Business thinker Gary Hamel thinks accelerating change, fierce competition and knowledge becoming a commodity will fuel the fire for transforming how companies are run.

Topic: Accelerating change

Gary Hamel: There’s a very good chance that over the next few years we are going to see a revolution in management, that is just as profound as the revolution in management that gave birth to the industrial age.  When we moved from a craft-based and agrarian economy, to an industrial economy.  Why is this going to happen?

Three forcing functions are going to make this happen.  The first is accelerating change.  We literally live today in a world where change has changed.  We are the first generation in history where the pace of change has gone hyper-critical within our lifetimes.  Think for a moment about all the things right now that are changing at an exponential pace.  CO2 emissions, number of genes sequenced, number of internet domains out there, the amount of bandwidth that's available to people, global population.  Whole variety of things changing at an exponential rate.

We know that the lifespan of a great strategy is shrinking.  A company goes from that takeoff stage through growth, to maturity and senescence, faster than ever before.  All of this is testament to a simple fact.  Our world is becoming more turbulent, faster than most organizations are becoming more adaptable and more resilient.  And you look around us today and you see all kinds of companies that are struggling to get their mojo back.  Entire industries like music and pharmaceuticals and publishing, where the whole industry has fallen behind the change group.  Historically, there was only one way to change a large organization and that was to wait until it tumbled into crisis and then to decapitate the leadership team.  Start with a new leadership team.

When you read all those books on change, you get two kinds of stories.  Change that's trivial, and change that is traumatic, change that is deep, but came as a result of a crisis.  It's kind of sad to admit, but these large organizations tend to change in the same way poorly governed dictatorships change- belatedly and convulsively.  And this is simply no longer good enough.  We're going to have to change the way organizations change, make it much more like the body's autonomic systems, that are constantly taking information inputs in and responding.  But not something that is crisis driven, that's episodic.  We need instead change to be opportunity driven and continuous.

Topic: Competition

Gary Hamel: A second great challenge that's going to produce a management revolution is simply the fact that we live in a world today that is becoming more and more competitively intense.  There's no place to hide from competition today.  You have new competitors with zero legacy costs or with radically new cost models.  We have pressure from consumers who are so extraordinarily well informed today, who can compare and shop and have literally perfect data.  A lot of the friction that companies once relied on to prop up their margins, the friction of ignorant customers and high transaction costs, high search costs, all that friction is being driven out of the economy.

And every company is in a race to create new forms of differentiation, faster than they lost these old kind of sources of protection for their margins.  And the only way you're going to win that battle, is by creating companies that are deeply, deeply innovative.  Innovation's a big buzz word today, but I would argue there's not one company out of 100 that's made innovation the work of every single employee.

And if you want to test me on that, here's a simple question, a couple of questions you can ask to any frontline, first level employee in your organization.  Ask them first of all this; how have you been trained as a business innovator?  I hear all these CEOs talking about how important innovation is, but I know of no more than one or two companies that have trained every single employee to be an innovator.  Why wouldn't we do this in the same way that Toyota trained people to be great problem solvers?

Innovation is not something that occurs naturally.  You can develop an aptitude for it, you can learn how to unpack industry orthodoxies, how to identify the unarticulated needs of customers.  How to look at the world around you, the competencies, the capabilities of other companies and figure out new and creative ways of putting those together with your capabilities, to create new services, new products.  You can teach people all of these things and yet we haven't done it.

Topic: Knowledge as a commodity

Gary Hamel: Thirdly and lastly, we also live in a world where knowledge itself is becoming a commodity.  Over the last few years as companies have gotten into more and more relationships with other companies, industry consortia, outsourcing, off-shoring, supplier networks, all of those new arrangements are conduits through which skills and knowledge flows.

Think about Apple getting into the mobile phone business.  How is a company with no history in that business, how do you get into that from a standing start, in about 18 months?  How does that happen? It happens because most of the knowledge, most of the technology Apple needed to do that, it could buy off the shelf as commodity knowledge.  The chipset, the RF antenna, batteries, packaging, you wrap a beautiful user interface around it, you build some wonderful new industry architecture, the App Store.

And so you have this amazing success, but the only way to do it in that timeframe was that a lot of that knowledge was already commodity.  Turn an Apple iPhone or an iPod around and read the back, it will say, "Designed in California, made in China."  Now what part of that equation would you like to have, right?  It doesn't matter today how big you are.  It doesn't matter where you sit in that eco-system.  What matters is the ratio of value to cost that you're producing, right.  What's your share of the total value that customers get out of this ultimate product, versus what is the share of cost that you had to incur in producing that value?

So you look at Apple today with about three, four percent of the market for mobile phones by volume, but representing about 30 percent of the profitability of that industry.  Huge amount of value proportionate to the cost.  How do you do that?  You do that by creating a company where people every day are willing to come to work and bring you their imagination and their creativity and their passion.  You have to create an extraordinary workplace that prompts that extraordinary contribution that drives extraordinary value.

Recorded on August 14, 2009