Jan 16, 2024 Nurole logo
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Strategy: how boards can use the “7 Powers” to sustain performance in the face of competition, with Hamilton Helmer

🎙️ You can listen to the full podcast interview with Hamilton on Apple Podcasts and Spotify.

*This is an AI-generated transcript and contains inaccuracies*

[00:00:00] Oliver Cummings: Hello and welcome to another episode of Enter the Boardroom with Neurol, the business podcast that brings the boardroom to you. I'm your host, Oliver Cummings, CEO of Neurol, the board search specialist and market leader, bringing science to the art of board hiring. 

I wanted to take a moment before we start to say thank you. For all the support and positive feedback on the podcast, one recent comment from at yo via Gill stood out, which highlighted finding a mentor in Enter the Boardroom. If anyone listening is interested in finding a traditional in-person, mentor, do consider joining the neural board community, which you can find@community.new.com.

For just 29 a month, we have created a space where you can get matched with a mentor, as well as learn, grow your board network, and tap into the hive mind of over 60, 000 board members in real time. 

Today's guest, Hamilton Helmer, has spent his career as a practicing business [00:01:00] strategist at Helmer and Associates, later Deep Strategy, he has led over 200 strategy projects with major clients such as Adobe Systems, Coursera, Hewlett Packard, Netflix, and spotify. 

Hamilton is the author of Seven Powers, the Foundations of Business Strategy. One of Bloomberg's best books of 2017, which has had a huge impact on the way I think as a CEO, board member, and investor.

I was originally recommended to Hamilton's book by a brilliant investor called David. I read it from cover to cover within 24 hours, as I was keen to reciprocate with a recommendation that might be comparable. 

It's been a few years now, and although I read a lot, I still haven't come across anything close to matching the gift David gave me of introducing me to Hamilton's work.

Hamilton, a huge welcome, and thank you so much for joining us today. 

Hamilton Helmer: Oh, my pleasure, and I'm delighted you enjoyed the book. It's one of my baby kind of, so I love it when it gets people excited.

Oliver Cummings: I'm so excited. For [00:02:00] those not yet familiar with your work. Could you just start by walking us through the relevance of your insights in the seven powers for those in the boardroom and how it comes to be a practical strategy compass for those seeking a route to continuing power and significant markets?

Hamilton Helmer: Yeah, I'll reassure I'd be delighted to do that. The book in a way Towards company founders. The idea of how they create great companies, right? But of course that intersects a board's responsibilities. 

I'd say a fundamental responsibility of a board, a shareholder value. That's kind of who, who they represent, right? And so ultimately that comes down to things that have to do with stock price. Right. And I'd say there are three determinants of stock price. 

One is the fundamental company performance. And other is fundamentals that are outside the company, like what's happening to interest rates. And another is speculative trends. People that buy and sell the stock, based on their expectation about price. And the [00:03:00] only thing under the board's control is the first one of those is, is individual company fundamentals.

And so what that means is that board members in a way have to think like value investors. They have to think about, What is it that this company needs to do to create fundamental value and fundamental value? You know, I think, I think most people would agree that ultimately it's about cash flow.

 The cash flow is really current income minus current investment, right? So you need to understand the economic model of the generates that. And I would argue that, that Power, as I talk about it, is the ability of a company to sustain attractive performance in the face of committed and capable competition.

And that's the thing is that it's a tough world out there. Everybody's trying to eat your lunch. [00:04:00] And so you have to think past. What can I do that just makes things better, but what can I do that makes things better, where I get to keep a piece of that? And those are very different equations. So, strategy is about the economic structures that allow you to do that.

And you need to aspire to those. And for a board, they need to understand, for the company, does it have one of those structures? And if it does, what does that mean in terms of important metrics that need to be attended to, to maintain that? Or if it doesn't have it, how do we get there? Or, if they have it but they're threatened, how do they recognize a threat and what do they do about it?

And those things will have a very profound effect on the fundamental value of the company and therefore the stock price. And that is their responsibility. And it's possible to have a company that does a lot of [00:05:00] things very well, but if it doesn't have one of those it's always going to be subject to the harsh reality of arbitraging competition.

And so you have to understand if you have a refuge or not. And so a board needs to understand that intimately and align itself properly on the issues.

Oliver Cummings: Tell me what your experience has been of how strategy is viewed at the board level?

Hamilton Helmer: Strategy is a word that is thrown around everywhere. Anytime somebody wants to sort of attach special significance to the problem they're working on, they often attach the word strategy.

So strategic marketing or strategic HR or whatever. And it creates this fuzz. But what are we really talking about here? What we're really talking about is what it takes to win the war and not the battle.

 If you go back to World War II, Pearl Harbor was enormously successful tactically, and the [00:06:00] dumbest strategic move ever because it irrevocably committed the United States to the war while there was tremendous anti war spirit in the country. Roosevelt just had an election where he had to promise that he wouldn't take people to war. And for businesses, and for board members thinking about them, they should be thinking about what it takes to win the war.

And you might say, Oh no, no, no, wait a minute. Oh, there's, the stock market is all next quarter. Why would we think about that? Well, that actually misunderstands in my view, the way the stock market really works. It appears that it's next quarter, but that's only because this quarter is a marker for what Investors think will happen in the longterm.

If you parsed returns after shareholder announcements into ones where you had a good current quarter and a lousy forecast deals, you'd see what I mean pretty quickly. [00:07:00] Investors will think about what's the longterm outcome of this, and you have to think in those terms. And all these words around strategic, this strategic, that fuzz, that question about what you're really interested in, what it was, it takes to win the war.

One of the things that boards face is the prevalence in organizations of what's called strategic planning. And strategic planning is almost an oxymoron. And I don't mean that disparagingly. it's actually a very useful function in companies from an operational point of view. But it has almost nothing to do with understanding what it takes to win the war.

It's a bottom up exercise typically, of each group having their own plan and rolling it up into an overall aggregate plan. And it's a very nice way for people to coordinate what they're doing, and quite valuable, but it's not strategy. It doesn't really tell you. How to, how to win the war 

let me try and do an example for you. Let me go back to -this will date me- to the [00:08:00] early PC days, when IBM had a control over the computer industry that people can't even relate to today. I mean, they just, they owned it. And it was based on some very risky, hard decisions technology leadership, and eventually they had power in the mainframe business network economies, I'd say.

 And then the mini computers happened and IBM missed. And there's a series of many computer companies, DEC and Data General and Prime and Wang and so on that sprung up and occupied this different segment of compute. And then IBM said to themselves, well, you know, we don't want to miss the next wave.

And the next wave was going to be PCs. And there's a whole story about how that happened, but they, they decided to do things in an un IBM ish way, loosen the strings a lot, and let somebody just try and do something very quickly, and this gentleman, Don Estridge, [00:09:00] did that and built the IBM PC, which had this phenomenal launch, I mean, just took off like a rocket.

Right? And then IBM executed to a T in it. And incredible scale up of manufacturing unseen. You know, I think unparalleled success, a great marketing campaign, great distribution, everything, and just. Took off and took the market away from Apple. But they didn't have power. The two powers in the PC business were in the microprocessor and in the operating system, and they gave those away.

I mean, they were not dumb about it. They negotiated in a way that tried to preserve them. But they essentially gave them away. And so where does a board sit in this? If a board was looking at, oh, we missed many computers, and so the role of the board would have been to say, all right, if you're going to do this new thing, then let's try [00:10:00] and figure out what, how it is we missed, What, what it is that creates our current success in mainframes? And is there a way of replicating that? 

And they would have, at a deep level, they would have understood that there's a difference between top line velocity, which a PC business had in spades and eventual economic outcome, which it failed at, eventually ended up being sort of an unattractive business.

 And they would have had to be extremely thoughtful about that and make decisions around that. I'll give you an example of a board member who contributed in this kind of way. When Intel was thinking about going into microprocessors, there was a question. Is there a market for these things?

And there was huge disagreement. The head of sales and Intel said it'll never be big enough. We just couldn't, shouldn't [00:11:00] divert our scarce resources to it. Bob Noyce, who was, I think, CEO at the time said, nah... he was a kind of a brilliant scientist. He did his scientific thing and went out and talked to a lot of people.

He said, no, I think this is kind of where the world is going, and there was a key board member, Arthur Rock, who stepped back and said to himself, in sort of normal planning terms, this doesn't look very good because you know, you sort of can't, you don't know the size of the market, it's a big debt, it's risky, it's difficult.

But our CEO thinks this is where the world is going. I think that's probably right, and I'm putting my weight behind it. And they carried the day and ended up investing resources in it. And that ended up being what saved Intel. And so, imagine being that board member, you know, you were going against sort of normal.

I think strategic planning would have said, no, no, no, we should just, we've got to [00:12:00] grind away at the memory business and do that. You had to understand kind of the deep technical undercurrents in the business, and be supportive of your CEO in their decision about where the world is going.

That's demanding, right? I mean, you have to understand a lot. You have to understand the business, the technology. And the thing I started with was don't, don't be taken in by the idea of strategic planning. It's not that, Oh, we have a strategy process.

Check that box. It's rather, I have a responsibility to the shareholders to direct this company in a way that wins the war, and that requires some out of the box thinking, a lot of knowledge. It's hard job, right? It's not the normal process diagram where you say, well, there are six responsibilities and every board meeting, I check those boxes and then I've done my job. it's [00:13:00] more holistic than that. 

Oliver Cummings: And I know the risk of, I suppose, check boxing, how do you see the seven powers fitting into a thought process like that? 

Hamilton Helmer: Great question, Oliver. So the idea is that you want to direct a business towards an economic structure that in a large market, they have some refuge from competition, right?

You want a heuristics to allow you to be able to recognize if one of those things exists, or if one of your competitors has those and you don't. And as one of my partners shared strategy capital said, you know, seven powers turns that from an essay question into a multiple choice question.

As far as I know, those seven powers are exhaustive. It's all that they're only seven. I'm always looking for an eight that are there easily could be, but I haven't. I've done a lot of work and I haven't seen any, so it allows you to ask the question, do we have [00:14:00] one of those?

And in the markets that we're in, does one of our competitors have one of those? And you have to ask that question at that level of granularity. You can't just say, do I have competitive advantage? It's not nearly a granular enough to be able to really look at data and say, you want to say, okay I think I have scale economies in this business.

And this is why. There's a large fixed cost in this business. If you're a Netflix and you're looking out the world, you'd say, content is 50 percent of my business. I have to spend it every year. It turns because of the economics of digital distribution, there's essentially zero marginal cost to that.

If I have more customers, the cost per customer is less- scale economies, right? And then there's More subtle loops, which is if a competitor is trying to compete with you, they say, well, of course they, they'd like that themselves. And then what would it take for them to achieve the same number of [00:15:00] subscribers as you?

And that gets you into a understanding of how to maintain your competitive position. But if you don't have that understanding, so Netflix made a decision to do originals and exclusives. And that's not necessarily a natural decision. They could have easily said, we're just going to pay content providers on the basis of use like Spotify does, for example.

 And if they did that, then there's no scale advantage because everybody would just pay per use. And there's no fixed cost involved. So understanding that allowed them to say, no, no originals and exclusives are going to be a fundamental part of our business model. But somebody who didn't understand this economics and say, no, no, no, you don't want to do that you're trying to satisfy your customers and originals and exclusives are more expensive. You'll have less content. You won't be as attractive. That's the dumbest thing ever. 

And then I have to say that Netflix didn't need my tools to figure this out. Ted and [00:16:00] Reid just tremendously strategically thoughtful themselves, and so they figured this out. But without knowing that you'd say, Oh, well, we should do the best for our best content for our customers. So let's just do everything on a variable cost basis. 

So what seven powers allows somebody to do at a board level is to ask the very pointed question. "Okay, you've got this strategic plan. I want to know. Is there a power there? And what is it and why? And if you have it , how are you doing in your competitive position? Are you getting stronger or weaker? And it focuses you on the right questions. It's intent was to provide a useful set of heuristics for people trying to get at those questions of what it takes to win the war. 

Oliver Cummings: Very clear. So if I'm a board member sitting now on the board of an organization, let's say in in looking to go and [00:17:00] compete with a Netflix, and I figured out they've got this power in through the scale economies. What's the question as a board member trying to compete with a company like that that has power? 

Hamilton Helmer: The idea of power is that you attain a nice outcome, even in the face of committed and capable competition, right? And so you've just asked the question from the perspective of the capable and competent and committed competitor, right? And the answer is that if Netflix conducts themselves well, you don't have a chance.

Or let me put it a little bit differently. If Netflix behaves intelligently, it's not a good bet. That's a good way to put it because a lot of these barriers have to do with, you can imagine a boardroom decision. Do we make this investment? 

So let's imagine a streaming service X wants to catch up to Netflix. Well, they say, "Hey, We need so many subscribers." So the [00:18:00] first impulse is they kind of buy the subscribers, right? They offer their subscription service for zero or something. But it is a little more complicated than that because consumer behavior .Pivots on relative slowly, but on relatively small things, and to choose another company and stay with them over time, that company has to have in the mind of the customer that they'll have a great slate of content. 

And that's an expectation that's built up over a period of time. I don't know what the time is, but let's say it's three or five, three to five years that you'd have to have an equivalent slate of content.

So what does that mean? So that means you have to invest in content, maybe 10 plus billion dollars per year for five years. And then the end game in that is that you end up with a kind of a head to head competition and price competition with Netflix. So the economics are [00:19:00] questionable.

So you look at the NPV of that as a board member and you say. You know, that kind of stinks. You know, why would I do that? And that's why there's power. That's why Netflix would have power. So the correct answer is, is there a technological discontinuity that creates an opportunity for a different business model that gets around that?

So if you had classes that streamed to your eyeballs or something, you know, or who knows, you know direct born brain implants or maybe substitute entertainment, tick tock or something, you can imagine that that NPV calculation would be very different.

So if you're coming up against a company with power, the way power is defined is saying that's a battle that's not worth engaging in. 

Oliver Cummings: Really interesting. Maybe if we turn to a different example that you've written about Coca Cola, which I think you identified as having a brand as a power.

And I guess, when I look at it, it's [00:20:00] not an industry. I know particularly well, but there have been some very successful new players in the beverages space, and How would a board looking to sort of grow a business in in in that space be thinking about coca cola?

Hamilton Helmer: I just want to emphasize again that the starting place for strategy is invention. So creativity is at the heart of all of this, right? That's where it all starts. And the starting place is product market fit, right? And so you might have an idea that a avocado based beverage will be a great market.

There'll be a lot of people that want it and you may or may not be right about that. It may be people go, avocado, why would I want to drink avocado? You know, it's green and funny, you know or some people might say, Oh, avocado is very healthy, you know, full of fiber and all kinds of good nutrients.

So at the [00:21:00] beginning of this is an invention, an idea that there is an opportunity for a product that will satisfy a significant segment. And you don't know that for sure. That's a speculation. That's an invention it's risk. And so that's the starting point. And at a board level, you have no insight into that really.

 People may have done market studies and you can see whether people have thought about the problem reasonably. But you don't know. And for the really big winners, you really don't know. So I can't remember what the story was, but what, and the original ideas of there was a market in the world for 10 computers or something.

Or if you look at Amazon, I mean, Amazon almost went bankrupt, right? Probably within six months of bankruptcy. And I'd say only mostly by luck or something that they've survived. They had a very good [00:22:00] CFO, who had happened to take out debt at a very good time. They saw them through that.

Business is hard, and you take risks. And the board's there to make sure you do things competently, and maybe to provide valuable sounding board and feedback for the people that are thinking about that. But they don't have the original inventive insight. And it's hard to judge that. 

I think on brand things the key thing there to keep in mind as a board is that there's a difference between brand awareness and brand is power. So brand awareness means people know about your product. So I can rent a Superbowl. I can do a Superbowl ad and everybody would know about Hamilton Helmer, but I paid for it. I'm not creating economic value for myself that way. I've paid for that coverage. 

Brand is different brand is that, over a very long period of time, you build up an expectation [00:23:00] in potential customers that your product will provide either greater value in some way. So either because it's safer or it gives you a good feeling. You like to be associated with it.

That's the fashion part of it. And even in comparison to products that are functionally equivalent. So, A and B, they've done Pepsi and Coke tests, right? Or RC Crown Cola is a better one. They've done taste tests. People can't tell the difference, but they'll still pay more for Coke. Because they have an expectation that it will be something that will satisfy them.

And that expectation has very long lead times in building up. If I think of a board conversation that I would have a problem with, it would be, be, Oh, we've got this product let's create brand power for next year. 

Not going to happen. You [00:24:00] can brand awareness. Sure. And it might be a good decision, but brand power is much longer time constant than a decade. How long did it take for Hermes to get people to the point they'll pay 25, 000 for a handbag? You know? I mean, that's an extreme example, but even Bayer Aspirin people still pay a big premium for it, and it's highly profitable.

Even though for all intents and purposes, the store brand aspirin is equivalent. And building up that expectation of superiority over an equivalent good takes a very long time. So if you're really thinking about developing brand, you have to think in very long timeframes and understand that that too involves invention.

So if you think about air maze, they had to very carefully curate their designs, their association with celebrities. They're a craftsmanship all these things over a long period [00:25:00] of time and and could have easily destroyed it. They could have decided to sell at Macy's. They could have decided to produce in a low cost environment where the craftsmanship wasn't as good perhaps. They might have associated with the wrong celebrity. So all these things. So there is a crafting element to a brand over a long period of time. 

Oliver Cummings: I think one of the really interesting things that dropped out for me in the way that you've, you've written about it was the difference between Brands like a Coca Cola which have these global moats versus, say, some of the beer brands, the sort of the Heineken's of this world you might have a Tiger beer in one country and a Heineken in another and a a Tsingtao in another. 

Whereas a Coca Cola, wherever you go, if you ask for a cola, people would generally ask for a Coca Cola. Is that something a board can plan for? When thinking about how to create and invest in a sort of brand [00:26:00] power strategy.

Hamilton Helmer: I think it's quite reasonable and addressable to ask the question " is the brand that you're thinking about geographically constrained?"

So you think of Sony and TV sets, right? In the U S, they got to the point where people thought, thought Sony was better. But not in Japan. And so they were able to get premium prices in the U S versus, you know, LG or Samsung. And for a while, that was quite profitable, I think.

So I think that's reasonable, and so you want to understand how brand is operating and then ask the question, is that bounded geographically? And you could ask, there's another type of branding, which is the old saying, you can't go wrong by buying from IBM, right?

The idea that there's a risk aversion may be very important. And there may be agency effects in that where somebody could lose their job if they go with the wrong brand. And it's reasonable to ask, is that [00:27:00] geographically bounded or organization bounded or industry bounded.

And Oliver, you've raised a Very deep and subtle issue around strategy, which is, you know, sort of the formal name for it is business definition, but it has to do with what are the boundaries of the power that you imagine. So if you were looking at ride sharing services like Uber or something, the economy from that comes from the ability to match drivers and riders, right? 

And so you have greater density in an area, you get better matches, and they're essentially you reduce driver downtime, and having that density in the Bay Area, it doesn't help you at all if you're in Shanghai. Right. 

anD so originally I think Uber said they were a international transportation business, which is kind of the wrong metric, right? It's not how many passengers you have worldwide. It's how many you have in the Bay Area, because that's what has to do with that matching function.[00:28:00] 

So the correct business definition there, which is over what? In this case, a geographical area, but it could be a market space area of any. Wait, what, what does the power extend over? And that can easily apply to brand. But that issue that you've raised applies everywhere in power.

 It's over what domain, what market domain does that power exist? And that's something boards should understand because, if the CEO comes to them and says, we don't have many sales in Europe. Well, let's go there. Well, what if it's a case where, Your stripe in the U S ,and you want to go in Europe, and I've done is there and you have to ask yourself, what kind of advantage I have there? And you think about the differences of Europe and the U S and so on.

That's the kind of place where a board can sit back, and help as a sounding board to the CEO, and prevent you know excursions into areas where it's actually much higher risk than you think, [00:29:00] because your power doesn't extend there. 

And then another aspect of the board part here is that if you think about CEO compensation, the way it typically works is, The board hires a compensation consultant and they come back and say, okay, there are, for your class of company, the top quartile gets this and that, no one wants to be in the bottom quartile, and when they say your company is this, And then classify you, often that is a top line characterization.

You're a 1 billion company. You're a 10 billion company. And so CEOs are incented to expand. But that may not make sense strategically. And so it's very important for a board to understand. Those difference in motivations and correctly assess whether expansion is in the interest of the shareholders.[00:30:00] 

Oliver Cummings: Can we go back a second to the example you're talking about earlier around Uber and the sort of the network economies there being local? What I've observed is you've obviously had other players coming in, in each of those local economies, and the marginal benefit of having network density seems to have diminished the closer they've got to a certain point.

So once you get a new player, as long as the player can get you a taxi within three minutes or five minutes, it doesn't probably matter too much whether someone gives you a one minute response time versus a three minute response time. iS there real power in that example of Uber? And if ,as a board, you figure there's not, do you then need to go ahead and find, find something else?

Hamilton Helmer: So two questions there. Is their power? And then if not, what do you do? The first question is a great one, Oliver. And it gives you an example of how down in the weeds, the important answers are. if you [00:31:00] think of the function of matching a time stamped driver to a time stamped pass time and location stamped driver to a time and location stamped passenger, the optimization that you would do is basically a distance calculation.

And a distance calculation, even in multiple dimensions, is a square root function. And to get a little wonky about it, you know, a square root function has a positive first derivative and a negative second derivative, which just has to say, which is just repeating what you just said, it has diminishing returns.

There's a point at which you double the density, and it just doesn't change it that much. And so for assessing whether a company that has a leading position in a market like that, whether that is material or not, and it has to be material for it to be power. You would have to understand the nature of that [00:32:00] distribution, and where on that distribution they are versus the nearest competitor.

So Uber versus Lyft in the Bay area. That would determine whether or not you have what I would call a benefit, which is a material advantage, or in performance which would be this would be reduced costs because you materially reduce the wait time of drivers. 

So this is a not, this is just an example of you. When you assess power, you have to it's not easy. I said earlier that it was a multiple choice, but I sort of misled you a little bit. To determine whether or not a company has power requires a great deal of thought, and it is the kind of thing that a board is actually rather good at of having a dialogue with the CEO. Oh, you think you have an advantage? Well, how much is that? What makes you believe that? What's the data? What, you know, I mean, it's not those kinds of [00:33:00] things that that's where you probe.

And then your second question was, what do you do if you don't have it? I hate to say it all depends but it's it's like our recent congressional complex testimony, it's all in the context. One of the insights about this stuff is that very important forms of power depend on market share or a number of customers, something like that. So network economy, switching economies and economies of scale, which are the ones that you typically would.

Plus the counter positioning step, those three plus counter positioning, the ones you usually face. There is a time when a market is growing quickly. When it's kind of the price of a customer is not fully arbitraged and so, so you can pick up customers And and they like it. That's good for them.

But you don't necessarily face your competitors When you're trying to get them, and later on, as things get mature, everybody knows kind [00:34:00] of what's going on, and it'll be a bake off and So that, so that earlier phase is when you, you want to do customer acquisition. 

So if you were in a situation where you faced a cup to come back to your question, or you faced a competitor that was very entrenched, and let's say it was very mature, you know, you would have to, to think that you could win in that situation, you'd have to be confident that the competitor was not thinking the problem through properly.

And that sometimes happens, and there are examples of that where companies just haven't thought it through properly, but it's not a great bet. And so the right thing to do is in that early phase that you get customers. 

Oliver Cummings: Got it. And if you're sitting on the board of an incumbent, and you can see a new invention taking place somewhere in your sphere, and you can see an organization that is in the process of getting there in that dynamic [00:35:00] state, what have you seen working?

Hamilton Helmer: So first in doesn't mean that you win. Right. So if you see somebody doing something first, that doesn't guarantee that they're a winner and, and it's, there, people have done a lot of studies as I can't remember what the data is, but I think it's sort of 50, 50 kind of.

And so it's an incumbent has an advantage, which is they have capabilities that may be relevant to the new approach. So imagine Netflix trying to do their streaming business without having the red envelope business first. They already had contact with all those customers. They kind of knew about content.

They had a lot of connections. But often the new business model might upend. The current business model. And so there may be counter positioning involved. So Blockbuster had really dragged their feet and going into mail delivery of DVDs because they had all these stores, right? 

And they didn't want to do it. So if you see somebody [00:36:00] coming, you may be in a position to be a fast imitator. You want to be very careful to not succumb to not invented here syndrome, right? If I picked a poster child for this, I'd say it would be a meta, that they've been extraordinarily good and not shy at all about seeing what their competitors are doing and adopting that if they could. 

 If you think of reels and Instagram or something, and that's the appropriate behavior. Maybe you invent it, that's a good thing. But if somebody else does, now there are cases where things are invented where there's just no refuge.

One of the classically misinterpreted cases is Kodak and film, right? One of the longest serving members of the Dow Jones or whatever. Kodak was an amazing business for a very long period of time. They had power, but their power was in film, not in cameras, right? They had chemical patents and [00:37:00] capabilities and so on.

And brand probably even at the end. But then digital cameras came along, and in that case, that was the end of their business. And it wasn't that they were slow, and slow to respond. I think they were the first company to patent a digital camera. They knew about. But first of all, the analog to film in a digital business is a semiconductor memory and they had not the slightest advantage in that capability. 

But even for the semiconductor memory companies, and for the digital camera companies, those were not good businesses either. We're digital cameras. Well, they're in the, they're in your iPhone, right? And how cheap is digital memory and is there a company that this makes very attractive margins from that? So not only did they not have capabilities for the new thing, there just wasn't a refuge.

And, and if you're in that situation, You know it's [00:38:00] the only thing you have left, which is a high risk bet, is, is there a different direction we could go? You know do something entirely new, but that's a new invent. 

Oliver Cummings: You've spent a huge amount of time thinking about strategy and seeing where strategy meets execution. What have been your observations around where boards get that join up between the strategy and the execution wrong?

Hamilton Helmer: Yeah, great question. A colleague of mine, Jenny. She and I are working on what is essentially a sequel to Seven Powers. And we will get into that question quite a lot because it's a very deep and interesting question.

 If you dial back to sort of the roots, the strategy discipline to Michael Porter, one of the seminal thinkers in the discipline. He made a statement that got a lot of people at Harvard really upset at him. He's at Harvard business school. Which is that operational excellence isn't strategy.

aNd and there are a lot of operational excellence[00:39:00] people and they thought, "oh, you know, need to know what he's talking about". But his point was basically that, if you think of what it takes to win the war in the end, operational excellence is something that others can do. And there are armies of consultants to help you adopt best practices.

Or you can hire employees or you can observe or whatever. So his idea, if you strip it away, is really that ultimately operational excellence will be arbitraged out. So as a difference between companies

aNd that's an interesting state of a statement about end state equilibrium. Now, having said that, if you think of cashflow, there are only three things there which are power market size and operational excellence, power and market size, create the potential [00:40:00] for longterm attractive cashflow.

You don't realize that unless you're operationally excellent. So you need all three of those things to realize it. Now another thing is, is that the cadence of thinking about strategy is a proper timeframe is rather infrequent. My view is twice a year. Maybe the cadence for operational excellence is daily.

 And well run companies spend almost all their time on operational excellence as they should. And so that's sort of one capsule of thinking about this. buT I'm going to get a little wonky on you here, and take it to kind of a different level, which is that, if you separate strategy statics from strategy dynamics, you come up with a different answer.

So if you say not what end state powers, the role of operational excellence and end state powers, but rather how do you get to power? [00:41:00] Well, it turns out power requires two things. It requires what we call industry economics, which is an economic structure that would support one company being better than another.

So scale economies, a larger company is lower cost, right? But that it requires a second component, which is competitive position. So if there's scale economies, that doesn't help you out unless you have a larger scale, right? So Netflix wouldn't be better off than Hulu if it had, if they had the same number of subs, right?

 aNd if you think about companies attaining competitive position, that is all about operational excellence. It's about the right product features, the right distribution approach, the right pricing, the right manufacturing process, all these things that just a million details getting, [00:42:00] getting it right every day, working on that.

So in getting to power, on the dynamic side of it, operational excellence is critical. So sadly, there's no easy way out of this. You need both, right? And if you are of a strategic mind, but you're not very good at operational excellence, it's not going to work out for you.

And the poster child of that is, is the Apple three, right? Steve jobs, one of the great entrepreneurs of the 20th century. Apple to set set the stage for owning that business. And they would have had power because they own the OS and probably would have owned the processor eventually to. But they came out with the Apple three.

Bad operational excellence, just a lousy product, poorly priced, poorly manufactured everything. And that's what opened the door to the IBM PC. And the result was Apple almost went bankrupt. aNd it was just, again, almost by chance, but again, [00:43:00] there was Steve Jobs fits in that picture, how it was saved.

 And if you think of Apple now under Cook. He's an operational excellence guy. There's nobody better than him probably in the world on supply chain management, and boy, is that important in there, and they're realizing the benefits of their power. But without the iPhone, so what, you know and so it's this interwoven dance that goes over a long period of time.

Yeah. And you, and one hand washes the other.

Oliver Cummings: You mentioned there boards might spend time on strategy twice a year. And it triggered a connection in my mind with a, it was a nice piece from McKinsey which was showing the highest impact boards spend three times the number of days on, on strategies of 12 days a year on average versus four.

What does that time look like for you? Typically, are there commonalities across what you see as best practice or the best [00:44:00] implementers of strategy when they're doing it twice a year? Is it is it at the board level? Is it through the whole company? 

Hamilton Helmer: I Don't have the advantage of Having surveyed lots of companies, so I can only speak with my own experience with boards of clients sitting on a board myself, you know, that sort of thing. And I'll comment on that, but I'll caveat it saying that I'm, I'm not sure that I don't have a bias sample or, and so on.

The idea of the amount of time you spend on strategy is not as compelling to me as the quality of those conversations. And so I think. Again, I think this idea of that you think you check the box by overseeing this strategic planning process is terribly misleading in terms of your true responsibility about strategy.

The things that are really vital on a board are the [00:45:00] composition of the board. Do you have a good range of appropriate expertise. You want people that were very familiar with the domain you were in. So, if you were in retail, you'd hope somebody was, you know, that, you know and.

But then the method of discourse is also terribly important on a board. You know, whether you can have conversations where there's a appropriate level of give and take as opposed to PowerPoints. I remember one of the things I loved when Gerstner took over IBM it was in a terrible crisis. 

And I think because of his leadership, it survived. One of the things he did is he forbid presentations. And because it had become a thing where it was incredibly well packaged, you know, just graphics were great, every point was made, and it just didn't lead to discourse

it just was, that sort of a statement [00:46:00] about we want to have Conversations here rather than just sort of listening. That's terribly important at a board level to be able to have an atmosphere of doing that.

There's some boards that actually have a strategy subcommittee and I would generally say that's probably not a bad idea. But I'm not sure. You know, I think every board member has a responsibility. And strategy, it may be that you might be able to pick a small group that can interact very well and deeply on the topic, and that might work well.

It's probably idiosyncratic to who the board members are and how to organize it. I'D say, as you know, you know, very large group dynamics don't work well for discussion. So if the board is quite large, it's, if it, if there isn't a subcommittee, it's going to, you're going to have a problem having the proper level of discourse.

Oliver Cummings: Houghton, the time has flown by which means it's time to go on to the lightning round where I got to say a [00:47:00] short statement and ask you for a quick response if you're ready. 

Hamilton Helmer: Okay, I'll do my best. 

Oliver Cummings: First up, the board behavior that irritates you most?

Hamilton Helmer: That one I is easy for me to answer. People who speak to impress rather than express. 

Oliver Cummings: Aside from Seven Powers, which I encourage every board member to read, what would be the book you would encourage others to read? 

Hamilton Helmer: An old book, which I think is quite a good one, is one called crossing the chasm, which tries to provide kind of a dynamic view of marketing. There's one about the story of Intel called Intel Trinity or something like that. That's quite good about sort of the history of the company because there's so many good strategy stories at Intel. Andy Grove was, you know, a strategy student. So it's sort of particularly interesting. So those, those are a couple. Brilliant. 

Oliver Cummings: I'll slip those up. Your favorite quote and why?

Hamilton Helmer: One I rather like so I think it feeds [00:48:00] back to a Brit incidentally is, is one main law underlies all modern progress, and that is the thought precedes observation. No one would count whose mind was vacant at the concept of number.

I think that's more or less the right quote. And that was Alfred North Whitehead in a book he wrote called The Function of Reason. And it basically just says, you see what you're looking for. So heuristics matter. And that's sort of the point of seven powers. 

You have a huge amount of information coming at you. You've got to try and make sense out of it. And in physics, if you think about how Niels Bohr approached thinking about quantum theory as opposed to you know, we don't speak about reality, we speak about what we're able to observe.

So I think that having Mental models that allow you to see clearly through all the noise to something deeper is terribly valuable, but the bar for useful mental models is [00:49:00] extremely high. And what I talk a little bit about in my book, it's a little geeky, but the bar is simple, but not simplistic.

So simple meaning if it's not simple, you won't remember it. So it won't be useful. If it's simplistic, in other words, you gloss over important things, it means you're going to use it in an inappropriate way. And Alfred North Whitehead's quote speaks directly to that. And he, as a philosopher of science, he can say that that in fact is what science is about. 

Oliver Cummings: Love it. Your most significant professional insight?

Hamilton Helmer: There are only seven powers that. And there's a deeper underlayment of that, which is that if you are thinking about strategy, and you want to come up with something that's useful for people trying to build successful companies. But the deep question is, how do you cut the problem?

And seven powers cuts the problem at [00:50:00] the level of the economic structure that results in durable returns. And I was complete lack of modesty, I feel that that yields a better insight into to drivers of economic success than any other way I've been able to understand it. And so that was quite a deep insight that took, you know, I'm, I'm a slow learner. I mean, it probably took me 20 years to kind of get there. So the 

Oliver Cummings: worst professional advice you have ever received. 

Hamilton Helmer: Let me answer a different question. What's the best advice I've ever received. In my early days of consulting, I was working for an early tech company in the Boston area, little public company called Galileo Electro Optics, which was sort of a high flyer at the time.

And they had a wonderful CEO, who I admired a lot, and we like got along. And I once asked him, I said, "bill, what can I do better?" 

and he said, well, Hamilton, sometimes you just don't come [00:51:00] out and say it. You sort of say, okay, you need to do the following, but what you need to do is you have to say, You need to do the following and if you don't, you'll end up in the scrap heap of history and your shareholders will sue you and X and X, Y, Z. And it's sort of not in my nature to do that, but it was great advice.

That doesn't quite answer your question, but it's an answer. 

Oliver Cummings: I love it. What have you changed your mind on about boards over time? 

Hamilton Helmer: As I have understood what it takes to develop great strategy, what I've come to understand is that a board's role is much more limited than I thought. Again, it comes back to this element of creativity and domain expertise and a lot of things that. Boards can have an important role, but it's very limited. 

Oliver Cummings: Finally, three things our listeners should take away from this podcast. If they take nothing else. 

Hamilton Helmer: I have a joke in my organization 'cause I, I'm all, I'm a [00:52:00] big believer in Steve Jobs. Everything is always about three things and . So you've kind of nailed me on this.

So I would say if you don't understand whether or not you have power, you don't understand your business. Power is not forever. And

Business starts with invention. 

Oliver Cummings: Wow, Hamilton, that has been such a privilege. Thank you so much for your book. Thank you so much for taking the time to share your insights. Now, you have a remarkable gift for making such complex things accessible. So really thank you for taking the time. 

Hamilton Helmer: Oh, my pleasure, Oliver.

Oliver Cummings: And thanks to all of you listening. We've been blown away by the incredible feedback about how this podcast has been helping you get board roles and become better board members. This podcast is for you, so if you'd like to suggest guests, topics, difficult challenges, or you'd like to share stories about how the podcast has impacted you, or have suggestions on how we can improve, please email Podcast at new [00:53:00] role.

com that's podcast at new role. com and let me know. I'd love to hear from you otherwise. Thanks again for listening and look forward to having you back here for the next discussion.

🎙️ You can listen to the full podcast interview with Hamilton on Apple Podcasts and Spotify.

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