ADI IGNATIUS: I’m Adi Ignatius, and this is the HBR IdeaCast.
Harvard Business Review recently hosted the HBR Strategy Summit 2026, a day filled with expert advice and guidance from executives and academics alike, and we’re sharing the highlights of the event in this special IdeaCast series.
Today, another Masterclass – this time from Rita McGrath, professor at Columbia Business School. She sees a major shift in the economy that’s underway – one that affects strategy and organizational structure. Our economy is moving from one based on physical assets, mass production, and hierarchy – to intangible assets, services and innovation.
This shift means companies can no longer depend on long-term competitive advantage. Instead, she’ll explain how in an AI world, companies need to choose a “center” around which to build capacity and allocate resources. She’ll share examples from the business world, talk about what it means to have “unbossed structures” and take audience questions – all with the help of HBR editor in chief Amy Bernstein.
Here is that masterclass.
RITA MCGRATH: So this is actually some work I’m doing for a new article, and eventually we hope a book, which has been one of the hardest things I’ve ever had to write. And the reason is that we are in this turning point between a regime based on cheap energy, physical goods, mass production, the assembly line and that has major implications for how we think about strategy, because the regime we are moving into is increasingly based on intangible goods, on digital products, on services rather than things. And it requires a really different way of thinking about strategy.
So if I go back to strategy texts 101, it was all about physical things – physical barriers to entry, things that kept your competitive advantages sustainable for a long time. And that world is just evaporating right before our eyes. But we don’t yet know what the contours of the new one are. But what I do think we know is that dematerialization is going to wreak big implications for what strategy needs to be.
So I think there’s a new concept we need, and it really has to do with how do you center a company in a world which is dematerializing around you. And I thought I’d take an example. So imagine that you’re a diversified firm, you’ve got an eye care business, a consumer products business, a business that does off-patent drugs, et cetera, et cetera. And you happen to have a pharma business too. And you’re in a capital committee decision making body and you got to decide, there are two proposals on the table. One is let’s build a plant to make something like Excedrin. It’s a product we know. It’s very predictable. The returns are almost certain to be guaranteed. Or let’s invest in this brand new therapy area called radioligands, which is nuclear-based therapy, which can attach a nuclear particle to a cell and take it directly to a cancer site. So it’s very precise targeting of the disease profile.
Which do you do? And in a normal company, which is diversified and has a lot of different activities, it’s a really hard decision. And everybody comes in with their logic and it’s very political, and it eventually comes down to whatever your decision rubric is. But in a centered company, the decision almost makes itself. And by centered, what I mean is you choose your center of gravity, as it were. And in the case of Novartis, which is what this story is really about, Vasant Narasimhan, when he came into the company as CEO in 2018, he said, “It doesn’t make any sense to me that we don’t just pursue our mission of inventive medicines, new medicines that are going to really treat disease areas.” And so he got rid of the eyecare business. He divested the consumer products business. He divested the generic pharmaceuticals business and really slimmed the company down. They went from about 104,000 people to about 76,000 and spun off all that.
Now, here’s where it gets really interesting to me as a strategist. When he took over, they had pharma, eyecare, consumer products, generics, all that stuff and the total market cap of that company was about 120 to 130 billion, depending on what timeframe you look at. Today, I just looked this up the other day, all those companies, if you add them all up, the combined market value is $510 billion. So look at the delta in what they’ve done simply by allowing each of those individual pieces to focus on what they do best. And the culture that Narasimhan also had that comes together with this is something that he calls inspired, so motivated by their mission, curious. So constantly looking to do new things, and unbossed. So what that means is not you get to do whatever you want. What it means is smart people with a passion for their mission get to take the initiative.
And I think a beautiful example of this, it took place in last year’s Super Bowl when they sponsored an ad and the ad was called Your Attention Please. And the ad shows basically video of women’s breasts right, left and center in every context you can imagine and then it shuts down if the screen goes blank and the message is, “So much attention, but six million women watching this program,” which is the Super Bowl, “Could be diagnosed with breast cancer this year.” And then Wanda Sykes comes on and gives a pitch about how early detection really helped her navigate this.
Could you imagine a staid pharma company ever coming up with something like that? It was just a breakthrough and I was mesmerized just watching this, but they had the courage to say it’s in the service of our mission to catch people’s attention when they’re paying attention and in a way that isn’t sort of stuffy and pharma-like.
And so the evidence for the increasing intangibility of our economy is quite profound. If you took a slice of the top companies in the world in 1970 or so, the bulk of what constituted their value would’ve been the typical things we think of, plant, property, equipment, tangible assets. If you took the same snapshot today, the bulk of what companies are valued at is intangible, it’s patents, it’s software, it’s technology, it’s not tangible anymore and that fundamentally changes the boundary conditions under which strategy needs to be performed.
So I think this critical challenge of the strategist, before you even get to things like what moves, what market, where do I go, it’s really figuring out what the center of your company is going to be. And in the case of Novartis, it was really centered around this mission, delivering inventive medicines that are going to really fundamentally cure issues in several very defined disease areas.
Now, what does this do for you? It creates a bounded opportunity set. So it makes it clear what we’re going after, but also what we’re not, and strategies fundamentally about making choices. It resolves these kinds of capital allocation dilemmas. It becomes absolutely clear, of course, you’re going to go for radioligands if that’s what your company centered on. And it enables this permissionless, unbossed approach to managing your organization.
So if you think about the typical bureaucracy, typical hierarchical bureaucracy, it was built to deliver mass production at mass scale. And it was very effective at doing that, but we’re not in that world anymore. As Bayer CEO, Bill Anderson, who’s two years into a real transformation at that company said, there was a time for hierarchical command and control organizations, the 19th century, to be precise. So we’re looking at something very different now. And I think that the contours are beginning to become clear and we do see some examples of companies that are actually doing this.
So here’s some questions to think about. As you think about how might we design a permissionless organizational structure, which can do the kind of innovative things that Novartis is doing and some questions to think about.
So the first question I would ask is, have we made things as simple as possible? And this is a picture of Sharon Price John, one of my strategy heroes. She’s the CEO of Build-A-Bear Workshop. Here’s a fun fact, if you had bought shares of Build-A-Bear Workshop in 2020 and held them till today, you would be doing better than if you’d bought the same amount of shares in NVIDIA today. So she’s really turned that company around, but she has a mantra that she calls SDSS times two, Stop Doing Stupid Stuff is where you start.
So look around your organization. What are the practices that are no longer fit for purpose? What are the procedures that were put in place because somebody did something really bad 27 years ago and what could you safely stop? And then once you’ve cleared some space by stop doing the stupid stuff, then you can do the second SDSS, which is Start Doing Smart Stuff. And I think it’s just a really simple way of thinking about how do we get some of the complexity, the organizational drag out of what we’re doing.
The second question is, are we truly leveraging loosely coupled small teams? And this of course was made famous by Jeff Bezos and the two pizza rule. But if you think about the coordination cost of navigating in a hierarchy, if you have to go to 15 different departments to get something approved, your communication overhead is just really massive.
But if you can keep it to 3 people, 6 people, 12 people, that’s sort of the sweet spot. And what we’re seeing is loosely coupled, but mission aligned, small teams, really outperforming large organizations. And we’re even beginning to see now the unit of value creation is right at the level of small teams or even individuals. We’ve got our very first single person unicorns now to think about. So think about how much overhead you’re putting on these teams and does it really make sense?
Are we really taking a stewardship position? And this is this idea of being centered on the long-term vitality of your company. And I’ll take Fujifilm as an example. They had the same challenge Kodak had, which was their major profit-making business was becoming obsolete by the advance of technology and they saw it coming and they said, “We’re centered on our technology. We will use that technology in any market where it makes sense.” And so they took a group of people that were dedicated to figuring this out. And what you saw was they went from cameras and film into medical imaging, into cosmetics, into anywhere the technology makes sense, because they’re a technology centered firm. So they don’t really care what markets they’re serving, what they care about is the long-term wellbeing of the company.
Then I think there’s a question about operationalizing for diversity. Do we have people who don’t all think the same? And this is a real challenge because there’s a tendency in companies to hire the same kind of people, to look for the same kind of background. So be thinking about, do we have different backgrounds, different experiences, different socioeconomic levels weighing in on our decisions? And that’s what I call healthy diversity.
Have we built in trial and error learning? In a high uncertainty situation, the only thing you can count on is that you don’t know what you don’t know. So what you have to do is experiment. And I love this example, this is from Netflix, and they actually have a program called Chaos Monkey that goes through their code, and you can only imagine how much technology a company like Netflix runs, and then they let this thing loose on their code and it systematically breaks pieces of it in order to test how durable it is. Well, what that has the side effect of accomplishing is this trial and error learning that you’re going to get more and more learning as the code kind of figures out where the weak spots are. I think this is fascinating.
And then lastly, are we making space for emergence and for innovation right at the edges of the organization where the knowledge that we need to do things really lives. And this is an example from Adobe, this is what they call their Kickbox program, and it starts with a red box with a thousand dollar gift card in it that any employee can request and do an experiment with. It’s such a simple idea. And yet when I talk to people in large organizations and say, “Hey, if somebody on a loading dock had an idea, what would they do with it?” And usually I get back a blank stare, there’s no process, there’s no mechanism. And yet that person is right at the coalface with your customers and your suppliers and what’s going on in your world. So I think it’s just massively important that you figure out how to get those ingenious people that are working in your organization the ability to do new things.
So let me wrap up and then we’ll have time for questions. I think the turning point is here. We’re past the question whether our economy is transitioning towards something that’s much more permissionless. Choosing your strategic center to me is the most significant decision that you’re going to make. You want clarity about who we are and who we’re not. I do think centering can unlock enormous value, as we saw with the Novartis example. And I think organizational design is increasingly becoming enmeshed with strategy. It used to be treated as two separate things, and I don’t think that’s the case anymore. What you’re building is what’s going to be effective in the marketplace. And unbossed structures can really release human potential.
AMY BERNSTEIN: Let’s go to some of the questions that have been coming in from our audience. Mark, who leads AI strategy for his organization asks, “How might the power of the unbossed apply to AI strategy?”
RITA MCGRATH: Oh, I think it’s central to it, but I think the way that a lot of companies are looking at AI is just kind of backwards. So back in the day, would you have said, “What’s my electricity strategy?” Of course not. What you would’ve done though is you would’ve given people the tools to experiment to figure out what this new possibility opened up for you. And I think AI is like that. So in an unbossed organization, people will feel free to run experiments, to share what they’re learning with other people, to connect with other teams. So I think it’s encouraging this climate of experimentation that’s going to allow people to really use AI in an unbossed way.
AMY BERNSTEIN: Yeah, no doubt. Richard, who’s the CEO of Eastside People asks, “I’m here from the not for-profit sector, what insights can be borrowed from corporate strategy to the social sector?”
RITA MCGRATH: Oh, that’s a great question, and I think a very important one. I think what happens to a lot of not for-profits is they get dragged into mission creep. A big donor says, “Well, I’ll give you the money, but only if you do teenage pregnancy.” And then somebody else says, “Well, I want you to do, whatever.” So I would take a page out of the Harlem Children’s Zone’s playbook and what their CEO basically said was, “I’m going to really define my mission incredibly clearly.” And his mission was, so that children growing up in places like Harlem could have the same opportunities in life that children growing up in a middle of a suburb would have. And what that means is there’s a lot of stuff he’s not going to do. He says, “Would it be better if parents were married? Sure. Would it be better if they had jobs where they could make good money? Sure. But that’s not my mission, my mission is just focusing on these kids and what we can do for them.” So yeah, I think this centering idea is absolutely important.
The second thing that’s different for not for-profits is that are you doing something that a market is not going to do? So are you filling a need, closing a gap, doing something where there’s not an economic driver for it because why else would you be there? And then I think the third thing that is really relevant is how can you guarantee a flow of resources in support of your mission, which may involve doing things that generate revenue.
AMY BERNSTEIN: Ryan, CEO of Golden Advisory is asking, “I work mostly in healthcare where the mission statements are paragraphs.” Yeah, I think we’ve all seen them, “To borrow from this inspiring Novartis case, does the organizational mission need revisiting, perhaps a simplification itself, or is that missing the larger point that you’re making here?”
RITA MCGRATH: I think the simpler it is, the better. And Vas Narasimhan at Novartis has been remarkable at how clearly he has spelled out for people what the company’s all about, what they’re going to do and what they’re not going to do. And he’s also very visible and very articulate. He does videos all the time. He’s really carrying that mission to a very personal level to every single person in the company. They really take advantage of multiple, multiple communication channels, but the message itself is simple, curious, inspired, unbossed. You can remember that, right? And I think that’s what we want to encourage companies to do because once it gets paragraph linked, it starts to lose people’s ability to remember. It stops being able to drive behavior.
AMY BERNSTEIN: All right. Curious, inspired, unbossed. It’s gone in my notes. Okay, Shonda from Austin asks, “How do you best balance giving autonomy to the teams to leave way for innovation while ensuring that the team is also working toward the same goals as an organization or team?” How do you ensure that we’re moving in the same direction? I have that question too, Rita.
RITA MCGRATH: Absolutely. And I think this is where the centering idea is so important. So let me give another example, there’s a South Korean fintech firm called Toss. So in America, we Google things. In South Korea, they toss things. They serve something like 25% of all of the South Korean population. And they were founded by a dentist, a guy named SG Lee.
Toss’s mission is to remove frictions in financial services. That’s their center. So anything that removes a friction, they’re good about. And what they do organizationally is they have what they call the directly responsible individual. So if someone is taking on a task or taking on a project, there’s one person who’s DRI, and then they have a team around them. Their promotions are not vertical. They don’t even talk about senior versus junior, it’s an irrelevant concept to them. And your scope of responsibility determines how you get paid, how you advance, what you do in that company.
And so as an example of the kind of thing this empowers, they have a YouTube channel, and the YouTube channel does what a FinTech YouTube channel would do, how much do you need for retirement and where should you put your excess pay? And then one of their teams said, “Well, wait a minute, there’s other ways money shows up in people’s lives,” and started a second YouTube channel, which is all about money and sort of culture. So how does money fit into sports teams and how do the Kardashians spend their money? And how does money resolve?
Now, in a typical large hierarchy, there would’ve been a YouTube czar and the YouTube czar would’ve made all the decisions about what programming goes on that channel. And that would’ve been that. With this very mission-driven, but what he calls a loosely coupled system, this second YouTube channel could emerge and nobody has to ask permission to do that. And by the way, if it hadn’t worked out, they would’ve just taken it down. It’s a no regrets move, but it frees up the organization to experiment like that. And today they’ve got these thriving two channels. And the second channel is introducing Toss to people who couldn’t care less about pensions. And so it’s a win-win on all dimensions. And so what Mr. Lee will talk about is he said, very, very tightly aligned on mission, which I would describe as centering, very loosely coupled.
AMY BERNSTEIN: Great. So Vivian asks a question that a lot of people have an interest in, which is, “How do you concretely organize an unbossed company? What should leaders go back and start doing tomorrow?”
RITA MCGRATH: Well, I think the first thing that people will talk about is you need to get real clarity about where decisions live. And thus, Novartis will tell you, there’s three kinds of decisions, right? There’s decisions that are pretty clear and obvious, and those should be pushed as far to the edges as there possibly can be and let the people with the most information there make those decisions.
Then there are kind of complicated decisions where what you want to do is you want to assemble as much expertise as you can. So a company like Novartis has experts in all kinds of things. So you assemble those and you work your way through what your options are and you arrive at some kind of decision. And then there are the complex decisions where you really don’t have the information you’d like to have and that’s where you really need judgment, you need a judgment call and you need to be comfortable as a leader with making those decisions, knowing that you might not be right and with what perhaps 60 to 70% of the information that you want.
And what they’ll tell you is the thing that kills momentum in companies is not making a decision, and that’s a lot of times that’s people’s default. So I think step one is figuring out what your decision structure’s going to be. Then I think step two is making people understand what’s inbounds and what’s not. So we always talk about, oh, freedom and accountability, and everybody loves the freedom part, nobody wants to deal with the accountability part. So I think you have to really be thoughtful about how you design your incentives, what you’re teaching people is the right thing to do. And then you really want to make clear what the mission is.
So when Narasimhan came into Novartis, it was a very different company. It was a pretty traditional hierarchy. And so to really implement this unbossed idea, he worked very closely with his head of HR at the time. And they did multiple, multiple layers of management training, instructing leaders to model the behaviors, specifically what does it look like? How does it feel? How does it make you act? Very, very specific guidance on what they should be doing. And some leaders loved it and really engaged and some really didn’t and either exited or were shown the door. So I think there’s a lot of training that’s involved. There’s a lot of preparation. So couple of things to watch out for, don’t just say, “Congratulations, you’re empowered and lead.” And if I’ve been in a hierarchy my whole life, I don’t know how to do things like resolve conflicts. I don’t know how to do things like have difficult conversations. I’m used to the boss settling things when there’s a dispute. So you need to train people and you need to give people the tools to self-manage.
A great example of this, and there’s a terrific book on this is Morningstar Corporation, which has extensive training and very few layers of management. They don’t even have what they call managers. And the way that they operate the company is on the basis of a thing called a colleague letter of understanding. And so if I am working with you, we write a formal letter to each other saying, “This is my commitment to you. This is what I’ll be held accountable for. This is by when, this is the resources I need …” And if you give people the ability to exercise the power that used to be concentrated in a management layer, most people are ingenious, most people mean well, and most people want to do a good job and get a lot of gratification out of that. So there’s a whole kind of complex of things that you can start to do, but I’d start with decisions, where do decisions get made?
AMY BERNSTEIN: Great. So we have time for one more question and I hope a short-ish answer. So let’s see. Elena asks, “Can you please talk a little bit about balancing question two about small teams with question four about having healthy diversity? How do you do that?”
RITA MCGRATH: Oh, well, it becomes really easy because if you’ve got a small team, you know what the diversity profile is of each person, right? And just give your numbers, do you want diversity in terms of background, training, perspective, whatever? And if you’ve got a team of six or seven, you can pretty easily work through that.
ADI IGNATIUS: That was Rita McGrath, professor at Columbia Business School.
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Thanks to our team: Senior producer Mary Dooe. Audio product manager Ian Fox. and Senior Production Specialist Rob Eckhardt. And thanks to you for listening to the HBR IdeaCast. We’ll be back with our regular IdeaCast episode on Tuesday. I’m Adi Ignatius.
