PMTips: Here with us today is Rita McGrath, who is a professor at Columbia Business School, a keynote speaker and best-selling author.
Rita, welcome and thank you for doing this interview.
Rita McGrath: Oh, it's a pleasure to be here.
PMTips: You work as a professor at Columbia Business School, where you teach a course on Leading Strategic Growth and Change. You are a best-selling author, have had the honor to receive the Thinkers50’s #1 Achievement Award in Strategy and also made their list of top 10 most influential management thinkers. Did you plan for your career to develop in this way, or was it more unintentional, with one experience leading to another?
Rita McGrath: Well, I think anybody who tells you they planned their career to a detailed specification would be misleading you. Directionally, I knew the direction I wanted to go into once I had entered academia in terms of having impact, in terms of people finding the work that I did to be helpful. But you know each career unfolds based on the experiences that you have. So I think one experience led to another and one opportunity led to another would be a more accurate way of explaining it.
PMTips: You have been recognized as an expert in leading innovation and growth during times of uncertainty. How does one lead in today’s world where new technology and innovation influence the pace of business but also come with many uncertainties?
Rita McGrath: What I think, part of this skill of leadership today is, really, taking a broad direction. So developing a point of view about how your organization wants to compete going forward, but then allowing the organization to throw up many options. And so I think as uncertainty increases, the need to have greater variety and greater experimentation going on in your organization becomes really essential, and I think part of the role of the leader is how do you create context in which that can take place.
PMTips: In your book The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business you argue that it is time to go beyond the very concept of sustainable competitive advantage. In your professional opinion, what defines the success of businesses today, but also what will continue to define their success in the future?
Rita McGrath: I think it's important to realize that a lot of our measures of success, as we practice them today, really are lagging indicators. In other words, they're today's results of decisions and actions that we took in the past. And I think what's starting to happen is companies and boards and even investors are starting to realize that a narrow focus on today's quarterly earnings per share, or, you know, today's profits is really short-sighted, that it's not giving you insight into what the future of those things could be. And so I think what we're starting to see – among the better companies anyway – is an acknowledgement that we really need to be investing in options for the future. And so when you think about the successful company going forward, and I'll use Microsoft as an example here. You know Satya Nadella has been very forthcoming about saying that profit and revenues and those kinds of metrics are important, but they're lagging decisions that we’re making today about how we're going to increase customer loyalty, how we're going to increase usage, how we're going to be a better partner. And so I think the definition of success increasingly is going to be how do companies balance between results that they produce today and investments for the future.
PMTips: In an era of transient advantage, leaders should seize new opportunities and stop attempting to optimize outdated strategies. How can they stay on the winning side and never lose their competitive edge?
Rita McGrath: Well, it's similar to what I just said, which is you need to have this portfolio view of how you're making your investments, where some of the investments are making today's business better, you know, faster, cheaper, more customer friendly, more technologically enhanced. Some of the investments you can think of as representing the next generation of what your business might be. You know, some of those are organic and some of those will be acquisitions. And then you've got investments in options, which are the longer-term, you know, things that you're experimenting with, which could inform your future strategy. So I really look at how you manage your portfolio as the key skill that leaders need to deploy to stay on the cutting edge of their competitive advantages.
PMTips: Should organizations consider both the customer markets and the factor markets in order to gain a competitive advantage? What kind of strategic thinking is required to fight off competition in both arenas?
Rita McGrath: Yeah, and I think actually organizations often ignore their factor market, which is problematic, so absolutely customer markets and absolutely factor markets. If you look at a company like IKEA, for example, they have been brilliant at managing both. So on the customer side they've really cut across this distinction between great design and great prices, in that you can get really well-designed products that fit your particular lifestyle wherever you are, you know, in your customer journey. On the factor side what IKEA has been brilliant at doing – and they've done this for decades now – is identifying those key suppliers and those key sources of advantage that they lock in early and so they lock out other suppliers. They build this really formidable factor market advantage that I think has not gotten as much attention in the popular discussion of IKEA strategy as it definitely deserves. So I think you really want to think of both. You need to think of how do I position myself in my ecosystem of suppliers and value chain partners, as well as how do I become the most desirable provider for my customers.
PMTips: In terms of staying competitive, is continuous reorganization advisable for organizations even in situations when it is not strictly necessary, or must reorganization always be influenced by outside factors and then decided upon?
Rita McGrath: Well, the best companies in my research are always adjusting to what they perceive as the changes that are going on in the external market bar. I think it's a mistake to wait to adjust your corporate organization or your strategy until it's absolutely obvious to everybody that the change is coming. I think what you want to do is invest to get ahead of that, so that you're ready when these changes start to happen. So I'll give an example: right now there are all these different incumbent companies that operate with a very traditional value chain. So, for example, Procter & Gamble, you know, we make razors and those razors go into our retail channels and then customers buy from the retail channels. Well, what we're seeing now is an entirely new generation of direct consumer offers which are getting rid of traditional retailers. They're basically saying we are going to manufacture a product, or in the case of restaurants we're going to prepare meals, and instead of the traditional way of distributing those things we're going to go directly to the consumer and we're going to use technology to disintermediate the regular routines. Now, if you're not taking action to reorganize your business in the face of those kinds of technological changes, my argument is you can very easily be caught by surprise, which is what happened to Procter & Gamble in the razor business. With the rise of companies like Dollar Shave Club and Harry's and these other kind of direct consumer models, which made their offering rather obsolete.
PMTips: Your new book Seeing Around Corners is an innovative guide to seeing inflection points before they happen. How can businesses become conscious of oncoming inflection points and the necessity for a major change?
Rita McGrath: One of the big encouragements in the book is to recognize that strategic inflection points feel as though they happen overnight, but in reality they've usually been building up for a really long time. And the analogy that I use is a bit like the line from Hemingway's book The Sun Also Rises, in which one character asks another “How did you go bankrupt?”, and the response was “Gradually and then suddenly.” And so it is with strategic inflection points. So the good news about that is that inflection points can create enormous opportunity even as they make an existing offering obsolete or less than valuable. So the encouragement from the book is: try to get an insight into those inflection points early before it's obvious to everybody what they mean, and the way to do that is to get out to the edges of your organization. So to really engage with those early places where customers are doing something that's a little different, or competitors innovating something that's really creative and you're not really seeing it. So in the book I describe various practices that executives can use to get out to the edges, and one example would be, you know, how do you position yourself so that you personally are seeing those phenomena unfolding; you're not just relying on third-party sources, you're actually positioning yourself directly to see what's going on. And the reality is a lot of times your organization doesn't really want you to, so they're presenting some idealized view of reality, but your job as an executive is to create a complete, candid and truthful picture.
PMTips: What kind of strategies and tools do you propose in this book, in terms of anticipating and using the inflection points as a competitive advantage? How important is the understanding of these inflection points in order to be able to capitalize on them?
Rita McGrath: Well, in the book I talk about three phases of dealing with a competitive, you know, I talk about three stages of dealing with a strategic inflection point. So the first stage is becoming aware, so seeing the inflection point coming, and that's an awful lot of getting exposure to external phenomena, seeing what effects they could have on the key metrics that influence your business, understanding how if this becomes a reality it could really change your world. The second part of the book is now having seen something coming, how do you decide what to do about it, and there what I recommend is taking what I call a discovery driven approach. And the idea is, instead of leaping boldly and in deciding that you've got the answer, develop some hypotheses and test those hypotheses against your strategy. So, you know, I think if a consumer behavior is going to behave in this way or that way, how can I construct an experiment to decide what the best path is. And then once you've got some clarity around what path you want to go down, then you have the challenge of bringing the organization along, which is how do you develop increasingly advanced levels of innovation maturity. For example, how do you get the organization to understand that this is not optional; they really need to be moving in that very coherent consistent direction. And so I think that the notion of seeing them, deciding what to do about them, and then bringing the organization along is the arc of what a strategic leader really needs to take into account as they think about strategic inflection points.
PMTips: Employee resistance to change is a common problem within organizations. What would you say is the root of the problem and what is the best solution for dealing with it?
Rita McGrath: Well, the root of resistance is many things. I think at its core it’s fear; fear of the unknown, fear of being made irrelevant, fear of, you know, the new world is not like the world that I was part of and that I was comfortable with before. So there's a huge fear factor and I think part of the skill of leading people through these changes is how do you get people to be less fearful, how do you show them how they can participate, where the role is for them in this next world, in this next activity. And so I think there's a big piece of it that has to do with reassurance, rescaling, you know, helping people along the path.
I think the second big source of resistance is actually very legitimate, which is, you know, change is not good for everybody. You know, if your job is basically being automated, or there's some faster, better, cheaper way that this is going to happen and it doesn't have a role for you, of course you're going to resist it. So I think people need to be very honest about what the downsides are for the people involved in the change and help them prepare, you know, give them either the option to opt out and go somewhere else where their skills are still valuable, or help them to gain those skills and capabilities. So one of the companies I talk about in the book is a steel, metal distributor and their CEO has said “Look anybody who wants to understand about digital, no matter where they are in the company, here is a suite of tools and online courses and things you can use to build up your own capability.” So he's giving them the tools to make themselves more comfortable with this future world. So I think that fear is the one thing.
The second reason for resistance is people may not agree with your direction, you know. And in the early stages of an inflection point it's not always clear what the right answer is. And there are a lot of companies who have set off in a direction in response to some kind of inflection point and then discovered that the direction they were heading in wasn't really correct. So an example right now that’s been going on is Ford, which has made a huge investment in many technologies relevant to autonomous vehicles, electric vehicles and so forth. And they've had to actually dial back on some of them because emerging evidence suggests it's really not going to be feasible in the near term. So there is real resistance and I would say as a leader don't just dismiss it. You know, try to understand where it's coming from and what you can learn from it before you assume it's just a problem.
PMTips: As a professor at Columbia Business School you also direct the Women in Leadership course. With that said, what would your advice be to all women in leadership or to any woman who aspires to build a career in management?
Rita McGrath: Well, that's a very broad question. I think a couple of things to remember is that there's some things when they can do for themselves, and so we advise women, for example, to learn how to use power effectively. We advise them to develop some sense of – we call it personal brand – but just to know who you stand for, what value you can contribute. To be very clear, we definitely advise the women to engage in – I'll call it positive self-promotion, you know, but women often assume that great work is its own reward and that's not necessarily the case. You know, great work is important, but also being prepared to be a little promotional about it, you know, taking credit for your accomplishments. Not taking on all the housekeeping of the organization, you know, the emotional work, the setting up events, doing all the kind of – a friend of mine calls it being the mother of the organization. You know, not setting up to that sort of thing. But also having clarity around your goals and what you wish to achieve, so there's a lot women can do for themselves.
We also advise that women become change agents in their organization, so don't try to do it all by yourself. Develop alliances, build career paths for those that come after you, create the coalitions in your company, so that you can make it a better place to work. I mean, there's a whole variety of actions we recommend which are indeed things that are within your own control, but also influencing the organization to be the kind of place you'd like to work.
PMTips: What kind of advice would you give students and young professionals who wish to become great leaders?
Rita McGrath: Wow, what a great question. Well, you know great leadership doesn't exist without followership, so I say to students: ty to find as many ways that you can experience being a leader early in your career as possible, so that could be in student teams, that could be in volunteer organizations, that could be in your community. So, you know, the leadership is one of those things that it helps to practice, so the more that you can practice your leadership the more you understand what kind of leader you are. I think one of the biggest gifts leaders give to themselves is self-awareness. You know, what motivates you, what drives you, really getting to the essence of how you as a person believe in the world. One of the things we recommend, perhaps for more senior people, but it's not a bad idea to do it as a more junior person, is to write what we call a leadership statement. And that is, you know, a great way to begin that is to do a life line, which is a sort of a picture of your life and what were the big turning points and what were the lessons that you learned from those turning points in your own life that inform how you believe you want to behave as a leader.
So as an example, I have a good friend who is a very effective leader in a smallish industrial company, and one of his formative experiences was a couple of the big companies in the town that he’d grew up in had decided to shut their shops because they weren't profitable. And it had terrible consequences on the town and on his family, among people. And so one of his passionate leadership values is “we have to be profitable.” Now, I don't care what it takes and I don't care if it's a penny of profit, but if we're not profitable, we don't call our own destiny, and that became a real driving force for his own leadership and he's been very frank about that. When people come to work for his company, or when people talk to him about what he respects, he says, “You know, at the end of the day, sure, I believe in investment and innovation and all those things, but at the end of the day if I can't see a clear path to profitability I'm not going to be enthusiastic.” And so he's very clear on that and then it simplifies life considerably.
So have a leadership statement, have a sense of who you are as a leader, what motivates you, what you get excited by and not all leaders are motivated by the same things. So I think those kinds of self-awareness exercises are very useful to do early on in your career.
PMTips: Rita, thank you for joining us today, for providing advice, and for sharing your professional experiences with our readers and listeners.
Rita McGrath: It's a pleasure. Thank you so much for having me.
Interview conducted by Ana Mitevska