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.
Motley Fool host 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.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
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This video was recorded on August 26, 2023
Behnam Tabrizi: I can tell you, Ricky, firsthand talking to a lot of very senior executive, they cut too much. They let a lot of people go because they thought what 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 into new businesses.
Ricky Mulvey: I'm Ricky Mulvey and that's Behnam Tabrizi. He's 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 carmakers 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 that 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?
Behnam Tabrizi: 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 Nadella came from the cloud division and started running Microsoft. At that time Microsoft wasn't doing well. A lot of people thought that this is going to be business as usual. A year later, Sundar Pichai joined as CEO of Google and he was also a Google veteran. At that time Google was doing pretty well. People thought that Google is going to continue to do better and better. Now, from someone who is a student of transformation. What is interesting is what exactly Satya Nadella 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 the HBR article about how Microsoft became innovative again. 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. Basically with the ChatGPT introduction late last year, Microsoft took the thunder of Google's repertoire. We've been studying Google quite a bit. Unfortunately, it's become like an organization where there are lots of layers, if you will, you have to go through these layer. Very conservative cash-cow business. On the other hand, I talked about in lots of detail about how Microsoft has been running in all cylinders and all the moves that Microsoft has done from a bolt point of view, from raising the status of engineers and doubling down on cloud on AI acquisition. It's a fascinating case study when you juxtapose the two.
Ricky Mulvey: Google is famous for encouraging their employees to go above and beyond what their roles, what is it 20% of your time should lead to you developing something else. 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 maybe correct me if I'm wrong but bleeding into the day two less-start-up mindset.
Behnam Tabrizi: Yes, absolutely. They still have a lot of talent, I wouldn't rule them out in terms of coming back. Both of their founders are back. A survey is come back and working on the AI. They have a lot of talent, but they let this culture slip. This is really the whole point about that's why I use the word perpetual, is that you've got to constantly be there and work on your culture and improve your culture. As Satya Nadella 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 are going to fall behind.
Behnam Tabrizi: One piece of this sort of 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 excuse me, your brokerage account, does this company have an existential purpose? Do I understand it? This is something that Satya Nadella really had to find it Microsoft, He said in the book that, "The closest thing the company had to an animating purpose was the long-standing goal of a PC on every desk and in every home running Microsoft software." That seems like a pretty decent reason for a company to exist is to sell the products they make.
Behnam Tabrizi: Absolutely. He has since modified that to say we want to empower every individual and every organization in the planet to achieve more. The way I define this is by existential purpose is not just having a mission statement and paying lip service is when you're leaders, when you're people truly believe in it, they're committed to that cause. This is what I found with the most innovative sample and organizations based on evidence-based, lots of interviews, and so forth. That is these people are committed. They feel like they're part of a much larger cause. Since early 2000 I've been really interested about why is it companies just show up at work and it means a Gallup poll survey of engagement shows at most, 30% of people in U.S. are engaged. The rest are either disengaged or sabotaging work and so forth. Why is it that people willing to die for a cause? In some ways, these organization 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.
Ricky Mulvey: The way that Nadella transformed this was essentially by making Microsoft more collaborative, both internally and then also externally. You talked 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 arrived like internal conflict.
Behnam Tabrizi: Absolutely. You have definitely read the book cover to cover Ricky and a great point. Collaboration is I decided to devote one chapter of the book on collaboration. Collaboration is not just like two people or three people working together, is extreme collaboration, radical collaboration, where hierarchies don't matter. You need to get something done, you just make it happen. Don't let these walls that organizations arbitrary create to stop you from getting things done ASAP. He actually took that to another level. 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, It's 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. Lots of creditor, I'm speaking to you right now on a Mac Air that has Windows operating system [laughs].
Ricky Mulvey: When we talk about existential visions, I think there's one company that you both criticized, and celebrating the book seems to be in the middle and that's Meta. This has 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 roller coaster ride. But also, despite not having an existential vision, it's created, what is it? Three billion active users on its platform. Still the number one social media app with Instagram. It seems to be doing pretty well.
Behnam Tabrizi: 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. What happened is Meta or Facebook started having the same type of problem that Google had. They started having layer after layer. In fact, I have a slide that I showed that 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. All of a sudden, in about six months or eight months ago, Zuckerberg put his foot on the gas. He went on to this perpetual innovation journey. He really tried to turn this 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 talked about in the book and we saw that happening. That's why from your point of view or your reader's point of view, the stock was really having a tough time late last year. But once they were able to turn the ship around, based on the eight concepts that I talked about in the book, they are able now to do much better. We also need to also realize that he came in really strong about this web 3.0. Now he's completely pivoted. He doesn't talk about that as much as he talks about AI. There was a lot of investment he made on that, that probably he has to write off quite a bit of it.
Ricky Mulvey: It's a huge cultural question mark for me. At Meta. In the book, you discussed these high-performing organizations. 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.
Behnam Tabrizi: Yes. This is an important question you're asking and that is letting people go, people I talked to. Let's talk about the extreme case which is Tesla which has probably one of the strongest existential purpose of any company. I mean, people really feel like working for Tesla is a calling. They feel like they're changing the planet, they changing the world, people I talk to. 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. In some ways, many people I talked to for example on the Tesla's case, they felt like even two, three years of being in that type of 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 move, but more importantly, by seeing how the known methods don't mean anything in Tesla. 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 up there and landed on a piece of wood on an ocean somewhere? That itself is a huge. Basically, they asked questions about the fundamental laws of physics and why can't we do it and they were able to accomplish and save a lot of money. That's why organizations in the car industry have a tough time catching up to Tesla and their innovation because they are still using a lot of unknown method. Let's gather all the data, let's decide whether there's a right way, whereas Tesla is scrappy, they try different things if it doesn't work, they iterate. They have very much what I call a start-up culture of continuously trying different things and have big hairy, audacious goal about a lot of things that they're doing.
Ricky Mulvey: Well and maybe the separation point between the expert. What is it that you can have the highest of expectations is the amount of autonomy that you give employees. 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. 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?
Behnam Tabrizi: 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 were actually watching this about 15 years ago or 20 years ago, Intel was the only semiconductor company and AMD was very small market share. Again, I talk about this in the book how Intel losses momentum and module after Andy Grove left, and it became another one of those organizations with high inertia and potentially toxic culture. Whereas Lisa Su was running in all cylinder, all the things that I talked 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. If you compare Intel and AMD, you can't say 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 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's death Nvidia came and a lot of people didn't know Nvidia and now it's a trillion-dollar organization. Now Lisa Su is faced with the challenge because Nvidia got into AI, took the big bet, got into the video games so they can do high-end processes. 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. 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.
Ricky Mulvey: Yeah. One reason that she's probably able to pivot this organization fairly quickly is that she was able to develop, but will perhaps call a flattish 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.
Behnam Tabrizi: You're right. Oftentimes, my colleagues simplify this to the point of OK, let's flatten the organization, let's have fewer layers. Yeah, they might have less layer but at the end of the day is how they operate within that layer. 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. That operating model is about radical collaboration, is about the start-up mindset, it's about existential purpose, is being bold, is being fired up to make a difference, and unleashing talent. 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 this holistic characteristics that I talk about in the book.
Ricky Mulvey: Yeah, and one framework that I enjoy 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? How do I think about these differently because for most jobs you're going to be dealing with both scenarios but we often apply the same mental models to both scenarios.
Behnam Tabrizi: Yes. 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 planned plans and then they executed. At that time, it was 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 product that there are organizations that do really well. I talk about Amazon because people think of Amazon, oh, they just can't continuously improve their site and it becomes a seamless experience one click and they've spoiled us. Every time I go to anyone's website, any company, if they're not up to Amazon standards is not that fun. That's really what the whole point is they were able to get to Cloud, they were able to get to Kindle and a lot of those things were uncertain. It was what I would call products that created huge business for Amazon.
Ricky Mulvey: Amazon Web Services probably being the largest of them, it's pretty much the entire profit engine, and it came from them being unhappy with the computer servers that were helping their then.
Behnam Tabrizi: Yes.
Ricky Mulvey: Much smaller retailer. 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 in washing machines in the same sense, but how has Whirlpool been able to use perpetual innovation to encourage employees to bring new ideas and stand out in the appliance marketplace?
Behnam Tabrizi: Whirlpool to their credit, they have extreme collaboration, the ferocity. I've noticed, when you go to these organization visit, you see they're at a different speed, for those who like soccer. It's like soccer at the professional level we're at 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 customer, they love their customers and they constantly trying to innovate for them. The other thing that will put us, which is amazing, is they constantly invent and try to simplify things within their organization. As we spoke, perpetual innovation is the constant focus on unleashing the culture and taking your cultural performance to a next level so that you can perpetually innovate and survive. Bottom line, if I could just say two things about this book, this book is about how can you future-proof your organization. For individual, if they're interested, how could you future-proof yourself?
Ricky Mulvey: One way that folks are going to have to future-proof themselves is by learning how to use artificial intelligence.
Behnam Tabrizi: Yes.
Ricky Mulvey: I know you recently gave a talk at Stanford that was called, those about using AI as a competitive advantage. Those listening, most of them probably were not able to attend that talk. I'm hoping you can share maybe some of the spark notes, the crib notes for folks listening.
Behnam Tabrizi: Yes. Spark note would be, AI is already making a difference. I was talking to the mammogram department at Stanford and I have family members. Actually, we were able to bypass intrusive surgery because of AI, and the database millions and millions of cases where there was cancers, there were no cancer, were able to say whether we need surgery or not. 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. 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 are responsible for that last 15%. 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. 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. The bottom line is, AI is not going to replace people, AI will replace people who do not augment their work with AI.
Ricky Mulvey: There's going to be folks. 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.
Behnam Tabrizi: Yes. It's never happened.
Ricky Mulvey: Farmers manufacturing that 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 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.
Behnam Tabrizi: 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 Babak Pahlavan and I, we wrote an article in Harvard Business Review is how to go on offense on AI, and we made the exact point you made. 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 have to lay off people and let people go. I can tell you Ricky, firsthand talking to a lot of very senior executive, those who were, 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 into 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 isn't the IT services, 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, 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've got the same language. People who took those four hours, I haven't seen it. What they think is out of this world, how simple and how inspiring that is. All hands on deck with Wipro and credit to their CEO.
Ricky Mulvey: Well, and that's one company you can't talk about. I'm hoping that there is one you can think of companies who are using AI for as a competitive advantage. Who do you think of?
Behnam Tabrizi: Well, I definitely, I'd like the Photoshop company, the Adobe.
Ricky Mulvey: Adobe.
Behnam Tabrizi: Adobe is a great example. I love this example, Ricky, let me share with you why? Because in my book, I made sure I also study companies that didn't do well. Companies such as Blockbuster and Nokia and Borders. I wanted to know why is it that they went down, and I realized they were in perpetual innovators. They didn't move fast enough. AI was a huge disruption to Adobe's business. 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 dataset. Again, data is the new oil in the AI world. They use their dataset to go on office and come up with products that creates thousands and thousands of images. But their customers are now able to create millions of images using their product. 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.
Ricky Mulvey: 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, Behnam Tabrizi, his book, It's called Going On Offense a leaders playbook for perpetual innovation. It's out now. I appreciate joining us and thank you so much for your time and your insights for Motley Fool Money listeners.
Behnam Tabrizi: Thank you, Ricky, for reading the book and having this lively conversation, I really appreciate it.
Ricky Mulvey: Likewise. As always, people on the program may own stocks mentioned in 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.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Ricky Mulvey has positions in Meta Platforms and Netflix. The Motley Fool has positions in and recommends Adobe, Advanced Micro Devices, Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.