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New thinking for the new economy

Published Sep. 27, 2005

Leading the Revolution

By Gary Hamel

(Harvard Business School Press, 336 pages, $29.95)

Reviewed by FRED ANDREWS

Gary Hamel is a sophisticated business thinker, the co-author of one of the finest business books ever written. Yet it is not beneath him to include an oath in his new book on innovation. It is meant to elevate the people in the office cubicles into champions of inspired ideas for new ventures:

I am no longer a captive to history.

Whatever I can imagine, I can accomplish.

I am no longer a vassal in a faceless bureaucracy.

I am an activist, not a drone.

All this may sound silly, but Hamel has a crusade to pursue. He is imploring everyone who ever dressed in business casual to start thinking of fresh ideas for new businesses. His new book, Leading the Revolution, is a handbook on how mavericks can originate novel ideas and maneuver employers into entering new and profitable businesses.

How time does fly. Only six years ago, Hamel wrote with C.K. Prahalad, Competing for the Future, a cogent and elegantly reasoned work.

That book spoke implicitly to those who run a company. It taught that business success lay in foresight. A company should ask itself what compelling customer benefits it could provide five or 10 years down the road. And it should set about building the necessary competencies.

Hamel's latest book has nothing much and everything to say about the future. Without dismissing his earlier work, he says it is no longer possible to peer out five or 10 years and conclude much of anything useful. Leading the Revolution speaks to the business rank and file, and only marginally to the executive suite. Success now lies in becoming an incubator of new business concepts. And the idea is far more important than the execution.

But the future will be far different from all we have known. Hamel says the "age of progress" has ended and with it the philosophy of continuous improvement, one of the engines that have driven our prosperity.

"We've reached the end of incrementalism," he writes sweepingly, "and only those companies that are capable of creating industry revolutions will prosper in the new economy." Rule-busting innovation is the way to win.

Not everyone will agree, but Hamel argues passionately that change unfolds so fast and whips companies so furiously that business survival depends on "nonlinear" responses. ("Nonlinear," a favorite word, seems to mean anything different that makes a big impact.) Companies will compete not in products and services but in the ability to devise ideas for innovative businesses.

Competing in creating different business concepts is nothing new. Henry Ford had one concept: a car that any working man could afford. Alfred Sloan at General Motors had a better one: a car for every purpose and purse. Everything from night baseball to pizza delivery in 30 minutes was an innovative concept in its day.

The difference is that companies will have to spawn them one after another, and the game will go to whoever produces the best ideas the fastest.

Hamel describes the company as an idea factory, or closer, as Silicon Valley in miniature. There, people with ideas compete freely for money, and people with money vie for the best ideas and the best people.

Hamel teaches at the London Business School and leads a Silicon Valley consulting business, Strategos, that helps companies build a capacity for "radical innovation." No longer a fan of established companies, he finds them biased toward conservatism and toward the existing business and existing customers. Their investment decisions are geared toward avoiding loss rather than toward stretching for "the enormous upside potential" that one successful venture might earn among a hundred flops.

Hamel's book appears implicitly aimed at the young, with its breezy style and occasionally coarse language. ("Are you a courtier, kissing corporate butt? Or a rebel challenging your company to reinvent itself?") Its pages are jazzed up with quotations in large type, lots of whimsical photographs and some paragraphs of text that drift around the page.

Hamel walks the reader through the anatomy of a business concept and the tactics of advancing an idea within a company. He excels in laying down logical and instructive lists _ the four dimensions of a business concept, their 13 subcomponents, the three factors that connect them, the four conditions that support them, etc. _ but the explanations of concepts such as positive feedback and choke points are often familiar. He poses a catchy hypothetical or two, asking, for example, why no one has devised a system permitting an arriving hotel guest to go directly to the room, using a credit card as the key.

The book perks up when Hamel moves from the general to the particular. He finds his heroes when one or two individuals emerge from the ranks and manage to bring off big changes at their companies.

David Grossman, a programmer, and John Patrick, a staff executive, coaxed and prodded IBM first into acknowledging the Internet's importance, then into building a Web presence and ultimately into becoming an e-business powerhouse. They did it by talking it up, being persistent, showing off their wares, devising large demonstration projects (such as the Web site for the 1996 Olympics in Atlanta), gathering true believers, and, not least, winning over Louis Gerstner Jr., the chief executive.

At Sony, Ken Kutaragi, an engineer, bucked criticism and opposition for years while he developed a succession of digital devices that ultimately led to the enormously successful PlayStation, responsible for 40 percent of Sony's profits. Along the way he sold chips furtively to Nintendo, a great rival that valued his innovation more than Sony did. He also had managed to attract Sony's president as a protector. Otherwise his superiors would have crushed him.

Hamel writes how Cisco Systems, in a fast-changing field, has learned to rely on acquisitions as the equivalent of research and development. Instead of developing a product line, Cisco acquires it, buying a young business and bringing it under Cisco's umbrella. "We do not have to play a guessing game about what products we need," a Cisco executive said. It has made a routine of strategic acquisitions.

Hamel has more to say about big companies. Size and scope matter, he says, and some established enterprises manage to qualify as "gray-haired revolutionaries." His counsel to them conveys the flavor of his approach: Set unreasonable goals. Define the business broadly. Create a cause, not a business. Let new voices (newcomers, young people, people in distant offices) be heard. Create an open market for ideas, capital and talent. Begin with low-risk experiments. Divide big companies into cells. Be generous toward people who produce.

But he also has some tough questions. In Silicon Valley, a venture capital company might consider 5,000 ideas a year and invest in 10. Of those, five will fail, three will break even, one will return twice the investment and one will pay off fiftyfold or a hundredfold.

How many companies can accept that failure rate? How many careers can survive six failures in a row? How many companies understand the logic of accepting the failures for a shot at the fiftyfold return? It is the economics of the oil patch, with many, many dry holes for every gusher.

_ New York Times