This episode is hosted by Boundaryless Conversation Podcast host Simone Cicero with co-host, Bill Fischer.

The following is a semi-automatically generated transcript which has not been thoroughly revised by the podcast host or by the guest. Please check with us before using any quotations from this transcript. Thank you.

Simone Cicero:
Hello, everyone. So I’m excited today to be with two very important voices in all things related to corporate innovation and transformation, and especially in ecosystems innovation, firm evolution and today I’m lucky to have as a co host, with me, Bill Fischer.

Bill Fischer:
Hi Simone. Hi Martin. I’m looking forward to this.

Simone Cicero:
And we have also Martin Reeves as our special guest. Martin is chairman of Henderson Institute of BCG, which is a think tank on the future of business strategy. Hello, Martin.

Martin Reeves:
Hello. Nice to be here.

Simone Cicero:
We are very excited about this conversation. In our first preliminary conversation that we had to frame this podcasting episodes, we spoke for long with Martin about how special is the moment that we are living now, also in terms of what Martin called “Cambrian explosion” of ecosystems and ecosystem strategies, and we were questioning really about what is the competitive significance of that and more broadly we ended up in talking about why this issue is probably attached to a broader transformation shift that we are seeing in this moment in terms of how the future of the firm is being restructured, let’s say, and what is the future of corporate capitalism more generally. So Martin, maybe you can help us to frame the conversation quickly in a first exploration?

Martin Reeves:
Yes, happy to do that. So the word ecosystem, I think, has exploded in its usage. It’s being used 15 times more now, the word ecosystem, than it was a couple of years ago. And although the word is used very ambiguously, I’ve seen it to mean anything from a country, to a culture, to a product portfolio. I think it is pointing to something very real. And as evidence of that, I would point to the explosion in the growth of digital platform businesses, which of course, are collections of companies, collaborating companies, which collaborate forming a coordinated offering. So 10 years ago, none of the world’s top 10 companies by market capitalization was an ecosystem. And now seven of the largest tech companies are actually two sided digital marketplaces. So that’s an incredible change in business. That’s a revolution. The question is what does it all mean? Of course, because this is a new chapter in the strategy textbook and one that hasn’t been completely written yet. So an ecosystem is a group of collaborating companies that coordinates nowadays, digitally, to produce a common offering. So what’s going on here? What’s going on, I think, there’s both the possibility and the need for that coordination. The need comes from the fact that technology has driven the evolution of business models such that we have a very high rate of change or a high degree of uncertainty in business, which means that we need faster ways of collaborating and coordinating. So the digital ecosystem, if you like, has become the peripheral nervous system of the company. And the possibility also is enhanced by the same technologies that have driven this acceleration of a business model innovation, namely, two sided marketplaces and artificial intelligence give us the possibility of faster learning. So fundamentally, what’s going on, I think, is a shift from static learning or static competition based upon things like scale and efficiency, to dynamic competition, based upon the rate of learning and others, we’re now competing not on efficiency of doing yesterday’s things, but rather our effectiveness in learning faster than our competitors. And that actually triggers many more profound changes. So, if we want to keep competing on the rate of learning, then we need new types of organization, a large human hierarchy is not a particularly fast means of learning about new things. So we need to think about for instance, hybrid organizations, organizations which combine the ingenuity of human beings with the very rapid correlative learning capabilities of machine learning. We need to think about change management and — probably the most important technology of management — which doesn’t really work that well is change management, there obviously accelerates the need for change and 75% of major change efforts fail. So we actually need to bring the data revolution, the analytics revolution to change management in order that when we learn we change, but changing effectively, it brings into question a lot of very human questions like : what are the human beings to them? So machine learning this routine correlative learning, human beings are uniquely advantaged in doing counterfactual thinking imagination, so we need somehow to come up with an organizational construct that the frees people human beings, ability to, to imagine a diversity becomes more important. We want cognitively diverse enterprises that are able to entertain multiple points of view and multiple ways of reacting to information. So that we can learn and adapt more effectively. And then we may think about ecosystems as an external appendage for the firm. But we can’t really have a two sided marketplaces or main business model involving thousands of other enterprises, unless we changed the inside of the firm too so the external ecosystem revolution, they get some internal Cambrian explosion of experimentation with holacracy and micro business units, and market based dynamics and all sorts of other experiments with how to run a company internally. So that’s a brief view of what is this ecosystem thing, what’s going on and what are his broader consequences.

Simone Cicero:
I love the point that you raised on the imagination and change management because this reminded me of a couple of conversations that we had on the podcast recently, especially one with Indy Johar where he pushed us to think about the role of reflective spaces in organizations and institutions. Basically a way to counteract I would say, resist the frictionlessness of technology and create a reflective space in situ in organizations. And you spoke about imagination and to some extent you said we need new organizational constructs for imagination. On the other hand, another conversation that we had with Alex Osterwalder, we spoke a lot about this point of change management, and it’s really important to understand how the transition to these new models is so staggering. The change management becomes an even more important topic to discuss and even more a topic of discussion for leadership. So anything that you want to say, especially on these two points, of imagination and change. What is the role of these two aspects in the corporate organisation, the firm?

Martin Reeves:
Well, I think this is probably what I call the mental aspect of strategy, which it’s not published yet, but I’ve just completed a book on how we compete mentally as well as physically. So the learning revolution in business, which is triggered by technology, I think has a number of profound changes that you hinted at, and one of them is that, of course, it accelerates the importance of information and the processing of information, which potentially overwhelms humans. So this begs the question of the complementarity between humans and machines. And it also highlights counter intuitively slow thinking or reflective thinking. Namely, we can’t just be processing information, we need to get a stand back and reflect on its broader implications. And we also need to think about the unique advantages of humans with respect to imagination. And probably the word that we at least associated with large corporations is imagination. Most large corporate corporations are essentially optimizing yesterday’s business model, as opposed to imagining tomorrow’s business model. And in terms of change some of the changes going on is too fast for humans. I mean, we have changed the timescale of milliseconds, algorithmic change, so we need to manage that indirectly. And so we need new governance models in order to do that. But the slow change is still very important, it’s important that we think about the political and the social and the ecological, slow change timescales. Because slow change can be quite profound, it can change the entire fabric of the systems within which companies are embedded. So we need to think about all of that too. Collectively I call it the mental ecosystem change. So we have the external revolution, technology and digital platform revolution, we have the internal organization revolution relating to that, and then we have the mental revolution that all of that requires, which to some people may seem to be a form of stress, get another set up to do so we need to think about but the nature of those changes is actually profoundly liberating. In my mind, we go from the, you know, the slavery of routine to the liberation of imagination and reflection and creativity. So fundamentally it’s a good thing.

Simone Cicero:
I love that. Bill, do you want to add some reflections on that, further reflections?

Bill Fischer:
So, one: I’d like to ask about the role of strategy. Strategy as we know it in a traditional, you know, Business School corporate sense. When you talk about liberation of innovation, and about seeding a lot of decision making to artificial intelligence. What’s the role of strategy in all of this? Is there a role for strategy?

Martin Reeves:
For people that’s a great question — people equate strategy with planning. And planning is one form of strategy. Namely, we look at the data and we analyze the data and come up with a durable plan. We execute against the plan and we do that and then we renew that episodically. We look at that every year or every five years. That’s one type of strategy. But if we look more broadly, like redefining strategy is any systematic pattern of thought and action, which creates competitive advantage, then I think there are other species of strategy out there that have traditionally been more neglected by business schools or large corporations. So, in addition to classical strategy, planning strategy, we have adaptive strategy. Adaptive strategy is all about learning from changing and uncertain circumstances. And it critically involves iterative experimentation. We have what you could call visionary strategy, which is entrepreneurs thinking of ways in which new things could be created in the world, new models, and then we have collaborative or co evolutionary strategy which is a strategy of ecosystems where a group of players together co evolved to reach certain industry, and we have renewal strategy or renewal strategy is rapid pragmatic action to escape from an unfavorable situation. I think we always had the possibility of these different pieces of strategy. But the thing that my last book, “Your strategy needs a strategy”, was about was essentially the art of meta strategy, which is the art of knowing what sort of strategy you need and choosing the right sort of strategy for the right part of the business at the right time. So let me give you a practical example. If I’m mining coal or printing newspapers, it may largely be about efficiency and classical strategic planning. If I’m adapting to an embryonic video conferencing business where different competitors and technologies are jostling for advanced every day, then I might need an adaptive strategy. If I’m an entrepreneur creating something new to the world, then I might need a visionary strategy. If I’m running a large digital marketplace in an emerging business, I made a co-evolutionary strategy. And if I’m trying to rescue myself from all these lessons brought by the COVID crises, I may need rapid pragmatic renewal strategies. So coming to your question directly, I think this revolution that we’re going through is partly — you could say — about the diversification of our approaches to strategy. Now, some people would not recognize many of the things I’m talking about as strategy but I defined strategy very pragmatically as whatever gets the job done and the job to be done is to deploy the thought and action patterns which create competitive advantage in the particular circumstance.

Bill Fischer:
There are few things that are more pragmatic in an organization than the boundaries around the firm. And yet what you’re suggesting, suggests that the boundaries around the firm become less and less relevant to trying to meet the more complex needs of the marketplace. Is that true as well? Are we going to see a complete change in the way in which the firm defines itself?

Martin Reeves:
Well, here is where language I think gets treacherous and very important. So we have a construct in business of the firm and we have a construct of the industry. And we have a construct of market share. And we have a construct of competition. We mustn’t forget that these are not facts. These are mental constructs. These are mental models if you like. And we should always question our mental models. And especially now because the idea, let’s take out industry, for example. I’m in an industry with a bunch of competitors that are structured like me and make the same end product. Well, this is a very questionable mental construct nowadays. You know, what is the communications industry, the communications industry blends with the gaming industry, with the shopping industry, with a bunch of other industries, platforms, digital platforms, can seamlessly cross across industries. So you won’t find Alibaba or firms like that using the word industry very often they have horizontal platforms that cut across industries. And similarly the firm, it may seem like a no brainer. When I said what strategy, what is the strategy of. You may say, of course, it’s the strategy of the firm. Well, not necessarily because if I may, the orchestrator of the multiform echo system that I need to think about strategy two levels, I need to think about what’s going to make my multi company ecosystem successful relative to other ecosystems or other governance forms. And then I also need to think about value capture. And my own position within that ecosystem. Strategy becomes about changing the unit of analysis from a firm only to the firm and the ecosystem. And then if we zoom out, in fact, we see that there’s a shift in the units of analysis more broadly, if classically, we might think about the units of analysis as the person, the firm, the industry, and the economy. Nowadays, we need to put more emphasis on the ecosystem, the city, the city has become a very important a unit of wealth generation. And then the globe of course, you know, many of the common problems that humanity faces don’t respect national borders. They’re there, they’re global in nature. So you know, I think they’ll you’re hinting at another revolution which needs to take place, which is the strategy revolution or the mental model of strategy. What is strategy and what gets the job done under the particular circumstances that we face.

Simone Cicero:
Super interesting how you are broadening the picture. And also how you are connecting the firm to most of the holons that contain the firm in a modern context. And I love your reference to this idea of small world, basically where everything gets connected. And the question, and also a reflection that I have is that this is going to have a very huge impact on the idea of competition. Because especially if we think about platforms, cross industry or in general, for example, these patterns that they have that they tend to be post competitive. And also, once you have a platform it tends to become an ecosystem that doesn’t want to compete, it tends to become inclusive on one hand, and something that stays on top of everything else from another point of view. Then you said, for example, that competition is in the government’s form, when you have ecosystems. I would love if you could explore more what it means to embrace an ecosystemic thinking and also to integrate the firm with all the context that the firm is connected with, in terms of how this impacts this idea of competition, which as you mentioned, is essentially the job to be done for organizations.

Martin Reeves:
Well, this particular issue is personally very challenging for me because I prayed to the gods of sustainable competitive advantage every night before I went to bed I was brought upon the mantra of sustainable competitive advantage, which is the idea that firms compete within industries and they compete on the basis of advantages which can come from scale or differentiation or other sources. But the ecosystems revolution changes it in a number of ways. So of course, we still have competition, but it changes the unit of analysis of competition. So ecosystems are competing with each other. And it changes the diversity of competition because different governance homes are competing with each other. For example, the famous incident which defied conventional strategy logic some years ago when Apple beat Nokia, which was a 60% market share player in the highly regulated highly scale sensitive smartphone business. Apple, a firm that never made a phone before beat Nokia to become the market leader in a matter of 18 months. So that doesn’t make sense in traditional competitive advantage terms. But it was a competition between governance forms, it was a competition of a network or an ecosystem on Apple side with a monolith on Nokia side. Another way in which the idea of competition gets changed is that competition doesn’t cease within ecosystems. There’s sort of a competition of power. Am I the orchestrator of the work that you do? As a compliment to my ecosystem what power do you have, how does the power dynamics work… so there is competition in the ecosystems, but it’s indirect competition. It’s competition of influence rather than competition of companies doing the same thing producing the same product. And it also contains an element of collaboration. So some years ago, there was a famous book produced called “Co-opetition”, which is the idea that in a digital economy competition blends with collaboration and that was an interesting academic point at the time, but it’s now the reality of competition within ecosystems. The other thing is, you know, how we compete. So in somewhat predictable situation we can compete on what traditionally was called strategic analysis. We can analyze the data and we can generate options and we can make explicit rational choices and create plans and follow those plans. It was a very deliberate form of competition a little bit like chess, a very deliberate, very cerebral, very rational. But of course, now we have more complexity, we have more dynamism. And we have a greater philosophy of change, we have greater uncertainty. So competition becomes more, more artful in the sense that sometimes we can’t know all of the data or sometimes we have these systemic effects where everything is connected to everything. And therefore, we have emergent properties of business systems, such that we need a different logic. We need systems thinking, in order to influence and shape a system as opposed to definitively control it through enduring rational plans. And that’s a different way of thinking about strategy. So I’m spending more of my time nowadays, in my work as a strategist thinking about things like emergence and shaping systems and engineerable spaces and unpredictable spaces, and multiple bets and good enough judgments. An defining the boundary of what we know and what we don’t know and a much broader and actually in some senses more exciting conception of strategy. So that’s the sort of strategy we should be practicing. I think in many cases nowadays. The problem is that the definitive textbook, the definitive business school course, as to how to do that sort of strategy doesn’t exist. But, you know, that’s always been the nature of strategy, strategy is as a game. The thing that makes strategy interesting is that it’s an infinite game you’ll never done. If I come up with a great idea, sooner or later I’ll be imitated and therefore I need to move to second order strategic innovation, which is I need to think about different ways of thinking about strategy as well as different strategies. So we’re now at a time when we need to think about different ways of thinking about strategy. And even though we don’t have that definitive methodology worked out, nevertheless, providing we’re better than our competitors, we can still be advantage.

Simone Cicero:
Martin in the context that you just described, the word strategy is a word that we use, just because we don’t have any other word that works. So we’re used to this idea of strategy and competition. And now suddenly, we have discovered that everything is connected. You mentioned systems thinking, for example. I’m thinking about today incredible, huge gap that we need to bridge when it comes to upskilling. Our management for example. I would say it’s not even a skill problem. It’s almost an epistemological problem. I remember I was once with Nora Bateson and she mentioned this episode where she was working with the chief of AI, I think in Microsoft and they ended up talking about the philosophy of technology. To what extent are we really now aware that we need to build an entirely new epistemology of business, epistemology of organizing? We need to build a new complete skill set to deal with what we now really feel it’s important to change in business.

Martin Reeves:
Well, I think there’s a spectrum of awareness across companies. I think the current Corona virus situation is helpful in a strange respect. Any discipline has its own complexity. Strategy has its own arcane tools and language but fundamentally it’s a very simple thing you know, it’s about beating your competitors and doing anything that is required to do so. That’s effectively what strategy is about. In an uncertain world, however, there is a second question which comes, which is not only how good is my game, but how long will my game last namely the question of resilience and the current Corona virus crisis, I think has brought home to everybody the incredible importance of resilience as we observe, efficient, cost effective global supply chains, being devastated by the change around us. We become aware that brittleness and robustness are as important as the efficiency of the game. So I think there’s a growing awareness, I think technological disruption is also creating a growing awareness that our traditional toolkit may not be everything that we need. Of course, there are many examples of incumbent companies that have been felled, very, very rapidly in the space of months rather than years by digital disruptors. But the problem is that knowledge of something or an aspiration to think in a different way, of course, is a long way from behaving in a different way. And we have a number of things that get in the way of embracing these new ideas. And the first one is actually language. Language can be a barrier if I think I know what strategy means then maybe less open to flexing that word. So I once worked for a CEO who said, “look, don’t mention the word strategy around here; we don’t allow people to use that word”. And it was actually very helpful. I’m a strategist, so everything I do is strategy. Initially it was a little scary when he said do not mention the word strategy, but actually it was fundamentally helpful to be forced to say, what is it that we’re trying to get done here and how do we propose to get it done because it resulted in the elimination of fuzzy thinking from imported definitions of what we think strategy means. Another obstacle is the inertia of collections, of human beings collective mental inertia. So for you to understand what you mean by strategy. And to understand that I mean the same thing is an alignment and a mutual knowledge problem. It’s what the philosophy called the intersubjectivity problem. I’ve got a contract in my head or an idea and you think you have the same idea in your head. How do we know that it’s the same idea because we can’t point to it and say well, it is exactly the same. So, we therefore need to use language to describe the idea and then that creates a double intersubjectivity problem, which is then we need to know that the terms we use to describe the terms mean the same thing and the problem is of course, under changing circumstances, they may not. So ultimately, we can only know that we mean the same thing If we undertake collective behavior, we take actions in the real world and we can observe that they are coherent with each other or have the desired result. Another one is behavior, you know, behavioral habits. So the classical strategic planning process is a habit. Every year we spend several months creating pieces of paper. exchanging those pieces of paper and sitting through ritualized meetings, and those rituals can be useful. Historically, they’re very useful. Or they can be less useful, but the behaviors may continue independently of how useful they are. I see this a lot in what I call Frankenstein strategy assignments, where mentally a lot of progress is made, but the behavior doesn’t change. So you find people embracing adaptive strategy mentally, but then somehow trying to force it into the unchanging templates of a strategic planning process. So I think, I always have to be wary of new jargon because, you know, I can use the word ecosystem in a fairly meaningless way I can use it in consistent way. I can use it in a ubiquitous way. I could apply the word ecosystem I could say “Simone how’s your mental ecosystem today?” Let me tell you about ecosystems. Let’s go shop in the nearest ecosystem. But nevertheless, new words carry great significance as a very critical moment, which I call when does a thing become a thing, which is the moment when we understand what something means, and we give it a name. And then we share that name. So it’s very important in strategy, it’s very important in organizational behavior, the point of which we give new things names and great responsibility attaches to that. So you ask yourself very profound questions today, but hopefully, as I sort of touched on some of the elements there.

Bill Fischer:
Right now I want to pick up on what you were just talking about. I was fascinated by the idea of collective behavior. And I was thinking about the signing of a name ecosystem and over the last couple of years in the ecosystems that I’ve been working with, some of which you’re familiar with the higher ecosystems of food and clothing, Copenhagen’s e-sports ecosystem, I don’t see them as commonly agreed upon ecosystems. It seems to me that every member of the ecosystem sort of has a design or a belief as to what the ecosystem looks like. And it’s often unarticulated and what they’re in it because they believe there’s potential that will come out of this ecosystem. And I also think that what happens as a result of this is that there’s many ecosystems in play at the same time, and they’re visible only to a few of the players who understand what they’re trying to do. But as long as everyone else is benefiting from them, and everybody else would not be the full set of community players, they go along with this. And then the final piece of this — I don’t know whether it’s a question anymore or statement — you use the word orchestrator. It seems to me that orchestrators are very common prevalent in value chains. But in ecosystems, you probably want less emphasis on orchestrators so that you can get more spontaneity. And I’m wondering if this idea of multiple unarticulated, unidentified ecosystems in parallel makes sense to you, and the role of the orchestrator, is it a lighter touch than we might have expected otherwise?

Martin Reeves:
I think it’s a great question. When we said what strategy is, it carries a couple of strong nuances. One of them is that it’s deliberate. In other words, strategy is something that I can tell you what it is and I mean it to be as it is. It carries the nuance of uniqueness, which is the strategy, not a strategy or a number of strategies, the uniqueness. And thirdly, there’s a nuance of alignment, which is, we mean the same thing by strategy, we’re in the same company. So there can only be one strategy. And then the fourth nuance is permanence. Which is, if I ask you in five minutes time, what the strategy is, you’re not going to say something different. Now, if we relax those assumptions, and say, Well, is it still strategy, again, I come back to my pragmatic definition, whatever gets the job done, if i enrich myself, because I sell more I make more money and I do so over a longer period of time by relaxing those assumptions then that is the right thing to do. So what becomes required under those circumstances is to figure out what a strategy mean, what gets the job done under those circumstances. But I think we are precisely in a situation where those assumptions are getting relaxed. So is the strategy unique? Well, not necessarily because if you think about an adaptive strategy, adaptation basically is continuous trial and error. We try multiple things, and some of them work and some of them don’t work. So what is the strategy? Well, the strategy is, whatever is emerging as the best answer to the question, it’s not necessarily the strategy that is the answer, it may be a new strategy. And we may not know yet we may have three experiments or 3000 experiments on a digital platform in progress, from which the strategy will emerge. Will the strategy remain constant? No probably won’t remain constant over time. Do we all mean the same thing by strategy? Well, almost by definition not with an adaptive strategy or an ecosystem strategy because it is the variance that is the secret sauce. One of the most interesting words in business, from my perspective, is alignment. “Are you aligned?” has very menacing connotations. If you’re not thinking exactly the same thing as me and doing exactly the same things as me you have a problem. The idea there, everything has to be fully aligned in a in a completely knowable, stable system. Maybe that’s the best strategy. But if it can’t be the case, actually, we learn through variance we learn from the fact that we’re not precisely aligned. So there can be no alignment on strategy and then in an ecosystem because I don’t own or control you. If you’re a player on my digital platform, I may not even be explicitly aware that you’re part of my ecosystem. And of course, your business is not the same as my business where we’re competing in a broad sense, but not in a direct sense. We’re not just a smaller version of me, you’re different from me and therefore, you have your own concerns and your own concept of strategy. I think that especially in the case of cities, you mentioned Copenhagen, the e-sports ecosystem, I imagine that what different players in that ecosystem think the strategy is is very different, especially because in that case, the idea of orchestrator, orchestration is very weak the idea of a single will dominating the system there is a, if I remember correctly, there is a sort of a consortium or there is a coordinator, which looks after the common interest of this, this collection of e-sports based companies, but you know, they’re not really a top down dictator. So in that particular case, I imagine that people wouldn’t even recognize as a couple of the idea of a common strategy. Now with a digital orchestrator, often in a business, often the tremendous investment is required in a platform and it takes a while for that to pay off, to cultivate both sides of the marketplace. So in that case, somebody has to take the risk and needs a certain degree of control in order to do that, but that’s not an inherent and unchanging recipe. Another thing we should question is, when we use the word ecosystem, whether there is one type of ecosystem so just as I’m questioning whether there’s one type of strategy, I think actually there are multiple types of ecosystem, natural ecosystems do not have an orchestrator. Cities may not have a very powerful orchestrator. Some ecosystems do have an orchestrator, some ecosystems are closed, not anybody can join. Others are completely open, anyone can join and the feedback mechanisms of ecosystem create the selections so that the most contribution companies rise to the fore. So, putting all of this together, I think another monumental model we could adopt here is to say that, you know, essentially we’re relaxing some of the assumptions of the straitjacket of classical strategy which makes them both more fitting for today’s circumstances and more powerful but also more treacherous. I mean, obviously, the less guidelines and rules we have the harder the game of strategy becames with this.

Bill Fischer:
I’ve been reading some of your writings in preparation for this evening, and I’m thinking about the Fortune — Future 50 and I wonder in the future — I don’t know how far in the future — with the Fortune — Future 50 where the firm no longer is a useful unit of analysis. I realized that there were already two sided platform organizations that are represented there. But would the sum of your relationships become more important than the sum of your assets?

Martin Reeves:
I guess this goes back to ancient philosophy is the river that we step into the same river that we stepped into yesterday. I mean the river may have the same name and follow roughly the same course, at least in the short term, but the water is different. And the person stepping into the water is not exactly the same person. So you know, in the company is a legal construct, that will probably endure at least in the medium term, but it it may be the content of that category may change more overtime, may need to change more over time. So it’s already the case with Fortune — Future 50 that you refer to is an attempt to say what drives forward looking growth. Most of the metrics of business are backward looking either financial outcomes or productivity ratios. So we use machine learning to figure out, you know, what predicts future growth and we came up with 16 variables and those 16 variables are changing and I expect the correlations gonna look different this year again, because of the uniqueness of the COVID crisis. I think we need to constantly question, and reinvention and reimagination is one of the key constructs here, which is you think about strategy two ways. The simple classic way of thinking about strategy is you can think about the different actions and plans within a broadly unchanging company and unchanging industry. Or you can think about constant reimagination and renewal in the context of an ever changing entity and an ever changing web of relationships. I think we’re moving more in general terms in the direction of the later, although of course, it varies from industry to industry. And that is a challenge for large corporations because large corporations often run themselves on standardization, right, they talk about the organizational structure, the strategy, the process, the plan, and they train for particular types of role and they have role descriptions, and their ERP system may be predicated on stable processes, the processes themselves don’t change very much, they can get optimized, the parameters can change, but they don’t actually fundamentally change. Whereas if you look at Haier or Alibaba, so we wrote a piece with the Alibaba head of strategy Ming Zeng a couple of years ago called “The self tuning company” and it was modeled on the engineering construct of the self tuning radio. So your iPhone is basically a radio where it needs to tune into a frequency but you don’t have to tune a frequency dial, the radio itself tunes into its own frequency. And so if you think about an organization that’s constantly retuning itself into the shifting market reality, not just the external manifestation in the marketing department, but the internal processes of the organization, you have a different construct of a company and that’s a very challenging one to operationalize. And I think that accounts for a lot of the experimentation we see with the internal governance models with holocarcy and market based dynamics and the higher micro business unit construct where people are trying to create coherence between the inside and the outside of our organization by also revolutionising how we organize, and that hasn’t really changed very much since the concept of Adam Smith’s pin factory.

Simone Cicero:
And Martin just to continue a little bit on this because I think it’s is offering us a nice place where we can somehow go towards the end of this conversation. It’s really about, what you just said, not so to look into organizations as ever changing webs of relationships. And I thought that was really a very good image because, for example often when we talk about the research that we are doing we say that we are looking into not just the future of organization but more to the future of organizing. And another thing that came back to my mind when you identify this idea of organizations as a web of relationships, was the words of Zang Ruimin, he said maybe companies are gonna disappear, but organizations won’t. I think it’s interesting to question now how organizations and organizing is going to cross boundaries, and not just geographical boundaries or visible boundaries, but I would say also the boundary of time. So as we move into this post Industrial Age, that is much more complex and with much less predictability, maybe what we need to reconsider, is this idea that the company’s strategy is all about enduring. It’s all about surviving in its form. And this idea of conservation. So can we maybe develop a theory of organizing that is much more contextual, much more ready to organizations dying for being born again, in another form, and maybe in this process also embrace different constituents then the shareholders, because, of course, most of the theory of organizing that we had now is very much related to this idea of shareholders. So the question is, what are the new constituents, for example, that are going to participate in the process of organizing that goes beyond the concept of the industrial age?

Martin Reeves:
Yes, I think in a dynamic and unpredictable environment, and I think that will be with us for some time. Because for a couple of reasons, technology is not done yet. I mean technology driving business model, evolution driving dynamics of competition. It’s not done yet, artificial intelligence has not played out as a force and the Internet of Things has not played out as force, and 5g has not played out as a force. That combined with the interconnected and therefore rapidly changing and unstable and unpredictable nature of our global economy means that this radical unpredictable is gonna be with us for some time. Under those circumstances, I do think that business becomes more like biology. Biology is an infinite game, you don’t play one chess match or one round of natural selection, and then you’re done and you declare a winner. Winning is surviving to fight another day. And in a world of declining corporate longevity, we have to survive for another day. And that drives everything, we just talked about, drives perpetual change and reinvention and reimagination. And it also drives the importance of resilience. How do we build resilient organizations? I’ve studied this with the biology Professor Levin at Princeton University, resilient organizations, both natural organizations and artificial organizations. So rain forests, and governments and ancient universities and companies, resilient organizations have a couple of characteristics. One of them is that they have redundancy. So this may horrify any CFO, but there is a trade off between efficiency and resilience. We have buffering capacity, we don’t have buffering capacity. 100% efficiency means 100% fragility. They have diversity. Diversity not just as a political slogan, but diversity in the sense of cognitive diversity and different ways of reacting to things and different ways of thinking. Because diversity means essentially that you have multiple options to react to the unexpected as opposed to having correlated responses and of course correlative responses are the things that make systems collapse. They have modularity, the perfectly efficient integrated design, where when one part of the design collapses, everything collapses is not desirable in a changing world. They have adaptability, they’re able to easily flex and learn and that learning occurs at different levels of because of the physical level, but because of the mental level two. They have prudence. Resilient systems consider what could happen in 100 years, because what could happen in 100 years or what has happened in the last hundred years may be improbable in terms of the next five minutes, but it may be an inevitability on longer timescales. So prudence, the precautionary principle. And then lastly embeddedness. Namely one of the best ways of dying in the long term if you want to create something with inbuilt obsolescence is to push against the grain of the larger system within which are embedded. So, if you are pushing against the norms of society or if you’re depleting the natural ecosystem, sooner or later that larger system is going to either collapse and undermine your own well being or it’s going to mobilize against you, it’s going to create antibodies against you, as a disruptor of a larger system. So the idea of purpose and alignment, and embeddedness within larger systems is really critical. So all of these are ways of thinking about if you like the biology of strategy, so I talked about biological thinking as being a key skill that managers now need to master as they think about all of the things that we’ve talked about today in order that they can understand how to produce resilient enterprises, in order that they can survive and thrive in a dynamic and unpredictable world.

Simone Cicero:
And Martin, do you think that this transition towards these resilient enterprise that is more redundant, diverse and embed will happen by policymaking, will happen by market competition or maybe will happen by the emergence, ofdifferent constituents? So maybe the entrepreneurial activity of the future will be less about the corporate as we know it, maybe we’ll see the participation of citizens or all the forms of incorporation and collaboration around a venture that doesn’t come from the natural world and usual world of corporates and shareholders. So, what are the drivers for this transition towards what defines us?

Martin Reeves:
One driver is the larger systems of society, clearly looking at our healthcare systems and disaster preparedness systems, they leave, they’ve left something to be desired. In the wake of the Coronavirus crisis now, some countries will probably just go back to normal or they’ll blame other countries. Others probably have a serious intention to use this as an opportunity to improve systems resilience and as a government it could become more important again. Strikes me the government has been a bit of an apology of itself in recent years, as we’ve worship the markets and spoken about bureaucracy and governments and regulation as if they are sort of bad things. We’ve downplayed government and government has downplayed itself, but I think we see the importance of government and so it will happen top down. I think that it will also happen for shareholders. Well, in fact we’ve been doing an investor survey since the beginning of the COVID crisis. We’ve noticed that although companies are still required to report on their quarterly earnings, investors do not expect that the great predictability on that score, but what they do really want right now is they want a rational analysis as to why the company is going to survive, how its viability is going to be maintained. So investors are already concerned with their rational financial interest, which is the resilience and survivability of the corporations that they’re investors in and it will happen partly through competition. Undoubtedly, some companies will say yes, heard it all before. Let me just carry on with my, with my planning protocols and others, like some of the ones I’ve mentioned, will be saying, well, we need to experiment with new forms of governance and the market will judge the result. I think it is already judging the result in many ways where we’re seeing the rise of these dynamic governance forms like ecosystems. As I said seven of the world’s 10 largest companies are now two sided digital marketplaces or multi hundred company, digital ecosystems. And two of their main characteristics are they span industries, and they’re highly dynamic governance forms. If you say, what’s the structure of Alibaba and its ecosystem? Impossible to say, because it’s constantly changing. And in many ways that’s the point. The only thing I would caution against is thinking about everything that we’ve talked about today as a single panacea, I think that the significance of these concepts will be different in different ways to different degrees in different enterprises and industries. So I’d expect the result to be more like a patchwork, certainly one that’s very different from today. There’d be like a new monoculture where a two sided transaction on marketplaces answers to everything at all times and everybody’s competing in the same way. And in fact in game theory, of course, heterogeneous games and unpredictability of competitive response are part of the competitiveness of the strategy of complex games. Even if there were an optimal solution, ceteris paribus, you know, for an individual competitor. Given that these strategies we’ve been talking about are open to all competitors. It may be rational for some competitors to adopt a so called sub-optimal strategy. which becomes, you know, optimal in a game theoretic sense

Bill Fischer:
Much of what we talked about, I think is quite optimistic. But somewhere recently you’ve written about the really exceptional firms. The firm’s best position to the future tend to be on the east coast of China or the west coast of the US and Europe is not well represented. And it’s not well represented because of what you call headwinds, things like an aging population or a macro economic portfolio that’s less digital than others. Do you see any hope for that being turned around or is Europe, in your in your mind, condemned to be in Third place as we go forward?

Martin Reeves:
Well, of course, history is not a passive trajectory. History is determined by us, we have agency, so nothing is inevitable. But, nevertheless, the default cause without intervention and imagination and leadership, I think that there are a number of headwinds for Europe. I think aging demographics, fractiousness within the European Union, especially if we see strong economic pressure if we see a recession or depression coming out of the COVID crisis, and yes in Europe it’s a fact that on most metrics they are well behind China and the US technologically and technology as Fortune — Future 50 index tells us is the main driving force of growth in business. Now, we may see a temporary setback to that. Some digital ecosystems that are based on human interactions like, Airbnb and Uber may seem, you know, temporary setbacks. But nevertheless, I expect technology to continue to be a major driver. So, yes, huge headwinds for Europe to have economic primacy in the world. But nevertheless, assets to build on and nothing is inevitable. So it has the assets of its education system. So while applications of AI may be behind in Europe, some very interesting and original research is being carried out at the ancient universities of Europe. So there’s the research base of Europe. I think the maturity of European societies is in some ways a drag but also in other in other centers an advantage. So as the world embraces sustainability, and we may even begin to compete on sustainability, you can imagine the emergence of… well we already have ethical premium goods where I’m paying for organic and biodynamic, and sustainable as a claim or a feature of my products. I’m paying more, because my purchasing behavior is an expression of my values. So I can imagine that Europe may take a lead on some dimensions of sustainability, for example. The European philosopher Machiavelli, I think has a number of interesting lessons for us. Just because we don’t have the most powerful Kingdom does not mean that we cannot be highly effective as a kingdom. You know, when you have powerful rivals, Machiavelli would say well, one of the games you can play is you can have alliances. You can say you can invest in Europe but only subject to these constraints. Otherwise you don’t get access to our market or you can exacerbate and encourage competition between those rivals, and make sure that benefits you. So nothing is inevitable but I think certainly headwinds that need to be taken account of in constructing industrial policy and the areas that I’d be looking to make sure we have imaginative thoughts around I think one of them would be translational research into applications. Another one would be the funding of startups and other would be access to policies to the European market. Another one, the trade policy, and other one would be ecological law in a natural environment policy. Another one would be M&A policy. You know, Europe zealousness to make sure that we don’t create monopolies in Europe, of course breaks other challenges unintentionally, in terms of not being able to construct global scale champions in technology, so many things to be thought about, but I’m basically an optimist. And I believe in human ingenuity, so I’m sure we can address these issues.

Simone Cicero:
Martin, that was an amazing conversation. Is there anything else that you want to share with our listeners?

Martin Reeves:
Now, I think we’ve covered history, philosophy, human nature, technology, strategy, organizations. I think we probably gave people enough food for thought for the time being. But thanks very much for this opportunity is a great conversation.

Simone Cicero:
Thank you very much, Martin