In May of this year, Deloitte suggested that CIOs, CDOs and CTOs need to become “kinetic leaders that boldly reinvent the enterprise.” To succeed, they need to move from being trusted operators to business co-creators and increasingly, change instigators. Part of succeeding at this change involves enabling their organizations to better see around corners. Rita McGrath’s book, "Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen" provides many insights to help tech leaders achieve this end.
Understanding Inflection Points
According to McGrath, “inflection points are changes in the business environment that drastically shift some elements of a business’s activities, throwing certain 'taken for granted assumptions' into question.” These are the kinds of things CEOs should have their fingers all over, but they often count on their technology leaders to sense these changes first.
The problem, McGrath claims, is that incumbents are “always vulnerable to the perennial gale of creative destruction which sweeps away the old outdated and introduces the new and more desirable. The reason for this is that inflection points have the power to change the very assumptions on which organizations were founded.” According to Ian Mittroff, “the seeds of failure are often born in every success.”
McGrath suggests that progress at inflection points is not linear. They are proceeded by fits and starts. In fact, her model is similar to Gartner’s hype cycle with four inflection points: hype, dismissive, emergent and maturity. Similar to Gartner, the hype stage almost always ends in disillusionment or disaster. However, passing through the dismissive stage results in a few of the initial entrants surviving a shakeout and having the foundation for major growth in the emergent stage.
The dilemma is seeing the real implications unfolding at inflection points and responding appropriately at the right point. McGrath believes that the “Snow melts from the edges. The changes that are going to fundamentally influence the future of your business are brewing on the periphery. To avoid being taken by surprise by an inflection point, you need to be exposed to what is happening at the edges.” Clearly inflection points take time to unfold. They are incomplete when you first see them. However, by paying attention, tech leaders can begin to see the implications of the trajectory early enough to respond.
This reminds me of a presentation many years ago by the CTO of PeopleSoft, who said, at the beginning, they were a minor player that did HR software a different way. At the time, the largest players were doing HR software on the mainframe. The CTO said it was amazing when he looked back after three years and found all the mainframe firms gone. He said, however, that PeopleSoft almost missed the internet and of course, the successor to PeopleSoft, Workday, is entirely Software-as-a-Service (SaaS) based, the next wave of technology.
8 Practices for Being Present at the Edges
So how can technology leaders be present at the edges? McGrath suggests the following best practices.
- Ensure you connect to people at the edges of your company. Tech leaders should create mechanisms for direct information flows from the street corner. Without this, they will miss inflection points because they are isolated from the people who can tell them what is really going on. Former CIO, Joanna Young, calls this creating a 460-degree view — up, down and across the organization.
- Go out of your way to include diverse perspectives when thinking about the implications of the future. Tech leaders should ask whether they are inviting diverse viewpoints to conversations. Are they listening to people whose life experiences and views are different? Are they honing in on one scenario to the detriment of even being able to imagine other scenarios?
- Empower agility, but create balance. For decisions that are reversible, low risk and rich in learning potential, tech leaders should create small teams using agile methods — i.e. the two-pizza rule and no more than 10-12 people.
- Foster little bets that are rich in learning. Bets ideally should be distributed across the organization. Their aim should be instrumenting the edges. To avoid fighting thru a legacy bureaucracy focused on approvals, make $1,000 little bets.
- Pursue direct contact with the environment. Like Tom Peters who suggests leaders practice management by walking around, McGrath suggests tech leaders get out of the building because there are no answers there. It is time to get inspiration from customers.
- Make sure your people are incented to hear about reality. Technology leaders should create incentives that reveal useful, if awkward information. These incentives should ensure the organization absorbs uncomfortable lessons.
- Realize when your people are in denial. Tech leaders should not turn a blind eye because it is just more convenient not to take in news that things might be changing.
- Expose yourself and your organization to where the future is unfolding today. Tech leaders should find out where the future is unfolding. They should go and talk to representatives of the future. “The future is already here, it is just not very evenly distributed,” wrote William Gibson.
When an inflection takes place, McGrath says “it can alter the basic assumptions from which a business was built.” Because these assumptions are taken for granted, it is hard to hear and see the implications of change. At the same, it is important to recognize that being obsessed with facts can be problematic. Facts tend to be lagging indicator. And current indicators give tech leaders only data about the current operations. From my experience running the analytics business at HP Software, most tech leaders run off current metrics (monitoring systems) or lagging indicators. For this reason, I like metrics that look at the percentage improvement for leading indicators.
However, McGrath claims leading indicators represent things that are not yet facts. They are often qualitative instead of quantitative. For example, employee engagement is a leading indicator of customer propensity to defect and represents something leaders can take action to change. In the early stage, signals for inflection points are weak. However, the signal-to-noise ratio grows over time. The business problem is by the time the inflection is obvious to everyone, the chance to respond early is lost and the degrees of freedom are reduced. Tech leaders need to get information with respect to, what McGrath calls, the period of optimum warning.
Time to Review Your Business Assumptions
“Few things are more important for a manager to do than ask simple questions,” wrote Theodore Levitt in “Thinking About Management.” In the digital age, tech leaders, as digital business strategists, need to ask which pool of resources a company’s business depends upon. They need to ask what other players might be trying to grab those same resources even if they don’t offer similar products and services. Going further with product management, they need to get after what are the key jobs customers are trying to get done that influence spending decisions.
This will lead to the realization that physical products are increasingly having their value-add extended by technology. According to Michael Porter, “products from appliances to cars to industrial equipment are rapidly evolving into smart, complex, software-enabled systems that connect with their makers, users and each other to improve their performance and extend their functionality.”
Beyond this, McGrath suggests tech leaders evaluate the consumption chain that customers use to get a job done. They should also determine why customers see doing business with their company as a positive.
Customers, Not Hostages
Theodore Levitt wrote many years ago in "Marketing Imagination" that “the purpose of a business is to create and keep a customer.” Given this, it should come as no surprise that McGrath suggests practices that displease or even enrage customers can create an opening for a disruptive player to come into a market and have customers defect. "While inflection points can take a lot longer than one would think to arrive, it is clear that customers will remain hostages for only so long. Eventually a model that imprisons them will collapse." For this reason, McGrath suggests “smart organizations deeply understand the situations that customers are in, the jobs that they need to get done, and the outcomes they are seeking. These are vital to anticipate how those situations might change.”
Creating a Plan to Learn Fast
McGrath said “seeing around corners is about broadening the range of possibilities you consider paying attention to.” The problem early on is that uncertainty is extremely high. For this reason, McGrath suggests discovery-driven planning. This approach asks tech leaders to set some parameters for a future state and then to work backwards to figure out what must be true to make that future happen. CIO Paige Francis agrees: “I believe trying to make innovation certain is counterproductive. Learning from mistakes and failures drives innovation. Innovation and change will always breed uncertainty.” Part of this involves using little bets to learn. Here you convert assumptions into knowledge. Organizations that succeed become discovery driven and capitalize on potential learning.
The goal is to generate as many possibilities as you can on the front-end. After this, project checkpoints ask two questions: 1) whether the learning was worth the cost and 2) whether given the learning, it still makes sense to continue with the plan or whether a shift is warranted. For small bet initiatives, you do not want to substantially invest resources too early. However, being in the game early allows tech leaders to take advantage when digital is most disruptive and can change the parameters that have held conventional business models in place. This certainly juxtaposes how many tech leaders view the early phase of an innovation project.
Galvanizing the Organization
McGrath believes it is not enough to see an inflection point. An effective response requires people in the organization aligning around a common point of view. Big changes are often signaled by seemingly small and incremental shifts. However, for legacy businesses, this can be their own worst enemy. This creates the so called “Kodak Moment.” To create a sustaining business, McGrath believes organizations need to empower people to experiment.
Senior leadership needs to focus on providing a space for insights to be heard, recognizing the ones that are significant, and empowering those with the most knowledge to do something about them. I remember a story when I was at the Hughes Aircraft Company. The inventor of the geostationary satellite — something critical to modern telecommunications — could not get his managers to listen so he burst in on the Chairman of the Board and laid a certified check for $100,000 on the chairman’s desk saying he would personally fund the experiments needed to prove the technology. Smart organizations do not make it this hard for people at the edges to succeed. The role of leadership is not about control of complexity, but orchestrating individual inputs so that people feel empowered to take fast, convenient action when new information is revealed. Clearly, competitive advantages are transient, and the next big thing is hard to predict.
Building Innovation Proficiency
McGrath suggests that to navigate inflection points requires leaders to work more than one challenge at a time. Those that are smart improve their ability to scale innovation over time. For this reason, McGrath suggests an eight-step innovation proficiency maturity model.
- Extreme Bias to Exploitation
- Innovation Theater
- Localized Innovation
- Opportunistic Innovation
- Extreme Proficiency
- Maturity Proficiency
- Strategic Innovation
- Innovation Mastery
Leaders who successfully take an organization through inflection points facilitate the energy, connections, and the talents of the organization. They, also, improve their organization’s proficiency at innovation.
I hope this piece has provided you a lot of food for thought. I propose that more and more tech leaders need to be in the center of innovation. And this requires the ability to see around corners and increase organizational proficiency at innovation.