“The Sun Also Rises” … How Ernest Hemingway gave Rita McGrath inspiration to explore strategic inflection points in her new book “Seeing Around Corners”
September 1, 2019
Rita McGrath is a fantastic lady.
Full of energy, optimism and encouragement. Pragmatic but a future thinker. One of the world’s most thoughtful strategy gurus. The Columbia Business School professor’s previous book provocatively declared The End of Competitive Advantage, meaning that organisations should open their minds to new market arenas, be more concerned about what’s happening in their customer’s worlds, and adjacent markets, rather than obsessing with what direct competitors are doing.
Her new book helps you to make the right shifts to the future. In Seeing Around Corners Rita helps us to see the moments when big changes are likely to happen, and how to prepare for them.
Last year I sat down with her to explore her approach to strategy. I started with the big idea. What is it? Her answer was equally bold. Snow. “Snow melts from the edges, not the centre” she declared. Meaning changes in our markets happen on the fringes not the core, with the outliers not the mainstream, with the disruptors not the main players.
She says that understanding a company’s future resides at the furthest outposts of a company, and not necessarily in the boardroom. Organizational leaders must attend to employees out in the field: sales people, consultants, every stripe of frontline worker. Indeed, she incorporates a certain democratic strain to business strategy, in which picking up on distant early warning signals is essential.
“If you are one of those people on the edges, keep this thought: Your time may be coming sooner than you think. Sitting ringside at a change that is about to unfold can give you tremendous insight into what actions to take now, before the outcome is obvious to everyone.”
McGrath notes that competition makes some companies wake up to the necessity of listening to what people from all over their organizations have to say. “If they’re still reporting up and in hierarchies and their competitors are able to move with more agility, they’re at a disadvantage,” she said in an October phone interview. “The competitive reality kind of forces a lot of them into it.”
To prepare for the future, Rita says that organizations must imagine, in detail, facing huge inflection points.
In her book, she defines an inflection point as “a change in the business environment that dramatically shifts some element of your activities, throwing certain taken-for-granted assumptions into question” and adds that when “a system has a sufficient number of badly served constituents, an inflection point has fertile ground to take root.”
She explains how Ernest Hemingway gave her the inspiration for the working title of her book. In his novel “The Sun Also Rises”, she recalls with a smile how one of the characters answers the question of how he went bankrupt: “Two ways,” she says, quoting the book; “Gradually, then suddenly.” Typically, inflection points “bubble along for a long, long time before anybody bothers to pay attention, then they pick up steam, and then they are let loose in the world,” McGrath explains.
Actually the term originates from Intel’s Andy Grove who described a point of inflection, “An event that changes the way we think and act.” That requires jump-shifting your strategy, organization and operations all at the same time. One of two things is going to give you the opportunity or need for a strategic inflection.
As an example, she writes that there’s a tremendous opportunity in hearing aids, for a company willing to invest in technical product development and human-centered design. She walks us through the regulatory, technological, and psychological reasons for the challenges here (she talks movingly about how her mother-in-law was so embarrassed by the noise her hearing aid made that she stopped wearing it during a visit). She mentions that FDA regulations toward hearing aids are changing and consumer costs are dropping. Finally, she concludes: “If we extrapolate from the statistic that only one in five people who could use help with their hearing have aids today, the market size in short order could be five times greater—perhaps as big as $40 billion—after the inflection point that allows anybody to get a discreet, self-adjustable hearing device.
She says the future will be won by those companies that are integrated and nimble. Such an operational model allows for self-willed transformation. For being proactive instead of reactive. “The great entrepreneurs and innovators… don’t just allow an inflection point to happen to them,” she write in her book. “They connect emerging possibilities, deepen consumer insights, and explore new technologies to spark the changes that can get them—and keep them—on top.”
Not every business is prepared to connect all these elements and then shift, even when the will is there. Part of the challenge is that many companies are insufficiently investing in imagining the various futures that might await them. Many organizations, McGrath said, “envision one future and they go charging after that future.” She advises taking a boarder view of things, encouraging readers not to think about industries but in the wider category of arenas, in which “you have to be able to entertain multiple potential futures simultaneously.”
McGrath illustrates this, in Seeing Around Corners, by providing some frameworks for scenario planning. In the book she shares a set of matrices that mapped out, for an energy distribution company she had worked with, two future possibilities: one in which a centralized grid dominated and one which was ruled by decentralized networks that relied on solar and wind power as well.
The key point: it’s as important for companies to think about positive future states and how to reach them as it is about catastrophes and how to avoid them.
Leaders need to avoid denial
Rita says it is not fear that is driving business leader. “I think there’s a lot more, almost, humility in realizing what got you on top may not keep you there,” she said. This humility guides these companies to be perhaps less emotionally attached to certain historical business models, marketing techniques, or even work processes, and to invest in, and continually test for, what works.
“The idea of humility is just being able to acknowledge that things may change—and that may not serve you well in terms of your current model.”
Her call, in Seeing Around Corners, for companies to “avoid denial” is interesting.
“Leaders turn a blind eye quite deliberately because it is just more convenient not to take in news that things might be changing,” McGrath writes. In the book she quotes the denial of Rand-McNally’s former CEO, Robert S. Payoff (in a 2006 interview he says: “There’s going to be some changes in how [maps] are used, but people will still want to open them and read them with their coffee”) and then concludes: “Rand McNally was acquired by distressed-asset firm Patriarch Partners in 2007.” It’s hard to imagine many contemporary business leaders reading that section without a squirm of recognition.
It’s not about predictions, McGrath says, but about looking for a factor that could change the constraints that you are accustomed to working in. “You have to go to the edges of your business, because the future is not going to present itself neatly at the corporate headquarters. These are things happening when some weird little entrepreneur in a garage somewhere says, ‘Whoa, I got a breakthrough in solar energy conversion!’ How do you know that 15 years later, this is going to be a massive issue for you? You don’t. But if you have your sensors out and you’re really looking, you have the chance to see it early.”
When those signals eventually do get loud and close, the next challenge is handling the internal change management required to make a major shift in the business, McGrath explains. “It’s going to be scary to a lot of people. They’re not going to see a future for themselves in it. They’re going to resist it,” she says. Sometimes, too, the company will keep its incentives weighted toward building the old business, slowing down the process even more. “People may see [the inflection point] but it may not pay for them to go off and make the changes,” she adds. In this floating world, companies with a culture that focuses on a fixed overarching goal rather than their industry tend to do best. Amazon, for example, focuses on customers; Stanford Research Institute on developing breakthrough technologies.
Many companies are already learning to adapt to this new paradigm, she explains. One that is managing just such a shift right now is Microsoft under the leadership of CEO Satya Nadella. The famously fractious, profit-focused company is now trying to put the customer first. Nadella’s view, as McGrath puts it, is that revenue and profit are lagging indicators. What a company really should be focusing on instead is finding customers who love its products.
This embrace of the customer is also in part a reflection of the more protean nature of competition today, in McGrath’s view, in which the contest is often less between products than ecosystems. It’s a radically different world than in traditional business where there were clear demarcations between buyers, suppliers and competitors, and industries usually maintained clear boundaries. “That’s just not the way the world works anymore,” says McGrath.