Gary Hamel: Leading the Revolution Part 2 Business Concept Innovation

Welcome back to another episode of the Gary Hamill series. We're covering that bad boy back there leading the revolution. I thought we'd be way more into the book by now. And then I went and read chapter three.

We're only on chapter three, and Gary was an early proponent of what we know now, well as business model generation. Back then. He called it Business Concept Innovation. And Gary, , you touched on it the last day, but I'd love to just spend an episode on it and pull out a few of the threads within that chapter. Great examples in there as well. Some that went on to become very, very successful.

Some that built on early success and some that faded away . But I'd love you to introduce this concept. Yeah, well, I'd be happy to. I guess now it's quite familiar to most people, but certainly not at the time, you know? Historically, we typically thought about innovation in terms of new products and new services. It was a new financial derivative or, you know, a new digital device or a, a new grocery product and so on.

And clearly what was happening through the kind of.com revolution and beyond is that entrepreneurs, newcomers were reconceiving entire , business systems, even ecosystems. And you had to take a kind of more comprehensive view of, of innovation and recognize that when you think about a business model, it's a change in value proposition. It's a change in the competencies that may be underlying that business. It's a change in how you go to market.

It's, it's a change in the partnership structures that you use. And in most organizations at the time, and maybe still now they weren't really organized to think about innovation in that way. You know, they typically, you know, most companies have some kind of product development function that is you know, there to take on the next product iteration, but they weren't stepping back and thinking about the fact that you may have to challenge or rethink every aspect of, the business model.

So I think that was a relatively new thought at the time. Less so now for sure, but I'm not sure most large companies are much better at innovation at that level. And we can certainly talk about some that are, but I think most still struggle. There's a little quote here that you might riff on . You talk about limitations of traditional product innovation and that it is often confined by the physical product or the actual service.

Yet the product is only one of several components that comprise the overall business concept. Thinking in terms of business concepts rather than products significantly extends the potential scope for innovation. You tell us it may be possible, for example, to build a radically different business concept, even when the product itself is a virtual commodity.

This is what Dell computer you told us at the time accomplished in the PC business. Maybe we'll give that as a little example before we go deeper into the concepts of this chapter. Yeah, I mean, you know, Dell which I think is still one of the market leaders there. , at the time most PCs were sold to retailers maybe direct if you were a large company, but of course, Dell's model was to do this all online to have everything custom built as people ordered it.

They had no physical stores, no physical distribution that allowed them to significantly lower their costs. So that whole direct to consumer model, I think that was probably really the first to scale that up in that industry. And that was definitely an example of business concept innovation or business model innovation. And ultimately everybody followed suit, but it gave Dell, a significant lead and I think for some long time made it the most profitable, the fastest growing PC company.

And you can argue, you know, apple did the same thing when they built their own retail presence, right? That was a very odd thing to do. For a single electronic brand. And I don't think it had ever been really done before. And they said we can build a genius bar. We can provide support there. We can help people set up their new products. We can demonstrate the products in the best possible physical environment.

We can have staff that really understand the product line and are passionate about it. And of course, most people at the time thought it was a foolish idea. There are many people in the press they like, we all know where to go buy an Apple product. Why the heck do we need like a dedicated place? So that again, was an example of looking beyond the product and looking at everything that surrounds it and saying, , this is all part of creating something that is unique, that has differentiation.

That is a better proposition for the customer. But if you were product centric, you would've never seen that opportunity. Gary, there's a couple of graphs in the book. There's many, and one that really brings this chapter together. I thought we'd share with our audience, and I'd love for you to talk to it.

And we'll have a little bit of empathy for those people who are just listening to us, which is the majority of how the show is consumed. But this is expanding the innovation horizon, and it's a two by two, and maybe you'll take a audience through it. You can look at innovation probably, if you think of of the entire business model, how do we go to market? What's the product bundle? What's the service? You know, what's, what's the infrastructure behind it?

You can look at that in two dimensions. One is in, in any innovation that you look at, like how big of a departure is that from the status quo, right? How, how, in a sense, radical is it? And, and I should probably take a moment here, Aiden, to give a definition of innovation, because what I find interesting is a lot of companies, there's a lot of talk about innovation. It's a word we use all the time. But very few organizations have actually defined it. And so that makes it very difficult.

Different people can use the same word in very different ways. And if you're starting to try to, to calibrate a new product or whatever it is, and is this really innovative or not? There's not a common way of doing that. So here's my little definition, which will help set up this discussion. And it's just mine.

You know, there may be others that are better, but typically when somebody throws out a new idea, there are three questions that I want to ask to judge. Is it truly radical or not? Number one, to what extent does it reset customer expectations? And so the first time I used PayPal, the first time any of us started to use digital payments was Venmo Cash, PayPal, whatever it was. That was a pretty big reset, right? Suddenly you could send money anywhere around the world, almost instantly.

And that's a fairly radical reset compared to using kind of cash. You can imagine other things that are much more incremental. The second question is does it change the basis for competition? So when Amazon starts selling books and other things online, right, that's just completely different set of skill sets, competencies, and so on, that you need to compete in that way. It's not a little better bookstore, a little better retailer. It was like really very different.

And then the third question you ask is, does it change industry economics? So particularly on the cost side, often we think of innovation as new product services, but very seldom do we think about innovation that dramatically reduces the cost. And yet that's what we saw with Ryan Air. It's what we saw with a move to cloud computing, which dramatically reduced the cost of managing IT infrastructure.

Does this innovation , in some fundamental way change industry economics, not by a little bit, but by a lot. So you can look at any kind of idea and start to score it. You can build your own examples along those, continue it and start to think about is it's really radical or not. And then the second dimension is, well, how broad does it, does this affect only one element in your business model or does it affect many? So that's the little two by two, how radical is it? How broad is it?

And of course, the things that are most difficult for incumbents to respond to are the things that are in the upper right hand corner there that are both quite radical and quite broad. Amazon, is a classic example there. Interestingly enough, the iPhone is in that same space because it obviously wasn't just a device. It was a whole app store around it. And now, millions of apps that , changed the way we use our devices. And so it was an entire ecosystem.

So that kind of innovation that's both broad and radical is obviously quite difficult and comparatively rare. But when you get it right, it is extremely difficult for competitors to follow first, because in the very fact that it's radical means like it's beyond their understanding they may not have the skills to do it. It challenges a lot of comfortable preconceptions they have about how that industry should work.

And then when it's broad, there's a lot of different elements that have to be orchestrated and come together to do it. So I suppose you might call it , the holy grail of innovation. You know, a company like Tencent, you would put them up there. Haier's done a lot of innovation in that territory in the last few years. Many organizations do it once, very few do it more than once.

There's so many prophecies in the book, Gary, for example, like this whole idea of business model generation or business concept innovation as you called it. But one of the things you called out, you said for example, and you were given out a bit, the state of higher education, third level and executive education, and you call these cyber B schools, which we know today as MOOCs versus business schools.

And you wrote back then, new business models sometimes render old business models obsolete, for example. It's easy to imagine internet based phone calls based on packet switching, largely supplanting phone calls made on dedicated voice circuits. More often new business models don't destroy old business models. They just siphon off customer demand, slowly deflating the profit potential of the old business model.

You then go on to share a case study of one of them, which was Sephora, and you explain how the old way was and then how Sephora challenged the business model. And what I love Gary, is reading these books where you were ahead of the curve and I often wonder, did a business person read it and go, I'm actually just gonna do that. It's been spelled out for me here. But maybe you'll give us an example of what you saw, the potential you saw in a business like Sephora back then.

You know, I think, , to your last point there, I think some people did look at that and I have some experience that companies says, yeah, let's go try this. I think probably more often they said, WTF, like, like, this just looks too hard, too difficult. Like, nah, let's not try it. Let's not think like this. Yeah, I mean, Sephora, and of course their business model has changed a lot over time.

But at the time I was writing this, if if people remember, if you, and not that I spent a lot of time in the cosmetics department, but if you went into any kind of, high-end department store they had all those cosmetics laid out and they were laid out by brand. So whatever they were, Clinique and Estee Lauder and Bobby Brown and, whatever. And each brand and Chanel, they had their whatever, their lipsticks and makeup and eyeshadow and so on.

And at least initially what Safari had done was say, gee, if you want any one of these products, why should you have to go from counter to counter and brand to brand? Like, let's just give you a selection of , whatever you're looking for. And you pick the best one. Well, I think they probably, and you're gonna have to check this, I think they got a lot of pushback, as you might understand, because the brands were very keen to pull you into their little kind of product family as it were.

Sephora brought all that together. They made it much easier to find things. And yeah, I think they're still reasonably successful. Other examples I laid out have yet to come to fruition. Certainly the idea of a truly global online business school. There are bits and pieces of that, but we haven't really seen that yet.

But I, I do think, one of the important points there, Aiden, is, being able to look at a business model and disintegrate it, pull it apart and say like, does this still make sense or is there a way to put this together in a different, I've spent most of my life as a business school professor, but honestly, the things about it that are just ludicrous, the idea that. You would have Rita McGrath or Michael Porter or whoever these, great teachers have been that you'd have them in a classroom.

You like standing in front of 60, 80, a hundred people. Like that's a terrible distribution channel for what they're capable of. Right. Why wouldn't you give them a much bigger audience? And then you can pay them like the superstars they are and have local assessments so you can tell whether the students are actually grasping this material or not. And so you start to think about, all right, well we want to, create a degree, but how do you pull that apart? Right?

And maybe in the end, the entity that, that testifies to what you've learned, that grants the degree is not the entity that pulls together all this content and pays the teachers. And so. I think it's, it's important to be able to deconstruct something that looks like it's a whole, and you just assume that's how it all has to work together and pull it apart and say, what, does this still make sense? Is there a better way of doing this particular part of that business model?

So and if you don't do that right, if you're not thinking about that systematically, creatively, somebody else will for sure. One of the things I'm so keen on with this show and the mission of it is like you said, sometimes people, organizations just don't have that knowledge. They're good at what they do, but it's maybe a tacit knowledge. And when you learn work like yours, you learn work like on the shelves behind me. It gives you these different lenses to see the different models in place.

And it's only through that education that you actually, you can deconstruct the model, and , the reason I'm saying that is , one of the biggest. Enemies of innovation, I'm sure you see it all the time, is executive time is actually getting them to step outside the building and learn and take a step back and absorb this knowledge rather than just reading one of your HB articles and thinking, I got it.

You know, very few of us probably change our beliefs or challenge our assumptions just based on something we've read. We really have to have a first person experience with that, either as a consumer or you're out there talking to an entrepreneur, but you move that understanding from kind of head to viscera and it's real thing. You go like, okay, this is really happening and we gotta take this thing seriously.

But , if it's data on, a slide or it's an article as I said in our last conversation, leaders are really good at dismissing things that they don't agree with. And we do it all the time. One of the examples that I used for a few years, and it's still like amazing to me, but one of the big US television networks NBC Universal they had a senior executive who's responsible for media futures. That's this person's job is to understand how the media landscape is changing.

And in 2016 he was talking to a big group of their advertisers on the future media and said, this is like a direct quote. He said, there's too little content on Netflix to matter and YouTube is a sidebar. And at that time, younger, 18 to 35, they were consuming two thirds of their media through streaming. And this guy is standing up in front of their clients and saying, it doesn't matter. It's just like.

Okay. That makes you comfortable to like say that that's a lovely illusion in which to live if your business is traditional media, but you are misleading all of these people. And so, , there's nothing more dangerous than an untested assumption or an unexamined assumption. Or an invisible assumption, right.

That you might have, I had another similar experience, and perhaps I relayed this before, but I got up one morning, like at two in the morning in California to be part of a a a management meeting at the London Business School with a former dean. on the topic is what do we do about digital as a school and how fast do we go and what do we do? And I said, , this is a, a great opportunity for us to disconnect the brand of the London Business School from a physical place.

And, , we gotta be super creative in thinking about how do we do this globally and so on. And maybe even, , it's not just our faculty. We take any smart people out there in the world that would like to be part of this, this community. And I said, students are simply not gonna care very much whether it's a physical experience or not. Well, the dean really pushed back on me and he said, no, no, Gary, like, there's just something magical about having somebody here.

It's not the same thing, doing it remotely and so on. And I didn't really push back, but I said, fine. Well, as soon as I was done, somebody else that was in the meeting called me that was there physically said, Gary, it was very interesting. As soon as you were done, the dean said, wow. It was just like Gary was here in person. I said, yeah, that was my point. So, you gotta be super, super careful of, of what you assume.

And I've had that experience over and over again and , I could give you like dozens, dozen of examples, and I think, I think I was the first to say this, and I don't know if anybody yet would give you this same perspective, but , it's.

A deep, deep truth for me that if you care about innovation at all, , if you're interested in innovating the starting point before you do anything else has to be, to go through very carefully what are the things I believe about, who the customer is, what their motivations are, how we reach them, our cost structure, every aspect of our business, what are the assumptions that I have? And how many of these physics that you, they simply cannot be challenged their gravity.

And how much of these are just assumptions and habits that we built up? And the dilemma is, if you do not start there, then whatever other work you're doing on innovation is likely to be within the bounds of that conventional thinking. And you never know what's outside the bounds. So I've always argued that, , the first step in any process of innovation and you have to do it systematically and thoughtfully. It's not a simple exercise.

Is to deconstruct every assumption, every belief that you have. And then ask like, can you imagine an alternative? Does the world really have to be this way? Often when in my consulting career, when I've been inside of organizations, I'll have, a senior manager say to me Gary, let me tell you how our industry works. And of course that's always important. I wanna understand how does it work?

But whenever somebody says, let me tell you how our industry works, I always intended to say for now, or as far as you know, or until it doesn't. Right. But like for them, that is the way the world works and, alright, well, you know, it's, it's one way, but it's not the way. I'm actually gonna jump right to the end of my notes. 'cause I usually finish the show with a nice quote that I have from the book, but you've teed me up for this one beautifully.

And at the end of the book, you say many of the choices that define your company's business model were made years ago. Those choices were shaped by the logic of another age. In the fading glow of success. They may seem like inevitabilities, but they're not. It is your job to turn those inevitabilities back into choices. And you do this by subjecting each element of the existing business model to fresh scrutiny. What are the alternatives? Does this choice still have merit?

How would a company free of our prejudice tackle this? And it's only in decomposing the existing business model that you can create the degrees of freedom where tradition reigns beautifully written. You had captured this there, and it was my parting quote and you absolutely nailed it there as well. So that belief you had then you still have today.

But my point in even sharing that is so few senior execs actually take that step back because I. It's almost like they're not rewarded for it or they feel that it's an unnecessary step. Or perhaps a couple of the senior team may feel they, they know this, but they don't actually get it all out in the table to get everybody onto the same page.

I think Aidan, it's part of , a broader kind of problem if you like, and that is that, most leaders are promoted and see their job as running what is not inventing what could be, and that's fine. The business as it is generating income. It pays everybody's salaries, rewards investors, and so on. And there are, many other kind of management thinkers who've talked about this, but, innovation is almost always a sideshow, right?

It happens despite the system, it happens at the edges, it happens in isolated units, departments, and so on. And I have no doubt that is a very small percentage of senior executive time. Super small percentage. And if you take the, the senior team, most of them are not mentoring new ideas inside the organization. They are not ensuring that those ideas come to the fore. They are not accountable for clear metrics around innovation.

How many ideas of what quality, how quickly are they progressing? How much of my time am I spending, helping to mentor, non-linear disruptive ideas. It's just not built into the institutional fabric, the workflows, the budgets, the systems and so on. And, it's amazing that's the case. One of my favorite quotes from Elon Musk, , is that ultimately it's the pace of innovation that determines competitiveness. And that's not just in product, , and I might say that different a little differently.

It's the pace of problem solving, right? It's the pace at which you identify and solve new and interesting problems. They can be customer problems, operational problems, legal issues, whatever they are. But that is really what drives, , what turns a static business into a dynamic business. And yet that sense of constant innovation, constant problem solving, constant, it is just not built in, to the systems, to the thinking, to the structures of our institutions even today.

And, , I've tried to change that. I have a lot of advice on how to change it. , and I think frankly, often just the people who are attracted into management roles, the people who get ahead in organizations typically, who rises at the top is either probably the C ffo, somebody out of finance who's who probably does not instinctively think this way, or it is the person who was running the, the core business. The legacy business. And they were a very good steward, right?

They were not a builder, they were not a creator. They were a steward. They didn't screw it up. And so finally you get the top job. So, sometimes when I'm a little bit of a mean mood, I will say that, most of those people at the top, they have a left brain the size of a watermelon and a right brain the size of a walnut, right? So that's why kind of rebalancing this institutionally is super, super difficult.

And some of my peers, some management thinkers have said, the way you solve this is, you need to have this ambidextrous organization. You need to be able to isolate and have the innovation stuff over here and have the people are running the core over here and so on. I, I just like, I don't think that's the case. I think you gotta have innovation everywhere all the time at different scale in different ways. But the idea that, you can just bifurcate this and I just think is wrong.

I just think you, you can't have any part of the organization. That is not constantly innovating. I often wondered about that. So , the Clayton Christensen model of you can't have the innovation team on site because it will always be drowned by the sucking sound of the core was the term. And then Tushman O'Reilly is the whole idea of that you have to have them together.

So the one is within the other, and I wondered often was one more fit for a time where things were quieter or things were more stable, where you had more of a competitive advantage and you could have that team over there. And it's changed because the cycles have change, have become so much more frequent that you don't have time to actually rest on your competitive advantage anymore.

I wondered was it a historical thing and times have changed and to your point now the cycles of change are so fast that therefore the management types of people in management need to change or leadership inside companies. I think that's part of it. I think that, just the velocity is so much higher.

But I think, those who, and I think it's most management thinkers, those who have this view that you isolate and protect and ring friends innovation, like they were halfway right, in the sense that, any new innovation team needs to have a budget. It needs, you need some different metrics to measure it and it needs some time and so on. So, you know, you do measure an a breakthrough innovation project. You manage it in a different way than you manage just like an ongoing operation.

That's clear. But I, I think that that idea that you have to survey, put in an incubator, an accelerator or something else came more from a pessimism that we're just going to give up on the ability of most people and most of the organization to innovate. And so you can't expect 'em to do it. And in fact, what you can expect 'em to do is to try to kill this thing or not support it. So let's put it somewhere.

I might have mentioned this before, we did a lot of research on corporate incubators, accelerators, almost none of them made any difference. Literally, almost none of 'em. I think Walmart shut, its incubator down sometime last year, maybe 20 23, whatever it was. But because, they end up with a worst to both worlds.

They are too far from the core, and the people who hold the customer relationships, the resources and the technology, they're too just separate from that to leverage all those strengths. So you don't really have the advantage of this big company with all these assets and resources that you should have. And on the other hand, they still have too much control from the center and too much old thinking to truly be entrepreneurial. So you end up with kind of a Frankenstein that just doesn't work.

So I think that, yes, if, if you're trying to build an entirely new business in a company, that's gonna be managed very separately. And, but even there, let me add another piece that I think is super important. Aiden. One of the reasons I think a lot of times.

New business ideas don't get off the ground or don't succeed in large organizations is because, the incentive or the energy to do that new thing is not shared by the entire top team. So it's like, okay, Aiden's gonna go build this new thing. Good luck to Aiden. We don't really give a crap whether you succeed or not. Right. And maybe if we're competitive, competing, we're happy if you like, screw it up. But like that's Aiden things to go, get us into that new market.

Go do this, nobody else cares. Which means that when you run into a hurdle or you need some resources, some help, like nobody's like raising their hand and saying, Hey Aiden, I can see you. Like, let, lemme step in. So one of the things that I think is like super, super important and needs to be the like deep conversation and dialogue and work, significant work of the top team is I need to be able to ask any of the top 6, 8, 10, 20 leaders in an organization.

What are the five or six or seven most important opportunities for our business or our organization? And I need to get an absolute consensus on this. And I, they need to be able to rank order those and tell me which have the biggest upside are gonna make the biggest difference, and so on. And then what I need is cabinet responsibility. So , if I know this is a top three priority and Aiden comes to me and says, Hey, you know what, can I borrow some engineering talent?

Or , can you run an experiment with your customers? I gotta say yes, Aiden. that's not the way it works. And so we take the organization's resources and we divvy them up and, and we say like, Aiden, you have your little team and you have your money. Don't bother the rest of us. That's like a disaster for trying to build a new thing. And so many innovators, I'm sure you've worked with them, those people, I took a role like this , and there's a little bit of.

Selective hearing that you don't, or, or selective vision even to go, I don't want to know that all the signals for me are that this won't work, that they're not serious about it. That it's innovation theater and you take the role 'cause you're so excited to have a role in innovation and to actually go for it. But without that air cover or that access to senior talent, that's actually gonna help you. You, you just drown.

And you may have a couple of people interested and they're interested from a distance as long as you're successful. But as soon as there's a sniff of this not going well, they pull out. And you're so surprised by that many innovators, this has happened to 'em. They're going, where, where are you guys? The real, the real commitment you need is not so much financial, but it's intellectual. People have to believe and emotional, they have to believe like, this is really cool, this is amazing.

This is important. We cannot fail here. Right? So if you don't have a shared strategic imperative around whatever that new thing is. They just look at it as a diversion of resources and like, when this fails, like good, we'll claw back some of these smart people and clever people. So, yeah, and, and again, in most institutions you, they, there's not a process of, of collectively at the top because everybody has their little role.

You know, you're running business, A, b, c division, whatever you're responsible for, you know, mid East Africa, you're responsible for Latin, whatever. Like, there's not a collective sense of, of where we're trying to go as a company. And if so you will not have deep and enduring commitment to anything. Those people, they'll know what I'm talking about here. The senior exec does support them. Then that senior exec maybe themselves get frustrated or headhunted elsewhere.

And as soon as they go, all this house of cards comes tumbling down, all those people they supported are lost and eventually leave or retire on the job. Frustration. You're absolutely right, Aiden. I've seen that again and again and again. And, you know, I, and I get it. I mean, a, a lot of C CEOs, I mean particularly quite progressive ones, they do not wanna take the time to bring the rest of their team along.

It's just like, in fact, they'll tell me sometimes, yeah, you know, these people are all stuck in the mud. I've been fighting them for years. Like, let's just go do this, Gary. I'm gonna give you a budget and this team, like, go do it. And I know that the moment that person leaves, that thing is gonna be blown up because nobody else cares. So you gotta take the time to build that consensus and, and make it real.

And, you know, I sit in all these meetings, with quite senior people and you'll see their subordinates sitting around the table all like nodding. Yeah, that's a great idea, boss. You know that they're not sincere, right? They're buying career insurance by just agreeing but that's a missed opportunity. You gotta go one by one and go deep and like, why are we do this? And like, if you have objections or don't think it's gonna work, let's get those all on the table.

And, you know, if you don't have that consensus, yeah. All you have to do is move one person and the thing collapses. , one last piece and I promise we'll get back to the chapter now. And just a reminder, Gary and I have been recording by the time we release this, it'll be a year. So there's gonna be stuff we repeat. We both forgot, I may have said this before, but Gary, , the importance of rewards.

I had Steve Kerr on the show recently and he wrote that famous article on the folly of expecting a while re rewarding B, the whole idea that you want this, but all the rewards systems in the organization are for stability, reliance, efficiency, all the things that are anti innovation in many, many ways. You know, I don't know. Very many large companies where you have to succeed at building something new to get ahead. I think that would be quite rare.

I think if you manage to do it, it is definitely a career plus, right? I mean, you know, they're gonna say, yeah, like, that person built this new business. Like, that's fantastic. So it's definitely, you get recognized for doing it, but I don't think it's an expectation. And as I say, most organizations don't have any serious set of innovation metrics.

For example, one of the most basic things I think is important to do is to know what percentage of my total opex, my operating expenses or my CapEx, my investment, what percentage of that is being devoted to projects that meet the test of being truly innovative? And I would argue year by year, you want that percentage to go up. Now, recognizing that innovation does not mean that's something outside the core. It's something, you know that's gonna cannibalize.

It can be all inside the core, but it means it's not linear. And the only kind of innovation that will produce an outsized return is something that is new and, not extrapolated. And so if you don't even know how much of your resources are behind those ideas, and for sure, your ability to regenerate , and build an organization that, that will last in the future is a hundred percent dependent on how much you're investing in those new things.

Simple metrics like that do not exist in most organizations. You know, metrics around the quality of the innovation pipeline. Now you may have something, you have a product development pipeline. You can look at that and how many things, , but more broadly across the organization, how many ideas are we pursuing of what quality how fast are they coming to fruition? How much executive time is going there to support them. You know, that doesn't happen.

I would suggest that in, in most organizations, , whatever the dozen or couple of dozen best ideas at any time that have the highest upside, the highest growth potential, those ideas should be getting attention from the executive committee once a month. Not meddling, but like, , are we still putting resources? Because here's what I see often happens, you'll have a really great idea, two or three levels down an organization.

In some kind of budget crunch or quarterly pressure, whatever, some manager three levels down is gonna pull the people outta that project or shut it down or whatever. Then somebody like four years later says, Hey, I thought we were working on the thing. How the hell did we miss that?

Well, you know, somebody could pull the plug on it and no alarm bells went off because nobody, the top was managing a portfolio, had visibility to a portfolio of ideas, and they're accountable for the health of those things and making sure, , they don't get , killed off for short term benefits. So, rare, rare organizations that have that, although, we've done that in, in one large organization, which I won't mention the name, we put those metrics in place.

We could track across every division, every product line, how much money was going into new things. And we actually set an internal, target where for every division we wanted 30% of their CapEx every year to be devoted to projects that met these tests of being innovative or not. And and we did that because if we left divisional executives to their own devices, they would still offer more of the same, just because it's easier. I don't have to stretch my thinking and so on.

And so we said, listen, here's what's gonna happen. If at least 30% of what you're investing in doesn't meet this test, we're gonna take your investment away. Because there's often an assumption of, if I'm running one of the big businesses or divisions in the company, the assumption is I'm gonna get what I got last year, every year, no matter, like plus or minus 3%, we said, no, no, no. You have no automatic right to capital.

There's not like some, path dependency where you just get more every year because like you're, no, we will take it away because guess what, if we're not investing in the new, the investors will take our resources away. Ultimately, they'll give it to somebody else. So there are ways of putting those metrics in place, of giving them teeth, of holding people accountable. But it doesn't happen much.

I think we talked last time about Procter and Gamble and you go like, here's this great company, world leader in, home care products and so on. And yet they haven't invest, they haven't invented a new brand in like, what, 20 years or something, A new billion dollar brand.

Like what the hell are you doing with all these resources, all this knowledge, all this customer data that somehow all these creative people, and I suspect that it's just like the leadership is really not holding themselves accountable on that metric and holding everybody else accountable and paying attention to what's new and getting investment behind it

. And, and it must be so frustrating for the innovators, like you join a company like that with massive budgets, with great success, great legacy for innovation. And then you're just so disappointed. And it leads me to this one because last one on this off piste stuff is you're interested in innovation or you've worked in innovation before. New role comes up, you're gonna go in this company, I'm gonna go outta this company. 'cause the company I was in wasn't real about innovation.

It was all theater. I'm gonna go to this company. But then you have to actually conduct the interview yourself. You're, you're interviewing them to see if they're real about it. And I wondered, had you any suggestions for people who are going through that and maybe some questions they need to know to realize it's real, whether then they make the decision or not to join is up to them. Because sometimes. You need the money, you need revenue coming in for yourself.

But at least to do the triage test to see if they're real. Well, I think, you know, we've hinted at some of those things. You know, how much investment is going in, do they have any track record of bringing truly new products or businesses to market? How long has it been since, since they've done that? Do any of the people at the top have any track record of doing this? Or are they all you know, managing the status quo?

You know, I have these three questions, which we may have covered, but, I'll, I'll tell, I'll say it again. You know, my test, you know, 'cause I often, you know, CEOs will all often tell me like, Hey, we're really serious about innovation. I go like, well that's interesting. , lemme let me test that. So you go down and you ask frontline employees. Have you been trained to think like a business innovator? No. All right.

Number two, is it relatively easy for you to get maybe 30% of your time and a few thousand dollars to experiment? Would you know how to get that resources? Is there is a process for doing that without too many permissions and whatever? I wouldn't even know where to begin. And, and finally, is it like clear to you that your manager is accountable for all of this? Like the metrics they talk about it, does it influence their compensation? I don't think so.

So I have to go back to like CO, whatever and say, okay, you told me you're serious about this, but you don't train people, you don't make it easy and you don't hold leaders accountable. Like clearly a different definition of seriousness than the one I have. So, I mean, those are the kinds of things you can ask. You know, when, when, when you're, when you're, when you're trying to go into, into, into a company.

But I think it's a constant battle. And you know, it's why, you know, many, many people who start companies, they've left a big company and they just say like, like, it's just like too hard. There's no pathway to do this.

You know, higher as an as, as a counter example, which I'm, you know, quite familiar with the Chinese appliance maker, although much more now than an appliance company. their goal is if you wanna create a business, we're the right place to come and work. I'll give you an example. They, they have a, a, a young guy who created a business called Thunder Robot, and they make high-end gaming PCs. Now Haier had no business in PCs, right? They're Aly Maker.

by the way, it's now a publicly listed company. It's on the Shanghai Stock Exchange. It's worth quite a lot of money, and I think it's number one in, in China. Haier's view is like anybody could start a business and we're gonna help you do that and we'll take a share of it. And rather than them deciding whether to invest or not, because they'll say like, how the hell do we know? Like, we're a bunch of old guys that grew up in the appliance. How would we know how much to invest here?

So instead, they will take that young business and , they have a network of venture capital partners and they'll run it around that network. And if one of the venture capital partners says, yeah, this is really interesting, we'll invest, then Haier will co-invest with an option to buy out if they want to at some future date.

And that's just an expectation that of, of course we're gonna create new businesses and we wanna participate, but we're not necessarily smart enough, to decide whether to invest or not. And they have a whole ecosystem that now supports that. In fact, , they think of the company as a platform for entrepreneurship and that not only should you never have to leave to start a new business.

We wanna be a place where people can look at our companies, our capabilities, our distribution across China, and whatever. And say, I wanna come build a business with you guys. And you know, they have all the online platforms for people to submit ideas and all the review processes and so on. So. Again, , there is nothing, it's embarrassing because there's nothing that complicated about doing this, right?

But very few companies have said like, how do I build a company that it is just as easy as it can be for somebody to build something new. It's really sad, isn't it? Like, like, I feel so sorry for people who are creatively minded there. There's not very many places to go to express your creativity. And then you have to find ways in your own private life to do it. And everybody does find those ways in their private lives, right?

Everybody has some creative outlet and,, I think let, and one of the, one of the problems has been, I think that because this should be a matter of public policy, this, this is a, you know, how do we, how do we ensure our large companies are as innovative as they can be? These companies have huge amount of resources, capital, talent and so on. If they're not innovating, all of society suffers.

And. Instead, I remember having this conversation some years ago , with an economics minister , from, I think it was the Netherlands. It might have been a Nordic country. , visiting me in Silicon Valley saying like, we want to create, more entrepreneurship in our country. I said, let's, that's a fantastic idea. You need to do that and make it easier. But I said, that's not gonna solve the problem.

If you look at the, I remember the big, you know, we went through the, like the big list of companies in this country. They'd all been laying off people and they'd been missing a lot of opportunities and interesting.

Now if, if you look right now, and I may have said this before, but if you look right now in the eu and including, let me and including Switzerland and Britain, and you take all of the unicorns, all of the, venture funded companies worth, nominally a billion dollars, all of those unicorns together are worth about one and a half percent of the 350 largest companies in Europe. They are trivial.

But I wrote a piece a few years ago, and it was definitely tongue in cheek, but it was called Silicon Valley. Doesn't matter because yeah, once every once in a while you get an Apple or a Facebook, or an Amazon. By the way, where are the Apple's? Facebooks and Amazon in the last 10 years, like maybe Palantir, , I don't know. But like , it's not like Silicon Valley is continuing to produce all these amazing companies. They are not, and that's a different subject.

But I said, we cannot depend on startups to create innovation and to create a resilient economy and to create new jobs and whatever. And so this problem of the failure of large companies to innovate is a public policy issue. It's not just an issue for individual companies. And if , you have a big company that lays off, let's say. Volkswagen or whatever that's, laying off tens of thousand employees, how many startups do you have to create to absorb that?

, and again, given kind of the attrition of startups where I'm gonna create a hundred and I might get 10 that survive and get one that becomes , serious. I gotta create this huge number when a large company fails, , there's almost no number of startups that's, that's gonna pick up that slack. , I was telling you about the reinvention somewhat we're having, and we have a panel called Reinventing Ireland because I believe we're in a, a, a very dangerous place because we're relying on.

Successes we've had in the past, just like a successful business. And we don't have, like you talk about, and what this chapter is actually about is a portfolio of, not businesses, but business models within a business like Haier. So if one of those gets under threat or gets shut down , or the user of your product just moves and doesn't want it anymore , or becomes unfashionable, you have another business model to rely on as a result of that. And I think countries are the same.

I was thinking recently about the consulting firms and how they have so much outsource to places like India and then people in India. Have a whole, again, this house of cards under the structure of those people are earning money if they're working in these BPOs that they then have chauffeurs to work or they're relying on the gig economy to bring them to work. There's so many people relying underneath the structure that if the top of the structure disappears, there's chaos.

And therefore it is, it is incumbent on so many governments actually drive this and drive the regeneration of existing businesses and not just startups.

Yeah. And you wonder if there's just behind this, I'm now, I'm now riffing, so this can be ignored. But if, if there's just a laziness or a decadence behind it, like, , I've made it, I'm all right Jack, I'm gonna feather my nest and protect my whatever. And there isn't this sense of. Paying forward, building forward, creating the opportunities that, that, you know, for the next generation.

And you know, I, I see this happening, you know, within, within my own state of California here in the United States where, you know, we're running huge deficits. We have the, the best paid public sector employees in the country failing schools, failing infrastructure you know, these terrible fires.

Now this will date our podcast, but the terrible fires that have gone through Los Angeles recently more than 10 years ago, funds were approved to build a variety of new seven and a half billion dollars to build new reservoirs in the state of California to help, provide the water and so on for these kinds of emergencies. And they've been stuck for 10 years in environmental review. Who's ass is on the line. For actually caring about the future.

And I think you see this in government as well, a, a kind of creeping decadence, you know, we've been writing something about, about reforming government in a, in a kind of fundamental way. Not just making it smaller, but just making it way better.

And you go back to the 1960s in my country NASA put the first American in the moon 30 months after the agency had been founded. In the next two years, they put five more people into space. The total cost of that for NASA was $4 billion. The current big NASA rocket system, the space launch system, is six years behind schedule. Every mission will cost $4 billion, right? That was the entire Mercury Space program in the sixties. Every mission will cost 6 billion.

I think there's so far about $90 billion of funding into the thing. And, of course it may get shut down and SpaceX has completely, passed 'em all this. But you go like, how the hell do you end up in an organization that is so insensitive to waste that is so, unnecessarily patient with itself, that is so afraid to experiment? And again, that just gets repeated across every public sector, everywhere. I'm sure you'd have your own examples from Ireland.

I can give you, , I look at the NHS, which is just a money pit without, , any real consistent improvements in quality of care and whatever. And there's deep structural reform that is necessary in these institutions. And we'll get into that in a future conversation, I'm sure. But but to come back to our conversation.

It does require this willingness to look at every aspect of how we're delivering healthcare or how we're delivering telecommunication services or how we're delivering energy or whatever it is, and , I look at Germany who allow themselves to become so dependent on a hostile power on Russia for energy. And, and also to become so dependent on China as an export market. Again, a geopolitical challenger if not an enemy. And , where is the leadership in those environments?

Where is the, like, yeah, this is the easy way forward, but maybe not the best, and we're creating lots of vulnerabilities. Yeah, so I, you know, I guess I would just call it decadence. I don't know. What is another word to use? JFK wrote a book called Profiles in Courage about, people in politics who made unsavory decisions and actually paid the price.

I mean, ultimately it comes back to that rewards thing is like, it doesn't always end well for the whistleblower or the person who actually makes the tough decision to actually choose to go, you know what, I'm gonna spend tax payer money on this and it's not gonna pay off today. I was thinking that when you were saying we, we had a lady, Michelle Wucker, who wrote a wonderful book called The Gray Rhino.

She's been on the show a couple of times and she talked about the fact that say, new Orleans and places that had drastic floods, that same thing as California. There was, there was funds attributed to building preventative measures and not activated, or they were used for something else. Yeah, siphoned off and, and I, I'm bringing it back to innovation.

'cause there's , a famous video of Obama talking about the risk of something like a Spanish flu coming back 10 years before Covid came out and saying, we need to invest in measures to what to do if something like this happens. But I, I thought about that from an innovation perspective and go, I've seen this where you have metrics brought into the company to go, we need to be more innovative. And then say, for example, you're trying to generate a new digital revenue.

I saw this, I worked in the media industry and they're traditional analog. Media guys used to just siphon off and go, yeah, 10% was digital. And you're kind go, what? Where is it? What did you sell? Because I was really, I was naive. I was like show me what it is. 'cause I wanna learn from you. And there was nothing there. It was just, just allocate 10% towards this new revenue fund. And you see that time and time again where it's not real.

But to your point, somebody needs to be going and scrutinizing this to make sure it is. Well, it's interesting. We've had all this debate over the last few years about, you know, a, a company needs a purpose. Well, yes, of course it needs a purpose. And that's hardly a new thought. I mean, you know, great companies back through history had a purpose. Henry Ford wanted to bring mobility to millions and millions of people. That was as wonderful. A purpose as you can probably have.

IBM saw the power of digital technology to make companies run better and so on and so on. So, yeah, purpose is good, but what I really need, you can edit this out. I need people with balls all the way down, right?

Male or female people who have the guts to like, you know, who's, who are not only in it for their career, who are not only in it for themselves. Because as you say, all of these things take, , some courage to stand up, to challenge the status quo, to put aside some resources for something that is somewhat uncertain. And, you in the end, and again, we'll talk about the systemic angle on this and how our systems, don't support those kinds of people very well.

But at the end, blaming the system is a little bit of a cop out, right? Like, you either stand up and you're counted and you take the slings and arrows and you say, Hey, this is important, or you don't. And I think that so I would worry more about what's my own. Tolerance to challenge people and to be maybe a little unpopular and so on, versus yeah, we need some higher order, purpose and some form of words and so on. Yeah, fine.

But what it really comes down to is your guts to, to be a change maker and to, , take on the system. And it's interesting, again, we may get to this later, but, you said John Kennedy's book, profiles and Courage.

If you, if you go back and you look at the people who really changed the world, almost none of them had a lot of formal power, right? They didn't, they were activists, right? They weren't, they weren't CEOs, they weren't prime ministers. They weren't now here and there. You get somebody who really was, but mostly they weren't. And , I, all these CEOs telling me, Hey, we need to change faster. And I'd go have you taught any of your people how to be activists?

How to build a coalition, how to try new things how to identify points of influence , how to enroll other people. Like, no, we haven't, like they haven't even thought about that. And yet, , if I'm a CEO, those are the people I most want in my company, right? Because they're gonna, they're my insurance against the unknown. They're my insurance against complacency, they're my insurance against arrogance.

And if I don't have people in my organization who can do that and who can do that and not get fired or not get immediately marginalized, we're screwed. I'm gonna show on the screen one of the diagrams for the book, because this chapter three.

If you as a senior leadership team or any level in the organization want to challenge your business concept, blind spots that fre prevent you from seeing opportunity for innovation, this chapter gives you all the questions to ask yourself, give you examples, et cetera. And there's one key piece. So , if you listen to us or you're watching us now, have a look at what I'm gonna share on the screen.

And Gary, I'd love you to talk us through this one because this kind of gives you an overview of the boxes that you can then work from.

So this is the concept of putting your business model concept or your business model generation together, as Gary called it business concept innovation. It's pretty straightforward in a sense. It's. How do you reach the customer? What's the value proposition? What's the product bundle, the service bundle what is the marketing message around all of that? What, what does it feel like to be a customer? How do they learn about you? How do they acquire a product? How do they use it?

How do they deal with whatever issues come up? You know, the core strategy is what are the fundamental choices you've made about you know, what's in and out of that product bundle about, you know, the price for it about which customers you're gonna go after. So all the kind of core elements of product market choice that you'd expect there. , where are you creating competitive advantage? What are the differentiated capabilities that you're trying to build?

Then finally, okay, behind that strategy and the customer face, what are the skills, assets, resources you actually have? What deep talent do you have? I. What core competencies do you have? What assets do you have in terms of factories, distribution channels and so on. But what are all the resources that come together to make that possible? Which do you need to control? Which are you happy to outsource? And then finding the value network is like what other players are part of this?

Do you have a developer network? Are you part of on an, on another platform like somebody selling on Etsy or Shopify or so on? So just looking at every one of these. And I think in the chapter we break these down into a lot more detail. It's tedious actually to go through that chapter. It's really important. Like, so it's worth the price of the book, I would tell you.

But I think it's still tedious 'cause you just gotta go through everyone and think about it and ask yourself like, are there other choices? Is there a better way to do this? But yeah, I think those are the four components. And I think if I remember there was a kind of fifth one that we added on, which is really. Is there something here that will drive superior profitability as well?

So are there lock-in effects or network effects or first mover effects that really turbocharge the whole business model in a way? There was a couple of terms. One of them was company boundaries, and I'll tee you up here with a little quote here to remind you of what you wrote. Intermediating between a company's strategic resources and its value network are the firm's boundaries. This bridge component refers to the decisions that have been made about.

What the firm does and , what it contracts out to the value network. Again, an important aspect of any business model is the choice of what the firm will do for itself and what it will outsource to suppliers, partners, or coalition members. Changing these boundaries is often an important contributor to business model innovation. An example then you give is the PCs industry spectacular growth driven by innovative boundary decisions by IBM, Microsoft and Intel.

Some of those businesses have since fallen on tough times, but maybe you'll expand on this because I thought this was a really key one that wasn't as understandable unless you really got your head into this chapter.

Yeah. You know, obviously you can. Concentrate your resources, focus your resources, grow faster, do more If you have a great set of partners around you, if you're leveraging other assets, resources, channels that are already there. So you wanna be very, very creative in thinking about how do you leverage existing ecosystems and infrastructure and so on.

At the same time, you wanna be super careful that you don't inadvertently give away, outsource, offshore, whatever, something that is fundamental to, long-term competitive success. And I think a lot of companies, and a lot of, CEOs have under short-term financial pressure said , let me give that away. I a classic example we might have talked about. I, I think before Aidan I can remember is, when Boeing made this decision to spin out the manufacturing of fuselage aircraft, fuselage.

They did that because it's quite capital intensive and like, , if we get rid of that, like our return on assets probably goes up, right? That's a little profitability boost there. But , you outsource it and you hire people are not deeply experienced in doing this. Like, that's probably a bad decision, right? This is something that's integral to the quality, the safety and so on of an aircraft and its performance. So there's a tension here of how do I leverage external resources?

, and it tends to work like a ratchet right now, Boeing is actually, I think bringing that back inside if I, if I am right on that. But, but there's a tension be, or, a ratchet because once you've put something outside and you are no longer building those competencies, hiring people, paying attention to that. You probably never regained whatever, whatever that went, it's gonna be really quite difficult to reintegrate it.

So you wanna be quite careful about making those choices because in a practical sense, they're often irreversible. The other thing I would say is so under understand what is gonna, what is really important to creating customer value? What is important in creating competitive differentiation? And, and be very, very careful about putting those outside the boundaries of the firm. Now obviously, there's all kinds of complexity to this.

If you look at Apple's iOS ecosystem yes, all those developers that are outside of Apple physically, but they are very deeply integrated in, into the, into the ecosystem with the tools and the support and so on. And it would be very, very hard for anybody else to replicate. I mean, Google has their version of that, but beyond those two companies, very hard for somebody to replicate that , from scratch. So it's not that every. Every decision to rely on partners outsource presents strategic risk.

It doesn't often, it's a huge opportunity, but you wanna be super, super thoughtful about that.

And one place, and this is just me and I'll let other people argue, but I, one of the places I think that we've often got this wrong , is companies outsourcing customer contact. I bank with one of the big British banks as well as banks in the United States. But every time, and I've been, I've been a customer and I think a fairly profitable customer for 40 years.

And every time I want to talk to somebody, I'm talking to somebody on the other side of the world who I frankly have a hard time understanding at some points. I'm sorry I don't speak every language and understand every dialect around the world, but I don't, and and they don't know me. And they have almost no discretionary ability to do anything. So everything is like a series of handoffs and whatever, and you go like, okay, somebody made that decision because to move, put it there.

And with perhaps undertrained people, no discretion because it's gonna save them, let me say maybe one pound in interaction, whatever. And so they are costing me my time and my frustration to save themselves a little bit of money. And, , and you see this in every day. When you end up spending hours, we are experiencing on usually heavy call volume bullshit. You're understaffed and you always have been. And you've decided that.

You can waste the time of somebody who's maybe making 20 or 30 or 40 or 50 or a hundred pounds an hour to save the time of somebody who's making 10 pounds an hour. Right? You made that calculation. So I think that is one place where you see a lot of kind of, I guess what we call, Pennywise pound foolish.

So it's just something that you have to be very strategic and very thoughtful about it, and be very careful if when a vendor or a consultant or somebody else comes to you, their primary argument. Is just an economic one, a short term economic one, be super suspicious about that argument and think a lot deeper about it. I always think of that the map is not the territory.

So a consultant coming in doesn't know your business, doesn't really know your business and is coming in and just like the original maps were just drawn out and going, there's a lake or an ocean there, let's cut it and make that into a new country. That side, they're co the decisions are made outta context of actually what it's really but I thought we'd share, 'cause you mentioned these profit boosters and you group these into four categories.

And I, I think these are so important, particularly for bringing it back to what we talked about earlier on, if you're gonna have an experiment and sometimes it's the execution of the experiment builds a capability for you. And this can create what you talked about. I. Learning effects or increasing returns. So this is the first of the four categories. The second then is competitor, lockout, strategic economies, and then you have a whole book on that one. Strategic flexibility as well.

so the first one was, you know, learn learning or network effects. You know there are a lot of industries where, , with every customer interaction or with every unit of manufacturing you acquire information, you get better. And that produces increasing returns to scale. And that's particularly true with networks. So if I wanna sell something online there's really only a couple of places to do that.

I'm gonna go to eBay or Etsy or something else because I wanna go to where everybody else is selling, right? Or Airbnb would be a classic example of that, right? It's a platform. And if I wanna have a, a property, I want to, invite the guests and so on, that's where you go. And that's why often you'll see, startups early on, invest hugely take huge losses to try to accelerate the acquisition of customers.

Of information, of network effects and then the rate at which they can improve the offering. So if you get in front of that thing and you build out first, that's why so many of these digital businesses end up being monopolies simply, you got so many customers so quickly and there's only gonna be one or two networks, right? There's only be one or two, mobile phone operating systems. There's only gonna be one or two, like truly massive online sales platforms.

There'll be a lot of smaller ones around the fringes. There's only gonna be a handful of social networks, right? And that doesn't mean ones won't emerge. They will, but there's huge benefits of being first there. I'd love to just expand on that one. Like, yeah, yeah, yeah. I, I don't know.

I, I think, I think we talked about this already, but we were talking about , it's the same with VHS versus Betamax. There's a big winner and there's almost a formula to this, to partnerships and working with developers and stuff like that for gaming consults for example. But I wanted to call out this cautionary piece that you say that first mover advantages are never absolute.

They're often Pivotal in industries with a rapid pace of technological development and relatively short product life cycles. If you get in late, you tell us you're going to be fighting the US Marines with slingshots and bottle rockets. Preemption requires a great product at capacity to learn fast and a willingness to double up your bets. Being first means nothing if you're trying to sell something nobody wants, or if it takes forever to respond to customer input.

Apple may have been first with handheld computers, but the Newton was so woefully underdeveloped that it left the door wide open for P Pilot. I thought that was important. It's like almost a recent enough example was Google Maps had this. Head start and then Apple tried to launch the map, did a terrible job of it. And now I don't think if anybody ever goes back and uses Apple Maps because of that first experience again.

So I thought that was an important piece just to share before we go on Yeah, and you have to remember that before Google Maps, there was Map Quest, right? There were other services there as well. So yeah, scale is hugely important. But I think one of the thoughts buried in there is it's not very helpful to talk about first mover and second mover. I prefer to talk about smart mover and dumb mover.

So I do think there's an advantage often to being first, and it's, I think in general it's better to be first than not, but as you say, to be first. You first of all have to make sure that you're learning very fast, that you are testing every assumption as you go, that you can pivot very quickly. Because to be first and stupid, you just open the door for somebody else. And in fact, apple was not first into mobile phones. They were not first into portable music players.

They were mostly first into tablets. I would say . So there's often the chance to learn from a stupid mover and then come back and do something better. And kind of Apples try to do that. They weren't first with with VR devices and, we'll see if Vision Pro survives, I'm, well, it's not gonna survive in its current form, we know that, but we'll see what happens with that. one failure mode is just to be too slow and leave, leave the door open and suddenly move faster.

But another failure mode is to move too fast , and to get your investments in front of your actual understanding of what's going on, and then you end up putting your investments in wrong places. Velocity is fundamental. , every venture capitalist will tell you that. But you gotta do it in a smart way and you look at the race between Uber and Lyft and so on. Classic case of, no driver's gonna sign up for five services, no customer's gonna have five apps on their phone for ride sharing.

So whoever, builds out that network and does it first. But that doesn't mean at the end of the day, you still have a viable business model, right? You may be subsidizing years later because it's just too expensive , and the model doesn't work. But man, faster's always better than slower, as a general rule. , the benchmark on speed just goes up and up and up. You know, I think it took Facebook four or five years to get the first a hundred million customers.

I think TikTok did that in under a year chat. GPT did it in 60 days, right? So you have these ecosystems there, , the amplification effects of social media are so powerful when something starts to work. . Today. Like you just have to have the pedal down all the time. And back to your point about you therefore can't have the innovation guys and girls over there. Like you need to have that muscle in the company to survive this rate of change.

The next one was, and we'll , talk about these briefly was competitive lockout or choke points. And a little reminder here, so I had never heard about this before and I thought it was a really interesting one to share because Intel for many of us thought were untouchable for a long, long time after they'd kinda regenerated the , Andy Grove time, so to, to jump to this new, smaller conductor, et cetera. But you said only Intel has anything close to Microsoft's lock on customers.

I think Microsoft will, is fair enough to stay, still has that lock. A few years ago, Intel's co-founder , and this was at the ri writing of the book, co-founder Gordon Moore, Moore's Law. Gordon was asked whether he had been worried about his company's X 86 chip architecture and how it would be supplanted by new technologies such as, RISC reduced instructor set computing. His answer was a telling no, we had this tremendous advantage.

He said, all of the software that people had bought that ran on our instruction set. And you went on to say, Intel may be paranoid, only the paranoid survived about many things, but a new chio architecture that would knock it out of PCs is probably not one of them. So even these companies that , had the lock in it doesn't mean anything in this day and age with the rate of change. Yeah. I mean, no, lockin is forever.

And, you know, some of the tech companies who are under, you know pressure from antitrust to competition authorities will, will, you know, will, will tell you that. Like, like there is, you know, I mean you know Facebook, you know, they bought Instagram and like that was a smart thing because the average user on Facebook, you know, kids are not using it anymore. I, I, I think, I think on, on that kind of critical young demographic, probably less than 30% of young people are on Facebook.

I was with a group of Facebook employees not so long ago, I said like, the bad news is I'm now your demographic. Like pity you guys. Although I don't use it either, but in any case, yeah. And then came TikTok, right? So lock-in is always temporary and again, that was an ex like how paranoid are you really? If you're telling me you don't worry about this because everybody's, locked in. And when you get a technological discontinuity that's great enough, it will dissolve that lock in.

It goes like, it goes away, or, or you may still have it, but nobody cares anymore because all the action is somewhere else. So, lock-in is never forever, but it works very well when you have it and you have 70% gross margins and there's no place for, customers to go. And you gotta be careful about assuming that, but when you're fast, you have something that becomes a standard. But again, it happens very rarely.

I think it's for most businesses it's probably not very realistic to believe you're going to create that kind of, competitor lockout. I think it would be hard, it's happened in other industries to a degree historically. The distribution strength of Coca-Cola and Pepsi for years meant it was difficult for other soft drinks and whatever to get shelf space. I think that's now changed.

But, , it's good when you can get it and always thinking about, you know, what do I do here that locks and resources locks and customers and so on. I mean, in a way, the goal , of strategy is to create a monopoly advantage in one way or the other. Until somebody tells you like, that's illegal or you can't do it, or whatever. And you know, a lot of Michael Porter's work around competitive strategy.

He was simply reverse engineering, kind of antitrust policy and saying, this is what you wanna aim to do. Right? Build, build an unassailable advantage and lock customers in, lock competitors out. Capture those economies of scale.

And you know, but again, as, as you were indicating earlier, the sheer underlying pace of change means those monopolies of that locke and is way more fragile than, you know, that, I mean, at and t the big US telecommunications company enjoy that, what for maybe 70, 80 years. And the publishing industry, the newspaper industry enjoyed that for a couple hundred years because it was so expensive to run printing plants and get newspapers on every doorstep. And at every.

Little corner shop and so on, and then it's not,

and back to your point again as well, that's why there's an onus on us to actually prepare people, and I mean children educating them, et cetera, for more resilience. Because if we just leave them to go with the old model of education for a staid, steady economy, that doesn't exist anymore. And I think that they need more resilience and they need to be able to fail and not feel that it's personal because you may fail, 'cause your industry has failed. I think that's a super good point, Aiden.

And, and hopefully most kids figure that out today because a credential at the most, a credential allows you to open the door by an inch. Right? But what people are gonna care first about is not your credential, but what have you done. Right? Show us your portfolio, show us the project, show us your ideas. Not the credential. And then, you know, once you're in or in any job, you are competing against everybody else to learn faster and to stay relevant. And that's a lifelong, pursuit.

I had to get a PhD 'cause it's kind of , a union card if you want to be in academics, but by golly, the PhD doesn't buy you anything, right? It's like, what did you write last week or last month or whatever. And most of that continuous learning is gonna be your responsibility. You cannot expect your employer to do it, like for you.

Lucky if they do, but mostly, you're gonna have to be on the web, learning, taking courses, improving doing things in your spare time that increase your marketability. To the very point of what we talked about, Gary, that you can't pick this up. Reading the HBO article, even, even your work that I, I've studied it and you know you have to have something to stick it to. You have to put it into practice. You have to see it in action in order for it to stick.

I think we'll leave it there. The last two were strategic economies. We know them. Scope and scale and strategic flexibility. Something that we have talked about in the past and we're gonna talk about again. I absolutely love the book. We're only on chapter three. I'm gonna keep going on a couple of examples in this book. We'll, we'll try and wrap it up in a three part. The book again is this one Leading the Revolution. And we've covered part one.

We covered chapter one and two and there we just co, co covered chapter three, really pivotal chapter in the whole book. And as always, Gary, for people who want to find you, find out, reach out to you looking for keynotes and maybe work workshops. I know you do a lot of that work. Where is the best place to find you? Gary hamill.com. Or you can always email me at [email protected] and find me on x prof, Hamill, find me on LinkedIn.

Always glad to have a conversation, answer questions, and hear what other people are doing. Always a pleasure, author of Leading the Revolution. Gary Hamel, thank you for joining us. Thank you.