Motley Fool Hidden Gems Investing - Companies Going on Offense

Episode Date: August 26, 2023

Most companies find success in different ways, but there’s a secret sauce to ones that are leading innovators.  Behnam Tabrizi is a transformation expert and a faculty member in Stanford University’s executive program. His book is  “Going on Offense: A Leader’s Playbook for Perpetual Innovation.” Ricky Mulvey caught up with Tabrizi to discuss: - Tech companies with a cultural advantage. - Why Alphabet might have a bureaucracy problem.  - Lisa Su’s “David and Goliath” story at Advanced Micro Devices Companies discussed: AAPL, MSFT, META, TSLA, AMD, ADBE, NVDA, AMZN, WHR Host: Ricky Mulvey Guest: Behnam Tabrizi Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. I can tell you, Ricky, firsthand, talking to a lot of very senior executives, those who were, you know, they cut too much. They let a lot of people go because they thought AI would replace. They actually are regretting because they're realizing AI could be a way to be able to increase productivity, creativity significantly, potentially even getting to new businesses. I'm Ricky Moldy, and that's Benam Tabrizi. is the author of Going on Offense, A Leader's Playbook for Perpetual Innovation.

He's a faculty member of Stanford University's Executive Program and an expert on transformation, studying high-performing organizations. We had a chat about Microsoft's turnaround under Satya Nadella, why established car makers can't quite seem to catch up with Tesla,

and one company using artificial intelligence to create a competitive advantage. Your book is about how innovative, agile companies develop winning mindsets. It's not a secret sauce, but it helps you with some of the tools and formulas that those organizations have developed. I think there's at least a semester's worth of business school wisdom in there. One of the two organizations that you're excited in our pre-conversation to juxtapose and talk about right now is Google versus Amazon. Why are you so excited about the comparison between these two companies? What's really amazing is their starting point is very interesting because they

had new CEOs, fresh CEOs coming on board. In case of Microsoft, it was 2014 when Satya Nadell came from the cloud division and started running Microsoft. And at that time, Microsoft wasn't doing well. And a lot of people thought that this is going to be business as usual. A year later, Sundar Pichai joined as the CEO of Google. And he was also a Google veteran. And at that time, Google was doing pretty well. And people thought that Google is going to continue to do better and better and better. Now, from someone who is a student of transformation, what is interesting is what exactly Satya Nadell did in terms of transforming hearts and minds of every employee in Microsoft. He said, we want to connect to the soul of Microsoft. I wrote an HBR

article about how Microsoft became innovative again. And, you know, basically they didn't have a lot of expertise in AI. At some point, 70% of the top talent in AI were actually working for Google. And basically with the ChatGPT introduction late last year, Microsoft took the thunder out of uh google's uh you know uh repertoire and we've been uh you know we've been studying google quite a bit and uh unfortunately uh it's become like an organization where there are lots of uh layers if you will you have to go through this layer very conservative cash cow business and on the other hand uh you know uh i i talk about in lots of detail about how Microsoft has been running in all cylinders and all the moves that Microsoft has done

from a bold point of view, from raising the status of engineers and doubling down on cloud, on AI acquisition. And so it's a fascinating case study when you juxtapose the two. Yeah. Google is sort of famous for encouraging their employees to go above and beyond with their roles? What is it? 20% of your time should lead to you developing something else. And from what it sounds like you're telling me, many of the employees there feel perhaps a bit stuck in what is now a very established organization that may be, correct me if I'm wrong, but bleeding into the day two, less startup kind of mindset. Yes, absolutely. And they still have a lot of talent, so I wouldn't rule them out in terms of coming back. Both of their founders are back.

Sergei is come is come back and working on the AI. So they have a lot of talent, but they let this culture kind of slip. And this is really the whole point about that's why I use the word perpetual is is that you've got to constantly, you know, be there and and and work on your culture and improve your culture. And as Satya Nadell is quoted by saying, is that a lot of times companies could be very successful with one or two products, but if they don't continuously innovate, if they don't fire up the imagination of their people, they're going to fall behind. One piece of this perpetual innovation and culture is also finding companies with an existential purpose. I know this is for leaders in business organizations. I think it's also an interesting question as an investor, if you're looking through the companies that you own in your IRA or your brokerage account, does this company have an existential purpose? Do I

understand it? This is something that Satya Nadella really had to find at Microsoft. You said in the book, quote, that the closest thing the company had to an animating purpose was the longstanding goal of a PC on every desk and in every home running Microsoft software, end quote. That seems like a pretty decent reason for a company to exist is to sell the products they make. Absolutely. And, you know, and he has since modified that to say we want to empower every individual and every organization in the planet to achieve more. And, you know, the way I define this is, by existential purpose, is not just having a mission statement and paying lip service, is when your leaders, when your people truly believe in it, they're committed to that cause.

And this is what I found with the most innovative sample and organizations based on evidence-based, lots of interviews and so forth. And that is, you know, these people are committed. They feel like they're part of a much larger cause. You know, since early 2000, I've been really interested about why is it companies just show up at work? And I mean, Gallup poll survey of engagement shows at most 30% of people in U.S. are engaged. You know, the rest are either disengaged or sabotaging work and so forth. And why is it that people willing to die for a cause? And in some ways these organizations create this cause, this existential purpose, where people rally behind and they connect what I call their inside-out to what the purpose of the organization is.

And the way that Nadella transformed this was essentially by making Microsoft more collaborative, both internally and then also externally. You talk about in the book his demonstrations using an Apple iPhone, and in some cases, giving Microsoft applications away for free. Clearly, this has proven to be a good idea. But you can imagine at the time where this would have created tremendous pushback and internal conflict. Absolutely. And you have definitely read the book cover to cover, Ricky, and a great point. Collaboration is a, you know, I decided to devote one chapter of the book on collaboration. And, you know, collaboration is not just like two people or three people working together, it's extreme collaboration, radical collaboration,

where hierarchies don't matter. You know, you need to get something done, you just make it happen. Don't let these walls that organizations arbitrarily create to stop you from getting things done ASAP. And he actually took that to another level. And as you said, he collaborated with an organization that potentially you would think would be a competitor. But he saw this, and this is what really the visionary leaders is really all about. He saw this as what I call out-of-the-box move that could increase the momentum and market share of Microsoft, and it has. So, lots of credit to him. I'm speaking to you right now on a Mac Air that has Windows operating system right now.

Yeah, and when we talk about existential visions, I think there's one company that you both criticize and sort of celebrate in the book. It seems to be in the middle, and that's Meta. And this has sort of proven to be an exception to the rule of, do you really need an existential vision? Companies had some issues running into regulatory problems. The stock has been on a bit of a rollercoaster ride. But also, despite not having an existential vision, it has 3 billion active users on its platform, still the number one social media app with Instagram. And it seems to be doing pretty well. It seems to be doing pretty well, especially the past few months. But let me share with you why. Because as someone who studies these things, I'm interested to go

double click and go into deeper, if you will. And so what happened is Meta or Facebook started having the same type of problem that Google had. And they started having layer after layer. In fact, I have a slide that I show that they had at some point, I think, 10 or 12 layers, very slow moving. Their productivity went down. A lot of people were just showing up to work, but there was not much getting done and so forth. So all of a sudden, in about six months or eight months ago, Zuckerberg kind of put his foot on the gas. He went on to this, you know, perpetual innovation journey, and he really tried to turn the ship around. And so far, the results have been really good. But again, what I really see is he drifted from the concept that I talk about in the book. And we saw that happening. That's why, from your point of view and your reader's point of view, the stock was really having a tough time last year, late last year. But once they were able to turn the ship around, based on the eight concepts that I talk about in the book, they're able now to kind of do much better.

We also need to also realize that he came in really strong about this Web 3.0, and now he's completely pivoted, and he doesn't talk about that as much as he talks about AI. And so there was a lot of investment he made on that, that probably he has to write off quite a bit of it. Yeah. And it's a huge cultural question mark for me at Meta. In the book, you discuss these high-performing organizations. They're, I mean, brutally unafraid to let people go in the case of Tesla, in the case of Netflix. Now, in the case of Meta, I have to imagine that many of the employees there might feel so much more uncertainty about what they're supposed to do and who's coming and going because the expectations are constantly shifting for them there. Yes.

You know, this is an important question you're asking, and that is, you know, letting people go. People I talk to, let's talk about the extreme case, which is Tesla, you know, which has probably one of the strongest existential purpose of any company. I mean, people are just, you know, really feel like working for Tesla is a calling. They feel like they're changing the planet. They're changing the world, people I talk to. And they also knew that their tenure probably is not going to be very long because they're asked to do impossible things.

And sometimes you just may not make it. And so in some ways, many people I talk to, for example, on the Tesla case, they felt like, you know, even two, three years of being in that type of a boot camp, very chaotic, but extremely innovative, would actually help their career. And in this case has helped a lot of these people's career by really seeing the ferociousness and the ferocity of which this organization moved. But more importantly, by seeing how the known methods don't mean anything in Tesla. You know, I mean, I'm going to give a SpaceX example, but it really relates to Tesla too. who would have thought that you could get a shuttle uh you know uh up there and uh you know landed on a piece of wood on an ocean somewhere i mean that itself is a huge i mean basically they ask questions about the fundamental laws of physics and say why can't we do it and they

were able to accomplish it and save a lot of money so that's why you know organizations in in the car industry have a tough time catching up to Tesla and their innovation because they are still using a lot of known methods. Let's gather all the data. Let's decide whether this is the right way. Whereas, you know, Tesla is scrappy. They try different things. If it doesn't work, they iterate. So they have very much what I call a startup culture of continuously trying different things and have big, hairy, audacious goals, you know, about a lot of things that they're doing. Well, and maybe the separation point between the, what is it? You can have the highest of expectations is the amount of autonomy that you give employees. So if you

have incredibly high expectations, but low autonomy, then I think you're going to have talent problems. But if you have incredibly high expectations and high autonomy, you're going to attract a lot of talent. That was the case in the book for Netflix. And that's also the case for advanced micro devices and Lisa Su, who you really highlight, she had to rebuild the company in 2014. What has she done to really attract talent to that organization? You know, Lisa Su is truly a brilliant, accomplished innovator, PhD from Stanford in electrical engineering, a humble leader, but also expects very high from her employees. This was a David and Goliath story. Intel, those people who were actually watching this

15 years ago or 20 years ago, Intel was the only semiconductor company and AMD was very small market share. And again, I talk about this in the book, how Intel kind of lost its momentum and mojo after Andy Grove left, and it became another one of those organizations with high inertia and potentially toxic culture. Whereas Lisa Su was running an all-cylinder, all the things that I talk about in the book they were doing. The whole thing, if I may summarize your question, Ricky, is a big part of perpetual innovation is unleashing your talent. And, you know, if you compare Intel and AMD, you can't say like AMD has better talent than Intel. No. But Lisa Su and her leaders, and she has amazing leaders, know how to unleash the talent

within the organization. Now, this thing is a work in progress. All of a sudden, for those of us who are in Silicon Valley, NVIDIA, when people were saying the death of Silicon Valley, Silicon Valley is dead, NVIDIA came, and a lot of people didn't know NVIDIA, and now it's a trillion-dollar organization. And now Lisa Su is faced with a challenge

because NVIDIA got into AI, took the big bet, got into the video game so they can do high-end processing. Now Lisa Su is pivoting AMD and applying these techniques that I talk about in the book to be able to catch up or perhaps surpass NVIDIA. And so it is a fascinating regimen by which it's so critical. And that's part of why I wrote this book. This book wasn't about one concept and write the whole book. It's about a holistic approach to an organization to make sure that they're constantly innovative and they are perpetual innovation. Yeah, and one reason that she's probably able to pivot this organization fairly quickly is that she was able to develop what we'll perhaps call a flat-ish organization.

I think there's, what, five layers at AMD, and when we think back to the company like Google, which has become more hierarchical, and I don't want to use the word stagnant, she may be able to make that pivot a bit more quickly to compete with NVIDIA because she's managed to create a flatter organization. That was too long-winded, but yeah. No, no, you're right. You're right. And oftentimes my colleagues kind of simplify this to the point of, okay, let's flatten the organization. Let's have less layer. Yeah, they might have less layer, but at the end of the day is how they operate within that layer. So what I call this perpetual transformation playbook, if you will, or perpetual innovation playbook, it's an operating model by which your organization works regardless of your hierarchies. And that operating model is about radical collaboration. It's about the startup mindset. It's about existential purpose. It's being bold.

It's being fired up to make a difference and unleashing talent. And I think those are the critical secret sauce to be able to have a perpetual innovation engine and people that could be perpetual innovators. I think one distinction I want to add is that, as you mentioned early on, this book is not just about how can leaders and organization become perpetual innovator. It's also about how individually you, in your career, can actually be a perpetual innovator by applying these holistic characteristics that I talk about in the book. Yeah, and one framework that I enjoyed, and this is more personal than investing or perhaps more like business leadership, is thinking about projects in terms of, is this something that's a very complex process that I can delegate, but it's going to be certain? Or is this a highly uncertain process that I'm working on? And how do I think about these differently? Because, you know, for most jobs, you're going to be dealing with both scenarios, but we often apply sort of the same mental models to both scenarios. Yes. And I devote a chapter on this, which is a critical characteristics. And it started with my doctoral thesis in the 1990s at Stanford, where what I found is when you have very uncertain environments, those organizations that iterated a lot were able to get to market faster and get the better product than those organizations that kind of planned, planned, and then they executed. And at that time, it was kind of like a new concept.

It became the early on foundation of agile development. Later on, it was called ambidextrous organization. But you really need two types of thinking. And the organizational model and the way you work, it's so different between these two models. One is highly uncertain. One is very predictable. One is more new platform, breakthrough products.

one is more incremental products that there are organizations that do really well. I talk about Amazon because people think of Amazon, oh, they just continuously improve their, you know, their site and it becomes a seamless experience, one click. And they've spoiled us. You know, every time I go to anyone's website, any company, if they're not up to Amazon standards, it's not that fun. And so that's really what the whole point is, is they were able to get to cloud. They were able to get to Kindle. And a lot of those things were uncertain. And it was kind of what I would call a product that created huge, huge business for Amazon. Yeah. Amazon Web Service probably being the largest of them. It's pretty much their entire profit engine. And it came from them being

unhappy with the computer servers that were helping their then much smaller retailer. And Amazon is a great poster child for this, but I also appreciated how you highlighted some lesser-known companies, one of which is Whirlpool. We don't often think of perpetual innovation and washing machines in the same sentence, but how has Whirlpool been able to use perpetual innovation to encourage employees to bring new ideas and stand out in the appliance marketplace? Yeah, I mean, Whirlpool, to their credit, they have extreme collaboration. The ferocity I've noticed, you know, when you go to these organizations and visit, you see they're at a different speed. For those who like soccer, it's like soccer at the professional level versus a college level. They do a lot of analytics.

They're very much customer-obsessed, and they constantly get feedback from the customers. After doing this research, I've realized it's not just obsessed about customers. They love their customers, and they're constantly trying to innovate for them. And, you know, the other thing that Whirlpool does, which is amazing, is they constantly invent and try to simplify things within their organization. So as we spoke, perpetual innovation is the constant, constant focus on unleashing the culture and taking your cultural performance to a next level so that you can perpetually innovate and survive. You know, bottom line, if I could just say two things about this book, this book is about how can you future-proof your organization. And for individual, if they're interested, how could you future-proof yourself? One way that folks are going to have to future-proof themselves is by learning how to use artificial intelligence.

I know you recently gave a talk at Stanford that was about using AI as a competitive advantage. Those listening, most of them probably were not able to attend that talk. So I'm hoping you can share maybe some of the spark notes, the crip notes for our folks listening. Yes. So a spark note would be AI is already making a difference. I mean, I was talking to the mammogram department at Stanford, and I have family members who actually were able to bypass intrusive surgery because of AI. They were able to, and the database, millions and millions of cases where there was cancer, there were no cancer, were able to say whether we need surgery or not. So avoid a lot of spurious and unneeded surgery and things like that.

it's already making a difference for me. It's now my research assistant. I bounce back ideas. At the same time, we have to be careful with all the problems with AI that you're reading about. So a colleague of mine, Ricardo Vargas, talks about 5%, 85%. And the first 5%, you get involved, you try different things, and then you let it maybe give you the first draft. But then you're responsible for that last 15%. And at the end of the day, not you, Ricky, because you're still very young, but my generation is scared of this thing. And they're worried that it will replace their job. There's a lot of fear. And my whole point is your CEO, your top leaders need to embrace this technology, need to have a plan, need to have a data architecture. And the bottom line

is AI is not going to replace people. AI will replace people who do not augment their work with AI. Yeah, there's going to be folks. And I think one of the scary parts of this is for a lot of technological processes and innovations, it's always been the threat of replacing, let's say, blue-collar work. Yes, it's never happened. Farmers, manufacturing, that kind of thing. Artificial intelligence is the first time where a lot of the white-collar workers have a target on their backs now. If you're doing contract, let's say contract law, if you're building out property deeds for a business, you might be able to send that to an artificial intelligence platform that can get you to good enough pretty easily. Yes. Very good point. That's why my good friend

and someone I had the privilege of mentoring who's now started this amazing AI company, Bob Akpalovan and I, we wrote an article in Harvard Business Review is how to go offense on AI. And we made the exact point you made. And that is when you apply the concepts of this book, when you apply all these eight key characteristics that we talked about, you would be able to take your organization to an extreme higher level of productivity, applying AI rather than having have to like lay off people and let people go. And I can tell you, Ricky, firsthand, talking to a lot of very senior executives, those who were, you know, they cut too much, they let a lot of people go because they thought AI would replace, they actually are regretting because they're realizing AI could be a way to be able to increase productivity, creativity significantly, potentially even getting to new businesses. By the way, I want to share with you this story. Someone in my class mentioned that there's this Indian company that is in the IT services at Wipro that their CEO called on everybody, very large company, and basically said, we're not going to replace your job with ai but we're going to increase productivity significantly and but you need to apply ai to your work so you increase your productivity then he created a four

hour class sesame street simple where everybody got what ai was they got the same language and people who took those four hours i haven't seen it but they think it's out of this world how simple and how inspiring that is. So all hands up on deck with Wipro and credit to their CEO. Well, and that's one company you can't talk about. I'm hoping that there is one you can, when you think of companies who are using AI as a competitive advantage, who do you think of? Well, I definitely, you know, I like the Photoshop company, you know, the Adobe. Adobe. Adobe is a great, great example.

I love this example, Ricky. Let me share with you why. Because in my book, I made sure I also studied companies that didn't do well, right? Companies such as Blockbuster, you know, and Nokia and Borders. and I wanted to know why is it that they kind of went down and I realized they weren't perpetual innovators. They didn't move fast enough and AI was a huge disruption to Adobe's business

and people kind of, there was a lot of writing. I think you can find these articles where they said the end of Adobe, Adobe is dead and yet their stock price went up 30%. Why? Because they went on offense, perpetually innovated, came up with a product. They actually use their data set. And again, data is the new oil in the AI world. They use their data set to go on offense and come up with products that, you know, creates thousands and thousands of images. But their customers are now able to, you know, create millions of images using their product. So kudos to them about how they were able to react vis-a-vis when you compare them to Borders and Nokia and other organizations. They went all in.

Yeah, those organizations didn't even get the chance to use AI, but it would have been interesting to see how that played out. Well, that's all the time we have. Our guest, Dr. Benham Tabrizi, his book, it's called Going on Offense, a Leader's Playbook for Perpetual Innovation. It's out now. Appreciate you joining us and thank you so much for your time and your insight from Outlet Full Money listeners.

And thank you, Ricky, for reading the book and having this lively conversation. I really appreciate it. Likewise. As always, people on the program may own stocks mentioned, and The Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.