Gary Hamel: Leading the Revolution Part 2 Business Concept Innovation

Episode Transcript
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(00:00):
Welcome back to another episodeof the Gary Hamill series.
We're covering that bad boy backthere leading the revolution.
I thought we'd be waymore into the book by now.
And then I went and read chapter three.
We're only on chapter three, and Garywas an early proponent of what we know
now, well as business model generation.

(00:22):
Back then.
He called it Business Concept Innovation.
And Gary, , you touched on it thelast day, but I'd love to just spend
an episode on it and pull out a fewof the threads within that chapter.
Great examples in there as well.
Some that went on to becomevery, very successful.
Some that built on early successand some that faded away . But I'd

(00:44):
love you to introduce this concept.
Yeah, well, I'd be happy to.
I guess now it's quite familiarto most people, but certainly
not at the time, you know?
Historically, we typically thoughtabout innovation in terms of
new products and new services.
It was a new financial derivativeor, you know, a new digital device or
a, a new grocery product and so on.

(01:04):
And clearly what was happeningthrough the kind of.com revolution
and beyond is that entrepreneurs,newcomers were reconceiving entire
, business systems, even ecosystems.
And you had to take a kind ofmore comprehensive view of, of
innovation and recognize that whenyou think about a business model,
it's a change in value proposition.
It's a change in the competenciesthat may be underlying that business.

(01:27):
It's a change in how you go to market.
It's, it's a change in thepartnership structures that you use.
And in most organizations at thetime, and maybe still now they
weren't really organized to thinkabout innovation in that way.
You know, they typically, you know,most companies have some kind of product
development function that is you know,there to take on the next product

(01:49):
iteration, but they weren't steppingback and thinking about the fact that
you may have to challenge or rethinkevery aspect of, the business model.
So I think that was a relativelynew thought at the time.
Less so now for sure, but I'm notsure most large companies are much
better at innovation at that level.
And we can certainly talk about some thatare, but I think most still struggle.

(02:12):
There's a little quotehere that you might riff on
. You talk about limitations of traditional product innovation and
that it is often confined by thephysical product or the actual service.
Yet the product is only one ofseveral components that comprise
the overall business concept.
Thinking in terms of business conceptsrather than products significantly extends

(02:33):
the potential scope for innovation.
You tell us it may be possible, forexample, to build a radically different
business concept, even when theproduct itself is a virtual commodity.
This is what Dell computer you told us atthe time accomplished in the PC business.
Maybe we'll give that as a littleexample before we go deeper into
the concepts of this chapter.

(02:55):
Yeah, I mean, you know, Dell which I thinkis still one of the market leaders there.
, at the time most PCs were sold toretailers maybe direct if you were a large
company, but of course, Dell's model wasto do this all online to have everything
custom built as people ordered it.
They had no physical stores, nophysical distribution that allowed them

(03:18):
to significantly lower their costs.
So that whole direct to consumer model,I think that was probably really the
first to scale that up in that industry.
And that was definitely an exampleof business concept innovation
or business model innovation.
And ultimately everybody followedsuit, but it gave Dell, a significant
lead and I think for some longtime made it the most profitable,
the fastest growing PC company.

(03:41):
And you can argue, you know, appledid the same thing when they built
their own retail presence, right?
That was a very odd thing to do.
For a single electronic brand.
And I don't think it hadever been really done before.
And they said we can build a genius bar.
We can provide support there.
We can help people setup their new products.
We can demonstrate the products in thebest possible physical environment.

(04:02):
We can have staff that reallyunderstand the product line
and are passionate about it.
And of course, most people at thetime thought it was a foolish idea.
There are many people in thepress they like, we all know
where to go buy an Apple product.
Why the heck do we needlike a dedicated place?
So that again, was an example of lookingbeyond the product and looking at
everything that surrounds it and saying,, this is all part of creating something

(04:23):
that is unique, that has differentiation.
That is a better propositionfor the customer.
But if you were product centric, youwould've never seen that opportunity.
Gary, there's a coupleof graphs in the book.
There's many, and one that reallybrings this chapter together.
I thought we'd share with our audience,and I'd love for you to talk to it.
And we'll have a little bit ofempathy for those people who are

(04:44):
just listening to us, which is themajority of how the show is consumed.
But this is expanding the innovationhorizon, and it's a two by two, and
maybe you'll take a audience through it.
You can look at innovation probably,if you think of of the entire business
model, how do we go to market?
What's the product bundle?
What's the service?
You know, what's, what's theinfrastructure behind it?

(05:06):
You can look at that in two dimensions.
One is in, in any innovation that youlook at, like how big of a departure
is that from the status quo, right?
How, how, in a sense, radical is it?
And, and I should probably take amoment here, Aiden, to give a definition
of innovation, because what I findinteresting is a lot of companies,
there's a lot of talk about innovation.
It's a word we use all the time.

(05:27):
But very few organizationshave actually defined it.
And so that makes it very difficult.
Different people can use thesame word in very different ways.
And if you're starting to try to, tocalibrate a new product or whatever it
is, and is this really innovative or not?
There's not a common way of doing that.
So here's my little definition, whichwill help set up this discussion.

(05:47):
And it's just mine.
You know, there may be others that arebetter, but typically when somebody
throws out a new idea, there are threequestions that I want to ask to judge.
Is it truly radical or not?
Number one, to what extent doesit reset customer expectations?
And so the first time I used PayPal,the first time any of us started

(06:08):
to use digital payments was VenmoCash, PayPal, whatever it was.
That was a pretty big reset, right?
Suddenly you could send money anywherearound the world, almost instantly.
And that's a fairly radical resetcompared to using kind of cash.
You can imagine other thingsthat are much more incremental.
The second question is does itchange the basis for competition?

(06:30):
So when Amazon starts selling booksand other things online, right, that's
just completely different set ofskill sets, competencies, and so on,
that you need to compete in that way.
It's not a little better bookstore,a little better retailer.
It was like really very different.
And then the third question you askis, does it change industry economics?

(06:50):
So particularly on the cost side,often we think of innovation as new
product services, but very seldomdo we think about innovation that
dramatically reduces the cost.
And yet that's what we saw with Ryan Air.
It's what we saw with a move to cloudcomputing, which dramatically reduced
the cost of managing IT infrastructure.
Does this innovation , in somefundamental way change industry economics,

(07:13):
not by a little bit, but by a lot.
So you can look at any kindof idea and start to score it.
You can build your own examples alongthose, continue it and start to think
about is it's really radical or not.
And then the second dimension is,well, how broad does it, does this
affect only one element in yourbusiness model or does it affect many?

(07:34):
So that's the little twoby two, how radical is it?
How broad is it?
And of course, the things that are mostdifficult for incumbents to respond
to are the things that are in theupper right hand corner there that are
both quite radical and quite broad.
Amazon, is a classic example there.
Interestingly enough, the iPhoneis in that same space because it
obviously wasn't just a device.

(07:55):
It was a whole app store around it.
And now, millions of apps that, changed the way we use our devices.
And so it was an entire ecosystem.
So that kind of innovation that's bothbroad and radical is obviously quite
difficult and comparatively rare.
But when you get it right, it isextremely difficult for competitors

(08:17):
to follow first, because in the veryfact that it's radical means like
it's beyond their understanding theymay not have the skills to do it.
It challenges a lot of comfortablepreconceptions they have about
how that industry should work.
And then when it's broad, there's a lotof different elements that have to be
orchestrated and come together to do it.
So I suppose you might callit , the holy grail of innovation.

(08:38):
You know, a company like Tencent,you would put them up there.
Haier's done a lot of innovation inthat territory in the last few years.
Many organizations do it once,very few do it more than once.
There's so many prophecies in the book,Gary, for example, like this whole idea
of business model generation or businessconcept innovation as you called it.

(08:59):
But one of the things you called out, yousaid for example, and you were given out a
bit, the state of higher education, thirdlevel and executive education, and you
call these cyber B schools, which we knowtoday as MOOCs versus business schools.
And you wrote back then, new businessmodels sometimes render old business

(09:20):
models obsolete, for example.
It's easy to imagine internet basedphone calls based on packet switching,
largely supplanting phone callsmade on dedicated voice circuits.
More often new business modelsdon't destroy old business models.
They just siphon off customerdemand, slowly deflating the profit

(09:41):
potential of the old business model.
You then go on to share a case study ofone of them, which was Sephora, and you
explain how the old way was and then howSephora challenged the business model.
And what I love Gary, is readingthese books where you were ahead of

(10:02):
the curve and I often wonder, dida business person read it and go,
I'm actually just gonna do that.
It's been spelled out for me here.
But maybe you'll give us an exampleof what you saw, the potential you saw
in a business like Sephora back then.
You know, I think, , to your last pointthere, I think some people did look at

(10:26):
that and I have some experience thatcompanies says, yeah, let's go try this.
I think probably more often theysaid, WTF, like, like, this just
looks too hard, too difficult.
Like, nah, let's not try it.
Let's not think like this.
Yeah, I mean, Sephora, and ofcourse their business model
has changed a lot over time.
But at the time I was writing this,if if people remember, if you, and

(10:47):
not that I spent a lot of time in thecosmetics department, but if you went
into any kind of, high-end departmentstore they had all those cosmetics laid
out and they were laid out by brand.
So whatever they were, Clinique and EsteeLauder and Bobby Brown and, whatever.
And each brand and Chanel, theyhad their whatever, their lipsticks
and makeup and eyeshadow and so on.

(11:10):
And at least initially what Safarihad done was say, gee, if you want
any one of these products, whyshould you have to go from counter
to counter and brand to brand?
Like, let's just give you a selectionof , whatever you're looking for.
And you pick the best one.
Well, I think they probably, and you'regonna have to check this, I think they
got a lot of pushback, as you mightunderstand, because the brands were
very keen to pull you into their littlekind of product family as it were.

(11:34):
Sephora brought all that together.
They made it much easier to find things.
And yeah, I think they'restill reasonably successful.
Other examples I laid outhave yet to come to fruition.
Certainly the idea of a trulyglobal online business school.
There are bits and pieces of that,but we haven't really seen that yet.

(11:55):
But I, I do think, one of theimportant points there, Aiden, is,
being able to look at a business modeland disintegrate it, pull it apart and
say like, does this still make senseor is there a way to put this together
in a different, I've spent most of mylife as a business school professor,
but honestly, the things about it thatare just ludicrous, the idea that.

(12:17):
You would have Rita McGrath orMichael Porter or whoever these,
great teachers have been thatyou'd have them in a classroom.
You like standing in frontof 60, 80, a hundred people.
Like that's a terrible distributionchannel for what they're capable of.
Right.
Why wouldn't you give thema much bigger audience?
And then you can pay them likethe superstars they are and have

(12:39):
local assessments so you can tellwhether the students are actually
grasping this material or not.
And so you start to think about, allright, well we want to, create a
degree, but how do you pull that apart?
Right?
And maybe in the end, the entitythat, that testifies to what you've
learned, that grants the degree isnot the entity that pulls together all
this content and pays the teachers.

(12:59):
And so.
I think it's, it's important to beable to deconstruct something that
looks like it's a whole, and you justassume that's how it all has to work
together and pull it apart and say,what, does this still make sense?
Is there a better way of doing thisparticular part of that business model?
So and if you don't do that right,if you're not thinking about
that systematically, creatively,somebody else will for sure.

(13:23):
One of the things I'm so keen on withthis show and the mission of it is like
you said, sometimes people, organizationsjust don't have that knowledge.
They're good at what they do,but it's maybe a tacit knowledge.
And when you learn work like yours, youlearn work like on the shelves behind me.
It gives you these different lensesto see the different models in place.

(13:45):
And it's only through thateducation that you actually,
you can deconstruct the model,
and , the reason I'm sayingthat is , one of the biggest.
Enemies of innovation, I'm sure yousee it all the time, is executive
time is actually getting them to stepoutside the building and learn and take
a step back and absorb this knowledgerather than just reading one of your

(14:07):
HB articles and thinking, I got it.
You know, very few of us probably changeour beliefs or challenge our assumptions
just based on something we've read.
We really have to have a firstperson experience with that, either
as a consumer or you're out theretalking to an entrepreneur, but you
move that understanding from kind ofhead to viscera and it's real thing.

(14:30):
You go like, okay, this isreally happening and we gotta
take this thing seriously.
But , if it's data on, a slideor it's an article as I said
in our last conversation, leadersare really good at dismissing
things that they don't agree with.
And we do it all the time.
One of the examples that I used for a fewyears, and it's still like amazing to me,

(14:51):
but one of the big US television networksNBC Universal they had a senior executive
who's responsible for media futures.
That's this person's job is to understandhow the media landscape is changing.
And in 2016 he was talking to a big groupof their advertisers on the future media
and said, this is like a direct quote.

(15:12):
He said, there's too littlecontent on Netflix to matter
and YouTube is a sidebar.
And at that time, younger, 18 to35, they were consuming two thirds
of their media through streaming.
And this guy is standing upin front of their clients and
saying, it doesn't matter.
It's just like.
Okay.
That makes you comfortable to likesay that that's a lovely illusion

(15:34):
in which to live if your businessis traditional media, but you are
misleading all of these people.
And so, , there's nothing moredangerous than an untested assumption
or an unexamined assumption.
Or an invisible assumption, right.
That you might have, I had anothersimilar experience, and perhaps I
relayed this before, but I got up onemorning, like at two in the morning

(15:55):
in California to be part of a a amanagement meeting at the London
Business School with a former dean.
on the topic is what do we doabout digital as a school and how
fast do we go and what do we do?
And I said, , this is a, a greatopportunity for us to disconnect
the brand of the London BusinessSchool from a physical place.
And, , we gotta be super creativein thinking about how do we
do this globally and so on.

(16:17):
And maybe even, , it'snot just our faculty.
We take any smart people out therein the world that would like to
be part of this, this community.
And I said, students are simplynot gonna care very much whether
it's a physical experience or not.
Well, the dean really pushed backon me and he said, no, no, Gary,
like, there's just somethingmagical about having somebody here.
It's not the same thing,doing it remotely and so on.
And I didn't really pushback, but I said, fine.
Well, as soon as I was done, somebodyelse that was in the meeting called

(16:40):
me that was there physically said,Gary, it was very interesting.
As soon as you weredone, the dean said, wow.
It was just like Gary was here in person.
I said, yeah, that was my point.
So, you gotta be super, supercareful of, of what you assume.
And I've had that experience over andover again and , I could give you like
dozens, dozen of examples, and I think,I think I was the first to say this, and

(17:03):
I don't know if anybody yet would giveyou this same perspective, but , it's.
A deep, deep truth for me that if youcare about innovation at all, , if you're
interested in innovating the startingpoint before you do anything else has
to be, to go through very carefullywhat are the things I believe about, who
the customer is, what their motivationsare, how we reach them, our cost

(17:25):
structure, every aspect of our business,what are the assumptions that I have?
And how many of these physicsthat you, they simply cannot
be challenged their gravity.
And how much of these are justassumptions and habits that we built up?
And the dilemma is, if you do not startthere, then whatever other work you're
doing on innovation is likely to be withinthe bounds of that conventional thinking.

(17:47):
And you never know what'soutside the bounds.
So I've always argued that, , thefirst step in any process of
innovation and you have to do itsystematically and thoughtfully.
It's not a simple exercise.
Is to deconstruct every assumption,every belief that you have.
And then ask like, can youimagine an alternative?
Does the world really have to be this way?

(18:07):
Often when in my consulting career, whenI've been inside of organizations, I'll
have, a senior manager say to me Gary,let me tell you how our industry works.
And of course that's always important.
I wanna understand how does it work?
But whenever somebody says, let metell you how our industry works, I
always intended to say for now, or asfar as you know, or until it doesn't.
Right.
But like for them, that is the way theworld works and, alright, well, you know,

(18:30):
it's, it's one way, but it's not the way.
I'm actually gonna jumpright to the end of my notes.
'cause I usually finish the showwith a nice quote that I have
from the book, but you've teedme up for this one beautifully.
And at the end of the book, you say manyof the choices that define your company's
business model were made years ago.
Those choices were shapedby the logic of another age.

(18:54):
In the fading glow of success.
They may seem likeinevitabilities, but they're not.
It is your job to turn thoseinevitabilities back into choices.
And you do this by subjectingeach element of the existing
business model to fresh scrutiny.
What are the alternatives?
Does this choice still have merit?
How would a company free ofour prejudice tackle this?

(19:19):
And it's only in decomposing theexisting business model that you can
create the degrees of freedom wheretradition reigns beautifully written.
You had captured this there, andit was my parting quote and you
absolutely nailed it there as well.
So that belief you hadthen you still have today.
But my point in even sharing that isso few senior execs actually take that

(19:43):
step back because I. It's almost likethey're not rewarded for it or they
feel that it's an unnecessary step.
Or perhaps a couple of the senior teammay feel they, they know this, but they
don't actually get it all out in thetable to get everybody onto the same page.
I think Aidan, it's part of , a broaderkind of problem if you like, and that

(20:04):
is that, most leaders are promoted andsee their job as running what is not
inventing what could be, and that's fine.
The business as it is generating income.
It pays everybody's salaries,rewards investors, and so on.
And there are, many other kind ofmanagement thinkers who've talked

(20:25):
about this, but, innovation isalmost always a sideshow, right?
It happens despite the system, ithappens at the edges, it happens in
isolated units, departments, and so on.
And I have no doubt that is a very smallpercentage of senior executive time.
Super small percentage.
And if you take the, the seniorteam, most of them are not mentoring

(20:49):
new ideas inside the organization.
They are not ensuring thatthose ideas come to the fore.
They are not accountable forclear metrics around innovation.
How many ideas of what quality,how quickly are they progressing?
How much of my time am Ispending, helping to mentor,
non-linear disruptive ideas.
It's just not built into theinstitutional fabric, the workflows,

(21:14):
the budgets, the systems and so on.
And, it's amazing that's the case.
One of my favorite quotes fromElon Musk, , is that ultimately
it's the pace of innovationthat determines competitiveness.
And that's not just inproduct, , and I might say that
different a little differently.
It's the pace of problem solving, right?
It's the pace at which you identifyand solve new and interesting problems.

(21:35):
They can be customer problems,operational problems, legal
issues, whatever they are.
But that is really whatdrives, , what turns a static
business into a dynamic business.
And yet that sense of constantinnovation, constant problem solving,
constant, it is just not built in, tothe systems, to the thinking, to the

(21:56):
structures of our institutions even today.
And, , I've tried to change that.
I have a lot of adviceon how to change it.
, and I think frankly, often just thepeople who are attracted into management
roles, the people who get ahead inorganizations typically, who rises
at the top is either probably theC ffo, somebody out of finance who's

(22:17):
who probably does not instinctivelythink this way, or it is the person who
was running the, the core business.
The legacy business.
And they were a very good steward, right?
They were not a builder,they were not a creator.
They were a steward.
They didn't screw it up.
And so finally you get the top job.
So, sometimes when I'm a little bit ofa mean mood, I will say that, most of

(22:38):
those people at the top, they have aleft brain the size of a watermelon and a
right brain the size of a walnut, right?
So that's why kind of rebalancing thisinstitutionally is super, super difficult.
And some of my peers, somemanagement thinkers have said, the
way you solve this is, you need tohave this ambidextrous organization.
You need to be able to isolate andhave the innovation stuff over here

(22:59):
and have the people are runningthe core over here and so on.
I, I just like, I don'tthink that's the case.
I think you gotta have innovationeverywhere all the time at
different scale in different ways.
But the idea that, you can justbifurcate this and I just think is wrong.
I just think you, you can't haveany part of the organization.

(23:19):
That is not constantly innovating.
I often wondered about that.
So , the Clayton Christensen model of youcan't have the innovation team on site
because it will always be drowned by thesucking sound of the core was the term.
And then Tushman O'Reilly isthe whole idea of that you
have to have them together.
So the one is within the other, andI wondered often was one more fit for

(23:44):
a time where things were quieter orthings were more stable, where you had
more of a competitive advantage andyou could have that team over there.
And it's changed because the cycles havechange, have become so much more frequent
that you don't have time to actually reston your competitive advantage anymore.
I wondered was it a historical thingand times have changed and to your

(24:04):
point now the cycles of change are sofast that therefore the management
types of people in management need tochange or leadership inside companies.
I think that's part of it.
I think that, just thevelocity is so much higher.
But I think, those who, and I think it'smost management thinkers, those who have

(24:25):
this view that you isolate and protect andring friends innovation, like they were
halfway right, in the sense that, any newinnovation team needs to have a budget.
It needs, you need some differentmetrics to measure it and it
needs some time and so on.
So, you know, you do measure an abreakthrough innovation project.
You manage it in a different way than youmanage just like an ongoing operation.
That's clear.

(24:46):
But I, I think that that idea that youhave to survey, put in an incubator, an
accelerator or something else came morefrom a pessimism that we're just going
to give up on the ability of most peopleand most of the organization to innovate.
And so you can't expect 'em to do it.
And in fact, what you can expect'em to do is to try to kill
this thing or not support it.

(25:06):
So let's put it somewhere.
I might have mentioned this before,
we did a lot of research on corporateincubators, accelerators, almost
none of them made any difference.
Literally, almost none of 'em.
I think Walmart shut, itsincubator down sometime last year,
maybe 20 23, whatever it was.
But because, they end upwith a worst to both worlds.
They are too far from the core, andthe people who hold the customer

(25:26):
relationships, the resources and thetechnology, they're too just separate
from that to leverage all those strengths.
So you don't really have the advantageof this big company with all these assets
and resources that you should have.
And on the other hand, they still have toomuch control from the center and too much
old thinking to truly be entrepreneurial.
So you end up with kind of aFrankenstein that just doesn't work.
So I think that, yes, if, ifyou're trying to build an entirely

(25:50):
new business in a company, that'sgonna be managed very separately.
And, but even there, let me add anotherpiece that I think is super important.
Aiden.
One of the reasons I think a lot of times.
New business ideas don't get offthe ground or don't succeed in large
organizations is because, the incentiveor the energy to do that new thing

(26:15):
is not shared by the entire top team.
So it's like, okay, Aiden'sgonna go build this new thing.
Good luck to Aiden.
We don't really give a crapwhether you succeed or not.
Right.
And maybe if we're competitive, competing,we're happy if you like, screw it up.
But like that's Aiden things togo, get us into that new market.
Go do this, nobody else cares.
Which means that when you run into ahurdle or you need some resources, some

(26:37):
help, like nobody's like raising theirhand and saying, Hey Aiden, I can see you.
Like, let, lemme step in.
So one of the things that I think is likesuper, super important and needs to be the
like deep conversation and dialogue andwork, significant work of the top team is
I need to be able to ask any of the top6, 8, 10, 20 leaders in an organization.

(26:57):
What are the five or six or sevenmost important opportunities for
our business or our organization?
And I need to get anabsolute consensus on this.
And I, they need to be able to rankorder those and tell me which have
the biggest upside are gonna makethe biggest difference, and so on.
And then what I need iscabinet responsibility.
So , if I know this is a top threepriority and Aiden comes to me and

(27:19):
says, Hey, you know what, can Iborrow some engineering talent?
Or , can you run an experimentwith your customers?
I gotta say yes, Aiden.
that's not the way it works.
And so we take the organization'sresources and we divvy them up and,
and we say like, Aiden, you have yourlittle team and you have your money.
Don't bother the rest of us.
That's like a disaster fortrying to build a new thing.

(27:39):
And so many innovators, I'm sureyou've worked with them, those
people, I took a role likethis , and there's a little bit of.
Selective hearing that you don't,or, or selective vision even to go,
I don't want to know that all thesignals for me are that this won't
work, that they're not serious about it.
That it's innovation theater andyou take the role 'cause you're

(28:00):
so excited to have a role ininnovation and to actually go for it.
But without that air cover orthat access to senior talent,
that's actually gonna help you.
You, you just drown.
And you may have a couple of peopleinterested and they're interested from
a distance as long as you're successful.
But as soon as there's a sniff ofthis not going well, they pull out.

(28:24):
And you're so surprised by that manyinnovators, this has happened to 'em.
They're going, where, where are you guys?
The real,
the real commitment you need is not somuch financial, but it's intellectual.
People have to believe and emotional,they have to believe like, this
is really cool, this is amazing.
This is important.
We cannot fail here.
Right?
So if you don't have a sharedstrategic imperative around

(28:45):
whatever that new thing is.
They just look at it as a diversion ofresources and like, when this fails,
like good, we'll claw back some ofthese smart people and clever people.
So, yeah, and, and again, in mostinstitutions you, they, there's not a
process of, of collectively at the topbecause everybody has their little role.
You know, you're running business, A, b,c division, whatever you're responsible

(29:08):
for, you know, mid East Africa, you'reresponsible for Latin, whatever.
Like, there's not a collective sense of,of where we're trying to go as a company.
And if so you will not have deepand enduring commitment to anything.
Those people, they'll knowwhat I'm talking about here.
The senior exec does support them.
Then that senior exec maybe themselvesget frustrated or headhunted elsewhere.

(29:31):
And as soon as they go, all this houseof cards comes tumbling down, all those
people they supported are lost andeventually leave or retire on the job.
Frustration.
You're absolutely right, Aiden.
I've seen that again and again and again.
And,
you know, I, and I get it.
I mean, a, a lot of C CEOs, I meanparticularly quite progressive ones,

(29:53):
they do not wanna take the time tobring the rest of their team along.
It's just like, in fact, they'll tellme sometimes, yeah, you know, these
people are all stuck in the mud.
I've been fighting them for years.
Like, let's just go do this, Gary.
I'm gonna give you a budgetand this team, like, go do it.
And I know that the moment thatperson leaves, that thing is gonna be
blown up because nobody else cares.
So you gotta take the time to buildthat consensus and, and make it real.

(30:17):
And, you know, I sit in all thesemeetings, with quite senior people and
you'll see their subordinates sittingaround the table all like nodding.
Yeah, that's a great idea, boss.
You know that they're not sincere, right?
They're buying career insurance by justagreeing but that's a missed opportunity.
You gotta go one by one and godeep and like, why are we do this?

(30:40):
And like, if you have objectionsor don't think it's gonna work,
let's get those all on the table.
And, you know, if you don'thave that consensus, yeah.
All you have to do is move oneperson and the thing collapses.
, one last piece and I promisewe'll get back to the chapter now.
And just a reminder, Gary and Ihave been recording by the time
we release this, it'll be a year.

(31:00):
So there's gonna be stuff we repeat.
We both forgot, I may have saidthis before, but Gary, , the
importance of rewards.
I had Steve Kerr on the show recentlyand he wrote that famous article on
the folly of expecting a while rerewarding B, the whole idea that you
want this, but all the rewards systemsin the organization are for stability,

(31:21):
reliance, efficiency, all the things thatare anti innovation in many, many ways.
You know, I don't know.
Very many large companies whereyou have to succeed at building
something new to get ahead.
I think that would be quite rare.
I think if you manage to do it, itis definitely a career plus, right?

(31:44):
I mean, you know, they're gonna say, yeah,like, that person built this new business.
Like, that's fantastic.
So it's definitely, you getrecognized for doing it, but I
don't think it's an expectation.
And as I say, most organizationsdon't have any serious
set of innovation metrics.
For example, one of the most basicthings I think is important to do is to
know what percentage of my total opex,my operating expenses or my CapEx, my

(32:07):
investment, what percentage of thatis being devoted to projects that meet
the test of being truly innovative?
And I would argue year by year,you want that percentage to go up.
Now, recognizing that innovation does notmean that's something outside the core.
It's something, you knowthat's gonna cannibalize.
It can be all inside the core,but it means it's not linear.
And the only kind of innovation that willproduce an outsized return is something

(32:31):
that is new and, not extrapolated.
And so if you don't even know how muchof your resources are behind those
ideas, and for sure, your ability toregenerate , and build an organization
that, that will last in the future is ahundred percent dependent on how much
you're investing in those new things.
Simple metrics like that do notexist in most organizations.

(32:53):
You know, metrics around thequality of the innovation pipeline.
Now you may have something, youhave a product development pipeline.
You can look at that and how manythings, , but more broadly across
the organization, how many ideasare we pursuing of what quality how
fast are they coming to fruition?
How much executive time isgoing there to support them.

(33:14):
You know, that doesn't happen.
I would suggest that in, in mostorganizations, , whatever the dozen
or couple of dozen best ideas at anytime that have the highest upside,
the highest growth potential, thoseideas should be getting attention from
the executive committee once a month.
Not meddling, but like, , arewe still putting resources?
Because here's what I see often happens,you'll have a really great idea, two

(33:36):
or three levels down an organization.
In some kind of budget crunch or quarterlypressure, whatever, some manager three
levels down is gonna pull the people outtathat project or shut it down or whatever.
Then somebody like four yearslater says, Hey, I thought
we were working on the thing.
How the hell did we miss that?
Well, you know, somebody could pullthe plug on it and no alarm bells

(33:56):
went off because nobody, the top wasmanaging a portfolio, had visibility
to a portfolio of ideas, and they'reaccountable for the health of those
things and making sure, , they don'tget , killed off for short term benefits.
So, rare, rare organizations that havethat, although, we've done that in, in one
large organization, which I won't mentionthe name, we put those metrics in place.

(34:18):
We could track across every division,every product line, how much
money was going into new things.
And we actually set an internal,
target where for every division wewanted 30% of their CapEx every year
to be devoted to projects that metthese tests of being innovative or not.
And and we did that because if we leftdivisional executives to their own

(34:43):
devices, they would still offer moreof the same, just because it's easier.
I don't have to stretchmy thinking and so on.
And so we said, listen,here's what's gonna happen.
If at least 30% of what you'reinvesting in doesn't meet this test,
we're gonna take your investment away.
Because there's often an assumption of,if I'm running one of the big businesses
or divisions in the company, theassumption is I'm gonna get what I got

(35:05):
last year, every year, no matter, likeplus or minus 3%, we said, no, no, no.
You have no automatic right to capital.
There's not like some, path dependencywhere you just get more every year
because like you're, no, we willtake it away because guess what, if
we're not investing in the new, theinvestors will take our resources away.
Ultimately, they'll giveit to somebody else.
So there are ways of putting thosemetrics in place, of giving them

(35:26):
teeth, of holding people accountable.
But it doesn't happen much.
I think we talked last time aboutProcter and Gamble and you go like,
here's this great company, world leaderin, home care products and so on.
And yet they haven't invest, theyhaven't invented a new brand in
like, what, 20 years or something,A new billion dollar brand.
Like what the hell are you doing withall these resources, all this knowledge,

(35:48):
all this customer data that somehow allthese creative people, and I suspect that
it's just like the leadership is reallynot holding themselves accountable on
that metric and holding everybody elseaccountable and paying attention to what's
new and getting investment behind it
.And, and it must be so frustrating for the innovators, like you join a company
like that with massive budgets, with greatsuccess, great legacy for innovation.

(36:13):
And then you're just so disappointed.
And it leads me to this one becauselast one on this off piste stuff is
you're interested in innovation oryou've worked in innovation before.
New role comes up, you're gonna go in thiscompany, I'm gonna go outta this company.
'cause the company I was inwasn't real about innovation.

(36:33):
It was all theater.
I'm gonna go to this company.
But then you have to actuallyconduct the interview yourself.
You're, you're interviewing themto see if they're real about it.
And I wondered, had you any suggestionsfor people who are going through that and
maybe some questions they need to know torealize it's real, whether then they make

(36:53):
the decision or not to join is up to them.
Because sometimes.
You need the money, you needrevenue coming in for yourself.
But at least to do the triagetest to see if they're real.
Well, I think, you know, we'vehinted at some of those things.
You know, how much investment isgoing in, do they have any track
record of bringing truly newproducts or businesses to market?

(37:15):
How long has it been since,since they've done that?
Do any of the people at the tophave any track record of doing this?
Or are they all you know,managing the status quo?
You know, I have these three questions,which we may have covered, but,
I'll, I'll tell, I'll say it again.
You know, my test, you know, 'causeI often, you know, CEOs will all
often tell me like, Hey, we'rereally serious about innovation.

(37:36):
I go like, well that's interesting.
, lemme let me test that.
So you go down and youask frontline employees.
Have you been trained to thinklike a business innovator?
No.
All right.
Number two, is it relatively easy foryou to get maybe 30% of your time and
a few thousand dollars to experiment?
Would you know how to get that resources?
Is there is a process for doing thatwithout too many permissions and whatever?

(37:56):
I wouldn't even know where to begin.
And, and finally, is it likeclear to you that your manager
is accountable for all of this?
Like the metrics they talk about it,does it influence their compensation?
I don't think so.
So I have to go back to like CO,whatever and say, okay, you told me
you're serious about this, but you don'ttrain people, you don't make it easy
and you don't hold leaders accountable.
Like clearly a different definitionof seriousness than the one I have.

(38:16):
So, I mean, those are thekinds of things you can ask.
You know, when, when, when you're,when you're, when you're trying
to go into, into, into a company.
But I think it's a constant battle.
And you know, it's why, you know, many,many people who start companies, they've
left a big company and they just saylike, like, it's just like too hard.
There's no pathway to do this.

(38:38):
You know, higher as an as, as acounter example, which I'm, you
know, quite familiar with the Chineseappliance maker, although much
more now than an appliance company.
their goal is if you wannacreate a business, we're the
right place to come and work.
I'll give you an example.
They, they have a, a, a young guy whocreated a business called Thunder Robot,
and they make high-end gaming PCs.
Now Haier had no business in PCs, right?

(38:59):
They're Aly Maker.
by the way, it's now apublicly listed company.
It's on the Shanghai Stock Exchange.
It's worth quite a lot of money, andI think it's number one in, in China.
Haier's view is like anybody could starta business and we're gonna help you
do that and we'll take a share of it.
And rather than them deciding whetherto invest or not, because they'll
say like, how the hell do we know?
Like, we're a bunch of old guysthat grew up in the appliance.

(39:20):
How would we know how much to invest here?
So instead, they will take that youngbusiness and , they have a network
of venture capital partners andthey'll run it around that network.
And if one of the venture capitalpartners says, yeah, this is really
interesting, we'll invest, then Haierwill co-invest with an option to buy
out if they want to at some future date.
And that's just an expectation thatof, of course we're gonna create new

(39:41):
businesses and we wanna participate,but we're not necessarily smart enough,
to decide whether to invest or not.
And they have a whole ecosystemthat now supports that.
In fact, , they think of the companyas a platform for entrepreneurship
and that not only should you neverhave to leave to start a new business.
We wanna be a place where people can lookat our companies, our capabilities, our
distribution across China, and whatever.

(40:02):
And say, I wanna come builda business with you guys.
And you know, they have all the onlineplatforms for people to submit ideas
and all the review processes and so on.
So.
Again, , there is nothing, it'sembarrassing because there's nothing
that complicated about doing this, right?
But very few companies have saidlike, how do I build a company that
it is just as easy as it can be forsomebody to build something new.

(40:26):
It's really sad, isn't it?
Like, like, I feel so sorry for peoplewho are creatively minded there.
There's not very many places togo to express your creativity.
And then you have to find ways inyour own private life to do it.
And everybody does find those waysin their private lives, right?
Everybody has some creative outlet and,,I think let, and one of the, one of the

(40:48):
problems has been, I think that becausethis should be a matter of public policy,
this, this is a, you know, how do we,how do we ensure our large companies
are as innovative as they can be?
These companies have huge amount ofresources, capital, talent and so on.
If they're not innovating,all of society suffers.
And.
Instead, I remember having thisconversation some years ago , with

(41:10):
an economics minister , from, Ithink it was the Netherlands.
It might have been a Nordic country.
, visiting me in Silicon Valley sayinglike, we want to create, more
entrepreneurship in our country.
I said, let's, that's a fantastic idea.
You need to do that and make it easier.
But I said, that's notgonna solve the problem.
If you look at the, I remember the big,you know, we went through the, like the
big list of companies in this country.

(41:30):
They'd all been laying off peopleand they'd been missing a lot of
opportunities and interesting.
Now if, if you look right now, and Imay have said this before, but if you
look right now in the eu and including,let me and including Switzerland and
Britain, and you take all of theunicorns, all of the, venture funded
companies worth, nominally a billiondollars, all of those unicorns together

(41:51):
are worth about one and a half percentof the 350 largest companies in Europe.
They are trivial.
But I wrote a piece a few years ago,and it was definitely tongue in
cheek, but it was called Silicon Valley.
Doesn't matter because yeah, onceevery once in a while you get an
Apple or a Facebook, or an Amazon.
By the way, where are the Apple's?

(42:11):
Facebooks and Amazon in the last 10 years,like maybe Palantir, , I don't know.
But like , it's not like SiliconValley is continuing to produce
all these amazing companies.
They are not, and that'sa different subject.
But I said, we cannot depend onstartups to create innovation and
to create a resilient economy andto create new jobs and whatever.

(42:34):
And so this problem of thefailure of large companies to
innovate is a public policy issue.
It's not just an issuefor individual companies.
And if , you have a big companythat lays off, let's say.
Volkswagen or whatever that's,laying off tens of thousand
employees, how many startups doyou have to create to absorb that?

(42:56):
, and again, given kind of the attritionof startups where I'm gonna create a
hundred and I might get 10 that surviveand get one that becomes , serious.
I gotta create this huge number whena large company fails, , there's
almost no number of startups that's,that's gonna pick up that slack.
, I was telling you about the reinventionsomewhat we're having, and we have
a panel called Reinventing Irelandbecause I believe we're in a, a, a very

(43:20):
dangerous place because we're relying on.
Successes we've had in the past,just like a successful business.
And we don't have, like you talkabout, and what this chapter is
actually about is a portfolio of,not businesses, but business models
within a business like Haier.
So if one of those gets under threator gets shut down , or the user of your

(43:42):
product just moves and doesn't wantit anymore , or becomes unfashionable,
you have another business modelto rely on as a result of that.
And I think countries are the same.
I was thinking recently about theconsulting firms and how they have
so much outsource to places likeIndia and then people in India.
Have a whole, again, this house of cardsunder the structure of those people

(44:03):
are earning money if they're workingin these BPOs that they then have
chauffeurs to work or they're relying onthe gig economy to bring them to work.
There's so many people relying underneaththe structure that if the top of the
structure disappears, there's chaos.
And therefore it is, it is incumbent onso many governments actually drive this

(44:26):
and drive the regeneration of existingbusinesses and not just startups.
Yeah.
And you wonder if there's justbehind this, I'm now, I'm now
riffing, so this can be ignored.
But if, if there's just a laziness ora decadence behind it, like, , I've
made it, I'm all right Jack, I'm gonnafeather my nest and protect my whatever.
And there isn't this sense of.

(44:50):
Paying forward, building forward,creating the opportunities that, that,
you know, for the next generation.
And you know, I, I see thishappening, you know, within, within
my own state of California herein the United States where, you
know, we're running huge deficits.
We have the, the best paid publicsector employees in the country failing

(45:12):
schools, failing infrastructureyou know, these terrible fires.
Now this will date our podcast, but theterrible fires that have gone through Los
Angeles recently more than 10 years ago,funds were approved to build a variety
of new seven and a half billion dollarsto build new reservoirs in the state of
California to help, provide the waterand so on for these kinds of emergencies.

(45:36):
And they've been stuck for 10years in environmental review.
Who's ass is on the line.
For actually caring about the future.
And I think you see this in governmentas well, a, a kind of creeping decadence,
you know, we've been writing somethingabout, about reforming government

(45:58):
in a, in a kind of fundamental way.
Not just making it smaller,but just making it way better.
And you go back to the 1960s in my countryNASA put the first American in the moon 30
months after the agency had been founded.
In the next two years, they putfive more people into space.
The total cost of thatfor NASA was $4 billion.

(46:19):
The current big NASA rocketsystem, the space launch system,
is six years behind schedule.
Every mission will cost $4 billion, right?
That was the entire MercurySpace program in the sixties.
Every mission will cost 6 billion.
I think there's so far about $90billion of funding into the thing.

(46:41):
And, of course it may getshut down and SpaceX has
completely, passed 'em all this.
But you go like, how the hell do youend up in an organization that is
so insensitive to waste that is so,unnecessarily patient with itself,
that is so afraid to experiment?

(47:01):
And again, that just gets repeatedacross every public sector, everywhere.
I'm sure you'd have yourown examples from Ireland.
I can give you, , I look at the NHS,which is just a money pit without,
, any real consistent improvementsin quality of care and whatever.
And there's deep structural reformthat is necessary in these institutions.

(47:24):
And we'll get into that in afuture conversation, I'm sure.
But but to come back to our conversation.
It does require this willingness to lookat every aspect of how we're delivering
healthcare or how we're deliveringtelecommunication services or how we're
delivering energy or whatever it is,and , I look at Germany who allow
themselves to become so dependent ona hostile power on Russia for energy.

(47:49):
And, and also to become so dependenton China as an export market.
Again, a geopoliticalchallenger if not an enemy.
And , where is the leadershipin those environments?
Where is the, like, yeah, this is the easyway forward, but maybe not the best, and
we're creating lots of vulnerabilities.

(48:12):
Yeah, so I, you know, I guessI would just call it decadence.
I don't know.
What is another word to use?
JFK wrote a book called Profiles inCourage about, people in politics
who made unsavory decisionsand actually paid the price.
I mean, ultimately it comes back tothat rewards thing is like, it doesn't
always end well for the whistleblower orthe person who actually makes the tough

(48:34):
decision to actually choose to go, youknow what, I'm gonna spend tax payer money
on this and it's not gonna pay off today.
I was thinking that when you weresaying we, we had a lady, Michelle
Wucker, who wrote a wonderfulbook called The Gray Rhino.
She's been on the show a couple of timesand she talked about the fact that say,
new Orleans and places that had drasticfloods, that same thing as California.

(48:57):
There was, there was fundsattributed to building preventative
measures and not activated, orthey were used for something else.
Yeah, siphoned off and, and I, I'mbringing it back to innovation.
'cause there's , a famous video ofObama talking about the risk of something
like a Spanish flu coming back 10 yearsbefore Covid came out and saying, we

(49:21):
need to invest in measures to whatto do if something like this happens.
But I, I thought about that froman innovation perspective and
go, I've seen this where you havemetrics brought into the company to
go, we need to be more innovative.
And then say, for example, you're tryingto generate a new digital revenue.
I saw this, I worked in the mediaindustry and they're traditional analog.

(49:45):
Media guys used to just siphonoff and go, yeah, 10% was digital.
And you're kind go, what?
Where is it?
What did you sell?
Because I was really, I was naive.
I was like show me what it is.
'cause I wanna learn from you.
And there was nothing there.
It was just, just allocate 10%towards this new revenue fund.
And you see that time and timeagain where it's not real.

(50:06):
But to your point, somebody needsto be going and scrutinizing
this to make sure it is.
Well, it's interesting.
We've had all this debate over thelast few years about, you know,
a, a company needs a purpose.
Well, yes, of course it needs a purpose.
And that's hardly a new thought.
I mean, you know, great companiesback through history had a purpose.
Henry Ford wanted to bring mobilityto millions and millions of people.

(50:29):
That was as wonderful.
A purpose as you can probably have.
IBM saw the power of digitaltechnology to make companies
run better and so on and so on.
So, yeah, purpose is good, but whatI really need, you can edit this out.
I need people with ballsall the way down, right?
Male or female people who have theguts to like, you know, who's, who

(50:51):
are not only in it for their career,who are not only in it for themselves.
Because as you say, all of thesethings take, , some courage to
stand up, to challenge the statusquo, to put aside some resources for
something that is somewhat uncertain.
And, you in the end, and again, we'lltalk about the systemic angle on this
and how our systems, don't supportthose kinds of people very well.

(51:11):
But at the end, blaming the systemis a little bit of a cop out, right?
Like, you either stand up andyou're counted and you take the
slings and arrows and you say, Hey,this is important, or you don't.
And I think that so I wouldworry more about what's my own.
Tolerance to challenge people and tobe maybe a little unpopular and so on,

(51:35):
versus yeah, we need some higher order,purpose and some form of words and so on.
Yeah, fine.
But what it really comes down tois your guts to, to be a change
maker and to, , take on the system.
And it's interesting, again, we mayget to this later, but, you said John
Kennedy's book, profiles and Courage.
If you, if you go back and you lookat the people who really changed
the world, almost none of themhad a lot of formal power, right?

(52:00):
They didn't, they were activists, right?
They weren't, they weren't CEOs,they weren't prime ministers.
They weren't now here and there.
You get somebody who reallywas, but mostly they weren't.
And , I, all these CEOs tellingme, Hey, we need to change faster.
And I'd go have you taught any ofyour people how to be activists?
How to build a coalition, how to trynew things how to identify points of

(52:23):
influence , how to enroll other people.
Like, no, we haven't, like theyhaven't even thought about that.
And yet, , if I'm a CEO, those are thepeople I most want in my company, right?
Because they're gonna, they'remy insurance against the unknown.
They're my insurance against complacency,they're my insurance against arrogance.
And if I don't have people in myorganization who can do that and who

(52:45):
can do that and not get fired or not getimmediately marginalized, we're screwed.
I'm gonna show on the screen oneof the diagrams for the book,
because this chapter three.
If you as a senior leadership team orany level in the organization want to
challenge your business concept, blindspots that fre prevent you from seeing
opportunity for innovation, this chaptergives you all the questions to ask

(53:09):
yourself, give you examples, et cetera.
And there's one key piece.
So , if you listen to us or you'rewatching us now, have a look at
what I'm gonna share on the screen.
And Gary, I'd love you to talk usthrough this one because this kind
of gives you an overview of theboxes that you can then work from.
So this is the concept of putting yourbusiness model concept or your business

(53:32):
model generation together, as Garycalled it business concept innovation.
It's pretty straightforward in a sense.
It's.
How do you reach the customer?
What's the value proposition?
What's the product bundle, theservice bundle what is the marketing
message around all of that?
What, what does it feellike to be a customer?

(53:54):
How do they learn about you?
How do they acquire a product?
How do they use it?
How do they deal withwhatever issues come up?
You know, the core strategy is whatare the fundamental choices you've
made about you know, what's in andout of that product bundle about, you
know, the price for it about whichcustomers you're gonna go after.
So all the kind of coreelements of product market

(54:15):
choice that you'd expect there.
, where are you creatingcompetitive advantage?
What are the differentiated capabilitiesthat you're trying to build?
Then finally, okay, behind thatstrategy and the customer face,
what are the skills, assets,resources you actually have?
What deep talent do you have?
I. What core competencies do you have?
What assets do you havein terms of factories,

(54:38):
distribution channels and so on.
But what are all the resources thatcome together to make that possible?
Which do you need to control?
Which are you happy to outsource?
And then finding the value network islike what other players are part of this?
Do you have a developer network?
Are you part of on an, on anotherplatform like somebody selling
on Etsy or Shopify or so on?

(54:59):
So just looking at every one of these.
And I think in the chapter we breakthese down into a lot more detail.
It's tedious actually togo through that chapter.
It's really important.
Like, so it's worth the priceof the book, I would tell you.
But I think it's still tedious 'causeyou just gotta go through everyone
and think about it and ask yourselflike, are there other choices?
Is there a better way to do this?

(55:19):
But yeah, I think thoseare the four components.
And I think if I remember therewas a kind of fifth one that
we added on, which is really.
Is there something here that willdrive superior profitability as well?
So are there lock-in effects ornetwork effects or first mover
effects that really turbochargethe whole business model in a way?

(55:40):
There was a couple of terms.
One of them was company boundaries, andI'll tee you up here with a little quote
here to remind you of what you wrote.
Intermediating between a company'sstrategic resources and its value
network are the firm's boundaries.
This bridge component refers to thedecisions that have been made about.

(56:00):
What the firm does and , what itcontracts out to the value network.
Again, an important aspect of anybusiness model is the choice of
what the firm will do for itself andwhat it will outsource to suppliers,
partners, or coalition members.
Changing these boundaries isoften an important contributor
to business model innovation.
An example then you give is the PCsindustry spectacular growth driven

(56:23):
by innovative boundary decisionsby IBM, Microsoft and Intel.
Some of those businesses have sincefallen on tough times, but maybe
you'll expand on this because I thoughtthis was a really key one that wasn't
as understandable unless you reallygot your head into this chapter.
Yeah.
You know, obviously you can.

(56:47):
Concentrate your resources, focusyour resources, grow faster, do
more If you have a great set ofpartners around you, if you're
leveraging other assets, resources,channels that are already there.
So you wanna be very, verycreative in thinking about how do
you leverage existing ecosystemsand infrastructure and so on.
At the same time, you wanna be supercareful that you don't inadvertently

(57:11):
give away, outsource, offshore,whatever, something that is fundamental
to, long-term competitive success.
And I think a lot of companies, and a lotof, CEOs have under short-term financial
pressure said , let me give that away.
I a classic example wemight have talked about.
I, I think before Aidan I canremember is, when Boeing made this
decision to spin out the manufacturingof fuselage aircraft, fuselage.

(57:37):
They did that because it's quitecapital intensive and like, , if
we get rid of that, like our returnon assets probably goes up, right?
That's a little profitability boost there.
But , you outsource it and you hire peopleare not deeply experienced in doing this.
Like, that's probablya bad decision, right?
This is something that's integralto the quality, the safety and so on
of an aircraft and its performance.
So there's a tension here of howdo I leverage external resources?

(58:01):
, and it tends to work like a ratchetright now, Boeing is actually, I
think bringing that back insideif I, if I am right on that.
But, but there's a tension be, or,a ratchet because once you've put
something outside and you are no longerbuilding those competencies, hiring
people, paying attention to that.
You probably never regained whatever,whatever that went, it's gonna be really

(58:23):
quite difficult to reintegrate it.
So you wanna be quite careful about makingthose choices because in a practical
sense, they're often irreversible.
The other thing I would say is so underunderstand what is gonna, what is really
important to creating customer value?
What is important in creatingcompetitive differentiation?
And, and be very, very carefulabout putting those outside

(58:44):
the boundaries of the firm.
Now obviously, there's allkinds of complexity to this.
If you look at Apple's iOS ecosystemyes, all those developers that are
outside of Apple physically, butthey are very deeply integrated in,
into the, into the ecosystem withthe tools and the support and so on.
And it would be very, very hardfor anybody else to replicate.
I mean, Google has their versionof that, but beyond those two

(59:06):
companies, very hard for somebodyto replicate that , from scratch.
So it's not that every.
Every decision to rely on partnersoutsource presents strategic risk.
It doesn't often, it's a hugeopportunity, but you wanna be
super, super thoughtful about that.
And one place, and this is justme and I'll let other people argue,
but I, one of the places I thinkthat we've often got this wrong , is

(59:29):
companies outsourcing customer contact.
I bank with one of the big British banksas well as banks in the United States.
But every time, and I've been, I'vebeen a customer and I think a fairly
profitable customer for 40 years.
And every time I want to talk to somebody,I'm talking to somebody on the other
side of the world who I frankly have ahard time understanding at some points.

(59:50):
I'm sorry I don't speak every language andunderstand every dialect around the world,
but I don't, and and they don't know me.
And they have almost nodiscretionary ability to do anything.
So everything is like a seriesof handoffs and whatever, and you
go like, okay, somebody made thatdecision because to move, put it there.

(01:00:10):
And with perhaps undertrained people,no discretion because it's gonna
save them, let me say maybe onepound in interaction, whatever.
And so they are costing me mytime and my frustration to save
themselves a little bit of money.
And, , and you see this in every day.
When you end up spending hours,we are experiencing on usually

(01:00:33):
heavy call volume bullshit.
You're understaffed andyou always have been.
And you've decided that.
You can waste the time of somebody who'smaybe making 20 or 30 or 40 or 50 or a
hundred pounds an hour to save the time ofsomebody who's making 10 pounds an hour.
Right?
You made that calculation.
So I think that is one place whereyou see a lot of kind of, I guess what
we call, Pennywise pound foolish.

(01:00:56):
So it's just something that you haveto be very strategic and very thoughtful
about it, and be very careful if when avendor or a consultant or somebody else
comes to you, their primary argument.
Is just an economic one, a shortterm economic one, be super
suspicious about that argumentand think a lot deeper about it.
I always think of that themap is not the territory.

(01:01:17):
So a consultant coming in doesn'tknow your business, doesn't really
know your business and is coming inand just like the original maps were
just drawn out and going, there'sa lake or an ocean there, let's cut
it and make that into a new country.
That side, they're co the decisions aremade outta context of actually what it's
really but I thought we'd share, 'causeyou mentioned these profit boosters and

(01:01:38):
you group these into four categories.
And I, I think these are so important,particularly for bringing it back to
what we talked about earlier on, ifyou're gonna have an experiment and
sometimes it's the execution of theexperiment builds a capability for you.
And this can create what you talked about.
I. Learning effects or increasing returns.

(01:02:00):
So this is the firstof the four categories.
The second then is competitor,lockout, strategic economies, and then
you have a whole book on that one.
Strategic flexibility as well.
so the first one was, you know,learn learning or network effects.
You know there are a lot of industrieswhere, , with every customer interaction

(01:02:20):
or with every unit of manufacturing youacquire information, you get better.
And that producesincreasing returns to scale.
And that's particularlytrue with networks.
So if I wanna sell somethingonline there's really only a
couple of places to do that.
I'm gonna go to eBay or Etsy orsomething else because I wanna go to

(01:02:44):
where everybody else is selling, right?
Or Airbnb would be a classicexample of that, right?
It's a platform.
And if I wanna have a, a property,I want to, invite the guests
and so on, that's where you go.
And that's why often you'll see,startups early on, invest hugely
take huge losses to try to acceleratethe acquisition of customers.

(01:03:04):
Of information, of networkeffects and then the rate at which
they can improve the offering.
So if you get in front of that thingand you build out first, that's why so
many of these digital businesses endup being monopolies simply, you got so
many customers so quickly and there'sonly gonna be one or two networks, right?
There's only be one or two,mobile phone operating systems.

(01:03:25):
There's only gonna be one or two, liketruly massive online sales platforms.
There'll be a lot of smallerones around the fringes.
There's only gonna be a handfulof social networks, right?
And that doesn't mean ones won't emerge.
They will, but there's hugebenefits of being first there.
I'd love to just expand on that one.
Like, yeah, yeah, yeah.
I, I don't know.
I, I think, I think we talked aboutthis already, but we were talking about

(01:03:47):
, it's the same with VHS versus Betamax.
There's a big winner and there's almosta formula to this, to partnerships and
working with developers and stuff likethat for gaming consults for example.
But I wanted to call out thiscautionary piece that you say that first
mover advantages are never absolute.
They're often Pivotal in industries witha rapid pace of technological development

(01:04:11):
and relatively short product life cycles.
If you get in late, you tell us you'regoing to be fighting the US Marines
with slingshots and bottle rockets.
Preemption requires a great productat capacity to learn fast and a
willingness to double up your bets.
Being first means nothing if you'retrying to sell something nobody
wants, or if it takes foreverto respond to customer input.

(01:04:36):
Apple may have been first withhandheld computers, but the Newton
was so woefully underdeveloped that itleft the door wide open for P Pilot.
I thought that was important.
It's like almost a recent enoughexample was Google Maps had this.
Head start and then Apple tried tolaunch the map, did a terrible job of it.

(01:04:58):
And now I don't think if anybody evergoes back and uses Apple Maps because
of that first experience again.
So I thought that was an important piecejust to share before we go on Yeah,
and you have to remember that beforeGoogle Maps, there was Map Quest, right?
There were other services there as well.
So yeah, scale is hugely important.
But I think one of the thoughts buriedin there is it's not very helpful to

(01:05:22):
talk about first mover and second mover.
I prefer to talk aboutsmart mover and dumb mover.
So I do think there's an advantage oftento being first, and it's, I think in
general it's better to be first thannot, but as you say, to be first.
You first of all have to make sure thatyou're learning very fast, that you
are testing every assumption as yougo, that you can pivot very quickly.

(01:05:44):
Because to be first and stupid, youjust open the door for somebody else.
And in fact, apple was notfirst into mobile phones.
They were not first intoportable music players.
They were mostly first into tablets.
I would say . So there's often thechance to learn from a stupid mover and

(01:06:04):
then come back and do something better.
And kind of Apples try to do that.
They weren't first with with VR devicesand, we'll see if Vision Pro survives,
I'm, well, it's not gonna survive inits current form, we know that, but
we'll see what happens with that.
one failure mode is just to betoo slow and leave, leave the door
open and suddenly move faster.
But another failure mode is to move toofast , and to get your investments in

(01:06:25):
front of your actual understanding ofwhat's going on, and then you end up
putting your investments in wrong places.
Velocity is fundamental.
, every venture capitalistwill tell you that.
But you gotta do it in a smartway and you look at the race
between Uber and Lyft and so on.
Classic case of, no driver'sgonna sign up for five services,

(01:06:46):
no customer's gonna have five appson their phone for ride sharing.
So whoever, builds out thatnetwork and does it first.
But that doesn't mean at theend of the day, you still have
a viable business model, right?
You may be subsidizing years laterbecause it's just too expensive
, and the model doesn't work.
But man, faster's always betterthan slower, as a general rule.

(01:07:07):
, the benchmark on speedjust goes up and up and up.
You know, I think it took Facebookfour or five years to get the
first a hundred million customers.
I think TikTok did thatin under a year chat.
GPT did it in 60 days, right?
So you have these ecosystems there, , theamplification effects of social media are
so powerful when something starts to work.

(01:07:29):
. Today.
Like you just have to havethe pedal down all the time.
And back to your point about youtherefore can't have the innovation
guys and girls over there.
Like you need to have that muscle in thecompany to survive this rate of change.
The next one was, and we'll , talkabout these briefly was competitive
lockout or choke points.

(01:07:50):
And a little reminder here, so I hadnever heard about this before and I
thought it was a really interesting oneto share because Intel for many of us
thought were untouchable for a long,long time after they'd kinda regenerated
the , Andy Grove time, so to, to jump tothis new, smaller conductor, et cetera.
But you said only Intel has anythingclose to Microsoft's lock on customers.

(01:08:11):
I think Microsoft will, is fairenough to stay, still has that lock.
A few years ago, Intel's co-founder , andthis was at the ri writing of the book,
co-founder Gordon Moore, Moore's Law.
Gordon was asked whether he had beenworried about his company's X 86
chip architecture and how it would besupplanted by new technologies such as,

(01:08:33):
RISC reduced instructor set computing.
His answer was a telling no, wehad this tremendous advantage.
He said, all of the softwarethat people had bought that
ran on our instruction set.
And you went on to say, Intel may beparanoid, only the paranoid survived
about many things, but a new chioarchitecture that would knock it out

(01:08:55):
of PCs is probably not one of them.
So even these companies that , had thelock in it doesn't mean anything in
this day and age with the rate of change.
Yeah.
I mean, no, lockin is forever.
And, you know, some of the tech companieswho are under, you know pressure from

(01:09:15):
antitrust to competition authorities will,will, you know, will, will tell you that.
Like, like there is, you know, I meanyou know Facebook, you know, they bought
Instagram and like that was a smart thingbecause the average user on Facebook,
you know, kids are not using it anymore.
I, I, I think, I think on, on that kind ofcritical young demographic, probably less

(01:09:40):
than 30% of young people are on Facebook.
I was with a group of Facebook employeesnot so long ago, I said like, the
bad news is I'm now your demographic.
Like pity you guys.
Although I don't use iteither, but in any case, yeah.
And then came TikTok, right?
So lock-in is always temporaryand again, that was an ex like
how paranoid are you really?

(01:10:00):
If you're telling me you don't worry aboutthis because everybody's, locked in.
And when you get a technologicaldiscontinuity that's great enough,
it will dissolve that lock in.
It goes like, it goes away, or, or you maystill have it, but nobody cares anymore
because all the action is somewhere else.
So, lock-in is never forever, butit works very well when you have it

(01:10:22):
and you have 70% gross margins andthere's no place for, customers to go.
And
you gotta be careful about assumingthat, but when you're fast, you have
something that becomes a standard.
But again, it happens very rarely.
I think it's for most businessesit's probably not very realistic

(01:10:47):
to believe you're going to createthat kind of, competitor lockout.
I think it would be hard, it'shappened in other industries
to a degree historically.
The distribution strength of Coca-Colaand Pepsi for years meant it was
difficult for other soft drinksand whatever to get shelf space.
I think that's now changed.
But, , it's good when you can getit and always thinking about, you

(01:11:09):
know, what do I do here that locks andresources locks and customers and so on.
I mean, in a way, the goal , ofstrategy is to create a monopoly
advantage in one way or the other.
Until somebody tells you like, that'sillegal or you can't do it, or whatever.
And you know, a lot of Michael Porter'swork around competitive strategy.
He was simply reverse engineering,kind of antitrust policy and saying,

(01:11:30):
this is what you wanna aim to do.
Right?
Build, build an unassailable advantage andlock customers in, lock competitors out.
Capture those economies of scale.
And you know, but again, as, as you wereindicating earlier, the sheer underlying
pace of change means those monopoliesof that locke and is way more fragile

(01:11:51):
than, you know, that, I mean, at and tthe big US telecommunications company
enjoy that, what for maybe 70, 80 years.
And the publishing industry, thenewspaper industry enjoyed that for
a couple hundred years because it wasso expensive to run printing plants
and get newspapers on every doorstep.
And at every.
Little corner shop andso on, and then it's not,

(01:12:14):
and back to your point again aswell, that's why there's an onus
on us to actually prepare people,and I mean children educating them,
et cetera, for more resilience.
Because if we just leave them togo with the old model of education
for a staid, steady economy,that doesn't exist anymore.
And I think that they need more resilienceand they need to be able to fail and not

(01:12:38):
feel that it's personal because you mayfail, 'cause your industry has failed.
I think that's a super good point, Aiden.
And, and hopefully most kids figurethat out today because a credential
at the most, a credential allowsyou to open the door by an inch.
Right?
But what people are gonnacare first about is not your

(01:12:59):
credential, but what have you done.
Right?
Show us your portfolio, show usthe project, show us your ideas.
Not the credential.
And then, you know, once you're inor in any job, you are competing
against everybody else to learnfaster and to stay relevant.
And that's a lifelong, pursuit.
I had to get a PhD 'cause it's kindof , a union card if you want to be

(01:13:21):
in academics, but by golly, the PhDdoesn't buy you anything, right?
It's like, what did you write lastweek or last month or whatever.
And most of that continuous learningis gonna be your responsibility.
You cannot expect your employerto do it, like for you.
Lucky if they do, but mostly,you're gonna have to be on the web,
learning, taking courses, improvingdoing things in your spare time

(01:13:43):
that increase your marketability.
To the very point of what we talkedabout, Gary, that you can't pick this up.
Reading the HBO article, even, even yourwork that I, I've studied it and you know
you have to have something to stick it to.
You have to put it into practice.
You have to see it in actionin order for it to stick.
I think we'll leave it there.

(01:14:04):
The last two were strategic economies.
We know them.
Scope and scale and strategic flexibility.
Something that we have talked about inthe past and we're gonna talk about again.
I absolutely love the book.
We're only on chapter three.
I'm gonna keep going on acouple of examples in this book.
We'll, we'll try and wrapit up in a three part.
The book again is this oneLeading the Revolution.

(01:14:26):
And we've covered part one.
We covered chapter one and two and therewe just co, co covered chapter three,
really pivotal chapter in the whole book.
And as always, Gary, for peoplewho want to find you, find out,
reach out to you looking forkeynotes and maybe work workshops.
I know you do a lot of that work.
Where is the best place to find you?

(01:14:46):
Gary hamill.com.
Or you can always email me atgary@garyhamill.com and find me on
x prof, Hamill, find me on LinkedIn.
Always glad to have a conversation,answer questions, and hear
what other people are doing.
Always a pleasure, authorof Leading the Revolution.
Gary Hamel, thank you for joining us.

(01:15:08):
Thank you.

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