Subscription Models and Innovation with Columbia’s Rita McGrath

Podcast, Season 5

To launch a successful subscription business, you need to think like an innovator. But what does that really mean?

Rita McGrath is widely recognized as the premier expert on leading innovation and growth, particularly during uncertain times. A longtime professor at Columbia Business School, Rita is also the author of several bestselling books, including Discovery Driven Growth, The End of Competitive Advantage, and her most recent book, Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen.

In today’s episode, we talk about the right skills to launch, scale and lead a subscription initiative, the neuroscience of the status quo, and the seven archetypes of Innovation.

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Listen to the podcast here

 

 

Subscription Models and Innovation with Columbia’s Rita McGrath

To launch a successful subscription business, you need to think like an innovator. But what does that really mean?

Rita McGrath is widely recognized as the premier expert on leading innovation and growth, particularly during uncertain times. A longtime professor at Columbia Business School, Rita is also the author of several bestselling books, including Discovery Driven Growth, The End of Competitive Advantage, and her most recent book, Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen.

In today’s episode, we talk about the right skills to launch, scale and lead a subscription initiative, the neuroscience of the status quo, and the seven archetypes of Innovation.

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Robbie Baxter: Rita, welcome to the show.

Rita McGrath: It’s a pleasure to be here, Robbie.

Robbie Baxter: I invited you to the show because I’ve seen too many people tapped to figure out subscription because they’ve been at the company a while, but then they fail. What advice do you have for people who’ve been asked to lead a major innovation, particularly subscriptions, when they haven’t done something like that before?

Rita McGrath: Well, anytime you’re doing something new, you’re not going to be very good at it. And so the real challenge is, how do you get up that learning curve as quickly as possible?

Anytime you're doing something new, you're not going to be very good at it. And so the real challenge is, how do you get up that learning curve as quickly as possible? Click To Tweet

My general advice, when undertaking a big business model change, is start with some experiments, some of the low-cost or low-risk places where you could perhaps test out part of the thesis before turning your whole business model on itself.

 

Rita McGrath’s Advice: When undertaking a big business model change, start with some experiments, some of the low-cost or low-risk places where you could perhaps test out part of the thesis before turning your whole business model on itself.

 

Robbie Baxter: What would be examples of the kinds of experiments that you might do or how you might tackle that?

Rita McGrath: Well, you could, for example, start with one of your offerings on a subscription basis. For example, when Adobe was considering going from shrink-wrapped, packaged-software that people owned to shifting over to subscriptions, they didn’t do it all at once. They started with a couple of different products and offered the low end to artists and people on a streaming basis, and got their feet wet in it before they converted their whole business model. But eventually they did convert their entire business model over to subscriptions which took a huge amount of effort as you can imagine, and a huge amount of explaining.

I think another thing that your listeners might want to be really aware of is that the business model for subscriptions is so different than the business model for ownership. If you’re part of a publicly traded firm or if you have investors, you’re going to have to explain to them what’s different. The cash flows are different, the shape of what you’re offering is different, and the level of service you have to provide is different. It’s all going to be really new, so people need to understand how they should evaluate you. What are the metrics? Do you need to use those kinds of things?

The business model for subscriptions is so different than the business model for ownership Click To Tweet

Robbie Baxter: Yeah, there’s a lot of storytelling involved. It sounds like a lot of education. Part of it is selling, but part of it is also educating.

Rita McGrath: Well, it is. I think if you take something as simple as the traditional sales phone that every marketing 101 class teaches, but with the subscription model that evaporates, what you got now is a continuous flow of interactions with customers who may be at various stages of building a relationship with you. It’s a completely different way of thinking about your sales process.

Robbie Baxter: Yes, I sometimes say that in the membership economy, the moment of transaction is the starting line, not the finish line. It’s where the real work begins, and I think a lot of organizations have been educated. That is where you take a deep breath, go back out, and start thinking about what’s next, such as new customers, instead of really digging in on what you’ve got.

Rita McGrath: That is right. The whole customer success function changes too, if you think about it. You know an awful lot of subscriptions stuff is really shelfware and Tiffani Bova at Salesforce talks about this. As you know, typical large multinational corporations have well over a thousand applications, and only about 24% of them are integrated. The rest are either handled on an individual basis or they’re just sitting on the shelf, and people don’t use your products. They’re not going to continue subscribing.

In the membership economy, the moment of transaction is the starting line, not the finish line. It's where the real work begins. Click To Tweet

Robbie Baxter: That is really an important point. Engagement becomes the most important metric for success as opposed to short-term sales numbers, if your customers are not using your products, it becomes shelfware that people don’t use. They’re going to get around to canceling.

Rita McGrath: The other thing I would mention is that because you’re not buying something in a typical subscription model, it takes a while before you’re making a profit on any new customers. So when you’re looking at your sales team, you really want to be mindful of how you’re compensating them, because what you don’t want is them giving away the store to get that sale. But then neglecting to realize that the initial sale isn’t going to hit the bill because you’ve got to have a year of interactions with that customer before you’re actually turning them into a profitable line of work.

Robbie Baxter: Yes, absolutely. I’ve certainly seen that happen with companies where they’ve asked their existing big game-hunter salespeople to go out and sell small game subscriptions where you know the compensation has not been adjusted and it’s still based on total revenue. The salespeople dragged their feet on it partially because maybe they don’t know how to sell the subscriptions, but more likely because they’re not going to make as much money because the revenue takes longer to trickle in.

I think that another important element of this transformation and innovation process is to understand how your colleagues and different parts of the organization are going to be affected by the change. Whether they’re going to support you or not, and whether they’re capable of supporting you with their skills, and whether they have the desire.

Rita McGrath: Usually it’s not. If you’ve got a business head, who’s running an existing operation, you turn the crank and money comes out or comes up, and you come along with your small and never-been-seen before idea, they’re going to look at you and think we’re just a nuisance. Because you’re really in the early stages and you’re just a bother. So you really need to architect that connection between business units and the novel businesses very carefully.

Robbie Baxter: Yes, so talk to us about innovation and how or when it’s done right.

Rita McGrath: Which is rare.

Astonishingly, so many companies just haven’t figured it out. I’d say the first misconception about innovation that everybody has is that it’s all about the idea. Like, “Oh, we could just get more great ideas.”

So we have all this innovation theater, hackathons, boot camps, and thousands of hosting nights, and die a painful death while we’re ideating. Of course, ideations are important. You need a continuous flow of lots of good ideas but you also need incubation, that space from an idea to something that is actually robust and could be introduced to a market.

Then, when you decide it’s ready, now you’ve got this process of acceleration, which is your main business is like an 8-lane highway. Coming along, your new business is just on ramp. When it is in acceleration, you’ve got to mature the processes, you’ve got to invite legal in now, and compliance has to be there. It’s a whole set of processes that are necessary.

In a proficient organization, they’re all working together. You’ve got lots of flows of good ideas. You’ve got a process around its incubation and metrics. You will have a metric for when a system is ready to be brought into the market, and you’ve got business unit heads who understand that we’re all working on a common objective. That’s a big important point. When it’s working well, it’s not dependent on individual heroics, for instance, one person who’s leading the charge. It’s a systemically capable organization that has been built.

Robbie Baxter: I was recently talking to a team from a big public manufacturer. They were saying that each of our business units innovates well on their own products, but we feel like we’re missing the bigger opportunities that are out there because we don’t see what we don’t look for. They were asking this question of how do you bring Innovation, which is not innovation at the business unit level, but sort of innovation with the bold moves, such as the ‘Next Big Thing’. How do you bring that into an organization, as you described, when the organization has become so good at doing things the way they do for the existing business? How do you balance those two things simultaneously? Especially if you’re not doing a very good job of balancing those two right now?

Rita McGrath: Well, there are a series of answers to that question. The first point I would make is don’t think that you’ve got to have a huge team or a ton of resources to do this. In fact, you’re much better off with a small team and limited resources. That kind of flies in the face of the way a lot of companies go after this. Their instinct is to say, “All these resources, let’s go for the ‘Next Big Thing’.” Autonomous vehicles would be a case in point. Billions of dollars have been spent on this idea that maybe someday we’ll all be having robots drive us around, so that’s not the right way to do it.

The first question you’ve got to decide is, where are you going to put this activity? There are seven archetypes I talk about. Archetype one is that you can put it in a business unit. That’s organizationally easy, but unlikely to get that breakthrough result because they’re focused on today.

Archetype two is you have an independent unit within an existing business. That’s a little better but you’re still very vulnerable to getting knocked sideways by the crisis in the existing business.

The third archetype is to get something like R&D. That’s fun, but you can lose sight of the customers when you have that.

The fourth archetype is probably the one that I like the best, where we have a senior staff person whose sole responsibility is looking after the innovation programs. They have resources and reporting lines into existing business units. At IBM, for example, what they did was create what they called the emerging business opportunity system. The way that worked was they would take a very similar person out of their role. Somebody like Rod Adkins, who was running the Unix Business for IBM, back in the day, had 20,000 people working for him. Then he was assigned to this EBO, where he has like six analysts. His mission was to figure out pervasive computing for IBM.

He reported directly to Palmisano, who once again reported directly to Gerstner at the time, then to Bruce Harold. Bruce’s job was to protect those innovations from getting cannibalized. Then what Atkins would do is carefully look at this big opportunity for pervasive computing. We would call it the Internet of Things (IoT) nowadays. Then what they did was to start taking the existing business units and fold it under his control. They build up a new structure that was suitable for the innovation rather than force it to fit into what exists right now.

The fifth archetype is having a whole new venture division. That’s what they did at Nokia very successfully for many years.

The sixth archetype is that you have a report right to the CEO that solves a lot of your political problems. It solves a lot of your resource problems, but here’s the trouble because innovations are unpredictable. When it reports directly to the CEO, you can’t kill anything. Enormous flops.

The seventh archetype is one that I’m currently really interested in. It’s something I call The Permissionless Organization, where you got innovation throughout the whole organization. You’ve architected it so that anybody can participate, and you do things in parallel. You do things much faster. You do a lot of experimentation. Companies like Amazon or Tesla would operate this way where there was a structure or guideline. Technologies are used to doing that, but within those guidelines, there’s a lot of experimentation and freedom allowed.

Robbie Baxter: Yes, those seven archetypes are important for so many organizations to go through, and which one of these Archetypes is going to be the easiest to make it happen, or the most effective archetype that gives us a good place to start and aligns best with our culture and with the specific challenges that we’re facing.

Rita McGrath: There’s no perfect answer. Every one of them has pros and cons if you’re in an existing business unit. The cool thing is you’ve got HR at your disposal, procurement and legal. You’ve got these resources. Whereas if you’re an independent entity, you have to come up with how you get that stuff handled.

Robbie Baxter: Exactly. It’s a trade-off. One approach won’t work forever, either.

You talked about the stages of Innovation, which are Ideation, Incubation, and Acceleration. Could the same person lead all three through all three stages, or does it require a dramatically different skill set?

Rita McGrath: I have seen the same person able to do it, people like Elon Musk, and Jeff Bezos. They’re rare. Most people gravitate toward one or another. Your wild-eyed, blank sheet of paper invent-from-absolutely-nothing, those are maybe not the people you want to design your supply chain. There’s a tendency for people to gravitate toward one or another of those places. A very typical thing that you’ll see is that start-up guys, or internal entrepreneurs are very good at ideation and incubation, but once it gets handed over to a routine operating group, they’re just not interested anymore. That’s not why they get into that anymore.

Then there are others where that continues to be exciting to them, and they continue to figure out how to scale it, but typically, it would be different skill sets that get brought in at different points in that life cycle.

Robbie Baxter: Yes, I’m from Silicon Valley, and we love our ideation and incubation people here. Speaking of scaling, a lot of times people will say things like, “I get bored, it’s just not interesting.”

For the right person, scaling is fascinating and challenging. Frankly, the delta in value that you’re creating in the scaling process is amazing, but I think a lot of people feel like, “If I’m a scaler or accelerator, maybe I’m not an entrepreneur.” It’s fine if you’re both or all three, I don’t want to say it’s respected, but on the West Coast, or maybe some other entrepreneurial hotspots, people really want to be associated with the new thing.

Rita McGrath: Yes, that can happen. I would say that the scalers are the one. If you’re going to get a payback for all the investment you’re making in innovation and you don’t have those people, you’re never going to get a rich payday. Safi Bahcall, who wrote a wonderful book called Loonshots, has a great way of thinking about this. He said, “You need to think about your artists. These are our blank piece of paper, the ‘New Thing’ people, and your soldiers.” You’re going to create new things, and your soldiers are going to bring them to life, and you need both.
You need to treat both with dignity and respect.

Robbie Baxter: Yes, absolutely. I like that. I want to talk to you about the Mirror acquisition by Lululemon that I am reading, which is a story about a global pandemic, companies trying to make business sense out of an unprecedented behavioral shift, and a sense of urgency that can sometimes cloud decision-making. Can you share some of the key lessons? Because that’s particularly interesting to me about the blend of membership and relationships of old and new business.

Rita McGrath: There are assumptions that go behind these things. Lululemon is a very famous athletic apparel company that pioneered the athleisure movement. They opened a lot of doors. It is a very successful company, and runs pretty well with an interesting backstory about their founders. He’s got an amazing character, but I won’t go there. We’ve got Lululemon that makes athletic apparel, which actually served them pretty well during the pandemic when everybody was at home, and you didn’t have to wear grown-up pants to go to work.

Then we have Mirror, which was a company founded by a ballerina of all things. As many of you may know, it looks like a regular old Mirror when it’s just hanging on the wall, but if you activate the software inside it, i shows you a coach, or it shows you a class, and you imitate the actions of the coaching class.

Mirror, like Peloton, and a lot of those other popular pandemic brands. Sales are flying off the shelf. The way the business model works is that you have to buy the hardware. It’s like $1,200 to get the Mirror kit and all that. Then you have to subscribe to the coaching lessons which is similar to Peloton. Lululemon was thinking, “Oh, my goodness, with activewear at home and home exercising, people are never going back to the gym. How do we make sure that we are part of this “exercise at home” world for real?” I think at the time, their CEO was quoted as saying something like, “‘We want our customers to sweat with us, using the people in the Mirror. We want everybody who’s in the Mirror program to wear Lululemon.” That was the idea. The concept was that it would create greater stickiness because if you owned the physical thing, you were more likely to continue to use it, and it would generate more subscription revenue.

Fast forward, they offered 500 million dollars, and they paid $500 million for it. And a year before, this is the part that kind of head scratching, Mirror had raised around a venture financing that valued the company to about $300 million. So somehow, in 2019, they were worth $300 million and in 2020, they were worth $500 million, go figure it.

What happens is that the pandemic ended, and we decide we’re bored with being at home, we go back to the gym, and sales sort of level off. More importantly, what Lululemon is learning is that the subscription model isn’t a good fit with their business. Their business is selling actual clothes, and the subscription models are much less predictable. They overpaid for the acquisition. They began to see that whole line of business as a distraction. They ended up taking a $400 million write down last year. Then looking for somebody to buy it, and I haven’t updated myself on it. I don’t know if they’ve found a buyer yet, but they’re basically saying, ‘We’ll take this thing off our hands for free’.

Robbie Baxter: Yes, in that kind of situation, I remember when that deal happened, people thought, ‘Wow, this is going to be a category killer’ and ‘This is so prescient of them’. People who wear the clothes are now exercising, a virtuous cycle, deeper relationships with the customers.

You could have said Lululemon is very episodic. When I walk out of the Lululemon store, they have no idea if I’m ever going to come back. There’s no contractual relationship or ongoing formal structure.

Now they’re creating a formal structure with their customers that gives them a way to communicate with them on an ongoing basis to learn more about them, which seems great, but it turned out to be a distraction that they couldn’t rise above. Early in many innovations, the innovation is a distraction. Sometimes we need to push through this distraction and make it part of the new normal. That’s how you move forward. Sometimes you have to say, like what you just said about this particular partnership with acquisition, “This was a mistake. It was too distracting and different.” They couldn’t really get their arms around subscription as part of their bigger model. Now they’re basically giving away an asset that they paid half a billion dollars for just a few years ago.

Early in many innovations, the innovation is a distraction. Sometimes we need to push through this distraction and make it part of the new normal. That's how you move forward. Click To Tweet

It’s amazing. The question I have here is, How do you know when it’s a good idea versus a bad idea? Were there warning signs? We can look back on 2020 in hindsight, but looking forward, could you have seen those warning signs, knowing as much as you know about innovation? Because you’ve said that it was not because they were overpaying, maybe because they were doing a massive change because what everybody hoped and prayed for was a very time-delimited unique moment. Would you have said not to do it?

Rita McGrath: I would have gone through a process. I used to call it, discovery driven planning.

Basically, what it says is when you’re doing something that’s new to you that involves a fair amount of uncertainty, your main job is to map out whether the assumptions you’re making are realistic or not. The way I started discovery driven planning was, “What would success look like? What would have to be true for this to work out?” If you go back and look at the Mirror acquisition, you’re paying half a billion dollars for the thing. You know how much the subscriptions are worth, how much the machine costs and therefore, how many subscribers and users you need.

What I would ask myself is, “What would the increment to Lululemon’s bottom line need to be?” I don’t know the exact numbers, but let’s say it’s add 5% or 10% of their revenue, and that’s the bar. You can back work into what would have to be true for that bar to be met. I suspect what you would find if you really did those numbers is that the total addressable market would have to be like six times what the available market is to create that kind of financial benefit for Lululemon. So you’d not have gone forward at step two of my process. It has five steps.

The first step is to define what success would look like. You develop what I call a reverse income statement to say what would have to be true. Step two is you do then this reality check, “Well, does this imply that I need 4,000% of the available market, or is it more realistic?” Step three is documenting operationally what would have to happen. This is where you’d get into the nitty gritty of, How am I going to sell the things? How am I going to deliver them? Are they going to be in a Lululemon store? How many trucks do I need? What deliveries do I need? How much inventory do I need? Then as you’re doing all that, you’re going to be documenting your assumptions. The last thing you would do is plan around checkpoints.

For Lululemon or for Mirror, an initial checkpoint might just be, “Let’s really dig into this idea if you could go back to the gym, would you?” Their big assumption was that people’s habits had permanently changed and that once we got used to exercising at home then we continue to do that. That’s a big assumption. A lot of people made that assumption. Peloton certainly did, and they acquired Precor for the same exact reason, and you could have rewritten that story the same way?

In my process, what you would have done is said, “Well, is this being realistic? What are some of the critical assumptions that have to be true? I’m not saying that it’s perfect foresight, but it would certainly throw up a red flag to say, “Hey, is this even going to make sense at a corporate level?”

I’ll give you another example, and it’s sort of subscription-y, where Anheuser-Busch and Keurig Dr Pepper (KDP) did this joint venture around a concept they called Drink Works, which was an idea of a machine that would make alcoholic beverages so that you could mix a cocktail. They announced it with great fanfare in 2017. They hired food scientists, they put up a production line for all this stuff, and all of a sudden, in December 2021, after announcing that they were going to roll this out nationally, they just abruptly shut it down without any warning or fanfare.

I went back and did an analysis of that business, and what you come to realize very quickly is that if you take Anheuser-Busch and combine their revenues, this thing would have to be capable of delivering something like $1.2 billion in sales in addition to what Anheuser-Busch and Keurig Dr Pepper were already doing, and to accomplish that, every man, woman, and child in America, would have to buy six of these things a day.

They made this classic mistake, which is making the assumption they knew what they were doing. They built this huge team around this concept without really testing whether it made sense.

An entrepreneur, who has founded a company called Bartesian. He’s not starting with the idea that it’s got to be a billion dollars. Instead, he’s starting with, “Can I make a living at this thing?” He’s building a really viable business out of the Bartesian machines, which are now available at Walmart. You can get them through a subscription. He’s making it work really well, but among the critical differences, he doesn’t have that need for bigness hanging over him. More importantly, his pods are the flavor. You buy your own booze, and with the Drink Works machine, the booze was in the packages.

What that means is that you’ve now introduced an incredible level of complexity in how you distribute it because you can’t just send those through the mail. You have to actually sell them through a liquor store. You have to be dependent on the state that you’re in, that may be a State-run liquor store. It would be private or whatever. You’re just introducing a level of complexity that I think is overwhelming for the business.

Robbie Baxter: Yeah, it’s fascinating that all the little details come together, and all the things that you don’t realize you don’t know, which sort of brings me to the next area that I wanted to talk to you about. What do you do when your innovation or your new idea requires multiple simultaneous transformations?

In the case you just described, they needed to learn about sending alcohol to people’s homes. They needed to learn that they need to have hit these very big numbers. They need to learn about subscriptions. All of these new things are happening at once. The example of Mirror and Lululemon showed that they had to learn about subscription with a much more sophisticated understanding of digital business that would be required than with running a commerce business that has a store.

How do you think about that and managing multiple transformations when it’s not just one thing that has to change but it’s actually going to lead to a kind of a domino effect of multiple transformations?

Rita McGrath: The guideline here is not to bite off too much at once. You can do that if you operate in parallel. One team learning about E-commerce, another team learning about store placement at the same time, and then another team studying consumer behavior. You can learn a lot because you’re breaking the task up into pieces.

Parallel Operations in Permissionless Organizations: Take large, complex problems and break them up into digestible chunks so that no team is overwhelmed

 

This is what these permissionless organizations that I talk about are doing. They take these large, complex problems and break them up into digestible chunks so that no team is overwhelmed. Another important thing is that because you broke up the work into pieces, you got results much more quickly. Rather than approaching it like this big monolith, we made the announcement, and everybody’s scurrying around. The whole organization is doing things in sequence. What you’re doing is in parallel which speeds things up. It gets you faster learning. It increases your organizational clock speed and does a lot of really good things for you.

Robbie Baxter: Very smart. Lots of great phrases that you have coined. We’ve talked about innovation theater and discovery driven planning. Maybe you can share a little bit about the neuroscience of the status quo.

Then the next question I’d love to ask is: How do you come up with these ideas of these phrases? How do you coin them?

Rita McGrath: Status quo is the way that our brains are wired when we’re engaged in predictable activity because thinking takes a lot of energy. Our brains are trained to use sort of fast thinking. If you think about it, you make hundreds of decisions every day. Have you ever had this experience where you drive home from a commute, and you walk in your front door, with no actual recollection of how you got there? That’s our neuroscience taking the burden of thinking about things away from us, because if you had to think about every single thing, and make a decision about all of them all day long, you’d be paralyzed. What the brain does is conserve energy. Anything that’s routine, it just sort of puts in that space with the label, “Routine.” That’s going to lead to predictable, what my friend Greg Galle calls, “Predictable Pets.” If you want to do something new, you have to introduce some kind of shock or stimulus into the brain. That is what triggers our imagination, and what in turn gets us to think differently about the path that we’re going to take. It’s a little surprising if you think about the process of getting ideas. My friend, Jeremy Utley talks about this, he said, “The process of getting ideas is you’re connecting things. It could be two concepts. It could be two experiences, or it could be whatever. The process of getting an idea is you’re making that connection.”

Here’s an example he uses in his recent book, he says, “You watch a San Francisco couple burdened trying to push the stroller up a hill. Then you remember that your dad had a motorized wheelbarrow, or a motorized lawnmower when you were a kid. The two ideas come together and we’re thinking, ‘Oh, motorized, is that a good idea? Is it a bad idea? We have no idea at the early stages but now you’ve got a concept, which is this process of putting these two ideas together.”

When you’re trying to come up with something new, the neuroscience of it is that you need to introduce the idea of, “Oh, I’ve now got this new thing and I can connect it to that new thing.” If you think about the process of human imagination, that’s what it is. We get startled by something you say, “Wait a minute. That didn’t work out the way that I thought, that was new, or unusual.” It sparks our imagination, which is the more energy-intensive part of our brain. We actually have to put some effort into thinking.

Danny Kahneman famously talks about thinking fast and slow. Our default is fast, and you don’t want to do that. If you’re involved in something that’s expensive, dangerous, or risky, you want slow thinking, painstaking attention, and managing things. That’s the neuroscience aspect of it.

Robbie Baxter: Yes, it’s very important. If you’re back to this company that wants to be more innovative, one of the things that they need to do is to create space for slow thinking, which is very different from sort of how you go through your day where you’re like, “I don’t even remember what I did today, but people often will say, “Five o’clock or six o’clock when they log out, today was a blur. I don’t even remember the drive home”. Your whole work day can become that because you’re doing things you know how to do. It’s like you get on the ride, and then you get off at the end of the day. I think that’s really important of how you make space for it.

The other piece that I think is important to call out is the juxtaposition of different ideas and how that can sometimes spark something new, and how a lot of companies and a lot of innovators will say, in my world of subscriptions, “It’s the Netflix of fill in the blank.” It’s the Netflix of Bicycles. It’s the Netflix of Automotive Engineering. It’s the Netflix of Strategy Consulting.

That gets people thinking about what that could possibly mean? Then the challenges when you have to say, “Okay, which of those ideas is the best idea? What does it really mean to be the Netflix of Video Games? Which of these many ideas are we going to use?” It’s super helpful.

The last question is about the three phrases. Where do you come up with them? How do you coin them?

Rita McGrath: Well, I’m not consciously sure I know the answer to that. What I will tell you is that I do an awful lot of looking at concepts. I can read a lot. I spend a lot of time with books, authors, and conversations. There’s a lot of variety. So back to Jeremy again, he talks about the more Lego bricks you have in your bundle of ideas, the more you have to connect, and the more chances are that you’ll run across something that’s really fruitful. That’s one of the reasons, for example, why diversity is so important in organizations because diverse people who are different than you. That could be many dimensions of diversity, and they bring their own bucket of blocks. Now that you’ve got more blocks to connect, in the chances that some of these connections are going to be amazing. It is much greater if you’ve got more to choose from. It’s the idea of taking lots of different inputs and connecting them in an interesting way.

Here’s one that I did just last week. I was looking at this fascinating confluence. We’ve got big food, which creates super delicious stuff, but we consumed too much of it. So people struggle with their weight, and then we got the whole diet industry.

Robbie Baxter: I saw your comments on this.

Rita McGrath: Which evidence is not ever that people would succeed on Weight Watchers and stuff, is a very small proportion of their total customer base, but I guess hope springs eternal. And you’ve got the pharmaceutical industry coming into that whole nexus with these drugs that are sort of miracle drugs that actually lead people to lose weight. They crave less. The drugs make them immune to what the food companies have engineered into their food. I just think this is a fascinating sort of nexus when these different sectors coming together, and we’ll see where it all goes. That’s an example where I’ll run across something and say, “Well, that’s kind of an interesting thing to observe.”

Robbie Baxter: Yes, we’ll see where that ends up with the obesity epidemic and the metabolic dysfunction in the world right now, everybody’s taking a piece of it but hopefully somebody is going to figure out how to actually make us better.

Okay, so we’ve covered a lot. There are lots more questions that I could have asked you, but I’ll pause for today and hope that you’ll come back again. Before you go, would you be up for doing a speed round with me?

Rita McGrath: Sure.

Robbie Baxter: Okay, the first subscription that you remember having?

Rita McGrath: It was Big Books about movie stars and stuff. I begged my parents to let me have it. Like Clark Gable and the great stars of the 1930s. This big, beautiful coffee table book would arrive once a month. That was the first one I remember.

Robbie Baxter: I love that. Okay, your favorite subscription that you use today?

Rita McGrath: There are many. Probably my Microsoft package because it lives with me, so maybe a favorite. I’m not sure it would be the right answer, but it is the most useful.

Robbie Baxter: A company that you haven’t worked with whose approach to innovation has really impressed you.

Rita McGrath: Tesla.

Robbie Baxter: Your favorite place to take a visitor to Columbia for lunch?

Rita McGrath: Probably Le Monde, which is on Broadway at 113th Street.

Robbie Baxter: The most exotic place where you’ve ever spoken?

Rita McGrath: Probably Jakarta, Indonesia.

Robbie Baxter: One piece of advice for people who are listening, if they’re thinking they’d like to be a little more innovative or innovation into their big or small team. What would be one thing that they could do right away?

Rita McGrath: Practice, set aside twenty minutes, or half an hour. Set yourself a little problem of how I might improve X (fill in the blank). Then generate as many ideas as you can. One of the things that we know about ideas is that the first idea you have would never be the best idea. What you want is quantity. Generate a lot of ideas and make it a practice. Set aside fifteen, twenty minutes every day to do it. What you’ll find is that just setting aside that time gives your brain permission.

Another really good practice is before you go to sleep at night, give yourself a little challenge, and let your subconscious work on it overnight as you sleep.

Robbie Baxter: I love that. Rita McGrath. Thank you so much for being a guest on Subscription Stories.

Rita McGrath: It was a lovely pleasure to chat with you.

 

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That was Columbia Professor Rita McGrath, author of Seeing Around Corners. For more about Rita, her work, and her books, go to ritamcgrath.com. And for more about Subscription Stories as well as a transcript of my conversation with Rita, go to RobbieKellmanBaxter.com/podcast.

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About Rita McGrath

Rita McGrathRita McGrath is a best-selling author, a sought-after advisor and speaker, and a longtime professor at Columbia Business School. Rita is one of the world’s top experts on strategy and innovation and is consistently ranked among the top 10 management thinkers in the world, including the #1 award for strategy by Thinkers50. McGrath’s recent book on strategic inflection points is Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen. Rita is the author of four other books, including the best-selling The End of Competitive Advantage.

Since the onset of the pandemic, Rita has created workshops, strategy sessions and keynotes, applying her tools and frameworks to strategy under high levels of uncertainty to specific issues organizations are facing. As Rui Barbas, the Chief Strategy Officer for Nestle USA said, “You were incredibly insightful and, despite the virtual setting, there was lots of engagement and comments from leaders sharing eye-opening observations and building on your examples throughout. You delivered the inspiration and illustration desired and it was exactly the right focus and challenge for this team. Appreciate your time throughout the process to align on content and delivery. The future-focus theme was the perfect close to our leadership summit.”

Rita’s work is focused on creating unique insights. She has also founded Valize a companion company, dedicated to turning those insights into actionable capability. You can find out more about Valize at www.valize.com

McGrath received her Ph.D. from the Wharton School (University of Pennsylvania) and has degrees with honors from Barnard College and the Columbia School of International and Public Affairs.

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