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Season 1 Episode 9: Julian Birkinshaw

Conversations on Climate Season 1 Episode 9: Julian Birkinshaw Edited transcript

Section One: charting a path between pragmatism and ideology

Chris Caldwell: Julian, thank you so much for taking the time to come speak to us.

Professor Julian Birkinshaw: Great pleasure.

Chris: Without any further ado, you started your career as a geologist, I believe.

Julian: That’s right, I did my undergraduate degree in geology. Let’s be clear on that.  I spent three fascinating years understanding how the world was made at Durham University in the UK. But, actually, my first job straight out was in fact in the information technology area. I was basically a computer programmer.  That didn’t last very long before I went off and did an MBA.

Chris: And when you were looking at geology in the natural world, did you ever consider a career in energy?

Julian: Yes actually, a bunch of my friends and colleagues went and joined the big oil companies. North Sea oil was big in those days. A lot of them went on to PhDs, of course, and had careers in academia or in applied academia, you might say.  It was quite difficult, to be quite honest, getting a role in those areas.  Anyway, business school caught me, so that’s where I ended up.

Chris: And you ended up going across to Canada.

Julian: Exactly.

Chris: At a very young age.

Julian: Yeah. I was in about my mid-twenties. I moved to Canada, did an MBA there at the Richard Ivey School of Business, as it’s now known, and then I stayed for a Ph.D. and then came back here in the early nineties.

Chris: The rest is history. And what first attracted you to the world of business?

Julian: I guess I always thought of myself as going into the world of business without really knowing much about it.  I was trading stocks as a kid.  My dad was a managing director in a chemical company, so that always seemed to be where I’d end up.  But what I didn’t realize, of course, was that actually you could combine academia with business, which is obviously where I ended up. My grandfather was an academic professor of chemistry and biochemistry. In some ways, these things all make sense in retrospect. At the time, it was frankly a bunch of somewhat random decisions born of an interest in something which then obviously bore fruit afterward.

Chris: In looking at your work, one thing that is really clear is you look beyond the hype. You just try to look at the world as it is, warts and all.  You call it as you see it.  I’d say that there is a very pragmatic aspect to your research.  But you also know that there’s intrinsic motivation in mission. So where do you see the balance between pragmatism and ideology?

Julian: I guess I’ve always tried to avoid just falling into the trap of saying that a new technology is exciting just because everyone else is talking about it and I try to say, ‘is that really what is happening?’ In some ways, I see myself as almost arbitrating between the world of business and the world of academia. By which I mean, if I stay close to what’s happening in the real world and I spend a lot of time talking to business people like yourself, that allows me to see that academia is moving in, let’s say, the wrong direction. And I can write the piece which says, ‘hold on, guys. This is not actually the way that the world works,’ and find my way back.  By the same token, if I’m a decent academic, I’ve got access to frameworks and ideas that only the academic world knows and I can sometimes bring those into the practical world and do something interesting with them.  

A lot of my most successful practical work has really been ideas that other academics came up with first. There are no new ideas under the sun. So this concept of ambidexterity, maybe we’re going to come into it later – organizations have to be good at exploiting their existing assets whilst also exploring new ones – well, that’s an idea that’s been around for 30 years, but I was one of the people who was able to craft an academic story around it, show how it fits into practice. As a result, it’s one of my most cited pieces of research.

Chris: You’re also not afraid to take it the other way around and from the world of academia, write a book that says management’s not working anymore.

Julian: Exactly. That’s right, and of course, it’s very difficult to say, ‘business people, it’s not working.’ There’s lots of evidence that it’s not quite working, but to come up with an angle that they then are interested in exploring, that takes time.  I’ll be quite honest, it’s taken me a long time to figure out the right way of expressing my ideas in a way that actually resonates with business people.  And sometimes it doesn’t.  Sometimes you think you’ve got this really cool idea and, actually, it kind of dies and then you try a different angle. And that’s one of the reasons why London Business School is such a great place: because we have these steady streams of executives coming to do programs with us, so I get to try out my ideas with them rather than just trying them out with an academic audience.

Section Two: Disruption, adaptation and social change

Chris: One of the central themes of your research is disruption.  What do you think in your character brought you to be so interested in that area? And could you also define it, because your definition of disruption isn’t quite what other people might think about.

Julian: Certainly, we must start with definitions. So disruptive innovation, disruptive technology – and we can obviously start thinking about various aspects of digitalization and blockchain and things like that – but disruptive technology is something that has a sufficiently profound impact on an existing sector that it causes the existing leaders in that sector to be challenged. In other words, when we see Tesla take genuine leadership from the traditional automotive companies, that is proper disruption.  

I’ll give you another example: the retail banking sector has not been disrupted because the fact is that the retail banks in pretty much every developed economy in the world are exactly the same as they were.  Now, they are potentially being disrupted, but they have not been disrupted. So, for me, I have a slightly narrow definition.  Disruption is happening around us, but you can’t really say that every industry has been disrupted because in some industries the incumbents do just fine and they sail on regardless. And in other industries, you see the incumbents being killed off.  For me, disruption is that specific point.

 Do you want to go back to your previous question, which was something about why was I attracted?

Chris: Yeah. What in your personality, your nature brought you to this?

Julian: If you look at my 30 years as an academic studying big companies, studying entrepreneurship within big companies, studying individual technology, studying management innovation, the constant theme has been essentially, ‘how is it that big established firms are able to adapt?’ The big question is what makes big established companies resilient, some of them resilient and others less resilient.

I was naturally drawn to trying to understand what the sources of disruption were that some companies were able to rise above and transcend and others did not. So that’s what got me interested in the last five years. Really, my biggest single focus in my research has been understanding these disruptive forces, and digitization is one, but climate change is absolutely another. So, understanding these disruptive forces and understanding the ways that particularly established companies are responding to those things.

Chris: Some very interesting research you came up with was for the Fortune 500, 25 years ago today.

Julian: Exactly. So let me just tell you, in case any readers haven’t come across it, I wrote a thing in Harvard Business Review earlier this year, 2022, and the headline statistic was: take the Fortune 500 from last year and guess how many of that Fortune 500 did not exist in any form 25 years ago at the beginning of the internet revolution.  And most people, when I ask that question, they say, ‘oh, maybe it was one or two hundred.’ Some people say maybe it was three hundred. 

Only 17 of the Fortune 500 are completely new. And, of course, it’s Facebook, it’s Amazon, it’s Google, it’s Netflix, Tesla.  You can name half of those even without thinking about it. But the point is there are only 17. The other 483 companies have existed way longer than that and have managed to adapt. 

Most people, this is going back to one of your earlier questions, most people fixate on, ‘the world’s being disrupted.  Oh, my gosh, what are we going to do?’ Well, I’m trying to look at the same data through the other end of the telescope and say: steady on. Actually, there is huge evidence that the big established companies of today are adapting quite nicely. They have figured out ways of taking new technology, harnessing it, sometimes circumventing it, sometimes actually going back to what they were doing in the first place because that still works–all sorts of ways of adapting. Elephants have learned how to dance, is the expression that is sometimes used.

Chris: Very good! Climate is quite similar to that. You have people believing they’re in the middle of a climate revolution and everything’s changing, but emissions are still going up year in, year out. If we’re in the middle of an absolute revolution, well, that wouldn’t be happening.

Julian: This is it. And this is where I don’t want to get into trouble, because let’s be very clear I absolutely believe that climate change is the big challenge of our time, but the trouble with climate change, of course, is that it does happen in these very, very infinitesimal steps. And there’s always this nagging worry that you’ve got this exponential curve and that we’re at that point in that curve where maybe everything’s going to go really badly wrong very, very quickly.  And the trouble is, we don’t know for sure where we are on that curve, so we have to take it seriously. And yet we also have to recognize that, in the short term, life goes on and we’ve got to try to find the right mechanisms for managing the transition in a way that works for everybody.

And this is difficult. As I say, this is the big debate at a political level as well as at the corporate level.

Chris: Absolutely.  And, getting a little bit philosophical, there are very polarized attitudes toward change. There are very polarized attitudes toward radical change in society. If you look at people generally, on average, they will be really excited about a disruptive technology or a disruptive new iPhone, but people, on average, will not be excited about changes to society or changes to their way of life. 

How do you think we can get a more nuanced discussion on radical change?

Julian: As you say, we’ve got to both look at the societal level in terms of where the world is going and where does the world need to go. But you’ve also then got to bring it down to, ‘what does it mean to me as an individual?’ And there are some potentially disruptive changes where we can harness individuals’ motivation and if you like, agency to change. And then the challenge is one of simply amplifying that effect. 

But then you’ve got the much more difficult ones where, essentially, we’re asking people to pay more for their fuel, a very live debate, but now change their lifestyle, you know, do more recycling or whatever. And, of course, those are changes which most people cannot be bothered to make.

Of course, there’s a huge role for corporates in trying to make these changes as easy as possible. But I genuinely think that the government’s role here is decisive. I mean, you look at little silly things like charging five pence for a plastic bag or whatever it is, you know, the sugar tax, which was watered down but still exists.  Small changes by government have significant impacts.  Within weeks or months of those changes, everybody says, ‘fine, let’s just get on with it,’ despite mass opposition before. 

And of course, we probably have to make even more changes in terms of societal impact on our behaviors. We absolutely must get governments to take those steps. Corporates can work with governments on that, but ultimately this is policy.  There’s a time and a place when policy changes, whether it’s changes in marginal behavior, whether it’s simply more taxes or other things, are the best way of doing things.

Let’s not get into a debate about politics, but some countries, shall we say, are handling this a lot better than others.

Chris: Yes, some countries are very centrally managed and very good at dealing with big issues.

Julian: Yes, exactly.

Chris: Yeah, but there’s a cost. There’s a cost to each of the individuals in their societies. 

Julian: Indeed.

Section Three: New models for resilience

Chris: As I mentioned before, you have never been one to back away from a controversy or from calling out management’s failures.  That book was ten years old.  Have you seen much progress over the last ten years in finding the third wave?

Julian: Just to be clear, which of my books are we talking about?

Chris: Reinventing Management.

Julian: Reinventing Management, yes.  I’ve seen a lot of progress towards what I call the alternative model which is, for the benefit of the listener who hasn’t read my books, about a move away from traditional hierarchical and bureaucratic styles of managing towards much more fluid ways of working. I see many companies experimenting with versions of what I talk about – big companies like Enel the energy company, IAG the Dutch bank, Roche the Swiss pharmaceutical company. I see companies who’ve explicitly taken my ideas and run with them. Occasionally, it doesn’t happen very often, but I do literally get a call from a chief executive saying, ‘I read your book. I’m trying to put your ideas into practice.’ I see huge progress. And yet I also see sort of two steps forward, one step back.  

What I mean by that is you see a company experimenting with these new ways of working. They’re better. They’re more exciting for people. They harness technology better. You know, they allow more creativity and innovation. And yet occasionally you then get a stumble. You’ll get either a financial crisis or you see the company itself has missed its earnings numbers or whatever.  And the human reaction, what is it they do? They pull back and they go back to doing what they used to do, or they centralize control again. And then all these well-intentioned and good efforts are kind of coming to nothing. 

Now, that doesn’t make me want to give up. Don’t get me wrong. All I’m saying is that we cannot expect progress to just suddenly happen.  We have to expect it to come forward a little bit, back a little bit and so forth. Digital technology is absolutely making it more likely that this will work because, for the first time ever, technology allows information to be shared vertically and horizontally in ways that it wasn’t before. So the traditional hierarchical model, which is a lot about information flowing down through the organization, is no longer as important as it used to be.

I’m optimistic, but I don’t think we’re going to suddenly see every organization adopt these new, better ways of working.

Chris: Now with so much more remote working, it’s a bit more difficult for the natural flow of information that was going on in the office, just from being in the building with other humans.

Julian: Of course, as with all such things, they shift. That experience of remote working that we all had to go through had its pros and cons, right? If I’m working from home, by definition I have a little bit more freedom because there’s no boss watching what I do. At the same time, he or she is also a little bit less inclined to give me the freedom because they can’t watch me. And they’ve got mechanisms, of course, to monitor my behavior online. So, whenever I talk to companies about remote working, I say, ‘look, we’ve got to get a balance here, but we’ve also got to just get much better at the basics of delegating decision making and authority to individuals so that they own their own decisions.’ And that works from the top of the organization to the bottom. 

In some ways, the experiment with remote working has re-emphasized and reaffirmed that basic proposition, which is delegated authority – putting decisions closer to the action and to the people who are best aware of what is needed, giving them the competencies to make those decisions, is what we should be working on.

Chris: It strikes me, and please tell me if I’m entirely wrong, but climate change seems to be a pretty good example of discontinuous innovation.  Would you agree? 

Julian: Let me frame it because when I teach this stuff, I teach a whole course on what we call business resilience, which is the ability to bounce back.  The first point to make is you’ve got to be resilient on at least three dimensions or three time horizons: you’ve got to be resilient to very short term shocks such as Covid or the Global Financial Crisis, where the effect is felt within weeks; you’ve got to be resilient to the stuff which takes months, if not years, to work through, and certainly digitization is one; then you’ve got to be resilient to the things which take decades to work their way through, which of course includes climate change.  

We sometimes call the first one a black swan event. You’ve heard that expression: the thing that you didn’t foresee and then suddenly it’s there and you think, ‘Oh, my gosh, why didn’t we think of that?’ Then you’ve got the other end. You’ve got the climate change, which sometimes is called a grey rhino.  The metaphor there is this thing is coming at you and you can see it a long way off. No one needs to predict this. It’s happening. And yet, because it’s a long way off for a long time, you actually just say, ‘yeah, I can see it’s coming but there’s nothing we need to do yet.’ And then suddenly you’ve actually got to act. 

I do absolutely see the discontinuity happening on these time horizons. Climate change is in some ways the hardest.  Everybody found Covid difficult, but there was never any ambiguity about what needed to be done. We can talk about specific industries in a second, but with the climate crisis, the question is ‘when do you act?’ It is not, ’do you act?’, if you see what I mean?  For a lot of companies the smart thing to do – and I don’t like to say it but I’m going to say it anyway – in many cases, the smart thing to do has been to delay.  For a lot of companies, you take the big oil companies, up until now, a lot of them have been absolutely delaying doing anything because they could see that the world still needed their oil.

Now, I’m not defending that proposition, but we know it is something that they’ve been doing. And now we are finally starting to see the big oil companies, most of them anyway, taking seriously the need to rethink the energy sector.

Chris: This brings us nicely to another of your models about the potential ways that companies react to disruption.  Among the oil companies you have Orsted, who has completely transformed the business; you have say Total, who have taken a hybrid approach, still doing what they’re doing but also leaning into renewables in quite a big way; aAnd then you’ve got the more American style and Saudi Aramco, who are just doubling down on what they’re already doing, just trying to make it cheaper and better.  Do you want to comment on this?

Julian: Yes I do. So, in my research, I’ve been digging into all these different industries.  I like to separate out the utilities from the big oil companies.  When I look at the utilities, which of course are much more consumer driven, their job is to essentially find sources of energy that create electricity and gas and bring them into the home.  You’ve seen Enel and Iberdrola and NextEra, you’ve seen a bunch of these companies actually being incredibly proactive about changing the energy mix. And some of them are now at 50% renewables.  Enel, for example, is at that level. They are consumer driven.  They are heavily regulated.  It’s not surprising really that they have pushed very hard because they can see ultimately that what they’re trying to do is just simply satisfy the customer market. 

Then you’ve got the big oil companies and, of course, there’s a clue in the name, right?  They absolutely started out being good at one thing only, which is extracting large amounts of oil from the ground.  If you look at their transformation, there’s denial for a long period. You had the famous case of BP. In the early 2000s, before the Macondo rig exploded with the Deepwater Horizon oil spill, they had a huge renewables business. John Brown pushed that and they had to actually dismantle it because in some ways they were too soon.  And now we’re seeing the second wave of rethinking. Total, I think BP is doing a decent job, and Shell maybe.  The European ones broadly, perhaps you don’t agree with that, but I would certainly say that the European oil companies have moved rather quicker than the American oil companies.

Chris: Safe to say.

Julian: It’s safe to say for reasons that I think are fairly obvious.  Europe is generally more progressive when it comes to saving the planet than the US, notwithstanding some factions. The challenge we face, and I would love your views on this, but the challenge we face is, ‘is that enough?’ In other words, are there enough incentives in place for these companies to self-regulate themselves into changing their energy mix?  Or do they need a much firmer kick from the governments and the regulators and the taxes? 

At the moment, if I look at the amount of transition I see (and I’ve been following lots of different industries using very simple kind of indicators) it’s clear to me that utilities have gone way further than the big oil companies. Big oil is probably the least transitioned industry of them all. The automotive industry, thanks to Tesla, has now finally taken seriously the transition and everybody is now running to catch up with Tesla. And then there are other industries where you’ve actually seen dramatic changes. I’m now moving beyond climate and into other disruptive technologies, but there are some industries which have completely transformed themselves. So I do worry that we are only now starting to see the big transition among the oil companies.

Chris: What I would really like to understand is, what is your view on carbon credits and some sort of actual price on climate, perhaps attached to a blockchain or in terms of market regulation?  Could that really force the hand of the oil companies?

Julian: It’s a good way to get to go further because, at the moment, it’s not working. In other words, we’re not seeing the level of progress we need.  By nature, as a sort of a semi-economist, I like the idea that we should try to use market forces to try to persuade people to act in their interests to do these things.  The mechanics of carbon trading I’m not going to attempt to get into because it’s a complicated business. There are some genuine experts out there who you can tap the views of. 

But do I think that we should use creative market mechanisms to try to persuade big oil companies to invest more in renewable sources of energy?  Absolutely! There’s no question that this is a means to get them to do what they otherwise wouldn’t. The way the world is now, and, of course, we’re recording this whilst the Russian Ukrainian war is going on, the way life is at the moment we’ve just not got enough energy available. So, you have to work doubly hard to persuade people to wean themselves off carbon-based fuels.

Chris: You’ve got a double-edged sword here. We’ve got incredibly high temperatures that are caused, at least in some part, by climate change and then we have the need to be turning on your electricity to keep yourself cool at extremely high prices. There’s an inherent conflict there.

Julian: And the only solution in the short term is indeed that we continue to use fossil fuels, which are still the majority of the energy that we have, whilst pedaling very hard to try to do the innovation and obviously manage the demand side of the equation to try to get people more efficiently using energy to make that transition.

No one’s under any illusions. That is still a very, very difficult transition, for sure.

Chris: You’re right. There is a period of time when we will absolutely need to be using fossil fuels just to keep everything going. But it’s a question of how long that period is. Some people are looking at 2050 thinking, if you take it as a couple of years bridge and you work really hard, we can make all that work.

Julian: So, to stick to my area of expertise, the disruption is climate change.  The second order consequence of that is that there need to be huge disruptive technologies coming along that enable us to actually make that transition.  The lithium-ion battery was the innovation that has spurred all the current changes.  Well, there are going to be other innovations following that, right? Because we haven’t reached the solution yet. We need to have market forces working in a way that enables those innovations to come. That’s the only way that business will ever work its way out of this crisis.

Section Four: Long-term benefits of purpose-driven initiatives

Chris: One of your central messages is that it is really important for organizations to be setting goals on one side; and on the other side you’ve got the ESG movement, which says that there is no inherent conflict between shareholder value and stakeholder value.

Julian: Yes.

Chris: Do you agree?  Is that so?

Julian: I wrote a thing that most people wouldn’t have read. It was called, ‘Purpose with Profits’ or something like that.  The simple starting point of that was, in the long term, there is no inherent conflict between purpose and profits. In other words, the companies that have a strong purpose, that have a really clear view of the value they’re creating for some stakeholder groups, by virtue of that purpose will be in a position to make better profits.  And the evidence for that is actually quite strong. There are lots of studies that have been done.  The most profitable companies in the long term are absolutely the ones with the higher purpose. 

But, in the short term there is an inevitable trade off. I mean, there’s no question that next year, if I want to invest in my purpose, whether that’s around people, whether that’s around innovation or whatever, I am taking money and putting it into some use which by definition is not yielding me profits in the short term.  I am taking money away from my profits in the short term and putting it somewhere where there is a long-term payoff. 

For me it’s a short-term/long-term thing. In the short term, there’s always a trade off between purpose and profits. In the medium to longer term, there is no trade off. And for me, the answer to that question about how do you reconcile the short term and the long term is you ensure that you’ve got some sort of forcing mechanism that ensures that you take seriously the purpose.

In one of the articles I wrote, for example, I used this example of the Swedish bank called Handelsbanken. This is a bank which basically is all about customer focus. They don’t have a budgeting system. They have decentralized decision making into all the branches. They have a very, very small head office.  For them, everything is about customer value.

They have a profit-making scheme for the branch manager that only pays out when they retire. So as a Swedish branch manager in Handelsbanken, basically you spend 20 years or whatever running the branch, making a very average living, and then suddenly when you retire there’s this beautiful nest egg for you. And my point is, of course, that that is a way of aligning people’s interests with what they’re genuinely trying to do.

If you invest in actually creating a sustainable bank, you’ll get your profits when you’ve proven that sustainability. Lots of such examples are out there. My point is, if we are to take climate change seriously – to get back to the key thing here – we have to ensure that our systems are all embedding into the way that the company works, with some sort of reinforcement device that actually then shows that the climate change or sustainability responsibility is the end goal rather than focusing on the shorter-term goals.

Chris: There’s a really interesting example that you brought up a couple of times.  You recommended Paul Polman’s book on Unilever.  Would you like to talk about that remarkable transformation?

Julian: Of course, Paul Polman is everyone’s favorite example of a chief executive who really took sustainable development seriously with Unilever.  His first act, essentially, was to tell the financial markets that he wasn’t going to give them quarterly guidance. He was only giving them annual guidance. And the share price took a dive, but recovered when people realized that actually, this wasn’t him hiding bad results, it was him trying to say, along the lines of what I’m saying, that it takes time to do these things and if you’re going to judge me every quarter then you’ve got the wrong metric.  He’s written an entire book on this subject. What was it? Net Profit?

Chris: Net Positive.

Julian: Thank you. The whole point of that book is that this wasn’t just a slogan for Unilever. He built it into everything that they did. He’s got story after story about some of the hard decisions he took early on to signal his intent and then about how he worked his way through the supply chain and through all his brand managers and the products that they’re selling in order to make sure that what they did was actually linked to those sustainability goals. 

He tells the story much better than I do but, for a top to bottom reinvention of a company, it’s quite impressive. I spent a lot of time in the middle of Unilever working with people in various projects and I’m always bowled over by how seriously they take this stuff.  For some companies it’s a slogan and in some companies, you can see them living this stuff on a day-to-day basis.  He’s had that sort of effect on them.

Section Five: Motivating and mentoring the next generation

Chris: If you are looking at a recent MBA graduate going into a firm, what advice would you give if they are in a position where they want to make a change? Is it go to Unilever or somewhere that already aligns with their values, or can they make a difference in a firm as a middle manager?

Julian: The short answer is the former. In other words, quite honestly, if you are an excitable, ambitious, progressive MBA, your smart advice is to choose a company that’s already going in the direction you want to go. And that’s just purely pragmatic because it is possible to make a real difference in any company you go to, but I see so many people get frustrated in situations where they can see potential, they can hear glimmers of hope at the top and yet they see this massive indifference around them sometimes born of fear, sometimes just born of bureaucratic inertia. They’re banging their head against the wall. Some of them are sufficiently resolute that they keep pushing and they make a difference, but others just give up in frustration. 

Of course this works both ways for the MBAs. My advice is, go to the progressive companies who are already showing that they’re serious. And this exactly goes with my advice to the chief executives which is, if you want to hire the best and the brightest, don’t be surprised if they are being turned off if you’re a little bit slow off the mark. It’s got to be much more than a slogan. But of course, a lot of companies are really making good progress. I mentioned earlier Enel, the energy company in Italy. I know them extremely well. I spent a lot of time in Roche, the Swiss pharmaceutical company, Unilever, IMG Bank. I see companies across the board in different sectors trying to really live with this stuff. Those are the sorts of places where we should be gravitating.

Chris: We’re living in the world of the ‘Great Resignation,’ where the youth, the younger people, seem to be very disconnected. How do leaders today of a different generation, almost by definition, how do they intrinsically motivate?

Julian: This is researched a lot, but a recent study I saw just last week basically said, ‘what’s the biggest single cause of people resigning?’ Money comes in second, but number one was essentially a lack of developmental opportunities, a lack of opportunities for people to grow and develop within their organizations. So we’ve got to pay people, okay, but the biggest single thing we can do is give people interesting work to do. 

That sounds like such a platitude, I realize. But let me just try to be a bit more practical about it. If you are a mid- to senior manager, you’re hiring people into roles. What do those people want? They want to do some of your job for you. In other words they want to be told, here is an opportunity that isn’t just what you have defined it as, but is actually an opportunity which can be enlarged into. They want to be given a sense of where you want to take it. You, as the manager of those people, have got to have the courage to let them go. Of course we say, ‘yeah, yeah we’ll do that,’ but, in fact most of us, when push comes to shove, we’re a little bit controlling, right? We like to be on top of things. 

The best single advice which, you know, I need to take myself because I’ve got a fairly important role at LBS nowadays, is don’t steal other people’s decisions. Give them the opportunity to learn and grow and make mistakes. Give them the freedom to create new stuff. Then, of course, they will more likely stay in that role. And fingers crossed, they will also then reflect that down on their own teams. That is simplistic, but it’s also the best single advice we’ve got in terms of trying to get more people to stick around.

Chris: Fair enough. At heart, we are all micromanagers and only being incredibly busy breaks us out of that. We just pass it on finally because we can’t do it. But if we had the time, we would.

Julian: We have to admit that and remind ourselves every day to stop stealing other people’s decisions.

Chris: But in this series, we talk to about 50% notable professors, like yourself, and 50% notable alumni. Among notable alumni, the key message that has been coming across throughout all of the interviews so far is purpose. The people come in and they really believe in what we’re doing. That’s what makes them interested and that’s what makes them motivated. It’s interesting in that little piece you said purpose was, at best, third. For people I’m interviewing, it’s number one. 

Julian: Let’s be clear. I mean, I don’t want to overinterpret that data in terms of trying to figure out which actually comes first or second when people say, here are the five reasons I quit. I don’t know.  People want to feel that there’s a real purpose in what they do. Absolutely. I wouldn’t deny that. Now purpose does take many forms. Purpose means, as far as I’m concerned, playing to some sort of goal which isn’t just purely money driven. That purpose can be saving the planet. It can be purpose around my local community or my immediate colleagues. It can be about just creating a really cool product for my customers.  Any sort of stakeholder who isn’t just the financial beneficiary of our activities, all of those different areas count from my point of view in terms of purpose. And, of course, interest is motivated by a slightly different set of drivers. So we’ve got to be fairly open minded about what exactly we mean by purpose.

Chris: Sure, sure. The whole traditional shareholder value model has been bashed by all sorts of people, like Larry Fink as well.  Can you see that we’re moving towards a model of management that incorporates wider stakeholders?

Julian: As you say, it’s an old debate – 80 years old or thereabouts, I don’t know exactly. But we can never get away from the need for companies in our capitalist world to make profit. We have to move to a world, which we are moving to – everybody says this – where a stakeholder view means that we are not giving primacy to shareholders.  We are trying to treat shareholders and other stakeholders of the firm equally.  As you say, the big investors, the BlackRocks of this world get that.  We’re not going to ever get rid of the slightly more rapacious players in the capitalist system. There will always be activists who are out for short term returns, and therefore it’s the job of the people who are trying to take a more rounded view, to continue to push against that and to try to show that, in the long run, these more stakeholder-oriented models work.

For me, what that means for us as individuals in companies at all levels is we have just got to keep on reminding ourselves that profit, making money matters; but we can keep it a little bit suppressed by bringing other aspects of being effective in the workplace to the foreground. The way I think about it is we all have this money-making aspect to our motivation and then we have this much more social aspect to our motivation and, to some degree, we also have this, ‘I just want to learn and become better at what I’m doing,’ piece. The more we can elevate these other things, the more we subdue the slightly more avaricious sort of money-making part of it.  We don’t get rid of it completely. It’s got to be good enough. But as long as we can elevate these other bits, we keep the money-making part in check.  Many of us choose jobs (education is one) where actually the money-making part is less important.  Whereas if you go into banking, unfortunately the money-making part gets pushed up and everything else pushed back.

Chris: As a former banker: absolutely, it’s all that matters.

Julian: It’s the only thing that matters. And if we could get rid of bankers’ bonuses, we would. But we can’t.

Chris: Your last six months is all anyone cares about.  It was crazy time in life. 

But speaking of your role as an educator, we’ve also been talking in wider stakeholder terms about not just the world of business, but the wider world around us. The climate and climate transition. As you mentioned before it kind of falls to individuals, it falls to businesses and it also falls to governments and to society at large, but some would say it falls between the cracks.

Julian: Yeah, yeah.

Chris: As an educator, I think one of the big takeaways of my time in the business school was that the school wants to make a meaningful impact on the way the world does business.  

Julian: Yes, exactly.

Chris: We are good at that in the business school.  

There seems to be a disconnect between that type of thinking, that type of messaging to people who are going into the world business and the people who go into the world of politics. 

Julian: Here’s how I think about it.  As you say, we have a very clear mission to have an impact on the way that business impacts the world. The world of business is changing before our eyes in ways we’ve all talked about. And London Business School should be developing leaders who have the skills and the mindsets to make that difference, whether they go into business, or indeed whether they go into the world of policy or government.

 I’ll be a little bit self-critical here, actually. I think we at London Business School have not yet done a good enough job at actually taking that sustainability mandate seriously. I’m not saying we’ve done a terrible job. There’s a lot of stuff that we give our students to harness their skills. We are moving in that direction. And certainly, one of my own initiatives as the Vice Dean of London Business School is going to be to help to create many more opportunities for our students to both learn what it is they should be doing as they move into these roles, and also to actually experiment with these things, to actually get into the business of solving the problems of people and planet with businesses.

So more experiential learning, more knowledge about what is required so that when they go into those roles both in the business as well as in the governmental side of things, they are better placed to enact this change agenda that I think we are converging around. 

I’m not sure this is exactly where you were going with the question, but let me be clear: sustainability is a vital part of what the world of business needs to think about. Therefore, it has to be a bigger part of what London Business School is doing as it trains the leaders of the future.

Section Six: Organizational Ambidexterity and Adhocracy

Chris: You’ve written on the topic of organizational ambidexterity – a really fascinating topic because of the ability of management to explore new challenges. They continue to exploit all strategies.  In the context of the oil majors…

Julian: As we touched on earlier, the oil majors have been very good at doing one thing extremely well, which is of course extracting large amounts of oil and such like. And they’ve now figured out, for the most part, that that’s not the only thing they should be doing. Therefore they are building expertise in doing the new stuff, which by definition is less profitable in the short term than doing the old stuff.  

People might argue with me on that, but I think they would agree that in the short term it’s less profitable, even if in the medium term it’s more profitable.  The point is to take this back to almost the point of the academic theory of it.  How do you organize a company whereby you’re trying to persuade them to do new stuff which they are less good at, which is less profitable than doing the old stuff?  The short answer is you have to call out that new stuff into separate units where first of all, they are judged on a different set of metrics in terms of what success looks like. Is it about revenues, is it about profits, is it whatever? Also, you have to give them much greater freedom in terms of the ways in which they act. And of course, every other industry in the world has exactly the same problem. 

I remember I used to teach this case study on IBM. They had a separate unit called the Emerging Business Opportunities Unit. Of course, IBM is struggling these days, but they made huge profits in the hardware and software businesses. Unfortunately, they weren’t very good at getting into some of these new services. They had to call these things out and give them freedom and they had to have separate reporting lines and they had to give them much more agency to create the future in the way that they saw fit. 

And so my point is very simple, that ambidexterity is doing these two different things equally well in the short term, and ambidexterity can only be achieved by actually creating a structure that allows the exploratory stuff to blossom on its on its own. And then one must gradually bring that stuff back into the mainstream. Separate then integrate, as we say, so that in the longer term we’re actually building ambidexterity into the core of the system. 

That in a simplistic way is how ambidexterity applies to the world of big oil and energy companies. And remember, this is established firms. When you are Tesla, when you are Orsted, which are already of the old stuff, it’s a different problem because you are single-mindedly doing one thing. Ambidexterity is particularly important when you’re trying to manage that transitional state from one priority to another.

Chris: That’s from the traditional sector point of view. In the renewable energy side, you don’t have the same level of highly concentrated, highly powerful firms. You’ve got a whole series of individual players. But if you’re talking about, say, taking it into adhocracy, maybe you can give a good explanation.  I’d posit that each of the COP conferences that are held are pretty good example of adhocracy where a kind of general overall framework is given and everyone’s just out there trying to do it all.

Julian: That’s a great point. Let’s play with that because, in one of my books, I made this distinction between bureaucracy (coordination through rules) and meritocracy (coordination through argument and getting to the bottom of things). Adhocracy is coordination around opportunity and activity.  Adhocracy I’ve traditionally thought about as, you know, a startup company scrambling to create something out of nothing.  Classic adhocracy: very few rules.  

If you bring that into the world, into inter-governmental organizations, you’re right that something like COP 26 was an example of adhocracy, and the COPs before it for that matter. These were an attempt to create an overarching structure.  You might say that’s bureaucratic but actually, you know, it’s a very light touch bureaucracy. What it actually is, is creating a set of parameters in which we can encourage lots of member states and private companies and so forth to then take action.

Now, the risk of adhocracy, at least in the way I frame it, is that you get this disjointed action, that you get a lack of coherence.  I think that’s something to be watchful of because obviously, you’ve got to have at least some sense of where people are going. But it is definitely the right way of getting action because bureaucracy leads to lots and lots of conversations.  We need to find a way of turning this conversation into action.

So yeah, I like it. I hadn’t actually thought about COP as adhocracy but you’re right, you can definitely frame it that way.

Section Seven: Looking to the future

Chris: As a closer, I normally like to ask people why should individuals, MBA students or people who are looking at this from the c-suites or from their businesses or people who are just interested in putting their time or their money into this area, why should they care about what you care about?

I think, from this conversation, it might be good to make a slight shift and to say, well we’re looking at a multigenerational issue and climate change. What advice would you give to the next generation of leaders?

Julian: The next generation of leaders are, of course, our students of today. I’ve touched on a little bit of it. First of all, go to the places where you can make a difference. Sometimes that is the big companies, the leaders of this world. And sometimes it’s absolutely social enterprise or some sort of startup activity where you can actually start to make a difference immediately, albeit with certain risks. And then your job is simply – and of course this isn’t simple at all – to make the thing that you create so interesting that you pull everybody else along with you. That requires a huge sort of almost like ambidexterity for the individual. 

In the short run, your job is to single-mindedly, decisively push an interesting agenda that you feel passionate about and then, at some point, you have to flip a switch and figure out that it’s actually not about you anymore. It’s about the people you’re pulling with you, because your job is to actually then to open the doors and to release the creativity of that next generation. 

That’s the single biggest sort of challenge any of us face as leaders. It’s a fundamental behavioral point, which we’ve just touched on, which is the old saw about what got you here won’t get you there. In other words, you need to get to a certain level; you’ve got to be pretty decisive and single minded in trying to get over the bureaucracy around you. And then, once you have started to see some success, you have to become much more welcoming of others’ points of view and try to nurture others, try to make them feel that they’re in the spotlight rather than putting yourself in the spotlight all the time.

Chris: Are you optimistic?

Julian: Yes, I am. Of course, I’m optimistic with this sort of pragmatic bent. If I didn’t believe that we could make progress, I’d retire now. But I’m very conscious that it’s a hard slog, that every step forward we take, we do take half a step back. We’ve just got to keep reminding everybody how hard this is and then collectively we will make progress.

Chris: Thank you very much. That was a fantastic conversation.

Julian: Thank you so much.

 

To watch the full conversation with Julian Birkinshaw go to our podcast page 

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