682: Founder and CEO of High Alpha Innovation, Elliott Parker. The Illusion of Innovation (Strategy Skills classics)

0:02And when there is no vision, the people perish. We choose to go to the moon. If today were the last day of my life, would I want to do what I am about to do today? Change will not come if we wait for some other person or if we wait for some other time. We are the ones we've been waiting for. Welcome to the Strategy Skills Podcast, where strategy partners teach you the tools and techniques to solve mankind's greatest problems.

0:47Elliott Parker: Hello, this is Krista Farova. Welcome to another episode of the Strategy Skills Podcast. Our podcast sponsor today is strategytraining.com. If you want to strengthen your strategy skills, get the overall approach used in well-managed strategy studies. It is a free download. Go to firmsconsulting.com forward slash overall approach. It is firmsconsulting.com forward slash overall approach. And if you're currently updating your resume, you can get McKinsey and BCG winning resume example. It is a resume that got offers from both firms. go to firmsconsulting.com forward slash resume PDF. And today we are speaking with Elliot Parker.

1:29Elliott Parker: Elliot is the founder and CEO of High Alpha Innovation, a venture builder that partners with corporations, universities, entrepreneurs to co-create startups that solve compelling problems. Welcome Elliot, so great to have you with us. Thanks, Chris, happy to be here. Elliot, so you have a very interesting journey that got you here. Maybe we could start there. Could you share with us your story that got you to what you're doing now? Sure. Yeah, happy to. So yeah, we're currently I'm the CEO, founder of a company called High Off Innovation. We've built startups. And we do that with corporations, universities, world-class founders, as you said.

2:11I feel like it's the culmination of everything that I've learned along the way in my career over many years. I've spent my career helping large organizations learn how to become more innovative, but also consider myself first and foremost an entrepreneur. I began my career at a large accounting firm called Arthur Anderson, my first job out of college, where I was on a small consulting team that was working to commercialize IP out of big companies and value IP and things like that. and was there for the collapse of that firm associated with the Enron scandal. It was amazing. This large, big company that I worked for had a few employees in another state that did something that led to this 35 ,000-person company to go out of business within three weeks.

3:02It was an amazing lesson to me about how to consider risk in your career and the riskiness of big companies compared to the riskiness and rewards of startups.

3:13Elliott Parker: Before we go on, incredible career, and I'm looking forward to get to Clay Christensen and all that and your current work. Before we go on, can you take us back to those three weeks and what was it like? Well, so it was a public accounting firm and the firm was indicted, which immediately meant that nobody wanted to work with this hundred plus year old accounting firm anymore. And so revenue evaporated. I think at the time, I can't remember the exact revenue, but it was in the 35 ,000, something like that, global employees. I want to say somewhere in the $10 to$15 billion range in revenue. And immediately customers decided they couldn't work with the firm anymore for obvious reasons and started pulling out.

3:58And a lot of uncertainty immediately. This is my first job out of school. I'm learning how the world works. And all of a sudden, we don't have any projects to do. And there's a sense that we may all be out of a job here soon. There was hope that that wouldn't be the case, that the firm would continue. We liked the people we were working with. And soon we started having bits of the business being acquired. So you'd have a team over here that got purchased or acquired by another consulting firm and announced that they were leaving en masse to go over to another firm and kind of watching and waiting and seeing how it all played out.

4:37You have people applying to other jobs. At the time, fortunately, I was getting ready to go to business school. So I was watching it. Our group got acquired by another firm where I spent a grand total of, I think, a month before I left to go to business school. So I was able to observe the whole thing with some degree of objectivity and watch it. But the lesson for me, I remember driving in the car with my dad, who's a longtime entrepreneur, who told me at the time, big companies are perceived as being less risky from an employment standpoint. The reality is that you don't control your fate and that every large company can lay you off or go out of business at any time.

5:22Startups are perceived as very risky. The reality is that in startups, you can at least to a greater degree often control your fate and determine the outcome. And that was a lesson I've carried throughout my career.

5:34Elliott Parker: That is so true. Do you remember how senior partners were taking what was going on? How they were managing it? Yeah, I'd say some were calm and in some ways saw it as an opportunity to go do something different. In other cases, absolute panic. Like on the other end of the spectrum, you had some, for example, some partners who had just retired and had a good chunk of their personal wealth tied up in the firm. And that was evaporating and there was not anything they could do about it. So I think people were impacted differently. in most cases, at least at my level, the junior level, I think nearly everyone that I can think of ended up better off with a new job, but now a network that had been dispersed across corporate America in good ways.

6:28So in the end, for me personally, it was a good lesson and a good kind of a dispersion of the network that was helpful, came to prove helpful later.

6:38Elliott Parker: Do you feel that this could have, and then it's a little bit difficult because at the time you were a junior and you did not have visibility, but do you think it is the kind of thing that could have happened to any of the big firms or? Oh yeah. And likely still will, likely still will, right? It's the risk of a limited liability partnership where any one partner in that partnership can do something bad and the partnership is held accountable for it. But I thought at the time we'd see a change in the organizational structure of some of these firms to protect against that. And as far as I can tell, there hasn't been.

7:19So I think it's a matter of time before it happens again.

7:25It's the nature of that legal structure. I think that legal structure for incorporation works great when you've got a dozen partners who you know well. It's a little bit riskier when you've got thousands of partners spread around the world. Any one of whom could decide to do something that gets the firm in hot water.

7:44Elliott Parker: Very true. And then also, regardless of the structure, the way clients reacted was also incredibly damaging and basically killed the firm. They had no choice. It was the way the incentives were set up, right? If you're a publicly traded company, your accounting firm needs to be upstanding for the output to be credible and believable. And you need it to be credible and believable and therefore require to switch in firms immediately. So I don't blame any of them. Of course. Do you feel anything now with your wealth of experience? Do you feel that, for example, if you were managing the firm at that time during those three weeks, do you think something could have been done to save it?

8:25It's a very good question. Ultimately, in that case, what happened was the firm was found not guilty, but that took months or years to play out. And by then it was too late. It was gone. on. It's an interesting question to think back and not not one I've considered. It may be perhaps there would have been a way to accelerate the conclusion that the firm had not actually done anything that the firm should not have been held viable even if individuals of the firm could have been. That could have been one option. I think it was from a prosecutorial standpoint at the time felt like an overstep and the wrong thing.

9:07Ultimately, I guess the firm was found not guilty. It was kind of a lot of collateral damage and economic inefficiency that was unnecessary in retrospect. But people are operating with limited information, trying to do their best. So it's a good question. I don't know the answer. The people running the firm at the time were under a tremendous amount of pressure and is probably that in 99 out of 100 cases, the outcome would have been what it was.

9:38Elliott Parker: Yes, it was a very tough situation to be in. The changes needed to happen before this. Yeah, it fundamentally comes back to the legal structure of incorporation, which is why I suspect we'll see it happen again. So after this, you're basically going to business school. What was your experience like there? So in business school, my goal was to learn, to connect with and engage with and to learn about other entrepreneurs and their journeys. My goal was to be an entrepreneur myself. It's in my DNA going back generations. As far as I can go back to the 1600s and beyond, long chain of entrepreneurs.

10:19And so my goal at business school was to use that experience to engage with others who had decided to be entrepreneurs to learn more about their journey and see if I could do the same thing. and had an amazing opportunity, took advantage of that. One of the amazing things about being in business school or in school period is that you can pick up the phone and call just about anyone, tell them you're a student and you'd like to learn more about their experience. And there's a good chance you're going to get a willingness to engage. The day you graduate, that stops. And so I was very aware of that business school and used it to meet some amazing, famous world-class entrepreneurs who I proactively reached out to, to see if I could learn from their experience.

11:01And I did. The big lesson was that here's what I learned at business school. None of the buildings were named after investment bankers or consultants. They were all named after entrepreneurs. It impressed upon me how much of an impact an entrepreneur can have on the world and how much change they can bring, how much good an entrepreneur can do through solving problems, through for-profit entrepreneurship. I also, the other thing, these entrepreneurs who had made it who'd done really well. They were just regular people who decided to push hard and work hard and take the chances and try to expand the surface area of luck in their lives.

11:39I thought I could do that too. And then the other piece was just the connections that you make in business school. The network that I built was amazing. As far as the classwork, interesting, but that wasn't the primary, not where most of the lessons came from.

11:52Elliott Parker: Elliot, for our listeners who are not as good as you in building relationships and having a strong network? What advice would you give? Because that is something that you excel at and you could leverage throughout your entire career. Yeah, yeah. Be helpful. That's it. That's the lesson, be helpful. I mean, a lot of people make the mistake, especially early in their career, feeling compelled to network. For me, that's an excruciating proposition. The worst situation for me personally is to be at a cocktail party where I don't know anybody and I have to network. It's awful. It's awful, very unnatural.

12:36And so I find that the best way to build a strong network is to just be helpful and look for opportunities to help those around you. And that builds relationships. And in return, people find opportunities to help you.

12:50Elliott Parker: Eliton, how did you continue the relationship after, for example, business call? How do you find the time? How do you keep in touch? I am not as good at that as I wish I was. But I do look for opportunities to reach out and connect. Again, in the spirit of being helpful, find ways to help those. Make connections between people I know who might benefit from knowing each other. I find something, some piece of information, introducing people to business opportunities. being helpful is the best way to keep a network going. And the network is kind of the end result, not the goal. It's a byproduct of what you're doing to be helpful along the way, I think.

13:31Elliott Parker: So what would be an example of being helpful other than introducing people you know? It would be, for example, finding some interesting piece of information along the way. And in my work now, we're building startups. We come across all kinds of opportunities. And often I have a chance to pass along, hey, I just heard this really interesting opportunity. I encountered a corporation that's got a need and your business solves it. Have the two of you met? Because I think they'd be a great customer for you, introducing people to business opportunities all the time. And what we do, I have opportunities to do that.

14:07And that's fun.

14:08Elliott Parker: That is a very good way to help. That is something that most people need help with. Yeah. So what happens after business school? So in business school, I started a couple of companies while I was there and learned about what it was like to build entrepreneurs or be an entrepreneur and start things. And the thrill of having a customer hand over money for something you've produced is a rush and it's addictive. and then immediately after business school had an interesting opportunity pop up where I decided to set aside the opportunities I've been working on and go take a job in corporate venture capital and innovation working at a firm called Roche Diagnostics where I had a chance to to help that organization think through external venture investments they're making and internal ventures that we could build inside the business as a way to help them be more innovative.

15:01Did that for a few years, learned a lot about how innovation works inside of big companies and often how it doesn't work, what makes it hard. Left that, spent many years working as an entrepreneur and building startups and all sorts of industries. and then had a chance just over a decade ago to go work at the consulting firm, strategy firm founded by Clayton Christensen called InnoCite in Boston. And left everything aside that I've been working on, the family and I, we moved to Boston and spent seven years working there and getting to know Clay Christensen really well and having a chance to work with Fortune 500 leaders around the world, trying to help their organizations be more innovative, develop growth strategies.

15:51And that was an incredible learning experience for me. A lot of what we do at High Alpha Innovation today is based on what I learned engaging with organizations and my work at that firm, InnoCite.

16:04Elliott Parker: What are some of the key things you learned? Yeah, really good question. um so Clayton Christensen back in I think it was 1997 released the book The Innovator's Dilemma where he explained uh this problem which is that executives in large companies can do everything right um that they're trained to do serve their best customers their most profitable customers with ever better products and services ultimately by doing that it will cause their company the leader, it will cause their company to go out of business. Because what happens is as the companies move up market to serve these profitable customers, they over-serve a large chunk of the market.

16:48They leave themselves exposed at the lower end for new entrants, disruptors to come in who grab a foothold and then move up market themselves and displace the incumbents. It turns out this is a really hard problem to solve. We've always known this, but almost 30 years later after Clay released that book, I think people realize that it's broadly known what the innovator's dilemma is disruption theory known by most executive teams and large companies around the world now. That doesn't mean anybody's better at solving it. In fact, ironically, I think organizations are worse at addressing the issue than they were when Clay first exposed the idea and wrote the book.

17:27And this is a real problem. These large organizations are getting worse at innovating. They're getting worse at confronting the opportunities and challenges that face them. And this is a problem for those organizations, of course. It's a problem for society at large because it's through corporations that we collaborate as large teams. And for-profit corporations can do things that startups, governments, other institutions cannot. We need corporations to be effective at innovating. And so what I learned in that experience, many lessons and many great conversations with Clay about all sorts of topics and others in the organization, an amazing group of people.

18:03But what I learned was that first and foremost, the innovators dilemma is a much harder problem to solve than I think anybody anticipated when Clay first put that book out.

18:14Elliott Parker: So what was it like to work with Clayton Christensen? Because he's such a legend. People have such admiration for him, such respect. I'm sure our listeners would love to learn more yeah an amazing individual he really was amazing for his ideas but also for the way that he treated those around him Clay was incredible at helping people around him if you were to watch him in a social setting for example what you would notice is that Clay would go around to just about every person in the room and try to find a way to engage and see what he could do to help that person with whatever they needed. And that's remarkable.

18:57I think after Clay's passing, one of the most amazing things to everybody who knew him was how many hundreds, thousands of stories were told about how Clay helped that person individually at one point in their lives and from all walks of life. It's really aspirational. And it's amazing how he was able to do that amid all the things that he was asked to do. I remember one time I was scheduled to meet with Clay at his office. And I got a call from his assistant that morning asking if we could reschedule the meeting for another time in the morning. I said, of course, happy to reschedule. And went in and found out the reason that he'd had to reschedule was because his calendar that morning was pretty crazy.

19:41That morning, his agenda was meeting with the U.S. Senate Majority Leader. And then the Mayor of New York City, and then me. So all walks of life. And he was willing to spend the time and sit down and help. And that's remarkable. So then he was, the other thing that made Clay unique was how his brain, right, his ideas, he was always thinking in terms of theories and how might, what theories might apply to this situation. So he wouldn't, he wouldn't admit, he wouldn't always have the solution or the answers, but he was very good at knowing what theory to apply to any problem. I remember one of the things he would say often was that if you're having trouble solving a problem, it's probably because you don't have the categories right.

20:30The idea that ultimately problem solving is often a process of categorization, of putting things into different buckets, and understanding breaking down the problem into the proper categories can help you solve it. If you can name the problem properly, there's a good chance you can solve it. And so quite often when I felt myself getting stuck and still do, I will think about do I have the categories, right? What I mean by that is sometimes I may be thinking about the customer in the wrong way. I may not understand their jobs to be done appropriately, or maybe I've categorized the customer into the wrong types of buckets of categories, right?

21:10And so by just asking, kind of questioning that, often it will lead to breakthroughs and new ways to think about how to solve issues. It's a fantastic tool and way to think about strategy and strategic problems.

21:22Elliott Parker: Elliot, this is such an important point that I want us to elaborate on this a little bit. So what would be an example of customer categories? So a great example, to tell a story that Clay used to tell and has known quite well, the milkshake story, right? So there's this famous story that he would tell often about a consultant who was asked to go to a fast food restaurant to help them innovate around their milkshake part of their business. And so what this consultant did was went to the restaurant and observed people buying milkshakes and found that there were kind of two big categories during the day of people who'd come in to buy milkshakes.

22:03In the morning, people would buy milkshakes who tended to be commuters on their way to work, who would buy a milkshake as a substitute for breakfast, something to do in the car to keep them busy. In the afternoon, the buyers of milkshakes tended to be parents of small children who were coming in as a, buying a milkshake as a treat for their kids. Same product, very different circumstances, very different problems to be solved or jobs to be done for which they were hiring that milkshake. and the categorization error happens in thinking about innovation in terms of the product as it exists rather than the problems that that milkshake solves and so if you're going to go innovate around milkshake let's imagine your job is you're working the restaurant your job is to think about innovation for the milkshake category you might think about new flavors or maybe we need another size maybe we we want to do it in colored cups you you often are our tendency is to think about innovation in terms of what we already produce the product.

22:59And what the consultant observed was that you need to think fundamentally about the circumstances and the problems that individuals are trying to solve within those circumstances. So if you want to innovate for that commuter, you might think about milkshakes that have more nutritional content or keep you fuller for longer since it's a substitute for a meal or that are more interesting to consume while you're in the car. Maybe they've got chunks of fruit in them, for example. If you want to innovate for the afternoon milkshake buyer, maybe you're doing smaller, you're providing milkshakes with straws that are easier to suck the milkshake through because kids need to consume those milkshakes quickly so the parents can move on.

23:42But if we're not thinking about the fundamental problems we're trying to solve are the reasons for which we're hiring those products. Innovation's really hard and we get stuck once you understand the jobs to be done you've categorized the problem appropriately all sorts of new competitive threats uh come to light and new opportunities come to light too right for that commuter in the morning now we understand the milkshake is competing with the the coffee place down the street and with the bagel or with the granola bar they might take from their home rather than competing purely with other milkshakes this is very helpful so other than

24:17Elliott Parker: customers being placed into categories? What else can be placed into categories? Maybe you could give us some other examples. Anything. Think about any problem you're trying to solve. I know many of your listeners may be former or current strategy consultants or people tasked with executing strategy inside a large company. Strategy fundamentally is a task of storytelling and categorization. And what I mean by that is that the problem solving piece is that is the categorization problem. It's figuring out how to organize information into the appropriate categories and then being able to tell a compelling story about it that persuades other people to do something different.

24:54But any problem you might face is a categorization issue. It's things as simple as what am I going to wear today to as complex as where do I want to live to anything, right? Take the problem of where do I want to live, right? if you don't have the categories right you might make the decision optimized for the the wrong performance dimensions um we uh you you might decide to go move somewhere based on um it's got low property taxes or or some other element and if you don't have the categories right it turns out that's that's not the uh the criteria the criterion upon which you want to you want to base your decision.

25:39You want to be comparing your options along other performance dimensions. So understanding the problem that way can help you make better decisions and unlock opportunities that otherwise remain hidden.

25:51Elliott Parker: This is very helpful. Thank you. Let's talk about Clayton's approach to running his consulting firm. Did you notice anything different from how other people run consulting firms on average? So Clay was not actively involved in the day-to-day. One of the things that was fun about working with him there is that he'd come in quite often and just share ideas that he was thinking about to help spur thought and which was amazing chance to sit down and just hear him talk about here's what's been on my mind like coming with these stories and new ideas and new theories and ways to apply theories was remarkable so there's anything that was different is that we were we were kind of swimming in in these theories and and thinking about that and everything that we did, how to apply those theories, very theory-based, evidence-based approach to strategy and innovation.

26:40Super helpful. But in terms of the organization itself, one of the great lessons is that just like every organization, the innovator's dilemma applies. And so we often had to think about how was that applying in our own firm in terms of the incentives and the governance and what were people optimized to do and was that right? What was our own version of the innovator's dilemma, what experiments could we be running to avoid disruption in our own business? We face the same challenges everyone else did. Maybe more awareness because we were so steeped in it, but didn't make it any easier to solve.

27:17Elliott Parker: Elliot, and how did you get to speed on all theories you needed to know? Well, through application, I think is the best way to do it. And you find out that there are a few things that you need to know that apply in a lot of circumstances and can be used over and over again. Disruptive innovation, the theory of disruption, is a really powerful idea that once you see it, you can't unsee it, and you see it everywhere. The idea that organizations as they optimize for efficiency and predictability become less capable of innovating in meaningful ways. you see it all over the place and you can't help but think about it jobs to be done theory that I was talking about I've never seen a theory or an idea change organizations more effectively than that single idea when appropriately applied as simple as it sounds so there are a few simple theories like that that once you understand them you can't help but see them everywhere and find opportunities to apply the lessons.

28:23Elliott Parker: And if you look back at your time working with Clayton Christensen, what do you feel changed in how you approached life and business? Oh, that's such a good question. Well, just from a personal standpoint, how many people he was able to touch and inspire was remarkable. And as I mentioned, totally aspirational. We should all aspire to be so impactful at a one-to-one level with individuals. um watching him do that was a great lesson to me um the way that he treated anybody from any walk of life um as as the most important person in the room was um something that i i aspire to do not long ways from the way he was able to do that but uh certainly aspirational i think and then just the the lessons learned from engaging with all these large companies around the world who had really meaningful hard problems to solve and seeing how challenging, especially the topic of innovation was.

29:27So many good conversations with folks at the firm, with Clay, with some of the clients that we worked with there about the challenge of disruptive innovation and how do you really solve it in these large organizations? I saw it firsthand. I'd seen it in my own career, but I got a much deeper understanding for the issues and for what it means to the C-suite executives in these large companies who are tasked with growing these organizations, how difficult that is. You have an$80 billion a year company that you're running and the market is expecting you to generate$8 billion in new incremental revenue next year.

30:05That is a remarkable problem that very few individuals in the history of the world have had to contemplate and deal with. And it's very, very challenging. What happens and what we see and what I learned and now can't unsee is that these organizations, as they scale, they become so focused on preserving what exists, of making it more and more predictable and safe, that it gets very hard to do the things that are required to learn in an organization. an organization. Organizations or skilled corporations are not designed to learn. They're designed to execute, to execute at scale, and they do it very, very well.

30:43When you're inside a large organization and all the decisions are made by committees, it feels like things move very slowly. It's by design. That's an organization that is optimized for safety and predictability. If you remember years and years ago, GE had a CEO named Jack Welch, who is an amazing leader, an amazing management thinker, did incredible things. And I changed the course of how people think about running companies, which is amazing. But one of the things he said at the time, he said, variation is evil. What he meant by that was we need to root out any variation inside of companies.

31:18We need to make everything as predictable as possible. And the reality is that people don't work in systems where there's no variation. People are messy. People are chaotic. And the reality is that if there's no variance in a system, there's no life. That sterility is death, right? And so what he was advocating for effectively was an organization that's on the way to death. It's not learning anymore. If there's no variance, there's no mistake making. There's no lessons learned. There's no learning. We're doing everything to propagate what we already know and to support what we think the world, what we think is true.

31:59We leave ourselves unexposed to new surprises and anomalies. Clayton Christensen famously had a sign outside his office at the Harvard Business School that he had made himself on a piece of wood that said anomalies wanted. And he took this very seriously. He would be thrilled when someone would come in with a challenge to one of his ideas or theories because there was a way to test it and to see if maybe he had been wrong and maybe there's a way to make the theory stronger and better and more applicable. Organizations are not designed to seek out anomalies. They're designed to do just the opposite.

32:33And so as a result, they're not engaged in the type of activity that is capital inefficient, that creates mistakes, and that creates learning. And so most large companies, as a result, in that effort to root out variation entirely, are actually dying. Many of the executives don't know it, but they're corporate hospice workers. They're managing the company on its way to its eventual demise. I remember years ago, Jeff Bezos told the world famously, there were news headlines about this because he said, Amazon's going to go out of business one day. And how could the CEO, his CEO at the time, how could the CEO say this about his company?

33:14It's an obvious truth. All companies are going to go out of business one day. What Jeff Bezos explained to his employees was their job was to put off the death of Amazon for as long as possible by finding new and better ways to serve customers. So that's the trick. That's the hard thing about managing big companies is you simultaneously, you have to improve your operations. You have to operate efficiently. You've got to make money. But at the same time, you have to do things that are capital inefficient that enable the organization to learn. You've got to put the organization under some stress so that it can unlock, discover anomalies that lead to the insights that help the company find new pathways to growth.

33:55And organizations aren't set up to do that.

33:58Elliott Parker: You recently wrote a book, The Illusion of Innovation. What made you write it and what is the main message you want people to get out of it? Great. Yeah. So first, why did I write the book? The Illusion of Innovation refers to this idea that organizations, so many organizations spend a lot of time and money on activities that feel like innovation, but that produce no real result. In fact, if anything, destroy shareholder value because they waste money and they render the companies less capable of doing meaningful innovation. That's the illusion. It's this idea that all the stuff we're doing, all the money time we're spending on innovation is going to lead to something, and usually it does not.

34:43And this is tricky. I am frustrated by that problem because it's a hard one to solve. If you look at our large organizations, our large institutions, whether they're corporations, schools, governments, they somehow seem less capable than they were 100 years ago. We hear stories from decades or 100 years ago about the Empire State Building was built in you know 39 months or whatever the number was really quickly um we can't imagine things happening at that type of speed anymore and um we see examples of organizations failing in the face of opportunity or crisis in a way that seemed um unlikely decades ago and so the question why is that why are our institutions less capable than they once were delivering breakthrough change.

35:33This is a problem. We need them to be capable. And so that's what inspired me to write the book. I wanted to understand why are organizations less capable than they once were and what do we do about it?

35:43Elliott Parker: What are some of the things that you identified that make organizations less capable than they used to? The irony is that organizations are better run than they've ever been before, right? We've learned so much over the last 100 years, 200 years about how to manage teams, how to develop strategy, how to run a business in a capital efficient way. So companies are better run than they've ever been before, but at the same time, less capable of dealing with challenge or opportunity than they've ever been. And the reason is that these corporations in particular are optimized for the wrong thing. They're better managed, but they're optimized for safety and predictability.

36:24And we're very good. We've gotten much better at that. Whereas there may have been more variation, more variance in the performance of these organizations decades ago. It was that variance that led to learning. And we've gotten very good in the words of Jack Welch at rooting that out of the system. And as a result, organizations are less capable. We see this in the lifespans of companies. The lifespans of Fortune 500 companies are shrinking dramatically. You go back 60 years, the average duration of a company on the S &P 500 was 40 plus years. And now it's half of that, which tells me that these large corporations are less capable of competing in a dynamic marketplace.

37:02They're less capable of innovating than they once were and staying ahead of the market. And we should want corporations to be successful at innovating. There are certain things that only corporations can do well. We're talking to each other on laptops. A startup can build these laptops. I love startups. I'm an entrepreneur. I build startups for a living. There are certain things startups do well, and that's learning. Startups are very capital inefficient by design, and they're able to learn quickly as a result. And then there are things corporations do well, which is scaled execution. Corporations are very capital efficient.

37:36And my view is that both can benefit from each other. Corporations need to do a better job of engaging with startups in order to learn. And startups, if they engage more effectively with corporations, can be more resilient and durable and grow more quickly as well.

37:53Elliott Parker: Elethan, how would you define innovation? Because I think it will be helpful for our listeners to have that. Good question. Yeah, when I talk about innovation, I'm mostly referring to business model innovation. So a former colleague of mine, Scott Anthony, defined innovation as something new that creates impact. I think that's a pretty good, simple definition. It's a good working definition. anyway. But it's important to then understand the different types of innovation that exist, right? So you've got innovation that is intended to improve the efficiency of an organization, where we innovate to make our manufacturing line run faster.

38:31That's great. You might have innovation that leads to the replacement of existing products, where you've got Toyota was selling one model of a car and now they've innovated and the next year model replaces the old one. That's a form of innovation too that's really important. Most of the innovation we benefit from our lives is what might be called, might fit in those categories and be called sustaining innovation. It's kind of incremental improvements over what existed before. But that doesn't create long-term growth in companies. That helps us manage the decline, in fact. Companies to pursue growth over decades and to be resilient in the face of change need to be able to systematically access another type of innovation, which Clayton Christensen called empowering innovation or market creating innovation.

39:20This is innovation that opens up new markets, creates whole new categories of products that oftentimes empowers individuals to do things that they previously couldn't do. That type of innovation is really hard. And it turns out that startups are actually well positioned to pursue that type of innovation because they're not focused on efficiency. They have nothing to preserve. Corporations are threatened by that type of innovation. And so the irony is that they need it. And you've got to create new ways to access it. If you think about a large company, as it scales, it develops systems of governance, incentives, talent, and processes that are optimized for scaled execution of that large business.

40:05They're optimized for capital efficiency. um we as we talked about doing that market creation empowering type of innovation is is by nature an inefficient process you go out in search of anomalies of things that challenge the status quo and to do that you've got to be out there making mistakes and learning that type of innovation requires a completely different form of of governance and incentives and talent and processes and the problem that most large organizations run into is they try to use the systems they use to run the scale organization to do this fundamentally different activity and then are disappointed when it doesn't work.

40:43That's the illusion of innovation, right? We can take the decision-making processes we use in the incentive systems that we use to run our big business and we can go do these new things because we're smart, we're capable, we want to do this. The reality is going out and doing those new things, the empowering innovation almost always fails in those settings, not because people aren't smart, they're very capable, It's a structural problem around governance incentives, processes, sometimes the type of talent. And so it needs a structural solution. The short answer is that organizations at all stages need to engage typically in more experimentation.

41:23We tell companies faster, cheaper, weirder experiments designed to uncover the anomalies that will lead you into new paths, not to confirm the things that you already know.

41:34Elliott Parker: Can you elaborate on the weird part? Yeah, that's exactly that. We're trying to design experiments that challenge what the organization believes. Examples of this might be looking at the way that our business model runs or who our customer is, right, or who we've always believed our customer to be. let's go run an experiment to challenge that and to see if we can learn about new customers or new ways of delivering services to those customers that tell us that the old way doesn't work or is broken. We define experiments inside of companies as something, some action the organization takes where the outcome isn't known ahead of time.

42:15Now, the trick is to make sure that experiment is run with a clear hypothesis and design process and steps where you can actually learn and then apply that back to the organization. So more experiments, weirder, meaning they uncover anomalies. I can give you a good example if you want of how this works in nature. This is something I talk about in the book. Years ago, I had the opportunity to go to the Amazon jungle, which I highly recommend. It's an amazing place. And I went with my son who is now in grad school working to become an entomologist. And we went to the Amazon with a very specific goal in mind, and that was to find insects, which for many people sounds like a nightmare.

42:56But we went into the jungle and we'd set up insect traps at night. And the way you do that is we put a white sheet in between two trees and then we'd shine a bright light on that sheet. And within minutes, the sheet would be covered with insects, all kinds of colors and appendages and amazing varieties. The Amazon jungle is incredibly resilient because of all the variation and the way that it innovates. The Amazon jungle is very good at innovation, if you think about it. Now, how does it innovate? Well, it innovates through mutation, through evolution, but that evolution happens through mutation at the level of individual cells or organisms.

43:35And when those mutations fail, the ecosystem is fine. But when those mutations succeed, the ecosystem is poised to adopt them and to propagate them. But in every way, how the Amazon jungle innovates, it's entirely different from the way we do it inside of companies, if you think about this. In the Amazon, there's no hierarchy. There's no top-down objectives related to innovation. There's no grand goal that says, here's what we're trying to achieve. rather it's a it's a random walk where organizations are going about their lives or organisms are going about their lives and trying to discover through evolution through mutation the next available step from where they exist today in the amazon there's no communication about the innovation that's happening there's no centralized resource that everybody's reporting to there's no sense that we need to share the innovation the mutations across other organisms In a company, we do just the opposite.

44:32We make the mistake often of thinking that transformative innovation needs to be broadly shared and that everybody needs to buy in. That is a falsehood. um what if it's sustaining innovation that's true if it's an execution challenge the organization needs to rally behind it go execute make sure everybody knows about it if it's transformative innovation um you should not want to to to communicate that broadly because you're just opening up opportunities for that innovation to be killed by the organization which is designed to do in a spirit of being safe the amazon jungle so that that innovation also happens at the level of organisms and cells at the margins, right?

45:09Now think about how we do this inside of our companies. We centralize innovation. We put it into a centralized innovation team or the level of the CEO, and it is very expensive as a result, whether it fails or succeeds. Inside the Amazon jungle, that innovation's on the outskirts of the ecosystem. And as a result, failure is very cheap. And so I think there's a lot of lessons to learn. We want our organizations to be more resilient. And so if we could somehow make innovation inside these organizations less top down, constrained by a defined amount of resources, of course, but less objectives driven.

45:52If it were far less often communicated broadly, fewer people who can say no to new things is a good thing when you're talking about transformative innovation. And if it were done more at the margins, at the equivalent of individual organisms or cells rather than centralized inside of large organizations, I think our large corporations would be better off and more effective at dealing with the challenges and opportunities they confront.

46:18Elliott Parker: And to wrap up this great conversation, what would you like our listeners to do differently on Monday morning at 8am or tomorrow morning at 8am, but whatever it will be for them. And then also, where can they learn more about you, buy your book, anything you want to share? Great question. Thank you for this opportunity again. I think Monday morning, the thing to do both in our personal lives and in companies is to go seek anomalies. Go run more experiments in your life to challenge what you think you already know and find the equivalent inside your organization. You'll be better off and more resilient as a result.

46:55More experiments, faster, cheaper, weirder. Avoid the illusion of innovation that so many organizations and individuals pursue. And where can people find me? Best is probably on Twitter. ER Parker is where I am. The illusion of innovation. you can find that at any place where you typically buy books should be there for you.

47:16Elliott Parker: Thank you, Elliot. Such a pleasure to have you with us today. Incredible conversation. Thank you very much. And for everyone tuning in, thank you for being with us today. Our podcast sponsor today is strategytraining.com. If you want to strengthen your strategy skills, you can get the overall approach used in well-managed strategy studies. It is a free download. Go to firmsconsulting.com power slash overall approach. It is firmsconsulting.com forward slash overall approach. And if you're currently updating your resume, you can get McKinsey and BCG winning resume, which is a resume that got offers from both firms.

47:52Elliott Parker: You can get it at firmsconsulting.com forward slash resume PDF. Thank you again, everyone, for tuning in. Thank you, Elliot. And I'm looking forward to connect with you all next time.

48:11Thanks for listening to this episode of the Strategy Skills Podcast. Stay up to date on all of our latest training by signing up for our email updates on firmsconsulting.com. We look forward to helping you develop your strategy, critical thinking, decision-making, and communication skills next time here on the Strategy Skills Podcast.

48:40Thank you.