Episode Transcript
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(00:00):
our guest Lays out an innovative actionplan for any company or individual intent
on becoming and staying an industryrevolutionary for years to come by
drawing on the success of gray-hairedrevolutionaries like Charles Schwab,
Virgin and GE capital companies that arealways thinking ahead of the game and
(00:21):
growing in new directions and profilingindividuals like Ken Kutaragi, one of
the pioneers of Sony PlayStation, ourguest, explains how companies can continue
to grow, innovate, and achieve successeven in a chaotic world market with
insights called from years of experience.
And there's been more since thisbook he Explores where revolutionary
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new business concepts come from.
He identifies the key criteriafor building companies.
Are activist, friendly,and revolutionary ready.
He shows how to avoidbecoming one vision wonders.
He demonstrates how to harness theimagination of every employee and
explains how to develop new financialmeasures that focus on creating new
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wealth packed with practical advice.
This book is an accessible readperfect for both businesses and
individuals that don't want to getcaught in the slow lane in the race
for success in the 21st century.
It is a pleasure to welcome back oneof the world's most preeminent business
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thinkers who has helped set themanagement agenda for half a century.
Today.
We share his book from a quarter of acentury ago in 2000, which spent time
on the New York Times bestseller list,the Wall Street Journal, USA Today and
Business Week, all those bestseller lists.
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Author of Leading the Revolution,how to Thrive in turbulent Times
by Making Innovation a Way of life.
Gary Hamel, welcome back to the show.
Thanks,
Aiden.
It's a pleasure to be backand talking to you today.
And I want to let everybody know, Gary,that it's six months now that we've been
recording this me navigating your travel.
(02:12):
Gary travels extensively all over theworld working as a consultant, giving
keynotes, and I want people to understandthat we will repeat stuff because we've
recorded this over lots of, lots of times.
We'll mention the same examplesagain, but I also want our
audience to read along with us.
And I'll have highlighted this inour newsletter today, we're gonna
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focus on chapter one and chaptertwo of Leading the Revolution.
And I want to recognize , thatyou dedicate this book importantly
to your dad, professor Paul Hamel.
And I thought we'd give him the honorof mentioning him and the profound
influence he had on your life, Gary.
Yeah.
Thank you.
Thank you so much.
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Yes.
He he passed away a couple of years agoat 102 and was alive intellectually till
the very end of his life, and inspired meto learn and to follow an academic career.
So I owe him a debt that of coursewill be impossible to repay, but
thank you for that kind mention.
(03:15):
The apple doesn't fall far from thetree, indeed, you, you called one
of your children after him as well.
That's exactly right.
Paul Hamel, rest in peace, . I thoughtwe'd start off with a bit of context
to give people an understanding ofthe corporate temperature at the
time of this writing in, in 2000.
It was the wake of the.comfizzle, various accounting
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scandals, had emerged.
We talked about Enron andstuff like that at the time.
So I thought maybe you'd giveus a little bit of context about
that business environment becauseas Mark Twain said, , history
doesn't repeat, but it often rhymes.
And we're seeing a lot of the stuffthat we saw back when you wrote this
book, reemerging in a different way.
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Yeah, I think clearly what was happeningin the mid nineties, late nineties was
you had a wave of new technologies.
Mobile phones were becoming commonplace.
The internet was becoming ubiquitous.
E-commerce was taking off.
There was a huge tsunami ofventure capital going into these
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new businesses and and a fairamount of irrational exuberance.
And hence we had thecollapse of the.com bubble.
All of those technologies continued towork their way through the ecosystem.
And many companies that werestarted at that time, like Amazon
have gone on to be world leaders.
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But a lot of them gotwashed out along the way.
But I think , what was clearlyinteresting was that that technology
allowed us to dramatically rethink howwe reached customers how we marketed
and how we built audiences and so on.
And as, as is always the case, therewere some companies that were ahead
of the curve that saw the potential.
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Just like today with AI and roboticsand so on, and synthetic biology,
there's some companies ahead of curve.
Curve and some behind.
But then as now, theincumbents were mostly behind.
And that was always kind ofstruck me as odd because.
These existing companies, industryleaders, they have the resources, they
have markets, they have technology,and yet so often they seem to surrender
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the future to faster moving andin fact less well-funded upstarts.
So the book was really acknowledgingthat , the chess table was
being turned upside down.
And you have a choice in that environment.
You either innovate, you eitherreinvent who you are, or you go under.
I think , with a fair amount of hyperbole.
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I remember writing that somewherein the garage, somebody is crafting
a bullet with your name on it.
And the question is how do you dodge that?
How do you shoot first?
So that was the context at thetime, and I would argue in the
decade since we've continued to seewave after wave of innovation, new
technologies, making new things possible.
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But I'm not sure on average.
That large established companieshave gotten any better at
intercepting the future.
Sad to say
one of the things you draw an analogybetween was the idea of the E world.
So back then it was the whole e as inthe internet, but also electricity.
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And I thought that was interesting thatmany, many companies electrified their
processes back in the days of electricity.
many companies then digitized theirbusiness models expecting it to lead
to new growth, but in fact, what itdid was reduce costs and they replaced
analog dollars with digital dimes.
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It's interesting if, if you look at,and, and perhaps we'll talk about
this in another chat Aidan, but.
If you look at the amount of moneywe've been spending over the last 30
or 40 years on digital technology, thatthing has just gone up and up and up.
, the last data that I looked atsaid that we're spending right now
around three and a half trilliondollars a year on digital technology.
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Now, most companies are usingthat in fairly incremental ways
for incremental improvement.
Now , you have to invest in that, right?
The consultants will come and tell you'regonna get left behind, and , that's true.
So you really have no choice whetheryou invest in those technologies or not.
But you do have this choice of whetheryou invest earlier or later, whether
you're ahead of the curve or behind it,and whether you use those technologies
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in incremental ways or whether youuse them in transformational ways.
So here we are years after Amazonwas created and yet Walmart is still
struggling to catch Amazon and e-commerce,and I don't think they'll ever catch them.
And so it, it wasn't thatam that, , that, sorry.
Walmart is stillstruggling to catch Amazon.
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And it wasn't that Walmart wasn'tinvesting in digital technology.
They were one of the first toreally re-engineer the supply
chain, use digital technologyto manage a global supply chain.
But they really just missed theopportunity to invest in e-commerce.
So this pattern just repeatsitself again and again.
And I think on a, , in a very practicalway, if you're a CEO or CTO or CIO, one
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of the most important things you can dois look at your investment in technology
of all sorts, and ask yourself how muchof that money is going into things that
will create new to the industry advantageversus merely trying to catch up.
Because so often the spending is it'skind of just like, zero sum warfare.
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Your competitors invest to be alittle faster, a little better.
You match that investment back and forth.
And of course the consultants becausethey're specialized by industry, by
banking, by transportation, so on,they'll often just want you to do
what all your competitors are doing.
So you really have to be very intentionalof thinking through how do we
avoid this to becoming an arms race?
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And where are we investing and usingtechnology in a way that is truly unique
to our industry and will create advantage.
you say to meet the twin challengesof revolution and renewal, you and
your colleagues in the business aregoing to have to throw out many of
the industrial age beliefs you'recarrying around in your heads right now.
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And I'd love you to riffon a few of these examples.
Pick whichever onesreally resonate with you.
They still exist.
This is the big problem.
And really why I wanted to share yourwork because you've been doing this for.
Decades and people miss it becausewhen they're in the midst of it,
it's different to read about it thanactually have to do something about it.
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You say, for example, a senior executiveset the corporate direction resources
get allocated from the top corebusiness will always be core business.
. Predictability is better than serendipity.
Radical equals risky.
Experience is morevaluable than curiosity.
Entrepreneurship is something that happenson the fringes of the organization, and
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alignment is better than dissension.
When I read about that, I was struckby how few organizations have thrown
out what you call these organizationalorthodoxies that clearly don't work,
and I'd love you to pick a few ofthose maybe and explain , , what was
happening then, but also what you'veseen persist and maybe some companies
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that have broken these orthodoxies.
So.
To be clear, that list you justwent through, , I was arguing
that's dangerous thinking, right?
To believe that innovation just happenson the fringe or that strategy comes from
the top or that the core business willalways be the core business that never
need to be fundamentally reinvented.
So I think, the most dangerousthing in any organization is
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the unchallenged assumptionsand beliefs , of senior leaders.
And often, people in the middleare lower down in the organization.
They're quite reluctant tochallenge those beliefs.
They've learned.
There's very little profit inarguing fundamental points with
the senior leadership team.
So one of the things I think issuper important is for leaders to
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seek out the internal dissidents.
Let, let me give you kind ofan old example, but I can give
you contemporary ones as well.
There was a smart technologist atat and t and you might remember,
although it's a while ago the oldtelephone network was built with all the
intelligence and big central switches.
So giant computers that didmanaged the volume of calls.
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And if you wanted to create a new feature,like call waiting or something like that,
you had to reprogram this central switch.
And if you got it wrong youbrought down a telephone system.
Well, this is the time theinternet is starting to emerge.
And, and this, this technologywrote a paper inside of at
t called The Stupid Network.
And that was a very provocativething to say in a TT 'cause they were
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talking about the smart network, right?
Where you had all thisintelligence at the center.
But, but what you could seehappening was the intelligence was
all gonna move to the periphery.
The intelligence would be in ourdevices, in the servers, and so on.
And the network itselfwould be like dumb pipes.
So he wrote that piece very, veryprescient and was forced to take
it off of his website and kind ofdisown it and ultimately left at
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and t because the idea of a networkthat was simply dumb pipes where the
intelligence that was just like toohard for them to get their heads around.
And you see this again and again.
I might have mentioned, young Eric Yuan,this is just a few years ago, he was a
immigrant to Silicon Valley from China.
He had, was a passionate about videoconferencing had gone to work for
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Cisco, who had a product calledWebEx, which some of us might remember.
And which I think now hasmaybe three or 4% market share.
And year after year he encouragedhis managers, his boss.
Like, let's get into a more consumerfriendly video conferencing business.
Let's do something in thecloud that everybody could use.
They said, no, no, no, we'rea B2B company not interested.
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The kid leaves and he creates zoom.
Which now has about 60% market share.
So yeah, this, this repeatsitself again and again.
So as a leader, you wanna look for thepeople who have different points of view.
You wanna in every meeting you wannasay, is there something I'm missing?
Right?
Is there some old belief I'm hanging ontothat I shouldn't, is there some assumption
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I'm making that might not be more valid?
Is there something you areseeing that I'm not seeing?
And you have to be, particularlyas a more senior leader, you have
to be very explicit and intentionalabout that because people are very
reluctant typically to speak up.
Companies miss the future not becausethey lack the resources, nor typically
because the future was unpredictable.
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They missed the futurebecause it was unpalatable.
It was just like, thatmakes me uncomfortable.
Or because they were simplyasleep at the switch.
They were not out there wherechange was happening, deeply
immersed in it, understanding it.
So yeah, that for me is the mostdangerous thing for any organization.
And as a leader, you need to beseriously humble about what you believe.
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Always open to disconfirmation,looking for disconfirming evidence,
amplifying the uncomfortable signalsrather than trying to damp them down.
It's either that or you surrenderthe future to somebody who's
less orthodox than you are.
One of the problems , and reallywhy I love sharing this work and
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the breadth of your work and howfar it's gone back is you've seen
these patterns time and time again.
Like, one of the examples yougive is the mall in America.
And you had JC Penney on one end.
You had Sears at the other end, BDalton and KB Toys for those people
who remember those companies,but then they were replaced by.
At the time when you wrote this 2000Toys-R-Us, the Home , Depot and Staples,
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and Walmart, displaced Sears, and then allthese companies got in trouble themselves.
So the cycle keeps continuing.
And what I really think is important iswhen you're in it, you don't see it as
much because you have vested interest.
Maybe you're close to retirement,all these different things
that make your decision makingflawed really get in the way.
(15:17):
Yeah.
And I think there's just a naturalhuman assumption to believe
that what is forever will be.
That's simply not the case.
I wrote a, a piece some long yearsago for fortune and I argued it's
unlikely that Amazon will be the lastchapter in the history of retailing.
Like, I don't think like Godis gonna stop the clock on
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retailing evolution with Amazon.
So they may reinvent themselves, or it'shard to imagine what might come next.
They're so dominant, but youhave to be willing to try and you
see things around the periphery.
These see businesses like Shopify,which are going to many businesses
helping them set up their e-commerceand handling all the logistics, the
backend, the payments, and so on.
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And allowing small businessesto compete with Amazon scale,
at least to some extent.
So, yeah, that's.
That's a mindset that you just haveto take super seriously, is that
what we have is not permanent.
It's not forever.
We live in a world ofcreative destruction.
Either we are going to reinvent ourselvesor somebody else will do it despite us.
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But when you have so much at stakein the existing system, very hard
to challenge that Orthodox , Ilook at right now at education.
With tuition, certainly privateuniversities in the United States and UK
and so on, tuition is going up and up.
You find that most, like twothirds of university graduates
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end up not even working in thefield where they got the degree.
A university degree has nowkind of just become a commodity.
The education is becoming unaffordable.
A lot of programs are not preparingpeople for today's workplace.
And yet these universities justseldom ask themselves deep questions
about what are we teaching people?
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, how do we use technology?
What's the value of what we're doing?
How do we take a a, an enormous amountof cost out of the system is kind of
let's just perpetuate what we have.
So that's the, the benefit is when you'veseen this pattern over and over again.
You start to be, super humble about whatyou know, and just constantly on the
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lookout for what might change this?
What about some companies that youreally thought would make it, and
they just totally bombed.
Or they had, they played all theright moves, but just didn't, whether
it was that they had the wrongstrategy or they didn't execute right.
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Or as you talk about in the book a lot,they acquired their way to growth or
they didn't do an Enron on it, basically.
So they weren't illegal in anyway, or not creative accounting.
But, I'd love you to share maybe onecompany that you were like going,
man, I thought these guys wererock stars and then this happened.
(18:12):
Well, certainly, again, watchingthis pattern and watching
companies ebb and flow and so on.
I. You become very reluctant to declarethat like anybody has figured it
all out because most, most haven't.
I, I would say writing back when I waswriting that I did expect Sony probably
to have done better than it has.
(18:34):
It certainly leads in some areas in,in, in the photographic business, which
is kind of a dying business in a sense.
Cameras they just doextraordinary products.
They are still absolute world leadersin miniaturization, but they were
also slow to the digital revolutionand slow to adopt new technologies.
Made some big acquisitions thatprobably weren't very smart, like
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columnbia Pictures and have seateda lot of ground to LG and Samsung.
So that was a highlyentrepreneurial company.
I remember I'll tell afunny little anecdote.
I, I was one time at the WorldEconomic Forum and they put
me up in a really lousy hotel.
And with a very hardsingle little bed in it.
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And I was a little I have to say, pissedoff and like, Hey, I've come all this way.
I'm talking and you guys put me.
And so I walked down to get a taxior a car to go over to the main venue.
And checking out of the same time asme as Akia Morita, the founder of Sony.
So I thought, okay, if he could dealwith a hard band, I better shut up.
But again, you see that same patternof a brilliant inventor, huge vision
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creates the Walkman and the PlayStationand all these amazing products.
But at some point like so manyorganizations and in fact this
happens without any alarm bells oranything off, but at some point you
believe you have more to lose than togain from challenging the status quo.
And you shift from kind of playingoffense to playing defense.
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Let's not screw it up.
Let's make sure we getthe next generation right.
And so on.
I assume that happened at Sony,but they were just also slow into
digital and therefore createdan opportunity for others.
So that's, I mean, it's still a greatcompany, but it's one that I might have
expected to have hung on to its leadershipand flat screen d displays perhaps have
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a much bigger presence in the PC thing.
I think at one pointthey had mobile phones.
I assume that's gone, ormaybe it's just in Japan.
So yeah, that woulddefinitely be an example.
And some of those orthodoxiesyou talked about there, like
the strategy comes from on high.
The senior executives don't mixwith the rest of the organization.
One of the stories I heard about Sony,and you were probably there, their HQ in
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New York was that the senior executivesand the CEO had a separate lift so
they wouldn't mix with the common folk.
And as a result, you don't havethose kind of water cooler moments.
You're not finding out what'shappening on the floor.
You're not seeing what salespeople areseeing out there in the real world.
I hope that some of that has changed.
, I certainly think the dedicatedlifts in the private dining
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rooms , are probably mostly gone.
But even when you have more interactionagain, unless you go out of your
way , as a leaders, a CEO to invitedescent and ask people and question
them, you'll still live in a bubble.
Right.
People are not going to kind of challengeand I've seen this again and again,
, even recently, I, I shouldn't name thecompany, but a company that all of your
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listeners would know a very famouscompany sit, sitting in a meeting I'd
watch a young team like work hard, preparea presentation quite provocative, and
come in and then just immediately wiltwhen they get like the first objection.
And kind of, oh yeah, wellmaybe that's not right.
And so on.
And it wasn't that they lacked thedata, but I. They just didn't have
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the courage to fight their corner.
And to be fair, the people on theother side, the senior executives they
were more interested in showing offand scoring points than they were in
learning something from this young team.
It's, it's a lesson I learned a long,long time ago when I was working with
a large, large IT consulting company.
Again, every, everybody know the company.
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And, and I saw a similar dynamic , atplay where a couple of people, they've
been doing some really amazing work.
A young team, a couple of people come into present to the executive committee.
These guys are sitting around somebig impressive table and here's
some like kid up there and they,it was just like a crucifixion.
And it wasn't like necessarilyill intent, but this is just as
a leader this is what you do.
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You pick other people's argumentsapart and often you're more interested
in challenging their first assumptionthan you are just like sitting back and
shutting up and like learning something.
So I remember in that particularcase the next time we did that,
'cause we had a bunch of steady teamslooking at the future and coming
and presenting to the senior group.
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The next time we did that, we tookthe senior group out of the corporate
offices because that's their castle.
We rented some kind ofshabby premises somewhere.
We had them sitting on folding chairs andthen we made sure that the team coming
to present outnumbered the executiveteam and so you just mixed up the
power dynamics there and you couldn'tfeel quite so cocky , and important.
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And then we said, and youcan't ask anything for the
first 30 minutes, just listen.
So, yeah, that's, there's littlethings you can do like that
will help to even it out.
But the people who see the futurein most organizations, the most
clearly are out of the periphery.
They're closest to customer's technology.
They may be a long ways from headoffice, and you have to make sure
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that those people have a significantshare of voice in any discussion
about the future and strategy.
And typically they don't.
So there's things youcan do to change that.
But, if, if you don't, you'll justshut those people down and pretty
soon they learn like why bother?
Why speak up?
(24:03):
I hope you put them up in the same hotel.
They put you up in the WorldEconomic Forum, the crappy bed.
Gary, maybe you'd chair, I knowHaier is a company you work very
closely with and one we admirevery much on the innovation show.
We talk about it as a hero of innovationin many ways, but the idea of getting
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outta the building is very much atthe heart of a company like that.
And if there are anythingyou can share, please do
we could go into a very deep kindof case study on them, and I think
maybe we'll save that until kindof we're talking about maybe my,
some of my more recent books.
But I will tell you fundamentally I thinkthe most important thing they've done.
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They challenged this deep managementbelief that large companies are there
to exploit their scale and their size.
And that young companies arethe ones that invent the future.
So I don't remember which greatmanagement thinker and I'll get it
wrong if I, so forgive me for notremembering, but there's a simple
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little framework, that we usesometimes where there's two dimensions.
One is exploit.
So exploit the advantages you have.
And one is explore.
Like go out, find thefuture and invent it.
And I think many, and rightfully so manymanagement theorists and thinkers have
said these are mutually exclusive, right?
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Like, you either are big and you'retrying to do the same things over
and over again and eke out the smallefficiency gains and scale up or you're
nimble and you're out there lookingfor the future and trying new things.
And clearly what happens as youngcompanies grow up is they move
from being , in that exploredterritory to being exploit.
(25:54):
So again, you look at companies likeGoogle and Facebook and so on, they've had
some great innovation, but over time theenergy of everybody is more about running
what we have then building something new.
And so we just took that forgranted that it's impossible
for a company to be good at both.
You can't be this like bastion ofpenny pinching efficiency and also
(26:15):
break the rules innovation and Haier.
So like, why not?
And part of that came as ZhangRumin told me years later, they read
another book I wrote called The FutureManagement, which I argued yeah, very few
companies have done this, but there's noreason it should be impossible, right?
We should be able to walk and chew gumat the same time in very large companies.
Like, why can't these things coexist?
(26:37):
That was really the goal is howdo we build a company that is an
entrepreneurial platform where you canhave small teams, very entrepreneurial,
even inside existing businesses?
Because again, I think the mistakea lot of companies make is to think,
, the core business is just the core.
It's forever gonna be the way it is.
(26:57):
And then we'll innovate over here andfind, try to find the next big thing.
Well, the core has to be reinventedfundamentally over time as well.
Or it becomes more abundant,irrelevant, and so higher realize
we need as much entrepreneurialenergy in the core business.
Inventing new brands, higher valueadded brands bringing intelligence
(27:17):
into our appliances leveraging smartmanufacturing learning how to get
much better at bringing in customerinsights into our development process
with more traditional products.
So they said, , we have to be asentrepreneurial inside the core
business as we are anywhere else.
And so when you hear throughthe years Zhang Rumin, they're
(27:39):
iconic CEO now I guess ChairmanEmeritus that was always the goal.
We're gonna do both.
We're gonna exploit scale whereit adds value, and we're gonna
do that in some very unique ways,perhaps we talk about later.
It's not that they don't havesizable scale and they can exploit
scale and building brands andmanufacturing and r and d and so on.
(27:59):
But we're also gonna build an organizationwhere everybody has a local p and l.
They all feel accountable for results.
They all have the scopeand freedom to innovate.
And it's just a killer combination whenyou could put those two things together,
now they could screw up in some way.
I can't yet anticipate, but Ithink that's really been their,
(28:22):
their signal contribution tohow we think about management.
These are not mutually exclusive.
You can have all of that entrepreneurialenergy and in fact they're open
to entrepreneurs from outside.
If you have an idea, if you look atsomething Haiers doing, you look, they
are a world leader in internet of things.
You look at their platform, CosmoPlat and say, gee, we could use
that in the clothing industry.
(28:43):
We could use that in medicine,and we can use your tech.
You can come to Haier, you puta proposal to them, they'll
help you create that business.
And so the fact of the matteris most new business plans.
Written by employees working for somebodyelse who are frustrated and they leave
and then they go start the new business.
Like why not make it easyfor people to do that inside?
(29:04):
And that's what Haier has done
That idea of breaking the rules.
Gary, you authored a Gallup survey andthis was, you talked about in the book
where you asked 500 CEOs who took bestadvantage of change in your industry over
the past 10 years, newcomers, traditionalcompetitors or your own company.
And the number one answer almostunanimously was newcomers.
(29:28):
And everybody said they claimedthat they were executing better.
You were really trying todifferentiate this, is it execution?
Because everybody says theproblem is execution or we
don't have the right people.
But what you find is it wasalways changing the rules.
Yes.
That bravery, like Haier had to changethe rules is the real challenge.
(29:51):
think that's true.
And , it continues you look at paymentschime you look at in defense a new
company called an Anduril, A-N-D-U-R-I-L,which has recognized that in
future military conflict, numbers aregonna be more important than mass.
So they're working on how do you usecreatively drones and other technologies.
(30:17):
Obviously we all know what SpaceX hasdone Databricks and so on, and so it's
not like anything has changed here.
In almost every industry you look at.
If you look at,
market value of the whole industry,and then you go back over the last 5,
10, 20 years, you'll find that mostof the new market value, enterprise
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value was created by new competitorsrather , than by the incumbents.
And that, again, thatkind of mystified me.
Like, why should it be that way?
And in fact, where where I've lived formost of my professional life in Silicon
Valley, we we just expect this to happen.
We expect the incumbents to screwup, to miss the future, to be slow.
And usually that's that's a good bet.
(31:03):
So again the technology is outthere for everybody to use.
It's not like this technology, youcan Haier the scientists, you
can it's not that it's typicallyso esoteric and difficult.
You can form partnershipswith these young companies.
You can buy them.
So it's not really about the technology,but it is about that ability to
(31:25):
think differently about the future.
And again, I think often
when people look at technology,they fail to kind of strip it
back and ask the question, what'sthe new functionality here?
What are the core of this?
Does it allow us to do?
Right?
AI allows us to contextualize andto organize knowledge in a very,
(31:51):
very specific way to fit whateverparticular problem or context you have.
And so you sit, okay, if that's the kindof this core, like where do we, where
would we deploy that across our business?
How do we use that in atruly revolutionary way?
So yeah, , the patterns haven't changed.
It is still by and large young companieswho are creating most of the new wealth.
(32:14):
But I'm encouraged because here andthere, as with Haier and a few others,
I see companies that are beginning tosay, it doesn't have to be this way.
There's some risk aspects here.
So if you've created a successfulcompany or you've come in as a new CEO,
there's an expectation on you both to.
Defend the past or grow itand create something new.
(32:38):
And you say, without doubt,innovation can be risky.
Think of Motorola as multi-billion dollarbet on Iridium, which actually went bust.
But innovation risk is determinedby four things, and I'd love you
to maybe extrapolate some of these.
First was the size of the irreversibleand nonrecoverable financial
(32:58):
commitment that must be made toget a project off the ground.
These are all the killers.
Second, the degree to which the newopportunity departs from the company's
existing base of technical and market.
Understanding we talked about thecapabilities or the competencies before.
Third, the amount of irreducibleuncertainty surrounding
(33:18):
critical project assumptions.
And fourth, the timeframerequired for the ramp up.
The longer the timescale,the higher the risk.
Those things absolutely destroycreativity inside companies because
taken on these things, like those poorkids that went in front of the senior
executives, you get crucified for thesetype of things when it'll be profitable.
(33:41):
And those kind of questions killthe idea before it's even born.
, and so those are important criteriato be very aware of when you're
looking at a new opportunity.
I would say though, there's oftenan assumption that that risk and,
being radical means being risky.
(34:03):
That these things are the same thing.
That if an idea is radical toparts the norm, it is also risky.
And I just that is sometimes true, right?
, when Boeing were developing the 7,8, 7 and they set out for the first
time to develop a fuselage out ofcomposites rather than aluminum.
(34:23):
That's a pretty risky thing, right?
If you get that wrong,it's super expensive.
You're betting the future of avery important program on the fact
that you can master that technology.
There's no way to do itkind of halfheartedly.
And in that case it did take thema long time to get it right, and
it was super, super expensive.
So there are some things like that.
Now you can argue even there, there'sa way of testing that at smaller
(34:46):
scale and making sure the technologyis ready before you do that.
So there are things like that you know,, where the bets come in very large chunks,
and maybe it's hard to do it, but in alot of cases that's that's not the case.
I think Nestle now has areally big business with
(35:07):
these coffee capsules, right?
An espresso.
I don't, I can't remember, thelast time I looked, it was more
than 4 billion Swiss francs.
It's probably double that now.
You go like, well, how do youreinvent coffee for heaven's sakes?
Like this has been around forever.
And you reinvent it by making it mucheasier to have a good cup of coffee.
And if I remember the innovation behindthat started decades ago and just
(35:34):
step by step, little bit by little bit,they were started to explore, well,
what can you put in these capsules?
Can you get whatever you need?
And so many bars of pressure throughthe coffee maker, can you get
something good out the other end?
So if you'd looked at theinvestment in that business.
As a share of Nestle's revenues.
It was trivial.
It was like some third decimal point.
(35:54):
And so often what's importantin innovation is persistence.
And just keep at it.
Keep experimenting, manage the risks.
Make sure that your investmentdoesn't get ahead of your learning.
Don't like go big and bold as ifyou've already figured out all
these things, if you haven't.
And so I think as often companiesdon't intercept the future, don't
(36:17):
create the new businesses, notbecause the risks were so big.
And and that it really was likecompletely rolling a dye, but you
just didn't stick with it long enough.
Right.
And you weren't creativeenough in de-risking it, right?
So for example, at Haier, almost everynew product that they develop now, they
(36:37):
start by putting prototypes up online andasking hundreds of thousands of followers.
Does this make sense to you?
Does this look attractive?
What do you think about , the features,the price and so on, and getting
a huge amount of early feedback.
Well, like, why wouldn't you do that?
Rather than getting a long ways downthe development cycle and find that
(36:58):
you've kind of missed something.
So I think , as much energy asgoes into coming up with new and
innovative ideas, you have to put anequal amount of energy into thinking
about how do you de-risk that?
How do we use partners?
How do we get early customer feedback?
How do we do prototypingat very low cost?
Because often big companies losea lot of money because they can.
(37:21):
And what I've often seen is you getit's kind of the opposite problem
of completely missing the future.
You get executives that get reallyexcited about something and you
pour a ton of money into it andyou mistake money for commitment.
And in fact, it's it's a common problem.
If you ask people in,in most organizations.
How would you know if your leadership teamwas really committed to this idea, to this
(37:44):
new business, or whatever it might be?
And almost always the answerwould be, well, like , it's money.
And people, we'd have a lotof investment behind you go
like, no, no, no, no, no, no.
That's a really bad measure of commitment.
At some point that might be important,but at the beginning, what you
want is intellectual commitment.
We believe there's an opportunity here.
We believe this is going to be important.
We're gonna take it super seriously.
(38:04):
We're gonna put a few of our bestpeople on it, and a little bit of money.
But you measure it by commitment andperseverance, not by how much money
you're spending because the risk iswhen you're doing something truly new,
it's very easy to get it wrong as well.
And there's there's plentyof examples of that.
Cisco wasted a ton of moneytrying to create a video
(38:25):
conferencing solution for the home.
I think it was called you and me,I'll have to go back and look, but
like hundreds of millions of dollars.
At the same time it was clear wewere gonna just be able to video
conference off of our PCs and so on.
This is a proprietary thing where youhad to have Cisco equipment on both
ends and pay a monthly subscription.
Like if you would've justthought about it deeply.
(38:45):
Now, the idea that like, let's allowpeople to do this was a good idea, but
the approach was like wrong and it wasba based on faulty assumptions, which
maybe you would've found out earlier ifyou would've taken a little more care
and gone slower and done better testing.
So you have to be careful and notassume that radical equals risky.
(39:06):
'cause if you do, you'll nevertry anything that's truly new.
Alex Osterwalder was on the show beforehe, he talked about the Nespresso idea
that it was a business model, it was adifferent business model for Nestle.
And I wondered about that.
What were your.
Observations of that.
So a company has become successfuland has a business model that
works or has a formula thatworks in the exploit language.
(39:29):
They are exploiting this very, very well.
Somebody, maybe it's slow studentsagain, or those new hires that come
forward and go, we've got this new idea.
It's a new business model.
Introducing that , can cause a whiplashinside an organization sometimes.
And I wondered a, any good examplesof that you've seen in your work?
(39:49):
Well, I think.
I've always been a bit.
So yes, it was a new business model.
And in fact, I think in, in, in thebook we're talking about today leading
the revolution, I think that was reallythe first kind of mainstream, this, it
was long before business model canvasand so on, but we, I think I called
it , a business concept innovation.
Maybe it was the languageI used, I can't remember.
(40:11):
But clearly , that's whatthese newcomers are doing.
It's not just a new product, it'san entirely new business, a new
way of going to market, a new valueproposition, often built on new
competencies, capabilities, and so on.
And so, the innovation's not arounda particular product, it's around
the whole business model or, or todayin, in indeed the whole ecosystem.
But I think, a lot of people haveargued, well, the reason innovation's
(40:34):
really, really difficult for largecompanies is because it's gonna
cannibalize what they already have.
And to some extent that is true,but in most cases, the new thing
turns out to be way bigger and waymore valuable than the old thing.
That's a that's the only way itbecomes big and it's a success.
It's better than whatwas being done before.
(40:55):
And it may have it may have lowermargins but the volume may be a multiple.
So I think we talked about before, we cancome back to this in another conversation.
You look at Intel passing on theopportunity to do small chips for
mobile devices for Apple and others.
And you could argue, well themargins on that are probably gonna
(41:17):
be lower than selling microprocessorsto Dell and HP , and so on.
And yeah.
But , look at the volume.
Look at , the billions of thesechips that are produced every year.
So I think it's oftenthat's not a good excuse.
Right.
And so, I have to say, I almost kindof disagree with the premise of the
(41:40):
innovator's dilemma that if we do thisnew thing, it's gonna just cannibalize.
It's such a difficult challengeand we have to walk away
from everything we've done.
That's just generally, that's not true.
The new thing starts small, itdoesn't cannibalize right away.
You have plenty of timeto adjust and adapt.
Now once in a while you getsomething like digital cameras, yes.
(42:01):
That just pretty much decimate fail.
But lemme give you another example.
One of the first cases I taught , asa young professor , many years ago
was a case on Canon versus Xerox.
So at the time Xerox copiers weresold mostly to big companies.
They could do thousands ofpages an hour, and so on.
And and you might remember,you might not, where in some
(42:24):
sub-basement in your university orcompany, you have this photocopying
department with these big machines.
Well, cannon said, you know what,why should people have to walk down
four flights of stairs or whatever?
Like, let's just give people a smalllittle copy or little printer, like right
in their office and at the beginning.
That's very easy to ignore by, from XeroxXerox had a completely different pricing
(42:48):
model based on pages that you used.
Canon just sold the device andsold some toner along with it.
And it was pretty trivialfor a very, very long time.
And Xerox would've had plenty of timeto think about that and get into that.
Now, it was much lower margin required,different distribution, but these were
not like insuperable problems to solve.
(43:09):
So it was, it was far more just lazinessor dismissal, a dismissive attitude that
it wasn't that this suddenly eroded thecore of Xerox's business and if they
would've committed to it you have a profitcrisis, it just simply wasn't the case.
And it isn't the case generally.
So,
(43:29):
it's simply that that thing wasunfamiliar and and, and challenged
some orthodoxies about how you priceand who your customer is and so on.
So I think that, sometimes large companiesuse that excuse or others use that excuse.
Well, it's so difficult because youknow it's gonna destroy the business
you already have not right away.
(43:51):
And often it turns out tobe a bigger, more profitable
thing than what you already had.
And that, that, that provedto be in that case as well.
I'd love to share a graphthat you have in the book.
Remember Gary wrote this in 2000,and think about the adjectives.
You described that process in this,for those people, just listen to us.
column A is procedural, reductionist,extrapolate, elitist and easy.
(44:16):
And B is creative, expansive,inventive, inclusive, and demanding.
And Gary asked you to think about thatin your organization, which adjectives
describe the planning process.
And even though we know that thisdoes not work, we still persist
with column A. And I'd love you totell us a little bit about this.
Garry.
(44:37):
I wrote a paper and I, and I thinkit was probably an HB article.
It was probably a little bit before thatbook came out leading the revolution,
but it was called Strategies Revolution.
And the argument behind itwas maybe two things really.
One is that the most importantthing about any strategy is how it's
different from every other strategy.
If a strategy is just a pale limitationof, what your competitors are doing,
(45:01):
or it is based on just kind ofcommon insights across your industry,
that's not really a strategy, right?
If there's no chance of that strategyyielding above average performance
if the strategy is kind of not verydifferent, not very differentiated.
And I think the second point in thatpiece is that if you wanna create a
(45:23):
breakout strategy, you probably needto engage new people in the process.
You can't have the folks who'vebeen running the legacy business
for the last 10 years who areemotionally vested in that and so on.
They're not the ones that are gonna comeup with the ideas for the new thing.
And so I argue that whatwe typically call strategic
(45:43):
planning is actually an oxymoron.
Planning and strategizing are twocompletely separate activities.
Strategy is really about imaginingnew possibilities, generating new
options that should be very kindof divergent and exploratory.
And planning is about laying outthe milestones and the resources
and programming that into existence.
(46:05):
And we conflate those things.
So we talk about strategic planning andobviously in most cases what you find is
95% of the effort is on the planning sideand like maybe 5% goes into something
that's truly imaginative and expansionary.
And that's why in one recent survey Isaw only 11% of executives thought their
strategic planning process created value.
(46:28):
And there was a PWC study.
And I'll, I'm gonna get thiskind of somewhat wrong, but
I'll get it direction correct.
I think in that study, a survey, Ithink of 6,000 executives barely, only
a third, said they've had a strategythat they felt was differentiated.
I think only 18% said they had a roadmapfor building future capabilities.
(46:49):
So, most companies are still stuckwith that very linear reductionist,
financially driven planning process.
And yet the chances of outperformingyour peers, the chances of
intercepting the future areabsolutely dependent on a process that
generates dozens, if not hundreds orthousands of new strategic options.
(47:14):
And then you can start tosift through them, which makes
sense, which will create value.
But the planning processtypically is very linear.
There's very littledivergence at the front end.
There's not a development of a rich arrayof new, interesting ideas, which, by
the way, Aiden one, one of the reasons.
Companies so often are kind ofincremental and stick with what they
know is they, there's nothing infront of them that looks better.
(47:37):
I think there's this oldexpression, the bird in the hand
versus the bird in the bush.
So the bird in the bush, your existingbusiness, like the feathers may be
coming off and it's kind of halfwaydead, but damnit, this is my bird, right?
I love it, I know it, and so on.
And if you don't see that bushwith all this bright plumage and
all these new opportunities, right?
You have to have, you have to believethat the future, the new is gonna be
(48:01):
more valuable, more exciting than whatyou're hanging onto at the moment.
To get there, you have to have astrategy process that generates a lot
of new and compelling alternatives.
And that means a very different sortof process than what we call planning.
It means teaching people how to thinklike innovators involving hundreds
of people across the organization andgenerating options using peer review
(48:25):
to find the best options rather thanlike letting you know the old guard
decide what they wanna do or not.
So, and we can get into this, what Icall open strategy, but, the planning
process is deeply broken and we needto , make a very clear distinction
between budgeting and planning.
Creating a strategythat's fit for the future.
(48:45):
That idea of the bird, Ijust see this horrible bird.
Hey, what do you think?
My pet bird bird?
And you're like, yeah, it's lovely.
You mentioned a Dakota saying fromthe Dakota tribe, which is if your,
if your horse is dead, dismount thehorse or dismount a dying horse.
But I, I wanted to segue to strategydecay, which is chapter two, and
(49:10):
something that , you called out then.
So you said between 1995 and 2000,the NASDAQ Composite Index rocketed
from 7 5 5 to 4,000 7, 696, and theDow Jones Industrial average climbed
from less than 4,000 to nearly 11,500.
There were many who claimed that thelong stock market rally was proof that
(49:32):
the business cycle had been suspendedand that a new age of unprecedented
productivity growth had dawned.
And when I read that, I was thinking,well, we're seeing something
similar at the moment, but back inoh eight and oh nine, when we had
the financial crash, many businesses,were backed and they were bailed out.
(49:52):
And then during the pandemicin 2019 to 2022, say, other
businesses, smaller businesses aswell, were backed and bailed out.
And there I share that becauseit masked a lack of innovation.
It was people who lost the muscle,the innovation muscle that got them
to that position in the first place.
(50:14):
And I thought that we're seeing alittle bit of that again because of
the market being so strong that it'smasking perhaps a lack of creativity
or innovation in many, many companies,particularly in the us big, big companies.
No, I, I think that's true, Aidan, andagain, we might go deeper in that in
the future conversation, but let methrow out a little bit of data now.
(50:38):
'cause we've just, I've justreally been thinking about this.
And we can start with US companies,but it's not, they're just maybe
more extreme example, but you kindof see this across Europe and so on.
So if you think from about the last60 years, and we're gonna divide that
into last 30 and then the previous 30.
So we, whatever we have, like early1990s until now, and then early
(51:00):
nineties, back to the sixties.
So if you took that first 30 yeartime period from the early sixties
to early nineties, corporate profitsin the United States grew at about
two and a half percent per year,like real growth, compounded growth.
If you take this more recent 30 yearperiod that has been closer to 5%.
You go like, what the heck happenedthat this long-term trend of slow
(51:24):
profit growth, and I'm talkingabout like the s and p 500,
suddenly that curve goes like this.
And, and by the way, that hasbecause co salaries are tied to
share price and so on, and sharesreflect profitability expectations
that has just dramatically increased.
CEO salaries, we unpack whatthat happened as some economists
(51:47):
have done, and you find that.
The majority of that increase inprofitability is re accounted for by three
things, none of which have anything todo with leadership, innovation and so on.
Number one is that we've hadhistorically low interest rates.
So law borrowing costs have been downand we had effective interest rates
(52:10):
close to zero for a long period of time.
That's changing.
So that was one.
Number two in the US we had abig cut in corporate tax rates.
The effective tax rate for the largestcompanies was basically cut in half.
It sounds like Trump is, is goingto, to, to, to, to cut those again.
And then, and then thirdly, you hadgrowing consolidation across all of these
(52:32):
industries and banking, automobiles,telecommunications, airlines, growing
consolidation, which gave thesecompanies more market power, more pricing
power, and therefore bigger margins.
And those three things explain.
More than a hundred percent ofthe increase in profitability.
In fact, if you take those things away,the profit growth over the last 30 years
(52:52):
would've been slightly less than itwas during the previous three decades.
And so, yeah, I mean, there'ssome things that I would argue
are probably not sustainable,that are running out of steam.
Borrowing costs are not gonna go lower.
We may bring corporate tax rates down,but like that's a one time thing.
(53:14):
We're getting, I think, less willingto see big competitors merge.
Competition authorities I think aregonna be, become a little bit more
active, perhaps, maybe not, but inany way, that wave of consolidation
you can't consolidate forever.
So I think yeah, I think we'vehad an illusion of vitality on
(53:39):
the part of these companies, whichis really, that it's an illusion.
When you look at the data in theUS you find that over half of the
largest companies in the UnitedStates over the last 20 years, have
grown more slowly than GDP growth.
Like really, you're a big company withall these resources and smart people,
(53:59):
and you can't even grow as fast as GDP.
That's like, that's pretty pathetic.
So, yeah, I think, I think thereis endemic mediocrity that has been
disguised by exogenous externalfactors that have Boyd profits up.
But, I, I don't know that, Idon't know anybody who would tell
(54:21):
you that the next 30 years aregonna be easier than the last.
And in fact, Goldman Sachscame out with a report,
predicting that share pricewill be up by about 3% a year.
Over the next decade, whereasover the past decade, it's
averaged about 10% per year.
(54:42):
So yeah, I think, I think we are goingto find out which businesses maybe
can still innovate and which can't.
But as you were suggesting after allof these good years, I think there
may be a lot of businesses, and Ican name some of them that have lost
a lot of that innovation muscle.
(55:04):
I think of Procter and Gamble, Ithink it's been more than 20 years
since they internally createda new billion dollar brand.
I and we don't want it to happen.
buffet said , it's only when the tidegoes out, do you see who's swimming naked?
And there's a lot of people bluffing,a lot of people, and they don't, I
don't think, they don't even knowthat they're lacking innovation
(55:24):
muscle that they're gonna need, thatthis change muscle has atrophied.
And as a result, if you're, if you are achange maker and you're good, you don't
get a job in this company or you're oustedbecause when will this be profitable?
And this is a segue to the next importantpoint that you make, is that in so many
companies back then that you studied,there was unsustainable cost cutting
(55:46):
going on where they were trying to getmore and more blood from the stone.
And another study that , you did researchthat indicated that if a company's earning
growth exceeds its revenue growth bymore than five to one for more than three
years in a row, there's an 80% chance thatit will face a major earning shortfall
sometime in the next three years.
(56:06):
But simply, I love this one.
There is a limit to liposuction.
Yeah, I think maybe today I would I thinkI then, I call it corporate anorexia.
Maybe today I would call it likecorporate ozempic or something.
It's the same thing.
If you look over the last 10, 20years, what you've seen is a whole
(56:28):
lot of not necessarily wrong costcutting strategies, but things that
simply don't build a stronger business.
You've seen huge shift to contract labor.
90% chance when you call your bankor an airline or whatever, you're not
talking to one of their employees.
You're talking to a contractor somewhereoften on the other side of the world.
(56:51):
You've seen obviously a huge amount ofwage arbitrage with, about 40% of the
world's manufacturing shifting to China.
And and we've used whereverwe can technology to replace
human beings and so on.
So yeah, we're.
(57:12):
I think the other term I hadfor this, which is perhaps more
evocative, is denominator management.
So if you think of the numerator is,revenue and the denominator is costs
of, of people in capital and so on.
It's obviously easier to cut thedenominator than to grow the numerator.
(57:33):
And so I think you have lot of leadersin companies who are essentially
denominator leaders and they know howto do wage arbitrage and cut costs
and get rid of people and so on.
You saw, I mean, a classiccontemporary example is looking
at what Boeing did, right?
You, you, you spin off fuselagemanufacturing to a kind of startup
(57:57):
that you fund and, and, and so on.
Arguably a very criticalpart of making an airplane.
You find out that, and you replace alot of long-term, deeply experienced,
but expensive employees with relativenewcomers who have no experience making
airlines and you're gonna have a problem.
And they did have a problem withdoors coming off aircraft and so on.
(58:19):
And so yeah, this is still an issuewhere you are willing to trade away core
skills, real expertise, experienced peoplefor relatively short term cost gains.
And I say that recognizing that there isno place anymore for inefficiency to hide.
(58:40):
You do have to have world-classefficiency, but there are ways
of getting that that can makeyou stronger and healthier.
And there are ways of getting that,that hollow out the business and are
not sustainable , and create risk.
And, but again, it takes.
Entirely different set of skillsto imagine new businesses, to have
(59:02):
the courage to invest in them topersevere when times are difficult.
And this is just not a skillset thatyou find in many senior leaders.
In fact, one of the things I'veargued Aidan make this vital
point, turn it back to you.
But,
in, in most organizations the wayyou get the top job, or one of the
(59:25):
primary ways you get the top job is torun the biggest legacy business, the
core business, and don't screw it up.
So you run it for five or six or sevenyears and you get, maybe make it a little
better, and then you get the co job.
I would argue that nobody shouldbecome CO in a substantial company
unless they built a new business.
(59:46):
Or truly transformed a business.
And I don't mean just turningaround a struggling one.
I mean like re vectored something,new customers, new segments and so on.
Because I want leaders who know howto build things and grow things, and
not simply leaders who are good atfinancial engineering and cost cutting.
(01:00:06):
And so if I'm a board, that'swhat I would be asking.
I say like, I don't let's look atyour slate of candidates, either
internal, external, and say who herehas actually built something new,
something from the ground up, and hassome sense of what it takes to do that?
I read, I might have mentioned this inone of our other conversations, I read
a book about Elon Musk building Tesla.
(01:00:28):
And you can love or hate Elon Musk.
It's kind of beside the point.
But I would encourage every manager,every leader, every CEO to read that
book it was written by, I believea Wall Street Journal reporter.
We can maybe find the nameand put it in the link.
You get some sense of whatit takes to do something new.
The energy, the commitment, therelentlessness, the courage, the daring
(01:00:51):
and and obviously Elon Musk or SteveJobs, I mean, these people are once a
century, once a lifetime kind of talents.
Having said that, there are a lotof people who built new businesses
and it does take a different setof skills and a different mindset
than running the status quo.
And it is all too rare in society'smost important institutions.
(01:01:13):
On that positive note, it's aprobably a good place to leave it.
For those people who are readingalong with us, we're just kind of
coming to the end of chapter two.
So we're gonna pick up fromchapter two the next day.
So if you are reading along with us,do join us and pick up from there.
Gary, for people who want to findyou, find out more about your work,
book you for keynotes, if theycan fit you in into your schedule,
(01:01:34):
where's the best place to find you?
Gary Hamel.com.
You can also find me on LinkedIn.
Happy to connect there.
And on x Twitter I'm Prof, PROF Hamel.
So always happy to have aconversation if people have questions.
Wanna share an experience,love to hear from them.
Brilliant.
And you're always sharing greatstuff on LinkedIn as well.
(01:01:56):
But I'll link to all those places to findyou author of Leading the Revolution.
Gary Hamel, thank you for joining us.
Thank you,
Aiden.