Joshua Cooper Ramo

Is that the same thing? It’s more of a linear sense of connection, but is it the same skill that says “I could see how these seven different things connect to result in something that I can then leverage.”

Joshua: That’s right. And really understanding the dynamic of how power works in these systems. So it’s one thing to say that, okay, the stock market is connected to Facebook. Right? If things happen there it has implications in the stock market. But there are really larger shifts in power going on that are profound, but it’s sort of understanding the logic to really get at some of those rules. And I should say that, Peter, we’re super early in this period. The networks we’re part of today, and by networks I don’t just mean the internet, the internet’s a great sort of Petri-dish for these sorts of ideas, but I mean any connected system. People who listen to this podcast is a network. People who read your books is a network. People who live in Beijing is a network.

We’re starting to understand some of the basic rules of how these systems organize themselves. And it’s more than just saying things are connected. They’re connected in different ways. I’ll give you an example. One of the things we think we understand about a lot of these network systems is they do tend to create these kind of winner-take-all platforms, where there’s this logic, it’s known as an Increasing Return to Scale, where the bigger they get, the more dominant they become, and more powerful they become … The more people that use Facebook, the more people need to use Facebook. Right? It’s not like you’re gonna go to MySpace or Friendster or start something else.

Peter: The Network Effect.

Joshua: Exactly. And the first instance of this was, famously, Microsoft. Which is right, if you were in the position of using Microsoft Windows and I sent you some document you needed to have Windows or Word or Excel in order to open it-

Peter: Well, and even before then, it was fax machines. Right? It was like, a fax machine was useless unless you had one.

Joshua: Yes, just like that … A kind of platform. So we know these networks exist. What’s interesting is that now they’re so incredibly powerful. So when technology first came on the scene, I think there was a sense that … Meaning connected technology, whether it’s your smart phone or internet connections, that it was this, leading to this massive distribution of power. You and I have more technology and more computing power in our phone today than was probably available on the entire planet a hundred years ago. And so it does lead to this massive distribution of power, but at the same time it creates this incredible concentration of power.

And so the distribution of power today really is that joint experience of power becoming incredibly concentrated and incredibly spread around and diversified at the same time. And it’s that tension. You might want to picture an atom, right, where you’ve got these electrons on the outside and this incredible core of neutrons and protons and the more, the stronger that core gets, the more things you have on the outside and the more things you have on the outside, the stronger the core needs to be to hold those electrons in. So the more people who use Google Maps, the more powerful that central map becomes, and as it becomes more powerful, more people are attracted to using it.

And so that distribution of power, between incredible concentration and incredible distribution, is a lot of what is re-writing laws of economics and politics. A good example that I often give is the case of my father, who’s a doctor. A cardiologist. It used to be, if you had something wrong with your heart, my dad was your last word. You’d go see him. He’d tell you what you’ve got. Today, he finishes talking to a patient, basically before he’s left the room that patient’s probably Googling whatever it is that he has told them to see if it’s correct. ‘Cause there’s millions of sources of information about heart disease. But at the same time, in five years or ten years, there will be some computer that is looking at masses of data and will be able to out-diagnose my father because it has this incredible concentrated worldview.

So you have mass distribution, mass concentration, and that role of sitting in the middle is kind of getting pulled apart. And that’s why we see so many existing institutions under pressure. It’s because they were built for a different logical power.

Peter: It seems like on the one hand, the networks can really look like chaos, right, because there’s a million people doing a million different things and connecting with each other in seemingly a million different modalities. But on the other hand, the concentration that you’re talking about means that these networks can be extremely organized. Like you can have Ebay or Amazon that democratize power by making everybody a seller, or the same thing with Airbnb or the same thing with Uber, but on the other hand, there’s an Uber and an Airbnb and an Amazon and an Ebay.

Joshua: That’s right.

Peter: And the power is concentrated in the organizational system that’s able to be the hub of that network.

Joshua: That’s right, and it’s very hard to compete. So a lot of the people you coach and deal with are significant business leaders, they’re used to operating in that much more industrial world where, like if Ford has a good year, GM probably also has a pretty good year. Winner-Take-All businesses, Google had a great year last year. What kind of year did Bing have? What kind of year did Yahoo! have? Really put a tremendous premium on getting these decisions right early and you’ve got to remember, Peter, like I said, we’re in a very early period of this. There’s so many things out there that have yet to be connected. That this kind of logic of power is still emerging, and it’s got it’s own puzzles that come with it. I think we’re now seeing the power of Google and Facebook, these arguably may be the most powerful institutions in human history, in terms of their ability to affect people’s lives, either knowingly, or because they’ve become subverted. And that kind of black box that surrounds how they operate, which is in some cases necessary for how they operate, really poses a problem to the traditional ways we think about distribution of power.

You know, I’ll make one other point, by the way, as you try to think about navigating this world as a leader, these systems may look chaotic, but there are certain regularities that emerge from them. For example, once you had a billion web pages, something like Google was going to emerge. Once you had three billion people online, something like Facebook was going to emerge. And it’s not to take anything away from the executives who did that, but we know, in complex systems, that there is a property known as emergence, which is that things … certain regularities, certain patterns, certain structures, actually do emerge out of that. And so, if the world was just chaos, nothing around us would exist. Complexity theory teaches us that there are patterns of emergence, and that’s what we’re seeing happen in this connected world. As more things are connected, as there’s more and more opportunities for links to be formed, you’re gonna see more and more of these newly emerging platforms.

Peter: A couple of thoughts that I have, and I want to continue on the stream of what leaders can do in this environment, and it’s that, on the one hand the networks are completely democratized in terms of access. It creates a really, really long tail. Right? So you can sell three things. My daughter, for example, makes candles with scents. The scent of the candle relates to characters in these sort of science fiction books that she reads. It’s an incredibly niche market. People who want to buy fantasy fiction scented candles related to characters. And yet, she can sell them, because there’s, you know, almost a perfect marketplace out there. And that they can find each other.

And so on the one hand you have that, which democratizes power to some degree, because it gives her a marketplace. And on the other hand what we talked about, right, which is that the power is centralized. And also the taste shifts, because there’s a monopoly, in a sense, in terms of the concentration of that power, but I was talking about Facebook to a ten-year-old who rolled her eyes at me and then said “Instagram.” And so, not that Facebook is going away, and Facebook OWNS Instagram, but there’s a sense of how tastes can change, and then when there is, you know, talk about Malcolm Gladwell’s Tipping Point, when there’s sort of this tipping point, and then everybody can sort of move from one network to another. And that can change the balance of power.

But, I think it’s a little hard to do. It’s unlikely that Yahoo! will overtake Google at this point. And so, I guess my question is, what are the elements of leadership that are fundamentally changing, and what advice do you have for leaders that are running companies that, you know, they may not be the CEO of Airbnb and Uber, and they may be running more traditional businesses? How do they step into this new world and find their ground?

Joshua: Well, I think the first thing to accept is really the scale of what is underway here. That we all crave, your daughter craves, even younger generations … Connectivity and being connected is as important, in many ways, to some people, as being free once was. The great story of the last several hundred years was this demand for liberty and people wanting to define their lives, not based on where they were born or the color of their skin or who their parents were, but by what they dreamed they wanted. And the United States was really the country that, for the longest time, made that the most possible. It was an incredibly modern machine for turning people’s lives into what their hopes were.

People, as much as they are craving liberty now, also crave connectivity. And that’s a real shift. If you had said to me a decade ago, “Look, I’m gonna give you this device. You’re gonna take it with you everywhere. It’s gonna follow all your movements and in exchange for that it’s gonna save you five minutes of traffic.” I would’ve said “I don’t want that Orwellian box anywhere near me.” But when I walk around with my Android phone and use Google Maps, that’s exactly what’s going on. So that … Now I’ve given up my freedom, I’ve given up my privacy to some degree in exchange for convenience. And so that’s the sort of trade-off that’s going on, and it’s unstoppable.

Because we crave the benefits of it. Right? You’re happy Google now has a feature where they can watch your search history, and they notice certain patterns that might suggest, for instance, you have pancreatic cancer, which is this horrible cancer that usually is discovered far too late to treat. And they will alert you based on your search history, earlier than your doctors may spot any symptoms, that you may need to go see somebody. So you will be willing to give up the protection and the privacy of your search history because the benefits of knowing this, in this case literally would be life-saving. And that’s unlikely to stop.

So the first thing that leaders need to understand is that this really represents an honestly deep shift in power. I make the case in my book that it’s as deep as the shift that came with the Industrial Revolution and the Enlightenment, which really began this process of people demanding a world where they could be free. I think people will now demand a world where they can be connected to the best possible systems. And, you know, it’s very interesting. You see that there’s a poll that came out a couple of weeks ago looking at Millennial views of democracy. And Millennial support for democracy and democratic institutions is much lower than people would have expected. They don’t take it as a given that freedom is the most important thing. And part of that may be that they understand how important connectivity is to their sense of identity.

So the first things a leader needs to understand, the scale of this. This is not something that’s going away. It is something that, sector by sector, is just devouring traditional businesses, whether that’s traditional retail or traditional media, or traditional medicine. And if you are in any business or structure that has the word ‘traditional’ in front of it, the odds are, and it’s true for traditional politics, traditional economics, you are likely to get devoured by these force that are moving very quickly and which we barely understand.

The second thing is to try to really understand, to some degree what’s going on, and why these things happen. And one of the things I do in the book is sort of walk through what are the various rules of power that we think we know. And it’s worth keeping in mind that the systems we have today are really just simple versions. The ones we’re gonna have in the future are gonna be far more complicated, because they will be nearly instant in their speed. The latency that you have today when you’re trying to get data or other things, that’s all gonna go away. You’ll have near light-speed connectivity. And then, as a result of that, you’ll have more and more AI on these systems, because they will demand the use of machines to manage things, both because it’s faster and safer and more secure, but also ’cause the benefits of having machines watching over our lives, in many cases will be profound. And so that dynamic, as a leader, means that you have to understand that your business is probably not engineered for the world you’re going into, and you need to start to figure out how do you re-engineer it from the ground up. But there’s not a lot of success cases for that.

Peter: What is the success case for that? What would it look like to reengineer a business so that it takes advantage of the network?

Joshua: You know, the best examples are some of these long-standing tech firms in the Valley that have been able to … It’s extremely difficult. I mean, if you look at Intel now trying to reboot themselves to some degree as they are facing new competition. You can see what it looks like in practice. And so a lot of these tech firms that have had to constantly reinvent themselves, Oracle has just completely remade their business because that is such a lethal world. If you miss a single product-cycle, you can basically be out of business, no matter how big you are. Is not a bad example of this. But it’s really difficult. And it’s very difficult also to be successful in many areas. You know, if you look at Microsoft, they’ve been hugely successful in certain areas, but you would have thought “This company’s going to totally dominate search,” and they have not been able to do that. Now, they may have a tremendous opportunity here in AI, but just realize how difficult it is, even for entrenched players to figure out how to reinvent their business is the lesson to this.

Peter: Let me ask you a question, which is, we have always lived in a world, certainly as leaders, where we feel like everything has a controllable aspect. Right? So you look at the Tipping Point that I mentioned before, it’s this idea that if we could only harness these five elements or these three things, then we can get this mass runaway bestseller.

And I wonder, you know, it’s very easy in retrospect to look back and say “These are the things that those people did that made it successful,” and what you’re saying which I really appreciate, is it’s very, very hard to transform a business and to take advantage of this network. Or the network effect, or to leverage the Seventh Sense. And I wonder, in your experience, how much of this is really random, to a certain extent. And it’s not random, because in retrospect you can see what people did, but you know, looking ahead, it’s a monkey flipping a coin. Some organizations will take off, Uber will take off and Lyft won’t, or Uber will die out and Via will be big. But it’s very, you know, Facebook versus Instagram, but it’s impossible to predict, because the network has a very organized but uncontrollable mind of its own.

Joshua: Yeah, I mean I think that’s exactly right. So there’s two things to keep in mind. One is there’s no second place. Which is a new phenomenon to some degree, and that makes it very difficult to compete. And who wins first place is a fusion of luck, there’s not a single one of these people who’s running one of these big companies who won’t tell you that luck wasn’t a factor in their success. And then execution. But there are certain things we know about the designs of these networks that do suggest areas that are quite fertile for work. And probably where you can find opportunities, but they’re very different from the traditional ways in which we built companies and organizations.

And I think you’ll see, you know, my work mostly in New York and in Beijing is with much more traditional, large-scale industrial firms. My wife runs a technology business. Her business has a high technology component, and she lives in a world in New York where everything is sort of on-demand. Office space is on-demand. Millennials kind of coming in and out of jobs. You use certain spaces for events because they’re available from 4:00 in the afternoon til 6:00 in the afternoon. It’s the kind of thing no Fortune 60 executive would consider respectable way to get through the day. But there’s an underlying dynamism to that economy that’s extraordinary.

And so what you may see, over time, just as a transition in the fundamental modes of production, it’s not to say the big corporations are going away, because we point out that these large highly-concentrated corporations are a big part of our lives. But there may also be this incredible energy of just diversified economies, in which there is an amazing opportunity to think about things like labor in terms of labor networks and not labor markets, and different ways to capture values. So I think it’s a real problem if you’re sitting inside a traditional corporate structure, but it’s not like the world is going to become completely chaotic. There will be new opportunities. They’re just going to emerge in very different places.

Peter: And so, as we’re winding down in the conversation, and there’s so many more questions I want to ask you, so maybe we’ll have to, you know, offline, or maybe even at some other point online continue this conversation, because it’s fascinating and it’s unfurling. Right? I mean, we’re just, to your point, we’re trying to kind of figure it out and understand it, and I think it’s actually brave to come out with a book. And you have thoughts in this about how to move forward, but I think it’s also brave to say “There’s this new thing coming and we’re not entirely sure how to leverage it and we don’t exactly know how to transform our businesses in such a way to take advantage of it. But we need to start thinking about it collectively.”

Joshua: The reason I call it a sense is because it’s about, and I spend a lot of time on this in the book, it’s about training an instinct. History teaches us a lot about what do you do when something you’ve never seen before shows up. Because that has happened, and that sense of preparing yourself to deal with that, that’s absolutely something that you can do even if you don’t know exactly what the reaction’s gonna be because you don’t know the nature of what’s about to land.

Peter: So give us some departing advice. What would you suggest, aside from read the book, which I heartily suggest everybody do, what suggestions do you have to help us become more attuned to this in a way that could help us show up as stronger leaders in this changing environment.

Joshua: You know, one of the things you mentioned earlier, Peter, that’s very interesting, I’d forgotten this case of the guy who was sort of quiet around Chernobyl and then started trading. There’s a real virtue to cultivating a kind of inner stillness right now. And maybe this comes from my many years of living in China where you’re always thinking about what’s the balance, between Yin and Yang, and the more energetic and chaotic things are on the outside, the more you want to be still and calm inside yourself. So I think that’s a first step, which is just learning not to be snapped around by your phone and your devices and the latest crisis, but to have that ability to calm yourself down.

And then I think to turn to some underlying principles. And those underlying principles really get at this question of if you are going to be connected, if you’re going to give up your freedom and your liberty and your data and all these other things for the benefits of it, are you being thoughtful about the way in which you’re doing that and what are the sort of … Where do you want to fit on that scale? How much data do you want to give up? How connected do you want to be? And I think those are choices that, often, we don’t realize we’re making until it’s too late. So I think that’s the second thing.

From a leadership perspective, there is no question that the opportunities and risks are going to come from things you’re connected to that you don’t necessarily see. Almost by definition, the biggest opportunities are going to be not things where you’re going to follow somebody else and do a business, again, because there is no second place. But it’s going to be when you find something new and different. And the question is how do you architect your organization to bring those edges that are really in contact, not with your core business, but the intersection of other things where connectivity really takes place in fresh ways, to the center of your attention.

And that’s what’s so difficult for traditional firms. They spend a thousand percent of their time, as they should, looking at the core of the business they’re running today. It’s the classic Clay Christensen’s Innovator’s Dilemma problem. But the future’s gonna be decided on the edges of their business, not at the core and that’s a very difficult problem for many CEOs.

Peter: Well, and the amount that they’ve invested in the core makes it very hard to spend their time on the edge.

Joshua: The amount they’ve invested, their self-esteem is totally wrapped up in making widgets or print magazines or being the kind of doctor my father was for a long time, but the reality is that’s just not gonna be a tenable structure. It’s gonna be like showing up with football gear for a tennis match. And people need to understand that you’ve got to be willing to make the shift, to adapt to a new way of thinking about things.

Peter: You know, I want to close with one thought, and it may be the absolute wrong thought to close on, because I haven’t really thought it through, but isn’t that the nature of what we’re talking about? And I think that there’s some sense that I get about letting go, on the one hand we’re very tightly controlling, oftentimes as leaders, the impact because we’ve got deliverables. We’ve got outcomes we’re trying to achieve, and we’ve got shareholders we’re responding to. And if you don’t have the freedom to escape that, you may actually be stuck in it and it may not be the successful way to move.

But I also think for those people who are not necessarily stuck there, there might be an interesting message that says, to the extent that this isn’t controllable, that the best thing that you can do is find those moments of stillness and to pursue the things that are most engaging to you and in connection to what might be most engaging to your customers in a way that you don’t have an expectation of being the next big network, but you have an expectation of connecting with people in real and honest and authentic ways, in a way that meets their needs and that leverages your strengths and what you have to offer, and then really be okay with the outcome that says “We may or may not be huge with this, but we’re not going after huge.”

And that that’s not controllable to us in some sense. You know, it might be the four big tech companies that have the market on that, but ultimately we’re not going for huge. We’re going for meeting people in connected ways and delivering value. It’s really letting go of an outcome. Which is very spiritual and very, very hard to do.

Joshua: Yeah, that’s right. I mean, basically focus on the connection. Get the connection right and everything else will take care of itself.

Peter: Right. And if it doesn’t, at least it’ll be connected, which ultimately is what we’re looking for.

Joshua: Yeah, that’s right. And be … Right. It’s really a journey where we don’t know where the destination is. And that’s true for all of society. We don’t know how this is going to end up. We’re not gonna have labor as we think about it today, be the same in 50 years as it is today. So how do you navigate these kinds of changes? You know when I was writing the book, I went back and I spend a couple years doing nothing but reading all the great classics of the Enlightenment, and you go back and you read Locke and Burke and Kant, and what you discover is that none of them knew what was coming. They just have the dimmest grasp of it. And if you said to Locke “One day all the farmers are gonna vote,” he would say “That’s the craziest thing I’ve ever heard.”

But they are trying to begin to work their way through it, and that really is kind of the intellectual example that we ought to take. Understand that the rules are changing. Kant said that the motto of the Enlightenment should be “Dare to Know” because then it was crazy to think that you could ask questions about what was going on in the world, and I think now we’ve got to have the courage to understand and really question the underlying premises of a lot of what we’ve believed in the past.

Peter: We have been talking to Joshua Cooper Ramo. His new book, The Seventh Sense: Power, Fortune, and Survival in the Age of Networks, has caught on. It is in its eleventh hardcover printing. It’s a really interesting book that gets you thinking. I hope that we have gotten you thinking a little bit in this conversation.

Joshua, thank you so much for being on the Bregman Leadership Podcast.

Joshua: Thanks for having me. Keep up the good work.

Peter: Thanks. You too.

I hope you enjoyed this episode of the Bregman Leadership Podcast. If you did, it would really help us if you subscribe on iTunes and leave a review. A common problem that I see in companies is a lot of business, a lot of hard work that fails to move the organization as a whole forward. That’s the problem that we solve with our Big Arrow process. For more information about that or to access all of my articles, videos, and podcasts, visit peterbregman.com. Thank you Clare Marshall for producing this episode, and thank you for listening.