Gary Hamel - Leading The Revolution Part 6

Welcome to the finale episode of our exploration of Gary Hamel's groundbreaking book, 'Leading the Revolution.' In this episode, Gary Hamel joins the discussion to delve into the timeless principles of innovation that have maintained their relevance despite evolving business landscapes. This episode is packed with insights on creating wealth through revolutionary design rules, fostering new business concepts, and the importance of low-risk experimentation for long-term success. We examine case studies from companies like Disney, Apple, and Shell, highlighting the practical application of these principles. Get ready to be inspired and equipped with actionable strategies to lead your own revolution!

 

00:00 Introduction and Overview

00:42 The Role of Top Management in Innovation

01:08 Introduction of Guest and Positive Feedback

01:50 Complexity Theory and Simple Rules

04:29 Unreasonable Expectations and Stretch Goals

11:17 The Importance of Elastic Business Definitions

20:02 The Power of a Noble Cause

26:09 The Need for New Voices and Neurodiversity

32:09 Creating a Market for Innovation

36:40 Shell's Game Changer: Internal Innovation Marketplace

38:46 Challenges of Low-Risk Experimentation

39:48 Commitment to Learning and Experimentation

41:43 The Importance of Patience in Innovation

43:47 Cellular Division: A Model for Organizational Growth

47:22 Connectivity: Learning from Other Industries

50:50 Re-engineering the Management Model for Innovation

57:17 Wealth Creation Index and Innovation Metrics

01:00:05 Balancing Big Bets and Learning in Innovation

01:07:01 Final Thoughts: Embracing the Age of Revolution

Episode Transcript

(00:00):
Welcome back to the finale of thisbrilliant book Leading the Revolution.
So many people have been in touchto say how this has not aged.
The examples may have changed, butthe principles have not changed, and
I can tell you what today's episodewill absolutely nail that point.
I'm gonna start before I introduceour guest with a little intro,
because he says that "order emergesout of deep but simple rules.

(00:24):
Too many executives have spent toomuch time working on this strategy and
not enough time working to create thepreconditions out of which new wealth
creating strategies are likely to emerge.
Assembling grand strategies inthe corporate tower is a futile
undertaking in the age of revolution.
This doesn't mean that topmanagement is irrelevant.

(00:44):
Far from it, he says.
Top management's job isnot to build strategies.
Its job is to build an organizationthat is capable of continuously
spawning new business conceptsand reinvigorating old ones.
To do this, you need whathe calls design rules.
And today we're gonna look atthe eight design rules required

(01:05):
for gray-haired revolutionaries.
It's a great pleasure to welcome back ourguest author of Leading the Revolution,
and all these behind me on the shelves.
Gary Hamel, welcome back to the show.
Thank you Aiden.
Nice to be back.
Looking forward to our conversation.
I'm telling you, there's so muchpositive feedback from people
saying, oh my God, this is gold.

(01:26):
They hadn't heard it, whichis exactly why I did it.
'cause when I stumbled upon.
These books.
I was like, these are gold.
They need to be dusted offand brought back out again.
I know you've built on it and I'm sograteful that you've given us the time
to go back into them, so we'll get stuckinto these ideas of the design rules.
Maybe before I start and tee you up foreach of them, maybe you'll give us an

(01:47):
overview of what this chapter is about.
Yeah, I think this chapter, I wroteit at a time when I was quite curious
about kind of complexity theory.
I was talking to people whowere at the forefront of that
Stuart Kaufman and others.
, and it was clear that in our world, andof course the internet is an example
of this as well, but it was clear that,there are a lot of things that are quite

(02:08):
complex, like watching geese in flightwho will root around objects or, vary
their path for the wind or so on, orregroup if one falls out of formation.
These things happen without a CEOof the gaggle without, they, they
happen because of very simple rules.
And you can use these to simulate, in,in the same way the web, with all the
complexity and the variety of what hashappened across the web was built on

(02:30):
a few simple rules about how networkswould connect together, A few simple
protocols, redundancy, and so on.
And yet it create, it spas thisincredibly complex ecosystem with
ebusinesses and communities and so on.
And so the question I was really thinkingabout is, as a leader or something in a
fairly large organization, you cannot putyour hands in everything that's going on.

(02:51):
You shouldn't try, and it wouldbe impossible in any case.
So the question is, what, how wouldyou create a few simple rules?
How would you operationalize thoserules over time in a way that supports
innovation from everyone every day?
And that was really the thought of it.
If you're starting from not tryingto architect this out in a huge
detail, but what are the principles?
What are the rules?

(03:12):
What are the values that we want toinstill that would create an environment
in which innovation flourishes?
That was the idea.
As I said, it's timeless stuff.
And the first one may surprise peoplebecause when we talk about strategy
or oppor opportunity in organizations,people, as you told us before, they

(03:32):
come from the point of incrementallygrowing because it's the most path
of least resistance every year.
Gary, I read a book that's like amodel for reality type book quantum
mechanics or something like that.
Something a real stretch for me, andin one of the books I'm reading at
the moment by Vadim Ze, it's a Russianauthor who wrote a book called Reality.

(03:53):
Trans surfing.
And he says this thing, he says,imagine you land on a desert
island full of savages, cannibals.
He says, what's your choices?
Choice one is to run away, try and escape.
They'll probably get you an eat youchoice two is to be try and appease

(04:14):
them and give them gifts or et cetera.
But then he gives a third option.
And when I say this to people now,and I was the same, I was like what?
What's the third option?
And he goes, pretend you're the king.
Pretend you're a God that's arrivedand let them be subservient to you.
And I Was reading it at the point whereI read this chapter, this design rule
number one, which is to have unreasonableexpectations and this idea of something

(04:39):
that's way beyond your current reach.
But in doing so, you don't knowhow far you'll actually get.
I hope that sets you up nicely because Ithought of that when I read this chapter.
Yeah, I think we with CK Prude I wrotean article that predates this book, but
was called Strategy is Stretch and andLeverage, and of course, another article

(05:00):
called Strategic Intent for HarvardBusiness Review, which really were
based on this idea that, innovation.
Tends to be born in the gapbetween aspirations and resources.
And if you're a young company, there'sa fairly substantial gap there.
You may be quite resource poor, but youhave the stream of doing something quite
big and significant over time, though,as a company grows and as the founders

(05:22):
leave the stage and, you move from havinga lot of creators to having a lot of
administrators, that gap starts to narrow.
And so you start to be quite satisfiedwith kind of just being average, with
doing as good as everyone else.
And that kind of an aspiration reallydoes not motivate bold thinking.
It motivates incrementalism.
And so, you have to be alittle careful about this.

(05:43):
There you want a goal that's boldand that has stretch in it, but
it's not completely unreasonable.
But few organizations have, anambition that really motivates
people that demands new thinking.
And so, , you're only asgood as your expectations.
I think I, I say in that chapterthat no, no organization is very
unlikely for an organizationto outperform its aspirations.

(06:06):
So those aspirations set theupper limit on, what's possible.
And it's also, I think, largelydetermines why there's such a poor
correlation between resources and success.
Because, a company that has a largeambition, far and excessive its resources
is gonna be forced to be resourceful.
Not just about having butresourceful to be creative.

(06:28):
One of the analogies I used to usewas looking at the experience of
the US military in Vietnam, where.
They dropped more ordinance, more bombson, on Cambodia than they did on all
of Germany during the Second World War.
And still, lost.
And I think the political logicfor being there was very confused.
There wasn't really a consensus inAmerican society about why the US was

(06:51):
engaged in that part of the world.
And the Vietnamese on the other hand,were fighting for their survival
and, but were very resource poor.
So, would build a bridges acrossrivers, just a few inches underneath
the water lines, so you couldn'tsee them from the air or they
would, build tunnels and so on.
But they were endlesslycreative in that sense, in a
way that the US military wasn't.

(07:12):
So I think, you have to ask thatquestion like how high is up?
How, what?
And I, in the book, I talk about kindof several tricks on being, bolder.
One of them is to think about.
Not your certain market, but howwould you redefine your market?
So it is much, muchbigger than your firm.
So the opportunity risesmuch much farther out there.
But that, I think it, it starts byhaving that kind of intent to make

(07:36):
a bigger difference and to aim high.
And, I think that's also, life isdiminished if you don't have goals like
that, and I often, I ask my students,I ask executives, what goal is worth
the scarce currency of your life?
And I might have mentioned it beforein our conversations, but I really
do believe life is too short towork on inconsequential problems.

(07:58):
So find something that is big that, thatforces you to think differently, that
forces you to be curious, that keeps youmotivated, that's worth striving for,
working hard for but don't be content forit with incrementalism and mediocrity.
Amen.
Amen.
Absolutely.
Part of the spirit of this show aswell, not just on an organizational

(08:20):
sense, but on a personal sense as well.
Personal reinventionkeeps striving as well.
Life's too short.
There's one caveat in this chapter,and you've kind of alluded to it there.
If you do push these stretchgoals on an organization, these
unreasonable expectations, you saythat some folks in the organization
will search for shortcuts, a megaacquisition for HA, perhaps, or

(08:42):
deep price cuts, rebates, et cetera.
And one thing that you seeoftentimes in my own experience
in media was sandbagging.
So people would sandbag revenueand then assign it to the
new opportunity, et cetera.
Maybe you'll share a thought on that,because I'm sure you've seen it so many
times when you worked in organizations.

(09:03):
Yeah, there's ways that I think we'lltalk about this again at some point,
Aiden, but there, there are a lot ofways to try to create the illusion
of vitality without, the reality.
It's, like ozempic you, look thinand whatever, which is probably a good
thing, but it doesn't mean that you can,that you can run a marathon . Whether
that's relying on deals to prop up thetop line or share buybacks and so on.

(09:24):
There are all kinds of ways so whatI really like to look at, and I talk
about this in the book, one of the waysof looking at this historically is to
look at a company's market value as ashare of the market value of kind of the
entire industry in which they compete.
And 'cause that's hard to fake, right?
You don't, it's hard to make acompany more valuable and then you
can adjust that for acquisitionswithout really having to grow.

(09:45):
Because market value is just expectationsabout future growth and cash flow.
So, if a company is losing relative valueshare, that's a really, really bad sign.
I remember, I, I got in, in, it wasabout the time this book came out.
I got in some trouble because IBMhad been in a deep, deep crisis.
They hired an ex McKinsey guy,Lou Gerstner, to come and turn

(10:07):
them around, and he did it right.
There's a lot of downsizing.
They laid off, a lot of peoplesold off businesses, including
the personal computer business andshifted into services and so on.
And, and he was celebrated for that.
And probably rightfully so., heprobably saved them from death perhaps.
But what was interesting is over hisbasically decade long tenure there.
IBM went from being 50% of the globalIT market value to being less than 10%.

(10:34):
And you go like and for adecade they missed every new
opportunity on the horizon.
And that's when, Dell came along andAccenture and all these other companies.
So, yeah, you turned it around, butlike you missed a lot of opportunities.
So I think yeah, you have to usemetrics, focus on organic growth,
focus on market value as a share of themarket value in a fairly broad domain.

(10:55):
And, if you're focused on growingthose things, then you'll be less
inclined to take the shortcuts andbe satisfied by 3%, 4% gains, which
most companies that's, that's enough.
But I, I would never wannawork for those companies.
then you reject the innovators oryou don't attract them in the first
place by having those type of goals,which is part of what the next one is.

(11:17):
So design rule one was haveunrealistic expectations.
Design two have elasticbusiness definition, and we
have spoken about this before.
We talked about it in competingfor the future as well.
But this principle is timeless andso necessary where too many companies
define themselves by what they do.
Rather than by what?

(11:37):
They know their core competencies andby what they own their strategic assets.
Thus they become prisonersof their business, their
existing business concepts.
An example you gave in this was Disneyand again, timeless Disney's because
since this book, Disney have goneon to do more and more beyond the
theme parks, beyond the attractionsto Disney Plus and tv, et cetera.

(12:02):
Yeah, I think, this is a complicatedcase because, over the last few
years, I think they've struggled.
They made a whole, a long seriesof acquisitions of other film
companies and have kind of been,reissuing action movies, one after
the other, and I think their audiencehas gone, got tired of that.
Having said that, if you look backthrough Disney's history, yeah, there
are a lot of times when they took avery broad definition of what they do.

(12:25):
We're very good atstorytelling, for example.
And so they have been, I think, andprobably still are the largest, most
profitable theatrical productioncompany in the world, right?
The Lion King has been all over the world,and their other theatrical productions
they built a cruise line, which is,basically Disneyland on the water.
So yeah, it's not only about thinkingabout your core competencies, that's
important, but it's thinking aboutwhat does the core function, what

(12:49):
is the core value you're creating?
And if my value is Disney is.
We entertain families.
There's a lot of ways todo that or storytelling.
There's a lot of ways to do that.
Quite an interesting example, I thinkI also mentioned in the book, what the
potential vulnerability of traditionaluniversities to online learning.
Because if you think of, if you thinkof we just grant degrees or we're

(13:10):
a physically embodied universityat this particular place, MIT,
Harvard, Stanford, something else.
That model is gonna last a long time.
But it goes back to the point you cansay, well, like why would, online learning
is gonna be perhaps this small thing.
People are still gonna wanna comeand have the in-person experience.
Why do we really have to worry about this?
And in a sense that's probably true.
And there's, I think, animportant point in there.

(13:32):
And then I want to give anexample, Aidan, I think that.
If you don't have a broad, , ambitioussense of opportunity, you could
be very satisfied just to staywhere you are and where you are.
May be okay for a very, very long time.
But like, how much fun is that?
Right.
Managing the status quo?
So the, I think in the United States,the largest online university right now

(13:56):
is called Western Governor's University.
And it was created by a groupof governors of western states
who wanted to make universityeducation more accessible to people.
They have 155,000 students.
It's basically a newcomer, an upstart.
And what makes it, and you pay a fixedamount each six months for tuition.
It's very modest.
It's probably a quarter of thecost of an elite university.

(14:16):
So you pay a fixed amount every sixmonths and you can do as much coursework
in that six months as you can handle.
And there's no fixed calendarwhen you've mastered a subject,
they call it a competency unit.
When you've mastered that, that's done.
You go on to the next one.
So if you can put more time inor, you learn faster, whatever.
And so you know, you can say, well, whatthe hell does that have to do with, , a

(14:38):
big state university or an elite?
Maybe not.
But how cool is it to help 150,000people on their educational journey?
And if you're a university that hasall these resources, the teaching,
the training, the curriculum, whywouldn't you think that's something
that would be interesting to do?
And if you look at the top, certainlyin the United States, you look
at the top online universities,they're all relatively newcomers

(14:59):
or relatively small universitiesthat saw this as an opportunity.
And so if your mission is toeducate people, why wouldn't you
see this as something interesting?
On the other hand, if your missionis to sit comfortably in an ivory
tower and whatever, then you're nevergonna see this as an opportunity.
So you have to go back and say,like, Disney, what is it that we do?
What do we care about?

(15:19):
What's our passion?
And where in the world can we take that?
, and it still has to be tethered in somesense to real skills and capabilities.
But you know, you want toalways believe you live in a very
opportunity rich world, right?
You always, because.
One of the things that paralyzes firms,if you don't see a lot of compelling

(15:41):
opportunities, if you don't like, man,we don't even know where to look next.
Like, the world is so filled withopportunities and new things to do.
If that's not the ethos, if you'renot, thinking about that, then you
just become very satisfied withthe status quo and are unwilling
to take risks and try new things.
So you always have to have a reallydeeply optimistic view of the future.

(16:01):
And one in which like, it's likethere's so many cool things to
do, we just have to like, choose.
And we'll get to this, most companiesdon't have any kind of a process that
regularly throws those kinds of ideas up.
I often think about, and you've made methink about this even further and we'll
go into this particularly when we talkabout Humanocracy, is like you said,

(16:21):
the type of person who's running thecompany when it's stable, when it's got
found out, what it does is not the typeof person that started that company.
It's not entrepreneurial.
There's a book called From Barbarians toBureaucrats, and it's like the Everett
Rogers curve where you have this kind of.
Initial entrepreneur who finds theopportunity, goes after it, not very

(16:43):
good at managing, then they get firedfrom their own company or somebody's
brought in to put manners on them.
And I wondered about that, right?
You get to a point where thecompany's run by administrators
or bureaucrats for stability.
The world changes and you're stuck.
What happens in those cases?
What?
What have you seen that waswell managed in the past?

(17:06):
Well, yeah, I think there's a typicalkind of shift that goes from, , when
a company is young, it's the engineers,maybe the marketing people, the operators
the innovators, the scientists, thetechnologists who are in charge.
And then as the company grows, you tryto get, quote the adults in the room to

(17:27):
manage growth and complexity and so on.
And within a few years it's theanalysts and administrators and finance
people and managers , are runningthe organization and that, and we
have it the wrong way round, right?
I mean, it's not that some of thoseskills, the managerial administrative
skills are not important.
They are, but they should always besubservient to the people who are there

(17:49):
to create and to build and to innovateand so on, and have the deep technical
expertise or the deep market expertise.
And that, that's, and, and, and partlybecause, if you think about that
organizational pyramid, it reallyis, it's an administrative pyramid
and, you get this crazy thing whereyou know, if you wanna advance in most
organizations, at some point , youhave to move into a managerial role.

(18:11):
Like there's no other way toget ahead or a greater salary.
It's just like insane.
That, we have the administratorsrunning the show they should
be kind of a service function.
But that happens, again and again,and we'll, in, in later episodes we'll
talk about like why that happenedand the historical roots of that.
But, most of the companies that Iprofile in the book, companies like

(18:31):
Charles Schwab, which today is maybenumber one or number two, still
the largest asset manager in theUnited States and Virgin and so on.
These are companies that were, whenI was talking to 'em, they were
still run by their founders mostly.
And so they still hadthat buccaneering spirit.
And so, at some point, obviously thosefounders are gonna leave the stage,
or perhaps you're an organizationthat's been years or decades since

(18:54):
you had that kind of a person.
So the challenge, all right, I maynot have that skillset as a CEO.
I may have never built anything.
I may not be an innovator.
But what I can do is I can work to createan organization, which those people
get ahead, they get rewarded, they get,they get investment and they thrive.
So that's that's the story of Haierand Zhang Rumin the CEO, I don't know

(19:15):
that he was a great technologist orproduct creator, whatever, but he said,
I'm gonna build an organization wherethose people are the ones who run the
business, not the dam accountants.
. And just a reminder audience for those who have stuck with us.
We talked about that with Schwab and it'sfascinating how Schwab recognized and
rewarded those people who did take risks.
And as you say, Gary, it's so backwards.

(19:35):
So many of the listeners of this show,you're going cap in hand with your idea.
That could be the next big thing forthe organization, and you're trying
to find resources and it usually getsshut down, taught that you're crazy
or gaslit outta the organization.
It's so backwards and oobviously very psychologically
damaging to many people as well.
They don't try again.

(19:57):
But you alluded to thisone, the having the founder
and having the founder's story.
Energy and them talking about a causeis really what design rule three
is to have a cause, not a business.
And Gary tells usgray-haired revolutionaries.
That term by the way, just toremind you is old organizations or
legacy organizations or a ancestororganizations, and they draw much of

(20:20):
their strength from their allegianceto a cause that goes beyond growth
and profits, A cause that goes beyondthemselves a cause that is truly noble.
I thought about that, Gary, with whatyou said about in Vietnam and the
bridges below the water, and you studiedmany of the military strategists.
Von Kitz was one who talked about thisconcept he called moral force, and he

(20:45):
believed that in addition to physicalforce, best armies in the world had
spiritual and moral forces, such asdedication and a sense of sacrifice.
I always think about that with sports,that the teams that win and dig deep
when they go and get tough or theteams that have this, they're fighting
for something bigger than themselves,and it goes the same for companies.

(21:06):
Yeah, I think, I think it's true.
I think that, ambition, , havingstretch is important, but , you
need a goal that is also , as yousaid, there a goal that is noble.
I. A goal that deserves sacrifice.
And, , we've had a lot of conversationover the last few years about, purpose
but I think every great business, , hasa purpose or can have a purpose if

(21:29):
you think deeply enough about it.
I, I talked about Cemex, the Mexicancement company, and not everything
they do, but they're super motivatedby how you create housing for the poor.
And they did a huge amountof research, a huge amount of
innovation focused on that problem.
So I think, you have to ask,are we giving people anything
that speaks to their hearts?

(21:49):
And that can't be some,bullshit sloganeering.
It has to be like this real commitment.
I think.
I think at the time I was writing, this, the CEO of Charles Schwab
said, we are the guardians ofour customers financial lives.
Well, I haven't met many banktellers who think that way, right.
Or, or investment advisors.
But it's clear.

(22:10):
And the risk swab took when they movedfrom offline to online, which immediately
decimated their margins, was like, isthis gonna make it easier for customers
to manage their financial lives?
If so, like, the question'snot, do we do it or not?
We can debate how, but we'renot gonna debate whether this
is the right thing to move.
And, a lot of other traditional brokeragestook a long time to debate that.

(22:31):
A long time to get online , gaveCharles Schwab a clear field to run on.
, but that courage came from thefact that you really were starting
with, what, what do we do that'sgonna make people's lives better?
And, our primary allegiance is tothat, not to shareholders, not to
stakeholders, not to, but to makingthat difference in people's lives.

(22:52):
And then it's up to us.
To figure out how dowe do that profitably.
But I think that's just a huge,a huge miss in most organizations
is that the people who show up towork every day are not continuously
reminded that we have a higher purpose.
That, , we are in a sacrificialprofession where, you know, we
are gonna sacrifice where weneed to for the good of our

(23:14):
customers and improving their lives.
That just gets missed or gets verytrivialized in some kind of a slogan.
But I think it is key to havingthe courage to change, right?
If you don't believe there's somethingthat's truly , you're doing truly, God's
work in some sense, you're not gonna havethe courage to change when you need to.

(23:35):
I love that and you've setme up beautifully here.
There was a quote Ipulled from this chapter.
That I just had to share.
You say gray haired revolutionariesmust periodically shed their skin.
Every time they abandon adecaying strategy or jettison an
out of date belief, they leavea bit of themselves behind.
The most unsettling thingabout the process of renewal
is the need to write off one'sdepreciating intellectual capital.

(23:59):
To a great extent, an individual'sworth in an organization is
determined by what he or she knows.
Business concept innovation,however, changes the price tag on
every bit of knowledge in the firm.
Some knowledge becomes more valuableand other knowledge less so.
Absolutely love that.
And it consolidates what you talked about.
You talked about Schwab in here, andI'm not sure do you cover a blockbuster

(24:21):
in the future, but I thought aboutthat Schwab's willingness to go.
I know we're gonna lose a fortune onthis, but it'll probably save the company.
But when you look at somebody likeBlockbuster, the unwillingness to
let go of late fees, for example,when it, there was so much money
derived from that and eventuallypart of the decline came from that.

(24:42):
Yeah, if your profit model, , isbased on exploiting customer
ignorance or perhaps in that caseinertia that's a bad thing, right?
If you're taking advantage ofthe customer that way.
We, we talked a little bit about RyanAir, I think, in an episode, and,
and maybe they've strayed a littletoo close to that line sometimes, but
Don't mention those guys, Gary.

(25:04):
They're in the shame of Ireland.
Yeah, , I used to argue, thecore competence of banks , was
complexity and obfuscation.
And in that, they can hide their fees.
And that was too, like for manybrokerages, early on in my broker, I
always asked like, okay, I wanna knowwhat your incentives are in this, right?
You're selling me this thing.
What is your commission?

(25:24):
What does the company get out of this?
You?
Like, you can't, youhave to be transparent.
You have to be honest.
And when you're not, or whenyou're forcing customers to pay for
things that they don't really want.
That's just like a bad business model and.
I can understand why it may be hard tochange it, but you have to be on the right
side in that sense, because if somebodyelse is gonna figure out how to do this

(25:46):
without taking advantage of customersor exploiting a lack of knowledge, and
of course largely that's, the internethas been a huge force for good in
that sense that it's created a lot oftransparency, easy to compare, and and
as a firm, you really have to competethen on value and doing great things,
not on, the fact that you're hidingthe ball and away from the customer.
design rule three was this idea ofhaving a cause, not a business design.

(26:09):
Rule four.
We touched on this a little bitbefore, was the importance of
neurodiversity or the importance, asGary says here, of having new voices.
More often than not, industriesget reinvented by outsiders,
by newcomers, free from theprejudices of industry veterans.
Yet in most companies, strategy is thepreserve of the old guard strategy.

(26:31):
Conversations have the same10 people talking to the same
10 people year after year.
No wonder the strategies thatemerge are as dull as dishwater.
There's three distinct groups youmentioned here, the young, the
peripheries, and the newcomers.
Yeah, I mean, again, if you look at thevast majority of startups, and I talk

(26:51):
about some historic ones like Amazon andJeff Bezos or Pret-A-Manger in the UK as
a guy, Julian Metcalf and Sinclair Beam.
These are almost, people who startfrom outside the industry and
they have none of the prejudice.
And, and sometimes that lack of experiencecan be a disadvantage, but often, there's
a lot of fresh thinking there too.
,  Pret-A-Manger is one of myfavorite places to eat when I'm

(27:13):
ever in, in the uk it's fast, it'spretty nutritious, mostly organic.
And they, they ask a simple questionlike, why can't fast food be healthy?
In fact, you can get in and out ofa  Pret-A-Manger , I think, fast than
you can get in and out of a McDonald's.
And and their profit per square footis higher than McDonald's, even though
they're open significantly fewer hours.
Their production model is verydifferent for one employee, makes the

(27:33):
whole sandwich from beginning to end.
It feels like this is my thingthat I'm putting on the shelf.
So you have to recreate, who is theChinese philosophy talked about, or
maybe the Japanese philosopher talkedabout the beginner's mind, right?
You have to recreate that in your firm.
And one way of doing that isto make sure that on kind of
any important conversation.
To grasp.
so they need to be overrepresented.

(27:55):
You need to have people out on thegeographic periphery because they're
more likely to have fresh thinking than,people are in the Vatican, so to speak.
You want people out on the edges of theorganization, , and then you want people
who've spent time in other industrieswho haven't spent the last 20 years
working in whatever business you have.
And, ironically, those are the peoplewho are often least well represented

(28:17):
in, in, in the strategy conversation.
And hard to get a look in.
One of the, one of the littledevices I saw some years back, which.
Again, what, once you start to sayhow do we bring these voices in?
There's many ways of doing it.
But one of the clever devices someyears back I saw was a very large
kind of food and drink company.
Everybody would know this company.
They were doing kind of theirannual strategy update with their

(28:39):
top couple hundred executives.
So some fancy hotel, and they're goingthrough, here's what we're doing,
here's our priorities and so on.
all quite senior people.
So what they did is they took agroup of young employees and they
live streamed this thing to themand they said like, tweet about
this as we're talking about it.
And so as these senior executives, are making their pitches, there's

(29:00):
a screen up on the side which allhas all these incoming tweets.
Have you thought about that?
That doesn't make sense.
Like, whatever.
And it was just , leaders areused to really controlling
the conversation, right?
If leader means, you know, if leadershipmeans anything, it's like you get to
decide what we're gonna talk about.
But here you have like, this wholeother side stream and a lot of quite
interesting ideas came out of that.

(29:22):
I talk about another organization in thebook, again, a simple device where they
established a shadow executive committee.
So you take the top 10 or 12 seniorpeople, they had a similar group of
much younger people who sat in on allthese meetings, had their own point
of view, would meet independentlyto review and then come in with
their kind of shared point of view.
But just saying like, howwould somebody look at this?

(29:43):
Who.
Didn't feel they had to defendthe past whose emotional equity
is invested in the future.
And so, making that a super consciousthing that you do that in every strategy
conversation on every important issue,you have those groups overrepresented
rather than underrepresented.
I mean, I've done this in every pieceof work through my life, and the

(30:04):
dividends are just extraordinary.
You just get so much new thinking that,is those ideas, are there any already
often, but, but never, never got tokind of, never got the microphone.
When you told me about that, Iwondered if they were anonymized,
the people doing the tweets, wouldthe answers be even better again?

(30:25):
Yeah, well, pro, pro, probably so.
And so I don't know if they had tolog in with, I can't remember that log
in with action name, where they couldcreate a avatar of some sort, but.
Yeah, I mean, it's and I, I see thisoften, I saw this often in my career
where, you'd have a young group of people,you'd take 'em offline, you'd work on

(30:46):
some new idea set of ideas, they'd besuper passionate about it, and then you'd
put them in front of, some senior groupthat would just decimate them and and
tear their ideas apart and try to hangthe idea by kind of small details rather
than looking at the bigger opportunity.
So you have to be, and I don't know,can't remember if we talked about that,

(31:07):
but you have to be super careful abouthow you manage the power dynamics in
all of these conversations where youhave young people maybe uncertain about
themselves, are not used to standingup in front of, very senior leaders.
You have to like, like makesure leaders are asking way more
questions than giving advice.
There's a whole set of things youhave to do to make sure that those new

(31:29):
ideas just don't get, pummeled into theground by people who are eager to kind
of show off their ego or their power.
But so it's not as simple as just let'sbring young people in the conversation.
You gotta really think about the powerdynamics and how you give those people
the courage to speak up, the courage tofight for their idea, and how do you keep
kind of, the attackers on the back footuntil at least they've learned a little

(31:50):
bit about what you're trying to do.
So, some subtlety there, but the, thepoint is, is absolutely, absolutely key.
The likelihood that yourorganization intercepts the future
is absolutely dependent on theextent to which you have those new
voices in critical conversations.
Beautiful and design.
Rule five then is what you.
You later called a platform forinnovation, which would be like

(32:12):
what you do in Haier, but you callit then a market for innovation.
And you said if innovation is gonnaflourish in large organizations, if new
ideas are going to compete with old onequal footing, if resources are going
to flow quickly and fluidly to thebest new opportunities, then companies
are going to have to become more likemarkets and less like hierarchies.

(32:33):
And here you mean markets as in the openmarket, like a venture fund, for example.
And you say Silicon Valley has beena refugee camp for revolutionaries
who couldn't get a hearing elsewhere.
Yeah.
It's interesting.
I'm literally looking out mywindows here over Silicon Valley.
I live on a hill up, kind of abovethe valley, and this part of the

(32:56):
world has created more wealthper capita than probably any.
Similar geographic area in human history.
And and it's not somethingmagical in the water or air.
There's a lot of historical factors,having great universities, having,
early pioneers like, like Hewlettand Packard who came out to this
part of the world and started tobuild, attracted other entrepreneurs.

(33:19):
So there's a lot of things that are noteasy to reproduce necessarily, but at the
heart, Silicon Valley is three markets.
It's a market for new ideas.
It's a market for experimental kindof capital and a market for talent.
And so these things are in this,like ever, moving dance where
resources are pursuing ideas.
People want to work in themost exciting startups where

(33:42):
they have the biggest upside.
And so there's constant reallocationof resources going on, right?
Ships in capital and talent and so on.
And there's no CEO ofSilicon Valley, right?
This is all unscripted.
Having said that, a lotof these people are.
Kind of connected, with a few,one or two degrees of separation.
But but that's, but itis the market, right?
And we know from a lot of data thatmarkets outperform hierarchies.

(34:05):
The New York Stock Exchange over thelast 50 years has outperformed every
company on the New York Stock Exchange.
And yet, the average company, if youlook at the way they allocate talent
and capital, it looks more like theSoviet Union than Silicon Valley.
And particularly the problem is thatresources are controlled by people.
Who are running the legacy businessesand they have the seat at the

(34:25):
table, they're the ones who aredebating, where do we put our money?
And so my argument here is you haveto create, in a large organization
a market where capital and talentflows quickly to the new ideas.
And where people proposing thosenew ideas are not at a constant
disadvantage in terms of theircapacity to attract resources.

(34:46):
So one of the, one of the biggestchallenges, and I'm gonna use a slightly
academic word here, but in, in mostcompanies, there's a monopsony one buyer.
That's one monopoly is one seller.
Monopoly is one buyer.
There's monopsony on new ideas.
So if you have an i an idea,there's literally only one
place to go for capital.
And that tends to be upthe chain of command.

(35:06):
And if your boss or your boss'sboss says, Hey, this isn't our
strategy, I don't believe in this.
Like, the idea dies thereand nobody knows about it.
And, and to think abouthow stupid that is.
Imagine that in Silicon Valleyyou had like one angel investor or
one VC firm, and if they weren'twilling to fund you, that was it.
The average, the average startupis going to talk to two or three or

(35:28):
four VCs before they get funding.
And yet in our organizations,we haven't done this.
There's only one sourceof, of, of, of, of capital.
And then you look at the way we makeour resource allocation decisions,
in most companies you have tohave like a 90% sure thing to
have any chance of getting funded.
And obviously any new thing does not startwith that, does not start with those odds.

(35:49):
And Jeff Bezos, I think said this, I'mnot gonna remember how, I'm not gonna
remember the exact quote, but he said,I'm, I'm definitely willing to take a
big bet on something that might be likea hundred or a thousand times return.
So, That is more likely tofail, but there's a much
bigger return that's out there.
So you have to look at thesenew ideas as a portfolio.

(36:10):
If you're a venture capital company withmaybe a dozen firms, a dozen startups
and a fund you expect that eight oreight out of 10 will will fail, and
one maybe will just me be mediocreand maybe one becomes, the next Google
or, or open AI or something else.
So, but that's not how we do it.
We, we take one investment at a time,look at it, expect like, ba you better

(36:31):
have a 90% chance of succeeding.
And then like, yes or no, well, you'llnever do anything new if that's the way
you think about resource allocations.
So, yeah.
markets outperform hierarchiesyou need to create, whether you do
it through internal crowdfunding.
I describe what we did at Shell whereI think we built maybe the world's
first like internal innovationmarketplace called Game Changer.

(36:53):
It still, it still works verysuccessfully, but we're any employee.
From any part of Shell's world operatingacross more than a hundred countries.
If you have an idea,there's a place to go.
And it's not up the chain of command,it's a group of your peers who are
selected because they're, they're creativethinkers and they look at that idea
and go like, Hey, that has a chance.
We'll give you a firstsmall tranche of capital.

(37:15):
And equally critical, Aiden, it'snot only the funding, it's the time.
And so it's giving that person anidea, a little bit of experimental
capital to get started, go out andtest some of your core hypotheses.
But it's also saying for the next 30days, like you don't have another job
and it's up to your boss to backfill.
Like, we're not gonna worry about that.
'cause we have to, we, we, wewanna invest in, in the future.

(37:36):
So let them worry about that.
You now have a charter to spend thenext 30 days pushing this idea forward.
So these are not complicatedthings to do particularly.
But very few organizations.
I mean, shell Game Changersstill, I think, quite unique.
I wish it, I wish it weren'tbut, but it still is.
But you have to, you have to make it easyfor people to get experimental capital get

(37:58):
time to, to do new things, and, and wherethe resource allocation the funding cannot
be controlled by a bunch of old goats.
Man.
Oh man.
It's so backward though,with what actually happens.
Like I've been there.
You feel like you're stealing ina way because you're taking time.

(38:19):
You're trying to do thisthing on Company Dime.
You're trying to figure out a waythat's actually for the benefit of
the company, and you feel like you're.
In, in some back room stealingsomething and you're actually,
all you're doing is trying to gettime to, to focus on these things.
Even reading Gary, even even tryingto expand yourself and read beyond
your industry to have new ideas feelslike you shouldn't be doing it, and

(38:42):
the company makes you feel like that.
It's so, so backwards.
And then the other thing, linkingit to design rule six, which is low
risk experimentation, is that if youare responsible for a small bet, even
a small bet, you have to go throughan Excel process to actually get
it over the line, not tell a story.
And then if it fails, you're tarnishedwith that failure, even if it was tiny.

(39:06):
Yeah, I think the idea of learning asyou go or experimenting is still, I
mean, and again, there's been a lothas been written about this I'm trying
to think of the guy at Harvard who'swritten some great Tom Key who's written
some great books on experimentation.
So you'd hope this kind of thingis, is, is is getting out there.
But, what are the, what are the challengesin, in, in a typical company business?

(39:28):
they think about commitmentin terms of resources.
So if you ask somebody, how would youknow if your business was really committed
to, pick whatever it is, AI or some othernew thing or a new product, how would
you know the answer's gonna be like,well, we've put a lot of people on it,
or look at how much we're investing.
That is a really, really poordefinition of commitment.

(39:48):
Commitment needs to beintellectual, right?
We think there's somethingreally important here.
We are dedicated to learning about it andunderstanding, but we're not, we're not
gonna put a lot of money in it necessarilyuntil, until we have more information.
So you have to think about, and, andthat's, I find when I ask senior leaders,
like, can you tell me what are the 10most important experiments you're working

(40:10):
on across the organization right now?
Things that are not yet having a lotof resource, but things that, you know,
like there's something, there's a.
There's a pony in here somewhere, right?
There's something that'simportant and potentially big,
and we're gonna understand it.
They can't tell you what those things are.
They don't have visibility tothem, so they can't protect them.
They can't make sure they'regetting the best people.
So that's, first you've gottaseparate out commitment.

(40:33):
It's not about resources.
It's about, Hey, we think there'sa, there's a real opportunity here
and we're gonna understand it.
Clearly your ability to experimentdepends a hundred percent on how
much it costs to learn, right?
And, and I think, large organizations,they fail big and they risk big because
they can not, not because they haveto, but that's just like, like, we have

(40:55):
the resources, let's go out and like,let's really be good serious about this.
And so what you find often, and Icould give you examples from Cisco
and, and all kinds of companieswhere you get your investment way
in front of, of your learning.
And like, that's a failure modebecause you've missed critical
assumptions about the consumer,about the economics and whatever.
And then you learn that very hard.
And so, it's, it is a subtle balance.

(41:17):
I, I want executives to be reallyexcited about the new opportunities
and be willing to mentor those teams.
On the other hand, I I don't wantthem so mo emotionally invested that
you're like pressing the acceleratortoo hard and, and, and, and taking
risks you don't need to take.
And I think there's, there's just anassumption in most organizations that

(41:37):
something radical is by definition risky.
We, we see those things as like thesame thing and it's not the case.
I, I, I look at, lemmego back to pre share.
It's a very old story,but quite a lovely one.
When, when those two guys, I thinkthey met at, at university, decided
let's try to do this kind of healthy,not, not fast food, fast food.
It was five years from when theyopened the first pret to the second.

(42:01):
And that wasn't because they wereslow or because they were dumb.
It was because there's a lot to learn.
Everything changed when, when, when you'resourcing every ingredient, every day
fresh rather than like, super tankers offrozen french fries circling the globe.
If, if, if, there was just like somany things to figure out and so
many mistakes that you had to make.
And I could just see, if they hadtoo much money too soon and were

(42:23):
trying to push the pedal down, youmight have never elaborated that out.
You might have never figured outthe subtleties of doing this.
And so something then is gonnasay the worst situation, well,
that was a stupid idea, right?
Like, you like, and so like,why would you ever do that?
So yeah, patience being asclever about de-risking as

(42:44):
you are about the idea itself.
How do we explore this at minimumcost and minimum time and so on.
Just like hugely, hugely important.
And I. I think it's a skillthat maybe is still not taught.
I don't know what percentage ofemployees in a typical company
would've been taught about rapidprototyping, for example, and kind of,
the, the, the principles behind that.

(43:05):
Not, not very many I suspect.
Very few, very few , andeven heads of innovation.
Gary, I was one and had no idea about somany of these concepts, which is, was the
origin of doing the show is to share allthis great knowledge that's out there.
And I mentioned earlier on thisidea of quantum mechanics or quantum
universe in a different universe.

(43:26):
I actually, I went after trying toget the Pret A Manger franchise and
they just go, we don't franchise.
They wouldn't franchise.
In the early days, there was only afew of them in London and I was living
there and I was trying to take it toIreland and they went to New York.
Obviously next there's a biggermarket, but like you man, lovely food.
And there's a few of them nowhere around Dublin in Ireland.

(43:47):
Let's move on to design rule seven,which is cellular division, and I'll
give a little bit of explanationhere because Gary tells Gray haired
revolutionaries are not monoliths.
They are big companies thathave been divided into a large
number of revolutionary cells.
A human embryo grows througha process of cell division.
A single cell becomes two, thenfour, then eight, then 16, and so on.

(44:09):
Some cells become lungs, others,fingernails, bones, tendons, and all
the other organs and structures ofthe body division and differentiation.
That's the essence of growth.
The same is true for organizations.
When companies stop dividingand differentiating innovation
dies and growth slows.

(44:30):
Yeah, I mean, just almost bydefinition, monolithic things
are not very adaptable, right.
, The dinosaurs are gone, bacteriaare still here, and, and we'll be
forever until, the sun goes out.
So I think there's like a lesson in that.
, if you have a very large business, acore business that is 70 or 80% of the

(44:50):
company, or maybe a couple that arevery large within those, there tends
to be monolithic thinking, right?
There's one business model, oneway of going to market, and so on.
And not not a lot of scope forpeople to be entrepreneurs because
everybody's just feeding that one beast.
It's gonna be hard for some of ourlisteners, to maybe credit this, but
if you go back 30 or 40 years, HewlettPackard was ranked as one of the most

(45:13):
innovative companies in the world.
I think it was in I think Tom Peters wroteabout it and in search of excellence.
And at that time, and I'll, I mightget the, the data slightly wrong here.
It's been a long time since I lookedat this, but at the time, as I recall,
anytime a business got to $50 million,they split it up and said like, no,
like, let's, let's, we want new thinking.
We want more entrepreneurship.

(45:35):
We want opportunity for newgeneral managers to emerge.
So let's split the thing up.
And so they grew bythat cellular division.
Now at some point they stumble ona giant business called printers.
And obviously that's gonna beyou, you may not be able to kind
of decompose that in that way.
But I do think, you often, because,because there's some natural limit
to the size of any very largebusiness, you're gonna hit that.

(45:57):
So if you don't have a way of dividingthe organization up and trying new things
and giving people freedom to go after kindof underserved or unexplored markets, you
just, you're just gonna run out of, you'regonna run out of headroom at some point.
So kind of paradoxically, I think youoften, at, at some point, the only way
to grow a company on the outside isto get, to get bigger on the outside,

(46:19):
is to get smaller on the inside.
And we'll talk about Haier, probablyin depth at some point, but.
That was the genius of what they did.
Taking a very large organizationwith some, big brands and big
businesses and splitting it intomore than 4,000 micro enterprises.
And, that presents its own challenges.
And we'll talk about those later.
Well, how do you connect allof those together and how do

(46:40):
you still do things at scale?
But, but the principle was, hey, wewant to be a swarm, not a monolith.
And I think that's justlike way more nimble.
I mean, even you look at what'shappening right now in the way we think
about defense with, with new companieslike Andril and others who are going
like, well in the future you're,we're gonna win by numbers, not mass.

(47:02):
Right?
It's not gonna be like we have thebiggest aircraft carriers in the world.
It's gonna be, we have themost nimble drone fleet.
, You wanna be careful to divide.
When a business gets too big redefine themarket pull 'em apart, let them focus on
their own things and have more upside thanyou would in a very, very large, large
business and more, more new thinking.
And one of the parts of new thinking isdesign Rule eight, which is connectivity.

(47:26):
And this is not digital connectivity.
It's getting outside thebuilding, meeting new people,
meeting new industries, et cetera.
And an example you give hereis in developing a strategy
to compete with its tough.
Japanese rivals, swatch went to Legoin Denmark to learn how to make watches
out of brightly colored plastic,and built a design center in Milan

(47:47):
to serve as a lightning rod for theartistic talents that would ultimately
make Swatch into a fashion icon.
So this idea of mixing ideas,finding interesting skills around
the world, different assets, and.
Is key and the last of the design rules.
Yeah, I think, you wanna look at theworld as a reservoir, a warehouse

(48:10):
of skills, competencies and ideas,and make sure that, that you are
not, . having same conversations withpeople mostly inside of your industry.
, one of the things that I thinkgot quite dangerous is the whole
consulting industry is now organizedaround particular verticals.
So, if you're a bank, you hirein a bunch of consultants who are

(48:32):
working with other banks, right?
If you're a car company, car company, and, maybe there's times when that's valuable.
I'm sure there is, but, it's ofno value to innovation, right?
And in fact, I, I would say,a typical company has almost
nothing worthwhile to learn.
From its own industry thatit doesn't already know.
You've been in that likeMalo for a long time.

(48:53):
You've talked to the consultants, you readthe trade rags or whatever's out there.
So that's of no help.
So if you want to learn something new,you have to be looking at companies
outside, outside your industry , andthat's what you should be looking for.
Partnerships.
Again, this is verymuch what Haier is doing.
Most of the new things they'redoing are cross industry boundaries.

(49:13):
They're now thinking about how do youre-engineer, like entire industries.
Like they're re-engineering theauto industry parts of that.
So , you just won't seethose opportunities until you
go have the conversations.
Right.
And it is a kind ofprospective investment.
You can't be sure, but man, if I'vehad new ideas, Through the years in my
work, and I hope a few, almost all ofthem have come from talking to people

(49:35):
who never had an MBA who certainlyweren't business school faculty.
But were out there on the fringesand complexity theory and biotech
and quantum mechanics in politics.
That's your only chance of being inspired.
Which is what I love aboutdoing this show, man.
It's such a great way to learn.
It's consistent learning.
So that's chapter eight.
That's the second last.

(49:56):
Chapter and we're just gonnacover quite briefly, and I highly
recommend chapter eight aloneis worth the price of this book.
Chapter nine is Absolute Gem,could be a book in itself as well.
And it's called The NewInnovation Solution.
And it talks about, while those designrules, we talked about all eight
and the principles of activism areparts of the innovation solution.

(50:16):
There are many other equallyimportant components.
Four I'd love us to talk about, andGary, I'll show on the screen a diagram
for those people watching us on YouTube.
And Spotify are skills metrics,I.T., which may now be taken for
granted, but still some organizationsstill have huge amount of tech debt.
They don't have the right ITsystems, they're not agile enough.

(50:39):
They're monolithic in their IT approach.
And then the last one ismanagement processes themselves.
So I'll show on the screen herefor those people watching us,
and maybe we can talk to these.
. Let me start by saying
there's a kind of myth around innovationperpetuated in part by innovators

(51:00):
that, innovations is like really rare,amazing act that comes out of like
some brilliant person's head and it'snot reproducible and unless you're
exceptionally wired, like you'reunlikely to ever be an innovator.
Like obviously I think that's nonsense.
, and my work through theyears , has proven that.
So that's one point.
A second point is.
There are times over the last manydecades when companies have really

(51:22):
worked hard to change themselves deeply.
If you look at everything that wentinto re-engineering or then went into
digital transformation, these tendedto be all encompassing a lot of effort
changing a lot of systems and processes.
But in almost every case, the goalwas, cost efficiency speed and so on.
What I'm arguing in this chapter iswe have to re-engineer not so much the

(51:44):
operating model, the business model.
We have to re-engineerthe management model.
So it facilitates innovation.
And that is not aboutrunning a few workshops.
It's not about building an incubator,it's about looking at every single thing
in the organization and saying, doesthis facilitate or frustrate innovation?
And we've done this in some fairlylarge companies where we've involved

(52:04):
thousands of people in this work.
But lemme just kind of try tobreak down this little diagram.
The first thing is, have we taughtpeople how to think like innovators?
Those are the skills.
And you might call it design thinking.
We have a kind of, I think hopefullya broader way of thinking about it
than that, but where you're reallyteaching people, how do you get at
those unarticulated customer needs?
How do you become attentiveto the nonverbal cues?

(52:25):
, how do you avoid dismissingthe frustrations that you're
creating for customers and seeinstead the opportunity there.
How do you think about the deepcompetencies we have and where
else we could leverage them?
How do you understand deeply therevolutionary potential in emerging
technologies and avoid the temptationjust to look at that as like, how do
we use that technology to make a smalldifference in what we're already doing?

(52:47):
You can teach people to think thisway, and it's not that complicated.
It can be done in a few days, and yougive people the tools , to do this.
And I think I mentioned thisbefore, I think one of the
reasons that a lot of leaders.
Have little confidence in theinnovation capacity of their people
is they've never invested in helpingthose people learn how to do it.

(53:08):
Right.
And so if nobody's ever taught youhow to hold a golf club and how to
swing it, watch out, don't, youwanna stand way behind them, but,
with a little bit of effort, somebodycan get the ball up in the air.
So I think it's, that's number one.
I think, let me go tothe management processes.
Almost all of the processes inmost companies, resource allocation

(53:29):
planning, performance review, projectmanagement, and so on, were basically
built around stability, predictability,precision, accountability, control.
And so all of those processes are veryheavily weighted to one set of outcomes.
They don't encourage innovation.
So you have to look at everyone of those processes and
say, , they, they serve a role.

(53:49):
It's not like we'regonna blow this thing up.
But is there a way of tweaking this thing?
So it creates more of anincentive for innovation.
So you might say, well, let'slook at our hiring criteria.
Are we hiring for creativity?
Do we, is it explicit?
Part of like, what, what project inyour life has given you a chance
to exercise your, creativity?

(54:10):
, are we selecting for that?
, in promotion you might say arewe going to promote people who've
brought some new product or businessto market who have some track record
of innovating and succeeding despitea lot of perhaps internal barriers.
So is that something we wantto make sure that all of our
senior leaders have in common?
You might go back toresource allocation and say.

(54:31):
Um, all right.
Should we create our own,like, shall game changer?
Should we take 20, 30, 40, whatevermillion dollars pounds a year and, and
set that up so it can be distributedthrough a peer process for new ideas that
would not otherwise get a get funding?
So you have to look at everysingle one of those management
systems and processes , and thinkcreatively, how do we retune this?

(54:54):
So it gives innovators a chance.
So this is not happening despitethe system, but we're facilitating
it in terms of metrics.
That means, starting to lookat both inputs through puts and
outputs and measuring innovationlike you would anything else?
How many ideas are we gettinginto the funnel every year?
What's the quality of those ideas?
How quickly are they progressing?

(55:15):
What share of our total fundingis going into ideas that meet some
tests of being truly innovative?
How much executive time isbeing spent mentoring new ideas?
If you don't have those metrics.
And you don't hold peopleaccountable, this is not gonna happen.
And finally, it, there are a lotof things here that can help.
We've built through the years,collaboration platforms,

(55:35):
internal innovation markets,all supported with technology.
Unfortunately in many companiesit is a barrier on innovation.
If you wanna do something new, really,really hard to do because of it, and
you have a long delay in getting somenew piece of software built and so on.
So you have to look at that as bothsomething that can facilitate innovation
through the right kinds of platforms andinternal networks, but also if you wanna

(55:59):
experiment, that cannot be a barrier.
People need to be able to go outsideto get the IT help they need.
So, you know, it's really simplysaying, Aidan, you gotta take a systemic
approach to making this a capability.
And I think, we'll talk about this later,but if there's anything senior leaders
should be accountable for is building newcapability, new institutional capability.

(56:22):
And, and I think innovation rankspretty near the top of the list in
terms of a critical capability to build.
So it's quite curious, to me again,this hopefully just sounds like
pretty straightforward and logical.
Nothing, and yet the number of companiesthat have done this, I could probably,
that I know of, I could count on one hand.
And that's another conversation about why.

(56:44):
But Haier has done it.
Intuit, the software company has done it.
We help the depart of Adidas do thisso it can be done and the results
tend to be pretty spectacular.
, but as long as you believe that innovationis this esoteric thing that comes
out of just the way you were wired.
And you'll never go to the effort ofmaking this thing kind of systematic.

(57:07):
As you say, Gary, , you can't.
Build a lightning bolt, but youcan construct a lightning rod.
I love that.
So you can create the cultureto make these ideas happen.
There's a piece I'd love to share, whichis the wealth creation index, and I hadn't
heard of this and I shared it with somepeople I know working in big organizations
, who are trying to drive some type ofindex for innovation some type of metric

(57:31):
to go, look, we should invest in this.
This graph I'm showing on thescreen here is fascinating where
Gary calculates wealth creationindexes, WCI for organizations
like Home Depot, Sears is in there.
It shows how they weren'tinnovating anymore.
It shows Amazon in 1998 as a 0%wealth creation index, 2.6 in 1998

(57:55):
and Infinity in 90, 88 to 1998.
And for those people who arelucky enough to invest, you know
how much that did go to infinity.
Maybe you'll talk us throughthis, Gary, a little bit.
Not just the graph, but theconcept of wealth creation.
Yeah, this is a little bit , what I wasreferring to before when we were having
the conversation about IBM, where theirkind of wealth creation index kind of

(58:19):
declined precipitously over a decade.
And it's probably never really recovered.
I would argue, again, this islooking at not my market share,
because you can always be quiteclever in defining market share.
I sell to Blue Eye people on Thursdaysthrough Channel X or whatever.
So, people can game that, but , you'dwanna take a fairly broad, whether
it's, and I think in this case it'slooking at all of retailing, but then I

(58:41):
try to, select some pairs of companiesthat perhaps were, were somewhat alike.
So, the first column, what yousee is in 1988, this was the
percentage of market value of the,of retailing in the United States.
So Walmart was like 20% of the totalretailing market value , in the country.

(59:01):
And then you can see, come back adecade later, 1998, and some, like
the Home Depot, a big DIY store weregrowing very quickly the gap and so on.
But by the way, a lot of thecompanies like GAP and Home Depot
have probably, coasted since then.
But I think it's just important to beable to, have an objective measure of
how good are we at creating enterprisevalue within this broad whatever broad

(59:25):
education, retailing, financial services,telecommunications, whatever it may be.
And , it tends to get rid of thebullshit about, well, it's a mature
industry like nobody's growing,or, yeah, we're really good.
Like we have 80% of our certain market.
It forces you to take a broader view.
It forces you to be honest about who'sreally creating the new wealth here.
And then like, how are they doing that?

(59:47):
What do they believe?
What are they doing that'sdifferent from what we're doing?
So I just think it's a pretty gooddiscipline to think about it in this way.
There's loads in this chapterthat I'm not gonna go through.
You talk about how to create a portfoliofor ideas, how to measure those ideas, how
to not mistake a marathon for a sprint.
I thought this was really important.
You did allude to this, but I reallywanted to nail this idea, which is

(01:00:09):
not investing ahead of learning.
So this is where you make the big bet.
Or you make too small of a bet oryou don't make any bet at all, and
you say here, building a first moveradvantage requires impeccable timing.
If a company invests faster thanit learns, it will overdrive the
opportunity and end up with anexpensive and embarrassing failure.

(01:00:32):
This is the fate that befell Apple'spioneering handheld computer, the Newton.
Maybe we'll use that as an exampleand maybe we can give an example
of a big bet that was totally crazyand then how you should be doing it.
Well, I think, apple is, is anexample for all the successes
of this in a couple respects.

(01:00:52):
I think, the idea that wewould have handheld powerful
devices was a great idea, right?
And and now, we can't livewithout our smartphones.
And so in that sense,the vision was correct.
But I think, , the device,the Newton device , was super
limited, hard to use, overpriced.
Not a lot of functionality.
Now you could say maybe they learnedenough out of that, that gave

(01:01:15):
'em the courage to, do the iPhone.
I don't know.
But they didn't need to fail in that way.
Like, it's just like, for sure theydidn't need to fail in that way, so
that's kind of an example of overdrive it.
And again, I don't know whathappened inside of Apple.
I do know they're famously secretiveand so, they may have been drinking
their own bath water and convinced likethis was like super great and hadn't
put it in the hands of hundreds ofusers and who came back and said, no,

(01:01:38):
this thing is clunky and like, I'm notgonna be carrying this thing around.
Or you come, 30 years later andyou look at, them behind Tesla and
EVs Atlas the big project inside ofApple to try to create an Apple car.
I dunno how many billionsthey poured into that.
And apple has this philosophy whichkind of works, but it's, that,
it's often better just to be second.

(01:01:59):
And maybe that came outtathe Newton experience.
Like, let's wait, let somebodyelse do it and then we'll come
and do it really, really good.
Well that works as long as the personin front of you never does it really,
really good themselves, right?
And kind of Tesla did.
And so, you look at Tesla and thenyou look at the Chinese coming in at
the low end, very, very hard, I thinkto find, you're just too late, right?

(01:02:19):
China's go going crazy and investingTesla's already the world's largest.
Like, okay, so that wasprobably under driving it.
So it's a, it's a, it's a tough,tough, but it means being super tuned
in to who's investing where, howfast, what are they learning and,

(01:02:40):
but you better have that opportunity.
In your mind years before, becauseit's too late after, after test
is built their second plant, it'sprobably too late to say, well,
let's just come and do this better.
So you'd have to know like, Hey,this is clearly an opportunity.
Vehicles are gonnabecome software defined.
We are, if nothing, not, if we're notone of the world's greatest software

(01:03:02):
companies, this is clearly an opportunity.
We have to be looking at it carefully.
We have to be experimenting at low cost.
If it looks like the cost ofbatteries is coming down, other
things make this possible.
We have to be ready tojam the accelerator down.
But It does no good to jam theaccelerator down when somebody else
is already across the finish line.
And have you seen any examplesof somebody who just went like

(01:03:23):
crazy, like bet the farm decision.
Well, yeah, I look at what Boeingdid when they made the transition to
composite fuselages and which is a hugekind of, almost bet the company risk.
And almost sunk the company.
It ended up being yearslate and much more complex.
Nobody out in the worldhad ever done it before.

(01:03:44):
Was there a way to manage that,you know, in a smarter way?
I don't know.
I mean, there are times Ithink, when you do have to make
those kinds of bets, right?
But even there, you wanna, I, yeah,you, you wanna have a lot of data.
You want to find the lowest cost way ofexperimenting with that and not get, make
sure your urgency is an urgency to learn,not simply an urgency to get it done.

(01:04:08):
'cause then you rushinto stupid mistakes.
, back to our earlier conversation, one ofthe challenges an innovator has is if, if,
if a company kind of looks at innovationis all or nothing, we're like totally
in and we're gonna do it or we're not.
There's a tendency then to overstateyour case and to say like, this
is so huge, it's gonna be amazing.

(01:04:28):
This is like, the next cellphone, mobile phone, or whatever.
And, and it's probably not.
And so, you don't want an environmentin which, you have to overstate
something to get funding or to start.
To experiment.
And.
I. Remember having, thisconversation with , people.
At Intel years ago, where,somebody said to me Gary, we're
not gonna look at anything that'snot a billion dollar opportunity,

(01:04:48):
multi-billion dollar opportunity.
And I said like, well, howwould you know if it was a
multi-billion dollar opportunity?
Because somebody's already done it.
Right?
Okay, so that's calledTaiwan Semiconductor, right?
It's maybe now too late.
So you have to, you have to have aview of a whole range of opportunities
that are not yet necessarilyfeasible, but may become so, and

(01:05:11):
you're tracking what are the gatingfactors in allowing that to take off.
And so you know when to beserious about it and when not.
But if your goal is, well, we'renot gonna really go after it
until somebody elses done it.
Like, good luck with that.
That's like, that's a loser strategy.
I thought about what you said about like,you're walking through the forest and
on the floor there's all these acorns.

(01:05:32):
You're like going, that one willmake it, that one will make it.
No, no, no.
Don't put that one back.
And you have, those people on thefringes or the, the younger ones going,
Hey, this one, I think this one's theone you're like going, no, from my
experience, that's not gonna make it.
And you kill, you kill all these possible
Well, one of the, one of the benefitsof kind of doing innovation in the way I
described where you, you bring hundredsof people together, you train them,

(01:05:55):
you generate thousands of ideas, is,and then you start to evaluate them.
And some are just definitelynot ready for prime time.
But then , you archivethose, they're there.
You understand whysomebody came up with that.
And you can say, yeah, but thisparticular thing, we just like, we
have a regulatory hurdle, or there'sa technology hurdle, or there's a big,
in fact, I, it's not in this book.
I can't remember where I wrote it,but I have a whole set of things

(01:06:18):
that you look at to decide pace.
Pacing factors.
So you may say, okay, we're not gonnainvest in that now, but we all know that's
like potentially very, very interesting.
Let's keep an eye on that.
And instead we just tend tosay, okay, well it's, we're not
gonna invest, it's not ready.
And, and we forgetabout it, it disappears.
And then five years later go crap.

(01:06:39):
We thought about that.
Yes you did, but you had no processfor tracking nascent ideas and
watching it when it's when we shouldactually be putting resources in
, And the person who came up with theidea, went and started it, and is
now a competitor.
Gary, I pulled a, a line finalwords from the book that I thought
it would be a nice way, a fittingway to finish this brilliant book.

(01:07:01):
I'm gonna quote that and then I'mgonna hand , the mic to you to
finish on this book because I'm sureyou've never done as in depth an
interview on it before, and I'm verygrateful that you gave us this time.
I loved how you finished this.
So, your final words in the book were,
this book with a simple observationthat , for the first time in history,

(01:07:22):
our heritage is no longer our destiny.
Our dreams are no longerfantasies, but possibilities.
There isn't a human being who hasever lived, who would not want to
be alive right now at this moment.
So pregnant would promise amongall your forebearers, among the
countless generations who had nohope of progress you are the one who

(01:07:44):
stands now on the threshold of , anew age, the age of revolution.
You are blessed beyond belief.
Don't falter, don't hesitate.
You are given thisopportunity for a reason.
Find it and lead the revolution.
Beautiful.
Gary, what's your final words, man?
I, I don't know that Ican do better than that.

(01:08:05):
But I do think it is reminding yourselfand all the busyness and all the things
that are pressing down on you, remindingyourself that we do live at, in the most
extraordinary time in the world's history.
That it's a world that is justlike ripe with opportunity.
And therefore, whatever'sgoing on around us.
Like optimism, needs to be our defaultsetting for all of us as human beings.

(01:08:27):
And , it's so easy to lose sightof that fact and, not just feel
extraordinarily blessed to be alive rightnow where so many things are possible.
, I think back.
An average village in Ireland or inthe uk in the mid 18th century, the
standard of living was no betterthan it had been in Egypt 4,000

(01:08:50):
years earlier in terms of calories,life expectancy, education, right?
And in fact, some people have done this.
If you look at, income per capita forthe last million years, for the first
999 whatever thousand, nothing changes.
And then in the middle, 18thcentury starts going like this.
And it's been on this, kind of,geometric curve ever since, how

(01:09:11):
lucky we are to be alive right now.
So don't squander that.
Don't squander that at a job that sucks.
Don't squander that by, justpolishing what all exists.
Don't squander that by spending yourlife kissing up to somebody else.
Like, find an opportunity inside yourorganization, outside your organization.
You may win, you may fail.
I failed at more thingsthan I've succeeded.

(01:09:31):
But every failure is stilla blessing 'cause you learn
something and you're driving yourown destiny, not somebody else.
Beautiful author of Leadingthe Revolution, Gary Hamel.
Thank you for joining us.
Pleasure, Aiden.
Brilliant man.
That was a beautiful way to finish.