When To Pivot

When should you stay the course in life, and when should you shift with changing tides? This week, we bring you case studies from the world of business to explore the science of inflection points — changes that dramatically transform the course of events. Researcher Rita McGrath explains why we fail to see impending moments of upheaval, and what we can do to be more adept at spotting them.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Shankar Vedantam?

  This is Hidden Brain. I'm Shankar Vedantam.

• 0:04Shankar Vedantam?

  In the mid-1980s, Coca-Cola was feeling threatened by the growing popularity of its rival, Pepsi. Executives at Coca-Cola decided to shake things up. In April 1985, they launched a new product.

• 0:18Speaker 01

  The supermarket shelves throughout America will have the new Coke by Memorial Day weekend, summer's kickoff, and the soft drink season.

• 0:25Shankar Vedantam?

  New Coke promised to be sweeter and smoother.

• 0:29Speaker 02

  Rounder, yet bolder. It's a more harmonious flavor. You're a pretty good copywriter, Roberto.

• 0:38Shankar Vedantam?

  Sounds great, right? But not everyone was happy. Consumers took to the streets to protest New Coke, pouring out the beverage in defiance. The Coca-Cola company received over 40,000 calls and letters from angry, dissatisfied customers.

• 0:53Speaker 03

  ...that starts, "Dear Chief Dodo, what ignoramus decided to change the formula of Coke? The new formula is unexciting, and it's as bad as Pepsi. Burn it."

• 1:05Shankar Vedantam?

  People didn't just take the change seriously. They took it personally.

• 1:09Speaker 04

  That's un-American, because we fought wars to have a choice, to have freedom.

• 1:16Shankar Vedantam?

  New Coke was a disaster. Customers boycotted it, the media mocked and criticized the move, and distributors were reluctant to sell it. Sales plateaued, and a rapid decline loomed on the horizon. The company threw in the towel and switched back to its original formula. Peace and taste buds were restored.

• 1:41Shankar Vedantam?

  There's a saying that's often attributed to Burt Lanza, a political appointee of former US President Jimmy Carter in the late 1970s. "If it ain't broke, don't fix it."

• 1:53Shankar Vedantam?

  The origins of this expression go back even further. Farmers believed that when something worked, it was best to leave well enough alone. Tinker with things, and you risk disaster.

• 2:06Shankar Vedantam?

  Today, we look at the truth of this old adage. When it makes sense to stay the course, and when it makes sense to change direction, this week, on Hidden Brain.

• 2:25Shankar Vedantam?

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• 3:10Shankar Vedantam?

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• 3:48Shankar Vedantam?

  Consumer Reports does not endorse products or services. Imagine you're paddling a boat across a calm lake. The wind is steady, you're moving forward slowly but surely. There's no need to change course, adjust your stroke, or head back to shore. But what if a storm rolls in? Or your boat springs a leak? Or you feel a sudden stabbing pain in your chest? Now, staying the course and sticking to your plan could be disastrous. At Columbia University, Rita McGrath studies when it makes sense to pivot and when it's wiser to stick with what's worked. Rita McGrath, welcome to Hidden Brain.

• 4:30Speaker 05

  It's a pleasure to be here.

• 4:33Shankar Vedantam?

  Rita, you tell the story of the Gillette Company, a popular personal care brand that most people are familiar with. Give me a brief history of the origins of the company.

• 4:42Speaker 05

  Sure. So Gillette is one of the most successful consumer product companies in the world. They were founded in 1901, and they were one of the original safety razor manufacturers. So King C. Gillette, the actual man, founded this company. And before that, if you wanted to get a close shave, you pretty much had to go to a barber shop. So it was a huge breakthrough in mass market consumer products. And they were basically able to pull off the strategy unthinkable. They maintained a competitive advantage for literally decades. They were the dominant player.

• 5:18Shankar Vedantam?

  So in 2010, two entrepreneurs, Mark Levine and Michael Dubin, met at a holiday party. Mark was a product wholesaler who had a problem in one of his warehouses, and Michael was a marketer. What was the problem in the warehouse, Rita?

• 5:33Speaker 05

  Well, Mark has this interesting career where he buys stuff from one part of the world and sells it for a profit in another. And as you mentioned, he was trying to unload this set of decent quality, not exceptional, but decent quality razors that were made by a South Korean manufacturer.

• 5:51Shankar Vedantam?

  So I understand at this point, Mark has something like 250,000 twin razors in this warehouse, and he approaches Michael, who's an online video marketer, about potentially going into business together. What was the proposal?

• 6:06Speaker 05

  Well, Mike Dubin at the time was kind of a failed entrepreneur. He found his way into marketing. He was doing a lot of video work. He tried to turn his life around. He applied to the Columbia Business School. I'm sad to say we rejected him,

• 6:20Speaker 05

  which is not so happy. But the two guys get to talking over what I presume is some adult beverages. And what they start thinking about is, if you were going to try to sell razors in this day and age, in 2010, you know, we've had e-commerce for a while by then. We've had home delivery of just about everything. Why would you do it the way that Gillette did it?

• 6:41Speaker 05

  Gillette's business model was basically you invest in high-end R&D. That allows you to charge higher prices for the great products that ensue. And then you use your armies of marketing people to get these things in just the right places, in the retail store. And in 1990, when they first introduced the sensor, this was revolutionary. The technology was patented. Nobody else could do it. By 2010, when this conversation happens, the world has changed completely.

• 7:09Shankar Vedantam?

  Mark, who had the warehouse of 250,000 South Korean razors, and Michael, the video marketer, asked themselves if they could sell razors over the internet. This could save customers a trip to the store to buy Gillette's higher-priced razors. But the duo also had a brainwave about how to lock in customers long-term. They called it Dollar Shave Club.

• 7:31Speaker 05

  Other companies had shown that direct-to-consumer could work, which is, you know, a company shipping stuff directly to your door and developing a personal relationship with you. And don't forget, Gillette's main relationships would be like with Walmart, right? They don't actually get all the way to the end customer. And so it gives those DTC, as we call them, companies, a big advantage. And he'd had quite a bit of experience with wholesaling, with retailing, and Dubin knew the power of the internet. So it was that kind of magical moment where the possibilities have really changed. And now you could see a niche in the market where you could actually create something that was entirely new.

• 8:06Shankar Vedantam?

  So the idea was you sell a subscription to people, and razors basically show up at your doorstep on a regular basis. So you don't have to go to the store, you don't have to buy it, there's a predictability about it. I understand they went to a number of bloggers to try and spread word about it, and they decided to get people to sign up. What was Gillette's initial response to this upstart, Rita?

• 8:27Speaker 05

  They ignored them.

• 8:31Speaker 05

  Gillette's position. Now, you know, as you said in the introduction, if you've had a smooth ship for a long time, I mean, if you're an executive at Gillette at that time, what are you thinking about? You're thinking about two blades versus three blades, three blades versus four. You're thinking about how much ad placement do I place in television, right? Because we hadn't yet realized television is kind of on the way out in terms of reaching lots of people, especially young people. So your whole mental capacity is taken up with those kinds of questions. You're not looking for what's the hot new thing that might introduce a completely different variable into your sales process.

• 9:07Shankar Vedantam?

  So it turns out that Dollar Shave Club didn't just come up with a new business model. They also came up with a more conversational, casual style of marketing. Here's a clip from one ad.

• 9:19Speaker 06

  Hi, I'm Mike, founder of DollarShaveClub.com. What is DollarShaveClub.com? Well, for a dollar a month, we send high-quality razors right to your door. A dollar. Are the blades any good? No, our blades are [bleep] great.

• 9:38Shankar Vedantam?

  What was the audience's reaction to this, Rita?

• 9:40Speaker 05

  Oh, they loved it. This thing went completely viral on YouTube. And as you probably could hear, Mike's a very personable guy. He's very approachable. And when you think about most of corporate America television ads, you know, they've been run through the PR department and legal and compliance. You know, they're not really speaking directly to you, the customer, whereas Mike was a master of that and did so for a long time. So this was really his first introduction to the main stage of speaking directly to his target audience, which were younger men, right? And Mike also realized that a lot of these young guys were very frustrated at the experience Gillette was offering, right? You had to go to a store. Razors are expensive and they're small, so they're catnip for shoplifters. And so what do the stores do? They lock them up in razor fortresses.

• 10:25Speaker 05

  So you're standing around on a Saturday morning waiting for the friendly, helpful retail employee who's got the keys to come help you unleash this thing. I mean, it's just a really horrible experience as opposed to the convenience of having them just show up on your doorstep.

• 10:41Shankar Vedantam?

  I want to play you an ad that Gillette published around this time. This one featured the tennis champion Roger Federer shaving his face in the mirror.

• 10:50Speaker 07

  You get in the zone long before the match. Get your head right and focus. On match day, you don't leave anything to chance.

• 11:02Shankar Vedantam?

  I get the sense from that ad that Gillette took itself more seriously than Dollar Shave Club, Rita.

• 11:07Speaker 05

  Oh, absolutely. And so did many other incumbent firms at the time. As I said, you got legal, you got compliance. Everybody's saying if the ad is OK. People are worried about brand image. You know, the fact that Mike's video was literally filmed in his warehouse with him wandering around like, and it throws in lots of humorous elements, like a big stuffed teddy bear. And he says, hey, you don't need to pay Roger Federer's salary if you buy from us. I mean, he was really poking Gillette in the nose on that. And yes, I think a lot of the big consumer product brands at the time, you know, celebrity endorsements, a big deal. I don't know how much they paid Federer, but I'm sure it was a lot.

• 11:45Shankar Vedantam?

  So in 2019, Dollar Shave Club put out another ad. This one featured a handful of middle aged men who didn't look at all like Roger Federer. The men were dancing in towels while they shaved their faces. The video campaign was titled Dad Bod, and the slogan was, whatever your bod, welcome to the club. That same year, Gillette released its own ad campaign. It was inspired by the Me Too movement and included imagery of men treating women in inappropriate ways.

• 12:15Speaker 07

  We believe in the best in men.

• 12:16Speaker 02

  Men need to hold other men accountable. Smile, sweetie. Come on.

• 12:22Speaker 07

  Because the boys watching today will be the men of tomorrow.

• 12:31Shankar Vedantam?

  What was the response to this ad, Rita?

• 12:34Speaker 05

  Oh, the response was really negative. People felt it was finger pointing. People felt it was kind of accusatory. Instead of their historical positioning, which was the best a man can get, this is like the worst a man can be, right?

• 12:49Shankar Vedantam?

  Hmm. So I understand that Gillette eventually pivoted to try and get into the subscription business as well and sell razor as a service. They started a Gillette club. How did that go?

• 13:00Speaker 05

  Better, better. They picked up, they picked up many of the segments that found shopping in the stores to be irritating. There are some men who felt the quality of the shave was better using their traditional Gillette blades. And so they, they were able to kind of mount a rear guard there, but that's, that's a defensive action. That's not really winning and taking the offensive. It really just stops the bleeding.

• 13:25Shankar Vedantam?

  So we talked about how Gillette missed two potential inflection points, the subscription model, but also this changing tide and the kind of marketing that customers were responding to. What was the long-term effect on Gillette's market dominance, Rita?

• 13:43Speaker 05

  When Procter and Gamble bought Gillette in 2005, they spent $57 billion for it. Dollar Shave Club got its going with like Dubin's life savings of 35 grand. I mean, in the past, it would be inconceivable that a tiny little upstart, literally running out of his apartment, sticking on labels on packages by hand could, could be even a modest threat to mighty Gillette. So if you think about sort of intellectual deniability, why would you believe that could be true? But what had happened in the, in the interval was some big changes in tech. So Dollar Shave Club could start up without servers and they didn't have to hire programmers to build custom websites and they didn't have to, they didn't have to manufacture, you know, manufacturing razors is really hard and they already had a supply because of Mark's

• 14:27Speaker 05

  efforts. So I think it was very difficult for the Gillette executives to realize this was real.

• 14:34Shankar Vedantam?

  But it's also the case that, you know, the market dominance they had for, for much of the century, the much of the 20th century, that has sort of disappeared. I mean, they no longer are in quite as dominant a position as they were through much of the 20th century.

• 14:48Speaker 05

  And, you know, don't get me wrong. 50% share in a high-margin business like that is nothing to sneeze at. That's a really good business. It's just not as good as it was, right? And I have a lot of credit for the people at Procter & Gamble and Gillette. They really know their game, but the game changed.

• 15:08Shankar Vedantam?

  You use the term inflection point to describe situations like what happened with Gillette and Dollar Shave Club. What is an inflection point, Rita?

• 15:17Speaker 05

  Well, I define an inflection point as something that changes what is true about the rules around your business, typically by a factor of 10 or more. So 10 times faster, 10 times cheaper. In the case of Dollar Shave Club, 10 times more convenient or even more than that. And it can take incumbents by surprise, as we saw with Gillette. People forget that, right? So these things seep into this whole world of reality. And then something comes along like internet digital advertising, e-commerce, changes all those rules. And your system is still operating on the old ones.

• 15:55Shankar Vedantam?

  When we come back, why businesses and people fail to see inflection points and what we can learn from their mistakes. You're listening to Hidden Brain. I'm Shankar Vedant.

• 16:19Shankar Vedantam?

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• 16:51Shankar Vedantam?

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• 17:51Shankar Vedantam?

  This is Hidden Brain. I'm Shankar Vedantam. The personal care and safety razor company Gillette had been the leader in its industry for nearly a century. When competitors came along, Gillette said, "Don't fix what isn't broken." The strategy worked until it didn't.

• 18:10Shankar Vedantam?

  When does it make sense to stay the course? And when does it make sense to roll with changing tides? At Columbia Business School, Rita McGrath studies this question. She studies the science of inflection points, a change that dramatically shifts the course of events.

• 18:28Shankar Vedantam?

  Rita, I want to talk about some of the reasons why organizations miss inflection points. In 1995, a man named Cliff Stoll published an article in Newsweek. It was titled "Why the Web Won't Be Nirvana." What did the article say?

• 18:44Speaker 05

  Well, okay, back in 1995, the Internet was very new. Computers at the time operated on, you know, things called the floppy disks. And things were very primitive. Most of us got our access to the Internet if we were on at all, which most people weren't, by dial-up. You remember, eh, uh, uh, you know, the modem dial-up? And the visionaries among us were saying, oh, you know, the web is going to completely replace newspapers and novels and magazines. And Stoll was looking at the reality of 1995, and he was saying, let me get this straight. You're going to drag a computer to the beach to read your racy, you know, romance novel? I don't think so.

• 19:26Shankar Vedantam?

  Yeah. So at one point in this article, he says, "The truth is no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher, and no computer network will change the way government works." And of course, looking back now, that prediction, you know, can seem hilarious, but from what you're saying, there's a certain truth to it. At the time, it really didn't seem plausible that these things would dramatically upend our lives. But one of the things that I think Cliff Stoll missed was how much technology was going to change in the coming years. It wasn't an instantaneous change, but it unfolded over five, 10, 15, 20 years.

• 20:04Speaker 05

  Well, and the idea behind a lot of this is, it's a bit like the line from the old Hemingway novel, you know, "The sun also rises," where one character asks another, "Well, how did you go bankrupt?" And the answer was, "Well, two ways: gradually and then suddenly." And in the gradual part of that curve, everything looks the same. Nothing looks as though it's changing. And it's very hard for human beings to think about these exponential changes that can come out and really shift what's possible in the world.

• 20:42Shankar Vedantam?

  I mean, the interesting thing, of course, is that when we look back, I mean, it feels like the whole online revolution was the work of an instant, right? It feels like, looking back now in hindsight, it feels like it all happened very quickly. But it actually took a long time. It took about two decades, really, for widespread broadband service to be widely available, for us to carry around these little computers in our hands and in our pockets, where we could access the internet, where we could press a button and it had our credit card information stored. All of these things took time, but looking back, it can seem like they were the work of an instant.

• 21:14Speaker 05

  Yeah, they do, they do. And I think what's interesting is you kind of go from this, this'll never happen, to, hey, what's happening, to, well, of course, that happened.

• 21:25Shankar Vedantam?

  Yeah.

• 21:26Speaker 05

  You know, human beings, we're kind of like that when we think about, about change. I also think that there is a human tendency, if something's going to be very destabilizing to your business or your life, there's kind of a human tendency not to want to see it.

• 21:46Shankar Vedantam?

  We talked earlier about how Gillette, the razor company, failed to see the inflection point of a subscription model that Dollar Shave Club offered. There's another company that you talk about, Kodak. Most of us are familiar with the brand, but not as familiar with the story of a man named Antonio Perez, who joined the company in 2003. He had previously been at Hewlett Packard?

• 22:07Speaker 05

  Yeah, so Antonio Perez grew Hewlett Packard's printer business from kind of nothing to, I think, a seven billion something business. And he lost out in his bid to become CEO at HP, and Carly Fiorino was named instead. Now, she's got a problem and he's got a problem. She's got to figure out what to do with him, because he was very clearly a qualified heir apparent at that company, and there were kind of two warring camps there. So she kind of let him carve out his own space around printing. So they forged a joint venture with Kodak, which went on for a few years. Perez wanted to buy Kodak. I don't think he got the board to buy into that. And eventually, when the CEO rolled up and opened up a Kodak, he took that role.

• 22:49Speaker 05

  And what he did in that role was he made the, what turned out to be pretty fatal decision, to aim the whole company at printing just at that period when screens were getting so good that we didn't need to print. And I don't know this, but my belief and others observing the situation would agree that it was kind of ego fueled. He was going to show the HP board and all the others how wrong they were to not have given him that role and was using Kodak as his vehicle to do that.

• 23:25Shankar Vedantam?

  So what's striking about the Antonio Perez story, Rita, is that he had been wildly successful betting on printers while he was at HP. And in fact, as you just pointed out, it had produced billions of dollars in revenue. The very same play, five years later, 10 years later at a different company, completely different outcome.

• 23:44Speaker 05

  Indeed. And we see that a lot, you know, that there is a time and a place for a particular strategy to be successful. And when the conditions change, you can't just rinse and repeat.

• 23:59Shankar Vedantam?

  Another reason organizations can miss out on inflection points is timing. We can see how trying to jump on a bandwagon late, like Gillette offering a subscription service after the inflection point had passed. But you say that companies can also jump on an inflection point too early. I understand this was the case with the video rental company Blockbuster?

• 24:20Speaker 05

  Yes, so Blockbuster is another one of those fascinating stories because I think we get it wrong. You know, Blockbuster always gets told as, oh, you know, dumb old company, never saw the power of streaming. And that's not actually true. There was a very well-known turnaround, retail turnaround guy called John Antiocho, who was put in the CEO role there. And the company was in trouble. There was a lot of competition. Their margins were getting squeezed. And they had two things that drove customers absolutely crazy. One was the late fees. And the other was that if you had a movie that came out that was really super popular, Blockbuster would only buy, you know, four or five to keep in the store at the time. So the hot new movies you often had to wait for. And those were things that were irritating.

• 25:04Speaker 05

  So Antioch took a look at this and he said, well, what I think we need to do, I think we need to get rid of late fees. I think streaming is a thing. And he actually partnered with Enron, yes, that Enron, Wow. to build out a digital infrastructure that would make it possible to do that. But again, we're talking kind of before high-speed broadband. This was several years before even Netflix adopted streaming in a widespread way. So that was a little early technologically. But what happened in the back half of this was Antioch's moves were going to cost about 200 million apiece. So the streaming part and the ending late fees, which was a big part of their profit margin.

• 25:48Speaker 05

  And the parent company at the time was a company called Viacom, which just didn't have the appetite for that. So Viacom ended up floating an initial public offering with Blockbuster, who went to market kind of weakened. The turnaround had not yet taken place. And so a lot of investors were very skeptical. Icon, who's a very famous activist investor, sees the opportunity, swoops in, buys the company, looks at Antioch's plans to do things and doesn't have any better feeling about it than the previous owner did. And so he cancels both of those things. The reality is, if you think about something that represents, I'll call it a time zero event. So the thing is here, you can take pictures of it, it's in the front page of the Wall Street Journal, we all know it's here. By the time you wait till then, it's definitely too late.

• 26:33Speaker 05

  Because now you're in reactive mode. And if there were any excess profits to be made, the early movers would have gotten them. But you also don't want to move too early. And that's where I think a lot of these big buzzy technologies that manage to attract a lot of venture capital money, get themselves in trouble. Because there's a lot of ecosystem considerations that need to be taken into account. There's a lot of, can I get the talent that I need? Can I get the real estate that I need? Can I, you know, figure out how this is going to work? So if you think about autonomous technology, autonomous vehicle technology, I don't know about you, but we were going to have autonomous technology in 2016, remember that?

• 27:10Speaker 05

  And it's still kind of a promise to be gotten because I think the technology is hard enough. But when you're talking about something that's going to affect the everyday lives of potentially hundreds of millions of people, there is risk you have to sort out. There's ownership regimes, what roads are safe for these things to go on. And so there's a whole social dimension that needs to happen in addition to just getting the tech right, and that's hard enough.

• 27:40Shankar Vedantam?

  You've described the life cycle of inflection points, and you say there are often four stages to them. Can you walk me through these four stages, Rita?

• 27:48Speaker 05

  So in the beginning, people see the potential, right? So autonomous cars, right? Oh, my God, you know, wouldn't this be awesome? Older people won't have to lose their independence and, you know, we'll be able to have these regulated things in cities and it'll reduce pollution and it's going to be amazing. So there's a hype cycle. Then what happens is the hype doesn't deliver to its expectations, at least in the short run. So the first year or two, and then we have, you know, the AI winter sets in and everybody's disillusioned and, oh, you know, we thought it was going to do everything from making Cocoa Pops still launching to the moon. And then everybody gets disillusioned, but what happens is the survivors of that period have actually worked some cool stuff right now. So if you think about Dollar Shave Club, if you think about what came before, the

• 28:31Speaker 05

  early internet, remember the late 90s and the dot com crash and everybody said, oh, this internet thing is never going to be a thing. You know, we should all just forget it, forget it, right? But out of that came Amazon, eBay, some of the early, really successful internet commerce programs, which showed us that this could be useful in our lives. And so the next cycle is this sort of trough of disillusionment, but the waiting out of the stuff that isn't going to work till you find the stuff that works. And then in the third stage, you have people saying, whoa, oh, now I get it. I could use that thing to do X, Y, Z. So what you see is this flowering of opportunities and this flowering of new applications. And that's the really exciting period, right? That's the period where you're now actually seeing real growth businesses built around that stuff.

• 29:16Speaker 05

  And I'd say Dollar Shave Club would be a great example of that. And then you have the kind of, oh, yeah, this is just normal. This is like everyone. What do you mean there was a time before high-speed broadband?

• 29:24Shankar Vedantam?

  Right.

• 29:32Shankar Vedantam?

  Given that you can be too early to an inflection point, but also too late to it, timing clearly matters. You say there are warning signs that an inflection point is passing you by. What are some of these signs, Rita?

• 29:46Speaker 05

  Well, the way I like to look at it is, if you imagine this, as I said, at time zero with it, and then you work backward, you just say, what would have to be true before this could actually happen? And what I like to do with companies is we'll make actually like a chart. I call it an early warnings signal model. And then we watch it. And then we say, wait a minute. If this happens and that happens and this other thing happens and whoa, there's this other thing happening, maybe now's the time we need to really evaluate this for taking action now. So let me give an example. In 2020, 21, I was working with a pharmaceutical company. And one of the big questions they had was, well, is the tech, you know, is online or some kind of tech involvement

• 30:30Speaker 05

  going to be the first patient port of call for access to healthcare? So if there's no doctors in offices, that's kind of a problem if you're a sales rep. So we looked at that and we said, well, you know, what would have to be true for this to actually happen? And there's a bunch of things that would have to be true. Medicare and Medicaid would have to figure out payment models for services that were not done in a facility, for services that were done either at home or mediated technologically. You probably would have to have legislative action, which says, hey, you know, drugs delivered electronically are as legitimate as drugs delivered any what way. So we went back probably two and a half years later and we looked at those early warnings that we had developed back in the day. And what you saw was yes, yes, yes, and yes. In fact, a bunch of the things that we'd anticipated

• 31:15Speaker 05

  were now starting to happen. When it came time to saying, hey, do we need to hire a data scientist? The answer was yes. When it came time to say, let's figure out what marketing looks like in a doctor-free environment. And there were a whole bunch of other things as well. For example, a lot of private physician practices were being sold to large players. You saw the disproportionate influence of the paying, you know, the insurance companies, and, and, and, and. And so it caused them to take a real strategic shift.

• 31:42Shankar Vedantam?

  Hmm. You know, I, I worked in the newspaper business for many years, Rita, before moving to, to, to radio and to audio. But I remember there was a point in my newspaper career where I was actually not reading the newspaper on the page, but I was reading it online. And at the time, I think, the, the companies that I worked with were still sort of, you know, they were ambivalent about digital journalism and the idea that people would really read things in a, in a widespread way online. But, but one of the things that you point out is that when you yourself or the employees at your company are not using your product, it's a warning sign. It's basically a canary in the coal mine.

• 32:23Speaker 05

  It is, and a very good one, you know, that, that it doesn't cost you anything to see what people are actually doing. So I'll never forget, I was, some years back, probably in the late, right around 2000, I was doing some work with Nokia in a program called Choices, which was for the people that were in their new product development company. And at the time, I was working for a lot of telecom companies. It was a very hot area. And so as I traveled around the world, I would always go to phone stores. So in the airport or on the street. And you'd watch, like, what was going on in the physical phone store, because it would tell you a lot about market share and who was hot and who was not, and what were the salespeople pushing and all that kind of thing. And what I started to see was the, the section of the store devoted to Nokia products was getting smaller and smaller and smaller.

• 33:07Speaker 05

  And so I was with this class and I said to people, "Well, tell me what you learn when you go visit a phone store." And the room went completely silent. And I said, "Well, nobody has any ideas." And they looked at me and they said, "We don't visit phone stores." I said, "Excuse me?" They said, "No, you know, R and D sends us the new phones with the new features to test out, and we give them our feedback, and we don't ever go to a phone store." And I was like, "What?" And, you know, that's well-intentioned, but it's an example of the blind spots you can create when you create these special channels for your people that don't kind of put them in the position of the customer.

• 33:43Shankar Vedantam?

  Yeah, and of course, if you're actually, you know, you're working at a company that makes some kind of product and you have your employees at that company who are buying products from a rival, in some ways, it tells you that the people who are presumably your most loyal, who should be your most loyal customers are in fact not your loyal customers, and that should raise red flags about customers in general.

• 34:05Speaker 05

  Well, what it tells you is there's, I'll use the language of Clay Christensen and Tony Ulwick here, there's a job to be done that whatever you're offering isn't doing. And the job to be done theory basically says, don't think about customers buying your product or service, think about them hiring your product or service to get a job done in their lives. And if there's a missing job, it's not that your employees don't admire and appreciate whatever you do, but whatever you're doing isn't covering something they need to get done. And so they're going to use an alternative. And that's valuable information.

• 34:44Shankar Vedantam?

  Sometimes, sticking with what you've always done makes perfect sense. But what worked yesterday isn't always guaranteed to work tomorrow. When we come back, how to successfully spot inflection points. You're listening to Hidden Brain. I'm Shankar Vedantam.

• 35:13Speaker 05

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• 37:14Shankar Vedantam?

  This is Hidden Brain. I'm Shankar Vedantam. There are times in all our lives when doing the same old thing no longer works. The strategies that once helped you excel have now led to a plateau. The things that helped you stand out at work have become yesterday's news. Rita McGrath is the author of Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen. She says there is a science to spotting inflection points.

• 37:48Shankar Vedantam?

  Rita, in the late 1990s, a man named Ivan Seidenberg was leading Bell Atlantic Telephone Company. At this time, landlines were the norm, and there was no indication that they were going anywhere. It was a hugely profitable company. But Ivan Seidenberg had a vision. What did he see?

• 38:05Speaker 05

  Well, I think to really understand Seidenberg's story, you actually have to start a little bit earlier with the breakup of AT&T. And this was Ma Bell. I mean, talk about the ultimate monopoly. Do you remember? There was a show in the 70s called Rowan and Martin's Laugh-In, where there was a character that pretended to be an operator for the phone company. Mr. Buckley, there's no reason on earth for you to feel personally persecuted. We may be the only phone company in town, but we sock it to everybody. So you have to kind of go all the way back to that. So a lot of telecom inherited this monopoly, guaranteed revenue, very profitable business,

• 38:50Speaker 05

  which you didn't have to work very hard. I mean, you had to deliver on your service. The regulators would ding you if you didn't provide reliable service and you didn't offer service to rural areas. But in exchange for doing that, you kind of had the market to yourself. So what Seidenberg did, and he had an interesting story. He was the ultimate insider, wasn't a super educated man, worked his way up through the ranks, and kind of thought about what comes after copper wires and what could happen in the future. And I think probably the major incitement was to say, hey, a lot of these baby bells, as they called them, really had no idea how to compete like a regular commercial company. And he didn't want to end up like that.

• 39:35Speaker 05

  And so one of the things he did was he organized a merger of Bell Atlantic with GTE, which at the time was this kind of cool technology provider of the time. And he thought that that company could teach what was called Bell Atlantic about the new technologies, the new things. And he was kind of blown away by that. So they renamed the company Verizon and prompted to get out, actually, of these pretty profitable legacy businesses and start exploring some of these new technologies. So he did really controversial things, like sell off physical phone books. Can you imagine that?

• 40:12Shankar Vedantam?

  Tell me a little bit about what he did when it came to selling off some of Verizon's landline assets, because he wasn't so much depriving customers of landline access, but he was saying as a company, that might be less of our future than it is today.

• 40:27Speaker 05

  You know, he found ways of servicing them for less money. He eventually converted a lot of the sort of big pipes, not the copper pipes, right to the home, but the big pipes to FiOS.

• 40:40Shankar Vedantam?

  The fiber optic cable.

• 40:41Speaker 05

  Yeah, you could still have a copper line in your house, but it would be connected to a fiber optic network. And then the fiber optic network would allow you to have broadband. It would allow you to compete with the cable companies, which he saw as a huge opportunity. And it was, if you remember back in the day. And again, I feel like I'm retelling ancient history, but it's not that long ago. Before we had cable TV, you know, we had network TV. And cable TV was seen as this huge advance, because in the early, early days of cable, you didn't even, you didn't have ads, but you could have ad-free television, on demand, 500 channels, you know. And those cable companies, again, they were protected as local monopolies in the early stages. They were considered to be natural monopolies. And governments

• 41:25Speaker 05

  to provide them with the capital to build out these networks, basically said, okay, Comcast, you have New Jersey, Spectrum, you've got New York, and you could guarantee that the customers that were interested in that product could buy the service there. So Verizon said, hey, wait a minute, I don't have to be a cable company, but I could compete using fiber optic lines. So he decided that revenue looked pretty good.

• 41:47Shankar Vedantam?

  You say that Ivan Seidenberg did two things right. One, he was continuously adapting, and two, he was able to disengage. What do you mean by this, Rita?

• 41:59Speaker 05

  So disengagement is the process of recognizing when something is just not going to be carrying your future forward. So, you know, mailing DVDs in the mail was, you know, most of Netflix's customers, I doubt, even have a DVD player anymore. So that was clearly going to be a business which was ending. So I think there's a way of disengage. Which is respectful, you know, which said, hey, you know, the people that built this business have a lot to be commended, but it's not going to be a business for the future. And so we have to figure out how to get resources and people and assets out of them, hopefully in a way that's not too painful, so that we can repurpose those things to what the future is going to hold.

• 42:45Shankar Vedantam?

  I'm struck by the fact that very often when we think about innovation, we're often not thinking about this aspect of innovation, which is we're always thinking about what we can build that's new. But of course, in order to build something that's new, we might have to give up something that we've been building for a long time. We might have to give up the old. But of course, the two things actually work in a symbiotic fashion.

• 43:05Speaker 05

  They do have to work together. And I don't know about your workplace, but I think about my place. I mean, I work for a 250-year-old-plus university. It's had a lot of time to collect cobwebs, and stuff that's in the corners and what's in those closets. Nobody's looked for 35 years. And so if you imagine a world where maybe every quarter, you just announce a day or two of simplification. We're just going to stop doing stupid stuff that everybody knows doesn't really contribute to value, but that we're doing anyway. And that's that's kind of a really mini version of disengagement. But I think it's valuable and it's not expensive. And it's something you could do wherever you are in your organization.

• 43:44Shankar Vedantam?

  Besides the challenge of just noticing things that have been around for a long time and that have just simply faded away from our attention, there's also the fact that we get attached to things that we have built. We have emotional connections to the things we've built. These are our babies. These are our children. We're not willing to cast them aside. But of course, if you don't cast some of the things that you do as a company or an organization or as a person aside, if you can't cast them aside, it's very hard to move forward.

• 44:11Speaker 05

  It is. It is. So can I tell you one of my favorite stories about this? This is a story of the postal service, which is an unlikely place to look for really interesting management innovations, but so be it. So I had a gentleman in my class who worked for the postal service. And the branch that he was manager of had this giant Analog machine. It was, it would like sort and stack and people knew how to use it. And it sort of occupied the middle of the, the facility. And everybody that was in the place worked with this machine and, and they decided that they needed to become more digital. And this big machine was going to get replaced by a bunch of smaller units that could do more specific things and it was going to cost less. And it would be less vulnerable to breakdowns and everything. So the machine was supposed to be decommissioned over the course of a weekend.

• 44:56Speaker 05

  So you can imagine his surprise when Thursday night, a group of his people come to him and he said, boss. Yeah. Well, we want to talk to you about the machine. And he's like, whoa, whoa, whoa. We spent months on this. We've talked. We've all agreed. You've all said it was good. And the, the people said to him, oh yeah, yeah, we get it. We're totally, we're ready to move on. It's just, you know, that machine has been a big part of our lives for a long period of time. A lot of us started working here when we were 18, you know? And that machine has been there every day. It's, it's just, you know, and, and it's going to be a big change for us. And they said, well, we want to say goodbye. And he's like, you want to say goodbye to a machine?

• 45:35Speaker 05

  They said, yeah. So they decided they wanted to have an Irish wake.

• 45:38Shankar Vedantam?

  Wow.

• 45:40Speaker 05

  The next night, the next night.

• 45:45Speaker 05

  It was amazing. There were people giving speeches that were keep people like screwing off little pieces of the machine to take home as keepsakes. But I've always thought that was a really lovely story because it represents both sides. You know, it represents the sadness of having to give up something that you've,

• 46:01Speaker 05

  that's been part of who you are for a long time and the, the need to do that and move on.

• 46:11Shankar Vedantam?

  Another example of a company that found an innovative way to ride an inflection point was Procter and Gamble. They had come up with a water purification chemical, but it was not taking off. Tell me that story, Rita.

• 46:25Speaker 05

  Yeah. So the thing was called Pure, if I remember properly. And the original concept for it was that there would be this huge market of providing safe drinking water in places which didn't have reliable access to it.

• 46:38Speaker 05

  But you know, it's really hard, I think, if you've always lived your life in a developed country where you open the tap and safe drinking water comes out, to really understand the day-to-day circumstances of people who don't have that luxury. And what they came to realize was that if they tried to do this thing as a commercial enterprise, that it was going to be very difficult for the people living in those areas to access it, because safe water was just one of their problems, right? They were, you know, there's sanitation concerns, there's other health concerns, and they've got so little resources that to take what little they had and spend it on safe water, you know, maybe you'll just take the risk. So it wasn't, they banged away at it for a while, but it just became clear that unless a government took an interest or an NGO took an interest, that it just wasn't going to

• 47:23Speaker 05

  be a commercial enterprise. But then, I believe it was a series of natural disasters, that they were able to basically go in as a charity and say, hey, look, we will donate this, you know, to keep people from getting terrible illnesses and whatnot. And that then did attract the attention of the NGO community, of the governmental community, and it became, I wouldn't say a wildly profitable business for them, but at least a viable business for them.

• 47:47Shankar Vedantam?

  I understand that it also had significant, you know, public relations benefits, because now they were in the business not just of making money, but they were also in the business of saving lives in poor countries. And that had sort of brand benefits, if you will, that also indirectly helped the bottom line.

• 48:05Speaker 05

  Yes, well, and, you know, if you're helping a government look after their people, they're going to be much more willing to have a conversation with you about what other products you might introduce in their country.

• 48:17Shankar Vedantam?

  You say that Procter and Gamble took advantage of an inflection point because they fell in love with the problem rather than the solution. What do you mean by this, Rita?

• 48:27Speaker 05

  Well, I think when we innovate, right, we have a tendency to make up in our heads what the right solution is, right? So if I've got a problem with elderly people not able to drive, then autonomous cars is the solution. But instead, what I find with successful entrepreneurs and innovators, they tend to carve out a problem space for themselves that could be open to multiple solutions. And I think we often forget that, that there's lots of ways of making something happen that don't necessarily involve a whiz-bang technology or whatever. And in fact, in many cases, you're better off not having that.

• 49:05Shankar Vedantam?

  I'm wondering how much of the signs of inflection points that you have studied at an organizational level, Rita, how much of this applies to individuals and their own lives? Are any of these lessons applicable to us as we navigate our personal lives?

• 49:18Speaker 05

  Oh, absolutely, absolutely. I think, you know, so much of the human journey, we don't like to think about this, but a lot of it is serendipity and chance. And did the right person speak up for you at the right time? And did you happen to live in the right zip code? You know, a lot of what we end up doing in life has that flavor to it. And so I think the inflection points really come when, you know, big moments like you go off to school and there's a whole new group of people that you meet, or your family moves and there's another social setting that you're in, or you lose a job and it turns out maybe that wasn't such a bad thing, or you get a job and who expected that? And you proved to be really good at it. So I think in personal life, we have the opportunity to really think about inflection

• 50:03Speaker 05

  points. You want to think about these things as what I'll call options. An option is a relatively small investment you're making today that buys you the right, but not the obligation, to make a bigger investment in the future. And we do this in real life all the time, right? So we go to school, we invest in a skill-building course, we agree to go to a training program. You know, we do these things, not that we know exactly what's going to happen, but we think it'll create opportunities in the future. So I think what you want to think to yourself is, is the cost of this, and I mean cost just in terms of effort and emotion and exhaustion and everything, has it got a big upside or a not-so-big upside?

• 50:45Shankar Vedantam?

  One thing that strikes me is that when it comes to running a business or running an organization, the metrics of success are relatively clear, right? So if you're a business, you know, you have happy employees, you have happy customers, you're making money, you're a successful business. It's very straightforward in some ways what constitutes a successful business. It's a little bit harder with individuals, I think. It's a little harder at an individual level to say what constitutes success. And I'm wondering, from that point of view, does that make the signs of inflection points a little more difficult at the personal level? Because it's not quite clear what actually constitutes success or failure. Some of that is subjective. Some of that involves, you know, a personal sense of what matters to you, what doesn't matter to you.

• 51:29Shankar Vedantam?

  Do some of the things then fail to carry over because of the subjectivity, do you think?

• 51:34Speaker 05

  Well, I think when it comes to personal success, there's a bunch of really interesting research that's done about what makes people feel happy, you know, what motivates people. And Dan Pink talks about, you know, you want a sense of agency in your life. You want to know that you have the right to make choices and have control. You want to gain a sense of mastery. And that could be many different things. For some people, mastery is woodworking. And then they go very happily to the rest of their formal job in an insurance company and fill out forms all day long. And that's fine with them. And then the last is a sense of purpose, a sense of motivation. And I think a lot of research suggests that if you are in communities where you are of service to others and you feel

• 52:18Speaker 05

  that your life has a greater purpose, that you are, you tend to be more satisfied with that life. You tend to find greater fulfillment in it. So when it comes to translating inflection points from the business world to the personal, I think one of the differences is that it's so much more associated with your values and what makes you feel that you've made a contribution and you're feeling fulfilled and you're doing well by other human beings.

• 52:55Shankar Vedantam?

  Rita McGrath studies the science of reinvention at Columbia Business School. She's the author of Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen. Rita McGrath, thank you so much for joining me today on Hidden Brain.

• 53:08Speaker 05

  It was an absolute pleasure.

• 53:27Shankar Vedantam?

  Hidden Brain is produced by Hidden Brain Media. Our audio production team includes Annie Murphy-Paul, Kristen Wong, Laura Kwerel, Ryan Katz, Autumn Barnes, Andrew Chadwick, and Nick Woodbury. Tara Boyle is our executive producer. I'm Hidden Brain's executive editor. If you love Hidden Brain, please consider joining our podcast subscription, Hidden Brain Plus. It's where you'll find episodes you won't hear anywhere else. Plus, you'll be doing your part to help cover the costs of the research, writing, and audio production that go into every episode of the show. You can try Hidden Brain Plus with a free seven-day trial by going to support.hidenbrain.org.

• 54:08Shankar Vedantam?

  If you're using an Apple device, go to apple.co/hidenbrain. I'm Shankar Vedantam. See you soon.

• 54:37Shankar Vedantam?

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