Welcome back to another episode of Leading the Revolution. I thought we'd be finished this book by now. In fact, I just looked at my notes and we were supposed to be on Humanocracy now. Another brilliant book by our guest. Welcome back, Gary Hamel. Nice to be back. Aiden. Yeah I, don't know whether we're just slow. There was a lot of content in this book. I'm not sure. Man, there is so much content.
I was telling you, I'm sharing little excerpts to people all over the world and they're loving it So, relevant, this content, which is really why I wanted to share it. This stuff doesn't go outta date. The names may have changed, but the theories and the processes and the frameworks absolutely more relevant than ever before. This chapter is an absolute cracker. Before we talked about change agents individually inside organizations, but this is more about the organization themselves.
And Gary, one of the things I do to prepare for shows is I pick a pin, I've bunch of pins in a box over there. And I picked out the Phoenix this time because this chapter is about something old and you called them gray-haired revolutionaries, some organization that's been in existence for a long time and has to burn itself up, walk into those flames, burn itself up and from the ashes of what it used to be, gather what's still useful, and I'll tee you up here to give context to this chapter.
The way you open it is beautiful. You say Activists shouldn't not need the courage of Richard the Lionheart, or patience of job or political instincts of Machiavelli to make a difference in their organizations. Sincere, but bumbling activists often find themselves outgunned and outmaneuvered by those who've sworn allegiance to the status quo In the Age of Revolution, we need organizations that celebrate activism. Is this possible?
Can the fires of revolutionary fervor be made to burn brightly throughout an organization rather than only in small pockets of insurgency? It sure feels like that, as you'll see in this episode and in this chapter. For those people who have read along or are going to read along, the answer is a resounding yes indeed. Unless a company can institutionalize activism, it is unlikely to be able to meet the twin challenges of the age of revolution reinventing itself.
Ala Phoenix here and reinventing its industry. Three companies are covered in this. I'm really gonna be testing Gary by, bringing his memory back because they're huge in-depth case studies. Charles Schwab, the pioneer of discount stock trading. UPS. We know them, but we did not know what they'd evolved from in the past. And a brilliant company and a brilliant case study in the book, which is the Mexican Cement Company, Cemex, and the amazing reinvention that they did there.
Gary, over to you to give us context to the chapter, and then maybe we'll slice little bits and pieces out of those case studies. Yeah, happy to. One thing Aidan, I wanna step back for a moment and, provide, as you say, a little context. Whenever you write about a company, I've written about a lot of them, you are a bit of a hostage to fortune because organizations go up and down for reasons that are often like exogenous.
There's a financial crisis or you have a a a change in the business cycle, or even you get a change in the CEO most typically who comes in maybe with a very different agenda and undoes a lot of what you may have written about. I. But if you take the long perspective, I think you need to, the real challenge is not so much how do you build a company that forever outgrows, its rivals, its industry, and so on, but how do you build a company that is not going to fall into crisis?
We did a piece of research. I don't think I ever wrote about this some years back. I got, very curious I presumably every leader, every CO at least of a public company your, goal is to kind of outperform the benchmarks. Now very few companies do this and but in any case that's the goal. And so I got curious, like how many companies like, do this on any kind of sustained basis. So one of the things, we looked at Aiden, we went back and I looked over several, decades spans.
And I was asking, what's the likelihood that a company could deliver top core tile earnings growth or revenue growth? Over a succession of years, over that decade. And it's quite interesting. You know what we found when we looked at this? I think when we looked at the s and p 500 over this particular decade, I think there were only eight or nine companies that had delivered top quartile returns in as many as seven years out of 10. And nobody was any better than that.
Now, I haven't run this recently. It might be a little different. But it's extraordinarily hard. Part of this is just arithmetic. If you are rapidly outgrowing your peers or your industry year after year you pretty soon, like you're the whole industry. So it's kind of a little bit crazy to expect that in the organization is gonna outgrow, outperform everybody else forever. It's simply really doesn't happen.
And what was interesting is when we looked at the companies that had done that you found that there's only a relatively small number of ways of doing it. One was you might have been a company that just has a, big tailwind behind you and you're at the right place at the right time, where. Maybe companies are spending a lot more on it or AI or something else, and that it's just literally a, tailwind that pushes you forward and you're kind of right place at the right time.
A second thing might be you're a startup. You have a killer new business model maybe, Facebook in the early years and you're just literally watching that company rule that thing out. But inevitably trees don't go to the sky. Curves flatten out. But that's another way of doing it. A third way of doing it is that you do a roll up. And we saw several of those over the years. In fact, in a way that's what happened in the cement industry. It got much more consolidated.
So for a period of years, the company outperforms everybody else simply by buying your rivals, consolidating them, and so on. That doesn't work with really large mega acquisitions, but if you have a very fragmented industry and somebody figures out how to roll that thing up it's happened in, real estate brokers and a variety of different, so that's maybe another way and then probably the rarest way of all.
Is it a company that's just capable of reinventing itself and reimagine that builds a new business and so on? Super hard to do. So in a way, even when I look at companies like Cemex, which you know, is still a major cement company, I don't think their, share price has not been like, outstanding over the last decade.
But in a world where there's so much upheaval, simply the ability to kind of maintain your place in the world and not succumb to crisis and not fall off a cliff is a pretty substantial contribution. So I kind of wanna make that clear. Some of the companies I write about, a few blew themselves up, like Enron a few have gone from strength to strength.
A few have kind of gone sideways, but but that's the fact that some of these companies are still around is actually quite, impressive and still doing very, well. You flagged this in the chapter, and I actually saw it because you said even among the thin, but vaunted gray hairs, the gray haired revolutionaries, there are no unqualified exemplars. You said this in the book. There are no excellent companies, no company has totally cracked the code of the new innovation agenda.
No company has fully internalized the new innovation regime with its focused on big rule busting ideas and radical entrepreneurship. But we can learn a lot from those who have made a start. So in a way, you did give yourself a little caveat to go, no company can do this forever. Very few companies endure on the long term. So I did spot that, by the way, man.
And, what you find and, we'll discover this as we talk about some of these companies that have reinvented themselves and done so sometimes in very dramatic ways that has driven growth and so on. But even there, what you find is that often that was the product. A CEO with a set of really deep values. And over time that seal leaves, you may get people coming in who are more financial engineers, those values dissipate and they lose that energy.
Or you may have a company where a senior team is set up a particular innovation process and we'll can talk about some of these that may be very effective. But again, someone new comes in or that process runs outta steam or, the urgency behind it disappears. And the reality is there's a lot to learn from these in other companies.
But even there, very few companies have really worked to systematize this and to ensure that kind of that innovation engine, that reinvention engine is running year after year in some kind of a disciplined way. So often you create a new, an an innovation team or something else, it does great work and then you come back a few years later and it's kind of gone. So I think there's a lot to learn from these companies, but still a lot that, needs to be done.
Maybe one other kind of definitional thing early in the book I make this distinction about whether an organization can reinvent its industry, which is what startups typically do and whether an organization can reinvent itself. So I see like a new company like Anduril in the defense industry, which is truly a pioneer, is, working on new drone technologies and how do you deliver force with mass rather than just with, or, sorry, through numbers rather than just size.
Super interesting company very, different than a Lockheed or a Boeing or whatever, and how they think about defense. Every, industry revolutionary does that. That's the definition of your challenging the way your industry works. But an equal interesting question is, can you reinvent yourself with respect to your past? And I call that renewal.
Now the, problem is not in the companies we're gonna talk about the, but the problem is that sort of renewal, like reinventing ourselves, giving up the past, moving to something new, almost always happens in crisis. Where or, after years of underperformance, you've gone through a few CEOs and somebody finally comes in and says golly we just we have to change where we're going. We have to rethink who we are as a company. So the goal for me is to be able to do both, right?
To continually reinvent yourself, but not after the fact, not belatedly, not under duress, but at the same time to reinvent yourself in a way that really changes the industry. And as I've, argued before, you don't produce non-linear returns with kind of conventional strategies. So the number of companies who are kind of in that upper right hand place who are good at both renewing themselves, creating a revolution in their industry, I call that resilience. When you can do both.
It's a, it's maybe the rarest of all corporate capabilities or institutional capabilities. I. I love that. So it's the three Rs. There's renewal, reinvention, and resilience all come together. They're the, three things to aim for altogether. Yeah. And if you're not capable of renewal or revolution, what you're left with is retrenchment, right? Which, that is where a lot of organizations are. So that's kind of resilience a renewal revolution or, retrenchment.
And you get to kind of decide where in that space you are. And I love the case studies in the book, and again, I want to remind our audience 20 years ago this book was written but think as well the research that was done to get to them.
And Gary, I have to say that I read a lot of books and , one of the reasons I've gone deeper is because many of the modern books don't go very deep, and it's clear you did extreme research and interviewed so many different people in these organizations , which is why they're such interesting case studies. I really highly recommend it if you're a company trying to redefine yourself to totally reinvent yourself, reinvent your industry. The case studies really show that.
And UPS, we know what they do today, but when you look back at what they were and then compare to what they are today, it was a totally different business. This was pre iPhone, pre-Amazon logistics and all these kind of companies. So I'll, set you up, Gary here with a little quote from that chapter. If you've ever had a cell phone broken while under warranty, you will know that you had to do.
All you had to do was call your wireless carrier and by the next day a new phone was on its way to you with a prepaid postage label and a box to return the faulty phone. But you didn't probably know that if your carrier is Sprint, for example, the phone sent back to you never actually was touched by a Sprint employee.
The new phone came straight from one of the 500 warehouses at the time and stocking locations throughout the country, maintained by UPS, and the broken phone went to a cavernous UPS facility in Lewisville, Kentucky, where its service parts logistics business operated. A repair operation. That's right. Your new phone was brought to you by UPS, never by the carrier. I thought that was just a nice way to tee us up to go.
Somebody inside that company came up with that idea and the company actually brought it all the way from ideation all the way through to actually existence, which is so, rare. Yeah, I think that business, that little example there, which of course is still a business. I think that got created in, in, in the late nineties about the time I was writing the book. I think they now call it Supply Chain Solutions, and it's about a $13 billion business for UPS.
And one, one of the lessons we're gonna see here, and we can get into kind of mechanisms and specifics, but one of the things we're gonna see is one of the most cri and, I might have mentioned this before, but one of the most critical things to this capacity for renewal and resilience is to be able to, to. Reimagine or re redefine your, organization in a way that gives you a, broader opportunity horizon, right?
What you never want to do is to mistake your company and its definition for its business model, because that may be transient and almost by definition is gonna have a finite life. And I think what happened UUPS had established, I think it was called the Information Technology Strategy Committee, which sounds like one more kind of kango or whatever but remember this is 1995. The web is, literally just emerging at this point.
And Amazon has kind of hardly even exists yet, but it was clear to them, it was clear to them that this emerging technology was going to fundamentally change the way people moved goods around, that it wasn't moving a package, it was all the information that went with that package that allows you to optimize the supply chain and so on.
And, one of the things that happened at UPS, and it's kind of an interesting question for Nico, I may ask, is like how, over the last decade have you challenged and changed your self identity? Because if that hasn't happened, like you're on your way to being stuck.
And the, I think the epiphany that happened, and it didn't happen all at once, it wasn't like some top down CEO thing, but as this group of very young people at the time at UPS spread across the company as they were kind of looking at what's changing? What are the implications for our business? Ultimately the, epiphany came when they said, wait a minute, we're not a trucking company with technology. We're a technology company that has trucks.
And that sounds like a little bit of wordsmithing, but it's it says no, what's because for almost a hundred years, the company had been so focused simply on getting the right trucks to the right place and so on. And what also makes this story a little bit interesting, as you might expect in a company that prides itself on-time service and so on, they were super top down. They were super prescriptive.
Like it was, a big move when they decided that they, would let drivers decide how often they should wash their own trucks. Because before you wash your truck every day, whether it's dirty or not, that's kind of dumb in Southern California where it's probably not gonna get dirty very fast. So it was a very buttoned down, very process driven, and, so to start to think in these ways who are we? And is there something else we can do? That was a big shift, and I think it would've not happened.
A lot of curiosity, a young team a leadership that said, Hey, we're pretty good at what we do, but what else is out there? So that curiosity and that ambition. And so I think and then, and as we'll see, another theme is they created the time and the space for reflection. And most organizations people are just so busy. So you set aside this group made up of people from across the company, young people and so on. What should we be doing next?
And you give them weeks and months to think this thing through. And it wasn't for that team, it wasn't just an intellectual exercise. They had to power to launch experiments. And they launched many, experi experiments. They made small acquisitions. They set up a venture fund to track kind of companies that they thought, you know what, at one point they were interested what's the future of RFID tags? So you take a stake in a little company just so have the Campbell's noses inside the tent.
And you could understand, where's this technology going? How might we use it? So I think being alert to how the existing business was kind of plateauing creating a lot of time and space for people to dig deep into what was changing bringing new voices into the strategy process. I. Particularly young people. I think that was the key to, to, their, capacity to reinvent. This is, now I'm sure today FedEx has a big logistics solution business, probably DHL does.
So I'm not saying that but I think they did it earlier and they did it probably with more with more kind of focus and so on at that time than anybody else anybody else did. The other thing you find there is that, in this process of kind of reimagining who you are, one advice I would give to companies try to redefine your industry or your market. So it's many, times bigger than your company. I, often hear some companies, they're like, we're, market leaders. I like in what market?
The moment you say that, that's like an, ambition crushing thing to say we're, market leaders, right? We're the, biggest least airline leasing company in the world, like Whoopty do. All right, so now what? And so you have to constantly challenge yourself to redefine so going from being a package delivery company, I dunno how big that business is today, but then you say no we're, a global logistics company. That's a $1.5 trillion space.
So I think that's a discipline to every few years, step back and say, Hey, how do we redefine our, the space we're in a way that we're a relatively small part of that. And that just as a discipline thing, pushing the opportunity horizon and ever outwards. I love that. I, was thinking about the whole, I I'm a big fish in a small pond and you're actually red redefining your pond. Where do I play in a bigger pond?
And it's jumping a little bit to the next chapter that I won't do, but in the next chapter and the next episode, we'll talk about the design rules to get there. And one of them Gary talks about is having the courage to have a stretch goal. Because when you have a stretch goal, people imagine differently. They, because if it's too incremental you'll, start to innovate incrementally. But I wanted to link it back to the book we covered again, competing for the future.
You, the book you co-authored with CK Alad, you and CK invented the idea of competencies. And what I thought was interesting, the UPS case study was that they, they took an inventory of their competencies and then they acquired the ones they didn't have, and then they just reinvented the pond to be able to do more with the ones they did have.
Yeah I don't, think partly because it was a, fairly concentrated industry already the option of just going out and buying a bigger competitor, taking a, big competitor out of play and putting up your margins, I think was never really open to them and probably a good thing as well. I'm a big fan of acquisitions as a way to build capability. Apple did that when they got serious about building their, own in-house semiconductor design capability.
And they bought a little company, if I remember, it's called Pa Palo Alto Semiconductor, and you get a nucleus of skills and so on. And that's, a very different thing than, two alternative one is acquiring a big competitor to get, more, pricing power and or buying a fast growing startup just so you can kind of plug that thing into your distribution model. Like when Coca-Cola maybe buys a, a fast growing drinks company that's not about building new capability.
That's just about adding something to the top line. And, leveraging your distribution structure is very different from kind of having a roadmap for building new capabilities and saying, Hey, there's some fill-ins we're gonna have to need. We need some nucleus of skills and let's go out and acquire some companies that can help us do that. And I think UPS, at least at that time, was super good in doing that.
And we'll talk about that again as we talk about companies like, for example, Charles Schwab Brilliant case study here as well. Charles Schwab I'll let you describe who they are. 'cause many people over this side of the world might not know, but I'll start you off with a little quote. And I love, by the way, the chapter titles here I did. That didn't escape me. UPS was getting out of the truck a kind of a nod to the idea of getting outside the building.
And then Charles Schwab is bricks and clicks. And I thought it was interesting when you said that because it was at the verge of the internet really hadn't taken off. And we know that term now, bricks and clicks, but back then it was quite unique to write that. And at the time, the president, CEO of Charles Schwab was a guy called David Potro. And he put it this way. He said, we are change junkies. We're addicted to change. Very unusual for a CEO to say that born a rule breaker.
Charles Schwab and co led its first revolution when it helped to create the discount brokerage industry by undercutting the steep fees of traditional brokers such as Merrill Lynch. And Payne Weber in the second revolution came one source, a mutual fund supermarket that eventually let investors choose more than a thousand different funds before one source.
It was difficult for investors to move assets between funds and anyone more than a few and, anyone with more than a few investments received a bewildering array of statements every, month. I just wanted to give a bit of context there because again, we know now how easy it is to invest with apps, et cetera, but back then, pre iPhone, pres, smartphone, it was a very different industry.
Yeah for folks outside of North America, and I think Schwab does maybe have a bit of a business in the uk, I'm not sure. But they are, I think now the largest brokerage company in the United States. I it might be close with another company called fidelity, but they're they're definitely, probably the largest, they have about $11 trillion under assets. When I wrote this, they had 600 billion whatever that is, 13, 14 times growth. And again you find.
A couple of things here and, one is one of the things that has always distinguished Schwab is just how unbelievably customer centric they are. Chuck Schwab, Charles Schwab, the founder, who lives not very far from me, at least says one, one home not very far from Wyoming, Silicon Valley. People inside, at that time I wrote this, said we almost never heard our CR founder talk about growth, about profitability, about margins.
The guy was always talking about customers and, they had this passion for helping people accumulate, manage, secure their financial lives. And, I heard this story, I don't think it was apocryphal that Chuck Schwab would once a week go serve in a Salvation Army soup kitchen and, handing out soup. And, one of his thoughts was. Maybe if these people had more help earlier on in managing their financial lives, maybe they'd be in a different place.
So I think there was and customer empathy was one of their deep, kind of deep values because a hu a hugely powerful engine, again, for innovation and a way of escaping the prison of your existing business model is when you really say who are these customers? How are their needs changing? What else can can we do for them?
And that's one of the reasons that, that UPS ended up getting into repairing electronics and and the service business because they had, I think they had invited in Michael Doll and some other, computer companies to come talk to them about what's happening in the world of information and data and so on. And they started going, Hey, wait a minute. All you guys, all you different companies, you all have this huge repair operation. It's really not your core business.
You're not very interested in it. Often you're using the same spare parts, the repair things, the same chips, the same whatever. Like why can't we take this off? But that, happened, that insight came from a deep dialogue with customers. And if, you are constantly learning from an understanding your customers, the needs, the frustrations one, one of the things that we do in a that, we do in a lot of our consulting work is we build a kind of empathy map.
And If you, can think of for a moment, Aiden, if you think of a whole menu of human emotions, so you know Yeah. You have good emotions, I felt empowered, I felt heard. I felt respected. I was pleasantly surprised. And then you have an, like a negative set of emotions, right? I felt discouraged, I felt ignored. I felt whatever. and and then you could think about every stage of the customer interaction, you start to ask what are the emotions that were triggering at every stage of that process?
And again, very few companies do that kind of systematic kind of empathy mapping. And it means you have to be out there living with customers. It's something we'll see happened at Cemex. And you have to spend time there and you have to train your employees to be very attentive to emotional cues from their customers. And when they see somebody like that looks perplexed or frustrated, you go Hey can, you tell me what's going on?
Did, we not rather than having some stupid phone survey at the end we're going to text you back. Like, how do we do today? No, I want you to listen to me, and then I want my frustrations to go somewhere. So I think that is, again, something common you see to all these companies who have reinvented themselves is they just go deeper and deeper and broader in terms of understanding standing their customers.
And, for Schwab, that was quite a transition because early on, Charles Schwab is really oriented to very sophisticated investors. So they basically let you trade for yourself. They didn't think you would want any advice. And then over time they realized, hey, most of our investors are not very sophisticated. And so that rather than say, Hey, that's not our market, we deal with only kind of very sophisticated self kind of managing investors. They said, no, we gotta figure out a way to help this.
So you build a big network of financial advisors that can help do that. You build 400 branches in the United States so people can actually they know where to go if they wanna talk about their money. And so that was merging the bricks and clicks in a way that pretty much nobody else was doing at that time. So I think yeah I, think again, super successful company, one of the few that you can go back and see pivot.
And, also several of them, Aidan, were ones that would potentially cannibalize their business. So when they when they went from being pretty much phone based and they would execute a trade for you and charge you for that once you go online. And they had new competitors at the time that people thought were gonna take 'em out of business or at least challenge 'em, E-Trade, which is another online trading platform.
And there was a big debate inside Schwab because when you mo when you, know, when you believe that everybody's gonna be online you kind of have to do it, but at the same time it was gonna cut their trading margins by, half. That's a really, gutsy thing to do. And so it's recognizing that something is inevitable, right? Everybody's gonna trade this way. Nobody's gonna wanna be sitting out, everybody's gonna okay.
And yet, like the people we're competing with have much lower prices 'cause there's less overhead. So what do we do? And a classic kind of a disruptive innovation in that sense. And the only thing you can do is you gotta follow your customers. And I think in other companies, we're not so fast like Merrill Lynch and others, but these guys said, you gotta follow our customers.
And, and, we don't want to create any opportunity for somebody else to fulfill a need that we have not filled simply 'cause we don't have the guts internally to do it. That was a really tough thing for them to do. Similarly when they built this like supermarket of, mutual funds and so on. They charged a fee for their customers to have access to this large group of mutual funds.
And, at some point they realized it was more expensive to do business with Charles Schwab than go directly to these other companies and buy the fund. They said we can't do that. That's not sustainable. So again, they had to change their pricing model. And you you have, to have the courage situation to believe that if you follow the customer, if you give them what they need, if you worry more about that than the short term margin hit, will pay off.
But there are times, and that's a fairly substantial act of faith. But, if there's a better technology, if somebody's doing something to change the economics of the industry in a way that benefits customers and you're not in front of that ul ultimately you lose. And I think they understood that. So they had, they they had the guts to to, move earlier than I think most of their competitors did.
Gary, that, that thing on fees, so the courage to get rid of fees or be proactive in getting rid of fees or be the one that didn't charge fees in the first place. It made me think and loads of your book has sent me in many different directions where I write a weekly article. I've loads of them in draft now after reading your books.
But I thought about this and I, the working title is the Late Fee Effect and how, for example, John an Yoko, the guy who was running Blockbuster, wanted to get rid of the late fees he got then ousted by Carla Ican, but also here you have somebody in Schwab wanting to get rid of them. made me think about, one of the things I'm ashamed about being Irish is Ryanair. If you've ever, if you've ever traveled Ryanair, you'll know what I'm talking about.
All the hidden fees and the extra fees that they charge. And sometimes you'll go to somewhere like a Disneyland or somewhere that and they'll charge you all these hidden fees and it creates this resentment in you and you feel like literally like a captive customer. And I wondered what, your thoughts on that were, because that willingness as a leadership team to go, I know this was a revenue stream, but it's extremely uncomfortable for the customer. We need to have the courage to get rid of it.
It's a really tricky thing, and I don't think like so many things in strategy, I don't think there's a there's like a rule here that just tells you which way to jump on that. Because I. Let, me, use an analogy and then let's come back to Ryan Air which, by the way, I've never flown on. Lucky you, Gary. I've never been keen to do it. But, having said that let me, give you a counter example, which kind of makes the point there, there are no simple rules and strategy.
So I look at the cable television industry here in this country. I don't know exactly how it works elsewhere for years, the way that industry worked, you paid a monthly subscription. It could be quite high, it could be like a hundred US dollars, and they gave you this huge bundle of programming and channels. And the dilemma with that is you paid for a lot of stuff you never watched.
So I believe at one time the average cable customer in the United States, I'm gonna pick a number that's more or less right, but please don't, somebody kind of hold me on this, but I think the average cable TV company was paying about $6 a month. For a set of, sports related channels called ESPN, which had several different channels. Now I watched sports but I've never had ever watched anything on ESPN and yet I'm being charged $6 a month and I can't do anything about that.
And what happened over time the cable cutters, we started to unbundle that and now, or bundle it in different ways. Right now I can go to YouTube TV and they have a particular bundle of channels, but it's much cheaper. They have more options and so on. You wanna be very careful if you have a model where some subset of your customers is paying for things they aren't using. 'cause that's an opportunity for some somebody else to come in and cherry pick them. And pull 'em.
So it's hard to make a rule. If I look at Ryanair, you gotta ask, I'd ask a couple of questions like, are, customers happy with this? Are there, are they happy that it's a menu? Now, obviously we'd all like more for less, but they're happy that they only pay for what they use or they find the whole thing. Does it feel like, to use an American expression, they're being nickled and dimed, like at every time you turn around there's some little hidden fee or something else.
So you have to be really sensitive to does this feel empowering to customers and thank God I'm not paying for that. Or does it feel that we're taking every opportunity to get back into their pockets? An interesting little story about that Southwest Airlines, which has had difficulties in the last few years, but it's still one of the top two, I think most admired airlines in the United States, despite being a discount airline. For years, and it still exists.
They have a policy of all of your bags fly free. I guess up to two, you can't take it in your bags, fly free wherever every other airline now charges you something for that. And they got a lot of pushback from some of their investors who are saying, Hey, you need to charge people for this. And somebody modeled out like here's if you charge 30 or $50 a bag, here's what you get. And So the people at Southwest said, yeah, that's interesting.
But instead of doing that, they instead launched an ad campaign reminding passengers that on Southwest bags fly free. just that advertising campaign added a billion dollars to their market value. Or no, sorry, to market value revenue, I can't remember. But, just reminding people of that fact had a big uplift. And so the CEO said the investors were right that bag policies makes a difference. They're just wrong in how to go about it.
So there's not a simple rule here, but you do have to constantly balance to what extent does this move make life easier for customers or more complicated? it empower them or piss them off? And if you're pissing 'em off, you'll do that only so long until somebody else figures out a better model. My first job after rugby was in media, so digital transformation for a media company, and we were one of the first radio stations to do audio pre-roll.
So before you, when you turn on the app, a little ad would play and it was a brand new revenue stream. There was no mass distribution of the. This yet, but the amount of pushback, like I was the guy who brought it in and I knew it was terrible user experience. And I was like going, because the, with any early innovation, you're only making small money at the start. And it was one of those things where , the sales guys hated me because they saw it as cannibalization.
The marketing people hated me. The programming people hated me because it was like affecting programming and , therefore they thought the audience numbers. as an innovator, you're like going it's the future of the company. Mm-hmm. start somewhere. And today it's everywhere. It's omnipresent this idea.
But it was one of those ones where if you're the innovator, sometimes you're in these situations where you're like going, yeah, I know it's gonna be uncomfortable at the start, but that's the future. And I just wondered, had y any observations on that from Yeah, worked with? I, do I think when you see something, you, a development or an idea inside of your company. That is fundamentally pro-consumer. You have to be really careful before you reject that.
And, one of the problems is so many decisions there, there are many decisions inside companies that touch the consumer, but are made by people who know nothing about the consumer. Let me give you one or two examples. So this goes back quite a few years. I was talking to a senior group at a big American car company. And at that time and maybe but Honda and Toyota were growing much faster, and they actually had better than technology.
O obviously Honda's had this reputation for making some of the world's like best powertrains. They've been in Formula One. And so at this time every Honda four cylinder car had 16 valves and overhead cams and so on, just made it run really smoothly, high revving, beautiful engine. And on the back of every Honda, there'd be a little like thing saying 16 v 16 valves, whatever. Or, and so I asked I asked this group of guys at Ford. I said guys, why don't you even make an engine like this?
And they said to do this would cost us $69 to, add to double the number of valves in the car from eight to 16. And I thought, I said, okay, I get that. But every kid who's buying one of these cars the, enthusiast, they'll pay you $250 more to, have that. And, and obviously this decision was being made by some cost accountants and manufacturing had no sense of and, I and, you see this over and over again, people understand cost but don't understand value. I'll give you another example.
I. If you've been inside, I dunno what the, Apple store looks like in Dublin, but around the world, there's some obviously very iconic Apple stores, the one in Fifth Avenue for sure, there's the one in Dubai. But in general, they're really amazing cool places. And the one in Chicago, which you know, is just this huge piece of glass right along the river and so on. So I've often asked people in retailing and so on, could you ever get a store like this through your CFO?
'cause clearly this is not the cheapest way to build retail space. And the answer's no. And, I say, yeah, so why would Apple spend this money? Because they want you. And in fact Rob, Johnson, who I've met, he's a nice guy lives nearby. He was the first CEO of Apple retail. And I'll get this quote wrong, but he said we wanted to build something that felt like a public space, like a gift to the community.
And and, so they were trying to create an emotional connection, a bond, whatever that made customers more likely to buy, made them more loyal and so on. Is it easy to put dollars and cents on that? I don't think so, but if you look at their margins, I think it's like doing pretty well.
So you also have to be super careful about having decision making processes where people, as I said, people are making decisions that impact customers who are actually not out there who, do not have a real understanding of who these human beings are, what motivates them, and it's interesting. I'm gonna see if I can conjure up another example here.
If if you think about the words that are important to us as human beings words like beauty and authenticity and truth and whatever, these are words that hardly get used in most large companies. Steve Steve Jobs would talk about beauty we wanna make things that are beautiful, that are lovely to hold, lovely to touch. And so I just think that gets lost.
I, see it in, in the call centers where we save a few dollars per transaction by putting something in India or somewhere else, and it's hard to understand and they don't have your details and whatever. Okay? Somebody made a decision to save a few cents without any impact on how that, impacts your customers. So I think that's one thing you also see here, the courage to innovate, the courage to challenge yourself comes from, Hey, this is undoubtedly the right thing to do for our customers.
And so it's up to us to figure out the economics to make that work. Rather than say like tough they just have to live with that frustrations. Suck it up. We, by the way, we don't have an Apple store in, in Ireland. Oh, Yeah, I know. It's, a big, I know we have a, I was just back from, I was doing a talk in, Vancouver and there is this stunning one over there near the art gallery in Vancouver. It's absolutely beautiful, but I actually obs, I was like going. We don't actually have one.
We have, they outsource it to a couple of different companies, but they're not beautiful pieces of art. No offense to those. Anybody from Apple that's listening you guys need to solve that. You, run a lot of your finances through Ireland. I think they deserve a store. Yeah And, the factory then in Cork as well. It's it's, yeah. Yeah. So I'll come back to, because that idea of get outside the truck. And get outside the building is very relevant to Cemex.
But there was one last thing I, a couple of things I just wanted to pull on and Charles Schwab. One was one of the things you identified here, which was early for this as well, which was the innovation meritocracy and you, interviewed a few different people inside the company who were now VPs, actually were rewarded because they came up with ideas when they were younger and the company fast tracked them as a result.
And I was thinking about the psychic reward of that, let alone get becoming a vp, but other people observing that and going, what the heck Jenny from HR got, she's a VP now because she came up with this idea. The idea was implemented and now she's getting recognized beyond belief. I thought that we're literally putting your money where your mouth is showing behavior and rewarding people who risk things.
No, I think, yeah super, important point, not only in fast tracking those people, does it send a very powerful message. This is how you get ahead in the company, right? You don't get ahead by managing the status quo. You don't get ahead by sucking up. You get ahead by championing a new idea. Seeing it through that makes a difference. It also means that, as, those people grow up, hopefully they understand what that experience was like.
They wanna mentor those younger career people who may be trying to do the same thing. And you have, and again, I dunno whether this is still true at Schwab because again the generations change. But but it makes a big difference if, the leaders at the top are all innovators, if they've all built something, if they all come up with ideas. If it's not what I call an aristocracy of administrators and and a lot of companies, I, that is not the case, right?
You have a much more traditional career path. It's mostly about ticking the boxes. And so you end up with people at the top who really have no experience in building something. There, there was this book I'm gonna forget the author, but it's about Elon Musk building Tesla, and it's called Power Play. And whatever you think of Musk, and he may be somewhat in the process right now of blowing up America's federal government. We'll see how that plays out.
But the reason I would encourage every single manager, leader, vp, SVP to read that book is it gives you some sense of what it takes to build something new when there's a lot of headwinds, a lot of things working against you because the persistence, the courage the sacrifice in some cases, the ruthlessness that you have to have is not something that gets rewarded or selected for in most companies. And yet, if you wanna keep moving forward, these are some of the personal traits you have to have.
So that's just a little recommendation. Anybody listening, watching, go out and find this book. It's called Power Play. It's by a Wall Street Journal reporter, and we'll see what happens to Tesla. But super interesting story about what it takes to actually build something. And so at Schwab, they had tried to promote people who at least, were, trying new things. And high highly, recommended, I would say.
One last thing on Schwab was the rapid experimentation and prototyping because you mentioned in here as well, like the leaders you in, you interviewed, and again, I just wanna remind people, late nineties when Gary did these this research and interviewed these people. 'cause we hear today about fail fast, fail off and fail inexpensively, et cetera. But Gary did this work back then, and Schwab were talking about it because they were saying we know not all of the ideas will work.
But the ones that will, pay for all the ones that didn't work. And I've heard people like Jeff Bezo say that today in recent interviews recent enough in the last decade, Schwab were saying this two decades ago, which I thought was fascinating. Yeah. We, may, I may have said something like this before, but I think it's important innovation is always a numbers game. I, look here in Silicon Valley, it's not where I'm right now, but where I live most of the time.
And a, a VC company will get a thousand, let's say a thousand business plans. And they might have meetings with a hundred of those prospective entrepreneurs and might invest then in 10 of those firms. And maybe one becomes, huge breakout. But it's those kinds of odds, right? You kind of go a thousand down to one and and you can get kind of better over time at picking out the winner so you don't end up with, too, many losers, as I like to say.
You have to be able to distinguish between ideas that are smart, stupid, and not just stupid, but nevertheless, like there's no way around that. And I think I think Amazon realized that coming out being a startup and understanding a little bit of this process, you understand that I have to recreate somehow that in my own organization, right? I need a process that's generating hundreds of thousands of kind of Strat lets mini strategies baby strategies every year.
Then we'll try to look at the best and we'll kind of ramp them up and we'll experiment and so on. And so I think Schwab also a rule breaker they had that kind of ethos as well, that we just gotta be trying more things faster for less money than, our competitors. And there's literally, I don't think there's anyway around that in northern California where I live, if you walk out under you take a, walk. We have a lot of live oaks there. They call them California Oaks.
And you'll see hundreds of acorns on the ground. And you go that's pretty wasteful of nature, right? Like, why are you spreading it? What, they're eaten by squirrels or they rot out, whatever. But every once in a while, somebody some, of one of those acorns finds a per perfect combination of sunlight and moisture and soil and it germinates. And we're, a little smarter than oak trees. But it's the same arithmetic, right?
If the oak tree does not know where the fertile ground is, and often at the top of the company, you do not know where the next idea is going to come from. So if you're not creating that kind of ecology of new ideas and supporting 'em in some way, like absolutely you miss the future. And and in different ways, everyone of these companies had a way of doing that. Everyone valued new ideas, knew we had to try.
A lot of them were willing to experiment across the organization, not just isolated in one part, but across the organization, within the core business and without. Yeah, it's just that's, an inescapable arithmetic, right? It's it's like the process of co procreation. I don't remember how many million sperm set off in search of the egg, but, we'd all no We, just one, just find the egg. I don't want all this waste. like, life doesn't work that way, so we just kind of have to recognize that.
But very few organizations, I think they may say these words, but very few have, the systems, the processes, the freedom, the time, the incentives for, that kind of early stage, very expansive idea generation and testing to take place. sometimes I have empathy for the leaders of businesses. It's tough work. It's really tough work. It's that saying, I think it was Jim Rohn, do you want to suffer from the pain of discipline or the pain regret? And in a way it's that kind of decision.
It's like going I could be the one who eventually leads to the downfall of the business, or I could be the one that reinvents it. Oh, it's way easier just to ride out to my retirement and not do much. I like you see with football coaches or whatever. But Cemex is a brilliant case study. I absolutely loved reading about them. I'll tee you up again, Gary, with a little bit from the opening chapter of this.
If there were any questions about whether adversity breeds creativity, Gary says, don't look any further than Monterey, Mexico where the headquarters for Cemex was or is. I'm not sure if it's still there. The country's most innovative multinational cement producer, the cement producer isn't the most obvious place to search for examples of revolution and renewal, but then again, neither is Mexico, but Cemex is no ordinary clinker as the third largest cement company in the world.
At the time, Cemex enjoyed operating margins that are nearly twice as high as those of its two global rivals. Again, this content probably outta date, but just to show you what it was like then in 2001, a tough year in general for the world economy, Cemex sales managed to expand a healthy 23% to $6.9 billion, cemex is proof positive that new attitudes and new values can change in old industry.
What I loved about what you said about them, Gary, was that they literally got beyond thinking that they were a company that sold bags of cement, and they did it in a wide range of things. Learning was at the heart of it. Yeah. One of the things one of the critical lessons to take away from, that timeframe that I looked at Cemex, again, I can't speak for what has happened since, but it's a proof that there's no such thing as a mature industry.
And that digital technology, which did play a very important role in Cemex, but digital technology is not the only way you innovate. I've, been trying to collect stories and I'm gonna forget them. I've written them down, but I'm very I'm, super interested. I. In companies that reinvent what look like mature industries. We talked about Lululemon in athletic clothing where you'd had Nike and Adidas and so on forever.
Or I think about a company here in the United States called Athletic Brewing, which does zero alcohol beers. And I, think they're probably number two or three in that segment now up against the big majors because they just, they said, this is gonna be real. We're gonna, we're gonna build, we're gonna try hundreds and hundreds of formula and try to find the one that's like the best tasting kind of non-alcoholic beer.
And and you take this hugely mature industry or I look at Wayfair or whatever and furniture. So like never think there's a lot of mature thinking, and particularly in mature industries because there hasn't been much change there. But there's no such thing as a mature industry. And if you can innovate and cement like nobody else has an excuse, I think. But again you, see some similar things that cemex some different things. Certainly they have a strong.
They, they were very early to understand technology and in the cement industry it was kind of very backward in that sense. And one of the things they used technology early on for was not so much like gaining more control although that was part of it. So you can actually understand what's going on in every cement plant, which historically had their own IT systems and you talk to them by phone or whatever. And in Mexico at the time, lucky even if you were able to do that.
So they were certainly the first in, in Mexico, maybe the first in the industry to kind of tie all these plans together. And the real benefit of that, Aiden wasn't like, okay, now I can watch from the center and see who's screwing up the real benefit. They made that transparent to, everybody across the whole company. And so you could very quickly see where you weren't as good. So a across multiple criteria, like how much are you paying for energy, for human costs? What is your quality?
You could see, or for labor, you could see all of These These metrics and you, ab you very quickly knew where you stood. And I think in as a way of provoking improvement transparency and peer pressure is like, there's probably nothing better than that. So they were very early and that drove their, pace of improvement. They also invested, and I think this is important today, is then they invested very heavily in creating face-to-face meetings and networks.
And so at the time and I'm, they probably do this now virtually, but at the time they were bringing together all of their plant managers from around the world every month in a physical place where you could share like what's working, what's not working, where are you running into trouble?
And, not only that, but you are building these lateral personal relationships, which means if I have a question from him, Hey, I know that Ignacio is doing something really amazing in Guadalajara, let me call and see what's going on there and see if like he can sense somebody up to help me. The pace of improvement is much faster when I don't have to go up and ask for help, right?
When, I can connect to other people who are leading whatever it is across the organization, I can learn them very fast, copy them very fast so that was a big investment as well. Another thing you see there that you saw definitely at, both UPS and, Schwab was really, deep sense of who the customer is. And a lot of their innovation came from that. They were very concerned about how do you help people poor people build housing.
And so they actually sent a team of mid-level and younger folks out to live, literally live for a year in one of the poorest parts of Mexico, and understand what's the housing challenge for these people? And they learned that one, one of the ways people accumulate a little bit of money to, to build a first little four walls or a little extension.
Was you had these community lotteries mostly run by women, where a family would contribute a little bit of money every month, and then all of that would be paid out to one of the families. And you keep running that little syndicate until every family had, so it was, kind of like a community savings plan, and they felt Hey, we could help them do that better. We can put the systems in we can make it, make sure it's done in a fair and equitable way, and so on.
And you would've never discovered that without kind of like being in that environment. 'cause the people, the senior people at Cemex and whatever they, didn't live that kind of a life. And so they, created something called Paton Hoy, which is this little way of helping people save and build houses. And I think thus far, they've, I think it's now about 25 years old, and they've, served 600,000 families in that way. They also realized, again, by really. Following the customer, wherever that goes.
And understanding, not, being an order taker. They understood that a lot of the money for families to build houses in Mexico came from Mexicans abroad, repatriating their earnings. A lot of them in the United States. And typically there were very high transaction costs on doing that. You'd send money back with the intention that your family would build a building, they might have a party instead. You had no control over that. So they created another business.
I, think it's Conex, I won't remember, but where they would help that person in the us transfer money in at a very low, cost, help them specify the materials that were going to be needed. Then those materials will be delivered to your house. And and when you're getting cement and not a Corona beer, like there's not much you can do except build the damn like extension. You saw example after example of that at Cemex, we like let's just follow that customer need wherever it goes.
We're here at the end, but let us make it as easy as we can at every stage of that interaction. All the way back. UPS they, built a kind of systematic group that was responsible for, kind of being a magnet for new ideas across the company and experimenting. I think the other thing, one thing that Cemex was doing at that time, which I didn't see at UPS or Schwab.
Is every every year they would have a new set of company-wide challenges, like really difficult questions like how do we make housing easier to, for poor people? Or how do we dramatically shrink the time it takes to build something with our cement? Or how do we help contractors get access to the equipment that they need? And so every year there'd be three or four of these challenges. They would invite ideas from across the company. They would pick the very best of these.
They'd go out and experiment with them. And I think, we often think about the strategy process is about like making decisions and setting directions and telling the organization where we're going. I, it seems to me like the top team every year ought to be and maybe you definitely need to ask around first, but find three or four really provocative challenges that you know if you can solve them, are gonna help you grow and expand. and source those to the organization.
And Cemex was very good at doing that in a disciplined way, getting ideas back, evaluating the best, getting teams built around them and going and running experiments. So again, their pace, at least at that time, their pace of experimentation I think was probably faster than the other cement company in the world. Gary I, loved the way Cemex thought.
They thought as an organization and there was a, you listened to the, CEO at the time in a Stanford speech, and at the time when you wrote this, more than 74% of their sales came from bagged cement powder. So I was thinking about how you're you're running a company like this. You have a wide range of education, more some more open-minded managers on these different sites all over Mexico. Somebody says, we're gonna spend the equip millions back then, I suppose, on an IT system.
And if I was a franchisee or I was like one of these guys running a site, one of the seme factories, I'd be like. What a waste of money this is. I can't believe, , senǒr is messing with spending money on stuff that we shouldn't be in. And you have the equivalent of that all the time inside companies. But what I loved what you told us here about Cemex was the bags of cement were typ typically sold to small construction supply stores where cement makes up about half of their business.
Cemex selected a thousand of these distributors outta 4,000 in the country and started wrapping valuable services around it. Cement. Their goal at the time was to create competitive differentiation for something that is a commodity. Said one of the executives you interviewed, it may sound strange to treat cement as anything other than a commodity. But then Gary says, does anybody fault Perrier for treating water as something more than H2O?
And there's, many more than Perrier today, what I thought was really, interesting was. They didn't just go and live with customers. And again, this is another article that I started writing and I, said, get outside of the building. And I, it was that nod to that quote about get outside and meet your customer. But it was like get also out of your head that you're in the building game. So as some cemex get outside there. of the companies, one of the people they met was a contractor.
And the contractor said, you know what? Winning government contracts to build low cost housing is actually a great way for me to make money. The problem is trying to get people for long enough because by the time I get this that I can build the comp, the, these houses, and then by the time I construct a team to build it.
Too much time has passed and what, because of that conversation, they created these molds and the molds, then were able to instantly create pre-fabricated walls or ceilings or whatever it might have been. I thought that was just absolutely brilliant case study of this and something that you see all the time with companies you work today in the modern day. But maybe you wanted to say something to that kind of mindset in not just Cemex, but in other companies you work with.
Yeah, I think it is this kind of just perpetual opportunity mindset. I don't know, I don't know how to describe it. Other, yes, it's, it's being super attenti to the unarticulated customer needs. It's looking at anything that makes it difficult for your customer to do business with you and tackling that you know, which they did helping people repatriate funds and, get building supplies. But it's just a way of, it's, I think it's just a way of being.
Where you wake up every day saying Hey, I live in a world where like amazing number of interesting problems to solve. What can I do? We're, and it's it's kind of the opposite of kind of this static view of this is my business and this is what I'm going to do. One of the analogies I've used, it's maybe not a very good one, but I'll, use it anyway.
I, think a lot of people in business, they think of their business like a, little farm and I have my 40 hectares or acres or whatever it is, and I plant every day and I harvest, and I hope for rain and so on. And it's, but it's a very static thing that's not, and and over time maybe the soil becomes depleted or people don't want that crop anymore. Or the EU says you can't grow it, or I don't know whatever. But that's the that's my plot of ground.
That's I think maybe you should be more like a shark where you can never stop swimming. You're always moving to find where what you can consume, what you can eat, and so on. But it's not static. And I think, I don't know where that comes from. Is that a personal trait?
Is it something Certainly, I think you can encourage it in our organization, but I, the, the other thing I would say about Cemex, and I suppose this is maybe today you not a very interesting thing to say, but none nonetheless, I think what Cemex understood 25 years ago, I think what higher understood 25 years ago or believed you can build a world class company anywhere in the world, right? And geography is not destiny. Industry is not destiny.
You can build an innovative, fast growing, amazing company in any part of the world today, part because technology is very mobile, knowledge is very mobile. When And I think the, fastest growing automaker to to, to a hundred million vehicles in history. You They were flying in engineers from Toyota every weekend to help them. So, I'm told I any firsthand knowledge, but I was told that so yeah, do not let your geography or industry, whatever, be a put a ceiling on your aspirations.
And I can tell you, being a small relatively small company by global standards in Monterey, Mexico and say no, we're gonna be like the best manage, most innovative cement company in the world. They had no right, you would say to think that way, but they did. And so that's, we'll, maybe talk about it when we talk our next time. But, it's, kind of tautogical, but no organization outperforms its aspirations Beautiful way to finish.
I was gonna, add to it, but I'm not gonna it 'cause I love the hope in that message gary, and I've taken enough of your time. I'd loads more in that chapter, but I'm gonna leave it to you, the audience to read that for yourself because there's a list of routes to renewal that Gary gives as well roots to be able to get there. The one thing I did like about the Cemex story was the CEO says, you know what, one of the things is when you're from a poor country like we are, you gotta work harder.
And that's what I find that hustle, that desire to hustle, because you're not complacent. Gary, for people who wanna find you, find out more about your work, keynotes, et cetera, where's the best place to find you? Gary hamel.com and anybody can drop me an email. I'm just Gary at gary hamel.com. So yeah, happy and find me on X at Prof, Hamel on LinkedIn. Always happy to have a conversation hear what's on people's minds. I Brilliant Gary. And again we'll try and wrap it up.
Try and wrap up leading the revolution. I'm loving it. I'm hoping I'm not boring you, Gary, by revisiting your old work, because I have loads more to get through behind there for people that can see us on the, video here, author of Leading the Revolution, Gary Hamel, thank you for joining us. thank you very much, Aiden.