[MUSIC] In this segment we're going to talk about Learning from outlier companies. If the previous segment was about why so many outlier companies doing kind of cool, innovative management experiments. Struggle to actually sustain themselves or to capture visibility. What I want to do in this segment is to turn, turn to the positive side of the story. And say, imagine if you are a company that wants to learn from these companies, what can you do? This chart here gives us sort of a starting point. We say, look, in any given company we have a set of current practices, [NOISE] and then we have, if you like, a theory about a sort of a, a working point of view, as to why those practices work? And obviously, to some extent, there are managers, there are senior leaders in the company, who are trying to make sense of why they're doing what they're doing? And, and essentially reinforcing it on that basis. So that's the kind of the starting point. What happens when an outlier practice emerges? When a company, a traditional big company, whatever company it is, sees that has come up with this radical new approach to empowering its workers. And doing things in a, kind of, a crazy way. Option one, I'm going to give you three options, by the way. Option one, is what I call, Observe and Apply. What does that mean? It means taking that outlier practice, that unusual practice, and essentially incorporating it into your own organization. Now, I'm going to to be making the point, this is a risky and often damaging approach, but it can work if it's done well. Let me give you an example where it, it's act, it's actually worked very badly. GE, General Electric during the latter days of, of Jack Welch's tenure. So were talking about ten years ago now. They became famous for a, an approach they called the, the, the rank and yank, or forced ranking curve. What this was it was a, it was a performance evaluation tool. Where by in any particular division all employees were rated, were given some sort of objective rating for their performance. And there was a forced ranking where by you know, the people at the top of the curve, or obviously the highest performers, the people at the bottom were the lowest performers. And using that forced ranking, they came up with a very simple rule of thumb, which is if you're in the top 20%, you are the people who are, you know, the stars of tomorrow. The people who are going to get promotions, the people who are going to get better pay rises, the people who are going to be sent off on the executive education programs. The middle group of 70 are just kind of standard performers. Continue to do what you're doing. And then the, the, difficult bit, the bottom 10% were essentially slated for either, in a dramatic performance improvement or for ult, ultimately to being fired. And, and the idea was that every year the bottom 10% would be identified and would be essentially slated for, for firing. Now, in a, in GE's high performance culture, that just about worked because GE has managed to make a, sort of a, real virtue out of saying we only want to have an organization which is performing to a higher standard of excellence. And to do that we have to find a way of actually moving out the people who are not performing. So it worked in GE. However, many other organizations tried adopting a version of it with typically really, really bad results. So there's a quote here from Vanity Fair magazine of a, of a journalist. Who actually went and talked to, to Microsoft, talked to people at Microsoft about how they had incorporated the rank and yank system. GE prefers to call it the Vitality Curve by the way, not the rank and yank system. they, she talks to people at Microsoft who'd used this system. And she found that was systematically kind of a hated. Why? Because it was Microsoft unlike GE actually has a very very collaborative culture. If you work in software development you've got to be collaborative and that's just the nature of of software. So, it turned out that Microsoft had attempted to use this system and it had actually done more damage than good. Many, many companies over the years have tried a version of this and it failed. So it's a good example of taking an idea from one company, imposing it on another, and for having it spectacularly backfire. So as a general point of view, the reasons why these things typically fail are, first of all, Complementarities between practices, what do I mean by that? I mean, GE's rankand yank system only worked because, GE, over the years had put in place a set of complementary practices around developing people, around giving enormous accountability to the people running the organization. About trying to perform, incr-, . improve performance efficiently around various incentive systems for high performance. They had a system that works. And the rank and yank system kind of fitted with that, with complementarity. By dropping it into a company which didn't have those supporting systems, it failed miserably. Special circumstances which mean that there are some companies who are doing interesting things that, by virtue of the specific circumstances that exist, they can do which other companies could not. So, I briefly mentioned in an earlier segment of this course, the American private company called WL Gore, British people, for example, would know John Lewis Partnership, both of these are privately held companies. Companies which can do very, thoughtful things about, for example, stock options or about pay and performance or about voting for their, for their bosses. Which a traditional PLC-type company could not do. Third and finally, an awful lot of these types of approaches suffer from what I'm going to call, Not invented here. In other words even when we can see something working in another place and we can see its merits, it's very, very tempting within another organizational division or another company completely, to say that wouldn't work here. And so even the most promising of these ideas are summed. The second principle for learning from outliers is to Focus on the Principle not the Practice. What do I mean by that? Rather than taking what a company is doing in a different space and just simply adopting it. What you'd need to do is to take what they're doing and say can we make sense of this, can we understand, the alternative logic behind this? And can we use that in our own adapted way and apply it back to our own organization? So for example let's take one case which will be pharmaceuticals. In the world of pharmaceuticals as I think, everyone knows it's been transformed over the years by biotechnology. We see lots of biotech companies, particularly from, from, from California, coming along, challenging big pharma-companies with very, very different ways of working. They often work in much smaller units, more cross-functional teams. They work on a, a slightly faster clock speed. And the story that's, that's hinted out in this slide is, is, is GlaxoSmithKline, the big British pharmaceutical company. Who in the year 2000 said, look we can see that the Genentechs and the AMGENS, the big successful biotechs of California are doing impressive things. And they've got this very different way of working rather than enormous teams, they're working in smaller cross-functional teams. However, rather than simply saying, we want to be like them, we're just going to incorporate their model, what GSK, GlaxoSmithKline, did was come up with a hybrid version. And it became known as their Centres of Excellence for Drug Discovery. And in essence what they did was they said, take the entire value chain of, of, of, of innovation. We're not going to make any changes to the beginning or the end of that process because economies of scale matter in that part of the chain. But we are going to take the discovery piece and we're going to break that up into small elements. I'm not going to tell you the details of the story cause it's quite a long and involved story, but the point is they kind of injected a version of a Californian Biotech Organization into a part of their large organization. And with, with very impressive results, GSK has continued to be one of the more successful big pharma companies over the last decade or so. So that's the second approach to learning from outliers. It's about understanding the principle and then adapting it to your circumstances. What is the third approach to doing this? This is a slightly unusual one. It's about saying, actually, on the basis of this outlier practice, on the basis of this unusual new way of working that we see another company using. Can we actually understand ourselves better as a result, actually kind of use that to make better sense of what we're doing to ourselves? I'm going to give you an example of this, again, from the pharmaceutical industry, and actually it links to a story I told in the last segment. You recall that I talked about an experiment done in Roche. Whereby they actually posted some scientific ideas on the Innocentive Platform and actually got some very, very impressive results from that as a result of that experiment. Well, they took that experiment further. They actually built it out. They actually tried a whole bunch of additional problems on Innocentive, problems that Roche was struggling with. They posted them, and they got back typically a mixture of good and less good solutions. In the course of that process, what they discovered was that it was typically the, the process innovations. In other words innovations, for example, in how the a drug is administered. Innovations, for example, in, in the, the, the diagnostic equipment rather than the actual drug formulation itself. They discovered that those process innovations typically were much easier and and smarter to incorporate into their existing model than what you might call product innovation. And perhaps there was a Not invented here Syndrome going on. Perhaps there's a number of other things happening. But the bottom line is, by going through this process, by thinking through the consequences for themselves and their own approach to technology sourcing. They became better at managing their existing processes. So, to summarize, what I've suggested is three different ways in which an existing company can adapt and learn from an outlier company. And the kind of the key bullet points on this slide here. And first thing to do is to make sure that the, the company that you're learning from actually is doing something interesting. By due time, make sure that it works, then essentially deconstruct the management model, the model that companies use. Try to understand what is driving it and on the basis of that, try to then experiment in incorporating it into your own model. So it's a much more cautious and thoughtful approach than sort of having a knee-jerk reaction and saying, you know, if GE or Microsoft or Google is doing something we need to adopt it as well. So that's the end of this segment. As you'll see what we've spent the time doing is looking at very, very different approaches. To try to bring new management thinking, new management ways of working inside a company, to create our version of the company of the future.
