Transcript of Spotting Inflection Points in Your Industry

Transcript of Spotting Inflection Points in Your Industry written by John Jantsch read more at Duct Tape Marketing

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John Jantsch: This episode of The Duct Tape Marketing Podcast is brought to you by Klaviyo. Klaviyo is a platform that helps growth-focused eCommerce brands drive more sales with super-targeted, highly relevant email, Facebook and Instagram marketing.

John Jantsch: Hello and welcome to another episode of the Duct Tape Marketing Podcast. This is John Jantsch. My guest today is Rita McGrath. She is a globally recognized expert on strategy, innovation and growth, and also the author of a fairly new book called Seeing Around Corners: How to spot inflection points in business before they happen. Rita, thanks for joining me.

Rita McGrath: It’s a pleasure. Thanks for having me on.

John Jantsch: I’m guessing I won’t be the first person to ask this, you’re far more educated than some of my other guests. But, what is an inflection point? Let’s start there.

Rita McGrath: An inflection point is some change in the environment that creates a 10 times impact on your business, whether for good or for ill. As an example, the advent of digitization has created inflection points for sectors as wide varying as television, media, advertising. And content distribution.

John Jantsch: I know that obviously the first part of the book is, how do you see one of these coming? How do you decide what to do about it? I think the fact that’s exactly the way the book’s broken up, and how to bring your organization with you. But let’s start with, I mean, I don’t think these things come knocking on the door, right? How do you, sort of see them sneaking up on you?

Rita McGrath: Well, I think the first thing to remember is that they don’t happen instantly. They feel instant when you are experiencing their effects, but if you think about just the digital revolution as a case in point, we’ve had this thing building up since the early 90s, when we had the first friendly web browser, and the seeds of it go back even further back than that. The inspiration is really a bit like the line in Ernest Hemingway’s book, The Sun Also Rises, one character asks another, “Well, how did you go bankrupt?” And the response was, “Well, gradually and then suddenly.” I think the first thing to remember is you can spot the early warnings long before these things are at your doorstep demanding that you respond to them.

John Jantsch: What do you say to that company that, and my whole business, really the last 30 years that I’ve been in my business, I’ve seen all of this digital transformation for sure, but what do you say to that company that says, I see this coming, but to actually respond the way that we think we need to is suicide. I’ll give you a great example. I used to, because I’ve had a marketing business, I used to run a lot of ads in newsprint. In fact, we used to run a lot of classified ads for certain things. That was a huge revenue. In fact, I think the classified ad business was half of the ads that newspapers got, and that went away one day completely. They certainly could have seen it coming. They saw what Craigslist was doing, for example, but to do something about it meant that they were going to gut their business.

Rita McGrath: Mm-hmm (affirmative). Well, I think a stellar example for that business specifically, is the Norway based companies Schibsted, and their head of operations said in the early 90s, he said the internet is perfect for classified ads, classified ads are perfect for the internet. What they did, which a lot of newspapers didn’t, is they incented their leaders, whether you were part of the digital division, or whether you were part of the print division, what mattered to your bonus and compensation was whether you kept that client for Schibsted, however they wanted to do business with you. What you find most of the newspapers did in the early days of digital was they just messed that completely up, because they put the digital division and the print divisions basically at war with each other. And so you ended up with the digital division not getting the resources that it needed to make a smooth transition. Today Schibsted, is I think, one of the top three, maybe even the top two classified advertising providers on the planet.

John Jantsch: Well, I think what you also saw was a lot of people kind of sticking their head in the sand saying we’re just going to ride this out. I’m a 62 year old CEO, and I’ve got a board and to make some giant change that is going to save us in 10 years from now. That’s a hard decision isn’t it?

Rita McGrath: It is, and it takes a lot of courage. I think this is where I really want to have boards take a more forward looking view because you can’t expect that, that 62 year old CEO who’s bonus and comp and retirement is going to depend on short term performance in the next two years to do this. But the boards have a fiduciary responsibility to their investors, and as the business round table has recently pointed out to the larger communities that organizations serve, and I just think far too many boards roll over and play dead and don’t take that responsibility seriously enough.

John Jantsch: Are there certain gauges that people, and obviously I’m sure it varies by industries, but are there certain things that people should be checking in on a couple times a year, or to start spotting some of these, maybe they start out as trends before they overwhelm an industry?

Rita McGrath: Mm-hmm (affirmative). One of the most effective things companies can do, is make sure that they’ve got some budget, some resource set aside for experimenting with what I call options, what some people call little bets. These are small investments that you make that give you some insight into what could be changing in your world. They’re not big, bet the company, huge commitments, but they’re small experiments.

Rita McGrath: Let me take an example, just because that’ll make it more clear for people. Nike for years, felt that there was an opportunity to have some kind of direct connection with their consumers. In the late 80s they invented this horrible thing called, I think it was called the Nike motion, which was like you strapped it around your waist, and it had little sensors in it, which could peer at the ground and tell you how fast you were going and all that sort of thing. It was kind of kludgy and it caught on with a niche, but it really didn’t get anywhere. But they never really dropped the idea.

Rita McGrath: The opportunity for getting close to customers revived again after Apple introduced the first iPod. We forget, we think this is ancient history, it was 2001, I mean it wasn’t that long ago. What they did was they partnered with Nike, they invented this sensor, which became part of the Nike plus system, and today Nike plus the website, 20 years later, has something like 135 million members on it. That digital inflection, they were experimenting with it all along. When it finally came to be, as is the case now, that companies are discovering the power of going direct to consumer, Nike was already perfectly positioned.

John Jantsch: Some people might assume, and I’m prepared for you to bat this right back at me, but some people might assume that smaller organizations, small companies actually have an advantage when it comes to kind of changing direction or innovating. Would you say that that’s true?

Rita McGrath: Well, yes, they have fewer assets to mess around with. Back to our newspaper guys, if you were running a major newspaper back in the 80s, I mean the stuff that was on your mind was not classified ads, it was union contracts< and truck driver [inaudible 00:00:07:51], the price of paper, and did you get reliable ink supply? When you go to a digital footprint, all those assets become kind of irrelevant. I think it is easier for a smaller firm if they decide to shift direction, because they don’t have all those assets that have to be written off and dealt with in otherwise navigated.

John Jantsch: A company that you use as an example in the book is Adobe –

Rita McGrath: Mm-hmm (affirmative).

John Jantsch: – and of course a lot of software companies, we all bought the CDs, and boxes, and that kind of stuff, and we no longer do that anymore, but Adobe really went all in didn’t they?

Rita McGrath: Yes they did. They burned the bridges.

John Jantsch: Yeah, I remember buying a PageMaker in a box, which of course they bought from Aldus, which was kind of their flagship, which of course obviously now is much roomed into hundreds and hundreds of titles. But do you, in your research, is there something that other than them, maybe what appeared to be taking a big gamble, is there something that you believe made them sure that this was the inflection point?

Rita McGrath: I think it actually has its roots in the great recession. The problem with buying shrink-wrapped software, is if you run out of free cash flow, it’s very easy for you to decide to hang onto whatever you’ve got for another year. Adobe really had a big setback, and you often see this pattern where something happens that suddenly causes people to say, hang on this time is different. I think what that got them thinking, the fact that they had that shock, got them thinking very hard about the future of their business, and how could you do a couple of things. Firstly was ensure a more stable revenue stream so that you weren’t depending on people making an discretionary purchase.

Rita McGrath: But the second one was, as you looked at how technology was evolving in that kind of 2006, 2007, 2008 period, something we have again forgotten is that that was really when Cloud took off as the business model, and Salesforce led the way with this idea of monthly recurring revenue, but it was starting to be real. I think what Adobe realized, was not only were they vulnerable to buyers suddenly deciding they didn’t need to spend that kind of money, but that a new competitor could come in and use these new technologies and knock them off their perch. I think it was kind of two revelations over time that caused them to make that decision.

John Jantsch: Yeah, I think it’s one of those that was a tough decision, but it was an inevitable one, I guess. But it was, I think, tough because the technology wasn’t quite there yet and the online versions were not very good initially.

Rita McGrath: Mm-hmm (affirmative).

John Jantsch: I mean, now they’ve certainly caught up, but I think they were basically not only changing their business model, they were creating an experience for a customer that maybe wasn’t as good.

Rita McGrath: Right. One of the things I thought was smart about what they did was they said, look, the online version has to have different attributes than the version that lives by itself in your desktop, and our initial online customers are going to be people that really value that. One of the things for instance that they did that was different was, you used to have to pay a ton of money for Adobe, and so the only people that could afford it were either very much in that space or larger institutions. Well today you can be an Adobe customer for $7.99 a month. If all you want to do is have their password protection capability on your PDFs, you can do that very inexpensively. They really opened up the market to a whole lot of users who couldn’t afford to be part of their universe before.

John Jantsch: Yeah, and you’re right though, the model changes so much in terms of distribution, and assets, and hard costs, that it really allows for that kind of innovation, doesn’t it?

Rita McGrath: It does. Yeah.

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John Jantsch: Are there any industries that you look at right now and think, boy, they’d better be watching out?

Rita McGrath: Oh absolutely. Any industry that’s been stable for a really long period of time, and hasn’t really had to deal with much disruption. Examples are the construction business, the guys that make roofing tiles and that kind of thing. I think insurance is very interesting how stable it’s been, even though it sells a digital product by and large, definitely retail, we’re already seeing retail going through a major revolution.

Rita McGrath: I do a monthly newsletter and this month, the situation I looked at was holiday shopping and how that’s changed, and just some really interesting trends in the way that we deal with customers. I mean, for example in marketing as you know, the traditional gold star was you thought about the marketing funnel, and so you sort of had leads coming in the top and money flowing out the bottom, and in between where these hapless customers, which we tried to celebrate from the cash in their wallets, and right now what we see is this really immersive set of customer experiences where we’re constantly in contact with customers at any possible point in their journey. It’s really a radical transformation.

John Jantsch: Yeah, I would say another thing that I see, is that we are sometimes not in contact with them at all when they are going on the journey, that they’re in control of it and when and how they engage is totally up to them, or how they do their research, and a lot of times we are surprised that we even get a customer, if that makes sense?

Rita McGrath: Oh yeah, absolutely.

John Jantsch: What about the grocery industry? That’s one that’s always kind of puzzled me because people have been talking about grocery delivery, like the Amazon of groceries, for a long time.

Rita McGrath: Mm-hmm (affirmative).

John Jantsch: And while I think some inroads have been made, and certainly with Amazon’s purchase of Whole Foods, that gives them some sort of platform to come from, but it seems like that one, nobody has been able to crack.

Rita McGrath: Well, yeah, I think so, because buyers fall into very, very different customers segments when it comes to food. One of the things I predicted that these meal kit companies, the Blue Aprons, and those kinds of companies, that the supermarkets were going to do to them, what they did to Boston Chicken. I mean, you may remember how hyped up that was years ago. What ended up happening was all the supermarkets said, hang on, we can do rotisserie chicken. You must be kidding. Shortly after Amazon bought Whole Foods, I was in our local one, and lo and behold, there are Amazon meal kits ready to be picked up and taken home.

Rita McGrath: To come back to your major question though, I think one of the reasons groceries is so hard, is that there’s always going to be a segment of people that really want to pick out what they consume. I also think that the better grocery retailers, and here I’m thinking of Wegman’s and Kroger, they’ve actually made the shopping journey better, it’s more up to date, you go in and you’re surprised, because don’t forget, a lot of people don’t know exactly what they want to buy when they go in the store right, they’re going in to see what looks fresh, or what do I feel like, or is it pasta salad tonight? And you can’t really replicate that experience online.

John Jantsch: Yeah, no, I totally agree. You’re right though. I think some of the better retailers, Whole Foods has a restaurant and a bar, it’s become a community place where they actually have live music on Fridays –

Rita McGrath: Wow.

John Jantsch:  – so they’re really trying to do, I think they are trying to, as you to your point, change the experience.

Rita McGrath: Mm-hmm (affirmative).

John Jantsch: I think actually that’s a great point because I think some businesses that were kind of old school-ish, I’m thinking the local bookstore that, for all intent and purposes got put out of business by first, the big boxes, and then the online. But the ones that have hung in there have changed the experience-

Rita McGrath: Mm-hmm (affirmative).

John Jantsch: – and that’s what’s kept them, not being about the books but being about the community for example. I think that’s a small scale example, I think that that people could look at too, is as you’re getting ready to get put out of business, then what is the experience change that could happen, that would then sort of make the big box or whoever you’re competing with kind of irrelevant.

Rita McGrath: Mm-hmm (affirmative). I agree. I mean a stellar example of this is Best Buy. Best Buy was given up for dead 15 years ago because everybody was talking about show-rooming, oh you just go in the store, you do all your shopping, right, and then you order online for cheaper. What Hubert Joly said was, wait a minute, there’s things we can do because we have a brick and mortar place that nobody in ecommerce can match, and so we have the Geek Squad, and we have the Home Advisor program, and he basically said to the Sony’s and Microsoft’s of the world, you want to be in a Best Buy? Great. You pay rent for the privilege, I’m not buying inventory from you people. He really changed, I’d say the power dynamics among that kind of retail.

John Jantsch: That probably goes into your example, of kind of what to do about it, right? I mean that it’s not just merely a matter of saying, okay, we’re going to muscle up and fight this thing, it’s actually to make a fundamental shift, isn’t it?

Rita McGrath: Yeah. I mean, I think the thing people often overlook is something that Clay Christiansen who recently passed away, called the jobs to be done. What we forget is nobody gets up in the morning and buys a product or service because they want to right. In very rare cases, they buy it because there’s some problem or goal that they want to meet in their lives. What we forget is that my consideration set for how I get that problem addressed could involve many things across many industries, and so people get so wedded to this is how we do things, and this is how my industry’s always been constructed, that we forget that, and we don’t pay attention when customers flee for something else.

John Jantsch: Gosh, I preach that all the time. A company that, say cuts down trees or something in a local market, the problem they actually solve is that they show up when they say they’re going to and they clean up the job site. Everybody assumes they can take the tree down, and I think a lot of people forget that that’s what people are actually buying.

Rita McGrath: Absolutely. A great example is the whole batch of direct to consumer companies, such as Dollar Shave Club as an example, or Casper, or Wayfair. The product itself may not be as good, I mean I would imagine Dollar Shave Club doesn’t have all the advanced technology that a Gillette would have, but you know, you don’t have to go to a store, you don’t have to deal with the fortress where the razors are locked up, you don’t have to run out. It’s just all these other parts of the experience are so much better. We might even be cool with an inferior product.

John Jantsch: Yeah, it’s funny you say that because I have millennial children and they’re all in love with Casper, and I don’t think it’s as much about the product as it is the convenience, and they love their marketing, they love their message, they love how fun they are.

Rita McGrath: Yeah.

John Jantsch: In some ways I’m not even sure that they’re analyzing is this a better mattress?

Rita McGrath: No. Well, and the other thing that companies like Casper have done is, conventionally a mattress was something you lived with for 15 or 20 years, so it was a really high risk, high involvement purchase. What Casper has done is brought the price and the risk down low enough that we’re like, all right, if I use it for three years and buy another one, I’ll just do that. So this trend of sort of using things very quickly and then replenishing them is something that they’ve played into, I think.

John Jantsch: Yeah, and if you live on the 11th floor of a New York apartment, they found a way to get a mattress inside a little box.

Rita McGrath: Right, right.

John Jantsch: Is there one inflection point coming that anybody who’s in that industry, you would like to tell them they need to do something about it?

Rita McGrath: Well I’d say this is one that cuts across all industries. You may remember the years, at the end of the 90s when we were transitioning from dial-up modems to always on high speed internet. What that allowed was the emergence of ecommerce as we know it today, it allowed the voice on demand services that we take for granted from companies like Netflix and so on, it allowed blah, blah, blah. It did completely change the game in terms of how people related to digital offerings.

Rita McGrath: I think 5G is going to have a similar inflection-y kind of effect. Because if you think about it, if you have true 5G the way it’s being talked about, and it’s probably going to take longer than everybody thinks, but when it comes right, you’re going to be getting rid of limited bandwidth, you’re going to be getting rid of modems, you’re going to have more real time responsiveness, fun, all kinds of devices. I think it’s going to be that kind of change, like the shift from dial-up to true, always on internet. It’s going to be the same as the shift from sort of wifi, and routers, and 4G, to this 5G world.

John Jantsch: Yeah, and I where people sometimes miss that, is that once people start experiencing that, then they expect it from everything.

Rita McGrath: Exactly.

John Jantsch: And that’s where people get caught, isn’t it?

Rita McGrath: Well, look at all those dead internet service providers and the modems that they used to dial up.

John Jantsch: Yeah awesome. Well Rita, thanks so much for joining us. Where can people find out more about your work and pick up a copy of Seeing Around Corners?

Rita McGrath: Oh, I’d love them to do that. Well, so my website is RitaMcGrath.com, I know hugely inventive name. So it’s RitaMcGrath.com, and there you can check out my upcoming events. I have a newsletter archive, I have a monthly newsletter that I do every month, and what I do each month, if your listeners are interested in inflection points is I take a different sector of the economy each month and write about what I see as the trends that they should be paying attention to. This month is about holiday shopping and how it’s changed. We’ve done construction, we’ve done advertising, we’ve done a number of industries. You can find the whole archive collection on my website.

John Jantsch: We’ll have a link in the show notes.

Rita McGrath: Terrific.

John Jantsch: Rita, thanks for joining us and hopefully we’ll run into you soon out there on the road.

Rita McGrath: That would be great. See you then.

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