Rita McGrath is a legend in the field of corporate innovation. She developed the methodology used by so many companies today “Discovery Driven Planning” and has written numerous best-selling books.
She recently had a new book come out “Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen”
On this episode, we talk about her new book as well as observations on how corporate’s perspectives on innovation have evolved and the arc of her career.
- Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen (Rita’s new book)
- Valize (Rita’s software company)
- RitaMcGath.com (Rita’s personal site)
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Sean Ammirati: 00:08 Welcome to Agile Giants, Lessons From Corporate Innovators. I’m Sean Ammirati, your host. Co-Founder and Director of the Carnegie Mellon Corporate Startup Lab, and partner at the early stage venture capital fund, Birchmere Ventures. Each week I’m going to talk to guests who are experts at creating startups inside large corporations. I believe fundamentally a startup within a company is the same as one inside the proverbial garage, a group of entrepreneurs trying to make the world a better place, using new ideas and inventions. However, I also believe some of the techniques and processes are just inherently different. This podcast is going to explore those similarities, and differences.
Sean Ammirati: 00:56 Welcome to another episode of Agile Giants. On this week’s episode I’m joined by Rita McGrath. Rita’s a well known expert on innovation, both as a Professor at Columbia Business School, as well as Author and Consultant. The book that I think most people know her from is, The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business. Which, won a bunch of awards a few years ago, and definitely influenced my thinking around these topics. She has a new book that just came out called, Seen Around Corners: How to Spot Inflection Points in Business Before They Happen.” Which, I got an advanced copy of and would definitely encourage you to check out. We’ll talk a little bit about the book, as well as different things she does to help companies operationalize this, and her perspectives on innovation. As well as finishing up as always, with some personal career advice. I hope you enjoy this week’s conversation. And again, please check out her book, Seeing Around Corners.
Sean Ammirati: 01:56 Great. Rita, thanks for joining us today. There’s obviously a number of different hats that you wear from Professor, to Consultant, to Author. I thought it would be helpful though, I’m guessing most people are familiar with you. But, could you just kind of quickly give the listeners who may not be aware of you, a little thumbnail on the different professional hats that you wear?
Rita McGrath: 02:15 Oh, sure. I’d be delighted. Obviously I’m a Professor at Columbia, where I focus mostly on our executive education offerings. Then, the second part of my life is research and writing, so doing books, writing articles, that kind of thing. Then thirdly, working with companies as a Speaker, as a Consultant. And lastly, we’re starting a software company, which is intended to help create tools that put some of the ideas that I’ve been working on into practice. It keeps me pretty busy.
Sean Ammirati: 02:50 Yeah, that’s awesome. I actually didn’t know about the software company. What is the name of that?
Rita McGrath: 02:54 Right now it’s called Valize, but we’re probably going to name it something else.
Sean Ammirati: 02:57 Okay, and this is around the discovery driven planning stuff?
Rita McGrath: 03:00 Yes, mm-hmm (affirmative). It is, what I find is people come to my courses, or listen to my work, or read my books. Then they get inspired, they really want to use these ideas, but they go back to their organization and they’re faced with the task of, how do make this real? You know? How do I create spreadsheets, or put in place the tools? The software is really just intended to shorten the gap between getting the idea, getting the concept, and being able to put it into practice.
Sean Ammirati: 03:29 Yeah, that’s really smart. I follow your stuff pretty closely and wasn’t aware of the software company, so others may as well be in the same boat. If people want to check out the app is there a place they can do that?
Rita McGrath: 03:40 Yeah, I mean I think the working title right now is Valize, V-A-L-I-Z-E, and you go to Valize.com and see what’s there. It’s very early stages though, so we’re not kind of super public about it.
Sean Ammirati: 03:53 Sure.
Rita McGrath: 03:53 But yeah, if people are really interested they can always email me. That’s Rita@RitaMcGrath.com.
Sean Ammirati: 03:59 Perfect, all right. Well I will put a note to the website in the show notes for people as well.
Rita McGrath: 04:04 Great.
Sean Ammirati: 04:05 Obviously people, I think are familiar with a lot of your books. But, you just had a new book come out, Seeing Around Corners. I thought an interesting place to start with this book would be kind of just from a personal level, what made you feel like it was time to write another book, and that this was the topic you want to focus on? I think the first time you signup for a book you kind of don’t know what you’re signing up to create, but you’ve done a number of these at this point so you knew exactly what you were signing up for. What made you decide that it was time to come out with another one, and that this was the right book to focus on?
Rita McGrath: 04:39 I think that it really does follow an arc. My first book, which as you said was a mistake. No, the first book you always want to put everything in the kitchen sink into the book, you know? You don’t realize there’s many more books in your life. The first book was really about how would it be if established organizations had an entrepreneurial mindset. Then, I did books on, how do you find new opportunities, how do you actually plan for growth, how do you think about this new world of strategy, the end of competitive advantage? What kept coming up was people were saying to me, “Well, how do you know? Like, when? How do I know when the time is to move onto something new, or when the time is to take a different stance?”
Rita McGrath: 05:21 That lodged itself in the back of my mind. Then, I ran across kind of by accident, Andy Grove’s fantastic 90’s book called, Only the Paranoid Survive.
Sean Ammirati: 05:32 Yes.
Rita McGrath: 05:32 Which, was about strategic implementation points. That got me thinking, “Well, what really has been done since then?” If you look at it, there’s not that much. That was one of the things that really was an inspiration to this, and that got me started thinking about it.
Rita McGrath: 05:46 Then it was, I couldn’t shake the idea. To me the time to right a book is when you can’t get an idea out of your head, and you have to get it out on paper.
Sean Ammirati: 05:54 [crosstalk 00:05:54], yep.
Rita McGrath: 05:54 Or digital, or whatever your medium of choice is. And, so it was with this idea of, what’s an inflection point, how do you track it down, how do you know it’s coming? That was what really inspired this book.
Sean Ammirati: 06:06 Yeah, and this concept of strategic inflection points obviously is laced throughout. Obviously if people want to completely unpack that, they should buy the book, and we’ll include links to that in the show notes as well. But, I think one of the things that was counterintuitive to me when I read it as I was sort of scanning, reading your book ahead of time. And, then the more I thought about it since reading it, the more I’m seeing this in lots of area of my life now is, you talk about these strategic inflection points as something that we perceive to be dramatic. Like, they just come out of nowhere. But in reality when you look at how they come, they gestate for a long time, right? It seems like that’s kind of the beginning of the underpinnings, which then lead to these three different sections.
Sean Ammirati: 06:50 I guess, where did that insight come for you? Where did you end up realizing that this sort of may be contrarian, but correct? This seems to be correct from my perspective view on these strategic inflection points.
Rita McGrath: 07:03 That actually came from an article that my financial advisor sent me, of all things. He said, “Oh, I think this might interest you.” The article was called something like, “What if you change the world, and nobody notices?”
Sean Ammirati: 07:17 Hmm.
Rita McGrath: 07:17 And, the example that caught my eye in that article was the example of the Wright brothers, and their historic flight at Kitty Hawk.
Sean Ammirati: 07:25 Right.
Rita McGrath: 07:25 Here’s two people demonstrating for the first time in human history, that flight, safe human flight, is actually possible. Which, when you think about it, I mean back to the days of Leonardo da Vinci, people have wanted to do this. This day, world changing moment. Next day, New York Times, nothing. A year later, any newspaper in the world, nothing. It took something like two years before the press, and the public at large gathered what this would really mean. That idea really hit me like a ton of bricks. It was just, “My God, here’s this thing that really did change the world, and yet it took a long, long time for people to understand the implications.” That’s what I think happens with strategic inflection points.
Rita McGrath: 08:13 They are based on these things that have that quality, you know? That, “Oh wow, things are completely different now.” And yet, nobody really notices what they mean at first.
Sean Ammirati: 08:24 Yeah, and I think it’s easy to write off historical examples from you know, like the Wright brothers as like well, it took a while for media to propagate. But, your book runs the gauntlet of examples like that all the way to kind of the current social media pushback, which is a very, very modern topic. And so, I think this is not just about time for media to disseminate, it’s just that people don’t grasp these, the importance of these topics as quickly as we might expect ourselves to be able to in hindsight.
Rita McGrath: 08:59 Yep, I think that’s very true. And, I think it’s normal, you know? You live in a world, we all do, where there are taken for granted assumptions about how things work. When something comes along that really challenges those assumptions, it’s not easy at first to pick that up.
Sean Ammirati: 09:12 Yeah, that’s exactly right. To your point on this, following an arc, that probably ties back into what I, at least I perceive it may be. I thought I knew your work better than maybe I did, I didn’t even know you were starting a software company. But, what I think of you as being most famous for, which is this concept of discovery driven planning. For people who may not be familiar with that concept though, how would you summarize what discovery driven planning is?
Rita McGrath: 09:36 Well, discovery driven planning was invented to help people take a disciplined approach to learning. And, so many of your listeners will be familiar with lean startup-
Sean Ammirati: 09:49 Sure.
Rita McGrath: 09:49 … That kind of idea. But, discovery driven planning predated that by a while. What we were exploring was, how do you plan with discipline, for an environment where your ratio of assumptions you have to make, relative to the knowledge that you have, is very high? So, a high assumption to knowledge ratio situation. And, how do you nonetheless, plan with discipline? Because, I think one of the big myths which people have with respect to entrepreneurship is, “Oh, it’s guys in black T-shirts in the middle of the night, in painter pants, inventing things.”
Rita McGrath: 10:26 Well sure, but really there is a discipline to it, and it has to do with how do I reduce that ratio of assumptions to knowledge in a way that’s very disciplined, that conserves capital, that’s actually less risky than what you might do in a different kind of mode? And, the core, core, core ideas. That, instead of planning a whole big monolithic idea, you plan by week checkpoints, you plan by milestones. So you narrow down the range of assumptions step by step.
Rita McGrath: 10:57 And so, then the question of, well, did we fail, did we try? Comes down to a very straight forward, very straight forward, is it worth it to us to learn what we need to learn at this particular checkpoint? It changes the dialogue completely.
Sean Ammirati: 11:11 Yeah, and I think it’s interesting as more and more, and I know you’ve been in this corporate innovation space a lot longer than most. It was interesting, the preface with Clay Christensen talking about how the two of you working on this for decades, literally. But, I think when you think about corporate innovations, I think that’s an even more important message there in some ways, because people think of it as, “Oh, I need every idea that I work on to be successful.” But, the thing I like about discovery driven planning is that sort of shows the residual value of things that don’t work, and it also helps them think about it more from a series of experiments, not just kind of a big bang success or failure.
Sean Ammirati: 11:54 Then, it seems to me, and I think this is accurate but I wanted to get your take on it. It seems to me like, then that ties into this book because it’s almost like, okay so if you have this toolbox of using an approach like discovery driven planning, then how do you come up with the thesis that drive those activities? To me, this seeing around corners, and then sort of coming up with what the inflection points are, and how they influence your organization. And, then ultimately how they influence your personal career is kind of like okay, what’s the top of the funnel for the activities that you’re doing this discovery driven planning against? Is that a fair way to think about how these two concepts fit together?
Rita McGrath: 12:33 Oh, absolutely. I think the big message for people, even in established organizations now, is that a lot of the thought process behind discovery driven planning, ironically is now starting to be active in peoples core business.
Sean Ammirati: 12:50 Hmm.
Rita McGrath: 12:51 When I first started it was, “Oh, it’s innovation. It’s all … one’s way over there in left field.” You know, yeah, of course. But, it doesn’t matter for those of us running the core business. Those of us running the core business, it’s all about the wheels on the bus, and repeat, repeat, repeat, and do reliably. Well, what’s happening in more and more sectors of our economy is that your core business is being shoved, like it or not, into this high assumption to knowledge ratio situation. And so, what’s going into discovery driven planning is more relevant even in those worlds.
Sean Ammirati: 13:23 That’s the great point, right? Because, you still need to execute with whatever your core business is. But, there’s change even in your core business. That’s exactly right.
Rita McGrath: 13:33 Mm-hmm (affirmative).
Sean Ammirati: 13:33 You’ve been talking to companies for a long time about this, one change you just mentioned. What are some of the other changes you’ve observed in terms of receptivity to your message since working on this as a PhD student, all the way to today in terms of the corporate reaction to these topics?
Rita McGrath: 13:50 Well, I think you have three reactions that I’ve been able to identify. The first is dismissal. They’re, “Oh, this doesn’t apply to me.” I have a former client who is in private banking, and his position was, “You know … you give me money today, you come back in 10 years, there should be more of it.” Like, what’s so new? So you have kind of denial.
Rita McGrath: 14:13 Then you have the ones that are freaked out. They’re like, “Oh my God, the sky is falling, the world is changing. This is awful.” And they’re going to throw money at anything. Today in the digital realm, they’re going to put money into, “Get me some of that AI. Oh, yikes, I need Blockchain.” You know, they’re just all over the map.
Sean Ammirati: 14:30 Yep.
Rita McGrath: 14:31 Then, you have the ones are energized by it. They think, “This is really exciting, this could mean something very important to me. I’d like to learn more, I’m curious.” Those are the ones that are great to work with, and the most receptive. Which is, how can I take this reality and do something constructive with it?
Sean Ammirati: 14:50 Yeah, so do you see an increasing number of people in that second and third bucket? Or, is it pretty static, or is it decreasing? How do you think kind of the market has changed in terms of their reaction to these topics?
Rita McGrath: 15:02 It is increasing, it is increasing. I think people are … you know, the reality is so compelling. How do you deny it forever? I think a lot more people are saying, “Hey, this matters. We need to do something. Let’s turn this around.” I think there is … you know, people are hungry for answers. I think one of the things that I think people find to be a relief when they work with me is, it demystifies this scary, huge thing. If you sort of say, “Well really, if you think about it, digitalization …” to quote my colleague Ryan [McManis 00:15:35], “Digital is just really adding information and connectivity.” We need two things, and it could be anything. It could be two objects, it could be two people, it could be whatever.
Rita McGrath: 15:45 But, people sort of go, “Oh, okay. That’s what you meant.” Then, once they’ve gotten over that trauma of, “Wow, the world is changing.” And gotten to a place where it’s, “Okay, well how do I take this and use it for something?” It makes life so much easier.
Sean Ammirati: 16:01 Yeah, absolutely. As we shift towards kind of wrapping this up, I like to sort of always end with a couple personal anecdotes here, just because I think people are interested in the people behind a lot of these thought leaders that they listen to all the time. I guess, I thought a question that would be interesting for you along that dimension is just, what ultimately do you think led you to focusing on this topic as a PhD student at Wharton? Is the first question. Then, I have one second followup to that, to kind of wrap this up here.
Rita McGrath: 16:32 Oh, well it started, it actually started digital years ago. Looking back on it, I didn’t realize that was what was happening at the time. But, I was involved in my working life before I did my PhD in automating New York City’s first procurement system that went away from paper, and really was automating things to what we would today, recognize as the Cloud. I saw the impact that these digital systems had on the way people did work, so I was really interested in, well how do you think about the science of implementation? I got to Wharton, and joined the Entrepreneurship Center there under the guidance of Ian McMillan, who took it over from Russ Ackoff. You know, who was a giant in the world of operations research.
Rita McGrath: 17:18 And, he said he couldn’t think of much more boring topics than things like the science of implementation, which of course today we realize is very, very interesting. But, in his Entrepreneurship Center he was super interested in corporate innovation, corporate venturing. I said, “Well that’s not too big a leap from what I’m interested in.” And so, we ended up coming to terms on my dissertation which was called, “The creation of new capabilities in established organizations.” So, it’s how do existing companies learn to do new things?
Rita McGrath: 17:48 That was really what got it started. It was this whole notion of how do I think about implementing something new?
Sean Ammirati: 17:54 That’s awesome. Then, the last question, and I know you touched some of this on your book as well. But, I always like to hear how people think about personally managing their careers. And, I like to ask this in the context of imagine someone’s listening to this that’s sort of at the same point in your career you were when you finished up with your PhD and they’re thinking, “Man, I would love to have the same success,” in their career that you’ve had. What advice would you give him or her?
Rita McGrath: 18:22 Oh wow. Well, the first is none of this is linear. It proceeds in ways that you can’t anticipate. I think the first piece of advice I would have is, have a number of options, and keep your options open. Explore lots of different things, and don’t let other people define what success looks like to you. In a world that’s changing as fast as ours is, you have the ability, you have the freedom to define success for yourself. I think that’s a really important point.
Rita McGrath: 18:55 I know a lot of people my age now, who they bought into the, “Oh, in academia, a certain profile, a certain title is everything I ever wanted.” Then, I look at a number of them who have achieved that, you know? They did what they hoped to, and yet they’re so unfulfilled that they’re really not thinking this is going to be a great thing.
Rita McGrath: 19:16 I think that’s an overall idea, which is really be willing to define success for yourself. Then secondly, be willing to put the energy into opening up options. I guess a last piece of advice would be, find a senior person who thinks you are great. And, is willing to support what you’re doing, even if it doesn’t seem obvious at first what that is.
Sean Ammirati: 19:41 Who was that senior person for you? That seems like there’s more behind that there.
Rita McGrath: 19:46 Oh, yeah. Well, I mean there were a number, but obviously the most important would have been Ian McMillan, who was my Co-Author, my guide to my Entrepreneurial Center. I mean, one of the first big studies we did together was a three year study of all corporate ventures at City Bank. We did a retrospective and prospective look at what they did in the world of corporate venturing. We studied 34 corporate ventures there, and it was funded. That’s what got me my first job as a PhD student. But, he taught me how to do interviews, how to interact with senior people, how to ask interesting questions.
Rita McGrath: 20:24 Among the things we came up with during those early days was something that even Harvard Business Review still uses, which is called, the five smart people test, you know? If you’re doing a piece of research and you get five smart people in a room and they can tell you every bit of the findings that a piece of research would lead to. Well, why bother doing the research? It’s not new enough. So, things like that were very great and instrumental to my later success.
Sean Ammirati: 20:49 That’s awesome. Rita, I really appreciate you joining us today. Again, if you guys haven’t gotten the book yet, please check out her new book, Seeing Around Corners. I will include a link to that in the show notes, as well as a few of the other things we mentioned today. Thanks so much, Rita.
Rita McGrath: 21:04 Hey, this has been a pleasure.
Sean Ammirati: 21:14 I hope you enjoyed this episode of Agile Giants. If so, consider sharing it with a friend. And, if you think it’s worth five stars, which I hope you do, please go to iTunes and rate it so that others can find this content as well.