The Lies Leaders Tell Themselves About Disruption

It’s been more than 25 years since Clayton Christensen introduced his Theory of Disruptive Innovation. If you’ve spent more than a couple of weeks in a business school classroom or more than a few hours scanning popular management literature, you’ve probably encountered Christensen’s ideas. Indeed, the threat and opportunity of disruptive innovation is one of a select handful of big management ideas the majority of executives are familiar with.

So how is it that leaders continue to fall prey to the dangers of disruption? The easy answer is that the nature of disruption has changed along with the fast-evolving technologies that fuel it, making it nearly impossible to keep all of disruption’s ever-shifting forces at bay. And, yes, it is true that the technologies that enable upstarts to disrupt markets have evolved pretty dramatically. But the basic strategies of disrupters remain largely unchanged. Disruption continues to be a fundamental — and frequently existential — threat to established businesses because leaders are, well, thickheaded. They allow themselves to fall prey to the same faulty thinking time and again.

Specifically, says this week’s guest, Scott Anthony — coauthor of the MIT Sloan Management Review article “How Leaders Delude Themselves About Disruption” — executives continue to unintentionally tell themselves four lies:

1. They believe that their biggest and most profitable customers are their best source of information.
2. They believe that historical data paints a picture of the future.
3. They believe that in the face of uncertainty, it’s riskier to act than to not act.
4. They believe that their shareholders won’t invest in something new if it puts current returns at risk.

Anthony debunks each of these untruths and offers leaders a three-point starter kit to get past the lies in this week’s episode.

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Transcript

Scott Anthony: If you listen to your best, most demanding, most profitable customers, they can often lead you astray when disruption comes — because disruption is all about doing things differently.

You’re looking at that data that’s reporting things that happened in the past, and that data’s lying to you. That data is telling you everything’s OK — until it’s not.

If you really are serious about transforming your organization, the transformation has to start with yourself.

Paul Michelman: I’m Paul Michelman, and this is MIT Sloan Management Review’s Three Big Points. Each episode, we take on one topic that leaders need to be on top of right now and leave you with three key takeaways for you and your organization.

This is the first of a special three-part series in which we are shining the spotlight on ideas related to the work of the late Clayton Christensen. Christensen, who died in January of this year of complications from cancer, is the architect of one of the most influential management ideas of the past 25 years: disruptive innovation. Today, we look at the lies leaders tell themselves about disruption.

Scott Anthony: You might think that there’s nothing that leaders haven’t learned, because since Christiansen introduced the idea more than 25 years ago now, it’s been torn apart every way possible. But still, the dilemmas of disruption persist. Still, people keep falling into what Clay called the innovator’s dilemma. And I think the fundamental thing that we haven’t learned is, what does it really take as a leader to fully recognize the threat of disruption and fully respond to it?

Paul Michelman: That’s Scott Anthony. He was a longtime protégé of Christensen’s, and he’s senior partner at the growth strategy consultancy Innosight.

Anthony wrote the article “How Leaders Delude Themselves About Disruption” in MIT Sloan Management Review’s spring issue. He says one thing that Christensen observed, and that is still true today, is that we don’t always see — or want to see — the truth.

Scott Anthony: Leaders unintentionally lie to themselves. That is, they tell themselves things that they think are true that are not. … This is kind of the heart of the innovator’s dilemma. The lie behind the innovator’s dilemma is that customers tell us the truth, and customers show us the way. And the thing Clay identified is that if you listen to your best, most demanding, most profitable customers, they can often lead you astray when disruption comes. Because disruption is all about doing things differently. It’s all about taking things that were complex and making them simple, taking things that were expensive and making them affordable. And your best customers don’t want that, don’t need it, and won’t tell you to do it.

Paul Michelman: But the lies, they don’t stop there. There are other ways leaders kid themselves. Another big problem is that the data only gives you a specific kind of information, which effectively turns into lying. Take the example of Kodak at the advent of the digital photography era.

Scott Anthony: In 2008, Kodak had not yet gone bankrupt, but you could kind of see the writing was on the wall. The problem is that it just wouldn’t stop growing. And the “it” in this case was analog film. Everybody was telling Kodak that digital was the future, but Kodak’s data kept telling it that analog was the present. So the lie here is the data tells you that you’re safe — until you’re not. Data reports what happened in the past, not what will happen in the future. And you can be right in the middle of a disruptive storm like Kodak was — or like Nokia and Research In Motion were a decade ago — and for a few years, your revenues are going up, your profits are going up, your stock price looks OK. So you’re looking at that data that’s reporting things that happened in the past, and that data’s lying to you. That data is telling you everything’s OK — until it’s not.

Paul Michelman: This, of course, is a monumentally hard problem to solve.

Scott Anthony: By the time the data becomes clear, it’s too late to do anything about it. So you have to make decisions, not using data, but using patterns and inference and judgment and theory. And those are not the sorts of tools that leaders are used to using.

Paul Michelman: The next big lie that Anthony has found in his research on disruptive innovation? That it’s safer not to act in the face of uncertainty.

Scott Anthony: People will say, “OK, I see this thing is going on, but the risky thing for me to do is to respond.” So in simple terms, the lie is, “Innovation and responding to disruptive change is risky.” Now, of course, you go and try and do something different — there’s a chance that it won’t work. There’s a chance that you’ll do something that will fail. But we had a top leader at one of our client gatherings in late 2019 [who] I think really nailed the issue. When you go and place a bet, when you go and invest in innovation, the most that you can lose is the bet itself. The worst thing that happens is the money that you invested ends up returning zero. And that’s not great, but if you think about the big innovation flops — you can think about things like Google Glass, or you could think about Microsoft Zune or a range of different things — those aren’t good things, but those aren’t the things that destroy companies. The downside when you invest in innovation is zero; the upside is uncapped. You create new platforms; you create new waves of growth. When you don’t invest to defend against disruption, to deflect disruptive threats, to go on the offense and go and create new disruptive opportunities, the downside is limitless because that’s what can kill your company. So the biggest risk that you take, in many cases, is not investing in innovation.

Paul Michelman: One more big lie that leaders need to fight against, especially at public companies: using shareholders as an excuse.

Scott Anthony: The third lie is, “I wish I could, but my shareholders won’t let me — because after all, my job as a leader is to maximize shareholder value. And if I start doing something different, if there’s a short-term hit to my profitability, the shareholders will circle, and that will be the end of the game.” If you really are trying to maximize shareholder value, the research is stunningly clear: The best way to maximize shareholder value is to take a long-term perspective and not act to maximize the day, week, or quarter, but really think about the direction in which you need to go, the big strategic boost that you need to make, and the big changes you need to make to your organization.

Paul Michelman: Anthony is quick to point out that it is possible to shift the expectations of shareholders if you are really ready to push that boulder up the hill.

Scott Anthony: An example that we’ve shared in some of our prior work is what Mark Bertolini did at Aetna. He tells stories about how he had to have very direct conversations with shareholders to say, “I’m not going to be the sort of company that you thought I was going to be — we’re going to be a very different type of company, and if you don’t like that, there are plenty of other stocks in which you ought to invest.” Ultimately, it paid off. In 2018, there was analysis about the top-performing CEOs in the world, and Bertolini made it into the top 50 on the list, the highest in his industry. But it did require hard work on his part to clearly communicate a message to his analysts, to his investors, and in some cases, change them.

Paul Michelman: Now that we can recognize the lies, that we have the awareness, it’s time for action. So where to begin? Begin by looking inward.

Scott Anthony: Moving beyond the lies is easier said than done. There’s a simple answer, which is to say, some of these lies are rooted in cognitive biases, and if we can just get better sources of data, that will help us. And certainly, there’s truth to that. But there is a lie behind the lies, and that lie is that a leader can transform an organization without transforming themselves. If you really are serious about transforming your organization, the transformation has to start with yourself. You have to train yourself to look at data in new ways, to process data in new ways, to fundamentally rethink what it takes to lead an enterprise. That is deep work that is not easy to do, but that’s what we believe is required if you really are to manage the dilemmas of disruption.

Paul Michelman: That’s Scott Anthony, author of the MIT Sloan Management Review article “How Leaders Delude Themselves About Disruption.” He is a senior partner at Innosight.

And now what you’ve been waiting for: three big points about overcoming the lies leaders tell themselves about disruption.

Number one: Stop depending on data that looks at the past.

Scott Anthony: Diversify your sources of data. Don’t just look in mainstream markets. Don’t just talk to mainstream customers. Don’t just look at financial data. Make sure that you’re sensing data from lots of different places — from the fringes, from the edges, from the periphery.

Paul Michelman: Number two: Free yourself from the grips of fear and intolerance of risk.

Scott Anthony: Make sure that you’ve got people with diverse perspectives that are involved in the decisions you’re making. Groupthink is a real enemy when you’re dealing with this type of change, and the more you’ve got people who are looking at things from different angles and different perspectives, the greater chance you have of succeeding.

Paul Michelman: And number three: The most important part of the antidote? Be ready to change yourself.

Scott Anthony: Recognize, as a leader, you have two fundamental challenges: You’ve got to deliver today, you’ve got to create tomorrow. Those require two fundamental different mindsets. What you as a leader need to develop the ability to do is to toggle between the two of them. That is a lot easier said than done, but if you develop the ability to both be present-forward and be future-back, to think about delivering today and dreaming about tomorrow — if you can have the ability to do both of those things simultaneously, you’re positioned to confront these deceptions of disruption.

Paul Michelman: That’s this week’s Three Big Points. You can find us on Spotify, Apple Podcasts, Google Podcasts, Stitcher, TuneIn, and wherever fine podcasts are streamed. If you’d like to support our show, please post a rating or a review on whatever podcast platform you prefer.

Three Big Points is produced by Mary Dooe. Music by Matt Reed. Marketing and audience development by Desiree Barry. Our coordinating producer is Mackenzie Wise.