How Does Disruption Actually Happen Inside Organizations with Scott Anthony

0:01This is an ad, but it is an ad to give you something. So not clear to me that's a real ad. Anyway, Madison and I have written a new book called Everybody Has Something to Hide. And we want to make you a special offer as a listener to our podcast. So if you are in the United States, I'm sorry, we can't offer this outside the United States. that's Amazon's rules, not ours. But if you're in the United States and you want a copy of the Kindle version of this book, actually, there is only a Kindle version. There is no paper version. If you send an email to everybodyhassomethingtohideatgmail.com, we will send you a Kindle gift of the book.

0:50Yes, everybodyhassomethingtohideatgmail.com. U.S. only. And if for some reason you cannot use the link, just forward it to somebody else in the U.S. who might want to use it. And if all else fails, the book is only 99 cents. And we guarantee you it is worth 99 cents. Thanks. We are dealing with some big technological developments right now where there's plenty of technology being developed. There's norms and there's battles between for AI boomers and doomers and so on, and we're working through that. But the general view has been, hey, let's just keep our hands off it. Let's let technology develop, and then it will all work out fine.

1:33History suggests that might not be the best answer. Hello, everyone. I'm Guy Kawasaki. This is the Remarkable People podcast, and we are scanning and searching the world for remarkable people to inspire and inform you. And we have found another remarkable person. His name is Scott Anthony. He's a professor at Dartmouth's Tuck School of Business. And basically, he is a world-renowned expert on navigating disruptive change. In fact, he kind of wrote the book on it. He is a longtime partner at InnoSight and is a mentee of Clayton Christensen. And Clayton Christensen is truly one of my heroes. He wrote The Innovator's Dilemma.

2:22Scott has been working with companies like Procter & Gamble and large global giants to help transform their business models. He's a prolific author also. And one second, let me get my book here. Most important thing, most important thing of the introduction, Guy. This brief commercial break. This is his latest book. It's called Epic Disruption. And that's the topic today. All right. It's a pleasure to be here. So long time no see. I think it's been 20 years since we last saw each other, just about. But we're not face-to-face, but we are face-to-face, such as the world in 2025, 6, etc. I thought you looked familiar.

3:04I had glasses then, and the hair might have been a slightly different shade at the time, but such is time. I assure you, my hair was a very different shade. So first of all, I would like to ask you a question. Are there examples of companies that have been disruptive more than once? Who have been disrupted more than once, they felt, or they have done disruption more than once. Which one? Have done disruption more than once. Yeah, for sure. You mentioned Procter & Gamble in the beginning, and I think that is a great example. And through its history, about every 20 years, it comes up with a big new disruptive platform.

3:43So you've got the origins of Tide as the wash day miracle in the 1930s and 40s, and then Crest in the 1950s, Pampers disposable diapers in the 60s and 70s, etc., etc. In each case, following the pattern of disruptive innovation, taking things that once were complicated and expensive and making them simple and affordable, driving explosive growth and changing market dynamics. So that's a pretty good example of it. Okay, so why has Procter & Gamble been able to do that? And Kodak and Data Journal and Smith Corona and Remington Rand and Wang, why are they gone? There's a two-part answer I would give to that.

4:22First, I would say one of the things that Procter & Gamble has been able to successfully do is go and disrupt other categories. So it's gone and disrupted the way that you clean clothes and the way that you put diapers on babies and clean your floors and so on. that is not disruptive necessarily to itself and the business model it follows. The companies you all mentioned had a dominant business model, a dominant approach that got disrupted, and that's harder. If you're a multi-product, multi-category company, and you can go and play offense in different places, it's easy to say, I'm going to go and use disruption to go and create the next category, the next part of my business unit, et cetera.

5:03If disruption comes at you and you've got, in essence, one thing, that can be really hard. Not impossible, but can be really hard. So is there an example of a company that did that where they were fundamentally in one thing and they didn't go into diapers or go into different kind of detergent, but they stuck to their knitting and disrupted again? I think a recent example of this, which is pretty interesting, is Schneider Electric, which is a French industrial company, which is not exactly where you expect to look if you're looking at someone who has successfully responded to disruptive change.

5:37But it followed a pattern that I detailed in my 2017 book, going back in time a little bit, called Dual Transformation, where it simultaneously embraced digitalization in its existing products and also created new services, value -added services that use smart connected devices and so on. So it was able to catch the disruptive trend and both defend what it currently had and went and played offense to go and create what it didn't have. So it's an example of an established company that had a pretty concentrated portfolio that responded to disruption in a very positive way. What would you say that, Preston, as this may sound, would you say that very few companies are disruptive more than once?

6:20So maybe you declare victory, you're disruptive, you're a cash cow, and you take the win and you don't make yourself crazy because 99 % of the companies have never even disrupted once. Well, I'm an optimist by nature. I'm a believer. As Clay was, if you understand the forces that work on you, you are able to take something that is an anomalous outcome and make it more normal. So that is the bet, though. If you see a large established company and you see disruption taking place in or around it, the safest bet to place is that it's going to screw it up. That's what history shows. That's what experience shows.

6:57But increasingly, you see examples of companies that don't do that. As an example, if we just stopped at the innovator's dilemma, then the last two decades of tech would not have happened. So Apple would not have done the iPhone. Microsoft would not have gotten the cloud and artificial intelligence right. Meta would not have gotten social networking on mobile phones and messaging right. So all the big tech companies that have elongated their lives before the innovator's dilemma would have had one shot, that they would have gone and done their one thing and failed. For better or worse, large established companies have learned that they can ride additional waves of disruption.

7:34And I say for worse because sometimes it's actually good that you get creative destruction and you get the old falling and the new coming in, that leads to a degree of vibrancy versus companies trying to protect. But that's maybe a whole different line of discussion. I think this is not just for a semantic point of view, but perhaps it would be very helpful for you to define the difference between disruption and innovation. Because somebody might say, well, those companies continue to innovate. But I think you're saying they continue to disrupt. which is, in my mind, different. Absolutely different and related, of course.

8:15So innovation broadly is something different that creates value. And that's an intentionally broad definition. It leaves room for lots of categories underneath it. And disruption is one of those categories underneath it. The way I define a disruptive innovation is something that takes what once was complicated and expensive and makes it simple and affordable. And by doing so, it changes market dynamics and it drives explosive growth. The key thing in that is the disruptor is playing the game in a fundamentally different way. It's not trying to do what the old guard was doing better. It's trying to do something very different.

8:54And if you look in the details of Clay Christensen's original research, that means often the disruptor isn't starting squarely in the mainstream. They're starting in the underbelly of the market or a completely different market. It means often the disruptor is making money in very different ways that look foreign to the market leader. And often the market leader is plenty happy to have the disruptor exist in the early days until it gets better and better and ultimately serves as a competitive threat. So that's the distinction. Innovation broadly, something different that creates value. A disruptor, in short, does it really differently and therefore changes dynamics.

9:32This may be heresy, but as I was reading your book, I kept thinking to myself, maybe Clayton Christensen should have called his book the disruptor's dilemma instead of the innovator's dilemma. Say a little bit more, Guy. Why do you think that? I think that's a really, love the heresy. We have two heretical acts already. We're only in minute nine. I am familiar with the book, and I am now familiar with your book. And it seems that the message here is that a disruptor must continue to disrupt. Otherwise, it slides into innovation, and then after innovation, it's just very lucrative, and then pretty soon it becomes irrelevant.

10:15So if you want to continue to disrupt, that is a higher bar than the continue to innovate. You could innovate with an existing product. You cannot disrupt with an existing product. So I think the higher bar and the more interesting case is the disruptors dilemma that you disrupted the phone business. But now what is the next thing you're going to disrupt as opposed to innovate existing phones? So maybe Clayton Christensen is up there shaking his head at Guy or he's saying, Guy, yeah, I never thought of that. Plus, I like alliterations and disruptors dilemma is a better title than he is. Having worked with Clay for 25 years, I think he would be shaking his head and said, gosh, guy, that's a really good idea.

11:05And dang, I wish I would have thought of it. And I think those are the exact phrases he would have used. You're exactly right. One of the kind of paradoxes of the world of innovation is you disrupt, you go and create a new paradigm. But then in the language of Clay's original research, you sustain. to extend that paradigm, and then you're locked within it. So you mentioned the phone, the Apple iPhone, very disruptive product. It brings computing into people's hands and into people's pockets and probably the most successful product in history. And then people say, okay, what's next? And it's hard to do the most successful product in history twice.

11:41And a lot of credit to what the team has done to sustain success over the past decade, but still, at some point. You got to do it again. And from the outside looking in, what are the patterns that you recognize for a Procter & Gamble or an Apple? Or you can make the case that Google with Gemini has disrupted again, right? So now what are the patterns? What are the best practices that a Fortune 500 CEO could ask you? So how do I do this, Scott? How do I be like Apple or be like Procter & Gamble? There's a lot that we could talk about here, but I will highlight two points. One is a friendly amendment to the line that Andy Grove from Intel used to use, only the paranoid survive was his line.

12:28So you're always looking for the threats. My friendly amendment to that is only the paranoid survive, but only the optimistic thrive. So I think you see in these companies a belief that that which they have is finite, that they always have to be looking out for the things that will get it, but also a belief at the same time that in doing so, they can create new growth, reach new customers, reach new market segments. Because the problem with pure paranoia is it makes you very defensive and it makes you very rigid in how you respond. And you can play defense, but you can't play offense. So there is this almost optimistic paranoia that they have.

13:04That's one. Two, you recognize if you are truly going to do new things, you have to do what Procter & Gamble did all the way back in 1954. When they're trying to go into the disposable diaper category, they don't say, let's ask an existing business unit that's really busy doing all the things that it's doing to simultaneously go and pioneer, let's create the organizational space, the exploratory products division that's going to go and do this. So organizations that do this serially recognize we have to make sure there's space for the new stuff. And it sounds simple, but it's actually really hard to do inside established organizations because the drum beats and rhythms and routines are all choreographed to make today better, not to do tomorrow different.

13:49So it really required very active leadership to get it right. So there's more, of course, but those two ingredients, the optimistic paranoia and giving space and sometimes, not sometimes, and always time for the new, I think those are two essential ingredients for success. Well, based on my personal experience, I would absolutely say that that's true with the Macintosh division. We were paranoid, but we were optimistic. And it really was a case like that. And we were trying to make something complicated, i.e. personal computers simple and try to reduce the price. And then, of course, if the board of directors of Apple in 1980 would say, you know what, we need to disrupt ourselves.

14:37We need to create a new personal computer built on a graphical user interface, WYSIWYG, blah, blah, blah. And we are chartering the Apple II division to do this, to evolve to this next kind of computing. Apple would not be around today. It took a separate business unit, the Macintosh division. It took an egomaniac, Steve Jobs. It took an egomaniac who was co-founder so he could do anything he wanted. And basically, we ran roughshod over the Apple II division. I'm not advocating that part. In the end, for the good of the organization and the good of the world. Apple, of course, replicates the story with the iPhone.

15:16It'd be very easy. We forget this now, of course. But it'd be very easy for Apple to say, hey, we've got this business, the iPod business. It's a super good business. It's what's brought us back from the dead. Why would we do something that might cannibalize it with the phone? Let's just go and milk everything we can out of this. And the iPod business died, and that was good for Apple. So this is something, again, a little bit of willingness to, what do they say in writing, kill your darlings. You have to be willing to do that sometimes. Okay, but now for Apple, I don't see the VR thing as that big a deal.

15:48I don't see the watch as a big deal. on what's the next thing? What does Apple do to disrupt? It can be more innovative with including AI into its entire product line. Isn't the bar higher for Apple? What's the next disruption? What's going to make me go to an Apple store at midnight so I can get the thing in the morning? That's a great question. Well, I got my Vision Pro a few weeks ago. My kids finally convinced me. They said, hey, this is your field. You just write it off as a business expense. And I did. And it's super fun to play around with. But you're right. is still way too expensive and too cumbersome and there's not enough software on it for it really to be something that you say, this is the next one.

16:26I think you have, for Apple, three possibilities, one of which they've already opted out of, which is the car. So you look and see what's happened in China. It is Huawei and a lot of consumer electronics companies that have done it. Apple tried but gave up. So that one's gone. So you got two chances left. One is something with mixed and augmented reality. And hey, just because the first and second isn't the breakthrough, The Apple Newton didn't get it quite right. It took time until you get to the iPhone, so I wouldn't give up on that. And then the third thing that I have just been watching and waiting for about 15 years now is healthcare.

17:00Healthcare is a multi-trillion dollar industry that needs a lot of disruption. And you look at the functionality that Apple has put in its watch and in other places, and you can see the beginnings of something that really could be a very sophisticated play at primary care and related areas. it requires several steps to get there. But that's the sort of thing that you say, if any industry in this world needs Apple's ability to simplify and bring elegant design, my goodness, it is healthcare. So that's another one that I have long believed is possible. Really, really, really hard to do. And the point you've made is true.

17:38Apple's reward for having the most successful product in history is everything else is going to look worse by comparison. I remember a couple decades ago, back before I was a professor and I was a consultant, doing consulting work for newspapers. And they said, what we need is we need a business that's as good as the classified ads that were getting disrupted by Craigslist and other things. Those classified ads, 80 % gross margin. I said, there is no such thing. You will never get a business like that. That was a historical anomaly. Your question isn't, will I get a business as good as this or not, your question is, will I have a business or not?

18:15By framing the question as a business as good as this or not, well, we saw how that one played out. Well, honestly, I think the only way you can say that, oh, we disrupted and had this business just as good as our classified business is after the fact. I don't know how you predict that. You just take a lot of shots and then you declare victory where victory occurred. There was an article in the MIT Sloan Management Review last year that said exactly that. It said, when you look at true radical innovation, it is impossible to fully predict it ex ante. Now, that doesn't mean that it's not worth investing in.

18:51You're creating the surface area for good things to happen. Even if you fail with something, you learn how it works and you learn the good M &A candidates out there, blah, blah, blah, blah, blah. But saying that you know for sure this one's going to make it, never, never possible. Not even with somebody from, you know, talk advice or Harvard Business School. No, no, no. One of the points I make in the book is that innovation, disruption in particular, is predictably unpredictable. There are patterns in it for sure. So when I see someone who is purposely trading off performance in the name of simplicity, when I see they've got a protected starting point away from the mainstream, when I see they've got a powerful business model that's making money in different ways to say, this could be one of those, but could be because stuff happens.

19:38We're doing work in complicated systems that are run by complicated individuals. So weird things happen. You can't fully predict that in Tesla's early days, it's going to get$800 million in government loans and that's going to change the way things play out. Whatever, weird things happen. So you use the patterns to increase the odds, but you recognize that stuff happens.

20:13you're listening to remarkable people with guy kawasaki since you brought up tesla well who would you say is the bigger disruptor elon musk or steve jobs oh that's a great question so if you look at the dictionary definition of disruption i don't think there's any doubt about that if you look at the way that we're talking about disruption in the clayton christensen sense I think the history is still being written, but I think you've got to give the edge to Elon Musk because you have the collection of not just doing it at Tesla, but SpaceX, the boring company, all the things that he has done. Some of them haven't worked and some of them have had some downsides to them, but it's a really interesting, in fact, totally unique portfolio of efforts driven by a singular vision to go and back up society on Mars.

21:04It's unlike anything we've ever seen before. And Elon Musk, of course, is a complicated and very polarizing character. I tell my kids, maybe don't replicate the person, but the business stuff, that's good. Could you get one without the other? I don't know. That's a great question. I hesitate to say this, but I have to admit that I agree with you. And I don't know Elon Musk personally, I knew Steve Jobs. Steve definitely disrupted computers and phones and digital devices, but Elon is like satellites and tunneling and cars and solar panels and you name it, right? Chips in your head. It's a scary thought there.

21:45At the graduation ceremony for the class of 2025 from our business school, our Dean Matt Slaughter, who is a consummate optimist, which I love because I am too, told the graduates, the world stands at a crossroads. No one disagrees with that. He said of extraordinary possibility. And I love the way he framed it because that is a way to look at the world right now. Others would have chosen other words to end that sentence, but I like that frame of the world. And wait, are you making the point that things are so screwed up that it is a time of great opportunity? This is absolutely. So, you know, the way that I frame it is in the 1940s, Kurt Lewin, who's one of the fathers of thinking about organizational design and behavior, put forward this very simple model.

22:28He said, at any given moment, an organization is frozen. You cannot change it. Something leads to it unfreezing. It might be a charismatic leader, a shock, whatever. Then you can change, but you have to move quickly because it refreezes and then change again is impossible. For better or worse, I think you can call the time we're in right now, the great unfreezing, which is very disconcerting and can be very hard to get through. But it also creates once in a lifetime possibilities. One specific example, I started teaching three and a half years ago, 2022. I thought it was my reward for 20 plus years of consulting.

23:04School changed very fast. Then four months later, ChatGPT comes out. Two years later, Trump is reelected with very clear viewpoints about how to change universities. So we're on the front line of disruptive change. Is that good or bad? I don't know. If you're Sian Balak, our president, you have a chance to remake an institution and do things that five years ago would have been impossible. And now they're not only possible, they might even be desirable. So again, that can be a downside, but I see upside in that as well. Now, what are the people who were the CEOs of Kodak or Rand or Smith Corona or Wang or any of these companies that failed, what were they telling themselves?

23:48Were they ignorant of the change or were they in denial? I mean, when Steve Sasson showed up at the Kodak manager's meeting with his new digital camera, what did they say? Were they just in denial? Were they ignorant? What goes through your head that would, especially now with books like yours and Clayton Christians, is at this point, 2025, you cannot say that, oh, this is news to me. What are these people saying to themselves when they deny this? I remember, Guy, in 2000 and let's see, what year was it? It was right before presidential elections, 2008. 2008, I was on a panel discussion and it was me, A.G.

24:30Lafley from P &G, Stephanie Burns from Dow Corning. And I cannot remember his name, but it was the president of Eastman Kodak. And we're talking about this kind of stuff. And what the president of Eastman Kodak said is, look, the basic problem we faced is our core business just would not stop growing. So everybody is telling us the future is digital. And we kind of conceptually believed it. But film just kept going up and up and up and up. I play a video when I'm with groups. It's with Jim Balsillie, who is the co-CEO of Research in Motion. It's from April 2008. So it's a few months after the iPhone comes out.

25:05He's smug. He's dismissive. He's talking about how, yes, our product portfolio is poorly diversified, but it's going to the moon pretty well. Maybe it'll crash to earth, but whatever. It's going well so far. And everyone laughed at that. But I said, in April 2008, that was truth. Their revenues had tripled. Their stock price was up 70%. Here's the basic problem. The data lags. Everyone suffers from what I call the information action paradox. By the time the data are clear, telling you exactly what to do, it's too late to do it. So what Clay Christensen would say is this is where you use a good theory or model so you can make sense of the early signs of change.

25:42The problem if you're a human is all the signals are telling you, keep doing what you're doing until it's too late to do anything about it. You do have wise leaders who are beginning to get this, but that to me is the essence of the challenge, those leaders would all tell you everything looked good. It's the Ernest Hemingway sun also rises line. How did you go bankrupt? First slowly, then suddenly. So how do you get disrupted? First slowly, then suddenly.

26:08So one of the things that I kept noticing in your 11 stories in the book is that there seems to be this myth about there's this eureka moment, There's this aha moment where a lone genius or two guys in a garage or two gals in a garage, they have this bada bing, bada bang moment. And in all your examples, it goes back decades and decades. It's not like Gutenberg one day said, aha, printing press. He was in a place that there were metal workers and stampers and a lot of things had to line up. Is it a complete myth that it's a lone genius and there's this eureka moment? Yes, it is. And it's a myth that I used to tell.