Rita McGrath with Rory Sutherland on why big companies kill their best ideas

28:23Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs. Well, no, there's a lot of work that's been done on these kinds of pressures on firms that cause them to do the similar things. So you can take it right now with what we're seeing with layoffs. Yeah. And there's been talk of these are contagion effects. So once one firm says, oh, we're going to do massive layoffs because of AI and their stock goes up, then all the other firms go, hang on. You know, we need to do massive layoffs because of AI. Mr. Sebus has just been writing this morning saying that any business that looks at AI as principally a job destruction technology is completely missing the point.

29:05I would agree. So the two framings, I mean, my little joke was there are two people I really don't want to get control of AI, one of which is terrorists and the second one is the CFO. Because the CFO will automatically look at this as an efficiency and cost reduction technology. Which is to misunderstand the nature of the technology. Completely misunderstand it. Yeah, I agree. There's an analogy, isn't there, in business, which is electrification of factories. Tell the happy viewers about that. Happy viewers about that. I'll probably misrepresent it, but it's a very, very interesting case. Well, if you think about factories before electricity existed, the whole design of the factory had to be built in a linear fashion because you had one power source.

29:49So you had a steam engine or a river or a windmill or something. And the people that were at the top of their game, you know, technologically, were perfect at sort of maximizing the flow of power through that system and absolutely making sure everything worked. Generally, you had one huge source of motive power and everything was linked to it. Exactly. Is that right? Yeah. So linear. So introduce electricity. And now all the machines can operate independently from one another. Now. They don't even have to be co-located. No. No, not at all. But you have the headspace of somebody that for their entire career has said everything's dependent on everything else.

30:26And now all of a sudden you've got independent action. So it took about 40 to 50 years before separate independently powered machines became the norm. And I would argue we're seeing something very similar with AI, which is that we don't even think of all our systems as being kind of linear. And, you know, if you just take a typical corporate function model, right, you've got marketing and you've got accounting and you've got finance and you've got engineering and everybody's in these functions. Well, with the advent of AI, especially agentic AI, the rationale for that really begins to fade. Because what you can do is you can say, okay, agents, you know, here's the thing I'd like to solve.

31:06What's the best way to X? And now these agents who are blissfully unaware of functional boundaries go off and explore all these different possible answers that you could get. Now, the reason this is going to be… Of course, who asked the question will have a massive bearing on what they… Of course. Well, and then you get to the fascinating question of once the machines can provide good answers to just about any question, the importance of being able to define the good question rises. insignificance. Ah. Because one of the analogy I always use for this business of the silo effect, so de-siloing a business, and actually, I would argue, an awful lot of scale in a business was designed to produce gains to specialism, which actually we don't need anymore because the AI is a generalist, or can be at least encouraged to become multi-talented.

32:10Oh, yeah. And it can dig out their specialties when you need them. When you need them. So, effectively, it's a shapeshifter. It's an HR person when you want an HR person, but it's also a financially astute HR person. Is there, I mean, I'm thinking of advertising agencies, and are there actually advantages to scale anymore? In other words, Would the ideal advertising agency of the future be 15 people, perhaps? Well, I think that we are, and this is not just advertising, this is across the board. What we're seeing now is the unit of value creation in more and more sectors is small teams or even individuals.

32:49So there was a guy, an Israeli guy, Shlomo Mayer, I think his name was, who in six months by himself coded a piece of software that was so valuable that Wix bought it from him for$80 million. Six months, one person, powerful coding tools, and something so irresistible that an established player felt they couldn't live without it. And that's just the beginning. Interesting. So the interesting question is, first of all, one of the problems is that these silos are very territorial and very protective. I would argue that some of them, and I've been arguing this for a while, that in many cases, they are guilty of massively biased decision making because they're optimizing for the part, not optimizing for the whole.

33:40I regard procurement as an essentially, it can be done extremely well. There are brilliant procurement people who are strategic and broad thinking. The majority of people in that field, I would argue, it's fundamentally dishonest because you claim the credit for reduction in cost without being held responsible for the opportunity cost or the destruction in value. Exactly. So it's effectively, it's giving a remarkable license to someone with a distorted mindset. Compliance would be similar, which is effectively, you know, it's institutionalizing paranoia to an extent, because, again, you know, it's blame avoidance kind of amplified, I would argue.

34:22and so these silos are deeply unhealthy but they also seem to be incredibly hard to eradicate weirdly quite a lot of the people in these silos seem to have responsibility for making decisions over who gets employed and they are looking to justify their own existence by reducing the level of employment in the core areas of a business's competence okay so you have advertising agencies which go, this is great. We can get rid of a few copywriters. And I'm kind of going, no, no, no, surely we should be getting rid of the people in finance, procurement, and everybody else first, okay? And because, you know, this multi-talented, working 24 hours a day, administrative function should be able to take care of that with far fewer people.

35:09Whereas investing in the people who do what people pay us to do wouldn't seem to be completely ridiculous. What I see is a very weird backwards view where people go, effectively, they regard these businesses like finance as sacrosanct. Someone put it very beautifully. They said, in the 40 years I've been at work, the number of people employed to tell me to work harder seems to just keep on growing. Not people actually doing the work. But in other words, we're employing all these people who are effectively optimizing for billable utilization by bullying the people who are actually valuable. And I actually regard many of these functions as, broadly speaking, thievery.

35:54I almost become Marxist. The workers by hand and by brain aren't actually receiving due returns on the value they create because so much of the money gets hived off towards administrative costs. We see this in universities as well. Oh, my God, yes. Yeah. There was a professor of history at the university. Actually, I would not name the university, had I? Very eminent professor of history at a very eminent university who said to me, he said, when I first joined the history faculty, the administrative function was a woman in her late 50s who knew everything. Now, we seem to have these serried ranks of desks where the administrators in the history faculty outnumber historians.

36:42Oh, yeah. That's common across a lot of faculties. And I actually blame for that. By the way, the woman in her 50s who knows everything was probably underpaid. I'll make that point. Oh, I'm sure. That actually they were probably... And he said, you literally went in, you went, where's Professor Johnson? He's in Lithuania at the moment, but he'll be back on Wednesday. Yeah, that kind of thing. Exactly. All of that stuff was taken care of by those people who I think should have been paid. And I knew quite a few of them at Ogilvy who should have been properly paid twice what they were. If you really factored in the value they created, but also the unnecessary jobs they eliminated effectively.

37:19There's a really interesting book by my former professor, Peter Capelli and a colleague of his. And it's called In Praise of the Office. And what he argues is that when it comes to designing work, we don't actually understand how work gets done. He says, so imagine you've got a problem with your expense reimbursement and you're all in the office and you're all there. And you go down to accounting and you talk to Joe and you explain the problem. And Joe rolls his eyes and says, you're the fourth person this week that's had this problem. Our tech vendor has had a glitch. I'll get back to you on it.

37:53And within 15 minutes, you're done. Versus if you're all spread out all over the place, you send an email and then Joe gets a little defensive because with an email, it can sound sort of accusatory. and then Joe's like hiding the problem that the vendor caused because and and and and it just it just creates this mountain of work that wouldn't even have existed if you had a personal relationship I think that's one big issue I see exactly what you mean right and so and I've experienced this so dealing with the system or the paperwork or the process actually imposes enormous costs which in the absence of what you might call codified practices that person that knows everything yes yes got it got it right um the other thing about universities that i think people don't talk about enough is the really insidious uh effects of the rankings the school rankings uh and this began years and years ago at the undergraduate level at least in in america with um i think it was u.s news i can tell you a story about this oh do yeah Keep going.

38:56But what happened was, and it's back to these, what do you measure? And so what did they measure? They measured things like student satisfaction with their job placement. Rejection rates, they measured. Rejection rates, yes. How selective are you? You measure what salary did you make? And a whole bunch of other things that had nothing to do with the quality of the instruction, or did you learn anything, or were you a different person when you came up? And so what started to happen over the years was in this quest for ranking, budgets started to shift from the stuff that didn't get ranked to the stuff that did.

39:29Of course. So this is literally having worked in marketing for about 35 years. One of the most immoral pieces of marketing I've ever encountered was a university. It was an Ivy League university which knew that it was ranked on its selectivity. In other words the percentage of students that who applied, who were rejected. Right. It therefore wrote to students... To get them to apply. ...who had no chance of getting admitted to encourage them to apply. Yep. So you're there, you're thinking, you know, maybe I'll go to X state university. You get a letter from... I won't... Actually, I won't name them partly because I can't remember which one it is.

40:11Ivy League University saying, we're very eager to see your application. Get your hopes up. Put in the effort. Put in the application. They had no intention of admitting you in the first place. So now that... That is actually... I mean, I'm trying to think of an example from the private sector of equivalent nastiness, and you'd have to go to Purdue Farber to come across something that was quite that nasty in terms of marketing malice, you know. Yeah, yeah, yeah. Well, the fascinating thing about this whole shtick is this worm has turned a couple of times. So now we've got the common application.

40:46So it used to be, back in the day, if you wanted to apply to college, you had to type out your application. Put it in an envelope, take it to the post office. And these were thick things, so you didn't know how much postage. And it required effort. So students would apply to six, seven schools, maybe, maybe eight, if you're really ambitious. Then they digitized the whole thing and made it the common app. And so now students are applying to, I know kids that are applying to 50 schools. It's insane. And so now what that does on the other end, at the receiving end on the college's part, They get all these applications.

41:18So they have to adopt a formula. Presumably, there has to be an AI. I would imagine. But here's what's really dangerous. Back in the day, right, you could kind of tell who was likely, who was unlikely, who was whatever. And of the ones that were likely, you could kind of get a feel for what your statistics were around. If you offered them a place, would they come? Well, once you've got these huge numbers on both sides now. So the students have no idea of the 50, which are going to be likely, and the schools have no idea. So what you're starting to see now is this incredible explosion of hedging behavior on both sides.

41:54So the students are now applying early decision. The schools are now saying, well, if you apply early decision, we want to have you go. So what's starting to happen now is more and more and more of the school's pool of applicants are actually applying with this special category of early decision because the schools want to be sure of who they're going to get, and the students want to be more sure of who they're going to apply. And so it's changing the whole dynamic. The whole thing has turned into an arms race. Basically. And then on the employment side, so we've also got a bachelor's degree arms race going on, which is there was a Harvard professor who did this study.

42:26And he found that 62 % of the people that currently held the job, and I think it was a manufacturing supervisor, did not have bachelor's. But something like 85 % of all the jobs posted for those same roles required a bachelor's degree. so what you've got now is a bachelor's is becoming bottleneck literally so yeah so and and of course what we're seeing is growing academic credentialism where people say you know a phd is the new masters that you're forced to take more and more degrees simply to actually reach a level of scarcity in the employment market exactly and even though there's very little correlation between your academic performance at university and your performance in a business very little yeah very little i was very intrigued to see that the harvard dean of admissions of the mba program and i can say it because it's all completely public uh she one of there was a reporter following up on a couple of her students who just hadn't found places after something like six months on the job market which is not good you know if you're an mb you paid all this money for an mba you gave up two years of your life um and the admissions director i I couldn't believe she said this.

43:38Well, you're going to get hired based on what skills you have. This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs.

44:17It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs.

44:44Didn't they come to Harvard to get an MBA? Can you imagine? So I'm thinking to myself, it's all in public. I mean, this is totally public. So I thought to myself, she must have had it. Because this is very Nassim Taleb. In other words, proxy measures are extremely dangerous. And they're wonderful for bureaucrats because they justify a decision. They do. All of the people we've interviewed have a BA. The opportunity cost and the wastage, but also it leads to, I think, what was the wonderful business of gaming the system. I don't know if you know about this, which is that CVs submitted digitally.

45:23okay um machine read cvs will obviously read white text on a white background a human won't so it was a very old trick that alongside your completely honest cv in white text on a white background you typed olympic gold medalist nobel prize winner etc oh my goodness your cv was completely honest when looked at through human eyes but was a complete lie when being machine rad. That's clever. All credit, in fairness, the person who first spotted that deserves an automatic PhD for ingenuity. I mean, it's... If you're not going to read it as a human, why should I tell the truth? You know, there's also a concern I have, which is, I think, humans...

46:07I have this very interesting argument, and actually, all credit, some economists sort of agree with me, which is, you'll get a completely different result if you hire people in groups versus hiring people individually. So if you choose a group, you'll choose for complementarity. You'll be happy with a wild card. I only got hired in advertising because there were four jobs. It was literally, we'll take a punt on the weirdo. And actually, by the way, there's three other people who are extraordinarily good, better than me, maybe, but they at least took a punt on me because they thought, okay, we've got four, we're recruiting for four jobs.

46:41We can afford to have a different risk profile on the four people and we'll go a bit wider. on one person will go a bit narrow on another person. It's a very sensible form of decision making. If you have to optimise for fairness, you have to apply the same criteria to everybody, which means you end up with this same isomorphism. You end up with a group of people who are all ostensibly very good, but they're good in a completely similar way. And actually, you know, to be honest, I went to Cambridge. Of the people who, you know, the really worthwhile while people you met there, half of them were there entirely on academic merit, you know, and particularly mathematicians who tend to be pretty, you know, I think the great thing with maths is you can either do it or you can't.

47:31I think it's a genuinely meritocratic thing. You know, it's not one of those things where you can nerd your way to a first, you know, fundamental. My husband, out of personal interest, is an actuary. He's an actuary. No. And you, This is, yeah, essentially you can, you know, you can do it or you can't. And the mathematicians were disproportionately interesting, I always remember. But it was the plurality of people who are there that made the university experience worthwhile. You know, if you end up with an incredibly merit, and this is the Joseph Fishkin book, Bottleneck, which is all about this business that he effectively rejects the idea of equality of opportunity because he argues that we should optimize for plurality of opportunity.

48:14And capitalism, to some extent, does that quite well, because there are quite a lot of ways in a free market you can obtain both status and or wealth to an extent where, for example, in a business setting, the chief executive of Goldman Sachs is probably immeasurably richer than you, but you'd converse as equals, I hope. Okay? Because you have expertise that he or she doesn't, and they're perfectly aware of that. And so people are naturally, you know, it creates, whereas if you have what you might call a complete pyramid hierarchy, which academia on its own does to some extent, doesn't it? I mean, and particularly if you get these daft publication ratings.

48:57So, I mean, the subjection of academia to these rankings of individual academics, according to where and how often you publish, seems to me completely nonsensical. I mean, it seems to be the most perverse incentive imaginable. Well, it is. And I can explain where it came from. And also, there's some interesting examples of people that make real progress, not fitting that paradigm at all. So where it came from was business schools were originally set up to do a couple of things. The first was to help the military, which was where a lot of young men in particular got their training, which was to help them make the transition to civilian life.

49:44So especially after the Second World War, a lot of the MBA programs really had that in mind as their goal. and then the idea was that you wanted to be raising the practice of management to be you know a profession like like law like medicine but the idea was you wanted it to have that sort of professionalism to it interestingly it was management not entrepreneurialism no no no business administration sir got it got it of course master of business administration this is that doesn't sound like entrepreneurship to me anyway um so then they opened up these business schools. They hired a lot of things.

50:20But because it was a relatively new field, there weren't a lot of people with PhDs in business. So what you ended up with was this sort of grab bag of people with PhDs in related fields like sociology or economics, and then a whole bunch of executives who would come in and tell war stories about how they built the tire company. And then in the 50s, all this came to a head with a publication of a report. I believe it was founded by the Ford Foundation that said, see here, if we're going to have this thing in a university that's called a business degree. We need to have more people with PhDs teaching in the course.

50:53And therefore, we're going to look askance at schools that don't have PhD trained students, you know, teaching their students. I know. Weird, huh? So anyway, then, oh, so that had a lot of the top schools really scrambling to try to find people with the PhD degree to be teachers. Then the next thing that started to happen was as the economy became more and more financialized, I would pin that to the sort of 80s and 90s, the MBA just took off. And so if you had a PhD and could hold a piece of chalk, you were kind of guaranteed a job. But once you put that PhD thing as the barrier to what you're going to do to get successful in your career, now that brings with it all the weird stuff about what gets you ahead in your academic world, which is publication in very, you know, journals that executives wouldn't really lead.

51:48And that to me has led to two really almost tragic things. One is that we've already discovered in academic research solutions that could be quite valuable to managers if they only knew about them. So here's an example. One of my colleagues, Kathy, the late Kathy Phillips, did this study on exactly what you've just been talking about, which is diversity. And how does diversity in the population that's trying to solve a creative problem affect the solutions that they get. Now, the problem with real life is you have no way of knowing whether a group did well or badly on a creative problem-solving task, because obviously there's lots of things.

52:23In a lab, you can actually quantify how well they did, how long it took them, what number of - It was pretty decisive, wasn't it, the findings? The findings were incredibly decisive. So here's the two things that were really fun. So the diverse groups, as you might expect, did a lot better on these creative problem-solving tasks than the homogenous groups. And she did diversity, homogeny on all kinds of dimensions. So not just like race and gender, but she did like, did we all belong to the same sororities? Had we been selected by the same social structure? Did we all have the same core classroom?

52:56So she looked for lots of different ways. The bonding is faster if you get a less diverse group, isn't it? But the output is less. Well, this is the kicker to me of this. The diverse groups felt terrible. It was so effortful. I didn't know what they were trying to say. We really had to struggle to make ourselves understood. And it turns out, when you have to grapple with that kind of diversity, it lights up a part of your brain that normally is just basically sleeping. The homogenous groups felt awesome about what they did. It was like, oh, we got right down to it. We all understood each other.

53:28We said about the task. We ended early. We defined the task probably in an incredibly, very quickly, but in an incredibly boring way. Yeah, I can just imagine. Well, so now extrapolate that conclusion to the composition of most senior leadership teams of large publicly traded companies. And chances are they feel great about what they're doing because they're all carbon copies of each other. This research is hugely important. And yet the extent to which it permeates business thinking. There was a fantastic bit of research, which I cite in my book, which shows that if you have, let's say you have five candidates for position.

54:04and one of them is an ex. Okay? Doesn't matter whether male, female, black, white, doesn't matter. One of them is an outlier. That person is much less likely to be chosen. If you have two, the entire bias disappears. So, you know, theoretically, okay, if you decided to wear a top hat to your interview, the only chance you'd have of getting hired is to persuade one of the other candidates to wear a top hat and hope they kept their word, at which point, you know, the weirdo factor would disappear. I mean, that's such an extraordinary factor of choice architecture that it needs to be really widely known.

54:42And yet it genuinely isn't. No, I know. No. I think I can explain that in terms of psychology, which is we make decisions through ease of comparison. We have a comparative judgment, not an absolutist judgment. And therefore, if you are incomparable, to use the word literally, you are at a disadvantage because no one knows where to place you. You know, it's right. You know, it's similar to product positioning, right? So if you get stuck into a product called CRMs, you're going to be compared to all these other CRMs, even if what you're trying to do is something completely different. Because I noticed I got nerdily interested in the watch business, the luxury watch business, because it's like the Galapagos Islands of kind of marketing in the sense that, you know, and you have these categories like the pilot's watch, the diver's watch, the field watch, the dress watch.

55:31And you kind of go, why is this? First of all, virtually nobody who has a diver's watch has even a paddy qualification. They're extremely unlikely to go down to 300 feet. You have a bezel on your watch, which means you've effectively spent$7 ,000 to advertise the fact that you're bad at maths, because if it's two o 'clock and I've got 40 minutes of oxygen left. I should be able to work this one out myself. And you suddenly realize that if you produce a watch which is in some way completely incomparably different, oddly, it's not an advantage in some ways. It's actually no one knows where to place you.

56:11Right, exactly. Yeah. Yeah. And I think similar, so many categories that that's similar. in. So, you know, we've just seen in America, we've just seen the closure of the Sloan Management Review, which was, you know, you sort of had this clump of academic journals which people wouldn't read. So, I mean, do you really want to sit down heart to heart with an article that has asset mass discontinuities and their effect on partnership structures? No, no, no. You know, it's Greek. Then you had this clump of journals in the middle, which would be Harvard Business Review, Sloan Management Review, California Management Review.

56:42And then you had what I would call the management publication. So Fortune, Forbes, you know, Wired, Fast Company, those kinds of magazines. And there's a gap between the two to an extent, isn't there? There's a gap between three to an enormous extent. And so a lot of the knowledge that sort of gets published in the academic journals never makes it over to the practicing manager. I think there's a weird thing, which is academics are somehow remarkably bad at realizing the implications of the most important work they do. in some cases, or they're remarkably bad at proselytizing them where they're important.

57:17Yeah. Well, let me come back to your concept of bottlenecks, because I think this is really interesting. If you look at the people who have really made a practical impact in the areas of management, my argument is that they tend to be interstitial, meaning the universities kind of don't know where they belong. So Michael Porter, the most famous strategist of all kinds, nobody could figure out where he belonged. They actually, eventually, he came from economics, but eventually they had to create a department at Harvard for him because he had such a massive impact and he didn't fit neatly into economics and he didn't fit neatly into business.

57:51They didn't know what to do with him. Clayton Christensen spent decades, literally decades, as a leader, as a practicing manager, first as a BCG consultant, and then he ran his own companies. And then eventually he went back for his PhD, but he had a whole other career before he started that. Amy Edmondson, one of the world's most famous people on the concept of psychological safety and a good friend of mine. But she's sort of in a department that doesn't really reflect any of those things. And so what I think is interesting is if you... Economics is very similar in that the most interesting economists generally emerge at the fringes and find it very difficult to find themselves a home.

58:33Right. Yeah. Right. But if you go back to our conversation about diversity, what I think these people who are at these intersections are able to do is take, you know, concepts and ideas from one place, but then make them relevant in another rather than just speaking to the converted that are all in their same little silo. So I think there's something very interesting about that. And I don't think we take it into account enough. Now, I do think with the advent of AI and with the way jobs are changing so dramatically, I think what I'm seeing is a lot of business schools are taking a good hard look at their curricula and now trying to figure out, well, you know, how do we need to adjust?

59:09Because the human resources we've got are not necessarily the ones that are best prepared to train. And there's an argument that in an age of AI, the humanities degree has a newfound value. Yeah, become an English major. Who knew? I'll tell you without naming him because I don't want anybody to poach him, But in Ogilvy Consulting, the person who is one of the three people who I think is probably one of the best both adopters and proselytizers for the ingenious use of AI, but is also a brilliant practitioner in all kinds of ways. And I met him because he couldn't get a job at any of the he had.

59:45He had a first from Oxford in theology and philosophy. not one you know not one of the major consulting firms would touch him because they wanted people with an engineering degree and that bothers me on two dimensions first of all i want engineers fixing stuff i don't want them preparing powerpoint decks for god's sake you know if you've got an engineering talent for god's sake do engineering not some corporate wank okay but Secondly, it bothers me because it suddenly occurred to me that I mean, the people in the people in cybernetics who are interesting, Stafford Beer, people like that, always believed there was this discipline called what they called business philosophy, which was effectively asking questions that no particular that didn't sit within a particular department, which is what are we for?

1:00:36Or, you know, does this really create what is value would be a fantastic sort of philosophical question. What is it people really care about? And given the importance of those kind of areas of inquiry and those, I think those are areas which do actually play well to someone with a background in philosophy, a background in some form of humanities discipline. And yet, I can't remember that there's some extraordinary statistics on sort of almost the death of humanities degrees within the American education system, where the number of people studying history, languages, etc., has been just continued English, have been continually shrinking.

1:01:15But actually, the what you might call the breadth of thinking that derives from that is absolutely fascinating. This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs.

1:02:01It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs. So I have a funny story about our daughter who went to Barnard College, which is a women's liberal arts school. You did as well. I did. Is that right? Yes, yeah. By the way, for British listeners, these liberal arts colleges, Swarthmore, Barnard, Bryn Mawr, etc., we never understand them.

1:02:42I had a friend who came from Swarthmore, and he was made to take the third year of biochemistry again when he got to the UK, because nobody in the UK fundamentally understood what Swarthmore was. and I think he got the top first because basically he'd already done all the work. But no, they're absolutely extraordinary places and I think brilliant because of the size of the place. So you're - They tend to be smaller. Imagine it like an Oxford college or a Cambridge college, but in the middle of nowhere is sort of the way to look at it. Well, Barnard's in the middle of New York City. That's an exception.

1:03:14But quite a few of them are in, yeah. Yeah, they are. Well, the emphasis is smaller classes. Donna Tartt novels. One of those was set there. Yeah. Yeah, so smaller classes, but a huge emphasis, and she was a history major, a huge emphasis on clarity of writing. Yes. And so many years later, she ended up going to Columbia for her MBA and didn't like it very much in the beginning. It was all just, you know, all this finance stuff and all these people just want to get rich. And that was sort of where we were the first month or two in. And then she discovered her superpower, which is all these people had no idea how to put a coherent paragraph together.

1:03:53She was like the superstar at this. And so she formed this really interesting little partnership where this guy who was just a genius at finance, but also really good at teaching it, helped her with that stuff. And then she, you know, helped craft the written portions. Division of labor, pure Adam Smith. Absolutely fabulous. It was great. And, of course, now it's, oh, my friend from business school does this, does that. We're going to a wedding. It all worked out very well. This is so interesting because I work with a company called Gaping Void, which is a culture design company. And one of the assertions he makes, which is fascinating, Jason Corman, who runs it, is that if you think about it, Elon Musk, whether you like them or not, doesn't matter.

1:04:39Henry Ford, okay, Jobs. Obnoxious. Oh, obnoxious. Quite often obnoxious. They're also eminently quotable. And he said, we often get this wrong, he said, that we think that we remember these quotes because they were successful businessmen. They were actually successful business people because they were brilliant wordsmiths. If you think about it, Jeff Bezos, you know, Bezos-isms, I mean, Charlie Munger and Warren Buffett are, you know, I mean, they're masterpieces of writing. Not, you know, alongside, obviously, the economic consequences of what they do. And the value of that, of being able to communicate, and David Ogilvie would be a perfect example.

1:05:20I mean, his greatest contribution wasn't the ads. It was the corporate culture he fostered, largely through these incredibly pithy kind of quotations, and being able to express something in a way that was both motivating and different and memorable. And actually, the contribution of that, you know, Jeff Bezos' thing, in baseball you can only hit four, in business you can hit a thousand, or his idea of the two-way door and the one-way door. They're actually incredibly useful thinking tools, which when you think of the value of those, once they spread and become part of the common verbal currency within an organization of 100 ,000 people, the value of that is actually immense.

1:06:02But we tend to think of it backwards. We are only quoting Henry Ford because he started a car company, but maybe he started a car company because he was eminently quotable. That's a very interesting thought. Yeah. And this is my view as well. When he said it, I said that never occurred to me before. I always assumed it was the other way around. Obviously, like everything, it's both directions to a degree. Had he failed at his car company, we probably wouldn't remember. But it probably is actually both direct causation works in both directions. Well, one of the things that I think we don't talk about enough is what I'll call executive symbolism.

1:06:36So if you think about what a symbol is, it's there's the substance of the thing. That's the thing that it is. And then there's the story that we make up about it. And what I always try to remind senior leaders is you can't opt out. Everything you do, you raise an eyebrow one way in a meeting. And, you know, if you don't provide a story, everybody's going to make one up. You sit, you know, Joni over there in the corner because she's working with Jill and Judy and maybe they should all sit together. And within two hours, the entire organization's in an uproar because I was supposed to be the next one to get an office with a window.

1:07:08And that didn't, I mean, all this stuff. And I find a lot of executives are quite clueless about what the symbolism is of what they're doing. And I would support your thesis that really great symbolism can just transform countries. It can transform companies. An old boss of mine, Mike Walsh, said management is a series of symbolic acts. There you go. That actually the things you do that signal are actually more important in some ways than the decisions you make. There was an extraordinary case I knew, which was someone who took over quite a junior managerial position in a distribution company.

1:07:43And all he did, which changed the entire tenor of the place, was that the van drivers had a kind of restroom and the door had fallen off three years ago and no one had replaced the door. His first action on being appointed was basically, you know, what is it that really annoys you? Someone mentioned the door. He gets the door replaced day one. The entire tenor of the organization changed because there was somebody who listened who might make something happen in that case. That's a great story. And actually, by the way, I mean, great corporate cultures are also, they generally have eccentric symbols.

1:08:21They have a few peculiarities. And actually, they're sort of ideologies. that there are, I mean, there's a wonderful book called Why We Think the Way We Do, which has only just come out, which is absolutely fantastic, which makes the point that religions require you to believe things that are slightly absurd, because you create an in-group through this shared, and the belief, in a sense, what you have to do if you want to be an ideology is, obviously, you know, you can't demand so high a price of admission to the in-group that no one's interested. You need some sort of scale. But equally, the price of admission needs to be sufficient so that you're invested in the group.

1:09:01Absolutely. Absolutely. And so, I mean, I think the symbolic role of management has been what typically happens is these are the first things to get cut. This drives me insane because they'd always do this in advertising. They go, we're having a bit of a tough quarter. So the first thing to go be staff entertainment or client entertainment. And to be honest, this is a rounding error in terms of the scheme of things. It's irrelevant. OK, the finance people think this sends a wonderful symbol in terms of our need for austerity. In other words, how can we possibly, you know, lay claim to, you know, the need for cost cutting unless we first cut those things which might incidentally be enjoyable or meaningful.

1:09:48And you end up with this fun... I mean, if you think about it, all religions have festivals. Roger L. Martin, are you a fan of Roger's? Oh, I know Roger very much. He's fantastic. He wrote a piece on the importance of celebration. It's really, really important in an organization that occasionally you have things that defy the usual economic logic, and you go out and celebrate something properly. Because fundamentally, the anthropological effects of that, you know, the value of that anthropologically totally outweighs the relatively trivial cost. If you think about Mary Kay Cosmetics, just to name a completely off-the-wall example, you get to stride across the stage because you were the number one, and you're going to get a pink Cadillac.

1:10:31I mean, people remember that for decades. And the tragic thing is it works because it doesn't make sense. But because it doesn't make sense, it's the first thing to get stripped out of the budget. Very interesting. If we end on a simple thing, the single thing that a large organization hoping to either innovate intentionally or at least take advantage of lucky accidents. Because one of the most bizarre things I noticed about large organizations is that even when things land in their lap, they find it remarkably painful to take advantage of it. Because, you know, it doesn't really fit with our existing.

1:11:15I mean, Martin Sorrell, old boss of mine, had two very good quotes. One of them was, an awful lot of value is destroyed in the pursuit of organizational neatness. Which I think is undoubtedly true. And the other phrase was, we don't let our strategy interfere with our tactics, which is every now and then, you know, human life is exactly the same. I mean, if you think about it, most of the most important things in your life weren't planned. They were because you had the good sense to be opportunistic when the moment presented itself. But if you wanted advice for a large company either to intentionally produce meaningful, valuable innovation, or at the very least to be capable of taking advantage of lucky accidents when they fall in their lap.

1:12:05Serendipity. Serendipity. Which is, by the way, probably is equally important in terms of innovation, as intentional innovation. Oh, absolutely. What would the single change be or the single first change that you'd make in order for that to happen? Well, my starting point is always management's agenda. And I mean that incredibly literally. So I'll often get called by companies or, oh, you know, our innovation program is stuck or whatever. We really want to figure out what to do with it. So I'll have them send me in advance the agendas for the last few times. Important people got to talk about important stuff.

1:12:40And then I just go through it and highlight where innovation might fall. And if it's number 18 right next to material safety data sheet update. Got it. Nobody's paying attention. So if you really mean it, and I'll speak to your executive audience here, I would like to see it item one, two, or three on every meeting. When people run into you in the hall, you'll ask questions about, so how's that project going? You make physical time on your calendar, some, you know, one to two hours a week. And so what that does is it signals to the organization you're interested. It's meaningful. I mean, if it's going to be item one, two, or three, that means something else can't be, right?

1:13:21Yes, of course. So you've got to make that very conscious choice. And then it creates that ability for people to know that you're actually interested. Because I think a lot of times what happens is you've got these innovators and they just almost don't know where to go with it. They feel like the awkward squad, effectively. But, for example, at the SAS Institute, Goodnight, who's their CEO, regularly, every Tuesday, top team gets together for two or three hours every week, talks about what's going on, what's new, who's discovered something interesting. So that time is sacrosanct on the calendar.

1:13:55And it just creates this incredible ability for the organization to know what it knows. So board meetings themselves are becoming excessively financialized, haven't they? Yeah, I agree. So, I mean, there's a very clever marketing director at Aviva in the UK who has a board customer day every year, which is entirely about customers. Oh, nice. You would argue that creating both space and verbally and visually making prominent the importance that you attach to this. Absolutely. Absolutely. And what's fascinating to me is this is back to symbolism, right? Because all of your symbolism has enormous fallout.

1:14:35Yes. And it could be used for good. It could also be a terrible thing. But if, for example, a large client of mine is a big multinational firm. And when a new leader came in, they identified that there was a problem with – there was a thing that just wasn't being done right across a particular one of their geographies. And all this leader did was started asking about it. And the first couple of teams he met with, he asked about it. And then all of a sudden began to notice teams he hadn't even been interacting with were starting to get their act together on this particular thing. Now, why is that?

1:15:12It's because all the people at that level were talking to each other. You know what the boss was asking about? Before he gets to you guys, you might want to look into that. So it's like this ripple effect that you have as a senior leader. And when it comes to innovation, I think it's more important than anything because it's very easy to just go back and do the same thing and report on the same thing. But to really say, okay, that thing you tried didn't work. Let's understand why. I think it's great you tried it. Let's learn from it. And I'd like you to see if there's a different approach that might work.

1:15:44Whereas the natural tendency to brush it under the carpet and pretend it never happened. Exactly. Got it. Exactly. So it is really, it is, and this would also apply, I would regard marketing and innovation as being very close bedfellows because they're fat-tailed, they're to some extent experimental. Actually, they're two sides of the same coin, aren't they? You either work out what you can make and find a clever way to make people buy it, or you work out what people want to buy and find a clever way to make it. Fundamentally, and sometimes, of course, I think there's also an interesting thing, which is if marketing isn't involved in innovation, you can fail where you otherwise would have succeeded.

1:16:21And the example I always give there is if you take new formats in hotels, let's say Citizen M or Moxie, talking to them, very interesting thing. If people, there's a trade-off, okay, which is your room's very small, there's no room service, there's no laundry. You wouldn't want to stay there for five days, but if you're staying there for one night, it's pretty much perfect. Your room's small, very good Wi-Fi, very good television. The ground floor is kind of like a wee work. You know, there's a 24-hour barista. There's a cocktail bar. And you can hang out there for hours without feeling weird.

1:16:53And they're in a pretty good location. What happened there is that the people who've either stayed there before and understand the trade-off love it. The people who have been made aware in advance of the trade-off go, funnily enough, I'm only there for two nights. That's perfect for me. That's what I want. And they go and they're really happy. Then there is 10 % of people who turn up expecting the Marriott who are absolutely livid. And of course, with innovation, preparing expectation is as important a part in many ways as what the innovation itself is. I think innovations like the Segway probably failed because they were oversold at first.

1:17:32In other words, you can overpromise. If you're, on the other hand, explicit about where you're strong, where the compromise is people will willingly choose something which, unless you give them the opportunity to actually understand the trade-off in advance, they'll fundamentally reject. So again, it's a question of attention, I suppose, isn't it? In other words, that works because you've been taught to pay attention to the thing that's better and understand to downweight the thing that's worse. Right, right. And the same thing is interestingly true because one of the lessons that comes from this company, gaping void in terms of culture, one of the most common things they say, stop talking about the money so much.

1:18:14So the extent to which financial conversations now permeate every minute of every day, where in an advertising agency, you get copywriters who are worried about what their billable utilization rate is. That's fundamentally inimical to an innovation culture. This episode is brought to you by Accenture. When your advertising operations fall out of sync, Everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most.

1:18:57Learn more at Accenture.com slash Spotify. When you need to build up your team to handle the growing chaos at work, Use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs. Well, and I think the whole billable hour.

1:19:35It's an appalling metric to begin with. Well, and I think it's going away. I wrote about it with respect to lawyers and it got, of course, the expected. This came out in the Wall Street Journal and, you know, all the way from finally somebody's had the truth to call this out. It's terrible. You're barking mad. You have no idea what you're talking about. You've never represented a difficult case, blah, blah, blah, blah, blah. And I said, I never did. All I pointed out was that in a world where AI can do things that are remarkable in very, very short periods of time, what does the billable hour even mean?

1:20:03It's a perverse incentive anyway, isn't it? Yeah, rewards you for inefficiency. It's also probably necessary purely for social reasons, which is, in many cases, the company is paying for the partner predominantly and their expertise. But you can't pay someone$20 ,000 a day or$30 ,000 a day. So you have to create this kind of bizarre leverage of junior staff performing unnecessary functions in order to create that level of remuneration. Well, and that's where I think AI is going to genuinely be disruptive. Because quite. Right. So here's maybe an opportunity for your listeners. There's a lot of talk about disruption.

1:20:46And unfortunately, the term has come to mean any big change. Yeah, absolutely. And I think what's more useful is to identify specific cases in which things are going to get disrupted. And so I would argue the two signals to look for are when something that used to be expensive or inaccessible becomes affordable. And that's not just 5 % cheaper. It's when something becomes 10x cheaper. Or even more. And secondly is when something that used to require painfully gained expertise and it's very difficult and complicated to do now becomes child's play. And one of the things disruption does is it so totally changes the value equation because of those two factors.

1:21:30So what was once hard becomes easy. What was once expensive becomes cheap. And just to take an example from history, take portrait painting. 200 years ago, if you wanted to have a likeness created of yourself. Monumentally expensive. Monumentally expensive. The painters themselves, they had to go through a whole apprenticeship program and worship at the Masters and belong to a studio and get rated and get, you know, sponsors and all that. I mean, just incredibly complex and difficult and very expensive. So in 1888, along comes George Eastman with his brownie camera. And all of a sudden, any doofus that can afford a basic price of a camera gets met with this slogan, you know, push the button, we do the rest.

1:22:08And all of a sudden, it changes. Now, for the portrait painters, that's not necessarily good news, although we still have portrait painters. But it's a small population of people that produce visuals. But if you think about the explosion of picture taking, I mean, we probably take more pictures per hour right now than we've taken in all of human history before. And so what disruption does is it... It's very funny, by the way, because I grew up in an age when photography had a cost. Oh, yeah. I was at Heathrow Airport and there was a woman with a child. And to keep the child occupied, she just handed the child her mobile phone and the child went around taking pictures of the floor, you know, just totally, you know, anything, hundreds of photos.

1:22:49I had to move away because it pained me. Now, I knew rationally that each photograph cost nothing and could be deleted afterwards. But the idea of just gratuitously, because I grew up in the 70s where it was a pound or 50 pence to actually, and I still can't get into that habit that my kids have of just gratuitously snapping away or filming things. And taking pictures of your food. I've never understood this. No, no, no, no, thank God, no, no, nor me, no, no, absolutely. Yeah, but no, so the skill required is inordinately less, the cost is inordinately less, the time is inordinately less. So if you take that now to a business context, a current business context, when I'm a copywriter, right?

1:23:33And it used to require some skill to write good copy. I think it still does. Interesting copy. I think humans still have an edge there. I do, too. Yeah. Yeah, I do, too. And yet, you know, for writing the press release. But to write pretty well, as opposed to distinctively well, I agree with you. Yeah. So I think what we need to think about as we're thinking about where AI is going to show up is look for the places where it makes what once was really hard good enough. Now, it's never going to replace a portrait painter. You're never going to get the layers of beauty and the rich color. But for a lot of applications, that's not actually necessary.

1:24:17No, no, no. And I think that's where we can see AI having big effects. Now, if it's positive, maybe there's a lot of back office grunt work that doesn't need to get done. But on the negative, there are things that are just no longer necessary that people aren't going to be willing to pay for. And I think people need to be very clear headed in understanding where those shifts might happen. Now, the advertising industry has always worked like Carl Fabergé, which is now Carl Fabergé couldn't just make eggs on a whim because the gold was very expensive and the craftsmanship was very time consuming.

1:24:49So you wait for a member of the Russian royal family to come in and commission an egg. Now, the advertising industry currently works like that. It works in response to a client's demand. And then ridiculously charges by the billable hour, not by the degree of talent or the value of the end product, but never mind. If you look at Wedgwood, China wasn't expensive. He didn't wait for plates to be commissioned. He got a designer and produced plates to an attractive design and went out and found people to sell them. Now, I don't see why the advertising industry wouldn't become more like Wedgwood and less like Fabergé, where you produce ideas spontaneously and then go and find a customer.

1:25:32I don't see why you wouldn't reverse the polarity of the business, because clay is a lot cheaper than gold. And designing a plate which can be mass produced is a one-off activity rather than something that needs to be commissioned. So that would be, I suppose, a Clay Christensen prediction, which is the production companies actually start moving upwards into the advertising agency territory. Could be. Is that a plausible future? Absolutely. Okay. Well, and if you think about the way advertising has changed in terms of the channels, what even is advertising, you know, a lot of people get all their advertising as it will or were from, you know, TikTok and Instagram and unconventional places.

1:26:14producing a fantastic bit of TikTok content and then selling it to KFC. Well, the whole influencer model is like that, right? So I'm the world's leading expert on liquid bleach. Therefore, anybody who sells liquid bleach wants to be on my program. Bleach wants to talk to me. And in the same way, I always make this point. This seems weird to people in advertising, but no one asked the Beatles to write a song about a submarine. No. No. Rita, this has been absolutely fantastic. Thank you very much. Anytime you're in the UK. Are you based in New York? You're Columbia. New York and between New York and Princeton.

1:26:46Fantastic. Absolutely brilliant. Good. It's been an absolute joy. That's been absolutely fantastic. Thank you very much indeed. Thank you.

1:27:06I'm not giving up. I am selling the building. The final season of FX is the bear. The restaurant is flooded. Everything's either going to be okay. No. Or not. We are outgunned and we are outmanned. We have each other. FX is the bear. The final season. All episodes now streaming on Disney+.