The Great Disruption

Interview with Scott Anthony, Author of The Silver Lining Times are tough. Innovation is a corporate necessity for survival. In The Silver Lining Scott Anthony makes the case that today's turbulent times make mastering innovation a competitive necessity.

Graham Duncan (GD): You are President of Innosight. What services do you provide?

Scott Anthony: We provide consulting services to corporate clients. Our work focuses on either helping our clients conceive of and commercialize a booming growth business, or building capabilities to make innovation and growth more repeatable.

When I wrote The Silver Lining I was the President of Innosight. In September I switched to become the Managing Director of Innosight Ventures, our incubation and investing arm. We draw on the same IP, but in a more applied way.

GD: You say that the philosophy of Innosight is founded on the concept of disruptive innovation first identified and analyzed by Clayton Christensen in 1997. Would you tell our readers about that philosophy?

Scott Anthony: The core belief is that market transformation and creation comes from simplicity, convenience, affordability, and accessibility. The target consumer for a disruptive play is often a "non-consumer" that lacks the skills, wealth, or access to solve the pressing problems they face in their lives. There is a whole suite of tools we have built to spot, shape, and build disruptive businesses.

GD: I had the pleasure to interview Clayton Christensen last year about his book Disrupting Class. How has Clayton impacted your work at Innosight?

Scott Anthony: Clayton co-founded Innosight and remains pretty closely involved in the company. We obviously build off his research and collaborate with him on specific clients. I have been personally connected to him for about a decade now. We get the chance to test some of his concepts in the marketplace, where we try to figure out what works and what doesn't. We like to identify other puzzles for him to ponder.

GD: You wrote The Silver Lining to provide practical advice for companies on the use of innovation in uncertain times. How have companies embraced innovation in the past year?

Scott Anthony: It has been an interesting year. One fear I had last year was that people would slash innovation investments. That hasn't happened. I think the turmoil of the past couple of years has made it clear to people that innovation isn't a choice – it is a necessity. Today's business model has a finite life so companies that don't embrace innovation are in trouble.

GD: Are you saying that their first temptation to retract their efforts and expenditures in innovation was not as prevalent as you initially thought might be the case?

Scott Anthony: Yes, much less so than I feared. Certainly there was some cutting, particularly in companies that weren't sure if they would be solvent in 60 days hence.

Consider Whirlpool. The company protected two things in the downturn – improving its distribution system and new product innovation. People had to do more with less, but that's actually good because with innovation less often leads to more!

GD: You say that an appropriate name for today's times is the Great Disruption, change is rippling through markets at an unprecedented pace, and competitive advantages that took decades to build are disappearing overnight. With all these dark clouds overhead you remain optimistic. Why do you remain so positive about the economy?

Scott Anthony: I was a judge in this year's Wall Street Journal innovation awards where I reviewed applications from about 200 finalists. Picking winners was very hard because the innovations – from medical devices to security to consumer electronics – were so impressive.

Innovation is going to keep coming. Markets are continuing to be developed and transformed. The opportunities are undoubtedly out there.

GD: Why is it important to continually ask the question, "What important problem can't the customer solve today?"

Scott Anthony: A lot of innovation waste comes from guessing or poorly understanding what the market wants. If you can look at the world from the customers' perspective and find their pain, this waste goes way down.

GD: Customers' problems do not fade in tough economic times. Why is this the time to focus on innovative solutions that solve our customers' problems?

Scott Anthony: It has never been easier to innovate. People are still hungry for things that make their lives better. If you don't, someone else will.

There really aren't good and bad times to innovate – you need to do it all the time!

GD: You say that companies rarely transform themselves through cost cutting or improved operational effectiveness. Why are these measures not enough to transform a company?

Scott Anthony: Transformation isn't doing it better. It's doing things differently.

Take IBM. Its transformation comes from exiting some businesses, such as printing and laptops, and entering others – services and grid computing are two examples.

Incrementalism is fine in stable environments, but wholly inadequate in unstable ones.

GD: In The Silver Lining you describe the importance of the transformational imperative. Would you tell us about this concept?

Scott Anthony: It is not natural for a company to transform itself. If the organization doesn't understand WHY it is being asked to do things differently, it is very easy to resort back to past patterns of behavior.

Not everyone needs to change, of course, but everyone needs to know what the game plan is.

GD: I suspect you would say that the status quo is a very dangerous place to be. Moving staff away from products and services that are past their shelf life can be difficult. After all, they may well have established their career with these services and are understandably unwilling to let go. What strategies would you recommend to help them move to new innovations?

Scott Anthony: The hard advice is that if you have waited until it's obvious that you need to shift resources, it is probably too late. WL Gore CEO Terri Kelly told me that the process of pruning has to be continual, so it's not a big deal when it happens.

The other thing that's important to consider is your decision criteria. A lot of people look backwards when deciding what to cut. But then you only do it when it's too late. You have to choose based on future potential, not past performance.

GD: You say management that traditionally focuses on operational execution and prudent cost controls may be insufficient to survive these times. Would you talk about this?

Scott Anthony: It's straight out of Darwin. People develop traits optimized for their environment.

Natural selection over the past few decades has favored the optimizers and executors. People just haven't built the muscles they need for the new challenges. Those that may have had them were selected out long ago. This is a very tough challenge, and one that people still aren't talking about enough.

GD: Can companies afford to allocate resources to innovation projects that are not revenue generators?

Scott Anthony: It is incredibly important to remember that there is one and only one reason for a company to innovate, and that is to produce profits. You might not know where the profits will come from, but in no circumstances should innovators be held exempt from creating revenues!

Innovation shouldn't be confused with invention, recreation, or dreaming. These things are good and can enable innovation, but they are not innovation.

GD: Some companies will prioritize their innovation projects based on projected first year revenues. What is the down-side of this approach?

Scott Anthony: The problem is first year revenues are at best rough guides to long-term potential.

We looked at 20 recent disruptive success stories where we had enough data to go back to dollar one of revenue. These were some phenomenal success stories, like Google, Netflix, and Research in Motion. The average company in our sample had $15 million in revenue.

If you only focus on near term revenue, you look naturally to large obvious markets. And that's not where the real disruption comes from.

GD: You say that moving out of old markets is as important as finding new ones. Is this because companies have to be continually reinventing themselves – developing new business models?

Scott Anthony: Absolutely. If there is one thing that companies need to always keep in mind it's that which has made them great will not necessarily continue to make them great. The brands, products, customers, and revenue models of today will not be the brands, products, customers and revenue models of tomorrow.

GD: What is the problem with the tendency to let past performance guide whether to stay with an old market or move into new ones?

Scott Anthony: Past performance is fine when looking at things in stable conditions, but when there is instability past performance is actually pretty useless.

Data only becomes clear about the past when it is too late to make a meaningful change. It is potential, not past performance that we should pay attention to.

GD: You say that when evaluating existing business, companies should look at the degree to which there's unexploited potential in existing markets and additional value in new markets. How might a company measure the value of the unexploited potential?

Scott Anthony: There are a bunch of ways to do this. A simple way is to do the old Drucker/GE trick of redefining the market by looking at what we call non-consumption. Who is cut out of the market today? What times of day or locations feature zero consumption?

There are many sophisticated market research tools to use here too, but they defy short explanations.

GD: You say that the basic principle of disruptive innovation shows how different customer groups define quality in different ways. Does this mean that segmenting customers by their requirements can assist in finding new markets?

Scott Anthony: Yes. Opportunities are obvious when you look at markets in the right way. Nintendo saw a huge market of non-gamers when it launched its Wii in 2005. It appropriately segmented the market.

GD: You say that getting ready for innovation requires a systematic approach. How does Innosight follow a systematic approach in its efforts to grow business?

Scott Anthony: The book Innovator's Guide to Growth, which I co-authored with Mark Johnson, Joseph Sinfield, and Elizabeth Altman in 2008, spells out our basic perspectives on how you spot and seize individual growth businesses, and how you build the capability to "routinize" the search for growth. It isn't cookie cutter by any stretch of the imagination, but the right principles, processes and philosophies really accelerate innovation.

GD: How important is it to stimulate innovation by broadening employees' horizons and continuously building new skill sets?

Scott Anthony: It is important to have a deep, broad pool of internal innovators, but the criticality of this depends on the corporate need and approach to innovation.

If the core business has a good decade of unexploited growth and the intent is only to plant a few seeds before they are necessary, building everyone's skills isn't required. That said, it almost never hurts to have people have more problem solving tools in their toolkit!

GD: What kinds of leadership competencies do managers need to have if they are to embrace innovation?

Scott Anthony: It really is being comfortable with ambiguity, learning to trust their instincts, and embracing the scarcity principle. I suppose the humility to recognize that not knowing isn't bad, and seeking help wherever it lies is good too!

GD: In The Silver Lining you describe Procter and Gamble's approach to open innovation. Is open innovation, where companies connect to external innovators to identify ideas, solve problems and build new businesses, an ever more important approach for both large and small companies?

Scott Anthony: Well, in some industries this type of open innovation is more important and valuable than others, but everyone should be looking for smart ways to share the innovation load. It's a good way for dollars to go further, and to find skills and ideas you wouldn't otherwise have.

GD: Why do you think more companies have not adopted the model of open innovation, of relying on innovation and knowledge available from people outside their organizations?

Scott Anthony: It can be pretty scary, threatening orthodoxies and established power bases within a company. Plus, people can get burned by launching bad open innovation efforts. It does require a real commitment, and it can go wrong!

GD: In uncertain times value-conscious consumers have moved to price discounters like Wal-Mart and MacDonald's. In the disruption model, you say that low-end solutions fill a market niche and often displace well-established competitors. Is this disruptive approach becoming more prevalent in the world economy?

Scott Anthony: You definitely see a lot of people embracing low cost, simple solutions in a range of industries. This looks like a threat to market incumbents, but companies like GE are flipping the problem around to find new ways to compete in emerging markets.

GD: You indicate that Innosight's philosophy is to thrive at the intersection where thought leadership connects with market impact through practical techniques and hands-on collaboration. Would you talk about this philosophy?

Scott Anthony: Intersections are always where interesting things happen. So we try to borrow from different philosophies as much as we can. We do a lot of research, but we most definitely are not academics because our clients are executives, not scholarly journals!

Kuhn noted decades ago that paradigm shifts come from outside the paradigm. We have to find ways to find the intersections or we get stuck in our own paradigm!

GD: What are the elements of thought leadership that are necessary for successful innovation?

Scott Anthony: I think the characteristics I just described are pretty critical. An outside-in approach that focuses on understanding markets and borrowing and adapting ideas from other contexts helps too.

GD: Has Innosight worked with companies in Europe? If so, do you see any differences in their approaches to innovation compared to companies in the U.S.?

Scott Anthony: We have worked with a few European companies. Honestly I don't think we have enough data to make reasonable generalizations, but of course there are famously innovative companies like L'Oreal, IKEA, Tesco, and Nokia in Europe!

GD: You postponed your doctoral program a year ago to continue you work with Innosight. Do you have any regrets about that decision, and do you have plans to resume your doctoral program in the foreseeable future?

Scott Anthony: No, and no. The world is just too darn interesting, particularly with my new assignment building up our incubation and investing arm.

GD: Your September 16th issue of your blog marks the first anniversary of the digital edition of Strategy & Innovation. One year ago you said goodbye to print and embraced digital in hopes of reaching more people. How successful has this strategy been?

Scott Anthony: We have about quadrupled our subscriber base, which is great. Our goal was never to turn our publication into a money machine. It was to get our content into as many hands as possible. We will continue to play with the form of the content as we go forward.

GD: What message do you have for leaders who are not sure whether to invest in innovation in these uncertain economic times?

Scott Anthony: It is a short message. You might think your choice is to survive or to innovate. It is a false choice.

If you do not innovate, you will die.

GD: Is there a silver lining?

Scott Anthony: Absolutely. The innovation spirit continues. Companies are seeing that scarcity and discipline are helping, not hurting their efforts.

It's a great time to be an innovator.

GD: What books would you especially recommend related to creativity, innovation or business leadership?

Scott Anthony: I am currently reading Borrowing Brilliance by David Murray and Tim Brown's Change by Design, both of which have some useful lessons.

My favorite books over the past couple years are Made to Stick by Chip and Dan Heath, Discovery-Driven Growth by Rita McGrath and Ian Macmillan, and Predictably Irrational by Dan Ariely.

My colleague, Mark Johnson, has an awesome book coming out next year called Seizing the White Space, which talks about business model innovation. I have read that one a few times!

Conclusion:
Many of today's companies have become paralyzed by the economic crisis and are ignoring the potential for innovation. The turbulence companies are facing today isn't going to go away. Markets are colliding, technology is evolving faster than ever and competitors are emerging from every corner of the world.

In The Silver Lining Scott Anthony indicates that constant change is the new normal. "For companies, it's not simply about how they operate to survive today, but how they change overall to adapt to this new reality."

Scott Anthony's Bio:
Scott Anthony is Managing Director of Innosight Ventures. He previously was the President of Innosight's consulting arm where he worked with Fortune 500 and start-up companies in industries such as print and broadcast media, consumer products, investment banking, transportation and logistics, healthcare, medical devices, software, petrochemicals, and communications equipment. In 2005-2006 he spearheaded a year-long project to help the newspaper industry grapple with industry transformation, and in 2003-2004 led a project to help the government of Singapore understand how to create an environment that fosters entrepreneurialism and innovation.

Prior to joining Innosight, he was a senior researcher with Clayton Christensen, managing a group that worked to further Christensen's research on innovation. He previously worked as a consultant for McKinsey & Co., a strategic planner for Aspen Technology, and a product manager for WorldSpace Corporation. While at McKinsey, he co-authored a publicly released report on the United Kingdom's economic prospects.

He received a BA in economics from Dartmouth College and an MBA with high distinction from Harvard Business School, where he was a Baker Scholar.

Anthony is a featured speaker on topics of growth and innovation. He was a judge in the Wall Street Journal's 2009 Innovation Awards.

He has written articles in publications such as the Wall Street Journal, Harvard Business Review, BusinessWeek, Forbes, Sloan Management Review, Advertising Age, Marketing Management and Chief Executive. Scott Anthonyis also a regular contributor to Harvard Business Online and serves as the editorial director of Strategy & Innovation.

Scott Anthony has written three books about innovation: Seeing What's Next: Using Theories of Innovation to Predict Industry Change with Harvard Professor Clayton Christensen (Harvard Business Press, 2004), Innovator's Guide to Growth: Putting Disruptive Innovation to Work with Mark Johnson, Joe Sinfield, and Elizabeth Altman (Harvard Business Press, 2008), and The Silver Lining: An Innovation Playbook for Uncertain Times (Harvard Business Press, June 2009).

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Reader Comments

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Very interesting interview with Scott Anthony, Author of The Silver Lining. I liked it.
Dr.A.Jagadeesh Nellore(AP),India
E-mail: [email protected]
Posted by Anumakonda Jagadeesh on November 7, 2012