Joseph L. Bower on Resource Allocation and Strategy

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Our guest today is a true pioneer in his field, a man whose groundbreaking work has influenced generations of thought leaders, business executives, and scholars. Back in 1970, he published Managing the Resource Allocation Process, a seminal work that highlighted a fundamental but often overlooked truth. Organizations are shaped by both social and economic forces.

While economists focus on financial decisions and sociologists on social structures, too often these two perspectives remain disconnected. Yet in the real world, economic planning, budget cycles and even innovation are as much social and decision making phenomena as they are strategic and economic ones. Over 35 years later, he wrote today's book, believing We Still Have Not Made Enough Progress in understanding how these social and economic forces interact to shape organizations.

His work, including today's book, continues to bridge the critical gap offering a deeper understanding of how resource allocation drives strategy and decision making. His intent in writing this book is threefold. to communicate the unique character of the resource allocation process, and its link to strategy through the development of a formal model. Second, to show how this model has evolved over 30 years of research development.

And third, to better connect the research on resource allocation to the field of strategy as a whole, it is an absolute honor to welcome the hit maker, a man who has inspired so many of the world's greatest thought leaders, authors, and business leaders. Welcome to this series on the resource allocation process, and in particular on this book from Resource Allocation to Strategy. Welcome to the hours of Bower, Joseph L. Bower.

Well, Aiden, it's a great pleasure to be here and I really have enjoyed getting ready for this session and looking at the book from resource allocation to strategy thinking about 35 years of work with, wonderful people. I mentioned the hit maker, and let's explain that because there's so many great people in here. And you worked with them in their early careers as well.

So Clark Gilbert, who will have on the show, Robert Bergman, Yves Doz, there's so many of them that you worked with in the early days. Let's just tip the hat to those guys before we get into the origin of this book. And it came from

your original work, the 1970 study of the anonymized company national products. Was so much fun. I think the way to put it many of them were doctoral candidates and I supervised their thesis. Bergman I think he was at Columbia, but I recommended that Stanford hire him. And then the others that aren't in the Harvard Business School ecology if you like I met over the years at a academic meetings and some of them that you had, I think of them as sort of grandchildren.

So Gary Hamel really worked with CK Prahalad, and Prahalad was a, doctoral student . Anyway, it all goes back I was a studying economics as an undergraduate at, Harvard and then went on to get an MBA at Harvard Business School. My father lawyer in New York would go to the Harvard Club for lunch and met a man who was chief economist of national products. And they became frieKyndryly and. This guy said, wow, you're, I'd like to meet your son.

And so I began talking with him about how economics was used for both long-term planning. And then I, had gotten very interested in the capital budgeting problem and bless his soul, he said, fine. And he started introducing me to staff at national products. I still remember it. I was sitting with my late wife at the Boston Symphony and I was thinking about this problem of capital budgeting and how I was gonna study it.

And it occurred to me the operating units are making requests for capital and that constitutes a portfolio of requests and corporation has to choose the best ones. And those are two different views of the world. And they weren't consistent. on clay Christensen would call that an anomaly.

so I wanted to study it I went to the Dean of the business school at that time, George Baker, and asked him if he would help me get access to the chief executive of national products so that I could do my study and he did. And said, of course, the chief executive and asked the chief economist, who is this guy? And so, but I had his recommendation and the Dean, so we said yes, and they gave me complete access.

Then the question was how to use it and another of their top staff that worked on the capital budgeting process he and I became intimate. He was my seeing eye dog. He helped me understand and that's how we picked four projects. And what that meant was they let me literally talk to everybody, sit in on any meeting that I could. And they were very good about it. 'cause once they found that I wasn't interfering, but I just was curious. In a funny way, they were flattered.

Most people go through life without other people being really interested in what they do. But they thought that was great. And so they let me study. I mean, I became so frieKyndryly that after meetings at, places, I remember in Ton one New York, I, there, I stayed up until two or three playing poker with these guys. So I felt pretty comfortable that I understood what was going on. And that led to four, if you like, what I called field reports. Each one was about a hundred pages.

And then the problem was to make some sense of what it was. that led to the model. , But the basic finding was. In a funny way, quite natural and obvious, these guys were working very hard to do what they thought they were paid to do, what they thought their job was. I shouldn't emphasize pay first. They were doing what they thought their job was. And it was in their job description. It was in the definition of their organizational units and what they were tasked with doing.

And the first thing that I noticed, which was in its own way, not original, but it was important, the forecasts were being made by the sales organization and. costs were being estimated in manufacturing and if it would involve new things, that analysis and costs and economics was provided by r and d and they'd be in meetings and they had to reconcile real differences. And the differences is I felt and I began to understand and then when I'd interview them, they would agree.

In manufacturing, when they're looking out ahead, what they're worried about is using up their capacity. They do not wanna have empty factories, sales wants to grow, and the last thing they wanna be is out of product and engineering wants to implement their new ideas. And a little less concerned how long it takes to implement than either of the sales forces, and so they'd have to compromise and being human beings it, it, varied. And the next thing it turned out they worked for a general manager.

What we came later to call general managers in the middle. And the general manager running a business that he wanted to succeed. because he was in a large corporation, one of his goal was to be promoted to rise in the organization and become a higher level general manager. And eventually in the corporation.

They were very clear that the basis on which they were being judged was, on the one hand, the success of the current success of the business, but also their judgments about the future of a business correct. if they were given resources, they deliver on what they had promised? Until we get into the dotcom era, most people really understood what delivering on a promise was. And it was really important to do that. So that's how they made their judgements.

And in turn I, sat in on the meeting and I, would talk, to the chief executive , and he would say, look, when we go into the planning process and, capital budgeting, I have dozens of these plans to look at. So first of all, they tend to be aggregated by a group manager or something like that. I don't see everything.

of all, I don't really have the substantive knowledge to understand, I remember one group, vice president some parts of the business were Chemical and he would say, well, can this get under the pipe rack? And so what he had was a vision of a, chemical operation where new pipes would have to get under. And that was a level of detail and nonsense was totally inappropriate. Anyway. this was nothing like what the theory said it was, it was quite reasonable.

And in a sense when you backed up and thought about it if all that effort that I was observing going into planning did not result in anything. That was a terrible waste of managerial time. So, in fact, what you wanted was exactly what I was watching, and it had to be efficient and well guided.

Moving on a little bit, once my ideas were out and I won the McKinsey Award for the book and to give him credit, Bruce Henderson and his colleagues at BCG had seen this and they had done research on what made businesses successful and it wasn't the five forces. It had to do with, in their view, in the large industries , it had a lot to do with market share, so relative market share. But then their idea was you can't help a company if you're giving money

to businesses that simply aren't strategically competitive . and this resonated as the head of national products said when I try to get out of a business, because it seems to us that strategically it doesn't make sense anymore . All I do when I ask management for a plan to get out a plan to spend more money to fix the business. And we saw a decade later, companies begin that whole process of selling businesses, restructuring LBOs.

And so, but that's responsive to this idea that there were large corporations that were simply growing. At one point each part of the business was growing. I never tested it, but I had a hypothesis that you could predict the resource allocation based on the size of the engineering staffs. ' cause they were the ones that were preparing proposals.

And I hope you get to talk with Don Sull because when he was studying in the tire industry and what you had was radial tires really growing and bias tires disappearing. And there were companies investing in both at the same time. it was just very hard to exit. So that was the Origins of the study and what was involved. And then in putting the book together, , the question was data. So I reduced these a hundred page studies to chapters and it worked. and it still works.

Joe. told you before we came on air. It's one of the reasons I want to capture this work because people tend to move on. And what I found with the work with all these books is a lot of the more modern books are just summaries of stuff that's come before. And I'm like, well, why not go to the source? yeah, when I was reading. You may wanna drop this or not.

I was reading, I was thinking you know, this really helps explain why we're having such problems in government, because government is also a multi-business operation. And right now in the United States, behaving in ways that no company would ever imagine. absolute madness, you can pick it out. On the other hand, the models also actually quite good for understanding why Elon Musk was so successful with Tesla and he is really way out at the edge of some of the new ideas at the end of the book.

What he's been able to do is take a process that was very slow. And he gets involved in everything and he's also changed the whole evaluation structure because literally on big decision says, look, this is mine. If it goes wrong, it's on me. And that changes the whole structure. And I mean, later, it's not in the book, but I, saw a group Vice presidents fired because they had made decisions where they told their boss it's 50 50. boss said, well, what should we do?

And they said, we'll do a, later, they were fired for doing a, I mean, you can't have a great company when that's the nature of the process. your point on Musk I, wanted to share this 'cause I didn't know about this law, Miles's law yeah. Rufuss miles, and essentially what it means your, stand depends on where you sit. I love that, Where you stand as a function of where you sit.

to simplify this before we start to give some examples, let our audience, for those of you just listening to us, which is most of the audience, it's three people. One of them is sales, one of 'em is r and d. One of them's finance. The sales person's going, we need more funds for sales and marketing. R and D persons, we should invest more in innovation in r and d and the finance persons.

We need to cost costs, and this is one of the core components of the problem, is that nobody's a bad guy or girl in this situation here. They're actually doing what they think is best and I think that empathy Joe. Many of our audience are working in change or heads of innovation and, we often see the head of finance or the head of sales as the enemy, but actually they think they're doing what's best for the company and, I think that just your view on that is so important.

If nobody gets anything else out, it's to have empathy for the other person and to realize you need to see it through their eyes as well. They are correct each one, even though they completely disagree, but each one in its from their own perspective is correct. So that really helps you understand what a manager has to do.

Is take those inputs and get to one perspective you mentioned Musk there, and I find this Joe with, family owned businesses where the people in charge of the businesses are actually really care but, because they're also across so much, many parts of the business, their view, that problem with Miles's law is reduced because they can see beyond silos and they can have a more overall view. And that idea of bottom up versus top down becomes closed.

The, gap becomes more closed and it becomes easier to make decisions. it is. It's one of my mentors. John Lintner, a great economist talked to me about the Cabot Corporation and he said, what's interesting is Tom Cabot knows everything about that company. And , the point is it's a family organization and it's a very narrow range of products. actually Bob Ackerman wrote a thesis we drew on later, where he compared single product organizations to multi-product organizations.

And it was true that in single product organization, the same three levels of activity were going on, but the layers of or of structure were compressed. In effect, they worked as a team and later on there's a wonderful, a Fortune magazine study of IBM 360, which revolutionized the computer . And Tom Watson got something like 16 people off to his ski lodge for a week.

And it included, Nobel Prize winning scientists, unbelievably powerful managers and thinkers, salespeople, and they worked on the development of the plans for the 360. So yes that, where you have a single product line and a family power, can really get things. Also, they are also often owners, so you don't get the pressure of the stock market for current earnings. And you, they can, they are able to actually make the kind of decisions that we think great co companies should make.

let's bring it on to the case studies of Opel I, absolutely love this case study. It was the first time I heard of it and I absolutely loved it. It really nails the challenge. And then to your point about not only do you have multiple products, but you're in multiple countries with multiple brands, , the map is not the territory and if the strategy's coming from the top pushed down and locally, you have to obey that. It's gonna be all wrong.

So I'll tee you up maybe Joe with a, an excerpt here the fall of the Berlin Wall on the 9th of November, 1989 was a watershed event, although 400,000 Soviet troops remained in East Germany and the economy was completely cut off from the west by separate laws and non-convertible currency. It was clear that the economic tectonic plates were going to shift. The East German market would open.

How should a major multinational manufacturer of consumer goods respond to events that clearly affected their business in Europe? Conventional thinking about corporate strategy would lead one to imagine the process of making strategy to begin with the assembly of a corporate level task force to study the demand and competitive conditions in the market that would soon be opening. Some assessment of strengths and weaknesses and opportunities and threats would follow.

This analysis would provide the foundation for plans to enter the market in a way consistent with the corporation's strategic thinking about the global competitive situation. On the basis of that analysis, the parts of the organization responsible for business in Europe, or more specifically West Germany, might be asked for proposals.

To the extent that these proposals would involve commitment of significant amounts of capital, their projected profitability would be assessed by financial star staff and compared with corporate targets or hurdle rates, strategic choices would be the result of a managed process of analysis, but considered what actually happened at Opel, the division of General Motors responsible for auto production and sales in Germany. Joe, over to you.

Okay. Well the key to this story is that right about that time before the wall came down the vice Chairman of General Motors Jack Smith asked. one of his key people in the finance group, and he asked. Lou Hughes a very good guy, happened to, have a case because Lou had been at Harvard Business School to go over and run Opel bought, they had bought it in the 1930s when they were expanding into Germany. And it was the number two company in Germany to number one was much bigger with Volkswagen.

And his job was basically. get Opel to shape up. And then the wall came down and it's very interesting how Jack haKyndryled this. He called up Lou Hughes and I said, Lou, what are you gonna do? And in a certain sense he said, what are you going to do? So he gave the ball to Lou Hughes and Lou took it and ran. . First thing, okay, well what is the situation? Tell me about East Germany. And so part of his market research was interviewing people who had come across from the east into the west.

And That provided him with some understanding of what the market was, what the market wanted. And then the second thing he did, he got in, German companies, you have something called a Vorstand.

So each of these people who sits in a different chair, marketing, sales, whatever, manufacturing it sits around the table and he asked them for a plan and they gave him a plan that's typical, which was, here's how Opel can grow using conventional thinking about Opel, which was to be number two in Germany. That's what they were and they were gonna grow.

But Volkswagen had leaped ahead and they were going to buy the entire East German automobile industry, which in the Soviet model was just one company, the Combinant. And he said, no, I want plans to have us, number one. So the first thing is he understood normally, when they plan, they project from the past and he wanted them to think about the future and a future where they were, number one. And based on what they were learning, they began to concede.

it was very clear that what was going to be important was to have a distribution network in East Germany because they did not have one. So rather than buy. Part of the commandant, he got a hold, essentially independent entrepreneurs had automobile shops or whatever for fixing cars that were no new cars for like how many years under the East german. German. And , they loved the idea of becoming distributors. So they were all excited.

And then , one of the guys in, the union was talking to a friend of his in Eisenach. Eisenach is a town east rem, but it's where Bach was born. And it turned out the Eisenach plant was the, ugly duckling in the, big East German system. So they began negotiations to buy it right out from under the commandant. And, how did that happen? Well, partly Hughes had a, habit literally far as the top management is going disappearing.

And if they wanted to find him, they'd find him on the factory floor talking to workers. So naturally the relationship between the union and Hughes became much better because I. He talked to them, he thought they were smart, they had ideas and so he picked up on that and he said Go. And they negotiated, they bought the factory. He'd also developed a relationship with Helmut Kohl. After all, he was the head of the number two company in West Germany.

it was quite appropriate that the head of General Motors in Germany deal with. Lou was a very charming guy and he made a point of trying to speak only in German, and Kohl thought that was great. Hughes worked very hard at learning German, that also helped him when he was on the factory floor talking to union workers, and. Anyway, to make a long story short, he introduced a new Opel, faster than General Motors, introduced a new card that was, it was introduced at the Berlin Auto Show.

The advert was totally about the environment with I'm trying to remember the, one of the great jazz singers it's, the song was a, it's an, it's a beautiful world. Armstrong is it? Louis Armstrong. Very good. Thank you, Aiden. And then another one was all about high tech technology. But you know, they didn't show beautiful cars. But that's what they'd learned in their research, and it was a great success. Now the key thing here.

It's the General Motors corporate was freaking out because they were not dumb. They were thinking, how are we going to compete globally? And they were focused on the idea that they would have a network of low cost producers. And Germany did not fit that idea. they were really upset because investing in Eisenach meant going exactly again. So it was big fight. And Jack Smith decided to back Lou Hughes.

From the perspective of 20 or 30 years, it's not even clear if that was a great decision for General Motor. But that's what happened. Because in a sense, Smith was saying, look, if we're gonna have a company there, it's gotta be a strong company, a good, the guy I sent who's very good said This is what we should do, so I'm gonna back it. And that's what happened.

And I learned later, by the way, footnote, when I was interviewing at Toyota, had long, long, long ago felt bad if they were gonna have a global business. They had to have a local presence.

So they built Fremont and some all their plants in the United States, in a funny way, had more American companies thought like Toyota they'd have more of a presence here in the United States than the, you wouldn't have this tariff issue that thing, Joe, you said about the other frontline managers getting fired 'cause they picked A instead of B. I often think about that idea that. Like, like you have to back something.

And you know, Sven Smit, who's book strategy beyond the Hockey Stick I had, him on the show. He said, imagine you're a police chief and you're trying to hunt a killer, and you send out four teams, and one of the teams finds the killer. He goes, are the other three punished? Because they didn't find 'em. He said it's, kind of a little bit like that. It's it's, and this is the idea of emerging versus deliberate, because.

What Lou Hughes did there was he was, feeling his way towards the success based on the information he had at hand . But it's what we all do if we're smart. When we're in a new situation, we don't sit there doing nothing. We start acting. But if we're clever, we plan step by step and we learn from each step . And that's in effect what he was doing. He, was running an experiment and it succeeded.

And then so it, another way of putting this is one of the managers at national products said to me, you know, I always worry when I give one of my good people $10,000. Now remember, this is 1960s, so. Because with what they learn from $10,000, they then can get me to give them a hundred thousand. And with that I'm on my way and then the next thing I'm in that business. So it's that, yes, incremental represents learning and testing, but you gotta be sure if you like where the endpoint is.

And in one of the four cases it was the only one that didn't get approved because in effect they were taking national products into direct competition with one of their major customers. And , that did not make sense. They could have saved the team a year or two if they had simply explained it. , one of the things there, really subtle piece of the pie is I thought about, say Hughes, he's on the ground. He's there where's Hughes? Why is he not in his office?

And, I've seen this and I've been this person as an executive before where I. You, you may spend a lot of time on relationships or like the work he did speaking German or building relationships on the floor or with Helmut Kohl and, that work, there's no metric for that. And, so many times you see people in organizations where new leadership comes in, they go, Hey, what does Bower do?

And the, like, you're trying to struggle to go, oh, he, you know he's responsible for innovation and new products. And then we go, but what, has he delivered lately? And, you can't put a metric on it. And they're going, oh, let's get rid of Bower. Yeah. and it's only when you're gone that you see the damage that was caused 'cause of all these liaisons. This kind of connective tissue that you have across the organization just gets taken away. Well, absolutely, and this is today.

I mean, it was not as obvious at the time we were writing the From resource allocation to strategy. But once CEOs became very, closely associated with earnings per share, short term, their time horizon shrunk. So it's, it, remember talking, I did work at GE and people said a afterward, the one thing Jeff Emel said is, Jack changed the time horizon of GE to two years. We didn't invest in things that weren't going to be paying off beyond two years. You have no runway

. and GE had been a great technologically innovative company, but he killed a lot of that. a lot of what they did was buy their, much like the pharma companies that buy their research in these small companies.

Speaking of buying Joe let's use that as a, segue to Timken. 'cause when you buy, you can have.a pleasant surprise or a bag of snakes. Yeah. In the case of Timken it, totally changed the entire strategy was in a way, it was a bottom up acquisition rather than top down . They bought it to block their competitor. They didn't buy it because they wanted it , but they learned, I mean, that what's so important in this is that. It's not all bottom up.

It has to be top learning as well, because then top can adjust and they can help the other group. So it's really back and forth. And it really helped Timken. It gave themhem another 10, 15 years because they adjusted their strategy appropriately. and that was a big deal. Will, I give a little bit of context for the Timken case to just help our audience here? Oh, sure.

Well, Timken was one of , the founders of the roller bearing industry and they had a major position supplying the big three in America. They had very high standards of quality, I mean, above the ISO standards. And, they moved overseas and their basic approach was to give the customer exactly what the customer wanted. So in a sense, they had a , portfolio of niche products and , they bought a subsidiary in Poland to keep SKF from buying it.

And the product there was pretty good, but it only met ISO standards. so back in Ohio, they thought it was crap. but it turned out the people in the Polish subsidiary were able to sell it to Peugeot. so they began building that business and then the people back in Ohio said, well, wait a minute. This isn't all wrong. but then they didn't just stop to their credit, they then said, well, what does this mean?

And what it meant was that they could begin to standardize products at different levels of quality.

And rather than having a huge product line, they would have a much more narrow product line, which gave them lower costs and they , were able to deliver at the level of quality their customer wanted, which fast forward, brings us towards the kind of research, particularly Clay Christensen discovered. Clay came to Harvard Business School from business, fascinated by the fact that great companies failed.

Why would a great company fail , particularly when the competition was inferior, the competition couldn't do what the big company did. And what he discovered is what happened was the new company couldn't compete at those high levels. it had a new technology. Usually the feature was that it was smaller or cheaper, and that meant it could be used in a different application instead of a mainframe computer.

It could be used in a telephone . And what it meant was that You had to have a resource allocation process that could develop that new technology in a new market. And then of course, over time it would improve and improve, but coming in at low, much lower cost than the existing, and it would disrupt to use Clay's word. Clay and I were talking about his data, and he was just really perplexed.

And I asked him if this was sort of like the resource allocation process, because it sounded as if the forecast would not justify the. The investment and he said, you got all excited left. And, you know, build a, staggering career on that basic observation that essentially you can't let your customers capture your process. I love that. And customer captivity. Clark Gilbert will be on and there's a chapter of the book that's written between Clark and Clay as well. So we're gonna cover.

And Clark's gonna cover that. Okay, A great friend of Clay as well. But I, there was a little piece I wanted to, pull that just as a nice annex to the Timken story. You say here how resources are actually allocated and used determine strategic outcomes, not the words on paper or policies. Yours, 1970 study reports an incident where a corporate comptroller discovered that a factory had been built by a division without approval by the corporation.

Division management believed that the business required the facility. That corporate would not approve it. They used hundreds of small work orders to circumvent the capital budgeting process. Yeah. here you talk about as well, the really important book, the Graham Allison's account of the Cuban Missile Crisis. That provides a dramatic example of the same phenomenon. Maybe we'll share that because this idea of positive deviance is interesting.

The whole idea, and we talk about this often on the show, that sometimes it's easier to ask for forgiveness than permission. It It doesn't always work out in your favor. Sometimes you get fired for that. Well, Cuban Missile Crisis, you had the US Navy playing a very, important role. And the US Navy just fast forward, never cooperated with McNamara. did what they had to do to survive bureaucratically, but basically they didn't do what he wanted.

So he had literally come into the Navy operation control room and they asked him to please leave they knew how to run a blockade. And he said, I don't wanna know how John Paul Jones ran a blockade. What are you doing? Anyway, had my mine sweepers out destroyers out bringing submarines up. I mean, they were. Essentially ignoring the fact that we were trying to get peace without a war and they were doing following their routines and which is bottom up. All right. But it could be a disaster.

It's I mean you gotta change, I would say, and we've clay looked at the field of education. A lot, of the problem we have with education here, but also many countries is we're teaching the same way they did in Bologna in 13th century. I mean, I've been at you, if you go to the OR in Padua, you can see where Galileo taught where, I mean, it's, nothing has changed. Blackboards, amphitheater, theater. so it's very important not to be captured by the bottom up.

And tell us about the 1970, about the, factory that was built, because I'm not, we're not, by the way, we're not condoning that people go and build factories here. Oh no. Well that worked. It was just, that's when it happened. That was one of the early, before I started the national product story.

I heard that story and it was just, what would you do if you were running something and you had responsibility and you knew the people upstairs were so stupid, they didn't even know it would take two years to do something the competitors would get. So you do it. That's, you show entrepreneurship and frankly, when you do that and it works, you tend to get rewarded. And they take credit up there. That's also happens.

Yes. There's a great quote by General Stanley McChrystal I, was, reminded of it as I read this chapter. He was talking about it here where they'd work to have the perfect plan, and what he said was, the world had outpaced us in the time it took us to move a play from creation to approval, the battlefield for which the plan had been devised would've changed by the time it had been implemented. The plan, however, ingenious in its structure was outta date. So this is what he was saying.

But I thought this was so important for you, for what you said, facts are always being created at operating levels that enhance or undermine corporate initiatives. The opportunity to pursue Eisenach. , The plant we talked about was developed by one of the leaders of Opel's Union organization in a conversation with a relative in East Germany.

Conversely, corporate initiatives once launched often gain a momentum that makes their implementers oblivious to new developments and changing conditions , that piece of, okay, strategies made up in the boardroom or with consultants. But there's people on the ground that have an opportunity, they have a shot on goal and they have to take that shot when they have the chance. Like if you have a meeting with the chancellor, you take the meeting, you don't wait for approval.

Otherwise you're gonna lose all these little nuances that happen the whole time. I'd love to share that bit of a, mismatch between the timing of the corporate strategy and the actions on the ground. Well it, is particularly pernicious in the military where you have military specs and then by the time you have the new weapon system, 10 years has passed.

in the extreme you have our airport control system where we're using very old stuff because we can't get new stuff through Congress, which is it's resource allocation. There is no intention to have a screwed up system. But it doesn't matter what your plans on paper are or what your, if you don't spend the money and use it, well execute well. have a disaster.

And I mean, a friend of mine, one of the best top consultants of McKinsey described, he had been working for the British Chemical Company ICI for at least two decades. And he, was Levi, he went in to see Harvey Jones, who was, had been the, a great chairman of, and Harvey Jones reached in his set desk drawer, pulled out, and he said, Henry, here's your report. He said, it was really brilliant. We haven't done it. It's hard. It's hard. And it could be insulting as well.

It. Yeah, well, there's a, another a guy who Bobby Malpas was the head of BP Chemical, and he wrote an article in Harvard Business Review called Building the Plant After Next. And his idea was that it is natural that you're, when you're planning the next plant to put into it the improvements that you have, but it takes time to build a plant and execute what you want is the plant you would build after that. And that captures this.

The, strategic problem is to use learning to move fast, to make quantum moves, not, and it's hard. a lovely thing happened. My, my son, my older son's, 15 and unfor. Fortunately, I used to play Rugby Joe and he doesn't, he didn't choose rugby. And I was like going, yes, no concussions for him like me, but instead he is taken up MMA and I'm like oh, that. Well, at least in rugby you got a bang in the head by accident.

But he, he said it, he, so he is only 15 and he said to me a great thing recently, he said he beat this guy in a fight. And he said the difference between me and him was. He was fighting to win and I was fighting to learn. And I, thought of this chapter and that idea that it's, a, chess move to get feedback. It's an action, as you say. You have to take the action to get the feedback and why we have chess on the cover. nice. I didn't get that, man. Yeah, I love it.

But, maybe we'll finish on this last piece 'cause, okay, because I have to go to, Yeah, the structure piece, because you say here the, because the reality of strategy is the result of resource allocation and because resource allocation is substantially influenced by structural context, we learned that structure drives strategy.

Throughout the book, we will see how the structure of previous internal commitments to reporting structures to strategy statements, et cetera, and external commitments to customers in capital markets, constrain changes in resource allocation and consequent changes in strategy. That is such a key paragraph, and I just love you to expand on that as our mic drop moment for this episode. Well in the end of the day, going back to one of the first things I said, people try to do their job.

So how their job is defined, how it's measured and how it's rewarded is quite critical if people have to be heroes to do what they see to be right. So what you need, and it's really hard, you need to be able to keep an organization moving. of the great things that happened between 1970 and today is that what used to be 10 layers between an operating business and the top of the corporation is now two or three.

And, that means information really can move., So then if you have leadership that understands the importance of adjusting as they're learning. It, works. I was gonna suggest earlier, if you want, you should one of Tomo Noto's. Great. He did a study of the way the seven operating companies of the of bell telephone phone dealt with their mark at almost identical companies. How did they deal with cell phones?

And in one of the most successful, they did the normal studies and the results weren't that And the CEO said, okay, change the assumptions. Because he was quite persuaded. He didn't know, but he was quite persuaded it was gonna change. And the easiest way of doing it wasn't to change the whole system, just change the assumption. of course, they ended up the leader in the cell phone field. And so it's management it's Why is management difficult? In part because you have to keep learning.

You have to give people the room so they can operate and learn. You have to keep it coherent. It's like a team, you and even star athletes understand they can't win if they aren't, if the team doesn't support them. it's a very it's, a challenge and it's fun and we're learning more and more.

and it's a pleasure to learn from you, man, and to revisit this brilliant book from resource allocation to strategy. Thank you for joining us for Part one. Joe, I know you're gonna be back onto this series. We're gonna get through, we have some of your guests on, some of them you're gonna join as well. Right. And it's been an absolute pleasure, author of from Resource Allocation to Strategy and creator of the RAP theory, Joe Bower, thank you for joining us. Thank you, Aidan.

It's a pleasure. And thanks again to our sponsors, Kyndryl. Delighted to say it. they run and reimagine the technology systems that drive advantage for the world's leading businesses. With a unique blend of AI powered consulting, built on unmatched managed service capability, Kyndryl helps leaders harness the power of technology for smarter decisions. Faster innovation and a lasting competitive edge. You can find Kyndryl at www.Kyndryl.com.