Neelima Authors

Gary Hamel: “Innovation is the Only Insurance against Irrelevance”

December 16, 2014


For three decades strategy guru Gary Hamel has been stressing upon the need to make innovation a systemic capability, but have organizations done their bit?

“The age of progress is over. It was born in the Renaissance, achieved its exuberant adolescence during the Enlightenment, reached a robust maturity in the industrial age, and died with the dawn of the twenty-first century.”

These were the first two lines of strategy guru Gary Hamel’s 2000 bestseller Leading the Revolution. Even back then Hamel, always the realist, could see what most other management theorists couldn’t: companies still fondly holding on to business concepts and management models already past their sell-by date.

Fourteen years later, little has changed, and most organizations are still stuck in a time warp—and a death spiral.

Hamel has been rallying against organizational complacence for three decades now, and his ideas are seen as radical by many. Over the years, he has ruffled many feathers by advocating, among other things, busting bureaucracy and flattening hierarchies. All of his books—be it the early ones like Leading the Revolution and Competing for the Future or the new ones like What Matters Now—have, in an unorthodox manner, advocated cleaning up the practice of management.

In Part 2 of this interview, Hamel looks back at how his ideas have evolved over three decades. (For Part 1 of the interview where Hamel talks about how we need to reengineer our organizations, click here)

Q. As an academic and a thinker, how have your ideas evolved over the years—from your early books like Competing for the Future and Leading the Revolution to the latest ones, The Future of Management and What Matters Now?

Gary Hamel, author of Leading the Revolution, Competing for the Future and What Matters Now

A. It always seemed to me that the two most interesting questions in strategy were: where do game-changing strategies come from and how do you change a successful strategy once it starts to mature and decline? In the early 1980s, Michael Porter had an extraordinary influence on the way people thought about strategy. Every manager will be familiar with his Five Forces model. That allowed us to talk about the economic efficiency of a strategy: did it have the power to create above average returns? That was a very important breakthrough to help us think systematically about the attractiveness of a strategy.

When I looked around the world at that time and I saw new businesses like Virgin Atlantic Airways or the Body Shop, the question that was very interesting to me was where does the fundamentally new strategic idea come from? It’s one thing to evaluate a strategy and its effectiveness once someone has already thought of it, but where does that initial idea come from?

That led me to think about innovation, and particularly innovation at the level of the business model. Competing for the Future and then Leading the Revolution were really pursuing that particular stream of thought: how do you change the rules of the game in an industry? Particularly, given the fact that we all live in the same world, with the same information, why is it that some people are able to see a brilliant strategy and others aren’t? What are the perceptual habits of mind that can help us envision new strategic opportunities? So that was the thought process in the early 1980s.

The other thought at the same time was how do you change a successful strategy once it has started to lose its economic vitality? We live in a world where change is accelerating, where no strategy lives forever, strategies have lifecycles just like individuals. I could see many organizations found the work of strategic renewal very difficult. They often hung on to an old strategy long after the point it started to produce diminishing returns. I began to realize that there was something very deep inside organizations that made innovation and renewal difficult. [pullquote] Many organizations found the work of strategic renewal very difficult. They often hung on to an old strategy long after the point it started to produce diminishing returns.[/pullquote]

That led me to start to think about management, because it was clear that there was a problem in organizations that wasn’t around particular tactics or strategies, but something even deeper, almost at the level of DNA. When you look at traditional organizations and public organizations all around the world, very seldom do they spawn game-changing innovation. Very often they hung on to old strategies too long. That led to The Future of Management and the more recent What Matters Now, where I started to understand that if you want to build organizations that are instinctively adaptable or innovative, you have to think about the DNA, the principles, upon which our organizations were based.

Q. Sure. If you were to put your finger on one common thread running through all of you work, what would that be?

A. The common thread is that innovation is the most important advantage of all. It is the only insurance against irrelevance. You can think about innovation as occurring at five distinct levels. At the bottom you have operational-level innovation, so this is the work that companies do every day to be more efficient, faster, better, cheaper, to take costs out, and to improve productivity. Breakthroughs in recent years have been things like enterprise resource planning, customer relationship management systems, Six Sigma, lean software development. These are all tactics that are designed to drive operational innovation.

The level up from that you have innovation in products and services. That could be the latest flat screen television, the latest refrigerator from Haier, let’s say, a new exchange traded fund, a new financial services product.

Taking another step up, you have innovation in strategy: strategic innovation or as I called it years ago, business concept innovation. Here’s when somebody rethinks an entire industry. This is, of course, what Amazon did in bookselling and music retailing years ago when it got its start. More examples would be Twitter, IKEA, Air Asia. These are companies that really innovated not just around a single product or service, but in many aspects of the business model.

If you take a step even higher, you get what I would call platform innovation. This is not just a single company with a new business model; this is when somebody brings an entire industry together around a new platform. The early innovation of Amazon, when they were simply selling physical books online, was business model innovation, but when you build a new platform for digital publishing that engages the entire publishing industry around the world, that’s platform innovation. Another example would be Apple’s App Store that allows people from all over the world—software publishers—a new platform on which to publish their software.

And then at the highest level is innovation in management itself. If you look at over the last 100 years, the sort of innovation that has produced the biggest returns and then accounted for the most significant and enduring shifts in competitive advantage has been innovation in management itself. Innovation in how we meet, plan, organize, and allocate resources, but innovations that extend human capabilities. A recent example of management innovation would be Open Source software development, the idea that you can have a volunteer army around the world developing something as complex as enterprise software without any traditional management structures at all, was very radical. That would’ve seemed impossible just 10 years ago for most CEOs around the world. But that is an entirely new way of achieving large-scale human collaboration.

So the one thing that unites my work from beginning to end is an emphasis on the importance of innovation, and companies need to learn how to innovate at all those levels, rather than innovation being something that happens despite the system or occasionally or in quarters of the organization. It has to become a systemic capability so everyone, everyday feels responsible for innovating—everyone has the tools they need, the skills they need and are working in an environment that encourages innovation. Organizations that work for that end are going to be the ones that, I think, will succeed now and in the decades ahead.

Q. Looking back at your past work, if there were one change you would like to make or one idea you want to tweak, what would it be and why?

A. I suppose one of the good things about being an academic is that you don’t have to do product recall [laughs]. And there’s no liability if your ideas don’t work out.

[pullquote] Most organizations around the world are still based on a mash-up of military command structures, the traditional pyramid that goes back thousands of years, and then the principles of industrial engineers that go back 150 years or so.[/pullquote]

If I could go back, I would’ve put more emphasis earlier on reinventing how companies are managed. In particular, I would have put more emphasis on the challenge of busting bureaucracy. Most organizations around the world are still based on a mash-up of military command structures, the traditional pyramid that goes back thousands of years, and then the principles of industrial engineers that go back 150 years or so. It took me a long time to understand—longer than I would like to admit—that until we change that underlying organization architecture, until we start to pull apart the traditional pyramid, and until we challenge those fundamental assumptions about our organizations, it would be very difficult to build companies that are truly innovative, adaptable or inspiring places to work.

I wish I could have seen that earlier and understood that the single biggest barrier to building more capable organizations is that legacy, tradition-encrusted manager model. Like many other academic and leaders and consultants around the world, I simply took that for granted. I couldn’t imagine an alternative, and it’s only when I started doing research in very non-traditional organizations that I understood that you can manage large-scale human organizations without a traditional pyramid. You can crowdsource the strategy process and it involves hundreds of thousands of voices in that conversation. But you can use the principles of markets rather than traditional hierarchies to allocate resources.

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