The Challenges of Pursuing Organisational Change (Nigel Lake, Part 6 of 10)

Challenges of Organisational Change

(Source: Flickr)

This is the sixth instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Nigel LakeNigel Lake: Major incumbents have historically struggled to reinvent themselves.

The people that made and sold horses and carts didn’t do very well when cars came along, and the people who make cars are not going to do terribly well when electric vehicles come along.

Tom: That’s interesting. Do you think that the problem is that they’re framing what they do in the wrong way, for example they say “I’m a horse and cart company”? Or do you think it’s a lack of capabilities, and companies want to evolve but they are unable to evolve?

Nigel Lake: I think it’s a mixture of things.

I think absolutely it is how they frame what they do. They think they are a horse and cart company, not a person transport company.

If you have a large organisation, the challenge is that you have to switch from investing nearly all of your capital expenditure on things that you’ve done in the past, to invest much more of it on things you don’t yet do. The people who currently run the major bit of the business are suddenly going to be deprived of expenditure and it’s going to go to someone else who’s running something which doesn’t really exist yet. And making that change at an organisational level is incredibly difficult.

We’ve done a variety of pieces of work in the last couple of years with companies where it is abundantly clear that their main prize lies outside their core business. Their core business is great and fantastic, but that’s 1% of their future and 99% of their future is in things they’re not doing.

The other part of it is what my colleague Cassandra Kelly calls the supremacy gene, which is that big companies become very inbred and strongly enamoured with their own wonderfulness, and they can’t see that they have significant inherent weaknesses.

Look at the banking sector and what the likes of Google and Apple and others will do to the payments industry. They will just quietly take over and own payments. And the banks will spend a long time thinking it’s never going to happen, and they won’t stop to think that if you’re Google you can throw 5 or 10 billion dollars at having some fun in payments. There isn’t a bank in the world that can spend 10 billion dollars on payments. None of them have 10 billion dollars of spare capital that they can just burn.

We see this with the Australian banks which are obviously very small in broad terms, but by market value they’re large so that all four of them are in the world’s top 25 banks. I think [the Commonwealth Bank of Australia] understands that you really need to innovate or you will die. As for the other three, sometimes I think that having a fourth weekbix for breakfast is an innovation that they would find hard to stomach.

They really are very very slow moving, but they have tremendously profitable businesses and they will continue to do really well for quite a decent period of time.

The Need for Continual Innovation (Nigel Lake, Part 5 of 10)

Continual Innovation

(Source: Flickr)

This is the fifth instalment of my conversation with Nigel Lake, CEO of Pottinger, a global corporate advisory firm based in Sydney, Australia. Nigel is the author of The Long Term Starts Tomorrow, a must have book “for any manager, leader or Minister.” The Hon Mike Baird MP, Premier of NSW

Nigel LakeNigel Lake: If you watch what happened with the iPhone. Jobs had very particular views about the size and shape of phones. The iPhone had evolved quite significantly over time but it was still basically a very similarly shaped device.

When Jobs died the whole organisation sort of thought, we’ve just to keep on making the phone the same way because that’s what Steve Jobs would have done. But that wasn’t really who he was because he was someone who was continually reinventing all these things.

Apple got into a really pretty dark place with the iPhone 5, which just looked so kind of yesterday, and then impressively re-discovered its mojo and ability to say, look that was yesterday and we have to reinvent ourselves. They then created the iPhone 6, which is a tremendously good product and has sold incredibly well.

Tom: So they weren’t responsive to the needs of customers and what people were telling them.

Nigel Lake: That’s right.

People in senior roles got sort of hung up on “there was this guy, and he told us to do everything, and that’s what he would have told us to do” without realising that the world had moved on.

[Steve Jobs] was someone who could do something one day very very passionately, and then have the kind of whatever it takes to say, “that was then and this is now and the world has changed, and maybe we should think differently”.

When he died it left quite a shadow over the organisation but it has somehow reinvented itself. If you think about what happened the first time around when Jobs was booted out, it was a complete disaster. This time around they have managed to continue, reinvent themselves, reinvent the phone product, and bring the watch to market to what seem like quite strong reviews so far.

Tom: I guess it’s yet to be seen how things will play out. One question mark over Apple is that Tim Cook is an operations guy whereas the whole company’s magic is based around innovation, being nimble and being willing to change.

Nigel Lake: It’s going to be an amazing story to watch for the next five years or more to see what happens to that business.

It’s a fascinating thing, because on the one hand it’s hard to think of organisations which have really dominated some particular segment that have survived radical innovation in their segment. And yet on the other hand, you look at the world’s largest companies from a few decades ago and there haven’t necessarily been huge changes in those names. But that’s partly because things like oil and gas are still very big industries.

It’s starting to change quite rapidly now.

Corporation Oxford

The illusion of permanence, and the persistence of innovation

Corporation Oxford

(Source: Tom Spencer)

IN a recent FT article, Chairman of Risk Capital Partners Luke Johnson made some interesting comments about his alma mater, Oxford University:

Oxford University, my alma mater, is a classic case of a complacent establishment that is refusing to reinvent itself. It will consequently find life much harder in the 21st century. Britain’s finest educational name … ignores the explosion in online learning and fails dismally to exploit its intellectual property commercially … It lives off past glories, and is doomed to fade unless it reforms vigorously.

Johnson is arguing that Oxford needs to reinvent itself, and refuses to do so. After 800 years as one of the world’s leading educational institutions, Oxford has lost its way.

The Case for Reinvention

Universities are not normally candidates for “reinvention”, and so in making his claim Johnson appears to be likening Oxford to a company, “Corporation Oxford”. We take it that Johnson’s position as the partner of a private equity firm makes him well qualified to comment on the business of education.

The language of capitalism focuses on efficiency and optimisation, and if these are the measures of success for a university then Oxford is failing badly. Oxford’s tutorial system, collegiate model and arcane administrative processes are expensive, and if Johnson were in charge we imagine he would dispense with them directly.

Oxford has often been accused of ivory tower elitism and of being resistant to change, and there is more than an element of truth in these claims. 

Oxford’s long history and strong reputation mean that top down organisational changes happen slowly. After all, the Oxford dons have more to lose than to gain by making hasty changes to a system that has stood the test of time.

But while the sandstone buildings may give the illusion of permanence, under the surface Oxford is a hive of activity and continuous change.

The Persistence of Innovation

In recent years, Oxford has been drawn into the heart of the business, technology, and entrepreneurship world by a small and committed band of innovators.

They include a few well known faces and more than a few unsung heroes.

Here are just three examples of the steps that the trailblazers have taken so far:

  1. Said Business School: Established in 1996, Oxford’s Said Business School is one of the newest and most entrepreneurial business schools in the world. Dean Tufano, former HBS Professor, reinvented the traditional MBA program by introducing Oxford’s 1+1 MBA, a course that allows high potential leaders to combine the depth of study of a traditional MSc degree with the breadth of an MBA. Dean Tufano also hosts an annual event known as “Silicon Valley Comes to Oxford” – a unique forum that brings the world’s leading tech entrepreneurs to Oxford, and gives the next generation of business leaders an insider’s view on how to start, scale and run high-growth companies.
  2. Oxford Entrepreneurs: Founded in 2002 by British entrepreneur Alex Hearn, Oxford Entrepreneurs is now the largest student entrepreneurship body in the world. The society encourages innovation, and helps its members build the kind of social capital that cash strapped entrepreneurs need to bootstrap their businesses. The society is currently run by a new generation of innovators (John Stringfellow, Ridhi Kantelal and others) who last weekend hosted Oxford Inspires, an entrepreneurial conference designed to inspire innovation. Luke Johnson himself was a guest speaker at the event.
  3. Oxford Launchpad: Opened only a fortnight ago on February 17th, the Oxford Launchpad is a new breeding ground for entrepreneurs that has already spawned a number of start ups including The Renegade Times (a grass-roots publication for tech entrepreneurs spearheaded by Srin Madipalli), and a yet-to-be-named educational gaming platform (led by Charlton MakVictor Repetsky, and Shubham Anand).

But while the bottom up innovation continues, that doesn’t mean Oxford can rest on its laurels any time soon.

Room for Improvement

There is a lot of room for improvement at Oxford, and in your author’s view this would include a more ambitious adoption of online learning.

Johnson claims that Oxford is “doomed to fade unless it reforms vigorously”. And while his prediction may be a bit half baked, Oxford does need to understand and respond to a quickly changing educational landscape.

With the rise of online learning, it may soon be possible to buy good quality degrees online for a modest fee.

The question is, will this threaten Oxford’s business model?

Online learning presents big opportunities and threats for the established players, and here are two thoughts for Oxford to bear in mind.

1. Substitute for Bricks and Mortar

The way things are heading, it will soon be possible to undertake an entire degree online composed of courses from top universities. It is already possible to get a Certificate for an individual course.

For many young people, especially in America where the cost of tertiary education is highest, this will provide a compelling alternative to attending a bricks-and-mortar university.

With lower cost structures, online players will be able to undercut traditional universities on price. A scary prospect for second and third tier universities that may be unable to offer their students a strong enough community or a strong enough brand name to justify their higher fees.

How will these changes affect Oxford?

In the short run, we expect the effect to be negligible. The students likely to sign up for an online degree are not the same students who are applying to Oxford.

In the medium term, the availability of quality online education could even benefit Oxford. Increased competition at the bottom end of the market could help to destroy second and third tier universities, and thereby leave Oxford and other leading universities with the market for bricks-and-mortar tertiary education all to themselves.

Does this mean that Oxford is safe to sit by and watch the changes unfold around it?

Not quite.

2. Disruptive Innovation

Online learning is currently inferior when compared with the bricks-and-mortar alternative because it provides students with content without the community and without the established branding of a real world university.

But what would happen if Coursera created a bricks-and-mortar campus of its own? Or, perhaps, created small study hubs in every town where students could meet and collaborate?

HBS Professor Clay Christensen teaches about disruptive innovation, a process by which an inferior product can initially take root in simple applications at the bottom of the market (e.g. Coursera offering individual courses online) and then move up market to eventually displace established competitors (e.g. Oxford and Cambridge).

Disruptive innovations are typically inferior products when compared with the products offered by established players. But they are able to gain a foothold in the market because they are simpler, more convenient, more affordable, and for customers who can’t afford all the bells and whistles, they are better than nothing.

Christensen explains that in previous waves of disruptive innovation, the only companies that survived were the ones that created a new business unit that was free to operate under the new rules of engagement and free to compete with other business units of the existing parent company. For example, IBM was a mainframe manufacturer that was able to survive several waves of disruptive innovation by adopting this technique.

There is a lesson in this for Oxford. And we ask the Oxford dons directly, where is your online education business unit?

If it chooses to do so, Oxford still has time to compete with online upstarts like Coursera by creating an online education platform of its own. 

Since online education is an inferior product when compared with bricks-and-mortar education, it falls within Clay Christensen’s definition of a disruptive innovation. As such, Oxford would do well to heed Christensen’s advice by creating a new business unit which is free to compete even with the University itself.

From a branding perspective, we would also suggest that the platform be called something other than “Oxford” in order to preserve the brand of Oxford’s more premium bricks and mortar product.