Today, I spoke to Scott Anthony, who is president of Innosight and the author of The Silver Lining: An Innovation Playbook for Uncertain Times. In this interview, Scott talks about how companies can stay afloat today despite the economy, why companies need to stop some innovation efforts, some thoughts and tips on personal reinvention and much more.
In The Silver Lining you argue that for most companies today, the challenge is greater than simply cutting costs, making incremental product improvements, or expanding into new markets. You say the challenge is reinvention or transformation. Can you explain this idea?
Simply doing what companies are doing better won’t be enough. Companies have to fundamentally do something quite different from today. Transformation comes from entering new markets and leaving old ones. Companies rarely transform themselves through cost cutting or improved operational effectiveness. Operational effectiveness is necessary to compete, and world-class operators can create competitive advantage, but in almost all cases, operational effectiveness is insufficient to stave off disruption and drive long-term competitive advantage.
A good example of reinvention is IBM. The company frequently enters into new businesses and categories. Its latest widespread transformation traces back to the challenging times in the late 1980s and early 1990s. The company faced intensifying competition in many of its core categories; many of their competitors had reached the same level of quality and were quickly becoming viable purchase options. IBM responded by accelerating its move into service businesses. Today, close to 60 percent of its revenue comes from services. It also formed a group called Emerging Business Opportunities to enter into new markets. That group has helped IBM create substantial businesses around open-source software, wireless, life sciences, and grid computing.
“Investing in transformational efforts in a brutal market appears difficult, but the alternative isn’t stagnation, it is extinction.”
To help companies free up time for successful transformation – you propose stopping some existing innovation efforts. You suggest “prudently pruning the innovation portfolio.” How can companies start doing this?
Downturns require prudent pruning of portfolios to free up scarce resources but it can be difficult to determine which projects to say “no” to. Companies looking to shut down some innovation efforts have to evaluate two different portfolios: their portfolio of in-process innovation efforts and their portfolio of existing businesses (brands, product families, units, and so on). Prudently pruning these portfolios will help to ensure that resources flow to the right innovation efforts and to identify existing businesses that can be safely shed.
The single most important question to ask when making decisions is, “What is the future potential of this idea or business?” For an individual idea, use past patterns to help assess how big an idea could be, remember that markets that don’t exist can be difficult to measure and analyze. For an existing business, try to determine unexploited growth potential in current markets and the potential to expand into new markets. Look forwards, not backwards. After all, every mutual fund prospectus tells us that “past performance is no guarantee of future results.”
You included a chapter on personal reinvention. Why is this so important?
It is unlikely that a company can transform itself unless its leaders transform themselves. The changes happening in the economy pose significant challenges on a personal level – not just an organizational level.
F. Scott Fitzgerald famously wrote: “The test of a first-rate intelligence is the ability to hold two opposing ideas in the mind at the same time and still retain the ability to function.”
Unfortunately, most managers can’t pass this test – but they will need to develop and improve the ability to master paradoxical demands or they will fail in this new environment. Recent research has shown, however,
that through careful self-assessment and a customized development plan – leaders can build this skill.
I also believe that innovation practitioners need to strengthen their innovation muscles. Recent research in this area highlights how successful innovators tend to excel at associational thinking, with tendencies toward discovery skills, such as questioning, observing, exploring, and networking. Innovators can take specific actions to improve these skills. Also, would-be innovators can consciously attend “schools of experience” that promise exposure to common innovation challenges.
Can you provide some tips on personal reinvention for leaders who are struggling to adapt to the changes brought on by this recession?
There’s no silver bullet to address this challenge, but the following three tips can help leaders begin the necessary process of personal reinvention.
- Work with a human resources executive to develop a personalized development program. This isn’t your father’s HR program–including psychological, philosophical or even spiritual elements in training can help leaders improve their ability to grapple with paradox. Consider using tools such as Kegan’s “Seven Languages of Transformation” to help accelerate your and your team’s ability to change.
- Start a “nights and weekend” activity rife with ambiguity. University of Southern California Professor Morgan McCall describes how a manager’s capabilities come from attending “schools of experience.” Helping a family member with a small business, launching a volunteer program at work, or spearheading an activity in the community can be ways to gain exposure to new sets of challenges.
- Consciously complicate your life by brushing up against other disciplines. It’s a long-held view that innovation often occurs when different disciplines intersect. Going to trade shows in unrelated industries, trading jobs for a week with a colleague at a non-competitive company or even reading an unusual magazine can expose leaders to new ways of thinking.
You say that leaders face another important challenge beyond improving their own abilities: harness its creative talents given the unique needs of an economic downturn. What are some strategies companies can embark on?
One approach is to continue to give innovators freedom to dream up bold new ideas, but tighten the leash on near-term activities. In other words, force innovators to prove their dreams are within reach through the kind of smart, low-cost experiments that I describe in the book. Alternatively, involve creative minds in core business challenges. Can they find different ways to prune portfolios or do more with less?
While exploring low-cost market research techniques or finding ways to trim benefits without alienating the staff might not sound as sexy as creating the next iPod, they require creative thinking and have a deep impact on business. Further, the more a company can improve its core operations, the more it will have funding—and patience—for innovation. Companies that don’t take these actions will see their innovation muscles atrophy during an economic downturn. Imposing discipline on the innovation process and letting creative managers use their talents to help with core challenges can keep innovators in shape for the next battle.
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Scott Anthony is the president of Innosight, an innovation consulting and investing company with offices in Massachusetts, Singapore, and India. He has consulted to Fortune 500 and start-up companies in a wide range of industries. During 2005–2006 he spearheaded a yearlong project to help the newspaper industry grapple with industry transformation (Newspaper Next). Anthony is the lead author on The Innovator’s Guide to Growth: Putting Disruptive Innovation to Work (Harvard Business School Press, 2008). He previously coauthored (with Harvard professor Clayton Christensen) Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change (Harvard Business School Press, 2004). His latest book is called The Silver Lining: An Innovation Playbook for Uncertain Times (Harvard Business Press, 2009).
