Episode 15: Rita McGrath
Unleashing Innovation with Rita McGrath
Episode 15: Show Notes
The likelihood is that the tactics that were effective for businesses just a few years ago may no longer yield the results needed. Profound shifts in the business landscape have exposed a significant disparity between conventional strategic approaches and the evolving dynamics of the contemporary real-world environment. In this episode, we sit down with Rita McGrath, a celebrated author and captivating speaker, to discuss how leaders can navigate the complexity of cultural shifts in modern business practices. Rita is a renowned expert in steering innovation and growth through uncertain times, and she consistently ranks among the world’s Top 10 management thinkers. As a Columbia Business School professor, advisor to Fortune 500 CEOs, and author of bestsellers like Seeing Around Corners and The End of Competitive Advantage, her work has had a lasting impact on the business world. In our conversation, we unpack the strategies managers can employ to secure investments in innovation, the reasons behind organizational resistance to innovation, and the challenges of traditional hierarchical structures. We explore her Stepping-Stone Strategy for innovation, the value of a call option, the potent concept of level-skipping, and the steps for identifying debilitating assumptions. Gain insights into how innovators can advance their careers, effectively allocating resources, crafting the perfect project, and much more! Tune in and discover how to redefine traditional career pathways and drive innovation in your organization with strategy guru Rita McGrath!
Key Points From This Episode:
• Accomplishments Rita is most proud of and the role of Twitter in her life.
• What managers can do to ensure investment in innovation is not undercut.
• Unpacking why the concept of innovation is not adopted by organizations.
• Advice for people in the innovation space to safeguard their careers.
• Why hierarchy is the enemy of the truth and level skipping is explained.
• Steps for implementing level-skipping within an organization.
• The role of expertise and when it can become a liability to innovation.
• Getting real about how the landscape of industry has changed.
• Pragmatic ways of identifying the assumptions limiting your potential.
• Maintaining a balance between planning and taking action.
• Human capital and deploying resources against an opportunity.
• Allocating resources for exploration, research, and development.
• Discover the differences between funding and budget models.
• Learn the fundamentals of managing a diverse team.
• Rita shares her approach to writing a book and how she decides on a project.
• Redefining career pathways to align with the new era of business.
• She offers some final words of wisdom for listeners.
Quotes:
“I try to look at inputs from a wide range of people. Not just the people in my own little bubble. I really try to look at people kind of beyond that.” — @rgmcgrath [0:04:14]
“I think building alliances is absolutely key.” — @rgmcgrath [0:11:39]
“Where expertise gets you in trouble is when the boundary conditions are not clear.” — @rgmcgrath [0:18:13]
“We all know building knowledge, building skills, and building capability is a cumulative activity.” — @rgmcgrath [0:31:08]
“The question is not really diversity. The question is inclusion. You can bring in purple, green, blue, and whatever you want to in your team. But just having them there doesn't mean you're getting the benefit.” — @rgmcgrath [0:32:57]
“People don't want to be managed. They want to be inspired.” — @rgmcgrath [0:48:02]
Links Mentioned in Today’s Episode:
The End of Competitive Advantage
EPISODE 5 [TRANSCRIPT]
“RM: There's no return on politics. The hierarchy is relatively flat. Your worth is measured by the value you create. Your incentives are totally different in that environment. And so, as a leader, let's say you've inherited in hierarchy, and then there's lots of them out there. And I'm not saying it's a bad thing. What I'm saying is you kind of got to start with where you are. In that case, what you need to do is cut through that. You need mechanisms to cut through that. And that's why level skipping, regular meetings with people at the front lines are so important.”
[0:00:35] JU: You're listening to Paint and Pipette. I'm your host, Jeremy Utley. I teach innovation and entrepreneurship at Stanford University. Thanks for joining me to explore the art and science of bringing new ideas to life. Let's dive in.
[INTERVIEW]
[0:00:55] JU: All right. Welcome to another episode of the Paint and Pipette podcast. I'm Jeremy Utley. And I am delighted to introduce you to my special guest today, Rita McGrath. Rita is a strategy professor at Columbia Business School, a globally recognized management thinker, and one of the world's leading experts on strategy in highly uncertain environments.
McGrath won the number one award in strategy from Thinkers 50, producers of the Global Management Awards, and consistently ranks among one of their top 10 thinkers. She's cited as one of the most nine disruptive thinkers in business by CIO Magazine. And the Strategic Management Society honored her with the prestigious C.K. Prahalad Award for scholarly impact on practice.
On a lighter note, Fast Company Magazine called her one of the 25 smartest women to follow on Twitter. I love it. I love following you on Twitter, by the way, Rita. Her most recent book Seeing Around Corners was listed as one of the must-read books for 2020 and has received many accolades.
Her previous book, The End of Competitive Advantage, was recognized by Strategy+Business as the number one business book of the year and was also named the number one general business book by 800-CEO-READ.
The late Clayton Christensen, one of my heroes, described her discovery-driven growth concept as one of the most important management ideas ever. Her highly-awarded academic work has appeared in leading journals. She's regularly featured as an expert on television, and radio and in national publications.
Ladies and gentlemen, please join me in welcoming to the stage Rita McGrath. Hi, Rita.
[0:02:33] RM: Hi, Jeremy. What a pleasure to be here with you.
[0:02:36] JU: Okay. So that's a mouthful. I got to know, of your professional accomplishments, what are you most proud of? What are you excited to hear when somebody mentions it?
[0:02:46] RM: Oh, it's got to be the 25 smartest women to follow on Twitter, don't you think?
[0:02:50] JU: I mean, come on. So here's a question. How do you decide – we're just going to get straight to the personal right away. How do you decide what's worth tweeting?
[0:02:59] RM: Oh, oh. That's a great question. Well, if it surprises or interests me, that's one. If I think it's useful, that's another. If I think it adds needed perspective, I would look at that. Or if I think it's something I would like the world to know about. Those tend to be the range of things that I would tweet about. So if it's an article or something that I think, "Wow. You know, this isn't really clear."
For example, one of my recent heroes is a guy named Bent Flyvbjerg, who's a Danish geographer, and he wrote this fabulous book called How Big Things Get Done. Right? I've got it just over there. And one of the things that just blew me away when I got to know his work was how much my work on innovation and how we get innovation so wrong. And his work on mega projects and how we get mega projects so wrong are just absolutely dovetailing with each other. And yet, I hadn't ever learned about him. I thought that was really worth getting my community familiar with.
[0:03:48] JU: That's cool. And so, how do you decide? Are you the kind of person who gets on Twitter to kind of read the news? To read what's going on? Do you contribute to conversations? I've read from different folks kind of the role that Twitter plays in their life. I'd be curious to know what's the role Twitter plays in the life of someone who's one of the 25 most influential voices.
[0:04:06] RM: Well, to me, Twitter, I guess has three roles. One is to just expose me to things that I wouldn't have the time to look at otherwise. So I try to look at inputs from a wide range of people. Not just the people in my own little bubble. I really try to look at people kind of beyond that.
Second is that it's very immediate as a median. If something's happening, that people are immediately paying attention to. That's useful to know. Or a critical cluster of people that are like, "Oh, wow. ChatGPT." A few weeks ago, that was the big conversation. And that's interesting.
And then I guess the third thing is to – to just stay on top of what my community is reading and are interested in. I'm not one of those people who's on Twitter like morning, noon, and night. I'll go a couple of times a day and just see what's there.
[0:04:50] JU: Do you have to impose boundaries on yourself? Are you fairly self-controlled in that regard?
[0:04:55] RM: You know, I'd say I'm about two-thirds. Like there are days when I go, "Yeah, you really nailed it." And then there days where like, "Where did a third of that day just disappear?" And very often, what happens is I'll be on one of the social media platforms and there'll be something that I think is really interesting where I hadn't thought of before. And then woo-woo. Down the rabbit hole we go.
[0:05:13] JU: Okay. So now I got to know. What's your last rabbit hole? Is there a recent rabbit hole that you were either delighted by or frustrated to have traveled down?
[0:05:21] RM: Yeah, actually. Well, of course, AI chat has been very much in the conversation. And so, there have been a couple of different compilations of people saying, "Oh, well, if you thought ChatGPT was interesting, here are all these other things you could look at."
And before you know it, I've got a list of a hundred possible chat things that they make images, or they'll solve problems for you, or they'll do coding for you, or they – whatever. I mean, “Oh," you know, “I have to test these things out.” I'm looking at the list, I'm going, "There's no way you as one human being could do all that.”
But it's good to know. For me, what's good to know is it's there. I've recorded it. Now I can go back to it if I need to refer to it. And I know when people are working on it. And that for my purposes is probably enough for now.
[0:05:59] JU: Okay. Sorry for that diversion. But I love – actually, my last interview is with Astro Teller at Google X. And he showed up to the interview in rollerblades. And I made the foolish mistake of not starting the interview with, "So, why are you wearing rollerblades?"
And I've been – to me, it's so easy. I've got pages and notes here. It's so easy just to dive in. But the human part of it is so critical. Okay. Now diving in. Top-of-the-hour news, so to speak. Rita McGrath, strategy guru. You wrote recently about innovation theater, which is a topic near and dear to my heart as well. And I wanted to read something that you wrote and just ask you about it. Because it's something I interface with a lot. You said, "In too many organizations, innovation gets started, gets some traction. And just at the brink of discovering something useful, it gets cut."
Personally, I was talking to a general manager of an enormous tech company yesterday and he talked about how there are cuts happening at his firm right now. And he said, of innovation, "They're the most uncertain dollars yielding the payouts the farthest off so they're the first things that get cut." And that was exactly what you're writing about with innovation theater and this.
I'd love to hear you talk about how do leaders address this kind of episodic mindset? What can they do differently to not kind of undercut investments in innovation?
[0:07:17] RM: Well, the first principle is you have to treat innovation as a process like any other that's important in your company. I mean, you would never let episodic stuff – if you were a pharmaceutical company, right? You would never suddenly decide tomorrow, "Oh, we're getting rid of all the quality processes." I mean, you just wouldn't do that. Because you know that's deadly for your future. And so, for some reason, leaders don't look at innovation with that same level of this is your future.
[0:07:41] JU: And why is that though? I mean, because to those of us who kind of – who traffic in innovation so to speak, it's a tautology to say that innovation is the future. Innovation is vital to your success, right? Why is that not more operationally apparent in most organizations?
[0:07:56] RM: Yeah. I think it really comes down to a timing mismatch. If you look at the firms that I would argue get this right, what they tend to have is leadership that really says, "Hey, look. Our time frames are three to five years or even six. Not two to three." You know?
I mean, if you look at Amazon, what Jeff Bezos will say is one of the things he's proudest of about their culture is they don't take a short-term view. I mean, to bring Amazon Web Services to life was a five-year undertaking. To bring some of their other major issues, Prime Video, the Prime program itself, the big things that have really moved the needle for Amazon, those are five-year-plus efforts. And most companies don't have the patience. I think there's a fundamental timing mismatch.
Now if you look at for-profit firms that are not Amazon. I'm thinking companies like W.L. Gore, or Corning, or some of the more forward-thinking firms. What they basically do is they say, "We understand these things have a time cycle to them. And we're not going to be distracted."
And if you look at pharma, which is another nice example. What you saw in the last sort of around was the CEO of Pfizer saying, "Hey, we're not going to do stock buybacks. Because this is the time – we can't just be spending money in the here and now. We need to be making significant investments to produce our future." And the results have been astonishing in the last – what? Three, five years? They began to do what pharma had kind of lost its skill at doing, which is actually coming up with brand-new compounds. Inventing new ways of delivering medicines.
And so, I think it's a combination of short-term economic pressures. This kind of howling on the part of the investment community for returns in the here and now. I think that's one huge reason. Because there's an incentive mismatch.
If my career as a CEO is a three-year time horizon and this thing I could be investing in today that's going to cause me a lot of short-term pain is a five-year payout, it's a mismatch. I mean, you don't have to be irrational to recognize it.
And here's where I think the board needs to get involved. Because, fundamentally, you can't depend on a short-term incentivized, motivated, and rewarded CEO to take it on the chin out of sheer self-denial. That's where the board comes in. We want to see the evidence that you're building for the future, plus delivering in the present, plus – that's got to be a board responsibility.
[0:10:10] JU: I heard you say recently, if innovation's not item number one, two or three on the agenda, it's not actually a priority. A lot of the folks in our community are in innovation roles. They may be a CIO. They may be a VP of innovation or product development. A lot of what you just talked about is kind of at the CEO and the board level. Do you have advice for folks who have the skill and the ability in the innovation function who they're either concerned about budgets being cut or being eliminated in a downturn? How does someone whose skill set is in the innovation space think about managing their career and think about – or do they need to be looking for a new firm that's got different time horizon alignment? Or how does someone other than a CEO or a board member actually take your observations to heart and implement them?
[0:10:56] RM: Well, I think the first general principle is you need to build alliances. One of the Innovation leaders that I really, really admire came from a big chemical company. And one point he was their chief technological officer and then he agreed to take the role as chief innovation officer, which was risky.
CTOs have a place in the corporate hierarchy and a box on the org chart. CIO is not always. And so, the first thing he did before he left his CTO role was he created this cross-organization group of people who were basically at that level who were alliance partners of his. Who believed in what he was doing? Who would show up? But I think they had lunches like once a month. But he kept them informed. A lot of interesting stuff going on. He created almost an alternative power base to the base that's – the formal one. I think building alliances is absolutely key.
Second is you need to give people a steady stream of things to munch on while you're waiting for your big thing to happen. And this is where I think a lot of innovation leaders make a mistake, which is they sort of say, "Yeah. Yeah, we understand. There's going to be this huge J curve of awful results. But then it's going to turn around and we're going to have the hockey stick." And managers just don't want to hear that, right?
One strategy that I advocate is something I call the Stepping-Stone Strategy, which is think about something that's a big, hairy, super interesting thing, but it's probably five years, 10 years out. Autonomous driving, let's say, right? Does it mean you don't look at it? No. Not at all. But what you want to do is find a small mark that really has a problem your tech can solve or your solution can solve in the here and now that's incredibly profitable. Because the problem is so painful.
Now it's going to be a niche. It's going to be small. But if you've got a small, hugely profitable thing, now people are paying attention, right? So much better than a great big money-losing thing.
In autonomous vehicles, what we've got now is big solutions operating in controlled environments where you're not worried about the people. One big application is military transport. And the robots aren't smart enough yet to take over the whole job. But the robots are smart enough to play follow the leader.
So what you do is you get two human beings in a front vehicle and a bunch of other vehicles daisy chaining along behind. Saves time. Saves money. Saves possible risk and casualty. Huge cost savings in terms of repeatable, reliable interactions. Big, big opportunity. And it's the military. Of course, they pay good money for whatever you got.
What I think innovation leaders don't think about enough is I don't just want to do the one big bang. I have to be delivering a string of improvements all along. And then that makes you kind of indispensable for what's going on right now.
[0:13:28] JU: Yeah. That's great.
[0:13:30] RM: And you have that, by the way, in your book, right? You have these two artificial – by the way, I have it right here. I've been enjoying it.
[0:13:35] JU: There are no idea flow advertisements in this podcast.
[0:13:38] RM: No. No. I didn't say there should be. But what I wanted to draw attention to was these two archetypal characters that you have. The one who's kind of in charge of her destiny and managing things. And the other is just getting whipsawed back and forth. And I think to the extent you as an innovation leader can become a trusted advisor, a truth-teller, a helpful Cassandra. You're delivering small amounts of value all along the way. You're showing people where the future is. Those are all valuable, right? If you have those and a certain amount of luck and choice of the leadership of your firm, you can become indispensable.
[0:14:09] JU: You talk about truth-teller. You just said that. That reminded me of something else I wanted to ask you about. I heard you say recently hierarchy is the enemy of the truth. Can you tell us more about that in the technique that you call level skipping? Why is hierarchy the enemy of the truth? And how can a leader implement level skipping?
[0:14:26] RM: Well, if your primary incentive is moving up in a hierarchy, then there's a set of rules that apply to how you do that. And one of the best resources I've ever seen on that is Jeff Pfeffer's book, 7 Rules of Power. And it's things like you show up powerfully. You build these alliances. You play politics. You do things that make you look authoritative. You break the rules.
And so, your return on politics – if your main motivation is moving up in some kind of hierarchy, your return on politics is enormous. If your return on politics is enormous, the person that's got the major say about whether you're moving up or not is a notch or two above you, then your incentive to tell that person something they don't want to hear is pretty close to zero. Because that's not what's going to get you ahead.
Now contrast a situation where there's no return on politics. The hierarchy is relatively flat. Your worth is measured by the value you create. Your incentives are totally different in that environment. And so, as a leader, let's say you've inherited in hierarchy. Then there are lots of them out there. And I'm not saying it's a bad thing. What I'm saying is you kind of got to start with where you are. In that case, what you need to do is cut through that. You need mechanisms to cut through. And that's why level skipping, regular meetings with people at the front lines are so important.
[0:15:34] JU: Level skipping, if we got a leader here who's listening who wants to operationalize level skipping, what are two or three mechanisms to cut through the truth-hiding function of the hierarchy?
[0:15:46] RM: I'll give you three. One is – a good friend of mine who's a CEO is he has his computer generate a random list of 20 people from all over the world, all over his company. And he has a regular monthly breakfast with this group of 20. And part of the – he flies them to headquarters. They get shown around and make a big fuss about this. This is a high-priority program for him.
But at the lunch, they go around the table and he says, "Okay. What I want you to do is share with this group." It's a private group. Nobody's going to tell names or anything. But I want to share with you something you think we should know about that's going on in your part of the company.
Relative to the investment they make in expensive consulting, this is like a rounding error. But that's one. Second one was something that they did at Clockner who was the CEO wanted to digitize and was worried his middle managers were going to block him. And so what he did is he bought this like massive corporate instance of yammer and he said, "I want everybody in the company to have access. And if there are something going on in you're part of the company I should know about. Tell me. Send me – don't set up a meeting with my secretary and make it a whole big deal. No. Just drop me a three-sentence liner." In a German hierarchy, you got to imagine this is pretty radical.
And then what he did was he made sure that everybody knew he was on that instance every day. And he organizes the messages from the kind of lowest people in the hierarchy floated to the top of the list as much as possible. And then the third thing that I think is really interesting is lunch with the interns day. You know?
[0:17:08] JU: Yeah. Okay. Love it.
[0:17:09] RM: You're a company that hires interns, right? And wouldn't they love to meet you? And guess what? Maybe you really like to meet them. Throughout their period with you, have a monthly lunch with the interns and invite them and listen. Just listen.
[0:17:21] JU: Okay. That's great. You're kind of hinting at this a little bit. To me, one of my favorite topics is actually how expertise can become a liability. It's not always an asset. And I'd love to hear you talk about – you've mentioned how industry lines are blurring and things like that. But even now you're talking about interns, right? These are the least experienced people in the company. Can you talk for a minute about the role of expertise? When to lean on it? When to doubt it? When to question it? How to protect against maybe some of the pitfalls of expertise?
[0:17:53] RM: Well, expertise is incredibly valuable within known boundary conditions, right? I do not want an inexperienced pilot. I do not want an inexperienced cardiac surgeon. I want somebody who's really deeply studied these things and understands the science of them. Understands the thermodynamics. Understands what's likely to happen. But that's in a very specific set of boundary conditions.
Where expertise gets you in trouble is when the boundary conditions are not clear. When they're changing, right? And this is one of the reasons companies miss inflection points so much, which is they've developed their expertise all around a world that was this way. And now the world has changed completely.
Let's take a concrete example. I mean, if I wanted to send a video message to 100 million people in 1990, which is not that long ago, what would I have had to do? I would have had to hire burly guys with cameras on their shoulders. And I would have had to send them to a set. And we would have had the tape – the things recorded on actual tape. There would have been mechanical cutting of that tape. There's a machine that would have tied it all together.
And then to get it to my audience, I would have had to put it in metal cans and send it around the world in the post office. I mean, it would have been a multi-million-dollar enterprise to get –
[0:19:00] JU: It makes us feel old, by the way. Just as a side, right?
[0:19:02] RM: I know.
[0:19:03] JU: You're just going through this, it's like, "Wow. Has the world changed that –" you're right. Absolutely.
[0:19:07] RM: 1990s. Not that long ago. I had my first child in 1990. That's like her young lifetime. But if you think about it, if your expertise is around how you absolutely prime the color on that magnetic strip to be perfect and how you edit that physical movie just – your expertise is kind of useless in a world where those boundary conditions have shifted.
And so, I think what you want to be very humble about is what are the boundary conditions? And this by the way is something they teach you in the Ph.D. program, right? What are the boundary conditions of the problem that we're looking at? And what's changed? And what's different? And where does this set of rules not apply anymore?
[0:19:43] JU: Okay. You're getting to something I think is critically important, which is there tends to be a delusional belief that our boundary conditions haven't changed. And I think it gets back to this question of truth-telling. I'll never forget. I mean, working with a large hospitality company, call it ten-plus years ago. I was asking about disruptive innovation and someone on the board of this huge company kind of patronizingly put his arm around me and said, "Jeremy, there hasn't been a disruption in hospitality in 50 years."
And at the time I knew Airbnb had raised at a valuation of around $10 billion. I mean, now it's 10, or 100X that, or whatever, right? But it was a significant disruption on the doorstep. And yet, a fiduciary had the audacity to say there's been no disruption. And conveniently, you could define the boundary conditions in a way that that statement is true, right?
To me, the challenge that I'd love to hear you talk about is how do you get honest about what your boundary conditions are and when they're changing? Because it seems to me a lot of the near-term kind of thinking, the pressure is against being honest about shifting boundary conditions. What are things leaders can do to be aware of and be honest about and almost to become tuned to actual shifts versus kind of what the party line is?
[0:20:59] RM: Yeah. Well, I think the first thing is to be open to hearing the news. The second thing is in your organization are people who see it, right? And let's just take that as a basic. There are your scientists, your technologists, your people who are on the front lines with customers. Your people at what I call the edges, right? And they see what's going on. And if you ask them, they will be very happy to share it with you in many cases.
And yet they're not – they don't have a seat at the table. They are not part of your decision-making apparatus. It takes effort to go find them. You have to be willing to convince them that if they say something that's not flattering, that whoever they say it about is not going to instantly get punished. I mean, you have to psychologically say that. That's where I think it starts.
Secondly, I think you have to really understand the boundary conditions that you live in. What are your key metrics? Why are they that way? Right? If for years, and years and years – I'll go back to my media example. If years, and years and years, my media example was the total budget of a movie times the number of physical assets that you had to have. Blah-blah-blah-blah.
And now you're sort of saying, "Well, hang on. I can make a 10-minute thing that goes just as viral as anything I've produced in a Hollywood studio." The boundary conditions have changed. The key metrics have changed. You want to look at what the key metrics are that are different.
And lastly, I think you need to look at what I call an arena. Where an arena is – as opposed to an industry. It represents a pot of resources. And there are all kinds of competitors buying to tap into that pot of resources all of which have different capabilities and whatnot. And so, to be broadening your horizon of who you're looking is being in your space.
Let's take a concrete example. Sony. What does Sony do? They've got content, and electronics and digital wazoo has just announced a partnership with Honda to get into the automotive business. That's ludicrous from one point of view, right? But in the other point of view, if you think of cars as kind of speakers on wheels, it makes perfect sense.
[0:22:50] JU: Right. Right. Absolutely. I just saw actually a news report about Best Buy getting into the healthcare space. Leveraging some of its core technologies. I think, increasingly, the hurdles for what constitutes a competitor are shifting dramatically. And the challenge is kind of having that honesty. I've heard you talk about assumptions.
I think one of the most challenging parts – if I think about the breakthroughs I have observed in industry or experienced in my own life, it's when I realize an assumption was wrong. But it's almost always a retrospective thing. And, usually, it's an assumption I didn't realize I held until it was challenged and then it was overturned. Are there ways, pragmatic ways of identifying assumptions that are holding you back?
[0:23:32] RM: Oh, yeah. I've got a whole technique about that. It's called discovery-driven planning. And what discovery-driven planning basically says is, in the beginning, when a lot is unknown, your ratio of assumptions that you have to make is very high. And the way human beings process assumptions is pretty grim. As decades of research into cognitive psychology have taught us. We tend to forget them. We have a mountain of biases that cause us to look at them the wrong way.
One of the things that I encourage people to do is say – okay. I think I'll make this up, “I think a cocktail machine that I could make a cocktail with a push of a button is a great idea.” And maybe it is. And instead of this sort of usual thing where you go and say, "Ah. This is awesome. Yes. Absolutely. Let's go build that." Right?
You say, "Whoa. Whoa. Whoa. Whoa. What would have to be true before that could happen?" And it's that asking what would have to be true that causes you to say, "Well, I'd have to be able to manufacture the things." Okay. Well, what would have to be true for you to be able to – well, I'd have to get somebody who – well – and then what else would have to be true? Oh, I'd have to get the government to say it was food-safe. Oh, okay. Well – it's this patience to stop and say, "Let's interrogate what we think is the truth before we make big commitments to something.”
Because once you've made a big commitment – and I see this all the time in the innovation space. Once you've sort of said, "We are absolutely going after this. We are launching." We're out there in the marketplace. It gets so hard to walk back and say, "Well, actually, we were just guessing."
[0:24:56] JU: Right. Right. It gets embarrassing.
[BREAK]
[0:25:03] JU: Research is clear that our first idea probably isn't our best idea. That's true for you, me, as well as your organization. But that first idea is an essential step to better ideas. How do you improve your idea flow? That's my passion and the work I do with organizations. If you'd like to explore how I can help your organization implement better ideas, let's talk. Check out my website, jeremyutley.design or drop me a line at jutley@jeremyutley.design. Let's make ideas flow better.
[INTERVIEW CONTINUED]
[0:25:38] JU: On the one hand I would say we see organizations that they're constantly in planning mode to whom we say, "You need a bias towards action. Scrappy experimentation. Iteration, et cetera." But then what you're saying too is a useful counterpoint, is it's not just frivolous, random action with statement and then go. They are also thoughtful. How do you advise leadership teams to balance the planning aspect with the doing and acting aspect?
[0:26:05] RM: Well, it's actually very congruous. And it really has to do with how far you're down the journey of converting your assumptions into facts. In the very early stages, I think there's a market for 3D-enabled robot dog walking. Right? Okay. Maybe there is. But what you don't do is say, "Okay. I'm going to put a $5 million budget behind it. I'm going to get this great big team. I'm going to have an 18-month launch date which I'm held to without any kind of ability to change that. My leader is going to be cutting the ribbon and awarded the crown.” You're now the guru of this thing. And then off you march with no facts at all.
Instead what you want to do is say, let's take a small team. Maybe it's a couple of people. And let's find out if there's any even need for this thing. Does it solve a real problem in the world as a concept before we even invest one dime in anything else? That becomes your checkpoint, right? And so, you drive to that next checkpoint as fast as you can and as hard as you can.
You're replacing speculation with action, right? I'm going to do some customer interviews. I'm going to create a mockup. I'm going to do a prototype. All the techniques you guys know so well at the D School.
Once I've gotten to that stage, then I say, "Okay, what have I learned? What are my assumptions?" And then you drive –
[0:27:13] JU: What's changed? Right? I think you talk about that a lot. What's changed? What assumptions aren't true? Yeah. I love that. Drive towards the checkpoint. A question that comes up often in organizations that I have the chance to teach, or advise, or whatever is, "Well, who's driving?"
And really quickly, what organizations realize is everybody here's got a job. How do you think about the question of human capital and deploying resources against an opportunity? Because I think, in most organizations, they kind of call it at capacity or maybe beyond everybody feels like they already have way too many things to do, right?
And getting thrown an innovation project is kind of like jumping on a grenade. It's like it's everybody appreciates it and you definitely lose, right? So how do you – never thought about it that way. How do you think about resourcing for innovation and resourcing for these unknown kind – if you think about driving towards a checkpoint, that's almost certain to be wrong. Which people are we using in order to drive? How do you advise leaders on that?
[0:28:09] RM: Yeah. I think there are two phases to think about. The first phase is what Safi Bahcall very famously called the loonshot phase, which is I think there's a space in the world for robotics in home economics of all kinds. Dog walking, and baking, and cooking and whatever.
And at that early stage, you don't want a full team on it. You want some guy who's prepared to say 20%, 25% of the time tinkering. Right? They go to conferences. They write papers. They write white papers. They do thinking. They go off to places like Xerox PARC. But at that stage, it's not a project yet.
Now the phase change to me comes when you say, "Hey, we want to make this an actual project. We're going to give it a line item budget. It's not just mushed in with other exploratory work that we're doing. It's actually going to be a carve-outtable project. At that point, I think you need somebody full-time. At least one person.
[0:28:55] JU: And when you say it's not carved out of a budget for exploratory work, do you have rough parameters of somebody says, "What budgets should I set?" How do you even think about creating space and budget and resources for the exploration – you think about Charles O'Reilly's kind of exploit model. How do you think about resourcing for exploration?
[0:29:13] RM: Yeah. So the way I look at it is you have three kinds of activities, right? You've got your core activity. That's dominating. Most people are going to be working on that. Then you've got your ability to make new platforms. If I want to completely re-platform my business the way Adobe did, or if I want to break into enterprise software the way Amazon did, right? Those are new platforms.
And to really make those work big long-term commitment, you can't just sort of get halfway. This is committed. Right? You've got to do this new platform. You can't do too many of them. You have to de-risk them by the time you go for it. Or you're taking the company down with you. Et cetera, et cetera.
Now those things are sort of low and medium uncertainty. Now once you get into high uncertainty on any dimension, now you're in the world of what I call options. A small investment today that buys you the right, but not the obligation to make a bigger investment.
Let's say I invest in my robot dog thing. And that doesn't turn out to be really good. But hang on. Here's a real opportunity for a robot – I'll call it lawn care that I've discovered.
[0:30:08] JU: Which you only would have discovered had you commissioned that call option. Right. Yeah.
[0:30:12] RM: Exactly. And so, my robot was following the dog around as it was doing its business. And all of a sudden, it noticed there's a particular kind of plant the dog likes. And it can recognize it. And now you say, "Well, wait a minute. If a robot can recognize a kind of plant. Maybe it can recognize weeds." And now we're off to the races on a whole new thing, right? But you never would have got there if you hadn't done the dog thing.
And I'm just making this up. I would say something on the order of 10% of your corporate resources, you can't invest so much that you're going to drive your company over a cliff. But it shouldn't be nothing. And by the way, that should be a budget people can count on. Like year-in, year-out. And it should be a funding model. Not a budget model.
[0:30:48] JU: Say more about that. What do you mean funding model versus budget model?
[0:30:50] RM: Well, a typical annual budget sort of says, "Okay, you spent 500,000 last year. So this year we think your prospects are good. We're going to give you 550,000. Woohoo." And then if you didn't spend it all last year, they'll say, "Oh, this year, you're only getting 400,000." Or, "Oh, my God. We've had a problem in Latin America. We're cutting your budget in half. It's only going to be 250,000."
Well, we all know building knowledge, building skills, and building capability is a cumulative activity. This year builds on last year, builds on the year before, builds on the year before that. If in year two you suddenly decide to cut in half your ability, you lose half the people. A lot of what they've learned, which is in their heads, unfortunately, not in some sort of process, that disappears.
Another big chunk of people say, "Whoa. This isn't a place that's going to be looking good for me.” So they leave. You lose a lot of your human capital. And you lose a lot of time, right? So let's say you decide, "Oh, my God. Robotic weeding. Yes. Absolutely. We want to do that." Three years later, well, all the original team has either gone on to other things or they've been busy with other stuff. They've now got to go get out the dusty records from whenever that thing was there.
In other words, it's stopping, it's starting, it's stopping, it's starting. It's not a funding mechanism. A venture capitalist would never do that. What they would do is they say, "Okay. Invest in 100 ventures. Maybe two of them are going to be PayPal. And the rest, we know, they're going to kind of go back into the ecosystem. But what we will have learned through the course of doing that is more than worth the blockbusters that are going to come out the other end.
[0:32:10] JU: That's great the idea of a call option is I think something that can resonate with a lot of people. And we could talk more about that. I want to shift gears a little bit. One of the things that is implicit in a lot of what we've been discussing is the value of diverse perspectives. And I know that you, as I do, really believe in diverse teams' ability to outperform homogeneous teams.
One thing you've said recently is as long as they're properly managed. I'd love to know, for folks who have built diverse teams, who have seen the value of diverse teams, what are the keys to managing a diverse team relative to managing kind of a straightforward, homogeneous, same-background kind of a team? How does a manager need to interact perhaps differentially in order to get the kind of differential return from a diverse team?
[0:32:57] RM: The question is not really diversity. The question is inclusion. You can bring in purple, green, and blue and whatever you want to in your team. But just having them there doesn't mean you're getting the benefit. I think the first question is what are you doing to genuinely make them feel included? And there are lots of ways of doing it.
And in fact, one of your colleagues wrote this great book, Design for Belonging, which I love. If you're interested in resource, that's a terrific little book that I think is by Susie Wise.
[0:33:20] JU: Shoutout to Dr. Susie Wise.
[0:33:22] RM: There you go. And it's a great book. Giving people the space to be heard. Things like a very simple no-interruption rule. We're going to get together. We're going to have our discussion. Everybody gets two minutes. Everybody else shuts up and listens, right?
So now you've got a pooling of ideas. Second thing is if you've got a decision to make, let's say it's an interview decision, before anybody has a chance to exchange ideas, everybody writes down what they took away before you talk. And then you go around the table and you say, "Okay. I want everybody to share with us what's on your piece of paper." Before anybody else has a chance to say anything.
[0:33:53] JU: And the idea there is to prevent influence from occurring, or someone dominating the conversation, or something like that. Yeah.
[0:33:59] RM: And a more formal way of doing this is something called the nominal group technique, which has been studied extensively. And if you're interested about it, there are lots that have been written about it. But basically, it's a more souped-up version of that last technique.
[0:34:09] JU: The nominal group technique. Is that what you said?
[0:34:11] RM: Yeah.
[0:34:11] JU: Okay. I'm a nerd. I'm taking notes fastidiously while you're talking, which makes it very difficult to interview at the same time. Okay. I want to shift gears a little bit and talk about Rita the creator. Because in addition to being a strategy guru, a management guru, you're an author, you're a podcaster. You've out a newsletter. And as our community knows – and Mark, Ian, Hul, others, I see your comments. Hopefully, we'll get there. Thank you for them.
And folks who are listening, please keep dropping comments and questions in the chat and hopefully we'll get to them in just a couple minutes. I'd love to talk to Rita the creator for a moment and talk to you about what are the systems that you have in place by way of documentation, by way of seeking inspiration, and making connections? How do you approach a new project as a creator?
[0:34:59] RM: A new project or just the ongoing systems? Because they are two different things.
[0:35:02] JU: Good question. Well, I mean, you told me – sorry. Right before we went on air, you told me you're working on a new book. Maybe we can take that book and say, "Okay. At what point does the idea for a new book crystallize?" How do you know that among the hundred books you could write? Dan Pink and I talked about this. He was in the middle of a project when regret kind of came out of nowhere as it were. And he talked about how he socialized at dinner parties and things like that. How do you decide maybe which project of the many you could pursue is worth kind of bookifying or documenting it in book form? And then how do you begin to marshal resources in order to turn that into a reality?
[0:35:38] RM: Well, I'll talk about the books first and then more general kind of systems after that. Well, books to me percolate for a long time. And I think Dan and I shared this. In fact, we've had long conversations about this, which is, yeah, there are 50 books I could be writing right now. The one that sort of is edging its way to the front is something we're calling The Permissionless Organization, which is the complements of a bunch of things.
The first one is people are really struggling with what work means in their lives, right? And many are finding that work is not what they were hoping it could be. It isn't reflecting their humanity. It isn't getting the very best out of them. They know the people on their team, are motivated and bright, and really great. And yet, somehow things feel flat and they're not getting stuff done. And it's full of – Rob Cross and Karen Dillon call micro stressors.
And so, there's a big malaise around work. And that then means there's a big malaise around how we're managing organizations. And that in turn means that maybe there's some different models. Now we've had glimmers of this. I mean, we've had adhocracies and bureaucracies. I mean, remember back when you had quality circles? We had all that stuff. We had empowerment.
[0:36:37] JU: Oh, yeah. Oh, yeah.
[0:36:38] RM: A lot of ideas sort of floating in the atmosphere for a long time. And I think the crystallizing seed for this now is maybe we're at a point with technology where we can make things so transparent, and so clear, and so free of human politics that we can actually let people push decision-making rights as close to the edges of the organization as possible. It could be really empowering and really exciting. But it's also got to be accountable. It's also got to deliver it. It can't just be you go do whatever you want, right? It's got to be structured somehow.
I think the time is right to really think about what that might look like. I don't have the answer yet. I've written two proposals so far. My editor, who I love to death, has come back to me and said, "Less is more. You're boiling the ocean. Let's really focus in on what the core themes are."
And so, just yesterday, in fact, I got this feedback from her and I'm like, "Okay. Well, let's think about what are the essential elements of permissionless organization." Like what would have to be true for that to be truly enacted? Because we got pieces of it all over. It's just nobody I think is pulled it into a real synthesis.
[0:37:36] JU: This is on-air free gift. I was actually talking with a CMO of a global company last week and she and I were discussing this very phenomenon. I didn't have the frame of permissionless organization obviously. But one of the things she said was she hated how everyone's always asking for permission.
And just out of the conversation, this idea emerged of what if you made it a requirement? What if, in an annual performance review, you receive demerits if you couldn't demonstrate at least five times you did something before asking for permission, for example?
Almost like having a – my friend Philipe at Michelin has what he calls a failure minimum. Meaning in his innovation lab, a minimum number of failures have to take place or else they have failed. Because it means they haven't explored sufficiently. Right?
Similarly, you could have kind of here are five examples where I didn't ask permission. And if you don't have five, there's no way to get into kind of the top decile of bonus unless you're doing things without permission, for example.
[0:38:34] RM: There's a really interesting layer of the combination of tech, remote, hybrid, culture, purpose that it's just ready. We're really on the brink of trying to figure out what that looks like. That to me is the really compelling idea behind a book.
Mechanically, what do I do when I'm working on a book? I'm like Dan. I have sort of bucket some stuff related to the book. He keeps his in physical boxes. I keep mine in digital. But it's the same idea. And so, I'll just wallow in it. And then I will actually block out time in my calendar. I'm like, "Okay. Tuesday, from 11am to 7pm, don't even talk to me."
[0:39:06] JU: Time to wallow.
[0:39:06] RM: Time to just not be like, "I've got to produce this. This is due by Tuesday." Whatever time to not be. And by the way, everybody in my environment has been trained on this. Can I get an artifact for you I got to go back to my working office.
[0:39:18] JU: Yes. I love it. Yes. We're getting real artifacts, people. This is where the magic happens. I want to see what is – is it like a do not disturb sign?
[0:39:28] RM: No. It's even better. Even better. Even better. This is a gift from my husband who has lived with me for a long time. He's lived with me through all of my books and even before that. He observes that when I'm in that mode like I just – don't even talk to me. My head is in this place. And nothing will do – he says, "Oh, you know what you're like?"
[0:39:46] JU: The hedgehog. That's great.
[0:39:50] RM: When a hedgehog goes out on the desk, he'll kind of open the door to my office.
[0:39:55] JU: That's great. That's great. That's beautiful.
[0:39:58] RM: What's fun about it is it's not like I'm looking at him going, "What is it you want?" It's not creating conflict. And I don't do it obviously if I'm needed for something. Like if it's time to pick the kids up, that's not my time to go in hedgehog mode. But if it's genuinely he just wanted to come in and find out when we were thinking of having dinner and he knows I'm in that mode, like, okay. We respect that.
And I'll be back maybe half an hour, maybe an hour. I'll come back. But it's like, in that moment, I think creative people need to have some way of sign when they're really at work. I remember years ago in my Ph.D. program, we had this awful kind of carols and bits of it would be a wall. But then it was completely open. There wasn't a door or anything. We're Ph.D. students. We're supposed to be sitting and thinking.
And I had a colleague who managed – I don't know where he got this from. But he got this police yellow tape. And when he was like heads down on a project, he put the yellow tape over his ducktail and he had a sign on it, "You do not see me. I am not here."
[0:40:51] JU: I'm not here. I'm actually gone. That's great. That's great. Many times I feel like we get to the end of a conversation and I go, "Well, when's round two?” Because, I mean, we've just touched on so many threads. I want to at least get one listener question while it's here. I've got Mark Jen's question, "How many years do you see that the most successful company's budget for these kinds of efforts? Three or five?"
I think Mark raised this question when we were talking about funding versus budget. When you think about commissioning the funds or allocating – you're almost pre-allocating them really right before what you're funding. Do you have any advice for Mark?
[0:41:31] RM: I can tell you what the statistics show us. Ralph [inaudible 0:41:32] years ago did research that shows from an idea to a true commercial launch, you're looking at between seven and 10 years for any industrial product. That's a physical thing. I think for a software-type product, it's a little shorter. But I still think it's one to five years, right?
And so what I think you want to be doing, if you're the steward of your company's future, you need to be able to think about things in five-year to seven-year time frames. And there are companies that do. As I said, Amazon does it. W.L. Gore does it. Certainly, Corning does it. And they tend to have these properties 3M. They tend to have these properties. With the technology people, they actually have long careers. They're in place for a while. And so, they have this perspective.
Part of I think what our challenge is, is we've gotten into this tour of duty mode with our managers. And this is something I learned from Jayshree Seth, who's the chief science evangelist at 3M. And so, managers have this tour of duty thing. If I'm not moving in two or three years, I'm at risk. I'm not being advanced. I'm not – stuff.
And that's completely flying in the face of a technologist who says, "This research program maybe shows fruit in seven to 10 years. But that's okay. Because I'm going to stick with it. I know what works. I know what doesn't. I've created my hypothesis. I'm going forward."
And they look at this person and there's like going to be three of them over the life of this project. And they're just rolling their eyes saying, "I'm going to have to introduce another like newbie who's just eager to get onto their next role? It's a complete mismatch in terms of incentives."
[0:42:53] JU: That's great. It's such a challenge to know how to – I'm looking here at Mahol's question, which is very similar. Mahold said, "All these qualities that you mentioned, leaders for nurturing, innovation, progressive thinking, are they at odds with their career runway?" I think it dovetails very nicely what you were just talking about with the tour of duty. How do you redefine what a career pathway looks like in this new era? I think, potentially, it's actually we have a generational shift occurring, right? There's a shift in the way we think about career. The way we think about work. And certainly, time horizons of projects and gestation time of projects. How do you think about career runways perhaps as the window of competitive advantage is shrinking?
[0:43:34] RM: Well, let me offer a couple of – the first thought is in the best-run innovation organizations, that pressure to move every two, three years tends to be a lot less than you would see otherwise. What they're looking for instead is were you part of something substantial that added value? And it's a different question. They're not looking at did you jump half hierarchical steps every other year?
A lot of it has to do with how you design your career structures and that has a lot to do with how your HR systems are. And who's considered high potential and who's not? And that's a big conversation for another time. But I think in the best-run companies, you don't create the incentive for people to feel, if they're not moving on every two years, there's some kind of failure. That's option one.
Option two is I think we're starting to look at people and their careers much more the way people that are in creative professions always have. If you make a movie, right? If you look at a Hollywood movie and you look at the credits at the beginning of the movie, there are like 300 companies there. And they're not there because they're an H2, level three, region 4 vice president. They're there because they were part of the original production crew for Avatar. And so, they know more than anybody else in the world does about 3D imaging. And that's why they're there. They have this valuable, useful skill.
And I think one of the things technology is going to do, and this feeds into this whole permissionless organization thing, we're going to get a lot smarter about not taking these hierarchical markers. And I would add into there things like bachelor's degrees. And what's your official credential? And what school did you go to?
Technology is going to allow us to get a lot smarter about what can this person actually do? What value do they actually bring? And if you get to looking at your career like that, you could take a complete demotion. You could become an independent contributor for a while. And then maybe you come back as a senior vice president once you really learned and wallowed and really understood the mind of a scientist.
[0:45:15] JU: Right. I was having lunch with a founder just the other day who he sold multiple companies very successfully. And his most recent acquisitions by, let's just say, a very large tech company in my neighborhood. And he told me – yeah. Not giving anything away there. But he said I'm an individual contributor right now.
And for me, I was kind of flabbergast because I go, "He's a multi-time founder. Significant exit." He goes, "I actually love being an individual contributor for the time. I love writing some code." And I think you raised a really interesting point, Rita, which is if we have this mental model of I always have to have a bigger title or a better – then we miss the opportunity to continue to learn, to continue to acquire new skills, to gestate and to identify new opportunities that we can't see when we're in that same perch, that same kind of privilege perch all the time. It's funny. Permissionless requires permission, you could say.
[0:46:10] RM: Well, it requires the appropriate structures. I mean, another way of thinking about it is it's a very industrial-aged concept the way that we constructed a lot of our career lives. And it used to be this group called the Hay Group, right? And have this thing called Hay points. And if you were managing a lot of people and had a lot of assets that will undergo control, you had all these Hay points and that determined your pay and whatnot.
Well, if you're rewarded for having people in assets under management, that's what you're going to do. And when you think about it, that's crazy in a knowledge-based context. What you want is no assets if you can avoid it. And maybe a small group of dedicated tribal thinkers. Not a big team of people marching in lockstep. If you're doing creative work, that's just the wrong way to look at it.
[0:46:51] JU: Something that you were saying earlier. We don't have time to circle back. But I would just offer as kind of a phrase for people, is what's your outcome variable? For a lot of experimentation, you said earlier, what would have to be true if? And one way to think about what would have to be true if is you define an outcome variable, then all the stuff you try, if you think about it, those are the – to use a regression analysis reference, right? Those are the dependent variables that you're changing to see – sorry. The independent variables, right? That you're changing to see whether the dependent variable, i.e. the outcome, changes. Right? If we do this, does that happen? If we do this, does that happen?
And for a lot of organizations who have kind of spoken the language of experimentation, they really haven't thought about what would have to be true if. And so, experimentation is kind of just a blind march rather than a methodical, almost more scientific approach to assumption, validation, null hypothesis generation, and validation, et cetera.
Any last comment that you want to have for the leaders in our community? Folks who are looking to be more effective? Problem finders, problem solvers, and innovation leaders. Any last words of wisdom that you would want to impart to folks before we wrap?
[0:47:58] RM: I ran across a phrase that I thought was just brilliant. And it was people don't want to be managed. They want to be inspired.
[0:48:06] JU: That's beautiful. That's beautiful I can't think of really a better way to end things. And one thing I would say is I have seen this time and time again in my role at Stanford, my role working with startups, is you cannot impart what you don't possess. It's very hard to be inspiring if you're not inspired yourself.
And so, one of the kind of prime directives of a leader is actually to seek inspiration. Not just to be inspiring. But to be inspired. Thank you, Rita, for joining us today. Thank you, everyone, for tuning in who was able to tune in. I look forward to meeting you all next month. We'll have the author and legendary thinker, Seth Godin joining us who, Rita, I think you know. Very excited to get to see Seth and pick his brain about his new book as well.
Until then, I hope everybody has a wonderful Thursday. Thanks so much for joining us today.
[OUTRO]
[0:48:54] JU: By day, I'm a professor. But I absolutely love moonlighting as a front-row student next to you during these interviews. One of my favorite things is taking the gems from these episodes and turning them into practical tips and lessons for you and your team. If you want to share the lessons you picked up from this episode with your organization, feel free to reach out. I'd be thrilled to do a keynote on the secrets that I've gleaned from creative masters or put together a hands-on workshop to supercharge your next offside adventure. Hit me up at jutley@jeremyutley.design for more information.
[END]
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