Professor Rita McGrath on Leading in Times of Uncertainty

Rita (00:05):

The heart and soul of the system is really driving your learning through a series of what I call key checkpoints, where a checkpoint is something that happens that's going to teach you something. So it might be a deliberate experiment, it might be a naturally occurring thing, a first competitive reaction, it might be the behavior of early adopters. At each of those checkpoints, you have to be very attuned to what's going on and what's not, because what we know about human beings is we all carry around these enormous numbers of cognitive biases.

Jim (00:35):

Welcome to What If? So What? The podcast where we explore what's possible with digital and discover how to make it real in your business. I'm your host, Jim Hertzfeld, and we get s**t done by asking digital leaders the right questions what, if so what and, most importantly now, what? Well, I'm really happy to welcome Rita McGrath to the What If? So What? podcast. She's an expert on leading innovation and strategy, a bestselling author, a speaker, a longtime professor at Columbia Business School, I can't leave out a YouTuber, a podcaster, a publisher of Thought Sparks, which is a great newsletter, and, Rita, you're a very frequent publisher. I'm really glad you took the time to join us, so it's great to see you here today.

Rita (01:14):

It's a pleasure to be here.

Jim (01:15):

So, one of the things, Rita, I love in your work, I think there's a real tone of honesty and sort of transparency in what you've done. I think I appreciate that. I think a lot of people do as well and I think my understanding of kind of your career journey is it's a little bit nonlinear. Could you share some of that and how it brought us together today?

Rita (01:36):

Oh, sure, so I started college, I guess, would be where I'd start. Well, if you can go even farther back than that, my parents were both scientists. My mother was a microbiologist, and my dad was an organic chemist, one of the leading experts in the world on selenium and tellurium chemistry of all things.

So, growing up, any argument around the dinner table was always settled by confronting a book and finding supporting evidence. So, I went to college in New York City. I went to Barnard College, and I wanted to major in history, but my parents were appalled by this idea. They thought that was not a very practical degree. We finally compromised, and I settled on political science, and so the first chunk of my career was really working in public service. So, I was working in the city of New York in the Department of General Services, as it was called then. It's called something else now. But what I discovered in public service is that the first few years are just unlimited in your potential. Your career just goes like that if you're competent and hardworking, and then it sort of flatlines for the rest of your life.

And during that period business schools were really booming, and there was a lot of pressure on the schools to have people with PhDs in front of the classrooms. And so, I decided to enroll in a PhD program, which I did. I went to the Wharton School, and I had thought from all my years working with the city that it would be really, really interesting to study the science of implementation, and the guy who ended up being my thesis advisor said he couldn't think of anything more boring than studying the science of implementation. So, a stroke of luck occurred in the form of a grant from Citibank that was interested in sponsoring a rigorous academic study of their venturing, their corporate venturing program. So, they wanted to study both the successes and the failures, and to see what the difference was, and so that was a three-year research program into corporate venturing. I became the research manager for that program, and that's what really got me into this whole area of entrepreneurship, innovation, and how they connect to strategy. Then, after I graduated, I joined Columbia Business School and have been there ever since. Great.

Jim (03:41):

Okay, that's a great path, that's an interesting path, and I like that. So the happy accidents that happened. So, I would say it's far from boring. So, I think they, there's a maybe a book argument there, but you know, you could have, you could have had, but far from boring.

And I think I love this connection between innovation and strategy because we always we kind of make the comment that it's both are sort of about the future. You, we kind of make the comment that it's both are sort of about the future. You're innovating because it's something new, and it was going to evolve into something. Of course, strategy is often about the future and making, and both are sort of rooted in making good predictions. So, I think we'll get into some of that. You know, like I said, you know I really like the transparency in your work, and I just think that openness is important to the way that a lot of organizations and institutions tackle some of these problems. But you know, also with innovation and strategy comes uncertainty, and it feels like we've been saying these are uncertain times. It feels like sharing with a client last week. The roadmaps are getting shorter and shorter, and we agreed, I think the consensus is there, and they have to be because it's really hard to see around the corners. But you know, some of our interests again in this podcast are how digital technology can navigate that uncertainty, maybe mitigate that, or take advantage of it. So, I think in this episode we really want to lean into some of the work you've done, and I think you have some really pragmatic, what I would call, lesson-driven tools that we're going to hear about. So, I want to relate those you know in our conversation, Rita, so I'll kick it off here, you know, one and kind of lean into sort of your new strategy playbook, right, titled Catch Away, which is which is great. Love that title, I think we all can relate.

But you know, in our practice here at Perficient, we encounter a lot of companies who are proud of being fast followers. We hear that a lot. But they find they kind of wake up someday, and they found that they haven't followed fast enough, or maybe they followed the wrong thing. We'll kind of touch on that later, and they found that they haven't followed fast enough, or maybe they followed the wrong thing. We'll kind of touch on that later, but for now, let's focus on that fast enough part, I think, the old thinking of strategy as a linear plan doesn't really work out. Or maybe it's just not enough.

And I was thinking of another client that is a very recognizable brand, I won’t mention them, but very successful, very profitable, but not growing. So they're pretty, I would say they're a little complacent, and that's going to bite them sometime soon. So, what you've talked about in the new strategy playbook, you know some things that organizations can do to change their thinking about competitive advantage. So if you're very profitable, you feel like you know, I mean, you're the most recognizable brand you'd think that you have locked in competitive advantage. Right, but what happens when you know that starts to get challenged? What do organizations, or how do they think differently? How do they formulate that new strategy playbook?

Rita (06:38 ):

Well, I think the trap right is that the time you really need to be looking to reinvent yourself or reinvent your competitive advantage is when you've got resources, when things are on your side, when you've got momentum behind you, and of course, that's the very moment that you're least motivated to do that. So, you've got this sort of supreme irony that leaders need to navigate. So, I take a page out of Andy Grove's playbook from the 90s, where he said you know, really only the paranoid survive, and you constantly want to be thinking that someone could come along and undermine something that you do. So one of the big shifts that I've seen in the last call it, the last 25 years or so, maybe since the internet first started being a daily part of everyday life, is that the boundaries of what we used to think of as industries have gotten very blurry, that you know what industry is Apple, even in right, what industry is Google in. And so a lot of our conventional strategizing, which sort of said find an attractive position in an attractive industry, throw up entry barriers like crazy, and then you have this sustainable competitive advantage which carries you for years. And you know that's still a recipe, but it's less and less the recipe for guaranteed success in today's environment.

So, I think for senior leaders, there's a need to constantly be a little bit constructively paranoid about what could undermine our advantages. It's somebody coming in from left field and making what we do even unnecessary. One of the things I've been watching a lot is dematerialization, which is when you have a service that actually substitutes for what used to be a product. So music would be an easy-to-grasp example. I mean, back in the day, you used to buy physical albums and they would ship around on trucks, and you'd put them in a record player, and then it moved to CDs. And today you don't even buy music. It flies through the air and lands on the device of your choice, and there's really no such thing as an album in a meaningful sense anymore. These songs get broken up, and it's actually the people that dream up the playlists that decide what you listen to.

Jim (08:43):

Or the algorithm so... I bought a record player recently because it's sort of vinyl is coming back and then maybe in its own disruption to in in in some way. You know, I like what you said about sort of questioning what industry we're in. You know, that's a, that's a great, I do hear the elements of that quite a bit. You know, someone, I think it was Alexis, said you know they make uh, they make a very expensive cup holder, right, because you, you get in and then we'll let the car take you there. But you know the idea of mobility, you know over again ownership or even sort of the brand royalty that comes with that. So that's a great challenge.

Another thing you've talked about is failing by design. I mentioned before that we will encounter a lot of companies that are again proud of being fast followers, all right, and again two parts of that they're hesitant or they're concerned because they then again they're not moving fast enough or they're following the wrong thing. I think the wrong thing question comes up a lot and I think that's creates this paralysis, and I have a I'll share another client that has. They're trying to figure out where to go with AI, like everybody else is, when does AI fit? They've come up with 55 really great ideas. Every one of them sounds great. Yep, yep, that's a good application of AI. And, yes, I think a customer would like that, and I think your distribution network would like that. But they're sort of stuck because they want to choose the right one, this paradox of choice, right? So, what they end up doing I see other customers do this, they just choose the least risk, the idea with the least amount of exposure or risk, but of course, that produces sort of the least amount of reward.

So you said, and I love this, I'm going to quote you, you said in fundamentally unpredictable environments, it is a fool's game to make bold predictions. And a comment, I could feel I'm going to quote you again later, Rita, but that doesn't mean you have to wait for all the information. In fact, you're going to lose competitive advantage if you wait. So, in failing by design, you talk about intelligent failure. But how do organizations sort of practically adopt this? Because that's just that statement alone. You know the word fail. Intelligent sounds good, but intelligent failure sounds really scary. So, how do people, how can they approach that, or maybe socialize that into the organizations?

Rita (11:02):

Sure. Well, I think intelligent failure which is a term coined by Sid Simkin many years ago. An intelligent failure is a time when a hypothesis that you have about the world is not borne out, and so you've hoped X would happen, and it turns out that Y happens. Well, if it's genuinely uncertain, then you're much better off thinking of it like a natural experiment than thinking of it like a prediction. And I think part of the trouble is we don't make that distinction enough. So, if you think about failure like in business, you've got what are sometimes called complex systems failures. So, this is things like the nuclear plant becomes unstable. You know, we don't want those.

Everybody needs to be paying really good attention. You need to follow the rules exactly. You need to do exactly what you're supposed to do. Then you've got what I call, or what Amy Edmondson would call, basic failures. This is, you know, somebody did a shortcut, somebody didn't follow the procedures, somebody did something wrong. You don't want to encourage those either. But there's this third class of failures, which are the thing is genuinely uncertain. I don't know what's going to happen, and the only way I'm going to find out is trying something and seeing what the outcome is in an uncertain world. That kind of experimentation is the only way that you're ever going to learn what you need to learn about what's going on out there.

Jim (12:18):

Right, right, you have to just try it out, dive in, and learn. I mean, I think that's just. There's a lot of conventional wisdom in there, right, you're going to learn more by doing than anything else we're experiencing.

Rita (12:31):

But, kind of come back to risk now. Rather than anything else, we're experiencing. But kind of come back to risk now, right? So ironically, the low-risk efforts, if you're a big company, doing anything is going to take a lot of resources, right? So ironically, it may look low-risk, but it's probably taking you 80% of the effort it would take to do something that's higher risk but higher reward. So, I think that the way that you want to think about risk is what's the smallest experiment I can do that would validate one or more assumptions that I'm making about this uncertain situation.

Jim (13:01):

Right. I think that's sort of breaking down the elephant to one bite at a time, right? I think that's another good piece of advice. And again, I think, learning. When you experiment, you're testing. I think that's right. And the results of those tests are that's the fruit, right, that's what you're learning, challenging those assumptions, forming new assumptions, making some progress. We'll talk about, hey, maybe it's just one step backwards, but we think it's two steps forward. So, I think it's good for everyone to remember.

I think that word experiment, my experience is sometimes that can be a little off-putting. I love the word because there's sort of an innovation, there's sort of an excitement out there, but some people are still makes them nervous. Maybe it's just a function of sort of legacy corporate thinking. But I would agree with you that the organizations who have built a pilot program, or you know, they want to do, sometimes we'll call it an iteration zero. You know, I still love that phrase. So maybe we put a little snappier title on it than an experiment that sounds so risky.

But I want to touch on a couple of other things. You know you talk about discovery-driven planning, and let's say at this point, you know a company or a team might has the confidence that they're on the right track. So, they feel like they're on the right track. Maybe they've done some experimentation, and now it's time to sort of mobilize with a business plan and all the spreadsheets and Gantt charts that come with it. I'm dealing with that right now. I think I'm dealing with something where we have a vision, and now it's time to get a plan together.

But you wrote something that made me laugh because I feel like we've all been there. You said, even as you're doing all this, you know in your heart of hearts that this is more of a quantification of fantasy than is likely to bring your idea to life, and that really made me laugh out loud, because sometimes, again, you have to. You feel like I have to do this, but I know things are going to change. What you've written about in discovery-driven planning sort of reveals, I think, some pragmatic things that teams can do now to kind of get things off the ground. So, could you give us maybe a glimpse into some of those practices and what might be relevant today, sort of in today's climate, and what you're seeing?

Rita (15:05):

Absolutely, so, discovery-driven planning really had its seeds in this huge puzzle that I encountered in my doctoral studies and shortly thereafter, which was that, over and over and over again, you'd see these super smart, really talented companies with great resources, with great talent go terribly, grievously wrong when they tried to get into an area that was new to them. And when we went back and looked at these things my co-author and I keep the case studies in a file in my office. It's called the Flops File. You have to lose your parent company at least $50 million to get into my Flops File; that's the bar, and a lot of them would be household names.

And what I found when I looked at these case studies was that there was this very common pattern untested assumptions taken as facts, very few opportunities for low commitment, testing, that experimentation, that probing we were talking about before, leaders often under tremendous pressure, unrealistic timeframes and, most significantly, these things were all being planned as though the people doing the planning had facts, when what they really had was a lot of assumptions that they needed to make. And so, if you're planning, say, an 18-month spreadsheet-led product launch for something that's really uncertain, you just don't know.

And so, what discovery-driven planning suggests is, instead of making a plan to prove that you're right, which is what most corporate planning exercises are about is you instead create a plan to learn. And so what you do is you start off with defining what good would look like. So what's success going to look like? And you'd be astonished the number of corporate ventures and other innovations that have absolutely no idea how good does good have to be, right, you know, is it 10 or 50 or millions or what?

Then you work backward and we would create what I call a reverse income statement which basically says hey, if I need to earn $100,000 of profit from this thing and my profit margin is 20%, that means I have to have $500,000 in revenue. And what very quickly happens is you can start to put some structure around this really ephemeral idea that you've got. As you're doing that, you're going to be documenting your assumptions, because you're now kind of mapping out what would have to be true for that business to exist. And then the heart and soul of the system is really driving your learning through a series of what I call key checkpoints, where a checkpoint is something that happens that's going to teach you something. So, it might be a deliberate experiment, it might be a naturally occurring thing, a first competitive reaction, it might be the behavior of early adopters.

At each of those checkpoints, you have to be very attuned to what's going on and what's not, because what we know about human beings is we all carry around these enormous numbers of cognitive biases. So, what we want is to really be structured about saying, okay, what assumptions were validated, which weren't. And then I like to use the acronym RACE to describe what you want to do at each checkpoint. So do we need to redirect? Do we need to accelerate? Should we just continue, or do we need to exit? And if you think about innovation, you know it's a numbers game, which is one of the reasons why your fast followers probably like to do that so much, because let's let somebody else do the things that don't work. We'll just jump on the ones that do, right?

Jim (18:19):

Right, well, that's great. It's kind of like visioning the future and then sort of working backwards or telling a story in reverse. That's a great technique. I'm going to I want to try that with that again, you sort of revealing kind of the last subject, which you call seeing around corners, and I think that's you know, I think again so much about nailing down certainty, you know, and I'm glad you brought up biases, that's a whole other conversation that we could talk about and sort of group psychology.

But I think leadership these days is, in some ways, is more challenging than ever. It should be easy because we have all these tools and we have all this data, because we have all these tools and we have all this data. But at the same time, what I've experienced is there's so much more than zen expected, lots of different skills, you know, selling skills and operational skills and leadership skills, and we have to know all the compliance rules, right, and that's a burden. They have to be an analyst, so there's so many things I feel like that are piled on people, even though we have all these tools, and some of these can really be distracting, I think, from finding or even following through on these opportunities. You know, I have clients that are very intentional about things like client visits. You know, they're great about going out into their dealers, and again, kind of as a way of collecting firsthand information. Become more secure, become more informed, and, we like to say on this podcast, more empathetic to your customers.

But another phrase I just love the phrases you include in your work, Rita. So, you talk about snow melting from the edges. That's one of my favorites. So I think it's a great metaphor. But probably more relatable if you live in the Northeast or the Midwest. So just for the audience who's experienced it. So, snow melting around the edges kind of calls out that you know companies may have missed opportunities, really didn't have understand sort of the edges of the organization. They maybe didn't have that empathy that I was talking about, and having that maybe helps you see around corners. So, but that's again. With all these demands and all these competencies that we have to build, how can leaders do that? How do they manage the ability to do that in their everyday work?

Rita (20:25):

Well, I think they have to make time for it, and I see a lot of senior leaders really struggle with prioritizing their time, getting their nose out of the day-to-day, getting past the crises of the hour, to really focus quality time on that question of what's going on out there. And the realization that I think a lot of them come to too late is that if you're a very senior person, like everybody in your orbit is going to try to hide any ugly truth from you, especially if you're the kind of person who sort of signals they don't want to hear bad news or don't bring me a problem unless you've got a solution, well, that's a guarantee you're not going to hear some of the most important things we need to hear. So, one of my favorite examples of this was some years back.

The Gap, the clothing store, promised to give its workers more reliable hours because they were being driven crazy by these workforce management systems, and we didn't know what their hours were in advance, and it wasn't going very well. So the New York Times went and investigated what was going on, and they managed to get a store manager who, in a candid moment, said oh well, you know, one of my biggest problems with giving people regular hours is executive visits. The reporter said what do you mean executive visits? He said well, yeah, I had everybody on triple overtime because we had an executive tour coming through last week. Just think about that for a minute. The store that you and I go to is a store with a regular amount of staffing. The store those executives are going to is a store with three times the amount of help, and service, and benefit. So, the executives are trying to do the right thing, you know, going off and visiting and stuff, but the organization will interfere with your ability to see what's really going on unless you are super insistent on you know getting the bad news.

It was funny. I was talking to an acquaintance the other day who was a golf buddy with Jim Sinigal, who's the former CEO of Costco, and he was joking with me. He said oh, Sinigal could never let the business go, and we'd be out there on the ninth hole or something, and he'd be saying, well, what I'd really like to know is three things you hate about Costco. And I thought what a refreshing and original idea, right? So, asking your buddies who shop there, what are some things you really don't like about our business or our product?

Jim (22:36 ):

I love it. It reminds me of two, of well, Undercover Boss. So there, maybe that's one solution. Right, that was, that was great. Or, but I think it's great advice, again make the time, first of all, and then be prepared to be, you know, there's something in science called the Heisenberg Principle where, right, if you're, if you are measuring something, you're interfering with the function right or the activity right. There's some impact. So, there's an uncertainty around that. So, great reminder, great advice. Just in closing, thanks for all the advice and, again, I think you provide such a practical and memorable way of sharing this. I really appreciate it. But for our listeners, what's sort of one thing, especially, I would say again, in this era of uncertainty and this era of, I have to say it, AI and some of the disruption that we're hearing about and the progress we're making so rapidly. But maybe this dovetails into some of the research you're doing or the things that you're concerned about today, but what is one thing that you can tell our audience to go out and do or to think about or learn about as they move on?

Rita (23:41):

Well, if you're leading a team or leading an organization, I think one thing that you can do for the other people around you is absorb uncertainty. What do I mean by that? I mean when things are really, really uncertain, people are afraid, you know, they're afraid to take action. So if you can say to them, if you're in a position of power of some kind, if you can say to them, hey, I don't know, I'm not making predictions, but here's what we're going to hear, the operating assumptions for this week. Or here's what I'm expecting from you this week, or here's the goal that we're driving towards by Friday. So, give people something they can hang on to that's more or less clear and specific, so that you're not leaving them dangling with all that uncertainty sitting on their shoulders.

Jim (24:17):

Rita, that is advice. That's the advice I personally needed to hear today, with something you know, something I'm. I'm wrestling with some kind of inbound, you know, changing information, and that's what I needed for my team. So, I really appreciate that. I appreciate the conversation and the work that you're doing, and thanks for being on the show.

Rita (24:34):

Oh, it's been such a pleasure. What a great conversation.

Jim (24:37):

All right, take care, Rita.

Rita (24:38):

Thanks, bye-bye.

Joe (24:40):

You've been listening to What if? So What? a digital strategy podcast from Perficient with Jim Hertzfeld. We want to thank our Perficient colleagues, JD Norman and Rick Bauer for our music. Subscribe to the podcast and don't miss a single episode. You can find this season, along with show notes, at perficient.com. Thanks for listening.