From Scalable Efficiency to Scalable Learning (#22)
We are speaking with John Hagel, who has been working with the most successful companies in Silicon Valley for 40 years (also a startup founder of his own). John is the author of several books — including The Power of Pull he co-chairs Deloitte Center for the Edge, which is a Silicon Valley research center. In this episode, John joins Ben Robinson for a very comprehensive discussion on the zoom in — zoom out approach to strategy; why the advertise-based business model is unsustainable and the alternative; how customers’ reluctance to accept mass-market products will drive the fragmentation of product and service-based businesses; why learning in the form of sharing existing knowledge is not where the greatest value is; why John is optimistic about the gig economy — and more.
Podcast also available on:
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Resources:
- The Power of Pull — John Hagel, John Seely Brown, Lang Davison
- Zoom In / Zoom Out — Deloitte Center for the Edge
- Never underestimate the immune system — John Hagel
One of the things I’m intrigued by is the degree to which the big shift is producing a return to the past, and I think one of the interesting trends that I anticipate in the gig economy is moving to what I call ‘the guild economy’. — John Hagel
[00:01:40.27] Ben: So, John, thank you very much for coming on the podcast. I guess most listeners will know who Deloitte are, but probably there are quite a few people that aren’t quite so familiar with the Center for the Edge. So what is the Deloitte Center for the Edge?
John: Broadly, it’s a research center that’s charged with identifying emerging business opportunities that should be on the CEOs’ agenda, but are not, and do the research to persuade them to put it on the agenda. So, we try to stay a step ahead of everybody else.
[00:02:14.11] Ben: Your work is guided, I think, in large part, through this idea of the big shift. How do you define that big shift?
John: We don’t have a single definition. We just view it as the way in which the global economy is transforming as a result of long-term trends that have been playing out for actually several decades.
[00:02:37.15] Ben: So, you mean technological trends like Cloud, mobile — those kinds of things?
John: Certainly digital technology is a key driver of the changes. I’d say the whole movement towards the freer movement of people and goods and information across boundaries on a global scale is another factor; the increasing power of customers is another factor. So, there are many forces that are coming together to shape the big shift.
[00:03:09.13] Ben: And this big shift, you would argue this is as big a shift as the move from an agrarian to an industrial economy? It’s that kind of magnitude of shift?
John: It is. I mean, I think that often we hear the phrase or some framing of, “We’re in industry 4.0”
Ben: Yes. It’s the World Economic Forum terminology, I think.
There are two very different time horizons: 10 to 20 years, and 6 to 12 months. When you think about the way most companies talk about strategy, it’s the five-year plan, right? It’s year one, year two, year three, year four, year five — that’s their strategy. [While Big Shift] companies spend almost no time on one to five years. It’s all about 10 to 20 years or six to 12 months. And their belief is that if they get those right, everything else will take care of itself. — John Hagel
John: Yeah. And our perspective is, no, we’re beyond the industrial era. And the way we frame it is around this notion of a contextual era where it’s all about context — reading context, responding to context quickly and effectively — and that’s a very different way of organizing and acting on business issues.
[00:03:55.08] Ben: That’s good! I think we should now start to delve into what that really means — the big shift in the contextual era. So, maybe let’s start by talking about the role of strategy within an organization. Because, I guess, in response to faster change, a company needs to introduce more agile decision-making and you’ve written a lot about this. So, I was wondering if we could maybe start with your concept of zooming in and zooming out and how that helps to frame strategic planning horizons.
One of our concerns is everybody today talks about agility and flexibility. And certainly, that’s valuable in some contexts. But if all you’re doing is sensing and responding to whatever is happening at the moment, being flexible and agile, you’re going to spread yourself way too thin across way too many things, because there’s so much going on. If you’re just responding and reacting to anything and everything, good luck! Zoom out — zoom in helps you to focus to get a sense of what really matters. — John Hagel
John: Yes. It’s a very different approach to strategy — zoom out, zoom in. I’ve been in Silicon Valley now for 40 years, and I’ve had the opportunity to work with some of the most successful tech companies in the Valley and they have a very different approach to strategy and it inspired the zoom out — zoom in. They don’t use that term, but it’s one that I’ve used to basically describe a very different approach to strategy, which focuses on two time horizons in parallel. On one time horizon, it’s 10 to 20 years — and that’s the zoom-out horizon. And on that horizon, the questions are, “What will our relevant market or industry look like 10 to 20 years from now?” And then, “What are the implications for the kind of company or business we need to be, to be successful in that market or industry 10 to 20 years from now?” So, that’s zoom out.
John: Zoom in is a very different time horizon. It’s six to 12 months. And on that horizon, the questions are, “What are the two or three initiatives — no more; two or three — that we could pursue in the next six to 12 months, that would have the greatest impact in accelerating our movement towards that longer-term opportunity we’ve identified? And do we have a critical mass of resource against those two or three initiatives in the next six to 12 months? And how would we measure success? What are the metrics we would use to assess our progress towards that longer-term destination?” So, there are two very different time horizons: 10 to 20 years, six to 12 months. When you think about the way most companies talk about strategy, it’s the five-year plan, right? It’s year one, year two, year three, year four, year five — that’s our strategy. These companies spend almost no time on one to five years. It’s all about 10 to 20 years or six to 12 months. And their belief is that if they get those right, everything else will take care of itself.
John: And so, it’s a very different way of thinking about strategy and we believe in rapidly-changing times it’s necessary, essentially, as challenging as it is, to look ahead. You need to do that. One of our concerns is everybody today talks about agility and flexibility. And certainly, that’s valuable in some contexts. But if all you’re doing is sensing and responding to whatever is happening at the moment, being flexible and agile, you’re going to spread yourself way too thin across way too many things, because there’s so much going on. If you’re just responding and reacting to anything and everything, good luck! Zoom out — zoom in helps you to focus to get a sense of what really matters. Where are we headed? What’s the destination that we’re trying to achieve? Then, how can we accelerate our movement there? It’s a very powerful way to focus effort rather than just respond to whatever is happening at the moment.
One of the zoom-in initiatives — six to 12-month initiatives — should be focused on what we call ‘scaling the edge’. It’s finding an edge to the existing business that has the potential to scale to the point where it will become that business that we anticipate 10 to 20 years from now. — John Hagel
[00:07:30.28] Ben: And presumably, when you’re working on these different time horizons, you’re using different strategic tools to try to figure out what the world looks like in 20 years; and also, I guess, separate tools to optimize what you do in the next six to 12 months. Is it fair to say that when you’re looking 10 or 20 years out, you’re using scenario planning, kind of pulling yourself out of your comfort zone, and trying to think without constraints about what the future might be?
John: Absolutely! Scenario planning is a critical tool and very useful in terms of looking ahead and imagining all the possibilities, alternative futures. I think that the difference here is that in most scenario-planning efforts, you imagine very different futures, you may ultimately just agree on which future has the greatest probability, and then you leave; the meeting is over. In this approach, the meeting is not over until we have committed to the future that we believe is most likely — and committed to short-term initiatives based on that future. So, where this has implications for us — and it very much changes the whole discussion because a lot of scenario-planning efforts are viewed as theoretical, conceptual exercises, but they don’t really make a difference to the business today. Zoom out — zoom in has a profound difference in what you do in the short term.
[00:08:57.02] Ben: How concrete an idea or a future do you have to come up with? Because one of the things you talk about a lot in your writing is this idea of narratives versus stories. And I think the difference you draw is that a narrative is open-ended. So, can a future state be a little bit nebulous and just kind of help frame where you’re headed, kind of like the Northstar, without having to be too concrete?
John: Yeah, it’s a balancing act, ultimately. It has to be sufficiently tangible that it can help you make choices in the short term, but broad enough so that there’s room to explore and discover as you go. One example I use, most of the companies that pursue this approach don’t talk about it publicly: there was one company where it’s been written about, so I can share, and it was actually Microsoft in the early days when it was just a startup, back in the 1970s. Bill Gates pursued a zoom out — zoom in approach and the zoom out he had for his company could be summarized in two sentences: one is, “Computing is moving from centralized mainframes to the desktop”; the second, “If you want to be a leader in the computer industry, you need to be a leader on the desktop.” So it wasn’t a detailed blueprint of what the computer industry would look like 10 to 20 years from now, but it was enough specificity so that you could make really hard choices in the short-term and accelerate your movement towards the desktop.
I think the immune system, the people in the immune system are very well-intentioned people. They’re not evil, by any means; they’re wanting what’s best for the company. Their view is what’s best is to continue doing what we’ve always done. So, this notion of scaling the edge is a way to not draw out the immune system. — John Hagel
[00:10:29.13] Ben: You just said something that I want to touch on, which is, you said, you’ve got to be able to make hard choices in the short term. In this kind of strategy work that I’ve done, I think that’s one of the hardest things to get people to do, right? So let’s assume that you can galvanize an organization around the long-term vision, then getting them to make difficult choices to actually divest of some activities is super difficult. What’s the right way to approach making those short-term choices?
John: It helps if it’s short-term and it’s not massive resource requirement. So, a lot of the resistance is, if you’re talking about five-year programs and billions of dollars, that’s going to encounter a lot of resistance. We have kind of a filter that we use on the zoom inside, which is that one of the zoom-in initiatives — six to 12-month initiatives — should be focused on what we call ‘scaling the edge’. It’s finding an edge to the existing business that has the potential to scale to the point where it will become that business that we anticipate 10 to 20 years from now. So, it’s finding an edge and starting to scale the edge in the next six to 12 months.
John: The second zoom-in initiative is, “What’s the one thing we could do that would have the greatest impact in strengthening the performance of the existing core of our business? Because ultimately, that’s where the money is today and we want to prolong it as much as possible.” And then, the third one, which is the most challenging in my experience, the third zoom-in initiative is, what one major set of activities could we shut down in the next six to 12 months so that we can free up resources for scaling the edge and for strengthening the core? And that’s looking for something that is marginally profitable, has no real potential for growth. Why are we doing this? Let’s shut it down, so that we can, in fact, devote more attention and resource to the things that matter.
[00:12:41.10] Ben: And how successful are you at getting companies to do that third aspect?
John: As I said, it is certainly challenging. I think that, in my experience, having a sense of what’s that edge that we could scale and the really big opportunity we could be moving towards, and then also that there’s an imperative to strengthen the core — we can’t just continue on as we are — I think that helps to build a sense of need for shutting down. I mean, if you just say, “Let’s shut down things that aren’t very good or very profitable”, that’s going to encounter a lot of resistance. But it’s the notion that there’s actually something much bigger and better that needs and deserves the resources that we’re currently devoting to something that’s not producing great results.
[00:13:30.24] Ben: One of the articles that you wrote that we have cited the most — in fact, I’m pleased we don’t have to pay royalties to you because we’ve cited it so many times — is the one around the immune system. I think you consistently say, “Never ever underestimate the immune system!” How does one scale the edge under the radar of the immune system?
in most of my career, I’ve been a business strategist — it’s been all about strategy: that’s what’s going to win, and if you get the right strategy, everything else will solve itself. Increasingly, I’ve come to believe that it’s much more about psychology than strategy. We need to understand the emotions that are shaping and driving our actions. — John Hagel
John: It’s a great question and certainly a major focus of our work is the notion of how do you avoid mobilizing, exciting the immune system. And a general counsel to companies around the drive to change, first of all, it’s scaling the edge versus trying to transform the core because even if you see the need to do everything fundamentally differently, if you go in from the top-down into the core, and define this massive change program that’s going to take many years and a lot of money, that guarantees that the immune system is going to come out full force against you. They want to hold on to what they have, they don’t want to take risks. And by the way, I think the immune system, the people in the immune system are very well-intentioned people. They’re not evil, by any means; they’re wanting what’s best for the company. Their view is what’s best is to continue doing what we’ve always done. So, this notion of scaling the edge is a way to not draw out the immune system. If you start with a small part of the business that today is relatively modest, doesn’t get a lot of attention and you focus on short-term action and impact, that helps to build more credibility for what you’re trying to achieve and over time, in our experience, it undermines the immune system because the immune system, a lot of it is about being risk-averse. But if you can show real impact in a short period of time, it starts to overcome that risk averseness and people start to ask, “Well, wow! That’s interesting! How can I be part of that?” So it’s a way to avoid direct confrontation with the immune system.
[00:15:41.16] Ben: You have an expression — in fact, it’s the subtitle of your book, The Power of the Pull — where you say, ‘it’s all about small moves smartly made’. I suppose that begs the question, if you’re making small moves, are we not in danger of incrementalizing ourselves to death, if we’re not careful?
John: That’s one of the biggest risks these days. The focus is on the term ‘smartly made’. I mean, yes, it is small moves, but it’s with a clear sense of direction and focus on what really matters, and being very aggressive in those small moves. It’s how quickly and how much can we achieve in a short period of time? The emphasis is on ‘smartly made’ and the way to avoid incrementalism, again, is to have a very clear sense of what’s the destination, and how would we measure our progress towards that destination? What are the metrics so we’re very clear what really matters here, and then focus on how quickly are we actually making progress on those metrics?
I think the fear is definitely dominating, in my view, the reaction to the pandemic versus viewing this as a catalyst for change — John Hagel
[00:16:50.03] Ben: And I suppose those small moves might actually be quite large moves but they’re small in the sense that they involve a limited number of people so they don’t consume too many resources or invoke the immune system, the antibodies of the immune system.
John: Yeah, it’s all relative, obviously. If you’re a large company, a small move can still be a fairly large initiative, but it’s lost in the rounding for the overall company because it’s not that big and doesn’t draw that much attention. So, I think that’s the focus is really not trying to excite that immune system.
[00:17:31.02] Ben: And it seems like, listening to you, there are two parts to not exciting the immune system. One part is doing something which is relatively small so it doesn’t consume too many resources or bump into too many people or too many budgets. But the other part is around fear, right? Because, as you said, it’s perfectly rational — at least it’s rational in the context of what we’ve been taught in the business school, etc. — to not cannibalize revenue streams, and to pursue things that can double-down on things that work. So, I suppose, is countering fear also done through narratives?
John: First of all, I think your point about fear is absolutely spot on. I say now that in most of my career, I’ve been a business strategist — it’s been all about strategy: that’s what’s going to win, and if you get the right strategy, everything else will solve itself. Increasingly, I’ve come to believe that it’s much more about psychology than strategy. We need to understand the emotions that are shaping and driving our actions. And in the business world, again, the culture we have today is emotions are a distraction; focus on the numbers and do the analysis and everything else will solve itself. But I think in that context, this notion of narrative has become a key piece to our approach, which is… And again, I’m sorry if I go on a bit, but I make a big distinction between stories and narratives. Most people use the terms to mean the same thing. For me, a story is self-contained: it has a beginning, a middle and an end to it. It’s over the end. And the story is about me, the storyteller, or it’s about some other people. It’s not about you in the audience. You can use your imagination, figure out what you would have done, but it’s not about you. In contrast, for me, a narrative is open-ended — there is no resolution yet; there’s some kind of big threat or opportunity out in the future, not clear whether it’s going to be achieved or not, to be resolved, and the resolution hinges on you. It’s a call to action to the people who are hearing the narrative to say, “Your choices, your actions are going to help resolve this narrative. What’s it going to be?” And I think, in that context, if I focus on opportunity-based narratives, that helps to inspire people and excite them, and helps them to overcome their fear and act in spite of their fear.
John: One of the reasons we’re such strong proponents of the zoom out — zoom in approach is because if you think about it, at one level, it’s not framed this way in the strategy domain but you can think about the zoom out as framing that opportunity out in the future. What’s that really big opportunity that we could focus on and become over time? And then, it focuses people on short-term action and impact, which helps to inspire people — there’s a really big opportunity out there — but also overcome the skepticism that many are going to have who are afraid to say, “Well, wait a minute! That’s just fantasy. That’s never going to happen.” “No, we’re actually having an impact today, we’re making progress towards that opportunity. Come join us.” So I think it can be a powerful way to address and overcome the fear.
[00:21:11.24] Ben: The companies you’re working with at the moment, how good a job are they doing? Or how tough is it to translate this pandemic, into an opportunity and not into something to be fearful of?
It’s early days, still, but my counsel to companies is, find alternative approaches to advertising-based business models, if you really want to build trust and deeper relationships with your customers. — John Hagel
John: It’s hard to generalize, but, at least, in my experience with the companies that I’m dealing with, it’s still very much driven by fear and short-term focus, understandable at one level — I mean, many companies are struggling to make payroll for the month and continue to exist. And so, that definitely holds people back to a very short-term time horizon and just focusing on survival versus how can we learn from this? What are the things we could change that would help us to become even more effective and successful in the future?” So, I think the fear is definitely dominating, in my experience, the reaction to the pandemic versus viewing this as a catalyst for change.
[00:22:15.17] Ben: I want to slightly shift gears if that’s okay. So far we’ve talked about evolving strategy in response to the big shift. Now, let’s just focus a bit on how business models need to change in response to the big shift. I think you’ve written a lot, and I think you’re one of the earliest people to flag this, which is, in a lot of the platform business models we see today there’s this kind of inherent conflict between the consumer and the producer because in the middle you’ve inserted an advertisement, right? So, I think you’re one of the first people that I can quote, who was starting to question the sustainability of these “free models” that depend on that advertising revenue because they introduce that conflict of interest. But, I suppose, we haven’t yet seen. I mean, I think for a long time we’ve anticipated that maybe Facebook was about to move into negative network effects, but it hasn’t really happened. Do you still subscribe to the view that these advertising-based business models are inherently unsustainable? And when do you think we, as consumers, wake up to this? And when do you think these business models start to perform worse or not as well as they have done?
John: Yeah, there are a lot of challenges with the advertising-based business models. I think, certainly, one of them — and it was the whole focus of the book ‘The Power of Pole’ — was advertising intrinsically is a push-based model. It’s all about how to intercept people, get your message, push your message to them, push to get attention. Our belief is that model is increasingly challenged. The number of options that are trying to push to get our attention is significantly increasing and we, as customers, are becoming overwhelmed with all the attempts to reach us. So, I think that’s one piece to the puzzle. The other piece is that it goes to the notion of trust and perception of what interests are you serving when I interact with you? Is it my interest? Or is it somebody else’s? And, intrinsically, in an advertising-based business model it’s the advertiser paying the bill so the attention and focus are going to be on their needs and what do you need to serve them? It’s an interesting question.
John: I do see early signals. Again, I don’t think it’s a massive movement, yet. But, if you look at, for example, the adoption of advertising blocking software on the Internet, it’s skyrocketing. It’s significantly expanding. More and more people are using that to block the ads that are coming in. I think there’s also, again, early signals, but a lot of people who are active users of some of the social media platforms are pulling back and now saying, “Wait a minute! Do I really want to share this? Can I trust that it’s going to be used for my benefit versus somebody else’s?” And then, the other thing is the growing call — and again, I think it’s early days, but it’s enough evidence out there — that the mobilization of people for the regulation of online businesses and around data capture and around advertising and all the rest suggests that people are less and less open to having that model and having their data being used for that purpose. It’s early days, still, but my counsel to companies is, find alternative approaches to advertising-based business models, if you really want to build trust and deeper relationships with your customers.
[00:26:15.14] Ben: What you paint is this alternative or a better model is a model where you have alignment, right? So, I’m helping you to make better decisions to find products or services that are better suited to your needs. And so, it’s a model where I very clearly give you the consent to use my data in exchange for you doing something that will benefit me. So there’s total alignment, there’s trust, and also, an expression that you use, “In our attention-stuffed age, it’s about helping us to get a higher return on the attention that we afford to your platform.” So I can definitely see how that’s the next model to triumph. And I listened to everything you say about regulation and people turning on ad blockers, but we haven’t yet seen, as far as I’m aware, anybody who’s really profiting from this new idea of a trusted advisor or an intermediary. Have you seen examples in the marketplace that are really starting to work?
John: Not in any massive way. I mean, I think there are, again, early signals. I’m frankly, frustrated. I’ve been talking about these opportunities for quite a while. The challenge is it requires a massive cultural shift for a company to really address this opportunity. And the focus is, again, much more on the scalable efficiency and just doing things faster and cheaper and more incrementally. So, I think some of the early indicators — again, not perfect — there are companies in Asia that are being much more effective at mobilizing large networks of third parties to provide value to their customers, positioning themselves essentially as a trusted advisor. It’s more in the business to business space in those situations — things like the motorcycle industry, the clothing industry. So, there are some examples at that level.
the evidence is that customers are becoming more and more demanding and less and less willing to accept something that’s standardized, mass-market product or a bundle of things, some of which are good and others that are not that good. We want the best in whatever product or service category we have a need for and we want something that’s the best in the sense of addressing our individual needs, not just the mass market or even a large segment, but our specific needs — what would be the best product or service? In that context, we believe that that is a force that’s going to drive fragmentation of product and service businesses. — John Hagel
John: I think, one that’s intriguing to me, although, again, relatively early stage — not in terms of time, but in terms of real development — is what Johnson & Johnson has done with Baby Center website: they invite parents with small children, babies who are experiencing a very challenging life event and offering them a space to connect with each other and get help from each other, learn from each other about how to be more effective as a parent with small children. And so, I think it’s this notion of, again, being proactive in connecting the customers with people who can help them. And, at least in the US, that’s become a go-to place for millions of people. Parents with small babies are going there because the word is spread. And it’s the power of pull in that case because they’re not doing advertising for this website. The word is spreading — a parent with a baby has a friend who just had a baby and says, “You need to go to this website. It’s really helpful.” And so, it’s word of mouth and this draw because it’s so helpful to the person.
[00:29:43.27] Ben: Yeah, with that Johnson & Johnson example, I think you’ve more or less answered the question I was going to ask you, which is a kind of a paradox — and I know you like paradoxes — this idea that you could imagine I have your trust and in exchange for you sharing your data, I’m giving you useful information back. But without engagement, people won’t return enough to the site and won’t show enough data to make that site truly useful. But I think you’ve kind of answered it, which is, it has to be both, right? You have to achieve trust and engagement at the same time, otherwise, you won’t have a big-enough factor, and enough data to be able to be really useful to people’s lives. And I guess also, the social aspect helps with what you term as ‘scalable learning’ — which is, it’s only through many-to-many interactions that you can learn fast enough to really materially improve the learning curve, materially move up the learning curve.
John: It’s definitely complicated. I don’t suggest this is easy, at all, but another example that I use — and again, this is from quite a while ago, in the mid to late 1990s — a company here in Silicon Valley, Cisco, making networking equipment, created an online website called ‘Cisco Connection Online’. And what they were doing was they were inviting prospects — people who were interested in their equipment — to go to this website. And what they would do on the website is they would start by asking two or three questions — just “Tell me something about yourself.” And then, based on those questions, they would immediately provide tangible advice and value back to that prospect, to say, “Okay, based on that, here are the kinds of things you should be thinking about and why those could be valuable to you.” But then, they would ask another set of questions. And it was this notion of rapid staging to build trust, that you’re not presenting them with a five-page questionnaire or survey. It’s two or three questions; they’re providing real tangible value back to them, and then, based on that, asking for more information. And the experience was customers were more and more willing to share more detailed information about themselves because they were getting real value back in return.
John: And another piece to the Cisco platform, which was, I think, an important part is, based on the answers to the questions, Cisco would start to connect you with experts based on your needs. So, they might come back and say, “Well, based on your answers, you haven’t really clearly defined your need yet. You could benefit from having a consultant work with you to really frame the needs that you have. Here’s a consultant that you might consider.” And they make an introduction and connect the customer with a third party. Cisco had 40,000 specialists or experts within their network that they could connect customers with. So again, word spread among people who were interested in networking equipment that if you go to that Cisco site, it’s really helpful. It can help you figure out what you really need. And then, once you figure out what you need, another key piece to this platform was, once you bought the networking equipment you had needs like staging the site, the location for the networking equipment. So, Cisco would connect you with a specialist who could prepare the facility for the equipment, training people — people who could come in and help train your employees to get more value. So after the purchase, it was continuing that focus on how to help the customer get more and more value from the products that they had purchased.
while we see fragmentation in the product and service businesses, we also see concentration in a set of other businesses, starting with things like running data center operations, logistics — businesses where there are significant economies of scale, and network effects that can really drive scale over time. And, in fact, part of the reason we see fragmentation in the product businesses is because you have those concentrated resources you can tap into. — John Hagel
[00:33:40.01] Ben: I wanted to ask you about the fragmentation that is bundling. You envision a future state where we see massive fragmentation because if we move to a state where platforms are really connecting us with the optimal service of each individual, then we have much more self-heterogeneous suppliers. We actually move to a longtail-type concept where you could optimize just for a very small demographic of people in each case. Do you really think that that is going to be the end state? Or do you think you’ll always be able to bundle an inferior product with a great product, if you can bundle the pricing?
John: Yeah, again, this goes back to our view of the big shift, and the evidence is that customers are becoming more and more demanding and less and less willing to accept something that’s standardized, mass-market product or a bundle of things, some of which are good and others that are not that good. We want the best in whatever product or service category we have a need for and we want something that’s the best in the sense of addressing our individual needs, not just the mass market or even a large segment, but our specific needs — what would be the best product or service? In that context, we believe that that is a force that’s going to drive fragmentation of product and service businesses.
John: We’re starting to see it. I mean, the early-stage trend for this was actually in the digital space, where things like music, videos, software have seen exploding fragmentation, more and more options that are available for very specific customer interests or needs. And it’s starting to spread into the physical product space. My favorite example because I’m a chocoholic, is craft chocolate. Ten years ago, 20 years ago, there were three or four global brands of chocolate; that was what you had, and that’s all you could get. Increasingly, we’re saying, “No, that’s not enough. We want chocolate that’s tailored to our very specific tastes and interests”, and there are more and more craft companies — small, profitable companies. I mean, again, part of our view around fragmentation is, while these companies will be small, they will be quite profitable. It’s just that they’re not going to grow into massive, multinational companies in the way that the traditional mass-market companies did.
John: But also, I will say, too, that while we see fragmentation in the product and service businesses, we also see concentration in a set of other businesses, starting with things like running data center operations, logistics — businesses where there are significant economies of scale, and network effects that can really drive scale over time. And, in fact, part of the reason we see fragmentation in the product businesses is because you have those concentrated resources you can tap into. I don’t need a data center if I’m a small product company — I can just rent space in the data center. I don’t need to have my own trucking and logistics operations — I can contract that out. So, I can access the scale assets and resources that I need for my business without doing it myself. That allows me to stay small and profitable.
John: And then, on the other side, I think the big opportunity — which we briefly touched on, but I think is more speculative, but ultimately more interesting — is this notion of a trusted advisor. As you’re confronted with more and more choices as a customer, as you see the fragmentation of products and services and the rapid evolution of products and services, having somebody you trust, who can really help you connect to the products and services that are most relevant to you, is going to really be hugely valuable. And our view is, the trusted advisor has what we call economies of scope, in that the more I know about you as a customer, the more helpful I can be to you as a trusted advisor, versus if I just see a small slice of who you are. And the more other customers I am serving, the more helpful I can be to each individual customer because now I can say, “Well, customers like you have gotten huge value from this product or service you’ve never even asked for it.” By the way, a key role for the trusted advisor, in our view, is not just waiting for a customer to ask for something — it’s being actively challenging to the customer to say, “No, you asked for this. You really should be looking for this and here’s why.” Or “You haven’t asked for anything but here’s something that could be really valuable.” So, it’s challenging to get more value for the customer.
One of the key challenges in our view is most institutions today are run by a scalable efficiency model, versus a scalable learning model. In the scalable efficiency model, the one message that every employee hears is ‘failure is not an option’. You will deliver as predicted, as expected, reliably, and efficiently. But what’s required for learning, especially learning in the form of creating new knowledge? Failure! If you’re not failing, you’re not learning fast enough. — John Hagel
[00:38:51.12] Ben: I 100% agree with that. The way you depicted the future economic state where you have a small number of players that have a very large supply side economies of scale, and you have a few number of players who have a very large demand side economies of scale. And in the middle, you have this proliferation of producers, right? So, you can borrow the scale from those people that have supply side economies of scale so that you can produce at much lower unit costs and then you distribute through those people who command attention. I think I would totally agree with that end state. I think what we haven’t seen yet is a shift in who aggregates demand. Because I think what we’re seeing is — and I totally agree with you — it just hasn’t happened yet — which is the precondition, ‘to aggregate my demand is you have to have my trust.’ And I think at the moment, the precondition is ‘you’ve got to have engagement and then we’ll pay you 40% of our revenues so we can get access to your customer’. I think that’s the bit that will change, but just I’m not sure how quickly.
John: Yeah, it’s early stage. But again, if you look at the fundamental forces reshaping the economy, our view is that that’s going to unfold over time because there’s a growing unmet need for that kind of service. We’ll see how it plays out.
[00:40:06.14] Ben: I want to talk to you next about lifetime learning. So, clearly in the big shift — which is in many ways an acceleration of economic activity and an acceleration of change — the knowledge that we accumulate will depreciate faster, necessarily. And I think, as you said, it’s sort of almost Canute-like to just try to read more books and go to more courses. And so, what you’re saying is we have to put in place something that will achieve scalable learning. How do we do that?
John: I think most people, when they hear ‘learning’, especially executives, will say, “Well, yeah, we have training programs, we do learning.” Actually, in a world that’s rapidly changing, learning in the form of sharing existing knowledge, while it’s still helpful, is not where the greatest value is. It’s learning in the form of creating new knowledge and doing that through action in the workplace as you’re confronting new situations that have never been confronted before, and connecting with others so that you can learn faster — when you confront those situations, who can I connect with that is going to help me figure this out and come up with an approach that really would create value in this context? It’s got huge implications for how we do business. I mean, one of the key challenges in our view is most institutions today are run by a scalable efficiency model, versus a scalable learning model. In the scalable efficiency model, the one message that every employee hears — if not daily, it’s certainly very frequently — is ‘failure is not an option’. You will deliver as predicted, as expected, reliably, and efficiently. Well, okay, I got that message. What’s required for learning, especially learning in the form of creating new knowledge? Failure! If you’re not failing, you’re not learning fast enough. You’ve got to learn from the failures and figure out what the right approaches are. But again, there is that fundamental conflict between those two messages. And that’s why many companies try to just isolate the learning and innovation labs or incubation centers somewhere off on the side and focus everybody else just on staying true to the manual. So, I think that it is a massive cultural shift.
the people who are just doing work because they want to get a secure income or paycheck are the ones who are going to struggle with lifelong learning. — John Hagel
[00:42:34.01] Ben: John, what about as an individual? Because I suppose we have knowledge stocks that are also depreciating very fast. How do we learn faster?
John: I think it’s an interesting question! We increasingly are hearing in the world the need for lifelong learning because the world is changing so much, but nobody talks about why. What’s the motivation? I mean, why would somebody engage in this? It requires a huge amount of effort, it takes you out of your comfort zone. The unstated assumption, I think, is that most people do it out of fear. If you don’t pursue lifelong learning, you’re going to lose your job, you’re going to be out of work. And so, get to it. My belief is while fear can be a motivator to learn at some level, it’s not a very powerful motivator. The most powerful motivator is passion. And we have a very specific form of passion that we focused on in our research. We call it ‘the passion of the explorer’. Our belief is that people who cultivate this passion find out what they’re really passionate about and then find a way to pursue it as a profession, as a way to make a living. Those are the people who are going to learn the fastest because they’re excited by, driven by the need and opportunity to learn. They’re not doing it out of fear — they’re doing it because they’re excited about it and they’re constantly seeking it. So, our sense is that the people who are just doing work because they want to get a secure income or paycheck are the ones who are going to struggle with lifelong learning. The ones that are going to be most successful are those who are working out of passion.
[00:44:16.14] Ben: So early on, we talked about the whole move to craft, right? And you talked about chocolate and if you’d asked me to give an example, I would have talked about craft beer. But I suppose in a way, that’s a manifestation of people actually moving to do things that they’re passionate about. There’s this whole return to craft and therefore, becoming artisans and doing something they’re passionate about allows them to create this motivation for them to continue to learn.
John: Absolutely! I think a key driver of fragmentation in the economy overall is this quest for passion and many people are passionate about very creative kinds of activities and developing products that are tailored to very specific needs. But I think you can be passionate about virtually any activity. It just depends on looking inside, what really excites you, and then continuing to search for that, until you find it — and then finding a way to make a living from it. You’ll be quite successful in a world that requires lifelong learning.
Our view is that, as we move to the scalable learning model, there’s still value in connecting with people outside the organization but it’s with the objective of learning together so that we can actually rapidly improve our performance in whatever the work area is. And in that context, the notion is that the independent contractors are increasingly going to want to connect with each other because they’ll learn faster as a small group — John Hagel
[00:45:22.24] Ben: How does scaling the edge tally with, or how is it compatible with the organization, at large, learning faster? Because it’s almost something that you said earlier on, implied that you think some of these things like innovation centers and so on are a bit of a sideshow. They’re never going to achieve the large scale, systematic changes that are necessary for an organization to really learn at a much greater scale.
John: Again, it’s a challenge. I sense it’s unlikely that you’re going to get the entire core of your business to fully embrace all aspects of scalable learning because that does require massive transformation. On the other side, again, I go back to this notion of strengthening the core. We have a framework that we call ‘metrics that matter’ that can help you target elements in the core where you could start to drive some of these scalable learning principles and approaches. And the example I give for metrics that matter, is, start with the financial metrics of the company as a whole. And just as an example, revenue growth is a big challenge. Okay, let’s drill down one more level to operating metrics. What’s holding us back from revenue growth? And in this illustration, it could be, “Well, we’ve got a high rate of customer churn — customers are leaving at a rapid rate so we can’t grow revenue.” Okay. Drill down one more level to say, where in the front line is there a metric that could really make a difference in customer churn?” And in this illustration, again, it could be Call Center Operations, it could be, “Well, customers are calling us and they’re getting frustrated they’re not getting answers to their question.” Okay, now we have a very specific part of the company in the core, where there’s a big need, and it could influence the performance of the whole company. Let’s focus, again, with small moves targeted to this particular area, and say, “How could we help the customer call center operators learn at a more rapid rate in terms of addressing unmet customer needs?” The intent is to show real impact quickly and to build more credibility and support for doing this in other parts of the organization versus just customer call centers.
In a network, if you design the network and the relationships in the network so it’s not just transactions — buy low, sell high — but we’re all committed to learning faster and accelerating our performance improvement, that’s powerful as a motivation to participate in the supply network — John Hagel
[00:47:48.04] Ben: On the gig economy, again, you’re starting to craft a different narrative from the one we tend to read about every day, which is, most of the stuff you read about the gig economy is, it’s a race to the bottom, right? By not allowing people to act collectively and by putting them on different types of contracts, we just get people to work harder for less money. That’s one narrative. And I think you’re starting to reframe the narrative by saying, “That might be true today, but we’re going to see a different type of gig economy job, in time.” And then, the second thing is, we’ll start to see gig economy workers form collectives, right? Not collectives in the sense of trade unions or anything, but they’ll start to form groups where they can collaborate together in order to learn faster and achieve better quality at scale. And so, can we break that down? Can we start with why you think the gig economy will move upstream in terms of requiring different types of skills and, I suppose, creating jobs that are better paid?
John: Yeah, I think, again, it has to do with this broader focus on the big shift. In the scalable efficiency world — which is the world we’re largely in still today — the gig economy emerged largely as a result of a drive towards more efficiency: if we can take fixed labor cost and transform it into a variable labor cost, and potentially access the labor in lower-wage regions or countries, we’ll become more efficient. And that’s the gig economy. Our view is that, as we move to the scalable learning model, there’s still value in connecting with people outside the organization but it’s with the objective of learning together so that we can actually rapidly improve our performance in whatever the work area is. And in that context, the notion is that the independent contractors are increasingly going to want to connect with each other because they’ll learn faster as a small group than they will, just sitting in the isolation of their home or wherever they are. But connecting and now offering their services as a small group — five people maybe — they will learn faster, they’ll help their customers to learn faster in terms of whatever their needs are. And one of the things I’m intrigued by is the degree to which the big shift is producing a return to the past and I think one of the interesting trends that I anticipate in the gig economy is moving to what I call the guild economy, where, as you said, people with similar areas of interests are going to come together in guilds. And again, it’s not with the desire to just hold on to what they have, it’s to connect so that they can learn faster together and help each other learn faster. And that’s a very different kind of mindset or model.
In the big shift world, the winners are going to be those who learn faster. The ones who are going to learn faster are those who are more networked and connected with a broader range of more diverse expertise and resources. And so, if you’re just narrowing your connections, we believe you’re going to be increasingly disadvantaged relative to those who continue to expand their connections and harness the power of networking on a global scale. — John Hagel
[00:50:53.26] Ben: I think you’re right, and I think another reason why that might happen is because, at the moment, a lot of this gig economy is mediated based on ratings, right? So I won’t take an Uber driver, theoretically, if they’ve got a 4.2 rating versus a 4.8 rating, or whatever, or I won’t use a tradesperson if they’ve got a low rating. But if we think the gig economy is going to step up and do more and more complex work, then it’s going to be harder and harder to mediate that work just based on ratings because there’ll be much more complex deliverables, which will consist of many people contributing to that deliverable. And, at that point, I think is when it makes sense to create guilds or some sort of collective bodies because simply having a four-star rating is not going to be enough if I want you to build my home and plummet — whatever the example might be. I just think the deliverables become more complex, so it lends itself to some sort of intermediation. What do you think will happen to globalization in light of this pandemic? Because, I think one of the things that we realized was that our supply chains were much more fragile than we thought. So, do you think that will, to some extent, put the brakes on physical trade? Do you think we’ll end up reshoring a lot of manufacturing?
John: Clearly, at one level, there’s this desire to have things closer to me so that I can rely on them more. But, on another level, if you’re just taking the supply-chain mentality, and again, it’s a longer conversation, but broadly, the scalable efficiency model says, “You want a supply chain with as few participants as possible and tightly integrate and tightly specify every activity that’s done in that supply chain.” That makes for a very brittle and fragile supply chain in times of extreme events like the pandemic. And just bringing all those activities onshore, closer to where you are, is not going to solve the problem; it’s still going to be very brittle and fragile. Our belief is the real need is to expand our horizons from supply chains to what we call supply networks where you are working to orchestrate a very large number of participants and pulling them in, as needed — as specific situations arise — versus “No, I’ve just got this one supplier who depends on this other supplier that depends on that supplier.” No, it’s increasing the range of participants so you have more flexibility. And by the way, so that you can learn faster. In a network, if you design the network and the relationships in the network so it’s not just transactions — buy low, sell high — but we’re all committed to learning faster and accelerating our performance improvement, that’s powerful as a motivation to participate in the supply network.
[00:53:57.20] Ben: It’s almost self-evident, but just, as more and more activities move online, they become intrinsically more networked. And so, would you argue that what we’ve been seeing over the last few decades is supply is becoming more networked and therefore, what we might be seeing now is an immediate reaction where we’re trying to, again, put up barriers, but effectively, the secular trend towards more networks and more ecosystems will trump the immediate backlash to erect borders and become more nationalistic?
John: In the big shift world, the winners are going to be those who learn faster. The ones who are going to learn faster are those who are more networked and connected with a broader range of more diverse expertise and resources. And so, if you’re just narrowing your connections, we believe you’re going to be increasingly disadvantaged relative to those who continue to expand their connections and harness the power of networking on a global scale. So, in the short term, yes, because of fear, we may see borders come up and barriers to movement come up. But over time, our view is the countries and the areas that maintain openness and connection are going to be the ones that thrive. And over time, those who are putting up these barriers are going to realize that they’re being disadvantaged and start to reconnect again.
[00:55:30.08] Ben: I know that every one of your blogs finishes with ‘the bottom line’. So I wonder if I could end this podcast with the bottom line, which is a summary of what the big shift means — if we can summarize it. And then, the last thing is, reasons to be optimistic about how we overcome the fear and inject the optimism to make it happen.
John: Well, I’ll end with a paradox — it’s what I call ‘the paradox of the big shift.’ If you think about the big shift, at one level, it is creating exponentially expanding opportunity. We can produce much more value with far less resource, far more quickly than would have been imaginable a couple of decades ago. Huge opportunity! At the same time, the paradox is the big shift is also creating mounting performance pressure on all of us. As individuals and as institutions, we’re experiencing more and more pressure. It takes many forms: intensifying competition, accelerating pace of change, extreme events that come in out of nowhere and disrupt our best-laid plans — witness the pandemic. So, you’ve got the interesting thing that the big shift is, at one level, creating exponentially expanding opportunity; on the other side, mounting performance pressure. And the challenge and imperative, I believe, is how do we move from that mounting performance pressure to exponentially expanding opportunity?
John: And the overlay here is that mounting performance pressure induces fear, it creates an emotion of fear. I think it’s notable around the world the extent to which fear is becoming the dominant emotion. But, in that context, I think the way to move forward and move from that pressure to opportunity is around framing what I was describing as opportunity-based narratives that can really focus people and inspire people on the really big opportunity and help people to come together. I think, again, one of the key roles of narratives, the way I define them, is to bring people together saying we all need to address this opportunity. You can’t just do this individually. And that’s, to me, what gives me the optimism, is that framing that kind of opportunity-based narrative can help overcome the fear and help mobilize us to address that exponential opportunity. But it requires articulating that opportunity-based narrative.
Ben: John, thank you so much for coming on the podcast!
John: I appreciate the opportunity. Thank you! We’ve covered a lot of ground!
