Engage // Innovate co-founder Christian Rangen recently had the pleasure to sit down for a conversation with Columbia Business School professor and globally-recognized expert on strategy, innovation and growth Rita McGrath, to discuss her latest work on strategic inflection points.

As a long-time member of Engage // Innovate’s informal Advisory Board, Rita’s thinking has long been an influential and inspirational force.

In the short, but very interesting conversation, the two strategy experts delved into innovation as a repeatable process, how companies should react to the early warning signs of impending industry shifts, as well as Rita’s upcoming Executive Strategy Masterclass happening in Stavanger on May 12.

If you would like to join the upcoming Masterclass — request your invitation here or learn more about the Masterclass here.

You can listen to the talk in the podcast below or read the full transcript here.

Five key takeaways:

1. How companies can think about getting into new areas

Rita’s latest research deals with industry shifts and portfolio thinking, a subject highly relevant to the declining oil and gas industry in Norway. As Norwegian executives struggle to move beyond the oil and gas industry, the first step is to recognize that what worked in the past might not be what works in the future.

Companies need to be thinking about getting into new areas.

“To me, there are two vectors you can choose. You can choose to operate from a capability platform, or you can choose to operate around a particular customer need that you’re serving.” said Rita.

Statoil, for example, could choose to operate from deep capabilities in undersea operations and other complex technical capabilities they’ve built over the last decades, or make the bolder move of defining themselves in the energy space and explore options they’ve never traditionally had the capabilities in.

Rita pointed out that Fujifilm was a good example of a company that started expanding their portfolio by operating from the capability platform.

“They decided to say, ‘hey, you know we’re terrific at chemicals, we’re terrific at imaging, so let’s find places where those capabilities come into play.'”

Today, Fujifilm’s efforts in diversification has brought them into cosmetics, medical imaging, and even services for the pharmaceutical industry. The company is pursuing a variety of different activities all linked at its core to their central capabilities.

2. Look outside your industry to get started with reinvention

When asked for a beginner’s guide for management teams that need to find reinvention, Rita advised companies not to stay within their own little bubble.

“I think there’s a need to really immerse yourself outside of your immediate context and get a sense of what’s going on in the world that may or may not have anything to do with what you’re looking at”.

How does one do this? There are a number of ways.

“You can immerse yourself in an executive program, come to a seminar — like the one we’re planning, you could go to conferences from industries different from your own.”

Rita believes that the key is to get away from the daily grind, your emails and the day-to-day, so you can really get a big picture perspective of what could be going on.

“When you make the relatively small effort — take a couple of days, go to a non-related industry conference or have conversations with people who don’t touch what you normally touch, it’s surprising how quickly the insights begin to emerge,” she mused.

3. Pay attention to the early warning signs of industry shifts

When Rita looked into the architecture behind strategic inflection points, the typical weak signals that could’ve alerted businesses in advance often go unnoticed.

“The weak signals are when something happens that creates a 10x shift in the envelope that contains your industry. If you think about any kind of sector or industry or company, they have certain constraints in their environment that are present when they’re born.” said Rita.

We’ll take the newspaper industry as an example.

Back in the day, the main constraints in the newspaper industry were things like how many contracts they had, how many trucks they needed, how many newsstands they had, etc.

Digitalization came along and transformed all these existing constraints by a factor of 10 or 20.

The changes don’t happen instantly, and they take a long time to unfold, but only the companies that prepare for them in that time can come out of the 10x shift triumphant.

Rita then pointed out Amazon as an example.

Amazon sold its first book online back in 1995. That same year, a reporter from Fortune pointed out that the internet could potentially change all the different constraints across several industries like publishing, retail and distribution.

The data were there. But nobody in retail was paying attention.

Rita believes that businesses should look out for possible industry shifts and plan ahead instead of reacting when it’s upon their doorstep.

“When you see something way off in the distance when you’re driving, you can adjust your trajectory with a relatively small shift of the steering wheel, but if you wait until it’s right upon you, you’re nearly at it. You’ll have to make that steering wheel jerk significantly to avoid the obstacle. And that’s the way to think about early warning signs.” 

4. Stepping up on the Innovation Maturity Scale

Rita has developed a tool called the Innovation Maturity Scale to help companies see where they are in terms of innovation proficiency.

The scale goes from 1, where companies are hostile towards innovation, up to 8, where the leadership is committed to innovation at all levels.

Compared to the innovation maturity Rita sees during her work in California, she believes that most organizations are at a 2 or a 3 on the Innovation Maturity Scale — meaning that they have the desire to improve and innovate, but have no full-on support.

“They’ve got pockets of innovation, there are champions that kind of comes and goes. They take the big trip out to Silicon Valley, have a picture taken next to the Facebook sign, but they don’t really have it embedded as an actual proficiency in the organization,”Rita revealed.

Norwegian companies are not that different, Christian mused.

They are great at initiating innovation, but when it comes to really organizing for innovation as a repeatable process, most Norwegian companies fall short, save for a few.

“Telenor is a good example, I know Rita you have been writing about Schibsted as a good example. Kongsberg is a good example. But overall, there’s a lot of work to be done here,” Christian explained.

5. Businesses should invest resources across Three Horizons

Mature companies often face declining growth as innovation slows down. Companies that want to keep growing must not only focus on their existing business models, but also potential growth areas in the future.

“I’m a big believer that you have to be investing your resources in three kinds of initiatives. One is to keep your core business as healthy as you can, which is challenging if it’s in decline or flat. The second is to think about what you’re going to launch that is going to be part of your next core business. The third is how do you invest in strategic options, or early investments that give you the right, but not the obligation to make a significant investment going forward,” Rita said.

There are strategy tools that can help frame this, including Strategy Intro, The Three Horizons Framework, and the Three Levels of Business Models.

Both Rita McGrath and Christian Rangen will be unveiling new strategy tools at the upcoming Rita McGrath Strategy Masterclass in Stavanger. Request your invite by filling in the form below.

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Work on your strategy with Rita McGrath on her upcoming visit to Stavanger. Join us for the full-day senior executive strategy Masterclass on May 12, 2017.

This is an invite-only Masterclass. Fill in the short form below to request your invite: