The Innovation Show Podcast Interview with Professor Michael Tushman – Winning Through Innovation, Part 1

Why do successful firms find it so difficult to adapt in the face of change- to innovate? In the past decade, the importance of this question has increased as the pace and nature of disruptive change has dramatically accelerated.

Change Logic Co-Founder, Michael Tushman, was recently interviewed on The Innovation Show podcast. His episode, “Winning Through Innovation, Part 1 with Michael Tushman” points out that for decades, leaders have grappled with the fundamental question of why fantastically competent technical organizations almost always fail at disruptions in their environment.

Leadership, culture, and organizational architectures can be both important facilitators of innovation and, not uncommonly, formidable obstacles. Mike asserts that the greatest firms out there move from a position of strength; that they reinvent themselves before their performance has dropped, by ideating, incubating and scaling new ventures within the organization. Leaders need to be able to play two games at the same time- exploiting their existing businesses while exploring new growth opportunities.

Listen to the full podcast on The Innovation Show’s website or through your favorite podcast provider.

Continue reading for a full transcript of Michael’s interview:

Aidan McCullen: Today’s guest examines how leadership, culture, and organizational architectures can be both important facilitators of innovation and formidable obstacles.

He demonstrates how to clarify today’s critical managerial problems, use culture and commitment to promote innovation and implement strategy, and deal with changing innovation requirements as organizations evolve. Our guest is a professor of business administration at the Harvard Business School, and his CV reads like a book, not to mention his list of publications and books.

I’m so happy to say that he’s agreed to partake in a multi-part series for The Innovation Show. Today we’re going to score some of his theories and frameworks. We’re going to cover, if we’re lucky, the challenge of dynamic capabilities, the evolution of his work, innovation streams, explore and exploit. You’ve heard me say that term so many times on this show.

This is the guy who came up with that term “Strategy and execution of change”. The Congruence Model, also that he came up with and indeed organizational architecture and how that changes as the innovation streams change. For now, it is a massive pleasure to welcome the author of this 1997 classic, Winning Through Innovation, A Practical Guide to Leading Organizational Change and Renewal. Welcome to the show!

Michael Tushman: Hi, Aidan! Great to be working with you and great to be engaging, hopefully with you and your audience.

Aidan McCullen: It’s so good to have you on the show. Mike and I did a good bit of research. Well you’ve been researching it for decades, to prepare for today and to prepare for this series. I have to admit to you- I was expecting you to look like the Roman God, Janus, with one eye facing the forward, and one facing back. And that’ll become apparent to our audience why we’re talking about that. But maybe, I thought we’d start by firstly giving context to this series and indeed, what we hope to cover, and the origin of your work. Because you have worked for a long time with your partner and your co-author, Charles O’Reilly, an Irish man of course and maybe you will give a bit of context on that and Andrew Binns, who will join us later on in this series.

Michael Tushman: Great. Aidan, so great to be with you. Just in terms of context Charles and I have been working together on this question of innovation, leadership, culture, organization architecture, and change since we’ve been in the field.

Both Charles and I are engineers by background. And we’ve been grappling with the fundamental question of why fantastically competent technical organizations almost always fail at transitions in their environment. I’ll let Charles talk personally when he’s in the next segment, but I was double E and I, I got into this field because I, at the time, I worked for the number one test equipment company on the planet at that time, GenRad, and while I was there, this great firm promptly failed.

And my model at the time was, you have a bunch of engineers, really distinguished engineers. This is kind of a bulletproof recipe for success. Great engineers doing important stuff. I was working in one of those organizations and at one of the, what I now realize, one of these transitions. GenRad couldn’t deal with what Charles and I now call exploration. And my carpool friends, I went back and forth to work to GenRad with a bunch of engineers and they were like out of a job. All of a sudden, these great engineers were out of a job and I was considering a career in engineering and I said, man, something’s going on here.

And I left engineering and I’ve been now studying this and researching this and consulting on this, and teaching this now for, I don’t know, maybe 40 years. I think I now have a point of view that I can discuss with my carpool friends so many years ago, as to what happened to GenRad. And basically what I spent my career doing is helping leaders deal with technical transitions proactively as opposed to reactively, and that is kind of a happy thought, Aidan.

And I think the stuff that Charles and I, and then more recently Andy Binns, has done with our firm is actually getting our hands dirty with firms and helping them deal with what Clay has called the Innovator’s Dilemma.

We have a, I’m not sure a solution is the right word to that, but this is also an ongoing conversation that Clay and I have had over the years on how to deal with technical change in different product classes.

Aidan McCullen: I would love to have been a fly on the wall with those conversations between you guys, and I forgot to say that you were great friends with Clayton Christensen, who we just did a series on, so it’s so great to have you here.

I thought we’d start with the real problem, which is what you experienced firsthand, which is the tyranny of success. And you call this an age old problem, I have a little quote here too, to tee us up and that will set context for all those organizations. And so many people write to me all the time on the show, kind of go ‘my organization’s doing well, our change muscle has atrophied, and I’m worried about this’.

And they’re usually those positive Cassandras within the organization. And you tee us up for this tyranny of success by saying managers faced with changing competition, new technology and shifting markets often feel as though they are meeting challenges, never dealt with before by their predecessors.

They are both right and wrong. They are right in that markets and technology are changing often in new and unpredictable ways, but the fundamental dynamics of these changes are largely the same across industries, countries, and indeed time. You’re not alone. This has been an age-old problem, slightly accelerated by technological change, but over to you, Mike, to this problem of the tyranny of success.

Michael Tushman: Yeah, and that’s a basic axiom of my work with Charles. The way I start all of my work with executives and the way I start my book with Charles is basically a list of great firms. These are firms that started their product class, that led their product class. They were highly innovative and entrepreneurial. And in the face of outside change, they almost always drop.

And this tyranny of success is that the recipes that firms have used in the past. So I am doing some work now at Deloitte Consulting, the recipes that Deloitte has used in the past in high-end consulting, I know and they know, are not going to work in the future. The recipes, if you’re an advertising agency, the recipes that made your product class so successful over so many years, you know, are not going to work in the world of chatGPT.

Something’s going to change in the world of AI and machine learning. The problem is that the past traps organizations and this is something where Clay and I have been with this is where we totally agree, is that the recipe that firms have had to sustain their capabilities to a point in time, literally hold them hostage to the past.

There’s a basic idea that, this is not my idea, Aidan, I really want to correct that. The basic idea that Jim March had at, at Stanford, a bunch of years ago is that dynamic capabilities at the firm level are associated with playing two strategic games, well simultaneously. And one game is what Jim has described as a game of exploiting your existing strategy better than anybody on the planet.

He called that exploit. But Jim observed a bunch of years ago, that exploit is a dead end. That exploit actually gets in the way of the second dimension of dynamic capabilities, which is figuring out the future before your competition. And my books with Charles and my consulting with Andy is all around helping incumbent firms both explore and exploit.

And those are contradictory strategic impulses. And in line with what you just said a few minutes ago, what Mary Banner and I found in some of our research about 20 years ago now, is that the better the firm is at exploiting an existing strategy and capability, the worse it is at exploration. As an inverse relationship between exploit and explore that is a great managerial challenge for your listeners.

How do you build an organization? And this is where Clay and I like veered off. How do you build an organization that can both celebrate the past and create a new future? And that’s fundamentally what Winning Through Innovation and Corporate Explorer are all about is building on our research, helping leaders play these two strategic games well simultaneously.

In this context. What Elton Morrison has called Dynamic Conservatism. Successful firms like I experienced at GenRad. I didn’t have a word for it, but GenRad tried hard, really hard not to change. They thought that their existing recipe, if they executed it better, would prevent HP, Tectonics, Keithley, and Fluke from taking their world.

And this dynamic conservatism is both great in the short term, and a disaster in the long term. And so that’s one of the things I want to engage with you on is how do you deal with a capability that is successful for today, but will get in the way of tomorrow? And that’s what I want to get out in the course of our three or four sessions, is our way of doing that.

Aidan McCullen: I’d be absolutely honored and I wanted to just make it clear as well because, there can be a little bit of like this camp or that camp, you know, for example. What does Tushman and O’Reilly say about innovation versus, what does Christiansen say? For me, it doesn’t actually matter.

It’s about what is best for you as the change maker in your organization. And what I loved about our engagements is you don’t see it that way either. You do not see it as competition. You see it as complimentary. And I thought maybe just, we might be clear and kind of go where exactly, what Clay’s world was versus yours, and then, we can dive into the challenge of dynamic capabilities. Because I absolutely love this book and this is only the first of a lot we’re going to cover.

Michael has written many, many papers, behind me here on the library. For those who are watching us, I sourced down books that were out of print. I found papers that you co-authored with Rebecca Henderson, for example, in Harvard. You’ve so many papers out there, and you’ve researched the heck out of all this, so you’ve really, really rinsed everything out of all the content, and we’re going to get as much out of it as possible. But maybe we’ll, clarify that before we go into the evolution of your work.

Michael Tushman: Yeah. The only difference between the work that Clay and his students, and my work with my students and Charles, the only difference is like, how do you do this explore and exploit. There’s no debate on should a firm do it. It’s like how to do it. And our recipe, as you’ll hear over the next, this session and the next one, is what we call structural ambidexterity.

It is not spinning out. Except that there’s nothing to leverage. our point of view is if there’s nothing to leverage then you spin the explore thing out. If there is something to leverage, we’re going to ask leaders to build what we call this ambidextrous structure, which is a form of organization that builds in contradiction, paradox, and inconsistency, and asks the senior leaders to be able to live into contradiction, and we will give you a whole bunch of examples of that. But that isn’t a nub where Clay and I had all our, our debates, it’s in how dowe help senior leaders deal with the challenge of environmental shocks. Like right now, you know, Google and Chat GPT, Microsoft is coming in.

Oh my God. What’s Google going to do? Well, there’s some kind of game they have to play that we call ideation incubation and scale, which will cover over the next couple of sessions.

Aidan McCullen: I was also a bit confused because much of our work as consultants is to help the organization build the own capabilities to be able to do it themselves versus a spin out of the organization and stay away from the sucking sound of the core as some innovators and consultants would say. But let’s start with the evolution of your work because I thought of, there’s a great quote by the Greek philosopher Heraclitus who said, “No man ever walks in the same river twice, because it’s not the same river, and he’s not the same man.” And I was like kind of going, that’s actually what you’ve done here because you’ve been doing this work for decades.

You’ve worked with so many CEOs and leaders, you’ve seen evolution of many, many trends and I’d love to share perhaps the evolution of the work. What’s changed for you over the last three decades?

Michael Tushman: Yeah. Great, great. Aidan, I appreciate your, your, your sort of sweep of time. My original work was on, I started by, oh my God, what happened to GenRad?

I was a co-op student, work study student. I was a super engineer, and I said, oh my God, something’s going on here that is catastrophic to these engineers. They lived in organizations that could not deal with change.

That led me to a doctorate at MIT on social networks and innovation. Basically the management of R and D. So my early research was on social networks, R and D performance. And then I learned, this is when I was at Columbia, I went from MIT to Columbia. I said, Hey, wait a minute. This R and D, it’s not enough to have great R and D, you have to build organizations that can do different kinds of innovation.

That then led me to work with Phil Anderson, Mary Benner, Elaine Romanelli on both the nature of technological change, you know, technologists manage evolves with incrementally and through discontinuities and some we labeled competence enhancing and some competence destroying.

And then there was this work on organizational architecture that I did with Dave Nettle that was sort of in parallel, and this really infuses my work later with Charles. If industries evolve through both incremental change and punctuated change, which they have been for hundreds of years, this has nothing to do with 2023.

The punctuations are happening more rapidly and there’s something about organizational architectures, they’re going to have to flip. And what my work with Dave Nadler, when we’re at Columbia, was to help our students, and our clients, and the field think about organizations and this notion of organizational architecture as being that, that the firm is composed of what we call critical tasks and structure, what we call the hardware of the firm and the software of the firm being capabilities and culture. And it’s the alignment of those, what we think about as architectural materials that helps the firm drive strategy. So early on it was sort of this meshing of R&D, the nature of technological change, connected to organizational architectures that led to then my work with Charles on, wait a minute. The architecture required for exploit is different and inconsistent than explore, that then led to what we now call ambidexterity.

That work all at the end of the day all came back to, hey, it’s the role of the senior leader and his or her team to use these architectural materials, to help their firm manage both incrementally and what Elaine and I called, punctuated change. That is what we posited like in the early nineties, was that organizations, those that make it to the future don’t evolve through incremental change.

Rather, they evolved through both incremental change and punctuated change. And so a good portion of our work has been on helping managers lead revolutions. That’s what I think about as a punctuated change, where the whole architecture flips. And those flippings are done, we’ll talk later on after you do ideation and incubation.

Someplace in there is the future, and you choose one of these and lead through a revolution. For example, my institution, Harvard Business School, we’ve been doing one thing for a hundred years. We do the case method and we require our students to come to campus, and we have a faculty in front of the room and we do the case method.

Well, that’s not going to get us to the future. We have to do that. We now call that exploit, or Jim called, that exploit and explore into what we’re doing now, Aidan, to delivering content online, to a completely different student, that Harvard has never touched before. And that will be for us, a revolution.

And so my work, in a sweep, has been around, hey, the nature of technical change, punctuation. And if that’s true, then organizations have to go through punctuations. Organizations are these combinations of hardware and software driven by strategy. And the role of the senior leader is to help their firms navigate these punctuations.

One of the things we found more recently, Aidan, is this notion of identity. That we think about what drives organizational architecture? I used to think it was just strategy and objectives. More recently, it’s strategy and objectives, and this notion of strategic intent, competitive vision, or what some of my colleagues now call purpose.

And what I believe to be true now is, those organizations that can live into contradiction and live into paradox, have some overarching purpose that infuses value into their organization. The reason we’re going to be able to do this, explore and exploit, at HBS is because we’ve got a dean who’s saying, hey, we, we are here, what we do is we create leaders who make a difference in the world, and that overarching identity will help us to do old-fashioned HBS and this new HBS. So my current work is around this notion of purpose and identity and infusing value into the organization.

A purpose that legitimizes the inconsistencies between exploit and explore. And maybe we can talk about more, that in a more detailed way, Aidan, but that’s sort of the sweep of my work to now.

Aidan McCullen: Mike, I’d love to dive a little bit into our, excuse the pun, into the streams here. And we’ll look at innovation streams to help our audience understand what we’re talking about.

So I’m going to share, for those of you who are joining us on YouTube, you have the benefit of the visuals that will accompany what Mike is going to talk about. And Mike, maybe we’ll just have a bit of empathy for those who are listening only, because a lot of the show are mainly listeners, over to you, to describe this diagram and indeed what you mean by innovation streams.

Michael Tushman: Let me do two things, everybody. One is I want to talk about the difference between proactive and reactive change. What I’d like the listeners to at least to think about is that the greatest firms out there move from a position of strength; that they reinvent themselves before their performance has dropped.

Charles and I call it an opportunistic move. Opportunity gaps, what we call opportunity gaps, are always driven by a shift in strategy. Opportunity gaps are perhaps the most difficult for leaders to execute because there’s no burning platform. And in our logic, opportunity gaps can be thought through in the following way. What I ask my clients or my students to do is to write an obituary exercise.

And so the leader takes action now, so that obituary never gets written. That’s what Charles and I call an opportunity gap, where you’re moving proactively. Super difficult to do. The difference between an opportunity gap and a performance gap is in a performance company, the organization is dropping like a rock.

So my early work at IBM was when IBM used to be the world’s greatest firm, said it was failing. This fellow, Lou Gerson, comes in from outside. He’s got a gigantic performance gap. And in terms of the logic of lead and disrupt and winning through innovation, leaders have to ask themselves what are, what are causing these performance gaps?

And it’s either a lousy strategy, lousy execution or both. And that’s the discipline we have in Winning Through Innovation, is do your strategy homework, do your congruence analysis, and then take some action. So one basic idea in our work is helping our students and clients move proactively. That’s Point 1.

And what my observation is to you all, all your listeners, if you don’t move proactively, today’s opportunity gap becomes tomorrow’s performance gap.

It’s the role of senior leaders to destabilize a product class, in their favor. But when I talk a little bit later on about Deloitte, they moved proactively in the consulting world to change the nature of consulting. That would benefit them, and the McKinsey of the world and the extensions of the world would have to respond to Deloitte.

That is, to me, the greatest genius leaders are able to move proactively, but after that, you have to move reactively. That’s what Charles and I call a performance gap. Now, let me also articulate this notion of an innovation stream. And this is all around performance and opportunity gaps. Those of you who are just listening, imagine a strategy space where the X axis is different types of technological change.

The most basic form of technological change is what my field calls incremental innovation. You are on an existing technical trajectory, and you move incrementally. These bells, buzzers, whistles, different ways of doing the same thing better and better and better. So at HBS, this is personal to me, while I was chair of our advanced management program, we built a different building for AMP.

But the building, this is an incremental change. The seats are better and the projection is better, and the chalk is better, but it’s incremental innovation. It’s delivering the same technology in delivering content. You get a professor in front of the room and he or she’s engaging with people who come to that room, that’s incremental change.

It’s not no change, but it’s incremental. Second form of, of technical change. This idea came from my colleague Rebecca Henderson, a basic article on architectural innovation. And Rebecca defined architectural innovation as with the following notion, is that any product or service are made up of components that are linked together.

And her definition of architectural innovation is when you add or subtract a component. And she observed that these seemingly trivial innovations are really hard for firms to do. The third kind of innovation is what my field calls discontinuous innovation. Fundamentally different ways of doing advertising, fundamentally different ways of doing teaching.

That’s what I’m going to call a process Revolution. So Chat GPT represents a completely different way of doing search. It’s not that we’re not doing search, we’re doing search, but a totally different way. Or what we’re doing now, Aidan, is I’m lecturing, but not with students in my class, I’m engaging students, colleagues online. That’s a process revolution.

There’s also product revolutions. So when Uber comes up with, you know, mobility, that is a product substitution, if I’m a taxi. If Novartis comes up with a completely different way of doing eye care, that’s a product revolution. So on the right hand side of this, when Michelin comes up with a radial tire, that’s just a plain old substitution.

You can no longer sell biased white tires, because radial completely, is like totally better. So that X axis, everybody is an axis of technological change, incremental architectural, and discontinuous. The Y axis are clients, customers, users. And basically my work with Charles, building on Jim March’s work, asks firms to both exploit, which is in the lower left-hand corner, incremental change to your existing clients.

That’s what we call exploit. And explore is any, it’s either architectural or discontinuous, to either your same clients or new. So all of my work with Charles, and our work with my students and clients, is helping them think about strategically to operate in that innovation.

And then how do you execute that? And basically, this is a way to think about the power and importance of both exploit and explore. All right, everybody. So I’ve just introduced this notion of innovation streams, and I’ve asked you, and I’ve asked leaders to be able to play at multiple points in that innovation stream space, and it’s important to hear this everybody – simultaneously.

We’re not saying first exploit and then explore. It’s to do both simultaneously, and that is the paradox that I need you to own, to at least observe and to consider owning it. The problem is, as I mentioned earlier, is that exploit trumps explore. The better you are at exploit, the worse you are at explore. And by the way, those of you, those listeners who are entrepreneurs, you’re good at explore, but not good at exploit. This issue of going to scale is crucial, and it’s fundamentally different than exploration. So the message that Charles and I have for any leader, is to hone their, their capabilities in owning strategic inconsistency, and to celebrate being consistently inconsistent with respect to strategy.

Now, one way to do that, and we’ll talk about others soon, is through this notion of identity. Who are you as a firm and what do you do as a firm? I first learned about this, with the fellow John Fisher. I have the honor to be the class of 42 professor at Harvard University, class of 42 gave this money to the university. They had fought in the war. They came back and they graduated in 44, and then they gave a bunch of money. I have this chair. About 15 years ago, the class of 42 comes back to campus for their 65th reunion.

65 years after they graduate, a bunch of men show up. By the way, at that time, the school was a men’s school. A bunch of men show up and they asked me because I had this chair, and they asked me to talk, and I’m talking about my work and John Fisher says, hey, professor Dustman. That’s great. Do you mind sitting down? I want to engage my colleagues.

I sit down and the slide that I want to show, I want to get to you, Aidan, and I will just describe to those who are just listening. He put the slide up, everybody, and he said in 1945. I left HBS and I went to Muncy Indiana to work for the Ball Corporation and I spent my career at the Ball Corporation, retired a bunch of years ago. And he says to his group of colleagues, here’s the history of the Ball Corporation.

We were founded in like 1880 and we made wooden buckets. In the early 20th century, we got into the glass business, the ball jar business. I became CEO, says John Fisher, in like 1970. In my first big strategic move, was I went to the board and said, we’ve got to buy this aerospace company. And the board said, what are you talking about?

We don’t want to be a conglomerate. He said, no, we need the material science technology to make these tuna fish cans, metal cans. And then John held up this plastic bottle. He said, this plastic bottle is a ball product. And so what you see here with the Ball Corporation is Exploit, Explorer. Exploit, Explorer, exploit Explorer for decades.

And this guy, John Fisher, has a recipe. And the work that Charles and I have done over the past 25 years is simply replicating what he told us. I’ll get to that later, but one of his colleagues said, Hey, John, that’s amazing. What the Ball corporation has done over like more than a hundred years is shocking.

And then he asked this question, which has changed my work over the past 15 years. He said, John, what is the Ball corporation. That’s now what I call identity. This guy asked John Fisher, what is the Ball corporation? And without a moment’s hesitation, he said, “we aspire to be the world’s greatest container corporation.

He said, “At the end of the day, we do containment. And I am indifferent as to how you do containment, could be a wooden bucket, could be glass, could be metal, whatever, we do, containment.” I said, oh my God, that is one of the key recipes of dynamic capabilities, is having a leader who is willing to talk modestly, abstractly.

Aidan, not too abstract. He says, we do containment and he is totally indifferent as to how we do containment, and that permits him to play what Charles and I call this ambidextrous game. Go into the board and say, we’re going to buy this aerospace company. We’re going to do it inorganically because we don’t know how to do material science and we’re going to buy that capability.

When the board said, what are you talking about? He said, oh yeah, the next wave of containment is going to be material science. We need that capability now. So one of the key recipes on this dynamic capability stuff, and structural ambidexterity, is asking senior leaders to be comfortable with passion and modest abstraction, Aidan.

So not just organizational architecture, which is hardware and software, but who are you and what do you do. And most of my clients and most of my students, senior leaders, who used to have passion when they were, by the time they get to B and at the C level, it’s sucked out and they just finance robots.

That’s not enough these days. There’s nothing wrong with finance. There’s nothing wrong with exploit, but you also have to explore, and that’s the notion of identity. Like purpose is a piece of that. Many other examples, Satya Nadela talks about that right now at Microsoft. I did this work at, at Children’s Hospital, CEO Sandy Fenwick.

When I first met physicians from Children’s Hospital, the first thing out of their mouths was until every child is well. I can barely say that without like crying. I said, where did that come from? Oh yeah we are the CEO of Children’s Hospital in Boston and the first thing out of her mouth in every meeting is not returned on assets, not wait time, you know, in the emergency room.

It’s until every child is well. And if a child happens to die on our watch, we’ve done the research so the next child doesn’t. This is an organization that is led by a leader, who’s comfortable with passion and that seeps down through the organization. So that’s a really key insight that I want to share with your colleagues.

Aidan McCullen: I absolutely love this. And one of the things I was so struck by reading your books is that, looking back to the examples you were talking about back then, some of those organizations were successful even then and they lost their way. And I think about that when you talk about dynamic capabilities and the ability to throw a net around the identity.

Regardless of as, Rita McGrath, our mutual friend would say, the arena you’re playing in. But it encapsulates it in some way. And then I thought about like, so just to remind our audience, like you think about somebody like Samsung started off as a dried fish business. You think about Kia started off assembling bike parts and you realize that those organizations, when they have this mindset, they can actually go anywhere.

And this is the beauty of purpose, but as you’re going to talk to us now in a bit, is identity and vision. They’re all so important. And again, as you said, for me, growing up in an organization, I realized that when I got to the top of the ladder, I realized it was against the wrong wall and I had no reason. I moved from a world of PowerPoint to a world of Excel.

My job was a financial job, and I came to dislike it intensely, and this is what happens to so many of our audience, Mike.

Michael Tushman: Yeah. Great. Well, that’s a nice segue into this next idea. I want to get to our audience. And that is open distributed peer innovation, AI machine learning, and now with ChatGPT.

And it’s my own explorations on this started, oh, back in 2010. First there’s one premise, I would like everyone who’s listening to at least consider that all products and services can be modularized, can be broken into components. That’s point 1. Point 2, in a world where cost of computation has essentially dropped to zero, for a good portion of the world, and the cost of communication, like we’re doing, has essentially dropped to zero, the locus of innovation shifts from the firm to the crowd. And this notion of open distributed peer innovation, is what I’m going to ask you to think about as a process revolution. In 2023, this process revolution, another example of a process revolution is machine learning or AI or ChatGPT. It’s a different way of doing the same thing. And these process revolutions will trigger identity threats. And that’s why this notion of purpose and identity is so important. Let me see if I can make this more concrete.

Karim and I, Karim Lakhani is a colleague of mine, and he and I have done this research with one of our doctoral students. Karim and I were working. We teach in this executive program together. One of our students was at the time, Jeff Davis, who was the senior physician at our space agency, the United States Space, space Agency, NASA, and we’re talking about open innovation, and he said, hey, that’s great for software, that’s great for all these industries, but it’s not great for me because I have my scientists, they’re doing research the last thing they need is open innovations.

So we challenged Jeff to run this experiment and he gave us, back in 2010, his 10 most strategic technical challenges, and we posted those challenges to the crowd.

The most shocking example of this is one of his most strategic technical challenges was sunspot prediction. It turns out that if you launch an astronaut into space and a sunspot does occur, these astronauts are a great risk. And if you launch an astronaut out of space into a sunspot, these astronauts are in deep physical trouble.

So he has had a hundred heliophysics. For 15 years working on this problem of suns spot prediction. And it’s a super difficult problem if you’re a heliophysics. My God, what a challenge. They had 10 of these and they posted all 10 to the crowd. It turns out, this is one of these competitions where you send the problem to the world, the world solves, works on it for free.

And in this particular example, in three months, this retired helio, no. This retired radiofrequency engineer from New Hampshire sees this problem and codes it as a radio physics problem, not a heliophysics problem, but a radio problem. And he sends the solution to Jeff.

And it’s two times more successful than the heliophysics research. Jeff gets a solution to the problem in three months for $30,000. He wants more open distributed peer innovation. This is what I’m going to call a process revolution. It’s not that research is different. The way you do it is. Now, as many of your audience will know, the old not invented here thing.

90% of the heliophysics don’t want this, but it turns out that 10% did Aidan. And Jeff talks to them and said like, why were you interested in this open innovation? And what they said to Jeff and basically, my student is, oh yeah, we are here to keep astronauts safe in space and this is another tool for us.

When Jeff realized that, he said, oh my God, I thought these scientists were like rational. And if I give them the data, this will work. They’ll accept it. No, they totally did not accept it. But when, when he said, hey, everybody, we’re here to keep astronaut safe in space. Hey, that’s this purpose stuff.

Once he re-articulated, why are we here? We’re not here to do research. We’re here to keep astronaut safe in space. With that reframing, 98% of the scientists said, hey, this is another tool in our kit bag. And so what I would like your readers to observe post 2015, much of the work can be done outside the firm and that is frequently considered an identity threat.

And one of the things I’d like the audience to at least to be comfortable with is raising the identity so that open, distributed peer innovation can be a way for us to do my work more effectively. We’re going to see that with Deloitte, the extent to which Deloitte post problems to the crowd. And the crowd solves the problem for Deloitte consultants, that is a complimentary technological discontinuity.

The issue is most scientists and most professionals code open distributed peer AI, as a substitute, it’s going to substitute for me when in fact think about it as a compliment, it’s going to help me do my consulting, it’s going to help me do my teaching, it’s going to help me do my research, it’s going to help me do my advertising more effectively.

But that framing around compliments versus substitutes is a big deal, and that sort of goes back to this emotionality thing, is to infuse the organization with passion. Because at the end of the day, for me and my colleagues at HBS, we’re here to create leaders who make a difference in the world, however we do it, either online or face to face.

Aidan McCullen: I was thinking there, Mike, about how I’m going to bring it back to Winning Through Innovation, because you talk about that as well. Because one of the things so many of our audience will have experienced is the resistors to the change. And you talk a lot in the book about how vision can have a huge impact on that purpose, identity, but also then, to include them.

Because oftentimes we go, well, no, get rid of those. I don’t want to hear from those people, the naysayers, the laggards, I don’t want to hear from them. But so many of the leaders you talk about that had success included them and gave them, actually, in some cases, responsibility.

Michael Tushman: Yep. That whole notion, and maybe we’ll talk about it now or later, Aidan, of building a social movement.

Where we’ll go on the and ambidexterity thing is ideation, incubation, creating all these exploratory things, and every once in a while going to scale. In a way that gets a social movement to support it, as opposed to reject it. And that’s a really important thing that maybe Charles and I will talk about, and certainly Andy will talk about.

That’s the whole notion of the Corporate Explorer. It’s sort of this top down, bottom up, social movement, so that Deloitte actually becomes a different kind of organization, as opposed to the exploratory stuff squashed. So everybody let me really nail this notion of what Charles and I call organizational architecture.

All of the work that we have done in Winning Through Innovation, Lead and Disrupt, and the Corporate Explorer starts with a business owner. Somebody owns the challenge, and he or she either has a performance gap, or an opportunity gap. We’re going to get at the roots of that by a language, a framework, a mental model that we think is not the best in the world, but it’s certainly not the worst in the world.

We just need our students, and you, and the audience need a way to think about how and why organizations work the way they do. One of them is the congruence model. It starts with locking on strategy, as your basis of competition. And I don’t want to spend a whole lot of time on that, but that’s the start. All of our work starts with you having a strategy for your business unit, your division, your laboratory, your corporation. We now want to, and by the way, it’s strategy, objectives, and purpose, these three axioms around which we want to build capabilities. On the throughput side, I want to think about inputs, throughputs, and outputs.

On the throughput side is building organizational architectures. And the pieces of what we mean by organizational architectures, the pieces, the components that the architectural materials you have, are what are the pieces of work you’ve got to get done as a leader. And how do those pieces of work differ in terms of uncertainty. And this notion of interdependencies.

So if you’re the dean at HBS, the pieces of work you’ve got to get done are the MBA program, which is pretty routine. And the doctoral program, which is completely non-routine. And so the dean has to organize the doctoral program differently than the MBA program because the work is so different.

The second piece of work and critical tasks are interdependency, is mapping who does what to whom to get the product or service out the door. And to untangle pooled interdependence, which is I do my thing, and Aidan, you do your thing and Charles, you do your thing, versus sequential or reciprocal. I want to get into the organization by what’s the work that a particular leader has to get done in his or her organization, with whom he has to work with or she has to work with, that’s the interdependencies. And by the way, circa 2023, these interdependencies are within the firm, with your peers and outside the firm, in the larger ecosystem. So the work you did with Ron Adner and the work you did with Clay and the work, many of your interviewees, is working and managing the ecosystem.

The second component of the firm are skills, abilities, background, education, HR considerations. Third piece of what we mean by organizational architecture of the structure, metrics, roles, incentives. And the fourth piece of what we mean by organizational architecture is culture. And what Charles and I mean by culture, are norms, values, social structure, and informal power.

And we think about organizations as made up of the hardware of their firm, which are processes and structure, and the software of their firm, which is capabilities and culture. And if the alignment of those choices, these are all choices that leaders have, those choices need to be aligned with strategy.

It’s strategy drives organizational architecture, and if the strategy’s going to shift because of this innovation stream stuff, then the organizational architecture has to shift. And all I want to get anchored right now as an introduction to Charles’s session coming next is that both hardware and software are equally important, Aidan.

And most leaders, I have worked for focus on the hardware. Those who build strong cultures are those who focused on hardware and software. It’s easy for someone to replicate your matrix structure. It’s easy for someone to replicate your incentive scheme. It’s way more difficult for someone to replicate, copy your culture.

And all I want to say right now is that culture can be managed, culture can be shaped, and great leaders have the ability to be in John Cato’s terms, managers, which is hardware, and leaders, which is software, all in service of the strategy and purpose. So that’s, that’s this notion of organizational architecture.

Charles will then talk about how to diagnose and shape culture. And then he and I will talk in the third piece of this series on, hey, wait a minute, the architecture for today is completely different than the architecture of tomorrow, and inconsistent, and helping leaders manage that inconsistency, that paradox.

Aidan McCullen: Absolutely Beautiful. I had a quote I was going to read out that I loved, but I absolutely loved what you just said there. I might read this quote because this just give our audience an idea of the language that you use in the book and it’s so, so helpful. There are diagnosis tools in there.

There are questions to ask yourself at different phases. There’s, I mean, it even helps you understand that, well, I need to hire different people for different types of innovation. I need to hire different types of people for different levels of where I am in my life cycle across the organization. It’s absolutely fantastic.

But a very quick quote, I couldn’t resist. Just to close us off today, you say “Ambidextrous organizations get today’s work. They nurture incremental innovation and increase congruence among strategy and existing structures, competencies, and culture. Ambidextrous organizations also help get tomorrow’s work done. They couple incremental innovation with both architectural and discontinuous innovation.” And this line I absolutely loved, “Like a dying vine, the prior period of incremental change provides the compost for it’s own seeds, its own variance to thrive in the subsequent periods of ferment and in turn, incremental change.”

Absolutely love that. I love that,  beautifully written Mike. We’re so, so, so, so happy to have you on the show. So great to have you here today, and thank you for your time and thank you for all the generosity in sharing the slides as well. It’s an absolute pleasure. I look forward to, we’re going to Charles next, and then the two of you’re going to come together, the team and then, then we’ll move on to Andrew Binns.

Now, I know there are loads of books belonging to Mike there behind me on the shelf, but I’m going to close you off on this one, Author of Winning Through Innovation, A Practical Guide to Leading Organizational Change and Renewal. Michael Tushman, thank you for joining us,

Michael Tushman: Aidan. What a blast to work with you and to engage you on these ideas. Great to work with your audience. Looking forward to subsequent episodes on ambidexterity and leading large system change.

Aidan McCullen: Thank you!

This is the first episode in a series of interviews featuring Change Logic’s Michael Tushman, Charles O’Reilly, and Andy Binns by the Innovation Show podcast. Listen to the full podcast here.

And stay tuned for the next interviews in the series.