0082 - Why Most Strategy Fails—And How to Fix It ft Dr. Felix Oberholzer-Gee

What if everything you thought you knew about strategy was wrong—or at least incomplete? In this eye-opening episode, Ben Owden sits down with Felix Oberholzer-Gee, Harvard Business School’s Andreas Andersen Professor of Business Administration and the author of Better, Simpler Strategy: A Value-Based Guide to Exceptional Performance. Renowned for his award-winning teaching and cutting-edge research, Felix distills strategy down to its essence: value creation for customers, employees, and partners.

Discover why some of the biggest buzzwords in business—from the metaverse to cryptocurrencies—may not be worth your organization’s time. Felix explains how focusing on “willingness to pay” and “willingness to sell” helps you weed out pointless projects and, instead, channel resources into efforts that truly move the needle. Learn how timeless principles of value creation can apply to everything from tech innovations like AI to employee engagement—and even your personal life.

This conversation offers a refreshing antidote to today’s obsession with “chasing trends,” underscoring that competitive advantage stems from relentlessly improving what people love about your offering—and how employees experience their work. Tune in to rethink how you pick your projects, price your products, and reward your people.

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Transcript

Felix Oberholzer-Gee

So there's two forms of value creation that matter the most. One is, do I change the willingness to pay of customers? Do I change their appreciation of my product? And then do I change the willingness to sell of my employees? Do I change how they feel at work, how excited, how engaged they are? And I think a common mistake is to look at a million things that happen out there. Take AI as an example. There's just the 10 minutes we talked so far. There's like 17 interesting things that happen in AI and you can't respond to everything as a result. You have to pick and choose. But how do you do this? And you do this by thinking about if an initiative, if an activity doesn't change willingness to pay doesn't change the appreciation of employees willingness to sell. It's of no relevance to you. Give you, give you two examples. You might remember a couple of years back, there was all this conversation about the metaverse, and the metaverse was going to change everything. And somehow in all of these conversations, I cannot remember a single instance when someone was really able to explain to me why the metaverse would change customer willingness to pay, why the metaverse would change employee willingness to sell. And if that's not the case, don't pay attention to attention to it. Now, if you're a criminal, cryptocurrency is fabulous. But for the rest of humanity, I have never heard a story how cryptocurrencies will change willingness to pay will change willingness to sell. There's no value creation. And what I find in my work with companies that very often it's maybe 10% of their projects, 20% of their projects. I recently had a company for half of their projects. We didn't even have a story how it's going to create value. And as a result, everybody in your organization is so busy, it's running around, super engaged, but you don't have much success. Why you're doing too many things. In particular, you're doing many things where value creation is not at the core of the activity. So think of, think of my approach. It's as much an approach what not to do, what disregard what to neglect as it is an approach where to focus.

Ben Owden

Being in the middle is challenging. From balancing the demands of those above with the needs of those below, balancing between pushing the strategy forward and investing in the developments of your teams, stewarding what is presently working while being a change agent. We understand the tension that exists with being in the middle, where you ask to be everything to everyone. Dear middle manager, we see you. We've heard you and we're here to help you. Y Leap Consultancy is bringing you Thrive in the Middle, a 12 week cohort based leadership program designed for those in middle management. An immersive program where leadership isn't just taught, it's honed, refined and brought to life through a blend of expert guidance, peer collaboration and immersive practical learning experiences. Join Thrive today and be more than just a link in your organization. Be its strongest link. To learn more and enroll, email us at yoda@whyleadothers.com 

Mambo this is Ben Owden, the leadership Mr. Miyagi. My hope is that this conversation will help you find the clarity and conviction you need to lead a more meaningful and impactful life. I have curated some of the best thinker practitioners from all over the world to help you get to your leadership nirvana. So sit tight and let's go on this journey together. Greetings to you. I hope you're at peace and are having a meaningful day. Welcome to another episode of the Why Lead podcast and I'm your host, Ben Owden what comes to mind when you hear the word strategy? What sort of picture comes to mind when you hear the word strategy? Is it words like complex or maybe complicated? Do you see consultants walking in with their suits and briefcases? Is your head spinning because the thought of the word strategy is just too much? Strategy is a word we use quite a lot, but when you start investigating, you realize that not many of us quite understand what strategy is. It's one of those things that we feel that we should understand, so we just play along. Well, this ends today because our guest today is here to simplify strategy for us. He's the Andreas Andersen professor of Business Administration at Harvard Business School, an award-winning instructor whose academic work and consulting are focused on competitive strategy and the effects of digital technology on corporate performance. He serves as a faculty Chair of the Senior Executive Leadership Program for China, the Driving Digital Strategy and the Managing Turbulence programs. His research has been published in the very best peer reviewed journals of his profession and profiled by media outlets around the world including the Financial Times, Le Figaro, New York Times, and Wall Street Journal. Author of the book Better, Simpler A Value-Based Guide to Exceptional Performance. Ladies and gentlemen, Professor Felix Obanholzer. G. Professor, you're welcome.

Felix Oberholzer-Gee

It's great to be here. Thank you for having me. Ben.

Ben Owden

I think my first question would be, you open your book by saying strategy is simple. I mean of course the title of your book is Simpler, Better Strategy. If Strategy is so simple. Why do so many large and well-resourced organizations get it wrong?

Felix Oberholzer-Gee

It's a great question, Ben, and I think it actually starts at the conceptual level already. When accountants meet, they don't have to talk about what is accounting and why do we do accounting. When marketers meet, they don't really have to think about why do we do marketing and what is it. But somehow strategy is a little bit of a mythical beast. And the book is really a project that came out of my teaching mid career executives where these people had amazing experience, like really deep experience in a part of the business, maybe finance, maybe marketing. And then I noticed how even these people somehow struggled to grasp the essence of strategy, what it's really all about. And so the ambition of the book is to say, look, you're not alone. Many people are a little confused about what strategy is. But here's a way to think about what strategy does and in particular the link between strategic decisions and financial performance. And by the way, it's not complicated. You can read about it for half an hour or an hour and you sort of grasp the essence of what it is.

Ben Owden

And I think when people talk about strategy, some people confuse it with planning. This is my plan for the year, AKA this is my strategy for the year. But again, very simple terms. How would you define strategy?

Felix Oberholzer-Gee

So the simplest way to see it is to think of strategy as value creation. And then most companies have three really important constituents. So it's value creation for customers. How is it that my customers are better off because my company exists? How is it that my employees are better off? How is it that my suppliers are better off? And I think a useful exercise is to do the following. Imagine a world in which your company, your organization does not exist. Who's going to miss you? Who's going to say, oh my God, remember when that company existed? That was really amazing. I miss it. If no one is missing you, you're not creating value. If you are creating value, you are a strategically minded organization.

Ben Owden

Wow. Now I'm a firm believer of, you know, having a strong why in what we do professionally and personally. And so as someone who's committed to this world of strategy, what is it about strategy that makes it a field you have spent and I'm assuming here you're continuing to spend time making your unique contribution to what? What is your why as Felix, so to speak, in your commitment to contribute towards this field of strategy?

Felix Oberholzer-Gee

I mean, in the end it's about making organizations, making professional careers, but also making personal lives more Successful, where successful is really sort of in the eye of the beholder. And there's an interesting link between the why and, and the general notion of strategy as being all about value creation. Let me give you an example. So say if we meet someone, a professional manager, and basically the goal is I would like to make as much money as possible, maybe I have a startup, maybe I, maybe I run my own company and really my why is all about making money. Well, even in that case, even though the person is maybe in some sense fairly narrow minded, it's all about the financial success of the organization. If you want out outsized financial success, it's still the best option to think about value creation for others. So part of what fascinates me about strategy and what I really like thinking about it and then thinking about how to implement this is this orientation towards other people. Even if you're completely selfish yourself, you are best off thinking about everyone else first. Think about your customers, think about your employees, think about your suppliers. And it's this outward orientation, making life better for someone else, that sits at the very heart of strategy. And that is a notion that I love, that I love myself, that I love personally.

Ben Owden

So I guess the best strategy is one that has cracked this sweet spot between being selfish and selfless where you are other focused. But there are some clear gains for you as well in this whole interaction and transaction.

Felix Oberholzer-Gee

Yeah. Yes, this is a very nice way of putting it. And let me just ask. There's a sequence. So you think of others first and then the consequence, the result is that there's some, some success for you and the organization. And of course you can choose. Maybe you're incredibly generous with your customers and so you share your success by lowering prices. Or maybe you're incredibly generous with your employees and you share your success by paying nice wages. So how you share is subsequent to having created value in the first place. I give you a practical example. I have many students who start their own business and sometimes when they come to office hours and they want to talk about their business, the first thing that they want to talk about is how am I going to make money? How is this thing going to be really profitable? And I always stop them right there and then. That's exactly the wrong way to think about it. Don't start with how you're going to have financial success. Start with how do I create value for someone else? If you've truly created value for someone else, am I worried about your finding a business model that allows you to capture a fraction of the Value? No, not at all. But if you don't create anything, there's nothing to capture. You will not have any financial success. So value creation comes first and then financial success, profitability will follow.

Ben Owden

I love that. And I think it's counter cultural, so to speak, especially the culture of business today where it's more about exploitation, especially in a competition driven market. We just want to exploit as much as you can and take as much as you can. But this idea of thinking about the other first, and we'll get to this later on, because you talk about this as well, right? Focus on value and profit will follow. And I would like to delve deeper into that. But something that you just mentioned now, this relationship you have with your students, I know you've been teaching for, I think almost 20 years now and you've worked with many global leaders who come to Harvard. But I also know that you travel to China as well to conduct your work and business there as well. So generally you're the one playing this role of teaching. But I believe being a person who does leadership development, I know that when you're in the classroom, it's a two way sort of learning experience and journey. You learn as much as you teach others. What would you say are sort of the two biggest lessons you've learned from your students over the years? And I'm particularly interested in a lesson that has sort of significantly impacted you or your approach in your work and maybe even outside of work.

Felix Oberholzer-Gee

So what is definitely this realization that once you understand what strategy is all about, that this can open many, many avenues so people can be incredibly excited about what it means to build a business, what it means to have, maybe have a startup. And so this is, that's one thing that draws me to teaching, not so much. I mean, the experience in the classroom is often very nice and people are very engaged and the conversations flow every which way, as you, as you pointed out. But ultimately what I'm after is sort of seeing what happens afterwards, what happens after we close the class and you go back to your room or your office, wherever you may work. And does it really have an impact? Does it really change how you think about business, how you think about the set of opportunities and then, you know, just learn from alumni and students of mine who have gone on to do really great things is, is incred as you can imagine. That's incredibly inspiring because in some way you may be pushed a little bit along the way for them to have the success that they then enjoy.

Ben Owden

In the book, you address something that I Think many leaders get into a habit of doing, myself included. And this is sort of mistaking the trees for the forest, right? When it comes to strategy in an attempt to be progressive, we have so many strategies. Marketing strategy, corporate strategy, global strategy, innovation strategy. I think in the recent past, you know, DEI strategy, right now we talk about, you know, sustainability and environment. The environment. And I think in the last two years, AI strategy. What do we need to be aware of to make sure that in our responsiveness, we don't lose sight of why we exist as a business and what we're truly after?

Felix Oberholzer-Gee

All the topics you mentioned are important, of course. We need to think about technology. We need to think about globalization as a result of the pandemic. We need to perhaps rethink what our supply chains look like. It's not as though people are misguided in thinking about these things. But where the common mistake happens is that I see a phenomenon. Everybody seems to be really excited, or everybody seems to think this is really, really important. And as a result, I expend resources, I expend energy on this particular topic as well. And because so many things change so often in so many ways, I get into this rat race where I have a thousand things going on, a hundred projects, a million initiatives at any one point in time, and then I'm a little surprised. We're working so hard, we're doing so many things, but somehow our company is not quite as successful as it could be. And so I think the way to do this better and the way to do this right is to always keep this value orientation in the back of your mind. And let me be a little more specific. So there's two forms of value creation that matter the most. One is, do I change the willingness to pay of customers? Do I change their appreciation of my product? And then do I change the willingness to sell of my employees? Do I change how they feel at work, how excited, how engaged they are? And I think a common mistake is to look at a million things that happen out there. Take AI as an example. There's just the 10 minutes we talked so far. There's like 17 interesting things that happen in AI and you can't respond to everything as a result. You have to pick and choose. But how do you do this? And you do this by thinking about if an initiative, if an activity doesn't change willingness to pay, doesn't change the appreciation of employees, willingness to sell, it's of no relevance to you. Give you two examples. You might remember a couple of years back, there was all this conversation about the metaverse and the metaverse was going to change everything. And somehow in all of these conversations, I cannot remember a single instance when someone was really able to explain to me why the metaverse would change customer willingness to pay, why the metaverse would change employee willingness to sell. And if that's not the case, don't pay attention to it. Now, if you're a criminal, cryptocurrency is fabulous. But for the rest of humanity, I have never heard a story how cryptocurrencies will change willingness to pay will change willingness to sell. There's no value creation. And what I find in my work with companies that very often it's maybe 10% of their projects, 20% of their projects. I recently had a company for half of their projects. We didn't even have a story how it's going to create value. And as a result, everybody in your organization is so busy, it's running around super engaged, but you don't have much success. Why? You're doing too many things. In particular, you're doing many things where value creation is not at the core of the activity. So think of my approach. It's as much an approach what not to do what disregard what to neglect as it is an approach where to focus.

Ben Owden

I mean, what you said is quite interesting because I think this value driven approach, and we see this a lot, especially even in Silicon Valley, where millions and billions of dollars are being poured into companies that in the end are actually not creating any value. But there are exciting, cool technologies that are coming up and let's try and do something. I think we see it recently, I think forgot there was an electric car. I think it's called Fisker or something like that that was reviewed by a reviewer online. I think it was mkbhd. And the company suffered greatly. And some people were complaining and blaming him, like, why would you kill this company? And he's like, I just reviewed their product. If the product is not delivering any value to the customers, how is that my fault? And recently I saw something as well, like an AI pin sounds like a good idea, but in the end you don't actually need it. I think how do we get to this point of being others focused rather than being sort of tool focused or technologically driven? And I think part of it is this whole idea of. And it's a quote that's usually sort of people say that Henry Ford is the one who said it, although when I did my research, there's no record of him saying it, where he said, if I, if I had asked people what they wanted, they would have said a faster horse. Yes. And it's something that a lot of people in, when they think about innovation, that's what they think about. It's this idea of, you know, it's not just looking at what people want. We sometimes as creative people know what people want. Right. And we're going to present it to them. And you know, there are a few who get lucky and they happen to be right, but a large majority are typically wrong. So how do we, I guess develop that humility to know that in most cases the customer is mostly right?

Felix Oberholzer-Gee

Yes. So it's such a great point. And I think Apple is probably the modern day example where there's also this notion that somehow Steve Jobs didn't pay much attention to what customers actually wanted. And he gave him the kinds of things that he only knew that they would be, that they would be very popular and prominent in the future. And it's even not right in Apple's story when you think about the early Macintosh, the graphical user interface, the mouse, all of these things Apple took from other companies. Why? Because these other companies, they studied what customers wanted and as a result the product ended up being quite okay. But so I think it's generally just a bad intuition. Terrible if you think you know better than the customers. And maybe. Let's unpack this a little bit. So think about the relationship that you have. I don't know if you have a relationship, but say the relationship that you have.

Ben Owden

I have a wife.

Felix Oberholzer-Gee

Yeah, I'm not thinking that personal. I was thinking about the relationship with your bank. And now we, we can make that very specific. So what exactly do you expect your bank to do with blockchain? And I think for most of humanity the answer is nothing. I don't really understand blockchain. I don't really know what it's all about. And how should I know how the bank could do something with blockchain that would help me? And so at that level, of course, the bank knows much better than the customer. Customer. But what the customer cares about is I want my accounts to be safe, secure, and I want that relationship with my financial services provider to be really convenient. And so at that level, the customer is always right. Now how do we deliver convenience? That of course will change over time. Right. So we went from brick and mortar branches to ATM services to online banking and so on and so on and so on. So we deliver convenience in different ways. And then, then if you talk about the details of how that is Done. Of course, the customer doesn't know, and the company knows how to do this ever better. But who tells us what we want? Well, it's the customer ultimately that knows what they want from any company that they interact with. And so this whole notion that companies know better than customers, it's. It's only really valid at the detailed technical specifications of the products. It's not really valid in a broader sense that companies know what customers want, but customers don't.

Ben Owden

Wow, I like that. And something else that you also mention as well in the book, it's more of a surprise to you and I guess a surprise for us readers as well, where you, I think you saw companies with highly skilled and talented people, very good strategies, yet the outcomes aren't as good. And then there's a question that you ask in the book where you say, why do hard work and sophisticated strategy lead to enduring financial success for some companies, but not for others? And I think I'm sort of throwing this back to you. Why is that?

Felix Oberholzer-Gee

Is it a test? If I remember what I wrote, I think there's, there's two notions here. One, already we touched on so many activities that don't create value, Right. So I hope that all of your listeners go back and just look at the list of the projects, the list of initiatives that you have. If you don't have a story how it's going to change, willingness to pay or willingness to sell, you can scrap that initiative, you can stop that activity. It's not really doing anything. So that's one. But the second, and we haven't really spoken about that, is if what you offer is very similar to what other companies offer, then of course the customer's choice sort of boils down to price. If it's literally exactly the same product, I'm just going to choose whatever is cheaper or in the context of work, if two jobs are roughly the same, there's really not much to choose from, then I'm going to end up at the company that pays the highest salary. And that, of course, both of these, customer attention to price, employee attention to salaries, will tend to minimize the margins of the company. It's much harder to capture a fraction of the value. So, yes, we need to think about value creation, increasing willingness to pay and decreasing willingness to sell. But at the same time, we need to do it in a way that is differentiated from the competition. A very natural impetus to have is you see a competitor and they have done something really interesting. And of course, your first intuition is, oh my God, that's a really great idea. Let's also. No, let's not. Every time you become more similar pricing pressures, compensation pressures will increase and it will be harder for you to capture a fraction of the value that you have created.

Ben Owden

And I think in the book you frame this, you say the greater the similarity between two value sticks, the greater the pressure to compete on price. And I think the temptation to copy what other businesses are doing is. It's very strong, it's very persuasive. And I think it sort of wakes up this fear of extinction in all of us, meaning that I have to make sure that I'm doing the same thing so that I'm not out of business. But then as you said, at the end of the day then we compete on price and a lot of businesses have died on that competition because there'll be a few who can lower the prices and take the short term hit, and then there will be some who can't afford to lower those prices. And so how do we avoid this sort of, I don't know if it's fear that we have that pushes us to copy other people so that we actually invest in truly differentiating ourselves by the value we create for our customers. How do we overcome this sort of persuasive temptation to copy what companies that we consider successful are doing?

Felix Oberholzer-Gee

Yeah, so I think the first and maybe most important step is just to be aware of the trap, right to every time you copy, you become more similar to the competition. The more similar you are to the competition, the harder it is for you to have decent margins. And an intuitive test of that is go out to customers, talk to your customers. If you experience your customers as being very price sensitive in their view, your value stick, your amount of value creation not so different from everyone else. If you experience your employees as very focused on compensation, well, what does that mean in their experience? The jobs that you provide are not so different from the job somewhere else. So I think everything starts with a realization. What's the degree to which you're differentiated to begin with? And that is really important stepping stone because often in our minds we do a million things differently from the competition. But that's usually at a technical level that is really hard to see and understand for customers. Or it's maybe at sort of a general sense of what the corporate culture is like in your organization, but it's not really the everyday experience of employees. And so I would say a first step is just to make sure in customer conversations when you ask why is it that you buy from us if price is one of the most important considerations, you have copied too much. If you ask employees, why do you stay here? Why are you engaged? Why are you not looking for other jobs? If they say, well, frankly, you pay a whole lot, then you're in trouble because you haven't really created differentiation, differentiated jobs. So I think this awareness is. Is built on everything. And then just. I think this is a question of leadership. Every time someone wants to copy, every time someone throws out the new idea, but, you know, this is a version of what someone else has done. Just stop the conversation right there and then and say, look, every time we copy, actually, we're not really serving the company in a meaningful way.

Ben Owden

I like that. And I think this reminds me of something I read. I think it's in Reed Hastings book. I think. I think she wrote it with Patty. Around workplace culture. And they talk about, you know, when they were sort of like building Netflix's culture. And there's a specific section about salaries and how they decided on how much to pay people. That was quite interesting to me. And I think thinking about willingness to pay and willingness to sell, sometimes businesses, there's that question of how do we set our prices? Of course, in the book, you talk about Apple, which is very interesting. Apple's products are expensive compared to other products. But when I have to make a decision between buying an iPhone and buying a Samsung, there could be a Samsung that pretty much has all the features. But somehow I find paying the extra couple hundred dollars on an iPhone a reasonable decision. My willingness to spend money on Apple products is quite high. And so how do companies set prices? What's the ideal price? What's sort of like the framework to set the right price? But at the same time, when it comes to employers, what's the ideal salary? Because people have salary surveys and to figure out in this market, what's sort of like the median salary for people in this position. And sometimes some companies, that's how they fix it. But I think with Netflix, when I was reading the book, it's interesting how they would figure out what is the average that someone gets paid in this role, in this position, in the market that we're in, and then we will give you significantly more than that. And then, of course, internally, the culture and everything else is also a value add, so to speak. Now, that might seem radical for most organizations to take that approach, but in your experience working with, you know, business leaders globally and working with businesses and in studying a lot of successful businesses, what are sort of the sweet spots in terms of setting salaries, but also pricing as well.

Felix Oberholzer-Gee

Yeah. So a couple of things. The first is to realize. So I need to think about value creation, increases in willingness to pay first, and then pricing second. So if you try to raise prices without changing willingness to pay, that is zero-sum. Right. Your margins will go up, obviously, because you have higher prices, but customers will be worse off. Now if I increase my willingness to pay, I can increase prices. And now it's no longer zero-sum. Now the customer is better off and also the company's margins expand. So that's the first thing. Value creation truly does come first, always. Otherwise, you live in a zero-sum world where any move that you make might be good for you, but it creates losers at the other end, employees or customers. And then think of the pricing and the compensation decision as a real decision. There's no mechanical thing here that happens where you have to do it in a particular way sometimes. And I think this comes from economics training we're taught for a given willingness to pay, for a given distribution of willingness to pay, I just calculate the optimal price that maximizes my profitability. And that is essentially a margin volume trade-off. I can have very high prices, in which case my volume will be relatively small, or I can have lower prices, then my volume explodes and I find the sweet spot in a, in a very mechanical way. I don't think that's the best way to think about pricing for the following reason. If you think about pricing as a real decision, it's not a mechanical rule. All of a sudden it says, well, maybe I'm in that kind of a business where being extra generous with customers is a really good idea. And perhaps it's because word of mouth really matters. Perhaps it's, you want incredibly enthusiastic customers so that you get a lot of support from these customers. Maybe you just love the idea of creating a ton of value for lots of people. But it could also be true that if you have higher willingness to pay, you charge premium prices, you charge more, just the way Apple does. So all of these choices are legitimate, legitimate choices. Because you're just thinking about, how should I share the value with my customers. On the customer side, I think this is fairly intuitive. And then for some reason, it's a little less intuitive on the employee side. But the same thing applies. So say, take the Netflix example. They have created a pretty. It's an ambitious culture. You, I think you fit best in. If you really want to make things happen, if you want to push things, that is a great culture for some people. And then Maybe surprisingly, they pay even more than the typical competitor. All that means is they have decided to be extra generous with their employees. Now you might imagine that someone else is doing the exact opposite. Someone else creates an incredible job. Maybe it comes with wonderful training opportunities, a whole career path that leads you to opportunities that you never really thought about. But it's just about the best fit, the best job you could possibly imagine. And guess what? It doesn't pay at the very top of the scale. That's as legitimate as paying median. That is as legitimate as paying as the Netflix model where you pay a little more. I give you one example here from Harvard Business School. When I talk to students about the jobs that they're going to take, we often talk about they all have various offers and they think about different places to go. And then I would ask them, so how much do all of these offers pay? And very, perhaps surprisingly, many of them end up taking offers that are not the highest paid. And I would say, did you learn anything in business school? Why are you not taking? And of course, the answer is very predictable. Oh my God, I'm so excited about clean tech. I'm going to go to a city where it's close to my parents. I have the CEO, she's the most charismatic person I ever met in my life. There's a million reasons to take the job that doesn't pay the most because it has lots of other amenities. On the customer side, that's very intuitive to us. On the employee side, that's a little less intuitive. But it plays in the exact same way. If you offer a better job, you will get people who don't pay that much attention to compensation. Why? Because you offered them a better job?

Ben Owden

Yeah. And I think I agree with what you've just said there. Right. It's less intuitive when we think about employees. I think when we think about value creation, when we think about the long-term performance of a business, it's usually let's increase the willingness to pay. But we don't value this willingness to sell as in the same way that we value the willingness to pay. And so what are sort of like fundamental shifts, shifts that have to happen for business leaders and maybe people who sit at boards who make decisions that affect everyone else to see sort of lowering this willingness to sell as important as increasing willingness to pay.

Felix Oberholzer-Gee

So probably even worse than with customers is this tendency to just copy everyone else. So if you ask the average HR person what are you paying? They say, oh, we pay average salaries, we pay market. We discover purpose matters to People, everybody does purpose. We discover DEI matters to people. Everybody does DEI. We discover flexibility at work matters. Everybody offers flexibility. So there is like this constant push to do what everybody else does. And all it really does is it heightens the role of compensation when people think about the job that they. That they may want to take. I have a colleague here at Harvard Business School who does a very funny exercise in his executive education class process. He lists all the mission statements of the companies whose participants are in the course. He asks the participants, to pick your mission statement. And of course, they can't, because these mission statements are all the same. So they don't even recognize their own statement because they're all the same. They're not really differentiated. And so I would say this is maybe job number one for leaders. Just how you're very deliberate about differentiation vis a vis customers. Be as deliberate vis a vis with your employees. There's no reason to think that you should have the same culture, the same policies, the same everything that attracts a particular set of group of people. And I'll give you one example. I think that is a nice illustration of this mechanic. We mechanic of the mechanics here. So we ran a bit of an involuntary experiment at the end of COVID American businesses in particular were very worried about people not coming back to work. And so how did we compete? We competed by quickly raising wages. So wages just in particular for people who were not so well paid before these wages increased very. Which of course in many cases was. Was. Was a good thing, was a good thing to do. But what do we see now? We see now incredible churn among the people who took these. These jobs are because they paid a lot of money. Why is this? Well, the moment the headhunter knocks on my door and I get offered another job that pays even more money, I'm out of there in a minute. Why? There wasn't anything that tied me to your company. It was just that you happen to offer money, and now someone else offers money, and as a result, I leave your organization and I move on. If you use willingness to sell the differentiation in the marketplace to create a value proposition that a particular group of employees will appreciate, they feel a connection. So I always wanted to have a chance to really spend time with my patients is something that I hear from doctors all the time. So hospitals that allow this, that have created spaces for doctors to spend a meaningful amount of time with their patients, all of a sudden they have a selection effect. The doctors who care most about that, they will end up at these hospitals. And so, so money last I checked everybody likes money. So it just does not really create any sort of differentiation. If you choose any other point of differentiation, you get a particular group of people who will flock to your business and as a result, you build a real relationship with this group of employees.

Ben Owden

I love what you just said. I think it reminded me of story in a book by, I think Frederic Laloux around reinventing organizations. And he talks about this company, it's an organization that basically outsources nurses to old people's homes, so to speak, in the Netherlands. And how at some point they hired management consultants to increase productivity, maximize profit, et cetera. And one of the things that they implemented is that one, they implemented sort of time cards and a system that assigns nurses like Uber drivers. You know, if you're in this area and there happens to be a request close to you, then that's where you go. And basically their bottom line was greatly affected by it because they didn't factor in the fact that the patients, especially older people, prefer that sense of familiarity. This is a nurse that I know. We have a relationship. It's not just you come in and you do a diagnosis and you check on me. There's some chit chat, catching up and all that stuff. And it's a big part of the whole overall interaction and wellness and sort of customer satisfaction and retention there. And they didn't see that. For them it was like, okay, how can we maximize, how can we make the most out of this? But funny thing is it didn't just affect the customer, who were these old people, but it affected the nurses as well. The status function that they have is in doing their job right. And so they had to make a whole lot of changes down the road to increase the satisfaction on both ends, the patients and the nurses as well. So I think this idea of having a value driven mindset and basically looking, contextualizing everything to your business, rather than saying this worked in retail, then let me just bring it and apply it in healthcare. But actually saying, what is the value that I can generate for my customers? What is the value that I can generate for my employees? And looking that within the context of your business. And I think there's fear around it because one, and this is something that was very interesting because I heard the CEO of I think Nvidia, he said this, he's like, how come we all operate so many different businesses, but organizational structures are pretty similar to each other? Someone who's making cars and someone who's making software. We pretty much have the same structure of how we put organizations together. I think that sense of designing your processes, your systems, your packages, your compensation and everything else based on your context is an idea that sounds good. But when you think about operationalizing it, I think there's a lot of anxiety that is birthed as a result of the attempt. And I hope, and actually I hope we get to a world where there's more diversity in that sense, in how organizations are run and how we structure everything and how we operationalize how people are paid, where we have that sense. If you have three day working week, if you have four day working week, however you structure it. But I look forward to a day where there's more diversity in that sense. Now, something else that you talk about in the book as well, it's a statement and I agree with the statement. And I don't know if there's a solution or it's just one of. It's just a natural law. You say time is generally not so kind to high performing organizations. And so what do you think contributes to this? And is having. This is just a thought. Is having a monopoly sort of like the equivalent of a life extension program for high performing organizations? So the likes of the Amazons and the Apples of the world is being that big, does that guarantee your sort of longevity and sustenance within a particular sector? Or is this something that happens to pretty much all organizations?

Felix Oberholzer-Gee

So maybe two things to start out with. The first is we often use this notion of hyper competition so we have a sense our world is now much more competitive than it used to be. Every piece of academic research that we have says this is probably not right. It's true for us as individuals. We think that times is changing faster, technology is changing faster, and so on. So also all of these things that somehow say, oh my God, we really live in unprecedented times. And what's interesting historically is managers have always had the same sense. So you can go back to the 1880s, to the 1890s, to the early 1900s, and people will always say, oh my God, the world is changing much faster than it used to. And so that's a first thing to keep in mind. Maybe our circumstances are not quite that special, are not really quite that extraordinary as we often believe. I mean, we're now living through the hype of AI and maybe this will change many things. But at the same time, you know, if I compare the life of my grandfather when he was born, no indoor plumbing, no cars, and then by the time he was, he passed away, he had the Internet. So really am, I am I living through that kind of a change in time or is it maybe that relative to historical levels and more generally speaking over the course of human history, it is just isn't really true that things become more and more competitive. We have a harder time keeping up with the Joneses at every moment, at every moment in time. Having said this, it is true in the data. If you look say at the top 1/3 companies in a country and you follow them over a 10 year period, you would see that generally speaking they lose about half of their competitive advantage. So it doesn't go away completely, but it is reduced because guess what, like other competitors come in, they have better ideas, they do things differently and as a result your competitive standing suffers over time. I think practically speaking what this means is that you can't really rest on your laurel. So I can't really think about, oh, I increased willingness to pay of my customers in a really nice way. Now let's repeat for the next 17 years what we have done. That's unlikely to be successful if you do it right in that you compete for customers based on these broader notions of what customers want. So customers want convenience, customers want speed, customers want security. If you compete on these broader notions, you will automatically see, oh, actually yesterday we competed doing X to increase convenience and today we can do Y to increase convenience. So it's not as though you're doing something radically different because it's still speaks to that same mode of value creation, but the how changes over time and that will then give your company a better chance to maintain its profitability over long periods.

Ben Owden

And who defines value? I mean, you know, is it the consumer, is it the organization, is it the shareholders? Is it all these changes that are happening. Who defines value? So to speak, at the very core, who defines value? Because I think we talk about maximizing value and all these things, but on the very basic level, who defines value?

Felix Oberholzer-Gee

Yeah, so interestingly, it's not the company. Customers define what's valuable to them. So we have, as you know, many techniques in marketing to measure customer willingness to pay. So this is one thing I like about this approach is everything's very data driven. So we can measure the willingness to pay of customers and then the value that we create for customers is just the difference between willingness to pay and the price. So I give you a practical example. I have a hard time waking up in the morning, my willingness to pay for that first cup of coffee, seven, eight dollars easily. I go to Dunkin Donuts, they sell me coffee for a couple of dollars and I'm incredibly happy. I'm incredibly chipper in the morning. Is it the best coffee? No, it's not. Lot. But the difference between willingness to pay and price is particularly large. Right. So it's always value for customers is that difference. And then the same for employees. So willingness to sell is the smallest amount of compensation that they would accept. And then value is the difference between that minimum amount that I absolutely need in order to do a job and my actual compensation. And so in both cases, value is not something that the organization can impose on customers or can impose on employees. Value is defined by customers and employees.

Ben Owden

And I think this reminds me of the concept of customer lifetime value. And I've had a conversation with Peter Feder from Wharton Business School. And because he says something that I found a bit radical. Meaning that not all customers are created equal, which should be sort of obvious, but in a world where we're sort of. Especially if you speak to salespeople who are taught to be very aggressive in customer acquisition. And he talks about focusing on the right customers, meaning that you might have customers who are probably bringing you some revenue, but actually you shouldn't focus on them because in the long run of your business, they are not the right customers. If we think about long term value creation, they are not the right customers. And I think, you know, so I think overall, if you're just looking at different ways of thinking, it all pretty much sends the same message that it's mostly about thinking of others, it's mostly about being driven by the others, rather than our own intuition and our own ideas separate from the others.

Felix Oberholzer-Gee

Yes. Yeah, that's so true. I couldn't agree more. And a customer lifetime value is actually a good example because it's a misnomer. When we think about customer lifetime value, we're not thinking about value for customers, we're thinking about value for the company. Right. If someone says, oh, the lifetime value of a customer is $1,000, what they mean is the customer will contribute $1,000 to the company. That's the exact opposite of value, because we're thinking about us as opposed to thinking about everyone else. And so it's ingrained in us in many, many ways to always have this intuition. And it's even, as you pointed out, it's even in the language, like something innocent, like customer lifetime value actually shouldn't be called customer lifetime value because it's value to the company. It's not value to the customer.

Ben Owden

So it should be company lifetime value.

Felix Oberholzer-Gee

Yes, yes. Yeah, it's a bit of Marketing speak, where they switch around things. Good guys, when in fact, maybe yes, maybe not so much.

Ben Owden

Yeah. I think sometimes the distinction between being product focused and being someone who's focused on the willingness to pay, you say that the difference is very subtle, but it's very important to understand the difference. So what sort of questions can leaders constantly ask themselves to make sure that the difference between these two approaches is always very clear? Because you say it's very easy to confuse the two.

Felix Oberholzer-Gee

Yes. Yeah. One idea that I love is the this jobs to be done idea by my colleague Christensen. And. And the idea is that in the end, I always want to think about what will customer do with my product? They're not really buying my product. They're buying a particular service that flows from the product, as Clayton Christensen has pointed out. And so if you have that kind of an attitude, always ask, oh, what does. What do the customers want to accomplish with my service, with my product? This idea of the job to be done is something that's defined by the customer. Customer, I think, that safeguards you in some sense to falling in love with your technology, falling in love with how you engineer things, falling in love with anything that seems important for the company, but ultimately doesn't really create value for the customer.

Ben Owden

And as we're sort of like drawing to the end of our conversation, there is something that you talk about as well. This idea of a friend, of foe, a friend or an enemy. And you talk about compliments and substitutes as well, and how distinguishing between the two is much easier to do in hindsight versus in real time. And I think when new technologies emerge, we've just given an example earlier around some of these technologies that have emerged. I think NFTS is a very good example. When it was happening and everyone was crazy and people were spending millions of dollars to buy this digital art, thinking that it's going to appreciate in value. So many things have come up in just the last seven years that we thought were going to change everything. And then in hindsight, we realized, oh, okay, actually it was more of a compliment rather than a substitute to what was happening. So what sort of questions do we have to ask ourselves to distinguish between a complement and a substitute? And I think we look right now and we look at AI, and most organizations are in panic mode because they look at AI as a substitute, something that's going to completely replace how things are done. And yet there are a few who look at AI as a complement. Right. So how do we know? Because I think there's a bit of Attention there, right. You can be arrogant and look at it as a compliment, but actually it's here to substitute. And then you can be sort of, you can have some biases that can blind you from realizing that. Huh? Actually, it's just a compliment, you know, so it's not going to replace everything that we do. So what sort of, I guess, awareness or questions do we need to ask ourselves to, to be able to, for the most part, we might not be able to fully distinguish, but at least have a view of all these emerging technologies that's closer to the reality than, I guess, sometimes the hyperbole that surrounds these emerging technologies.

Felix Oberholzer-Gee

Yeah, yeah, it's a fabulous question. Complements are products and services that lift the willingness to pay of something else. So think, what is a complement for a car? Oh, gas stations, roads repair shops, gps, driving school. The value of everything depends on the availability of compliments. And so thinking about compliments is very important. Now, as you point out, often it's not so clear in particular with new technology is something a complement is something a substitute. I give you historical, historical example. When the radio gets invented, the music industry goes into panic because, oh my God, the radio, you know, free music all day long. That cannot possibly be good news for our business because we're making money selling records and you know, they fight it left and right and lawsuits flying. And then in the end, you know, radio becomes legal and radio becomes very popular. And then it turns out, oh, actually radio is a compliment, not a substitute for all sales. It's a way to advertise the music that then customers drives a lot of their sales. Yeah, right. Yes. And so that's a good example how it was completely understandable why they thought it was going to be a substitute, but then it turned out to be a compliment. The same is True, true for ATMs and banks. It turns out that after the ATM gets introduced, you see an explosion in the employment and the number of branches. Even though you could think, oh, ATMs and branches are a substitute, they turn out to be a compliment. So I will say two things. One is it is just not so. Keeping an open mind, I think is the first step because it's just not so clear whether a new technology, a new idea is a complement or a substitute. And then the second, what you can learn from business history is our bias always goes the same way. It's never the case that we think something is a compliment and then it turns out to be a substitute. It's always, we think it's going to be A substitute. And then somehow it turns out to be a compliment. And so I, I encourage everyone to always ask, if you see something, it looks like a substitute for your business today, step back and say, is there a version of the world where this thing could actually be a compliment, or could we turn it into a compliment if we do it in a smart way? I give you a local example. When Harvard Business School started its online program, many people worried about that being a substitute for the regular classes, the regular degrees that we offer. And so there was quite a big debate and many universities essentially took their MBA classes and they put these MBA classes online. Well, an online MBA class that is not so different from the in person class that is likely to be a substitute. One thing that we did, we noticed that that many younger people don't have much interest in business. And so only after they grow professionally and grow personally, they discover, oh, you know, knowing something about business might actually be quite helpful. And so we positioned our online product at the very beginning as someone who's junior to a person who would get an mba so that maybe they decide something about business, maybe they're really excited about what they learn. And then perhaps at some point in time, they might apply to an MBA program, ours or another program. That structure created a complementarity where you could have created a substitute as well. So much of what we do decides over are things complements, are things, are things substitutes.

Ben Owden

Wow. Thank you. Thank you so much for this conversation. I think I'll have to play it back and catch everything else that you've said, but definitely. And I loved your book, and it's a book that I've purposed to reread over time. Now, there's a question that we ask pretty much all of our guests who come to the podcast. It's called the 1. 1. 1. What is the one book that you've read at some point in your life and career that you. You wish you had read earlier? And then what is the one habit that you've developed that you said, maybe it would have been, you know, more beneficial if I had developed this earlier in my life? And then what is the one personal value that you will not compromise, no matter the cost?

Felix Oberholzer-Gee

Oh, books is hard. There are. So it's changed over time also. Yeah, maybe I'll mention one that seems that I read a little while ago, but it seems particularly important or close to me at this moment in time. There's this novel by an author called Tian. Don't say we have nothing. And it's a novel about the history of China. You follow a musician's family in Shanghai, and they experience roughly the last. What is it now, 70, 80 years of Chinese history, all the way up to the Tiananmen massacre. And what it makes you realize is that for so many people in so many ways, living through their country's history just comes at an incredible cost. Losses that I think the novel somehow manages to capture in a way that always stayed very close to me. The reason why I'm thinking about this book right now is, as you probably know, the way things change in China now is very difficult for many people. And I wish there would be more outreach, more encouragement, more standing with the people at a time when their national history moves in a direction that proves to be personally very, very costly and personally very problematic, because you live through a time when China opened up and China seemed more inclined to engage with the rest of the world. And now many of these opportunities disappear. And right at this moment, instead of showing some solidarity, and I think this is maybe. I think that's particular here in the US Instead of showing support for the Chinese people who go through a really dramatic transition in their history, we sort of stand back and we sometimes even bash the country at this moment. So that's a. That's a novel that sort of speaks to me because of the. Of the current personal circumstances.

Ben Owden

Oh, beautiful. I have to look it up. Yeah. Thank you for sharing. Yeah.

Felix Oberholzer-Gee

It's a fabulous. It's a fabulous read. It's. It's beautifully written, but it's also. It's a way of telling. Telling history that really makes it come alive. So don't say we have nothing.

Ben Owden

Mr. Book and the habit.

Felix Oberholzer-Gee

Oh, the habit. I think maybe two things I try to be. I have a job where I sit or stand most of the time, so I try to be physically active if I can, every day. And this could be anything from, you know, running along the river here in Boston in the morning to maybe do some gardening in the afternoon. It doesn't really matter what you do. And I noticed, like, my. My personal balance is just much better if I've had some physical activity. So since so many of us spend so much time staring at. At screens, finding that time when you just break away and make it a point. I know people love to measure everything now, but making a point, Leave your phone at home, leave your smartwatch at home, just spend some time doing some physical activity, not being connected. I think that's a really fabulous thing to do.

Ben Owden

I've heard that from so many, many leaders Right. This idea of intentionally being active, even something as simple as taking a walk on a daily basis and the benefits of that to your overall wellness and.

Felix Oberholzer-Gee

Well being are really, are really remarkable. I notice myself if I miss it. I'm not as patient, I'm not as in a great mood. And so it's a really wonderful thing to do.

Ben Owden

And the personal value, personal value, I.

Felix Oberholzer-Gee

Would say, in part, I think what fascinates me about being an academic is just this never ending curiosity. And I would think that's probably one of my central values that I worked very hard to keep in mind to say now that we are more polarized, I think as a nation here in the United States and in many other, in many other places, it's so easy to think, oh my God, this is like the opinion that I don't like, or the opinion that is an opinion that is typical of the opposite camp. And keeping that curiosity, like when I hear something that either sounds wrong to me or at least sounds like it's misleading or it's not quite right, my first intuition is always there's someone really smart who thinks X. How can that be? What is it about X that could be maybe true, maybe appealing, maybe seemingly right, but not really right. I think if you start with this, from this point of curiosity where whatever you see, whatever you hear, it's someone else who was quite intentional about creating a video or creating a podcast and maybe you deeply, deeply disagree. And that's of course okay. But keeping keeping that little bit of curiosity saying, where might this person come from? What is it about this person that might him or her to think about something that I think is just completely, completely nonsense.

Ben Owden

Wow, thank you for that. Curiosity is one of those things I think personally I deeply value as well. There is a parable that I read in a book by Stuart Feierstein where he talks about sort of two ways of approaching life. Of course, he speaks mostly to scientists, but I think it applies across the board. And he says, you know, I think one of the parables is there's a person, it's nighttime, someone is outside, they drop their keys and they are under a lamp post looking for their lost keys. Someone drives by, they get out of the car, they say, what are you doing? Says, I'm looking for my keys. They sort of like spend a few some time helping them out and then they don't really find the keys. And the guy asks him, where did you lose your keys? And it says, right over there in the dark. And so it's like, why Are we here? Right. And that's one way of living life. Always accepting everything that is easy, everything that is sort of seemingly obvious. And then the other approach is a person walks into a dark room looking for a black cat, and the cat might not even be there. That's courage required to step into the unknown, whether be it the known unknowns or the unknown unknown. Right. And being okay with the pursuit, finding the sort of joy in the pursuit rather than the outcomes of what happens. It's like they're striking a balance between that and I think to do that, you have to cultivate and nurture deep curiosity. So it's something that I personally aspire to continue to cultivate. So thank you for sharing that as well.

Felix Oberholzer-Gee

Yeah. Wonderful.

Ben Owden

So we've come to the end of our conversation. I don't know if you have any sort of parting words with the audience, but I've personally benefited greatly from this conversation, and I'm sure the same is true for our audience as well.

Felix Oberholzer-Gee

Maybe one thing we haven't spoken about so much is value creation. Obviously, is this powerful force in business, but you can also think about it as it applies to your personal life. I mean, if you think about your life and, you know, every day, really, the only job you have is to make someone else's life a little better. Could be a conversation, could be a smile, could be some amazing project that you do, like both the small and the big. If that becomes just your intuition, something you do even without thinking about it, I think you'll be a better manager and probably also a human being that enjoys his or her time on the planet a little more.

Ben Owden

Yeah. And I think if we go back to the initial question you asked for businesses, and I think it applies to people as well. Right. If you die today, who's going to miss you? I think it's a very simple but potent question. Who will miss you? And I think this reminds me of the movie It's a Wonderful Life and what happens to George Bailey? Right. This idea that how do you affect change in the lives of the people around you, such that if you were not here, their lives would be dramatically different because of the lack of your presence. Yeah. So I think it definitely applies to personal lives as well.