January 31, 2023

Seeing Around Corners – How to Spot Opportunities for Innovation with Dr. Rita Gunther McGrath

Episode 193 of The Innovation Engine podcast.

This podcast is part of the Masters of Innovation.

Learn more about this series and join the community.

Inflection points are moments of significant change for a business, industry, or market. These points occur when there is an opportunity for a company or an industry to redefine itself, or when the rules of the game change — often leading to 10x shifts in environments, whether that’s faster, cheaper, or more convenient.

These inflection points can be marked by changes in technology, regulations, customer preferences, or competitive behavior. They’re often difficult to spot at the time they occur because they involve a combination of factors that can be difficult to identify and interpret. Additionally, they often require a shift in strategy and resources, which can be difficult to recognize and implement in time — especially as we hold on to our existing and proven methods of success.

Getting the Timing of Innovation Right

The risk of innovating too early is that companies may not be ready to meet customer demand and expectations. In the example of Netflix, they moved too quickly to split the company into two services, one for streaming and one for DVD rentals, before the streaming service had the same selection of content as the DVD service. This resulted in customers having to pay for two services and not having the same selection of content. This caused customer confusion and frustration, and it took Netflix time to build the streaming selection up to the level it had been when the two services were combined. Leaders should guard against innovating too early by staying curious and looking outward, rather than focusing too much on internal execution and conviction.

Inflection Points Start at the Edges

Level-skipping conversations are a tool that Dr. McGrath recommends to help leaders guard against becoming too insular. They’re particularly useful because opportunities for innovation are so often found “at the edge” of a company’s existing capabilities rather than being wrapped up in a nice neat package for executives to unwrap.

Level-skipping conversations are conversations between different levels of management in an organization that allow for information to be shared more quickly and efficiently between levels. By having these conversations, leaders can spot inflection points – changes in customer behavior, the market, or the environment – more quickly, allowing them to respond and adjust their strategies accordingly.

Organizations can use level-skipping conversations to spot inflection points by having conversations with people who are on the “edges” of the organization, such as customer service reps, delivery staff, or other people who may have firsthand knowledge of customer behavior or market trends. They can also use these conversations to create psychological safety for people to speak their minds, so that they can provide honest feedback.

Pressure Testing Around Inflection Points

Companies can test their assumptions around whether an inflection point has truly arrived by exploring sectors that are relatively small markets, but have a real problem that the available technology in its current stage can solve. Dr. McGrath cites the military’s deployment of autonomous vehicles as an example. While entire fleets of autonomous vehicles aren’t yet deployed, the military has drastically reduced the manpower necessary to power an entire fleet by having two human beings in a front vehicle, while all other vehicles in the convoy daisy chain behind. This takes troops out of harm’s way and allows computers to do what they do best.

Additionally, AI is already being used in reviewing radiology scans for early detection of cancer, evidence discovery in the legal realm, and quality control. While we may not be at the inflection point yet where AI will radically change the cost of producing content, moderation, or any other process, companies can still take part in the early stages and be ready for the eventual inflection point.

Tune in to the full conversation to hear how to spot inflection points before they happen, how to keep innovating without putting yourself or your business at catastrophic risk, and find out what happens when we let AI take over the interview and ask some questions.

About Rita Gunther McGrath

Rita Gunther McGrath is a leading authority on strategic innovation and growth. She is a professor at Columbia Business School, a globally recognized thought leader, and the author of several best-selling books. Rita has been featured in The New York Times, The Wall Street Journal, Forbes, Fortune, and Harvard Business Review, among other publications. She is a frequent speaker at conferences and events around the world, sharing her insights on entrepreneurial strategies, innovation, and disruptive change. Rita has consulted with organizations across different industries and sizes, helping them develop strategies to drive growth. She is passionate about inspiring leaders and organizations to embrace risk, build resilience, and maximize opportunities.

Episode Highlights:

  • What inflection points are — and why they’re so hard to spot
  • The dangers of spotting inflection points too far ahead and how to perfect the timing of taking action
  • How to mitigate risk while still encouraging an environment of experimentation
  • The common mistakes companies make while trying to innovate and how to avoid those pitfalls
  • Where the inflection point of AI is and how to take part in it


About The Innovation Engine

Since 2014, 3Pillar has published The Innovation Engine, a podcast that sees a wide range of innovation experts come on to discuss topics that include technology, leadership, and company culture. You can download and subscribe to The Innovation Engine on Apple Podcasts. You can also tune in via the podcast’s home on Spotify to listen online, via Android or iOS, or on any device supporting a mobile browser.


Intro: [00:00:04] This is the Innovation Engine podcast from 3Pillar Global, your home for conversations with industry leaders on all things digital transformation and innovation.

Scott Varho: [00:00:17] Welcome back to the Innovation Engine. I’m your host and 3Pillar’s Chief Evangelist Scott Varho. And today, I’m thrilled to be speaking with Dr. Rita Gunter McGrath. Dr. McGrath is a best-selling author, sought after speaker, and longtime professor at Columbia Business School. She’s widely recognized as a premier expert on leading innovation and growth during times of uncertainty. Rita has received the number one achievement award for strategy from the Prestigious Thinkers 50 and has been consistently named one of the world’s top ten management thinkers in its biannual ranking.

As a consultant to CEOs, her work has had a lasting impact on the strategy and growth programs of Fortune 500 companies worldwide. Rita is the author of the best-selling books The End of Competitive Advantage and Seeing Around Corners, How to Spot Inflection Points in Business Before they Happen. She has written three other books, including Discovery Driven Growth, cited by the late Clayton Christensen as creating one of the most important management ideas ever developed. She’s a highly sought after speaker at exclusive corporate events around the globe, such as the global Peter Drucker Forum. Dr. McGrath, very excited to have you. Welcome to the Innovation Engine.

Dr. Rita Gunter McGrath: [00:01:23] It’s a pleasure to be here. Topic near and dear to my heart.

Scott Varho: [0:01:26] Let’s start off by talking about inflection points as a cornerstone of your book: Seeing Around Corners. What are inflection points and why are they so hard to spot?

Dr. Rita Gunter McGrath: [0:01:35] Well, a strategic inflection point is something that creates a 10x shift in the environment in which you’re operating. So, it’s some shift that makes things 10x faster or 10x cheaper or 10x more convenient. And the reason they’re so hard to spot is that we grow up in an envelope of constraints. You can think of it that way. So, any organization is born at a given point in time. And as you develop a recipe for success, that becomes your reality. And what an inflection point does is it changes that reality, but you’re still living in the world of the past that was successful before.

Scott Varho: [0:02:13] Yeah, which makes sense. Your conviction overcame the objections and the problems in order to get you to that success. Now, your conviction is holding you back from realizing that this inflection point may be coming. Is that right?

Dr. Rita Gunter McGrath: [0:02:26] Absolutely.

Scott Varho: [0:02:27] So, one of the dangers when you do spot an inflection point is getting too far ahead of it before it’s actually arrived. For all that Netflix has done well in the last decade plus, one of their biggest slip ups came when they moved too quickly ahead of an inflection point. Can you comment on that story?

Dr. Rita Gunter McGrath: [0:02:46] Oh, it’s a great story. Well, so Reed Hastings had been predicting since he founded the company that eventually what they called video on demand back in the day, we would call it streaming today, would become the way that video was distributed. And he had a very strong conviction about that. In fact, every new employee was subject to watching this chart of DVDs coming and going and then video coming in. And he decided in 2011, at the time they had come to make a move. And so, he wanted to split the company. He was going to split the company and put the DVD business in a thing called Qwikster and put the streaming business in the Netflix brand. But he really didn’t think about it from the customer point of view.

So, as far as customers were concerned, it was a huge price increase because they were going to charge the same for both services. They were going to have to have two queues. So, that was annoying. But worst of all, the streaming service didn’t have the choice that the DVD service had, at least initially, because they hadn’t worked the licensing deals yet. So, from a customer point of view, this was really bad. And Hastings wrote a note to his team. He said, “I’m here at an investor conference. I think I might need a food taster.”

Scott Varho: [0:03:56] Wow. Wow, that’s a little close to home. And that is a great story because I remember that moment. I remember being a Netflix customer and actually experiencing this like “You want me to go to a poorer service?”

Dr. Rita Gunter McGrath: [0:04:11] For more money.

Scott Varho: [0:04:12] “But I’m still paying these?” I was like, “I don’t understand what I’m getting,” and which is funny now because, I mean, how could I possibly live without Netflix and be a father? It just wouldn’t work. So, that is a really interesting example. So, one of the things that leaders need to guard against if they want to spot an inflection point is becoming too insular or inward looking. And certainly, I have a lot of experience working with executives that have spent a lot of time looking inward, really making it about execution rather than about curiosity is the way that I talk about it. And you talked about level skipping conversations in your book. What are those and how do they help leaders guard against that danger?

Dr. Rita Gunter McGrath: [0:04:52] Well, I think the bigger principle here is that you need to get out to the – and I call it the edges, which is where the changes that start to happen are making themselves felt. And what happens, they don’t present themselves neatly wrapped in a package at the boardroom. I mean, they’re out there where a customer service rep says, “That’s weird, nobody ever asked me that before,” or some guy working on the delivery docks says, “I never noticed that logo before,” or whatever it is. And so, I think the principle for executives is to figure out ways of getting beyond the usual suspects when you’re architecting flows of information.

So, that could be level skipping meetings. It could be bringing people in who you don’t normally talk to. It could be listening tours. It could be spending a day in your customer service operations. But anything that kind of breaks that sort of thermal layer that tends to surround executives as they get more and more senior.

The other thing that happens is people don’t necessarily feel comfortable bringing bad news to senior leaders or something that’s uncomfortable or that challenges orthodoxy in the company. So, you need to figure out a way to get that information. And that requires psychological safety. It requires curiosity. It requires making it okay for people to speak their minds.

Scott Varho: [0:06:06] It’s interesting because I preach this so much for product teams. Great product development teams should be curious. They should be humble. Yes, we have the hard skills, but if we don’t have the insights, we’re not going to deliver a great product. And so, a lot of times, the details are hugely important. And I often, as we’ll talk about things like where you put the are-you-sure models, right. If they’re in the wrong places, they’re really annoying. If they’re in the right places, they save your customer a ton of headaches. But to know that is to know, is this psychologically mapped? You have to stay very, very curious and understand what are the stakes of this moment for this customer. And oftentimes, they don’t know until you get it wrong.

Dr. Rita Gunter McGrath: [0:06:45] They can’t tell, no. And customers will lie to you.

Scott Varho: [0:06:50] Yes, they will.

Dr. Rita Gunter McGrath: [0:06:51] This is one of the dirty little secrets of customer research. I mean, you go to a customer, and you say, “Would you like lean, healthy food at a place like McDonald’s?” And we all say, “Of course, we would. We are not the sort of people who eat greasy, fatty hamburgers.” No, no, no, no. So, you have to actually watch how they behave.

Scott Varho: [0:07:07] That’s right. That’s right. And which reminds me as well, and I feel like this is such an underdeveloped aspect of product management, product development, even all the way up to the leadership level is modeling behavior more effectively. As a digital product builder for all of my career, I’ve always had mountains of data. I have every click that they’ve ever done in my products. I have videos of them using my product. I have everything. But nobody could actually tease out an insight like an honest, like, “Wow, this behavior here is curious. This is unexpected.” And how do you mind for the unexpected, and then drive into it with curiosity. It feels like a strong undercurrent with everything you’re saying here is to maintain that curiosity and then, like you said, the psychological safety, to say, “I’m sorry, there’s something weird going on here, and I’m not sure it’s a defect.” Like not treat it like a problem.

Dr. Rita Gunter McGrath: [0:08:01] Well, this gets to something very important about learning that I think we undervalue, which is if you think about the process of human learning, you have some kind of hypothesis in your head, even if you don’t call it that. And then, you go out and you test that hypothesis against reality. And either reality is the way you thought it was or reality is different. And the skill of learning is to say, “Wait a minute, this is what I thought. This is my assumption. This is what actually happened. How do I now update my assumption to reflect learning?”

Scott Varho: [0:08:31] You have a story and a thing around corners about BBC’s very expensive, very unsuccessful transformation, which I found fascinating and ended up with $80 million being spent and almost nothing to show for it. But all that said, can you talk about the BBC example and what might they have done differently?

Dr. Rita Gunter McGrath: [0:08:50] Well, it’s the classic case of a large project and it could be IT projects, it could be physical projects, but big projects that are launched with this huge bang, big teams, lots of uncertainty, which is unacknowledged. So, they went into it thinking that they knew what they were doing. And so, what the project was, was an effort to digitize all of the BBC’s content, the way that they move the content around, the way that they stored it, the way they got it to where it needed to be. And on paper, it looked great. And they hired, I believe it was Siemens to do a lot of the programming. So, that was mistake number one. They hired a firm that had not done this before, and they also moved forward with a set of specifications without really looking at how it would work with the users.

And so, they launched this big, huge thing. And of course, once you get a big project moving, and you’ve got millions spent on it, for somebody to stop it and say, “Wait a minute, this is going completely in the wrong direction,” that becomes very difficult because what’ll happen is people will throw even more money at it, trying to fix it somehow and praying that either they’re gone by the time this thing is revealed to be a complete disaster, or that somehow, miraculously something will happen to fix it. The recommendation I have instead to avoid that kind of thing is you do your thinking and experimenting first. Take as much time as you need up front. And I tell people, “If you can draw a stick figure, you can make a prototype, then you can prototype a system.”

Scott Varho: [0:10:15] Yeah. Oh, thank you.

Dr. Rita Gunter McGrath: [0:10:17] There’s no reason that you can’t have a big vision. That’s okay. But start small is my advice. Get something right. Get something small right. Then move to the next thing, then move to the next. So, you’re not exposing yourself to the full brunt of uncertainty.

Scott Varho: [0:10:31] But it’s interesting. And I did want to seize on one thing you said in there. They hired Siemens, who hadn’t done this before. But I suspect, and I talk about this when I talk about 3Pillar all the time, because we get asked, “Have you done this exact thing before?” and oftentimes, the answer is no. But because we teach our teams to be curious and humble, we also don’t bring bias. We don’t say, “We’ve done this ten times, so you just need to do it that way.” We are asking questions, and we are trying to help you perfect your idea and make it resonate with your clients and your context, which may differ from somebody who’s very similar. But there’s some nuance that’s incredibly important. And so, even if we had done it before, we would have missed that. And I wondered if you would comment on that.

Dr. Rita Gunter McGrath: [0:11:17] Oh, I wasn’t trying to imply that you have to have experience of that exact thing, but what you do need to have is enough bandwidth, enough exposure just to recognize the patterns against it. And so, what I would argue is in the Siemens case, they treated this highly uncertain, highly novel, highly disruptive project, as though it was a standard install-a-payroll-system implementation.

Scott Varho: [0:11:43] All we have to do is execute.

Dr. Rita Gunter McGrath: [0:11:44] You have to have the same mindset to both things, right?

Scott Varho: [0:11:46] That’s right.

Dr. Rita Gunter McGrath: [0:11:46] And so, I think let’s recognize that just as nothing is completely unique. And I talk to Ben Flickberg about this all the time. Everybody goes into these big projects thinking, “Oh, this is new to the world. It’s never been done before.” Believe me, some aspects of it, someone has tried at some point in the past. And so, you can learn from that.

The other thing that I think is really important is to recognize that we all suffer from optimistic biases. We all think things can be done faster, or more cheaply, or with fewer errors or with fewer people than it actually ever requires. And anybody who’s ever engaged in like a home remodeling knows this.

So, the thing to do is try to find what we call a reference point, which is go find something that has some similarities to something new that you’re trying to do and see how long did it take them, what was the actual required, what was the actual investment necessary? And if you can get those comparables, you can get much more outside in rather than inside out prospects.

Scott Varho: [0:12:47] And that makes a ton of sense because that’s also about getting your expectations right. And expectations are the mother of disappointment, as I love to say. But what if you had the wrong expectations to begin with? But even more importantly is, again, that humility to go into these projects with curiosity and to say, “I probably don’t know everything I need to know. And as I gather new information, I should definitely reformulate my plan to exploit the opportunities as they present themselves.”

And oftentimes, like with users, when they see something, they’ll tell you if they like it or they don’t like it. When you talk about it, they’re like, “I can’t tell.” So, once you show users something, they will respond to it. And like you said, ‘If you draw stick figures, you can prototype.” I love that line. I’m going to use that. I’m a big fan of user research and experimentation on paper, it’s cheaper. Like I can learn a ton and it costs me very little.

But building that into your plan, you think about the way business cases get built, and this is where I see the friction. Business cases get built, like how much is this going to cost, how long is it going to take, and when am I going to get my return on investment? And it’s like, “What if we don’t know the answer to those questions? Can we admit that?” And oftentimes, that, at least, I find is the structural impediment to really building in curiosity and discovery into your plan. And I haven’t figured out how to break that.

I know the caliber of people that you talk to have this problem trying to talk to their boards about, “Hey, I want to go spend some money. I’m not sure how long or how much, and I’m not sure what the return is going to be.”

Dr. Rita Gunter McGrath: [0:14:19] I think the lens you need to use to look at that kind of problem is the lens of options thinking. So, if you imagine a range of uncertainties where if you’re in a really predictable business, you’re selling college textbooks, you can actually calculate what your sales are going to be next year by extrapolating from this year, throwing in some demographic variables, and then maybe a few little uncertainties around how many professors are going to adapt.

But if you go all the way to the other end and look at a highly uncertain business, I’m going to go into a magazine authored only by GPT, let’s say. I mean, who knows? But the pitch to the board is, “I think this is a $10 million opportunity. Here’s the logic why I think it’s such a big opportunity. And what I want from you for now is permission to spend $100,000 to go figure out if this is real or not.”

So, what you’re doing is you’re honoring the principle of big potential upside for a very carefully limited and de-risked downside. And that’s the pitch. And asking for ROI and timing and stuff like that for something that’s that uncertain is crazy. I mean I do battle with that all the time.

Now, the other fascinating thing, and this is what I tell boards, and they look at me like I have three heads, is that’s where the high return on investment is. By the time you’re selling college textbooks, it’s commoditized, you know exactly how much you’re going to get competitive pressure on price from every angle, and it’s going to drive down your ultimate return on investment. So, ironically, the place you feel the least comfortable is the place where you’re going to get the biggest returns.

Scott Varho: [0:15:48] That’s right. And, well, you’re speaking the language of disruption and, actually, spotting the disruptive opportunities to your own business, which is fascinating because, really, I have struggled so many times to get executives to go there because it’s such a threat to “No, no, no, we need to execute what we have better first.” And it’s like, “Well, yes, don’t worry, we will get incrementally better,” but where are the big opportunities going to come from? They’re going to move us.

I always love to point out that 20 percent of $100 Million is a much bigger number than 20 percent of $10 Million. So, if you want that 20 percent year-over-year growth, recognize where you are and realize that you need bigger and bigger swings to get those bigger and bigger chunks. Really interesting.

Scott Varho: [00:17:07] Hi friends. Quick favor to ask. If you’re enjoying the Innovation Engine, please give us a rating and leave a review on your podcast player of choice. It helps us get the word out about the show, so we can continue to bring you more high quality episodes. If you have any feedback about the podcast or guests you’d like to hear interviewed, send your suggestions over to info@3PillarGlobal. That’s 3Pillar with the number three. And if you’re looking to drive innovation and transformation in your organization, look us up at 3pillarglobal.com. Now, let’s get back to the action.

Scott Varho: [0:17:07] So, actually, we’re trying an experiment today with you. You feel like the right kind of person to do this with. So, we actually put a prompt into chat GPT and asked it to propose some questions for you, and we selected a few. And so, I’m going to take you through those. We selected only two, but actually it was a fascinating experiment.

The prompt that we gave it was, please write a series of podcast interview questions about innovation for Dr. Rita Gunther McGrath, based on her book, Seeing Around Corners, and other writing available online. And this is the first one it came up with. One of the key challenges that companies face when it comes to innovation is the risk of failure. How can companies effectively manage and mitigate this risk, and how can they create an environment that encourages experimentation and risk taking?

Dr. Rita Gunter McGrath: [0:17:55] That’s actually-

Scott Varho: [0:17:55] I mean, not bad.

Dr. Rita Gunter McGrath: [0:17:57] That’s pretty good.

Scott Varho: [0:17:58] I’m actually a little scared.

Dr. Rita Gunter McGrath: [0:18:01] Yeah, if you put podcast interviewers out of business, right?

Scott Varho: [0:18:03] That’s right. Throw an electronic voice over this, and we’re done here.

Dr. Rita Gunter McGrath: [0:18:08] Good, right? Did you want me to answer the question?

Scott Varho: [0:18:11] I do want you to answer. I didn’t ask that, but you’d be good to answer it.

Dr. Rita Gunter McGrath: [0:18:15] That’s a great experiment. So, I think the beginning point of being able to manage failure is not treating it like failure because if you think about it, if you treat failure like a classroom exercise in which there’s a right answer and a wrong answer, and if you get the wrong answer, you failed, you’re never going to learn anything. So, the correct way to talk about it is using the language of hypothesis, testing and experimentation.

And so, you say to your team, here’s a contract for what I call intelligent failure, which is it’s genuinely uncertain. Their hypothesis was reasonable. We don’t know the answer. And so, we’re going to conduct an inexpensive experiment to go find out.

Scott Varho: [0:18:54] I love that. And it’s interesting. And there’s a part of that that I want to steal, which is the hypothesis is reasonable. The hypothesis is high quality, right? Not all hypotheses are worth testing. There’s not enough upside or opportunity there even if you’re right. So, making sure that it is high quality, I like that. As well as the only failure that I can’t stand is one where we refuse to learn something.

Dr. Rita Gunter McGrath: [0:19:18] Well, there’s that. And then there’s the — I always draw a distinction between obstinacy and persistence. And obstinacy is failing and doing the same damn thing over and over and over again, hoping somehow the results are going to change. Persistence is saying, “Wait a minute, I believe in my goal, I believe in my vision, but what I’m going to be prepared to do is change course as new information comes in.” And I think there’s an important difference there.

Scott Varho: [0:19:42] A major difference, I think. Absolutely. And it’s actually interesting, if we tie this back to the Agile Movement, which was meant to encapsulate. If you read the Agile Manifesto and you hear the history, these were senior engineers that wanted to work closer with users, so that they could build software they knew was going to be beneficial to these humans, that they could actually look in the eye and build for.

And of course, when you look at Agile now, it has become an iterative way to deliver a boardroom-devised plan, or an executive committee-devised plan of what they want their teams to be doing, no longer doing the discovery piece, which what happened to the getting closer to the customers, right? So, that all got lost. I spent a lot of time thinking about how to try to return that to teams where they’re driving their executives on insights and saying, “We have found this to be true about our users,” and actually provide new information into the C-suite from the teams they’re executing.

Dr. Rita Gunter McGrath: [0:20:45] One of the things that I’ve just published in the Harvard Business Review is a piece called The Permissionless Corporation. And the thesis of the piece is that technology has now gotten so good, and organizational structures have become sufficiently flexible if they’re managed right, that you can actually replace a lot of what used to require layers of management and lots of bureaucracy to control. So, teams can be equipped with all of the functional talent that they need. So, an intact team, at Amazon they call this single threaded team.

So, you work on something very intensely for a couple of weeks and that’s all they’re working on. They’re not going to 15 meetings every day and getting distracted from tasks to tasks to tasks. They’re working on this one thing together with all the resources that they need. And if you can architect that, you can actually have these problem-solving teams where the decision making is indeed pushed out to the edges and all of the executive then becomes to create the guardrails, create the context, make sure people know what the vision is in the ultimate direction, but not so much telling people what to do.

Scott Varho: [0:21:52] Yeah, yeah, yeah, which is very difficult for executives to adhere to. Okay. So, another question from chat GPD – sorry – in your experience, what are some common mistakes that companies make when it comes to innovation and how can they avoid it?

Dr. Rita Gunter McGrath: [0:22:10] It’s another good question. I’m very impressed with your chat bot. So, I’ve actually done a bunch of articles on this. So, common mistakes. The first big one is, innovation is episodic. So, someone senior up says, “You know, we need more innovation around here. You, you, you, go form a skunkworks. And come to work at midnight and drink Red Bull, whatever it takes.”

And this burbles along very nicely for two or three years. And just as the team is starting to see the fruits of their efforts begin to be realized, because it takes two or three years for something brand new to become ready for market, there’s a change in regime or there’s a financial setback or somebody gets distracted and then the first thing that gets cut is the innovation effort. So, episodic innovation, I think, is sort of an Uber problem that I see a lot.

Second one is not being thoughtful about where you’re putting the innovation effort. And I talk about seven archetypes. So, the first archetype is, stick it in a business unit. Well,that’s easy organizationally, but it’s going to get crushed. Second archetype is maybe you make it a separate piece of an existing business unit. That’s a little better, but you’ve still got the problem of lack of attention. Third archetype is, stick it in R&D. Good but you can lose contact with the customer. Fourth is we’ve seen it used a lot successfully, which is, make a senior staff person responsible for it, and then create a parallel structure for it.

Fifth archetype is a whole new ventures division where a whole group of people are going off and doing things. Sixth type is, report it to the CEO. Great, solves a lot of political problems, but you can’t kill anything once it’s the CEO’s pet baby. And seventh archetype is this permissionless kind of innovation supporting organization where it’s part of the culture almost. And if you really like Amazon, it would be a classic case of that kind of structure.

Scott Varho: [0:24:02] Yeah, I was so impressed. I’ve worked with AWS, Amazon Web Services, for such a long time and been so impressed on how different divisions within AWS are innovating in their space, but horizontally as well as vertically. So, doing new things inside their space, but also making sure it integrates with other parts of the AWS ecosystem to deliver value not only for Amazon.com, but for clients who are using that AWS. And it’s a thing of beauty. It’s really impressive to watch and makes it a lot of fun to be a client of theirs as well.

All right. So, we’re off to chat GPD questions and we’re going to return to human-generated questions. But I do want to stick on the topic of artificial intelligence because it does feel like – I mean, it has captured the imagination. Do you feel that we’re at an inflection point with AI and where it’s going? And do you think it will have a broad impact?

Dr. Rita Gunter McGrath: [0:24:59] I don’t think we’re at the inflection point that will come with that. So, I think we’re at the early stages. Where I think we are with AI is at what I call the steppingstone stage. So, if you think about it, let’s think about autonomous vehicles just to take what I mean. And by the way, this has taken forever. We had The Jetsons in 1962 and we’re still thinking around with autonomous vehicles.

Scott Varho: [0:25:23] Yes, and they still don’t fly either.

Dr. Rita Gunter McGrath: [0:25:25] These things take a lot longer than you think they will. So, what do you do? You know an inflection point is coming, you want to participate in it somehow, but it’s still too early. The ecosystem isn’t right. The value proposition has been defined. People don’t even know what it is yet.

So, what I recommend there is you pick a sector which could be a stepping stone, which is typically a small market that has a real problem that the technology in its current stage can solve. And so, for autonomous vehicles, take the military. They’ve got to supply their front lines, and having two troops driving a truck is kind of a waste of time. But the robots aren’t smart enough yet to take over that whole job, but they’re smart enough to follow the leader.

So, this is the product that actually exists. There’s two human beings in a front vehicle, and then these other vehicles can daisy chain behind. And so, what that means is you’ve got troops out of harm’s way. You can do what computers do best with those things. And it’s not a big market, thankfully, but it’s a step. And then, the next thing maybe is you have drones, the next thing you have — but you can see what I mean. You’re opening up.

So, with AI, we’re already seeing very successful commercial applications in things like scanning radiology scans and doing evidence discovery in the legal realm using AI to kind of very rapidly find patterns that would be very tedious and dull for a human being to find or quality control. And so, I don’t think we’re where AI is going to be kind of at an inflection, where it’s radically going to change the cost of producing content, or the cost of moderation or the cost of whatever. I don’t think we’re quite there yet, but we are already seeing these early applications.

Scott Varho: [0:27:09] Fascinating. It really is interesting. I keep coming back to the psychological challenge of even opening yourself up to an inflection point, when the dogged pursuit of something is oftentimes what gets a leader into that position. And I think there’s a lot more than even what Clayton wrote about disrupting innovation that holds us back from that, that keeps us on the sustaining innovation path. But I really like your idea, break the logjam. Let’s run experiments that are financially responsible, that if they lead us to insight, then let’s not pretend like we didn’t see what we saw, and then we’ll act on that new information, new plan. I like that.

You wrote recently in your site about the early warnings of a fading competitive advantage. And this is also very interesting and very apropos. I was actually just talking to a prospect yesterday where the chief products officer was saying, “I like the plan that we have, but I’m afraid we’re missing the boat on the market. I think the market’s going the opposite direction. But our plan is great on executing on the market that we’ve had for the last ten years.” That was fascinating to watch this and she’s like, “But I lost this battle, so I’m just going to go with this.”

So, this concept of fading competitive advantage is really interesting. For incumbents out there that are feeling good about themselves, what’s the first way or the first step that you advise them to take to pressure test their own conviction that they’re on the right path?

Dr. Rita Gunter McGrath: [0:28:43] Well, I think you have to start with customers. And what happens over time is that something that was once exciting and valuable and terrific, it either gets matched in competitive markets. If you don’t have an entry barrier, it gets matched. Or customers get used to it. I mean, if I go all the way back in the day to an innovation that changed the world, the cupholder in cars, right?

Scott Varho: [0:29:11] Oh, not where I saw you going. That’s great.

Dr. Rita Gunter McGrath: [0:29:13] And companies produced cupholders. You had all these identical Japanese cars, and imagine a young couple shopping for a car, and they’ve got this list of things the car has to do that’s as long as your arm. It has to be good quality and get great gas mileage and, and, and, and. And so, they open the door, and they look, and they say, “Whoa, this one has a cup holder,” when everything else is the same. That’s the differentiation. Now, fast forward 20 years-

Scott Varho: [0:29:32] Especially if they’re holding a cup of coffee.

Dr. Rita Gunter McGrath: [0:29:34] Sorry?

Scott Varho: [0:29:35] Especially if they’re holding a cup of coffee at that moment.

Dr. Rita Gunter McGrath: [0:29:37] Right. But fast forward 20 years, and I – not too long ago – owned a Honda and it had not one, not two, but 16 cup holders of varying shapes and sizes all the way from a cereal box to a big gulp. So, it’s a complete commodity. In other words, nobody’s differentiating themselves on cup holders anymore.

So, I think the first thing a successful company has to recognize is that competitors may not be able to copy you, but they can often match you. So, if you think about how Microsoft has competed historically, Excel is not a better calculator than Visicalc, but it’s good enough. Word was not a better word processor than WordPerfect, but it was good enough. So, it’s that matching innovation that can nullify your existing advantage. So, that’s the first thing.

Second thing is to realize that when you’re very successful, there’s a huge temptation to believe that because you’re really successful, you’re really smart. And I won’t name names, but you can probably guess who I’m thinking of. There are certain technology companies that passionately believe that they are very, very smart. And I happen to think they happen to be in the right place at the right time. And God bless them for being able to do that.

Scott Varho: [0:30:44] That’s right. I don’t want to take anything away from them but-

Dr. Rita Gunter McGrath: [0:30:47] I mean, you own the recipe for future success, right?

Scott Varho: [0:30:50] Right, right.

Dr. Rita Gunter McGrath: [0:30:50] So, I think this concept of being very humble about it is very valuable.

Scott Varho: [0:30:54] Yeah. Yeah, absolutely. Fantastic. Well, I could talk about this for ages because, I mean, the need for more curiosity and more insights, paying attention to customers and oftentimes finding needs and/or ways to delight them that even they cannot express, it’s such a rich area. And I do believe that is going to be the catalyst for the next wave of great digital experiences. That’s where I focus. But I think product development overall, physical and digital. So, I definitely think you’re on to it. You’re preaching. And I’m certainly on board.

It’s the number one thing, actually, that I really, really try to get my customers to buy into is this idea of like if you get a team that’s curious, humble and courageous and has that psychological safety, you have such a better chance to build a great product. Such a better chance. Even if they just get aligned on context. Like what caused you to create this user story that I’m working on will help me implement it in a way that’s more insightful. I get opportunities, micro-opportunities, to deliver it just a little bit better than it would be otherwise.

And for the right kinds of engineers, this is thrilling. They get to apply themselves, their own humanity, to how they build their products. It can be really transformational. And it’s such a small thing. It’s just a change in the conversation. That’s it. Not all the mechanics anyways. Like I said, I could wax poetic about this, but I’m really enjoying this.

That said, we’d like to close out with a speed round of questions, if you don’t mind. All right. So, we’ll start off. You’re the second New Yorker I’ve gotten to interview in the last couple of months here. And you spent a lot of time as a professor at Columbia. What’s your favorite borough?

Dr. Rita Gunter McGrath: [0:32:46] My favorite borough. Well, obviously, since Columbia is in Manhattan, it would have to be Manhattan.

Scott Varho: [0:32:52] Okay. All right. Are you sure? Do you live in Manhattan?

Dr. Rita Gunter McGrath: [0:32:56] I have a place in Manhattan.

Scott Varho: [0:32:58] Okay. Excellent. I was just in Manhattan yesterday. It was actually a lot of fun. I had a great time. Are you working on another book?

Dr. Rita Gunter McGrath: [0:33:06] I am.

Scott Varho: [0:33:07] And when can we read it?

Dr. Rita Gunter McGrath: [0:33:09] Well, it has to get written first, but the book is a follow on from Seeing Around Corners. And it’s tentatively called Time Zero, which is really about how do you know that the moment of decision has arrived?

Scott Varho: [0:33:24] That’s interesting. It’s a speed round, so I won’t keep going, but you have my interest. You provide Thought Sparks, and I put this in quotations for our listeners. To your followers on social media and visitors to your website, when you’re looking for inspiration or something to kick your mind into gear, what do you look to for inspiration?

Dr. Rita Gunter McGrath: [0:33:46] Oh, all over. There’s just a huge amount of interesting stuff going on in the world. And what usually prompts me to write a piece about it is if it’s something surprising, which is why I call the Thought Sparks. It’s something that “Gee, why did that happen?” or “That’s puzzling.” So, usually they contain some element of puzzlement.

Scott Varho: [0:34:05] Yeah, that makes a lot of sense. I love mining the unexpected. This is great. Well, thank you so much. I have so enjoyed this conversation. As hopefully you can tell, I’m very jazzed by the topics that we have covered here today. And I’m sure we’ve added some really, really great thoughts for our listeners. So, thank you so much. I really appreciate your time.

Dr. Rita Gunter McGrath: [0:34:30] Thank you. It’s a pleasure.

Outro: [0:34:34] This has been an episode of The Innovation Engine, a podcast from 3Pillar Global. 3Pillar is a digital product development and innovation partner that helps companies compete and win in the digital economy. To learn more about 3Pillar Global and how we can help you, visit our website at 3Pillarglobal.com. Lastly, remember to give us a rating and leave a review on your podcast player of choice. If you have any feedback or guest suggestions, send them over to info@3pillarglobal.com. Thanks for listening and see you next time.