Stay hungry, stay foolish.
The context of business has changed
so rapidly over the past few decades
that it may be time for a new lexicon.
At the very least it's time to
challenge some of the established
thinking about strategy and
competition that used to drive
business advantage, but no longer does.
In today's episode strategy, expert
and Columbia business school, professor
Rita McGrath takes on one of the
most fundamental and recognized
notions and strategy that have
sustainable competitive advantage.
She argues this can no longer be the
Holy grail for companies because in
a constantly changing environment,
deeply ingrained structures and
systems designed to extract value
actually become a liability.
The new path to winning includes
taking advantage of shorter term
opportunities, as well as relying on you.
Organizational talents like
speed and decisiveness.
Our guests defines the new
transient lifecycle of competitive
advantage and shows how successful
firms manage through it.
By using an updated philosophy,
she offers a bold new set of
principles for competing in what
we now understand is a continuously
volatile and uncertain environment.
Consider this your fresh strategy playbook
for competing in an accelerating world.
We welcome author of end
of competitive advantage.
How to keep your strategy
moving as fast as your business.
Rita McGrath.
Welcome to the show.
It's great to have you on the show, Rita,
and I want to highlight my thanks to
you for covering your earlier work here.
So this book is almost a decade old
while of seeing around corners is
your latest book and as an absolute
knockout and one, I hope to cover
in the near future, but I wanted to
cover this book for many reasons.
One is I find it is a must read
for anyone who works in innovation.
Two is it's been highly recommended by
previous guests like Alex Osterwalder,
Whitney Johnson, Mark Johnson, Scott D.
Anthony, and many others.
And a lot of people I've talked to read.
I have not read this book, but
know you from your current work.
And again, I wanted greatly thank
you for covering this earlier work.
So we thought.
Let's start with the opening statement
from this book, even though it
was published almost a decade ago,
unfortunately it's still holds true
and you open with virtually all
strategy, frameworks and tools are
based on a single dominant idea that
the purpose of strategy is to achieve
a sustainable competitive advantage.
It's every company's Holy grail,
but it's no longer relevant.
So in its place you offer
a different concept.
One of transient competing advantage
where we win short lived opportunities.
I'd love if you'd take us
on the journey of this Rita.
Oh, it'd be a pleasure.
So any strategy, there were several
dominant concepts that became
integral to all the tools and
frameworks we used in the field.
And the first was this idea of industry.
That your fate would be predicted
by finding an attractive position
in an attractive industry.
And your goal then was to throw
up entry barriers like crazy.
And giggle your way into a happy life.
So the first thing that I would argue
is that the period of achieving what
the competitive advantage, and I'm
even beginning to wonder about the
relevance of that term, but that period
where we have something in place,
we've got transactions with customers,
we've got profits, we've got margins.
That period is getting
shorter and shorter.
So if you look when these.
Theories were developed.
They were developed largely out
of the U S largely in that policy,
on post-war environment where
China was competitor in deal.
Wasn't a global competitor.
We didn't have technology
as we know it now.
And if you had something you were making
you, if you may tires or refrigerators or
whatever, as an American firm, and you.
Game properly, you could
achieve global advantage.
And that would last for a long time.
And so we have all these ideas and
strategies from that central concept,
which is that an advantage can last
forever or for decades let's say.
And what I've argued is that
increasingly what we need is.
A set of theories that deal
with each phase of the lifespan
of a competitive advantage.
So you have the innovation
process, which leads you to
the creation of new advantages.
You indeed have the exploitation process
where you get to enjoy the fruits
of your labor changes in the world.
Do you have a covert epidemic?
It's the revolution.
You have something that's different
and your advantage goes into the roof.
The core thesis of the book is that
our theories of strategy needs to
deal with each of those life cycles.
Yeah.
And I was thinking about the
language you introduced reader
because it's so important.
Updating our language helps us update
our thinking and it reminded me
of Einstein's quote that we cannot
solve our problems with the same
level of thinking that created them.
And in respect to your work, you
suggest upgrading the tools that are.
Decades old and were built for a
different world and very much an American
world that wasn't globalized yet.
These tools aren't bad
tools, but they have to be.
Used in right boundary conditions.
And I think that's one of the things
we misunderstand, which is the same
tool in different boundary conditions.
Does it work?
So let me take an example of a brilliant
tool, which was the BCG matrix and
people today have forgotten where it
came from and where it came from was the
study of learning curve issue industry.
And what researchers found
was that there was a.
Predictable drop in costs,
the more of whatever it was.
And that was called the
learning curve effect.
And you can actually plot for
dropping costs on a chart.
And if you did it on a log scale and
it was a straight line or decline.
So if you made 10, it costs you a
dollar, let's say, and if you made
a thousand, it costs you 50 cents.
And if you made 10,000,
it costs you a nickel.
Awesome.
and so what BCG worked out was this,
if you are present in the early stages
of a high growth industry, do you
invest heavily, you can produce, and
then your competitors in the industry,
and that will allow you to get a cost
advantage, which would be doable.
And so what that suggested is they had
agreed simple matrix, which had industry
growth rate on one dimension and your
market share on another dimension.
And then we're able to divide
the world into four categories.
So you had your shooting stars,
which were your high growth
things that you'd invested.
That was you had your cash cows,
which is growth is now slowed.
And ideally you're exploding
that you have a cost advantage.
You've got your question marks and I've
always wondered where a quarter of the
potential cases have never been explained
to me, which is you got a small share.
In the right conditions framework, let's
say you're in an industry where you don't
have heavy duty learning curve effect.
So most services, businesses
as an example, and that advice.
So the advice from the BCG matrix
was that's heavily in your shooting
stars, milk, your cows, get rid
of your dogs and who knows what
you're doing with your question.
But that advice doesn't work in places
where it's a different boundary condition.
What's marketed.
We, young people have forgotten.
We make up architects, it's
a human constructed thing.
God did not come down and say
that have 30% market share.
if I wanted to define market
share to might own it done.
Only business school professor,
in my block in Princeton, I could
easily define myself as having
100% market share while a job done.
So I think what we do is we take these
BCG metrics and nominally successful
and we put them into every situation.
You don't really look.
Carefully at whether the explanatory
variables that they found a hole in the
situation we're trying to understand.
I loved your analogy of surfing
the waves and how surfers don't get
embarrassed when they get knocked down.
I think the conceptual image
of that is so important when it
comes to seeking an exploiting.
So I think one of the things to remember
is if you accept the idea that advantages
are temporary, what you want to be
thinking about mentally is, imagine
riding successive waves of competitive.
Able to see when one is beginning
to form and then we need to get
up on that surfboard and ride it.
And then when the wave is over step off
and you look for the next one and that's
really the imagery that I think we need to
be adopting more when we're thinking about
competitive advantage and, culturally, I
think it's a big shift because it moves
you from descending, defending what you're
doing and being I'm going to protect my.
Castle, I'm going to put a moat around
it and I'm going to defend it versus
maybe this one is short lived, but
the next one's going to be great.
And the one after that's
going to be even greater.
And if one doesn't work when I've got
plenty more in the pipeline, and I
think that's the mentality that we want.
So it brings innovation very much
in the center of what we think
about when we think of strategy.
And when I think about my time in
the field, when I first started
doing strategy, All the cool kids
were doing industry analysis, and it
was all about this thing called the
profit impact of market strategies,
database, which was a fabulous
database that GE had put together.
But it was a lot of industry.
So it was things like how much
does market share pay off for you?
And does it make a difference,
even a big R and D budget?
Should you be a first
mover or a later mover?
And it was all great stuff, but it was
really based on these boundary conditions
of having a predictable industry,
having a known number of players.
And those of us doing innovation
work, we were it's harder for warps.
it was bad.
We were what went on inside company
that we were studying the actions and
decisions of individuals studying.
We were studying that period
before and industry exists.
Before you have a customer before you
have established market transactions,
before you even know what the price is,
you're going to charge for something.
And that's what I was interested in.
And what I would say is in the
intervening years, That people
have now become sensitized.
Just the idea that
innovation is essential.
The vision is really important
and it's important because that's
where the next wave comes from.
And so now I think where we are, I think
the state of the art at the moment is
people understand that they know where
the next wave is going to come from, but
they still don't know what to do about it.
They're all like this innovation
thing is this huge question, Mark.
So one of the things I
think is fascinating.
Those of us studying innovation.
We've been in high uncertainty
environments, our whole lives.
whereas, it's entirely possible
to be a very senior executive in
a large organization today, and
you've never touched or run across
or anything to do with innovation.
And so there's an awful lot of people
that they're hanging over their
heads, really not knowing what to do.
And the good thing is I think the tools
that you've used in innovation, you're
running a show called the innovation show.
So we'll be very clear on this.
The tools we've traditionally
used for innovation are incredibly
practical and meaningful.
Now that we're in the midst of
this highly uncertain prices
really has come up it's time.
And there's a concern though, in
the same time, Rita it's come up
on several shows recently that.
In times like this, and you talk about
deafness and letting go of maybe business
models or products or services that
no longer serve the organization, but
oftentimes in times of crisis, like this.
Organizations see the innovation team
as something they need to let go of
because it's an unnecessary cost.
And it's a real concern for me.
And so many people who listened
to the show at the moment.
I'd love your thoughts on that.
Oh, it's very true.
Very true.
if you are being motivated by a quarter
to quarter mindset and what you want to
know is what's the ROI on this going to
be, your innovation teams are very hard
to defend because by definition there.
18 months, 24 months, 36 months out before
you start to get cash out of something.
And so if you're in a crisis, it
becomes a justifiable thing to
get rid of the counterbalance.
I would say, you're not going to
get out of this crisis by doing what
you were doing before the crisis
I'm really need a novel solution.
You need a fresh way of looking at
things if you're going to thrive.
And that's where the tools.
Structures that your innovation
teams created are so helpful.
So I think the, one of the big differences
we're going to see between companies that
drive coming out of this and companies
that just implode from me inside is how
they think about the innovation process.
The other thing that, we were talking
about the concepts of the waves
and getting knocked off is that.
You talk about moving from industries to
arenas, and this is a really core company.
Yeah.
And I think that's something even
today, the notion of industries really.
The prize is being, industry
to that industry conferences.
You've got, trade associations, which
REO I'm the middle services industry
representative blinds us to the fact
that there are completely different
ways of thinking about things.
a great example of this is
years ago when I was the CEO of.
Coca-Cola he was really pissed off at his
senior team, basically because they were
just whining basically.
And he several other senior
leaders and he said something
that I thought was fascinating.
If you look the average human being
made 64 ounces of fluid per day.
And your job as leaders in the Coca
Cola company is to increase the
percentage of those ounces that
are sold by the Coca Cola company.
So the enemy is not Pepsi.
The enemy is milk and tea and water,
and you have different things.
He really did.
Was he redefined the industry from
the fizzy drink business to the,
how many fluid ounces business.
And that totally changed the
strategy that got fermented water
in a huge provider of bottled water.
It got carbonated beverages,
all kinds of stuff.
And I think that redefinition of what
our playing field is central to cook.
Brilliant.
And you highlight here and to the point
about Coca-Cola that many of the waves
are in motion and they're in emotional
different stages of the revolution.
But all at the same time require a
different mindset and different people
and resources for those different stages.
And therefore the job of senior leadership
is not to manage or defend, but it's
to orchestrate the concurrent waves.
Yeah.
A friend of mine who's a CEO.
It had a wonderful analogy.
He said, think about it as like
being a chef in a high end kitchen.
And all around you, you've got dishes
in various States of preparedness
and your job is to make sure that
right dishes get to the right plates
to get to the right people in the
right order at the right time.
And that's much more
what being a CEO is like.
Yup.
Traditional metaphors we
have for running a business.
And I think that's become particularly
now when we're surrounded by so
much uncertainty that you don't have
time to be a hierarchical leader.
You can't tell people what to do because
you don't know what to do yourself.
And I think that you have to create.
The conditions under which the people
that have the best information reveal,
what the answer is rather than you having
the answer and telling people what to do.
that's a very outdated vision of
leadership while we're on that.
You've seen the value of this
in your own work, where you've
set up a tool, a diagnostic to.
To help teams go beyond just the strategy
to actually embedded within the company.
I promise you we'll share a little
bit a bit about this before we
go on with competitive advantage.
This is a concept I've been working
on for probably about four years.
Now.
It began with this fundamental
frustration, which is people read my work
or kind of talk to a class or Columbia or
whatever, and then get really inspired.
And I think this is great.
This is the only way.
But they go back to
their home organization.
Is it a spreadsheet?
Is it a PowerPoint?
Is it a different kind of moving?
I need them.
I go, what is this?
And so what Kurt to me was that in
addition to that insight generation that I
think professional work is there is also a
concurrent need for a capability creation.
Predominance to do.
He's going to be to help firms build
those muscles, to be able to do this
stuff because a lot of our existing
tools are based on older ideas that just.
Don't work.
And when I look at how people are actually
doing strategy and innovation, maybe
it's made it as far as a Google sheet
where there's no kind of consistent
architecture to how they do these things.
And that's one of the things Billy's is
really exploring and beginning to build.
So we have three.
What kinds of things that we
do in relation to the first is
I'll call them point solutions.
So there's a team that diagnostic,
for example, there's a diagnostic
where you can assess how, how
oriented are you to the past?
are you in a sustainable, competitive
advantage mindset, or you look more
oriented fanzine, and then we've
got a platform that we're building,
which will help deal with the.
Fundamental challenge of the
innovation process, which is
you think about innovation.
And I looked at software to help
with that, and there's a mountain of
applications and so forth that help
with the idea generation process.
So you can run an idea generation
campaign, you can collect ideas,
you have a hackathon, the oldest and
there's mountains of applications.
That'll be that simple.
that's been solved.
and then on the backend,
there's a mountain of stuff
that does project management.
So you finally decided you need to build
a plant or you need to go overseas,
or you need to orchestrate, this is
the stuff that does that project.
The tricky part is in the middle.
How do you go from this idea to
something that you can actually plug
into your project management software?
And so that's the platform
that we're building.
And then we have a little bit of
capability building, meaning advisory
to help people learn how to use those.
So that's the core of what the lasers.
This is a core piece and you dedicate
a whole chapter to leadership mindset
in the end of competitive advantage.
And I'd love to share a couple of
examples here because there's real great
examples of leadership and then not so
great examples as well, cautionary tales.
So one of the great examples you
gave was Alan Malali and when he
started, he ran into some initial.
Instances of resistance, but he
soon sorted those out alleles.
A great example of what I think
leadership today is all about.
So he wasn't voting.
So Allen's back stories that just,
if you want it to be an astronaut.
And it turns out he's colorblind
that disqualified him.
So he decided to do the next
best thing and get into the
aerospace industry as an engineer.
And he was at Boeing for many years
and basically rescued their commercial
airplanes division after the disaster.
That was nine 11, and nobody
was buying commercial airplanes.
He was persuaded some years later.
by, the Ford family to come and
turn around and things at Ford.
And when he was.
First going there.
He got mad at the airport and
driven to the executive parking
garage Ford motor company
in the executive parking garage.
That's an interesting
subtle indicator, right?
These people don't believe
in their own brand.
And the culture of Ford leadership
at the time was pretty tough.
General motors.
the guy down the hall was
competing with you for drinks.
So very internally competitive in
your mistakes, trust each other.
It was really so Alan's leadership.
Methodology is centered on a couple
of things, but one of the key things
is way houses, business plan, review
meeting, which is a once a week meeting
where each of his direct reports and
their sports staff gathered together.
And everybody's got in front of them
in PowerPoint, which has their five
most important object for the week.
And they're color coded.
So green is good.
I'm on track.
Yellow is, I've got some
setbacks and problems, but I
kinda knew what to do with them.
And then red is already,
I've got a problem.
I have no idea what to do with it.
And so shortly before the first
of these meetings, which none of
the leaders wanted to come to,
you forced them to Oh, you don't
want to come to my meeting.
Oh, that's okay.
You can't be part of the senior leadership
team forward if you don't come to my me.
But it doesn't mean you're a bad person.
that's.
Positive.
But anyway, so the first of these
meetings and a couple of days
before he had a very serious sit
down with board CFO, who basically
said, look, this company's on track.
I think the 16.9 billion will cost a $17
billion that's whether it be that year.
So huge losses right there, staring
bankruptcy is basically where it comes in.
First of these business planners
in meetings, they're all there.
And none of the senior
leaders want to be there.
They have people who do stuff with them.
And so they actually got to
present their own results.
They've got to own their own activity.
And Alan looks around the table.
They've all got their
papers in front of them.
And it's all green
people.
Is it conceivably possible?
It might be like one small problem here.
And, He said something I
thought was really profound.
He said, you can't manage a secret.
if we can work together as a
team, get these things resolved.
We have the power in this room to fix it.
But if we don't work together,
it's never going to happen.
And so some weeks later, Mark
Fields, he subsequently became
CEO after the Allen retired.
Since tonight, I think I've
got one of those red things.
Alan is going on about, he
said, I'm right on edge.
Now the launch of the edge, which
was a small SUV, was absolutely
critical to Ford's productivity.
And the dealers have been the humped up.
Advertising funds have been set aside.
Everybody's been preparing for it.
and Mark had done, which was his
staff to production line because
of the manufacturing quality.
huge admission of things not going well,
Alan does, it's going to determine
the future, his career at Ford.
And so what does he do?
He stands up and applause.
Great transparency, Mark.
Anybody got any ideas?
And stops the meeting for a minute.
And it turns out in that room, there
are two people that had experience
with the manufacturing issue that Mark
was dealing with and could help out.
There was a person who had a great
idea for how to deal with the dealers.
There was another four minutes.
They had probably 70% of
that problem worked out.
And to me, that's just a brilliant example
of how the leaders not telling them what,
when you're doing is creating the content.
It doesn't have to, it's one of the
reasons I mentioned believes, and
I'm sure one of the reasons you're
great at valleys is because as Amy
Edmondson says psychological safety
is the soil in which innovation grows.
We need it within organizations
for that to happen.
And there's so many companies
like Ford still in existence.
And that's one of the reasons I
wanted to share your book was.
It's not outdated in any sense,
unfortunately it should be, but it's not.
And these concepts you talk about
still haven't taken root within
organizations because of that fear.
And maybe it's an overheim from 2008,
2009 from the financial downturn.
And people were afraid of losing their
jobs bought until we shift that paradigm.
We're not going to see much
change in organizations.
so I have to tell you a funny, Thing
that happens in my life, which is Phil.
I published an article called
discovery driven planning back in
1995 with my coauthor, Ian McMillan.
And for years, That's really interesting.
That's really hard for
me to get my head around.
And then Eric Greece published a work
that well, Steve blank talked about
it, a famous entrepreneur top taught
it in Berkeley's Eric, the students,
he published it very well received book
called the lean startup, which echoes.
And people started to really get it right.
And so after I published end of
the Danish, people were saying
to me, your work on discovery
and planning covered in book.
I get that now I really
understand it, but I'm not sure.
I don't know.
That's how I felt, but yeah, I think
it's just a set of ideas that are
not yet mainstream, but we'd love.
Yeah.
and, Steve, Blank's been on the show
and his idea of explore and exploit
Alex Osterwalder talks about it.
it's the same mental model.
And it's something that we still
haven't got our minds around is not
about this diff building that advantage
and then defending it because.
Things are moving just too fast.
And I'm saying that to tee us up
for the whole idea of moving the
mindset from ownership to access.
Because again, this is a core concept.
Yeah.
So I think one of the things that, and
I'll take it back to academia for a
minute, which is a very long tradition.
What do you need to manage
with a hierarchy and what can
you manage on an open market?
And people like Oliver Williamson, the
only way after Ronald Coase basically
said, look there's conditions under
which markets function and conditions.
So you need.
Bureaucracy, when you can't
determine price, you have
uncertainty as to the incentives.
So there's the incentive, when
transactions are really difficult
and expensive and blah, blah, blah.
so that's why you need
things in organizations.
Cause that's why you lock
assets and organization,
because it's just so difficult.
If you think about.
Any asset intensive activity,
That used to happen.
So what's happened in the intervening
years and I think digital has a huge role.
The brain's transaction costs, we've
increased transparency by an order
of nights, and we've made it very
easy to understand what value is.
And so a lot of the conditions that used
to say, Hey, you got to manage this thing
in the bureaucracy have now evaporated
to the point where you can manage more
and more sets of activities as markets.
And that has a couple of very
interesting downstream implications.
The first is you don't
need to own the asset tax.
So you know, how many people really
need to own a chainsaw, right?
What you really need, unless you're on it.
Beginner, he needed a chainsaw,
hopefully not more than two
or three times a year here.
So why should it be sitting in your
garage, gathering dust the rest of time?
What you really like to be able to do
is use the chainsaw when you need it
and hand it back to some central fool.
When you don't.
And of course the so called sharing
economy, Airbnb and the like have
shown that things we used to think
of as needing to be owned, like
our homes can now actually be
accessed by people who don't own.
so that's one thing.
second thing though, that we're starting
to see is another thing I don't think
that gets talked about enough is because
now we're in this mode where we can.
Freely trade assets in a
pretty straightforward way.
we are depending more on our ecosystems.
And so what you're seeing is
ecosystems competing almost.
And the question of ecosystem, right?
This is what I call it is a very
interesting one from an entrepreneurial
perspective, because you can have the
best idea, the best product, the best,
whatever, but if your ecosystem is
right, it's not going to be successful.
So a great example of that.
Fetish a duration of autonomous vehicles,
and if you talk to some people and you
honestly think the Jetsons is here,
Come to your apartment, it's going to
too, we'll see off to your office on
the 52nd floor, drop you right off on
the chairs outside, just going to go
off and deal with the next customer
and to listen to some people right
around the corner, but the ecosystem.
the technology is the
least of our problems.
The technology is actually probably
95% of where it needs to be to get
autonomous technology in place.
What we don't have is the ownership.
We don't have the risk region.
We don't know who to blame.
If the car decides to hit the ground
and not the day, we don't know.
there's just so much that needs
to be put in place before these.
We don't even know who's going home.
We don't with the effect on traffic
congestion, where are they going
to live when they're not picking
you up or dropping you off?
are we going to have like giant parking
garages in the sky or there's no demand,
just all this stuff is not that true.
And so this whole entrepreneurial
spirit, but if we don't understand all
those things, we're not going to have
a mature ecosystem and it's going to
take off or eventually fall into place.
Yeah.
And social, I often think
of that with drones either.
the whole idea of drone delivery.
It's I don't want a drone going
over my house who owns that space
above my house, et cetera on it.
A paradigm, isn't it.
It's the Thomas Kuhn, the paradigm shifts.
And it's almost as I think it was max
Planck said that the old regime need to
die out before the new regime comes in
and coming back to leadership, then coming
back into organizations, this mindset.
Takes a long time to change.
It really does.
And oftentimes it needs a crisis,
but as you show in your work, the
idea of deafness on letting go
timely, letting go of things that
aren't working is absolutely core.
And I'd love to bring it back to a
couple of the examples that you give
in the book, because one of them that
has worked out magnificently and you.
Pinpoint of the back then was Netflix
because oftentimes we see Netflix is
this great success today, but there
was a key inflection point in Netflix
when it changed from a DVD business
to a string business on new cover
this as a case within your absolutely.
So the Netflix example is fascinating
to me because most companies don't
see these inflection points early.
And so then they lag in
how they respond to them.
Whereas things that Netflix had
always thought from the beginning
that it would be a streaming business.
And he's been interviewed
saying that he thought, we
thought it was going to be 2002.
Then we thought it was going to be 2004.
Then we thought it was going
to be, and yet this is another
ecosystem story, right?
Yeah, we did for Netflix, the
streaming business to be successful.
We need a critical mass of people
to have high speed, always on one
price, internet in their homes.
And that took a long time to happen.
I think it first started to be
a reality right around 2000.
And if you think about how you got
on the internet for that right.
Dial up modem.
So very presciently said the DVD.
This is a, we're going to switch
to all streaming and he did it
very early and his solution was to
split the company and the duty part
was going to be called Quickster.
And the Netflix name would be born.
part.
And so he went to market with this thing.
Okay.
Customers, you want to be a Quickster
customer, you get to keep your DVD
shipments, but if you want to be a
Netflix customer, you're going to
be, and he had two different prices.
I think it was seven 99 for each service.
So customers who've been getting
both for some time, thought this
was a massive price increases.
That was the first upsetting thing.
Secondly, the cues were different.
So if you wanted to get a hot
movie, you had to put it in.
You wanted it from get it to me whenever
I'll take whatever comes first, right?
You had to put it in both cubes, but we're
still, all the streaming selection was
much more limited than the DVD silage.
So customers into a fury.
I was absolutely outraged about this.
Basically reported me
wrote back to his team.
He said, I'm here at
an investor conference.
I think I'm going to need a food test.
And even in the book was that
directionally, this was the
right thing to do, but he didn't
look at it to be customers.
and so they very famously
walked back on that.
And to me, like what he should
have done was a much more, it was
what he should have done to me.
What he should have done was almost the
reverse of when you enter a new market.
when you enter a new market,
you capture the early adopters.
First, you make your modifications
next generation, Jeff Morris
famously called crossing the chasm.
Then you hit your mainstream
adopters and so forth.
what they could have done was ease
customers out of their dependence on
the first traunch could have been okay.
We'll charge you less if you agree to go
street only, and that would have picked
up a few of the early adopters and then,
Hey, we'll give you more selection.
In other words, sort of these customers
out of the Dean divas was that
shoving them out of it very rough way.
anyway, what happened was they
basically had to walk that back.
They said, sorry.
Nevermind.
But he still left them with this problem.
What do I do?
What they decided to do said, all
right, we're going to run it as a mature
business operations guy to run it.
They moved the headquarters
of that business, about 40
miles away from Netflix's.
Main headquarters and they
gave him the instructions.
It says, keep this thing going, run
it for efficiency, run it for cost.
Cause the great thing about a
business in decline is we're not
making investments to grow it.
You're making investments
basically to become more efficient.
So you can be insanely profitable
as a declining business,
even as you're not rolling.
And that's in fact what's happened.
So they've since rebranded it as ddb.com.
If you look up db.com, you'll
see it on their website.
And that's what it's like.
And so they've got about three
or 4 million die hard customers,
which is nothing Netflix's main
customer base, those people don't
have great internet access or they
just prefer DVDs or whatever it is.
They like their good envelopes.
Thanks, sir.
That's a great story.
And it was, you pegged it
so early, which is great.
it's so validating when
they work for you as well.
But in other one you mentioned, and
this is a different consideration is
Reed Hastings was the major shareholder.
So he made those decisions and
saw the direction of the company.
But then you look at big companies
or what multiple shareholders.
One such company was Verizon and
they made very brave decisions.
Early on selling off assets that
were still turning off very healthy
profits, but they did it very cleverly.
And this idea that you talk
about healthy disengagement.
Yeah.
So what I think I've inside in Burke, who
was the CEO at the time, and gentlemen,
I greatly admire what he was trying to
do was really say I'm going to run my
portfolio and this is something I think.
That even today, companies
are not very good at.
And then by the way, one of the
things belief is really centered on,
which is how do you look across your
entire portfolio of investments and
decide where you're placing your bets.
And where you should honestly be
exiting and very few organizations of
any size, have a clear eyed view across
their whole portfolio of what they're
actually doing and what say or did.
We said, look, I want to get decent
prices for those assets with that
don't think are going to grow.
And I want to get us into
growth areas for the future.
So among the many things he did
during his tenure was he sold
off the phone book, business,
the physical phone book business.
The time was basically cringing my
comments about business decline.
It's not a growth business,
but it was very profitable.
And we sold it out to a couple of hedge
fund people, how they were like, how can
you give up such steady invested in this?
How can you possibly do that?
And his position was look,
I'm investing for the future.
Anchored by these old physical phone
books are going to go away pretty quick.
and we are, we don't want to be in
that business for the long term.
We do want to be in businesses going
direct to people's homes and at the time.
I think it was this venture
in defiance that changed the
whole equation, tuned Verizon.
We mentioned Netflix and these
kinds of successful companies and
there's 10 exemplars, 10 outliers.
You mentioned in the book at you highlight
in the book, which are well worth reading
for anybody, but let's share a failure
story reader because when we encounter
innovators dilemmas in real time, They all
always make absolute sense in retrospect,
but you shared one in some of your talks
and in the book where you talk about
Sony, for example, and you say, imagine,
for example, we're making a fortune
with this thing we created called the
Walkman and somebody from the R and D
team walks in and gives a presentation.
And they're like in the future,
These connected devices, won't
be wired and you won't need to
connect them to anything, et cetera.
And they're like, get out of my office.
We're making a fortune.
And that's the reality of
what the future looks like.
But you share how Sony played this
out and how they became blind to
what the future held for them.
It's a wonderful article
that I believe was published.
I think as long ago, as 1984.
And it was talking about the civil
war inside Sony and what Sony
leadership did not do was forced the
warring divisions to come together.
And so if you think about it,
Sony had the hardware people, so
they made PCs, they made Walkman.
Let me have the content people.
So they owned movie
studios and sound studios.
And they had the software,
people who did the plumbing
that went into all these things.
We think about what it would
take to create back in the day.
It was an iPod, it was the integration of
the hardware, the software, the content to
create this superior customer experience.
And Sony just was never able to get the
heads of its divisions to cooperate.
And so it ended up being this
internal civil war and they ended
up losing the whole category.
How much Saturday example is Nakia.
And I worked with Nokia
beginning 1999 through 2006.
So I had a really long opportunity to
witness what was going on at the company.
And, they fell into this trap of
just milking the existing business.
So they put it.
And I remember getting, would've been
about 2004, a memo from a friend of mine.
And I had written about Nike is new
venture organization forward thinking
it was really an exemplar for how
people needed to do these things.
And it really worked well
for quite a long time.
And then basically as I came in his
mandate, he thought was generate
as much free cash flow as possible.
And again, insisted that the R
and D department produces ROI.
Definitely.
That is what was it?
So in 2007, this CDO pickup, I was
seated on the front page of Forbes
and the headline next to his name.
So this is November of 2007.
The headline next to his
name was a billion customers.
Can anyone catch the telephone
when you start drinking?
You were lucky.
I make a case of Nokia in my own book.
And I know it's very old for you,
but I found an article where one
of the engineers in 2004 actually
presented this idea of an app store
and that switch screen, et cetera.
How'd you heard about that?
I held it in my hands.
I was, as I was doing the project at their
R and D and in my hands, I held something
that was about the size of an iPad.
he's a stylist and it
connected to the internet.
It could bring up what page
is it did get all the stuff.
I actually physically
held it in my own hands.
It really saddens me.
And one of the reasons I do the show
and I have great people on like you
week is hopefully somebody somewhere
is listening and it might change
the fate of the organization because
there's so many people reliant
on organizations in the world.
And that brings me to the next point
on your concluding chapter of the
book, which is what does this mean?
If we're in a transient
advantage economy and.
More and more people are working as
consultants, as temporary workers,
as shift workers, et cetera.
What does that mean for the individual?
I know this is a core concept in your
work as well on something that you really
want to communicate to everyone out there.
I think the reality is.
you can't give responsibility
for your life and career
entirely to other entities.
at one point, the company designed
your career path and HR told you what
development experiences moved up.
And that has advantages.
I'm not saying that was bad because
theory of growth of the firm is basically
that you have these people who are
longterm committed to exploiting the
idiosyncratic resources of the firm.
But if you were in fewer places
are like that these days.
So among the implications are,
you really need to make sure
your networks are up to date.
Your deals are up to date that you were
in contact with people that you're not
letting yourself get stale, and you're
not letting yourself get sidelined.
And I think it's just very
important to be prepared for that.
I wrote an article last week and I
said, don't be plankton and plankton.
Is there a Greek word and it
means to wander or float and it's
those little organisms in the sea.
And oftentimes we wonder if we flow
through either careers expecting
somebody in sector seven G of
the organization to be scripting.
What does the future
hold for Aden Mercola?
That's certainly shifted.
This is something I think that really
people really need to wake up to.
This is going to be a reality
in the future and that we're not
going to work in one organization
for the rest of our lives.
What advice do you give for those type of
people, those people who are coming into
this new transient advantage economy?
I think interestingly, a lot of them
are already living in that world.
So if you think about a typical 24
year old, let's say the people that
person is friends with and the network
that they have is actually more.
Representative of where they feel
they belong than any particular
organization that they happen to be
working for at any particular time.
So we would call it a story of a
young consultant who got her MBA at
Columbia and, went to work and she
was given a project by her superiors
at this consulting firm figured
would take her couple of months.
And so from back in two weeks, And
they were absolutely, cops back.
They were like, what, how did you do that?
Oh, I have a friend who's a really great
graphic designer and he helped me with
the graphics and I have another friend.
And what was fascinating was assembled
this virtual team of about 10 people.
And they all work in different companies.
Many of whom were competitors.
Was to each other, not to, Oh, I happened
to be working for XYZ from this week,
but, XYZ for maybe just loyal to me and
let me go to this network of friends.
And I think they look at
the world very differently.
That's first.
And then that is so core and very
much a listener to this show, the
innovation worker or the change
maker themselves in this economy.
And we've mentioned about the threat of.
The current situation, the covert
situation on an impending recession
or whatever we're going to go through.
But what advice have you
got for those people?
Because I've been one of those
people and you try and change.
Business models and you can't do that.
You need to attack it a different way.
It depends on where you are.
So if you're very junior, that's
a different situation than if
you're somewhat more senior.
I think you really need to understand the
motivations of others in the organization,
and you need to get back to what the
incentives are, and then you need to try
to tip them in your favor in some way.
And that requires a very keen political.
Sensibility.
And so I think, coming in and
saying the right move rule that
I have, the right answer is not
going to be very helpful for you.
I think what you really need
to do is say, my CEO cares an
awful lot about free cash flow.
So I'm going to float an idea that
will help him with free cash flow
and, build some credibility with
those kinds of projects first.
And then maybe you get the green
light to do something more ambitious.
Or for people who want to find out
more about your work, you've so much
out there I'll link to the books, et
cetera, but for people that want to find
out what we're by, Valley's about your
consulting work, where can they find you?
I have a website, very imaginatively
called Rita mcgrath.com,
all kinds of stuff on it.
It's got my newsletters.
I publish a monthly newsletter,
which you can subscribe to it's free.
And then Billy's is just VA, L I C e.com.
And we're just getting going.
So it's early stages yet, but
you're certainly welcome to do that.
That's a great place.
I'm also on all of them,
the social media channels,
two wonderful summer interns
helping me with my Instagram.
And of course, LinkedIn and Twitter, I'm
pretty easy to good news for our audience.
If you sign up to the innovation
show that I own newsletter, I have a
fantastic copy of end of competitive
advantage, how to keep your strategy
moving as fast as your business.
And I wanted to thank sincerely author of
that book, which is just a fantastic read.
One of my favorite reads in
innovation, Rita McGrath.
Thank you so much for joining us.
