The End Of Competitive Advantage With Rita McGrath

The SAMA Podcast | Competitive Advantage | Rita McGrath

Joining today’s episode is Rita McGrath, a bestselling author and distinguished faculty member at Columbia Business School, where she’s the Academic Director in Executive Education. Rita’s groundbreaking book, The End of Competitive Advantage, challenged traditional thinking and offered a new playbook for navigating the ever-shifting business landscape. As a globally recognized expert in strategic management, Rita’s work has been instrumental in helping organizations navigate the complex challenges of today’s dynamic business environment. We are honored to welcome her, as Rita’s insights have been shaping the landscape of business strategy and innovation for decades.

 

As we dive deep into this world of innovation and the evolving nature of competition, Rita shares her perspectives on how businesses can adapt and thrive in an era of constant change. Whether you’re a seasoned executive, an aspiring entrepreneur, or someone passionate about staying ahead in the ever-changing business landscape, you won’t want to miss this conversation.

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The End Of Competitive Advantage With Rita McGrath

 

We have a truly special guest with us, a thought leader whose insights have been shaping the landscape of business strategy and innovation for a long time. Joining us is none other than Rita McGrath, the bestselling author and distinguished faculty member at Columbia Business School, where she’s the academic director in executive education.

As a globally recognized expert in strategic management, Rita’s work has been instrumental in helping organizations navigate the complex challenges of today’s dynamic business environment. She’s also the Founder of Valize, a company focused on helping organizations go beyond innovation theater by developing tools to drive real growth.

 

As we take a deep dive into this world of innovation and the evolving nature of competition, Rita is here to share her perspectives on how businesses can adapt and thrive in the era of constant change. Whether you’re a seasoned executive, an inspiring entrepreneur, or someone passionate about staying ahead in the ever-changing business landscape, you won’t want to miss this conversation. Rita, welcome and thank you so much for your willingness to share your insights and experience with us and help B2B companies develop more impactful and mutually beneficial solutions and relationships with their strategic customers.

 

It’s a pleasure to be here.

 

The SAMA Podcast | Competitive Advantage | Rita McGrath
Competitive Advantage: The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business

 

Fantastic. Jumping right into this is a place to start. In your book, The End of Competitive Advantage, you identified the need for organizations to embrace a more dynamic and agile approach to strategy. What does this dynamic new approach look like?

 

I talk about a new playbook for strategy, which departs from a lot of the conventional norms. If you think about the field of strategy, it had its roots in industrial economics, which makes two assumptions that are, I think, in today’s environment, questionable. The first is that there is such a thing as an industry. People forget we make this up. Nowadays, some of the most important competitors you are dealing with may not even be in your so-called industry. The second is that the normal state of things is equilibrium. Industries exist and equilibrium is normal. I think what we’ve certainly been faced with in strategy now is an abandonment of both of those principles. What we need to be thinking about is what I call this new book.

 

If you could characterize it in a few minutes, what’s the big difference between what it was and where it needs to go?

 

We’re going from an environment in which we think change is the weird thing. Equilibrium is the norm and change is weird in an environment where we have to be thinking about change as the norm. Second, we’re going from a world where stopping something, whether it’s a business or line of business or a project, was seen as highly unusual to a world where we’re going to have to get a lot more pragmatic about doing that on a regular basis.

 

I call that healthy disengagement. We’re going from a world where resources were backed basically in existing business units and resource allocations were relatively stable over time to a world where resources get put against your best opportunities, not against whatever the past. Going from a world where innovation was this weird thing that guys in black t-shirts did once every ten years to a world where innovation is part of everybody’s read and it’s got to be something that’s part of how we live. We’re going from a world where leadership told people what to do and allocated tasks to a world which is much more, I call it permissionless, where people are able to make decisions as close to the edges of the organization as possible.

 

Lastly, we’re dealing with a situation in which careers, which used to be thought of as semi-permanently tied to a given organization, are now much more tour of duty. I’ll sign on, I’ll do something for 3 to 5 years, but then circumstances change. If I want to grow as a person, as an individual, I move on. As a leader, you’re dealing with this very tour-of-duty talent pool, which is a completely different phenomenon than we would typically have.

 

Not a little change. Lots of change. Thinking about strategic account managers and the marketing teams who often should be close coupled, if you will, how do they need to adapt and change to stay ahead of this fast-paced environment that we’re seeing now?

 

I think one of the things strategic account managers can offer to their clients is a bit of a forward-looking perspective. If you can help your clients through the early warning signs that things may be about to change, that there may be things that we thought were true that are no longer true. If we’re making assumptions that are perhaps no longer supported by the evidence, I think that’s a hugely valuable function. What you’ll find is your counterparties in corporations are often so deep in the weeds. Their heads down, email, today’s crisis, whatever. If you can be that source of wisdom that helps them get out of that a little bit, take a step back and see what the bigger picture is, I think that can be hugely valuable.

 

As these companies are navigating these disruptive times, what roles do collaborations and partnerships play in terms of driving innovation and sustainable growth of their customers above and beyond the business-to-business aspect? It seems like there are more collateral players coming into the game. How do you make that work?

 

I think one of the big hits that we’ve seen over the last probably twenty years is that we’re going from thinking of Affirm as the central player in the competition to now thinking about ecosystems as critical players. What you see now is ecosystems competing with ecosystems. As a member of an ecosystem, what you want to be thinking about is who are all the different players that we need to coordinate to add value to a particular customer.

 

To take an example that’ll be familiar to everybody, the Apple App Store is part of a whole ecosystem of developers, app people, users, new technologies and of course the hardware platforms. I think part of the challenge for strategic account managers is you don’t need to be dealing with your client firm. You need to be dealing with your client firm plus your client’s whole ecosystem partners. It needs to be non-obvious relationships.

 

I think in traditional strategy, we always thought of you’re either a competitor, you’re a collaborator or you’re a customer. Now, it’s perfectly possible for companies to have all of those relationships. Let me take two examples. Apple and Samsung compete like crazy in the phone market and yet Samsung creates huge amounts of the guts of an Apple iPhone. Google and Apple absolutely have no love for each other in many of the spheres on which they meet and yet Google is perfectly happy to pay Apple something like $20 billion to be the default search engine on their iPhone. The nature of what’s competition and what’s cooperation has changed.

 

Thinking about the dynamic between marketers and SAMs, how can they foster these collaborations? What is their role in that, do you think?

 

I think it starts with the customer. The core idea that I like a lot here is something that Clay Christensen used to call the customer’s job to be done. What is your customer trying to achieve? You have to start with that as the first principle. The two of you working together, the marketer and the strategic account manager, how do you help that customer forge a solution to get those jobs done in the most frictionless, easy way possible?

 

One of the things I would observe is a lot of what strategic account managers do is figure out the complexity of their organizations and try to make it easier for the customer to do business with them. Part of what marketing is trying to do is harmonize the messaging behind all that. I think that there’s an important role in understanding what your customer’s trying to get done and then working backward into what does that mean your company needs to be able to do to respond.

 

On that point in particular, in your book, I found this fascinating. You were recommending that there is no longer innovation by business unit. It’s innovation as a standalone entity, if you will, that’s looking at the innovation opportunities for the whole company, not just a particular business or a particular technology or something like that. There are very few people that I see that do that.

 

I think the innovation in the business units is absolutely important and that’s what I would call core innovation. It’s better, faster and cheaper, what you’re already doing for customers that you already know. If you want to drive the next generation of breakthrough growth, typically, a business unit isn’t going to have the bandwidth or the resources.

 

Innovation in the business is important. Share on X

 

If you think about it, your business unit is a remnant of a set of strategic decisions that were made in the past. If you got what I’ll call a middle market service component to what you’re doing and yet somebody in your organization has an idea for how you could rapidly blow out the small business segment, the middle market-facing business unit is not even going to be interested in that. You often need a different group of people to tackle that more disruptive innovation.

 

To make that shift, clearly, the leadership of the company is not an insignificant change. You’ve got to go to the top. Have you seen anything that works at that level that, how to explain this to, let’s say the CEO and C-suite?

 

I spend a lot of my time trying to explain to them what their role is. There are some great examples of CEOs who embraced this. Adobe, when they decided to go from selling the software that you bought, you owned it and every two years, you upgraded it, to go to software as a service that you sold from the cloud, if you think about it, that’s a massive change to their core business. That required the unanimous behavior of all of the senior leadership team.

 

As their CCO said to me, “I spent 40 days and 40 nights on the road explaining to the stock market analysts what this difference was going to be.” That was necessary. One of the interesting things about this to me is their sales went down as they went through this transition because it was a big transformation.

 

Their market capitalization went up because they had a great story and they told it well, but you need to have a senior level of commitment to this. I think somebody I’ve been watching very carefully is Pat Gelsinger at Intel. Forgive me for saying this, but a few CEOs failed the company to keep it ahead of chip makers in other parts of the world. Gelsinger came back in. He had been with Intel for a long time. He was the classic insider-outsider. He said to the board, “No more stock buybacks. I want to reinvest in the business. I spent more shoe leather than anybody else getting the chipset. I want to put American technology back on top in terms of global innovation.” That’s the kind of commitment it takes.

 

I like it. Somebody with a plan. Clear picture. You’ve emphasized the importance of identifying and acting on early signals in industry shifts. How can SAMs and marketing teams develop a keen sense for detecting these signals and pivot their strategies accordingly to discover and capitalize on these emerging opportunities?

 

I think the first realization that people have to make is the distinction between different kinds of information that you might have to work with. If you think about indicators that something might be happening, you have lagging indicators, which is what most of our data consists of. It’s great information, but it’s about stuff that’s already and you have current indicators and that’s what most managers pay a lot of attention to.

 

It seems like your net promoter scores or your employee engagement score, but the hardest thing to get a hold of are leading indicators. That’s where the opportunities are. Now leading indicators are slippery because the data about stuff that hasn’t happened yet, so reasonable people can disagree about what they mean.

 

Secondly, they often take the form of narratives or stories and people who are very numbers-oriented can be quite skeptical about them. The third value of a good leading indicator is not did it predicts what will happen, rather it did help us prepare. What I think your strategic account managers want to be thinking about is what are the signals happening now that something momentous could be happening in the future.

 

As a couple of examples, one I’m looking at very carefully is if you think of a firm like Kraft Heinz, a huge global firm, a very old company, beloved brands. People have Heinz ketchup tattooed on their bodies. It’s incredible. Yet, they went through this period where they were basically being managed for cost and efficiency at a time when they needed to make an investment in rebuilding their brands. I think they’ve seen the wisdom of that now and they’ve started to turn that around.

 

It was a dark period for them for a while. They had to write down the value of their two leading brands by $15 billion in one quarter. No company ever wants to have to do that. That’s the importance of the leading indicators. What we learned in that period was all the value in supermarkets was going to the edges of the store and where Kraft lives, it’s right in the middle. It’s where the canned, packaged and processed stuff lives. That’s not necessarily a bad place, but they weren’t updating their position. They weren’t keeping their brands fresh.

 

I have a favor to ask you. When I was getting prepared to be able to speak with you which has been a wonderful experience, you gave an example. I believe it was a Japanese executive who was in charge of one of the large companies in Japan and I don’t remember the name of them right at the moment. They used to bring their sellers together periodically and the CEO would come in ask them about these emerging signals, basically. I thought that was pretty cool.

 

I’m not sure which person you’re referring to exactly, but one guy who did this a lot was Onishi from Fuji Film, who was very aggressive. He turned that company around. Here’s the interesting thing. If you think about the history of Kodak, which was very famous back in the ‘70s, this is when this story started. You may remember the story of the Hunt Brothers, these very famous Texas financiers who couldn’t corner the world’s market on gold because that’s not legal, but they resolved to corner the market on silver. They spent the better part of a decade basically accumulating positions in silver. The prices went up and all the film companies were getting desperate because this is a critical raw material in the processing of film. The Hunt Brothers were revealed and the scheme fell apart. They ended up going to jail.

 

Every film company on the planet, except for this one said, Thank God that’s passed. Business as usual is back.” Onishi said, “It happened once.” What he set Fuji on was a relentless path towards digitization on the one hand, but also saying what other industries other than commercial photography are our capabilities suited to. I remember I was in Japan actually on a panel with a Fuji representative and in his talk, he showed a sliver of a piece of color film. I didn’t know this and most lay people don’t, but a plastic color film is made up of 40 layers of very finely processed chemicals. It’s a hard thing to do to create a color film.

 

In his next slide, he showed a slice of a human liver and the fineness, which you could actually separate the layers of a human liver to do diagnostic work, that’s what Fuji got themselves into. Kodak never made that shift for a whole variety of reasons. We can talk about Kodak as a separate case, but Fuji took it seriously. By the time the digital revolution came to the film and imaging business, they were very well positioned in many other industries already.

 

In the context of discovery-driven planning, as SAMs are thinking about their customers who are usually very sizable customers, if not global, are there any tips that you have on how they should be thinking about these big customers and trying to separate the wheat from the chaff, so to speak?

 

A thing where a SAM can be helpful is if you think about the value you create as a business and imagine a continuum from low uncertainty to high uncertainty. Low uncertainty is on college textbooks. That’s very predictable, at least until recently. It has been a very predictable business. The next year is going to be a lot like last year and the year after. It’s going to be a lot like that. In those situations, a lot of our typical tools of business like net present value and calculating internal rates of return, those things can be very helpful.

 

As you push out under uncertainty, the more the value you’re creating is going to be a function of the right, but not the obligation to make a future choice. In life, we human beings do this very naturally. We send our children to college. Did I do a discounted cashflow analysis of the degree in modern European history that our daughter received? She couldn’t even do all of European history. No, it had to be modern European history with a minor in French.

 

Without my slide rule, did I say, “What’s this going to be worth?” No, of course not. Neither did you, nor most of our readers, why? It’s because we know that if we don’t make certain choices now, there are going to be opportunities that are closed off to us in the future. I think one of the conversations SAMs can lead with customers is to say, “What are those option-type investments you can make that don’t commit you? They’re small and exploratory. They don’t commit you to making a definite investment in the future but offer you the opportunity to learn and to grow.

 

Now the beautiful thing about an option, and this is counterintuitive, I’ll make this up. Let’s say I decide to invest in a training program. I know exactly what it’s going to cost me. I know how much time and money. My downside, my commitment is fixed, but as uncertainty increases, my potential upside increases. Counterintuitively, the value of your option goes up as uncertainty increases, which is a very counterintuitive idea because in your core business, as uncertainty increases, your value goes down. It’s the opposite of option investment. I think your sense is that you can go into a client meeting with 3 or 4 ideas for options they might invest in. That’s a helpful and useful conversation.

 

The SAMA Podcast | Competitive Advantage | Rita McGrath
Competitive Advantage: Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen

 

 

Great advice. Perfect advice, in fact. You also talk about, to use the phrase, looking around corners. Could you share a little bit more about that with the audience just so that they’ve got a picture of what that looks like?

 

Sure. Seeing Around Corners, which was my most recent book, is looking at the question of strategic inflection point. I define inflection point as something that changes the nature of your business by a factor of ten. It’s 10 times faster, 10 times cheaper, 10 times easier. Typically, it’s a change in the external environment. Something that is now possible never was possible. I didn’t know what to do with this concept. I introduced this back in the ‘90s, a wonderful book called Only the Paranoid Survive. I thought, “If a strategic inflection point comes out of nowhere hits you in the forehead, what do you do with?”

 

My breakthrough was sent me an article and it was called What If You Changed the World and Nobody Noticed? The article was about the Wright Brothers and their historic flight at Kitty Hawk. If you think about it, the invention of reliable, safe, manned flights was a cataclysmic breakthrough for humanity. People wanted to do this since we were people. You would think it would get a lot of attention, but it didn’t. The next day in the newspaper, nothing. The next month, nothing. The next year, nothing.

 

It took five full years between 1903 and 1908 before any serious newspaper came and looked at what the Wright brothers were doing. That was my breakthrough because what that said to me, these things feel as though they came out of nowhere, but they actually don’t. They’ve been building up for a long time. If you’re paying attention to these signals, you can actually see an inflection point getting stronger and stronger.

 

The reason we don’t see them often is we’re so heads down in the day-to-day business, we’re not paying attention. A lot of things that we think, “That came out of the blue. I couldn’t have anticipated this,” no. I’ll give you two examples. One is the pandemic. An awful lot of people said. “Inconceivable. Unprecedented. We never thought about it.”

 

Yet, I have found a front-page Wall Street Journal article from 2017, three full years before we had a fully-fledged pandemic on our hands, saying the next pandemic probably going to originate from China. It’s probably going to be animal-to-man transmission. It’s probably bats. First line in the article in 2017. Every public health official on the planet was metaphorically standing on rooftops, screaming out loud that this was not a question of whether. It was a question of when.

 

Second example. We had the Jetsons in 1962 and we’re still talking about autonomous cars and robot servants and all those advances. These things take a long time. You can pry yourself away for a modest amount of time to take a step back and say, “What do we see going on in the world that could give us some information about the futures that are unfolding that can create a level of insight that we don’t have if we’re just churning through the day to day?”

 

This idea that nobody saw this coming, basically, what you’re saying is because nobody’s looking.

 

Nobody’s paying attention. The fact that you’re not paying attention does not mean the signals are not there to be seen. What I’m looking at right now, which actually does have some relevance to the world of SAMs and marketing is the whole digital advertising arena. A bunch of people have been saying for quite some time now that this is a bubble and that it’s highly likely to burst because there’s a lot of data that basically says this whole thing, we’ve got about targeted ads is actually not driving behavior.

 

What I thought is fascinating is that there are two effects which we confuse. The first effect is the effect where I intend to buy, let’s say, a washing machine from Maytag. I go to the Maytag site and I investigate the washing machines and I’m going to buy a Maytag washer. If that was my intention, then all the advertising I saw along the way actually didn’t change my behavior.

 

That’s different from the advertising effect where I show you an ad and that changes do something because of the ad. There’s a huge conflation between those two. A lot of very smart people are arguing that a lot of what we’re sending on advertising is actually not useful because it’s just reflecting behaviors consumers are going to engage in any way.

 

This is the challenge, isn’t it? This is to get out of your own way basically, to free yourself up and look ahead and put everything that you know and say, “I know that. That’s not what I need to learn. I need to learn what I don’t know.” It does speak to being a lifelong learner and somebody who talks a lot. We talk a lot about the competencies of strategic account managers as being people who are lifelong learners. We literally use that as one of our key determinants. Are you somebody who keeps up with what’s going on?

 

That’s crucial. One other thing that’s very relevant to the learning challenge is in a lot of situations now, we’re not dealing with linear change. Our human brains are evolutionarily programmed with linear change. If I’m on a journey of 100 days and I’m 33 days in, I think I should be a third of the way there. Exponential change doesn’t work that way. A lot of the systems we’re dealing with now are actually based on reinforcing feedback loops. As Ray Kurzweil says, “Anytime you’ve got trial and error learning, you have the potential to set up an exponential curve.” We’re not great at doing that.

 

The SAMA Podcast | Competitive Advantage | Rita McGrath
Competitive Advantage: Human brains are evolutionarily programmed to deal with linear terms.

 

It sounds like it’s something we have to work on and get better at or develop tools and techniques and frameworks to be able to help us see.

 

I think that’s right. AI can be very helpful because the machines aren’t limited by our brains. You can tell the machine an exponential curve and say, “What the cost of this is likely to be in the future or what’s the change factor likely to be?” The machine will very happily trot out and go do that for you. I think there’s some real opportunity there to get smarter about how you could supplement what you naturally would think with machine intelligence of some kind.

 

It’s clearly true. My oldest son, in fact, recommended that I take a look at the ChatGPT and try it. I’m of an age where trying new things isn’t something I do a whole lot these days. It seems like I tried it on several different tasks, marketing tasks, internal tasks, agenda, creating agendas for meetings and things like that. It’s amazing what you can learn in seven seconds because they talk about in a minute or lush, you’ll get a response and all of a sudden, it’s like seven seconds later, there it is. It may not be perfect, but here’s a great first draft. That’s how my oldest son explained it to me.

 

Over the years I’ve done work on globalization and I had to update that with a new article on globalization I was writing. I said to ChatGPT, “Who are the foremost figures in this field and what are the basic theories?” It came up with maybe five thinkers. Four of them were spot on. They were absolutely right. The fifth one was a complete hallucination. I have enough expertise that I knew which ones were right and which ones were wrong, but the four that were right saved me probably three hours of hunting around on the internet and finding references and digging through old documents and files. It saved all that time.

 

It wasn’t that I didn’t know it. It wasn’t that I hadn’t done the work, but it wasn’t readily available for immediate access in my brain. ChatGPT made that process much faster. I knew enough to know that’s not an expert and that’s not good. I think there’s a necessity to integrate human intelligence with what the machine spits out, but it can save you time if you know what you’re doing.

 

It's necessary to integrate human intelligence with what the machine spits out. It can save you time if you know what you're doing. Share on X

 

Eighty percent’s pretty good. That’s not bad.

 

I’ll say it’s brilliant. It’s stuff like writing press releases, because if you think about it, who writes press releases? It’s the intern or it’s the junior person. Press releases are very formulaic and they use all the same words. ChatGPT can do that well.

 

Going back to these strategic account managers, the marketing teams, the innovation teams and thinking about how they need to work, there’s got to be a way to integrate all of that. I’m wondering if maybe the right answer is to put them all together.

 

You need more connectors. My current research project is something I call the permissionless organization. What we’re looking at is a different organizational form than a classic hierarchy. I’m not saying no structure because there are plenty of people running around saying, “Everybody do what they want.” I don’t think that’s true. I think we need clarity on strategy. We need a common sense of purpose. We need to know what it is we’re trying to drive. We need to know what our efforts are in service of.

 

The SAMA Podcast | Competitive Advantage | Rita McGrath
Competitive Advantage: We need clarity on strategy. We need to know what it is we try to drive.

 

Underneath that, I see a much larger role for teams that have either have within themselves or have all the capability they can have access to, to actually take a project from beginning all the way through to the end. You’re right. It’s putting all these skills together, but also making it so that you can manage interdependencies much more easily between teams.

I see a shift from a dominantly hierarchical mode. The whole thing about and bureaucracy, it’s got a bit of a background and they don’t have to. If you think about bureaucracy, it’s a big event of what came before, which was trade management. In a bureaucracy, you say we’re going to specialize people in specialized tests. You’re good at, I’ll say, writing copy and do that. If somebody else is good at figuring out the visuals, let’s let them do that. At some point, we’ll bring all that work together. It’s a big advance but what we’re finding now is, that using technology, you can have those different skills work together in a much more fluid way than a classic bureaucracy would lend itself to.

 

I think we’re starting to see experimentation with these new organizational forms, which I call the permissionless organization, which is providing enough structure so teams are clear on what they’re trying to accomplish. That clarity is important, but then giving them enough freedom, they can get on with it. They’re not getting all tied up in rules and things that slow it down.

 

We need to learn how to work together across the business and leverage technology where it can help us be faster and get us thinking in a much more open way as opposed to, when we’re limited by what we know. I guess that also means that these teams, sound like a group of relatively small teams but with different skills sitting around the table to help and make it happen.

 

You want somewhere around 5 to 7 people. There’s reason for that. If you have 3 people, you can get by with 9 lines of communication by the time you’ve got 20 people, 30 people, the entropy of keeping that many people abreast of what’s going on takes a huge amount of investment. At Amazon, as an example, they talk about two pizza teams. Teams should be adequately fed on two pizzas. I think it’s a great metaphor to grate your work down to a small team that can tackle it. You’ll make a lot more progress than these huge, monolithic, very complex jobs where you have 50 people working on it.

 

We’ve all been in situations where you’re on one of these and it’s like it takes a month to get anything done because you’re constantly meeting, communicating, keeping people up to date and getting people comfortable with and all that. Whereas if you can break it down to what a small team can take action on immediately, you get a lot more progress a lot more quickly.

 

It sounds like these new ideas, new opportunities, new innovations, new challenges, new threats, etc.,  if you’re on the edge, if you’re picking it up as a weak signal, so to speak, it hasn’t transformed into this monolith, it’s almost like the birth of a new child. If you’re there and thinking about, you can’t think about them going back to the university and what university they’re going to do and what they’re studying. It’s about helping them live, giving them light, giving them air and trying things and experimenting, isn’t it? You may not get it right the first time or two.

 

You almost certainly won’t. I was talking to Ed Catmull. Ed was one of the founders of Pixar and created this $400 billion industry with himself and his team. He wrote a book about it called Creativity Inc. He said in his view, a lot of people have taken the wrong idea from his book, which is failure is great and failure should be rewarded. He said, “We never even thought about it as a failure.” What they thought about was they had a very compelling mission, which was to create what they called the movie, which was the very first animated film, which they accomplished in 1995 with the commercialization of Toy Story, which was a huge success. They had this vision for 25 years of creating this completely animated computer movie.

 

He said, “What we did was we tried stuff and some of it worked and some of it didn’t. If it didn’t work, we tried the next thing. We never thought about it as a failure. We thought about it much more as a series of experiments that we tried.” Pixar itself had a lot of Perils of Pauline moments. They tried stuff that didn’t work. They had to go get more money and then tried the next thing and it didn’t work. They hoped it would take 10 years, it took 25. Eventually, they came up with this incredible string of multiple successes with a lot of new things.

 

See that pattern? Something I had not realized until I was reading about it is the very first James Bond movie was turned down by every studio. The guy that starred in the movie was not thought of as movie material. The plot line was thought to be completely off, like this British cool metrosexual spies saving the world. Who would’ve even thought of that before you saw it? Now by the time you get to the fifteenth James Bond movie, we have a recipe. We know what the leading looks like. We know what the leading lady looks like. Bond Girl is now a meme. By the time you get to that stage, you get something that’s a lot more predictable.

 

This is such a fascinating conversation. I don’t want to leave without understanding a little bit more about Valize’s role in helping people who are trying to learn how to do this, get better and have tools to be able to help them think through these things and not have to start from a literally a blank sheet of paper.

 

One of the interesting things about innovation, too, is that we have a whole toolkit methodology. It’s the same as it was for quality. If you look at what people thought of as quality before we had Six Sigma and all those people who said qualities of science, before that, it was like, “We have good inspectors. We hire talented people,” but it wasn’t a system. I think what a lot of people don’t understand is that innovation actually has a whole boatload of systemic, predictable, reliable principles behind it. It’s different than what you do in the core business.

 

Valize was founded out of my frustration that I would get up and talk about this stuff and I’d teach courses and people would get so excited and they’re like, “I got to go back and try this.” They’d get back to Acme Inc. Acme Inc. Would look at those crawled up from under a rock and say, “What, are you kidding?”

 

Valize is my version of what Deming and Juran were doing with quality, but doing it for innovation. We have software that we use to make things very transparent. We have learning guides that people can use to get a critical mass of people up to speed on some of the basic techniques. We have an advisory that we do. We’ve got diagnostics. It’s about trying to implement the innovative principles I talk about but making it easier for people to bridge that gap from getting the concept to actually making it go to work in their organizations.

 

I saw this was on YouTube, your rollout, if you will, of Valize and the people that were on it. It was fascinating to hear because these people sounded to me they were like career innovators. This was what they did for a living. They signed up and took the classes, applied the principles and all and were amazed at how it helped them. You could hear they started leaning in more and more and more as the conversation went on. That’s their world and that’s where they spend their time, to be able to have things that help make it simpler. Often, you’re thinking, “How am I going to tackle this big huge pile of opportunity? I don’t even know where to start.” This gives you a place to start and a direction.

 

The state of the art for a lot is still spreadsheets and PowerPoint. There’s not very much transparency. The other thing that I find fascinating is, so let’s say you get corporate support for something whatever it is. Nowadays, it would be AI. A couple of years ago, it would’ve been crypto. A few years before that, it would’ve been autonomous vehicles.

 

What they then do is they overdo it. Instead of saying, “Let’s fund a team of maybe three people to go see if this is even a real thing,” they put 12 to 15 people in a multimillion-dollar budget. They knew what they were doing and they didn’t. That’s the critical insight behind discovery-driven planning. When you know what you’re doing, a critical task is learning. Do that and with a low cost because if you’re thinking about an uncertain opportunity, what I care about a lot more than the rate of failure is the cost of failing. If each attempt cost me a dime, I can attempt many things. If each one cost me $1 billion, I’m going to have to be a lot more careful.

 

What we should care about a lot more than the rate of failure is the cost of doing it. Share on X

 

Rita, I think our time has come to a close, unfortunately, from our perspective. It’s been so nice to speak with you. It’s amazing how quickly you can go around the world and recollect all these things that you’ve been working on over the years. It’s amazing.

 

Thank you. It’s a pleasure talking to you. Please have people reach out to me if they have questions. I’m always happy to hear from the audience. If your organization has questions, let’s connect and I’m happy to follow up.

 

Fantastic. Thank you.

 

 

 

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About Rita McGrath

The SAMA Podcast | Competitive Advantage | Rita McGrathRita Gunther McGrath is a best-selling author, a sought-after speaker, and a longtime professor at Columbia Business School. She is widely recognized as a premier expert on leading innovation and growth during times of uncertainty. Rita has received the #1 achievement award for strategy from the prestigious Thinkers50 and has been consistently named one of the world’s Top 10 management thinkers in its bi-annual ranking. As a consultant to CEOs, her work has had a lasting impact on the strategy and growth programs of Fortune 500 companies worldwide.
 
Rita is the author of the best-selling The End of Competitive Advantage (Harvard Business Review Press, 2013). Her new book is Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen (Houghton Mifflin Harcourt, 2019). She has written three other books, including Discovery Driven Growth, cited by Clayton Christensen as creating one of the most important management ideas ever developed. She is a highly sought-after speaker at exclusive corporate events around the globe, such as the Global Peter Drucker Forum.
 
 
She received her Ph.D. from the Wharton School (University of Pennsylvania) and has degrees with honors from Barnard College and the Columbia School of International and Public Affairs.
 
 
Follow Rita on Twitter @rgmcgrath. For more information, visit RitaMcGrath.com.

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