, I wanted to lean into a coupleof things, Clark and, and things
that you would've seen in industry.
So when you were working in mediatransformation in newspapers,
I also worked in media ata decade long career there.
Some of the decisions made.
(32:26):
That was so hard to explainto the organization.
So giving access to your contentto Google and Facebook to
drive your page impressions up.
So access to your sites.
One of the biggest challenges Ihad as the digital guy was digital
diamonds versus analog dollars.
So that, that, that real paradox.
(32:49):
And then the sales guys had so muchof the power, it didn't matter about
strategy, it was all about sales.
'cause they were given the money despitethe iceberg melting and melting, and
them actually turning up the heat.
. Well, I love this 'cause I livedit, you know, it was one thing
for me to write this, you know,this book where I'm looking at
(33:10):
all these theories with Joe Bower.
It was another thing when Ihad to do it in practice and,
But you're right, I used to take a slideAidan where I'd say, here's the resource
allocation process, and inside of thisbox is the finance department, the
product department, and the sales teamAnd they're in the newspaper business and
(33:35):
this digital disruption's coming along andlook at how their strategy is shaped, by
the way each of them allocates resources.
So the finance guy saying, like you said,digital dimes compared to analog dollars.
And they're like.
We don't have enough customersto stack these dimes up.
(33:57):
So I'm not gonna fund the internetbecause it, it can't work in my model.
So, know, the CEO might have said, Hey,the internet's the future, but the finance
guy's saying, there's no way I'm givingmore resources to the internet team.
Right?
And then the product team is like,the highest form of journalism
(34:20):
is a Pulitzer Prize winninglong form piece of journalism.
and people were consuming things soquickly on the internet and sharing
things used to say, in the world ofthe internet, if you aren't the best,
you're a click away from someone else.
But in a printed newspaper, you kind ofwere all things to everyone who subscribed
(34:42):
to you a digital world, if you weren't thebest, they just, wouldn't read my beloved
Boston Red Sox in a Salt Lake newspaper.
They'd go to the Boston Globe site orboston.com and for us, we tried to do
work on faith and the family and poverty.
I'm like, guys, we canbe the best in that.
But they wanted to just do one morestory on every city council meeting.
(35:06):
the product team, you would tell themhey, do short roundups that link off
to other people's content and thenembed our links in other people's.
And they were like, no, no, weare the source and everyone will
come to our site to read it.
And the internet teamknew every story page.
So when you and I open up a webpageand read a news story on CNN or New
(35:29):
York Times, or the London Times, youknow that page I came in, what we
called the side door, I didn't go to,you know, the, the times of London and
say, I'm gonna start on the homepageand I'm gonna read this for 45 minutes.
I came in through a social link inTwitter or Facebook or a Google search.
(35:52):
now that I'm on that one page.
my new homepage.
And so we had to merchandise content onevery story page a totally different way.
and the journalists were like, what?
What are you doing to my page?
You know, why are you puttingall this other content?
So they, they wouldprioritize the internet.
(36:14):
And then the sales guys, I have a storywe tell in the dual transformation book
called The Parable of the 11th Floor.
And I had given all of thesales leads to the internet team
that, that had no print analog.
So if you they didn't buy any print, theprint Salesforce would let that go away.
(36:37):
And we were growing internet saleslike crazy through that channel.
But the print newspapersales team held on.
To all of our traditional clients.
And one of a big traditionalclients of a newspaper for
advertising were car dealerships.
we went in and met with the CEO of one ofthe big billion dollar car companies here
(37:01):
in the Intermountain West, in Salt Lake.
I was there with the head of print'ssales, and I'd been telling him, you
guys aren't prioritizing digital.
And he is like, oh, we throw it in,you know, but they weren't doing it.
And we won the account with theclient and I said, now we'll do
all the print advertising this way.
And who do we talk to aboutthe digital advertising?
(37:24):
And he says, well, we don'tdo any of that on this floor.
It's all done on the 11th floor.
And my head of sales for the newspaperand for the TV station, they didn't
even know where the 11th floor was.
But I can guarantee you autotrader.comknew where the 11th floor was, it
was in that moment where I saidthe sales team just lost digital
(37:49):
sales the print sales team.
And so, but, But it wasn'tthe CEO making the decision.
It was in the finance team, in theproduct team, in the sales team.
You know, every day a salesmanager saying, do I pull out of my
sales bag what I'm familiar with?
(38:09):
What gets a high margin?
What gets me immediate success?
Or do I pull out somethingthat's new and hard to sell?
And, and so the salesperson wouldput, put the digital product le
he'd leave it in his bag and he'dpull out the newspaper product and
that's what he'd sell every day.
Deep in the organization.
(38:29):
Everyday decisions were keepingthe newspaper industry from
ever winning in the internet.
And I had to create anew context for that.
And you know, clay used to tell the storyof the CEO of a medical device company
yeah.
Sono site.
(38:50):
And they're trying to sell adisruptive ultrasound device.
the CEO is trying to promote the newdevice and he is on a sales call with
the sales rep and the sales rep's tryingto sell the big high margin device.
'cause that's, he's used torelationship selling where
every device sold for 200 grand.
(39:13):
the sono site device, you know, theportable ultrasound, it, it sold
for 10 K and 15 k and you had tosell 'em at much more rapid pace
and they were in the sales call.
And, And the CEO saying, takeout the new disruptive product,
and the sales rep won't do it.
(39:33):
And the CEO's like, I'm the CEOand I'm telling him to do it.
This low level sales rep won't do it.
And that's when you realize,oh, Joe Bower was right.
Is made deep inside an organization atall levels iterative decisions over time.
(39:55):
And I'll just tell you one more whereagain, you are, such a good scholar of
clay and disruptive innovation, but Ihope you're seeing like all of this still
goes back to its root insight is Joe
Bower's it.
allocation
why I love Go.
you see how the theory built
it, and a story Clay used to love to tellwas Toyota trying to launch the echo.
(40:19):
echo was a low end disruptive car.
Toyota tried to come out with, andClay tells the story of going to
the Toyota dealership for tryingto buy a car for his teenage son.
and the sales rep, you know, inCambridge, Massachusetts at the
Toyota dealership said, clay says,I wanna see that low end, highly gas
(40:45):
efficient car that's only 15 grand.
And the sales rep's like,well, that's good, but.
you looked at the Highlander, and thesales rep steering him away saying, oh,
the Echo's not a safe vehicle for yourson, you don't know if he can drive.
and yeah, it gets better gas mileage,but the Highlander in its category gets
(41:07):
good gas mile and it's 20,000 more.
But, you know, don'tyou care about your son?
And Clay said some sales rep, you know, ahundred thousand miles away from to Toyota
headquarters, who the CEO will neverknow has control of Toyota's strategy.
(41:29):
It's not deterministic that peoplewould, you know, most people don't get
this insight, but then if they do getthe insight, they say it's deterministic
and the CEO is not in charge.
Well, the CEO just needs to understandhow decisions are made, and he'd say
the resource allocation process willnot let a sales rep in this far flung
(41:53):
location sell the disruptive product.
So I've gotta move it where a resourceallocation process will value it.
And by the way, Toyota eventually createdthe Scion, and so the finance people
could value it, and the product peoplecould be thrilled to make a cheaper car.
(42:14):
a sales channel could be developed thatcould sell cars that were $15,000, right?
And that, that's the insightfrom Clay and Clay's using it.
Now most people today would see itas a disruptive innovation insight,
but the deeper is resource allocationtheory and how it shapes strategy.
(42:36):
I wanted to share Miles.
I shared it with Joe as well.
I, made this image using chat, GPT, butwhere you stand depends on where you
sit is the main finding Rufuss miles.
But I think, this is why I want toshare this so much that the book
was written in an academic sense,but it's so vital to understand from
any position in the organization,including if you're the change maker.
(43:00):
when I worked in media, I studiedyou, I studied Desiree News because
you guys were having so much success.
I wanted to ask that same problemthat they had in Socy, the same
problem you had with the 11th floor.
How did you solve it?
Because how do you get somebody to sellthe Echo when they can sell the Highlander
(43:21):
and get an extra 10% , on 20 K uplift?
I was wondering as well, I don'tknow if you know, I interviewed
Matt Christensen here in Ireland.
I was like, going, I don't thinkhe would've fit in in an echo.
that's right.
Well, you know, Aidan, theanswer is don't solve it.
you create a new context a new resourceallocation process can be built.
(43:45):
Because it will never make sense.
you're asking someone to dosomething defies all logic.
not that, you know, clay's biginsight is sustaining innovations.
It's not innovative versus non-innovative.
It's disruptive innovationversus sustaining innovation.
(44:06):
it's like, okay, a sustaining innovationwill work in this resource allocation
system, but a disruptive innovation won't.
so, rather than try to solve orrather than try to fix this problem
in a system that was designedto solve a different problem.
(44:30):
I'm gonna design a systemto solve this new problem.
And you know, one of thebrilliant insights of clay was
the distinct difference betweensustaining and disruptive.
people had thought allinnovation's the same.
And we just need to teachpeople to be creative and
innovative and have new ideas.
(44:52):
And Clay said, well, you can be creativeand innovative and have new ideas.
And if they're sustaining,they'll work in the system.
Incumbents are really good atsustaining innovation, or you can be
creative and innovative and come upwith new ideas that are disruptive.
(45:13):
And then no matter whatyou do, they won't work.
I could tell you certificate firsteducation would never work for BYU Idaho.
And I had to, ratherthan trying to convince.
Classroom faculty, who are someof the best teachers in the world.
(45:33):
That online learning focusedon certificates was better.
I just needed to move to a new contextwhere I could create a resource allocation
system valued that to begin with.
And in the newspaper, I was wasting mytime to explain to the finance team or
(45:56):
the sales rep or the product team thatthe internet was going to be the future.
actually needed to let them keepmaximizing what we had while it
created a new context for the future.
They're like, I remember I had anoperations professor at Harvard
say to me, Clark, you know, youand Clay just wanna go start new
(46:19):
things over everywhere, you know?
and he is like, you know, we.
Just give it to the operations facultyand we can, we can improve it to
the point that it's good enough.
and I was like, you can improvea sustaining technology in your
current resource allocation system.
In fact, I trust you.
I have total confidence in you.
(46:41):
I had total confidence that I couldget the DESE news to do more, what
we called high-end journalism aroundfaith, family care for the poor.
They were, they were great at that.
And I could get them to do that.
I could get BYU Idaho to find newteaching approaches to classroom teaching.
(47:01):
So it wasn't newness,creativeness, hard work.
That wasn't the constraint.
The constraint was the decision rulewould allow certain kinds of new ideas
and not allow other kinds of new ideas.
And that's the role of seniorleadership is to recognize that.
(47:22):
And then create context that will do that.
in the case of disruptive innovation,what makes it even harder is the
investment in the new is asynchronouslytimed the viability of the old.
And that's why disruption createdthe failure of so many industries
(47:45):
is you were asking people to dothings that didn't make sense.
Like I still have the headof sales in our TV station.
We're great friends.
Even to this day, he is retiredfor now, and I am back in
education, but he believed tohis retirement that I was wrong.
(48:07):
Now he was right for TVsales and TV clients.
But he couldn't have been more wrongabout the future of the internet.
when I realized I need to stop convincinghim he's wrong, I need to let him be
successful in that old world, whereresource allocation decisions reinforce
(48:28):
what he is doing while I go investin the new, in a different context.
and that was the birth of dualtransformation was, I'm gonna let both
evolve in the right times because itmight take 30 years till TV's gone.
But if I don't start investingin the internet now, I'll
never be a player there.
(48:49):
And it might take, and educationcampuses might never go away.
So if I wait to prove to the campusfaculty that online and certificates or
the future, I'll never win that argument.
In fact they're still viable today.
BYU Idaho, where I waspresident, having its largest
(49:12):
enrollment growth in its history.
Meanwhile, pathways more than twotimes the size of BYU Idaho, right?
So it, and the mistake senior leadersmake is I have to change people's logic.
And you're like, their logicworks within that system.
(49:33):
Let it keep working.
if they can innovate withinthat system, let 'em do it.
But don't try to get them to do thingsthat don't make any sense in that context.
And the resource allocation, I hunt whenI create organizational change, I hunt
(49:54):
does the resource allocation system.
Reward the behavior and incentthe behavior we need here.
If it doesn't, I gotta eithercreate something new or it's
broken, then I need to fix it.
Right?
BYU is an R one school.
BYU Idaho is a teaching school.
(50:15):
BYU pathway is an onlinecertificate, first program.
They're all awesome in theirown realm of what they do.
And rather than convince any ofthem that the other one's good
or bad, I just reinforce themin their own resource allocation
decisions and look what it's done.
(50:35):
we now have 150,000 students.
We educate and we do itreally well at each place.
Beautiful.
And I'm gonna link to dual transformation'cause I recorded with Clark before
on the idea of A and B. And I usethis all the time in my work that
you can't, I have two children.
I, I can't show either one thatI love one more than the other.
(50:57):
So you treat them both with the same love
It's like the parent who says privatelyto the one, you're my favorite child.
And then separately to the otherone, oh, we love you so much.
You are our favorite child.
And the truth is, I love all of theuniversities that are under me, but
I love them for what they do, andI don't want them to be each other.
(51:19):
Have you got 10 more minutes?
Yes,
Okay, so the one, I just don't wanna letthis one go, which is in case I don't
get to it, because it was really one ofthe things I learned from Clay's work.
But you worked with him on it was,if I am, say for example, the Timken
case is almost a part of this, is thatyou can become captive to a customer,
(51:44):
but that can totally redirect yourbusiness away and you can miss the gold.
So the echo for example,
Yeah.
the echo example that yougave versus the Highlander.
That the Highlander, the Highlandermodel appeals to a certain somebody
who might be upgrading, but the echoappeals to somebody whose option is
nothing else, which is a non-consumer.
(52:05):
There's customer captivity,but also non-consumption.
Yeah, the, the, andthe customer captivity.
And this was theoretically, I mean, clayclay's disruptive innovations theories
became popularized and everyone knowsit, but the theoretical contribution
to the academic literature of clayhe connected resource dependency
(52:30):
theory that had come outta Stanfordto resource allocation theory.
This idea that the customer takes overand actually controls the way resources
are allocated inside of the organization.
And, when I first read resource dependencytheory, I am a believer in human
(52:53):
dignity and in personal moral, agency.
So when I see things that lookdeterministic, or be Skinnerian
Behavioral, like, you know, Skinner'slike, well humans are just like birds
and rabbits that we can control and test.
and it used to make me mad when Iread resource dependency theory that,
(53:16):
you know, that they had looked atinstitutions and who funded them and
that institutions were beholden to thefunding sources for their strategy.
And I was like, well, yeah, but if I'ma president of a university, I wanna
take the university where I wanna go.
Clay showed that how acustomer outside of the firm.
(53:40):
Can capture the resourceallocation process and really
control the strategy of the firm.
And there's all kinds of implicationsfor this and evolutionary
theory and how species evolve.
and it's always, the new speciesevolves in a place where they don't
have to compete with the old species.
(54:01):
And probably the old species ismost fit for that environment.
and when the world changes, itusually changes at the boundary.
And so new customers show up in thecase of customer dependency and they're
not attractive to the old model.
usually the winners in a disruptivemarket win they found a way
(54:27):
to serve a different customer.
And then that customer grows andthen they move up market and start
taking the bottom of the old market.
Brilliant.
And I mentioned non-consumption as well,which is a. Key concept to understand
within the family of the theories.
(54:50):
Yeah.
look, the industries I've spent so muchtime in, in news, like I lived in Boston
for 10 years and I could never read thenews of my beloved BYU Cougar Sports the
Boston Globe and the internet came alongand I'm, I, up until that point, I'd
(55:11):
been a non-consumer of the desert news.
And suddenly I could read aboutBYU athletics every single day.
I'm a daily consumer of the Desert News,so it's a new consumption use case.
And, but the Desert News is still coveringUniversity of Utah sports and Utah state
sports and the Utah Jazz and all, youknow, and if you live in Utah, that's
(55:34):
great, but suddenly they opened up thediaspora of LDS people all over the world.
And the desert news is reaching peoplein Africa and in the Philippines and
in Boston and they couldn't figure outwhy 70% of their traffic was around
BYU athletics and so little from theother universities because they had
(55:56):
suddenly reached a non consuming market.
and in academia, studentswho go to a campus.
And pursue their degree.
make up more than half of apopulation, but the universities
can't see all the people who needto be educated, who can't come and
(56:18):
there's this huge non consuming market.
And, for them to consume the model, justlike the internet changed the way I could
suddenly consume prior to the internet.
I could, I mean, you could mail me anewspaper, but it's too much money and
too late and too difficult to get it.
Suddenly the new model changed theconsumption behavior and the, when
(56:42):
we created online learning withcertificates out of BYU Idaho,
suddenly people who could nevergo to college became consumers.
Clay had that insight, but he had itbecause of what he learned from Joe
Bower about how resources are allocated.
And Joe could have told Clay long beforewe had the phrase disruptive innovation.
(57:06):
the current resource allocationprocess won't prioritize a
consumer who doesn't exist.
And you needed to create new contextswhere this could actually work.
I think the theory of disruption is oneof the hallmark theories in the last 50
(57:26):
years in academic business scholarship.
But I think few people realize it sits onthe bedrock of resource allocation theory.
Absolutely beautiful.
I have loads more to askyou, but I'm not gonna.
Do that to mind.
'cause you, you put a beautifullittle capstone on it.
Beautifully, beautifully done.
there's so much more, I just wannasay Clark's work, dual transformation
(57:49):
along with his friends that hewrote that book, Scott, Anthony is
an absolute gem of a book as well.
And that, particularly the idea of framingit, and one of the reasons Clark, I
just wanted to so much share this is it.
There's also people in the middle of theorganization trying to drive change and
they're met by rigidity and they thinkit's the person, they blame the person.
(58:13):
and this, what this work does is it givesyou empathy to see miles, laws at play,
Yeah.
rigidities at play, resource allocationprocess and, the theories at play.
And when you see through thetheory, you can almost role play
those situations and try and havea bit more empathy to get inside.
And you might just have moresuccess and less frustration.
(58:34):
Yeah.
And I like what you said,you could have more success.
'cause yes, it will give you moreempathy, but it will also tell you, I
cannot be successful in this context.
I used to tell online managers innewspapers, I'd say, where do you report?
And if you have to go through the verticalfunctions of the legacy organization, it
(58:57):
doesn't matter how smart you are or howhard you work, you cannot be successful
in this resource allocation system.
so it would also give them thecourage to say to their leadership.
I need to be set up ina different context.
And, Aidan, I just, I can't tell you howmuch I appreciate you doing this series.
(59:23):
I think it's really important foracademic reasons, but also for all of
the practitioners who are trying to makegood strategy and lead organizations.
And you do such a good job of thescholarship, but bringing it to the
everyday leader in an organization.
And it's always a delight to be with you.
(59:45):
Always a delight to be you with youauthor of, from Resource Allocation to
Strategy, along with the person we'recelebrating, Joe Bower, Clark Gilbert.
Thank you for joining us.
Thank you.
Nice one brother.
Great to be with you.
Thanks once again to our sponsor,our benefactor Kyndryl, who run
and reimagine the technologysystems that drive advantage for
(01:00:07):
the world's leading businesses.
With a unique blend of AI poweredconsulting, built on unmatched managed
service capability, Kyndryl helps leadersharness the power of technology for
smarter decisions, faster innovation,and a lasting competitive edge.
You can find Kyndrylat Kyndryl dot com.
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