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Best Tools For Building A Company? Consider Both Brains And Brawn

There’s zero doubt that digitization—accelerated by the worldwide pandemic—is changing the way millions of companies and billions of people conduct business.

But it’s not the only kind of competency that matters.

Enveloped by the incessant drumbeat of digital transformation, many leaders overlook and/or under-appreciate physical competencies like logistics, manufacturing, customer service, and quality control.

Silicon Valley veteran and Stanford University lecturer Robert Siegal explores the dangers of this rigid dichotomy in The Brains and Brawn Company: How Leading Organizations Blend the Best of Digital and Physical.

His background as an entrepreneur and venture capitalist, along with executive experience at GE and Intel, inform his perspective on digital vs. physical, disruptor vs. incumbent, and many related issues so critical to the future of business.

Rob outlines ten key attributes companies must master (both digital “brains” and physical “brawn”) and shows how the two achieve more in coordination than either can on their own.

Rodger Dean Duncan: In discussing “the brainy side” of leadership, you focus on five competencies—(1) using analytics, (2) harnessing creativity, (3) tapping the power of empathy, (4) managing risk, and (5) balancing ownership and partnership. How did you land on those particular five?

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Robert E. Siegel: In two of the six courses I teach at the Stanford Graduate School of Business, The Industrialist’s Dilemma and Systems Leadership, we’ve studied more than 70 companies that combine digital and physical attributes in their products and solutions. These organizations, a mix of incumbents and disruptors, showed strong execution skills in a variety of areas. These five competencies stood out with companies that were succeeding in this transition in a world that blends digital and physical.

We were able to do deep dives into several of these companies to learn what made them effective. What was interesting was that we saw these attributes shine in established organizations such as AB InBev and Kaiser Permanente, and also up-and-coming companies like Stripe, Align Technology and Instacart.

Duncan: In what ways are those five “brainy side” competencies interdependent and mutually reinforcing?

Siegel: In many ways, these skills are additive. Companies in the 21st century need to be good at analytics and creativity, as well as excelling at taking risks and partnering where needed.

However, one specific area where we see positive reinforcement is in the combination of analytics and empathy. Charles Schwab has a great deal of information about their clients—what life events are happening, where families like to invest their money, etc. But how they use the data they have always begins with, “What would our customers want us to do with this information?”

The CEO of Schwab, Walt Bettinger, shared a story that if a customer goes to the Schwab website and clicks on “Life Events  Divorce,” the company may know of something that is happening in a family even before a spouse does. The question they ask themselves is, “If we look through our client’s eyes, what would we do with the information?” Sometimes the answer is, “Nothing.”

Let’s compare that to Facebook, where despite their economic success, conventional wisdom is that Facebook will sell customer data to almost anyone if it benefits Facebook—regardless of what the consumers wish. I think Schwab does a great job of bringing an empathetic understanding and approach to its use of analytics.

Duncan: The “brawny side” of leadership, you say, involves five other competencies—(1) logistics, (2) the craft of making things, (3) leveraging size and scale, (4) managing ecosystems, and (5) surviving the long run. How did those particular competencies make it into your model?

Siegel: So often our students, and many of the companies in which I invest as a venture capitalist, shy away from the “dirty” part of the physical world—logistics, manufacturing, and figuring out how to drive ecosystems. In fact, many of our students have never been inside of a factory and wouldn’t know if a factory is running well or poorly based on what they observe.

And yet, many of the companies we studied thrive on the hard and unsexy parts of running a business. They invested heavily and hired world-class talent to ensure a great customer experience, and they worked to ensure that the front-end interfaces to customers and the back-end operations were best-in-class and worked well together. 

Home Depot is a great example where their investment in regional distribution centers powered their ability to allow customers to shop digitally (where consumers are increasingly spending money) and to get their purchases quickly at a local Home Depot store. Our insights were also reinforced by Target CEO Brian Cornell who said to us, “There is no eCommerce—there is just commerce.”

The understanding of how some of these companies survive over time has been over-looked by the constant chasing of the latest shiny object. The great companies have built systems that have allowed them to not only survive but to thrive over time through having extreme clarity on their North Star (why do they exist) and by building capabilities that stimulate constant corporate renewal.

Duncan: In what ways are those five “brawny side” competencies interdependent and mutually reinforcing?

Siegel: Like the brainy attributes, these competencies need to stand alone, and a successful organization might be better at some of the brawny competencies than others. For example, 23andMe has chosen not to invest in manufacturing (hands), but rather to work with GSK (partnering) to deliver new drugs to market.

However, if one is good at logistics, and one can see how new technologies such as additive manufacturing can allow companies to “put a factory inside of a customer’s place of work,” leaders can see how a combination of logistics, making things and operating at scale gives companies a formidable set of barriers against the competition. And when you combine those capabilities with the brainy competencies of analytics and partnering, the path to future potential success becomes much more clear.

Duncan: You write about “the orchestra conductor without a score.” What does that mean?

Siegel: An orchestra conductor has a sheet of music that lets her or him know exactly what sounds each instrument should make in a symphony. The combination of these sounds results in the music as written by the composer.

In today’s world, a Systems Leader—or the type of leader that will be successful for the next couple of decades—needs not only to understand how each function in an organization works, but also what happens when these functions interact. In a world where everything is connected, there is constant change and flowing of information. Systems Leaders need to be able to manage, shape and drive the change they want inside of a company at a time when the world is experiencing increasingly volatility.

An orchestra conductor has a score to let her/him what the music should sound like. If they follow the sheets of music, they will know what is on the other side. But today’s Systems Leaders have no such guidance. They need to be able think on the fly and figure out how to use some of the skills we witnessed in great leaders in order to drive their organizations forward.

The job of today’s business leaders is really, really hard. These are times of unparalleled uncertainty, and that isn’t going to change. Being aware of that is a key piece of knowledge.

Duncan: Many smart leaders of “traditional” companies may think their organizations are already using their brains. But you have a much broader definition of “brains.” What are the key points of your definition?

Siegel: When we think about brainy companies, we often imagine a geeky nerd in front of a computer terminal. And if an existing company has a large data science and data engineering team, they might think they are being brainy and are leaning into digital.

But our brains do many things beyond math—such as helping us feel emotions, being creative and managing risk. Some of the typical brainy companies we think of don’t do all of these things all that well. The brain is an amazing part of our body, and when we think of the brain holistically, we really understand the attributes of the role it can play for us as individuals as well as for our companies.

Duncan: Using your criteria, what are some good examples of companies that are making especially good use of their brains?

Siegel: 23andMe does a great job of not only the analytics (left hemisphere), but they also have executed strongly in figuring out what to own and where to partner. In addition, they have a strong connection with their customers emotionally in dealing with issues surrounding health, ancestry, and risk. I think CEO Anne Wojcicki and her team have done an amazing job driving incredible change in many parts of the healthcare system, from drug development to patient/doctor interactions.

Duncan: What happens when a company gets pretty good with the brains part of the equation, but misses the mark on the brawn—or vice versa?

Siegel: Daimler is a great example of a company that has excelled historically at the brawny attributes, but has not done a great job in the brainy areas. Their use of analytics has been lagging compared to companies like Tesla, and they did not partner well with other companies for things like the in-car experience as they wanted to do it all on their own. They became complacent as sales were strong in China, but that masked bigger trends and changes in the mobility industry. I think they’re going to face some real headwinds going forward unless they fundamentally change how they operate.

Duncan: Give us some quick examples of companies that have successfully blended brains and brawn.

Siegel: Align Technology, the company that makes the clear plastic aligners for teeth straightening, is doing an amazing job. They use digital technology extensively to capture an individual’s teeth, and then they come up with a plan to give a customized/unique smile for people through their products. They send out more than 500,000 uniquely customized clear plastic aligners per day to consumers all over the world. At the time of writing the case, they were the world’s largest user of 3D printers.

Kaiser Permanente has also done a great job of operating hospitals and care facilities in the physical world, while also using digital tools not just for cost savings tool but also to better serve their members. When CEO Bernard Tyson was alive, he was the leader who best showed empathy toward others—more so than any other business leader I’ve ever met.

Duncan: You advocate what you call “the urgency of systems leadership.” Tell us about that.

Siegel: If nothing else, the pandemic showed the speed with which every industry is being affected by the blending of digital and physical. The world is not going to go backwards. Look at education: I’m excited to get back into the classroom with my students. But in the last 45 days I have run executive workshops for people in Riyadh, Sao Paolo, Stuttgart, Kuala Lampur and Chicago. I need to know how to teach both digitally and physically.

No industry will be untouched by this transformation.

Duncan: What can leaders do to ensure that they are up to the challenge of this brains and brawn age? If they don’t have the right competencies to compete, how and where can they get them?

Siegel: Leaders can start by getting educated on key technologies impacting their industries: AI, additive manufacturing, analytics and automation will impact every function and every company in the next decade. People need to be conversant in these core technologies, even if they aren’t experts. In addition, leaders need a plan for dealing with the future of work, and how new technologies are going to impact the existing functions inside of a company as well as create the need for new competencies.

You can learn about these things from people inside of your company (you may already have experts in-house), and by talking to trusted partners outside of your organization. People outside of your company will often tell you the truth in ways that your own employees may not feel comfortable.

Finally, it goes without saying that the internet is an amazing resource. Spend some time educating yourself or take an online class. We all need to keep learning and teaching ourselves new skills and knowledge.

Duncan: What’s the hardest part about managing through this change of a world that blends digital and physical?

Siegel: Often it’s being aware of one’s own biases—defined broadly as one’s professional training and upbringing to tackle problems, not only around issues of race and gender.

Stitch Fix CEO Katrina Lake asks her direct reports if they were hiring for their positions today, would they hire themselves? If not, what should they do about it? This level of intellectual honesty is critical if one is going to successfully lead an organization through the changes that are coming.

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