Discover the secret sauce of innovative companies, according to Stanford professor Behnam Tabrizi

In the ever-evolving landscape of the business world, the pursuit of innovation is the key to prosperity and growth.

From new disruptive startups to legacy giants seeking to preserve their incumbent status, understanding how to foster innovation is seen as critical. As a result, an entire “innovation industry” has developed, with numerous thinkers, leaders, and entrepreneurs striving to define and codify the mechanisms and strategies behind repeatable innovation.

Today’s guest is one of those leading thinkers. Meet Behnam Tabrizi – bestselling author, a faculty member at Stanford University, and managing director of the consulting firm Rapid Transformation.

With three decades of experience, he has researched hundreds of companies to analyze their success, advised several Fortune 500 firms and governmental agencies, and authored 10 books on transformation and innovation. In his latest work, Going on Offense: A Leader’s Playbook for Perpetual Innovation, Behnam provides an insider’s perspective on the culture and driving forces that underpin the success of 26 companies, including industry giants such as Apple, Tesla, Amazon, and Microsoft.

In today’s episode, we chat with Behnam about creating a culture of perpetual innovation that allows organizations to adapt to new environments and seize new markets.

Here are some of the key takeaways:

• Satya Nadella’s strategic decisions in prioritizing engineering and embracing the cloud and AI transformed Microsoft’s culture and innovation trajectory.
• Creating a culture for innovation requires pinpointing challenges, committing to the company’s values and purpose, obsessing over customers, and a ferocity to move fast and take risks.
• Tesla’s unique culture aligns with a holistic approach to cultivating change, inviting active participation across the company and a fierce dedication to overcoming challenges.
• Legacy companies tend to be cautious with their bets, putting a hamper on innovation and their ability to seize emerging markets.
• From Amazon to Apple to Tesla, leading companies showcase a profound commitment to customer centricity that fuels loyalty and excitement.
• Contrary to popular belief, AI won’t eliminate jobs – it will rather displace those not leveraging it effectively in their organization.

Silicon Valley’s secret sauce

Liam Geraghty: Hello and welcome to Inside Intercom. I’m Liam Geraghty. On today’s show, we’re joined by Dr. Behnam Tabrizi, author of Going On Offense, a Leader’s Playbook for Perpetual Innovation. Behnam has taught at Stanford University and helped shape its executive programs for 25 years. He’s the author of 10 books on leading innovation and transformation, and has served as an advisor to many large global companies, the US president, and governmental agencies. It’s safe to say we’re in good hands today. Behnam, you’re very welcome to the show.

Behnam Tabrizi: Thanks for inviting me, Liam. It’s good to be here.

Liam: Let’s talk a bit about your new book, Going on Offense, an insider view into the drivers of success and challenges in 26 organizations. What made you want to write this particular book?

Behnam: Out of the 10 books, two of them are recent. One of them was Rapid Transformation, where I went through the sociology and processes and tools by which you need to change an organization very rapidly. At the time, in 2007, a lot of changes were taking years and years, and this was a rapid transformation. I published it with Harvard Business School Press. That book did extremely well. Then, I realized that the biggest challenge to transformation is what goes on in a leader’s head, so I wrote Inside Out Effect, which is about leadership transformation. That added quite a bit of oomph to the transformation work I was doing.

“I did a huge survey of over 6,000 executives, academics, and industry experts in terms of what they consider the most innovative organizations”

I thought, “Okay, I’m done. Between these two, I don’t need to do anything else.” That was until the conversation I had with the CEO of Ericsson, who’s now the CEO of Verizon, Hans Vestberg. He brought his top executives to Stanford, and I asked him over wine, “Why did you send your people to Stanford?” And he said, “Well, I want them to learn about the secret sauce of Silicon Valley.” And then I realized there‘s something missing, and that’s the operating system of really successful organizations. Their DNA. That’s where I started. This was six or seven years ago, and I haven’t stopped since then. I’m so excited. I just got an early copy of the book. It’s not going to be out till the 22nd of August, but the printer was able to beat the deadline and send me a copy.

I did a huge survey of over 6,000 executives, academics, and industry experts in terms of what they consider the most innovative organizations and the characteristic of these organizations. We started with a large dataset, lots of characteristics, and so forth. And it’s not just the most innovative, perpetual organizations such as Apple, Amazon, Tesla, and Microsoft. It’s also a study of organizations that didn’t do well. I wanted to make sure we don’t have survivorship bias. We talked to a lot of insiders. I wanted to come up with a very practical, evidence-based playbook so readers could apply it to the organization right away.

Microsoft’s renaissance

Liam: There are so many of these great stories in your book, and I suppose today we’re going to have a talk about some of them. I’d love to hear particularly about how, now that AI’s on everyone’s minds, CEO Satya Nadella rediscovered Microsoft’s soul in 2014 and started to plant the seeds of AI success when maybe Google didn’t. Could you tell me a bit about that?

Behnam: Yes, there’s an HBR piece I wrote a couple of months ago based on this question, about how Microsoft became innovative again. And you’re absolutely right. Comparing Microsoft to Google is a great comparison. As a researcher, you always like to see pairwise comparisons. It’s a tale of two cities. Satya became a CEO in 2014, and at the time, Microsoft wasn’t doing well. In fact, Jeff Bezos would say to his million employees, “The last thing I want you guys to be is these guys.” It was the boogeyman.

“This is a great story about creating a culture of perpetual innovation”

And he took over. People didn’t think he was going to be able to turn it around, but he went back to the fundamentals. He created a startup mindset of pivoting, if you will. He did some very bold moves. First of all, he realized that engineers were becoming third-class citizens within Microsoft, so he elevated their status and looked at areas where it was going to be big. One of them was the cloud, so he put a lot of engineers working on that, created this big cloud organization, and went after that huge opportunity. But he also had the foresight to realize that AI is the future. So he went on a series of acquisitions and partnerships, which is, to date, still going on.

On the other hand, if you look at Google, when Sundar Pichai took over in 2015, Google wasn’t doing badly. At some point, it had 70% of the top talents in AI. And all of a sudden, Microsoft AI came out. The reason I wrote that piece, and the reason behind this book, is that these things don’t happen because of one good move or bright idea. This thing is brewing. Microsoft has transformed this culture. Google hasn’t. Now, I’m not going to say Google is doomed because Google has amazing talent. Their founders are back, and I have very high hopes for Google. But this is a great story about creating a culture of perpetual innovation and the importance of culture in terms of being able to continuously be successful in the marketplace.

Liam: For leaders who hear that story and want to emulate it, what kinds of conditions and culture should they be trying to create to set themselves up for being open to these things in the way other people mightn’t be?

Behnam: That’s an excellent question, and there are several things that are very, very important. Number one is to see reality. The example I give my executives and my students is that when someone goes to jail, they have a mugshot. Put a mugshot of exactly what the problems are, and what the challenges are, and get people engaged in terms of creating those. But more importantly, you need to have a DNA and cultural values and be able to inculcate that not just on the senior team, but across the organization.

“Successful companies are like driving a NASCAR on a very windy road. In a failing company, it’s like driving with your family, with really nice country music playing, and everybody’s happy and enjoying the sunshine”

The book comes up with eight characteristics of what it takes to be successful and three underlying archetypes that are critical for organizations to succeed. One of these is what I call generous, and generous in terms of your commitment to your purpose. This is not like a mission statement. These people are truly, truly, truly committed. The same way Steve Jobs was committed, his employees were committed, and Tesla is committed. And also things like the obsession with customers.

Another key archetype is the ferocity of this organization. These organizations are not for the faint of heart. It’s very chaotic. Everything moves very fast. Jack Welch used to buy a lot of companies, and someone once asked him, “What is the difference between a company that’s successful and a company that fails?” And he said, “Successful companies are like driving a NASCAR on a very windy road. In a failing company, it’s like driving with your family, with really nice country music playing, and everybody’s happy and enjoying the sunshine.” It’s really about that intensity and ferocity. And finally, the last thing I found is that these organizations are bold and courageous in their action. Not just executives, but their people. And that unleashing of talent is what this book is all about.

Beyond obsession

Liam: You mentioned customer obsession, and that’s something we’re really big about here, so I’d love to hear your thoughts on that, why that’s so vital, and who out there is doing that well.

Behnam: Of course. One of the reasons I love doing research on several organizations is that I wanted to avoid this thing where there is a book written about one company that invites all the other organizations to be like it. I wanted to give a flavor about several organizations and leave the leaders to say, “I want to be 10% like Tesla, 20% like Microsoft, and so forth.” But in customer obsession, two organizations come into mind with a very different approach.

“Everything they do and every process and service they change has to directly impact and lower the cost for the customer”

As everyone knows, Amazon is known to work backward from the customer. It’s all about the customer. Just to give you a story, we talked with the Head of Fulfillment in one of the Amazon centers, and he basically told us, “You have a package supposed to get to you at a certain date. We’re late in getting this package to you. You know what? We’re just going to FedEx this to you. We’re going to incur the cost because we want to have a satisfied customer.” That’s the type of thing that customer obsession is. Everything they do and every process and service they change has to directly impact and lower the cost for the customer. And I think that is a really great example of what it’s like to be customer obsessed.

I’m beginning to realize after studying these companies that it’s not just an obsession. There’s also a love for the customer. There is this thinking of wanting to make customers happy. If you talk to people who use Apple or Tesla products, there is this loyalty and excitement that is bar none. Approaches are very different, and there is no one size to get there.

“In a lot of these day one-type organizations I studied, it’s very chaotic and it’s very high pressure, but they love their job and the impact they’re having”

Liam: You mentioned Amazon’s strategies for avoiding complacency and maintaining this dynamic approach to business to stay out of that day two mindset.

Behnam: Well, day two mindset is something 90% of organizations out there have, unfortunately. When you study startups, you realize everybody’s so visible, but as organizations grow and grow and grow, people become invisible and feel like they don’t matter. Politics becomes rampant. A mentor of mine, David House, who transformed Bay Networks and was a protege of Andy Grove at Intel used to say, “When you go to an organization – now I call it day 2 but we didn’t call it day 2 then –, a lot of executives are happy because they’re not accountable for a lot of things, but they get big fat paychecks.” Whereas in a lot of these day one-type organizations I studied, it’s very chaotic and it’s very high pressure, but they love their job and the impact they’re having.

Cultivating boldness

Liam: One of the stories in the book kind of pops into my head because we’re currently doing our performance review here at Intercom, and it’s Tesla’s decision to replace performance reviews with a focus on immediate feedback. I find that intriguing. What’s the impact of that shift on employee motivation, growth, and the company’s overall culture?

“The whole culture is anathema to known methods”

Behnam: Well, Tesla, by the way, is the most chaotic organization I studied. And it’s just fascinating to talk to the people who work there and to study this organization. The whole culture is anathema to known methods. We tend to think about having a performance evaluation every six months or every year. That’s a known method. That’s what a lot of people propose. Now, let’s think of it from a first principles perspective. If you have to wait six months or a year to give somebody feedback about their performance, something is really wrong. Giving feedback and having honest conversations should be a daily affair, especially now that we’re more virtual. That has been a huge thing. I know some people think Tesla used to have performance evaluations regularly, but it’s never really had it. As I said, it’s a very unusual organization.

The thing I want to emphasize about this book is this holistic way of approaching something. There is no one magic bullet that you would do that all of a sudden could turn things around. Tesla has extremely ambitious goals. People really believe they are part of a movement to change the world. At Tesla, you’re not only supposed to do your job – you’re supposed to solve whatever problem is at hand that you can contribute to. There is this extreme collaboration. Again, it’s that holistic way that they put this thing together. And as you and I know, Elon hasn’t spent a lot of time on Tesla lately because of Twitter and others, but the organization culture is such that a lot of people who are actually running this are kind of mini Elons, questioning everything, trying to make a difference, intensely working on some really, really tough problems.

Liam: It’s not all success. I mean, General Motors’ missed opportunity in the electric vehicle market is a cautionary tale. What lessons can other established companies learn from their lack of boldness, and how can they pivot to seize emerging market trends?

“By the way, just betting is not enough. You need to have a culture that is conducive”

Behnam: I think you answered your own question. For example, Microsoft is a legacy organization that turned around. That’s what I love about Microsoft. I have a list of organizations that were top in the Fortune 50 or something, and 90% of them kind of disappeared. Microsoft is the only one that has survived in the past 20 years. At the end of the day, many of these legacies you refer to tend to be cautious. They have cash cows they rely on, but these cash cows could precipitate drastically. And then, when they do move, they do it incrementally. And as you said, they’re not bold. That’s why I put a chapter on what boldness means, and it’s about making big bets.

During Covid, a lot of people were moving out of Silicon Valley. People thought Silicon Valley was dead. And all of a sudden, out of nowhere, this AI revolution happens. We’ve had more venture capital investment than ever, and now this company out of nowhere came and became a trillion-dollar organization, Nvidia. Nvidia is a fascinating case. In 2018, Jensen Huang basically bet his farm on AI and created these GPUs. And now, you see most of these startups basically paying for the shovels, and he’s becoming a dominant semiconductor company in the world. No one is asking about Intel or other organizations. It’s those types of bets and being consistent.

And by the way, just betting is not enough. You need to have a culture that is conducive. Unless you have this culture, you’re not going to run on all cylinders.

Augmented support

Liam: Before we wrap up, I’d love to get your thoughts on AI and customer support and how you see those things working together in the future.

“AI will not replace jobs. AI will replace people who are not leveraging AI in their organization”

Behnam: Next Monday, I am giving a talk at the Stanford Executive Program for People, Culture, and Performance, and I will talk about AI as a source of competitive advantage. I’ve been thinking a lot about this. I did my bachelor’s and master’s in this. At that time, we didn’t even dream we’d be here today because we didn’t have great computing. Just to give you very important information on this issue, a lot of call centers are in the Philippines. It’s, I think, a $200 to $300 billion industry or more. And the Philippines is really worried because a lot of these call centers are going to be replaced with AI – a call center is one of those things where you could easily use AI to solve complex problems based on past data.

If there’s one thing I want people to get from this podcast is that AI will not replace jobs. AI will replace people who are not leveraging AI in their organization. Part of the second article I wrote in HBR on AI was about how you can go as an organization on offense, deploy AI and find areas where you can grow and increase productivity.

Liam: That perfectly sums it up. Lastly, then, where can people go if they want to keep up with you and your work?

Behnam: They can find me on LinkedIn. I’m trying to be more active on Twitter, but LinkedIn is a place I spend a lot of time. The book can be ordered from Amazon. It’ll be out on the 22nd, and I would love to engage people on LinkedIn. If they read the book or like it, I’d like to hear about it, and if they want to write a review or comment, I’ll be more than happy to answer.

Liam: Brilliant. Well, Behnam, thank you so much for joining me today.

Behnam: My pleasure, Liam, and thank you for these wonderful questions. I really enjoyed this conversation.