Gary Hamel - Competence Based Competition

In this episode of The Innovation Show, host Aidan McCullen welcomes back esteemed guest Gary Hamel, celebrated business strategist and co-author of the revolutionary article on core competencies. They dive deep into the concept of competence-based competition, discussing the origins, importance, and modern applications of core competencies. Gary shares insights from his extensive work alongside CK Prahalad and reflects on how their ideas shaped corporate strategy. Using historical and contemporary examples, including Tesla and HAIER, they explore how focusing on deep skills can lead to enduring competitive advantages. This episode is a must-listen for anyone interested in innovation, strategy, and the future of business in a rapidly evolving world.

 

00:00 Introduction and Welcome

00:23 The Concept of Competence-Based Competition

01:24 Historical Context and Development

02:26 Core Competence and Strategic Implications

05:03 Challenges and Misinterpretations

13:37 Modern Examples and Applications

28:23 Strategic Conversations and Future Focus

35:12 The Danger of Viewing Companies as Product Sets

35:33 Intel vs. TSMC: A Strategic Misstep

37:56 Bounded Innovation and Core Competencies

38:49 Uber's Broader Vision Beyond Ride-Hailing

42:23 Amazon's Evolution from Online Retailer to Logistics Giant

43:21 US Car Makers' Myopia and Missed Opportunities

44:24 Historical Examples: Honda and Sony

47:01 Tesla: An Energy Company, Not Just a Car Maker

48:08 Microsoft's Myopic View and Missed Opportunities

56:00 The Importance of Organizational Flexibility

01:02:26 Encouraging Internal Innovation

01:08:42 Conclusion and Next Steps

Episode Transcript

(00:00):
It is great to be backfor another episode.

(00:02):
This one is on competencebased competition.
And we are joined once againby our guest, Gary Hamel.
Welcome back to the show.
Yeah.
Nice to see you again, Aiden.
Happy to be back.
Gary's just back after some extensivetravels throughout China in the
provinces, so he is tired and I'm, I'mvery grateful to have you back with us.

(00:23):
We're gonna cover this, right,so I want to explain this book.
This book is a very interesting concept.
Gary and Aimé Heene both invited academicsto contribute, to challenge, to build
upon this article that they wrote backin 1990, published in 1990, probably

(00:44):
written for many years before that.
Gary, maybe you'll giveus some context on that.
But this book is really interesting'cause it was an invite to the
academic community who were oftenbattling over what is strategy?
Is it emergent, is itdesigned, et cetera, et cetera.
What do you think?
And it was an invitationand beautiful idea.
So we're really gonna focus onGary's and CK's work on core

(01:07):
competence and core competenciesbeing the competitive advantage.
And bear in mind, this is severaldecades ago, so this work back
then still hasn't seen the lightof day in many, many companies.
So I am very, very grateful to be puttinga spotlight on this brilliant work.
Well, as you say, Aidan, a long timeago, and I can tell you a little bit

(01:29):
about how these ideas came to be andperhaps a little bit about the context.
I think, the work first showedup as an article in, in, in
the Harvard Business Review.
And it was interesting, , in those days,maybe it still doesn't, Harvard Business
Review ran, they, have this jury everyyear to, to choose the best articles.
They call it the McKinsey Award,I guess, sponsored by a McKinsey

(01:51):
company, the consulting company.
And CK and I won that several times.
I think our competencecame second that year.
But probably is one of the more enduringpieces that, that we've written.
The province is, let me try togo back into that timeframe,
, strategy and marketing hadalmost converged at that point.

(02:12):
Most of the conversation aboutstrategy was really about what
products are you gonna sell?
How are they positionedin the marketplace?
What brands do you control?
But strategy was very,very much product focused.
And we thought, well, thatcertainly makes sense.
But we wondered if there was adeeper element to strategy, which is
really focused on, on building deepskills that you could apply across

(02:33):
multiple businesses over, over time.
And that was just pretty much ignored.
There was here and there a little bitof academic work called big clumsy
phrase called the resource basedview of the firm, which like is a
good way of thinking about firms.
What are the resources you have?
So there was that current outthere, I guess in the academic
world, but certainly not mu muchattention in the corporate world.

(02:56):
And against, this was the,against the backdrop of increasing
international competition writingfrom the United States at that time.
And I think CK and I almostcame to this idea in parallel.
We were both workingwith different companies.
He was working with some bigtelecommunications companies at that time.
I was working with a company that,that I believe, still exists.
Carrier.
They were a leader in air conditioningand they were facing a decision

(03:23):
on whether they outsourced.
Some part of their compressors,which is at the heart of a air
conditioner, refrigeration, whetherthey outsourced that, I can't remember,
but to some form foreign company.
Well, we had already seen this littlemovie play out where a lot of American
companies and consumer electronics hadoutsourced, production of televisions

(03:44):
to, at that time, Japanese companies,perhaps Toshiba, Panasonic, and others
who were a white label, you'd callit, OEM suppliers of televisions.
And that started with very simpleblack and white televisions where their
margins probably weren't very high.
But of course, these companies wereeager to learn and eager to establish
their own presence around the world.

(04:05):
And so in, in becoming manufacturersthey mastered the art of making at that
time cathode rate tubes and doing themvery efficiently with very high quality.
And of course weren't content to justsit at the front end of the supply chain.
They began to build their own brandsand to come , around the mark and I
thought this is likely to playout in a lot of industries, right?

(04:26):
If long term you don't control theunderlying technologies, the skills that,
that provide the differentiation in yourproduct, that's a disadvantage, right?
Ultimately, brands are not enough,or often are not enough to protect
you particularly when you havehungry companies that are eager
to build their own global brands.
So I was thinking about that andI'm sure the advice I provided at

(04:47):
the time was like, don't do this.
I can't remember whether they did ornot, but it was clear this is probably
not a great idea and you are gonnalose control over critical technology
and therefore over over your destiny.
Now, I'll skip forward a little bit.
I think I. Some people, and maybe perhapsrightly so, have criticized the idea

(05:09):
of core competence because they almostflipped our original argument on its
head and said, , this is an excuse tooutsource anything that's not really core.
And originally we were writing thearticle as a warning, don't lose
control over what it score, but if youare interested in lowering costs and
not making big investments and havingan easy life it was very tempting

(05:30):
to say, let's somebody else do thisand our core will be something else.
But, the level of that with offshoringoutsourcing in general, which, again,
none of these things could have a simplerule, but one of the risks you take
is whatever you offshore, whatever yououtsource, will perhaps never again be a
source of competitive advantage for you.
Because now you're buying a serviceor a component or whatever it may

(05:52):
be from somebody who's probablyproviding that to your competitors.
And once, once you get off thattrain of development, once you're
no longer building and developingthat competence very hard.
If somebody else is learning fast andgaining scale and so on, very hard
to get off and walk and then findthat train still there to reboard.
So I think some companies probably as a,again, bastardize the concept, use it in

(06:17):
a very simplistic way as an excuse, gee,let's get rid of anything that's not core.
And we were really writing itto say, Hey, be very careful
about, offshoring outsourcing.
So that was a bit of the providence.
So lemme stop there and thenwe can go a little deeper, but
that's where the idea came from.
Recognizing that, , over, in theshort term, day-to-day, yes, it's
about what brand, what product,what features in the marketplace.

(06:40):
But if you think of competition overa 3, 4, 5, 10 year timeframe, it's
much more about who's building reallydeep skills that provide a lot of
differentiation and the skills thatare very difficult to replicate.
And you wanna be, , you wannamake sure that somewhere you're
making those investments and you'rebuilding that deep capability.

(07:00):
Brilliant, brilliant context.
And I just wanna remind theaudience that I'm probably torturing
Gary a bit, bringing him backto, to all this work and it's.
Years ago that you wrote this stuffand you're in a certain frame of mind.
I thought it was so funny when Garyand I were planning the next book,
he's like, I, I guess we'll bedoing Leading the Revolution, which
we're, we will cover in the future.

(07:21):
And I was like, oh, no, no, no.
There's another one in between.
He is like, oh yeah, I forgot about that.
So when you forget about a bookthat you read, that's, that's a
good sign that you've created.
A lot of great content is out thereand you, you probably don't remember
this, but there's a beautifulforward written by Rummel and he
said The idea of core competenciesas introduced by prat and Hamel in

(07:41):
1990 has generated enormous interest.
When it appeared both academicsand corporate managers sense
that this idea was important.
There was an immediate and unusuallybroad resonance within these communities,
the communities of strategic thinking.
This resonance owed much to Prahaladand Hamel's craft of persuasiveness,

(08:02):
but it also drew on the audience'sreadiness for the message.
After decades of seeing corporatestrategy treated as a portfolio problem,
academics and practitioners were ripefor review of corporate strategy that
placed technology, skill and synergyahead of cash flow and control.
Beautifully written, beautiful way to teeus up to talk about that challenge that.

(08:25):
Up until then, corporate strategyhad placed the very visible things,
technology, skill, , and synergyahead of that cash flow and control.
And I don't know if you remember this, butthere's a beautiful metaphor that you use
of a tree and the concept of the tree thatas a corporate manager, you focus on the,
the very visible aspects, the leaves andthe branches, but it's actually the roots.

(08:49):
And the roots is where the corecompetencies is built over to you.
Yeah, I think that is and by theway, Dick was very thoughtful to
write that and, and one of thegreat strategic thinkers for sure.
I mean, it's interesting so often I.You know, a, a great idea is, is not
always great in some deep intellectualrespect, but just happens to be

(09:12):
the right idea at the right time.
And I think I think core competence wasan enduring idea, but it was definitely
the right idea at the right time.
And yeah, corporate strategybecome quite mechanical.
Unless you're a student of strategy,you might not remember kind of
Boston consultant group andthis kind of portfolio view.
And I'll probably not even rememberexactly the theory, but basically, you

(09:37):
looked at a portfolio of businesses , bywhether it was a cash cow and throwing
out a mature business with perhapsnot much growth left, or whether, I
guess they called it a star, whichis both growing and very profitable.
And then you had dogs that wereneither growing nor profitable.
And it was really, it was largelyabout making those portfolio decisions.
What do we keep, what do we dispose of?
And, that seemed.

(09:57):
In one sense, sensible, but also wrongto me because I don't believe there are
very many businesses where you can lookat it at a point in time and say, this
is forever gonna be a low growth business.
Or, there's no way to gainany market share here.
And so it was a very static viewof industries and of businesses
as things that were either matureor not, or, profitable or not.
And you've seen a lot of companiesthat have taken, mature businesses

(10:20):
and reinvented them, revived them,brought new thinking to them.
So it did, it seemed to us akind of fairly simplistic static
way of thinking about strategy.
And , we knew therewas something deeper here.
The other thing that probably got lostover time, at least I haven't thought
about in a long time, is we actuallythought of a kind of the tree was one

(10:41):
metaphor, but another metaphor was thinkabout a stack where at the bottom you
had, individual skills, technologies.
Systems, processes, and those got bundledtogether in a core competence, right?
A core competence is always, itwas meant to be something that
was a blend , and integration.
That was, that's, that's whatoften made it difficult to copy.
It was integration of multipleskills and disciplines.

(11:03):
So you had all of these thingsfeeding in from the bottom.
Then you had this deep capabilityand then that often got translated
to what we called a core product.
This was an end, wasn't an endproduct, but an intermediate
product that then went into an endproduct and created a lot of value.
I think one of the other reasons theidea kind of spread was that it actually
posed a very simple, provocativequestion, what's her core competence?

(11:25):
Right?
And so everybody's like, well, thisis probably a conversation we need
to have if we haven't had it already.
So I ended up, getting a lot ofopportunity to talk to large companies
and have this kind of conversation with'em and help 'em think this through.
I remember one very well, I canprobably say it now so many years ago,
but I, BM was one of those companies.

(11:46):
And at the time, IBM had a substantialdivision that, and I'll, again, this is
my memory, so some can correct me if theylike, but they had a large division that
was making and selling computer chips,but they were selling them only inside of,
IBM to that went into IBM products andthen through IBM's distribution channel.

(12:09):
And I said, I think that maybe a missed opportunity and you
should be selling these to anybody.
I like, why not?
And of course, if the people runningthe business are kinda the marketing,
the product people, they're saying, , wedon't want to give anybody else access
to this capability, but we don't, wewant, don't want them to use , our
chips and a way that makes sense.
But what you're doing that is you'reholding that internal capacity.

(12:31):
Competence kind of hostage to your ownorganization and your own products,
and you might be better off if you'retrying to drive volume and learning and
investment to sell that more broadly.
And so that, and I think in the end,IBM did that and it was, I think now
where that business is today, I haveno idea, this is 30 years ago, but I
think this idea that, you have a coreproduct that goes into an end product and

(12:56):
maybe you wanna sell that more broadly.
, and of course that was what a lot ofcompanies that we were tracking in,
in Japan and other places were doing.
And so yeah, that was a bit of the genesisof thinking about those layers and how do
you invest in each layer and do you reallywant to only use a competence yourself
or is it something you make as a businessand you sell, core products to others?

(13:19):
I. So, yeah, I think, most companiesask themselves, many companies ask
themselves that question, had neverreally thought about it before.
How much did that change?
I have no clue.
I only worked with the companies I knew,but certainly the idea has stuck around.
I think
it's probably moreimportant than ever because.

(13:40):
It's easier to jump from arena to arena indifferent businesses than it used to be.
It's more difficult to build acompetitive advantage that has a real
fort around it today than it used to be.
If somebody can capture thisidea, can do really well in the
environment that we're in today.
I'll give you example, Aiden.

(14:01):
You know, and again, all of theseexamples are products of their time.
So what, what will the worldlook like in five or 10 years?
I don't know, but obviouslythere's been a lot of attention
on EVs over the last few years.
It looks like the growth ofEVs , is going to plateau for a
while, for all kinds of reasons.
Partly because the electricity gridisn't ready to take a full EV world

(14:22):
partly because the price of gasolinepetrol is coming down and so on.
Having said that a lot of the corecompetence of Tesla, I. Is around what
you might think of software defined cars.
So, software is paramount.
You get inside a test, it looks like a carbuilt around a giant smartphone, right?
And it's obviously keyto full self-driving.

(14:43):
Tesla's built this enormousdatabase of all the data they've
collected from their cars and so on.
That's a huge challengeto German car makers.
And to some extent to us carmakers who really haven't invested
in software as a competence.
And, and Volkswagen and others havebeen scrambling like hell the last few

(15:04):
years to hire software engineers to buildthat capability to understand how to
get advanced software in their vehicles.
This is not something you do overnightand they recognize it might take a
decade for them to catch up on that.
So, the argument is still there.
Tesla is also, vertically integrated.
It's building really deepcompetence in battery technology.

(15:26):
And still they buy some, they buycomponents and so on from whoever it may
be, Panasonic and others, but they're,they've really focused on building
, really deep expertise in these areas.
Again, to some extent you can, buythat from suppliers, but not always.
And so if you look at a Tesla, forexample, Teslas in general, , they
give you more miles per kilowatt thanjust about any other ev because, and

(15:53):
that reflects a huge amount of deepknowledge about how to build the whole
systems around this that maximize.
The efficiency of, of EVs.
These capabilities are , verydifficult to build.
And in kind of a parallel of what wesaw years and years ago in, in Japan
with the Japanese companies focusingon consumer electronics Chinese,
companies have been focusing on that.
Also, deep integration BYDCherry, other Japanese EV makers,

(16:18):
and building up a really strongindigenous battery industry now deeply
subsidized by the Chinese government.
It might be at, hence,the debate about tariffs.
For EVs in Europe and the us but, thatargument is still, I think, valid.
And if you're not looking forwardand asking what competencies are we

(16:38):
gonna need over the next few years andwhen should we start investing there?
Again, super, super hardand expensive to catch up.
Can be depending on the nature ofthe capability of the competence.
I think you see the same thing rightnow , in ai, the competition between
Microsoft and Facebook and Googleand maybe Apple and a few others.
Recognizing, there's a lot oftacit knowledge, a lot of expertise

(17:02):
takes a long time to build andthere's a real competition who's
gonna come out on top here.
I was writing about this and I waspartly inspired by reading your work.
The idea of, for example, , we talked thelast day about JVC and Sony and the beta
max versus VHS wars, and tying it back tosomething that you said is that instead

(17:25):
of outsourcing those capabilities, , ifyou can find somebody who's willing to
outsource the production to you, youcan build capability on their dime.
And I thought that was reallyinteresting 'cause we saw that
play out with the VHS wars.
And the same pattern is echoing today withthe AI wars, is that if you can get access

(17:46):
to somebody's willingness tooutsourceto you, that's your opportunity, that's
your sandbox to build those capabilities.
Sure.
And you can have a symbioticrelationship between a smaller
company and a larger company.
I mean, it's quite interestingthat, many years ago , Microsoft
used the distribution might of,of IBM to build the PC business.

(18:07):
They partnered , with IBM.
They made the software, IBM, madethe boxes , and sold 'em to companies.
And you see the same thing now with,startups partnering with larger companies
so they can build a deep capability.
And sometimes those companiesare acquired and sometimes not.
So you can build a very deepproprietary relationship with a
company, you may, maybe you don'thave to build that capability in house.

(18:31):
The other thing I would say, a morerecent development, and I saw this
Aidan , just coming back from Chinaand I was there as the guest of hire.
We were running a big conference on.
Celebrating really radically managedcompanies from around the world.
More, I think about 70 of them.
But one of the interesting thingsthat hire is doing, , and this is

(18:51):
also what I've argued when I workedwith companies throughout the
years, it's not just about thinkingabout what is your core competence.
It's about looking at the world not as aportfolio of companies, but a portfolio
of capabilities and looking deeperat,, and then thinking creatively, how
might we put those together, right?
How, what if we partner with this companyor that company and we could combine, can

(19:12):
we do something that nobody else could dowhen we put those capabilities together?
Well, this is taking a verypractical expression now at, at hire.
They have a industry 4.0, an internetof things platform called Cosmo Plat,
which would be one of the, one ofthe leading platforms in the world.
I think GE has one.
Maybe Siemens has one.
, I think hire is thinking more.

(19:33):
Strategically and probably moving fasterthan anybody else in the world on this.
But this is now a platform where companieswith different capabilities can find
each other they can innovate together.
They have an enormousdatabase of consumer insights.
And it ha then has a simple wayof helping companies define an
opportunity contract with one another.
Fine channels.

(19:54):
And so you think about, a lot of theinnovation over the last, couple of
decades, and maybe we'll talk about thisin another episode, has really been around
one company re-imagining a business model.
And Tesla was an example of that.
Now you see, I think more and moreinnovation is going to come from really
innovation across industry lines.

(20:15):
Because if you want to, there'sa lot of problems in the world
and a lot of potential solutionsthat can only be realized if you
bring companies, organizationstogether from different industries.
So, for example, one of theearly examples of this at hire.
Was reimagining the entire way.
China manages its blood supply.
So hire had a leg in there throughdeep competence in refrigeration,

(20:35):
super advanced refrigerationthat you need to do this to keep
everything exactly stable and so on.
But it's not only that you needlogistics, you need information
companies, it and so on.
And so using Cosmo Plat, it's quiteeasy-ish now to bring these organizations
together to work together, to reimagineand come up with a ver a solution that

(20:58):
is a , multi-company, multi-playersolution to very complex problems.
They're doing this inautomotive retailing.
They're doing it acrosshealthcare in some amazing ways.
And so I would say as an example,hire increasingly you're not gonna
see them as an appliance company.
They're a company that helpsindustries around the world come
together and solve new problems.

(21:19):
And they get to play there.
Their entree is both having thatplatform, which is a core competence,
but also all of the knowledge they dohave about refrigeration and so on.
Which in most of these, newsolutions , is part of the puzzle.
And you need a partner thathas those deep capabilities.
So I think the idea is only gonna havemore resonance over the next, few years.

(21:43):
And it may be less and less aboutwho controls the customer, who
controls the last mile, whatever.
It's like, how valuable are yourcompetencies to the solution?
And therefore, how much profit doyou extract out of the ecosystem?
There's a core thing you said which is,you need to understand the difference
between core competence and non-corecompetence and also core competence must

(22:05):
make a disproportionate contributiontowards customer perceived value.
And you gave an example of apple backthen and the , Mac as an example.
So maybe, we'll tell that thedifference between the core and non-core.
'cause you mentioned this, that youweren't giving people an excuse to
outsource anything that was non-core.
Yeah.
And, and things that may not becore today could be core tomorrow.

(22:28):
In fact, against the tests thatwe use, and I think there were
three principle ones, if I recall.
One was does it make a disproportionatecontribution to customer perceived value?
So it was a critical inthe ultimate solution.
And that sense, you know,kind of irreplaceable.
Number two , is it fairlyrare and difficult to copy?
And number three, can youimagine redeploying it, , in,

(22:51):
other ways, in other areas?
And interestingly, when we wereworking with companies, a lot of
times they probably didn't havemuch that you could really, that
meet all those three high tests.
Well, that doesn't meanit couldn't become core.
If you can further differentiate,it may become core.
But you know, there are a lot ofthings that you need to run a business.
You know, you need call centers,you need accounting systems,
you know, you need hr that, that,that probably aren't gonna be core.

(23:15):
I mean, you still need them.
They're not gonna be different.
And, and there maybe youdo outsource that thing.
But again, you wanna really becareful because once you've outsourced
this, it's pretty much gone.
You know, you look at the difficultycompanies are having at the moment,
kind of, you know, onshoringthings and rebuilding capability.

(23:35):
Very, very, very hard.
To do So, yeah, there's a lotof things that are non-core.
If I thought about my own corecompetencies, you know, there,
there's, there's things that areessentially life breathing and eating.
But I wouldn't saythat's a core competence.
That's just, you know, we all do itand you know, so there's a lot of
things you find in a business that arenecessary, but not not differentiating.

(24:00):
Here's one for you.
I saw this firsthand.
So I retired from professional rugby.
I went into a media company and it was2008 and people were figuring out what
digital was, digital media, et cetera.
So I was very lucky that I went in.
As an intern in my thirties, but I, I,I built the core competence in digital.

(24:20):
But this was one of the problemsthat , you said, for example, it
needs to be, have a disproportionatevalue towards the customer.
But what I learned then was thatit doesn't end the early days.
Oftentimes it's a fringeor an edge competence.
And as you were saying it, it couldbe like almost , the nursery or the
academy for the future of the company.

(24:42):
But because it has so little value inthe moment, it's often, like we were
saying about the tree, that they pullup the roots and they throw them away.
They don't even know the roots aregrowing, which will be the future
benefit to the leaves of the tree.
You have to look at a competency,not as, as I say, not, not just as
a product, but you really have tothink about what is the underlying

(25:03):
problem this allows us to solve?
What is the functionality?
Be that, mobility be that intelligencebe that heating or cooling, and
then, take a very broad view of aboutwhere that might, may be deployed.
So you may have a company that, thathas, as you say, the seeds of this
steep competence, but if somebody inproduct marketing can't see, immediately

(25:24):
where you create a product, you maynot, want to continue to invest there.
Which is why a lot of the traditionalautomakers got behind in EVs, right?
It was like, interesting.
Probably gonna be something.
Can't see how we makemoney out of it right now.
Like, why are we investing there?
So, yeah, you have to, , there's awhole strategic conversation there

(25:45):
about how important will this be?
How broadly could it be applied?
Can we real, really build aposition of leadership here?
I think another thing that happenedAidan more recently is a lot of
attention shifted towards kind ofconversation about platforms, right?
You need to have a, a platformand, you look at Apple iOS,
that's a platform, right?

(26:07):
, most of the companies that have platforms,built platforms, whether it's Tencent
in China, apple here, or so on, theyalso have , very deep competencies.
I don't think you find platformswhere a nodal company emerges in a
position of dominance, controls theplatform, extracts rents from all the
other players that use that platformwithout having some deeper capability.
, , itself.
Certainly, you know, thatwas true for Microsoft.

(26:30):
Ms. Doss Windows became a platform.
Many other software developers wrote ontop of that platform, but I'd be Microsoft
was a software leader with, , incrediblydeep software skills and we're able to.
Therefore attract a lot of otherplayers into their ecosystem.
So I don't think platforms are evera substitute for building your own
deep confidence that gives you theright to play within those ecosystems.

(26:53):
But,
yeah, and that's, I think that'swhat hires now trying to demonstrate
is that, yeah, we are becomingincreasingly a platform company.
And the platform itself may become adeep competence in terms of building
it and solving all the IP issues,all the coordination issues, the
collaboration issues, huge amountof technology and thinking that goes

(27:16):
into building one of those platforms.
So a platform can, and, theunderlying skills can also be a core
confidence, but you wanna be carefulseparating those two conversations.
What kind of platform can we build?
And also what competencies are wecould be, that could be the answer
to the same question or they could bedifferent for a particular company.

(27:37):
One of, one of the things that comes tomind then is, say for example, the Toyota
and the Prius, so they're, they're hugesuccess with the Prius is that often
is missed with that, is they had beenlooking at that building the electric
engine or the electric car for a long,long time before, and it, it brings to
mind sometimes your strategic decisionsyou talked about there that when you're

(27:59):
too early, if you're a change makerinside an organization, you can actually
lose all kind of credibility if you,if you, you're right about that future
coming, but you're too early and youlose momentum and you can't connect it.
Either the company gets fed up withyou and, and press the eject button
you sleek outta the organizationbecause you were too early as well.

(28:20):
I'm sure you've seen thatplay out many, many times.
Yeah, if, if you're not having a trulyfuture focused conversation about strategy
that that includes the top of the company,I. You're building that point of view.
Yeah.
The people who are ambitious, whosee the future, who are working
on cool ideas, they're gonna gosomewhere that's more receptive.

(28:41):
If your organization's not thinkingthat way and, and, we'll have this
conversation another point, but it'swhy I believe that the strategy process
really always needs to be a very openand engaging conversation in a company.
You've got a lot of young peoplein organizations who are close to
the future, close to technology.
They can see these opportunitiesway better than somebody who's
in their fifties or sixties atthe top of the organization.

(29:04):
And I'll give you one example of that.
I may repeat this later, but it's,it's kind of an interesting story.
I was working with a large Koreancompany and we had trained, this
is now probably 8, 9, 10 years ago.
We had trained a lot of young people toreally think about digital technology and
the kinds of opportunities that might bethere, particularly around social media.

(29:27):
Very large, fairlytraditional Korean company.
And these young teams have generatedhundreds of really cool ideas.
And one team came to me, hesaid, Gary, we wanna share
something we've been working on.
We, we think it's a cool idea.
I said, explain it.
They said, you walk into a bar, a pub,a club, whatever it is, and you have all
your social information, your profile onyour smartphone, and, and you'll be able

(29:49):
to see anybody else in your environmentwho maybe has, that same profile and you
can share those and match, and then maybeyou wanna meet this person, in real life.
I said, that seems like prettyinteresting way of connecting.
And so you know, to, to get approvalfor this idea, it had to run past their
internal investment committee, which wasmainly a bunch of late 50-year-old dudes.

(30:13):
So we take this idea in, and the firstquestion , from the older executives,
there was so , if you go to a club,why are you on your phone, right?
You should just be payingattention to your friends.
Now the, obviously in clubs,everybody may be on their phone,
but they're all sharing it.
Right.
And have, but that was just likethey couldn't get the hedge on.

(30:34):
And the second thing was, well yeah,but if you meet somebody you wouldn't
wanna like leave your friends andgo be with like somebody else.
Like yeah, you would, and your friends aregonna find this highly amusing, whatever.
And so they didn't invest.
Right.
And I think it was six months laterthat whoever it was, mark Dres
and others invested in Tinder.
Right.

(30:55):
And here's the thing.
If you have one isolated, team, oneyoung person who goes up to a senior
group and says, here's an idea.
It is super easy to shut.
Shoot that idea down.
Now you imagine that we'd have thisvery open strategy conversation where
that idea, we shared that among thewhole organization and other people
could say , good idea, bad idea, so on.
And suddenly you find out thatthere's a few thousand young

(31:17):
people say, this is amazing.
This would really be cool.
I would like to have it.
Well, now suddenly, like you have the kindof practical evidence or the confidence
to say, Hey, let's experiment with this.
Let's push this forward.
Whereas if it's, one geezer lookingat this thing so you never, ever
want an organization in which oneor just a very small group of people

(31:38):
have veto power over new ideas.
That's like just immense.
That's how companies miss thefuture, just immensely dangerous.
I'm jumping ahead of my noteshere because there was a
brilliant line that you wrote in.
It was in the original HBO article andjust explain to our audience, you're.
, if you're following along with us andyou're reading ahead with us, which
I encourage you to do, I, I've takenbits from competence-based competition

(32:00):
that, by the way, Gary, I dunno ifyou know, that book's 180 euro now,
if you have any copies lying around.
Not worth it.
Oh, it's, well, it's, it's rareand it's, it's it's unique.
I have also strategic flexibility,which is a similar, a similar concept.
The book is a similar concept,so we're gonna cover that.

(32:20):
We'll just cover that your, yourchapter, your article in it as well.
But there was a piece that you wroteabout, which is the tyranny of the SBU
and this, so, so this is your silo oryour department inside an organization.
And I'll quote a little piece hereto bring your mind back to what
you were talking about, you said.
When you think about thisreconceptualization of the corporation,

(32:43):
so the idea of competencies, the primacyof the SBU and organizational dogma for
a generation is now clearly an achronism.
Where the SBU is an article of faithResistance to the seductions of
decentralization can seem heretical.
In many companies the SBU prism meansthat only one plane of the global

(33:06):
competitive battle, the battle toput competitive products on the shelf
today is visible to top management.
What are the costs of this distortion?
Under investment in developing corecompetencies and core products,
two.
Imprisoned resources.
As an SBU evolves, it oftendevelops unique competencies.

(33:27):
Typically, the people who embody the thiscompetence are seen as the sole property
of the business in which they grew up.
I absolutely love that.
Those two things.
But it's similar to what you'retalking about, about these old dudes
dismissing this concept of Tinderthat the same thing happens in an
organization and it everybody's siloed.

(33:48):
So they're seeing everything fromtheir own reward systems, their own
communications, their own ownership,or perceived ownership of data
or skill sets or competencies.
And never the twain shall meet.
Yeah, I think that's,you know, that's true.
I mean, the, the future seldomarrives perfectly aligned with your

(34:08):
organization structure and the wayyou think about, you know, Your
business unit, boundaries and so on.
And that's why, historically a lotof companies missed opportunities that
were kind of, I think CK and I usethe name in the white spaces between,
you know, the, the organization chart.
I mean, I think one, one ofthe old classic examples we
use kind of now, moribund.
What was MTV, you know, at, at thetime, I guess it was Columbia had,

(34:34):
had, there was CBS, it was a broadcasttelevision business, and they also had
a music business, Columbia Records,but they never saw the opportunity
for, you know, MTV Music tv.
So yeah, I think it's, you, you wannabe super careful that you don't see
the world only through that lens.
But you're, and you know, I, yeah, thatyou're looking at this deeper question of,

(34:57):
you know, what holds all of this together?
What's the logic for this portfolio?
Where are they sharing skills?
And, and,
that was just at the time, avery, very rare perspective and.
Perhaps even today.
But Aidan, let me, let me take you backto this conversation we were having about,

(35:18):
the danger of, or, or, or this,this thought about looking at a
company , as a set of competenciesrather than a set of products.
I'll give you a very current exampleof, of how, if you get that wrong,
you can pay a very, very heavy price.
So if you think about Intel, foryears they made their own proprietary

(35:38):
processors, X 86, whatever, andthat's how they thought about
their manufacturing capabilities.
We make chips, with our architectureto sell under our brand intel inside.
Well, of course you had in Taiwan, youhad Taiwan Semiconductor manufacturing
company, which is now maybe worththree times as much as Intel, something
like that, who said, , no, we aregoing to be a foundry for anybody.

(36:02):
Right.
We'll make anybody's designs chips that gointo all kinds of different products that
don't have our, nobody even, the averageconsumer has no idea who TSMC even is.
Probably one out of a hundred would know.
And yet, being able to supply so manydifferent companies, they're learning
something different from every oneof those companies that feeds back
in their capability development.
They're creating huge scale thatyou can't do if it's only our end

(36:24):
product and our manufacturing ishostage and our technology is hostage
to our end product in our market.
And Intel was years late into thinkingabout, we are, or were, they, were a
world leader in manufacturing, right?
If we wanna maintain that, we need volumesand a diversity of customers that we can
supply given our particular end markets.

(36:45):
Which was mostly PCs andservers and not mobile devices.
So, and I think literally as we'rerecording this, I believe there's a big
debate now going on in Intel on whetherthey spin out a foundry business and
how that might, coexist along withtheir proprietary silicon business.
But, you don't want that competenceor capability necessarily to be

(37:08):
hostage of your own little sliverof the market that you have.
And, so again, a very complex strategicquestion, but a very contemporary
example where a company that sawitself primarily in terms of its own
products and its end markets missed theopportunity to serve others and build
a much stronger underlying foundation.

(37:29):
Great example, and I'm gonna bringit back a little bit to this article
because I love the historical examplesbecause what they show is that.
. These are pervasive problems.
These are deep embedded biases.
We miss these things.
They're right in front of us.
We suffer from the whole ideaof the cobbler's children.
We're great at talking about thisstrategy, maybe reading about it,
and then when it happens to us, wego, oh, I didn't see that coming.

(37:52):
You're going, you've been readingabout this for years, so I
really want to emphasize that.
But you, you talk about this greatterm, you call it bounded innovation,
and the way you set this up, as yousay, if core competencies are not
recognized, individual business unitswill pursue only those innovation
opportunities that are closed at hand.

(38:13):
Marginal product line extensions.
This idea of incremental innovationor geographic expansions, hybrid
opportunities like fax machines.
You give the example of then laptopcomputers, handheld televisions or
portable music keyboards will only emergewhen managers take off their SBU blinkers.

(38:34):
I thought that was a great lineand maybe you'll expand on that.
Yeah, well, I think that's, that's, youknow, this point about seeing where else
in the world you can , use a capability.
I mean, a, a, a contemporary example,you look at Uber where, you know, you

(38:54):
start out as a ride hailing servicea peer-to-peer kind of taxi service.
But what you're really saying, andI think the founders early on, said.
We want to build a different kindof logistics infrastructure, right?
And that, we can have deliveryof, , real-time delivery of
products in a neighborhood.
We can deliver food.

(39:16):
But you're not thinking about this justas like, we're building a taxi business.
And I think that's important.
You know, if you want to have thebroadest opportunity horizon, you
have to take the broadest possibleconception of your business.
And that's typically gonna be onebuilt on some fairly, generalizable
set of capabilities that you canapply across more than one market.

(39:37):
And so if your perspective of, and again,I think if your self definition as an
organization, as a business, if that selfdefinition is primarily in product terms,
I think that's almost always wrong, right?
It's, or lemme say that differently.
It's almost always partial.
It's not wrong.
'cause that's, you wanna look atthe world that way as well, but
you'll miss a lot of opportunities.

(39:57):
And of course what you've seen happen isoften industries will get disintegrated
when somebody figures out, I canbuild really, really deep capabilities
here and everybody will rely on it.
So that was, , what happened tothe computer industry where you ended
up with, , Intel making the chipsand Microsoft making the hardware
and somebody else making Microsoftmaking the software, somebody else,

(40:20):
making the machines themselves.
And so, people started concentratingon where you can really build
world class deep capabilitythat everybody's gonna rely on.
And that's not the only strategy,but you just have to take that
perspective in a business, you know?
And it's dangerous if you don't, , it'sdangerous because somebody else is
either going to build that capabilitydeeper, faster, or gonna exploit it

(40:41):
in, in broader ways, which then drivesinvestment, allows 'em to build it deeper.
I find it very interesting,Aidan, asking what is the core
competence of a business school?
You know, is it, is it, is it reallygreat instruction curriculum development?
Maybe but if it is, then you wannaask, well , why aren't we making that

(41:02):
curriculum available to the world?
Right?
Why aren't we, why don't we havetens of thousands of students?
Why aren't we finding a wayto, build better curriculum
better instruction modules?
But you have to ask that question, right?
If you ignore it, you'll be surprised,probably in an unpleasant way,
You've set us up perfectly.
The pattern of, I build sometype of competency, I build some

(41:27):
type of competitive advantage.
I protect it then, so I get to apoint of, , and on a, on an individual
level as well, so this goes forprofessors in business schools.
I have a formula that works orI'm a consultant and I've found
out a framework that works for me.
I sell it over and over again.
The world moves on, it's outta date andI don't update my deck or my framework.

(41:51):
That's one of the great benefits ofdoing the show, by the way, keeps
me absolutely honest to, to go.
There's loads of new stuff outthere, but you wrote this piece
and I thought this was key.
core, when competencies becomeimprisoned, the people who carry
the competencies do not get assignedto the most exciting opportunities.
skills begin to atrophy, it's onlyby leveraging core competencies.

(42:14):
Can small companies in particularafford to compete with industry giants?
So it's like use it or lose it.
Yeah.
No, that's, that's for sure.
True.
You know, another good exampleis if you look at Amazon.
And, you know, this immensely complexbusiness of hosting suppliers from
all over the world, managing logisticsand the custom support around that.

(42:37):
And if they had seen themselves theystarted out as an online book retailer,
and then like CDs and whatever, if they'dsee themselves as we're an online book
retailer, like somebody else would'vefigured out how to do this at scale
, and become the online Walmart or theonline as whatever you want to use.
And so, they didn't seethemselves that way.
They said, we have thismuch deeper competence.

(42:58):
It could be leveraged.
, and you built something that is, forpractical purposes, at least for
the foreseeable future unassailable.
So you know, again, I think,historical contemporary examples you
can see, I mean, one of the thingsthat drives me a little bit crazy
even today is I, I think that us.

(43:21):
Yeah, US car makers suffered alot from having this product
brand, myopia and neglecting alot of the deeper capabilities.
They did it for a long timearound quality and they've done
it around powertrains, right?
With a few exceptions.
With a few exceptions.
The engines in most USmade vehicles really suck.

(43:44):
They don't rev very high,they don't run very smoothly.
You don't get that muchhorsepower per liter.
And I have to say, Volkswagenand Audi have been better.
Honda's been better.
And there's just, there was amyopia there of these things
further up the supply chain really.
Who cares about them?
We just use them to put inan end product that customers

(44:06):
are never gonna really care.
They're never gonna notice.
Never see.
So.
Yeah, , there's, you certainly wanta brand and product perspective, but
there are a lot of ways that can gowrong when that becomes the dominant
perspective in an organization.
You neglect other ways ofthinking about the business.
There's a couple examples.
You give Gary again, and I'mbringing us back in time.
There was the, the Honda one, which has.

(44:28):
Hasn't gone away.
And as you say, core competencedoes not diminish with use.
It actually builds like a muscle,it just gets stronger and stronger.
And then you find otheruses for that competence.
But you give the examples of Honda andSony and the, the Sony one for example,
you focused on then was miniaturization.
I'd love you to, to, if you castus back to those examples, I re, I

(44:50):
remember the just coming out withproduct after product and it was, if
you think about it, was because of thiscore competence that they could do.
So and Honda did the same, includingengines for other car makers,
other Chrysler, for example.
Yeah, I think it was certainly, youknow, when you're resource constrained

(45:13):
as those Japanese companies were back inthe, you know, sixties and seventies and
eighties and you are trying to build asolid foundation under your business, you
are going to look for any example to, topartner with companies that can give you
the funds to build that deep expertise.

(45:33):
And so a lot of these companies didpartner and they sold intermediate
products and they built up volume andthey built expertise in, in that way.
So, you know, not necessarily surprisingthat they did that, given that they were
hungry and they needed the investment.
And that meant partnering and,and kind of if you can, if you
get lucky enough, you hollow outyour competitors in the process.

(45:56):
Yeah, but that's the way, you know,that's the way they, they, they
view their companies and as, as, youknow, a portfolio of capabilities,
recognizing that that was gonna giveus differentiation, and that that also
allowed us to spread the investmentthere across, you know, multiple use
cases, multiple product categories.

(46:16):
And if you're relatively small andstarting out and you don't have the,
you know, you didn't have the volume ofa Ford or a GM or a vw, that's how you
build world class competence, right?
You know, and,
and also it's why a lot ofcompetitors dismissed, you know,
early, they dismissed Hano.
It was making motorcycles.
But if you looked at the rate at whichthey were improving that technology

(46:40):
you know, you could see, well, maybethey think about themselves as a
motorcycle company, in which case,you know, only Ducati or, Harley
Davidson needs to worry about 'em.
Maybe they see themselvesas an engine company.
Then you better think about what's theirtrajectory versus like, what's yours?
And you know, that, that gives you adifferent way of thinking about them.

(47:01):
The great example youmentioned there is Tesla.
Tesla is an energy company.
It's not a car company like Teslabeing, for example in insurance.
And now Tesla, being in robotics, right?
They've used a lot ofrobotics in their factories.
You know, you've had, they'vemade enormous investments in

(47:21):
machine vision, because, , Teslasdo not have lidar and radar.
They are, they operate withcameras , and machine vision.
And so you say, well, whereelse can you use that?
So, I mean, one level is so logical, ithardly bears you know, bears comment.
But again, , if you saw yourselfas a EV maker, you don't see those

(47:45):
other opportunities for, you know,running, battery farms that you can
use to source solar energy or externalpower at your home or, robotics.
You just don't see those as opportunities.
But, if you understand how difficult itis to build some of these capabilities
and you're looking to maximize yourinvestment and your payoff, that this is
how you think, you just think naturallyabout where else can I exploit this?

(48:08):
There's a famous interview with SteveBalmer it's with Charlie Rose, and he
asks him about some of the great errorshe made, and he said, for example,
not getting into hardware earlier.
And he goes, why didn't you?
And the way he responds is he goes,when the name of your company is Micro
Soft, he goes, we are a software guys.
And he said that even Paul Allen had askedBill Gates that they get into hardware

(48:31):
and he says, no, we're software guys.
And they'd instilled it in, not onlyinto , the mindset, but into the language,
into the logo of the company, et cetera.
And that's very powerful.
Yeah.
Well, and and to be blunt,they were not only software
guys, they were Windows guys.
So for a long time they missed a lotof other opportunities in software

(48:53):
that maybe weren't accessible ifwhat you're trying to do is sell
the Windows operating system.
And in fact I believe it's historicallycorrect, it was, , reported by
people who were there at the time.
But Apple was working on, or sorry,Microsoft was working on an iPad before
Apple, and a very credible device.
They showed it to a few ITjournalists to get their feedback.

(49:13):
The journalists were super impressed.
And when this team went to getfunding and a final sign off from
Balmer it wasn't based solely onthe window system, just like, the
iPhone and the iPad don't run on Mac.
They run on something purposebuilt for a portable environment.
And Microsoft engineers had done the same.
And Balmer kind of went ballistic on 'em.
He said what the hell don't youknow where the Windows company?

(49:36):
Like why would you bring somethinghere that's not even Windows?
So, it would've been good if they reallythought about it as a software company.
They didn't, they thought aboutthemselves as the Windows company.
And so anything that didn't fitthat paradigm, was so, yeah.
There, there are so manyways you could become myopic.
Certainly that's one, right?
Having this narrow kind of productfocused view of, who we are.

(49:58):
Luckily, that view didn't prevail.
And when we have time, I'll tell yousome more interesting stories in that
regard about my experience through theyears of Microsoft, truly a world-class
company, but they also had their upsand downs and luckily we're able to
broaden their self-concept and redefinethemselves, after about a decade of
going sideways under Satya Nadella

(50:18):
so you know sometimes you see thesethings early enough or you have
enough market power and enoughresources that you can live through
the process of ignoring importanttrends, of being myopic for a decade.
But, a lot of companies can't.
I, I often think about thatlike a DJ with a really bad mix.
Like you can hear the beatsand they're all over the place.

(50:41):
They're kinda going, that's aracket, and it's this intermediary
transition from one phase to the next.
Well, let's mention Microsoftthere, because I remember not
long ago, I mean this was.
In two, in 2010, say, going intoMicrosoft, the offices here in Dublin,
Ireland, and I had to bring I hadto bring a surface with me and I

(51:01):
used an iPad, I used a Mac, I hadto bring a surface and, I hid my
iPhone 'cause there was, they were soMyopic and so anti Apple back then.
But it was one of the thingsthat Nadella did, isn't it?
He softened up that approach.
The software that would run on theproducts, the, the compatibility that,
that all those wars were put aside.

(51:22):
And it's something we'll cover inthe future when we talk about the
Alliance Advantage, the other bookthat you wrote, what Yves Doz, but
maybe you'll say a word on that?.
'cause you, you saw thisplay out in real time.
Well, yeah, I mean there was about adecade where Microsoft was late or missed

(51:43):
basically every single new development.
They were late to the new userinterfaces that you saw , with Apple.
Late into obviously missed themobile phone thing, although they
had a big run out of bought noki, butkind of were, were very late there.
They were late into the cloud, buthave now, made enormous strides there.

(52:05):
They were late you know, initiallyonto the internet itself with their
browser, versus Netscape and so on.
And in some of those cases, again, theywere deeply entrenched in large corporate
customers had huge RD budgets and theycould, they could afford to catch up.
But it was quite interesting.
They asked, how do you miss everything?
Like, for so many yearsor virtually everything.

(52:25):
And again, it was just a veryproduct-centric view of the company.
And I may have told you thisstory, but I was, this was
probably around 1999 or 2000.
I had been asked to, I thinkI, I told you this story.
I. But I had been asked to come make apresentation by Bill Gates to an annual

(52:47):
CEO conference that Microsoft runs.
They may still run it.
And it was maybe the mostintimidating audience I'd ever been
in front of, like say maybe theWorld Economic Forum or something.
Because literally you have a hundredCEOs in the room of the largest companies
in the world and you have securityhelicopters, overhead and so on and so on.
So I was, I gave a presentation andpart of it was around thinking about

(53:11):
the post PC world, the post personalcomputer world, and the fact that
the PC just becomes one more deviceout there in the periphery, the
networks at the center and so on.
And I think the talk went pretty well.
But at the end of it, some person cameup to me from Microsoft that was clearly
a little bit exercised by all of thissome EVP and said Gary, at Microsoft,

(53:34):
we don't talk about the post PC world.
We talk about the PC plus world.
In other words, everything will bean extrapolation or a build on what
we're already doing called the pc.
And I struggled for a momentto know what to say 'cause they
were clearly a little bit upset.
And I finally said, well, the future isstrangely indifferent to our preferences.

(53:55):
You know, may work out that way,may not work out that way, but that
the future's not gonna really care.
And of course it did turn out that way.
In the same way, several yearsearlier, I'd given a presentation
to the senior group at IBMcalled Information as Utility.
And I couldn't say anything about cloud.
I didn't know that word, but Iknew like it was gonna be utility

(54:18):
just like an electrical grid.
And electricity is there andwe don't all have generators.
And when often the biggest advantage Ihave in a conversation with executives.
It's like I am not embedded intheir internal industry thinking.
I just look at it like, and sometimesthat can make you seem really stupid
and sometimes you are stupid, butsometimes, occasionally, it allows

(54:38):
you to see something that's invisible.
And so I think it was, it was very noticenotable that one of the first things
sat in, did what he took over Microsoft,was he disbanded the Windows division.
Can you imagine like, that is thesacred cow, the central pillar.
And he said, guys, likewe're hostages here.
And he said for almost as almosta direct quote, he said, for far

(55:01):
too long we regarded windows inthe PC as the center of everything.
So again, just like one moretestament to the danger.
Of thinking about, just the product andbecoming hostage, that point of view.
And, yeah, so now they're on adifferent path and one of the world's

(55:23):
most valuable companies and they'refilled with like incredibly smart
people and they're look like they'regonna be one of the leaders in ai.
You know but
only because of their size and theiroligopolistic power and whatever were
they able to survive, that decade.

(55:45):
It's like a wealthy son, for example.
I'm not gonna say who, who canafford to make mistakes with lots
and lots of businesses and andstill be seen to succeed, but being
Yeah.
up by all this bank ofcash in the background.
I.
Yeah.
And again, you know, you can't be youknow, I don't want to pick out any
particular individual here because.

(56:05):
You know, every one of us is human beings.
We're vulnerable to this, right?
We're vulnerable to looking at thefuture through the lens of the past.,
we're vulnerable at kind of overvaluingwhat is at the expense of what could be.
You know, these are, these are just humanfoibles and tendencies and the, the
fall doesn't lie with any particularperson at Microsoft or any other company.

(56:26):
But where the fault does lieis with, you know, organization
structures or systems or ways ofthinking about strategy and planning.
That don't really force us to workfrom the future backwards, that don't
force us to think more deep about,well, what is, what is the very essence
of our organization rather than aportfolio of brands and products
that doesn't, force us to thinkabout what are we delivering today?

(56:51):
What problems are we solving, and howmight those be solved in a fundamentally
different way 10 years from now?
And therefore, where do we invest todayso we still can deliver that solution
or can still solve that problem for, forconsumers a decade now, recognizing that
we maybe based out a very different set oftechnologies or skills than it is today.
So these are, you know, reallyprofound, deep questions.

(57:13):
And if you don't have a an organizationalstructure or strategy process that
creates time and space and encouragespeople to ask those, even when they're
very uncomfortable, you know, you lose,
Some kind of anti wokecampaign or made this.
Point maybe to gen Z aresaying, you know, the facts
don't care about your feelings.
Well, the future doesn't careabout your feelings either, right?

(57:36):
It will be what it will be.
And you either can think broadly andcreatively about that, or, you know,
you're stuck, , in your silos and inyour product definitions and so on,
and you, and you don't see it coming.
I love that line.
The future doesn't care about youropinions or your feelings, but also
I had the great honor to do a ninepart series with the founder, visa

(57:57):
Dee Hock, may you rest in peace.
He passed away last year,but he had a great line.
He said, when's the last timeEvolution called up on the
phone and said, are you ready?
Evolution doesn't care.
It just ke keeps moving on andpeople clinging to their old ways.
that was one of the thingsthat I'm reading, preparing for
Steve Kerr's book, of Rewards.

(58:19):
So he wrote this book, reward Systems,the Folly of Expecting A and Rewarding
B, and that, that's a huge problem,
Yeah, I mean, certainly the rewardstructures are another thing
that can lead to , this myopia.
Particularly, I would say, if youdon't have, outsized rewards for people

(58:40):
who build new things, in a lot oforganizations you can do very well.
You can get to the top without,with basically being a caretaker.
With being an administrator withnever having to be a builder.
If the big rewards go to peoplewho are managing legacy businesses
and somehow not screwing themup, like that's a problem, right?

(59:02):
Because everybody ends upplaying it very, very safe.
Not wanting, not wanting to screwthings up, not wanting to take risks.
And yeah, so the reward systems absolutelycan, can give you an entire company
of careful, timid administrators whonever want to be seen to screw up.

(59:28):
So, you look at a company like Haierwhere if you build something new, you'll
participate in that, equity wise youhave the chance to, do extremely well.
You have a lot of people wake up everyday saying, how do I build something?
How do I push the boundaries?
If you don't have that kind ofupside or for, or if it's mainly
reserved for people, , runningexisting businesses, then you won't

(59:53):
have a company that's filled withentrepreneurs and bold thinkers.
And again, I think, most large companiesare constitutionally extremely timid.
And they don't need to be, right?
They have the resources toexperiment and try new things.
If you thought about it rationally,large companies should be way more
entrepreneurial and more experimentalthan small companies, but it

(01:00:13):
doesn't turn out that way, right?
So because that timidity percolateall the way down, right?
So you may be four or five levelsdown and you don't wanna take a
hundred thousand dollars risk, right?
Or if you're little, you don'twanna take a $50,000 risk.
'cause if you screwthat up, you get dinged.
So you just have, timidityingrained top to bottom and,

(01:00:38):
yeah, and no, nobody has the incentivesto really think radically different.
I had an episode a couple of weeksago, Annie Duke, who wrote this
book, thinking In Bets, and shesaid one of the problems that she
sees is that it's the approach of.
Of , risk towards a startup.
If you think about a startupfounder, they're expected to fail.

(01:00:59):
So the hedge funds, et cetera, theinvestors are like kind of going, , if
it makes it great, you know, butwhatever the percentage is fails versus
a big company that the risk appetite istotally disproportionate, even though
it actually can't afford like Microsoftto go through this period of that didn't
work or I missed something, et cetera.

(01:01:20):
And it's that aspect,that, that view of risk.
And I'd love you to, 'cause you mentionedthe business school thing, same, Gary, for
so many people, you lecture to, you coachyou, you impart new mindsets to that.
They also do this, they've builta persona inside a business and

(01:01:41):
they're afraid to take, risks becauseit'll be a blemish on their career,
or they'll perceive it that way.
But it's actually the only wayyou need to fail yourself forward.
Yeah, I mean, you know, we all use thatrhetoric about fail fast, fail cheap,
fail forward, but the incentives that mostorganizations are not there to do that.
And it's ironic because you can see atthe board level where a company will do

(01:02:05):
a huge multi-billion dollar acquisition.
Let's say that, more often thannot those things don't pay off.
But we'll take some huge strategicrisk at the top and somebody
lower down cannot get, half oftheir time to work on a new idea.
Like, it's just extraordinarilyscrewed up that is the reality

(01:02:25):
in so many organizations.
And some organizations historically,I guess 3M and I today into it, some
organizations and Google, whetherit's still true or not, , said, let's
let everybody take 5% or 10 or 20%of the time to work on new ideas.
So that may be a blunt way of doingit, but you need to have a system
where somebody has an interestingidea can very quickly, qualify

(01:02:48):
that idea with a group of peers.
Is it completely fanciful or might it workvery quickly get access to experimental
funding and time to work on that, right?
And so every organization needssomething like that years ago.
And I don't know in, in what,book, I might have told this story.
I wrote an article was did I writethat with ck I can't remember, called

(01:03:12):
Bringing , Silicon Valley Inside, which Ithink is maybe the most, that, and maybe
strategies Revolution is maybe one ofthe most important pieces I wrote because
I basically made the argument that ifyou look at how Silicon Valley works,
it works on resource attraction, right?
There's not a CEO of Silicon Valleywho says, let's put this much money
into generative AI and this muchmoney into cloud and this much money

(01:03:34):
into, biotech or whatever it may be.
You have entrepreneurs who arecoming up with ideas and you have
a network of VCs there that areeager to find the next thing.
You have a thousands of employeesthat wanna work on the next hot thing.
So you basically have a market fortalent, a market for new ideas, and
a market for experimental capital.
And it's this dance of them findingeach other and funding these

(01:03:56):
things and growing these things.
And all these players have about onedegree of separation between them.
And now it's not only Silicon Valley,you find these clusters around the
world, but, there's nobody sittingat the top saying, well, I think we
should put this much money here andthis much money, resources just flow.
And my argument was, and is, it shouldbe the same in an organization, right?
If somebody, whoever they are, whatevertheir providence, whatever their

(01:04:18):
experience, if they have an idea thatseems relatively promising to a small
group of peers enough that, I can sayit's probably not completely a brain fart.
We need to make it supereasy for that idea to attract
some resources and attention.
So we built, I think, what was the first.
Kind of internal innovation market inthe world for Shell in 19 92, 3, I can't

(01:04:40):
remember called Game Changer still exists.
You can find it online now.
I think it's more of an externalplatform where they're, try to bring
innovation in from around the world.
But it's a very simple ideathat, , and again, sometimes I
go , okay, I know this is a new idea.
It should not be a new idea, right?
Like, this is like, so , how can, but theidea was that every single employee should

(01:05:01):
have the same access to time and money toexperimental capital as, the CTO or head
of r and d or somebody, in the executivesuite, because I don't know where
the new ideas are going to come from.
And so but what I do know isthat most companies fail by
Overinvesting in the past like that.
I know.
And so you better have a way of makingit really easy for people to invest in

(01:05:25):
the future, even in small increments.
And you think guys, that is so obvious,we should have internal crowdfunding
and we should have, things that make iteasy for people to start an experiment.
Still, it is not true probably in 95% ofcompanies that reality just doesn't exist.
We can talk about why,but it's pretty insane.
It's pretty insane.
And I think that's, that's been thegenius of hire is, from the start.

(01:05:49):
They've said, well, , from myexperience with 'em over more than
a decade, they said, we are actuallybuilding a platform for entrepreneurs.
That's what our company is.
And and not only our own entrepreneurs,you know, anybody out there who sees
our resources, our capabilities, ournetwork, our platform and thinks, Hey, I
could do something interesting with that.
We want them to find us.
We want to be able to invest with them.
We want to be able to fund that thing.

(01:06:11):
And, like, why do you think thisshould come from startups in any case?
So I think the ability to build somethinginternally that mimics Silicon Valley
where resources flow very rapidly tonew ideas where people who are outside
your company will go like, wow, you guysreally have some interesting capabilities.
I think I can help youdo something with that.

(01:06:31):
So instead, a lot of these bigcompanies will go buy those little
innovative companies, right?
And, and then usually kill theirinnovative spirit like fairly quickly.
Rather than, well, why don't you createthe right kind of culture internally?
So this is happeningeverywhere all the time.
And, and that's Gary.
You're talking to the exactlistener to this show.
Those people who are inside thebig behemoths trying to drive

(01:06:54):
change and, and just so frustrated.
And it's one of the reasons, thisis almost like a support group, this
show for those people all the time.
I, I never told you this, this showitself actually was born outta that.
I, I worked for the national broadcasterand I was told to come up with an
idea and it was this show and it wasrejected and rejected and rejected.
And one guy who I knew, and this is thepoint, your point, it was only, he only

(01:07:18):
gave me resources 'cause he knew me,but I had to record off company time.
So I had to do it beforework or after work.
And then it grew so big thatmy own boss corporately jealous
and asked me to stop doing it.
I, I was like, I don'tthink that's a good idea.
And I ended up essentiallygetting, I. Fired.

(01:07:39):
But it was made so frustrating for me.
It was like, here's, here's a, a revolverand a glass of whiskey and a pen.
So it was made so frustratingfor me like that I left.
And I think, you know, it's interesting,you know, most people who create
new businesses, these are not, youknow, people's fresh out of business
school with, with, with no job.

(01:08:00):
These are people workingsomewhere else right now.
So, you know, your people arealready creating the future.
You know, it's just whether they'regonna do with you or ultimately, you
know, they're gonna leave becauseyou've made it so difficult for them.
But it's not, it's not that youdon't have people who are capable
of doing this and are eager to do itand, and help you grow in new ways.
And if you ignore 'em, that's fine.
They'll leave, they'll takethat value with 'em as they go.

(01:08:22):
But you're already paying themto create the future, but maybe
you're not gonna exploit it.
We were gonna do way more.
And I was like, I've brought Garyenough on , a trip down memory lane
with this book as well, and, andit's, it is still available online.
It's expensive.
It'll cost you a lot though.
If you can find a secondhand copy, good luck to you.
There's not very many around.
But if you're reading along withthis series, the next book it's

(01:08:44):
the piece de la resistance.
It was , a bestseller for manyyears, won lots of awards.
Leading the Revolution is thebook that we're gonna cover next.
Our guest is Gary Hamel.
I'm very grateful to him forjoining us, especially after
his huge amount of traveling.
Gary Hamel, thank you for joining us.
Thank you, Aiden.
Always a pleasure.
Look forward to continuingthe conversation.

(01:09:05):
Brilliant man.
Thanks a million.