Renowned management philosopher Gary Hamel is the author of concepts such as strategic intent, core competence, corporate imagination, strategic architecture, and industry foresight. He is author of the management best-seller Competing for the Future, many magazine articles, and the new book Leading the Revolution (Harvard Business School Press, August 2000). Hamel is the founder and chairman of Strategos and visiting professor of Strategic and International Management at the London Business School. In this interview, Hamel talks about his new book, his company, and what corporations must do to create their desired futures.
UBIQUITY: Many people think that you are possibly the most influential, important and interesting management philosopher since Drucker, which makes me wonder how you see the landscape of consulting. What's your estimate -- without getting yourself into trouble -- of what is offered by management consultants in the United States or throughout the world?
HAMEL: That's a big question. Let me take a crack at it. . . . If you track the history of the consulting business, its real growth came in the '60s and early '70s. Essentially what happened was we finally really recognized business education as being something important and vital. Business schools were producing these very smart and analytical young MBAs. Large companies had not yet really recognized these credentials and were not hiring these people in large numbers. But the consulting companies were. Therefore, if I was a large company, and I had some particularly intractable, difficult analytical problems to solve, it was only natural I go to one of the firms that was hiring the top 10 percent of MBAs from the best schools. I think what has happened over the years is that companies have hired a lot of their own MBAs; they have a lot of analytical horsepower inside their own companies. In some senses the role of consulting companies has shifted from that of intractable problem solver to being the trusted second opinion. The industry was and still is an industry of substitute brains. So a company was either not smart enough, didn't have enough time or didn't trust its own judgment enough to decide things on its own. So you hired these substitute brains. I sometimes said, only slightly cynically, you paid a lot of money for somebody else's 29-year-olds to learn about your industry.
UBIQUITY: How were the consulting companies typically organized?
HAMEL: The consulting companies were highly pyramidal where the way you made money on a client was you put in as large a team as you could. You had a lot of young people that you paid X amount and billed out at 3X. If you survived the lifestyle and the travel gauntlet of the average consultant for the first six or seven years, then you maybe got to be partner and could live off of that pyramidal structure. I think there's always going to be a market for companies providing advice and built in that way.
UBIQUITY: How has the role of the consultant changed?
HAMEL: A couple of things are changing. First of all, I think more companies are saying, "We are not going to let an outsider come between us and our strategy." A strategy that is passionately believed in, that is competitively different and that is articulated in enough fine grain to act on is not something that we're going to get out of a consulting company's report. Therefore, what has happened -- and I'm pretty sure I'm right on this -- is consulting companies are doing less strategy work -- I mean really worrying about the future of the enterprise and where is the next billion dollars of revenue going to come from. They're doing more operational improvement work: How do we make our distribution system in the tri-state area work better, how do we get rid of the product lines that are substandard in their returns, or how do we integrate our supply chain?
UBIQUITY: You mentioned there are a couple of things . . .
HAMEL: Something else that happened along the way that diminished the appetite for strategy consulting was that companies came to believe that strategy was the easy thing and implementation was the hard thing. Indeed, strategy looked pretty easy if all it was was a bunch of 29-year-olds who worked for a few weeks and then gave you a report. I mean how difficult was that? I think a lot of attention shifted from the elegance of strategic planning and wonderfully reasoned reports to: How do you help us take out the next billion dollars in cost? I think the bloom is off the rose in strategy consulting for all of those reasons.
UBIQUITY: What is the biggest problem with consulting?
HAMEL: For me, the biggest problem with consulting, as it's often practiced, is it is fundamentally disempowering. I mean the idea is that we will do it for you. The whole thesis of my book is that innovation is the next fundamental, competitive advantage; that companies are going to have to reinvent themselves profoundly every two or three years, not once a decade. That capacity for radical innovation is a company's only insurance policy against irrelevancy. Therefore, that capacity is not something that can be outsourced.
UBIQUITY: Where does your company Strategos fit in the picture?
HAMEL: At Strategos we see ourselves as being very good at helping companies create a whole bevy of radical, new strategies. In fact -- I guess I can say this with little fear of contradiction -- I think we are the most successful incubator in the world in terms of actually producing billions of dollars of new wealth for clients out of new ideas that have changed industries. We just haven't chosen to kind of go to market that way and make a big deal about that.
UBIQUITY: Why not?
HAMEL: In all of our practice since the beginning, we have been as interested in helping our clients create capability as we have been in helping them create content in the form of cool new strategies. From the beginning we have always believed that our work has not ended until we can point to a real difference in a company's market value. Until you've made a difference in market value, you haven't done anything really.
UBIQUITY: Back to your phrase "substitute brains." Is Strategos a substitute brain?
HAMEL: We've always seen ourselves as the catalyst rather than substitute brain. We have a responsibility for technology transfer and building capability so that at the end of the day the client doesn't have to come back again to learn how to do that particular thing.
UBIQUITY: Tell me a little bit about Strategos itself; who many people do you have, and so forth.
HAMEL: We have about 20 professionals based between here and Menlo Park, Chicago, London, Sao Paolo, Brazil and we have a like number of support staff. In any given year, we're probably over-subscribed by three or four times in terms of the amount of requests we get versus what we can do. We never set out to build a big, professional service company. We set out to build the tools and the methods and the practices that companies could use to make innovation and capability.
UBIQUITY: What are some of your recent projects?
HAMEL: We have just signed a deal with a company called Quisic (formerly University Access), probably the premier e-learning company in the United States. We've signed a deal for them to take all of the tools and methods that we have used with large client teams to provoke new thinking and new strategic options. We'll take all of that stuff and put it online so that any company that wants their employees to have access to these tools can make it so. So we are trying to make the core technology in our practice available to anybody and everybody. We are also working with a small group of global companies to help them build a company wide IT-based innovation platform -- a literal marketplace for innovation that brings ideas and talent and capital together dynamically from all across the broad expanse of their company.
UBIQUITY: So do you consider Strategos to be a consulting company?
HAMEL: I don't think anyone will look at us as a consulting company. They will see us as the guys you go to if you want to deploy an innovation solution in your organization and if you want to build an innovation engine that will keep chugging along. If you want a bad analogy, it's like being to innovation what SAP was to supply chain integration. The challenge now is not how do you manage the flow of order to cash flow, but how do you dramatically accelerate the speed of idea to cash flow?
UBIQUITY: Let me see if I can come up with some bad analogies. In a way, what you're doing is analogous perhaps to the Actor's Studio or to seminary training or to Marine Corp training, I guess. Is that true?
HAMEL: That's not a bad analogy. We believe that this capacity for an organization to be a perpetual and radical innovator or a greater revolutionary, as I call it, depends really on three things. One of them is on individual competence. Just like we had when we were trying to embed quality, we had to teach individuals about statistical process control and per-ratio analysis. We now have to give people the new thinking tools that will allow them as individuals to imagine and edit and improve and champion rule-breaking ideas.
UBIQUITY: Why do we need new thinking tools?
HAMEL: The reality is there are very few people in organizations today who know how to think both creatively and coherently about either how do you radically change existing business concepts or how do you invent business concepts. People tend to think either about a function or a job. We have not yet taught them how to think in this new way. So that's where the training analogy is very apt. My bet is that over the next few years, hundreds of companies will train thousands of individuals in the disciplines and perspectives that are needed to make those people magnets or lightening rods for innovation. It used to be we just said to get people to innovate, let them have 10 percent of their time to lie around thinking or give them $50,000 a year for some kind of a skunk work. There's a lot more you can do now to get people mentally prepared for this. In the book, I talk about many of the routines and the perspectives that are required.
UBIQUITY: What is the second thing?
HAMEL: The second thing that's required is not competence but connection. The speed and the amount and the quality of innovation depend on the number of connections among individuals and their ideas. One of the reasons that global GDP has literally exploded over the last hundred years -- it went from hardly changing for a millennium to suddenly exploding -- is that we have dramatically increased the number and quality of connections between individuals. Whereas 150 years ago the combinational possibilities were those that existed among 300 people in a village, today the combinational possibilities are literally anybody and everybody on the planet who is connected in some way. So to get more innovation in the company, I need to be able to connect the individuals in that company in new and interesting ways. What we've been working on is developing a way for people to make those connections in the cause of innovation. In Silicon Valley that is not a problem because everyone here is separated by one degree of separation. But in large or even modest size companies, it's much more difficult because of organization and geographic differences.
UBIQUITY: And the third thing?
HAMEL: The final thing that's required is climate. And that's just a broad catchall saying that we have organizations, for the most part today, that were built for the Industrial Age. They were built for an age in which scale, efficiency, replication, dual hierarchy, and control were things that caused you to win. And in fact, most of our management, processes and systems look at variety as a bad thing. Variance from a budget is a bad thing. A variance from a quality standard is a bad thing. So we're going to have to create new climates in organizations that reflect these new realities -- that yes, diligence and scale and quality are all very important but now we need self-organization, imagination, adhocracy. Those things have to be valued and seen as legitimate and not seen as simply strange deviances from our otherwise perfect alignment and unending pursuit of efficiency. That climate is also partly about training. It's certainly about changing the mindsets and perspectives of many leaders in many companies. Those three things -- the confidence, new connections that lead to new conversations and then finally, a new climate and almost a new set of guiding principals for organizational design -- all have to come together to make the kind of innovation I'm talking about in my book a deeply systemic capability.
UBIQUITY: Speaking of the book itself, Harvard Business School Press did a wonderful job. Don't you think?
HAMEL: I think they certainly met all of my expectations and more. When I started with the book I had said to them I don't want to write a book on innovation that looks like every other business book. I would have loved to simply do it on the Web or something, but that technology is not yet really ready for prime time. People are not going to read long, deep passages while staring at their computer screens. I said, at least, I want this to have a different look and feel than one more boring, business tone.
UBIQUITY: Itï¿½s gorgeous. Speaking of appearances, when you were talking about changing the climate, hereï¿½s a trivia question for you. Many companies now that were three-piece suit companies not too long ago, are now casual 24-hours a day, seven days a week. Is that an inconsequential fact, or is that somehow significant?
HAMEL: I think that is a very consequential fact because it has done two things. One, it has democratized the workplace because in many senses the dress was the code for position. That doesn't say that you can't tell the difference between a $150 golf shirt and a $25 golf shirt that somebody might wear to work. I think it's generally a good thing because it tends to remove some status symbols. The second thing, which has happened less but certainly is in the right direction, is it has diminished some of the conformity. Although, one of my kind of favorite things now when I'm talking to a large group of people at a company that's business casual -- and I suppose this works better for the men in the room than the women -- is to start by asking everyone who's wearing khaki trousers to stand up. Usually, it's about 80 percent of the audience. So I say, we may have abandoned one uniform for another. (Hopefully, it's done something for the GAP share price.) Wearing a blue Chino shirt and khaki trousers is probably better than wearing a three-piece suit, but it would be even neater if you saw some real variety.
UBIQUITY: Let's end on what might appear to be a negative note. What kind of resistance have you seen to your own ideas and to their implementation? In other words, a couple of years ago it was frequently said by management that the biggest struggle was people resisting change. Do people still resist change? Or are they pretty much open to change and just don't know how to change?
HAMEL: I have never felt a lot of resistance to the kinds of things I am calling on companies to do. I think that my colleagues at Strategos and I have gotten better at actually telling somebody, "Here's what it means to do this. Here's what it really means to be an all-time radical innovator." If 10 years ago I had been giving a lecture to an organization in the Soviet Union and I had said, "You must become truly customer focused," at some level they might have agreed with me. But they had no mental models of what that meant; no context. So I think that has been the drawback. I've felt that we are where the quality movement was in about 1960 or 1965. You have to show companies the way. One of the things that we've had great success with over the last few years is a unit at Strategos called the Strategos Institute.
UBIQUITY: Who is in the Strategos Institute and what does it do?
HAMEL: It is comprised at various times of companies like General Motors, Enron, Shell, Hewlett-Packard, IBM, Nokia and others. We've really felt like pioneers where the goal is not to come into a company and set up an incubator somewhere that's an orphanage for unloved ideas. The goal is not to come in and do a three-month consulting project to spawn a few ideas. The goal is to invent the training, the systems, the new metrics, and the innovation processes that will allow this to move from dream to reality.
UBIQUITY: Are organizations comfortable with the idea of constantly reinventing themselves?
HAMEL: People in companies are anxious to create their own future rather than simply follow industry norms. They're anxious to be seen as the architects of the new but really haven't known how to do it. That kind of knowledge gap is represented in a very interesting phenomenon that we observe. If you read almost any annual report today of any company they will mention innovation as something that's very important to the company. But if you ask them, "What are you really doing about this?" once you get beyond R&D and product development, they'll say, "Well, we had a brainstorming session last month at the Ritz Carlton." There's this enormous gap between rhetoric and the reality.
UBIQUITY: How do you close the gap between rhetoric and reality?
HAMEL: There's an interim solution right now where people think that somehow venture funds and incubators are going to help them out. They won't. This is like when the Americans went to Japan in the '60s and came back and said, "It's actually really easy. It's these quality circles that meet on Friday afternoon. And somehow you just have to sit in those and quality ideas will emerge." And slowly, painfully, they realize "No, that's not enough." You've got to train people. You've got to change the metrics. You've got to get your systems aligned to produce end quality results. So right now they say, "Well, this is kind of easy. We'll call in some e-biz consultant and we'll generate a few ideas." It's not going to be that easy. We're talking about reinventing the fundamental ethos of the industrial company. I think there's enough now. We can say that there's a place for company's to begin. Some will be ahead of the group and some will be behind.
UBIQUITY: What is your ultimate wish for the book?
HAMEL: I would like to be part of a group of people who can look back in 10 years and say, "We've created organizations that are more fun to work in and that go through less traumatic cycles of success and failure." That, I think, is the only reason to care about these issues.