A Conversation with Robert E. Siegel on How Leading Organisations Blend the Best of Physical and Digital.

A Conversation with Robert E. Siegel on How Leading Organisations Blend the Best of Physical and Digital.

Digitisation is a massive and massively important trend – one accelerated by the Covid-19 pandemic. But despite fervent preaching from the Silicon Valley faithful, it’s not the only kind of competency that matters.

Silicon Valley veteran and Stanford lecturer Robert E. Siegel argues that amid the incessant drumbeat of digital transformation, too many leaders overlook and under-appreciate the traditional competencies of physical incumbents – things like logistics, manufacturing, customer service, and quality control. The rigid dichotomy between digital and physical is not only over-done, but dangerous to companies trying to succeed. Siegel bridges the gulf in his new book THE BRAINS AND BRAWN COMPANY: How Leading Organizations Blend the Best of Digital and Physical.

Siegel is a lecturer at the Stanford Graduate School of Business and a many-time-entrepreneur and venture capitalist from Silicon Valley who previously held executive positions at GE and Intel. This multifaceted background has nurtured a unique perspective on the conversation about digital vs. physical, disruptor vs. incumbent – a perspective he brings to the popular courses he teaches at Stanford, the best-ranked MBA program in the world.

In this interview, I speak to Robert Siegel about how companies that bridge the digital (brain) and physical (brawn) domains will develop huge competitive advantages. We discuss his ten-point framework for the digital and physical realms and look practically at how to put the framework into action by becoming a systems leader, skilled at blending the best of digital and physical, recognising emerging patterns, and making key decisions in a rapidly changing landscape.

Q: What are the common traits of the best business leaders?

[Rob Siegel]: Whether it’s senior leaders in large organisations, disruptors or leaders in entrepreneurship – aside from being smart and ambitious, the ones who are most effective are thoughtful, human, and tend to not put on the ‘airs’ that you may expect. It creates a way for people to connect with them – it helps with customers, employees, and stakeholders. From having met and interviewed so many of these leaders – I’m always surprised at just how normal they are!

Q:  What does it take to maintain competitive advantage in todays’ world?

[Rob Siegel]: They physical world isn’t going away. We are a physical species. While digitisation is enabling incredible things – the best companies seem to be combining the physical and digital; they seem to understand what it means when products and services are connected – they understand that you must appreciate the physical side. Even disruptors who are coming-in need to start understanding physical in ways that they didn’t have to before – they need to understand what it’s like to make things, what it’s like to distribute things, and what it’s like to shape an ecosystem physically and digitally. Conversely – companies with physical DNA need to bring digital competencies and capabilities in-house in a way that they would maybe outsource before.

Q:  What is a brawn competency?

[Rob Siegel]: From studying companies, we saw these patterns of physical attributes coming in for the most successful. We came-up with 5 that seemed to make a real difference.

  • The Spine (Logistics) – the ability to get things from A-B, and to do it well.
  • Hands (Craft) – making things, manufacturing – and how you are using technologies like additive manufacturing to put the factory at the customer.
  • Muscles – The ability to operate at scale, and locally – you may have a platform that allows you to do business globally, but you can customise locally.
  • Hand-Eye Coordination – the ability for companies to shape ecosystems and to drive those ecosystems to get what they want.
  • Stamina – the ability for businesses to survive over time.

Q:  What are the brains of a company?

[Rob Siegel]: The brain is the most complex organ that we have in our body. The brain is not just about analytics and 1’s and 0’s, but also about emotional, creative and psychological capabilities. We studied Charles Schwab – and what I found interesting was that they had great analytical capabilities, but also creativity and empathy. The 5 most important brains attributes in business are:

  • The Left Hemisphere – using analytics.
  • The Right Hemisphere – harnessing creativity.
  • The Amygdala – tapping the power of empathy.
  • The Prefrontal Cortex – managing risk.
  • The Inner Ear – Balancing Ownership & Partnership.

Q: Do we need a new style of leadership to blend brains and brawn in business?

[Rob Siegel]: Amazon is the archetype of a great brainy and brawny business because they do both so well but since every company is going to have to do those things, the skill set required of leaders will be different over the next couple of decades. In the old days, you could stay within a function, rise through that function, adding teammates to complement your skills…Today I talk about systems of leadership – and you need the ability to see the entire system.

In a world where everything is connected, there’s bits and bytes moving, and leaders need to understand what happens when functions inside a company interact. What happens when your company is interacting with others inside of its ecosystem? There’s a flow to business and leaders need to be able to see that flow.

The great leaders in this world combine digital and physical – they can operate at the intersections and display operational and innovation excellence. They need to have a product manager mindset – they need to understand customers – they need to know how products get built and how to sell things – they need to be able to run disruption, not just talk about it – they need to have a mindset of going all in at times of risk. There are times of thinking and leading where you need to be able to understand interactions and you need to be able to do multiple things at the same time.

You can’t stay in your lane anymore – you need to be good at multiple things, and understand interactions.

Q: How should we be better understanding failure in todays’ business world?

[Rob Siegel]: Incumbents are not doomed, and disruptors are not ordained

When we started our research, we thought that all these new Silicon Valley businesses were going to come in and destroy the incumbents. What we actually found was that a number of incumbents were doing things that really allowed them to respond and be ready for change. There was a blind spot within a lot of disruptors in understanding the competencies that incumbents had built over decades, or perhaps centuries. We also saw failures where companies didn’t adapt.

One of the companies we studied was Daimler. They are a fantastic company who make beautiful cars. As the world moved to digital and mobility began changing, they really struggled. They didn’t partner well, and didn’t understand the digital side. If you think of automobiles now – they’re not just great pieces of physical engineering… they’re a moving collection of sensors and computers that get us from A to B. The data that comes out of a vehicle, and the insights from that data, become more important. Daimler didn’t want to partner well with people on the outside – they wanted to control the entire customer experience, and simply didn’t have the competencies to do it.

Look at the rise of Tesla. They have done things completely differently – they have a strong digital mindset, they partner well, they understand the brains and brawns of business and combine them extraordinarily well in their business model.

Q: How can incumbent companies fight?

[Rob Siegel]: If your strategy is to do everything, you have no strategy at all.

There’s nothing Tesla does that Daimler couldn’t have done for example – but they [Daimler] chose to stick their head in the sand and say, ‘no, we don’t’ believe it… Tesla can’t compete with us…’ They forgot to understand why people buy automobiles in the first place. They didn’t see the joy people get from buying Tesla cars. People love their Tesla in a way they used to love their Mercedes, but don’t anymore. Daimler were so interested in protecting what they did in the past, they failed to see the world had changed.

You need to look outside for disruption and be aware of it… embrace it. That’s the big change mindset that leaders need to have. The world is going to be disrupted and the world is going to change – you don’t have a choice. You can either let change happen to you, or you can do it to others. Failing to realise or accept this is what stops incumbents from competing and being successful. They need to play offence, not just protect their turf.

Q:  To what extent do businesses need to review their sensory infrastructure?  

[Rob Siegel]: There is a notion in the academic literature called the absorptive capacity of an organisation. The ability for to take-in data from the outside and change it based on what you’ve learned. Every company has to have an innovation mindset and the tools that enable this mindset to become part of the operating rhythm of the organisation.

In the past, operating, and innovating teams would be at separate sides of a company. Today those worlds are inextricably entwined. The innovation team are your scouts, they’re telling the operating team what’s coming. There has to be good communication and flow between the two. The innovation team needs to be looking at the operating team and saying yeah, they’re paying my bills right now, so I need to embrace them and help sometimes!

The enemy has to be outside the building, not inside. If the enemy is outside the building, whether you’re working on innovation or your quarterly sales-target, you’re on the same team… you’re playing for the name on the front of the jersey, not the back. Incumbents need to get in front of this, they don’t have a choice – the pace and acceleration of change and disruption is only going to increase, and thus evolution is essential.

We know the world’s going to change – the question is whether we will change with it. Katrina Lake, the Chairman of StitchFix asks her direct reports every year; if we were hiring for your job today, would you hire yourself?  I love that question, it’s like oh my goodness, have I stayed current?  Have I kept myself current?  And if I haven’t, what am I going to do about it?

Q: What can disruptors learn from incumbents?

[Rob Siegel]: When you’re blending digital and physical, you’d better know how things are made. When I talk to my students it’s shocking how few of them have ever been to a factory, and how few of them know what a CNC machine is or how goods get from A to B efficiently.

Look at Home Depot here in the United States. You can order on your phone for delivery or go to store to pick-up. The back end has become the front end and you have to understand that to compete. If you’re just sat at a computer and don’t know what’s happening in the physical world; how will you serve your customers better? The customer experience is everything from shopping to delivery, and every interaction the customer has with your product and how it works. This is true even of government. In the old days here in Silicon Valley, we saw the government as being something 3,000 miles away – not anymore – government is a much closer part of our lives today and will be in the future.

Digital upstarts can learn that deepening distribution, government relationships and customer relationships is important. Digital allows you to have ongoing relationships with customers, but incumbents understand how to monetise those customers and may have decades of experience and relationships with those customers. There’s an intimacy you need with customers, and I think digital upstarts don’t always understand that. They need to be thinking longer term about their relationships with their people.

Q: What is the role of marketing in building and defending competitive advantage?

[Rob Siegel]: Historically in Silicon Valley, the marketing function helped us with project management, strategic marketing alongside communications. We’ve seen a lot of that get split-up into different parts of organisational structures in the past couple of decades. The notion of that embedded relationship of marketing and brand with the rest of the business is important.

I use a Pixel phone (shh!) – it’s actually better than an iPhone.. it’s fundamentally better than the iPhone but doesn’t have the same reputation because people say, ‘…android is hard to use… it’s clunky… it’s not pretty…’ none of that is true anymore, nor has it been true for the past 5 years. Apple’s advantage is brand.

Back to the automobile industry. BMWs, Daimler, and Mercedes are great cars, but everyone gets excited about Tesla because they delight the customer. Tesla serves the customer better. If you don’t continue to serve your customer in the way they want to be served, the brand will eventually decay. You need a brand to give you aircover for a period of time for you to catch-up – but if you don’t keep on investing and thinking about your customers, it will all be for nothing.

Q: How can companies best embrace brains and brawn?

[Rob Siegel]: The world is going to be combining digital and physical – you need to be good at both. If you’re an existing business, you are not doomed… there are things you can do to be successful. If you are a disruptor, the world’s not going to lay at your feet – you’re going to have to work hard for it. The types of leadership that are going to be needed for our world are different but the overarching message here is of extreme optimism.

The things we’re going to be able to do… the products we’re going to be able to make… the ways in which we will be able to serve customers with new technologies and capabilities… it’s awesome! If we want to be successful, we need to make a choice – are we willing to run towards disruption? Are we willing to run toward the future?

Thought Economics

About the Author

Vikas Shah MBE DL is an entrepreneur, investor & philanthropist. He is CEO of Swiscot Group alongside being a venture-investor in a number of businesses internationally. He is a Non-Executive Board Member of the UK Government’s Department for Business, Energy & Industrial Strategy and a Non-Executive Director of the Solicitors Regulation Authority. Vikas was awarded an MBE for Services to Business and the Economy in Her Majesty the Queen’s 2018 New Year’s Honours List and in 2021 became a Deputy Lieutenant of the Greater Manchester Lieutenancy. He is an Honorary Professor of Business at The Alliance Business School, University of Manchester and Visiting Professors at the MIT Sloan Lisbon MBA.