Rita McGrath, Professor @ Columbia Business School
[00:00:03] Hi, everybody, welcome to the ascent conference, which has the coolest socks on the planet, and am I on Brand or what? We’re here to talk about some ideas from my most recent book, which is called Seeing Around Corners How to Spot Inflection Points in Business Before They Happen. So I’ll share my screen. And what you should be seeing now is a phrase which is Snow Melts from the Edges. And when you’re trying to think about a strategic inflection point to Andy Grove made this point ages ago, which is you really need to be thinking about the edges of your organization because that’s where the weak signals something’s about to change, begin to make themselves feel so little through eight practices from the book that can help you to do that. So an inflection point is something that makes something about your business less true than it perhaps was at one point. It changes things by an order of 10x. And it’s very easy for executives to miss inflection points because they’re just not out at the edges. They’re not paying attention to where your customers are, changing things that they used to put up with. They no longer put up with them and so forth. And of course, with the pandemic where the mother of all inflection points, which is going to dramatically change everything about any business that relies on human beings being comfortable in the company of strangers, and we’ll have to see kind of what comes out after that. So without further ado, the whole idea of snow melting from the edges was, as I said, taken from Andy Grove. And what he basically said is, if you wish to know where spring is making itself felt, you must travel to the periphery because that’s where the snow is most exposed. So what I’m going to go through is six practices, sorry, eight practices that you can use to do this as a senior leader. So the first question, and I’m going to frame these eight practices in terms of questions you can ask yourself, the first question is, do I have mechanisms that let me come into direct contact with the edges? And the reason that’s so important is the more senior you get, the harder it is to actually get unfiltered information about what’s really going on. So an example of this is some years back, The Gap, a retailer put out this big pronouncement that it was going to give its workers more reliable hours. And the question came up, well, why is that not happening? And The New York Times and asked one of their store managers and the response was, well, the first was corporate rate. Corporate goes and sends a message that Thursday is skinny jeans day. And on Tuesday, everybody’s running around like crazy, putting skinny jeans in the right place. But the more interesting example to me was they said, oh, you know, visits by executives. I had people on double, triple overtime because I had an executive visit coming up this week. And I think about that. Right. The store and its executives going to visit is not the store you and I shop in. It’s a store with multiple dozens, if not hundreds of hours of extra labor in it relative to what their business model normally calls for. And I see this all the time. And it’s not somebody’s fault, but it is something to be super aware of. If you’re a senior leader, everybody tries to paint a rosy picture for you. And if you don’t have some way of getting in direct contact, you can be taken by surprise. Second question is, am I regularly gaining exposure to diverse perspectives? And diversity really has two forms, right? So there’s diversity in the sense that we often think of it, which is the things you’re born with your race, your gender, your skin color, that kind of thing. After all, you are are you differently abled? But diversity also has diversity. But if you go to school, what life lessons have you learned? What’s unique about you? And I think you need those two kinds of diversity working together when you’re making strategic decisions, because if you don’t, you’re likely to make a big mistake. So some years back, I was in a presentation being made by a group of young designers at a Columbia media forum, and they were talking about this new idea that they were going to take all the payphones in the city of New York and they were going to get rid of them and then use advertising dollars to create these new kiosks, Internet enabled kiosk. It would be paid for by advertisers. It was going to cost the city anything. And they put these kiosks all over the city and it would be awesome. Right. And have Internet access and you could charge your phone and you could see what was going on in the local community. And I remember asking these people, now, imagine this group right there, all Ivy League educated. They all had engineering backgrounds, their designers, they’re all the same. And I said to them, what do you think people are going to use these things for? And they said, oh, it’s going to be OK. They’re going to find out where the artisanal cheese shop is and when the farmer’s markets are going to open. In other words, customers were going to use these things the way they would use these things. Well, so they roll them out across the city. Within twenty four hours, homeless people are setting up living rooms and watching YouTube all day long on the Internet. Think we’ve got people watching. Porn and tourist areas, I mean, just awful, awful things, and here’s my hypothesis, if you had somebody on that design team who had actually experienced what goes on on the streets of the city of New York, you would have designed a very different product as it was. It was super embarrassing. They had to take down the Internet connectivity, which meant their advertising model fell apart. It was kind of a flop. And these things are now under a lot of dispute because many of the local shop owners back when we had local shop owners didn’t want them. They said they’re just attracting a nuisance group. So I think I think it’s important to think about different perspectives when you’re thinking about what am I trusting and empowering small, agile teams. And this is a lesson that we learned from Netflix in one of the most important PowerPoint decks ever created. They they spent a lot of time thinking about if we create a culture that has high talent density, that’s the word that they use. How do we let those people work to the fullest of their capabilities? And one of the interesting things about Netflix’s culture is they’re really trying to get the people who are the very, very, very top of their game. So this is not just the person who’s a little better than average. This is the person who’s 20, 30 times better than average. And if you get that kind of talent, how do I empower them? And what they came up with was a concept that they call context versus control. And so if you can give people the context, here’s our strategy. Here’s the metrics. Here’s what we’re trying to drive. Here’s our goal. Right. If you can give them that kind of context, then you don’t have to control them. They will do the right thing. And Netflix people will report to you that they they feel incredibly empowered right down at the lowest level. And Reed Hastings, their CEO, and Erin Mayer just have a new book out called No Rules. And it really goes into depth on this topic. So this interests you? I would recommend that book, No Rules Rule Creating a Culture of Innovation at Netflix. Very, very interesting. Do I have mechanisms for fostering? A little bit. So let’s say somebody in your organization has a great idea. Great ideas happen all the time all over the place. How would they take it to the next step? So one of the mechanisms that they use at Adobe is really interesting. It’s called a kick box. And a kit box was invented by a serial entrepreneur who came to be head of product for them and acquired his company. And it’s a red box. And inside the red box are a set of instructions. How do you think? Like an entrepreneur, a candy bar and a Starbucks card? Because, of course, innovation requires chocolate and caffeine. But the most important thing in that box is a gift card with a thousand dollars on it. And you don’t have to justify to anybody once you’ve been given a kick box how you spend that thousand dollars. It could be an experiment. It could be a trial. It could be a survey. But you get to test anything that you want. And the only requirement is you have to put in what you learned into the system that they use to track these things. And what Adobe will tell you is most of the time, these things go nowhere. But you’ve now got a person who’s had the actual experience of being an entrepreneur on a very small scale. You’ve had training and what it means to think like an entrepreneur. And, you know, innovation in many cases is a numbers game. So now we had many, many, many more attempts to come up with an idea. Twenty three out of the million or so dollars that they spent twenty three times this thousand dollar investment has led to what they call a bluebox. And nobody will tell me what’s in the blue box, but it means the idea is going to be taken further at Adobe. So I think a little bit is is a concept. It’s an idea that is in the title of my friend Petersens book of the same name called Little Bit. Then this is a picture of Steve like he’s a serial entrepreneur. He teaches at Columbia, he teaches at Berkeley. But he’s also been a very successful startup founder. He’s founded nine businesses, took three of them public, just a really skilled guy, this whole practice of entrepreneurship. And he has a great phrase. He said, you know, there are no answers in the building, meaning don’t just sit at your desk and answer e-mail all day long. You need to get out there. You need to see what’s going on with your customers, see what’s going on with your market, see what’s happening with competition. And you really want to get out of the building. So question to ask yourself is, do I make the time to regularly get out, which is harder now and covid. But but get out of the building, see what’s going on. And you can do that virtually as well as physically. But the mindset is really do I carve out time for that one? I’m already very time pressed for things. Then we have the question of incentives and nobody will tell you this. But in an awful lot of organizations, the incentives are not to spread uncomfortable news or to reveal facts that aren’t true or to otherwise share things that are perhaps contrary to the prevailing wisdom. And you need those incentives if you were to find out what’s really going on, especially as a senior leader. So an interesting case in point is the case of Kraft Heinz, which was very famously taken over by president. What he found and aircraft times, they installed what’s called zero based budgeting, so every single dollar, yen, euro that you want to spend has to be justified. Now, think of it. Let’s say you’re somebody who’s really worried about the fate of your big brands in Middle America. Are you going to actually submit a request to take an airplane flight to go find out what’s going on? Are you going to be comfortable saying I want to get out of the building here? Is that what it’s going to cost? No. You’re hiding under your desk hoping that the next round of layoffs doesn’t take you with it. And just as external validation of this Glassdoor, which is a site where employees can post information about the companies that they work for, Glassdoor, ask people how likely would you be to recommend that you, a friend of yours, comes to work here? And at great times, less than a third, 29 percent of the people that responded to this survey said, oh, yeah, I’d love it if one of my really good friends came and worked. It’s a great place to work. No, it’s not. And I think that’s just an outer manifestation of this problem of incentives. We’re not incenting innovation. We’re incenting Cost-Cutting. And not that you can’t do both, but, you know, if the incentives are all about cost cutting, you’re not going to be able to grow at all. And we saw that with Grafton’s. And in fact, in a surprise move last year, I believe, was they had to write down the value of their core brands by something like 15 billion dollars. I mean, it was terrible. So you need to think about the incentives, both material and emotional and other kinds of incentives in your organization. Then you need to give some thought to the problem that a lot of large organizations get into, which is they’re in denial and and they’re allowed to be in denial because they sit in comfy offices and they get well paid and they’re not forced to really confront what is the hard reality that they’re facing as an organization. So a friend of mine and the hero of this story is a guy named Alan Mulally went from Boeing to Ford to help Ford sort of regain its footing in 2006. And it was in terrible shape. The first thing that happened was he gets there and he gets taken to the executive parking garage in the Ford Motor Company and he looks around and there are no Ford branded cars in the executive parking garage at the Ford Motor Company, which is not a good sign. Right. So, you know, one of his practices that he uses a lot is he takes all of his senior leaders and he forces them to come to a regular meeting that he holds once a week. It’s called the business plan review. Meeting happens on the same day, every week, same time. So you been in from wherever you are in the world. So he’s really one of the people that explored Virtuality first before anybody else caught on to it. And well, the first problem is that the culture at Ford was not a collaborative culture. It was a very internally competitive culture. So the enemy wasn’t, you know, General Motors, the enemy was the guy down the hall from you who was next in line to take that top executive job. And so people hated each other. The other thing that was part of their culture was they didn’t ever reveal their problems. And so, you know, you sort of hid your problems and hoped you can fix them before it became too late, because it was a culture of really punishing people and blaming a very toxic culture. So he has the first of these meetings. And the format for the meetings is everybody has their top five objectives for the week PowerPoint slide and puts it on the table in front of them. And they’re all color coded. So green is good. You know, I’m making progress. My plans are going well. Everything’s great. Yellow, you know, got some issues. I’ve got some problems. But I think I kind of know what to do about them. And read is things are wrong and I don’t know what to do. And now, a few days before this meeting, he had had and had had quite a momentous conversation with his treasurer, who basically said, look, Ford’s contract was 17, close to seventeen billion dollars this year and we’re headed towards bankruptcy if we don’t turn this thing around. This company is going to evaporate and take, you know, tens of thousands of jobs and all kinds of communities with with it. I mean, just a horrible scenario. So he gets to the meeting and everybody’s got their paper and nobody wants to be there. They’re all really not very pleased. Everybody got their papers out in front of them and and it’s all green. It’s all green. And he looks at them and he says, people. Is there a vague possibility that there might be something wrong? Because, you know, if our plan is to lose 17 billion dollars and we’re right on track and he said something that I thought was very powerful and that any leader listening to this should take into account. And he said, you can’t manage a secret, can’t manage a secret. If we can get the data out on the table, in front of us, in front of us as a team, if we can’t if we can do that, we can figure things out. But if we don’t know what’s a problem, right, it’s it’s not going to be good. And so they’re all really resenting this. Nobody nobody really believes. And because these new you know, they don’t know. So few meetings later find. Mark Fields, who became CEO after Allen retired. Finally, he said, look, this is OK, pushes the papers away. He said, All right, all right. I think I’ve got one of these red things you keep talking about. I’m red on edge. Now, the edge was this highly anticipated smaller SUV that Ford was counting on to fulfill its promise of filling up its product line, a complete product line. And the whole room was completely quiet and all heads turned around to see what he’s going to do because their idea is that he’s going to throw a fit and fire mark on the spot and that’s going to be the end of it. And instead, what does he do? Stand up? What’s great transparency, Mark? Anybody got any ideas? And he goes around the table and sure enough, there was a person who had a similar problem in the past who could maybe come up with a couple of spare engineers and send them off to the plant and see if they could fix it. There was a person who told them, you know, you have this problem. Now, let me tell you what’s going to happen down the line. There was somebody who had an idea of how to manage the dealers. I would say within about four minutes they probably had 70 percent of the solution to this problem. Architect. And that’s the magic of this process, being able to share as one team what the problems are and what’s going on. So I said, Alonzo, so how did it go after that? He said, oh, my God, the next two meetings were terrifying. It was a rainbow. There was so much wrong. But he said, in a way it’s a gift, because if we know the problem is there, we can use our intelligence, we can use our one team approach to fix it. And I think that’s the idea that you want to take with you from this. Finally, this is an inspiration that is drawn from a science fiction writer and his name is William Gibson. And one of the things he’s very famous for having said is, you know, the future’s already here. It’s just not evenly distributed yet. And so the question I would ask for you is, how often do I make the time to go to where the future is making itself manifest? So the picture here is a 10 year old and her name is what? She’s 10 years old. She lives in the UK with her dad in a single parent house. And let’s say it was important for your business to understand what the 20 year olds of tomorrow are like. Like what? How what are their assumptions going to be? How are they going to behave? What are they going to be like? Well, here we have this young 10 year old. And guess what? There are millions more like her because every single person who’s going to be twenty in ten years exists today and they’re all ten. So when was the last time you had a conversation with a 10 year old about what their assumptions are about? Well, this particular 10 year old, it has these these loom bands that she likes to play with and her mode of operation. She comes home from school and she puts on YouTube and she watches these videos that are made by the Loom company, but also her friends, other people that are Loomba and enthusiasts. And you can see all the creations she’s got on the slide there. And then they go back to school and never sell them or trade them or anyway, it’s bands right, left and center, right. That’s her life. And she stops the videos and replays them, learns, and then she makes her own videos and she shares them with her people. It’s very interactive. Now, why am I telling you about this on the Internet in her house went out. And so she was on these these YouTube videos using Vodafone’s cellular network and her dad at the end of the month. And the reason I knew about the dead at the end of the month was presented with a sixteen hundred pound Vodafone bill and into a complete and total panic, and it made the international news. Now, the reason I’m telling you this is, you know, I think it’s really important to think about what are her assumptions about what life is going to be like in the future? Well, certainly connectivity, right? She’s going to assume that it doesn’t even occur to her to check if she’s on Wi-Fi or not. Secondly, how is she going to learn? Well, she’s going to learn from people like me, of course, but she’s also going to learn from her peers and she’s going to view it as two way learning. She’s going to contribute to their understanding. They’re going to contribute to hers. And so I think it’s really important to be thinking about where is the future popping up. So the questions for you are, when do I go to a trade show that’s perhaps not my own. When do I when do I go to something from the different industry? When do I pick up a book that isn’t topics that I necessarily understand very well? So where do I go to get glimpses of the future that aren’t fully engaged and fully distributed yet? So eight questions that you can begin to ask yourself as you think about how do I anticipate snow melting from the edges? So I’m going to wrap up with a couple of observations. The first is that when I first started in the field of strategy strategy, people did industry analysis in order of entry. And it was a very. Political kind of thing, and there wasn’t a lot of room for inside the company, it was all like looking at industry level of analysis. I was interested in innovation. I was interested in what goes on inside companies, not not just where they are in their industry. And in the intervening period, I think because competitive advantages are getting shorter, those two things have really come together. And today you can’t really talk about innovation without talking about digital in some way. So I think it’s really valuable to think about these three things forming the core of what you need to be thinking about as you’re thinking about innovation and doing things that are new. So some concluding thoughts that we’re in an environment of what I call transient advantage. We can’t count on a competitive advantage, not not not being around for a long period of time. You want to really be thinking in your strategy of things that are game changing. So not not incremental advantages so much, because if the entire playing field shifts, you know, if you’re in a world where, you know, yesterday it was done analog and today it’s done manually, it’s a totally different experience. We’re all, I think, living in a world of really high assumptions we need to make relative to knowledge that we have. And so the tools of innovation, the things that we can borrow from innovators are really, really valuable. A good, great place to start as your own behavior. You know, you don’t need them, whoever they is, to give you permission. You can start using these eight practices today. I think the edges are where inflection points begin so you can control it. You can get out to the edges and see what’s going on. And then finally, I think today we’re really seeing the benefits of being proactive, getting out there, trying new things, doing things that are kind of different. So quick trip through the snow melts from the edges. The whole idea is in my book Seeing Around Corners how to spot inflection points in business before they happen available wherever you get books from. If you’d like to do a deeper dove. This is my email address. I am at Columbia Business School. I’m pretty easy to find. You’ll find me on Twitter. I’m very active there. That Fast Company once named me one of the twenty five smartest women to follow on Twitter. I’m also on LinkedIn. I have a YouTube channel and one of the more interesting things I’ve been doing in light of the pandemic is I do Friday fireside chats with people who I think are just really super interesting. So you can go on my website and get the schedule. And my website also has newsletters, past newsletters, lots, lots of content, lots of press mentions. Anything else that you might want to know about me being part of the world of reading? So I think that brings me to about the end of my time. I will say thank you very much. And if you have questions, please read it. Reach out to me by e-mail or ask our hosts and they know where to find me. Be absolutely delighted to learn more about what’s on your mind. So that stops. And I go to sign up and we’ll probably see you again in the conversation to come.
Ascent Conference 2020