Philippa Kaur

IN A DOCUMENTARY from 2004, “Metallica: Some Kind of Monster”, members of the titular heavy-metal band hire a “performance-enhancement coach” to help them resolve their disagreements. The musicians cannot stand him and end up bonding over their decision to get rid of him. When an ex-banker, after years of working at Lehman Brothers and UBS, hired a coach to discuss his next steps, the nugget of wisdom he acquired in the course of half a dozen 40-minute sessions setting him back almost $8,000 was that he should seek a role where he would be “paid for his experience”. Listen to this story. Enjoy more audio and podcasts on More

IN A DOCUMENTARY from 2004, “Metallica: Some Kind of Monster”, members of the titular heavy-metal band hire a “performance-enhancement coach” to help them resolve their disagreements. The musicians cannot stand him and end up bonding over their decision to get rid of him. When an ex-banker, after years of working at Lehman Brothers and UBS, hired a coach to discuss his next steps, the nugget of wisdom he acquired in the course of half a dozen 40-minute sessions setting him back almost $8,000 was that he should seek a role where he would be “paid for his experience”. It is tempting to paint executive coaching as one more status symbol inflating a sense of high-powered managers’ already-ample sense of self-importance. Yet the practice—which combines management advice with therapy—does not have to be an expensive exercise in platitudes. Few executives remain static in their careers, and many need guidance at moments of transition, when relying on an internal monologue is not enough. The covid-19 pandemic, which heightened the anxiety felt by high-performers, increased the need for skilled coaching. A study from 2019 by Angel Advisors, a professional training service, found that coaching in America is now a $2bn industry—large for what might seem like a niche business. The existence of such demand strongly suggests that professional grooming has its uses.Many executives, especially CEOs, find it difficult to discuss the challenges they face. Hierarchy makes it tricky to share problems with employees as it can undermine the boss’s authority. At the same time, confidentiality forbids executives from discussing company problems with random outsiders. Robert Pickering, former boss of Cazenove, an investment bank since swallowed by JPMorgan Chase, wrote about his experience in his memoir, “Blue Blood”. “Running a firm is largely command and control, and there are very few insiders with whom you can share gripes and frustrations,” he explains. Working with a coach helped him develop coping strategies, as well as command the boardroom. Coaches can understand the executive mindset better if they were once executives themselves. Herminia Ibarra of London Business School notes that many professionals with industry expertise and people skills eventually tire of operational roles. Some find coaching to be a meaningful second act. Take Ana Lueneburger, who left the corporate world to coach company founders and the C-suite. Her approach, outlined in “Unfiltered: The CEO and the Coach”, a book she co-wrote with one of her clients, focuses on maximising strengths rather than fixing weaknesses. Your columnist, a guest Bartleby, decided to consider her own game plan by going to a private club in Mayfair for an ad hoc coaching session with Ms Lueneburger. Preparation consisted of filling extensive questionnaires, including the Hogan Leadership Forecast (a psychometric assessment of “derailers and personality-based performance risks”, since you ask).The coach customarily asks the client to describe impediments to happiness and development (from difficult peer relationships and a tough inner critic to withered motivation and drive). Given the time constraints, Bartleby discussed a personal issue which troubles her at work. Two hours sipping tea and sparkling water passed in a flash and then the session was over. Coaching is not a scientific operation, jargon du jour notwithstanding. But if you strip away all the talk of circling back to 360-degree change from your comfort zone, you do end up with an intuitive, collaborative process, the success of which depends on chemistry between the coach and the client. Ms Lueneburger neither appealed to the siren song of self-care nor merely told Bartleby what she wanted to hear. Instead she shifted the angle of the problem, which is not easy to do unaided for most clients themselves, many of whom operate on autopilot at work and elsewhere. According to the VIA character questionnaire (filled out alongside the Hogan), Bartleby scores poorly in leadership but highly in speaking the truth. With these new credentials, her message is: if you are a member of a C-suite, get yourself a coach. It does not have to revolve around a crisis or a fork in your career path. At its best, it can illuminate snags executives face. The worst that can happen is spending time with a well-meaning, and typically intelligent, interlocutor, who can help consolidate common sense. If you can put the fee on your expense account, what’s not to like?■Read more from Bartleby, our columnist on management and work:How white-collar warriors gear up for the day (Jul 6th)The potential and the plight of the middle manager (Jun 29th)“Scaling People” is a textbook piece of management writing (Jun 22nd)Also: How the Bartleby column got its name More

Merging companies have long seen Britain’s Competition and Markets Authority as something of an end-of-level boss. For two years running the CMA has blocked more deals than any other regulator, scotching ones like Meta’s acquisition of Giphy, a blameless meme-generator. This year it has been busy again, in April blocking Microsoft’s $69bn acquisition of Activision Blizzard, a video-game maker, which had looked on track for approval elsewhere.Is the fearsome trustbuster preparing to fold? On July 11th an American court cleared the Microsoft-Activision transaction, leaving Britain as the holdout. Within hours the CMA said it was prepared to examine a “modified” version of the transaction. Activision’s share price shot up: investors think it is game on. Some see the CMA’s recent activism as a show of post-Brexit independence. A blander explanation is that companies are unused to British antitrust regulators (who before Brexit took a back seat to Brussels), increasing the risk of confusion and surprises. Tech firms find the CMA’s processes rigid, with little scope for negotiation. Microsoft was blindsided by its April ruling on Activision.Another reason for Britain’s new vim lies in America. The Federal Trade Commission (FTC) used to approve more vertical mergers, like Microsoft and Activision, with strings attached. But these conditions proved hard to enforce, so regulators now prefer to block vertical deals outright. In America, where the legal basis for doing so is thin, courts overturn such decisions. In Britain, where trustbusters have wide discretion, the CMA’s veto stands. Britain thus finds itself in lonely opposition to global deals.That is uncomfortable, especially when the parties are not British. In May Britain’s government urged its regulators to “understand their wider responsibilities for economic growth”. As the FTC continues its unsuccessful opposition to any big deal, the responsibility to compromise increasingly falls elsewhere.■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

PAUL HUDSON, boss of Sanofi, is brandishing an iPhone. He is keen to show off the French drugmaker’s new artificial-intelligence (AI) app, plai. It draws on more than 1bn data points to provide “snackable” information, from warnings about low stocks of a drug to questions for a meeting with an ad agency or suggestions to set up clinical-trial sites that could expedite drug approvals. Like Netflix recommendations, plai delivers “nudges”, as Mr Hudson calls them, that are useful at that moment in time. He jokes that plai broke even in about four hours, and says the cost is “peanuts” compared with the $300m-400m that big consultancies charge for a project to curate a big company’s data. One in ten of Sanofi’s 80,000 staff uses it every day. AI is not new in drugmaking. Biotech firms have been tinkering with it for years. Now interest from big pharma is growing. Last year Emma Walmsley, chief executive of GSK, said it could improve the productivity of research and development, the industry’s most profound challenge. Moderna recently described itself as “laser-focused” on AI. Sanofi is More

GOVERNMENTS ARE at war with big business. In June Joe Biden, America’s president, spoke for many politicians the world over when he blamed it for greed-fuelled price rises, sluggish wage growth, forgone innovation and fragile supply chains. His trustbusters at the Federal Trade Commission (FTC) have been going after large deals merely because they are large—or at least that is how it feels. Courtroom defeats do not dampen the agency’s zeal. The latest came on July 11th, when a judge rejected its request to block Microsoft’s $69bn acquisition of Activision Blizzard, a developer of video games. The ftc is expected to appeal against the ruling. The EU’s competition authorities are making noises about breaking up Google. Last year Britain’s Competition and Markets Authority (CMA) derailed the $40bn acquisition by Nvidia, a semiconductor giant, of Arm, a chip-designer.Trustbusters invoke three justifications for their renewed vigour: greater market concentration, reduced churn among the world’s biggest firms and rising corporate profits. On the surface all three point to rising corporate power. Look closely, though, and the trends may be the result of benign factors such as technological progress and globalisation. In some local markets, greater concentration may, paradoxically, have led to more competition, not less. And the covid-19 pandemic may have planted the seeds of a further competitive revival. Some big firms, it is true, have been collecting rents, including in big sectors such as health care. But trustbusters’ strategy—to reflexively question any deal involving a big firm—is wrongheaded.That concentration has been rising is not in question. Across America’s economy it is higher today than at any point in at least the past century (see chart 1). Out of some 900 sectors in America tracked by The Economist, the number where the four biggest firms have a market share above two-thirds has grown from 65 in 1997 to 97 by 2017. In Europe, where the data are less comprehensive, market power has been increasing for at least 20 years. Using data on western Europe’s largest economies—Britain, Germany, France, Italy and Spain—Gabor Koltay, Szabolcs Lorincz and Tommaso Valletti, three economists, find that the market share of the four largest firms grew in 73% of some 700-odd industries from 1998 to 2019. The average increase was about seven percentage points. The proportion of firms with a share above 50% increased from 16% of industries to 27% by 1998 to 2019. Britain and France saw the biggest jumps. At the same time, incumbent firms look more entrenched. In Britain, the average number of firms that stick in the top ten of their industries by market share three years later was five before the financial crisis. It is now closer to eight. Thomas Philippon of New York University’s Stern School of Business finds a similar reduction in churn among top American firms. Most telling, firms are raking in higher profits. The Economist has come up with a crude estimate of “excess” profits for the world’s 3,000 largest listed companies by market value (excluding financial firms). Using reported figures from Bloomberg we calculate a firm’s hurdle rate of return on invested capital above 10% (excluding goodwill and treating research and development as an asset with a ten-year lifespan). This is the rate of return one might expect in a competitive market. In the past year excess profits reached $4trn, or nearly 4% of global GDP (see chart 2). They are highly concentrated in the West, especially America. American firms collect 41% of the total, with European ones taking 21%. The energy, technology and, in America, health-care industries stand out as excess-profit pools relative to their size.All this looks troubling. And in certain sectors, it is. Four decades ago more than eight in ten hospitals were non-profits with a single location. Now more than six in ten are owned by sprawling for-profit hospital chains or academic networks such as Steward Health Care or Indiana University Health. At first this was a perfectly healthy process of big and efficient chains expanding across America. Two decades—and nearly 2,000 hospital mergers—later, things look ropey. An analysis from 2019 by Martin Gaynor of Carnegie Mellon University and colleagues suggests that such mergers have tended to raise prices without improving quality. Still, high concentration, low churn and rich profits need not necessarily make consumers worse off. That concentration has been rising for 100 years, during which life has improved for virtually everyone, is the first clue that it may be the result of benign forces. Increases in industry concentration in America over the past century are correlated with greater technological intensity, higher fixed costs and higher output growth, according to Yueran Ma of the University of Chicago Booth School of Business and colleagues. None of these seems particularly nefarious. That concentration has also risen in Europe, where competition authorities have not been as sleepy as in America, likewise suggests that powerful structural forces are at play. John Van Reenen of the London School of Economics fingers technology and globalisation. The internet has reduced the cost of shopping around, even as software and other technology allow the best firms to scale up their operations around the world. Figures collected by McKinsey, a consultancy, show that the return on invested capital for a firm in the 75th percentile by this measure is 20 percentage points higher than for a median firm. “There are just huge economies of scale with software,” says Sterling Auty of MoffettNathanson, a research firm.Local anti-heroesMoreover, higher concentration at the country level may increase competition locally. Service industries in particular, which make up about half the 900-odd sectors in America’s census, are better examined at the local level. Fiona Scott Morton, a former deputy assistant attorney-general now at Yale School of Management, uses the example of coffee shops. With just one café in each neighbourhood, the national market would be hyperfragmented. But every consumer would face a local monopoly. “If I’m looking for a coffee, I’m not going to drive three hours,” she says. Academics debate what exactly has happened to concentration in local markets. What seems increasingly clear is that the best firms have expanded into more and more of them. Walmarts, with their “everyday low prices”, cater to shoppers across America, thanks to the retail behemoth’s unrivalled logistics operation. Cheesecake Factory uses a laboratory in California to taste-test dishes that it quickly rolls out to its 200 or so locations around America. A recent paper titled “The Industrial Revolution in Services’‘, by Esteban Rossi-Hansberg at the University of Chicago and his co-author, shows that the geographic expansion of big firms increases competition for local incumbents, whose local market share falls.As for low churn, it is not so bad if the incumbents keep innovating—which is what many are doing. Despite central banks pushing interest rates up at the fastest pace in decades in an attempt to quash inflation, American private investment in the first quarter of 2023 was 17.2% of GDP, similar to pre-pandemic highs. Many corporate behemoths are ploughing billions into innovation, including in areas that most worry trustbusters, such as technology. American tech’s big five—Alphabet, Amazon, Apple, Meta and Microsoft—collectively invested around $200bn in R&D last year, about a quarter of America’s total in 2021. Microsoft and Alphabet are at the forefront of the AI race. Profits have, it is true, been higher in America since the financial crisis of 2007-09 than in previous decades, especially if you consider free cashflows, which accounts for the changing way companies depreciate assets (see chart 3). But they look somewhat less unusual if you adjust for lower tax rates and firms’ larger global footprint. And they may have peaked: analysts estimate that earnings for the S&P 500 index of American blue chips dipped in the three months to June, year on year, for the third quarter in a row.Most heartening, far from being subdued, dynamism may be on the rise. John Haltiwanger of the University of Maryland notes that business formation, which had been “quite anaemic” since the mid-2010s, has surged since the pandemic (see chart 4). In the past few years many more new firms have been created than old ones have been shut down. Whether these startups will dislodge incumbents is still unclear. But venture-capital investment suggests investors see scope for healthy returns. Although it is half what it was at its frothy peak of over $130bn in the fourth quarter of 2021, that has only brought it back to the levels of 2019 and 2020.One hypothesis is that the remote-friendliness of the post-covid economy reduces startup costs. Young firms no longer need to rent a big office. They can hire from a less local talent pool. By our rough count, around 125 of the Census Bureau’s 900-odd industries benefit from rising e-commerce or can provide their services remotely. Consumers’ growing comfort with such options could inspire more new businesses to set up shop. Mr Haltiwanger already observes a small shift in the size distribution of firms towards smaller fry. Concentration may also be levelling off as a result of subdued dealmaking, especially in tech. The big five tech firms’ share of all acquisitions by listed firms in America has fallen from nearly 1% in the 2010s to less than 0.5% since the start of Mr Biden’s tenure. Some of the slowdown in mergers and acquisitions (M&A) is caused by the rising cost of capital and risk of recession. But renewed antitrust zeal must be playing a role. On June 27th American authorities updated their merger guidelines for the first time in 45 years, requiring firms to report far more details on deals worth over $110m, half the average deal size in 2022. The biggest transactions are almost sure to be subject to a deep probe, which can add months to a filing process that now takes weeks. Regulators everywhere are throwing “sand in the gears of the M&A machine”, sighs a lawyer. “The FTC has stopped being discerning,” says another. Britain’s CMA “has probably overreached”, echoes a British one. Such overzealous trustbusting carries its own risks. It may distract attention from more immediate threats to economic dynamism from bureaucratic restraints on land use or occupational licensing. Acquisitions can be useful for preserving the value of startups when subdued markets make it hard for founders to raise capital. And some big deals may benefit consumers, as when a biotech startup joins forces with established drugmakers to test and distribute a new therapy. Competition authorities were probably asleep for too long. Now they may be getting up too quickly. ■ More

JAMIE DIMON is restless. The boss of JPMorgan Chase has just returned from a long July 4th holiday weekend with his large and growing family: his wife, three daughters, a gaggle of grandchildren. He has little patience for the faff that accompanies a filmed interview—the reason that he, his many handlers, a film crew, your correspondent and The Economist’s editor-in-chief have gathered at the New York headquarters of America’s biggest bank. Mr Dimon does not want to loiter in the hallway for his “walking-in” shot; nor is he going to wait to be properly miked up and seated in his chair before launching into conversation about public policy. “So should we do this?” he urges. Doing things is the Dimon way. He is impatient, opportunistic, pragmatic: the type of person to just get on with it. He has always been this way, according to a biography by Duff McDonald. When Mr Dimon’s 12th-grade calculus teacher left, he taught himself. When Sandy Weill, a Wall Street veteran, complimented a college paper he had written about a merger Mr Weill put together, he asked him for a summer job. After business school he went to work for Mr Weill at American Express—turning down offers at Goldman Sachs and Morgan Stanley—because he didn’t think he would be content just moving money around. He wanted to build something. “Jamie approached everything with total fury,” Alison Falls McElvery, who was Mr Weill’s assistant, told Mr McDonald. “Nothing was an idea that merely lingered. It was always 90 miles an hour.” It is at this ferocious pace that Mr Dimon has achieved every dream he has put his mind to in the 40-odd years since. He spent more than a decade under the wing of Mr Weill, by then at the bank that would become Citigroup, which was created through endless deals he helped steer through. When their partnership blew up Mr Dimon was hired to run Bank One, then America’s fifth-largest bank. At the end of 2005, after Bank One had been bought by JPMorgan Chase, he became chief executive at the bigger lender. His insistence on maintaining healthy capital buffers helped the firm navigate the biggest financial crisis in a century relatively unscathed. It is now America’s most successful bank—and by far the most valuable in the world. Under Mr Dimon’s stewardship its shareholders have earned a handsome annual return of 10.6%—double that of most other big banks, and leagues ahead of the value destruction at Citi. [embedded content]All this does not seem to have slowed Mr Dimon down much. But it may have left his to-do list a tad short. The man who wanted to build has erected the banking equivalent of the Palace of Versailles or the Taj Mahal. Its investment bank ranks in the top three in almost all businesses it cares to compete in. Its commercial bank is the biggest in America. Because it is so large—and because banks in America with more than 10% of all deposits are barred from acquiring more (unless they rescue a failing bank, as JPMorgan did with First Republic in April)—it can grow only slowly. A literal construction project, his bank’s new headquarters on Park Avenue, which will house 14,000 employees when complete, barely scratches Mr Dimon’s building itch. So he is turning his energies to other problems. He skips over the banking mini-crisis (mostly resolved) or the potential for a recession (it could be mild, or maybe not; either way, he is more worried about Ukraine and food security in Africa). He is a “red-blooded, full-throated, free-enterprise, patriotic American”, frustrated by how slow economic growth has been over the past decade. Wanting to unleash social mobility, Mr Dimon appears genuinely animated by the cause of reducing the cost of education. He craves an open dialogue with China, which he does not think America should fear. The Chinese are not “ten feet tall”. They import oil, lack food security, are poorer and have weaker armed forces. “Maybe they have caught up in a couple of areas, but the notion that somehow America has to be that afraid of China: We don’t.” His annual letters to shareholders, once limited to thoughts on management and banking, now contain more policy ruminations than the typical American political campaign. Plenty of powerful people simply enjoy hearing themselves talk about important topics. It would be easy to accuse Mr Dimon of the same, were it not for his allergy to time-wasting, on matters as trivial as mics or profound as the bitter end of his 15-year mentorship under Mr Weill, who was unwilling to let his protégé replace him. After being fired by Mr Weill, Mr Dimon said simply, “OK”. John Reed, another Citi executive, was stunned. “Is that it?” he asked. Mr Dimon replied, “Well, yeah. You’ve obviously decided.”Mr Dimon’s interest in public policy, resolve, resources and ambition all point in one direction: political office. It is an idea he quickly shoots down. “There may be common skills…in terms of administration, management, leadership, but those are not uncommon.” Knowing how to navigate political arenas or campaign is harder. Mr Dimon thinks switching from business to politics is tricky. “I think it’s very hard to do. And in fact, if we just look at history, it’s almost impossible.” President Donald Trump was the exception, not the rule.Dimon is for ever?If not the leader of the free world, perhaps a cabinet secretary? “Maybe one day that will be in the cards,” he says. “I love my country. To me, my family comes first. But my country is right next. JPMorgan is down here,” he explains, gesturing towards the ground. The realist in him probably knows an appointment to the Treasury, the most obvious post, is unlikely. The path from Wall Street to government is not as unstrewn as it used to be. Democrats have long been suspicious of high finance, and Republicans have grown more so under the populist Mr Trump. “JPMorgan is the best contribution I can do,” Mr Dimon insists. “We have 300,000 employees. We take care of them well and we give them opportunities.” A politician couldn’t have said it better. ■ More

REMOTE WORK has a target on its back. Banking CEOs, like Jamie Dimon of JPMorgan Chase, are intent on making working from home a relic of the pandemic. Staff at America’s biggest lender and other Wall Street stalwarts like Goldman Sachs are finding that five-day weeks are back for good. Big tech companies are also cracking the whip. Google’s return-to-work mandate threatens to track attendance and factor it in performance reviews for rebellious employees. Meta and Lyft want staff back at their desks, demanding at least three days of the week in the office by the end of the summer. With bosses clamping down on the practice, the pandemic-era days of mutual agreement on the desirability of remote work seem to be over. Fresh data from a global survey shows just how far this consensus has broken down. Across the world, plans for remote working by employers fall short of what workers want, according to WFH Research, a group that includes Stanford University and the Ifo Institute, a German think-tank, which has tracked the sentiment of full-time workers with at least a secondary education in 34 countries. Corporate bosses fear that fully remote work dents productivity, a worry reinforced by a slew of recent research. One study of data-entry workers in India found those toiling from home to be 18% less productive than their office-frequenting peers; another found that employees at a big Asian IT firm were 19% less productive at home than they had been in the office. Communication records of nearly 62,000 employees at Microsoft showed that professional networks within the company ossified and became more isolated as remote work took hold. Yet all the pressure from above has done little to dent employees’ appetite for remote working. Workers want to be able to work more days from the comfort of their living rooms than they currently do, according to WFH Research. On average, workers across the world want two days at home, a full day more than they get. In English-speaking countries, which already have the highest levels of home-working, there is an appetite for more. And the trend is spreading to places where remote work has been less common (see chart 1). Japanese and South Korean employees, some of the most office-bound anywhere, want more than a quarter of the week to themselves. Europeans and Latin American crave a third and half, respectively.Continued desire for more remote work is not surprising. The time saved not having to battle public transport or congested roads allows for a better work-life balance. On average, 72 minutes each day is saved when working remotely, which adds up to two weeks over a year, according to a working paper* by Nicholas Bloom of Stanford, who helps run WFH Research, and colleagues. Employees also report that they feel most engaged when working remotely, according to a poll last year by Gallup. On average globally, workers value all these benefits to the tune of an 8% rise in their salaries, suggesting that some would take a pay cut to keep their privileges.Until recently, as firms tried to lure workers during the post-pandemic hiring bonanza, employees’ demands and employers’ plans seemed to be converging in America, the best-studied market. This convergence is tailing off (see chart 2). At the same time, the pandemic has entrenched work-from-home patterns. At the moment, a third of workers surveyed by WFH Research have a hybrid or fully remote arrangement. Those practices will not be easy to unwind.It is no coincidence that the crackdown on remote work is happening as the labour market begins to cool. Deepening job cuts across Wall Street and Silicon Valley have handed power back to businesses. However, even in tech and finance some employees are standing their ground. In May nearly 2,000 employees at Amazon staged walkouts over the e-empire’s return-to-work policies. Other companies are quietly adapting with the times, perhaps recognising that a more flexible approach is inevitable. HSBC, a British bank, is planning to relocate from its 45-storey tower in Canary Wharf to smaller digs in the City of London. Deloitte and KPMG, two professional-services giants, plan to reduce their office footprint in favour of more remote work. The gap between the two sides of the work-from-home battle may yet narrow. The question is whether the bosses or the bossed will yield the most. ■*“Working from Home Around the Globe: 2023 Report”, by C.G. Aksoy, J.M. Barrero, N. Bloom, S.J. Davis, M. Dolls, P. Zarate More

In London’s Design Museum, an exhibition currently on display by Ai Weiwei, a Chinese artist, includes a 15-metre-long work called “Water Lilies #1” based on the triptych by Claude Monet. Look closely and it is made of 650,000 Lego bricks—which integrates Monet’s impressionism into what Mr Ai calls a “digitised and pixelated language”. That is a good analogy for Lego itself. The Danish toymaker is on a long-term mission to digitise and pixelate its own fount of human creativity: the plastic brick. Three digital experts from McKinsey, a management consultancy, profile Lego’s transformation as part of their new book, “Rewired”, which outlines the dos and don’ts for businesses rebuilding themselves for the age of digitisation. Beware: the language of digital transformation is treachery to common English. It sounds more like corporate yoga than a marathon of software development. Executives need to be aligned. Teams are pods. Be agile. Define your downward-facing domains. McKinsey, drawing lessons from 200 firms, provides clarity despite the mumbo jumbo. But to make it easier on the ear, Schumpeter will use Lego as a guide to help illustrate some of McKinsey’s insights. Call it the yellow-brick road to generative artificial intelligence (AI). First, it is a long hard road, littered with failures. Lego is a rare success story. Its journey started in 2003 with a near-death experience when, amid the rise of video-gaming, it panicked and went on a madcap innovation spree that almost bankrupted it. To fix one of the main problems, chaos in the supply chain, it introduced a single enterprise-software system globally. The system survives to this day, scaling up as Lego expands into new markets, such as China, new formats, such as e-commerce, and new factory locations, such as America and Vietnam. To prepare for a world of pixelated play, Lego launched digital games on the “Star Wars” theme and developed franchises of its own, such as Ninjago and Chima, with video games, films and TV shows that turned into hits.In 2019 Lego launched a new five-year transformation drive aimed at adapting to a world of direct-to-consumer sales, online versus big-box retailing, and digital play in the screen age. The timing was inspired. It started shortly before the world went into lockdown as a result of the covid-19 pandemic, when having a digital strategy became a matter of life and death. It quickly produced results. Although it is hard to strip out the exact contribution of digitisation, since 2018 Lego’s sales have almost doubled, to more than $9bn, outpacing those of Mattel and Hasbro, its main rivals. In 2022 visits to its online portal rose by 38%. It has teamed up with Epic, a video-gaming firm, to explore the metaverse. Yet the journey is still a hard one. The difficulties include moving from a system where success is measured by sales store-by-store to one judged by how good the company is at selling online across the globe, how it is ranked on Google and Amazon, and how effective its software is. The McKinsey authors emphasise such challenges on the first page. In a recent McKinsey survey, they say, about 90% of companies had some kind of digital strategy, but they captured less than a third of the revenue gains they had anticipated. Moreover, the success rate is more uneven within industries than it is between them. The best retailer may be more digitally productive than an average high-tech firm, and the worst retailer may be as bad as the worst government entity. To make a success of it requires learning the second lesson: what McKinsey calls having a top-down strategy and a road map (or in Lego terms, a clear instruction manual). For Lego, it helped that the family-owned business had long had a command-and-control approach to management. Its digital strategy involved a single plan, created by a 100-strong executive team and approved by the board, that encompassed the whole organisation. McKinsey notes that when transformations stall, it is often because executives talk past each other, have pet projects, spread investments too thin or have “more pilots than there are on an aircraft-carrier”, as Rodney Zemmel, one of the authors, puts it. It also needs to be ambitious enough to generate momentum, with financial results measured constantly. McKinsey’s rule of thumb is that a digital transformation should aim to increase earnings before interest, tax, depreciation and amortisation by 20% or more.Third comes the question of whether to build a new digital infrastructure or buy it. The answer is mostly to build. Rather like Lego’s eight-studded bricks—six of which can be combined 915m ways—there are many software applications on the market that can be combined to create proprietary systems. But the job of orchestrating them should not be outsourced. Take Lego: it started its latest digital transformation with engineers making up less than 30% of staff. Since then it has increased the number of systems and software engineers by 150%. Mr Zemmel notes that five years ago, the trend was to hire from Silicon Valley. That was “a good way to change the company dress code, but not a great way to change the company culture”. Since then more companies have been retraining their existing tech workers and embedding them throughout the organisations in more front-line roles. The gen-AI Weiwei way Some of these lessons apply to generative AI. Mr Zemmel says it is relatively easy to launch pilots with the technology, such as the humanlike ChatGPT. The problem is embedding the AI models across the organisation in a safe, unbiased way. It needs a top-down strategy. As for building or buying, Mr Zemmel says it may be a “waste of time” to build proprietary models when the software industry is doing that anyway. The key is to work in-house on the things that give you a decisive advantage in the market. For Lego, AI is still in the future, though some of its brick enthusiasts are already using ChatGPT-like programs to come up with new ways of building things. Mostly they fail, but one day anyone may be able to create a Monet. The yellow-brick road is unending. ■Read more from Schumpeter, our columnist on global business:Meet the world’s most flirtatious sovereign-wealth fund (Jun 29th)The new king of beers is a Mexican-American success story (Jun 20th)What Tesla and other carmakers can learn from Ford (Jun 13th)Also: If you want to write directly to Schumpeter, email him at [email protected]. And here is an explanation of how the Schumpeter column got its name. More