Robert Burgelman - Strategic Dissonance and Resource Allocation

I hope you're enjoying this series on from Resource Allocation to Strategy, today's guest is Robert Bergman, part two, where we're gonna cover that Intel case a little bit deeper and go into the politics and biases of how to navigate corporate innovation. But before we do, I want to thank our sponsor, Kyndryl. Who 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 smaller decisions, faster innovation, and a lasting competitive edge. You can find Kyndryl at K-Y-N-D-R-Y-L Kyndryl.com.

Welcome back to part two of the Robert Burgelman episode on resource allocation process. If you recall in the last episode, we covered really the two epochs of intel. So this idea that Intel went through this period where ideas bubbled up from below from people making the right decisions for Intel, and then Andy Grove took that by the scruff of the neck and said, okay, this is the way we are. This is how we're aligned. This is how we make.

Decisions from now on, we're so focused and that's induced strategy, and that has its costs. So that cost other opportunities coming up from the organization once again. So this is the difficulty that is about being in strategy and the guy who put that on the map and who put so many thoughts into my head, I've been dreaming about intel and the strategy, autonomous processes, induced processes. Welcome back to the show. Robert Burgelman, Great to be here. Thank you. great to have you back.

You've been, dominating my thinking. My bandwidth has all been Burgelman thoughts over the last while and there's so much in it. But I thought we'd maybe we'll give her a quick recap of the intel story. Because it's really useful to map all the processes that you talk about, the strategy process that you talk about, and indeed the focus of this entire series, which is the resource allocation process.

Maybe it'll give us a very quick recap to bring people back into the mind of where we were at the last day. Yes, sure, I will be happy to do that.

So Intel got started because it came up with a new, technology that would replace existing memory products in computers with semiconductor based products. That was a big innovation that Robert Noyce, was the co inventor of the integrated circuit and Gordon Moore developed while they were at Fairchild Semiconductors, Fairchild Semiconductor did not want to pursue their ideas, so they, spun out and they created Intel. That's already the first step in this entire story.

So then , they were extremely focused at the time because they wanted to replace core memory, which was the. The main memory product. And by the way, that was invented by someone at MIT. And if you go to the MIT Sloan School, they have actually in, they show still version of that core memory. So they proceeded to bring out the, semiconductor memory product. Several of them. The most important one still exists today is the dynamic random access memory. And so they did okay.

As a startup, went public. And then what happened is two things. One is a Japanese me mechanical calculator company that wanted to develop a electronic calculator. And so they went to Intel because Intel had. maybe with Texas Instruments and some other company. They had the leading edge technologists in semiconductors.

so they wanted to get a chip from Intel that would help them so to speak, their electro mechanical calculators, Ted Hoff, who was the guy at Intel together with Federico Faggin actually, they said, well, you know, these guys, they, we would have to develop, I don't know, a dozen chips to make this work. Andy will never load this. And so Ted Hoff was able to basically limit it to four chips.

And one of them was actually a computer on a chip with, they didn't it that way, but it was the microprocessor. Actually, Intel had sold the rights to the microprocessor to Busicom for $60,000. Later Ted Hoff goes "Wait a Moment", you know, we could use it in this and we could use it in that. And so Busicom was a bit in slightly dire straits. They were willing to give Intel back the rights to the microprocessors for cheaper products that Intel would sell. Then happens is a very big thing.

The DRAM products became actually commoditized in part because the Japanese computer companies, Fujitsu and so on, Hitachi and others, they began to realize that semiconductors were the future. So they, with the help of MITI (Ministry of International Trade and Industry), the Japanese industrial organism. They organized themselves and they basically began to build capability to develop these DRAM products. Now, you may not recall because you're too young. That was my time.

, The Japanese became very famous for their manufacturing capability. So there are three core competencies semiconductors. The first one is design. That's basically an intellectual exercise. You can do it on a piece of paper on a computer. The second, which is very very well understood, is material science. And that has to do how can you actually embody these designs in silicon and then make it more efficient by reducing the line width these every line becomes they are at a nano level, right?

And the third one is large scale manufacturing capability. Intel was extremely good in design and in process technology, which is lined with reduction at the time, but not so good in manufacturing because they were the only one who basically making it anyway. So the Japanese took advantage of their manufacturing capability strengths to begin actually using some of the technology that they had learned from Intel and so forth, and from other place to commoditize the memory products.

It became a product that multiple manufacturers could make. They were plush compatible, so I could use an Aiden chip or a Robert chip in my computer. So it became a commoditized product. Intel was not set up to be a commodity player. Intel was a leading edge design company, not really a leading edge manufacturing company.

So now , they have these, logic products, which were based on the microprocessor that Ted Hoff and Federico Faggin basically had developed. And they have their memory products. Memory products are becoming commoditized. The logic projects are all niche products at the time, but they are specialty products. Intel, a leading edge technology company was very concerned about margins. Because if we are the leading edge player, we should be able to get high margin on our products.

So they established an allocation rule, which was called maximize margin per wafer. So the product that had the highest margin, which is the difference between the price in the market and the cost of manufacturing, they get at the margin. When the capacity is constrained, they get the additional capacity.

So over time, what is happening the DRAM manufacturing capacity allocation goes down, but the R&D allocation still stays high because the DRAM guys are the leading edge players in the sense that has the best capacity for line with reduction because the me memory product is the simpler product and the micro processor.

And so the leaders of the DRAM process technology, they were still the leading edge and , they were actually the, key technological competence for Intel, they are associated with the losing business. So, as Intel reduces its manufacturing capacity to dram, but still maintains this high level of r and d, the same level in DRAM as in micro, there is a growing gap between what they are saying and what they're basically doing.

They say we're a memory company, but we allocate all our manufacturing capacity now more , to microprocessors.

That could not last.. So that is where in the early eighties, Intel faced what Andy Grove and I later called the strategic inflection point, Which was, know, our memory business is going all the way down. We have only left three, to 4% market share against all these Japanese guys. But our logic products are actually going up.

We have growing more and more in total sales the of revenues more and more, and there is a new opportunity, which was that IBM had decided to adopt the microprocessor of Intel for their first pc. So, IBM basically became the driver in a way of Intel's To move from being a memory company to being a microprocessor company because as we all know, as of 1985, especially as of the 3 86 for the PC, really took off like a rocket.

And so Intel, Andy Grove very smart as he was realized, IBM of course had forced intel to cross license their technology to AMD, probably to NEC, to maybe to Sima Africa, but in Europe, in Germany. And so of course Intel over the 2 86, which was one of the earlier generations, did okay, but not great because there were three or four other guys who were also manufacturing.

Then since the costs of developing these microprocesses was exponential, each generation, more and more expensive Intel tried to get these other players to which it cross-licensed its technology to, you know, contribute to the development costs, they all refused. And so then Grove had this brilliant insight, which was that, they don't want to contribute to our development costs, but we are the developers, we are the guys who are ahead of everybody else.

We're not going to cross license our technology anymore. Now, you know, IBM was not particularly happy about that and refused. But since they had not asked for exclusivity to Intel, could go to Compaq and say, Hey, compact, you know, you could be the leader if you take, and then the marketing guys at the IBM, they go, Hey, come on. The train is leaving the station. We better get on board. So Grove was able to then get Intel to be the sole source.

They, the number of lawyers you went up to, because a MD was trying to imitate. And so they, Intel was always able to stay a couple of years ahead of the, for a long time. So that's basically the story. As Andy said , we were really leading edge player of memory products in, Silicon . Changing our competency from that to embodying computer logic into silicon., so that's the big change that happened on the distinctive competence side. What is now the story?

So then Andy, so the first one is they spring up these opportunities, right? Sram, dram, eprom, and then the microprocessor. They do everything and, but the things begin to shift because one thing is commoditized and the other one is still specialty. Then once Grove has realized microprocessors four PCs are an extraordinary opportunity and that Intel plus Microsoft will be the dominant forces in the PC industry, he now, and he uses that word, he vectorized everybody in the same direction.

And that is why I wrote. But sorry. And for he could do that until 19 8 98, roughly 1998, he passed the baton to Gray Barrett. And he told me once, at that time, he didn't say he was going to pass the baton to, but he said the, the PC industry is changing and we'll have to do something different and maybe it's a time for another person to take over. And, and that's true. Barrett had to then take over.

Andy Vectorized Intel, he became almost the single strategist within Intel Barrett was the guy for implementation. Because now Intel had to become good in manufacturing too, because we are the sole source. Right? So Craig came up , with the rule that everything had to be the same in every factory that they created. So you see, strategy is in first instance, a disciplining mechanism, right? And so I always ask people, do you like focus? And then they go, yeah.

Then I ask, do you know what focus means? Focus means you say no all the time. That's what focus means. And Andy was brilliant in saying no. And so that worked for a long time.

Today, intel, as we know has been facing another strategic inflection point. I will not go into that now. That's not the right time, but that is the short story an extraordinary story. intel was sort of an ecological system within which all this competition between these different possible possibilities. And then Andy turned the ecological framework that I have into a classical, , rational top leaders who is driving the entire in this.

But yeah, you know, we tend to like this in a way, you know, most people like to say, oh, I know who the boss is and you know this. , And so as a result, I had actually developed my model, that I showed not based on Intel. I had based that on my work that was derived from my extension of the Bower model, in which I had studied a similar company like Joe had studied a science based chemical firm.

But in 1989, when Andy and I were now teaching, and we gave a presentation at the Strategic Management Society Conference in San Francisco, and Grove showed a graph. I'll describe the graph. Vertical axis total revenues. Horizontal axis is time. In the mid seventies, late seventies, the greatest proportion of total revenues is in memories. A relatively small proportion is in Logic Promise. What happens? The memory products down in revenue. logic revenues up they cross in 1981 already.

So as of 19 81, 82, the total revenues of Intel were more from Logic products done from memories. Yet it took until 1985 for Andy Grove then to go to Oregon. As I said yesterday, welcome to the mainstream of Intel. So that shows you there was a period between , 81 to 85, which we call the period of strategic dissonance within Intel. That was the period in which there was a strategic inflection point. So what I realized when I'm seeing him present that.

I go, but that describes exactly an ecological model. One species is on the decline and another species is on the rise. How much more ecological could it possibly be? And that fits perfectly with my model of induced and autonomous. beautiful job, man.

Beautiful. And just wanted to add as well then this idea of the ecological species, that there's an internal ecology, so the internal environment and then an external one as well. And that's an important thing that there's survival of the fittest ideas or people who get rewarded and recognized inside the company. And then there's the survival of the fittest products or services outside the

company as well, which is the business environment . That's a key lens for people to hear us through or see us through here. There was another key piece, and I loved what you said here. You said in strategy making process generates content, and then content disciplines process. It is not a throwaway line. It's so, so deep. The way people act, experiment and make decisions leads to a strategy. And once that strategy is in place, it starts to guide or limit how new decisions are made.

Exactly like you described. The metaphor that came to mind for me, Robert, and I'd love you to explain this, is you think about the flow of water in a river and it carves out a riverbed over time, which is your content. The flow is the process, the riverbeds, the content, but then the river bed guides how the water flows in the future. And the same thing happens in the brain. You have this way of thinking and then everything flows through that way of thinking.

And if you're a change maker or an anomaly seeker inside an organization. You go, Hey, wait a second. There's this other thing. And we have the capability to build that. It doesn't fit in the riverbed anymore. And one of the ones that we just alluded to yesterday, something that bubbled up from below was video conferencing and Intel had a good opportunity in video conferencing, but they were so focused because of the process that they missed this new opportunity of new content. yes.

Okay, so first I'm going to commend you for having dug up this line because I think, if I might say so, I felt for myself, I think it may be the most profound insight I ever had. Process generates content, content disciplines, process. I really believe that's may, it may even be the way that life has evolved. You know, it's so, so that, I think is, is one thing that, that, that, that that I wanted to, to, to just commend you for.

Now, the, the second thing, which was since I, what was the I, I have, and I, I agree. By the way, I absolutely love that line. And I, you know what, I was really thinking about it like, like the way the brain. You, there's a, there's a effect called the Elong effect, which is you figure out a, a way of doing stuff and then you can't change. You always have to go do things that way.

And I was like, that's what kind of happened with Intel, that everybody went this way into this induced process of strategy and then just couldn't change. But I was alluding to the video conferencing opportunity that came up, but it was then sidelined 'cause it didn't fit the strategy. So yeah, I'll, I'll say two things about that. The reason why they couldn't really get it done was that there was, you needed broadband, which at these days was called ISDN, believe it or not, ISDN. Right.

And that was the controlled by the telecom companies. So Intel now, for the first time in a long time, realizes there is another force that we need to align with us. If it doesn't, it's not gonna, that took a long, by the way, it was Pat Gelsinger who ran, Andy had taken Gelsinger out. He was the lead developer, designer, Gelsinger, when he was young, right? And Andy had taken him out to run video conferencing and Gelsinger, because in my book, you, if you wanted to read it, it was there.

In there he basically told Gelsinger that he wanted him to apply the same strategy in video conferencing as Intel was using in the PC industry with its microprocessors, which was what I call a frontal assault. And so that didn't work. By the way, I almost spent $2,000 because I said, yeah, I'm teaching with IBM, I'll put an I-S-D-N line in my garden. Then go, I ended up fortunately not doing, doing, doing that, but , it shows Andy grows, I would say intellectual honesty, right?

So in front of a class, in my class one, in our class then. He once said this, you know, I spent $750 million on video conferencing that, , didn't work. And he said, why did we do it? He said, we used a frontal assault. And so later I told Andy, like, the D-Day, in fact we used the landing in Normandy approach. And later I told Andy, well, unfortunately there was no beach. The no beach really meant the ISDN lines weren't going to be there.

So, so there is another important lesson that now comes up, which is when you are dominant , the danger is that you think you can basically do in other spaces what you are doing in the space in which, and that's of course what Intel also ran into the problem in the mobile communication space where they spent $10 billion and nothing really came out of it. Why?

Because they tried to apply the same strategy , in the telecommunications industry as they were applying in the PC industry, but in the PC industry, they were the boss, , but not in the telecommunications industry. So, yeah, that's a very powerful of where something springs up. So there is when you are dominant in your, with your induced process and you nevertheless have these new initiatives that spring up, there is two types of inertia that come out.

The first inertia is that you are going to try to apply the same strategy that you used in your core business in that new area. And that does often not work because you don't, the ecosystem within which that new is operating is different from the ecosystem in which you are known. So that's number one. That's inertia number one. Inertia number two is the one I mentioned yesterday is then I call it the strategic context. This determination process cannot really be activated. almost emaciated.

So these are two important, I think, dangers of inertia associated with a company that is dominant in a particular area. And Robert, one of the things I wanted to ask you, so Andy passed away in 2016.

He was a great friend of yours and you saw each other right up until the very end, and I wondered, what did he say to you about how, just like teleconferencing intel then missed the opportunity to provide the chips for the iPhone. And that was one of these strategic misses as well, but for the same reason, it was probably from focus probably because of the, discipline. The discipline of focus and the miss of this opportunity, this new content opportunity.

Yeah, so actually, and so Andy was no longer running the company. So, then , I think he did not want to say too much about the CEOs ., And maybe I should not say too much about it right now either. In that respect, let's respect that and maybe through the lens of your theories and the way you see strategy, what, what went wrong there? Because again, the one thing I've learned from reading all these books and studying people like yours, work is you cannot be critical.

'cause it's so hard to read the label when you're inside the jar, when it's your turn, you miss it. Yes. I think what happened is two things. The first thing is that the, at Intel, the finance analysis, which is always very strong because Intel was a company that had always dual, dual leadership. They had business leadership and financial leadership. Together.

In fact, that's why also in the beginning, they were al allocating the, the manufacturing capacity away from the, from the, from the low margin products to the high margin products. So there's, there was that sort of an an in, in inherent aspect of intel. So when the, when, when they, when I learned that the finance team who calculated the potential return of developing chips for the iPhone actually made some errors.

Now I have not seen those calculations that, so that I can, one thing that I probably think they completely missed, by the way, apple itself did not prob Steve Jobs because he came and spoke in the, in the seminar that I ran with Andy Grove once in 2007. He, he spoke about how they actually had developed the iPhone, but I don't think they themselves realized the extraordinarily rapid growth of that.

Actually, I have a little theoretical framework about that too, Andy and I, we had actually, published a paper in 2007 in the strategic entrepreneurship journal. It's called Cross Boundary Disruption, and we used Apple as the example of a cross boundary disruptor in the music industry. But then we applied the same model that we had developed in that article to the Apple entering into the mobile communications industry.

And we actually predicted that Apple would become an important incumbent, would, but would not be able to disrupt the industry. Why not? Because there were four very powerful competitors. Nokia was selling 400 million units in 2007, Motorola, Ericsson, Blackberry. So we said, well, these are very innovative companies. They are hard driving. It's totally different from the music industry and therefore. It's unlikely that Apple will be able to truly disrupt the industry.

I have a framework to explain why they were able to do that, but I'll leave that aside. that I think are the two things. The finance guys made the wrong assumptions about the margins that would be available to Intel. remember, , the danger of disruptive technology is that in the beginning, the incumbents believe that it's better that we give up on this because our average margins will go up. the case of Intel, it was the other way around to go away in a moment, we have very high margins.

What margins are we going to get for these cheap cell phone things. This going to bring down our average gross margin, and that will be reflected in our stock price. Stock price will go down. Now what they completely missed, of course, was the incredible fast rate of growth of these things. So then of course, , Nokia wanted to do some things with Intel, right? But I remember they were a little bit complaining of one, what I heard about how Intel was dealing with them.

And I think one of the senior guys, I won't mention the name, told them, well, if you wanna deal with Intel, you have to, if you want to work with us, you must to do it. You, you see I probably stopped just right here. Right. Brilliant, brilliant answer. And, and just the inside story again, because it's so easy in innovation and stories of business folklore to, condemn the company, to go, they were stupid. Oh, I can't believe they made those stupid decisions.

But if it's, you we're all so liable to these foibles of humanity, of these biases, of finding a way that works of the success trap. And we'll talk about some of those dilemmas . But I wanted to share,

Robert, tool three, the process models of strategy making, because we shared two yesterday and we didn't share tool three. I just wanna remind our audience, it's these tools that Roberts used to then analyze the story of Intel up until the mobile revolution really. And I'm gonna show on the screen that image for those of you watching us, and again Robert, I'd love you to just take us through this with empathy for people who are just listening to us as well.

This is gonna be difficult 'cause there's a lot in this one, and I'll just give you a little warmup here because I pulled just a little excerpt to introduce this model, the process model tool three helps zoom in further on the patterns of detailed strategic leadership activities involved in the internal variation, selection, retention, and competition processes associated with exiting from existing and entering into new businesses.

The internal corporate venturing ICV and strategic business exit SBE process models provide further theoretical insight into different mechanisms through which strategic leadership activities are coordinated in strategy making this further illuminates the process of self-organization, that idea of autonomous strategy, the interplay of strategy, content and process, and the role of strategic context determination and dissolution.

There's a lot in there, and I'd love you to give us an overview of what we're looking at here. So let me say first. I was trying to map the activities that I had discovered in my study of the internal venturing process in this large company, very similar to the national products company that Joe Bower studied. But not in the operating divisions. This was in the new business division. So first, why did they create this new business, new venture group or the venture group?

You see the, had studied, as I mentioned yesterday the book by Alfred Chandler's, strategy and Structure in great detail. I still have my notes in because I was in Belgium still then, and I, I, I in, I wrote notes in Dutch actually next to several paragraphs. And so this, the proposition of, of the famous proposition of Chandler was structure follows strategy, right? That's a very famous proposition stated by the great business historian Alfred Chandler.

What I discovered when I studied my, new venture activities at, a similar company like National Products, was actually a lot of these sprung up in different parts of the company in different of the divisions. Each of these division managers did not really know what to do with this. Just like Joe had discovered, there was this one project where they wanted to build a manufacturing capacity that would lead to products that would be competing with their other major customer.

And you go, no, no, no, we're not doing this. So I discovered these activities, they were, it's like a life force. They would go going on in these different divisions. The top management does not know what to do with it, but they do feel, you know, we do a lot of commodity chemical products. Maybe it would be great if we could get in more, in more specialty fields. So they basically said, let's create a new venture division.

And so then they put all the apples and oranges and pears and all the fruit into that division. Right? That's, and so now all these other leaders, they can just stay on their mainstream business. Okay. So that led me to realise that actually, the origination of this new structure was not really the corporate strategy.

It was these strategic initiatives that were already going on that let top men, oh my God, we have to create a, so in that sense, Joe is right that , it's not just structure follow strategy, sometimes structure drive strategy as well. in this case then I added an additional element. Sometimes it's autonomous initiatives that drive both strategy and structure, right? First structure, because we have to them all together and then eventually maybe it leads to an amendment of the corporate strategy.

So, and I had studied these activities in great detail, maybe more detail than, than Joe did in, in, in terms of, because I was, my, my thesis advisor was Leonard Sayles, I think I mentioned his name yesterday, who was an applied anthropologist and who had did written a book. It's a , very good book. It's called Managerial Behaviou r. It's now, more than 60 years ago or 60 years ago that was published in which he studied the relationships between managers.

And workflow relationships, , service, relationships auditing relationships, and so on. Yeah, there's several categories. And later, actually, Henry Mintzberg used some of that to, in to, in some ways inform his own work on the nature of managerial work. You might read the introduction to that, to him, Henry's book, and he will, he gives a lot of credit to Len Sayles having inspired him, even though he was at MIT and Len. Len was at Columbia. I had all these activities.

The, the ones that I've now, it took me a while, right? Technical and need linking product, championing strategic forcing organizational so strategic building, organizational championing, the, I have all these list and now I think, okay, I'm going to try to map these onto the Bower model, which had three. Columns impetus, and structural context that were the three. And he had also the three levels. Corporate management, senior management, or senior middle man, and then the operation manager.

So I am at night and I remember in 19, 19 79 sitting there and I'm trying to, and I go, I can't all fit them in there. And the ones that I could not really fit into very well were the ones that operated at the senior level. So I could see technical and need linking, which is, by the way, a dual process. Right. I'll give an example of this. So one of the, this was a PhD in science.

In this r and d organization, part of the company. And he had come up. So this is an example of where there was only one linking, not a double. So he had done great technical linking because he had developed a gel that was water soluble. So that gel contained a lot of water.

And he thought, you know, this could be a great consumer product because people go on vacation and they don't know what to do with their plants because they, they, you know, the plants have to be watered and they're not there. So with this gel, they could put a gel in the plant and over time the plant, the gel releases the water and yeah, we're all set. Brilliant idea. That's what is a technical right? From a technology to a solution. It didn't work. And you know why not?

Because the consumers never believed that just putting one gel in the plant was enough. So they put too many gel and the plants You see this? I take this, I will never forget his example. So this guy, brilliant technology to solution, but failed to understand the behavior of the guy, the good users they were going to. They going, no, no, no. One gel is not enough. We're put it in three. That's what goes on in that lower box, And you can't stop this. This is a life force, right? People do this.

Not necessarily PhDs. There is a lot of tinkerers too, of course. So that's one force.

The other force that. So I would put number one there. The other force is all the way at the structural context, which is the top management structures, the organization, they set up selection mechanisms. In fact, they set selection mechanisms to not do what these guys are doing, right? They set hurdle rates. They, there is a whole bunch of measurement and reward systems joe is the master on that one because he discovered all, but I realized the setup of the structural context is exactly to.

Resources being allocated to what these guys are doing. On the bottom there are close to technology, close to market. So how do they get, how do they get going? Then I realized, well, they do is do, call it product championing, which means they are able to tap into resources that are sort of forgotten within the company reserve lists. For instance, in the chemical industry, they have equipment that is no longer used because they have replaced it, but it could still be used for something else.

And so these technical and need these venture team members, they then try to get one of the senior guys who controls these resources that are not on the reserve list. And so to let them use those. Right, because then they can begin to from the concept to actually developing some kind of product that is an a first potentially viable product if you want to do that. that's a, that's getting the resources internally outside of the regular resource allocation process. But how do they get going?

Because they don't they deal with different customers than the operat.

So then I saw what happened was that venture leader, the guy who is the head of the team, would engage in what I call strategic forcing. And by strategic forcing, I means that is getting outside and find some users who are willing to adopt this to maybe even pay for it. So, and then what they do they create facts. Because now there are customers willing to pay for it. They ask, Hey, where, you know, where is it?

The problem though, is how , , do you get resources by showing that you can get big fast. So what these leaders do at the front line then with strategic forcing is to , try to create facts that then the guy in the middle can say, Hey, look how fast the damn thing is growing. We have to put more resources to it. Right? That's what happens. The technical linking.

resources from inside the company, outside of the regular resource allocation process and, know, force growth in the market, or collaboration in a variety of ways that creates evidence that this is going to work.

But that's, , I learned was not enough in these ventures because, you know, if you have a multi-billion dollar company in revenues in those days, I think the company that I was studied then was about 6 billion at the time. Something. So if you have something that's $60,000 that's 60 million, but you have 6 billion, how much attention is that going to get government? That's that, that's at the margin. Andy Grover, the word for that, he call it chicken feed.

So now the senior guy in the middle there, he is a peer of senior leaders in some of these operating divisions. As I said, in some of these operating divisions, there are already projects going on that are orphans.

And so to the extent that the senior manager here in the venture group is able to take what his entrepreneurial guy is doing at the front line with strategic forcing, but bring together some other projects from in the company that could be related to what this guy is doing here, and maybe even do some small acquisitions because you know, then I call that strategic building. He expands the scope of this venture and scales it up to a level where the top guys are beginning to pay attention to it.

You know, I came to a same insight in my HP study where in my Hewlett Packard had gotten into the printing and at one point John Young actually told me, he said, well, printers had got so big we had to start paying a pension, start paying attention to them.

So this middle level executive who is brilliant in coming up with a strategy for this new area in which he has now agglomerated several things, the one that his own entrepreneurial guy is doing with some projects from other, in from other parts of the company, maybe some small acquisition, and he can now basically go to top management and have a strategic plan for this new area, and I call that organizational championing. That's not product championing. That's far more complex.

That's organizational championing and what he is doing. He delineates in that new space, the position of the company with the successful projects that they now have. Because company might say, yeah, we want to be in the, we want to be in health. I go, okay, is that the only guidance you're going to give me? How would I put, how would I convince top management that the health field is really one for us? Is if I can show that we already have projects in it that are viable and growing.

I in a way delineate within that new space, the terrain, the position that we can occupy. That's pretty brilliant. In fact, this guy, I thought it was a great threat. He once told me, in fact, I wrote now recently a paper, it's actually accepted. It will be published in the strategic management review. And it took me 40 years to actually be able to do a computational model with another guy, computer model to actually show this. he said this, that this is the senior guy, not the top guy.

He said, new business has new business development as problems, as challenges that top management does not understand. So if you don't have a strategy, you can only talk to them about what they already know. That will destroy your credibility. So therefore, it was crucial that senior executive could develop a strategy just like Andy Grove. Remember when he told me, I don't like things that's somewhat right, but mostly wrong. Why?

Because that, because Frank did not come up with a compelling, you know, the guy, his successor did, I didn't tell. And you know what that successor told Andy? And, and maybe he told Craig by that time he said, processors need big pipes. Why? Because the data that are processed come through the pipes. So it's the guys who control the pipes, who really to a large extent what we are doing. So shouldn't we also be part of the controlling the pipes?

And intel actually then went out to spend, I think, $3 billion acquiring number three or so, wait two, late. Of course. Within, within that game. But that is, so now I am there at home, you know, and I could not put strategic building and organizational championing and delineating. I did not see how I could possibly fit that into Bower's model, because in Bower's model, that strategy is already determined.

The capacity, the manufacturing resource allocations are all with the strategies of these divisions and therefore of the corporate strategy. And here, there is no strategy, no, no corporate strategy. We have to create one and get top management to agree with it. And so that is where if that championing and delineating is successful, we have overcome the selection force. That was from the structural context and now top management. I actually, there is one word missing in this version.

I call it retroactive rationalization. Now you could say that sounds very, that sounds, you know, sort of reactive on the part of top management. And I say no, great brilliance to be able to do that because if you are the top management, you are the CEO. How many times can you tell the rest of the world, we're going to cap this mountain here without having any evidence that you're going to be able to do it. Not many times.

So it's only when there is a reasonable amount of evidence, which is provided by this guy in the middle, in fact the top management can go that's what we always wanted and that's why, when I saw Bowers thing, in a way he said that, I don't know whether, but it's true because two years later, who do you think had the idea? There's a great line by the computer pioneer, Howard Aiken, I think his name was. He said, don't worry about people stealing your ideas.

If they're any good, you're gonna have to force them down people's throats. When I see this, this is like a game of snakes and ladders Yeah. Try and win. It's such a political thing though, Robert, isn't it? It, I mean, it, it's not about the idea, it's about the politicizing of that idea to get it to the top.

Yes, it's both cognitive and political. So it is cognitive in the sense that you must be able to come up with a framework, with a strategic framework that is compelling, in fact. So I will, I translate this into, Okay. So if you are in the middle, right, and I think that is where it usually breaks down you must be able to exert strategically the ship in three directions.

The first one is downward because the guys who do the technical and need linking right at the lower level, they will always define themselves as different. But in a large company, if you many times say you are different, they start believing you. And that's not the road to success. So if you are the middle, the senior guy, you must tell the entrepreneurs, don't say we are different.

Tell 'em we need your help because we're doing something that is good, not just for us, but also for the company and by the way, I've seen this in many, many situations. So the the guys at the bottom, they always define themselves as we are different. In fact, I think you read the chapter that I did on the chip sets at Intel. So Ron Smith did not make that mistake because what he did, he put on his team. Okay I'll ask the question first because the audience may wanna think about it.

Who controls access to customers? The answer is the sales force. And how keen are Sales force people to let you go and talk to their customers? Not very keen. They'll tell you, I don't want you to go there. So if you don't have on your venture team, people that are trusted by the sales force, how much information are you going to be able to get about the customers? The answer is zero is the upper limit. None. In fact, you may get disinformation.

So in the case of the chip sets, Ron Smith, the guy who was then running that had actually put esteem people who were regarded the OEMs, Dell and HP and so forth, so that they could get- if you want -information from the customers about how Intel could do something for them that they no longer have to do, and Intel could probably do it even better. So that's the technical and need linking part there. Right. Which is very important.

But often you need, in order to be able to, do the need linking, you must get support from the guys in the sales force for instance.

You're opening up so many old wounds for about me when my job in corporate innovation before, but so many of our audience, they struggle somewhere here. That's what I'm saying. It's like a game of snakes and ladders that you, you think you've, you think the idea is the enough and then you realize all these things.

I, I struggled from that Salesforce thing where the Salesforce then complained to the CEO that I was confusing the market with this new ideas and then asked me around the side, would I not go to the customers. And the reason was 'cause of commissions. You didn't want to eat somebody's commission. So there's always a reason that you don't know that it doesn't make sense. And it's, I know you, you we talked about it's often for the best of the company.

My, my ambition was to do what was right for the company. But that doesn't always translate across the company. No. so then that's, that's in the downward direction. Then laterally, you have to be able to convince your peers that what you are doing is really, like, for instance, people don't like to let go of projects. Even if they are orphan projects in their division, you know, I come along and say, Hey, Aidan, you know, I could use this. Why don't you transfer this to me and you?

That's you're not likely to do so. How do you laterally create what I call minimum winning coalitions? This is really important because, I was once speaking to the advisory council at Stanford and I was, talking about this was in the mid nineties about an IBM case and it was the last days of John Aker as the CEO of IBM. So heres 50, you know, CEOs because they're all CEOs that are advising the dean and there is a hundred of them.

So we do this case and a CEO of one of the companies raise his hand and says, you know, there must have been people down in, IBM trying to convince the top management that the computer industry was really radically changing. So I stopped and I said, do you guys think that's right? To the audience, and they all started talking among each other. I almost lost, control of, the discussion. And so I said, okay, good. So then, , in that case, what you guys do with people like that.

And so right in front of me, John Morgridge, the former CEO of Cisco, he raised his hand and he said, go to lunch with him. And I said, well, John, you know, Cisco is getting to be a pretty big company. How many free lunch dates do you have? And they all started laughing. And then John, you know, a good strong guy, he raised his hand. He says, yeah, that's true. I said, and here is the key. He said, I would only do it they had been able to convince some of their peers.

Man, that's a brilliant statement because the CEO has seven direct reports. Let's say. Aidan, you are the CEO, and you say, John, do you know what Roberts is doing there? And he goes, well, frankly, I've heard, but , I don't know really, you know, whether, and if all seven say that to the CEO, how much confidence does the CEO have? But if there is three of the seven, you said, well, yeah, you know, actually I talked to Robert fairly, and to his boss.

And, I believe , there is something there that we definitely should pay attention to, right? If three of them do, then maybe John would go and say, well, I'll have once lunch with that guy too. Right? So that means that is in the horizontal dimension, how do you convince some of the other senior executives that this is worth doing? It's not just for me, but it is actually something that is going to be good for us.

And then upward is where, in fact, you now have to convince the CEO that it is responsible for embracing this. Because the CEO, in my model, that's why I call it retroactive rationalization, right? And I say rationalization, it's respect. Is he or she has not said yes and not said no. They have kept things in the air. But at some point, and this is true with strategic inflection points too, right? At some point the leader must bring the discussion to a conclusion.

Either it is no, and often it will be no. Or it is, yes. That I think is a very high level of intelligence on the part of the CEO to be able to know what is the right moment for me to say yes or no. So these are the three areas, downward, horizontal, and then upward. Being able to convince the CEO that, now it's more right and wrong. That's such an important insight, Robert, in the trenches. So I had one of these experiences where the only reason the idea was backed.

When I know the truth about it. So in my head,, if I'm being egotistical, I'm going, it's a great idea. But the only reason the idea was backed was because there was a drop in revenue and they needed a distraction for the board. You know, this is so important though, what you just said, because often I wrote that in one of my articles.

I think in 83, the top management looks at these autonomous initiatives or these new ventures as insurance, not because they really want to do it, but it is insurance against things going, downhill for a while. And so as soon then as it turns out that we don't really need it, the support may actually stop. Or I'm sure you've seen the leader leaves or goes somewhere else or gets distracted or ill, and your ideas dies. absolutely. So this is a very fragile process actually in many ways.

And so therefore , I couldn't map all my activities onto Joe's model, so then one night I realized Joe Bower's, is about, the strategy is given and now how are we going to execute it with resource allocation to get the capacity allocations. Mine is we have come up with new ideas, but there is no strategy yet at the level of the company justifying it and rationalizing it, and then making it part of the induced process, making it part of the operating role.

So that was my solution and , what I thought was an extension of Joe Bower's model to turn it from a resource allocation model that is basically focused on exec executing an existing strategy to where it also can deal with resource allocation in a changing strategy situation. It's so valuable. And Robert, is this the work that you covered inside corporate innovation in particular, that book?

Yes, Yeah. So Robert's kindly we're gonna do more with Robert in the future and cover his books actually more than just this series where we're gonna dip in and out of some of his papers. Robert, how are you? Are, are you okay for another 10 minutes? yes. Okay, is. So I was thinking what we'll do is. We, we went much deeper.

Sorry, I brought you, I brought you down the rabbit hole here, but I, tomorrow maybe, or the next day when we come back together, we'll arrange a time to come back together and we'll do the dilemmas as one episode. I think that would be really useful for people yes. and notes for them for, and so we could cover basically, Brilliant. Yeah, because I think that would be a brilliant episode on its own. The seven dilemmas, or I think it's seven anyway. The, the dilemmas. Yeah. Six dilemmas.

Yeah. So okay.

So we'll agree that, so I thought, I thought the last thing we'd do today was you, you say in the book here, an evolutionary perspective sheds lights on whether the strategy making process may make a company, take on significantly different features over time. But this is, I love this language of evolution here, or whether a company's type is fixed therefore, it fundamentally constrains its strategy making process. So it's a certain type of species or it only can do a certain type of thing.

But evolutionary theory implies the former and typologies that distinguish between firm types persist in the strategic management literature. And I love this one well-known typology distinguishes prospector defender analyzer and reactor types. And I thought about this just as different species in the business environment, but also the ability to then to be a chameleon and change between these different types.

Yes. And this also then will probably set us up for the next episode where we'll talk about the dilemmas. It often depends on where you are in this prospective defender analyzer reactor to your reaction to an opportunity or not. Or , even if you see it. And this is a great way of thinking about the journey that we saw Intel go through.

Yes, that's actually right because in some ways Intel started as a prospector. That's not really true. They were, they, they ended up here is why they were kind of a prospector. And I, I can give another example of a company. So, were a prospector in the other company. but you remember here when, when Gordon Moore and Robert Noyce started and then a little later Grove joined them, the technology, the Semiconductive technology space was all open. really knew where this is going to go.

Even Eprom product was something totally unexpected. Dov Frohman an Israeli guy actually figured out it was actually an an error a mistake kind of thing. And he turned into a product, right? So if you are in a, very open new technology space, you almost have to be a prospector, right? You have to try things and that's what Intel did. But then Intel under Andy Grove actually turned itself into a defender. In fact, Andy had a way to talk about the Moat. It's like a castle with the moat.

And here I'll tell you one anecdote about the brilliance of Gordon Moore. in 1989 when I was doing all this research, I had a meeting with Gordon. I didn't meet him many times, but and he said this, he said Andy, he was then the CEO is narrowing and narrowing and narrowing the company, right? I would not have done that. And he gave even some examples of them. But, and here is the brilliance, he said, but based on line with reduction alone for the next 12 years, it'll not be a problem.

Sounds like Moore's Law to me. 12 years it became a problem. And the line with reduction, which meant, remember I said that at the beginning, Skill that had making them small. Because if you make them smaller, it has two advantages. has a cost advantage because you have more good chips per wafer because since the chip is smaller, it's messed, the probability of it being hit by a, an impurity is smaller.

So therefore more chips, good chips per wafer reduces the cost and it increases performance because the electrons have to travel shorter distance. So, so go realized. Yeah, Intel, we are good at that. So for the next 12 years, you know, we will just, we we're very narrow, but it won't be a problem for. And just I want to tee up for the next day, the narrow business strategy dilemma is actually one of the dilemmas that we'll talk about the next day, which is that narrowing of your focus as well.

I don't want to take us off the prospective defender analyzer reactor types though, but I was gonna ask you about Gordon Moore, and surely having him in your ear. I mean, I even thought about the phones then. The idea that ships would be, if you understand Moore's Law, you'll know a phone could be folded someday. That, that, how far does that go? And having that knowledge inside a company surely could influence strategy over time. Yes, that's absolutely right.

Yeah. We've kind of only done prospector will we explain the others. Yes. So Prospector is the one that, that would do a lot of these autonomous things. Defender is the one that is very focused and is basically on the induced. The analyzer is the one that tries to do both, and I think that is actually. In many situations, a winning strategy in the long run. The reactor is of course, the weakest part because they'll, they need, they neither do very good , on the autonomous.

Neither do they do very good on the, and so these are the companies that probably don't, do not survive or eventually are not able to survive in the long run. But, so I do actually like that typology very much. I think it was very cleverly very cleverly developed. And, we can, in the old days would say a prospector 3M used to be a prospector. HP would've been a prospector too, you know. And then you had the, the ones that are very, very focused.

Timken maybe, probably, you know, Intel and some of the oil companies of course as well, you know. And we're gonna cover so much more of how you get outside this analyzer being exploit and explore. We'll talk about that the next day as well.

Robert, it's an absolute pleasure having you on the show. I am so looking forward to getting deeper into the work and thank you for today. It was beautiful, the story you set us up for. I probably should have done that in episode one 'cause it was a great lens through which to see the strategy and indeed how resource allocation changes over time.

I'm really looking forward to the dilemmas and the questions that you ask that all this, all that we've talked about in part one, part two really throws up a load of questions for you to go, well how do I manage this? How if I'm a leader in a company, so success is transient and how do I manage that? So it's an absolute pleasure and I'm really grateful for you joining us. Professor Robert Burgelman. Thank you. Thank you very much. It's great. Great working with you. Thank you very much.

absolutely loving this series. And I wanna thank our sponsor, Kyndryl, who enable us to do this and bring you in depth conversations with the world's best minds. Kyndryl, , 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  Kyndryl.com.