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IRVING WLADAWSKY-BERGER:
We're still

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in the session on formulating
a market strategy.

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We'll finish that section
today and then go on

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to the execution of the market
strategy and the marketplace.

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And let me just
remind you, we are

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talking about market
strategies based

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on disruptive technologies.

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And as we discussed two
sessions ago, seminar two,

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there are sustained or
incremental innovations

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which are very, very important.

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But this style of dealing
with incremental innovations

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and bringing them to market is
somewhat different than dealing

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with disruptive innovation.

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And it's not one is
better than the other.

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We'll talk about it at the
end or the next session.

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You need to do both.

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But I really do want to focus
on disruptive innovations.

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And of course, we talked about--

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somebody said,
well, what the hell

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do you mean by
disruptive innovation?

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Maybe exhibit A is the
internet and world wide web.

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And what happened when it
hit the commercial markets

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in the mid-1990s,
and, of course,

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our guest speaker John Patrick
talked a lot about this.

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And two seminars
ago, just to recap,

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we talked about, as we were
making the decisions in IBM,

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whether to organize
our internet strategy.

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We asked a number
of key questions.

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Is the technology
advanced enough?

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Is the marketplace ready for it?

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Are there other competitors out
there that if we don't go out,

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they'll run with the market?

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And what are our clients saying?

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And the reason we embraced
the internet so aggressively

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is because, to be honest,
we didn't have a choice.

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I mean, we loved it
also, but it would

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have been dumb not to do that.

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The scope was absolutely
taken off in the marketplace,

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especially after
the Netscape IPO.

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There was this
incredible excitement.

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There were already
serious competitors

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out there-- some
established ones

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like Sun, other new
ones like Netscape.

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And then our clients were
starting to experiment

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with the internet, and we didn't
want to be left out of that.

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So we said, let's go.

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So these are the topics I'd
like to discuss in this seminar.

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And the first three
is based on the--

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yes, please.

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AUDIENCE: So I don't know
what the vision of IBM is,

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but as newer
technologies come in,

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how does that change-- because
you have a focus there based

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on whatever the mission is.

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How do you transform that and
still keep the mission the same?

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IRVING WLADAWSKY-BERGER:
Well, first of all,

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you're asking a
really deep question,

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which is no business can afford
to chase every technology.

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So you need to make-- and we'll
talk about some of the things

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today and next time--

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when you see something,
you need to decide

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is this one that
we should pursue,

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or is this one that is not
within our core business?

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And we'll talk
about some things.

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But let me give very
concrete examples.

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For a long time, IBM
was very involved

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in large commercial systems.

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We were not involved
in supercomputing.

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That is scientific
computing systems.

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Part of it is antitrust,
things that happen in the late

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'60s with companies, CDC, and
so on that you never heard of.

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And some of you may have heard
them, but they no longer exist.

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And for a long time, IBM kept
growing and growing and growing,

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ignoring the
supercomputing market.

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Eventually, we
decided that we were

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missing a lot of advances
in large computing

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by not being supercomputing
because a lot

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of the leading-edge
computing advances

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first showed up in
supercomputing systems.

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And then a few years
later, they percolated

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into commercial systems--

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parallel architectures
is an example.

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So we decided we
now need to do that.

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But it was thought out that way.

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And we can go through
that kind of reasoning

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with a whole set of things.

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But let's take the iPod.

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You can say, well, my god,
the iPod has computing inside.

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The iPod is a little computer.

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You guys are in the
computer business.

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How come you're not
in the iPod business?

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Well, the main reason is
that the iPod is really

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a consumer market, not an
enterprise or business market.

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And IBM is primarily
a company that

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deals with institutions,
commercial institutions,

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educational, health,
government, but not

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with people as individuals.

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And it's a fascinating question.

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If you guys are good, why aren't
you good here and good here?

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Every time we try to
do something here,

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we're really lousy at it.

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I mean, we just are.

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I mean, it's very difficult
for reasons, some of which

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I can talk about hypothetically,
and some that are mysterious,

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that it's very hard to
be good at everything.

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And it gets back to
culture discussions.

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And we talked last time, and
we'll talk throughout that

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if you have a certain culture--

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for example, we have a culture
of dealing with enterprises,

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and I'm including
MIT as an enterprise,

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but if a client is unhappy
the computers aren't working,

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you immediately react.

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You send people.

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You fix it.

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Because the reason
the commercial clients

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want to do business with you
is the kind of service you

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give them.

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Well, in the consumer world,
if you try to behave that way,

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you lose your shirt.

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You cannot do that.

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So you can say,
well, screw them.

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Then, in the consumer
world, we don't care.

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But if your culture
is here, you end up

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doing more here than you
should or can afford to

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and you end up
not doing it well.

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So iPod-- it's not our
problem, not our thing.

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And every company-- and
what we're talking about

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is such much the essence
of business strategy.

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And we'll get into
this right now,

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actually, when we talk about
organizational capabilities.

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You have to know
what you're good at.

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And now, can you change and be
good at something different?

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Very carefully.

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And especially, if I may
use sports analogies,

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maybe if you're
playing in college,

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you can be both in the baseball
team and in the basketball team.

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And in fact, a lot
of college athletes

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play multiple sports--
baseball, basketball, soccer,

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maybe even American football.

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If you're playing in the major
leagues, the problem is--

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so you know Michael Jordan,
incredible basketball star.

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He decided to quit
basketball and play baseball.

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Some of it has to
do with his father.

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He couldn't rise above
like AA baseball.

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And even then, I'm sure
it wasn't because he

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was Michael Jordan, he
wouldn't be playing in AA even.

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So finally he said, screw it
and went back to basketball

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and got three more
championships.

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When you're playing
in the majors,

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when a business is competing
with world-class competition--

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I mean, if IBM comes out,
look at Microsoft, which

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is such a great
company, hasn't been

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able to take on
Apple with the iPad.

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They have the Zune and
it's not successful.

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And Microsoft is much more
a consumer company that IBM.

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So we're just not good at that.

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I think that these are
very sophisticated reasons.

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And I think-- and we'll
talk about this now--

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there is nothing more
important for an organization

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than to be soberly sensitive
to what it's good at

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and what it's not good at.

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And I don't mean that
you don't have a vision

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and where there is a
will, there is a way.

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But I mean, that's why I
was talking to some of you

00:11:19.560 --> 00:11:20.760 align:middle line:90%
before the class.

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I like to bring almost an
engineering mentality to this.

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I remember once having
dinner with a client,

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and after a lot of
wine, he was saying,

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well, why can't you just
build the fastest uniprocessor

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or something, instead of
going SMP or parallel.

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And they said, well, the
speed of light is an issue.

00:11:42.590 --> 00:11:45.930 align:middle line:84%
He said, well, where there
is a will, there is a way.

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And I'm sorry, it's
not the way it works,

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and you almost have to look
at some of these softer limits

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as can you really do it?

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And I'm hoping that better
tools will get developed.

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When I say it will
get developed,

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hopefully by people like you or
companies you start or work on

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or whatever, so that
we can even model,

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simulate different scenarios.

00:12:18.850 --> 00:12:21.930 align:middle line:84%
So this is a very
fascinating question.

00:12:21.930 --> 00:12:24.330 align:middle line:84%
Please, you had a
point, and then--

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AUDIENCE: I was just going
to comment on the [INAUDIBLE]

00:12:26.850 --> 00:12:28.910 align:middle line:84%
about I am not being
in the consumer market.

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How many people in the room--

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IRVING WLADAWSKY-BERGER: I know.

00:12:33.730 --> 00:12:34.890 align:middle line:90%
AUDIENCE: [INAUDIBLE]

00:12:34.890 --> 00:12:36.473 align:middle line:84%
IRVING WLADAWSKY-BERGER:
That's right.

00:12:36.473 --> 00:12:39.530 align:middle line:84%
AUDIENCE: And IBM pretty
much invented the PC market.

00:12:39.530 --> 00:12:40.810 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yes.

00:12:40.810 --> 00:12:41.650 align:middle line:84%
AUDIENCE: [INAUDIBLE]
there anymore.

00:12:41.650 --> 00:12:42.170 align:middle line:84%
IRVING WLADAWSKY-BERGER:
That's right.

00:12:42.170 --> 00:12:43.670 align:middle line:84%
AUDIENCE: Not because
of technology.

00:12:43.670 --> 00:12:46.410 align:middle line:90%
IRVING WLADAWSKY-BERGER: No.

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Almost never-- and I hope this
is a message that comes across

00:12:50.850 --> 00:12:53.730 align:middle line:90%
from me over and over again.

00:12:53.730 --> 00:12:57.350 align:middle line:84%
The limitations are
almost never technology.

00:12:57.350 --> 00:13:00.650 align:middle line:90%
Those are the easiest ones.

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Remember, IBM's PC company
lost money year after year

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after year.

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So we developed gorgeous,
wonderful machines.

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We just lost money.

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Well, after a while, if
you keep losing money,

00:13:19.650 --> 00:13:24.130 align:middle line:84%
that may be a signal
that maybe somebody else

00:13:24.130 --> 00:13:26.030 align:middle line:84%
should run that part
of the business,

00:13:26.030 --> 00:13:30.170 align:middle line:84%
and we'll talk about even
alternatives to do that.

00:13:30.170 --> 00:13:34.900 align:middle line:84%
So the reason for selling
the PC business to Lenovo

00:13:34.900 --> 00:13:37.700 align:middle line:90%
had totally to do that.

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We were not a good
consumer company

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because we couldn't make
it a viable business.

00:13:43.720 --> 00:13:46.780 align:middle line:84%
That's what it
was, not because we

00:13:46.780 --> 00:13:50.860 align:middle line:84%
couldn't make good syntax,
which we did, you see.

00:13:50.860 --> 00:13:53.260 align:middle line:90%
And it's a gigantic difference.

00:13:53.260 --> 00:13:55.020 align:middle line:90%
Please.

00:13:55.020 --> 00:13:58.300 align:middle line:84%
AUDIENCE: [INAUDIBLE]
Michael Jordan.

00:13:58.300 --> 00:14:01.260 align:middle line:84%
Pretty much as far as when
you think about branding,

00:14:01.260 --> 00:14:05.220 align:middle line:84%
I mean, the reason why
he was able to penetrate

00:14:05.220 --> 00:14:10.473 align:middle line:84%
the market that he didn't
have a viable foundation.

00:14:10.473 --> 00:14:11.640 align:middle line:90%
AUDIENCE: You mean baseball?

00:14:11.640 --> 00:14:14.860 align:middle line:84%
AUDIENCE: Yeah, I mean, so if
you look at the consumer market

00:14:14.860 --> 00:14:24.060 align:middle line:84%
[INAUDIBLE] you have
branding [INAUDIBLE] it's not

00:14:24.060 --> 00:14:31.260 align:middle line:84%
because of not having a viable
foundation [INAUDIBLE] how would

00:14:31.260 --> 00:14:34.820 align:middle line:84%
you explain explain
that versus--

00:14:34.820 --> 00:14:37.780 align:middle line:84%
IRVING WLADAWSKY-BERGER:
The lack of branding?

00:14:37.780 --> 00:14:44.220 align:middle line:84%
Again, as expected, you all ask
extremely profound questions.

00:14:44.220 --> 00:14:50.540 align:middle line:84%
Part of what you need
to decide is can you

00:14:50.540 --> 00:14:56.700 align:middle line:84%
shape the marketplace to
accept you in this new market?

00:14:56.700 --> 00:14:59.300 align:middle line:84%
And again, let me
go back to IBM.

00:14:59.300 --> 00:15:05.740 align:middle line:84%
IBM's brand for commercial
customers is superb.

00:15:05.740 --> 00:15:08.260 align:middle line:84%
A lot of it based on
support and whatever,

00:15:08.260 --> 00:15:11.360 align:middle line:84%
IBM brands, if you go
outside and you see kids,

00:15:11.360 --> 00:15:16.340 align:middle line:84%
and you say IBM, I mean, I'm
sure they've heard of IBM,

00:15:16.340 --> 00:15:27.060 align:middle line:84%
but the brand as an iPod kind
of thing is almost nonexistent.

00:15:27.060 --> 00:15:33.040 align:middle line:84%
Now then you can ask a very
good question, which is, well,

00:15:33.040 --> 00:15:39.200 align:middle line:84%
couldn't you spend a ton of
money and evolve your brand?

00:15:39.200 --> 00:15:41.940 align:middle line:90%


00:15:41.940 --> 00:15:44.800 align:middle line:90%
The answer is sometimes yes.

00:15:44.800 --> 00:15:47.140 align:middle line:90%
Most of the time, no.

00:15:47.140 --> 00:15:50.380 align:middle line:84%
In fact, one of the reasons
that one of the lectures

00:15:50.380 --> 00:15:56.540 align:middle line:84%
we have is from one of the
most brilliant people at Ogilvy

00:15:56.540 --> 00:16:00.720 align:middle line:84%
and Mather, Chris Wall,
as a guest lecturer,

00:16:00.720 --> 00:16:04.020 align:middle line:84%
is because I find these
issues of branding and brand

00:16:04.020 --> 00:16:09.460 align:middle line:84%
positioning and
marketing fascinating.

00:16:09.460 --> 00:16:10.880 align:middle line:90%
And I find them fascinating.

00:16:10.880 --> 00:16:12.200 align:middle line:90%
Remember, I'm a technologist.

00:16:12.200 --> 00:16:13.160 align:middle line:90%
I'm an engineer.

00:16:13.160 --> 00:16:14.800 align:middle line:90%
I don't know what the hell I am.

00:16:14.800 --> 00:16:16.160 align:middle line:90%
I am not a consultant.

00:16:16.160 --> 00:16:17.780 align:middle line:90%
I don't have an MBA.

00:16:17.780 --> 00:16:20.180 align:middle line:84%
So when I say
fascinating, I mean it

00:16:20.180 --> 00:16:23.100 align:middle line:84%
from what are the
limits of what you

00:16:23.100 --> 00:16:27.160 align:middle line:84%
can do in dealing with complex
systems, complex markets,

00:16:27.160 --> 00:16:29.110 align:middle line:90%
complex organizations.

00:16:29.110 --> 00:16:31.970 align:middle line:84%
And here is really what
you have to decide.

00:16:31.970 --> 00:16:35.390 align:middle line:84%
So let's say you're going
to spend $500 million

00:16:35.390 --> 00:16:36.850 align:middle line:90%
to reposition your brand.

00:16:36.850 --> 00:16:40.430 align:middle line:84%
And by the way, that's
often what it takes.

00:16:40.430 --> 00:16:42.830 align:middle line:84%
Remember, that's
$500 million you

00:16:42.830 --> 00:16:46.070 align:middle line:90%
could have used someplace else.

00:16:46.070 --> 00:16:49.190 align:middle line:84%
So I mean, that's
a lot of money.

00:16:49.190 --> 00:16:54.710 align:middle line:84%
It's one thing to take
a risk with $10 million.

00:16:54.710 --> 00:16:57.750 align:middle line:84%
The financial
community may not even

00:16:57.750 --> 00:17:00.910 align:middle line:90%
be able to count $10 million.

00:17:00.910 --> 00:17:06.030 align:middle line:84%
But when you go to $500
million, that's material money.

00:17:06.030 --> 00:17:09.430 align:middle line:84%
And so you have to be much
more careful with that.

00:17:09.430 --> 00:17:14.010 align:middle line:84%
But branding is very
difficult to evolve.

00:17:14.010 --> 00:17:18.630 align:middle line:84%
But we'll talk about it
November 1 with Chris Wall.

00:17:18.630 --> 00:17:21.310 align:middle line:84%
It's something you need
to think very hard about.

00:17:21.310 --> 00:17:24.230 align:middle line:90%
And when I say you--

00:17:24.230 --> 00:17:27.750 align:middle line:84%
and again, I've been on this
point since we started--

00:17:27.750 --> 00:17:32.430 align:middle line:84%
I don't mean, well, the
engineers stay in the lab

00:17:32.430 --> 00:17:34.870 align:middle line:90%
and branding is marketing.

00:17:34.870 --> 00:17:38.430 align:middle line:84%
As you know, I
don't believe that.

00:17:38.430 --> 00:17:40.290 align:middle line:84%
I mean, of course,
you need MBAs.

00:17:40.290 --> 00:17:41.070 align:middle line:90%
You need that.

00:17:41.070 --> 00:17:44.650 align:middle line:84%
But when we talk about
especially sophisticated,

00:17:44.650 --> 00:17:50.910 align:middle line:84%
complex systems,
markets, organizations,

00:17:50.910 --> 00:17:54.230 align:middle line:84%
I think it's very important
that the same people who

00:17:54.230 --> 00:17:57.790 align:middle line:84%
have the overall vision
and have the feeling

00:17:57.790 --> 00:18:01.070 align:middle line:84%
be very involved in the
markets and the marketing

00:18:01.070 --> 00:18:03.950 align:middle line:84%
and the organizational
aspects, and then

00:18:03.950 --> 00:18:08.390 align:middle line:84%
they collaborate with the other
professional business people

00:18:08.390 --> 00:18:11.710 align:middle line:84%
because they bring a totally
different sensibility

00:18:11.710 --> 00:18:15.270 align:middle line:84%
to these problems than
the people who don't quite

00:18:15.270 --> 00:18:18.590 align:middle line:84%
have the same feeling
about the technology.

00:18:18.590 --> 00:18:23.030 align:middle line:84%
And that's why you need a
team to these complex things.

00:18:23.030 --> 00:18:24.110 align:middle line:90%
Yes, please.

00:18:24.110 --> 00:18:26.370 align:middle line:84%
AUDIENCE: So I am
looking for Dell

00:18:26.370 --> 00:18:28.870 align:middle line:84%
because Dell has
always been thinking

00:18:28.870 --> 00:18:31.270 align:middle line:90%
about a direct to business.

00:18:31.270 --> 00:18:32.690 align:middle line:90%
Consumer tastes have changed.

00:18:32.690 --> 00:18:35.730 align:middle line:84%
Growth has been more in consumer
markets in Asia-Pacific,

00:18:35.730 --> 00:18:40.230 align:middle line:84%
where maybe people want to see
and touch and just the change

00:18:40.230 --> 00:18:41.970 align:middle line:90%
in consumer.

00:18:41.970 --> 00:18:45.030 align:middle line:84%
I mean, just the
demand has forced

00:18:45.030 --> 00:18:47.510 align:middle line:84%
them to develop
organizational capabilities

00:18:47.510 --> 00:18:49.590 align:middle line:90%
where they're not as good as--

00:18:49.590 --> 00:18:52.067 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Force them to try to develop.

00:18:52.067 --> 00:18:52.650 align:middle line:90%
AUDIENCE: Yes.

00:18:52.650 --> 00:18:54.192 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, I'm only

00:18:54.192 --> 00:18:57.310 align:middle line:84%
saying it that way
because, getting back

00:18:57.310 --> 00:19:02.470 align:middle line:84%
to Michael Jordan, whom I
have infinite respect for,

00:19:02.470 --> 00:19:04.550 align:middle line:84%
I don't know if he I don't
know if he had in mind

00:19:04.550 --> 00:19:08.090 align:middle line:84%
that he would end up playing for
the White Sox in Major League.

00:19:08.090 --> 00:19:08.910 align:middle line:90%
I don't know.

00:19:08.910 --> 00:19:13.150 align:middle line:84%
Or he just wanted to pay
homage to his father, who

00:19:13.150 --> 00:19:16.210 align:middle line:84%
loved baseball and
was happy to do that.

00:19:16.210 --> 00:19:19.570 align:middle line:84%
But just because you try
doesn't mean you'll be able to--

00:19:19.570 --> 00:19:23.640 align:middle line:84%
I think Dell was
brilliant in the way they

00:19:23.640 --> 00:19:30.320 align:middle line:84%
did the logistic systems for the
distribution of PCs-- brilliant.

00:19:30.320 --> 00:19:32.320 align:middle line:84%
And again, this is
all stuff we will

00:19:32.320 --> 00:19:34.360 align:middle line:90%
keep talking through the class.

00:19:34.360 --> 00:19:37.240 align:middle line:84%
They then phoned in
the whole company

00:19:37.240 --> 00:19:40.000 align:middle line:90%
to do that infinitely well.

00:19:40.000 --> 00:19:42.620 align:middle line:84%
And as long as the
direct model worked,

00:19:42.620 --> 00:19:44.660 align:middle line:90%
they killed everybody else.

00:19:44.660 --> 00:19:53.040 align:middle line:84%
Only five years ago, if you saw
the profit margins and the asset

00:19:53.040 --> 00:19:57.800 align:middle line:84%
turnover of Dell,
they were incredible.

00:19:57.800 --> 00:20:01.360 align:middle line:84%
What happened is that
the market changed,

00:20:01.360 --> 00:20:04.440 align:middle line:84%
which is what the
disruptive innovation is.

00:20:04.440 --> 00:20:12.800 align:middle line:84%
And the market change
is that most people want

00:20:12.800 --> 00:20:16.580 align:middle line:84%
to buy not desktops,
which are commodities

00:20:16.580 --> 00:20:21.960 align:middle line:84%
and most people don't
give it to this chair,

00:20:21.960 --> 00:20:27.120 align:middle line:84%
but it's a chair versus your
laptop that, all of a sudden,

00:20:27.120 --> 00:20:28.420 align:middle line:90%
that's [INAUDIBLE].

00:20:28.420 --> 00:20:32.620 align:middle line:84%
And that's like our Blackberries
and things like that.

00:20:32.620 --> 00:20:36.000 align:middle line:84%
It's a very intimate,
personal aspect.

00:20:36.000 --> 00:20:41.400 align:middle line:84%
And the laptops, as you all
know, you need to touch and feel

00:20:41.400 --> 00:20:44.400 align:middle line:84%
and, again, to
their credit, Apple

00:20:44.400 --> 00:20:49.060 align:middle line:84%
has done a brilliant job with
that with the Apple stores,

00:20:49.060 --> 00:20:52.400 align:middle line:90%
but brilliant.

00:20:52.400 --> 00:20:56.680 align:middle line:90%
And Dell got caught flat-footed.

00:20:56.680 --> 00:21:00.340 align:middle line:84%
And yes, they can keep
selling the commodity store.

00:21:00.340 --> 00:21:02.960 align:middle line:84%
But of course, more
and more the margins

00:21:02.960 --> 00:21:05.880 align:middle line:84%
are not in the
commodity, the laptops.

00:21:05.880 --> 00:21:08.200 align:middle line:84%
And I think that's
what happened.

00:21:08.200 --> 00:21:11.240 align:middle line:84%
And now the question is, now
they started a relationship

00:21:11.240 --> 00:21:13.360 align:middle line:90%
with Walmart.

00:21:13.360 --> 00:21:15.580 align:middle line:84%
I have no idea how
well it will work out.

00:21:15.580 --> 00:21:20.310 align:middle line:84%
I honestly have no idea whether
Walmart will work out or not.

00:21:20.310 --> 00:21:22.770 align:middle line:90%
I can tell you--

00:21:22.770 --> 00:21:24.670 align:middle line:84%
And this gets back
to the IBM thing.

00:21:24.670 --> 00:21:29.810 align:middle line:84%
If you say, well, whenever
IBM talked about channels

00:21:29.810 --> 00:21:33.010 align:middle line:84%
like Walmart and so
on, it's like people,

00:21:33.010 --> 00:21:35.770 align:middle line:84%
you may as well be
talking about Mars.

00:21:35.770 --> 00:21:39.750 align:middle line:84%
Actually, we'd be better at
Mars than channels like Walmart

00:21:39.750 --> 00:21:42.930 align:middle line:84%
because the people who
think about Mars and stuff

00:21:42.930 --> 00:21:47.730 align:middle line:84%
like that because as opposed
to companies like Sony

00:21:47.730 --> 00:21:53.170 align:middle line:84%
and Matsushita and so on who
have people who are extremely

00:21:53.170 --> 00:21:57.410 align:middle line:84%
good at thinking about
channels like Walmart,

00:21:57.410 --> 00:22:01.350 align:middle line:84%
Colgate, Palmolive,
and channels are huge.

00:22:01.350 --> 00:22:03.410 align:middle line:84%
And we'll talk about
it just in a second.

00:22:03.410 --> 00:22:07.310 align:middle line:84%
That's a huge part
of taking a product.

00:22:07.310 --> 00:22:12.130 align:middle line:84%
Well, if you have
channels to market,

00:22:12.130 --> 00:22:15.427 align:middle line:84%
you may not build anything
because you're not

00:22:15.427 --> 00:22:16.510 align:middle line:90%
going to get it from Mars.

00:22:16.510 --> 00:22:20.290 align:middle line:84%
I mean, you can do that for fun
in the marketplace as a research

00:22:20.290 --> 00:22:21.170 align:middle line:90%
lab.

00:22:21.170 --> 00:22:26.370 align:middle line:84%
So I think [INAUDIBLE] the
question is, can they change?

00:22:26.370 --> 00:22:28.910 align:middle line:90%
But we'll see.

00:22:28.910 --> 00:22:31.630 align:middle line:84%
By the way, they might be
able to reinvent themselves.

00:22:31.630 --> 00:22:35.970 align:middle line:84%
Remember, Michael
Dell is brilliant.

00:22:35.970 --> 00:22:39.250 align:middle line:84%
Steve Jobs came back to
Apple and, all of a sudden,

00:22:39.250 --> 00:22:39.990 align:middle line:90%
Apple took off.

00:22:39.990 --> 00:22:41.690 align:middle line:84%
So Dell, because
of Michael Dell,

00:22:41.690 --> 00:22:43.690 align:middle line:84%
might be able to
reinvent itself.

00:22:43.690 --> 00:22:46.330 align:middle line:90%
But the jury's not back.

00:22:46.330 --> 00:22:48.830 align:middle line:84%
I just don't know whether
they'll be able to react.

00:22:48.830 --> 00:22:52.710 align:middle line:90%


00:22:52.710 --> 00:22:57.390 align:middle line:84%
So let's start with
organizational capabilities.

00:22:57.390 --> 00:23:04.450 align:middle line:84%
And in the paper by
Christensen and Michael Raynor,

00:23:04.450 --> 00:23:09.830 align:middle line:84%
I think one phrase that I think
captures a lot of-- in fact,

00:23:09.830 --> 00:23:12.730 align:middle line:84%
a lot of what we've
been talking about

00:23:12.730 --> 00:23:16.890 align:middle line:84%
is this point that
managers assume

00:23:16.890 --> 00:23:21.450 align:middle line:84%
that if they have really good
people in their organization,

00:23:21.450 --> 00:23:25.890 align:middle line:84%
then the organization in which
they work can do anything.

00:23:25.890 --> 00:23:30.770 align:middle line:84%
They'll be well-matched
to any problems.

00:23:30.770 --> 00:23:36.370 align:middle line:84%
And in an understatement
kind of phrase,

00:23:36.370 --> 00:23:39.450 align:middle line:84%
they say, often,
that is not the case.

00:23:39.450 --> 00:23:47.110 align:middle line:84%
So organizations have limits
in what they are able to do.

00:23:47.110 --> 00:23:48.830 align:middle line:90%
Now why is that?

00:23:48.830 --> 00:23:51.990 align:middle line:84%
Why do organizations
have limits?

00:23:51.990 --> 00:23:56.970 align:middle line:90%


00:23:56.970 --> 00:24:06.770 align:middle line:84%
Well, I like very much the
way Christensen and Raynor

00:24:06.770 --> 00:24:11.710 align:middle line:84%
framed this question of
organizational capabilities.

00:24:11.710 --> 00:24:13.900 align:middle line:90%
How do you think about it?

00:24:13.900 --> 00:24:19.780 align:middle line:84%
And they framed it by saying,
think of an organization

00:24:19.780 --> 00:24:23.780 align:middle line:90%
as having three major parts of--

00:24:23.780 --> 00:24:27.300 align:middle line:84%
three major types
of components--

00:24:27.300 --> 00:24:31.820 align:middle line:84%
resources, people,
and stuff like that,

00:24:31.820 --> 00:24:36.240 align:middle line:90%
processes, and values.

00:24:36.240 --> 00:24:40.260 align:middle line:84%
And by values, it didn't
mean, do you steal?

00:24:40.260 --> 00:24:42.527 align:middle line:90%
Do you pay homage to diversity?

00:24:42.527 --> 00:24:43.360 align:middle line:90%
He didn't mean that.

00:24:43.360 --> 00:24:49.060 align:middle line:84%
I mean, those are critical,
but those are really critical,

00:24:49.060 --> 00:24:53.080 align:middle line:84%
especially in a globally
integrated world.

00:24:53.080 --> 00:24:55.620 align:middle line:84%
But that's not what
we're talking about.

00:24:55.620 --> 00:25:00.020 align:middle line:84%
He meant values like what
is this company all about

00:25:00.020 --> 00:25:01.940 align:middle line:90%
at its essence?

00:25:01.940 --> 00:25:05.240 align:middle line:84%
So you think of the
organization like that.

00:25:05.240 --> 00:25:08.500 align:middle line:90%


00:25:08.500 --> 00:25:13.220 align:middle line:84%
So let's discuss before we
go to the next [INAUDIBLE].

00:25:13.220 --> 00:25:19.040 align:middle line:84%
So which of those parts
are easier to change,

00:25:19.040 --> 00:25:23.660 align:middle line:84%
are easier to apply
to some new project?

00:25:23.660 --> 00:25:24.700 align:middle line:90%
AUDIENCE: Resources.

00:25:24.700 --> 00:25:28.260 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Resources, yeah.

00:25:28.260 --> 00:25:29.480 align:middle line:90%
And why is that?

00:25:29.480 --> 00:25:31.360 align:middle line:84%
Why would you say
that's the case?

00:25:31.360 --> 00:25:38.340 align:middle line:90%


00:25:38.340 --> 00:25:41.380 align:middle line:84%
AUDIENCE: Changing
behavior of people

00:25:41.380 --> 00:25:43.600 align:middle line:84%
is more difficult
than processes,

00:25:43.600 --> 00:25:45.620 align:middle line:90%
and values involve [INAUDIBLE].

00:25:45.620 --> 00:25:49.360 align:middle line:84%
Changing just the physical
object is not very good.

00:25:49.360 --> 00:25:52.080 align:middle line:90%


00:25:52.080 --> 00:25:55.060 align:middle line:84%
Even changing
individual employees,

00:25:55.060 --> 00:25:56.508 align:middle line:90%
replacing them with employees--

00:25:56.508 --> 00:25:57.800 align:middle line:90%
IRVING WLADAWSKY-BERGER: That's

00:25:57.800 --> 00:25:58.320 align:middle line:90%
AUDIENCE: --easy enough.

00:25:58.320 --> 00:26:00.070 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, that's right.

00:26:00.070 --> 00:26:02.060 align:middle line:84%
So in some level, if
the people you have now

00:26:02.060 --> 00:26:05.380 align:middle line:84%
don't quite have the skills,
maybe you have them elsewhere

00:26:05.380 --> 00:26:08.540 align:middle line:84%
in the organization,
and you bring them over,

00:26:08.540 --> 00:26:10.950 align:middle line:90%
or you go hire them.

00:26:10.950 --> 00:26:14.630 align:middle line:84%
So you can do that, and
as long as the people

00:26:14.630 --> 00:26:17.190 align:middle line:90%
you bring are good people.

00:26:17.190 --> 00:26:19.090 align:middle line:84%
Now, they are your
new employees.

00:26:19.090 --> 00:26:21.970 align:middle line:84%
And if somebody say, well,
but you need a new building,

00:26:21.970 --> 00:26:25.450 align:middle line:84%
you need London or
Bangalore or whatever,

00:26:25.450 --> 00:26:28.530 align:middle line:84%
so you get a new building
in London or Bangalore.

00:26:28.530 --> 00:26:35.670 align:middle line:84%
So resources are the
easiest to change.

00:26:35.670 --> 00:26:40.410 align:middle line:90%
Now why are processes harder?

00:26:40.410 --> 00:26:43.950 align:middle line:90%
Why would you expect processes?

00:26:43.950 --> 00:26:46.830 align:middle line:90%
And processes-- think about it.

00:26:46.830 --> 00:26:50.550 align:middle line:90%
This is the way we do things.

00:26:50.550 --> 00:26:52.470 align:middle line:90%
Every company needs to have--

00:26:52.470 --> 00:26:55.750 align:middle line:84%
this is the way we do
things because, otherwise,

00:26:55.750 --> 00:26:58.410 align:middle line:84%
every time you do something,
it's like, oh my god,

00:26:58.410 --> 00:26:59.330 align:middle line:90%
what do I do now?

00:26:59.330 --> 00:27:01.630 align:middle line:84%
And at that point,
it's doing efficient.

00:27:01.630 --> 00:27:04.450 align:middle line:84%
So why are processes
harder to change?

00:27:04.450 --> 00:27:05.470 align:middle line:90%
Please.

00:27:05.470 --> 00:27:08.650 align:middle line:84%
AUDIENCE: Just like I said as
being editing personal habits,

00:27:08.650 --> 00:27:11.590 align:middle line:84%
it takes a long
time for processes

00:27:11.590 --> 00:27:15.590 align:middle line:84%
to become established and
incorporated into the company.

00:27:15.590 --> 00:27:17.190 align:middle line:84%
And just like
personal habits, it's

00:27:17.190 --> 00:27:19.070 align:middle line:90%
hard to break off from them.

00:27:19.070 --> 00:27:19.870 align:middle line:84%
IRVING WLADAWSKY-BERGER:
That's right.

00:27:19.870 --> 00:27:21.790 align:middle line:84%
AUDIENCE: --to realize
it and then [INAUDIBLE]

00:27:21.790 --> 00:27:24.710 align:middle line:84%
IRVING WLADAWSKY-BERGER: Yeah,
and of course, in a company,

00:27:24.710 --> 00:27:26.610 align:middle line:90%
they are more than personal.

00:27:26.610 --> 00:27:28.530 align:middle line:90%
They are organizational habits.

00:27:28.530 --> 00:27:32.870 align:middle line:84%
So it's the way things
get done around here.

00:27:32.870 --> 00:27:36.670 align:middle line:84%
AUDIENCE: Processes are
usually formed after many years

00:27:36.670 --> 00:27:38.530 align:middle line:90%
of training and testing.

00:27:38.530 --> 00:27:40.930 align:middle line:84%
And so they realize that
this is the way it works.

00:27:40.930 --> 00:27:44.750 align:middle line:84%
Or they have decided to just
have a protocol this way.

00:27:44.750 --> 00:27:47.270 align:middle line:84%
If somebody starts
protesting against that

00:27:47.270 --> 00:27:49.390 align:middle line:84%
or goes against
that, and that's just

00:27:49.390 --> 00:27:51.110 align:middle line:84%
going against all
the learning they've

00:27:51.110 --> 00:27:53.338 align:middle line:90%
had for the past many years.

00:27:53.338 --> 00:27:55.630 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yeah, that's a very good point

00:27:55.630 --> 00:27:59.470 align:middle line:84%
that processes are
almost a major part

00:27:59.470 --> 00:28:06.790 align:middle line:84%
of organizational
learning, whereas knowing

00:28:06.790 --> 00:28:09.630 align:middle line:84%
how to build an
iPod, if you know

00:28:09.630 --> 00:28:16.030 align:middle line:84%
how to build computers,
that's a little bit different.

00:28:16.030 --> 00:28:22.370 align:middle line:84%
Now having a set of processes
for bringing things to market,

00:28:22.370 --> 00:28:27.950 align:middle line:84%
doing a lot of marketing
style, little harder.

00:28:27.950 --> 00:28:31.275 align:middle line:84%
By the way, it's a
fascinating question.

00:28:31.275 --> 00:28:33.150 align:middle line:84%
Well, let's talk about
values, and then we'll

00:28:33.150 --> 00:28:35.470 align:middle line:90%
talk about some examples.

00:28:35.470 --> 00:28:39.230 align:middle line:84%
But notice that in all
these discussions, when

00:28:39.230 --> 00:28:44.610 align:middle line:84%
we talk about the wars, it
feels often very academic.

00:28:44.610 --> 00:28:48.690 align:middle line:84%
The second we get into examples
and what's going on out there,

00:28:48.690 --> 00:28:52.230 align:middle line:84%
it all comes to life
because you're almost

00:28:52.230 --> 00:28:55.430 align:middle line:90%
watching a sports game.

00:28:55.430 --> 00:28:57.810 align:middle line:84%
You're watching
companies screw up,

00:28:57.810 --> 00:29:01.710 align:middle line:84%
companies do well,
companies try.

00:29:01.710 --> 00:29:07.360 align:middle line:84%
The whole thing comes to life
when you see the real examples.

00:29:07.360 --> 00:29:09.920 align:middle line:84%
And of course, people like
Christensen and Raynor

00:29:09.920 --> 00:29:12.980 align:middle line:84%
and others are very
good at abstracting.

00:29:12.980 --> 00:29:15.160 align:middle line:90%
So what the hell is going on?

00:29:15.160 --> 00:29:18.880 align:middle line:90%
So how about values?

00:29:18.880 --> 00:29:25.500 align:middle line:84%
What is the key importance
of values in an organization?

00:29:25.500 --> 00:29:28.960 align:middle line:90%


00:29:28.960 --> 00:29:30.020 align:middle line:90%
Any comments?

00:29:30.020 --> 00:29:33.480 align:middle line:90%


00:29:33.480 --> 00:29:34.400 align:middle line:90%
Please.

00:29:34.400 --> 00:29:37.295 align:middle line:84%
AUDIENCE: Well, every day,
every employee [INAUDIBLE]

00:29:37.295 --> 00:29:38.920 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yeah, perfect.

00:29:38.920 --> 00:29:42.665 align:middle line:84%
AUDIENCE: It's basically
all kinds of [INAUDIBLE]

00:29:42.665 --> 00:29:44.040 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Perfect.

00:29:44.040 --> 00:29:48.040 align:middle line:90%
Especially if you have--

00:29:48.040 --> 00:29:51.180 align:middle line:84%
I mean, if you're running a
restaurant and everybody's here,

00:29:51.180 --> 00:29:54.740 align:middle line:84%
of course, you need values, but
everybody's in the same place.

00:29:54.740 --> 00:29:57.020 align:middle line:84%
So it's a little bit
easier to share it.

00:29:57.020 --> 00:30:01.360 align:middle line:84%
But if you are especially in
an organization with people

00:30:01.360 --> 00:30:05.120 align:middle line:84%
distributed around
the country, let alone

00:30:05.120 --> 00:30:12.960 align:middle line:84%
distributed around the world,
people need to have a format.

00:30:12.960 --> 00:30:14.800 align:middle line:90%
How do you behave?

00:30:14.800 --> 00:30:16.880 align:middle line:84%
How does an employee
of this company

00:30:16.880 --> 00:30:22.720 align:middle line:84%
behave when a customer
wants something--

00:30:22.720 --> 00:30:23.600 align:middle line:90%
yes or no?

00:30:23.600 --> 00:30:25.840 align:middle line:90%
I have no idea.

00:30:25.840 --> 00:30:27.980 align:middle line:90%
Let me get back to headquarters.

00:30:27.980 --> 00:30:31.740 align:middle line:84%
Customer is pissed because
it's taking you forever.

00:30:31.740 --> 00:30:34.480 align:middle line:84%
Somebody else comes
back and gives them

00:30:34.480 --> 00:30:36.680 align:middle line:90%
an answer in 10 minutes.

00:30:36.680 --> 00:30:39.840 align:middle line:90%
They win the business.

00:30:39.840 --> 00:30:48.000 align:middle line:84%
So values are the things
you need to know what is OK

00:30:48.000 --> 00:30:50.720 align:middle line:90%
and what is not OK.

00:30:50.720 --> 00:30:56.000 align:middle line:84%
I often think of
values in a company

00:30:56.000 --> 00:31:03.370 align:middle line:84%
as you have to have a pretty
good idea what will you

00:31:03.370 --> 00:31:06.330 align:middle line:90%
get fired for.

00:31:06.330 --> 00:31:10.670 align:middle line:84%
And what, if somebody
doesn't like it,

00:31:10.670 --> 00:31:15.570 align:middle line:84%
you ask forgiveness and
go on, and every company

00:31:15.570 --> 00:31:18.850 align:middle line:90%
will have a different list.

00:31:18.850 --> 00:31:23.950 align:middle line:84%
And those values
are never posted.

00:31:23.950 --> 00:31:26.390 align:middle line:84%
You cannot go
someplace and read.

00:31:26.390 --> 00:31:30.350 align:middle line:84%
I mean, they'll post the
values-- no sexual harassment.

00:31:30.350 --> 00:31:32.690 align:middle line:90%
I don't know if that's a value.

00:31:32.690 --> 00:31:37.410 align:middle line:84%
But these subtle
points, you know--

00:31:37.410 --> 00:31:40.810 align:middle line:90%
I was just talking--

00:31:40.810 --> 00:31:44.790 align:middle line:84%
I was at a dinner with some
people from IBM on Tuesday.

00:31:44.790 --> 00:31:54.370 align:middle line:84%
And this executive, Maria Urzua,
had gone to Peru because IBM

00:31:54.370 --> 00:31:59.230 align:middle line:84%
Peru was celebrating the 75th
anniversary of my being in Peru.

00:31:59.230 --> 00:32:01.850 align:middle line:90%
And Maria is Cuban.

00:32:01.850 --> 00:32:03.030 align:middle line:90%
She speaks Spanish well.

00:32:03.030 --> 00:32:05.830 align:middle line:90%
So she went there.

00:32:05.830 --> 00:32:09.730 align:middle line:84%
And as she was
driving to the event,

00:32:09.730 --> 00:32:13.110 align:middle line:84%
they had a 7.2
earthquake in Lima.

00:32:13.110 --> 00:32:16.290 align:middle line:90%


00:32:16.290 --> 00:32:20.730 align:middle line:84%
And all of a sudden,
here is Maria,

00:32:20.730 --> 00:32:22.970 align:middle line:84%
who went to do this
celebration, not

00:32:22.970 --> 00:32:25.370 align:middle line:90%
knowing what the hell do we do.

00:32:25.370 --> 00:32:27.610 align:middle line:90%
Do we cancel this stuff?

00:32:27.610 --> 00:32:29.010 align:middle line:90%
What do I do?

00:32:29.010 --> 00:32:34.050 align:middle line:84%
And she gets on this spot,
it's a little bit about it.

00:32:34.050 --> 00:32:35.970 align:middle line:90%
We have to cancel this.

00:32:35.970 --> 00:32:40.610 align:middle line:84%
Let me immediately put up
money to put up a website so

00:32:40.610 --> 00:32:44.410 align:middle line:90%
that Peru can get access.

00:32:44.410 --> 00:32:47.850 align:middle line:84%
Several hundred people died,
so it was a serious earthquake.

00:32:47.850 --> 00:32:50.190 align:middle line:84%
Several hundred--
put up a website,

00:32:50.190 --> 00:32:55.170 align:middle line:84%
help in any way you can,
organize for the client.

00:32:55.170 --> 00:32:59.910 align:middle line:84%
Now, if some financial
person someplace said,

00:32:59.910 --> 00:33:04.290 align:middle line:84%
Maria, you didn't get
approval for spending money

00:33:04.290 --> 00:33:07.850 align:middle line:84%
to put up this website, they
would just smack that person

00:33:07.850 --> 00:33:13.170 align:middle line:84%
and get rid of that
because you don't do that.

00:33:13.170 --> 00:33:19.650 align:middle line:84%
Even if it's wrong-- let's even
assume she shouldn't have done

00:33:19.650 --> 00:33:20.270 align:middle line:90%
that--

00:33:20.270 --> 00:33:23.090 align:middle line:90%


00:33:23.090 --> 00:33:24.990 align:middle line:84%
If somebody made
a case about it,

00:33:24.990 --> 00:33:26.990 align:middle line:84%
it's like they're
questioning values.

00:33:26.990 --> 00:33:29.265 align:middle line:84%
They're not questioning
something else.

00:33:29.265 --> 00:33:30.390 align:middle line:90%
They're questioning values.

00:33:30.390 --> 00:33:34.450 align:middle line:84%
So that's why things like values
are so important because it's

00:33:34.450 --> 00:33:37.650 align:middle line:84%
how you want your
employees to behave

00:33:37.650 --> 00:33:39.590 align:middle line:90%
when nobody else is around.

00:33:39.590 --> 00:33:43.990 align:middle line:90%


00:33:43.990 --> 00:33:47.710 align:middle line:84%
So it's a very big
part of every company.

00:33:47.710 --> 00:33:52.470 align:middle line:84%
And I think this is a good
way to think about it.

00:33:52.470 --> 00:34:03.480 align:middle line:84%
And then when you start looking
at resources, processes,

00:34:03.480 --> 00:34:07.760 align:middle line:84%
and values, as we
have been discussing,

00:34:07.760 --> 00:34:12.860 align:middle line:84%
it's clear that they have
very different frames.

00:34:12.860 --> 00:34:16.620 align:middle line:84%
So the time frames for
resources are extremely

00:34:16.620 --> 00:34:19.300 align:middle line:90%
important in early stages.

00:34:19.300 --> 00:34:23.739 align:middle line:84%
And if you're starting a new
business, an entrepreneur,

00:34:23.739 --> 00:34:26.000 align:middle line:84%
or you don't have a lot of
time to worry about, OK,

00:34:26.000 --> 00:34:27.960 align:middle line:84%
what are the values
of this company?

00:34:27.960 --> 00:34:30.639 align:middle line:90%
Let's hire McKinsey to do that.

00:34:30.639 --> 00:34:35.020 align:middle line:84%
You think you'll
disappear very quickly?

00:34:35.020 --> 00:34:39.060 align:middle line:84%
So you have to get something
out the door quickly.

00:34:39.060 --> 00:34:41.260 align:middle line:84%
And you probably don't
even have processes

00:34:41.260 --> 00:34:45.900 align:middle line:84%
when you start because you
have processes you need

00:34:45.900 --> 00:34:49.260 align:middle line:90%
to have process for something.

00:34:49.260 --> 00:34:54.000 align:middle line:84%
If you're a new company, you
don't have enough employees.

00:34:54.000 --> 00:34:56.760 align:middle line:90%
You're just almost learning.

00:34:56.760 --> 00:34:59.020 align:middle line:90%
You're playing it by ear.

00:34:59.020 --> 00:35:05.820 align:middle line:84%
However, and this is my feeling,
and especially in today's world,

00:35:05.820 --> 00:35:09.700 align:middle line:84%
the most critical thing
you need is talent.

00:35:09.700 --> 00:35:11.740 align:middle line:84%
You really need to
make sure you have

00:35:11.740 --> 00:35:14.540 align:middle line:90%
the right talent, the people.

00:35:14.540 --> 00:35:15.780 align:middle line:90%
Please.

00:35:15.780 --> 00:35:17.840 align:middle line:84%
AUDIENCE: Question
on the value part.

00:35:17.840 --> 00:35:18.480 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yes, please.

00:35:18.480 --> 00:35:21.188 align:middle line:84%
AUDIENCE: And maybe I would like
to differentiate between perhaps

00:35:21.188 --> 00:35:22.020 align:middle line:90%
two sets of values.

00:35:22.020 --> 00:35:23.353 align:middle line:90%
IRVING WLADAWSKY-BERGER: Please.

00:35:23.353 --> 00:35:25.760 align:middle line:84%
AUDIENCE: Most companies,
including IBM and HP,

00:35:25.760 --> 00:35:27.808 align:middle line:84%
have published
their set of values.

00:35:27.808 --> 00:35:29.100 align:middle line:90%
IRVING WLADAWSKY-BERGER: Right.

00:35:29.100 --> 00:35:30.780 align:middle line:90%
And I'm not talking about those.

00:35:30.780 --> 00:35:32.420 align:middle line:84%
And those have very
little relevance

00:35:32.420 --> 00:35:34.500 align:middle line:90%
to because they're so broad.

00:35:34.500 --> 00:35:37.660 align:middle line:84%
That's right, they
are very important,

00:35:37.660 --> 00:35:41.360 align:middle line:84%
but those are the
really long term.

00:35:41.360 --> 00:35:42.613 align:middle line:90%
That's not what I'm talking.

00:35:42.613 --> 00:35:43.280 align:middle line:90%
AUDIENCE: Right.

00:35:43.280 --> 00:35:44.380 align:middle line:90%
So we're not talking about that.

00:35:44.380 --> 00:35:45.880 align:middle line:84%
The values that
you're talking about

00:35:45.880 --> 00:35:48.718 align:middle line:84%
are probably more on the
lines of company culture.

00:35:48.718 --> 00:35:51.010 align:middle line:84%
IRVING WLADAWSKY-BERGER: Yes,
that's a very good point.

00:35:51.010 --> 00:35:52.635 align:middle line:84%
AUDIENCE: But that
culture can actually

00:35:52.635 --> 00:35:55.710 align:middle line:84%
vary from one business
unit to another,

00:35:55.710 --> 00:35:58.142 align:middle line:84%
from one geographic
location to another.

00:35:58.142 --> 00:36:00.350 align:middle line:84%
And I don't know about IBM,
but some of the companies

00:36:00.350 --> 00:36:05.010 align:middle line:84%
that I've worked at, it was very
different across business units.

00:36:05.010 --> 00:36:09.790 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Well, you have to be careful.

00:36:09.790 --> 00:36:14.710 align:middle line:84%
I realize that, but
that's dangerous.

00:36:14.710 --> 00:36:16.490 align:middle line:84%
By the way, it's
dangerous in a way--

00:36:16.490 --> 00:36:22.630 align:middle line:84%
I'm now talking from having
seen the train wrecks happen.

00:36:22.630 --> 00:36:29.670 align:middle line:84%
So I've seen this
at least twice.

00:36:29.670 --> 00:36:32.290 align:middle line:84%
And in fact, soon you can
talk about one of them.

00:36:32.290 --> 00:36:33.990 align:middle line:90%
I don't know if you saw it.

00:36:33.990 --> 00:36:40.770 align:middle line:84%
IBM got into horrible trouble
in Korea with a corruption case.

00:36:40.770 --> 00:36:43.825 align:middle line:84%
Were you there at the
time, [INAUDIBLE]?

00:36:43.825 --> 00:36:46.010 align:middle line:90%
AUDIENCE: [INAUDIBLE] involved.

00:36:46.010 --> 00:36:50.350 align:middle line:90%
But I think it was [INAUDIBLE].

00:36:50.350 --> 00:36:54.870 align:middle line:84%
IRVING WLADAWSKY-BERGER: And IBM
had a previous one in Argentina.

00:36:54.870 --> 00:37:01.750 align:middle line:84%
Now, in some companies,
somebody can say, well,

00:37:01.750 --> 00:37:05.090 align:middle line:84%
we're in Argentina,
for heaven's sake.

00:37:05.090 --> 00:37:10.040 align:middle line:84%
This is the way you do
business in Argentina.

00:37:10.040 --> 00:37:12.330 align:middle line:84%
We don't even call
it corruption.

00:37:12.330 --> 00:37:15.190 align:middle line:90%


00:37:15.190 --> 00:37:16.490 align:middle line:90%
And they can think that way.

00:37:16.490 --> 00:37:21.370 align:middle line:84%
So you bastards in
the US and the UK,

00:37:21.370 --> 00:37:26.150 align:middle line:84%
that you have the Magna
Carta forever in the UK.

00:37:26.150 --> 00:37:29.630 align:middle line:84%
But we're in
Argentina or Bolivia.

00:37:29.630 --> 00:37:31.450 align:middle line:90%
It's a little different.

00:37:31.450 --> 00:37:34.590 align:middle line:90%


00:37:34.590 --> 00:37:41.710 align:middle line:84%
IBM lost huge amounts in Korea
because the Korean government

00:37:41.710 --> 00:37:44.350 align:middle line:90%
had to react when this exploded.

00:37:44.350 --> 00:37:45.950 align:middle line:84%
And it could even
be that something

00:37:45.950 --> 00:37:49.990 align:middle line:84%
that they would have tolerated
from a local Korean company they

00:37:49.990 --> 00:37:55.290 align:middle line:84%
could never tolerate
from a multinational,

00:37:55.290 --> 00:37:58.470 align:middle line:90%
from a global company.

00:37:58.470 --> 00:38:01.570 align:middle line:84%
And of course, the press
had a field day with that.

00:38:01.570 --> 00:38:04.770 align:middle line:84%
IBM had to fire the
whole senior team.

00:38:04.770 --> 00:38:06.470 align:middle line:90%
It couldn't do business.

00:38:06.470 --> 00:38:10.450 align:middle line:84%
It lost a tremendous amount,
similarly in Argentina, before.

00:38:10.450 --> 00:38:13.630 align:middle line:90%


00:38:13.630 --> 00:38:15.830 align:middle line:90%
That's an example.

00:38:15.830 --> 00:38:18.030 align:middle line:90%
And now we're talking about--

00:38:18.030 --> 00:38:21.450 align:middle line:84%
I think this is an example
of these values here.

00:38:21.450 --> 00:38:25.150 align:middle line:90%


00:38:25.150 --> 00:38:31.210 align:middle line:84%
Now, there are other values
that could be very different.

00:38:31.210 --> 00:38:34.350 align:middle line:84%
So you have to be very
careful as to which

00:38:34.350 --> 00:38:38.350 align:middle line:84%
are the ones that you don't
have a choice but to do

00:38:38.350 --> 00:38:42.030 align:middle line:84%
and which are the ones that
you allow flexibility among--

00:38:42.030 --> 00:38:45.400 align:middle line:90%
You have to be really careful.

00:38:45.400 --> 00:38:50.000 align:middle line:84%
Take discrimination
against women--

00:38:50.000 --> 00:38:57.320 align:middle line:84%
could be a lot of countries
where women cannot come to this

00:38:57.320 --> 00:38:57.940 align:middle line:90%
meeting.

00:38:57.940 --> 00:39:03.200 align:middle line:90%


00:39:03.200 --> 00:39:05.980 align:middle line:90%
Is that tolerable or not?

00:39:05.980 --> 00:39:09.720 align:middle line:84%
Well, now you have to do what
we call in physics a gedanken

00:39:09.720 --> 00:39:10.580 align:middle line:90%
experiment.

00:39:10.580 --> 00:39:12.920 align:middle line:84%
I don't know if you
know, gedanken experiment

00:39:12.920 --> 00:39:15.440 align:middle line:84%
means a thought
experiment, which means,

00:39:15.440 --> 00:39:17.260 align:middle line:90%
OK, let's think this situation.

00:39:17.260 --> 00:39:20.200 align:middle line:84%
So how would you feel if you
read in The New York Times

00:39:20.200 --> 00:39:25.280 align:middle line:84%
and Wall Street
Journal, IBM Japan

00:39:25.280 --> 00:39:31.920 align:middle line:84%
is very comfortable not having
women in the executive ranks?

00:39:31.920 --> 00:39:34.470 align:middle line:84%
I don't mean you
read that in Japan.

00:39:34.470 --> 00:39:36.720 align:middle line:84%
You read that in The New
York Times or the Wall Street

00:39:36.720 --> 00:39:37.220 align:middle line:90%
Journal.

00:39:37.220 --> 00:39:41.560 align:middle line:84%
The answer is, that would
be disastrous because

00:39:41.560 --> 00:39:44.320 align:middle line:90%
of the values around the world.

00:39:44.320 --> 00:39:46.480 align:middle line:90%
You cannot do that.

00:39:46.480 --> 00:39:49.100 align:middle line:84%
But there are other
things you can do.

00:39:49.100 --> 00:39:52.960 align:middle line:84%
So these are very
important things.

00:39:52.960 --> 00:39:59.140 align:middle line:84%
And these kinds of, quote
unquote, "soft decisions"--

00:39:59.140 --> 00:40:02.320 align:middle line:84%
and they are soft in the sense
of, it's not like you add three

00:40:02.320 --> 00:40:04.800 align:middle line:84%
numbers, and you
get the answer--

00:40:04.800 --> 00:40:08.440 align:middle line:84%
are usually the ones that,
if you screw them up,

00:40:08.440 --> 00:40:11.280 align:middle line:84%
you'll find yourself
in page 1 of newspapers

00:40:11.280 --> 00:40:13.340 align:middle line:90%
under an incredible crisis.

00:40:13.340 --> 00:40:18.800 align:middle line:84%
So that's why you have to
be so careful this way.

00:40:18.800 --> 00:40:22.480 align:middle line:84%
And then there are the
more cosmic values,

00:40:22.480 --> 00:40:25.720 align:middle line:84%
which we all have, and those
are very important to have.

00:40:25.720 --> 00:40:32.800 align:middle line:84%
But usually, IBM values are
servicing clients, innovation,

00:40:32.800 --> 00:40:39.200 align:middle line:84%
and being trust in
everything we do.

00:40:39.200 --> 00:40:41.370 align:middle line:90%
We think those [INAUDIBLE].

00:40:41.370 --> 00:40:45.470 align:middle line:84%
If you read the US Constitution,
there are all these values.

00:40:45.470 --> 00:40:49.490 align:middle line:84%
But remember, we had slaves
for many years under the US

00:40:49.490 --> 00:40:55.730 align:middle line:84%
Constitution, and women couldn't
vote until the 1920s, I think.

00:40:55.730 --> 00:40:58.350 align:middle line:84%
Women got the vote under
the same Constitution.

00:40:58.350 --> 00:41:03.290 align:middle line:84%
So at those high levels, you can
hide a huge number of things.

00:41:03.290 --> 00:41:06.290 align:middle line:84%
That's why they have
to be really perfect.

00:41:06.290 --> 00:41:13.330 align:middle line:84%
So resources are most
important in the short term.

00:41:13.330 --> 00:41:16.730 align:middle line:84%
But of course, what
then begins to happen

00:41:16.730 --> 00:41:22.370 align:middle line:84%
is, as the company starts
growing, then all of a sudden

00:41:22.370 --> 00:41:26.970 align:middle line:84%
it's not enough to
be out of control--

00:41:26.970 --> 00:41:31.090 align:middle line:84%
customer service,
manufacturing, HR.

00:41:31.090 --> 00:41:34.470 align:middle line:84%
And that's where
processes begin to come in

00:41:34.470 --> 00:41:37.530 align:middle line:84%
because, as you're
growing, you start

00:41:37.530 --> 00:41:42.370 align:middle line:84%
needing to start putting in
processes to stay in control.

00:41:42.370 --> 00:41:44.530 align:middle line:90%
You just don't have a choice.

00:41:44.530 --> 00:41:50.330 align:middle line:84%
And then, especially as you
can keep growing and become

00:41:50.330 --> 00:41:56.650 align:middle line:84%
distributed and headquarters
move farther and farther away,

00:41:56.650 --> 00:42:00.250 align:middle line:84%
then you need to set
up company culture

00:42:00.250 --> 00:42:04.190 align:middle line:84%
and so on to get people
who want to make decisions.

00:42:04.190 --> 00:42:05.590 align:middle line:90%
So far, so good.

00:42:05.590 --> 00:42:07.810 align:middle line:90%
Wonderful stuff.

00:42:07.810 --> 00:42:16.490 align:middle line:84%
But the beauty of discussions
about complex organizations

00:42:16.490 --> 00:42:21.730 align:middle line:84%
is, the same thing that
is wonderful can kill you.

00:42:21.730 --> 00:42:25.930 align:middle line:84%
And what I find so
interesting here

00:42:25.930 --> 00:42:31.570 align:middle line:84%
is the point that Christensen
and Raynor are saying,

00:42:31.570 --> 00:42:42.170 align:middle line:84%
that often what happens is that,
because a company has become

00:42:42.170 --> 00:42:50.530 align:middle line:84%
so good at having solid
processes and extremely good

00:42:50.530 --> 00:42:56.850 align:middle line:84%
company culture, if they need
to go move to do something else,

00:42:56.850 --> 00:43:02.250 align:middle line:84%
those same strains will
be a huge impediment

00:43:02.250 --> 00:43:05.570 align:middle line:90%
to go do the next thing.

00:43:05.570 --> 00:43:13.690 align:middle line:84%
And a small company
that does not

00:43:13.690 --> 00:43:20.650 align:middle line:84%
have this value, or a new
company, can all of a sudden

00:43:20.650 --> 00:43:26.330 align:middle line:84%
start adapting its processes
and its company culture

00:43:26.330 --> 00:43:30.970 align:middle line:90%
to the new environment.

00:43:30.970 --> 00:43:34.260 align:middle line:90%
And let me give you an example.

00:43:34.260 --> 00:43:40.700 align:middle line:84%
So somebody can
say, well, we have

00:43:40.700 --> 00:43:47.260 align:middle line:84%
these values for these
complex systems, jet engines

00:43:47.260 --> 00:43:50.060 align:middle line:84%
or mainframe
computers or whatever,

00:43:50.060 --> 00:43:55.020 align:middle line:84%
so that we test the hell out of
them before they go to market.

00:43:55.020 --> 00:44:00.620 align:middle line:84%
But now, what if you are
in an area where you're

00:44:00.620 --> 00:44:05.000 align:middle line:84%
selling products that are not
quite as mission critical,

00:44:05.000 --> 00:44:07.500 align:middle line:90%
let's say more office systems--

00:44:07.500 --> 00:44:11.300 align:middle line:84%
they have to work, but there's
a difference between an office

00:44:11.300 --> 00:44:14.140 align:middle line:90%
system and a jet engine.

00:44:14.140 --> 00:44:17.980 align:middle line:84%
And if you have this
entrenched company value

00:44:17.980 --> 00:44:22.100 align:middle line:84%
and treat the office
system like the jet engine,

00:44:22.100 --> 00:44:23.460 align:middle line:90%
well, what happens then?

00:44:23.460 --> 00:44:27.618 align:middle line:90%


00:44:27.618 --> 00:44:29.660 align:middle line:84%
AUDIENCE: [INAUDIBLE] late
to market [INAUDIBLE].

00:44:29.660 --> 00:44:31.785 align:middle line:84%
IRVING WLADAWSKY-BERGER:
You're way late to market.

00:44:31.785 --> 00:44:34.740 align:middle line:84%
Your company--
you'll get killed.

00:44:34.740 --> 00:44:38.340 align:middle line:84%
And another company that
doesn't know jet engines

00:44:38.340 --> 00:44:43.180 align:middle line:84%
from a hole in the wall will
just do their office systems,

00:44:43.180 --> 00:44:46.540 align:middle line:84%
do them very quickly,
get to market

00:44:46.540 --> 00:44:50.620 align:middle line:84%
to a more-- what people
call good-enough technology

00:44:50.620 --> 00:44:55.020 align:middle line:84%
and just run with
the marketplace.

00:44:55.020 --> 00:45:02.620 align:middle line:84%
So it's this major part of
all organizational dilemmas

00:45:02.620 --> 00:45:07.620 align:middle line:84%
that you need to
be very good here.

00:45:07.620 --> 00:45:13.540 align:middle line:84%
And what made you very
good is you started

00:45:13.540 --> 00:45:15.580 align:middle line:90%
with something disruptive.

00:45:15.580 --> 00:45:19.820 align:middle line:84%
Then, as it got more
and more accepted,

00:45:19.820 --> 00:45:23.240 align:middle line:84%
you started then incrementally
making it better.

00:45:23.240 --> 00:45:25.620 align:middle line:90%
That's how you got processes.

00:45:25.620 --> 00:45:27.700 align:middle line:84%
Processes are usually
incremental kinds

00:45:27.700 --> 00:45:31.630 align:middle line:84%
of innovations and, of course,
company values long-term.

00:45:31.630 --> 00:45:36.690 align:middle line:84%
But eventually, then, some other
disruptive things come along,

00:45:36.690 --> 00:45:40.990 align:middle line:84%
and now you will
have a lot of trouble

00:45:40.990 --> 00:45:44.790 align:middle line:90%
reacting to these new cases.

00:45:44.790 --> 00:45:47.210 align:middle line:90%
And that is a real dilemma.

00:45:47.210 --> 00:45:51.610 align:middle line:84%
It's a real issue
for organizations.

00:45:51.610 --> 00:45:52.390 align:middle line:90%
Question?

00:45:52.390 --> 00:45:52.890 align:middle line:90%
Please.

00:45:52.890 --> 00:45:59.630 align:middle line:84%
AUDIENCE: On the previous slide,
I was curious about [INAUDIBLE]

00:45:59.630 --> 00:46:04.150 align:middle line:84%
your comment there about, their
value can embrace small markets,

00:46:04.150 --> 00:46:06.730 align:middle line:84%
and cost structures can
accommodate low margins,

00:46:06.730 --> 00:46:11.070 align:middle line:84%
that this would not be true
for a typical venture-based

00:46:11.070 --> 00:46:13.750 align:middle line:90%
technology startup.

00:46:13.750 --> 00:46:14.957 align:middle line:90%
What do you think?

00:46:14.957 --> 00:46:16.790 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Well, I don't know.

00:46:16.790 --> 00:46:19.970 align:middle line:84%
A number of you, I'm sure,
know a lot about ventures.

00:46:19.970 --> 00:46:20.970 align:middle line:90%
But what do you all--

00:46:20.970 --> 00:46:22.690 align:middle line:84%
I mean, it's a
very good question.

00:46:22.690 --> 00:46:26.350 align:middle line:90%


00:46:26.350 --> 00:46:29.230 align:middle line:84%
I mean, I would say it
depends how much money-- what

00:46:29.230 --> 00:46:32.030 align:middle line:84%
stage of the venture
you are in and how

00:46:32.030 --> 00:46:36.490 align:middle line:84%
much money that you're asking
your investors to give you.

00:46:36.490 --> 00:46:39.830 align:middle line:90%
That's what I would expect.

00:46:39.830 --> 00:46:43.390 align:middle line:84%
But any comments, any
of you who've especially

00:46:43.390 --> 00:46:45.540 align:middle line:90%
been in the venture world?

00:46:45.540 --> 00:46:46.790 align:middle line:90%
AUDIENCE: What's the question?

00:46:46.790 --> 00:46:51.230 align:middle line:84%
IRVING WLADAWSKY-BERGER:
The question was whether--

00:46:51.230 --> 00:46:53.190 align:middle line:90%
let me rephrase the question.

00:46:53.190 --> 00:46:54.530 align:middle line:90%
Tell me if I'm doing it well.

00:46:54.530 --> 00:46:58.230 align:middle line:84%
So if you are a more
established company,

00:46:58.230 --> 00:47:01.950 align:middle line:84%
and you're trying to decide
whether to go after a market,

00:47:01.950 --> 00:47:06.870 align:middle line:84%
usually the bar for what
markets you go after is high.

00:47:06.870 --> 00:47:10.950 align:middle line:84%
Otherwise, it's not
worth your going after.

00:47:10.950 --> 00:47:15.350 align:middle line:84%
And the kinds of profit
margins you expect to get,

00:47:15.350 --> 00:47:18.090 align:middle line:84%
revenues and margins,
are also high.

00:47:18.090 --> 00:47:20.750 align:middle line:90%
Otherwise, it's not worth it.

00:47:20.750 --> 00:47:26.110 align:middle line:84%
So you will look at
lots of new things

00:47:26.110 --> 00:47:30.590 align:middle line:84%
and decide they are under
the bar for you to pursue,

00:47:30.590 --> 00:47:37.870 align:middle line:84%
as opposed to a new
company for whom this

00:47:37.870 --> 00:47:42.270 align:middle line:84%
is the way they get
going is that these

00:47:42.270 --> 00:47:44.950 align:middle line:90%
are decent margins for them.

00:47:44.950 --> 00:47:48.290 align:middle line:84%
And remember, they are
not a $10 billion company.

00:47:48.290 --> 00:47:50.490 align:middle line:90%
They are a $0 company.

00:47:50.490 --> 00:47:54.990 align:middle line:84%
So $10 million in
revenue is not bad.

00:47:54.990 --> 00:47:59.390 align:middle line:84%
And they are willing to
start with lower margins.

00:47:59.390 --> 00:48:03.390 align:middle line:84%
And your question
was, will the VC world

00:48:03.390 --> 00:48:10.230 align:middle line:84%
accept that new businesses
will start in markets

00:48:10.230 --> 00:48:11.990 align:middle line:90%
that are relatively small?

00:48:11.990 --> 00:48:13.830 align:middle line:84%
AUDIENCE: Actually,
my comment was

00:48:13.830 --> 00:48:22.390 align:middle line:84%
that, for technology companies
that are backed by VC,

00:48:22.390 --> 00:48:23.830 align:middle line:84%
they would not
back a company that

00:48:23.830 --> 00:48:28.685 align:middle line:84%
is going after a small
market [INAUDIBLE] market.

00:48:28.685 --> 00:48:30.560 align:middle line:84%
IRVING WLADAWSKY-BERGER:
And I wanted you all

00:48:30.560 --> 00:48:31.940 align:middle line:90%
to come-- yes, please.

00:48:31.940 --> 00:48:36.120 align:middle line:84%
AUDIENCE: It sounds like the
bar is less about profit margin

00:48:36.120 --> 00:48:39.620 align:middle line:84%
than it is just about risk
and return on investment,

00:48:39.620 --> 00:48:41.480 align:middle line:90%
expected return on investment.

00:48:41.480 --> 00:48:45.400 align:middle line:84%
I mean, the cost of capital
for large corporations

00:48:45.400 --> 00:48:47.300 align:middle line:84%
is much less than
it is for a startup.

00:48:47.300 --> 00:48:52.560 align:middle line:84%
I mean, investors for startups
would expect 300% returns

00:48:52.560 --> 00:48:57.840 align:middle line:84%
on their investment,
whereas stockholders

00:48:57.840 --> 00:49:02.240 align:middle line:84%
expect much smaller, maybe
like 10% return on investment.

00:49:02.240 --> 00:49:04.000 align:middle line:84%
So it seems to be
much more about--

00:49:04.000 --> 00:49:06.840 align:middle line:84%
IRVING WLADAWSKY-BERGER:
That's a very good point.

00:49:06.840 --> 00:49:08.700 align:middle line:90%
So you're saying--

00:49:08.700 --> 00:49:12.120 align:middle line:84%
AUDIENCE: --is the size of the
market worthwhile to dedicate

00:49:12.120 --> 00:49:13.660 align:middle line:90%
people to go after it?

00:49:13.660 --> 00:49:15.800 align:middle line:84%
And then if it is
worthwhile, then

00:49:15.800 --> 00:49:18.980 align:middle line:84%
what's the probability of having
a positive return on investment?

00:49:18.980 --> 00:49:20.480 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yeah, but I

00:49:20.480 --> 00:49:27.040 align:middle line:84%
thought what you were going
after is that a VC-- let's

00:49:27.040 --> 00:49:31.080 align:middle line:84%
assume there is a potential
billion dollars in revenue,

00:49:31.080 --> 00:49:34.180 align:middle line:90%
but the risk factor is high.

00:49:34.180 --> 00:49:41.160 align:middle line:84%
A VC could invest in that
because, if you hit the billion,

00:49:41.160 --> 00:49:45.740 align:middle line:84%
the return will be very high,
whereas an established business,

00:49:45.740 --> 00:49:47.000 align:middle line:90%
the risk may be too high.

00:49:47.000 --> 00:49:48.240 align:middle line:90%
Was that-- I don't know if--

00:49:48.240 --> 00:49:48.440 align:middle line:90%
AUDIENCE: Right.

00:49:48.440 --> 00:49:48.940 align:middle line:90%
I got it.

00:49:48.940 --> 00:49:53.760 align:middle line:84%
So you both have a high
expectation of return.

00:49:53.760 --> 00:49:55.480 align:middle line:84%
It's just the amount
of risk that you're

00:49:55.480 --> 00:49:58.000 align:middle line:84%
willing to take on to get that
return, from what I understand.

00:49:58.000 --> 00:49:58.212 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

00:49:58.212 --> 00:50:00.480 align:middle line:84%
No, that's a very good
point, and a lot of it

00:50:00.480 --> 00:50:01.960 align:middle line:90%
has to do with risk.

00:50:01.960 --> 00:50:02.860 align:middle line:90%
Yes, please.

00:50:02.860 --> 00:50:04.277 align:middle line:84%
AUDIENCE: I was
just going to say,

00:50:04.277 --> 00:50:08.400 align:middle line:84%
I think a good example might
be the software as a service

00:50:08.400 --> 00:50:09.800 align:middle line:90%
and the CRM market.

00:50:09.800 --> 00:50:11.840 align:middle line:90%
I think-- I don't know exactly--

00:50:11.840 --> 00:50:13.080 align:middle line:84%
IRVING WLADAWSKY-BERGER:
You mean like Salesforce?

00:50:13.080 --> 00:50:13.360 align:middle line:90%
AUDIENCE: Yeah.

00:50:13.360 --> 00:50:15.152 align:middle line:84%
I'm assuming that they
were venture-backed.

00:50:15.152 --> 00:50:16.040 align:middle line:90%
I don't know exactly.

00:50:16.040 --> 00:50:17.680 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Salesforce, I'm assuming, it's--

00:50:17.680 --> 00:50:19.388 align:middle line:84%
AUDIENCE: But they
get much lower margins

00:50:19.388 --> 00:50:20.960 align:middle line:84%
by going for
small-office customers,

00:50:20.960 --> 00:50:24.230 align:middle line:84%
and Oracle and SAP were
ready to ignore that bucket.

00:50:24.230 --> 00:50:25.480 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

00:50:25.480 --> 00:50:33.040 align:middle line:84%
No, that's-- well, in fact,
this story happens constantly.

00:50:33.040 --> 00:50:35.220 align:middle line:84%
I should have said
it differently,

00:50:35.220 --> 00:50:38.400 align:middle line:84%
and I think you
corrected me, that--

00:50:38.400 --> 00:50:40.000 align:middle line:90%
well, you both did--

00:50:40.000 --> 00:50:49.160 align:middle line:84%
that the VCs want a market
that is potentially very large,

00:50:49.160 --> 00:50:54.240 align:middle line:84%
but they are willing to accept
a higher risk of that happening

00:50:54.240 --> 00:50:58.100 align:middle line:90%
than an established company.

00:50:58.100 --> 00:50:59.140 align:middle line:90%
Would you accept that?

00:50:59.140 --> 00:50:59.720 align:middle line:90%
AUDIENCE: I think you're right.

00:50:59.720 --> 00:51:02.300 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yeah, so I stand corrected.

00:51:02.300 --> 00:51:05.640 align:middle line:84%
That's a much better
way of putting it.

00:51:05.640 --> 00:51:06.840 align:middle line:90%
You had a comment?

00:51:06.840 --> 00:51:10.040 align:middle line:84%
AUDIENCE: I was just going to
say that, in my new enterprises

00:51:10.040 --> 00:51:11.200 align:middle line:90%
class, there was--

00:51:11.200 --> 00:51:12.240 align:middle line:84%
IRVING WLADAWSKY-BERGER:
In your what class?

00:51:12.240 --> 00:51:13.698 align:middle line:84%
AUDIENCE: In new
enterprises class.

00:51:13.698 --> 00:51:17.740 align:middle line:84%
I saw these two entrepreneurs,
recent entrepreneurs,

00:51:17.740 --> 00:51:19.810 align:middle line:84%
they came in, and
they talked about what

00:51:19.810 --> 00:51:23.130 align:middle line:84%
they went through when they
were looking for VC funding.

00:51:23.130 --> 00:51:33.290 align:middle line:84%
And they said that having VC on
board changes their future by--

00:51:33.290 --> 00:51:36.230 align:middle line:90%
it upsides down the whole thing.

00:51:36.230 --> 00:51:39.610 align:middle line:84%
So what happens
is, before VC, they

00:51:39.610 --> 00:51:42.890 align:middle line:84%
have a high likelihood of
becoming a medium-level success.

00:51:42.890 --> 00:51:46.670 align:middle line:84%
And a VC is not
accepting of that.

00:51:46.670 --> 00:51:49.730 align:middle line:84%
He usually goes for
a much higher return.

00:51:49.730 --> 00:51:51.990 align:middle line:84%
And so he's willing to
take a lot more risk,

00:51:51.990 --> 00:51:55.650 align:middle line:84%
and he's willing to
have no success at all.

00:51:55.650 --> 00:51:57.490 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yeah, I understand.

00:51:57.490 --> 00:51:58.750 align:middle line:84%
AUDIENCE: So it's
the same point.

00:51:58.750 --> 00:51:59.830 align:middle line:84%
IRVING WLADAWSKY-BERGER:
So it's the same point.

00:51:59.830 --> 00:52:01.090 align:middle line:90%
It's risk.

00:52:01.090 --> 00:52:02.970 align:middle line:90%
Yeah.

00:52:02.970 --> 00:52:04.970 align:middle line:90%
You all?

00:52:04.970 --> 00:52:07.010 align:middle line:90%
Excellent point.

00:52:07.010 --> 00:52:09.570 align:middle line:90%
Yes?

00:52:09.570 --> 00:52:13.050 align:middle line:84%
AUDIENCE: Sorry [INAUDIBLE]
reading [INAUDIBLE],

00:52:13.050 --> 00:52:19.090 align:middle line:84%
it's more about the focus on
revenue and continuing to drive

00:52:19.090 --> 00:52:21.650 align:middle line:84%
all the resources in the
business towards revenue

00:52:21.650 --> 00:52:26.210 align:middle line:84%
or the revenue generation
[INAUDIBLE] taking the risk

00:52:26.210 --> 00:52:27.032 align:middle line:90%
of new innova--

00:52:27.032 --> 00:52:29.490 align:middle line:84%
IRVING WLADAWSKY-BERGER: Yeah,
yeah, I agree totally, also.

00:52:29.490 --> 00:52:29.990 align:middle line:90%
Yeah.

00:52:29.990 --> 00:52:32.170 align:middle line:84%
AUDIENCE: And in The
Dilemma, his first book,

00:52:32.170 --> 00:52:35.207 align:middle line:84%
he says almost categorically,
you have to step outside that--

00:52:35.207 --> 00:52:36.790 align:middle line:84%
IRVING WLADAWSKY-BERGER:
That's right.

00:52:36.790 --> 00:52:38.705 align:middle line:90%
Well, and that's exactly what--

00:52:38.705 --> 00:52:40.330 align:middle line:84%
AUDIENCE: He softened
it a lot on the--

00:52:40.330 --> 00:52:41.230 align:middle line:84%
IRVING WLADAWSKY-BERGER:
On the second book.

00:52:41.230 --> 00:52:41.650 align:middle line:90%
AUDIENCE: [INAUDIBLE]

00:52:41.650 --> 00:52:42.900 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

00:52:42.900 --> 00:52:44.770 align:middle line:84%
AUDIENCE: [INAUDIBLE]
we heard last week

00:52:44.770 --> 00:52:46.650 align:middle line:84%
that he had to form
almost a guerrilla

00:52:46.650 --> 00:52:50.910 align:middle line:84%
organization [INAUDIBLE] IBM to
get into the Internet Division

00:52:50.910 --> 00:52:51.653 align:middle line:90%
forum.

00:52:51.653 --> 00:52:53.070 align:middle line:84%
And if you look
at other examples,

00:52:53.070 --> 00:52:56.330 align:middle line:84%
like [INAUDIBLE] was formed to
do the PC business [INAUDIBLE]

00:52:56.330 --> 00:52:57.170 align:middle line:90%
outside of it.

00:52:57.170 --> 00:52:57.450 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

00:52:57.450 --> 00:52:58.370 align:middle line:90%
AUDIENCE: [INAUDIBLE]

00:52:58.370 --> 00:52:59.150 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, that's perfect.

00:52:59.150 --> 00:53:00.430 align:middle line:90%
So let's talk about that.

00:53:00.430 --> 00:53:05.630 align:middle line:84%
So how does an
organization handle this?

00:53:05.630 --> 00:53:11.930 align:middle line:84%
And let me start with,
get a separate team

00:53:11.930 --> 00:53:20.020 align:middle line:84%
that's dedicated to the
new initiative because,

00:53:20.020 --> 00:53:22.940 align:middle line:90%
if you have a current team--

00:53:22.940 --> 00:53:29.780 align:middle line:84%
people doing mainframes
or people doing whatever,

00:53:29.780 --> 00:53:33.540 align:middle line:84%
and you say, by the way, I also
need you to do this other stuff,

00:53:33.540 --> 00:53:36.500 align:middle line:84%
and this is an
incremental business,

00:53:36.500 --> 00:53:40.300 align:middle line:84%
and this is a high-risk
business, at that point,

00:53:40.300 --> 00:53:42.700 align:middle line:90%
it's too difficult.

00:53:42.700 --> 00:53:47.180 align:middle line:84%
And usually, for
example, what is

00:53:47.180 --> 00:53:51.140 align:middle line:84%
very difficult is something I
have observed like crazy in IBM

00:53:51.140 --> 00:53:53.060 align:middle line:90%
and other businesses--

00:53:53.060 --> 00:53:57.580 align:middle line:90%
people running line operations.

00:53:57.580 --> 00:54:01.820 align:middle line:84%
I cannot tell you how
brutal the quarter is.

00:54:01.820 --> 00:54:03.760 align:middle line:90%
I cannot begin to tell you.

00:54:03.760 --> 00:54:06.060 align:middle line:84%
I don't know if you've
all worked up there.

00:54:06.060 --> 00:54:09.860 align:middle line:84%
I don't know how many of you
have worked in public companies

00:54:09.860 --> 00:54:14.980 align:middle line:84%
and seen how critical
it is to meet analyst

00:54:14.980 --> 00:54:17.580 align:middle line:90%
expectations for the quarter.

00:54:17.580 --> 00:54:20.000 align:middle line:84%
And if somebody said,
Irving, screw them--

00:54:20.000 --> 00:54:22.620 align:middle line:90%


00:54:22.620 --> 00:54:27.100 align:middle line:84%
you can say that, and
then when the stock

00:54:27.100 --> 00:54:29.920 align:middle line:84%
tanks because you didn't
meet expectations,

00:54:29.920 --> 00:54:32.100 align:middle line:90%
the board has to fire you.

00:54:32.100 --> 00:54:34.120 align:middle line:84%
So you'll say that
on your way out.

00:54:34.120 --> 00:54:35.900 align:middle line:90%
[LAUGHTER]

00:54:35.900 --> 00:54:37.280 align:middle line:90%
I'm being very serious.

00:54:37.280 --> 00:54:39.580 align:middle line:84%
I mean, a lot of
people question that,

00:54:39.580 --> 00:54:42.700 align:middle line:84%
if this is [INAUDIBLE]
way to build a railroad.

00:54:42.700 --> 00:54:45.140 align:middle line:90%
But I don't have [INAUDIBLE].

00:54:45.140 --> 00:54:47.380 align:middle line:84%
We're not in a
course here to modify

00:54:47.380 --> 00:54:49.940 align:middle line:90%
the world's financial system.

00:54:49.940 --> 00:54:52.220 align:middle line:84%
That would be a
different course.

00:54:52.220 --> 00:55:00.820 align:middle line:84%
So you need to focus very
hard on your line operations.

00:55:00.820 --> 00:55:05.020 align:middle line:84%
And you also need to
worry about the future

00:55:05.020 --> 00:55:08.700 align:middle line:84%
and go after new opportunities,
especially the ones that are

00:55:08.700 --> 00:55:11.300 align:middle line:90%
based on disruptive innovation.

00:55:11.300 --> 00:55:14.880 align:middle line:84%
And what we learned is that
the only way to do that--

00:55:14.880 --> 00:55:17.380 align:middle line:84%
and that's what
we talked about--

00:55:17.380 --> 00:55:22.380 align:middle line:84%
is to form a separate
organization,

00:55:22.380 --> 00:55:25.060 align:middle line:90%
and that's what they do.

00:55:25.060 --> 00:55:30.440 align:middle line:84%
And in fact, with the
Internet Division,

00:55:30.440 --> 00:55:36.020 align:middle line:84%
at the time that I was asked
to organize the Internet

00:55:36.020 --> 00:55:41.980 align:middle line:84%
Division in December
of '95, I was

00:55:41.980 --> 00:55:46.620 align:middle line:84%
running IBM's Unix
business, what's

00:55:46.620 --> 00:55:49.420 align:middle line:90%
called the RS/6000 business.

00:55:49.420 --> 00:55:51.580 align:middle line:84%
In the Unix
business, the RS/6000

00:55:51.580 --> 00:55:55.040 align:middle line:84%
is a multi-billion-dollar
business.

00:55:55.040 --> 00:55:57.420 align:middle line:84%
I don't know [INAUDIBLE]
manufacturing

00:55:57.420 --> 00:55:58.320 align:middle line:90%
and all that stuff.

00:55:58.320 --> 00:56:00.740 align:middle line:84%
And then [INAUDIBLE] said,
we need you to go do this.

00:56:00.740 --> 00:56:01.360 align:middle line:90%
I can't do it.

00:56:01.360 --> 00:56:05.020 align:middle line:84%
I had been doing
this for so long.

00:56:05.020 --> 00:56:09.240 align:middle line:84%
And he said, well, we put
somebody else to do that.

00:56:09.240 --> 00:56:12.150 align:middle line:90%
I need you to do this.

00:56:12.150 --> 00:56:17.070 align:middle line:84%
And what has been
our experience is,

00:56:17.070 --> 00:56:20.910 align:middle line:84%
not only do you have
a separate group,

00:56:20.910 --> 00:56:28.293 align:middle line:84%
but if you are serious about
it, you also need to almost--

00:56:28.293 --> 00:56:29.210 align:middle line:90%
what's the right word?

00:56:29.210 --> 00:56:33.470 align:middle line:84%
Almost over-staffing, but
by over-staffing, I mean,

00:56:33.470 --> 00:56:40.330 align:middle line:84%
put a very senior executive
that people say, well,

00:56:40.330 --> 00:56:41.870 align:middle line:90%
but Irving had--

00:56:41.870 --> 00:56:44.990 align:middle line:84%
I don't know-- 4,000 people
working for him and billions

00:56:44.990 --> 00:56:45.790 align:middle line:90%
in revenue.

00:56:45.790 --> 00:56:51.250 align:middle line:84%
Here he has John Patrick
and a few other people.

00:56:51.250 --> 00:56:55.890 align:middle line:84%
And since we don't even know
what an internet business is,

00:56:55.890 --> 00:56:57.910 align:middle line:90%
he has zero revenue.

00:56:57.910 --> 00:57:02.170 align:middle line:84%
So is that a demotion,
or are you punishing him?

00:57:02.170 --> 00:57:04.950 align:middle line:90%
Is that a penalty box?

00:57:04.950 --> 00:57:08.830 align:middle line:84%
And the answer is
that the only way

00:57:08.830 --> 00:57:14.750 align:middle line:84%
to make sure that you put
dedicated focus on something new

00:57:14.750 --> 00:57:20.410 align:middle line:84%
is put somebody who is senior
because, by being senior,

00:57:20.410 --> 00:57:22.070 align:middle line:84%
what it usually
means is you have

00:57:22.070 --> 00:57:24.750 align:middle line:90%
access-- you know the people.

00:57:24.750 --> 00:57:27.890 align:middle line:84%
Being senior-- remember,
in any organization,

00:57:27.890 --> 00:57:30.750 align:middle line:84%
what counts is
not the hierarchy.

00:57:30.750 --> 00:57:34.130 align:middle line:84%
What counts is, do you know
people, and do they respect you?

00:57:34.130 --> 00:57:36.950 align:middle line:90%
That's all that counts.

00:57:36.950 --> 00:57:40.630 align:middle line:84%
And being senior usually
means you know people,

00:57:40.630 --> 00:57:46.070 align:middle line:84%
and you have built up your
equivalent of your eBay--

00:57:46.070 --> 00:57:47.310 align:middle line:90%
AUDIENCE: Reputation?

00:57:47.310 --> 00:57:49.060 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Reputation, yeah.

00:57:49.060 --> 00:57:52.510 align:middle line:84%
You have built up your eBay
reputation [INAUDIBLE].

00:57:52.510 --> 00:57:57.350 align:middle line:84%
And that also signals to the
organization and to the outside,

00:57:57.350 --> 00:58:01.790 align:middle line:84%
that, boy, Louis wasn't
bullshitting here.

00:58:01.790 --> 00:58:04.590 align:middle line:90%
He's serious about this.

00:58:04.590 --> 00:58:08.200 align:middle line:84%
And we've done this
repeatedly with--

00:58:08.200 --> 00:58:11.000 align:middle line:84%
we did it on Linux
and other things.

00:58:11.000 --> 00:58:14.960 align:middle line:84%
So that's one approach
is, start building up

00:58:14.960 --> 00:58:18.680 align:middle line:84%
these new internal
capabilities, but put it

00:58:18.680 --> 00:58:22.920 align:middle line:90%
in a separate organization.

00:58:22.920 --> 00:58:25.600 align:middle line:84%
Now, something
very interesting--

00:58:25.600 --> 00:58:30.575 align:middle line:84%
and I'll get to the
next two-- is that--

00:58:30.575 --> 00:58:34.880 align:middle line:90%


00:58:34.880 --> 00:58:36.840 align:middle line:84%
I don't know if
this is always true,

00:58:36.840 --> 00:58:40.580 align:middle line:84%
but it's been true in most of
the organizations like this

00:58:40.580 --> 00:58:43.160 align:middle line:90%
I've been involved.

00:58:43.160 --> 00:58:48.120 align:middle line:84%
If it's an initiative like
the internet or open-source

00:58:48.120 --> 00:58:52.080 align:middle line:84%
software, that, at
some level, it's

00:58:52.080 --> 00:58:56.200 align:middle line:84%
not a separate business-- it's
only a separate business because

00:58:56.200 --> 00:58:58.660 align:middle line:84%
of these artificial things
we're talking about.

00:58:58.660 --> 00:59:01.380 align:middle line:84%
At the beginning,
it's this little tree,

00:59:01.380 --> 00:59:04.560 align:middle line:84%
and you don't even know
where the hell it's going.

00:59:04.560 --> 00:59:09.220 align:middle line:84%
But eventually, the internet
is part of everything.

00:59:09.220 --> 00:59:13.440 align:middle line:84%
And eventually, Linux and open
source is part of everything.

00:59:13.440 --> 00:59:16.840 align:middle line:84%
When you start this,
everybody needs

00:59:16.840 --> 00:59:19.640 align:middle line:84%
to know that success
means that you go out

00:59:19.640 --> 00:59:23.600 align:middle line:84%
of business after a while
because success means

00:59:23.600 --> 00:59:29.200 align:middle line:84%
that the rest of
the organization

00:59:29.200 --> 00:59:35.880 align:middle line:84%
has so absorbed this disruptive
technology that now you

00:59:35.880 --> 00:59:38.720 align:middle line:90%
are more of a pain to them--

00:59:38.720 --> 00:59:42.440 align:middle line:84%
they view you more as an
overlay staff than a help.

00:59:42.440 --> 00:59:48.580 align:middle line:84%
And once that happens,
you stay a little longer,

00:59:48.580 --> 00:59:50.780 align:middle line:84%
but you don't want to
overstay your welcome.

00:59:50.780 --> 00:59:53.360 align:middle line:90%


00:59:53.360 --> 00:59:54.740 align:middle line:90%
And it's a very important thing.

00:59:54.740 --> 01:00:00.080 align:middle line:84%
You do this, but then
everybody knows, over time,

01:00:00.080 --> 01:00:04.080 align:middle line:90%
it has to be integrated back in.

01:00:04.080 --> 01:00:06.720 align:middle line:90%
So it's only a temporary thing.

01:00:06.720 --> 01:00:11.200 align:middle line:84%
Now, another approach
that people do

01:00:11.200 --> 01:00:15.000 align:middle line:84%
is to have spin-out
organizations.

01:00:15.000 --> 01:00:19.700 align:middle line:84%
Do you have any examples of
good spin-outs that you've seen?

01:00:19.700 --> 01:00:20.200 align:middle line:90%
Please.

01:00:20.200 --> 01:00:21.837 align:middle line:84%
AUDIENCE: Freescale
from Motorola is--

01:00:21.837 --> 01:00:23.420 align:middle line:84%
IRVING WLADAWSKY-BERGER:
That's right.

01:00:23.420 --> 01:00:27.320 align:middle line:84%
That's an excellent point,
Freescale from Motorola.

01:00:27.320 --> 01:00:30.480 align:middle line:84%
AUDIENCE: They churned out
a chip design part out.

01:00:30.480 --> 01:00:33.640 align:middle line:84%
Motorola just focuses
on the consumer market

01:00:33.640 --> 01:00:36.307 align:middle line:90%
and large scale--

01:00:36.307 --> 01:00:38.640 align:middle line:84%
IRVING WLADAWSKY-BERGER: Yeah,
that's a very good point.

01:00:38.640 --> 01:00:41.820 align:middle line:90%
And yes, please.

01:00:41.820 --> 01:00:45.760 align:middle line:84%
AUDIENCE: At one point, Lucent
was a big spin-off of AT&T.

01:00:45.760 --> 01:00:48.880 align:middle line:84%
IRVING WLADAWSKY-BERGER:
From AT&T.

01:00:48.880 --> 01:00:54.380 align:middle line:84%
This is after the AT&T
broke apart, you mean?

01:00:54.380 --> 01:00:55.780 align:middle line:90%
Would you consider that, or--

01:00:55.780 --> 01:00:57.160 align:middle line:90%
AUDIENCE: Yeah, after.

01:00:57.160 --> 01:00:59.240 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

01:00:59.240 --> 01:01:00.040 align:middle line:90%
Any other?

01:01:00.040 --> 01:01:02.388 align:middle line:90%
AUDIENCE: Avaya from Lucent.

01:01:02.388 --> 01:01:03.930 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Avaya, yeah.

01:01:03.930 --> 01:01:06.450 align:middle line:84%
Now, where is-- I mean,
Lucent, as we know,

01:01:06.450 --> 01:01:11.630 align:middle line:84%
the main part of Lucent
is part of Alcatel.

01:01:11.630 --> 01:01:13.010 align:middle line:90%
Correct?

01:01:13.010 --> 01:01:16.170 align:middle line:90%
It's Avaya still a viable--

01:01:16.170 --> 01:01:18.590 align:middle line:84%
AUDIENCE: It's actually
owned by private equity now.

01:01:18.590 --> 01:01:19.810 align:middle line:90%
I think [INAUDIBLE].

01:01:19.810 --> 01:01:21.477 align:middle line:84%
IRVING WLADAWSKY-BERGER:
They are, yeah.

01:01:21.477 --> 01:01:24.250 align:middle line:84%
HP used to have
Scientific Instruments.

01:01:24.250 --> 01:01:25.550 align:middle line:90%
Am I not correct?

01:01:25.550 --> 01:01:27.230 align:middle line:84%
AUDIENCE: I think
Agilent [INAUDIBLE].

01:01:27.230 --> 01:01:29.605 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Agilent-- and that got spun out.

01:01:29.605 --> 01:01:31.050 align:middle line:90%
AUDIENCE: [INAUDIBLE]

01:01:31.050 --> 01:01:32.550 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Xerox Labs.

01:01:32.550 --> 01:01:34.490 align:middle line:90%
AUDIENCE: Is it HP [INAUDIBLE]?

01:01:34.490 --> 01:01:38.550 align:middle line:84%
IRVING WLADAWSKY-BERGER: I don't
think so, but I don't know.

01:01:38.550 --> 01:01:42.250 align:middle line:90%
AUDIENCE: [INAUDIBLE].

01:01:42.250 --> 01:01:43.510 align:middle line:90%
Arjuna is an example.

01:01:43.510 --> 01:01:43.690 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

01:01:43.690 --> 01:01:44.390 align:middle line:90%
No, it could be.

01:01:44.390 --> 01:01:45.230 align:middle line:90%
You may be totally--

01:01:45.230 --> 01:01:49.190 align:middle line:84%
I know for sure Xerox
PARC is in that example.

01:01:49.190 --> 01:01:53.770 align:middle line:84%
And I think the Sarnoff
Labs and even SRY--

01:01:53.770 --> 01:01:57.810 align:middle line:90%
there's an SRY in California.

01:01:57.810 --> 01:02:01.210 align:middle line:84%
AUDIENCE: So in countries
like India and bigger

01:02:01.210 --> 01:02:04.750 align:middle line:84%
family-owned businesses,
they spin off a lot of times,

01:02:04.750 --> 01:02:08.610 align:middle line:84%
like Tata's have a
consulting service that

01:02:08.610 --> 01:02:13.762 align:middle line:84%
eventually became a huge company
and [INAUDIBLE] revenue source.

01:02:13.762 --> 01:02:14.970 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yes.

01:02:14.970 --> 01:02:15.470 align:middle line:90%
[INAUDIBLE]

01:02:15.470 --> 01:02:17.150 align:middle line:84%
AUDIENCE: [INAUDIBLE] so
they keep spinning off.

01:02:17.150 --> 01:02:17.870 align:middle line:84%
IRVING WLADAWSKY-BERGER:
They keep spinning.

01:02:17.870 --> 01:02:18.410 align:middle line:90%
So you--

01:02:18.410 --> 01:02:21.130 align:middle line:84%
AUDIENCE: I just wanted to
mention that [INAUDIBLE] is also

01:02:21.130 --> 01:02:24.890 align:middle line:84%
a good example that failed
[INAUDIBLE] spin-off.

01:02:24.890 --> 01:02:27.490 align:middle line:84%
So they invented all
these great technologies,

01:02:27.490 --> 01:02:31.910 align:middle line:84%
like GUIs and the internet and
all these great technologies.

01:02:31.910 --> 01:02:35.730 align:middle line:90%
And [INAUDIBLE] failed spin-off.

01:02:35.730 --> 01:02:37.490 align:middle line:84%
And sometimes, what
happens is, people

01:02:37.490 --> 01:02:41.210 align:middle line:84%
engage [INAUDIBLE],
If they don't nurture

01:02:41.210 --> 01:02:44.250 align:middle line:84%
these innovative people,
and they don't really

01:02:44.250 --> 01:02:46.810 align:middle line:84%
separate out these
people and then

01:02:46.810 --> 01:02:50.050 align:middle line:84%
really push them to do--
have business out of it,

01:02:50.050 --> 01:02:52.250 align:middle line:84%
then you would lose
a lot of chances

01:02:52.250 --> 01:02:55.450 align:middle line:84%
for making new
disruptive technologies.

01:02:55.450 --> 01:02:56.700 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

01:02:56.700 --> 01:02:57.200 align:middle line:90%
Yeah.

01:02:57.200 --> 01:02:59.060 align:middle line:90%
No, it's an excellent point.

01:02:59.060 --> 01:03:05.580 align:middle line:84%
I wonder if, as I'm now
thinking aloud with all of you,

01:03:05.580 --> 01:03:12.300 align:middle line:84%
if a difference
between setting up

01:03:12.300 --> 01:03:14.320 align:middle line:90%
this new internal capability--

01:03:14.320 --> 01:03:17.480 align:middle line:84%
I think IBM would call it
emerging business opportunity--

01:03:17.480 --> 01:03:21.860 align:middle line:84%
the difference between
that and a spin-out

01:03:21.860 --> 01:03:27.380 align:middle line:84%
may have to do whether your
intent is to reintegrate it

01:03:27.380 --> 01:03:29.460 align:middle line:90%
back in later.

01:03:29.460 --> 01:03:31.820 align:middle line:84%
And if you intend to
reintegrate it back

01:03:31.820 --> 01:03:35.180 align:middle line:84%
in, be very careful
with the spin-out

01:03:35.180 --> 01:03:41.460 align:middle line:84%
because then you're neither
fish nor fowl because when

01:03:41.460 --> 01:03:45.820 align:middle line:84%
you spin out, their
financials and everything

01:03:45.820 --> 01:03:47.420 align:middle line:90%
are very different.

01:03:47.420 --> 01:03:52.380 align:middle line:84%
When you try to reintegrate
it back in, they'll scream,

01:03:52.380 --> 01:03:58.340 align:middle line:84%
whereas, is it fair to say,
all the examples you gave

01:03:58.340 --> 01:04:01.560 align:middle line:84%
are companies that you
really were spinning out,

01:04:01.560 --> 01:04:07.820 align:middle line:84%
that you were happy to
sell them to somebody else?

01:04:07.820 --> 01:04:11.040 align:middle line:84%
Does that make sense, that you
need to make that decision?

01:04:11.040 --> 01:04:13.540 align:middle line:90%
Is it temporary, or is it--

01:04:13.540 --> 01:04:14.905 align:middle line:90%
yes, please.

01:04:14.905 --> 01:04:16.780 align:middle line:84%
AUDIENCE: Yeah I think
you make a good point.

01:04:16.780 --> 01:04:19.980 align:middle line:84%
I was thinking about a
lot of the semiconductor

01:04:19.980 --> 01:04:23.580 align:middle line:84%
arms of conglomerates were
spun off because companies

01:04:23.580 --> 01:04:26.340 align:middle line:84%
didn't want the ups and
downs of the semiconductor

01:04:26.340 --> 01:04:28.620 align:middle line:84%
industry showing up
on their balance sheet

01:04:28.620 --> 01:04:30.767 align:middle line:90%
and wanted a more predictable--

01:04:30.767 --> 01:04:33.100 align:middle line:84%
IRVING WLADAWSKY-BERGER: But
for example, Motorola never

01:04:33.100 --> 01:04:35.440 align:middle line:84%
expects to
reintegrate Freescale.

01:04:35.440 --> 01:04:37.677 align:middle line:84%
AUDIENCE: In fact, they just
wanted it to be separate

01:04:37.677 --> 01:04:39.260 align:middle line:84%
and have two different
balance sheets.

01:04:39.260 --> 01:04:41.177 align:middle line:84%
IRVING WLADAWSKY-BERGER:
What private equity--

01:04:41.177 --> 01:04:43.780 align:middle line:90%
was it Carlyle or--

01:04:43.780 --> 01:04:44.780 align:middle line:90%
AUDIENCE: Freescale?

01:04:44.780 --> 01:04:46.780 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Freescale, yeah.

01:04:46.780 --> 01:04:47.440 align:middle line:90%
I agree.

01:04:47.440 --> 01:04:49.920 align:middle line:84%
I do agree that it
was a private equity.

01:04:49.920 --> 01:04:52.377 align:middle line:90%
I don't know which one.

01:04:52.377 --> 01:04:54.460 align:middle line:84%
AUDIENCE: But the other
interesting thing that you

01:04:54.460 --> 01:04:57.500 align:middle line:84%
mentioned on how [INAUDIBLE]
emerging business opportunities

01:04:57.500 --> 01:05:00.720 align:middle line:84%
is, for example, how
GM Saturn, their--

01:05:00.720 --> 01:05:02.340 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yes?

01:05:02.340 --> 01:05:05.140 align:middle line:84%
AUDIENCE: You want to go
after the [INAUDIBLE].

01:05:05.140 --> 01:05:06.682 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yeah, Saturn

01:05:06.682 --> 01:05:08.740 align:middle line:84%
is another example of
an APO kind of thing.

01:05:08.740 --> 01:05:11.140 align:middle line:84%
AUDIENCE: But [INAUDIBLE]
the company [INAUDIBLE].

01:05:11.140 --> 01:05:14.460 align:middle line:84%
IRVING WLADAWSKY-BERGER: Now,
let me ask you, how about Lexus?

01:05:14.460 --> 01:05:15.100 align:middle line:90%
Think of--

01:05:15.100 --> 01:05:16.180 align:middle line:90%
AUDIENCE: [INAUDIBLE]

01:05:16.180 --> 01:05:17.638 align:middle line:84%
IRVING WLADAWSKY-BERGER:
I'm sorry?

01:05:17.638 --> 01:05:18.770 align:middle line:90%
AUDIENCE: It's silent.

01:05:18.770 --> 01:05:20.103 align:middle line:90%
IRVING WLADAWSKY-BERGER: Design.

01:05:20.103 --> 01:05:20.880 align:middle line:90%
Now, am I not--

01:05:20.880 --> 01:05:25.660 align:middle line:84%
I think, in Canada,
Lexus and Toyota

01:05:25.660 --> 01:05:28.300 align:middle line:90%
have the same dealerships.

01:05:28.300 --> 01:05:30.700 align:middle line:90%
I don't think--

01:05:30.700 --> 01:05:34.360 align:middle line:84%
I've seen, in the US, Lexus has
totally different dealership.

01:05:34.360 --> 01:05:39.300 align:middle line:84%
But I don't believe that's
the case in all countries.

01:05:39.300 --> 01:05:41.380 align:middle line:84%
AUDIENCE: That's not
because of coping

01:05:41.380 --> 01:05:42.800 align:middle line:90%
with disruptive innovation.

01:05:42.800 --> 01:05:44.160 align:middle line:90%
That's just branding.

01:05:44.160 --> 01:05:46.035 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, no I understand.

01:05:46.035 --> 01:05:50.930 align:middle line:84%
But what I'm saying is, to some
extent, the model Toyota used,

01:05:50.930 --> 01:05:57.390 align:middle line:84%
which led to spill smoke, like
category 1, then category 2--

01:05:57.390 --> 01:06:01.950 align:middle line:84%
in other words, Toyota
has never let go of Lexus.

01:06:01.950 --> 01:06:05.390 align:middle line:90%
Am I not correct?

01:06:05.390 --> 01:06:06.650 align:middle line:90%
So I agree totally.

01:06:06.650 --> 01:06:09.090 align:middle line:84%
It's now a branding in
different countries.

01:06:09.090 --> 01:06:12.770 align:middle line:84%
But my expectation is-- and I
don't know anything about this--

01:06:12.770 --> 01:06:18.350 align:middle line:84%
Toyota said, let's create
a really high-end brand.

01:06:18.350 --> 01:06:19.950 align:middle line:90%
But they couldn't do that.

01:06:19.950 --> 01:06:23.552 align:middle line:84%
Camry-- they didn't
want to screw up Camry.

01:06:23.552 --> 01:06:25.010 align:middle line:84%
And if, all of a
sudden, they said,

01:06:25.010 --> 01:06:26.877 align:middle line:84%
well, let's make Camry
the high-end brand,

01:06:26.877 --> 01:06:27.710 align:middle line:90%
then, wait a second.

01:06:27.710 --> 01:06:32.830 align:middle line:84%
Camry is the most successful
high-volume brand in the world.

01:06:32.830 --> 01:06:36.830 align:middle line:84%
And so they set it up as
a totally separate thing

01:06:36.830 --> 01:06:39.350 align:middle line:90%
in the US.

01:06:39.350 --> 01:06:45.790 align:middle line:84%
And so it's a very good example
of set something up differently.

01:06:45.790 --> 01:06:47.990 align:middle line:90%
It's a very different way.

01:06:47.990 --> 01:06:50.030 align:middle line:90%
So both models work.

01:06:50.030 --> 01:06:56.270 align:middle line:84%
And then acquisitions--
acquisitions

01:06:56.270 --> 01:06:58.190 align:middle line:90%
is very interesting.

01:06:58.190 --> 01:07:01.110 align:middle line:90%


01:07:01.110 --> 01:07:07.150 align:middle line:84%
I have to tell you, the
whole view of acquisitions--

01:07:07.150 --> 01:07:10.330 align:middle line:84%
let me give you my
personal view again.

01:07:10.330 --> 01:07:12.190 align:middle line:84%
When I say a personal
view, what I mean

01:07:12.190 --> 01:07:14.410 align:middle line:84%
is the view based
on my experiences.

01:07:14.410 --> 01:07:16.390 align:middle line:84%
That's what I mean by
personal view, as opposed

01:07:16.390 --> 01:07:17.890 align:middle line:90%
to what I read in a book.

01:07:17.890 --> 01:07:20.990 align:middle line:90%


01:07:20.990 --> 01:07:24.270 align:middle line:84%
For a long time
in IBM, we viewed

01:07:24.270 --> 01:07:29.750 align:middle line:84%
having to make an acquisition
as failure because the view was,

01:07:29.750 --> 01:07:37.070 align:middle line:84%
[INAUDIBLE] if this is good,
we should have done it.

01:07:37.070 --> 01:07:43.030 align:middle line:84%
And the fact that we didn't do
it, and we had to go acquire it,

01:07:43.030 --> 01:07:45.330 align:middle line:90%
is a statement of failure.

01:07:45.330 --> 01:07:46.730 align:middle line:90%
I'm being totally serious.

01:07:46.730 --> 01:07:48.240 align:middle line:90%
That was the view.

01:07:48.240 --> 01:07:52.700 align:middle line:84%
And I bet you it must be a
view in a lot of companies.

01:07:52.700 --> 01:07:56.040 align:middle line:84%
I mean, can you imagine
companies having that view?

01:07:56.040 --> 01:08:02.280 align:middle line:90%


01:08:02.280 --> 01:08:06.140 align:middle line:84%
Other companies--
Cisco, I think,

01:08:06.140 --> 01:08:12.960 align:middle line:84%
has done a magnificent job
becoming an acquisition machine.

01:08:12.960 --> 01:08:18.879 align:middle line:84%
It's almost like their
R&D is acquisition based.

01:08:18.879 --> 01:08:20.840 align:middle line:90%
No, no, I'm being very serious.

01:08:20.840 --> 01:08:24.240 align:middle line:84%
They've decided-- and
this is a superb model--

01:08:24.240 --> 01:08:28.000 align:middle line:84%
that the free market is a better
research lab than anything

01:08:28.000 --> 01:08:30.399 align:middle line:90%
they could set up in-house.

01:08:30.399 --> 01:08:34.600 align:middle line:84%
So let the free market
try things out and so on.

01:08:34.600 --> 01:08:39.140 align:middle line:84%
And then, when the free market
signals that something is good--

01:08:39.140 --> 01:08:41.020 align:middle line:84%
and the way the free
market signals is,

01:08:41.020 --> 01:08:45.560 align:middle line:84%
here is a company with a good
product and a high stock value,

01:08:45.560 --> 01:08:47.439 align:middle line:90%
and they need that product.

01:08:47.439 --> 01:08:48.500 align:middle line:90%
Now we'll buy them.

01:08:48.500 --> 01:08:52.520 align:middle line:84%
You say, well, but if they have
started it from the beginning,

01:08:52.520 --> 01:08:54.979 align:middle line:84%
they would have saved the
money of that acquisition.

01:08:54.979 --> 01:08:57.240 align:middle line:84%
Yeah, but you're
assuming that they

01:08:57.240 --> 01:08:59.819 align:middle line:84%
would have been able to
get that to be successful.

01:08:59.819 --> 01:09:02.160 align:middle line:90%
And that's a huge assumption.

01:09:02.160 --> 01:09:04.800 align:middle line:84%
And in fact, based on
all of our discussions,

01:09:04.800 --> 01:09:08.000 align:middle line:84%
that may be a
delusional assumption

01:09:08.000 --> 01:09:10.300 align:middle line:90%
for most new technologies.

01:09:10.300 --> 01:09:11.160 align:middle line:90%
Please.

01:09:11.160 --> 01:09:13.760 align:middle line:84%
AUDIENCE: One company that has
made an acquisition [INAUDIBLE]

01:09:13.760 --> 01:09:14.260 align:middle line:90%
Oracle.

01:09:14.260 --> 01:09:15.802 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Oracle, yes.

01:09:15.802 --> 01:09:16.677 align:middle line:90%
AUDIENCE: [INAUDIBLE]

01:09:16.677 --> 01:09:18.052 align:middle line:84%
IRVING WLADAWSKY-BERGER:
I agree.

01:09:18.052 --> 01:09:19.640 align:middle line:90%
Well, even before PeopleSoft.

01:09:19.640 --> 01:09:22.479 align:middle line:84%
AUDIENCE: [INAUDIBLE]
all big companies

01:09:22.479 --> 01:09:24.640 align:middle line:90%
are big because they acquire.

01:09:24.640 --> 01:09:25.700 align:middle line:90%
Google is [INAUDIBLE].

01:09:25.700 --> 01:09:26.950 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

01:09:26.950 --> 01:09:27.920 align:middle line:90%
Well, GE is very good.

01:09:27.920 --> 01:09:30.760 align:middle line:90%


01:09:30.760 --> 01:09:33.800 align:middle line:90%
I think they all--

01:09:33.800 --> 01:09:35.920 align:middle line:84%
this is my experience,
and soon, you--

01:09:35.920 --> 01:09:37.880 align:middle line:84%
maybe you want to
comment on this.

01:09:37.880 --> 01:09:43.340 align:middle line:84%
I think that-- [INAUDIBLE]
is a real [INAUDIBLE] person,

01:09:43.340 --> 01:09:45.020 align:middle line:84%
so that's why he
will comment on it.

01:09:45.020 --> 01:09:47.640 align:middle line:90%


01:09:47.640 --> 01:09:50.319 align:middle line:84%
He's getting a PhD
in [INAUDIBLE].

01:09:50.319 --> 01:09:55.000 align:middle line:84%
When I think over
the last 10 years,

01:09:55.000 --> 01:09:59.160 align:middle line:84%
the whole culture of
business and acquisitions

01:09:59.160 --> 01:10:01.720 align:middle line:90%
has changed drastically.

01:10:01.720 --> 01:10:05.880 align:middle line:84%
And I think it's that we
used-- in the Industrial Age,

01:10:05.880 --> 01:10:07.640 align:middle line:84%
we had the notion
of the vertically

01:10:07.640 --> 01:10:13.400 align:middle line:84%
integrated company, which, as we
all know, is the Industrial Age.

01:10:13.400 --> 01:10:16.720 align:middle line:84%
But as we've become
more whatever the hell

01:10:16.720 --> 01:10:20.240 align:middle line:84%
we're becoming-- knowledge age,
information age, whatever--

01:10:20.240 --> 01:10:22.200 align:middle line:90%
businesses are disaggregating.

01:10:22.200 --> 01:10:25.880 align:middle line:84%
And part of the
disaggregation is the ability

01:10:25.880 --> 01:10:29.020 align:middle line:84%
to both sell assets
and acquire assets.

01:10:29.020 --> 01:10:30.280 align:middle line:90%
And [INAUDIBLE].

01:10:30.280 --> 01:10:32.320 align:middle line:90%
Does that make sense to you?

01:10:32.320 --> 01:10:33.640 align:middle line:90%
AUDIENCE: [INAUDIBLE].

01:10:33.640 --> 01:10:36.230 align:middle line:90%
So I think one thing--

01:10:36.230 --> 01:10:38.780 align:middle line:84%
adding to that, one thing
that we haven't mentioned,

01:10:38.780 --> 01:10:41.658 align:middle line:84%
but I got this idea when
you were mentioning about

01:10:41.658 --> 01:10:45.090 align:middle line:84%
[INAUDIBLE], usually,
I think, we're

01:10:45.090 --> 01:10:48.370 align:middle line:84%
talking about the innovation
and technological changes.

01:10:48.370 --> 01:10:51.530 align:middle line:84%
But I think it's also
related to user base

01:10:51.530 --> 01:10:53.890 align:middle line:84%
because, most of the
time, these users

01:10:53.890 --> 01:10:57.570 align:middle line:84%
are the ones who are
[INAUDIBLE] to use the advanced

01:10:57.570 --> 01:10:58.995 align:middle line:90%
technologies.

01:10:58.995 --> 01:11:00.370 align:middle line:84%
IRVING WLADAWSKY-BERGER:
In fact,

01:11:00.370 --> 01:11:07.090 align:middle line:84%
this gets back to process and
value because, for the kinds

01:11:07.090 --> 01:11:10.630 align:middle line:84%
of customer base you're
after, your current processes

01:11:10.630 --> 01:11:11.770 align:middle line:90%
and values--

01:11:11.770 --> 01:11:16.530 align:middle line:84%
I mean, if you buy a Corolla,
and you call the dealer

01:11:16.530 --> 01:11:20.490 align:middle line:84%
and say, come pick up
the car for service,

01:11:20.490 --> 01:11:22.750 align:middle line:84%
I mean, if they're
a nice dealer,

01:11:22.750 --> 01:11:27.790 align:middle line:84%
I don't know what they'll say,
whereas if you buy a Lexus,

01:11:27.790 --> 01:11:32.510 align:middle line:84%
the dealer will come and
pick up your car for service.

01:11:32.510 --> 01:11:34.370 align:middle line:84%
And by the way,
that's a process.

01:11:34.370 --> 01:11:37.970 align:middle line:84%
Remember, if you are going
to have dealerships that

01:11:37.970 --> 01:11:40.970 align:middle line:84%
are willing to pick
up cars for service,

01:11:40.970 --> 01:11:45.410 align:middle line:84%
you need a process with, how the
hell are you going to do that?

01:11:45.410 --> 01:11:49.050 align:middle line:84%
And those processes
cost money, so you

01:11:49.050 --> 01:11:50.350 align:middle line:90%
have to know what you're doing.

01:11:50.350 --> 01:11:52.070 align:middle line:90%
[INAUDIBLE]?

01:11:52.070 --> 01:11:56.410 align:middle line:84%
AUDIENCE: [INAUDIBLE] I
think innovation is not just

01:11:56.410 --> 01:11:57.950 align:middle line:90%
about developing things.

01:11:57.950 --> 01:11:58.570 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yes.

01:11:58.570 --> 01:12:00.320 align:middle line:84%
AUDIENCE: Also, it's
about the interaction

01:12:00.320 --> 01:12:03.610 align:middle line:84%
between the manufacturer
and the [INAUDIBLE]

01:12:03.610 --> 01:12:05.790 align:middle line:84%
by solving the
customer's problem.

01:12:05.790 --> 01:12:09.770 align:middle line:84%
And I think Oracle is
a great example of--

01:12:09.770 --> 01:12:12.355 align:middle line:90%
when they acquired Siebel and--

01:12:12.355 --> 01:12:13.730 align:middle line:84%
they acquired
Siebel [INAUDIBLE].

01:12:13.730 --> 01:12:17.370 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Siebel and PeopleSoft.

01:12:17.370 --> 01:12:19.210 align:middle line:84%
AUDIENCE: They
acquired the experience

01:12:19.210 --> 01:12:20.890 align:middle line:90%
of these companies working on--

01:12:20.890 --> 01:12:21.390 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Exactly.

01:12:21.390 --> 01:12:22.807 align:middle line:84%
AUDIENCE: --the
specific problems,

01:12:22.807 --> 01:12:24.370 align:middle line:84%
like customer
relations [INAUDIBLE].

01:12:24.370 --> 01:12:25.745 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Exactly.

01:12:25.745 --> 01:12:28.250 align:middle line:84%
AUDIENCE: They acquired
this experience

01:12:28.250 --> 01:12:31.650 align:middle line:84%
of interacting with users,
and that brings back

01:12:31.650 --> 01:12:32.810 align:middle line:90%
into the company.

01:12:32.810 --> 01:12:34.090 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

01:12:34.090 --> 01:12:36.250 align:middle line:90%
Perfect point.

01:12:36.250 --> 01:12:38.222 align:middle line:90%
Yes, please.

01:12:38.222 --> 01:12:40.180 align:middle line:84%
AUDIENCE: I've been
involved [INAUDIBLE] Oracle

01:12:40.180 --> 01:12:41.737 align:middle line:90%
for [INAUDIBLE].

01:12:41.737 --> 01:12:43.820 align:middle line:84%
IRVING WLADAWSKY-BERGER:
What business are you in?

01:12:43.820 --> 01:12:45.732 align:middle line:84%
AUDIENCE: Software
and deployment.

01:12:45.732 --> 01:12:46.940 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yes.

01:12:46.940 --> 01:12:49.107 align:middle line:84%
AUDIENCE: But I'm actually
going out there next week

01:12:49.107 --> 01:12:52.445 align:middle line:84%
to talk to their management
about this very issue.

01:12:52.445 --> 01:12:53.820 align:middle line:84%
[INAUDIBLE] at
Oracle is, they've

01:12:53.820 --> 01:12:56.340 align:middle line:84%
[INAUDIBLE] this
acquisition mostly

01:12:56.340 --> 01:12:58.720 align:middle line:84%
to get rid of competition,
not to acquire [INAUDIBLE].

01:12:58.720 --> 01:13:00.720 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Especially against SAP.

01:13:00.720 --> 01:13:02.380 align:middle line:90%
[INTERPOSING VOICES]

01:13:02.380 --> 01:13:03.107 align:middle line:90%


01:13:03.107 --> 01:13:04.940 align:middle line:84%
AUDIENCE: They've
strictly acquired Edwards.

01:13:04.940 --> 01:13:07.260 align:middle line:90%
They've acquired PeopleSoft.

01:13:07.260 --> 01:13:10.540 align:middle line:84%
They've acquired all their
major competitors [INAUDIBLE].

01:13:10.540 --> 01:13:12.700 align:middle line:84%
So it's a completely
different strategy

01:13:12.700 --> 01:13:16.012 align:middle line:84%
than, I need that
technology out there.

01:13:16.012 --> 01:13:17.220 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yes.

01:13:17.220 --> 01:13:20.470 align:middle line:84%
AUDIENCE: Acquiring is actually
costing them more money than--

01:13:20.470 --> 01:13:21.928 align:middle line:84%
IRVING WLADAWSKY-BERGER:
But what's

01:13:21.928 --> 01:13:26.500 align:middle line:84%
happened with customer side
of the clients they acquire?

01:13:26.500 --> 01:13:29.140 align:middle line:90%
Are they providing for the--

01:13:29.140 --> 01:13:32.060 align:middle line:90%
JD Edwards and so on--

01:13:32.060 --> 01:13:34.140 align:middle line:90%
is the customers side good?

01:13:34.140 --> 01:13:36.500 align:middle line:84%
AUDIENCE: They're
initially continuing

01:13:36.500 --> 01:13:39.680 align:middle line:90%
to provide support for them.

01:13:39.680 --> 01:13:42.100 align:middle line:84%
Of course, they can't
support that many products

01:13:42.100 --> 01:13:43.860 align:middle line:84%
for very long
before they kind of

01:13:43.860 --> 01:13:46.337 align:middle line:84%
have to funnel them all down
into what they call fusion.

01:13:46.337 --> 01:13:47.920 align:middle line:84%
IRVING WLADAWSKY-BERGER:
That's right.

01:13:47.920 --> 01:13:48.587 align:middle line:90%
Yeah, I know it.

01:13:48.587 --> 01:13:49.600 align:middle line:90%
I know what fusion is.

01:13:49.600 --> 01:13:50.580 align:middle line:90%
AUDIENCE: [INAUDIBLE].

01:13:50.580 --> 01:13:52.860 align:middle line:84%
Yeah, they're forcing
all of their clients

01:13:52.860 --> 01:13:54.477 align:middle line:90%
to spend money [INAUDIBLE].

01:13:54.477 --> 01:13:56.560 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yes, to evolve to fusion.

01:13:56.560 --> 01:13:58.440 align:middle line:84%
AUDIENCE: And there's
a lot of community.

01:13:58.440 --> 01:14:01.580 align:middle line:90%
There's a lot of--

01:14:01.580 --> 01:14:03.540 align:middle line:84%
Oracle is making a big
effort of trying to calm

01:14:03.540 --> 01:14:04.380 align:middle line:90%
the community [INAUDIBLE].

01:14:04.380 --> 01:14:05.240 align:middle line:84%
IRVING WLADAWSKY-BERGER:
I understand.

01:14:05.240 --> 01:14:06.340 align:middle line:90%
AUDIENCE: [INAUDIBLE]

01:14:06.340 --> 01:14:07.360 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, I understand.

01:14:07.360 --> 01:14:08.240 align:middle line:90%
I understand.

01:14:08.240 --> 01:14:11.980 align:middle line:84%
By the way, what's
interesting with Cisco--

01:14:11.980 --> 01:14:15.980 align:middle line:84%
and I think we've learned
this in IBM, also.

01:14:15.980 --> 01:14:19.860 align:middle line:84%
Cisco acquires small companies,
and they integrate them

01:14:19.860 --> 01:14:21.420 align:middle line:90%
immediately.

01:14:21.420 --> 01:14:23.340 align:middle line:84%
So if you say, well,
how about the culture

01:14:23.340 --> 01:14:24.560 align:middle line:90%
of this small company?

01:14:24.560 --> 01:14:26.760 align:middle line:84%
Cisco would say,
"culture-shmulture."

01:14:26.760 --> 01:14:29.340 align:middle line:90%


01:14:29.340 --> 01:14:31.540 align:middle line:90%
The culture is Cisco.

01:14:31.540 --> 01:14:33.500 align:middle line:84%
Now, you have to
make sure, then, you

01:14:33.500 --> 01:14:38.460 align:middle line:84%
acquire a company that is small
so it either has no culture,

01:14:38.460 --> 01:14:41.480 align:middle line:90%
or the culture is--

01:14:41.480 --> 01:14:42.266 align:middle line:90%
AUDIENCE: Similar.

01:14:42.266 --> 01:14:43.849 align:middle line:84%
IRVING WLADAWSKY-BERGER:
--is similar,

01:14:43.849 --> 01:14:45.780 align:middle line:84%
yeah, but you're willing
to get rid of it.

01:14:45.780 --> 01:14:48.380 align:middle line:90%


01:14:48.380 --> 01:14:53.300 align:middle line:84%
Oracle-- I mean, you
cannot do that with Siebel.

01:14:53.300 --> 01:14:55.780 align:middle line:90%
Siebel got too big.

01:14:55.780 --> 01:14:59.100 align:middle line:84%
So do you think Oracle
intends to integrate them

01:14:59.100 --> 01:15:01.307 align:middle line:90%
under the Oracle brand?

01:15:01.307 --> 01:15:03.140 align:middle line:84%
AUDIENCE: They'll all
be Oracle [INAUDIBLE].

01:15:03.140 --> 01:15:05.473 align:middle line:84%
IRVING WLADAWSKY-BERGER: So
they will do that over time.

01:15:05.473 --> 01:15:07.460 align:middle line:84%
I think you almost
always have to do that.

01:15:07.460 --> 01:15:15.080 align:middle line:84%
In IBM-- this is part of the
limitations of the company.

01:15:15.080 --> 01:15:19.940 align:middle line:84%
I cannot tell you how much
we screwed up office systems

01:15:19.940 --> 01:15:23.140 align:middle line:90%
for decades.

01:15:23.140 --> 01:15:27.060 align:middle line:90%
Finally, we acquired Lotus.

01:15:27.060 --> 01:15:32.590 align:middle line:84%
Lotus had a big brand,
and so we kept Lotus

01:15:32.590 --> 01:15:34.290 align:middle line:90%
very strong as a big brand.

01:15:34.290 --> 01:15:37.630 align:middle line:84%
But eventually, after
about four or five years,

01:15:37.630 --> 01:15:39.150 align:middle line:84%
we still have
Lotus, but now it's

01:15:39.150 --> 01:15:41.350 align:middle line:90%
very much a unit in software.

01:15:41.350 --> 01:15:47.590 align:middle line:84%
But what we've learned is, most
of the acquisitions we make now

01:15:47.590 --> 01:15:51.510 align:middle line:84%
are small, and the
brand disappears.

01:15:51.510 --> 01:15:56.030 align:middle line:84%
They get integrated because
big acquisitions where

01:15:56.030 --> 01:16:00.470 align:middle line:84%
you have to support the brand
and culture, that can cause

01:16:00.470 --> 01:16:01.930 align:middle line:90%
you all kinds of problems.

01:16:01.930 --> 01:16:04.830 align:middle line:84%
So it's something
to keep in mind.

01:16:04.830 --> 01:16:06.528 align:middle line:84%
Somebody else-- did
you have a question?

01:16:06.528 --> 01:16:09.070 align:middle line:84%
AUDIENCE: Another example of
Oracle acquisition at this scale

01:16:09.070 --> 01:16:11.710 align:middle line:84%
is a company that was
started by [INAUDIBLE].

01:16:11.710 --> 01:16:14.550 align:middle line:84%
It's based out of
Boston [INAUDIBLE],

01:16:14.550 --> 01:16:18.310 align:middle line:84%
and basically, it's
the same [INAUDIBLE].

01:16:18.310 --> 01:16:22.950 align:middle line:84%
The reasons to buy it-- for
one, they have a new product.

01:16:22.950 --> 01:16:25.150 align:middle line:84%
Second, they also
[INAUDIBLE] their product

01:16:25.150 --> 01:16:27.150 align:middle line:90%
to the existing institution.

01:16:27.150 --> 01:16:27.790 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yeah, yeah.

01:16:27.790 --> 01:16:29.550 align:middle line:84%
AUDIENCE: Basically, they can
sell more Oracle databases

01:16:29.550 --> 01:16:30.510 align:middle line:90%
then--

01:16:30.510 --> 01:16:31.760 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

01:16:31.760 --> 01:16:34.552 align:middle line:84%
AUDIENCE: So they wanted
to increase [INAUDIBLE].

01:16:34.552 --> 01:16:36.010 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Very good.

01:16:36.010 --> 01:16:36.977 align:middle line:90%
AUDIENCE: [INAUDIBLE]

01:16:36.977 --> 01:16:38.310 align:middle line:90%
IRVING WLADAWSKY-BERGER: Please.

01:16:38.310 --> 01:16:40.018 align:middle line:84%
AUDIENCE: One of the
interesting things--

01:16:40.018 --> 01:16:43.530 align:middle line:84%
we've talked about the size of
the acquisition and the culture

01:16:43.530 --> 01:16:47.147 align:middle line:84%
and the brand is, Cisco has
acquired Scientific Atlanta.

01:16:47.147 --> 01:16:48.730 align:middle line:84%
IRVING WLADAWSKY-BERGER:
That's right.

01:16:48.730 --> 01:16:51.022 align:middle line:84%
AUDIENCE: And that's one of
their biggest acquisitions.

01:16:51.022 --> 01:16:53.370 align:middle line:84%
And they're treating
it very differently

01:16:53.370 --> 01:16:55.970 align:middle line:84%
than they're treating all
the smaller acquisitions--

01:16:55.970 --> 01:16:58.053 align:middle line:84%
IRVING WLADAWSKY-BERGER:
That's a very good point.

01:16:58.053 --> 01:17:00.650 align:middle line:84%
AUDIENCE: [INAUDIBLE] whole
supply chain different.

01:17:00.650 --> 01:17:02.630 align:middle line:90%
It's vertically integrated.

01:17:02.630 --> 01:17:03.230 align:middle line:90%
The brand is--

01:17:03.230 --> 01:17:05.870 align:middle line:84%
IRVING WLADAWSKY-BERGER: Because
it's a very-- how about the--

01:17:05.870 --> 01:17:08.710 align:middle line:84%
what's the company of
inexpensive routers

01:17:08.710 --> 01:17:09.450 align:middle line:90%
for the home?

01:17:09.450 --> 01:17:10.520 align:middle line:90%
What am I thinking?

01:17:10.520 --> 01:17:11.270 align:middle line:90%
AUDIENCE: Linksys.

01:17:11.270 --> 01:17:12.645 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Linksys.

01:17:12.645 --> 01:17:14.130 align:middle line:84%
Didn't Cisco acquire
Linksys, also?

01:17:14.130 --> 01:17:14.990 align:middle line:90%
AUDIENCE: Yeah, [INAUDIBLE].

01:17:14.990 --> 01:17:17.610 align:middle line:84%
IRVING WLADAWSKY-BERGER: Its
Linksys integrated, or is it--

01:17:17.610 --> 01:17:18.870 align:middle line:84%
AUDIENCE: Linksys, I
think, has been integrated,

01:17:18.870 --> 01:17:21.450 align:middle line:84%
in terms of the supply
chain and everything else.

01:17:21.450 --> 01:17:23.290 align:middle line:84%
IRVING WLADAWSKY-BERGER: Do they
still have the Linksys brand?

01:17:23.290 --> 01:17:25.370 align:middle line:84%
AUDIENCE: They just announced
that they're getting rid of it.

01:17:25.370 --> 01:17:27.495 align:middle line:84%
IRVING WLADAWSKY-BERGER:
They're getting rid of it.

01:17:27.495 --> 01:17:28.800 align:middle line:90%
So Linksys follows the pattern.

01:17:28.800 --> 01:17:31.220 align:middle line:84%
But Scientific
Atlanta is too early.

01:17:31.220 --> 01:17:33.400 align:middle line:90%
That's what you're saying is--

01:17:33.400 --> 01:17:36.360 align:middle line:84%
remember, this
follows this talk.

01:17:36.360 --> 01:17:40.920 align:middle line:84%
Scientific Atlanta is in a
totally different field from

01:17:40.920 --> 01:17:44.000 align:middle line:84%
present Oracle's problem,
whereas it's Linksys-- remember,

01:17:44.000 --> 01:17:45.560 align:middle line:90%
Oracle and Cisco had--

01:17:45.560 --> 01:17:49.780 align:middle line:84%
I mean, Cisco-- Cisco had
home wireless technology.

01:17:49.780 --> 01:17:52.120 align:middle line:90%
So Linksys was easy to--

01:17:52.120 --> 01:17:54.932 align:middle line:84%
they've never been in
the setup business.

01:17:54.932 --> 01:17:56.640 align:middle line:84%
AUDIENCE: I thought
that Linksys was also

01:17:56.640 --> 01:17:58.600 align:middle line:90%
being kept at an arm's length.

01:17:58.600 --> 01:18:00.725 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, but what I'm hearing--

01:18:00.725 --> 01:18:03.960 align:middle line:84%
and this is totally expected--
is that's temporary,

01:18:03.960 --> 01:18:05.920 align:middle line:84%
that it's becoming
integrated, which

01:18:05.920 --> 01:18:10.920 align:middle line:84%
is what I would expect that
[INAUDIBLE] totally integrated.

01:18:10.920 --> 01:18:15.580 align:middle line:84%
So it's the kinds of
things you need to do.

01:18:15.580 --> 01:18:17.800 align:middle line:90%
Now, why don't we take a break?

01:18:17.800 --> 01:18:21.440 align:middle line:84%
Before the break,
John Patrick told me

01:18:21.440 --> 01:18:26.160 align:middle line:84%
he forgot something,
so bear with me.

01:18:26.160 --> 01:18:28.840 align:middle line:84%
I'm going to ask some questions
that may sound bizarre.

01:18:28.840 --> 01:18:31.720 align:middle line:84%
And I didn't lose my head,
but I will explain it

01:18:31.720 --> 01:18:34.040 align:middle line:90%
after I get your--

01:18:34.040 --> 01:18:37.100 align:middle line:90%
now, today is September 27.

01:18:37.100 --> 01:18:39.760 align:middle line:90%
John was here September 20.

01:18:39.760 --> 01:18:43.560 align:middle line:84%
So is there anybody here that
had a birthday within a week

01:18:43.560 --> 01:18:47.560 align:middle line:90%
of September 20th?

01:18:47.560 --> 01:18:48.920 align:middle line:90%
You did?

01:18:48.920 --> 01:18:50.520 align:middle line:90%
When was your birthday?

01:18:50.520 --> 01:18:51.240 align:middle line:90%
AUDIENCE: 22nd

01:18:51.240 --> 01:18:52.490 align:middle line:90%
IRVING WLADAWSKY-BERGER: 22nd.

01:18:52.490 --> 01:18:58.560 align:middle line:84%
OK, John said that he brought a
copy of his book to give away,

01:18:58.560 --> 01:19:02.780 align:middle line:84%
and he wanted to give it away to
the person with the birthday--

01:19:02.780 --> 01:19:04.760 align:middle line:84%
he didn't know how
else to do it--

01:19:04.760 --> 01:19:07.880 align:middle line:84%
the person with the
birthday closest

01:19:07.880 --> 01:19:10.560 align:middle line:90%
to when he was here last week.

01:19:10.560 --> 01:19:14.240 align:middle line:84%
And he asked me to
then do this for him.

01:19:14.240 --> 01:19:15.560 align:middle line:90%
So may I give--

01:19:15.560 --> 01:19:20.460 align:middle line:84%
stop by, and I'll give
you a copy of John's book.

01:19:20.460 --> 01:19:21.800 align:middle line:90%
[APPLAUSE]

01:19:21.800 --> 01:19:24.963 align:middle line:84%
Why don't we take a 10-minute
break, and then we'll come back?

01:19:24.963 --> 01:19:26.380 align:middle line:84%
AUDIENCE: Do you
have another one?

01:19:26.380 --> 01:19:27.350 align:middle line:90%
Mine's the 14th.

01:19:27.350 --> 01:19:28.542 align:middle line:90%
[LAUGHTER]

01:19:28.542 --> 01:19:30.000 align:middle line:84%
IRVING WLADAWSKY-BERGER:
I'm sorry.

01:19:30.000 --> 01:19:32.480 align:middle line:90%
I was going to ask next.

01:19:32.480 --> 01:19:33.938 align:middle line:90%
OK, thank you.

01:19:33.938 --> 01:19:44.292 align:middle line:90%


01:19:44.292 --> 01:19:50.660 align:middle line:84%
So let's move to the
two different subjects,

01:19:50.660 --> 01:19:56.920 align:middle line:84%
which is, when you have
a disruptive innovation,

01:19:56.920 --> 01:20:00.120 align:middle line:90%
what market should you go after?

01:20:00.120 --> 01:20:03.080 align:middle line:84%
And later on, we'll talk
about what customers

01:20:03.080 --> 01:20:04.480 align:middle line:90%
you should go after.

01:20:04.480 --> 01:20:06.420 align:middle line:84%
And they are actually
very related.

01:20:06.420 --> 01:20:10.800 align:middle line:84%
And this is all very
nicely written in--

01:20:10.800 --> 01:20:13.000 align:middle line:84%
now back to
Innovator's Solutions,

01:20:13.000 --> 01:20:18.920 align:middle line:84%
chapters 4 and I
believe [INAUDIBLE] 5.

01:20:18.920 --> 01:20:29.850 align:middle line:84%
Now, something that
is very important

01:20:29.850 --> 01:20:37.050 align:middle line:84%
when you're trying to bring a
new product or service to market

01:20:37.050 --> 01:20:41.890 align:middle line:84%
is to pick your
initial target market.

01:20:41.890 --> 01:20:47.650 align:middle line:84%
Really, really
important because,

01:20:47.650 --> 01:20:51.250 align:middle line:90%
if you make the assumption--

01:20:51.250 --> 01:20:54.210 align:middle line:84%
remember, there is an
overriding assumption

01:20:54.210 --> 01:20:58.650 align:middle line:84%
I'm making that
time to market is

01:20:58.650 --> 01:21:05.450 align:middle line:84%
extremely important with
something new and that--

01:21:05.450 --> 01:21:07.970 align:middle line:84%
how can I say?--
this competitive cost

01:21:07.970 --> 01:21:11.275 align:middle line:84%
is very important
with something new.

01:21:11.275 --> 01:21:12.650 align:middle line:84%
If you say, well,
I'm going to go

01:21:12.650 --> 01:21:17.450 align:middle line:84%
after the whole bloody market,
well, you won't get there.

01:21:17.450 --> 01:21:20.810 align:middle line:84%
It will cost too
much, and you will be

01:21:20.810 --> 01:21:24.090 align:middle line:90%
equally mediocre in everything.

01:21:24.090 --> 01:21:27.450 align:middle line:84%
And then what happens
is the competitor who

01:21:27.450 --> 01:21:31.570 align:middle line:84%
has a more focused
approach will pick you up.

01:21:31.570 --> 01:21:33.590 align:middle line:84%
And there may be
seven competitors.

01:21:33.590 --> 01:21:42.330 align:middle line:84%
So this notion of finding where
to position your product in one

01:21:42.330 --> 01:21:46.550 align:middle line:90%
market is extremely critical.

01:21:46.550 --> 01:21:52.330 align:middle line:90%


01:21:52.330 --> 01:21:54.930 align:middle line:90%
From my personal experience--

01:21:54.930 --> 01:22:00.250 align:middle line:84%
for example, one of the things
I've been very involved in IBM

01:22:00.250 --> 01:22:05.570 align:middle line:84%
was supercomputing,
and in particular,

01:22:05.570 --> 01:22:11.650 align:middle line:84%
starting what became our
parallel supercomputing business

01:22:11.650 --> 01:22:16.370 align:middle line:84%
in the early '90s,
before the internet.

01:22:16.370 --> 01:22:21.550 align:middle line:90%
And we made a decision.

01:22:21.550 --> 01:22:24.690 align:middle line:84%
Parallel architectures were
pretty new in those days,

01:22:24.690 --> 01:22:27.090 align:middle line:90%
in the early '90s.

01:22:27.090 --> 01:22:31.130 align:middle line:84%
But one decision is, OK,
so our launch customers

01:22:31.130 --> 01:22:36.290 align:middle line:84%
will be Cornell Supercomputing
Center and Argonne National

01:22:36.290 --> 01:22:44.210 align:middle line:84%
Lab, which is a DOE
lab outside Chicago.

01:22:44.210 --> 01:22:48.630 align:middle line:84%
And the reason is because,
if we told people, OK,

01:22:48.630 --> 01:22:52.050 align:middle line:84%
that's what we need
to do is do something

01:22:52.050 --> 01:22:54.930 align:middle line:90%
that's good enough for them--

01:22:54.930 --> 01:22:59.490 align:middle line:84%
remember, these are national
labs, Cornell Supercomputing

01:22:59.490 --> 01:23:01.090 align:middle line:90%
Center.

01:23:01.090 --> 01:23:04.010 align:middle line:84%
These people are going
to be very forgiving

01:23:04.010 --> 01:23:06.090 align:middle line:90%
of a lot of stuff.

01:23:06.090 --> 01:23:09.450 align:middle line:84%
So you can afford to
do something that's

01:23:09.450 --> 01:23:12.650 align:middle line:84%
good enough for them
that, when you then

01:23:12.650 --> 01:23:19.400 align:middle line:84%
want to go to a more
commercial customer,

01:23:19.400 --> 01:23:25.380 align:middle line:84%
like an engineering company to
do simulation or a petroleum

01:23:25.380 --> 01:23:31.020 align:middle line:84%
company to do seismic analysis,
they would expect something one

01:23:31.020 --> 01:23:32.700 align:middle line:90%
degree better.

01:23:32.700 --> 01:23:42.420 align:middle line:84%
So in some sense, this initial
product was not very good.

01:23:42.420 --> 01:23:46.040 align:middle line:84%
But in fact, the way
we looked at it--

01:23:46.040 --> 01:23:49.740 align:middle line:84%
and I think people were
doing this more and more--

01:23:49.740 --> 01:23:53.640 align:middle line:84%
is, look at this initial
one almost as an alpha.

01:23:53.640 --> 01:23:56.940 align:middle line:90%


01:23:56.940 --> 01:24:00.860 align:middle line:84%
And by picking the
right customers that

01:24:00.860 --> 01:24:04.020 align:middle line:84%
not only were happy
with your alpha,

01:24:04.020 --> 01:24:06.600 align:middle line:84%
but in the case of
parallel supercomputing,

01:24:06.600 --> 01:24:10.580 align:middle line:84%
were honored that you'd
consider them as your partners

01:24:10.580 --> 01:24:12.460 align:middle line:90%
in an alpha--

01:24:12.460 --> 01:24:15.380 align:middle line:84%
remember, national
labs and so on are

01:24:15.380 --> 01:24:19.780 align:middle line:84%
very happy to work in helping
you develop new products--

01:24:19.780 --> 01:24:24.860 align:middle line:84%
that became a way to get
something out quickly.

01:24:24.860 --> 01:24:30.340 align:middle line:84%
And I cannot tell you-- that's
why this is so important.

01:24:30.340 --> 01:24:35.020 align:middle line:84%
When you are doing
products and services,

01:24:35.020 --> 01:24:38.340 align:middle line:84%
the world before you
are in the marketplace

01:24:38.340 --> 01:24:40.700 align:middle line:84%
is very different from
the world once you

01:24:40.700 --> 01:24:45.340 align:middle line:84%
have clients, totally
different, because here, you're

01:24:45.340 --> 01:24:46.700 align:middle line:90%
all speculating.

01:24:46.700 --> 01:24:49.960 align:middle line:84%
Here, there are real
people, real clients.

01:24:49.960 --> 01:24:53.460 align:middle line:84%
Go talk to them, and go
talk to people like that.

01:24:53.460 --> 01:24:57.780 align:middle line:84%
But what's critical--
and it's the point

01:24:57.780 --> 01:25:09.660 align:middle line:84%
that Christensen makes-- is
that, with something new,

01:25:09.660 --> 01:25:14.630 align:middle line:84%
you have to position it
for the right market.

01:25:14.630 --> 01:25:24.710 align:middle line:84%
Now, finding the right market
is something very different

01:25:24.710 --> 01:25:27.910 align:middle line:90%
for a more incremental product.

01:25:27.910 --> 01:25:33.190 align:middle line:84%
And there's a whole literature
on market segmentation

01:25:33.190 --> 01:25:34.590 align:middle line:90%
in internal--

01:25:34.590 --> 01:25:36.430 align:middle line:84%
I'm assuming that's a
big part of teaching

01:25:36.430 --> 01:25:41.830 align:middle line:84%
marketing, a new segment
market and do all that stuff.

01:25:41.830 --> 01:25:45.550 align:middle line:84%
And as Christensen
points out, when

01:25:45.550 --> 01:25:47.870 align:middle line:84%
you are doing
incremental things,

01:25:47.870 --> 01:25:50.470 align:middle line:84%
there is a set of
things, price points--

01:25:50.470 --> 01:25:52.050 align:middle line:90%
so you're at this price point.

01:25:52.050 --> 01:25:54.070 align:middle line:84%
Should you go after
this price point?

01:25:54.070 --> 01:26:00.510 align:middle line:84%
I mean, people,
demographics, and so on.

01:26:00.510 --> 01:26:05.430 align:middle line:84%
The problem of applying
the marketing that

01:26:05.430 --> 01:26:10.150 align:middle line:84%
works so well for
incremental innovations

01:26:10.150 --> 01:26:13.690 align:middle line:84%
to disruptive innovations,
I would say, in a nutshell,

01:26:13.690 --> 01:26:17.430 align:middle line:84%
is, part of the definition
of something disruptive

01:26:17.430 --> 01:26:22.950 align:middle line:84%
is, you have no bloody idea
where the market will be.

01:26:22.950 --> 01:26:25.310 align:middle line:84%
And you have no bloody
idea because, remember,

01:26:25.310 --> 01:26:27.150 align:middle line:84%
the way you do the
market segmentation is

01:26:27.150 --> 01:26:31.510 align:middle line:90%
you get market data.

01:26:31.510 --> 01:26:34.910 align:middle line:84%
And you ask people, and
they give you information

01:26:34.910 --> 01:26:37.750 align:middle line:90%
and you get data.

01:26:37.750 --> 01:26:43.110 align:middle line:84%
Imagine, in '94, going
around trying to do a market

01:26:43.110 --> 01:26:47.470 align:middle line:90%
segmentation for e-commerce.

01:26:47.470 --> 01:26:50.510 align:middle line:84%
I have no idea what
you're talking about.

01:26:50.510 --> 01:26:52.510 align:middle line:84%
And they would
probably say, beyond

01:26:52.510 --> 01:26:57.830 align:middle line:84%
that, you want me
to trust my credit

01:26:57.830 --> 01:27:03.330 align:middle line:84%
card to somebody over a line
that's not even a person?

01:27:03.330 --> 01:27:06.590 align:middle line:90%
You are out of your bloody mind.

01:27:06.590 --> 01:27:11.950 align:middle line:84%
So when something is
brand new, the reason

01:27:11.950 --> 01:27:15.670 align:middle line:84%
doing all this
stuff doesn't work

01:27:15.670 --> 01:27:20.770 align:middle line:84%
is because the information
you're getting is totally noisy.

01:27:20.770 --> 01:27:21.930 align:middle line:90%
Please.

01:27:21.930 --> 01:27:26.190 align:middle line:84%
AUDIENCE: So many people used
to buy things on the phone

01:27:26.190 --> 01:27:27.090 align:middle line:90%
before [INAUDIBLE].

01:27:27.090 --> 01:27:27.990 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yes, catalogues.

01:27:27.990 --> 01:27:30.410 align:middle line:84%
AUDIENCE: So it was not
very different from that.

01:27:30.410 --> 01:27:34.350 align:middle line:84%
It was an absolutely new
idea to give your credit card

01:27:34.350 --> 01:27:37.350 align:middle line:90%
number publicly out there.

01:27:37.350 --> 01:27:39.750 align:middle line:84%
IRVING WLADAWSKY-BERGER:
I think the phone

01:27:39.750 --> 01:27:43.150 align:middle line:84%
and the brand of the
company on the phone

01:27:43.150 --> 01:27:45.190 align:middle line:90%
is what made a difference.

01:27:45.190 --> 01:27:51.110 align:middle line:84%
Now, having said
that, it should come

01:27:51.110 --> 01:27:52.670 align:middle line:84%
as no surprise--
you know that we're

01:27:52.670 --> 01:27:56.830 align:middle line:84%
having, as a guest lecturer,
Chris McCormick, who

01:27:56.830 --> 01:28:00.110 align:middle line:90%
is the CEO of L.L.Bean.

01:28:00.110 --> 01:28:03.910 align:middle line:84%
He will be our guest
lecturer October 25.

01:28:03.910 --> 01:28:07.120 align:middle line:84%
And the reason I invited
Chris and he accepted

01:28:07.120 --> 01:28:12.580 align:middle line:84%
is because, in '96, L.L.Bean
and Chris, in particular,

01:28:12.580 --> 01:28:16.240 align:middle line:84%
who was not the CEO at the
time, were my biggest partners

01:28:16.240 --> 01:28:19.400 align:middle line:84%
in launching IBM's
e-commerce initiative.

01:28:19.400 --> 01:28:24.560 align:middle line:84%
Now, to your point,
L.L.Bean was totally

01:28:24.560 --> 01:28:27.560 align:middle line:84%
ready to set up
an e-commerce site

01:28:27.560 --> 01:28:31.320 align:middle line:84%
because, to them,
an e-commerce site

01:28:31.320 --> 01:28:36.120 align:middle line:84%
was such a natural extension
from their catalog business.

01:28:36.120 --> 01:28:40.660 align:middle line:84%
But remember, most
e-commerce sites,

01:28:40.660 --> 01:28:43.240 align:middle line:84%
especially in the early
days of the internet,

01:28:43.240 --> 01:28:45.120 align:middle line:90%
were brand new businesses.

01:28:45.120 --> 01:28:47.030 align:middle line:90%
Think of Amazon.

01:28:47.030 --> 01:28:50.200 align:middle line:90%
It didn't exist before.

01:28:50.200 --> 01:28:52.400 align:middle line:90%
Think of-- I don't know--

01:28:52.400 --> 01:28:54.460 align:middle line:90%
--buying wine over the web.

01:28:54.460 --> 01:28:56.360 align:middle line:90%
There were all these things.

01:28:56.360 --> 01:29:02.840 align:middle line:84%
And at the time, people just
could not consider that.

01:29:02.840 --> 01:29:08.020 align:middle line:84%
So it was a market
that did not exist.

01:29:08.020 --> 01:29:10.560 align:middle line:90%


01:29:10.560 --> 01:29:16.000 align:middle line:84%
This is-- I think it's an
extremely important point

01:29:16.000 --> 01:29:20.200 align:middle line:84%
that one of the
biggest innovations

01:29:20.200 --> 01:29:24.360 align:middle line:84%
for your innovative
products and services

01:29:24.360 --> 01:29:29.640 align:middle line:84%
is to find the right markets
in which to first bring out

01:29:29.640 --> 01:29:30.740 align:middle line:90%
your innovation.

01:29:30.740 --> 01:29:34.080 align:middle line:84%
We were having a discussion
before about health care

01:29:34.080 --> 01:29:36.380 align:middle line:90%
delivery over the internet.

01:29:36.380 --> 01:29:39.760 align:middle line:90%


01:29:39.760 --> 01:29:41.600 align:middle line:84%
And we were talking
about, well, is it

01:29:41.600 --> 01:29:45.640 align:middle line:84%
for people where they don't
want to-- they are, let's say,

01:29:45.640 --> 01:29:49.720 align:middle line:84%
in Boston, but it's a pain in
the ass to go to Mass General

01:29:49.720 --> 01:29:51.760 align:middle line:84%
or wherever they
would go, so they

01:29:51.760 --> 01:29:56.540 align:middle line:84%
like to do that, versus being
in a small village in Vermont

01:29:56.540 --> 01:29:59.320 align:middle line:84%
or being in a small
village in India

01:29:59.320 --> 01:30:06.850 align:middle line:84%
where you are hours
away from health care.

01:30:06.850 --> 01:30:16.770 align:middle line:84%
And there's no question that
the initial markets you pick

01:30:16.770 --> 01:30:20.970 align:middle line:84%
are going to determine
the kind of product

01:30:20.970 --> 01:30:22.710 align:middle line:90%
and service you bring out.

01:30:22.710 --> 01:30:27.450 align:middle line:84%
Even though, at some level,
it's all similar, especially

01:30:27.450 --> 01:30:31.810 align:middle line:84%
at the beginning, you will
do things for one segment

01:30:31.810 --> 01:30:36.090 align:middle line:84%
that the other segment could
care less about and vice versa.

01:30:36.090 --> 01:30:38.410 align:middle line:90%
And picking the right one--

01:30:38.410 --> 01:30:41.810 align:middle line:90%
and remember, think of this--

01:30:41.810 --> 01:30:46.330 align:middle line:84%
I love this term, the
football, because you

01:30:46.330 --> 01:30:50.170 align:middle line:84%
are going after everything,
but you need a foothold

01:30:50.170 --> 01:30:52.930 align:middle line:84%
before you can grow
from that foothold.

01:30:52.930 --> 01:30:57.370 align:middle line:84%
And picking the right one
is extremely important,

01:30:57.370 --> 01:31:04.130 align:middle line:84%
and it's going to totally
impact where you go.

01:31:04.130 --> 01:31:05.290 align:middle line:90%
Please.

01:31:05.290 --> 01:31:08.650 align:middle line:84%
AUDIENCE: I mean, can
you talk about some

01:31:08.650 --> 01:31:12.110 align:middle line:84%
of the specifics of that
supercomputing example?

01:31:12.110 --> 01:31:16.570 align:middle line:84%
I mean, were you giving
them the supercomputer

01:31:16.570 --> 01:31:18.010 align:middle line:90%
in order to build your--

01:31:18.010 --> 01:31:19.270 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Were we giving them?

01:31:19.270 --> 01:31:19.710 align:middle line:90%
AUDIENCE: Yeah.

01:31:19.710 --> 01:31:20.130 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, they bought it.

01:31:20.130 --> 01:31:21.547 align:middle line:84%
AUDIENCE: They
were paying for it?

01:31:21.547 --> 01:31:24.408 align:middle line:84%
And I mean, were
the things you were

01:31:24.408 --> 01:31:26.450 align:middle line:84%
doing to meet their needs
different from what you

01:31:26.450 --> 01:31:28.610 align:middle line:90%
did when you launched it into--

01:31:28.610 --> 01:31:30.810 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Well, they were earlier.

01:31:30.810 --> 01:31:39.090 align:middle line:84%
So that's why I positioned it
as alpha because let's say--

01:31:39.090 --> 01:31:42.730 align:middle line:84%
let's take a seismic
company that's

01:31:42.730 --> 01:31:46.050 align:middle line:84%
using supercomputers for
seismic analysis or engineering

01:31:46.050 --> 01:31:47.350 align:middle line:90%
simulation.

01:31:47.350 --> 01:31:50.090 align:middle line:90%


01:31:50.090 --> 01:31:55.250 align:middle line:84%
Programming parallel
architectures is really a pain.

01:31:55.250 --> 01:31:57.150 align:middle line:90%
The tools are not very good.

01:31:57.150 --> 01:32:00.370 align:middle line:84%
In fact, they're
still not very good.

01:32:00.370 --> 01:32:06.690 align:middle line:84%
At places like a national
lab or a university,

01:32:06.690 --> 01:32:10.530 align:middle line:84%
there are enough people
that are comfortable doing

01:32:10.530 --> 01:32:13.810 align:middle line:84%
this detailed
parallel programming,

01:32:13.810 --> 01:32:19.450 align:middle line:84%
if they can get in return
much more improvement

01:32:19.450 --> 01:32:21.810 align:middle line:90%
for their application.

01:32:21.810 --> 01:32:24.130 align:middle line:84%
So they are willing to
put up with the pain

01:32:24.130 --> 01:32:29.050 align:middle line:84%
of this detailed programming if
the payoff is big enough, which

01:32:29.050 --> 01:32:33.890 align:middle line:84%
is, you get 10 times the
performance for your problems

01:32:33.890 --> 01:32:36.370 align:middle line:90%
by investing in that.

01:32:36.370 --> 01:32:39.330 align:middle line:84%
The research communities,
universities,

01:32:39.330 --> 01:32:42.730 align:middle line:90%
are willing to do that.

01:32:42.730 --> 01:32:48.290 align:middle line:84%
If you are a seismic company,
you're looking for oil,

01:32:48.290 --> 01:32:52.930 align:middle line:84%
so you want more an application
package that does that.

01:32:52.930 --> 01:32:55.870 align:middle line:84%
So to get to market
for those customers,

01:32:55.870 --> 01:32:59.060 align:middle line:84%
you have to have more
is the key vendors

01:32:59.060 --> 01:33:01.780 align:middle line:84%
that they use for
their applications

01:33:01.780 --> 01:33:05.300 align:middle line:84%
and have ported their
applications, optimized them.

01:33:05.300 --> 01:33:07.380 align:middle line:90%
All that takes time.

01:33:07.380 --> 01:33:10.940 align:middle line:90%
And especially members like--

01:33:10.940 --> 01:33:15.820 align:middle line:84%
the first machines went from the
loading dock to those clients.

01:33:15.820 --> 01:33:20.700 align:middle line:84%
So for the application
vendors, they haven't even

01:33:20.700 --> 01:33:23.420 align:middle line:90%
had machines to test.

01:33:23.420 --> 01:33:28.300 align:middle line:84%
So that's why that takes
longer to get that.

01:33:28.300 --> 01:33:34.200 align:middle line:84%
But our intent at that time
was, all along, to expand it.

01:33:34.200 --> 01:33:37.580 align:middle line:84%
Right now, the
market is everything.

01:33:37.580 --> 01:33:40.860 align:middle line:84%
But it's this point
of a foothold, of,

01:33:40.860 --> 01:33:46.100 align:middle line:84%
we pick the people who
were tolerant enough

01:33:46.100 --> 01:33:50.940 align:middle line:84%
of the quality of what we
were able to deliver early,

01:33:50.940 --> 01:33:54.300 align:middle line:90%
and then we grew from there.

01:33:54.300 --> 01:33:58.740 align:middle line:84%
And that's why the notion of
a foothold is very important.

01:33:58.740 --> 01:34:00.980 align:middle line:84%
But if you pick
the wrong foothold,

01:34:00.980 --> 01:34:03.780 align:middle line:84%
a customer that you
deliver the machine,

01:34:03.780 --> 01:34:05.740 align:middle line:84%
and they say, OK,
great, Irving-- so when

01:34:05.740 --> 01:34:09.180 align:middle line:84%
is the software and
the tools showing up?

01:34:09.180 --> 01:34:15.460 align:middle line:90%
You say, oh, well, 12 months.

01:34:15.460 --> 01:34:17.960 align:middle line:84%
They will tell you, get
the machine out of here,

01:34:17.960 --> 01:34:21.680 align:middle line:84%
or don't send me a bill
for 12 months or something.

01:34:21.680 --> 01:34:22.340 align:middle line:90%
I don't know.

01:34:22.340 --> 01:34:24.620 align:middle line:90%
They'll be really upset.

01:34:24.620 --> 01:34:27.980 align:middle line:84%
So you need to find
the people for whom

01:34:27.980 --> 01:34:32.180 align:middle line:84%
what you are able to
deliver at this point

01:34:32.180 --> 01:34:36.780 align:middle line:84%
is fine compared
to other people.

01:34:36.780 --> 01:34:42.480 align:middle line:84%
Now, the reason this
is such a problem,

01:34:42.480 --> 01:34:47.380 align:middle line:84%
often, to establish
companies, as they say here,

01:34:47.380 --> 01:34:53.430 align:middle line:84%
is that, in order to be able
to focus and get a foothold,

01:34:53.430 --> 01:34:56.810 align:middle line:84%
part of it is that-- let's
say you do all this publicity,

01:34:56.810 --> 01:34:59.170 align:middle line:84%
you say all this stuff,
and then people say,

01:34:59.170 --> 01:35:00.990 align:middle line:90%
I'm not ready for you yet.

01:35:00.990 --> 01:35:04.150 align:middle line:84%
And people don't
like to say that.

01:35:04.150 --> 01:35:10.150 align:middle line:84%
If you have an installed base,
you want to go after everything.

01:35:10.150 --> 01:35:13.750 align:middle line:84%
So often, when you're
a large company

01:35:13.750 --> 01:35:17.850 align:middle line:84%
and get part of the discussion
of, go after large market,

01:35:17.850 --> 01:35:20.910 align:middle line:84%
serve you your
whole customer base,

01:35:20.910 --> 01:35:26.670 align:middle line:84%
saying no, saying, we're
not going to do this,

01:35:26.670 --> 01:35:28.750 align:middle line:90%
is a huge fear.

01:35:28.750 --> 01:35:32.110 align:middle line:84%
And so you'll go ahead
and do it, and often

01:35:32.110 --> 01:35:35.190 align:middle line:90%
with disastrous consequences.

01:35:35.190 --> 01:35:40.310 align:middle line:84%
I mean, just to give
you an example, in '95,

01:35:40.310 --> 01:35:45.190 align:middle line:84%
a commercial customer bought one
of our parallel supercomputers

01:35:45.190 --> 01:35:50.510 align:middle line:84%
to do a scalable
database for SAP.

01:35:50.510 --> 01:35:52.310 align:middle line:90%
If you know anything--

01:35:52.310 --> 01:35:56.390 align:middle line:84%
ERP applications usually
have a shared database.

01:35:56.390 --> 01:35:59.910 align:middle line:84%
And it's shared, then
you have the frontend

01:35:59.910 --> 01:36:03.670 align:middle line:84%
is the applications, and
they are more scalable.

01:36:03.670 --> 01:36:08.430 align:middle line:84%
And then you have the
presentation services.

01:36:08.430 --> 01:36:13.270 align:middle line:84%
The problem is, sharing data
over a parallel architecture

01:36:13.270 --> 01:36:16.310 align:middle line:84%
is really difficult. And
in fact, to this day,

01:36:16.310 --> 01:36:19.190 align:middle line:90%
it doesn't work.

01:36:19.190 --> 01:36:21.030 align:middle line:84%
If you want to share
data, you should

01:36:21.030 --> 01:36:26.670 align:middle line:84%
have a good SMP system, which
means a Shared Memory System.

01:36:26.670 --> 01:36:29.350 align:middle line:90%
Otherwise, it just doesn't work.

01:36:29.350 --> 01:36:31.230 align:middle line:84%
So we shipped the
machine because we

01:36:31.230 --> 01:36:34.910 align:middle line:84%
didn't have a good SMP, and
the client team [INAUDIBLE]

01:36:34.910 --> 01:36:36.010 align:middle line:90%
such a great client.

01:36:36.010 --> 01:36:37.270 align:middle line:90%
We need to do that.

01:36:37.270 --> 01:36:42.950 align:middle line:84%
And a few months later, we had
to eat crow, take the machine

01:36:42.950 --> 01:36:49.830 align:middle line:84%
back, and help them port
to a [INAUDIBLE] machine

01:36:49.830 --> 01:36:52.530 align:middle line:84%
because the customer
relationship was so important.

01:36:52.530 --> 01:36:57.670 align:middle line:84%
And the good news is, because we
handled that transition so well,

01:36:57.670 --> 01:37:01.110 align:middle line:84%
a few years later, we
now had very good SMPs,

01:37:01.110 --> 01:37:03.110 align:middle line:90%
and we won the business.

01:37:03.110 --> 01:37:08.670 align:middle line:84%
This time, this [INAUDIBLE] from
that company have grown a lot.

01:37:08.670 --> 01:37:10.330 align:middle line:90%
But that's a very good example.

01:37:10.330 --> 01:37:12.210 align:middle line:90%
We just oversold it.

01:37:12.210 --> 01:37:14.150 align:middle line:84%
I don't know how
else to say that.

01:37:14.150 --> 01:37:17.490 align:middle line:84%
And we oversold it for this--
well, how can you say no?

01:37:17.490 --> 01:37:19.710 align:middle line:84%
Well, you can say no because
the damn thing doesn't

01:37:19.710 --> 01:37:21.590 align:middle line:90%
work for them.

01:37:21.590 --> 01:37:26.830 align:middle line:84%
And if you're a
small company, you're

01:37:26.830 --> 01:37:30.010 align:middle line:84%
more sensitive to what you
can do, what your limits are.

01:37:30.010 --> 01:37:32.230 align:middle line:90%
You don't have all this stuff.

01:37:32.230 --> 01:37:38.950 align:middle line:84%
And another big issue
with focusing initially

01:37:38.950 --> 01:37:44.910 align:middle line:84%
is the demand to quantify
the opportunity, which

01:37:44.910 --> 01:37:50.520 align:middle line:84%
we talked a little bit about
before, that the financial--

01:37:50.520 --> 01:37:53.160 align:middle line:84%
the people you're making
business cases-- well,

01:37:53.160 --> 01:37:54.960 align:middle line:90%
how big is the market?

01:37:54.960 --> 01:38:00.440 align:middle line:84%
Now, the reality-- this
is the reality-- is that--

01:38:00.440 --> 01:38:02.000 align:middle line:84%
let me say something,
and I really

01:38:02.000 --> 01:38:06.880 align:middle line:84%
don't mean it, even if it
gets captured on the podcast.

01:38:06.880 --> 01:38:14.440 align:middle line:84%
You may as well invent the
numbers because there's no data.

01:38:14.440 --> 01:38:16.840 align:middle line:90%
This is brand new.

01:38:16.840 --> 01:38:20.880 align:middle line:84%
So you can put together
a whole business model,

01:38:20.880 --> 01:38:26.120 align:middle line:84%
and you can hire
consulting companies,

01:38:26.120 --> 01:38:32.160 align:middle line:84%
pay them gigantic amounts of
money, but there's no data.

01:38:32.160 --> 01:38:36.080 align:middle line:84%
It's a market that
doesn't exist.

01:38:36.080 --> 01:38:38.440 align:middle line:84%
So you almost-- I mean, I
shouldn't have said that.

01:38:38.440 --> 01:38:40.880 align:middle line:84%
You should never
make up numbers.

01:38:40.880 --> 01:38:43.320 align:middle line:84%
But the quality of the
numbers that you're

01:38:43.320 --> 01:38:46.320 align:middle line:84%
giving the financial community
for your business case

01:38:46.320 --> 01:38:51.360 align:middle line:84%
is as good as if you
had made them up.

01:38:51.360 --> 01:38:54.720 align:middle line:84%
And it's because of
the lack of numbers.

01:38:54.720 --> 01:39:02.640 align:middle line:84%
And again, I think that when you
make a case in the more visible

01:39:02.640 --> 01:39:06.960 align:middle line:90%
world, there is more of--

01:39:06.960 --> 01:39:11.800 align:middle line:84%
because, as we discussed before,
people are more used to risks,

01:39:11.800 --> 01:39:16.280 align:middle line:84%
then they are more
tolerant of a business

01:39:16.280 --> 01:39:18.920 align:middle line:90%
model that has big risks in it.

01:39:18.920 --> 01:39:20.800 align:middle line:84%
And you can be
more honest with--

01:39:20.800 --> 01:39:24.600 align:middle line:84%
well, you have to be more
honest because the expert you're

01:39:24.600 --> 01:39:29.000 align:middle line:84%
talking about at the VC
company have been around,

01:39:29.000 --> 01:39:33.920 align:middle line:84%
and so they know how to validate
what you're telling them.

01:39:33.920 --> 01:39:37.880 align:middle line:84%
I find usually,
in big companies,

01:39:37.880 --> 01:39:41.320 align:middle line:84%
the financial communities
are totally geared

01:39:41.320 --> 01:39:44.610 align:middle line:84%
to incremental extensions
of existing businesses,

01:39:44.610 --> 01:39:49.050 align:middle line:84%
and they have no idea how
to run any other businesses.

01:39:49.050 --> 01:39:52.850 align:middle line:84%
And then, usually, you
have great relationship

01:39:52.850 --> 01:39:55.030 align:middle line:84%
with channels and
things like that,

01:39:55.030 --> 01:39:56.710 align:middle line:90%
and they will straitjacket you.

01:39:56.710 --> 01:39:59.330 align:middle line:84%
They will want the product,
and you said, wait a second.

01:39:59.330 --> 01:40:01.730 align:middle line:84%
This is a goddamn
parallel machine.

01:40:01.730 --> 01:40:04.690 align:middle line:84%
You don't have any
experience with that.

01:40:04.690 --> 01:40:06.390 align:middle line:90%
And they will want to do that.

01:40:06.390 --> 01:40:11.570 align:middle line:84%
So it is one of the issues
that puts the companies

01:40:11.570 --> 01:40:15.050 align:middle line:90%
in a straitjacket.

01:40:15.050 --> 01:40:23.150 align:middle line:84%
Another extremely important
point is, you pick new markets,

01:40:23.150 --> 01:40:27.970 align:middle line:84%
but then you want
to pick customers

01:40:27.970 --> 01:40:35.250 align:middle line:84%
that will want your products and
that you can have for yourself.

01:40:35.250 --> 01:40:41.350 align:middle line:84%
And selecting customers here is
extremely difficult and very,

01:40:41.350 --> 01:40:44.250 align:middle line:90%
very important.

01:40:44.250 --> 01:40:48.610 align:middle line:84%
In the case of parallel
architectures in supercomputers,

01:40:48.610 --> 01:40:50.770 align:middle line:84%
the reason the
research labs wanted

01:40:50.770 --> 01:40:54.370 align:middle line:84%
it is because they
were able-- there

01:40:54.370 --> 01:40:57.990 align:middle line:84%
was a big national initiative
for parallel supercomputing,

01:40:57.990 --> 01:41:01.290 align:middle line:84%
and they could get
funding from Washington

01:41:01.290 --> 01:41:04.970 align:middle line:84%
to acquire parallel
machines and work

01:41:04.970 --> 01:41:09.690 align:middle line:84%
hard to solve what people call
grand challenge problems, that

01:41:09.690 --> 01:41:15.490 align:middle line:84%
is, problems-- think of genomics
analysis or things like that

01:41:15.490 --> 01:41:20.090 align:middle line:84%
that the present machines
couldn't possibly address.

01:41:20.090 --> 01:41:23.730 align:middle line:84%
So they were pushing
the envelope anyway,

01:41:23.730 --> 01:41:26.050 align:middle line:84%
and the only way
they could even begin

01:41:26.050 --> 01:41:30.490 align:middle line:84%
to address the computing
capacities they needed

01:41:30.490 --> 01:41:33.490 align:middle line:84%
was to get parallel
architectures.

01:41:33.490 --> 01:41:38.970 align:middle line:84%
Remember, that was
a brand new market.

01:41:38.970 --> 01:41:41.430 align:middle line:84%
Well, how many people
want genomics analysis?

01:41:41.430 --> 01:41:45.210 align:middle line:84%
Well, nobody has any idea
what genomics analysis is.

01:41:45.210 --> 01:41:48.010 align:middle line:90%
So that's a research problem.

01:41:48.010 --> 01:41:51.490 align:middle line:84%
So working with the people who
have the need in the research

01:41:51.490 --> 01:41:54.770 align:middle line:84%
community was a good
entree, and eventually, one

01:41:54.770 --> 01:41:57.730 align:middle line:90%
was able to back it up.

01:41:57.730 --> 01:42:03.930 align:middle line:84%
But trying to go after
the existing customer

01:42:03.930 --> 01:42:10.410 align:middle line:90%
base with the new products--

01:42:10.410 --> 01:42:13.490 align:middle line:84%
as I said, the first
time they ask you, well,

01:42:13.490 --> 01:42:17.410 align:middle line:84%
how many packages
that I used today?

01:42:17.410 --> 01:42:22.090 align:middle line:84%
NASTRAN for structural
analysis, M-Crash for crash

01:42:22.090 --> 01:42:25.550 align:middle line:84%
simulation-- these are
all engineering packages.

01:42:25.550 --> 01:42:26.530 align:middle line:90%
Do you have--

01:42:26.530 --> 01:42:27.030 align:middle line:90%
I'm sorry.

01:42:27.030 --> 01:42:29.650 align:middle line:90%
I don't have any of them.

01:42:29.650 --> 01:42:31.250 align:middle line:90%
Why are you here?

01:42:31.250 --> 01:42:33.070 align:middle line:90%
When you get them, come back.

01:42:33.070 --> 01:42:35.130 align:middle line:90%
And of course, we did.

01:42:35.130 --> 01:42:38.940 align:middle line:84%
But first we had to
work in getting them.

01:42:38.940 --> 01:42:51.720 align:middle line:84%
And Christensen and Raynor
have a very important point,

01:42:51.720 --> 01:42:57.580 align:middle line:84%
which is, the ideal
new customers to get

01:42:57.580 --> 01:43:02.620 align:middle line:84%
are people who could
not have gotten what

01:43:02.620 --> 01:43:07.100 align:middle line:90%
you offer before you showed up.

01:43:07.100 --> 01:43:08.920 align:middle line:90%
So you're competing with no one.

01:43:08.920 --> 01:43:12.580 align:middle line:84%
You're giving them
a brand new thing.

01:43:12.580 --> 01:43:17.700 align:middle line:84%
Now, let's talk about
some examples of a product

01:43:17.700 --> 01:43:23.520 align:middle line:84%
or a service that, when it
showed up, was just brand new,

01:43:23.520 --> 01:43:28.300 align:middle line:84%
so it had the market to itself--
any comments from you all?--

01:43:28.300 --> 01:43:32.740 align:middle line:84%
that has of
non-consumption quality?

01:43:32.740 --> 01:43:33.780 align:middle line:90%
Please.

01:43:33.780 --> 01:43:34.860 align:middle line:90%
AUDIENCE: Segway.

01:43:34.860 --> 01:43:37.100 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Segway, yes.

01:43:37.100 --> 01:43:40.560 align:middle line:84%
Segway-- I don't think we
can claim success here.

01:43:40.560 --> 01:43:41.328 align:middle line:90%
AUDIENCE: Yeah.

01:43:41.328 --> 01:43:43.620 align:middle line:84%
IRVING WLADAWSKY-BERGER: So
Segway-- what we don't know

01:43:43.620 --> 01:43:46.940 align:middle line:84%
is whether it will
remain a non-consumption.

01:43:46.940 --> 01:43:48.280 align:middle line:90%
We don't know that yet.

01:43:48.280 --> 01:43:49.740 align:middle line:90%
But I agree totally.

01:43:49.740 --> 01:43:52.100 align:middle line:90%
Segway is in that category.

01:43:52.100 --> 01:43:56.260 align:middle line:84%
By the way, what I'm
expecting will happen is--

01:43:56.260 --> 01:43:58.800 align:middle line:84%
I don't know if Segway is
the one that will make it,

01:43:58.800 --> 01:44:03.380 align:middle line:84%
but maybe somebody will figure
out the personal mobility

01:44:03.380 --> 01:44:08.140 align:middle line:84%
thing like Segway that will have
the good qualities of Segway

01:44:08.140 --> 01:44:11.900 align:middle line:84%
and will eliminate whatever
is not [INAUDIBLE].

01:44:11.900 --> 01:44:13.324 align:middle line:90%
Please.

01:44:13.324 --> 01:44:15.100 align:middle line:90%
AUDIENCE: PayPal.

01:44:15.100 --> 01:44:17.660 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Perfect, PayPal.

01:44:17.660 --> 01:44:19.340 align:middle line:90%
PayPal is perfect.

01:44:19.340 --> 01:44:22.040 align:middle line:90%
Yep, Pay-- It was brand new.

01:44:22.040 --> 01:44:24.800 align:middle line:84%
Now, there are
competitors to PayPal now.

01:44:24.800 --> 01:44:25.780 align:middle line:90%
Am I correct?

01:44:25.780 --> 01:44:27.020 align:middle line:90%
Doesn't Google have a--

01:44:27.020 --> 01:44:28.395 align:middle line:84%
AUDIENCE: There
were at the time,

01:44:28.395 --> 01:44:31.868 align:middle line:84%
and then Western Union
started [INAUDIBLE].

01:44:31.868 --> 01:44:33.660 align:middle line:84%
IRVING WLADAWSKY-BERGER:
But doesn't Google

01:44:33.660 --> 01:44:36.270 align:middle line:90%
have a PayPal-like competitor?

01:44:36.270 --> 01:44:39.050 align:middle line:84%
AUDIENCE: Yeah,
Checkout [INAUDIBLE].

01:44:39.050 --> 01:44:40.830 align:middle line:90%
AUDIENCE: Yeah, Google checkout.

01:44:40.830 --> 01:44:43.070 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yeah, please

01:44:43.070 --> 01:44:45.370 align:middle line:84%
AUDIENCE: [INAUDIBLE]
about People's Express,

01:44:45.370 --> 01:44:50.118 align:middle line:84%
which sort of is [INAUDIBLE]
being on Southwest [INAUDIBLE]

01:44:50.118 --> 01:44:50.990 align:middle line:90%
cheap airlines.

01:44:50.990 --> 01:44:52.240 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

01:44:52.240 --> 01:44:54.250 align:middle line:90%
Yeah, that was very good.

01:44:54.250 --> 01:44:58.670 align:middle line:84%
And notice, one of the
interesting things that,

01:44:58.670 --> 01:45:03.570 align:middle line:84%
when a brand new company finds
a market and a set of customers

01:45:03.570 --> 01:45:07.590 align:middle line:84%
nobody knew existed,
you only have it

01:45:07.590 --> 01:45:11.510 align:middle line:84%
for a little while because,
first, the big boys will

01:45:11.510 --> 01:45:16.590 align:middle line:84%
come after you, as you know
they did with People Express.

01:45:16.590 --> 01:45:22.490 align:middle line:84%
And second, when we look
at the airline industry,

01:45:22.490 --> 01:45:24.910 align:middle line:90%
others will copy you.

01:45:24.910 --> 01:45:29.590 align:middle line:84%
And so you only have
this for a while,

01:45:29.590 --> 01:45:31.950 align:middle line:84%
and then you have
to keep innovating.

01:45:31.950 --> 01:45:35.378 align:middle line:84%
AUDIENCE: I was thinking about
Napster, but maybe [INAUDIBLE].

01:45:35.378 --> 01:45:37.170 align:middle line:84%
IRVING WLADAWSKY-BERGER:
But which version?

01:45:37.170 --> 01:45:38.950 align:middle line:84%
There were two
versions of Napster.

01:45:38.950 --> 01:45:40.330 align:middle line:84%
AUDIENCE: Not the
more legal one.

01:45:40.330 --> 01:45:42.163 align:middle line:84%
But maybe BitTorrent,
which has now been a--

01:45:42.163 --> 01:45:43.955 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yeah, it could be.

01:45:43.955 --> 01:45:45.110 align:middle line:90%
How about iPod?

01:45:45.110 --> 01:45:52.650 align:middle line:84%
Would you say iPod was a
market that Apple discovered,

01:45:52.650 --> 01:45:54.050 align:middle line:90%
and that's why it took off?

01:45:54.050 --> 01:45:54.950 align:middle line:90%
What would you say?

01:45:54.950 --> 01:45:57.170 align:middle line:90%
AUDIENCE: iTunes plus iPod.

01:45:57.170 --> 01:45:59.430 align:middle line:84%
IRVING WLADAWSKY-BERGER:
When I say iPod,

01:45:59.430 --> 01:46:01.930 align:middle line:84%
I don't think there
is iPod with iTunes.

01:46:01.930 --> 01:46:06.110 align:middle line:84%
In fact, in my opinion, what
makes the iPod successful

01:46:06.110 --> 01:46:14.710 align:middle line:84%
is how brilliantly Apple
integrated iTunes with the--

01:46:14.710 --> 01:46:17.910 align:middle line:84%
what is the software
on the PC called?

01:46:17.910 --> 01:46:19.695 align:middle line:90%
It's called iTunes, right?

01:46:19.695 --> 01:46:20.570 align:middle line:90%
AUDIENCE: [INAUDIBLE]

01:46:20.570 --> 01:46:23.278 align:middle line:84%
IRVING WLADAWSKY-BERGER: No, no,
no, it's the iTunes on your PC--

01:46:23.278 --> 01:46:24.190 align:middle line:90%
AUDIENCE: ITunes.

01:46:24.190 --> 01:46:27.350 align:middle line:84%
IRVING WLADAWSKY-BERGER:
--with the music store.

01:46:27.350 --> 01:46:28.685 align:middle line:90%
Is it also iTunes?

01:46:28.685 --> 01:46:29.310 align:middle line:90%
AUDIENCE: Yeah.

01:46:29.310 --> 01:46:29.935 align:middle line:90%
AUDIENCE: Yeah.

01:46:29.935 --> 01:46:31.670 align:middle line:84%
IRVING WLADAWSKY-BERGER:
With the iPad--

01:46:31.670 --> 01:46:34.710 align:middle line:84%
the combination of the
three, that feels--

01:46:34.710 --> 01:46:35.330 align:middle line:90%
do you agree?

01:46:35.330 --> 01:46:36.317 align:middle line:90%
That's totally new.

01:46:36.317 --> 01:46:38.150 align:middle line:84%
AUDIENCE: Yeah, it was
the delivery of music

01:46:38.150 --> 01:46:39.650 align:middle line:90%
from iTunes that really--

01:46:39.650 --> 01:46:40.450 align:middle line:84%
IRVING WLADAWSKY-BERGER:
That's right.

01:46:40.450 --> 01:46:40.510 align:middle line:90%
AUDIENCE: [INAUDIBLE]

01:46:40.510 --> 01:46:42.135 align:middle line:84%
IRVING WLADAWSKY-BERGER:
--it was the--

01:46:42.135 --> 01:46:49.270 align:middle line:84%
and it was this trivial click
from iTunes that captured that.

01:46:49.270 --> 01:46:52.770 align:middle line:84%
AUDIENCE: Just on the
same case with the iPod,

01:46:52.770 --> 01:46:55.790 align:middle line:84%
they were already existing
products out there.

01:46:55.790 --> 01:46:57.570 align:middle line:84%
In fact, some of them
were even better.

01:46:57.570 --> 01:47:00.575 align:middle line:84%
So I think the way
they market them,

01:47:00.575 --> 01:47:01.950 align:middle line:84%
the way that--
they actually went

01:47:01.950 --> 01:47:03.453 align:middle line:90%
to the same set of customers.

01:47:03.453 --> 01:47:04.370 align:middle line:90%
They were not cheaper.

01:47:04.370 --> 01:47:05.570 align:middle line:90%
The product was not cheaper.

01:47:05.570 --> 01:47:08.650 align:middle line:84%
In fact, Samsung had
similar products,

01:47:08.650 --> 01:47:10.070 align:middle line:90%
but they were much cheaper.

01:47:10.070 --> 01:47:15.130 align:middle line:84%
Even then, people actually
went more for iPod.

01:47:15.130 --> 01:47:17.310 align:middle line:84%
AUDIENCE: It became
a fashion statement,

01:47:17.310 --> 01:47:19.510 align:middle line:84%
sort of marketed it
in a different way.

01:47:19.510 --> 01:47:22.110 align:middle line:84%
It was not something
to listen to music,

01:47:22.110 --> 01:47:25.430 align:middle line:84%
or it was something that
you really had to own.

01:47:25.430 --> 01:47:27.750 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, no, but is it

01:47:27.750 --> 01:47:31.640 align:middle line:84%
fair to say that all the
MP3 players before, you

01:47:31.640 --> 01:47:35.600 align:middle line:84%
had to, quote unquote, rip off--
and I don't mean rip off, steal.

01:47:35.600 --> 01:47:41.160 align:middle line:84%
But you had to, by yourself,
put-- don't we call it--

01:47:41.160 --> 01:47:42.273 align:middle line:90%
rip off is not the word.

01:47:42.273 --> 01:47:43.440 align:middle line:90%
What's the word [INAUDIBLE]?

01:47:43.440 --> 01:47:44.023 align:middle line:90%
AUDIENCE: Rip.

01:47:44.023 --> 01:47:44.640 align:middle line:90%
AUDIENCE: Rip.

01:47:44.640 --> 01:47:47.960 align:middle line:84%
IRVING WLADAWSKY-BERGER: It
is rip-- not rip off, rip.

01:47:47.960 --> 01:47:49.440 align:middle line:90%
You have to rip--

01:47:49.440 --> 01:47:50.560 align:middle line:90%
that better.

01:47:50.560 --> 01:47:53.400 align:middle line:84%
I knew that rip off
didn't sound right.

01:47:53.400 --> 01:47:57.400 align:middle line:84%
You have to rip the music
from the CD yourself, correct?

01:47:57.400 --> 01:47:58.110 align:middle line:90%
AUDIENCE: Right.

01:47:58.110 --> 01:47:59.860 align:middle line:84%
IRVING WLADAWSKY-BERGER:
And some people--

01:47:59.860 --> 01:48:05.040 align:middle line:84%
my daughter, who was a teenager
or whatever-- they loved it.

01:48:05.040 --> 01:48:09.280 align:middle line:84%
I'm assuming MIT
undergraduates loved it.

01:48:09.280 --> 01:48:13.040 align:middle line:84%
But would you agree, that's
a very different market

01:48:13.040 --> 01:48:16.720 align:middle line:84%
than the iTunes market
that developed when

01:48:16.720 --> 01:48:18.620 align:middle line:90%
the delivery became so easy?

01:48:18.620 --> 01:48:21.565 align:middle line:90%
Would you all agree?

01:48:21.565 --> 01:48:22.940 align:middle line:84%
AUDIENCE: I think
it's different,

01:48:22.940 --> 01:48:29.040 align:middle line:84%
but it feels more like they
took the existing components--

01:48:29.040 --> 01:48:32.440 align:middle line:84%
they took an existing
technology, and existing

01:48:32.440 --> 01:48:35.760 align:middle line:84%
marketing methods, and
existing delivery methods,

01:48:35.760 --> 01:48:38.340 align:middle line:84%
and what their innovation was
was kind of combining them.

01:48:38.340 --> 01:48:40.048 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, that's true.

01:48:40.048 --> 01:48:43.360 align:middle line:84%
But I bet you they have
in mind the customer set.

01:48:43.360 --> 01:48:46.760 align:middle line:84%
When they did that--
in other words,

01:48:46.760 --> 01:48:49.920 align:middle line:90%
the fashion statement-- perfect.

01:48:49.920 --> 01:48:53.200 align:middle line:84%
Do you think the MIT
undergraduates would have bought

01:48:53.200 --> 01:48:54.900 align:middle line:90%
it for the fashion statement?

01:48:54.900 --> 01:48:55.860 align:middle line:90%
I don't think so.

01:48:55.860 --> 01:49:01.000 align:middle line:84%
I think they went after
people that ripping CDs--

01:49:01.000 --> 01:49:02.240 align:middle line:90%
that's a pain in the ass.

01:49:02.240 --> 01:49:04.160 align:middle line:90%
I don't want to do that.

01:49:04.160 --> 01:49:07.520 align:middle line:90%
But this was totally different.

01:49:07.520 --> 01:49:09.877 align:middle line:84%
Remember, we know a lot
about the technology.

01:49:09.877 --> 01:49:11.460 align:middle line:84%
They didn't know
about the technology.

01:49:11.460 --> 01:49:15.600 align:middle line:84%
So they made it so easy,
so easy that I think

01:49:15.600 --> 01:49:17.795 align:middle line:90%
it was a brand new market.

01:49:17.795 --> 01:49:19.420 align:middle line:84%
AUDIENCE: The user
interface stood out.

01:49:19.420 --> 01:49:19.980 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yes.

01:49:19.980 --> 01:49:20.660 align:middle line:90%
AUDIENCE: And that--

01:49:20.660 --> 01:49:21.910 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

01:49:21.910 --> 01:49:25.750 align:middle line:84%
But I think it's the same
different customers set.

01:49:25.750 --> 01:49:32.130 align:middle line:84%
Remember, I think that, when
you pick markets and customers--

01:49:32.130 --> 01:49:34.490 align:middle line:84%
and this gets back
to the point that I

01:49:34.490 --> 01:49:37.670 align:middle line:84%
keep bringing-- you can
do that by saying, look,

01:49:37.670 --> 01:49:40.430 align:middle line:84%
the engineers stay in the
lab, build the damn thing,

01:49:40.430 --> 01:49:42.570 align:middle line:84%
and now you have the
marketing people.

01:49:42.570 --> 01:49:44.770 align:middle line:84%
But that assumes
that there isn't

01:49:44.770 --> 01:49:51.450 align:middle line:84%
a very strong feedback between
the market and the product

01:49:51.450 --> 01:49:53.130 align:middle line:90%
they're building.

01:49:53.130 --> 01:49:58.650 align:middle line:84%
My contention is, in most
of what we're talking about,

01:49:58.650 --> 01:50:00.410 align:middle line:84%
when you pick your
market, and you

01:50:00.410 --> 01:50:05.850 align:middle line:84%
decide what things you
want to put in your product

01:50:05.850 --> 01:50:10.930 align:middle line:84%
or service, the two are
tightly intertwined,

01:50:10.930 --> 01:50:13.550 align:middle line:84%
and if not on day one,
on day two or three.

01:50:13.550 --> 01:50:15.650 align:middle line:90%
Would you all agree with that?

01:50:15.650 --> 01:50:20.530 align:middle line:84%
And the more the people who know
about the product are sensitized

01:50:20.530 --> 01:50:24.370 align:middle line:84%
to the market-- remember,
they know what is easy

01:50:24.370 --> 01:50:26.890 align:middle line:90%
and what's difficult.

01:50:26.890 --> 01:50:31.250 align:middle line:84%
Remember, I could have
gone in '96 to a customer,

01:50:31.250 --> 01:50:36.630 align:middle line:84%
and the customer said, well,
Irving, I want a website,

01:50:36.630 --> 01:50:40.570 align:middle line:90%
but I hate TCP/IP.

01:50:40.570 --> 01:50:41.230 align:middle line:90%
I'm sorry.

01:50:41.230 --> 01:50:44.450 align:middle line:90%
I don't know how to do that.

01:50:44.450 --> 01:50:47.470 align:middle line:84%
But what if this customer
said, Irving, I want a website,

01:50:47.470 --> 01:50:50.854 align:middle line:90%
but I like purple.

01:50:50.854 --> 01:50:52.730 align:middle line:90%
That's good.

01:50:52.730 --> 01:50:55.350 align:middle line:84%
Let me go back to the lab,
and let me talk to our people.

01:50:55.350 --> 01:51:00.530 align:middle line:84%
I mean, we can do
purple in two seconds.

01:51:00.530 --> 01:51:02.390 align:middle line:90%
Now, today, we know all that.

01:51:02.390 --> 01:51:08.890 align:middle line:84%
But don't underestimate how much
knowledge about your product

01:51:08.890 --> 01:51:12.430 align:middle line:84%
is critical to know what is
a piece of cake to change,

01:51:12.430 --> 01:51:14.850 align:middle line:84%
what you can change
in and you can have,

01:51:14.850 --> 01:51:19.410 align:middle line:84%
and what is like asking you to
do the internet without TCP/IP.

01:51:19.410 --> 01:51:22.870 align:middle line:84%
You may as well ask me to go
faster than the speed of light.

01:51:22.870 --> 01:51:24.530 align:middle line:90%
You cannot do that.

01:51:24.530 --> 01:51:26.790 align:middle line:84%
So it's a very
interesting interplay.

01:51:26.790 --> 01:51:27.470 align:middle line:90%
Yes, please.

01:51:27.470 --> 01:51:29.970 align:middle line:84%
AUDIENCE: [INAUDIBLE]
is Apple is

01:51:29.970 --> 01:51:33.970 align:middle line:84%
very good as a company with
engineering experience, rather

01:51:33.970 --> 01:51:35.792 align:middle line:84%
than engineering a
piece of hardware.

01:51:35.792 --> 01:51:37.250 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Precisely.

01:51:37.250 --> 01:51:38.030 align:middle line:90%
Perfect.

01:51:38.030 --> 01:51:39.610 align:middle line:90%
AUDIENCE: [INAUDIBLE]

01:51:39.610 --> 01:51:41.485 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, no, no, perfect.

01:51:41.485 --> 01:51:44.450 align:middle line:84%
I love the way you put it,
engineering experience, which,

01:51:44.450 --> 01:51:49.530 align:middle line:84%
in my mind, is a
market strategy.

01:51:49.530 --> 01:51:54.005 align:middle line:84%
That starts bringing engineering
with market strategy.

01:51:54.005 --> 01:51:55.130 align:middle line:90%
AUDIENCE: There's another--

01:51:55.130 --> 01:51:56.890 align:middle line:84%
IRVING WLADAWSKY-BERGER: That's
a very good way to say it.

01:51:56.890 --> 01:51:58.390 align:middle line:84%
AUDIENCE: Because
the iPod took off.

01:51:58.390 --> 01:52:01.270 align:middle line:84%
What was limiting its
penetration in the--

01:52:01.270 --> 01:52:02.770 align:middle line:84%
there's a thought
process that says,

01:52:02.770 --> 01:52:05.450 align:middle line:84%
what was limiting the iPod
penetration in the marketplace

01:52:05.450 --> 01:52:07.570 align:middle line:90%
was not the--

01:52:07.570 --> 01:52:09.270 align:middle line:84%
it was the attractiveness
of the unit,

01:52:09.270 --> 01:52:14.050 align:middle line:84%
but it was people's grasping
the concept of why they

01:52:14.050 --> 01:52:15.373 align:middle line:90%
needed that, which is wild.

01:52:15.373 --> 01:52:16.790 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Yes, yes.

01:52:16.790 --> 01:52:19.820 align:middle line:84%
AUDIENCE: I understand
[INAUDIBLE].

01:52:19.820 --> 01:52:21.820 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, no, right.

01:52:21.820 --> 01:52:24.700 align:middle line:84%
But that's the beauty of
getting to the marketplace

01:52:24.700 --> 01:52:28.380 align:middle line:84%
early because the only
way to do what you said

01:52:28.380 --> 01:52:33.380 align:middle line:84%
was to be in the marketplace and
have people love what you have.

01:52:33.380 --> 01:52:35.240 align:middle line:84%
That's your point, that
once it's out there,

01:52:35.240 --> 01:52:37.740 align:middle line:90%
it almost became viral.

01:52:37.740 --> 01:52:39.260 align:middle line:90%
Is that the point?

01:52:39.260 --> 01:52:42.740 align:middle line:84%
AUDIENCE: Yeah, well, if you're
introducing a piece of hardware

01:52:42.740 --> 01:52:45.100 align:middle line:84%
that's better than anyone
else's, people already

01:52:45.100 --> 01:52:47.180 align:middle line:90%
understand what it does.

01:52:47.180 --> 01:52:48.660 align:middle line:84%
If you introduce
a computer that's

01:52:48.660 --> 01:52:51.140 align:middle line:84%
twice as fast as
everyone else's, it's

01:52:51.140 --> 01:52:52.753 align:middle line:84%
a different dynamic
in the marketplace

01:52:52.753 --> 01:52:54.420 align:middle line:84%
than if you introduce
something which is

01:52:54.420 --> 01:52:55.800 align:middle line:90%
completely foreign to people.

01:52:55.800 --> 01:52:56.540 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, I understand.

01:52:56.540 --> 01:52:58.980 align:middle line:84%
AUDIENCE: They have to
absorb a whole concept.

01:52:58.980 --> 01:53:00.730 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, I understand.

01:53:00.730 --> 01:53:03.020 align:middle line:90%
I understand totally.

01:53:03.020 --> 01:53:04.820 align:middle line:90%
How about Netflix?

01:53:04.820 --> 01:53:06.820 align:middle line:90%
Let's talk about a service.

01:53:06.820 --> 01:53:09.500 align:middle line:90%
Would you agree that that was--

01:53:09.500 --> 01:53:13.300 align:middle line:84%
you all know what
I mean, Netflix?

01:53:13.300 --> 01:53:16.820 align:middle line:90%
Does it have this quality of--

01:53:16.820 --> 01:53:22.420 align:middle line:84%
I mean, was Netflix just,
OK, so there is the video

01:53:22.420 --> 01:53:28.260 align:middle line:84%
stores, Blockbuster, especially,
and Netflix went after them.

01:53:28.260 --> 01:53:29.980 align:middle line:84%
But you didn't have
to go to Blockbuster.

01:53:29.980 --> 01:53:31.680 align:middle line:90%
What's your views of that?

01:53:31.680 --> 01:53:35.930 align:middle line:84%
And I'll tell you
my view of Netflix.

01:53:35.930 --> 01:53:38.180 align:middle line:84%
AUDIENCE: Well their business
model was different than

01:53:38.180 --> 01:53:39.160 align:middle line:90%
Blockbuster's.

01:53:39.160 --> 01:53:41.500 align:middle line:84%
Blockbuster only gives
you the top few movies

01:53:41.500 --> 01:53:42.400 align:middle line:90%
that are out there.

01:53:42.400 --> 01:53:44.640 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Exactly, exactly.

01:53:44.640 --> 01:53:48.420 align:middle line:84%
And do you all know
about the long tail?

01:53:48.420 --> 01:53:52.420 align:middle line:84%
Do you know what I
mean by the long tail?

01:53:52.420 --> 01:53:56.620 align:middle line:90%
I think Blockbuster was--

01:53:56.620 --> 01:54:03.580 align:middle line:84%
by definition, they had to be in
the fat part of the long tail.

01:54:03.580 --> 01:54:08.720 align:middle line:84%
Netflix was-- you
can have anything.

01:54:08.720 --> 01:54:11.540 align:middle line:90%


01:54:11.540 --> 01:54:14.600 align:middle line:84%
Now, if you had
gone to ask people,

01:54:14.600 --> 01:54:18.580 align:middle line:84%
well, do you want an
internet service that

01:54:18.580 --> 01:54:20.200 align:middle line:90%
services the long tail?

01:54:20.200 --> 01:54:22.180 align:middle line:84%
Well, first of all, the
article "The Long Tail"

01:54:22.180 --> 01:54:23.840 align:middle line:90%
didn't come out after Netflix.

01:54:23.840 --> 01:54:26.020 align:middle line:84%
In fact, Netflix,
I bet you, was one

01:54:26.020 --> 01:54:30.300 align:middle line:84%
of the reasons for
the article in--

01:54:30.300 --> 01:54:31.820 align:middle line:90%
where was the article published?

01:54:31.820 --> 01:54:35.020 align:middle line:90%


01:54:35.020 --> 01:54:37.300 align:middle line:90%
It will come to me--

01:54:37.300 --> 01:54:40.280 align:middle line:90%
one of the internet journals.

01:54:40.280 --> 01:54:41.940 align:middle line:84%
AUDIENCE: I think
it was Red Herring.

01:54:41.940 --> 01:54:44.420 align:middle line:84%
IRVING WLADAWSKY-BERGER: It
was Red Herring-- one of them.

01:54:44.420 --> 01:54:45.660 align:middle line:90%
Yeah.

01:54:45.660 --> 01:54:51.460 align:middle line:84%
And nobody knew
that, once you made

01:54:51.460 --> 01:54:57.140 align:middle line:84%
it very easy to get Bollywood
movies, and Chinese movies,

01:54:57.140 --> 01:55:02.340 align:middle line:84%
and Hollywood classics, people
would start getting them.

01:55:02.340 --> 01:55:04.420 align:middle line:90%
Nobody knew that.

01:55:04.420 --> 01:55:09.420 align:middle line:84%
It turns out, people
are doing that.

01:55:09.420 --> 01:55:14.630 align:middle line:84%
That's a very good example
of discovering a market

01:55:14.630 --> 01:55:17.250 align:middle line:90%
that people didn't know.

01:55:17.250 --> 01:55:20.020 align:middle line:84%
Now, what I don't
know-- maybe some of you

01:55:20.020 --> 01:55:25.270 align:middle line:84%
know-- is, did Netflix
know that on day one,

01:55:25.270 --> 01:55:31.330 align:middle line:84%
or were they competing
with Blockbuster,

01:55:31.330 --> 01:55:33.810 align:middle line:84%
but then when they found
out about the long tail,

01:55:33.810 --> 01:55:36.630 align:middle line:84%
they say, yeah,
that's the market,

01:55:36.630 --> 01:55:40.430 align:middle line:84%
so screw Blockbuster--
let's go here?

01:55:40.430 --> 01:55:40.930 align:middle line:90%
Go ahead.

01:55:40.930 --> 01:55:42.430 align:middle line:90%
Make your point, and then I--

01:55:42.430 --> 01:55:45.850 align:middle line:84%
AUDIENCE: I think they also
changed the consumption habits.

01:55:45.850 --> 01:55:48.210 align:middle line:84%
So with Blockbuster,
you would have a card,

01:55:48.210 --> 01:55:49.830 align:middle line:84%
but you don't have
to keep going there

01:55:49.830 --> 01:55:53.150 align:middle line:84%
and get it every
week or every month.

01:55:53.150 --> 01:55:55.970 align:middle line:84%
You could just take one
now and then another one,

01:55:55.970 --> 01:55:57.630 align:middle line:90%
say, five months down the line.

01:55:57.630 --> 01:56:00.110 align:middle line:84%
But with the model
that they have,

01:56:00.110 --> 01:56:01.870 align:middle line:84%
you sign up for a
monthly package,

01:56:01.870 --> 01:56:02.910 align:middle line:90%
and you keep getting it.

01:56:02.910 --> 01:56:05.243 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Actually, now that I remember--

01:56:05.243 --> 01:56:07.910 align:middle line:90%


01:56:07.910 --> 01:56:10.390 align:middle line:84%
I remember now what
Netflix said was

01:56:10.390 --> 01:56:12.010 align:middle line:84%
the key thing they
were going after,

01:56:12.010 --> 01:56:14.030 align:middle line:90%
and it wasn't the long tail.

01:56:14.030 --> 01:56:15.150 align:middle line:90%
Go ahead, please.

01:56:15.150 --> 01:56:18.002 align:middle line:84%
AUDIENCE: So one of the
things that people--

01:56:18.002 --> 01:56:20.210 align:middle line:84%
if you rent or something,
you have to return on time.

01:56:20.210 --> 01:56:21.990 align:middle line:84%
Otherwise, you have
to pay [INAUDIBLE].

01:56:21.990 --> 01:56:22.190 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Perfect.

01:56:22.190 --> 01:56:22.795 align:middle line:90%
That was it.

01:56:22.795 --> 01:56:23.670 align:middle line:90%
AUDIENCE: [INAUDIBLE]

01:56:23.670 --> 01:56:25.378 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, no, perfect.

01:56:25.378 --> 01:56:29.410 align:middle line:84%
I remember Netflix's
initial pitch was fines.

01:56:29.410 --> 01:56:34.750 align:middle line:84%
And people were really upset at
the huge fines they were paying.

01:56:34.750 --> 01:56:37.110 align:middle line:90%
Am I not correct?

01:56:37.110 --> 01:56:41.190 align:middle line:84%
And so they got rid of
fines through the model

01:56:41.190 --> 01:56:43.510 align:middle line:90%
of the rental thing.

01:56:43.510 --> 01:56:49.590 align:middle line:84%
They got rid of fines, and
then they probably then

01:56:49.590 --> 01:56:51.250 align:middle line:90%
discovered the long tail.

01:56:51.250 --> 01:56:53.550 align:middle line:90%
That's what I would expect.

01:56:53.550 --> 01:56:55.770 align:middle line:84%
Let me tell you-- this is
a very interesting story.

01:56:55.770 --> 01:56:59.710 align:middle line:84%
I've been very involved with the
whole virtual world and Second

01:56:59.710 --> 01:57:00.450 align:middle line:90%
Life story.

01:57:00.450 --> 01:57:02.270 align:middle line:84%
Do you all know
what Second Life is?

01:57:02.270 --> 01:57:03.890 align:middle line:90%
AUDIENCE: Yeah.

01:57:03.890 --> 01:57:05.390 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Second Life

01:57:05.390 --> 01:57:07.850 align:middle line:84%
is a massively
multiplayer online game,

01:57:07.850 --> 01:57:09.640 align:middle line:90%
but it's not a game.

01:57:09.640 --> 01:57:12.080 align:middle line:84%
It's an environment
with avatars.

01:57:12.080 --> 01:57:14.480 align:middle line:90%
Do you know what an avatar is?

01:57:14.480 --> 01:57:15.360 align:middle line:90%
[INAUDIBLE]

01:57:15.360 --> 01:57:18.120 align:middle line:90%


01:57:18.120 --> 01:57:21.480 align:middle line:84%
And I know the people from
Second Life very well,

01:57:21.480 --> 01:57:28.760 align:middle line:84%
the head of it and the CTO,
Cory Ondrejka, and others.

01:57:28.760 --> 01:57:31.720 align:middle line:84%
And I was talking
to them one day,

01:57:31.720 --> 01:57:38.540 align:middle line:84%
and they said they started
with this Second Life,

01:57:38.540 --> 01:57:44.300 align:middle line:84%
just create an environment,
and it was going nowhere.

01:57:44.300 --> 01:57:46.960 align:middle line:90%


01:57:46.960 --> 01:57:56.640 align:middle line:84%
And then one day, they noticed
that people that were using

01:57:56.640 --> 01:58:00.440 align:middle line:84%
Second Life-- this is like
[INAUDIBLE] one or two--

01:58:00.440 --> 01:58:05.020 align:middle line:84%
were building their own
stuff in Second Life.

01:58:05.020 --> 01:58:08.040 align:middle line:84%
Now, I don't know if you know--
what really differentiate Second

01:58:08.040 --> 01:58:13.120 align:middle line:84%
Life from World of
Warcraft or most other

01:58:13.120 --> 01:58:16.560 align:middle line:84%
massively multiplayer online
games is that, in Second Life,

01:58:16.560 --> 01:58:21.600 align:middle line:84%
you can build buildings and
all kinds of things yourself,

01:58:21.600 --> 01:58:25.600 align:middle line:84%
whereas in all the other
ones, the vendor pre-built

01:58:25.600 --> 01:58:27.520 align:middle line:90%
almost everything for you.

01:58:27.520 --> 01:58:30.440 align:middle line:84%
That's the biggest
difference with Second Life.

01:58:30.440 --> 01:58:33.440 align:middle line:84%
Do you all know what
I'm talking about?

01:58:33.440 --> 01:58:40.640 align:middle line:84%
But they told me that
their plan had been,

01:58:40.640 --> 01:58:42.680 align:middle line:84%
we will create an
environment, but we'll

01:58:42.680 --> 01:58:44.400 align:middle line:90%
put things for the people.

01:58:44.400 --> 01:58:49.160 align:middle line:84%
But they also said, we won't
make the tools proprietary.

01:58:49.160 --> 01:58:52.840 align:middle line:84%
But then they woke up one
day, and they found out

01:58:52.840 --> 01:58:56.760 align:middle line:84%
that people were
building their own stuff.

01:58:56.760 --> 01:59:00.280 align:middle line:84%
And they say, how can anybody be
doing that because our tools are

01:59:00.280 --> 01:59:02.680 align:middle line:90%
so incredibly primitive?

01:59:02.680 --> 01:59:05.840 align:middle line:84%
And then they found
out that people

01:59:05.840 --> 01:59:10.960 align:middle line:84%
were holding courses in Second
Life, teaching each other

01:59:10.960 --> 01:59:13.960 align:middle line:84%
how to use these
primitive tools.

01:59:13.960 --> 01:59:17.160 align:middle line:84%
So all of a sudden,
organically, they

01:59:17.160 --> 01:59:20.360 align:middle line:84%
discovered their
business model, that what

01:59:20.360 --> 01:59:24.880 align:middle line:84%
the users of Second
Life wanted was--

01:59:24.880 --> 01:59:27.940 align:middle line:84%
what they loved about it
is, unlike everything else,

01:59:27.940 --> 01:59:30.040 align:middle line:90%
they can build things.

01:59:30.040 --> 01:59:34.040 align:middle line:84%
And the fact that it was
almost impossible to do it

01:59:34.040 --> 01:59:36.680 align:middle line:84%
for most people-- it's
gotten much better since.

01:59:36.680 --> 01:59:40.920 align:middle line:84%
The early adopters
taught each other.

01:59:40.920 --> 01:59:42.460 align:middle line:90%
Remember, there were no manuals.

01:59:42.460 --> 01:59:43.880 align:middle line:90%
There was no anything.

01:59:43.880 --> 01:59:47.900 align:middle line:84%
And what Cory and Phil said is,
their business model changed.

01:59:47.900 --> 01:59:49.180 align:middle line:90%
They had a board meeting.

01:59:49.180 --> 01:59:53.680 align:middle line:84%
And all of a sudden, they
had a totally business model.

01:59:53.680 --> 01:59:58.200 align:middle line:90%
No, but this is very important.

01:59:58.200 --> 02:00:02.120 align:middle line:84%
A reason to get from the
lab to the marketplace

02:00:02.120 --> 02:00:06.930 align:middle line:84%
very quickly with something
new is because that now

02:00:06.930 --> 02:00:12.710 align:middle line:84%
lets you discover what
works in the marketplace,

02:00:12.710 --> 02:00:15.850 align:middle line:84%
whether it is the
long tail in Netflix--

02:00:15.850 --> 02:00:20.770 align:middle line:90%
and this is very important also.

02:00:20.770 --> 02:00:26.730 align:middle line:84%
You need your
technical people to be

02:00:26.730 --> 02:00:29.690 align:middle line:84%
very close to the
marketplace because they

02:00:29.690 --> 02:00:35.090 align:middle line:84%
may see things that are going
on that they [INAUDIBLE]

02:00:35.090 --> 02:00:41.210 align:middle line:84%
can do that, that the people
who are not technical,

02:00:41.210 --> 02:00:43.350 align:middle line:90%
they just don't know.

02:00:43.350 --> 02:00:48.090 align:middle line:84%
They don't know the
difference between having

02:00:48.090 --> 02:00:51.490 align:middle line:84%
a website with a
purple background

02:00:51.490 --> 02:00:54.430 align:middle line:84%
and having a totally
different HTTP stack.

02:00:54.430 --> 02:00:56.030 align:middle line:90%
Those are very different things.

02:00:56.030 --> 02:00:59.630 align:middle line:84%
Remember, we take for granted
that we understand that.

02:00:59.630 --> 02:01:02.930 align:middle line:84%
But if somebody doesn't know
that you cannot go faster than

02:01:02.930 --> 02:01:05.810 align:middle line:84%
the speed of light, let me
come back to you with that

02:01:05.810 --> 02:01:06.910 align:middle line:90%
as a requirement.

02:01:06.910 --> 02:01:11.010 align:middle line:84%
You have to know that that's not
a good requirement before you

02:01:11.010 --> 02:01:11.870 align:middle line:90%
understand that.

02:01:11.870 --> 02:01:15.650 align:middle line:84%
So it's why, in these areas
of disruptive innovation

02:01:15.650 --> 02:01:21.170 align:middle line:84%
and experimentation, it's so
important to move quickly.

02:01:21.170 --> 02:01:25.450 align:middle line:84%
Let me just only spend a
few minutes on this topic

02:01:25.450 --> 02:01:27.290 align:middle line:84%
because then I
want to come back,

02:01:27.290 --> 02:01:31.330 align:middle line:84%
as I've been doing, with the
IBM example of the market

02:01:31.330 --> 02:01:32.570 align:middle line:90%
innovation.

02:01:32.570 --> 02:01:35.770 align:middle line:90%


02:01:35.770 --> 02:01:38.870 align:middle line:84%
An interesting point-- and
I'll go very quickly here.

02:01:38.870 --> 02:01:41.390 align:middle line:84%
I mean, if this doesn't
get communicated well,

02:01:41.390 --> 02:01:42.910 align:middle line:84%
I won't spend a
lot of time on it.

02:01:42.910 --> 02:01:46.490 align:middle line:84%
You can read this in
one of the chapters.

02:01:46.490 --> 02:01:53.170 align:middle line:90%


02:01:53.170 --> 02:01:55.770 align:middle line:90%
I am very fond--

02:01:55.770 --> 02:01:57.690 align:middle line:90%
I'm very fond [INAUDIBLE].

02:01:57.690 --> 02:02:01.420 align:middle line:84%
When I talk about
innovation, I like

02:02:01.420 --> 02:02:06.460 align:middle line:84%
to tell people that the key
reason you need to innovate

02:02:06.460 --> 02:02:08.240 align:middle line:90%
is because, otherwise, you die.

02:02:08.240 --> 02:02:11.020 align:middle line:84%
Now, you can say, well,
that's a very fatalistic view

02:02:11.020 --> 02:02:12.820 align:middle line:90%
of innovation.

02:02:12.820 --> 02:02:18.140 align:middle line:84%
Why don't you tell them about
the wonderful opportunities?

02:02:18.140 --> 02:02:21.180 align:middle line:84%
Well, this gets back
to the first bullet,

02:02:21.180 --> 02:02:26.420 align:middle line:84%
which is, if you tell somebody,
wonderful opportunities,

02:02:26.420 --> 02:02:30.080 align:middle line:84%
they'll say, Irving, my
business is pretty good.

02:02:30.080 --> 02:02:31.120 align:middle line:90%
We're doing well.

02:02:31.120 --> 02:02:33.420 align:middle line:90%
Our customers love us.

02:02:33.420 --> 02:02:40.700 align:middle line:84%
When we have a chance, we will
consider this opportunity.

02:02:40.700 --> 02:02:44.860 align:middle line:84%
However, if you tell them, there
is an asteroid coming straight

02:02:44.860 --> 02:02:49.580 align:middle line:84%
at your head, and there are
three competitors that already

02:02:49.580 --> 02:02:53.220 align:middle line:84%
have efforts to take
away your customers,

02:02:53.220 --> 02:02:55.680 align:middle line:84%
then all of a sudden
you get their attention.

02:02:55.680 --> 02:02:56.980 align:middle line:90%
That's the threat.

02:02:56.980 --> 02:03:02.200 align:middle line:84%
And what's so interesting is
Christensen, in this chapter--

02:03:02.200 --> 02:03:05.900 align:middle line:90%
I believe it's 5 or 6--

02:03:05.900 --> 02:03:12.780 align:middle line:84%
cites studies that have shown
that people just react much--

02:03:12.780 --> 02:03:15.740 align:middle line:84%
you can get their attention with
threats that you can never get

02:03:15.740 --> 02:03:16.780 align:middle line:90%
[INAUDIBLE].

02:03:16.780 --> 02:03:19.900 align:middle line:84%
But these are social
science statistical studies

02:03:19.900 --> 02:03:21.660 align:middle line:90%
that indicate that.

02:03:21.660 --> 02:03:25.800 align:middle line:84%
And these threats just
will catch their attention.

02:03:25.800 --> 02:03:29.820 align:middle line:84%
But now Christensen is
saying, but be very careful

02:03:29.820 --> 02:03:35.300 align:middle line:84%
because, if you really scare
the bejesus out of the company,

02:03:35.300 --> 02:03:37.820 align:middle line:84%
you really, really,
really scare them

02:03:37.820 --> 02:03:42.140 align:middle line:84%
and say that we are under threat
of having our customers stolen

02:03:42.140 --> 02:03:46.460 align:middle line:84%
from us, then what they'll
say is, oh, my god, we'll

02:03:46.460 --> 02:03:49.560 align:middle line:84%
do everything to protect
our existing customers.

02:03:49.560 --> 02:03:54.180 align:middle line:84%
And we don't want you to
do that because you really

02:03:54.180 --> 02:03:57.200 align:middle line:84%
want to-- this gets back to
the disruptive innovation.

02:03:57.200 --> 02:04:00.340 align:middle line:90%
Let's go find new customers.

02:04:00.340 --> 02:04:02.560 align:middle line:84%
We'll continue to serve
the existing customers.

02:04:02.560 --> 02:04:04.860 align:middle line:84%
But if you scare
people enough, they'll

02:04:04.860 --> 02:04:07.420 align:middle line:84%
say, no, we'll protect
the new customers.

02:04:07.420 --> 02:04:13.040 align:middle line:84%
So he advocates a very
interesting approach.

02:04:13.040 --> 02:04:13.880 align:middle line:90%
And I don't know--

02:04:13.880 --> 02:04:17.540 align:middle line:90%


02:04:17.540 --> 02:04:23.420 align:middle line:84%
let me give you the glib side
of how I interpret what he said.

02:04:23.420 --> 02:04:26.660 align:middle line:84%
When you're talking to the
resource allocation people,

02:04:26.660 --> 02:04:31.560 align:middle line:84%
scare the hell out of them
because you need the money.

02:04:31.560 --> 02:04:37.260 align:middle line:84%
This gets back to book 1,
The Innovator's Dilemma.

02:04:37.260 --> 02:04:40.260 align:middle line:84%
You are competing
with people that--

02:04:40.260 --> 02:04:42.080 align:middle line:90%
don't give this idiot the money.

02:04:42.080 --> 02:04:42.760 align:middle line:90%
Give it to me.

02:04:42.760 --> 02:04:46.540 align:middle line:84%
And you're saying,
this guy will be dead

02:04:46.540 --> 02:04:48.580 align:middle line:90%
if you don't give me money.

02:04:48.580 --> 02:04:50.100 align:middle line:90%
So do that.

02:04:50.100 --> 02:04:54.950 align:middle line:84%
However, you really don't
want this guy at all.

02:04:54.950 --> 02:04:59.110 align:middle line:84%
You just want his money
or part of his money.

02:04:59.110 --> 02:05:04.110 align:middle line:84%
So once you get the
money, and you now

02:05:04.110 --> 02:05:06.550 align:middle line:84%
want to set up
your organization,

02:05:06.550 --> 02:05:08.150 align:middle line:84%
you now want to
say, no, no, this

02:05:08.150 --> 02:05:10.110 align:middle line:84%
is really a
wonderful opportunity

02:05:10.110 --> 02:05:13.550 align:middle line:84%
to go after new
markets, so let's set up

02:05:13.550 --> 02:05:16.550 align:middle line:90%
an independent unit.

02:05:16.550 --> 02:05:21.350 align:middle line:84%
You want to execute in
a totally different way

02:05:21.350 --> 02:05:23.990 align:middle line:90%
from the operational business.

02:05:23.990 --> 02:05:26.110 align:middle line:84%
So he's saying, you
have this balance

02:05:26.110 --> 02:05:34.350 align:middle line:84%
to strike between the
threat and having people

02:05:34.350 --> 02:05:37.470 align:middle line:84%
be able to let you do
your thing for a while

02:05:37.470 --> 02:05:41.190 align:middle line:84%
because you are not ready
for all the attention

02:05:41.190 --> 02:05:44.550 align:middle line:90%
that a threat would give you.

02:05:44.550 --> 02:05:46.868 align:middle line:90%
Any comments on that?

02:05:46.868 --> 02:05:48.910 align:middle line:84%
AUDIENCE: My comment would
be that the people who

02:05:48.910 --> 02:05:51.230 align:middle line:84%
are responsible for
resource allocation

02:05:51.230 --> 02:05:54.470 align:middle line:84%
are often the same people who
are responsible for strategy

02:05:54.470 --> 02:05:55.510 align:middle line:90%
formulation.

02:05:55.510 --> 02:05:58.088 align:middle line:84%
It's kind of tough
to play both sides.

02:05:58.088 --> 02:05:59.630 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Well, so you

02:05:59.630 --> 02:06:02.030 align:middle line:90%
have to be very sophisticated.

02:06:02.030 --> 02:06:04.270 align:middle line:84%
It's a very
sophisticated-- yeah,

02:06:04.270 --> 02:06:06.390 align:middle line:90%
it's an interesting argument.

02:06:06.390 --> 02:06:10.110 align:middle line:84%
I brought it up because I
find it very interesting.

02:06:10.110 --> 02:06:13.670 align:middle line:90%
I agree, it's not easy.

02:06:13.670 --> 02:06:20.850 align:middle line:84%
But it may be that you just
have to play it carefully.

02:06:20.850 --> 02:06:25.230 align:middle line:90%
That's really all I would say.

02:06:25.230 --> 02:06:26.690 align:middle line:90%
Any other comments?

02:06:26.690 --> 02:06:29.270 align:middle line:90%


02:06:29.270 --> 02:06:39.590 align:middle line:84%
So now let me switch back
to IBM and my experiences

02:06:39.590 --> 02:06:45.390 align:middle line:84%
with setting up our
internet organization.

02:06:45.390 --> 02:06:51.320 align:middle line:84%
And let me talk about
these four factors

02:06:51.320 --> 02:06:56.680 align:middle line:84%
that we took into account in
trying to make decisions about,

02:06:56.680 --> 02:07:00.343 align:middle line:84%
how do we organize
our internet business?

02:07:00.343 --> 02:07:01.260 align:middle line:90%
What do we need to do?

02:07:01.260 --> 02:07:05.020 align:middle line:84%
Remember, we had already made
the decision we need to do that.

02:07:05.020 --> 02:07:07.960 align:middle line:90%
We set up the Internet Division.

02:07:07.960 --> 02:07:11.880 align:middle line:84%
But trust me, when
we set it up--

02:07:11.880 --> 02:07:14.920 align:middle line:84%
I mean, when Lou said, let's do
an Internet Division, I said,

02:07:14.920 --> 02:07:17.360 align:middle line:84%
Lou, what's an
Internet Division?

02:07:17.360 --> 02:07:21.660 align:middle line:84%
Well, as a general manager, when
you figure it out, of course,

02:07:21.660 --> 02:07:23.440 align:middle line:90%
you'll come and tell me.

02:07:23.440 --> 02:07:24.700 align:middle line:90%
We had no idea.

02:07:24.700 --> 02:07:26.540 align:middle line:84%
We knew we needed
to do something,

02:07:26.540 --> 02:07:29.900 align:middle line:84%
but we had no idea what
it is we needed to do.

02:07:29.900 --> 02:07:32.940 align:middle line:84%
We also knew whatever
we needed to do--

02:07:32.940 --> 02:07:35.320 align:middle line:90%
this is December of '95--

02:07:35.320 --> 02:07:40.240 align:middle line:84%
was the most exciting
thing since sliced bread.

02:07:40.240 --> 02:07:44.160 align:middle line:84%
But you can only say that so
many times before somebody

02:07:44.160 --> 02:07:48.360 align:middle line:84%
comes back and says, how
do I make money from that?

02:07:48.360 --> 02:07:50.640 align:middle line:84%
And how do the
customers make money?

02:07:50.640 --> 02:07:53.960 align:middle line:84%
So you need to translate
all this excitement.

02:07:53.960 --> 02:07:57.840 align:middle line:84%
You need to monetize
excitement, eventually.

02:07:57.840 --> 02:08:01.360 align:middle line:84%
You have a honeymoon
period of a week and a half

02:08:01.360 --> 02:08:03.520 align:middle line:90%
where you can be all excited.

02:08:03.520 --> 02:08:06.080 align:middle line:84%
And after that, you
better start working on,

02:08:06.080 --> 02:08:07.340 align:middle line:90%
how do you monetize it?

02:08:07.340 --> 02:08:11.960 align:middle line:84%
So let me go through
each of these four points

02:08:11.960 --> 02:08:15.120 align:middle line:90%
and comment about them.

02:08:15.120 --> 02:08:20.920 align:middle line:84%
So we have the capabilities
and the competencies,

02:08:20.920 --> 02:08:24.700 align:middle line:84%
that is, the organizational
capabilities and the competence.

02:08:24.700 --> 02:08:27.580 align:middle line:84%
Remember the discussion
we had at the beginning.

02:08:27.580 --> 02:08:31.000 align:middle line:90%


02:08:31.000 --> 02:08:37.920 align:middle line:84%
Well, the way we frame the
internet-- and it worked--

02:08:37.920 --> 02:08:43.000 align:middle line:84%
was that this was just
the evolution of the IT

02:08:43.000 --> 02:08:44.440 align:middle line:90%
infrastructure.

02:08:44.440 --> 02:08:46.020 align:middle line:90%
That's the way we framed it.

02:08:46.020 --> 02:08:48.380 align:middle line:84%
By the way, not everybody
was framing it that way.

02:08:48.380 --> 02:08:51.380 align:middle line:84%
A lot of people said,
here is IT, legacy crap.

02:08:51.380 --> 02:08:52.920 align:middle line:90%
Leave it alone.

02:08:52.920 --> 02:08:54.260 align:middle line:90%
Here is the internet.

02:08:54.260 --> 02:08:58.320 align:middle line:84%
Obviously, any new business
that had no legacy, that's

02:08:58.320 --> 02:09:00.600 align:middle line:90%
what they should say.

02:09:00.600 --> 02:09:06.520 align:middle line:84%
But we said, no, the internet
is just the evolution of the IT

02:09:06.520 --> 02:09:09.160 align:middle line:90%
infrastructure.

02:09:09.160 --> 02:09:13.800 align:middle line:84%
Well, guess what IBM's
core business was?

02:09:13.800 --> 02:09:17.360 align:middle line:84%
IT infrastructure-- hardware,
software, and services

02:09:17.360 --> 02:09:18.860 align:middle line:90%
for IT infrastructure.

02:09:18.860 --> 02:09:22.680 align:middle line:84%
Well, if the goddamn internet
is the evolution of the IT

02:09:22.680 --> 02:09:26.320 align:middle line:84%
infrastructure, we
sure as hell need

02:09:26.320 --> 02:09:30.120 align:middle line:84%
to have the organizational
capability to go after it.

02:09:30.120 --> 02:09:33.500 align:middle line:84%
And if somebody said, well, but
it's TCP/IP versus SNA-- well,

02:09:33.500 --> 02:09:37.200 align:middle line:84%
first of all, we had enough
people who knew TCP/IP.

02:09:37.200 --> 02:09:43.400 align:middle line:84%
SNA was dying anyway because
TCP/IP was killing it.

02:09:43.400 --> 02:09:46.490 align:middle line:84%
It's a very sad story
of mismanagement

02:09:46.490 --> 02:09:51.252 align:middle line:90%
on IBM's part, how we SN--

02:09:51.252 --> 02:09:53.210 align:middle line:84%
AUDIENCE: Same story as
Token Ring [INAUDIBLE].

02:09:53.210 --> 02:09:53.870 align:middle line:84%
IRVING WLADAWSKY-BERGER:
I'm sorry?

02:09:53.870 --> 02:09:55.450 align:middle line:84%
AUDIENCE: The same story
as Token Ring [INAUDIBLE].

02:09:55.450 --> 02:09:56.910 align:middle line:84%
IRVING WLADAWSKY-BERGER: Yeah,
it's the same story as Token.

02:09:56.910 --> 02:09:58.110 align:middle line:90%
That's a very good point.

02:09:58.110 --> 02:10:01.730 align:middle line:84%
So we have good stories,
and we have sad stories.

02:10:01.730 --> 02:10:04.890 align:middle line:84%
All of us do in
everything we do.

02:10:04.890 --> 02:10:10.610 align:middle line:84%
But we framed this, and
everybody got convinced of this,

02:10:10.610 --> 02:10:14.590 align:middle line:84%
that, ah, IT infrastructure--
then we have to go.

02:10:14.590 --> 02:10:17.930 align:middle line:90%


02:10:17.930 --> 02:10:20.350 align:middle line:84%
Now, then there is
the question-- well,

02:10:20.350 --> 02:10:23.170 align:middle line:90%
how about your legacy?

02:10:23.170 --> 02:10:24.630 align:middle line:90%
How about your base?

02:10:24.630 --> 02:10:27.640 align:middle line:90%


02:10:27.640 --> 02:10:31.010 align:middle line:90%
Here you have this legacy--

02:10:31.010 --> 02:10:33.950 align:middle line:84%
I don't know-- a
trillion dollars.

02:10:33.950 --> 02:10:35.490 align:middle line:90%
I'm just saying that.

02:10:35.490 --> 02:10:38.970 align:middle line:84%
I don't mean a trillion dollars
of installed [INAUDIBLE].

02:10:38.970 --> 02:10:43.730 align:middle line:84%
You said, well, how much
hardware, software the customers

02:10:43.730 --> 02:10:48.810 align:middle line:84%
have that they have
acquired from IBM in '96?

02:10:48.810 --> 02:10:53.810 align:middle line:84%
Since nobody has any idea,
assume it's a trillion dollars.

02:10:53.810 --> 02:10:57.310 align:middle line:84%
And now you're going to start
this whole new business?

02:10:57.310 --> 02:11:00.370 align:middle line:84%
Well, here is the
beauty of the internet

02:11:00.370 --> 02:11:03.070 align:middle line:84%
and why the internet
was so successful.

02:11:03.070 --> 02:11:05.650 align:middle line:90%


02:11:05.650 --> 02:11:12.250 align:middle line:84%
You could relatively easily
internet-enable everything.

02:11:12.250 --> 02:11:15.010 align:middle line:90%
So what do I mean by that?

02:11:15.010 --> 02:11:19.770 align:middle line:84%
So you know that
Federal Express and UPS

02:11:19.770 --> 02:11:23.530 align:middle line:84%
were letting you track your
packages over the internet very

02:11:23.530 --> 02:11:28.330 align:middle line:84%
early in the game,
in '96, correct?

02:11:28.330 --> 02:11:31.650 align:middle line:84%
Guess what the transaction
systems they were using

02:11:31.650 --> 02:11:34.490 align:middle line:84%
were that had all
the information

02:11:34.490 --> 02:11:36.930 align:middle line:90%
about what your packages were?

02:11:36.930 --> 02:11:41.660 align:middle line:84%
Did they rewrite them in two
weeks from their mainframes

02:11:41.660 --> 02:11:46.620 align:middle line:84%
and mainframe software in
software called IMS and CICS

02:11:46.620 --> 02:11:49.060 align:middle line:84%
that were actually
developed in the '70s?

02:11:49.060 --> 02:11:50.500 align:middle line:90%
Of course not.

02:11:50.500 --> 02:11:53.020 align:middle line:90%
They kept all that software.

02:11:53.020 --> 02:11:57.160 align:middle line:84%
But the beauty of the
internet, what made the web--

02:11:57.160 --> 02:11:59.900 align:middle line:90%


02:11:59.900 --> 02:12:02.340 align:middle line:84%
the internet wouldn't
have been the internet

02:12:02.340 --> 02:12:03.420 align:middle line:90%
without this [INAUDIBLE].

02:12:03.420 --> 02:12:06.820 align:middle line:84%
In other words, it may have
been a good network for research

02:12:06.820 --> 02:12:11.020 align:middle line:84%
communities, but what
enabled it to take off

02:12:11.020 --> 02:12:16.640 align:middle line:84%
was the ease with which you
can internet-enable everything.

02:12:16.640 --> 02:12:18.420 align:middle line:84%
But when I say
everything, everything.

02:12:18.420 --> 02:12:23.280 align:middle line:84%
You can internet enable
TCP/IP on every product.

02:12:23.280 --> 02:12:26.620 align:middle line:84%
You can put every
piece of software.

02:12:26.620 --> 02:12:31.100 align:middle line:84%
So in other words,
having a legacy

02:12:31.100 --> 02:12:35.460 align:middle line:84%
was a base to now
internet-enable.

02:12:35.460 --> 02:12:38.540 align:middle line:84%
So it was actually a very
positive thing to do.

02:12:38.540 --> 02:12:40.620 align:middle line:84%
Now, not every
vendor would view it

02:12:40.620 --> 02:12:42.160 align:middle line:84%
that way because,
again, as I said,

02:12:42.160 --> 02:12:45.300 align:middle line:84%
if you don't have
a legacy, then what

02:12:45.300 --> 02:12:47.660 align:middle line:84%
you should do is go
tell people-- now

02:12:47.660 --> 02:12:51.420 align:middle line:84%
that the internet is here,
go get rid of the crap

02:12:51.420 --> 02:12:54.100 align:middle line:84%
these people have been
selling you for years,

02:12:54.100 --> 02:12:55.480 align:middle line:90%
and let's do brand new stuff.

02:12:55.480 --> 02:13:00.700 align:middle line:84%
But most customers were
relying on this stuff

02:13:00.700 --> 02:13:04.900 align:middle line:84%
to run their businesses, so
they couldn't get rid of it.

02:13:04.900 --> 02:13:08.140 align:middle line:84%
And once you
internet-enabled everything,

02:13:08.140 --> 02:13:09.600 align:middle line:90%
then we're very, very happy.

02:13:09.600 --> 02:13:15.100 align:middle line:84%
In fact, this strategy came
out by me and other people

02:13:15.100 --> 02:13:16.660 align:middle line:90%
observing what--

02:13:16.660 --> 02:13:19.200 align:middle line:84%
Federal Express and UPS
did it on their own.

02:13:19.200 --> 02:13:22.340 align:middle line:84%
They didn't ask us
to do it for them.

02:13:22.340 --> 02:13:25.920 align:middle line:84%
We then discovered it, and we
said, what a brilliant strategy.

02:13:25.920 --> 02:13:27.900 align:middle line:90%
Let's make it our strategy.

02:13:27.900 --> 02:13:30.900 align:middle line:90%
And so we embraced the notion.

02:13:30.900 --> 02:13:32.060 align:middle line:90%
AUDIENCE: Question.

02:13:32.060 --> 02:13:34.640 align:middle line:84%
So when this strategy came
out, was it the responsibility

02:13:34.640 --> 02:13:35.892 align:middle line:90%
of the new business unit--

02:13:35.892 --> 02:13:37.100 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yes.

02:13:37.100 --> 02:13:38.280 align:middle line:84%
AUDIENCE: --who
made this happen?

02:13:38.280 --> 02:13:38.980 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yes.

02:13:38.980 --> 02:13:39.920 align:middle line:90%
AUDIENCE: Or was it--

02:13:39.920 --> 02:13:43.112 align:middle line:84%
so did you not face resistance
from the other business units

02:13:43.112 --> 02:13:43.820 align:middle line:90%
that [INAUDIBLE].

02:13:43.820 --> 02:13:45.903 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, no, because-- no, no,

02:13:45.903 --> 02:13:47.500 align:middle line:90%
but here is the beauty.

02:13:47.500 --> 02:13:51.860 align:middle line:84%
Let's say you are in
the mainframe business.

02:13:51.860 --> 02:13:58.020 align:middle line:84%
If I went and say, the internet
means mainframes are gone,

02:13:58.020 --> 02:14:02.260 align:middle line:84%
now they would say,
you're an idiot.

02:14:02.260 --> 02:14:06.020 align:middle line:84%
I said, mainframes
are wonderful.

02:14:06.020 --> 02:14:10.060 align:middle line:84%
We can now internet-enable
all the mainframes.

02:14:10.060 --> 02:14:15.220 align:middle line:84%
So when I had now my
marketing internet events,

02:14:15.220 --> 02:14:18.220 align:middle line:84%
guess who I invited to
talk about the internet

02:14:18.220 --> 02:14:19.140 align:middle line:90%
and mainframe?

02:14:19.140 --> 02:14:23.260 align:middle line:84%
The head of mainframe divisions
in Stanford at the time was one

02:14:23.260 --> 02:14:28.140 align:middle line:84%
of my speakers at one of our
first meetings in San Jose

02:14:28.140 --> 02:14:31.980 align:middle line:84%
in the-- there was a
big internet event--

02:14:31.980 --> 02:14:38.230 align:middle line:84%
because this would only
add value to the mainframe.

02:14:38.230 --> 02:14:39.685 align:middle line:90%
Do you understand my point?

02:14:39.685 --> 02:14:41.310 align:middle line:84%
AUDIENCE: But I was
curious about who--

02:14:41.310 --> 02:14:43.310 align:middle line:84%
the developers from
the mainframe group

02:14:43.310 --> 02:14:44.870 align:middle line:90%
or from your group?

02:14:44.870 --> 02:14:48.950 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, a combination.

02:14:48.950 --> 02:14:55.110 align:middle line:84%
But remember, the nice thing
about technical people,

02:14:55.110 --> 02:15:00.310 align:middle line:84%
really good technical people,
is they smell good stuff way

02:15:00.310 --> 02:15:01.690 align:middle line:90%
before anybody else.

02:15:01.690 --> 02:15:04.590 align:middle line:90%
And I know I'm being--

02:15:04.590 --> 02:15:08.470 align:middle line:84%
I may be biased because now
I'm talking about the world

02:15:08.470 --> 02:15:09.950 align:middle line:90%
that I come from.

02:15:09.950 --> 02:15:13.150 align:middle line:84%
But really good
technical people,

02:15:13.150 --> 02:15:15.310 align:middle line:84%
usually, even if
you say, don't do

02:15:15.310 --> 02:15:19.550 align:middle line:84%
that-- we don't want you to
do the internet with Linux.

02:15:19.550 --> 02:15:22.290 align:middle line:84%
They usually are part of
a professional community.

02:15:22.290 --> 02:15:24.090 align:middle line:84%
They have friends
in universities.

02:15:24.090 --> 02:15:26.590 align:middle line:84%
They hang out in
conferences there.

02:15:26.590 --> 02:15:29.430 align:middle line:84%
So you can tell them whatever
you want to, and they'll do--

02:15:29.430 --> 02:15:32.870 align:middle line:90%
I'm talking about good people.

02:15:32.870 --> 02:15:37.510 align:middle line:84%
So smart management
of good people

02:15:37.510 --> 02:15:39.910 align:middle line:84%
is to figure out
what they are doing

02:15:39.910 --> 02:15:42.910 align:middle line:90%
and embrace it as your strategy.

02:15:42.910 --> 02:15:46.150 align:middle line:84%
So the good people were
already internet-enabling

02:15:46.150 --> 02:15:49.430 align:middle line:84%
all the products without
anybody ever telling them.

02:15:49.430 --> 02:15:53.290 align:middle line:84%
This is a real interesting
story, not about the internet.

02:15:53.290 --> 02:15:58.490 align:middle line:84%
Later on, I ran our
Linux initiative.

02:15:58.490 --> 02:16:02.110 align:middle line:84%
And I remember I
met, in Germany,

02:16:02.110 --> 02:16:05.790 align:middle line:90%
with some executives from SAP.

02:16:05.790 --> 02:16:08.590 align:middle line:84%
And we were having lunch,
and they told me that--

02:16:08.590 --> 02:16:11.070 align:middle line:84%
I don't know-- six
months earlier,

02:16:11.070 --> 02:16:14.550 align:middle line:84%
they had been to IBM's
lab in Germany, Böblingen,

02:16:14.550 --> 02:16:17.110 align:middle line:90%
near Stuttgart.

02:16:17.110 --> 02:16:20.950 align:middle line:84%
And they had seen that the
people in Böblingen on their own

02:16:20.950 --> 02:16:23.790 align:middle line:90%
had put Linux on the mainframe.

02:16:23.790 --> 02:16:27.190 align:middle line:84%
And they said, oh, my
god, they'll be fired.

02:16:27.190 --> 02:16:29.950 align:middle line:84%
I mean, they were really
worried that these people that

02:16:29.950 --> 02:16:31.880 align:middle line:84%
put Linux on the
mainframe would be

02:16:31.880 --> 02:16:35.299 align:middle line:84%
fired because the
mainframe is so holy.

02:16:35.299 --> 02:16:36.559 align:middle line:90%
How can you do that?

02:16:36.559 --> 02:16:38.040 align:middle line:84%
And I told them,
no, no, no, they

02:16:38.040 --> 02:16:41.959 align:middle line:84%
became heroes in IBM,
that, on their own,

02:16:41.959 --> 02:16:44.139 align:middle line:84%
without anybody telling
them what to do,

02:16:44.139 --> 02:16:46.799 align:middle line:84%
they saw the power of
Linux on the mainframe,

02:16:46.799 --> 02:16:48.660 align:middle line:90%
and they went ahead and did it.

02:16:48.660 --> 02:16:52.600 align:middle line:84%
And IBM then embraced
Linux on the mainframe

02:16:52.600 --> 02:16:55.360 align:middle line:90%
as a major mainframe strategy.

02:16:55.360 --> 02:16:59.660 align:middle line:84%
So what makes this
so interesting--

02:16:59.660 --> 02:17:01.799 align:middle line:84%
and we'll keep talking
through the course--

02:17:01.799 --> 02:17:06.400 align:middle line:84%
headquarters is
not the real world.

02:17:06.400 --> 02:17:07.420 align:middle line:90%
It is not.

02:17:07.420 --> 02:17:11.639 align:middle line:84%
The only reality is
what goes on in labs

02:17:11.639 --> 02:17:13.620 align:middle line:84%
and what goes on
in the marketplace.

02:17:13.620 --> 02:17:15.320 align:middle line:90%
That's the only reality.

02:17:15.320 --> 02:17:16.340 align:middle line:90%
People build things.

02:17:16.340 --> 02:17:17.799 align:middle line:90%
People use things.

02:17:17.799 --> 02:17:19.920 align:middle line:90%
People invent things.

02:17:19.920 --> 02:17:25.160 align:middle line:84%
That's why, if you're a
really smart business,

02:17:25.160 --> 02:17:28.040 align:middle line:84%
you use headquarters
for counting money and--

02:17:28.040 --> 02:17:30.480 align:middle line:84%
I don't know-- whatever the
hell they do in headquarters.

02:17:30.480 --> 02:17:31.647 align:middle line:90%
Yeah, you need headquarters.

02:17:31.647 --> 02:17:32.980 align:middle line:90%
You need HR policies.

02:17:32.980 --> 02:17:36.600 align:middle line:84%
And you do need to
make the quarter.

02:17:36.600 --> 02:17:42.100 align:middle line:84%
But you really pay
tremendous attention--

02:17:42.100 --> 02:17:47.240 align:middle line:84%
this is, by the way, one of the
company values, for example.

02:17:47.240 --> 02:17:48.500 align:middle line:90%
And IBM has that.

02:17:48.500 --> 02:17:50.299 align:middle line:90%
But this is an--

02:17:50.299 --> 02:17:52.760 align:middle line:84%
because I bet you there are
a lot of businesses that say,

02:17:52.760 --> 02:17:55.959 align:middle line:84%
Irving doesn't know what he's
talking about in headquarters

02:17:55.959 --> 02:18:01.459 align:middle line:84%
with MBAs from Harvard and
McKinsey consultants and so on.

02:18:01.459 --> 02:18:04.500 align:middle line:84%
They say, boy, are
you in trouble today.

02:18:04.500 --> 02:18:07.639 align:middle line:84%
Maybe that was true in
a kinder, gentler time,

02:18:07.639 --> 02:18:10.540 align:middle line:84%
but in today's world,
it's moving too fast.

02:18:10.540 --> 02:18:13.639 align:middle line:84%
And because it's
moving too fast,

02:18:13.639 --> 02:18:16.299 align:middle line:84%
the labs and-- that's
where all the action is.

02:18:16.299 --> 02:18:19.260 align:middle line:84%
So these were two
very positive things.

02:18:19.260 --> 02:18:21.799 align:middle line:90%


02:18:21.799 --> 02:18:25.700 align:middle line:84%
Then, did it fit with our
organization and culture?

02:18:25.700 --> 02:18:33.700 align:middle line:84%
Well, yes and no because
IBM moved very slowly, very,

02:18:33.700 --> 02:18:34.820 align:middle line:90%
very slowly.

02:18:34.820 --> 02:18:37.240 align:middle line:84%
And with that comes
that, all of a sudden,

02:18:37.240 --> 02:18:40.280 align:middle line:84%
we were competing with
[INAUDIBLE] like crazy.

02:18:40.280 --> 02:18:41.219 align:middle line:90%
It was crazy.

02:18:41.219 --> 02:18:45.160 align:middle line:84%
I mean, they often were putting
total crap in the marketplace,

02:18:45.160 --> 02:18:50.200 align:middle line:84%
but you didn't know it was
that until they did it.

02:18:50.200 --> 02:18:55.799 align:middle line:84%
So this was a problem,
that we really

02:18:55.799 --> 02:19:00.959 align:middle line:84%
had to change the
organization and the culture

02:19:00.959 --> 02:19:07.480 align:middle line:84%
to be able to get things to
market much, much, much faster.

02:19:07.480 --> 02:19:11.840 align:middle line:84%
And we developed
new things-- now,

02:19:11.840 --> 02:19:15.440 align:middle line:84%
the people who were totally
in charge of changing

02:19:15.440 --> 02:19:16.840 align:middle line:90%
the organization--

02:19:16.840 --> 02:19:19.219 align:middle line:90%
John Patrick.

02:19:19.219 --> 02:19:22.240 align:middle line:84%
You can imagine
John Patrick doing

02:19:22.240 --> 02:19:25.170 align:middle line:84%
that, whereas the people
who have to run the line,

02:19:25.170 --> 02:19:27.010 align:middle line:90%
they couldn't do this.

02:19:27.010 --> 02:19:32.410 align:middle line:84%
But to Lou Gerstner's credit,
the reason John and I and others

02:19:32.410 --> 02:19:35.129 align:middle line:84%
could do that is because,
when we showed up,

02:19:35.129 --> 02:19:37.969 align:middle line:84%
and we went to do
alphaWorks, somebody said,

02:19:37.969 --> 02:19:39.549 align:middle line:90%
Irving is an idiot.

02:19:39.549 --> 02:19:41.969 align:middle line:90%
How can you do that?

02:19:41.969 --> 02:19:44.129 align:middle line:90%
They knew, wait a second.

02:19:44.129 --> 02:19:48.410 align:middle line:84%
Irving may be an idiot, but
Lou Gerstner is not an idiot,

02:19:48.410 --> 02:19:51.090 align:middle line:84%
and he's the one who
empowered these people

02:19:51.090 --> 02:19:53.530 align:middle line:90%
to do what they are doing.

02:19:53.530 --> 02:19:58.090 align:middle line:84%
So we'll talk toward the end
of the course on organization

02:19:58.090 --> 02:20:01.210 align:middle line:90%
and culture.

02:20:01.210 --> 02:20:06.130 align:middle line:84%
Everybody in an organization
reads tea leaves,

02:20:06.130 --> 02:20:11.850 align:middle line:84%
and they know, is it dangerous
to hang out with Irving and John

02:20:11.850 --> 02:20:18.890 align:middle line:84%
Patrick, or is it OK, and in
fact, the boss likes them?

02:20:18.890 --> 02:20:24.930 align:middle line:84%
And the signals you
send are extremely

02:20:24.930 --> 02:20:30.070 align:middle line:84%
important because the senior
team, especially CEO and so on,

02:20:30.070 --> 02:20:33.570 align:middle line:84%
are empowering people
to go and make change,

02:20:33.570 --> 02:20:37.530 align:middle line:90%
and people read tea leaves.

02:20:37.530 --> 02:20:39.150 align:middle line:90%
So we had to change that.

02:20:39.150 --> 02:20:43.010 align:middle line:84%
And John Patrick talked
about alphaWorks, remember.

02:20:43.010 --> 02:20:45.050 align:middle line:84%
There were a whole
set of things that we

02:20:45.050 --> 02:20:48.750 align:middle line:90%
had to invent that we did that.

02:20:48.750 --> 02:20:52.090 align:middle line:84%
Now, lawyers being
like alphaWorks, P.

02:20:52.090 --> 02:20:56.830 align:middle line:84%
But again, well, I guess
Lou told them to do that.

02:20:56.830 --> 02:21:00.830 align:middle line:84%
Lou may not know what he's
doing, but he's the chairman,

02:21:00.830 --> 02:21:02.390 align:middle line:90%
so we better do it.

02:21:02.390 --> 02:21:02.890 align:middle line:90%
Please.

02:21:02.890 --> 02:21:05.690 align:middle line:84%
AUDIENCE: So if
one's in a position

02:21:05.690 --> 02:21:07.930 align:middle line:84%
like Lou is in,
where you basically

02:21:07.930 --> 02:21:09.810 align:middle line:84%
have to decide whether
to empower someone

02:21:09.810 --> 02:21:12.290 align:middle line:84%
to be disruptive and
change the organization,

02:21:12.290 --> 02:21:14.010 align:middle line:84%
what do you actually
look for in terms

02:21:14.010 --> 02:21:17.290 align:middle line:84%
of deciding if the person
you're empowering is actually

02:21:17.290 --> 02:21:17.790 align:middle line:90%
[INAUDIBLE]?

02:21:17.790 --> 02:21:24.180 align:middle line:84%
IRVING WLADAWSKY-BERGER: Well,
let me, again, talk about--

02:21:24.180 --> 02:21:29.420 align:middle line:84%
Lou knew that I had
been very involved

02:21:29.420 --> 02:21:33.860 align:middle line:84%
with the mainframe business,
and I had run a lot of things.

02:21:33.860 --> 02:21:41.260 align:middle line:84%
So he knew that I would only
be revolutionary up to a point.

02:21:41.260 --> 02:21:48.140 align:middle line:84%
So part of the reason of
entrusting senior people

02:21:48.140 --> 02:21:49.940 align:middle line:90%
is that--

02:21:49.940 --> 02:21:54.440 align:middle line:84%
again, this gets back to being
part of the company values

02:21:54.440 --> 02:21:57.840 align:middle line:84%
and so on, that part of
what makes you-- remember,

02:21:57.840 --> 02:22:00.400 align:middle line:84%
I'm not talking about
seniority with hierarchy,

02:22:00.400 --> 02:22:04.260 align:middle line:84%
but that understand is,
you know your limits.

02:22:04.260 --> 02:22:10.660 align:middle line:84%
And not just your limits-- you
know how far you can push things

02:22:10.660 --> 02:22:13.380 align:middle line:90%
before all hell breaks loose.

02:22:13.380 --> 02:22:14.820 align:middle line:90%
You have to be careful.

02:22:14.820 --> 02:22:19.080 align:middle line:84%
Also, we had lots
of communication.

02:22:19.080 --> 02:22:20.960 align:middle line:84%
I'll get to that
again in a second.

02:22:20.960 --> 02:22:23.020 align:middle line:90%
We had constant meetings--

02:22:23.020 --> 02:22:25.340 align:middle line:90%
I don't mean constant meetings.

02:22:25.340 --> 02:22:29.380 align:middle line:84%
I saw Lou and the
top senior team

02:22:29.380 --> 02:22:33.280 align:middle line:84%
in IBM once a quarter
in the first two years,

02:22:33.280 --> 02:22:34.860 align:middle line:90%
at least once a quarter.

02:22:34.860 --> 02:22:38.340 align:middle line:84%
And we had a lot more
communications than that,

02:22:38.340 --> 02:22:46.900 align:middle line:84%
so that if I ever went too far,
we can have the discussions

02:22:46.900 --> 02:22:48.560 align:middle line:90%
and rein it in.

02:22:48.560 --> 02:22:54.460 align:middle line:90%
But part of this is--

02:22:54.460 --> 02:22:58.100 align:middle line:84%
see, most businesses--
this is disruption crap.

02:22:58.100 --> 02:23:00.180 align:middle line:90%
It's not making money.

02:23:00.180 --> 02:23:05.920 align:middle line:84%
Put this young person that is
brilliant, but he screws it up,

02:23:05.920 --> 02:23:07.860 align:middle line:90%
she screws it up.

02:23:07.860 --> 02:23:12.380 align:middle line:84%
The problem is, you're
playing with fire,

02:23:12.380 --> 02:23:15.780 align:middle line:84%
or you're setting up
this person for failure

02:23:15.780 --> 02:23:21.580 align:middle line:84%
before that person even started
because, if it's somebody too

02:23:21.580 --> 02:23:24.940 align:middle line:90%
junior, she will be afraid--

02:23:24.940 --> 02:23:32.320 align:middle line:84%
she will just self-censor
far more than they could,

02:23:32.320 --> 02:23:35.940 align:middle line:84%
whereas John and I had
been there for a while,

02:23:35.940 --> 02:23:43.140 align:middle line:84%
and we had pretty good batting
averages from previous jobs.

02:23:43.140 --> 02:23:47.540 align:middle line:84%
So that's why putting senior
people to handle disruptive

02:23:47.540 --> 02:23:49.420 align:middle line:90%
innovations is so critical.

02:23:49.420 --> 02:23:52.540 align:middle line:84%
I'm expecting, if you are
a VC and somebody comes

02:23:52.540 --> 02:23:56.300 align:middle line:84%
to you with a new idea, don't
you make similar judgements

02:23:56.300 --> 02:23:59.300 align:middle line:90%
about the management team?

02:23:59.300 --> 02:24:01.500 align:middle line:90%
You have to, right?

02:24:01.500 --> 02:24:03.740 align:middle line:84%
Part of the judgments
you make is not just,

02:24:03.740 --> 02:24:05.340 align:middle line:90%
is the person smart?

02:24:05.340 --> 02:24:11.100 align:middle line:90%
We me assume that everybody--

02:24:11.100 --> 02:24:13.480 align:middle line:84%
I mean, if somebody said,
well, he's an MIT graduate.

02:24:13.480 --> 02:24:17.770 align:middle line:84%
Well, shit, every MIT
graduate is smart.

02:24:17.770 --> 02:24:23.570 align:middle line:84%
So the qualities you're looking
for are not classic smart.

02:24:23.570 --> 02:24:25.110 align:middle line:90%
You're looking now--

02:24:25.110 --> 02:24:28.590 align:middle line:84%
I would still call
it smart, but it's,

02:24:28.590 --> 02:24:31.930 align:middle line:84%
they have tremendously
good organizational skills,

02:24:31.930 --> 02:24:34.710 align:middle line:90%
tremendously good market sense.

02:24:34.710 --> 02:24:38.430 align:middle line:84%
They are good in
dealing with people.

02:24:38.430 --> 02:24:41.430 align:middle line:90%
And that takes a lot of smarts.

02:24:41.430 --> 02:24:42.932 align:middle line:90%
Yes, please.

02:24:42.932 --> 02:24:44.390 align:middle line:84%
AUDIENCE: Would
you agree if I said

02:24:44.390 --> 02:24:47.590 align:middle line:84%
that IBM was able to
make a lot of money out

02:24:47.590 --> 02:24:52.270 align:middle line:84%
of their internet strategy
because IBM had a huge customer

02:24:52.270 --> 02:24:55.690 align:middle line:84%
base of mainframes, which
were essentially black boxes,

02:24:55.690 --> 02:24:58.390 align:middle line:84%
and only IBM knew how to
connect them to the web?

02:24:58.390 --> 02:25:00.650 align:middle line:84%
So if these companies
wanted to get on the web,

02:25:00.650 --> 02:25:05.390 align:middle line:84%
and they had to ask IBM to come
help them, and that's how--

02:25:05.390 --> 02:25:08.410 align:middle line:84%
IRVING WLADAWSKY-BERGER:
Definitely, I would say yes,

02:25:08.410 --> 02:25:10.750 align:middle line:84%
but it's not that
black and white

02:25:10.750 --> 02:25:14.830 align:middle line:84%
because other companies
could also connect.

02:25:14.830 --> 02:25:15.710 align:middle line:90%
So we were not--

02:25:15.710 --> 02:25:18.650 align:middle line:84%
remember, open
standards, open store--

02:25:18.650 --> 02:25:21.430 align:middle line:84%
AUDIENCE: No, but the mainframe
weren't open standards.

02:25:21.430 --> 02:25:24.336 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, but--

02:25:24.336 --> 02:25:26.330 align:middle line:90%
right.

02:25:26.330 --> 02:25:27.670 align:middle line:90%
Yeah.

02:25:27.670 --> 02:25:29.050 align:middle line:90%
Yes.

02:25:29.050 --> 02:25:32.950 align:middle line:84%
I think IBM-- what
you said is true.

02:25:32.950 --> 02:25:36.730 align:middle line:84%
I mean, it's not worth--
because you can understand,

02:25:36.730 --> 02:25:37.790 align:middle line:90%
it's a more--

02:25:37.790 --> 02:25:41.650 align:middle line:84%
yes, you're absolutely
right, that that's true.

02:25:41.650 --> 02:25:43.290 align:middle line:84%
And it wasn't just
the mainframes.

02:25:43.290 --> 02:25:49.350 align:middle line:84%
It was also the software,
the transactional software.

02:25:49.350 --> 02:25:54.230 align:middle line:84%
It was everything
that could connect.

02:25:54.230 --> 02:25:58.230 align:middle line:90%
Anybody have a question?

02:25:58.230 --> 02:26:01.760 align:middle line:84%
AUDIENCE: That example
that you gave about one

02:26:01.760 --> 02:26:06.350 align:middle line:84%
of your [INAUDIBLE]
Linux on mainframe,

02:26:06.350 --> 02:26:09.110 align:middle line:84%
would that kind of behavior
be tolerated in the marketing

02:26:09.110 --> 02:26:11.870 align:middle line:84%
organization part, or
would that kind of behavior

02:26:11.870 --> 02:26:14.430 align:middle line:84%
will be encouraged in the
marketing organization

02:26:14.430 --> 02:26:18.325 align:middle line:90%
or other parts of the company?

02:26:18.325 --> 02:26:20.450 align:middle line:84%
IRVING WLADAWSKY-BERGER:
What a very good question.

02:26:20.450 --> 02:26:26.950 align:middle line:90%


02:26:26.950 --> 02:26:30.510 align:middle line:84%
This is a values,
where now, I think

02:26:30.510 --> 02:26:35.190 align:middle line:84%
that the technical community
in IBM has a special role.

02:26:35.190 --> 02:26:38.110 align:middle line:84%
For example, on
Monday, I'm going,

02:26:38.110 --> 02:26:41.550 align:middle line:84%
even though I'm only
emeritus, but we

02:26:41.550 --> 02:26:46.270 align:middle line:84%
have a meeting of the IBM
Academy of Technology, which

02:26:46.270 --> 02:26:50.950 align:middle line:84%
is an incredibly respected
group by everybody.

02:26:50.950 --> 02:26:55.710 align:middle line:84%
And the people who put
Linux on the mainframes,

02:26:55.710 --> 02:26:58.010 align:middle line:84%
we knew they were
brilliant people.

02:26:58.010 --> 02:27:06.590 align:middle line:90%


02:27:06.590 --> 02:27:11.640 align:middle line:84%
I think the short answer
is, not to the same degree,

02:27:11.640 --> 02:27:19.280 align:middle line:84%
that there is a respect
for technical credentials

02:27:19.280 --> 02:27:21.800 align:middle line:90%
that is huge.

02:27:21.800 --> 02:27:25.140 align:middle line:84%
And that's probably part
of the company value.

02:27:25.140 --> 02:27:27.180 align:middle line:90%
There's just this huge respect.

02:27:27.180 --> 02:27:32.400 align:middle line:90%


02:27:32.400 --> 02:27:37.460 align:middle line:84%
Yeah, whether for good or bad--
actually, I think it's good.

02:27:37.460 --> 02:27:43.920 align:middle line:84%
But it's an arrogant statement
to say that that's the world.

02:27:43.920 --> 02:27:48.680 align:middle line:84%
Now, IBM used to pay
horrible in marketing.

02:27:48.680 --> 02:27:54.860 align:middle line:84%
IBM has gotten infinitely better
in marketing, much, much better.

02:27:54.860 --> 02:27:58.120 align:middle line:90%


02:27:58.120 --> 02:28:03.140 align:middle line:84%
But still, the technical
community has a special place,

02:28:03.140 --> 02:28:06.132 align:middle line:90%
I would say.

02:28:06.132 --> 02:28:07.040 align:middle line:90%
Yes, please.

02:28:07.040 --> 02:28:08.520 align:middle line:90%
Do you agree with that?

02:28:08.520 --> 02:28:10.920 align:middle line:84%
AUDIENCE: I agree, but
I'm trying to translate it

02:28:10.920 --> 02:28:13.620 align:middle line:84%
to other-- we talked about
Apple and how they're--

02:28:13.620 --> 02:28:15.120 align:middle line:90%
IRVING WLADAWSKY-BERGER: Yeah.

02:28:15.120 --> 02:28:17.183 align:middle line:84%
No, Steve Jobs has a
pretty good technique.

02:28:17.183 --> 02:28:19.600 align:middle line:84%
AUDIENCE: Well, maybe that's
not the-- take a company like

02:28:19.600 --> 02:28:22.120 align:middle line:84%
Coca-Cola that's really
known for marketing their--

02:28:22.120 --> 02:28:23.060 align:middle line:84%
IRVING WLADAWSKY-BERGER:
No, I understand.

02:28:23.060 --> 02:28:24.800 align:middle line:84%
AUDIENCE: Are there
other companies where--

02:28:24.800 --> 02:28:25.720 align:middle line:90%
IBM is the [INAUDIBLE].

02:28:25.720 --> 02:28:25.980 align:middle line:84%
IRVING WLADAWSKY-BERGER:
By the way,

02:28:25.980 --> 02:28:28.200 align:middle line:84%
I think Microsoft has
tremendous respect

02:28:28.200 --> 02:28:31.100 align:middle line:84%
for their technical people,
starting with Bill Gates.

02:28:31.100 --> 02:28:33.560 align:middle line:90%
I mean, what the hell is he?

02:28:33.560 --> 02:28:37.480 align:middle line:84%
He prides himself on
being the chief architect.

02:28:37.480 --> 02:28:41.600 align:middle line:84%
And I know he says he's
retiring [INAUDIBLE].

02:28:41.600 --> 02:28:44.200 align:middle line:84%
He'll be chief
emeritus architect.

02:28:44.200 --> 02:28:46.760 align:middle line:90%
But I bet you, he'll be--

02:28:46.760 --> 02:28:48.540 align:middle line:90%
are there other companies--

02:28:48.540 --> 02:28:51.960 align:middle line:84%
AUDIENCE: [INAUDIBLE]
do they let

02:28:51.960 --> 02:28:55.200 align:middle line:84%
their marketing people do
the equivalent of putting

02:28:55.200 --> 02:28:56.720 align:middle line:90%
Linux on a mainframe?

02:28:56.720 --> 02:28:58.303 align:middle line:84%
IRVING WLADAWSKY-BERGER:
I don't know.

02:28:58.303 --> 02:29:01.280 align:middle line:84%
I honestly-- that's
a very good question.

02:29:01.280 --> 02:29:02.380 align:middle line:90%
What do you think?

02:29:02.380 --> 02:29:07.490 align:middle line:84%
I mean, you've all been
around in your companies.

02:29:07.490 --> 02:29:08.350 align:middle line:90%
What do you see?

02:29:08.350 --> 02:29:11.210 align:middle line:84%
AUDIENCE: I would say less
so because putting Linux

02:29:11.210 --> 02:29:14.330 align:middle line:84%
on the mainframe isn't something
that's affecting customers

02:29:14.330 --> 02:29:15.850 align:middle line:90%
when they do that.

02:29:15.850 --> 02:29:18.330 align:middle line:84%
And usually, in a
marketing position,

02:29:18.330 --> 02:29:19.510 align:middle line:90%
they're customer-facing.

02:29:19.510 --> 02:29:21.810 align:middle line:84%
So I think there's a difference
between a customer-facing role

02:29:21.810 --> 02:29:22.250 align:middle line:90%
and [INAUDIBLE].

02:29:22.250 --> 02:29:24.583 align:middle line:84%
IRVING WLADAWSKY-BERGER: Yeah,
that's a very good point.

02:29:24.583 --> 02:29:29.210 align:middle line:84%
They didn't go to a customer and
put Linux on their mainframe.

02:29:29.210 --> 02:29:34.930 align:middle line:84%
They put Linux on a mainframe
in IBM's lab in Germany.

02:29:34.930 --> 02:29:37.390 align:middle line:84%
And later on, we took
that to customers.

02:29:37.390 --> 02:29:39.150 align:middle line:84%
But when we took
that to customers--

02:29:39.150 --> 02:29:42.490 align:middle line:90%


02:29:42.490 --> 02:29:46.050 align:middle line:84%
we'll talk, in a
couple of weeks,

02:29:46.050 --> 02:29:51.210 align:middle line:84%
on leading customer-based
innovation, which

02:29:51.210 --> 02:29:53.450 align:middle line:90%
is Eric von Hippel's book.

02:29:53.450 --> 02:30:00.130 align:middle line:84%
Eric, by the way, is
[INAUDIBLE] thesis sponsor.

02:30:00.130 --> 02:30:02.730 align:middle line:84%
And Eric has done
a lot of research

02:30:02.730 --> 02:30:06.090 align:middle line:84%
about leading-edge
customer innovation.

02:30:06.090 --> 02:30:08.030 align:middle line:84%
I really recommend
you read this book.

02:30:08.030 --> 02:30:10.810 align:middle line:90%
And by the way, Eric--

02:30:10.810 --> 02:30:14.610 align:middle line:84%
this is now Eric's
view of the world.

02:30:14.610 --> 02:30:16.810 align:middle line:84%
His book is on the
website, and you

02:30:16.810 --> 02:30:19.970 align:middle line:84%
can download it for
nothing because he

02:30:19.970 --> 02:30:23.970 align:middle line:90%
believes in open content.

02:30:23.970 --> 02:30:25.830 align:middle line:90%
But buy it.

02:30:25.830 --> 02:30:27.890 align:middle line:90%
He's a very good person.

02:30:27.890 --> 02:30:31.530 align:middle line:84%
I would recommend reading
Democratizing Innovation

02:30:31.530 --> 02:30:35.150 align:middle line:84%
because it addresses exactly--
we'll discuss that in class.

02:30:35.150 --> 02:30:38.230 align:middle line:84%
And Eric very nicely
lent me his slides,

02:30:38.230 --> 02:30:42.990 align:middle line:84%
so I have his own slides
to talk about his ideas.

02:30:42.990 --> 02:30:48.370 align:middle line:84%
But he talks about a whole
set of companies that do that.

02:30:48.370 --> 02:30:50.810 align:middle line:90%
And it's the market--

02:30:50.810 --> 02:30:53.650 align:middle line:90%
it's still experimentation.

02:30:53.650 --> 02:30:55.170 align:middle line:90%
And I don't know whether--

02:30:55.170 --> 02:30:57.650 align:middle line:90%
we now can get into questions.

02:30:57.650 --> 02:31:02.170 align:middle line:84%
Is market experimentation
done by the marketing people

02:31:02.170 --> 02:31:06.695 align:middle line:84%
or by technical people who
are working in the market?

02:31:06.695 --> 02:31:08.070 align:middle line:84%
By the way, we
have, for example,

02:31:08.070 --> 02:31:09.670 align:middle line:84%
in the IBM Academy
of Technology,

02:31:09.670 --> 02:31:11.850 align:middle line:84%
an increasing number
of the technical people

02:31:11.850 --> 02:31:15.450 align:middle line:90%
are market-facing.

02:31:15.450 --> 02:31:20.090 align:middle line:84%
So we now get into, what
do you mean by marketing?

02:31:20.090 --> 02:31:24.050 align:middle line:84%
By somebody in the marketplace,
which is an interesting point.

02:31:24.050 --> 02:31:26.790 align:middle line:84%
So let me now talk about
the last point here.

02:31:26.790 --> 02:31:29.610 align:middle line:84%
Remember, we've talked
about three, which is,

02:31:29.610 --> 02:31:37.970 align:middle line:84%
do we have brand permission
to have an internet presence?

02:31:37.970 --> 02:31:43.470 align:middle line:84%
And the answer was yes
and no, as it turns out.

02:31:43.470 --> 02:31:46.850 align:middle line:84%
And that's why I
invited Chris Wall, who

02:31:46.850 --> 02:31:52.490 align:middle line:84%
spent hundreds of millions in
the marketing campaign because

02:31:52.490 --> 02:31:54.810 align:middle line:90%
of exactly that point.

02:31:54.810 --> 02:31:59.610 align:middle line:84%
We didn't have the
brand permission,

02:31:59.610 --> 02:32:06.840 align:middle line:84%
and especially when we
started in '95, '96, remember,

02:32:06.840 --> 02:32:10.580 align:middle line:84%
we had just come from this
near-death experience.

02:32:10.580 --> 02:32:14.140 align:middle line:84%
So it's like, IBM and the
internet companies [INAUDIBLE]

02:32:14.140 --> 02:32:15.900 align:middle line:90%
exploding brain.

02:32:15.900 --> 02:32:17.580 align:middle line:90%
Netscape-- you guys are--

02:32:17.580 --> 02:32:19.180 align:middle line:90%
I don't know what you are.

02:32:19.180 --> 02:32:22.660 align:middle line:84%
I didn't even know
you were alive.

02:32:22.660 --> 02:32:31.060 align:middle line:84%
But we had to work extremely
hard at the brand formation,

02:32:31.060 --> 02:32:32.240 align:middle line:90%
extremely hard.

02:32:32.240 --> 02:32:37.860 align:middle line:84%
In fact, I would say that
the internet organization

02:32:37.860 --> 02:32:42.500 align:middle line:84%
and me, personally, I would
say I spent the bulk of my time

02:32:42.500 --> 02:32:50.580 align:middle line:84%
here, in the market strategy
and in getting acceptance

02:32:50.580 --> 02:32:56.380 align:middle line:84%
because, almost everything
else, you could almost

02:32:56.380 --> 02:32:58.940 align:middle line:90%
say other people could also do.

02:32:58.940 --> 02:33:02.180 align:middle line:90%


02:33:02.180 --> 02:33:04.660 align:middle line:90%
This, you cannot do part time.

02:33:04.660 --> 02:33:08.540 align:middle line:84%
So this was probably
what we spent

02:33:08.540 --> 02:33:10.960 align:middle line:90%
the bulk of the time doing.

02:33:10.960 --> 02:33:15.140 align:middle line:84%
And that's why I got so
involved in marketing

02:33:15.140 --> 02:33:20.540 align:middle line:84%
because I would say marketing--
in market strategy, which

02:33:20.540 --> 02:33:24.260 align:middle line:84%
Lou Gerstner defined as,
market strategy means,

02:33:24.260 --> 02:33:29.100 align:middle line:84%
develop a strategy to be
successful in the marketplace.

02:33:29.100 --> 02:33:31.780 align:middle line:84%
Now, you could say, well,
what other strategies should

02:33:31.780 --> 02:33:34.180 align:middle line:84%
you ever develop
other than a strategy

02:33:34.180 --> 02:33:37.220 align:middle line:84%
to be successful
in the marketplace?

02:33:37.220 --> 02:33:41.260 align:middle line:84%
That's a market strategy, which
is not the same as advertising

02:33:41.260 --> 02:33:42.860 align:middle line:90%
or something like that.

02:33:42.860 --> 02:33:50.440 align:middle line:84%
So I think this is
a slide from '96.

02:33:50.440 --> 02:33:57.210 align:middle line:84%
I started using this slide in
'96, which I think, in my mind,

02:33:57.210 --> 02:34:01.950 align:middle line:84%
was seminal in
helping us figure out

02:34:01.950 --> 02:34:05.190 align:middle line:90%
what our internet strategy was.

02:34:05.190 --> 02:34:13.950 align:middle line:84%
Remember, this,
we didn't invent.

02:34:13.950 --> 02:34:18.910 align:middle line:84%
This is the internet and Java
and all the buoys out there

02:34:18.910 --> 02:34:21.230 align:middle line:90%
that existed.

02:34:21.230 --> 02:34:25.950 align:middle line:84%
And that stuff is
all the legacy stuff.

02:34:25.950 --> 02:34:30.790 align:middle line:84%
And where we positioned
IBM was, we're

02:34:30.790 --> 02:34:33.750 align:middle line:84%
the ones who will bring
these two together.

02:34:33.750 --> 02:34:37.950 align:middle line:84%
That's where we
positioned ourselves.

02:34:37.950 --> 02:34:41.350 align:middle line:84%
And in retrospect, it
was brilliant positioning

02:34:41.350 --> 02:34:46.550 align:middle line:84%
because, first of all, all the
reasons we talked about before--

02:34:46.550 --> 02:34:47.910 align:middle line:90%
if all of a sudden--

02:34:47.910 --> 02:34:52.590 align:middle line:84%
I think somebody asked if
the reason the mainframes

02:34:52.590 --> 02:34:57.470 align:middle line:84%
and so on-- all of a sudden, the
rest of the company loved us.

02:34:57.470 --> 02:35:01.550 align:middle line:84%
Remember, we never
said, this stuff

02:35:01.550 --> 02:35:03.530 align:middle line:90%
will replace all this crap.

02:35:03.530 --> 02:35:05.310 align:middle line:90%
We never said that.

02:35:05.310 --> 02:35:09.250 align:middle line:84%
That would have been
suicidal to have said that.

02:35:09.250 --> 02:35:13.510 align:middle line:84%
I don't mean just mean
suicidal organizational.

02:35:13.510 --> 02:35:18.150 align:middle line:84%
Remember, this was
making zero money.

02:35:18.150 --> 02:35:20.950 align:middle line:90%
All the money is here.

02:35:20.950 --> 02:35:26.150 align:middle line:84%
This was a huge sink
of money initially.

02:35:26.150 --> 02:35:28.670 align:middle line:84%
And of course, that
money came from the money

02:35:28.670 --> 02:35:30.870 align:middle line:90%
that was generated up there.

02:35:30.870 --> 02:35:37.810 align:middle line:84%
So the last thing you want is
to devalue your install base.

02:35:37.810 --> 02:35:41.490 align:middle line:84%
I think, by the way, that's
what the old AT&T did wrong.

02:35:41.490 --> 02:35:46.662 align:middle line:84%
The old AT&T, this was
cable and wireless.

02:35:46.662 --> 02:35:47.870 align:middle line:90%
I don't know if you remember.

02:35:47.870 --> 02:35:50.830 align:middle line:90%
They acquired McCaw.

02:35:50.830 --> 02:35:53.570 align:middle line:84%
And how did they acquire
acquired the cable--

02:35:53.570 --> 02:35:56.230 align:middle line:90%


02:35:56.230 --> 02:36:00.670 align:middle line:84%
Mike Armstrong made a number of
acquisitions in the old AT&T,

02:36:00.670 --> 02:36:08.870 align:middle line:84%
and their legacy business was
telecommunication services

02:36:08.870 --> 02:36:11.190 align:middle line:90%
for business and long distance.

02:36:11.190 --> 02:36:15.310 align:middle line:84%
They took totally
their eye off the--

02:36:15.310 --> 02:36:18.170 align:middle line:84%
they took their eye
off the ball here.

02:36:18.170 --> 02:36:21.750 align:middle line:84%
And the problem is,
they ran out of cash

02:36:21.750 --> 02:36:25.670 align:middle line:84%
there before these businesses
started generating cash.

02:36:25.670 --> 02:36:29.430 align:middle line:84%
So you don't want to fall
into that gulf, where yes, you

02:36:29.430 --> 02:36:31.830 align:middle line:84%
called the right
long-term strategy,

02:36:31.830 --> 02:36:35.790 align:middle line:84%
but unfortunately, you
ran out of cash before you

02:36:35.790 --> 02:36:36.690 align:middle line:90%
could get there.

02:36:36.690 --> 02:36:41.390 align:middle line:90%
I mean, that's not a good idea.

02:36:41.390 --> 02:36:44.990 align:middle line:84%
So this really is what
we ended up doing.

02:36:44.990 --> 02:36:51.620 align:middle line:84%
Now, we'll come back to
this slide next week,

02:36:51.620 --> 02:36:53.880 align:middle line:90%
but I just wanted--

02:36:53.880 --> 02:36:59.280 align:middle line:84%
I tried to summarize
what I thought

02:36:59.280 --> 02:37:05.920 align:middle line:84%
was something very important
that worked for us, which

02:37:05.920 --> 02:37:14.400 align:middle line:84%
is this question of balance,
that we embrace the disruption,

02:37:14.400 --> 02:37:19.040 align:middle line:84%
but probably in a very
different way than Amazon

02:37:19.040 --> 02:37:22.480 align:middle line:90%
or eBay or other companies.

02:37:22.480 --> 02:37:26.040 align:middle line:84%
I could have probably done a
slide like this for Microsoft

02:37:26.040 --> 02:37:29.680 align:middle line:90%
that would be very similar.

02:37:29.680 --> 02:37:31.920 align:middle line:90%
And it was a balance.

02:37:31.920 --> 02:37:38.640 align:middle line:84%
So we leveraged the
organizational skills and talent

02:37:38.640 --> 02:37:41.960 align:middle line:84%
because, after all, this
was the IT infrastructure.

02:37:41.960 --> 02:37:45.600 align:middle line:84%
But we had to make major
cultural and organizational

02:37:45.600 --> 02:37:49.000 align:middle line:84%
changes because there were
serious problems like time

02:37:49.000 --> 02:37:52.200 align:middle line:90%
to market with actual threats.

02:37:52.200 --> 02:37:56.480 align:middle line:90%
We leveraged the legacy.

02:37:56.480 --> 02:37:59.060 align:middle line:84%
I skipped over that slide,
but I'll talk next week.

02:37:59.060 --> 02:38:01.340 align:middle line:84%
We had to embrace
open standards.

02:38:01.340 --> 02:38:04.960 align:middle line:84%
You couldn't be an
internet company

02:38:04.960 --> 02:38:10.320 align:middle line:84%
if you did not embrace open
standards and totally shift it.

02:38:10.320 --> 02:38:16.820 align:middle line:84%
We leveraged the brand, but we
had to totally reposition it.

02:38:16.820 --> 02:38:19.840 align:middle line:84%
That's why we had to spend
hundreds of millions.

02:38:19.840 --> 02:38:23.840 align:middle line:84%
All of a sudden, we said, oh,
IBM's brand-- you guys wore

02:38:23.840 --> 02:38:26.760 align:middle line:90%
white shirts and blue suits.

02:38:26.760 --> 02:38:30.420 align:middle line:90%
No, no, no, that's 50 years ago.

02:38:30.420 --> 02:38:34.280 align:middle line:84%
We had to really do
massive repositioning.

02:38:34.280 --> 02:38:42.940 align:middle line:84%
And then we really had to be
in tune with the marketplace.

02:38:42.940 --> 02:38:44.960 align:middle line:84%
I don't know how
else to say that.

02:38:44.960 --> 02:38:50.090 align:middle line:84%
And that was probably the
biggest change, that to really

02:38:50.090 --> 02:38:56.290 align:middle line:84%
be a successful internet
company, all of a sudden,

02:38:56.290 --> 02:39:00.210 align:middle line:84%
it was critical to be
out there and accepted

02:39:00.210 --> 02:39:04.610 align:middle line:84%
as a member of the internet
community, which we did.

02:39:04.610 --> 02:39:10.850 align:middle line:84%
But it's this balance
between the legacy

02:39:10.850 --> 02:39:14.410 align:middle line:84%
and what you are that
keeps moving future

02:39:14.410 --> 02:39:16.610 align:middle line:90%
and the whole new disruption--

02:39:16.610 --> 02:39:19.290 align:middle line:84%
striking the right
balance that I felt

02:39:19.290 --> 02:39:22.490 align:middle line:84%
was the really, really,
really difficult stuff.

02:39:22.490 --> 02:39:24.770 align:middle line:84%
And that was the
part that was why

02:39:24.770 --> 02:39:28.890 align:middle line:84%
we needed a total organization
because this is really

02:39:28.890 --> 02:39:30.450 align:middle line:90%
the market strategy.

02:39:30.450 --> 02:39:32.930 align:middle line:84%
That's what we mean
by market strategy.

02:39:32.930 --> 02:39:36.570 align:middle line:84%
And out of this flowed products
and services and things

02:39:36.570 --> 02:39:38.130 align:middle line:90%
like that.

02:39:38.130 --> 02:39:42.590 align:middle line:90%
So any last questions?

02:39:42.590 --> 02:39:44.850 align:middle line:90%
I'll see you next Thursday.

02:39:44.850 --> 02:39:46.640 align:middle line:90%
Thank you.