Robert Siegel on the brains + brawn leader

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The Magazine of the Rotman School of Management UNIVERSITY OF TORONTO

WINTER 2022

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MANAGEMENT

The Disrupted Issue


QUESTIONS FOR

Robert Siegel, Venture Capitalist, Stanford Lecturer and Author

Q &A A Silicon Valley veteran argues that the most successful companies are composed of two things: brains and brawn.

Interview by Karen Christensen

You believe the time has come to bridge the ‘cultural gulf’ that exists within most organizations. Please explain.

Historically, business leaders have had competencies in the physical domain — related to manufacturing and distributing products in an optimal fashion. And that requires a particular set of skills. But as the knowledge economy took shape, a completely different set of skills was required in places like Silicon Valley, where companies were entirely digital, built on code. In recent years, the physical and digital realms have converged, creating very different dynamics in terms of the way things are produced, how organizations are designed and what customer relationships look like. As a result, companies— and their leaders — now need to have competencies in both the digital and the physical worlds.

In your work as a venture capitalist, you noticed something interesting about the disruptive entrepreneurs you worked with. What did they have in common?

I found that of all the men and women who would pitch us their innovative ideas, very few truly understood what was involved in making an actual product — being on a factory floor, handling logistics—all the things that make a business work. It was like they weren’t even interested in those things. They would say to me, ‘Oh, we can outsource that.’ This mindset — separating the physical aspects of a business from the digital — is no longer going to work. rotmanmagazine.ca / 103


To deal with this conundrum, you developed the Brains and Brawn Framework. Can you summarize it for us?

My framework looks at five brainy attributes that a company needs to develop, as well as five brawny attributes. I use the human brain as an analogy: The brainy side of an organization includes its left hemisphere, which enables analytic thinking; the right hemisphere, which is about managing creativity; the amygdala, which allows the organization to apply empathy to its employees and customers; the prefrontal cortex, which works on managing risk; and finally, the inner ear, which is about balancing ownership and partnership — figuring out what to do inside your company and when to work with others. On the physical side there are also five attributes, and again, I use the human body as an analogy. The spine of an organization is about how well you manage logistics; the hands are about the craft of making things; the muscles are about doing what is required to take it to scale. Companies can now do business anywhere, so increasingly, they need to be able to operate at scale on a global basis. The fourth element is hand-eye coordination, which is about shaping and driving your ecosystem to get what you need out of marketing, your customers and your partners. And finally, stamina looks at your company’s resilience: Can you survive through the good times and the bad? You have applied this framework to several successful businesses. When you compared Daimler and 23AndMe, the latter came out way ahead. What happened there?

Using this framework, you can rate your company on each of the brain and brawn skills I just described on a scale of one to 10. 23AndMe scored much higher than Daimler because they’ve done a much better job, consistently, with both brains and brawn capabilities. When I studied Daimler, they were spectacular on the physical (manufacturing) side. But we also looked at how they handled analytics, how they were taking (or not taking) risks, and how they formed partnerships. They didn’t score nearly as well on these things because they were trying to do too much by themselves. The brains and brawn framework gives leaders the opportunity to invest in the areas where they might need to add capabilities. What first steps could a brawny company such as Daimler take to improve its brainy competencies?

We encourage every company to start in the same place: 104 / Rotman Management Winter 2022

with customer outcomes. Why do your customers buy your products? What value do they get from them? Then, you can go through the 10 areas of the framework and figure out how to do better. A great example with Daimler was the digital interface they created for their cars. They had a choice to design it on their own, to partner with a digital provider or to let customers use their smartphones to access the services. They decided to use their own software to control the user experience. The challenge is that everyone is tied to their smartphones these days. We use it for Waze, to listen to our playlists, to make hands-free calls from the car. They were very slow to adapt to what customers actually wanted. As you note in the book, gathering data has never been easier, but using it wisely is not as easy. What advice do you have on this front?

The most important thing any company can do is understand that their North Star is their customers, and that customer needs should guide every decision they make. Charles Schwab oversees more than $7 trillion dollars in assets, and the most important question they ask in any tricky situation is, ‘What would our customer want us to do?’ For example, if a customer goes onto the Schwab website and searches for the word divorce, Schwab automatically knows something is happening with that customer — possibly even before their spouse. But just because they have this data doesn’t mean they do anything with it. The question they ask in that moment is, What would this particular customer want us to do? Let me juxtapose that with a company like Facebook. While it has enjoyed huge economic success, there is a general sense that it will do whatever it wants to do with the data it collects. People are aware that Facebook uses our data for its own purposes as opposed to considering what customers might want. I think the mantra, ‘just because you can do something doesn’t mean you should do it’ is a great way for a company to think about data use. You advise companies to focus their creative efforts on one particular area. Tell us about it.

We often hear about people having a flash of insight that allows them to change the world. But my research and work with companies shows that the best approach is to design creativity into everything you do: how you are organized, how you look at your business model in combination with


technological innovation and most importantly, how you can change the way customers experience your product. There needs to be constant questioning of what you can do differently — and better Make no mistake, creativity is hard. The company we talk about in the book is Align Technology, which makes those clear plastic liners that are used to straighten our teeth. They are the world’s largest user of 3-D printers and they ship over 500,000 of these clear plastic molds to people around the world every day. Early on, they realized the value of combining the digital and the physical. When you want to get your teeth fixed, they take a digital picture of your mouth and use their software to work with your orthodontist to come up with an individualized plan to straighten your teeth. They can even give you a customized smile, because what is considered an attractive smile in South America is quite different from Asia, and both are different from North America. They realized they had to simplify the entire ordering process so dentists — who historically have never not been involved in teeth straightening — can now add this service to their capabilities. I think that’s a great example of focusing on figuring out how to make things even better for people. You believe what we need right now is ‘systems leaders’. How do you define that?

Before we needed to blend the digital with the physical, a leader could rise up in an organization and maybe move into different functions. They would then focus on building up a competent team within that function. In a world where everything is connected, leaders need to act and think very differently. They need to understand the interactions between functions. For example, if the sales team sells a particular number of products, how will that ripple through the organization? Leaders also need to understand what’s happening in their ecosystem, with other players in their industry. For example, if Company A does this, how should Company B respond? Even finance and human resources departments need to understand what’s happening outside the building in order to understand what is driving the scenario inside the building. There are four things systems leaders do. First, they must be able to operate at intersections. They need to simultaneously understand how to manage for the short term and hit their numbers, but also, how to manage innovation for the long term. They need to combine IQ and EQ. And

they need to be able to consider effects on other parts of their organization. The second thing is, they need to be able to manage context. My former boss at GE, Jeff Immelt, likes to say that “truth equals facts plus context.” Managing context is how we understand the data around us. Great systems leaders have a product manager’s mindset. They’re good storytellers and they understand why customers buy a product, how it gets built, what the sales team needs to know in order to sell it — they really see the whole system and how it works together. The third thing about system leader is, they are aware of their biases. Every human on the planet has biases, and they are neither good nor bad; they just are. Most senior executives are never wrong in their own conference room. One thing they need to be able to do is have people from outside the company who can tell them the truth about their product, service and company, and how it is perceived. It’s critical to have people who can help you understand what’s really going on. Finally, I would add that, leaders must know themselves. We all have strengths and development needs, When you had success in the past, were you just in the right place at the right time? How can you address your weaknesses? One of the leaders we studied in the book was Katrina Lake, the founder and chairperson of Stitch Fix. Every year she asks her leadership team, “If you were hiring for your position today, would you hire yourself?” That is a terrifying question, but it addresses the notion of whether you have stayed current. Are you still the best person for the job? And if not, what are you going to do to ensure you once again become the right person for the job? That kind of self-awareness is one of the key things that will make leaders successful going forward.

Robert Siegel is a Lecturer in Management at the Stanford Graduate School of Business, a general partner at XSeed Capital and a venture partner at Piva Capital. He sits on the board of directors of Luum Precision Lash and Avochato. He is the author of The Brains and Brawn Company: How Leading Organizations Blend the Best of Digital and Physical (McGraw-Hill Education, 2021). rotmanmagazine.ca / 105


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