Mastering the Art of Strategy with Richard Rumelt

[Music] Well, hello everyone, and welcome to the New Human Movement. As ever, I am here with my esteemed colleague, Mikaylee Zanini. And once again, we're doing our best to bring you the radical thinkers and doers that are helping us reimagine work, leadership, organization, and today, strategy. Our guest today is Richard Rumelt. Richard earned his Master of Science in Electrical Engineering at UC Berkeley a few years ago, worked at the Jet Propulsion Lab, earned a doctorate from Harvard. He's had faculty positions at Harvard, at INSEAD, and his longest tenure has been at UCLA. And just as important for our purposes today, Richard has worked extensively as a strategic advisor to companies around the world. And without doubt, he's one of the top strategic thinkers in the world, literally in the company of individuals I could probably count on one hand. Richard has an impeccable academic career. He was president of the Strategic Management Society. And now he has a wonderful new book called "The Crux," which covers an immense amount of ground and distills years of practical wisdom in terms of how to build great strategy. And so we're going to be talking to Richard about gnarly strategic problems, about disruption, vision, foresight, power, organizational inertia, competitive advantage, culture. And so, given all of that, we better get started. Richard, thank you so much for joining us today.

Gary, thank you for the wonderful introduction. I appreciate it. And Michelle, it's nice to meet you in this virtual world. You know, I have to, I have to remember it. Richard, I think the first time I met you, I was interviewing as a young doctoral student at UCLA. And I don't know whether UCLA ever made me an offer or not. I went to the London Business School, but I do remember having a very good, a very good conversation a long time ago.

So, Richard, I want to ask you a framing question before we, before we get to "The Crux." And the framing question is this: You know, you've thought about strategy for so long, where are we right now in how we think about strategy? You know, I hear talk about disruption, about digital transformation, you know, M&A. And I, I have to say, I want to show you something. This is a cover story from, from Businessweek in 1996 called "Strategic Planning." It says here, "Like, it's Back." But, and, and by the way, they profiled a very young strategic thinker there who had a lot less gray hair. But does strategy still matter?

It does matter, and strategy is unfortunately very rare. We don't really see strategy very often. We see other things being called strategy, and that disease, that disease has gotten worse over my career. You know, when I started studying many years ago at Harvard Business School, there was no strategy field. Didn't exist. There was one article by someone about your marketing strategy. It was a book by Ansoff called "Strategy," and that was it. I mean, there wasn't anything. And now we're surrounded by experts on strategy, and there's matrices, and there's pyramids. But actually, very, the activities companies go through that they call strategy or they call strategic planning aren't. They're basically some kind of goal setting, so kind of glorified budgeting or near-term.

So, how well, we've been conquered by Management by Objectives, which is a bureaucratic response to the early 20th century organizations. You know, how do we, what do we do here? How do we, how do we have managers, manning, unjust managers? And then how do we deal with that? And but then that has morphed into this word salad strategy. So if you look at the National Defense Strategy, President Biden's newest thing, it says we, we have enemies, we have to worry about our enemies, we want to deter aggression, we want to protect the homeland, we want to be more lethal, and we're going to do this by coordinating our different armed forces better. Now, that's not a strategy. It's a bunch of aspirations. Strategy might say, energy security turns out to be a big deal. Maybe we shouldn't be buying energy or other critical items from professed enemies. You know, maybe we should have technological supremacy in the world and not ceded to other people. Maybe, you know, so there would be some issues there other than what they're calling out. They're not calling out anything serious. And that's, that's a problem.

You said that like most organizations don't have a strategy. Now, I'm guessing if you ask the average CEO, and indeed, whoever wrote this National Defense Strategy, if you ask them, like, what is a strategy, something would come out of their mouth, right? They'd have some words. But, but why, why does it, you know, what's your test here, and why doesn't it meet your test?

I used to think that that companies had strategies because I used to teach the subject. And I, I read articles on strategy by guys like Gary Hamel. Probably companies do, but a large number don't. So when I wind up working with a company, I'll meet the CEO, and they'll make me sign some kind of non-disclosure agreement. And then on that, before I could see their strategy, because the strategy's secret, out comes the strategy, and they show it to me. And that strategy is basically a sell job to the board of directors about what they're going to do. And it says, always says, we're going to invest in the growing markets, and we're going to get profits up, and we're going to grow by so much. That's the strategy. That's what it says. And we're going to please our customers because that's a current thought pattern. And that's, that's not a strategy. It's a marketing gloss. And defining strategy in terms of desired outcomes is, desired outcomes are important. We all have desired outcomes. We have ambitions, we have aspirations. But that's not how we're going to get there. How we're going to get there is the strategy. And the strategy has to face up to, well, what's standing between us and there? I say in the book, I have this passage where I say, look, when I was 25, I wanted to learn statistical decision theory. I wanted to be an inspiring teacher. I wanted to be a consultant to companies. I wanted to drive a Morgan Drophead Plus Four. I wanted to marry a beautiful woman. I wanted to have successful children. I want to make enough money to buy a townhouse on the Isle of Wight. I wanted to climb mountains all over the world. I wanted to learn to fly. Well, those are aspirations. And, and we all have those. And as we live, and we at some point can maybe achieve some, and others we have to put aside. But that's not strategy. Strategy is problem-solving. It's a form of problem-solving. And it's, it's okay. Here's the challenge: we're outnumbered. What do we do? Here's the challenge: they're coming at us on horseback. What do we do? Here's the challenge: Google's taking away our advertising revenue. What do we do? So, or here's the opportunity we see. How do we grasp that opportunity? It's not so easy all the time. And so fundamentally, strategy is that kind of a response. It's not just, I wish, I wish I could be somewhere.

So you're saying that often what passes for strategy is kind of this marketing aspirational gloss that's like sits on top of a budget, but what seems to be missing is this really crisp definition of what are the critical challenges that lie between us and whatever we're trying to do. Is that, and you call that the crux, is that a fair summary? How would, how would you, help us define the problem?

Yeah, one way of saying it is, is I'm recommending and trying to work with companies on what I call challenge-based strategy, which is to identify what's standing in your way and figure out how to overcome those. Now, when I want to do challenge-based strategy with a company, 10 challenges turn into 20. And you obviously can't do them all. Some are too hard, some are not that important. And so sorting through your challenges to what's really important and what you can really make some progress on is what I call the crux. And that's what I found to be a way around some of the modern detours that sort of softened strategy and maybe cutting through, like some of the feel-good. I mean, I, I, you know, you talk about asking the question, in your book, you talk about asking the question, "What's the most difficult issue you face in realizing your ambitions?" Like, what's the most difficult thing you face? And I thought, like, it's such a simple question, but it's very illuminating. And, you know, I don't know how often people really ask that and think really hard about it.

So, leadership in a company will say, "Well, our strategy is to, I'm going to open up a division in Australia." And I'll say, "Well, your time is valuable, my time is valuable. Why are we talking about that? Why don't you just do it?" "Oh, it's hard because we don't know anybody in Australia." "Oh, or we don't speak the language." "Or we got thrown out of Australia 10 years ago, and it's hard to get back in." So, and you begin to get at what are the difficulties, what are the challenges. And then the strategy becomes, how do you, how do you overcome those? So going to Australia isn't the strategy. The strategy is how do you overcome the barriers. And if there aren't any barriers, then why are we wasting CEO time talking about this?

Now, somebody just listening to this so far might think, you know, and I, I mean, this is a definitional confusion, maybe, but they might think, "Well, what Richard's really talking about is tactics, right? Going to Australia is the strategy. How you build relationships there, how you find a partner, how much you're going to invest, you know, how you build ties to the government, like those are all tactical things we need to do." Fair? Not fair? If that's a reaction, how do you respond to that?

Yeah, that's, that's a common reaction. People want to say, "Well, that's tactic. Strategy is the long-term direction of the company." And the trouble is that, that those tactics are actually quite strategic. You know, what does the United States do now about Russia and Ukraine? That's strategic stuff. It's not tactics. Just because it's current and maybe the whole kerfuffle will be over in two years doesn't make it tactics. It makes it quite strategic. And so how you deal with the most important challenge facing you today is strategic. It's got to be. There's, there's, it's not tactics. Tactics, the word tactics comes out of the military, where it's really the difference between the general and the first lieutenant. And that's, that's a difference between, you know, the broad overview and what we're doing on the ground right here. I, I think it's a false dichotomy. I think that there is a, you know, one academic asked me the other day, "Well, what about Walmart? You know, they have this long-term business system that really works. Isn't that a strategy? The whole logistical system and the whole data processing, the whole way, isn't that the strategy?" My response is, "Well, that's the way you teach it when you read the Walmart case, but that's not the way it happened." That company grew step by step, month by month, year by year, as they faced new challenges and figured out how to deal with them and overcome them and keep it semi-coherent. So that's not tactics. That's real life. That's how you live. That's how you run a company.

So I guess what you're saying is, I mean, often obviously we've looked at strategies as choices, you know, market A, market B, customer segment A, customer segment B, this deal, that deal. I, I, what I hear you saying is the essence of strategy is crystallizing what, what, what, what, what, what, what do you call it, an addressable strategic challenge that is economically important to solve, and presumably important to other stakeholders to solve. And I guess, I guess by implication, what do you, what, you know, I asked you like, "Well, what happens when a company doesn't have a strategy?" I guess one of the ways you would know that is if you go in and you talk to the leadership team and you ask them, "What are the top two or three like strategic challenges?" You know, that you probably wouldn't get a consensus, or they couldn't talk about them with any degree of specificity.

That's right. And or they haven't even thought about that for so many companies. And so I emphasize this. I, I really make this as a strong point, partially because I'm trying to counteract this, this, this miasma of, "Our strategy is our goals. Our strategy is to grow sales. Our strategy is to..." That's death. And so I'm focusing on, what's a challenge you can actually do something about in the next 18 months, in the next three years? And they'll say, "Well, what about the long term?" I say, "Well, you're not going to get to the long term unless you deal with the fact that Google's taking away your ad revenue." And it's fine to have these long-term ambitions and intents, and we have to have that to live, to get our energy up. But then there's the ruts in the road along the way. And that strategy, there's a long-term strategy sense, of course, there has to be. But what most companies are beginning to get in trouble about is is this basic problem-solving. They're they're enamored of their internal systems of Management by Objectives, and they're caught in the 90-day earnings loop, listening to Wall Street. And they're they're buzzing around those fairly short-term measures as well. That's our strategy is hitting those, hitting those numbers, hitting those measures. Or your strategy is just catching up to somebody's already done something.

You know, one thing, one thing you say, and I, and I want to give you a chance to be a little more expansive here, and then, and then Mikaylee's going to take over for a bit. But I, I, you know, obviously we're in a world that's obsessed with data. And we look at data as a solution. You know, data, data will illuminate, right? And, and, and when you run it through an algorithm, even better. And what you're basically saying is that you, it's hard to identify the crux with kind of data alone. That that you talk about reframing a problem. That what, you know, your client, or what somebody might state as a problem, you're trying to get them to do a deeper problem, or a problem that is more creatively expressed. And, and in fact, you say, you say, I'm going to quote you, "It's really about framing a problem or opportunity in a way that is non-obvious." Now, that sounds richer to me, a little bit like an art form. And I'm, and I'm, I know you're extremely good at that. But it does leave me kind of wondering, okay, I need to find those few core, you know, problems that will really unlock performance. But then you're also telling me I need a creative framing from that. It's not just clearing all the data. It's not probably just what a consultant is telling me. So, so what are your tricks, or what do you tell people in your book about how do you, how do you get that deeper, more creatively framed problem that, kind of, then then supposedly unlocks further new thinking?

Well, you try to break them loose from their habits. Because if they have a strategic problem that they're struggling with, which is why I'm there, if they, they don't have a struggle, I, I'm not invited in. But if they're having a struggle, then they've got to think about it in a different way, because the way they've been thinking about it hasn't, it isn't working. And so we try to shake things up a bit. And we, I do "instant strategy" sometimes, which is, "Okay, everybody take a minute and a half and write down in one or two sentences what you think this company ought to be doing." That's, that's, that's important. That, ah, they're all over the place with that, even if it's a small group of eight senior people. And that will often break a frame. Or, you know, what assumptions are we making? What's the analogy we're using? Um, analogies are very powerful. And you break a frame and use a new analogy, then people start thinking about it differently. You could say, "Yeah, this is like art." And it's a little bit like art, but it's more like design. More like design. So design problems are, are problems where there isn't, it's not decision theory. I studied decision theory. Decision theory, like, here's alternative A, here's alternative B, here's alternative C. Which one should we choose? Well, when someone hands you that decision, it's either a very simple setup, or they're faking you. They've, there are people with interests who have already put those choices in place, and they're, they're trying to pretend that you can choose among them. But really, the deeper problem is you're going to have to design a solution to the challenge. And we design things all the time. We design houses, we design buildings, we design machines, we design business systems. So, so the idea that design is some mysterious thing, it's not true. But it's not the same as choice. It's not the same as choice.

Are there design methodology tools that help you find the crux or help you solve the crux? Because I guess, I guess what I'm really after is, are there some like crux-finding skills or perspectives that, you know, somebody can master? Or an analogy was one of them. You talked about, if you want to give us an example there. But, but what, what are the skills I need to get better at getting to the crux?

Well, the primary skill is taking a challenge-based approach. A lot of people don't like to do that. They don't like to talk about anything negative. And a group of executives has to be coaxed, in my experience, into talking about, "What are their challenges?" They, they like to talk about where they want to end up and how great that's going to be when we get there. They don't like to talk about what are the challenges. And often, the challenges, 50% of the time, to be honest, the challenges are internal. It's us. There's something wrong with the way we're functioning. Our organization is, is not clicking.

Challenges expose inadequacies, I guess you could say.

Yeah, yeah. And so if you take traditional strategy talk, it's about product, market, competition. But your challenge may not be that. It may be that your organization's sick. It may be overweening bureaucracy. It may be internal political fighting. It may be that you've got a drug in charge of sales. There's all sorts of challenges that aren't product market competition, but they are strategic. And so the, the basic way of beginning to get at the crux is to look at challenges, which people are hesitant to do.

In the book, you describe a set of techniques. You alluded to some earlier. We might want to double-click on some of them that are, you know, quite practical, quite helpful there. It doesn't, they're not rocket science. You know, it's like having the honest, upcoming, right, honest conversation. So you have that on the one hand, and then on the other hand, on this notion that, you know, companies don't really have a differentiated strategy, and that they waste a ton of time on discussions that, you know, may have the appearance of being strategic, but they're really not. I think a lot of executives would agree with you. I think in our book, we have this, uh, evidence from, uh, a big strategy at, uh, survey of 6,000 executives, and they found that only 37% of them thought that their company had a well-defined strategy, and that 73%, so three quarters, doubted that their strategy, uh, their company strategy was innovative. And, and, and only 13% thought that their strategy provided a roadmap around building future-focused capabilities. So, so, like, so on the one hand, the process they understand is it doesn't work. On the other hand, you know, there are some pretty straightforward solutions. So, like, help me understand like why, why, why are we like still having this discussion? And why, why are so, so many companies so, so bad at it?

This weighs in to what you two are interested in: why are so many organizations stuck with the 19th-century style of managing? You know, why are we, why are we so stuck as a, in organizations, and with bureaucracy, and with command and control the way it is? Um, strategy's not rocket science, as you say, and it's problem-solving. What's our most important problem, and how do we solve it? Um, you know, when, at the beginning of World War II, they had to decide, "Do we fight in the Pacific or do we fight in in Europe?" And Roosevelt decided, "Okay, we're going to fight in Europe." Well, that's a strategic decision. It's not, he didn't say, "We're going to fight everywhere." They actually said internal documents that are still secret that, that if Australia falls to Japan, we'll deal with that later. Um, and so, but these kinds of choices, they're difficult. But the logic is, some smart people get together and think about, you know, what has to be done, and what are the constraints, and all the alternatives. Now, when you replace that with a dog and pony show about how great we're going to do next year, that's not strategy. And, and there didn't used to be these dog and pony shows like that. But now, with easy, cheap video and the rest of it, I, I go to, you know, I go to a strategy session for a major airline in Europe, and, you know, it's, there's movies about airplanes and people all over the world. And there, there's no strategy. It's just sort of an expression of, of aggressive desire to be bigger and more.

Yeah, it's almost a performative, performative act.

That's right. And I know everybody that way. Don't, don't mistake me into saying no company has a decent strategy. That's, that's not what I'm saying. But I'm saying there is a miasma out there. There's like a, taking executives are right in the survey that you mentioned, that they are being forced to go through a dance that they know is worthless, and but they don't know how to change it, and they don't know what to do about it. And when they get to be promoted to CEO, they do the same dance.

But I mean, one of the things you've said already, Richard, that I, I want to underline because it was a simple point, but I think it is so, so important. I do think that leaders find it very difficult to talk about problems because, as I said, they, they tend to expose inadequacies either in them or their thinking or the organization. And, you know, I know a very successful organization that many people would, you know, hold up as an icon, but internally, you literally cannot use the word "problem." Like, they're just like, "Oh, no, no, no, no. Everything is an opportunity." Well, I suppose, but, but some of this is actually kind of, you know, a real, a real problem. And so how, you know, how do you get that honesty, or that willingness to say, "Hey, the world's a complicated place. Strategies don't last forever. Of course, we have problems, and some of them can kill us." And, you know, and I, well, I just have to say one thing. You know, I, I saw this as a young kid when I watched the Japanese competitors start to beat up, uh, the, the US industry. And like, it was excuse after excuse. "Well, you know, they have government support. They have a lower cost of capital. They have docile unions." You know, blah, blah, blah. And, and, and, you know, all of it was deflection. And, and, and whatever else. And by the way, that still goes on in that industry. And, and, you know, it just, it just hit me like, there's just a complete lack of honesty and candor. So how do we, how do we move beyond that? Because, but I mean, that seems like one of those, like core things that if, if you can't get breakthrough that sense of, "Yeah, we have a problem. Like, we're not perfect. There's things we have not figured out yet. We're gonna really have to dig and work hard."

Well, if you're me, write a book about challenge-based strategy. But as, as both of you say, CEOs, very, very most organizations are led by people who don't want to talk about problems. They want to talk about opportunities. This is the, uh, way of speaking. It's boosterism. The, uh, we have a particular culture where we, we like to believe that intensely held desire is somehow achieved and rewarded. It's like when you were a kid, you went to the movie, and Tinkerbell fell to the ground, and everybody had to clap for Tinkerbell to get up. And, you know, if you, if you really want it. Hey, that's, that's Oprah. And, you know, we come, we're in the middle of a civilization here in the United States, and in the UK has this too, where we've been so successful as a civilization, as a society, leading the industrial revolution and leading technology and winning big wars, that we tend to take for granted that, well, everything we're doing must be the right way, otherwise we wouldn't be who we are. Our procedures, what we do, how we do it, it must be the right way because look at who we are. And there's that lag. Arnold Toynbee called it the, uh, idolization of ephemeral technique. That you wind up, uh, idolizing, you know, what worked in the past and say, "Well, that's, that's who we are. That worked." You know, we, Romans, we built walls and we built roads, and it'll continue to work forever. Right. Until it doesn't.

Yeah. Until they come down the roads you built that and come after you. Yes.

So, so Richard, um, so, so one of the things we've been talking about is, um, helping executives who are, you know, empowered and trusted to make important choices or decisions, or, you know, create this new strategy to face reality and align on on those key challenges. And so, certainly, there are things we can do to enable that group of people to have productive conversations around that. But I wonder whether beyond that, there's an opportunity to expand the perimeter of people generating strategic insights or identifying challenges that goes, you know, beyond the C-suite or, you know, the top 50 people in a, in a large company. And whether you can, you know, open, open that up, uh, whether it's to employees, or, or, or more broadly, even, you know, external stakeholders, customers, and investors, and so on. Like, for instance, um, you know, you don't talk about this in the book, but I'd be curious to get your take, you know, there are, there are companies that experimented with information markets, prediction markets, you know, is, you know, is this, you know, is it, should we make this acquisition? Is that a worthwhile use of our resources? That are scared, or, or, you know, uh, what are the, you know, what are the biggest, uh, threats that are coming down, down the pike? Because it may be that, in a way, executives may not be in the best place to spot those things because they're kind of insulated by layers of managers who are going to give only try to deliver the good news to, you know, buy career insurance, and who would also like have different mental models, right? Because they're, the industry they grew up in and they succeeded in is no longer, no longer what the industry looks like. And they just, you know, may not be themselves attuned to that. So, I mean, what, what promise do you see, um, in those kinds of mechanisms that just kind of open up the discussion?

These are, you know, fascinating questions. And they are, they're, we're at a hinge of history, probably now, in terms of the old way of doing things and new ways of doing things. And strategy is like an apex problem because it requires some kind of hierarchy and some kind of leadership to have strategy at all. But at the same time, you don't want to have an organization that's totally command and control where the boss tells everybody what to do. It doesn't make any sense. And so how do we deal with that? Well, the way we, we deal with these things as a, as a society, as a civilization, is we try new ways of doing things. And you, you have to get exemplars of, of a new way, and it has to be impressive enough that others will then begin to adopt your, your method. Uh, we're the bureaucracy that, that surrounds us and, and stifles us, just in terms of action and doing things and getting, getting human intelligence and getting, getting energy directed at solving problems, is of our own making. I mean, we made this, we built this. And to run very large enterprises, Peter Drucker invented Management by Objectives, which is now universal. And, you know, you set targets. I, I have this chapter in my book where I introduce Management, modern management agency management. And it's 1966. It's cold. And the Vietnam War is raging. And Robert McNamara shows up at Harvard. And he faces down some student demonstrators. And then he drifts over to the business school where he has a much more receptive audience. And he gives a talk in Baker Library. And I didn't get into the talk. I'm sort of outside in the hall, listening on the loudspeakers. And he says, "We now know how to manage anything. The Catholic Church, the Ford Motor Company." He says, "You're divided into pieces. You put someone in charge of each piece. You define a metric for success, and you hold them responsible for achieving that metric. That's how we know. That's how you manage anything." And since that time, that concept of how to manage has spread too. I mean, he wasn't the innovator of it, but it's ubiquitous. And fundamentally, you're getting large companies managed as if they were apartment houses. Here's the apartment house. Oh, what do we have to do? Well, we have to paint the walls. We have to, we can raise the rents. We can put in a gym.

[Music] How do we manage this thing that we inherited from [Music] generations past who built it, and we're trying to figure out how to how to make it run? And you're probably not going to get the innovations about how to run things in the future from most of those kinds of organizations. They're, they're stuck. Even with the best of people, they're, they're a little bit stuck. And we need, we need exemplars of how to do it differently. Now, I'm not going to sit here and invent how to do it differently. I think it's a tough challenge, but it can be dealt with. You can do things differently. You can get more energy and creativity going.

Well, certainly, certainly one of our arguments is a crux issue for society is replacing bureaucracy with something better, right? And solving for that. But, but I want to, and we can circle back to this, but, but before we go too far afield, I do want to come back though to a couple of things in the book, Richard. You know, there's, there's something that, you know, you, you talked about doing "instant strategy," which I thought was a very, very interesting idea. I can see how there's, you know, very quickly, you see whether there's a degree of consensus and, and what level people are describing the problems. And it's all wishful thinking. But, but, but you talk about, uh, early on, you talk about a little three-step process where first you're trying to generate a list of potential kind of crux problems to solve, and then you're clustering them, and then you're kind of filtering and selecting them. So, I'm, I'm, I, I'm assuming that often, and this is kind of to Mikaylee's point about involving more minds, I'm assuming that when you start, it may be good to have like more people rather than fewer people, like giving you candidate problems, right? So you're, you know, you're not limited by what a few people think. But my question is this: What are your criteria for, for, for deciding on what is a, a strategic addressable problem? I mean, "strategic" seems to be a core word there, and "addressable." So once that group has generated a long list of potential, you know, worthwhile problems, how do you help them decide, like, you know, because you're already saying none of them are easy, so it's not like we can scale them by, "Well, that's a no-brainer." Like, the classic, "Let's start with the low-hanging fruit." Well, yeah, okay, fine. Um, so how, how do you sort through those?

So that's the crux concept. And I work with a group of executives, loosening them up with the whole bunch of things that are traditional strategy stuff: What's changing? What are your competitors doing? What do you hope for? What are your aspirations? I also interview people independently of this, so I get sort of a private view from 12 different people about what they think is going on. Sometimes more. I go out and video a plant manager, bring that with me. [Music] Then we begin to identify challenges, five or six. And then there's more. You know, I bring up, "So-and-so said this in an interview." "Also said this in an interview." And there's actually more than these. "Oh, yeah, okay. Let's put those up." Then there's the organizational problems we don't like to talk about that. But someone so mentioned this. Let's put that up. And those challenges then break into some challenges. And then, "Okay, now we got too many challenges. What can we do about these? What are the actions?" This is typically, I break a thing into teams and come back and look at some subset. The, the filter is: How important is this challenge? How critical is it to the future of the enterprise? And how addressable is it? Is it actually something we could do something about? If it's world peace, that's very critical, but we don't know how to get world peace. So let's put that on the back burner. We'll deal with that in three years. Um, what do we do about this? And so you begin to sort through. Now, that's not easy. People disagree with each other. When I was doing this at the Defense Intelligence Agency, we had 25 different challenges up on a board, each of them on a big sticky. And I had people come up and sign them. I said, "You can sign three." And people came up and signed three. And then we took a look at where they're both signatures. And we said, "Okay, these, these three where the most signatures are are your critical addressable challenges." You have to sign it that it's important and that we can do something about it. As we did like a voting, or you could have them make individual assessments. Now, here you have to sort of winnow it down. And, and they know we're going to winnow it down. I forced them to winnow it down. The first time I ever did this exercise, I turned to the CEO and said, "You pick five." Uh, there's some way that we have to winnow down these critical challenges to the ones that are both very important and addressable. And then I squeeze the time horizon down. Now, why do I do that? Why, why does that make sense? Because isn't strategy long-term? And I say, for some companies, I'll say 18 months. I want now to to have some objectives, some targets, some, some tasks that we will accomplish. And in 18 months, we can have beer and burgers, or or champagne and caviar, depending on what part of the world I'm in, to celebrate that we accomplished this task. I don't want to be numbered all over the task that we did it. And that's what I mean by addressable. And why 18 months? Why three years? Why so short? Because that assures that we actually formulate an action that can be done. And because there are multiple agendas in the room, people have all their favorite projects, their favorite agenda items, things they want to do. And when you choose one or two, you're pissing people off. And if there's a sense that in 18 months, we're going to come back and look at it again, there's a sense that, "Oh, yeah, I can, I can get on that next time. That I'm not being sidelined forever. That this is an ongoing process." And what's critical now may not be. And so that loosens things up a little bit, because you need people to commit to this smaller list of things. And that's what I do. It's not perfect, but it's better than putting down a bunch of financial goals and calling it our strategy.

I see two things there beyond just, you know, getting people to be honest and humble enough and so on to talk about challenges, and, and to generate a reasonable set of them, so, you know, you don't automatically just like glom onto the most obvious thing. One of the things you're saying is, you know, you're, it's focus, right? You're getting to a relatively small list because even in a large organization, you know, you can't have 100 things that are important. You probably can't have 20, right? You have to have a small number of things. The other thing, though, I see in that process of like everybody looking at the same, at the same set, everybody being forced to make a choice, you're kind of creating a sense of, of, of cabinet responsibility, right? Like, we together, we own these. You know, what, what I often see in organizations is like, "Oh, like digital is Tom's strategy," or "Customer centricity is Susie's strategy." And it means like, I don't have to worry about it. And when you're there together, saying, "All right, these are the three or four crux challenges for the organization. I put my name against this." It's like if somebody comes and says, "Hey, Gary, will you help on this?" Like, I gotta say yes, rather than like, "Sorry, not my problem. Good luck with that." So I think the, the focusing thing and kind of generating some collective responsibility, those seem to be really, really important.

Yes, yes. Gary, I give a little speech as we, as we begin to close one of these sessions out, and I say, "Look, this, this is what this group has chosen to be responsible for. And you're committing to support this program. You're not going to go out and bad-mouth it. You're going to help each other to achieve these things. And this is what we're sticking to for the next 10 months. And if the world changes, we'll have to change the program. But it's very important that all of you get behind this and not split off in different directions." And I, I sometimes gather them in a circle so that they look at each other. And we have, it's almost like a ceremony, uh, because if you spend time together for three days worrying this stuff, there is a sense of camaraderie that develops a bit.

Well, part of what you're, what part of what you're doing, not to be too grandiose about it, but I'm sure, Richard, when this, when this process works well, when it's deliberative, when it's very honest, when it's open, collaborative, you are, in a way, you're kind of melding the leadership team. You know, I, I often joke that, you know, people, people call the leadership team, and there's only two problems left. Like, most of them are not leaders because if you don't have a point of view about the future, you're really committed to, like, by definition, our leader. And it's definitely not a team because there's a whole set of competing agendas. And, you know, there's not much sense of team. But we still call them a leadership team, just like we call aspiration strategy. Right. So you're really, that process by itself seems to be like a super critical step in kind of melding, you know, that, that team.

My own, my own path to this began in 2005. I was interviewing the then Secretary of Defense, Donald Rumsfeld, who was involved in trying to put down an insurgency in Iraq at that moment. And I was interviewing about budgets, not about strategy. I was trying to figure out why we're spending a million dollars per soldier to put people in the field per year. And he said, "What do you do?" I said, "Well, I'm a strategy guy, a strategy professor." He said, "Oh, he said, strategy is a tough one. He says, I've got, he says, I don't know. He says, I've got people that are expert on everything you want to know. How many sorties we can fly in 24 hours? I, we got people that know the weather in Iraq. We got people that know who's blocking us to coming in from the north from Turkey. We've got people that know that. We've got..." And he went to a long list of all the expertise that he had access to. He said, "The problem is, all this expertise comes with an attached agenda, sometimes hidden, sometimes not. Somebody with a career to push, a company to push, an academic concept that they want to push. None of this expertise is pure. It all comes mixed up with power struggles and plays. And that's life. That's the way it is. And he said, "Professor, do academics have a solution to this?" And I was so embarrassed. Like, you know, he cut to the core of the chase. The Gary Hamel question of, "Geez, we don't have a theory of strategy creation." And I said, "No, actually, no, we don't. It's no better than it was 2,000 years ago. You try to put eight to 10 smart people in a room and see what they come up with." Um, and so that, that, what that experience actually was a moment, uh, where I gave him, thanks, seriously, about, "Well, what, what can I do? And why is it so hard to do this? What are the challenges that we face in doing strategy in a reasonable way? Why is it so difficult to do it in a reasonable way?" And so I began to do my own logic against this problem. And I decided that one of the big challenges was people defining strategy as goals. I hope you're enjoying the conversation. I wanted to take just a quick moment to thank Haier for supporting the work of the New Human Movement. Haier is the world's leading appliance maker with subsidiaries around the world. Over the last decade, it's been leading a revolution in management at Haier. Every employee reports to customers, not to managers. And the company has worked hard to make entrepreneurship everyone's job. Now, back to our conversation.

I'd love you to get your take on two examples of of strategy that some people might say don't quite fit uh to within your framework, and maybe you could tell us that that they indeed do. But just, just to just to play around with the concept. So the first is is Apple's decision to, uh, or foray into, uh, into becoming a world-class chip designer, right? Which is an effort that lasted over a decade. They made the decision, "This is the way we're gonna differentiate our products." And so they did a string of acquisitions, both expertise and low-power chips and the like. And now they have, uh, you know, they're probably the world-class, um, um, um, uh, chip designer, or in one of the top three in the world. And, you know, something you would not have expected necessarily Apple to have done. And something that required an enormous amount of perseverance that goes well beyond the kind of the 18-month window, uh, that you described. So that's one. The other example is Amazon Web Services, which in a way wasn't wasn't a response to a particular challenge that was kind of made explicit, but rather, you know, some person three levels down in the organization said, "Hey, we have this amazing ability to manage our infrastructure for e-commerce and selling our products and, you know, third-party products on our platform. Let's make that available to others." And so it kind of bubbled up and, and became now a settlement business, which is, you know, probably worth, I don't know, three, four hundred billion dollars, maybe even more. So like, how would those two kinds of examples of, uh, strategy making fit within your framework?

Well, we'd have to look at the actual history of it. I don't think that Amazon Web Services like grew up as a full-blown concept on day one. You know, they began their toe into it. It began to work. They began to sell more. Uh, it's the, the expo, the gradual growth of the cloud and cloud services was not instant. I recall working with companies back in the early on when the cloud was still hardly there, and people were saying, "Ah, this will never happen." You know, the head of IT at a fairly major company said, "You know, we're never, we're not going to let our data wind up on the cloud." And what he's really saying is, "I've got all these people here working in IT. I mean, what happens if I don't quit?" So it wasn't, it wasn't an instant, uh, thing. But you're right, and that it took, uh, some forward thinking and some commitment to a particular.

future. To do that, that's an opportunity-led thing, and I don't know the particulars of how that worked inside Amazon. And I, I think, you know, it's maybe not a corporate strategy at Amazon. It started probably as a divisional initiative. I know only a little bit of the history.

But one thing I think is true, and I think it does intersect with the idea of a crux. I think as Amazon built out its own web infrastructure and it was trying to have something very, very flexible and very quick, you know, they, they built that themselves. And they built it in a very different way from a traditional IT infrastructure. And they started to understand, like, like, if we were trying to solve this really naughty problem, building a highly scalable, flexible, you know, IT network based on microservices, I'll bet you that other people in the world who like have the same problem.

So I, you know, I, I, 'cause when I was first reading, you know, the book, I was thinking, well, like, can a problem be an opportunity-driven problem rather than like a crisis-driven problem? And I, I think the, I, I think you'd say yes. That's why I call it a challenge. Because if I say "problem," it sounds very negative. I say "challenge," you know, that grabbing a major opportunity can be a challenge. You have to figure out how to do it.

And when you look at companies like Apple, like, like Amazon, they're doing the old Walmart thing. They're deciding to do stuff themselves because they want to put their own imprint on it. So there's a basic, almost cultural thing there that, that is above strategy in some sense. It's, it's, it's an intuition that if we buy these inputs from others, we're not going to be different in any way. And that we're smart enough, and we're big enough, we got enough money, let's do it ourselves. Let's build our own cloud servers. And then the next step, of course, is, let's challenge Intel. Let's build our own chips to fit our own cloud servers. Let's build our own AI so we don't have to buy it from Google. And that's what's going on in Apple with the chips. They're basically, you know, that instinct that Steve Jobs imprinted on them, that you've got to do things that are going to make your products distinctive in terms of ease of use and beauty and all the rest of it. And you're not going to do that by buying all your inputs from the same commodity suppliers that everybody else is.

One of the things that story illustrates both about Amazon is saying now, even like working to design their own chips that go into their servers and so on. And, and of course, McKinley's example about Apple is, you know, both of these companies, and it's also true of Tesla, that both of these companies are, you know, vertically integrated. And, and one of the things that points to, to is, I think, I know this has been a hot button issue for you, Richard, for a long time, and strategists, you are very wary of strategy recipes and, and, and of like the recipe du jour. Because you know, a decade ago, like everybody said, hey, the way you compete is you disaggregate, and you know, you outsource. And, you know, you had Microsoft and Intel and HP and Dell and so on. That's, that's, that's the model. And now, you know, many of the most successful companies are, are kind of going the other way. So do you have a word or two on, on, on the perils of uh?

Sure. Yeah. Well, it's interesting. If you look back at Henry Ford, and he, he took the, the Model T, and he cut the cost of building a Model T from $600 of the unit down to $240 a unit. And the mythology is he did that with the moving assembly line. But all this cost reduction, it came in before the moving assembly line. And how did he do it? Well, he did it because he hired the best industrial engineers in the world at the time. And instead of buying his supplies from mama-pop garage operations, whether it was glass or seating or leather or pieces of machinery, they did it internally. They did it all themselves, totally vertically integrated as far back as they could go. Wow. Big success story. So shouldn't everybody do that?

Well, what happens over time is suppliers begin to arise that are just as good and better at it than you are. And so now, well, maybe we should buy our glass from someone, because maybe we should buy our seats from someone. And so when you see vertical integration, it's usually because there's an innovator who needs to do a whole bunch of steps that haven't been integrated before. Then they have some insight into how to do these things. And if you want to, if you want to run slaughterhouses in Chicago and cattle from Texas, you need to invent refrigerator cars to do that. And, and, and so you get an integrated company. But then in the future, we, we disintegrate. So integration should be a sign that the company is combining things in unusually skillful ways. And disintegration is a sign that, well, it's all become commodified, and we don't need to do all that under the same roof anymore.

It's interesting to use that example. It's so interesting right now to hear Elon Musk talk about, uh, their new Gigafactories, particularly Gigafactory Texas, which is the largest, I think, enclosed space in the world. And, and that's his thing. He's like, we have raw materials coming at one end, we assemble the batteries, we put them into packs, you know, we do, we do the core, uh, stamping of the body panels, we, whatever. And, and, and they're doing this not because, like, I want to do everything out of the sun. They're doing it because when you're, like, trying to build something that's never been done before, you can't find the supplies, you can't find the parts. And interestingly, even where they might have suppliers, they're often, as you say, hiring the smartest people in the world and saying, like, rethink this. Like, we don't want to do it. And so there's as much innovation in their manufacturing process as there is, you know, just in the powertrain.

Um, so I guess what you're saying is integration is like, it's not like a yes or no question. But, but it does seem to me, is you really can't rent your competitive advantage from somebody else?

No, of course not. And, and there's a serious question. If you, if you look at Tesla, is that a car company or a battery company? I mean, his initial insight that drove that company was that the ingredients of the lithium battery cell were a lot cheaper than the cells. There was something going on in the whole pricing of the thing that was off.

Yeah, of course. Uh, Richard, the vertical integration could also be the sign, not necessarily of, like, you haven't figured something out before anybody else, but that you're actually so behind the industry that it's almost an act, like, Hail Mary, an act of desperation to catch up. You call these kinds of moves, uh, Niagara, right? Which is like, uh, it rhymes with Viagra. These companies try to get to, you know, to get a little spirit back in their life.

Yeah, yeah. I remember this classic story. It goes way back, but I was working for, uh, McKinsey in London and instigated a study of vertical integration. You know, does it, it really makes sense to be involved in the vertical integration that we are, uh, because there are intermediate markets for all the stuff that we deal with. You know, you don't have to drill oil to have a refinery, and you don't have to have a refinery if you want to drill, and so on. And they looked at the economics. They hired smart economists from all over the world to look at this. And the answer came back, uh, no, there's not really any economic rationale for the integration. And then the, the senior management group, right at the board level, said, well, the reason we're integrated is so we can be big. And the reason we want to be big is so we can negotiate with foreign governments. And that was the end of the story.

Yeah. And it's a, you know, if you look at the wave of mega-mergers over the last decade, uh, you know, fueled by fairly lax, like, you know, regulation, as well as, you know, low, low, low interest rates, it's just, uh, more and more of those things. Then maybe we'll see some unwinding. I mean, they're ready, there are some companies that are spinning up. You mentioned, uh, AT&T and Time Warner, right? So that, that whole thing is coming apart. So maybe we'll see more of that.

And actually, this is a good segue, Richard, into a question about resource allocation, which we wanted to get into. Because, you know, I just looked up how much the S&P 500 companies last year spent between R&D, CapEx, dividends, buybacks, and cash on, on acquisitions, about three trillion dollars. So a lot of money that gets, that gets allocated by managers in these companies. And from what I gather, you, you don't, you don't think that the processes that are being followed to, to make, uh, those resource allocation decisions are very, very effective. I mean, they're, it's, it's related to the strategy conversation we had before, but it's, it's a little bit, uh, uh, maybe more, more kind of operational at the level, like, exactly what gets funded and in what time frame, with what kind of a kind of a process. So can you tell us a little bit more about, like, what, how you think about resource allocation and companies, and what's, what's kind of broken in how that happens, and, and what are your ideas for fixing it?

It's not something I, I get deeply involved in, but I certainly know how lots of different companies do this. I mean, there's some, they don't really do capital budgeting anymore. Most of the time, uh, that sort of was a fad that went through, and you had to submit the present value calculation to management. Management would say, okay, because no one ever submitted a bad one. Um, it's not like academic papers that get turned out. Nothing's different. And what we see inside companies is that most of the resource allocation patterns are just copies of last year. That the divisions that got money last year get money this year. The divisions that didn't get money last year don't get so much money this year. And it's sort of a vague corporate socialism going on. Maybe it's not coastal. I'm not, I'm not sure what to call it, but it's, it's, uh, it's inertia. There's a big inertia in the system. And companies have a hard time doing new things. Companies of any size do. There's a couple of reasons for that. And some of it is that they can't allocate the capital. But that's not really it. It's really that they can't advance the talent and pay them what they need to pay to actually have an entrepreneurial activity. Because you have a good idea inside a company, uh, I remember talking to a fellow who was running a software company, and I said, you know, what's your R&D? What's your development stuff? And he named the things that they were doing. And I said, none of that's very innovative. He said, no, of course not. If they were innovative, they'd quit and go see a venture cap.

By the way, let's be clear, you're not saying they literally can't afford to, that they don't have sufficient resources. You're saying that would disrupt their very carefully constructed salary grades and their definition of how you get ahead and what a career looks like.

And, yeah, no, you can't. Look, we can't pay this fellow who figured out how to do some amazing new thing more than the CEO. It just can't be done. Not be done. God forbid. So we're not going to do it. We'll shut it down before we'll have that out. You can't pay your star faculty more than the dean. Oh, sorry, that's a different issue. Sorry. Keep going.

Yeah, no, no. But, but more than the football. Yeah. By the way, Richard, in your book, uh, you, you have that example of Eric Yuan, who ended up creating Zoom, right? And he was assistant.

Yeah, I like. I mean, it's nuts, right? I mean, that's sort of like, uh, Zoom is now like a $40 billion company. And if they had, if Cisco had let him do whatever he needed to do or wanted to do within, obviously that could have been part of part of. But yeah, so his, his passion was to do it right.

Yeah. I mean, we all experienced this. What I write about in the book, we all went into corporate things where they tried to set up some kind of video link. It didn't work. And they had to call in experts. And the thing wouldn't connect. And the screen, it didn't work. A lot of that stuff, it didn't work reliably. It didn't work with quality. And so he committed the company to doing it right. And I'm not the engineer in that area, but they have to throttle all those different video streams at different speeds depending upon the capabilities of the different computers that are hooked up to the Zoom session. That's very sophisticated stuff that they did. And to make it so easy to do, just click, click, click. And behind the scenes, it's extremely high tech. In other companies, they just didn't push that envelope. They just said, well, we got something here. It's a picture of someone, and there's some audio coming through. It's good enough. Let's go out and sell it.

You know, by the way, this is one reason, and you tackle this issue in your book, I know we're going to run out of time. There's at least one more thing I want to ask you. But, but I just, let me build on that story for a moment because, um, you know, you tackle this whole idea of like disruptive innovation, which I, I think the word disruptive has now just become a synonym for innovation or rule-breaking. So fine, I don't, I don't have any any problem with the word. But, you know, kind of the theory as you expressed behind it, the original theory from Clay Christensen was, you know, these disruptive innovations are hard because, you know, they erode the profitability of your core business. And it really is, it really is a dilemma, called the innovator's dilemma, I mean, it's really hard or whatever.

Well, I look at something like Zoom, and I say, yeah, is that, to some extent, is that going to cannibalize your corporate solution called, uh, called Webex, or whatever? Yeah, it may. But if you simply ask, can we make this much easier and bigger? Like, how big is that? And is that worth going for? Well, of course, it is. And what you find is almost always these so-called disruptive things, yeah, maybe the margins are are tighter, but they almost always open up a much bigger opportunity with much more, you know, market value growth than what you're working on now. So I don't know what you think about all of that. But, but I, you know, I think the very idea of like getting disrupted, like it already says, hey, I'm on the back foot. I'm in a defensive mindset. I'm saying, like, yeah, I mean, new opportunities, you know, they may change what we're doing now. But, like, if you don't have a view of how big that is, you may not have the guts to do it. But it's probably not going to end up like shrinking the amount of value in the world. It might, it might. But maybe you just have to do it. You can delay, you can drag your feet, uh, you can say, we're going to wait a little bit here and milk the, the old cow. The cow's still giving off some milk. But generally, that's, that's a losing, uh, position to take because you'll never get a leading position in the new business.

Sometimes, you know, look, you sometimes the disruption comes along, that a change comes along, a technological change, or you just can't adapt. I mean, if you're Philips or you're GE, and you've got a hundred years of how to make incandescent light bulbs behind you, and LEDs come along that are easy and cheap to make, you can make them anywhere in the world. It's no big deal. That's pretty serious disruption to your. And that happens. That's capitalism. That's business. You can't expect that a business line is going to be immortal. That's, it's just not gonna happen. You might expect that if you have deep capabilities and, and you're ahead of the game, you know, the things they're going to die. I mean, IBM had to get out of the PC business. Fine. It's like a zero-profit business. But if you're smart, you're moving into something else. So it's really an organizational problem. I mean, if you've got, you've got this business that's going to be damaged by this new business, and how do you operate them both without having these guys a bomb each other? How do you do that inside the same organization is really the challenge.

You know, I want to go back to McKinley's question about resource allocation because I found a really interesting, it was eye-opening for me, and one of the very interesting examples in the book, a kind of disguised example, something called Grandco. And there was a woman there who had an idea for a, a new offering or a new segment, I can't remember. And, and simply couldn't compete with the big lions who already controlled the resource allocation and had preferential access to internal talent and so on. And so she kind of created this virtual division. I don't want to tell that story in a couple of minutes, but I, it was like a wonderful workaround of, okay, let's say that in the short run, you can't get access to the talent. Like, don't, don't give up. It was really a wonderful story. It had to do with nautical systems. And, and she had a company making what, these were these were good navigation systems for various kinds of boats and ships. And her idea was that she wanted to move from the business they were into to fleets and fishing fleets and whatever. And the story is slightly disguised. So more than slightly, but it's, she, she couldn't do it given the organizational structure. The organizational structure, like, like so many places, is chopped up in a way that there's no one in charge of strategy for a line of business. There's, there's a production side, there's a marketing side, and there's a. And so that's the way she was. And so she created with a couple friends across different functions what they called a virtual division, which was they said, okay, let's imagine that the board has allowed us to have this division. Let's just pretend it exists. And let's work with each other as if it existed. And we'll generate our own little accounting statements that will pair with each other. And we'll form our decision-making as if this division existed. And we're going to push this business ahead. And it was quite successful. After, after a couple of years, it wasn't instant. Management realized the top management realized that she was onto something. And they, they turned it into a division. And she got to be the, the head of the division. And the story, as I tell it, is about how you acquire power inside an organization, the power to do something. But you, it starts from a position where she's powerless, where she doesn't have the ability to integrate things across functions, which is you have to be able to do that if you're going to have a strategy.

But presumably, this is about kind of building a virtual team, selling her vision for this, you know, getting people to start to think about what are some baby steps we can take to kind of test out and prove that there might be a real opportunity, you know, probably getting a little bit of fractional time from people here and there. But I thought, you know, to your to your point, it was a wonderful story about not being helpless.

Yeah. Yeah. It's courage. It's a certain amount of courage and, and, and having a, a sense that an aspiration. And then taking the steps, you know, connecting up with a couple of other people she knew and establishing this pattern of behavior that was the virtual division and getting other people excited about it. Now, of course, you have to have some early wins where people are going to drop off. Napoleon said, don't fight, don't fight battles you can't win. Start with little battles you can win, and then move to bigger battles. And so she had to have some early wins and get people more excited about this. This is great. Now, what did we do next? And so there's this accelerating sense of people, these people being in charge of something cool, but different.

Yeah. A wonderful example, Rich. One of my favorites as well. And as I was reading it and kind of connecting to this concept of the blob, you know, this core rusty core of the organization that is like fighting, you know, it's driving inertia. And finding, you know, the pro-change constituency. You know, do you have any ideas or any thoughts for how we might make this process of gaining power and influence maybe less, less risky for people, less, less of a career, you know, risk for those who are kind of enterprising and, and, and perhaps faster? Right? Because I think the whole, the whole evolution of that story took about three to four years. So like, in, in a way, like that's a lot of time in, in this environment we live in. So how can we short-circuit that and, and, and get people like, like her to, to, to influence and power more quickly? Any thoughts on that?

Oh boy, that's hard. Blob concept, uh, I invented that when I was giving a talk to the board of directors of Telstra down in Australia. And they had, they had received some billions of dollars from the government in exchange for walking away from their embedded wires, telephone wires everywhere. And they were trying to figure out what to do with this money. And I had to give them some advice. One of my pieces of advice was, don't grow the blob, the bureaucratic, you know, the utility company. And I remember someone from the audience saying, what's the blob? And the CEO saying, oh, that's us. A rare moment of self-recognition. That for people to have that, she's an unusual story because she worked it out herself inside. But I, you have to have smaller units of things if you're going to have people being energetic, seeing opportunities, doing cool stuff. It has to be on a smaller stage than the company as a whole. And then you're up against this problem of compensation. And, you know, it's really a good idea. Aren't we going to go to the venture capitalists? Well, in the software world, that's true. But in the world of actual things, it's less true because you need, you need the resources of the company to do it. And so breaking off a piece of the company that younger, more energetic, more insightful people can play with is how you do it. And, and sometimes it's not going to work, and they're going to get fired, or they're going to fail. And if you're asking me how can everybody succeed, the answer is there's no such world. Uh, people used to have much more amazing careers. If you go back to the end of the 19th, 18th, 19th century, I mean, I have ancestors that were miners in Bolivia, and then they moved to Hong Kong, and then they came to California and did something. And, you know, it was, you didn't get a job at General Motors and hope they get promoted every three years. It was that there was a whole world of opportunity out there. And people were running around doing amazing things, living in a very stable era, really, you know, outside of maybe being a bomb tomorrow or something. And it's, people are too, they're comfortable. And so you can't have all the comforts of your life and at the same time take risks and venture. So it takes courage.

You know, there's there's a really interesting insight there I find, uh, Richard, again, that I haven't thought about in quite that way. You know, obviously in large companies, we, we know the data that, you know, people on the front lines don't have very much freedom to experiment and try new things and so on. And, and they all, they all whine about that, and I think rightfully so. But the flip side of it is, like, doing something that's new and different, it's also a bit of a risk. And you have to be willing, you know, when your great-grandparents or grandparents, you know, they got on a boat, they did not know exactly what was at the other end of that, of that journey. And, you know, if, if we want more empowerment, we want more freedom, we want more, it comes with more accountability. It comes with a certain degree of risk. And you got to be willing, you know, to do that. You know, that woman, you know, at that company we just talked about, who said, I'm going to put this little virtual division. Again, I'm going to go out and lobby other people. I'm going to spend some time. You know, there's no, like, she doesn't know whether that's going to work for sure or not. So I think, you know, this idea of empowerment and so on, it's like a two-sided bargain.

Yeah, for sure. But are you willing, right where you are, to work on something new? To like, fight your corner? To build that virtual division? And if not, well, like, all right. But I don't necessarily blame somebody else. I think right now, we're heading for some kind of recession. And so there's going to be all sorts of talk about how do we get out of a recession? And particularly if we have inflation and recession at the same time. And look, the answer to that is not fiddling around with monetary policy. The answer is peel away some of the crap that's in the way of people being more productive and doing more interesting things. Here in Oregon, where I live, you know, you want to start a new company? Oh, my God, you can't. I mean, the land use issues, all the issues you face about the birds and the bees and the lands and the trees and the water. And you can't, you just can't do it. So yeah, they want people to be employed, but they don't want companies. They don't want innovators. It's, it's a tough situation. You have to appeal some of that back. Of people are going to be free to do new and interesting things. Now, in big, in larger companies, yeah, you can create these these little hot houses for flowers to bloom in. How that works, you gotta spin them off at some point. You can't keep them inside the big company. And so, yeah, I mean, the ecology of of innovation in businesses is that it's, it's going to be new companies at some point, wherever they're grown, either externally or internally. And that's what you want more of.

Well, certainly when we, when we wrote Humanocracy, part of our thoughts, it's, it's kind of a manual for doing chemotherapy on the, on the blob, in a way, with the goal of not killing the, the people, because they're talented, they have plenty to do, and they can innovate, but with, with trying to get, you know, that invasive, uh, uh, tumor of bureaucracy out of the system. So if you want to, if you want to humanize the bureaucracy, don't start with the DOD. That would be mine. You've mentioned McNamara and the DOD. I mean, they're running the same budgeting and resource allocation process that McNamara instituted in 1962. And, and, and the fact that that's still the case, and everybody understands it, and how dysfunctional it is, and yet that persists, I mean, speaks volumes. A little bit to this kind of, well, when I, when I was interviewing at the Audi, about, uh, Rumsfeld said to me, well, he says, I have, uh, I spent a million dollars a minute here at the DOD. He said, but I have, and he mentioned the number, and I can't remember, you know, 82,000 different budget items. And I'm not allowed to move money from one to the other without congressional approval. And so the world changes. And so what do I do? It's like a giant mess. And so we, the accounting system here is impenetrable, and it's impossible to understand. Part of that's on purpose because we can't actually deal with all the rules that we're given.

Let me ask the last, last question. Um, and I want to, I want to adjust your perspective, Richard, on foresight. You know, one of the problems, I'm sure you see, Michael and I see this, is that often, you know, a problem becomes strategic, you know, it, it becomes the crux, only once an organization is is behind. And so, you know, cloud is now a crux thing for, for IBM, let's say. Um, you know, EVs and battery manufacturing is a crux thing for GM, Ford, right? Mobile devices should have been a crux issue for Intel, but like, they basically abandoned that. So in, in the work you do, and when you're helping companies, how do you help them look at problems that are not, I mean, yeah, it doesn't mean you still shouldn't solve them, but if the only problems you're solving are problems that your competitors have already had and have already put on your plate, like, you know, that's, that's a recipe for perpetual ketchup. That's where GM has been for 40 years. So how do you, how do you push people subtly to kind of problems that open up new space or new opportunities versus like ones that are about getting the ox out of the ditch?

Yeah, yeah. Well, that's why I use the word challenges. Because I, I don't let a group that I work with just have challenges that are all negative. We've got to have opportunities in there. We've got to have difficult to grasp opportunities, or opportunities we've got to figure out how to grasp. And, and we've got to turn those opportunities, those challenges, which generally are described in foggy terms because it's sort of like unknown, into an actual project. What are we going to do about that? You know, if, uh, working with the European tire rubber manufacturer, and they're worried about that rubber is now pollutant, being considered a pollutant. Where does all, when you wear out a tire, where does all that rubber go? Oh, it goes in the air, it goes in the road, people breathe it in, it's everywhere. Maybe that's a problem. And so, but there's an opportunity there to help solve that problem because we're not going to get rid of tires in the near future. And so that's an opportunity. How do we grasp that? What can we do now to deal with that, rather than just wait around until some legislation appears? So just, just a way to deal with it. And so trying to turn opportunities into projects into something you're going to do strategically to grasp it. But you can't see the far future. When people are starting to list these problems and look for the crux, you can still ask, does this open up a new opportunity for us? Does this potentially get us ahead of regulation, consumer expectations, competitors? You can push them to kind of at least make sure some of these problems are are kind of more future-focused.

Yeah, absolutely. I want to, I want to recommend the book. You know, Rich is probably had more strategic conversations with more CEOs than anybody in the world. And if you're, if you're looking, if you want to like have a, a kind of bird's-eye view of that, or, or, you know, be on the wall for those conversations, I'd encourage you to buy this. And I will tell you, you will definitely learn how to have much more strategic conversations, to have much more strategic influence inside of your organization than you might think possible. So, uh, highly recommended. And Richard, what, what a pleasure to have the chance to connect and chat.

Gary, pleasure to, to chat with both of you. It's been a really nice session. Thank you.