June 27, 2025 • 67 mins
In this episode of The Innovation Show, host Aidan McCullen is joined by Stanford’s Robert Burgelman, one of the foremost thinkers in strategy and organizational evolution.
Together, they explore the idea of strategic dissonance—when a company’s day-to-day decisions conflict with its overarching strategy. Drawing from his research at Intel, Burgelman unpacks how induced and autonomous strategyinteract in complex organizations and how leaders like Andy Grove navigated high-stakes inflection points.
We cover:
00:00 Introduction and Sponsor Message
00:42 Recap of Intel's History and Strategy
02:15 Intel's Early Innovations and Challenges
07:20 The Rise of Microprocessors
09:19 Strategic Shifts and Market Dynamics
14:36 Intel's Strategic Inflection Points
17:26 Internal and External Ecological Systems
24:55 Missed Opportunities and Strategic Inertia
30:23 Analyzing Strategy Models
37:06 Innovative Gel Product Failure
38:49 Forces in R&D and Management
39:30 Resource Allocation and Product Championing
40:50 Strategic Forcing and Market Growth
42:09 Challenges in New Business Development
44:05 Organizational Championing and Strategy
49:36 Cognitive and Political Dynamics
52:39 Navigating Corporate Innovation
01:00:28 Evolutionary Perspective on Strategy
01:01:47 Prospector, Defender, Analyzer, Reactor
01:06:28 Conclusion and Future Discussions
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
I hope you're enjoying this series onfrom Resource Allocation to Strategy,
today's guest is Robert Bergman, parttwo, where we're gonna cover that
Intel case a little bit deeper andgo into the politics and biases of
how to navigate corporate innovation.
But before we do, I want tothank our sponsor, Kyndryl.
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(00:22):
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Welcome back to part two ofthe Robert Burgelman episode
(00:46):
on resource allocation process.
If you recall in the last episode, wecovered really the two epochs of intel.
So this idea that Intel went throughthis period where ideas bubbled up
from below from people making the rightdecisions for Intel, and then Andy Grove
took that by the scruff of the neckand said, okay, this is the way we are.
(01:08):
This is how we're aligned.
This is how we make.
Decisions from now on, we'reso focused and that's induced
strategy, and that has its costs.
So that cost other opportunities comingup from the organization once again.
So this is the difficulty that isabout being in strategy and the guy
(01:28):
who put that on the map and who put somany thoughts into my head, I've been
dreaming about intel and the strategy,autonomous processes, induced processes.
Welcome back to the show.
Robert Burgelman,
Great to be here.
Thank you.
great to have you back.
You've been, dominating my thinking.
My bandwidth has all beenBurgelman thoughts over the last
(01:48):
while and there's so much in it.
But I thought we'd maybe we'll giveher a quick recap of the intel story.
Because it's really useful to map allthe processes that you talk about, the
strategy process that you talk about, andindeed the focus of this entire series,
which is the resource allocation process.
Maybe it'll give us a very quick recapto bring people back into the mind
(02:11):
of where we were at the last day.
Yes, sure, I will be happy to do that.
So Intel got started because it came upwith a new, technology that would replace
existing memory products in computerswith semiconductor based products.
That was a big innovation that RobertNoyce, was the co inventor of the
(02:34):
integrated circuit and Gordon Mooredeveloped while they were at Fairchild
Semiconductors, Fairchild Semiconductordid not want to pursue their ideas, so
they, spun out and they created Intel.
That's already the firststep in this entire story.
So then , they were extremely focusedat the time because they wanted to
(02:55):
replace core memory, which was the.
The main memory product.
And by the way, that wasinvented by someone at MIT.
And if you go to the MIT Sloan School,they have actually in, they show
still version of that core memory.
So they proceeded to bring outthe, semiconductor memory product.
(03:17):
Several of them.
The most important one still exists todayis the dynamic random access memory.
And so they did okay.
As a startup, went public.
And then what happened is two things.
One is a Japanese me mechanicalcalculator company that wanted to
develop a electronic calculator.
(03:40):
And so they went toIntel because Intel had.
maybe with Texas Instrumentsand some other company.
They had the leading edgetechnologists in semiconductors.
so they wanted to get a chip fromIntel that would help them so to
speak, their electro mechanical
(04:00):
calculators, Ted Hoff, who was theguy at Intel together with Federico
Faggin actually, they said, well,you know, these guys, they, we
would have to develop, I don't know,a dozen chips to make this work.
Andy will never load this.
And so Ted Hoff was able tobasically limit it to four chips.
(04:22):
And one of them was actually a computeron a chip with, they didn't it that
way, but it was the microprocessor.
Actually, Intel had sold the rights tothe microprocessor to Busicom for $60,000.
Later Ted Hoff goes "Wait a Moment",you know, we could use it in
(04:43):
this and we could use it in that.
And so Busicom was a bitin slightly dire straits.
They were willing to give Intel backthe rights to the microprocessors for
cheaper products that Intel would sell.
Then happens is a very big thing.
The DRAM products became actuallycommoditized in part because the Japanese
(05:06):
computer companies, Fujitsu and so on,Hitachi and others, they began to realize
that semiconductors were the future.
So they, with the help of MITI (Ministryof International Trade and Industry),
the Japanese industrial organism.
They organized themselves and theybasically began to build capability
(05:28):
to develop these DRAM products.
Now, you may not recallbecause you're too young.
That was my time.
, The Japanese became very famousfor their manufacturing capability.
So there are three corecompetencies semiconductors.
The first one is design.
(05:49):
That's basically an intellectual exercise.
You can do it on a pieceof paper on a computer.
The second, which is very very wellunderstood, is material science.
And that has to do how can you actuallyembody these designs in silicon and
then make it more efficient by reducingthe line width these every line becomes
(06:16):
they are at a nano level, right?
And the third one is largescale manufacturing capability.
Intel was extremely good in design and inprocess technology, which is lined with
reduction at the time, but not so goodin manufacturing because they were the
(06:37):
only one who basically making it anyway.
So the Japanese took advantage of theirmanufacturing capability strengths
to begin actually using some of thetechnology that they had learned from
Intel and so forth, and from other placeto commoditize the memory products.
(06:59):
It became a product that multiplemanufacturers could make.
They were plush compatible, soI could use an Aiden chip or
a Robert chip in my computer.
So it became a commoditized product.
Intel was not set up tobe a commodity player.
Intel was a leading edge designcompany, not really a leading
edge manufacturing company.
(07:21):
So now , they have these, logicproducts, which were based on the
microprocessor that Ted Hoff andFederico Faggin basically had developed.
And they have their memory products.
Memory products are becoming commoditized.
The logic projects are allniche products at the time, but
they are specialty products.
Intel, a leading edge technology companywas very concerned about margins.
(07:47):
Because if we are the leadingedge player, we should be able to
get high margin on our products.
So they established anallocation rule, which was
called maximize margin per wafer.
So the product that had the highestmargin, which is the difference between
the price in the market and the cost ofmanufacturing, they get at the margin.
(08:09):
When the capacity is constrained,they get the additional capacity.
So over time, what is happening the DRAMmanufacturing capacity allocation goes
down, but the R&D allocation still stayshigh because the DRAM guys are the leading
(08:30):
edge players in the sense that has thebest capacity for line with reduction
because the me memory product is thesimpler product and the micro processor.
And so the leaders of the DRAM processtechnology, they were still the leading
edge and , they were actually the, keytechnological competence for Intel, they
(08:52):
are associated with the losing business.
So, as Intel reduces its manufacturingcapacity to dram, but still maintains
this high level of r and d, the samelevel in DRAM as in micro, there is
a growing gap between what they aresaying and what they're basically doing.
(09:14):
They say we're a memory company, butwe allocate all our manufacturing
capacity now more , to microprocessors.
That could not last.. So that is where inthe early eighties, Intel faced what Andy
Grove and I later called the strategicinflection point, Which was, know, our
memory business is going all the way down.
(09:35):
We have only left three, to 4% marketshare against all these Japanese guys.
But our logic productsare actually going up.
We have growing more and morein total sales the of revenues
more and more, and there is a newopportunity, which was that IBM had
decided to adopt the microprocessorof Intel for their first pc.
(10:02):
So, IBM basically became the driver ina way of Intel's To move from being a
memory company to being a microprocessorcompany because as we all know, as of
1985, especially as of the 3 86 forthe PC, really took off like a rocket.
(10:23):
And so Intel, Andy Grove very smart ashe was realized, IBM of course had forced
intel to cross license their technologyto AMD, probably to NEC, to maybe to
Sima Africa, but in Europe, in Germany.
And so of course Intel over the 286, which was one of the earlier
(10:43):
generations, did okay, but not greatbecause there were three or four other
guys who were also manufacturing.
Then since the costs of developing thesemicroprocesses was exponential, each
generation, more and more expensiveIntel tried to get these other players
to which it cross-licensed its technologyto, you know, contribute to the
(11:05):
development costs, they all refused.
And so then Grove had this brilliantinsight, which was that, they don't want
to contribute to our development costs,but we are the developers, we are the
guys who are ahead of everybody else.
(11:25):
We're not going to crosslicense our technology anymore.
Now, you know, IBM was not particularlyhappy about that and refused.
But since they had not asked forexclusivity to Intel, could go to
Compaq and say, Hey, compact, youknow, you could be the leader if you
(11:46):
take, and then the marketing guysat the IBM, they go, Hey, come on.
The train is leaving the station.
We better get on board.
So Grove was able to then getIntel to be the sole source.
They, the number of lawyers you went upto, because a MD was trying to imitate.
(12:06):
And so they, Intel was alwaysable to stay a couple of years
ahead of the, for a long time.
So that's basically the story.
As Andy said , we were really leadingedge player of memory products in, Silicon
. Changing our competency from that toembodying computer logic into silicon.,
(12:26):
so that's the big change that happenedon the distinctive competence side.
What is now the story?
So then Andy, so the first one is theyspring up these opportunities, right?
Sram, dram, eprom, andthen the microprocessor.
They do everything and, but thethings begin to shift because
one thing is commoditized andthe other one is still specialty.
(12:50):
Then once Grove has realizedmicroprocessors four PCs are an
extraordinary opportunity and that Intelplus Microsoft will be the dominant
forces in the PC industry, he now,and he uses that word, he vectorized
everybody in the same direction.
(13:12):
And that is why I wrote.
But sorry.
And for he could do that until19 8 98, roughly 1998, he passed
the baton to Gray Barrett.
And he told me once, at that time,he didn't say he was going to pass
the baton to, but he said the, the PCindustry is changing and we'll have to
(13:32):
do something different and maybe it'sa time for another person to take over.
And, and that's true.
Barrett had to then take over.
Andy Vectorized Intel, he became almostthe single strategist within Intel
Barrett was the guy for implementation.
Because now Intel had to becomegood in manufacturing too,
(13:54):
because we are the sole source.
Right?
So Craig came up , with the rulethat everything had to be the same
in every factory that they created.
So you see, strategy is in firstinstance, a disciplining mechanism, right?
And so I always askpeople, do you like focus?
(14:15):
And then they go, yeah.
Then I ask, do you know what focus means?
Focus means you say no all the time.
That's what focus means.
And Andy was brilliant in saying no.
And so that worked for a long time.
(14:36):
Today, intel, as we know has been facinganother strategic inflection point.
I will not go into that now.
That's not the right time, but that isthe short story an extraordinary story.
intel was sort of an ecological systemwithin which all this competition between
these different possible possibilities.
(14:56):
And then Andy turned the ecologicalframework that I have into a
classical, , rational top leaderswho is driving the entire in this.
But yeah, you know, we tend tolike this in a way, you know, most
people like to say, oh, I knowwho the boss is and you know this.
(15:17):
, And so as a result, I hadactually developed my model,
that I showed not based on Intel.
I had based that on my work thatwas derived from my extension of the
Bower model, in which I had studied asimilar company like Joe had studied
a science based chemical firm.
But in 1989, when Andy and Iwere now teaching, and we gave
(15:41):
a presentation at the StrategicManagement Society Conference in San
Francisco, and Grove showed a graph.
I'll describe the graph.
Vertical axis total revenues.
Horizontal axis is time.
(16:02):
In the mid seventies, lateseventies, the greatest proportion
of total revenues is in memories.
A relatively small proportionis in Logic Promise.
What happens?
The memory products down in revenue.
(16:24):
logic revenues up theycross in 1981 already.
So as of 19 81, 82, the totalrevenues of Intel were more from
Logic products done from memories.
Yet it took until 1985 for AndyGrove then to go to Oregon.
(16:44):
As I said yesterday, welcometo the mainstream of Intel.
So that shows you there wasa period between , 81 to 85,
which we call the period ofstrategic dissonance within Intel.
That was the period in which therewas a strategic inflection point.
So what I realized when I'mseeing him present that.
(17:06):
I go, but that describesexactly an ecological model.
One species is on the decline andanother species is on the rise.
How much more ecologicalcould it possibly be?
And that fits perfectly with mymodel of induced and autonomous.
beautiful job, man.
(17:26):
Beautiful.
And just wanted to add as wellthen this idea of the ecological
species, that there's an internalecology, so the internal environment
and then an external one as well.
And that's an important thing thatthere's survival of the fittest
ideas or people who get rewardedand recognized inside the company.
And then there's the survival of thefittest products or services outside the
(17:49):
company as well, which is the businessenvironment . That's a key lens for people
to hear us through or see us through here.
There was another key piece,and I loved what you said here.
You said in strategy makingprocess generates content, and
then content disciplines process.
It is not a throwaway line.
It's so, so deep.
(18:10):
The way people act, experiment andmake decisions leads to a strategy.
And once that strategy is inplace, it starts to guide or
limit how new decisions are made.
Exactly like you described.
The metaphor that came to mind for me,Robert, and I'd love you to explain
this, is you think about the flow ofwater in a river and it carves out a
(18:31):
riverbed over time, which is your content.
The flow is the process, the riverbeds,the content, but then the river bed
guides how the water flows in the future.
And the same thing happens in the brain.
You have this way of thinkingand then everything flows
through that way of thinking.
And if you're a change maker or ananomaly seeker inside an organization.
(18:53):
You go, Hey, wait a second.
There's this other thing.
And we have the capability to build that.
It doesn't fit in the riverbed anymore.
And one of the ones that we just alludedto yesterday, something that bubbled up
from below was video conferencing andIntel had a good opportunity in video
conferencing, but they were so focusedbecause of the process that they missed
(19:17):
this new opportunity of new content.
yes.
Okay, so first I'm going to commendyou for having dug up this line
because I think, if I might say so,I felt for myself, I think it may be
the most profound insight I ever had.
Process generates content,content disciplines, process.
I really believe that's may, it mayeven be the way that life has evolved.
(19:40):
You know, it's so, so that, I think is,is one thing that, that, that, that that
I wanted to, to, to just commend you for.
Now, the, the second thing,which was since I, what was the
I, I have, and I, I agree.
By the way, I absolutely love that line.
And I, you know what, I wasreally thinking about it
(20:00):
like, like the way the brain.
You, there's a, there's a effectcalled the Elong effect, which is
you figure out a, a way of doingstuff and then you can't change.
You always have to go do things that way.
And I was like, that's what kindof happened with Intel, that
everybody went this way into thisinduced process of strategy and
(20:22):
then just couldn't change.
But I was alluding to
the video conferencing opportunitythat came up, but it was then sidelined
'cause it didn't fit the strategy.
So yeah, I'll, I'll saytwo things about that.
The reason why they couldn't really getit done was that there was, you needed
(20:43):
broadband, which at these days wascalled ISDN, believe it or not, ISDN.
Right.
And that was the controlledby the telecom companies.
So Intel now, for the first time in along time, realizes there is another
(21:04):
force that we need to align with us.
If it doesn't, it's not gonna, that tooka long, by the way, it was Pat Gelsinger
who ran, Andy had taken Gelsinger out.
He was the lead developer, designer,Gelsinger, when he was young, right?
(21:25):
And Andy had taken him outto run video conferencing
and Gelsinger, because in my book, you,if you wanted to read it, it was there.
In there he basically told Gelsingerthat he wanted him to apply the same
strategy in video conferencing asIntel was using in the PC industry
(21:51):
with its microprocessors, whichwas what I call a frontal assault.
And so that didn't work.
By the way, I almost spent $2,000 becauseI said, yeah, I'm teaching with IBM,
I'll put an I-S-D-N line in my garden.
Then go, I ended up fortunatelynot doing, doing, doing that,
but , it shows Andy grows, I wouldsay intellectual honesty, right?
(22:16):
So in front of a class, in myclass one, in our class then.
He once said this, you know,I spent $750 million on video
conferencing that, , didn't work.
And he said, why did we do it?
He said, we used a frontal assault.
(22:38):
And so later I told Andy, like,the D-Day, in fact we used the
landing in Normandy approach.
And later I told Andy, well,unfortunately there was no beach.
The no beach really meant the ISDNlines weren't going to be there.
So, so there is another importantlesson that now comes up,
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which is when you are dominant
, the danger is that you think you canbasically do in other spaces what you
are doing in the space in which, andthat's of course what Intel also ran into
the problem in the mobile communicationspace where they spent $10 billion
(23:20):
and nothing really came out of it.
Why?
Because they tried to apply the samestrategy , in the telecommunications
industry as they were applying in thePC industry, but in the PC industry,
they were the boss, , but not inthe telecommunications industry.
So, yeah, that's a very powerfulof where something springs up.
(23:45):
So there is when you are dominantin your, with your induced process
and you nevertheless have these newinitiatives that spring up, there is
two types of inertia that come out.
The first inertia is that you aregoing to try to apply the same
(24:05):
strategy that you used in yourcore business in that new area.
And that does often not work becauseyou don't, the ecosystem within which
that new is operating is different fromthe ecosystem in which you are known.
So that's number one.
That's inertia number one.
(24:25):
Inertia number two is the oneI mentioned yesterday is then I
call it the strategic context.
This determination processcannot really be activated.
almost emaciated.
So these are two important,I think, dangers of inertia
associated with a company thatis dominant in a particular area.
(24:50):
And Robert, one of the things I wantedto ask you, so Andy passed away in 2016.
He was a great friend of yours and yousaw each other right up until the very
end, and I wondered, what did he say toyou about how, just like teleconferencing
intel then missed the opportunityto provide the chips for the iPhone.
(25:10):
And that was one of these strategicmisses as well, but for the same
reason, it was probably from focusprobably because of the, discipline.
The discipline of focus andthe miss of this opportunity,
this new content opportunity.
Yeah, so actually, and so Andywas no longer running the company.
So, then , I think he did notwant to say too much about the
(25:32):
CEOs ., And maybe I should not saytoo much about it right now either.
In that respect, let's respectthat and maybe through the lens of
your theories and the way you seestrategy, what, what went wrong there?
Because again, the one thing I'velearned from reading all these books
and studying people like yours,work is you cannot be critical.
'cause it's so hard to read thelabel when you're inside the jar,
(25:54):
when it's your turn, you miss it.
Yes.
I think what happened is two things.
The first thing is that the, at Intel,the finance analysis, which is always
very strong because Intel was a companythat had always dual, dual leadership.
They had business leadershipand financial leadership.
(26:17):
Together.
In fact, that's why also in thebeginning, they were al allocating
the, the manufacturing capacity awayfrom the, from the, from the low margin
products to the high margin products.
So there's, there was that sort of anan in, in inherent aspect of intel.
So when the, when, when they,when I learned that the finance
(26:43):
team who calculated the potentialreturn of developing chips for the
iPhone actually made some errors.
Now I have not seen those calculationsthat, so that I can, one thing that
I probably think they completelymissed, by the way, apple itself did
(27:06):
not prob Steve Jobs because he cameand spoke in the, in the seminar that
I ran with Andy Grove once in 2007.
He, he spoke about how they actuallyhad developed the iPhone, but I don't
think they themselves realized theextraordinarily rapid growth of that.
Actually, I have a little theoreticalframework about that too, Andy and I, we
(27:27):
had actually, published a paper in 2007in the strategic entrepreneurship journal.
It's called Cross Boundary Disruption,
and we used Apple as theexample of a cross boundary
disruptor in the music industry.
But then we applied the same modelthat we had developed in that
(27:47):
article to the Apple entering intothe mobile communications industry.
And we actually predicted that Apple wouldbecome an important incumbent, would, but
would not be able to disrupt the industry.
Why not?
Because there were fourvery powerful competitors.
(28:07):
Nokia was selling 400 million units in2007, Motorola, Ericsson, Blackberry.
So we said, well, these arevery innovative companies.
They are hard driving.
It's totally different from themusic industry and therefore.
(28:27):
It's unlikely that Apple will beable to truly disrupt the industry.
I have a framework to explainwhy they were able to do that,
but I'll leave that aside.
that I think are the two things.
The finance guys made the wrongassumptions about the margins
that would be available to Intel.
(28:49):
remember, , the danger of disruptivetechnology is that in the beginning,
the incumbents believe that it'sbetter that we give up on this because
our average margins will go up.
the case of Intel, it was theother way around to go away in a
moment, we have very high margins.
What margins are we going to getfor these cheap cell phone things.
(29:12):
This going to bring down ouraverage gross margin, and that will
be reflected in our stock price.
Stock price will go down.
Now what they completely missed,of course, was the incredible fast
rate of growth of these things.
So then of course, , Nokia wantedto do some things with Intel, right?
(29:33):
But I remember they were a littlebit complaining of one, what I heard
about how Intel was dealing with them.
And I think one of the senior guys,I won't mention the name, told
them, well, if you wanna deal withIntel, you have to, if you want to
work with us, you must to do it.
You, you see I probablystopped just right here.
(29:54):
Right.
Brilliant, brilliant answer.
And, and just the inside story again,because it's so easy in innovation and
stories of business folklore to, condemnthe company, to go, they were stupid.
Oh, I can't believe theymade those stupid decisions.
But if it's, you we're all so liableto these foibles of humanity, of
(30:16):
these biases, of finding a waythat works of the success trap.
And we'll talk about some of thosedilemmas . But I wanted to share,
Robert, tool three, the process modelsof strategy making, because we shared two
yesterday and we didn't share tool three.
I just wanna remind our audience,it's these tools that Roberts used
to then analyze the story of Intel upuntil the mobile revolution really.
(30:41):
And I'm gonna show on the screen thatimage for those of you watching us, and
again Robert, I'd love you to just takeus through this with empathy for people
who are just listening to us as well.
This is gonna be difficult 'cause there'sa lot in this one, and I'll just give
you a little warmup here because I pulledjust a little excerpt to introduce this
model, the process model tool threehelps zoom in further on the patterns of
(31:03):
detailed strategic leadership activitiesinvolved in the internal variation,
selection, retention, and competitionprocesses associated with exiting from
existing and entering into new businesses.
The internal corporate venturing ICV andstrategic business exit SBE process models
provide further theoretical insightinto different mechanisms through
(31:28):
which strategic leadership activitiesare coordinated in strategy making
this further illuminates the processof self-organization, that idea of
autonomous strategy, the interplayof strategy, content and process,
and the role of strategic contextdetermination and dissolution.
There's a lot in there, and I'dlove you to give us an overview
(31:49):
of what we're looking at here.
So let me say first.
I was trying to map the activities thatI had discovered in my study of the
internal venturing process in this largecompany, very similar to the national
products company that Joe Bower studied.
But not in the operating divisions.
(32:11):
This was in the new business division.
So first, why did they createthis new business, new venture
group or the venture group?
You see the, had studied, as I mentionedyesterday the book by Alfred Chandler's,
strategy and Structure in great detail.
(32:31):
I still have my notes in becauseI was in Belgium still then, and
I, I, I in, I wrote notes in Dutchactually next to several paragraphs.
And so this, the proposition of, ofthe famous proposition of Chandler
was structure follows strategy, right?
That's a very famous propositionstated by the great business
(32:56):
historian Alfred Chandler.
What I discovered when I studied my, newventure activities at, a similar company
like National Products, was actually a lotof these sprung up in different parts of
the company in different of the divisions.
Each of these division managers didnot really know what to do with this.
(33:19):
Just like Joe had discovered, therewas this one project where they wanted
to build a manufacturing capacity thatwould lead to products that would be
competing with their other major customer.
And you go, no, no, no,we're not doing this.
So I discovered these activities,they were, it's like a life force.
They would go going on inthese different divisions.
The top management does not know what todo with it, but they do feel, you know, we
(33:44):
do a lot of commodity chemical products.
Maybe it would be great if we couldget in more, in more specialty fields.
So they basically said, let'screate a new venture division.
And so then they put all theapples and oranges and pears and
all the fruit into that division.
Right?
That's, and so now all theseother leaders, they can just stay
(34:06):
on their mainstream business.
Okay.
So that led me to realise that actually,the origination of this new structure
was not really the corporate strategy.
It was these strategic initiatives thatwere already going on that let top men,
(34:26):
oh my God, we have to create a, so inthat sense, Joe is right that , it's not
just structure follow strategy, sometimesstructure drive strategy as well.
in this case then I addedan additional element.
Sometimes it's autonomous initiatives thatdrive both strategy and structure, right?
(34:47):
First structure, because we haveto them all together and then
eventually maybe it leads to anamendment of the corporate strategy.
So, and I had studied these activitiesin great detail, maybe more detail
than, than Joe did in, in, in termsof, because I was, my, my thesis
advisor was Leonard Sayles, I thinkI mentioned his name yesterday,
(35:11):
who was an applied anthropologistand who had did written a book.
It's a , very good book.
It's called Managerial Behaviou r. It'snow, more than 60 years ago or 60 years
ago that was published in which he studiedthe relationships between managers.
And workflow relationships,, service, relationships auditing
(35:34):
relationships, and so on.
Yeah, there's several categories.
And later, actually, Henry Mintzbergused some of that to, in to, in
some ways inform his own work onthe nature of managerial work.
You might read the introductionto that, to him, Henry's book, and
he will, he gives a lot of creditto Len Sayles having inspired him,
(35:54):
even though he was at MIT and Len.
Len was at Columbia.
I had all these activities.
The, the ones that I've now,it took me a while, right?
Technical and need linking product,championing strategic forcing
organizational so strategic building,organizational championing, the, I
have all these list and now I think,okay, I'm going to try to map these
(36:16):
onto the Bower model, which had three.
Columns impetus, and structuralcontext that were the three.
And he had also the three levels.
Corporate management, seniormanagement, or senior middle man,
and then the operation manager.
So I am at night and I remember in 19,19 79 sitting there and I'm trying to,
(36:39):
and I go, I can't all fit them in there.
And the ones that I could not reallyfit into very well were the ones
that operated at the senior level.
So I could see technical and need linking,which is, by the way, a dual process.
Right.
I'll give an example of this.
(37:02):
So one of the, this was a PhD in science.
In this r and d organization,part of the company.
And he had come up.
So this is an example of where therewas only one linking, not a double.
So he had done great technicallinking because he had developed
a gel that was water soluble.
(37:26):
So that gel contained a lot of water.
And he thought, you know, this could bea great consumer product because people
go on vacation and they don't knowwhat to do with their plants because
they, they, you know, the plants haveto be watered and they're not there.
So with this gel, they could puta gel in the plant and over time
the plant, the gel releases thewater and yeah, we're all set.
(37:49):
Brilliant idea.
That's what is a technical right?
From a technology to a solution.
It didn't work.
And you know why not?
Because the consumers neverbelieved that just putting one
gel in the plant was enough.
So they put too many gel and the plants
(38:15):
You see this?
I take this, I willnever forget his example.
So this guy, brilliant technology tosolution, but failed to understand
the behavior of the guy, thegood users they were going to.
They going, no, no, no.
One gel is not enough.
We're put it in three.
That's what goes on in that lowerbox, And you can't stop this.
(38:37):
This is a life force, right?
People do this.
Not necessarily PhDs.
There is a lot oftinkerers too, of course.
So that's one force.
The other force that.
So I would put number one there.
The other force is all the way at thestructural context, which is the top
(38:58):
management structures, the organization,they set up selection mechanisms.
In fact, they set selection mechanismsto not do what these guys are doing,
right?
They set hurdle rates.
They, there is a whole bunch ofmeasurement and reward systems joe
(39:19):
is the master on that one because hediscovered all, but I realized the setup
of the structural context is exactly to.
Resources being allocated towhat these guys are doing.
On the bottom there are closeto technology, close to market.
So how do they get, how do they get going?
(39:40):
Then I realized, well, they do isdo, call it product championing,
which means they are able to tap intoresources that are sort of forgotten
within the company reserve lists.
For instance, in the chemical industry,they have equipment that is no longer
(40:01):
used because they have replaced it, butit could still be used for something else.
And so these technical and needthese venture team members, they
then try to get one of the seniorguys who controls these resources
that are not on the reserve list.
And so to let them use those.
(40:21):
Right, because then they can beginto from the concept to actually
developing some kind of product thatis an a first potentially viable
product if you want to do that.
that's a, that's getting theresources internally outside of the
regular resource allocation process.
(40:43):
But how do they get going?
Because they don't they deal withdifferent customers than the operat.
So then I saw what happened wasthat venture leader, the guy who is
the head of the team, would engagein what I call strategic forcing.
And by strategic forcing, I meansthat is getting outside and find
(41:04):
some users who are willing to adoptthis to maybe even pay for it.
So, and then what theydo they create facts.
Because now there are customerswilling to pay for it.
They ask, Hey, where,you know, where is it?
The problem though, is how , , doyou get resources by showing
(41:27):
that you can get big fast.
So what these leaders do at the frontline then with strategic forcing is
to , try to create facts that then theguy in the middle can say, Hey, look
how fast the damn thing is growing.
We have to put more resources to it.
(41:49):
Right?
That's what happens.
The technical linking.
resources from inside the company,outside of the regular resource
allocation process and, know, forcegrowth in the market, or collaboration
in a variety of ways that createsevidence that this is going to work.
(42:09):
But that's, , I learned was not enoughin these ventures because, you know,
if you have a multi-billion dollarcompany in revenues in those days, I
think the company that I was studiedthen was about 6 billion at the time.
Something.
So if you have something that's$60,000 that's 60 million, but you
have 6 billion, how much attentionis that going to get government?
(42:32):
That's that, that's at the margin.
Andy Grover, the word forthat, he call it chicken feed.
So now the senior guy in the middlethere, he is a peer of senior leaders
in some of these operating divisions.
(42:53):
As I said, in some of these operatingdivisions, there are already
projects going on that are orphans.
And so to the extent that the seniormanager here in the venture group is
able to take what his entrepreneurialguy is doing at the front line with
strategic forcing, but bring togethersome other projects from in the company
(43:17):
that could be related to what this guyis doing here, and maybe even do some
small acquisitions because you know,then I call that strategic building.
He expands the scope of this venture andscales it up to a level where the top
guys are beginning to pay attention to it.
(43:41):
You know, I came to a same insightin my HP study where in my Hewlett
Packard had gotten into the printing
and at one point John Young actuallytold me, he said, well, printers had
got so big we had to start paying apension, start paying attention to them.
(44:05):
So this middle level executive who isbrilliant in coming up with a strategy
for this new area in which he has nowagglomerated several things, the one
that his own entrepreneurial guy isdoing with some projects from other, in
from other parts of the company, maybesome small acquisition, and he can now
(44:26):
basically go to top management and havea strategic plan for this new area, and
I call that organizational championing.
That's not product championing.
That's far more complex.
That's organizationalchampioning and what he is doing.
(44:46):
He delineates in that new space,the position of the company with the
successful projects that they now have.
Because company might say, yeah, we wantto be in the, we want to be in health.
I go, okay, is that the onlyguidance you're going to give me?
How would I put, how would Iconvince top management that the
(45:10):
health field is really one for us?
Is if I can show that wealready have projects in it
that are viable and growing.
I in a way delineate withinthat new space, the terrain,
the position that we can occupy.
That's pretty brilliant.
In fact, this guy, I thoughtit was a great threat.
(45:31):
He once told me, in fact, I wrote nowrecently a paper, it's actually accepted.
It will be published in thestrategic management review.
And it took me 40 years to actuallybe able to do a computational
model with another guy, computermodel to actually show this.
he said this, that this is thesenior guy, not the top guy.
(45:52):
He said, new business has new businessdevelopment as problems, as challenges
that top management does not understand.
So if you don't have a strategy,you can only talk to them
about what they already know.
(46:15):
That will destroy your credibility.
So therefore, it was crucial thatsenior executive could develop
a strategy just like Andy Grove.
Remember when he told me,I don't like things that's
somewhat right, but mostly wrong.
Why?
Because that, because Frank did notcome up with a compelling, you know, the
(46:36):
guy, his successor did, I didn't tell.
And you know what thatsuccessor told Andy?
And, and maybe he told Craig by thattime he said, processors need big pipes.
Why?
Because the data that areprocessed come through the pipes.
So it's the guys who controlthe pipes, who really to a
(47:00):
large extent what we are doing.
So shouldn't we also be partof the controlling the pipes?
And intel actually then went out tospend, I think, $3 billion acquiring
number three or so, wait two, late.
Of course.
Within, within that game.
But that is, so now I am there athome, you know, and I could not put
(47:23):
strategic building and organizationalchampioning and delineating.
I did not see how I could possiblyfit that into Bower's model,
because in Bower's model, thatstrategy is already determined.
The capacity, the manufacturingresource allocations are all with
the strategies of these divisions andtherefore of the corporate strategy.
(47:44):
And here, there is no strategy,no, no corporate strategy.
We have to create one and gettop management to agree with it.
And so that is where if that championingand delineating is successful, we
have overcome the selection force.
That was from the structuralcontext and now top management.
(48:07):
I actually, there is oneword missing in this version.
I call it retroactive rationalization.
Now you could say that sounds very,that sounds, you know, sort of
reactive on the part of top management.
And I say no,
great brilliance to be able todo that because if you are the
(48:30):
top management, you are the CEO.
How many times can you tell the restof the world, we're going to cap this
mountain here without having any evidencethat you're going to be able to do it.
Not many times.
So it's only when there is a reasonableamount of evidence, which is provided by
(48:52):
this guy in the middle, in fact the topmanagement can go that's what we always
wanted and that's why, when I saw Bowersthing, in a way he said that, I don't know
whether, but it's true because two yearslater, who do you think had the idea?
There's a great line by thecomputer pioneer, Howard
(49:13):
Aiken, I think his name was.
He said, don't worry aboutpeople stealing your ideas.
If they're any good, you're gonna haveto force them down people's throats.
When I see this, this is likea game of snakes and ladders
Yeah.
Try and win.
It's such a political thingthough, Robert, isn't it?
It, I mean, it, it's not about theidea, it's about the politicizing
(49:34):
of that idea to get it to the top.
Yes, it's both cognitive and political.
So it is cognitive in the sensethat you must be able to come up
with a framework, with a strategicframework that is compelling, in fact.
So I will, I translate this into,
Okay.
So if you are in the middle, right, and Ithink that is where it usually breaks down
(50:02):
you must be able to exert strategicallythe ship in three directions.
The first one is downward because theguys who do the technical and need linking
right at the lower level, they willalways define themselves as different.
(50:23):
But in a large company, if youmany times say you are different,
they start believing you.
And that's not the road to success.
So if you are the middle, the seniorguy, you must tell the entrepreneurs,
don't say we are different.
(50:43):
Tell 'em we need your help becausewe're doing something that is good, not
just for us, but also for the company
and by the way, I've seenthis in many, many situations.
So the the guys at the bottom, they alwaysdefine themselves as we are different.
In fact, I think you read the chapterthat I did on the chip sets at Intel.
(51:06):
So Ron Smith did not make that mistakebecause what he did, he put on his team.
Okay I'll ask the question first becausethe audience may wanna think about it.
Who controls access to customers?
The answer is the sales force.
And how keen are Sales force people tolet you go and talk to their customers?
(51:33):
Not very keen.
They'll tell you, I don'twant you to go there.
So if you don't have on your ventureteam, people that are trusted by the sales
force, how much information are you goingto be able to get about the customers?
The answer is zero is the upper limit.
None.
(51:54):
In fact, you may get disinformation.
So in the case of the chip sets, RonSmith, the guy who was then running that
had actually put esteem people who wereregarded the OEMs, Dell and HP and so
forth, so that they could get- if youwant -information from the customers
(52:16):
about how Intel could do something forthem that they no longer have to do, and
Intel could probably do it even better.
So that's the technical andneed linking part there.
Right.
Which is very important.
But often you need, in order tobe able to, do the need linking,
you must get support from the guysin the sales force for instance.
(52:39):
You're opening up so many old woundsfor about me when my job in corporate
innovation before, but so many of ouraudience, they struggle somewhere here.
That's what I'm saying.
It's like a game of snakes andladders that you, you think you've,
you think the idea is the enough andthen you realize all these things.
I, I struggled from that Salesforcething where the Salesforce then
(53:01):
complained to the CEO that I wasconfusing the market with this new
ideas and then asked me around theside, would I not go to the customers.
And the reason was 'cause of commissions.
You didn't want to eatsomebody's commission.
So there's always a reason that youdon't know that it doesn't make sense.
And it's, I know you, you we talked aboutit's often for the best of the company.
(53:23):
My, my ambition was to do whatwas right for the company.
But that doesn't alwaystranslate across the company.
No.
so then that's, that's inthe downward direction.
Then laterally, you have to be able toconvince your peers that what you are
doing is really, like, for instance,people don't like to let go of projects.
(53:43):
Even if they are orphan projects in theirdivision, you know, I come along and say,
Hey, Aidan, you know, I could use this.
Why don't you transfer this to me and you?
That's you're not likely to do so.
How do you laterally create whatI call minimum winning coalitions?
This is really important because,I was once speaking to the advisory
(54:05):
council at Stanford and I was, talkingabout this was in the mid nineties
about an IBM case and it was the lastdays of John Aker as the CEO of IBM.
So heres 50, you know, CEOs becausethey're all CEOs that are advising the
dean and there is a hundred of them.
So we do this case and a CEO of oneof the companies raise his hand and
says, you know, there must have beenpeople down in, IBM trying to convince
(54:29):
the top management that the computerindustry was really radically changing.
So I stopped and I said, doyou guys think that's right?
To the audience, and they allstarted talking among each other.
I almost lost, control of, the discussion.
And so I said, okay, good.
So then, , in that case, what youguys do with people like that.
(54:52):
And so right in front of me,John Morgridge, the former CEO
of Cisco, he raised his hand andhe said, go to lunch with him.
And I said, well, John, you know, Ciscois getting to be a pretty big company.
How many free lunch dates do you have?
And they all started laughing.
(55:12):
And then John, you know, a goodstrong guy, he raised his hand.
He says, yeah, that's true.
I said, and here is the key.
He said, I would only do it they had beenable to convince some of their peers.
Man, that's a brilliant statementbecause the CEO has seven direct reports.
(55:36):
Let's say.
Aidan, you are the CEO, and you say, John,do you know what Roberts is doing there?
And he goes, well, frankly, I'veheard, but , I don't know really,
you know, whether, and if allseven say that to the CEO, how
much confidence does the CEO have?
But if there is three of the seven, yousaid, well, yeah, you know, actually I
talked to Robert fairly, and to his boss.
And, I believe , there issomething there that we definitely
(55:58):
should pay attention to, right?
If three of them do, then maybeJohn would go and say, well, I'll
have once lunch with that guy too.
Right?
So that means that is in thehorizontal dimension, how do you
convince some of the other seniorexecutives that this is worth doing?
(56:18):
It's not just for me, but it is actuallysomething that is going to be good for us.
And then upward is where, in fact,you now have to convince the CEO that
it is responsible for embracing this.
Because the CEO, in my model,that's why I call it retroactive
rationalization, right?
(56:39):
And I say rationalization, it's respect.
Is he or she has notsaid yes and not said no.
They have kept things in the air.
But at some point, and this is true withstrategic inflection points too, right?
At some point the leader must bringthe discussion to a conclusion.
(57:02):
Either it is no, and often it will be no.
Or it is, yes.
That I think is a very high levelof intelligence on the part of the
CEO to be able to know what is theright moment for me to say yes or no.
So these are the three areas,downward, horizontal, and then upward.
(57:22):
Being able to convince the CEOthat, now it's more right and wrong.
That's such an importantinsight, Robert, in the trenches.
So I had one of these experiences wherethe only reason the idea was backed.
When I know the truth about it.
So in my head,, if I'm being egotistical,I'm going, it's a great idea.
(57:42):
But the only reason the idea wasbacked was because there was a
drop in revenue and they neededa distraction for the board.
You know, this is so important though,what you just said, because often
I wrote that in one of my articles.
I think in 83, the top managementlooks at these autonomous initiatives
or these new ventures as insurance,
(58:07):
not because they really want todo it, but it is insurance against
things going, downhill for a while.
And so as soon then as it turnsout that we don't really need it,
the support may actually stop.
Or I'm sure you've seen the leaderleaves or goes somewhere else or gets
distracted or ill, and your ideas dies.
(58:30):
absolutely.
So this is a very fragileprocess actually in many ways.
And so therefore , I couldn't mapall my activities onto Joe's model,
so then one night I realized JoeBower's, is about, the strategy is
given and now how are we going toexecute it with resource allocation
(58:51):
to get the capacity allocations.
Mine is we have come up with newideas, but there is no strategy yet
at the level of the company justifyingit and rationalizing it, and then
making it part of the induced process,making it part of the operating role.
So that was my solution and , whatI thought was an extension of Joe
(59:15):
Bower's model to turn it from aresource allocation model that is
basically focused on exec executingan existing strategy to where it also
can deal with resource allocationin a changing strategy situation.
It's so valuable.
And Robert, is this the workthat you covered inside corporate
(59:38):
innovation in particular, that book?
Yes,
Yeah.
So Robert's kindly we're gonna domore with Robert in the future and
cover his books actually more thanjust this series where we're gonna
dip in and out of some of his papers.
Robert, how are you?
Are, are you okay for another 10 minutes?
yes.
Okay,
is.
So I was thinking what we'll do is.
(59:58):
We, we went much deeper.
Sorry, I brought you, I brought youdown the rabbit hole here, but I,
tomorrow maybe, or the next day whenwe come back together, we'll arrange
a time to come back together andwe'll do the dilemmas as one episode.
I think that would bereally useful for people
yes.
and
notes for them for, and sowe could cover basically,
Brilliant.
Yeah, because I think that wouldbe a brilliant episode on its own.
(01:00:20):
The seven dilemmas, or Ithink it's seven anyway.
The, the dilemmas.
Yeah.
Six dilemmas.
Yeah.
So okay.
So we'll agree that, so I thought, Ithought the last thing we'd do today
was you, you say in the book here, anevolutionary perspective sheds lights on
whether the strategy making process maymake a company, take on significantly
(01:00:42):
different features over time.
But this is, I love this language ofevolution here, or whether a company's
type is fixed therefore, it fundamentallyconstrains its strategy making process.
So it's a certain type of species orit only can do a certain type of thing.
But evolutionary theory implies theformer and typologies that distinguish
(01:01:05):
between firm types persist in thestrategic management literature.
And I love this one well-knowntypology distinguishes prospector
defender analyzer and reactor types.
And I thought about this just as differentspecies in the business environment, but
also the ability to then to be a chameleonand change between these different types.
(01:01:27):
Yes.
And this also then will probablyset us up for the next episode
where we'll talk about the dilemmas.
It often depends on where you are in thisprospective defender analyzer reactor to
your reaction to an opportunity or not.
Or , even if you see it.
And this is a great way of thinking aboutthe journey that we saw Intel go through.
(01:01:48):
Yes, that's actually right because insome ways Intel started as a prospector.
That's not really true.
They were, they, they ended up hereis why they were kind of a prospector.
And I, I can give anotherexample of a company.
So,
were a prospector in the other company.
but you remember here when, when GordonMoore and Robert Noyce started and
(01:02:13):
then a little later Grove joined them,the technology, the Semiconductive
technology space was all open.
really knew where this is going to go.
Even Eprom product wassomething totally unexpected.
Dov Frohman an Israeli guy actuallyfigured out it was actually an
an error a mistake kind of thing.
(01:02:35):
And he turned into a product, right?
So if you are in a, very opennew technology space, you almost
have to be a prospector, right?
You have to try thingsand that's what Intel did.
But then Intel under Andy Groveactually turned itself into a defender.
In fact, Andy had a wayto talk about the Moat.
(01:02:57):
It's like a castle with the moat.
And here I'll tell you one anecdoteabout the brilliance of Gordon Moore.
in 1989 when I was doing all thisresearch, I had a meeting with Gordon.
I didn't meet him many times, butand he said this, he said Andy, he
(01:03:18):
was then the CEO is narrowing andnarrowing and narrowing the company,
right?
I would not have done that.
And he gave even some examples of them.
But, and here is the brilliance, he said,but based on line with reduction alone for
the next 12 years, it'll not be a problem.
(01:03:42):
Sounds like Moore's Law to me.
12 years it became a problem.
And the line with reduction, which meant,remember I said that at the beginning,
Skill that had making them small.
Because if you make themsmaller, it has two advantages.
has a cost advantage because you havemore good chips per wafer because
since the chip is smaller, it'smessed, the probability of it being
(01:04:05):
hit by a, an impurity is smaller.
So therefore more chips, good chips perwafer reduces the cost and it increases
performance because the electronshave to travel shorter distance.
So, so go realized.
Yeah, Intel, we are good at that.
So for the next 12 years, you know,we will just, we we're very narrow,
(01:04:29):
but it won't be a problem for.
And just I want to tee up for the nextday, the narrow business strategy dilemma
is actually one of the dilemmas thatwe'll talk about the next day, which is
that narrowing of your focus as well.
I don't want to take us off theprospective defender analyzer
reactor types though, but I wasgonna ask you about Gordon Moore,
and surely having him in your ear.
(01:04:51):
I mean, I even thoughtabout the phones then.
The idea that ships would be, if youunderstand Moore's Law, you'll know
a phone could be folded someday.
That, that, how far does that go?
And having that knowledge inside a companysurely could influence strategy over time.
Yes, that's absolutely right.
Yeah.
(01:05:11):
We've kind of only done prospectorwill we explain the others.
Yes.
So Prospector is the one that, that woulddo a lot of these autonomous things.
Defender is the one that is veryfocused and is basically on the induced.
The analyzer is the one that tries todo both, and I think that is actually.
(01:05:33):
In many situations, a winningstrategy in the long run.
The reactor is of course, the weakestpart because they'll, they need, they
neither do very good , on the autonomous.
Neither do they do very good on the, andso these are the companies that probably
don't, do not survive or eventually arenot able to survive in the long run.
(01:05:54):
But, so I do actually likethat typology very much.
I think it was very cleverlyvery cleverly developed.
And, we can, in the old days would saya prospector 3M used to be a prospector.
HP would've been aprospector too, you know.
And then you had the, the onesthat are very, very focused.
Timken maybe, probably, you know,Intel and some of the oil companies
(01:06:19):
of course as well, you know.
And we're gonna cover so muchmore of how you get outside this
analyzer being exploit and explore.
We'll talk about thatthe next day as well.
Robert, it's an absolutepleasure having you on the show.
I am so looking forward to getting deeperinto the work and thank you for today.
It was beautiful, thestory you set us up for.
I probably should have done thatin episode one 'cause it was a
great lens through which to see thestrategy and indeed how resource
(01:06:43):
allocation changes over time.
I'm really looking forward to thedilemmas and the questions that you ask
that all this, all that we've talkedabout in part one, part two really
throws up a load of questions foryou to go, well how do I manage this?
How if I'm a leader in acompany, so success is transient
and how do I manage that?
So it's an absolute pleasure and I'mreally grateful for you joining us.
(01:07:06):
Professor Robert Burgelman.
Thank you.
Thank you very much.
It's great.
Great working with you.
Thank you very much.
absolutely loving this series.
And I wanna thank our sponsor,Kyndryl, who enable us to do this
and bring you in depth conversationswith the world's best minds.
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(01:07:27):
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I hope you're enjoying this series onfrom Resource Allocation to Strategy,
today's guest is Robert Bergman, parttwo, where we're gonna cover that
Intel case a little bit deeper andgo into the politics and biases of
how to navigate corporate innovation.
But before we do, I want tothank our sponsor, Kyndryl.
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Welcome back to part two ofthe Robert Burgelman episode
(00:46):
on resource allocation process.
If you recall in the last episode, wecovered really the two epochs of intel.
So this idea that Intel went throughthis period where ideas bubbled up
from below from people making the rightdecisions for Intel, and then Andy Grove
took that by the scruff of the neckand said, okay, this is the way we are.
(01:08):
This is how we're aligned.
This is how we make.
Decisions from now on, we'reso focused and that's induced
strategy, and that has its costs.
So that cost other opportunities comingup from the organization once again.
So this is the difficulty that isabout being in strategy and the guy
(01:28):
who put that on the map and who put somany thoughts into my head, I've been
dreaming about intel and the strategy,autonomous processes, induced processes.
Welcome back to the show.
Robert Burgelman,
Great to be here.
Thank you.
great to have you back.
You've been, dominating my thinking.
My bandwidth has all beenBurgelman thoughts over the last
(01:48):
while and there's so much in it.
But I thought we'd maybe we'll giveher a quick recap of the intel story.
Because it's really useful to map allthe processes that you talk about, the
strategy process that you talk about, andindeed the focus of this entire series,
which is the resource allocation process.
Maybe it'll give us a very quick recapto bring people back into the mind
(02:11):
of where we were at the last day.
Yes, sure, I will be happy to do that.
So Intel got started because it came upwith a new, technology that would replace
existing memory products in computerswith semiconductor based products.
That was a big innovation that RobertNoyce, was the co inventor of the
(02:34):
integrated circuit and Gordon Mooredeveloped while they were at Fairchild
Semiconductors, Fairchild Semiconductordid not want to pursue their ideas, so
they, spun out and they created Intel.
That's already the firststep in this entire story.
So then , they were extremely focusedat the time because they wanted to
(02:55):
replace core memory, which was the.
The main memory product.
And by the way, that wasinvented by someone at MIT.
And if you go to the MIT Sloan School,they have actually in, they show
still version of that core memory.
So they proceeded to bring outthe, semiconductor memory product.
(03:17):
Several of them.
The most important one still exists todayis the dynamic random access memory.
And so they did okay.
As a startup, went public.
And then what happened is two things.
One is a Japanese me mechanicalcalculator company that wanted to
develop a electronic calculator.
(03:40):
And so they went toIntel because Intel had.
maybe with Texas Instrumentsand some other company.
They had the leading edgetechnologists in semiconductors.
so they wanted to get a chip fromIntel that would help them so to
speak, their electro mechanical
(04:00):
calculators, Ted Hoff, who was theguy at Intel together with Federico
Faggin actually, they said, well,you know, these guys, they, we
would have to develop, I don't know,a dozen chips to make this work.
Andy will never load this.
And so Ted Hoff was able tobasically limit it to four chips.
(04:22):
And one of them was actually a computeron a chip with, they didn't it that
way, but it was the microprocessor.
Actually, Intel had sold the rights tothe microprocessor to Busicom for $60,000.
Later Ted Hoff goes "Wait a Moment",you know, we could use it in
(04:43):
this and we could use it in that.
And so Busicom was a bitin slightly dire straits.
They were willing to give Intel backthe rights to the microprocessors for
cheaper products that Intel would sell.
Then happens is a very big thing.
The DRAM products became actuallycommoditized in part because the Japanese
(05:06):
computer companies, Fujitsu and so on,Hitachi and others, they began to realize
that semiconductors were the future.
So they, with the help of MITI (Ministryof International Trade and Industry),
the Japanese industrial organism.
They organized themselves and theybasically began to build capability
(05:28):
to develop these DRAM products.
Now, you may not recallbecause you're too young.
That was my time.
, The Japanese became very famousfor their manufacturing capability.
So there are three corecompetencies semiconductors.
The first one is design.
(05:49):
That's basically an intellectual exercise.
You can do it on a pieceof paper on a computer.
The second, which is very very wellunderstood, is material science.
And that has to do how can you actuallyembody these designs in silicon and
then make it more efficient by reducingthe line width these every line becomes
(06:16):
they are at a nano level, right?
And the third one is largescale manufacturing capability.
Intel was extremely good in design and inprocess technology, which is lined with
reduction at the time, but not so goodin manufacturing because they were the
(06:37):
only one who basically making it anyway.
So the Japanese took advantage of theirmanufacturing capability strengths
to begin actually using some of thetechnology that they had learned from
Intel and so forth, and from other placeto commoditize the memory products.
(06:59):
It became a product that multiplemanufacturers could make.
They were plush compatible, soI could use an Aiden chip or
a Robert chip in my computer.
So it became a commoditized product.
Intel was not set up tobe a commodity player.
Intel was a leading edge designcompany, not really a leading
edge manufacturing company.
(07:21):
So now , they have these, logicproducts, which were based on the
microprocessor that Ted Hoff andFederico Faggin basically had developed.
And they have their memory products.
Memory products are becoming commoditized.
The logic projects are allniche products at the time, but
they are specialty products.
Intel, a leading edge technology companywas very concerned about margins.
(07:47):
Because if we are the leadingedge player, we should be able to
get high margin on our products.
So they established anallocation rule, which was
called maximize margin per wafer.
So the product that had the highestmargin, which is the difference between
the price in the market and the cost ofmanufacturing, they get at the margin.
(08:09):
When the capacity is constrained,they get the additional capacity.
So over time, what is happening the DRAMmanufacturing capacity allocation goes
down, but the R&D allocation still stayshigh because the DRAM guys are the leading
(08:30):
edge players in the sense that has thebest capacity for line with reduction
because the me memory product is thesimpler product and the micro processor.
And so the leaders of the DRAM processtechnology, they were still the leading
edge and , they were actually the, keytechnological competence for Intel, they
(08:52):
are associated with the losing business.
So, as Intel reduces its manufacturingcapacity to dram, but still maintains
this high level of r and d, the samelevel in DRAM as in micro, there is
a growing gap between what they aresaying and what they're basically doing.
(09:14):
They say we're a memory company, butwe allocate all our manufacturing
capacity now more , to microprocessors.
That could not last.. So that is where inthe early eighties, Intel faced what Andy
Grove and I later called the strategicinflection point, Which was, know, our
memory business is going all the way down.
(09:35):
We have only left three, to 4% marketshare against all these Japanese guys.
But our logic productsare actually going up.
We have growing more and morein total sales the of revenues
more and more, and there is a newopportunity, which was that IBM had
decided to adopt the microprocessorof Intel for their first pc.
(10:02):
So, IBM basically became the driver ina way of Intel's To move from being a
memory company to being a microprocessorcompany because as we all know, as of
1985, especially as of the 3 86 forthe PC, really took off like a rocket.
(10:23):
And so Intel, Andy Grove very smart ashe was realized, IBM of course had forced
intel to cross license their technologyto AMD, probably to NEC, to maybe to
Sima Africa, but in Europe, in Germany.
And so of course Intel over the 286, which was one of the earlier
(10:43):
generations, did okay, but not greatbecause there were three or four other
guys who were also manufacturing.
Then since the costs of developing thesemicroprocesses was exponential, each
generation, more and more expensiveIntel tried to get these other players
to which it cross-licensed its technologyto, you know, contribute to the
(11:05):
development costs, they all refused.
And so then Grove had this brilliantinsight, which was that, they don't want
to contribute to our development costs,but we are the developers, we are the
guys who are ahead of everybody else.
(11:25):
We're not going to crosslicense our technology anymore.
Now, you know, IBM was not particularlyhappy about that and refused.
But since they had not asked forexclusivity to Intel, could go to
Compaq and say, Hey, compact, youknow, you could be the leader if you
(11:46):
take, and then the marketing guysat the IBM, they go, Hey, come on.
The train is leaving the station.
We better get on board.
So Grove was able to then getIntel to be the sole source.
They, the number of lawyers you went upto, because a MD was trying to imitate.
(12:06):
And so they, Intel was alwaysable to stay a couple of years
ahead of the, for a long time.
So that's basically the story.
As Andy said , we were really leadingedge player of memory products in, Silicon
. Changing our competency from that toembodying computer logic into silicon.,
(12:26):
so that's the big change that happenedon the distinctive competence side.
What is now the story?
So then Andy, so the first one is theyspring up these opportunities, right?
Sram, dram, eprom, andthen the microprocessor.
They do everything and, but thethings begin to shift because
one thing is commoditized andthe other one is still specialty.
(12:50):
Then once Grove has realizedmicroprocessors four PCs are an
extraordinary opportunity and that Intelplus Microsoft will be the dominant
forces in the PC industry, he now,and he uses that word, he vectorized
everybody in the same direction.
(13:12):
And that is why I wrote.
But sorry.
And for he could do that until19 8 98, roughly 1998, he passed
the baton to Gray Barrett.
And he told me once, at that time,he didn't say he was going to pass
the baton to, but he said the, the PCindustry is changing and we'll have to
(13:32):
do something different and maybe it'sa time for another person to take over.
And, and that's true.
Barrett had to then take over.
Andy Vectorized Intel, he became almostthe single strategist within Intel
Barrett was the guy for implementation.
Because now Intel had to becomegood in manufacturing too,
(13:54):
because we are the sole source.
Right?
So Craig came up , with the rulethat everything had to be the same
in every factory that they created.
So you see, strategy is in firstinstance, a disciplining mechanism, right?
And so I always askpeople, do you like focus?
(14:15):
And then they go, yeah.
Then I ask, do you know what focus means?
Focus means you say no all the time.
That's what focus means.
And Andy was brilliant in saying no.
And so that worked for a long time.
(14:36):
Today, intel, as we know has been facinganother strategic inflection point.
I will not go into that now.
That's not the right time, but that isthe short story an extraordinary story.
intel was sort of an ecological systemwithin which all this competition between
these different possible possibilities.
(14:56):
And then Andy turned the ecologicalframework that I have into a
classical, , rational top leaderswho is driving the entire in this.
But yeah, you know, we tend tolike this in a way, you know, most
people like to say, oh, I knowwho the boss is and you know this.
(15:17):
, And so as a result, I hadactually developed my model,
that I showed not based on Intel.
I had based that on my work thatwas derived from my extension of the
Bower model, in which I had studied asimilar company like Joe had studied
a science based chemical firm.
But in 1989, when Andy and Iwere now teaching, and we gave
(15:41):
a presentation at the StrategicManagement Society Conference in San
Francisco, and Grove showed a graph.
I'll describe the graph.
Vertical axis total revenues.
Horizontal axis is time.
(16:02):
In the mid seventies, lateseventies, the greatest proportion
of total revenues is in memories.
A relatively small proportionis in Logic Promise.
What happens?
The memory products down in revenue.
(16:24):
logic revenues up theycross in 1981 already.
So as of 19 81, 82, the totalrevenues of Intel were more from
Logic products done from memories.
Yet it took until 1985 for AndyGrove then to go to Oregon.
(16:44):
As I said yesterday, welcometo the mainstream of Intel.
So that shows you there wasa period between , 81 to 85,
which we call the period ofstrategic dissonance within Intel.
That was the period in which therewas a strategic inflection point.
So what I realized when I'mseeing him present that.
(17:06):
I go, but that describesexactly an ecological model.
One species is on the decline andanother species is on the rise.
How much more ecologicalcould it possibly be?
And that fits perfectly with mymodel of induced and autonomous.
beautiful job, man.
(17:26):
Beautiful.
And just wanted to add as wellthen this idea of the ecological
species, that there's an internalecology, so the internal environment
and then an external one as well.
And that's an important thing thatthere's survival of the fittest
ideas or people who get rewardedand recognized inside the company.
And then there's the survival of thefittest products or services outside the
(17:49):
company as well, which is the businessenvironment . That's a key lens for people
to hear us through or see us through here.
There was another key piece,and I loved what you said here.
You said in strategy makingprocess generates content, and
then content disciplines process.
It is not a throwaway line.
It's so, so deep.
(18:10):
The way people act, experiment andmake decisions leads to a strategy.
And once that strategy is inplace, it starts to guide or
limit how new decisions are made.
Exactly like you described.
The metaphor that came to mind for me,Robert, and I'd love you to explain
this, is you think about the flow ofwater in a river and it carves out a
(18:31):
riverbed over time, which is your content.
The flow is the process, the riverbeds,the content, but then the river bed
guides how the water flows in the future.
And the same thing happens in the brain.
You have this way of thinkingand then everything flows
through that way of thinking.
And if you're a change maker or ananomaly seeker inside an organization.
(18:53):
You go, Hey, wait a second.
There's this other thing.
And we have the capability to build that.
It doesn't fit in the riverbed anymore.
And one of the ones that we just alludedto yesterday, something that bubbled up
from below was video conferencing andIntel had a good opportunity in video
conferencing, but they were so focusedbecause of the process that they missed
(19:17):
this new opportunity of new content.
yes.
Okay, so first I'm going to commendyou for having dug up this line
because I think, if I might say so,I felt for myself, I think it may be
the most profound insight I ever had.
Process generates content,content disciplines, process.
I really believe that's may, it mayeven be the way that life has evolved.
(19:40):
You know, it's so, so that, I think is,is one thing that, that, that, that that
I wanted to, to, to just commend you for.
Now, the, the second thing,which was since I, what was the
I, I have, and I, I agree.
By the way, I absolutely love that line.
And I, you know what, I wasreally thinking about it
(20:00):
like, like the way the brain.
You, there's a, there's a effectcalled the Elong effect, which is
you figure out a, a way of doingstuff and then you can't change.
You always have to go do things that way.
And I was like, that's what kindof happened with Intel, that
everybody went this way into thisinduced process of strategy and
(20:22):
then just couldn't change.
But I was alluding to
the video conferencing opportunitythat came up, but it was then sidelined
'cause it didn't fit the strategy.
So yeah, I'll, I'll saytwo things about that.
The reason why they couldn't really getit done was that there was, you needed
(20:43):
broadband, which at these days wascalled ISDN, believe it or not, ISDN.
Right.
And that was the controlledby the telecom companies.
So Intel now, for the first time in along time, realizes there is another
(21:04):
force that we need to align with us.
If it doesn't, it's not gonna, that tooka long, by the way, it was Pat Gelsinger
who ran, Andy had taken Gelsinger out.
He was the lead developer, designer,Gelsinger, when he was young, right?
(21:25):
And Andy had taken him outto run video conferencing
and Gelsinger, because in my book, you,if you wanted to read it, it was there.
In there he basically told Gelsingerthat he wanted him to apply the same
strategy in video conferencing asIntel was using in the PC industry
(21:51):
with its microprocessors, whichwas what I call a frontal assault.
And so that didn't work.
By the way, I almost spent $2,000 becauseI said, yeah, I'm teaching with IBM,
I'll put an I-S-D-N line in my garden.
Then go, I ended up fortunatelynot doing, doing, doing that,
but , it shows Andy grows, I wouldsay intellectual honesty, right?
(22:16):
So in front of a class, in myclass one, in our class then.
He once said this, you know,I spent $750 million on video
conferencing that, , didn't work.
And he said, why did we do it?
He said, we used a frontal assault.
(22:38):
And so later I told Andy, like,the D-Day, in fact we used the
landing in Normandy approach.
And later I told Andy, well,unfortunately there was no beach.
The no beach really meant the ISDNlines weren't going to be there.
So, so there is another importantlesson that now comes up,
(22:59):
which is when you are dominant
, the danger is that you think you canbasically do in other spaces what you
are doing in the space in which, andthat's of course what Intel also ran into
the problem in the mobile communicationspace where they spent $10 billion
(23:20):
and nothing really came out of it.
Why?
Because they tried to apply the samestrategy , in the telecommunications
industry as they were applying in thePC industry, but in the PC industry,
they were the boss, , but not inthe telecommunications industry.
So, yeah, that's a very powerfulof where something springs up.
(23:45):
So there is when you are dominantin your, with your induced process
and you nevertheless have these newinitiatives that spring up, there is
two types of inertia that come out.
The first inertia is that you aregoing to try to apply the same
(24:05):
strategy that you used in yourcore business in that new area.
And that does often not work becauseyou don't, the ecosystem within which
that new is operating is different fromthe ecosystem in which you are known.
So that's number one.
That's inertia number one.
(24:25):
Inertia number two is the oneI mentioned yesterday is then I
call it the strategic context.
This determination processcannot really be activated.
almost emaciated.
So these are two important,I think, dangers of inertia
associated with a company thatis dominant in a particular area.
(24:50):
And Robert, one of the things I wantedto ask you, so Andy passed away in 2016.
He was a great friend of yours and yousaw each other right up until the very
end, and I wondered, what did he say toyou about how, just like teleconferencing
intel then missed the opportunityto provide the chips for the iPhone.
(25:10):
And that was one of these strategicmisses as well, but for the same
reason, it was probably from focusprobably because of the, discipline.
The discipline of focus andthe miss of this opportunity,
this new content opportunity.
Yeah, so actually, and so Andywas no longer running the company.
So, then , I think he did notwant to say too much about the
(25:32):
CEOs ., And maybe I should not saytoo much about it right now either.
In that respect, let's respectthat and maybe through the lens of
your theories and the way you seestrategy, what, what went wrong there?
Because again, the one thing I'velearned from reading all these books
and studying people like yours,work is you cannot be critical.
'cause it's so hard to read thelabel when you're inside the jar,
(25:54):
when it's your turn, you miss it.
Yes.
I think what happened is two things.
The first thing is that the, at Intel,the finance analysis, which is always
very strong because Intel was a companythat had always dual, dual leadership.
They had business leadershipand financial leadership.
(26:17):
Together.
In fact, that's why also in thebeginning, they were al allocating
the, the manufacturing capacity awayfrom the, from the, from the low margin
products to the high margin products.
So there's, there was that sort of anan in, in inherent aspect of intel.
So when the, when, when they,when I learned that the finance
(26:43):
team who calculated the potentialreturn of developing chips for the
iPhone actually made some errors.
Now I have not seen those calculationsthat, so that I can, one thing that
I probably think they completelymissed, by the way, apple itself did
(27:06):
not prob Steve Jobs because he cameand spoke in the, in the seminar that
I ran with Andy Grove once in 2007.
He, he spoke about how they actuallyhad developed the iPhone, but I don't
think they themselves realized theextraordinarily rapid growth of that.
Actually, I have a little theoreticalframework about that too, Andy and I, we
(27:27):
had actually, published a paper in 2007in the strategic entrepreneurship journal.
It's called Cross Boundary Disruption,
and we used Apple as theexample of a cross boundary
disruptor in the music industry.
But then we applied the same modelthat we had developed in that
(27:47):
article to the Apple entering intothe mobile communications industry.
And we actually predicted that Apple wouldbecome an important incumbent, would, but
would not be able to disrupt the industry.
Why not?
Because there were fourvery powerful competitors.
(28:07):
Nokia was selling 400 million units in2007, Motorola, Ericsson, Blackberry.
So we said, well, these arevery innovative companies.
They are hard driving.
It's totally different from themusic industry and therefore.
(28:27):
It's unlikely that Apple will beable to truly disrupt the industry.
I have a framework to explainwhy they were able to do that,
but I'll leave that aside.
that I think are the two things.
The finance guys made the wrongassumptions about the margins
that would be available to Intel.
(28:49):
remember, , the danger of disruptivetechnology is that in the beginning,
the incumbents believe that it'sbetter that we give up on this because
our average margins will go up.
the case of Intel, it was theother way around to go away in a
moment, we have very high margins.
What margins are we going to getfor these cheap cell phone things.
(29:12):
This going to bring down ouraverage gross margin, and that will
be reflected in our stock price.
Stock price will go down.
Now what they completely missed,of course, was the incredible fast
rate of growth of these things.
So then of course, , Nokia wantedto do some things with Intel, right?
(29:33):
But I remember they were a littlebit complaining of one, what I heard
about how Intel was dealing with them.
And I think one of the senior guys,I won't mention the name, told
them, well, if you wanna deal withIntel, you have to, if you want to
work with us, you must to do it.
You, you see I probablystopped just right here.
(29:54):
Right.
Brilliant, brilliant answer.
And, and just the inside story again,because it's so easy in innovation and
stories of business folklore to, condemnthe company, to go, they were stupid.
Oh, I can't believe theymade those stupid decisions.
But if it's, you we're all so liableto these foibles of humanity, of
(30:16):
these biases, of finding a waythat works of the success trap.
And we'll talk about some of thosedilemmas . But I wanted to share,
Robert, tool three, the process modelsof strategy making, because we shared two
yesterday and we didn't share tool three.
I just wanna remind our audience,it's these tools that Roberts used
to then analyze the story of Intel upuntil the mobile revolution really.
(30:41):
And I'm gonna show on the screen thatimage for those of you watching us, and
again Robert, I'd love you to just takeus through this with empathy for people
who are just listening to us as well.
This is gonna be difficult 'cause there'sa lot in this one, and I'll just give
you a little warmup here because I pulledjust a little excerpt to introduce this
model, the process model tool threehelps zoom in further on the patterns of
(31:03):
detailed strategic leadership activitiesinvolved in the internal variation,
selection, retention, and competitionprocesses associated with exiting from
existing and entering into new businesses.
The internal corporate venturing ICV andstrategic business exit SBE process models
provide further theoretical insightinto different mechanisms through
(31:28):
which strategic leadership activitiesare coordinated in strategy making
this further illuminates the processof self-organization, that idea of
autonomous strategy, the interplayof strategy, content and process,
and the role of strategic contextdetermination and dissolution.
There's a lot in there, and I'dlove you to give us an overview
(31:49):
of what we're looking at here.
So let me say first.
I was trying to map the activities thatI had discovered in my study of the
internal venturing process in this largecompany, very similar to the national
products company that Joe Bower studied.
But not in the operating divisions.
(32:11):
This was in the new business division.
So first, why did they createthis new business, new venture
group or the venture group?
You see the, had studied, as I mentionedyesterday the book by Alfred Chandler's,
strategy and Structure in great detail.
(32:31):
I still have my notes in becauseI was in Belgium still then, and
I, I, I in, I wrote notes in Dutchactually next to several paragraphs.
And so this, the proposition of, ofthe famous proposition of Chandler
was structure follows strategy, right?
That's a very famous propositionstated by the great business
(32:56):
historian Alfred Chandler.
What I discovered when I studied my, newventure activities at, a similar company
like National Products, was actually a lotof these sprung up in different parts of
the company in different of the divisions.
Each of these division managers didnot really know what to do with this.
(33:19):
Just like Joe had discovered, therewas this one project where they wanted
to build a manufacturing capacity thatwould lead to products that would be
competing with their other major customer.
And you go, no, no, no,we're not doing this.
So I discovered these activities,they were, it's like a life force.
They would go going on inthese different divisions.
The top management does not know what todo with it, but they do feel, you know, we
(33:44):
do a lot of commodity chemical products.
Maybe it would be great if we couldget in more, in more specialty fields.
So they basically said, let'screate a new venture division.
And so then they put all theapples and oranges and pears and
all the fruit into that division.
Right?
That's, and so now all theseother leaders, they can just stay
(34:06):
on their mainstream business.
Okay.
So that led me to realise that actually,the origination of this new structure
was not really the corporate strategy.
It was these strategic initiatives thatwere already going on that let top men,
(34:26):
oh my God, we have to create a, so inthat sense, Joe is right that , it's not
just structure follow strategy, sometimesstructure drive strategy as well.
in this case then I addedan additional element.
Sometimes it's autonomous initiatives thatdrive both strategy and structure, right?
(34:47):
First structure, because we haveto them all together and then
eventually maybe it leads to anamendment of the corporate strategy.
So, and I had studied these activitiesin great detail, maybe more detail
than, than Joe did in, in, in termsof, because I was, my, my thesis
advisor was Leonard Sayles, I thinkI mentioned his name yesterday,
(35:11):
who was an applied anthropologistand who had did written a book.
It's a , very good book.
It's called Managerial Behaviou r. It'snow, more than 60 years ago or 60 years
ago that was published in which he studiedthe relationships between managers.
And workflow relationships,, service, relationships auditing
(35:34):
relationships, and so on.
Yeah, there's several categories.
And later, actually, Henry Mintzbergused some of that to, in to, in
some ways inform his own work onthe nature of managerial work.
You might read the introductionto that, to him, Henry's book, and
he will, he gives a lot of creditto Len Sayles having inspired him,
(35:54):
even though he was at MIT and Len.
Len was at Columbia.
I had all these activities.
The, the ones that I've now,it took me a while, right?
Technical and need linking product,championing strategic forcing
organizational so strategic building,organizational championing, the, I
have all these list and now I think,okay, I'm going to try to map these
(36:16):
onto the Bower model, which had three.
Columns impetus, and structuralcontext that were the three.
And he had also the three levels.
Corporate management, seniormanagement, or senior middle man,
and then the operation manager.
So I am at night and I remember in 19,19 79 sitting there and I'm trying to,
(36:39):
and I go, I can't all fit them in there.
And the ones that I could not reallyfit into very well were the ones
that operated at the senior level.
So I could see technical and need linking,which is, by the way, a dual process.
Right.
I'll give an example of this.
(37:02):
So one of the, this was a PhD in science.
In this r and d organization,part of the company.
And he had come up.
So this is an example of where therewas only one linking, not a double.
So he had done great technicallinking because he had developed
a gel that was water soluble.
(37:26):
So that gel contained a lot of water.
And he thought, you know, this could bea great consumer product because people
go on vacation and they don't knowwhat to do with their plants because
they, they, you know, the plants haveto be watered and they're not there.
So with this gel, they could puta gel in the plant and over time
the plant, the gel releases thewater and yeah, we're all set.
(37:49):
Brilliant idea.
That's what is a technical right?
From a technology to a solution.
It didn't work.
And you know why not?
Because the consumers neverbelieved that just putting one
gel in the plant was enough.
So they put too many gel and the plants
(38:15):
You see this?
I take this, I willnever forget his example.
So this guy, brilliant technology tosolution, but failed to understand
the behavior of the guy, thegood users they were going to.
They going, no, no, no.
One gel is not enough.
We're put it in three.
That's what goes on in that lowerbox, And you can't stop this.
(38:37):
This is a life force, right?
People do this.
Not necessarily PhDs.
There is a lot oftinkerers too, of course.
So that's one force.
The other force that.
So I would put number one there.
The other force is all the way at thestructural context, which is the top
(38:58):
management structures, the organization,they set up selection mechanisms.
In fact, they set selection mechanismsto not do what these guys are doing,
right?
They set hurdle rates.
They, there is a whole bunch ofmeasurement and reward systems joe
(39:19):
is the master on that one because hediscovered all, but I realized the setup
of the structural context is exactly to.
Resources being allocated towhat these guys are doing.
On the bottom there are closeto technology, close to market.
So how do they get, how do they get going?
(39:40):
Then I realized, well, they do isdo, call it product championing,
which means they are able to tap intoresources that are sort of forgotten
within the company reserve lists.
For instance, in the chemical industry,they have equipment that is no longer
(40:01):
used because they have replaced it, butit could still be used for something else.
And so these technical and needthese venture team members, they
then try to get one of the seniorguys who controls these resources
that are not on the reserve list.
And so to let them use those.
(40:21):
Right, because then they can beginto from the concept to actually
developing some kind of product thatis an a first potentially viable
product if you want to do that.
that's a, that's getting theresources internally outside of the
regular resource allocation process.
(40:43):
But how do they get going?
Because they don't they deal withdifferent customers than the operat.
So then I saw what happened wasthat venture leader, the guy who is
the head of the team, would engagein what I call strategic forcing.
And by strategic forcing, I meansthat is getting outside and find
(41:04):
some users who are willing to adoptthis to maybe even pay for it.
So, and then what theydo they create facts.
Because now there are customerswilling to pay for it.
They ask, Hey, where,you know, where is it?
The problem though, is how , , doyou get resources by showing
(41:27):
that you can get big fast.
So what these leaders do at the frontline then with strategic forcing is
to , try to create facts that then theguy in the middle can say, Hey, look
how fast the damn thing is growing.
We have to put more resources to it.
(41:49):
Right?
That's what happens.
The technical linking.
resources from inside the company,outside of the regular resource
allocation process and, know, forcegrowth in the market, or collaboration
in a variety of ways that createsevidence that this is going to work.
(42:09):
But that's, , I learned was not enoughin these ventures because, you know,
if you have a multi-billion dollarcompany in revenues in those days, I
think the company that I was studiedthen was about 6 billion at the time.
Something.
So if you have something that's$60,000 that's 60 million, but you
have 6 billion, how much attentionis that going to get government?
(42:32):
That's that, that's at the margin.
Andy Grover, the word forthat, he call it chicken feed.
So now the senior guy in the middlethere, he is a peer of senior leaders
in some of these operating divisions.
(42:53):
As I said, in some of these operatingdivisions, there are already
projects going on that are orphans.
And so to the extent that the seniormanager here in the venture group is
able to take what his entrepreneurialguy is doing at the front line with
strategic forcing, but bring togethersome other projects from in the company
(43:17):
that could be related to what this guyis doing here, and maybe even do some
small acquisitions because you know,then I call that strategic building.
He expands the scope of this venture andscales it up to a level where the top
guys are beginning to pay attention to it.
(43:41):
You know, I came to a same insightin my HP study where in my Hewlett
Packard had gotten into the printing
and at one point John Young actuallytold me, he said, well, printers had
got so big we had to start paying apension, start paying attention to them.
(44:05):
So this middle level executive who isbrilliant in coming up with a strategy
for this new area in which he has nowagglomerated several things, the one
that his own entrepreneurial guy isdoing with some projects from other, in
from other parts of the company, maybesome small acquisition, and he can now
(44:26):
basically go to top management and havea strategic plan for this new area, and
I call that organizational championing.
That's not product championing.
That's far more complex.
That's organizationalchampioning and what he is doing.
(44:46):
He delineates in that new space,the position of the company with the
successful projects that they now have.
Because company might say, yeah, we wantto be in the, we want to be in health.
I go, okay, is that the onlyguidance you're going to give me?
How would I put, how would Iconvince top management that the
(45:10):
health field is really one for us?
Is if I can show that wealready have projects in it
that are viable and growing.
I in a way delineate withinthat new space, the terrain,
the position that we can occupy.
That's pretty brilliant.
In fact, this guy, I thoughtit was a great threat.
(45:31):
He once told me, in fact, I wrote nowrecently a paper, it's actually accepted.
It will be published in thestrategic management review.
And it took me 40 years to actuallybe able to do a computational
model with another guy, computermodel to actually show this.
he said this, that this is thesenior guy, not the top guy.
(45:52):
He said, new business has new businessdevelopment as problems, as challenges
that top management does not understand.
So if you don't have a strategy,you can only talk to them
about what they already know.
(46:15):
That will destroy your credibility.
So therefore, it was crucial thatsenior executive could develop
a strategy just like Andy Grove.
Remember when he told me,I don't like things that's
somewhat right, but mostly wrong.
Why?
Because that, because Frank did notcome up with a compelling, you know, the
(46:36):
guy, his successor did, I didn't tell.
And you know what thatsuccessor told Andy?
And, and maybe he told Craig by thattime he said, processors need big pipes.
Why?
Because the data that areprocessed come through the pipes.
So it's the guys who controlthe pipes, who really to a
(47:00):
large extent what we are doing.
So shouldn't we also be partof the controlling the pipes?
And intel actually then went out tospend, I think, $3 billion acquiring
number three or so, wait two, late.
Of course.
Within, within that game.
But that is, so now I am there athome, you know, and I could not put
(47:23):
strategic building and organizationalchampioning and delineating.
I did not see how I could possiblyfit that into Bower's model,
because in Bower's model, thatstrategy is already determined.
The capacity, the manufacturingresource allocations are all with
the strategies of these divisions andtherefore of the corporate strategy.
(47:44):
And here, there is no strategy,no, no corporate strategy.
We have to create one and gettop management to agree with it.
And so that is where if that championingand delineating is successful, we
have overcome the selection force.
That was from the structuralcontext and now top management.
(48:07):
I actually, there is oneword missing in this version.
I call it retroactive rationalization.
Now you could say that sounds very,that sounds, you know, sort of
reactive on the part of top management.
And I say no,
great brilliance to be able todo that because if you are the
(48:30):
top management, you are the CEO.
How many times can you tell the restof the world, we're going to cap this
mountain here without having any evidencethat you're going to be able to do it.
Not many times.
So it's only when there is a reasonableamount of evidence, which is provided by
(48:52):
this guy in the middle, in fact the topmanagement can go that's what we always
wanted and that's why, when I saw Bowersthing, in a way he said that, I don't know
whether, but it's true because two yearslater, who do you think had the idea?
There's a great line by thecomputer pioneer, Howard
(49:13):
Aiken, I think his name was.
He said, don't worry aboutpeople stealing your ideas.
If they're any good, you're gonna haveto force them down people's throats.
When I see this, this is likea game of snakes and ladders
Yeah.
Try and win.
It's such a political thingthough, Robert, isn't it?
It, I mean, it, it's not about theidea, it's about the politicizing
(49:34):
of that idea to get it to the top.
Yes, it's both cognitive and political.
So it is cognitive in the sensethat you must be able to come up
with a framework, with a strategicframework that is compelling, in fact.
So I will, I translate this into,
Okay.
So if you are in the middle, right, and Ithink that is where it usually breaks down
(50:02):
you must be able to exert strategicallythe ship in three directions.
The first one is downward because theguys who do the technical and need linking
right at the lower level, they willalways define themselves as different.
(50:23):
But in a large company, if youmany times say you are different,
they start believing you.
And that's not the road to success.
So if you are the middle, the seniorguy, you must tell the entrepreneurs,
don't say we are different.
(50:43):
Tell 'em we need your help becausewe're doing something that is good, not
just for us, but also for the company
and by the way, I've seenthis in many, many situations.
So the the guys at the bottom, they alwaysdefine themselves as we are different.
In fact, I think you read the chapterthat I did on the chip sets at Intel.
(51:06):
So Ron Smith did not make that mistakebecause what he did, he put on his team.
Okay I'll ask the question first becausethe audience may wanna think about it.
Who controls access to customers?
The answer is the sales force.
And how keen are Sales force people tolet you go and talk to their customers?
(51:33):
Not very keen.
They'll tell you, I don'twant you to go there.
So if you don't have on your ventureteam, people that are trusted by the sales
force, how much information are you goingto be able to get about the customers?
The answer is zero is the upper limit.
None.
(51:54):
In fact, you may get disinformation.
So in the case of the chip sets, RonSmith, the guy who was then running that
had actually put esteem people who wereregarded the OEMs, Dell and HP and so
forth, so that they could get- if youwant -information from the customers
(52:16):
about how Intel could do something forthem that they no longer have to do, and
Intel could probably do it even better.
So that's the technical andneed linking part there.
Right.
Which is very important.
But often you need, in order tobe able to, do the need linking,
you must get support from the guysin the sales force for instance.
(52:39):
You're opening up so many old woundsfor about me when my job in corporate
innovation before, but so many of ouraudience, they struggle somewhere here.
That's what I'm saying.
It's like a game of snakes andladders that you, you think you've,
you think the idea is the enough andthen you realize all these things.
I, I struggled from that Salesforcething where the Salesforce then
(53:01):
complained to the CEO that I wasconfusing the market with this new
ideas and then asked me around theside, would I not go to the customers.
And the reason was 'cause of commissions.
You didn't want to eatsomebody's commission.
So there's always a reason that youdon't know that it doesn't make sense.
And it's, I know you, you we talked aboutit's often for the best of the company.
(53:23):
My, my ambition was to do whatwas right for the company.
But that doesn't alwaystranslate across the company.
No.
so then that's, that's inthe downward direction.
Then laterally, you have to be able toconvince your peers that what you are
doing is really, like, for instance,people don't like to let go of projects.
(53:43):
Even if they are orphan projects in theirdivision, you know, I come along and say,
Hey, Aidan, you know, I could use this.
Why don't you transfer this to me and you?
That's you're not likely to do so.
How do you laterally create whatI call minimum winning coalitions?
This is really important because,I was once speaking to the advisory
(54:05):
council at Stanford and I was, talkingabout this was in the mid nineties
about an IBM case and it was the lastdays of John Aker as the CEO of IBM.
So heres 50, you know, CEOs becausethey're all CEOs that are advising the
dean and there is a hundred of them.
So we do this case and a CEO of oneof the companies raise his hand and
says, you know, there must have beenpeople down in, IBM trying to convince
(54:29):
the top management that the computerindustry was really radically changing.
So I stopped and I said, doyou guys think that's right?
To the audience, and they allstarted talking among each other.
I almost lost, control of, the discussion.
And so I said, okay, good.
So then, , in that case, what youguys do with people like that.
(54:52):
And so right in front of me,John Morgridge, the former CEO
of Cisco, he raised his hand andhe said, go to lunch with him.
And I said, well, John, you know, Ciscois getting to be a pretty big company.
How many free lunch dates do you have?
And they all started laughing.
(55:12):
And then John, you know, a goodstrong guy, he raised his hand.
He says, yeah, that's true.
I said, and here is the key.
He said, I would only do it they had beenable to convince some of their peers.
Man, that's a brilliant statementbecause the CEO has seven direct reports.
(55:36):
Let's say.
Aidan, you are the CEO, and you say, John,do you know what Roberts is doing there?
And he goes, well, frankly, I'veheard, but , I don't know really,
you know, whether, and if allseven say that to the CEO, how
much confidence does the CEO have?
But if there is three of the seven, yousaid, well, yeah, you know, actually I
talked to Robert fairly, and to his boss.
And, I believe , there issomething there that we definitely
(55:58):
should pay attention to, right?
If three of them do, then maybeJohn would go and say, well, I'll
have once lunch with that guy too.
Right?
So that means that is in thehorizontal dimension, how do you
convince some of the other seniorexecutives that this is worth doing?
(56:18):
It's not just for me, but it is actuallysomething that is going to be good for us.
And then upward is where, in fact,you now have to convince the CEO that
it is responsible for embracing this.
Because the CEO, in my model,that's why I call it retroactive
rationalization, right?
(56:39):
And I say rationalization, it's respect.
Is he or she has notsaid yes and not said no.
They have kept things in the air.
But at some point, and this is true withstrategic inflection points too, right?
At some point the leader must bringthe discussion to a conclusion.
(57:02):
Either it is no, and often it will be no.
Or it is, yes.
That I think is a very high levelof intelligence on the part of the
CEO to be able to know what is theright moment for me to say yes or no.
So these are the three areas,downward, horizontal, and then upward.
(57:22):
Being able to convince the CEOthat, now it's more right and wrong.
That's such an importantinsight, Robert, in the trenches.
So I had one of these experiences wherethe only reason the idea was backed.
When I know the truth about it.
So in my head,, if I'm being egotistical,I'm going, it's a great idea.
(57:42):
But the only reason the idea wasbacked was because there was a
drop in revenue and they neededa distraction for the board.
You know, this is so important though,what you just said, because often
I wrote that in one of my articles.
I think in 83, the top managementlooks at these autonomous initiatives
or these new ventures as insurance,
(58:07):
not because they really want todo it, but it is insurance against
things going, downhill for a while.
And so as soon then as it turnsout that we don't really need it,
the support may actually stop.
Or I'm sure you've seen the leaderleaves or goes somewhere else or gets
distracted or ill, and your ideas dies.
(58:30):
absolutely.
So this is a very fragileprocess actually in many ways.
And so therefore , I couldn't mapall my activities onto Joe's model,
so then one night I realized JoeBower's, is about, the strategy is
given and now how are we going toexecute it with resource allocation
(58:51):
to get the capacity allocations.
Mine is we have come up with newideas, but there is no strategy yet
at the level of the company justifyingit and rationalizing it, and then
making it part of the induced process,making it part of the operating role.
So that was my solution and , whatI thought was an extension of Joe
(59:15):
Bower's model to turn it from aresource allocation model that is
basically focused on exec executingan existing strategy to where it also
can deal with resource allocationin a changing strategy situation.
It's so valuable.
And Robert, is this the workthat you covered inside corporate
(59:38):
innovation in particular, that book?
Yes,
Yeah.
So Robert's kindly we're gonna domore with Robert in the future and
cover his books actually more thanjust this series where we're gonna
dip in and out of some of his papers.
Robert, how are you?
Are, are you okay for another 10 minutes?
yes.
Okay,
is.
So I was thinking what we'll do is.
(59:58):
We, we went much deeper.
Sorry, I brought you, I brought youdown the rabbit hole here, but I,
tomorrow maybe, or the next day whenwe come back together, we'll arrange
a time to come back together andwe'll do the dilemmas as one episode.
I think that would bereally useful for people
yes.
and
notes for them for, and sowe could cover basically,
Brilliant.
Yeah, because I think that wouldbe a brilliant episode on its own.
(01:00:20):
The seven dilemmas, or Ithink it's seven anyway.
The, the dilemmas.
Yeah.
Six dilemmas.
Yeah.
So okay.
So we'll agree that, so I thought, Ithought the last thing we'd do today
was you, you say in the book here, anevolutionary perspective sheds lights on
whether the strategy making process maymake a company, take on significantly
(01:00:42):
different features over time.
But this is, I love this language ofevolution here, or whether a company's
type is fixed therefore, it fundamentallyconstrains its strategy making process.
So it's a certain type of species orit only can do a certain type of thing.
But evolutionary theory implies theformer and typologies that distinguish
(01:01:05):
between firm types persist in thestrategic management literature.
And I love this one well-knowntypology distinguishes prospector
defender analyzer and reactor types.
And I thought about this just as differentspecies in the business environment, but
also the ability to then to be a chameleonand change between these different types.
(01:01:27):
Yes.
And this also then will probablyset us up for the next episode
where we'll talk about the dilemmas.
It often depends on where you are in thisprospective defender analyzer reactor to
your reaction to an opportunity or not.
Or , even if you see it.
And this is a great way of thinking aboutthe journey that we saw Intel go through.
(01:01:48):
Yes, that's actually right because insome ways Intel started as a prospector.
That's not really true.
They were, they, they ended up hereis why they were kind of a prospector.
And I, I can give anotherexample of a company.
So,
were a prospector in the other company.
but you remember here when, when GordonMoore and Robert Noyce started and
(01:02:13):
then a little later Grove joined them,the technology, the Semiconductive
technology space was all open.
really knew where this is going to go.
Even Eprom product wassomething totally unexpected.
Dov Frohman an Israeli guy actuallyfigured out it was actually an
an error a mistake kind of thing.
(01:02:35):
And he turned into a product, right?
So if you are in a, very opennew technology space, you almost
have to be a prospector, right?
You have to try thingsand that's what Intel did.
But then Intel under Andy Groveactually turned itself into a defender.
In fact, Andy had a wayto talk about the Moat.
(01:02:57):
It's like a castle with the moat.
And here I'll tell you one anecdoteabout the brilliance of Gordon Moore.
in 1989 when I was doing all thisresearch, I had a meeting with Gordon.
I didn't meet him many times, butand he said this, he said Andy, he
(01:03:18):
was then the CEO is narrowing andnarrowing and narrowing the company,
right?
I would not have done that.
And he gave even some examples of them.
But, and here is the brilliance, he said,but based on line with reduction alone for
the next 12 years, it'll not be a problem.
(01:03:42):
Sounds like Moore's Law to me.
12 years it became a problem.
And the line with reduction, which meant,remember I said that at the beginning,
Skill that had making them small.
Because if you make themsmaller, it has two advantages.
has a cost advantage because you havemore good chips per wafer because
since the chip is smaller, it'smessed, the probability of it being
(01:04:05):
hit by a, an impurity is smaller.
So therefore more chips, good chips perwafer reduces the cost and it increases
performance because the electronshave to travel shorter distance.
So, so go realized.
Yeah, Intel, we are good at that.
So for the next 12 years, you know,we will just, we we're very narrow,
(01:04:29):
but it won't be a problem for.
And just I want to tee up for the nextday, the narrow business strategy dilemma
is actually one of the dilemmas thatwe'll talk about the next day, which is
that narrowing of your focus as well.
I don't want to take us off theprospective defender analyzer
reactor types though, but I wasgonna ask you about Gordon Moore,
and surely having him in your ear.
(01:04:51):
I mean, I even thoughtabout the phones then.
The idea that ships would be, if youunderstand Moore's Law, you'll know
a phone could be folded someday.
That, that, how far does that go?
And having that knowledge inside a companysurely could influence strategy over time.
Yes, that's absolutely right.
Yeah.
(01:05:11):
We've kind of only done prospectorwill we explain the others.
Yes.
So Prospector is the one that, that woulddo a lot of these autonomous things.
Defender is the one that is veryfocused and is basically on the induced.
The analyzer is the one that tries todo both, and I think that is actually.
(01:05:33):
In many situations, a winningstrategy in the long run.
The reactor is of course, the weakestpart because they'll, they need, they
neither do very good , on the autonomous.
Neither do they do very good on the, andso these are the companies that probably
don't, do not survive or eventually arenot able to survive in the long run.
(01:05:54):
But, so I do actually likethat typology very much.
I think it was very cleverlyvery cleverly developed.
And, we can, in the old days would saya prospector 3M used to be a prospector.
HP would've been aprospector too, you know.
And then you had the, the onesthat are very, very focused.
Timken maybe, probably, you know,Intel and some of the oil companies
(01:06:19):
of course as well, you know.
And we're gonna cover so muchmore of how you get outside this
analyzer being exploit and explore.
We'll talk about thatthe next day as well.
Robert, it's an absolutepleasure having you on the show.
I am so looking forward to getting deeperinto the work and thank you for today.
It was beautiful, thestory you set us up for.
I probably should have done thatin episode one 'cause it was a
great lens through which to see thestrategy and indeed how resource
(01:06:43):
allocation changes over time.
I'm really looking forward to thedilemmas and the questions that you ask
that all this, all that we've talkedabout in part one, part two really
throws up a load of questions foryou to go, well how do I manage this?
How if I'm a leader in acompany, so success is transient
and how do I manage that?
So it's an absolute pleasure and I'mreally grateful for you joining us.
(01:07:06):
Professor Robert Burgelman.
Thank you.
Thank you very much.
It's great.
Great working with you.
Thank you very much.
absolutely loving this series.
And I wanna thank our sponsor,Kyndryl, who enable us to do this
and bring you in depth conversationswith the world's best minds.
Kyndryl, , run and reimagine thetechnology systems that drive advantage
for the world's leading businesses.
(01:07:27):
With a unique blend of AI poweredconsulting, built on unmatched
managed service capability.
Kyndryl, helps leaders harness thepower of technology for smarter
decisions, faster innovation,and a lasting competitive edge.
You can find Kyndryl at Kyndryl.com.
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