Seeing Around Corners (#19)

Seeing Around Corners,
w/ Rita Gunther McGRATH

On this week’s Structural Shifts podcast, we talk to the brilliant Rita Gunther McGrath, author of “The End of Competitive Advantage”. In this bestseller, she talks about how the world is moving from one dominated by organizational systems and hierarchies to one of individual superstars where a stable career means a series of gigs. Hosted by Ben Robinson, they discuss strategy, the benefits / limitations of network effects, Facebook’s failures, and more.

Full podcast transcript:

 

 

I think the more confusing things are, the more you need a strategy because it orients you, it gives everybody the potential to be aligned around a common future. It pulls you into the future — Rita McGrath

[00:01:34.18] Ben: I wanted to start, Rita, talking about your book called, “Seeing Around Corners”. Probably the key concept in the book is this idea of an inflection point. I wanted to start by asking you, what is an inflection point?

Today, we’re living in the mother of all inflection points, and everybody’s assumptions have really changed.

Rita: So, an inflection point is some change, typically in the external environment, that creates what Andy Grove used to call a 10x shift in the circumstances under which your business operates. And what that does is it has the effect of changing the assumptions that you’ve been making about your business. So, of course, today, we’re living in the mother of all inflection points, and everybody’s assumptions have really changed. I mean, the idea that we would be comfortable in the company of strangers has been with humanity forever, and now that’s been abended.

Once you have credentialing based on a skill, rather than a degree, the whole edifice of higher education collapses. It’s a bit like when the music industry began selling songs by the song rather than the album — Rita McGrath

[00:07:34.14] Ben: And you also talk about the 6-months, the 12-month, and the 18-month metrics that would indicate which of these boxes, these quadrants we’re moving into. So, for example, if we were going to get to this new Great Society 2.0, what might be the sort of metrics that will indicate that? I suppose Joe Biden being nominated President might be one.

The whole notion that we compete in an industry is a bit narrow. And what we’ve seen certainly over the last 10–15 years is industries competing with industries. What industry is Facebook? Is it a media company? Is it a publisher? What is it? And yet, it’s soaking up much of the advertising revenue that provided the oxygen for many news businesses and entertainment businesses and so forth. So, in defining yourself very narrowly as an industry player, I think can create blind spots

Rita: And I think what a lot of people don’t understand is the inside higher ed — and I’ll just stick to higher ed for a minute because I think at lower levels it’s different than this. Inside higher education, the faculty all jockey to have their courses included as part of the required courses. Well, why do you do that? Is it because “Oh, the student must have this in their blood”? That’s the cover. But the real story is, if you have required courses, you have to deliver, and that means you have to hire faculty to teach those courses, and that means you get more faculty allocation than you would if you didn’t have a required course. So, a lot of the structure of what we’re teaching is designed for the faculty, it’s designed for the benefit of the institution, not for the benefit of the students. And so, to me, that’s very vulnerable. If you’re ultimately doing something that’s in your own interest and not in the interest of your customers, then, I think that puts you in a vulnerable place. Once we can have credentialing by the skill, once we can have credentials at a level lower than the degree, the whole kind of edifice of higher education really, is challenged.

if you take the sustainable competitive advantage world, you needed an innovation once every five years, and then the rest of it was all about execution. When you have shorter-lived competitive advantages, you really need innovation that’s more continuous because you need to be continually replacing your competitive advantages as the old ones expire.

[00:19:16.07] Ben: Also, I guess, that agility in supply chains might be harder to achieve post-pandemic?

The ease with which you can get into a digital business I think, actually, demonstrates the strength of one of the traditional concepts in strategy, which is you need to have entry barriers.

Rita: Well, I think what you see is when events move more quickly — if you think about the typical picture of a sustainable competitive advantage, it’s an advantage that goes on for a really long period — and if you have competitive advantages that last for shorter periods of time, that means you need innovation on an ongoing basis. So if you take the sustainable competitive advantage world, you needed an innovation once every five years, and then the rest of it was all about execution. When you have shorter-lived competitive advantages, you really need innovation that’s more continuous because you need to be continually replacing your competitive advantages as the old ones expire.

If you think about the relationship between employees and employers, back in the day the unspoken negotiation was, you gave me stability and security — and I gave you loyalty. But what that meant was that you had people who were prepared to invest literally decades in your organization. What we’ve got now is what many people have called “the tour of duty” economy. And so, you’ve got people who are migrants from company to company to company, and they are essentially free market operators. It therefore doesn’t give you any advantage that lasts because they’re always open to the next bidder when their contracts come up.

Rita: Now, why I think that’s so interesting is, it was much user-friendlier on the part of the customer, but when that digital request hit the company, there was no change required. You just responded to the digital request the same way you would have responded to a faxed request. So, the thing I think is interesting is you digitized something without perturbing the incumbent organization at the time. And then, once you’ve got that going, then you say, “Well if we’re sending digital orders, wouldn’t it be easier if we digitized the inventory? And that way, the incoming order would know what it was looking for, without a person having to go and look it up. Okay, that makes sense.” So you talk about antibodies — if he’d gone in there guns blazing and said, “We’re going to take this whole thing and digitize it all”, you would have come smack into the antibodies, and things would have gotten screwed up; I mean, things always get screwed up in a digital implementation and then it would have been, “See? It doesn’t work! I told you it wouldn’t work! The orders are all messed up, the inventory is all wrong.” Instead, what they did was they took it piece by piece and they said, “Let’s fix the fax problem. And then, once we’ve got the fax problem fixed, let’s fix the inventory-naming problem, and then once we’ve got that fixed, let’s maybe make an online store where we take out the need of a person to go pick this inventory — a customer can just pick it themselves.” But I think it’s that step by step solving of consecutive problems rather than announcing you’re going to turn the whole organization inside out — I think that’s really where it makes a difference.

if everybody you interact with is just like you, there’s a lot of overlap. So, they may be very comfortable, it may be very fun, but you’re not going to learn a whole lot

Rita: The second thing to worry about with network effects is they can increase but they can also fall away. So, a network can peel away even if it holds users in. I think Facebook is a super interesting example of that. So, what you’ve seen up until the recent pandemic is for younger people, they’ve been leaving the core Facebook product in droves. Now, they’ve been going to Instagram and other networks to do their exchanging — Tik Tok is the latest one — but you’ve got a diminished network effect, almost, there. So I think that’s the first thing.

don’t judge the quality of a strategy only by whether it delivered the results that you were looking for because that’s not always a predictable metric

Rita: Well, I think you continually have to be thinking about learning. One of the things I do at Columbia Business School is I direct a number of our executive education programs, and they’re very much about, your business education doesn’t stop at the age of 28. So, even if you have an advanced degree, even if you have a Master’s or an equivalent, I think it’s really important to keep coming back to get refreshed, to add some new tools to the toolkit, make new friends, make new network connections — all of those things are really important. And so, in the book — I think it’s the last chapter in “End of Advantage” — I really spend a lot of time on that. So, there’s a one-page quiz you can take which says, “How prepared are you?” It’s things like, “I’ve learned a new skill even if it wasn’t directly relevant to my job”, or “If I lost my job, suddenly, I know 10 people I could call that would help me find the next one.” It’s those kinds of things I think we need to be thinking about.

we have this cultural myth, almost, of the hero CEO who is going to come down and tell you what to do, and everything’s going to be fine, rather than the organization having to figure it out. I think we’re slowly realizing that the organization figuring it out is actually more of the norm.

Rita: I think it’s crucial. If you think about it, if everybody you interact with is just like you, there’s a lot of overlap. So, they may be very comfortable, it may be very fun, but you’re not going to learn a whole lot. It’s different than what you already knew.

crescive leaders are much more about discovering the organization’s capabilities, shaping decision-making, shaping decision premises, and a lot of those practices are actually much more closely associated with women’s styles of leading, for whatever reason, than they have typically been with men’s. And so, I think it’s very interesting now, as we look across the world, which countries have done well, in the midst of this pandemic? And overwhelmingly, they’ve been countries that have had female leaders.

Rita: One of the things that I find super frustrating as a person who studies organizations is you can make stupid, ill-informed, poorly advised, really dumb decisions and have a great outcome because you happened to be in the right place at the right time, you got lucky, whatever. And you can make well-considerate, very smart, strategically substantive decisions and end up with a bad outcome. So, take a company like Disney — here they are, launching their streaming service and hitting success on every possible dimension, and COVID-19 comes along, and now nobody’s going to theme parks. Well, that wasn’t their fault. And so, I think one of the things I really encourage people, really, to differentiate is don’t judge the quality of a strategy only by whether it delivered the results that you were looking for because that’s not always a predictable metric.

when your fundamental business model relies on your customers being ignorant of what you’re doing, I just think that’s a fundamental weakness

Rita: I think so. So the word “crescive leadership” was actually coined in the 1980s by my friend, Jay Bourgeois, and a co-author of his. They were cataloging leadership styles and they had four that they felt pretty comfortable with: so there was the command and control leader, and then there was the coalition builder — so four archetypal leadership. And then they ran across this fifth style, they could not figure out what to do with it. And finally, they said, “Alright, we’ll make it its own category.” And they didn’t spend much time on it, but they called it crescive, which I think is Latin for growth leader. And, you know, crescive leaders are much more about discovering the organization’s capabilities, shaping decision-making, shaping decision premises, and a lot of those practices are actually much more closely associated with women’s styles of leading, for whatever reason, than they have typically been with men’s. And so, I think it’s very interesting now, as we look across the world, which countries have done well, in the midst of this pandemic? And overwhelmingly, they’ve been countries that have had female leaders. I mean, if you look at Angela Merkel or the Prime Minister of New Zealand — calm, factual, not fear-mongering, but just matter of fact, and “Here’s what we need to do. Let’s take it step by step. And here’s why. And this is what I know, and this is what I don’t know — and I’m going to be very transparent about those things.” And it engenders trust, it engenders a willingness to cooperate, it engenders a feeling that someone capable is manning the helm — unlike the rather chaotic response of a lot of other countries.

it’s very hard to have multiple visionaries in one company. I mean, the only way I’ve ever seen that work is if you’ve got a strong divisional structure — so each visionary has their own swim lane, as it were — but at the top of the company, it’s really hard because by definition, if you talk about culture, visionaries are people who believe in let’s create the future, and if I’ve got two visionaries with two different dreams of what the future could be, it’s going to be really, really hard.

Rita: So, I have no personal vendetta against Facebook; I just think when your business model requires that your customers are basically ignorant and you contribute to that — you’re not transparent, you’re not honest about what you’re doing with the data. And then, Cambridge analytic was just this bit of the surface. And if you look at the way bad actors are using the platform, if you look at how they’re sort of washing their hands, “Oh, no, we’re not publishers. But yet, we derive a huge percentage of our revenue from the ability to reproduce news that’s created by other organizations that have to get paid for it somehow.” I don’t think their outcome in a political social sense is very positive and I think we haven’t yet quite accounted for the imbalances they’ve created in our system of interacting with each other, getting news, advertising, getting paid — that’s all kind of not come together yet. So, the reason I think they may be up for an inflection point now — it could be five years from now could be 10 years from now, but at some point, people are going to say, “This is not legitimate” and businesses, in the long run, that are regarded as not legitimate, fate has not been kind to them. So, take tobacco companies as a case in point. Once you begin to be seen as a provider of something dangerous — and in the case of Facebook, I think a lot of what Facebook is creating is social pollution. It’s just disinformation — and it’s sucked all the revenue out of legitimate news organizations. So I think at some point there’s going to be a rebalancing.

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