Cultivating a Disruption Mindset

Jim Marous:
Welcome to the show, Charlene. As you know, I'm a big fan of Altimeter, having written a number of stories on your research in the past for the financial brand. Having recently picked up your book, The Disruption Mindset, it is clear that the business world is still having trouble with the concept of disruption, isn't it?

Charlene Li:
Absolutely. We think we want to be disruptive, but then we come face to face with it, and go running away as fast as we can.

Jim Marous:
Sometimes we even stumble on the concept or the terminology of digital transformation. How do you define digital transformation?

Charlene Li:
We're working on a new report right now, and the way we're thinking about it is that digital transformation is really about becoming more digital. The transformation itself isn't the goal, it's becoming more digital. But even that's not the goal. The goal is to create the ability to create business transformation to be able to become operationally more efficient and excellent, to change new business models so you can serve your existing customers in better and more efficient ways. But it could also even be pivoting in your company, having a new business strategy, that kind of transformation. It's clear today that the way you create that competitive advantage is in many ways through your digital capabilities.

Jim Marous:
Well, it's interesting. I keep on referring to the fact, certainly in the banking industry, that that's a lot more than simply a cool digital apt, that we have to avoid the pretty veneer without fixing underneath the foundation of what it means to become digital, don't we?

Charlene Li:
Yes, we do. Oftentimes, we focus on the digital part of digital transformation and the transformation part. I think in many ways, because people think it's a bright, shiny object, "All I have to do is make that a reality, just adopt that technology and we'll be done." The reality is when they come face-to-face with that transformation part, you go, "Wow, this is hard. We didn't expect it to be hard. So let's not do it now." This is more than we bargained for.

Jim Marous:
We tend to talk about it a lot more than doing it. I think you and I both believe that in the research we've done, is that it's interesting, because more than any other business concept that I've been involved in, people understand what they need to do. In many cases, they pretty much understand what they need to do to achieve it. It's that first movement, that change in behavior that they have to make, isn't it?

Charlene Li:
Yes, it is. I fundamentally believe that change [inaudible 00:02:45] is hard. We like things to be constant and the same. When we come in and actually face-to-face with that change, first of all, we didn't expect it. We didn't expect that it was going to be this hard. And then we're not prepared for that difficult step. I talk about transformation and change and not about these big, huge [inaudible 00:03:06] pictures. But in terms of that first step, if you anticipate how hard that first step is and then prepare yourself to take it, knowing that it's going to be the beginning of a fairly long journey, the hardest part is taking that first step.

Jim Marous:
Early in your book, on that first step, you reveal that there's a pretty simple secret to just achieving disruptive growth, don't you?

Charlene Li:
One of the like the key ideas here is that if you can focus on your future customers, then that is what I have found to be the consistent idea and the behavior that all of these disruptive companies do. The reason why that's so powerful and yet so difficult is that it allows you to think about that picture of the future to understand who this future customer is and then make sure it's aligned across the entire organization. When you have that alignment, then you can say, "We're going to have to take these difficult decisions, these difficult choices today and take that big gulp it and really decide we're going to do this and then be committed to doing it." Because that's the only way you get to that future.

Jim Marous:
You talk about going after that future customer, but in today's environment, where virtually every industry is doing quite well, stock market is hitting new highs and profitability is pretty good, not continually going back to the customers that have gotten you there, it's a tough thing to do, especially at times of prosperity, isn't it?

Charlene Li:
Yes it is. This is what Clay Christensen wrote in his wonderful book, seminal book, The Innovator's Dilemma, and that we are pulled and blinded by our beautiful, profitable customers. It makes total logical sense that we would want more of these customers. The reality is, they don't necessarily represent your future, they represent your today. It's fantastic if you can reap the benefits of serving them, but I think the paranoid survive in many ways. They realize that they may be the present, but they don't necessarily represent the future. So you have to constantly be looking to the future, looking at the edges, at the unprofitable customers, at the customers who don't even exist today, and begin thinking about how you would serve them.

Jim Marous:
Okay. So let's just take the banking industry once. So what we have is a situation in the banking industry where current customers, especially those that represent probably the older set that probably have more revenue potential for most financial institutions, most financial institutions look at the branch customer and they don't want to let go of them, but trying to grab onto that future customer that's much more digital. It's a hard thing to do. We see organizations, some of the largest in the country, continue to build branches, but that... While it may serve your future customer in those aberration or those exception places, it's hard, again, to grab onto the... I use the rope course as an example, where if you don't jump to the next row pretty quick in that swing, it just gets harder because you get more entrenched in the past. What do you recommend to organizations such as banks that have such a profitable existing legacy base on how they can actually identify their future customers?

Charlene Li:
Again, this is why future planning is so important. Many times when people were doing strategic planning, they were just putting together the budget for the next year. That's a budget, that's not a strategic plan. So I would encourage them to think three years, five years, 10 years down the line, where do you think you need to be? And then take a really very close look at how the market is changing and demographics. They know this and they say, "I don't want to deal with it." So if you want to bring longevity to your firm, if you want to truly build value for your customers and value for your shareholders, then you're obligated to talk about this and to make those investments.

Charlene Li:
One of my favorite examples that I put in the book is Adobe. Happy, have very profitable customers in the creative marketing space. They pretty much dominated it, and they were just worried to bits about what the future looked like because they had packaged software and the world was becoming more mobile, more in the web, more collaborative, and their software was updated every 18 to 24 months. They said, "This is going to be a huge risk. Also, we're not serving our customers well." So they decided to go into the cloud, even though they know customers weren't asking for it, even though employees were just totally against it because they were going to have to change everything that they did, even though they knew their revenues and especially the income would take a hit for 24 months.

Charlene Li:
They were a publicly traded company, and you know what happens when your income goes down as a publicly traded company, your stock usually goes down too. They made this change because it was the right thing to do for the business, the right thing to do for the customers, and they painted this really compelling picture of what the world would look like in the future. As their income went down, the stock price went up because of their vision of the future customer and their ability to share that with the markets. It's a beautiful type of disruption and transformation that they went through.

Jim Marous:
You give examples such as, as you mentioned, Adobe. You use Facebook, you use companies like Apple that that continually up-end their current models before they've basically seen their entire life cycle, and find ways to actually identify who those future customers are and move toward them. How does an organization avoid simply going after the next hot item, the next hot segment that everyone else is talking about? How do they actually identify who their future customers are going to be?

Charlene Li:
Again, I keep saying, focus on your customers by a couple of different ways. It's really understanding who your customers are and making the job of every single person, they think about their future customer. Putting them in your dashboards for every single person, making sure that you have a really good customer advisory board. For example, don't put your most profitable, beautiful customers on there, put the ones who, frankly, complain the most, who demand the most of you, who you think represent what these future needs are going to be. I think very importantly, create some empathy maps of who these people are. Understand, what do they do? what do they think? What do they say, and what do they feel? By understanding them as not transactions, but as real people whose needs are... you don't really truly understand, you begin to build that understanding across the organization.

Jim Marous:
Your book, The Disruption Mindset, it's interesting because it also gets into the whole issue of, you have to change the thinking within an organization. Our background is in banking and in banking, you have so many legacy individuals that have relied on legacy thinking, they've come up the organization as one many times, all your leadership probably started in the bank at roughly the same time. You've gone through management training where you're trained how we do things. How do you actually achieve a disruption mindset where you actually change the line of thinking from business as usual to, let's call it, business as unusual?

Charlene Li:
I can describe this as something like turning the battleship. When you're going full speed ahead, it takes a huge amount of energy and everybody on that ship together, working together, to turn that ship. I think that's one of the biggest problems with banking and these large traditional institutions, it's really difficult to turn the ship unless everybody is aligned. I have an example of a bank in the book, ING Bank in the Netherlands, where they blew up everything, they blew it all up. Because they said, "This is going to be too hard to change on an incremental basis, so we're just going to use just wholesale, change the way that we do business." And they took their headquarters, made it all agile, "fired everyone", had them back based on their ability to think about the customer.

Jim Marous:
Well, it's interesting, because we've actually had Sophie Heller, who now works for BNP Paribas that was at ING in the Netherlands. It's interesting, because more and more organizations are trying to find those people that have gone through the experience of transforming an existing organization to become more transformational, more digital, more disruptive, as you say. It's interesting, because your research at Altimeter as well the research that we've just published on digital transformation in banking, both our research recently has found that those organizations that are most successful have actually moved the ownership of digital transformation further up the organization.

Jim Marous:
I think your research last year pointed out that more and more organizations are assigning the head of the digital transformation process to the CEO, which I think is interesting, because it really underlines the importance of to have a good organization culture, to have a change, you really need a person at the very top to buy in, don't you?

Charlene Li:
Yes. Because this is something so hard, so transformational, you need the top people in the company do truly believe in this and to never waiver. No matter how hard that journey is, they have to truly believe in this. One of the questions I get from people is, "What do I do if I'm not that top person?' I may be on the executive team or one layer below or I could be at the front line, so a manager right at the front lines, how do I adopt this disruption mindset? Do I just wait until the chief executive says, "This is the way to go forward," or what do I do?

Charlene Li:
My sense is that you can begin no matter where you are to act in this way, because all it takes is to focus on that future customer. It's not to say you ignore your current customer, but how do you orient your entire team so that when the rest of the organization is ready to think about it this way, you're all being [inaudible 00:13:52] with each other.

Jim Marous:
So rather than just forcing it on people, how do you get a total buy-in from your organization for a shift in focus? Because again, business is usual when money is flowing well, when profits are good, when nobody really is out there, very few people are out there finding or desiring change. How do you get a buy-in?

Charlene Li:
Again, painting that picture of who that future customer is a big part of it. But the second part of is really saying, "This is the plan. You're either with the plan or you're not with the plan. Here's the plan and the behaviors that we're expecting as to work towards a plan. Any behaviors might be really different, and we're expecting you to change that behavior." As a leader, that's all you're asked to do, is you're asked to create that plan and the behaviors and the actions that you want to get us that plan and then to hold everybody together on that and to set the expectations that if you're not on this plan, you can not onboard with creating these behaviors, then you can't be part of the team. Everyone's going to be looking at you because your credibility is on the line, your strategy's on the line. This whole new plan is on the line if you hold to that or not.

Jim Marous:
So in your research, what have you found to be the difference in leadership styles at disruptive organizations?

Charlene Li:
I think one of the biggest parts is because that is so hard, it's one thing to punitively say to people that you have to do this, it's another thing what I call creating a movement. So one of the most important things you can do as a leader is to create this sense that, this future is something worth fighting for and acknowledging it's going to be a very hard journey. One of the best examples of this was Martin Luther King Jr's speech, I Have a Dream. He gave the speech at the end of a very long day, the kick off to the Civil Rights Movement to give people this picture of what we were going to be fighting for. So what's that picture that you have?

Charlene Li:
So the leadership archetypes that I have found, this is the research I did with 1,000 leader all around the world, I found that there were four different types determined by two factors: one, an openness to change mindset, and the leadership behavior and very specifically about empowering and inspiring others to take action. That all goes back to creating that movement and your ability to create that movement.

Jim Marous:
So interesting. In your book, you address something that is like the elephant in the room. Please, pardon my example here, but the whole issue of gender gap where females, many times, are usually less disruptive, they have a different style than men do. Is there a gender gap in the whole movement towards transformation and disruption? How do we work to get the voice of the people that in many cases are some of our best leaders out there and listened to?

Charlene Li:
My research did find a significant gender gap, and especially in the US less so and all the other countries we studied. I think partly, it's because these other countries like the UK, Germany and Brazil all have had women political leaders in places where they were creating a lot and are creating a lot of disruption. We don't have that here in the US. So I think one of the biggest issues is when you've been trained your entire life, growing up and being in a career, to [inaudible 00:17:34] to be a team player, and that you're penalized, you feel like you're penalized when you raise your hand and disagree, whereas your male counterparts are applauded and encouraged to do this more.

Charlene Li:
I think the first step is, as leaders ourselves, developing these disruptive leaders, we have to be aware that this gap exists and that if you have ever been the only person in a room, the only woman, the only person of Color, the only old person, the only young person, you know what it's like to have to raise your hand, because you stick out already. It's incredibly hard to raise your hand and say something to have a different... a diverse point of view. So it's incumbent on us to make it as safe as possible for that person, to encourage them to raise their voice because that voice is worth being heard.

Jim Marous:
It's important, as you said, to let people know that there is a voice there. But as you also referenced in the book, the fact that in many cases, these voices, these people that aren't as heard are also some of your most empathetic people. They understand the marketplace many times better because they listen more than talk. It's one of the challenges of the male style, I guess. But you are also referenced cultures, and I was fortunate enough to just recently visit China and became so aware of the fact that the overall culture in China is one that is more accepting of change, is more accepting of disruption. As a result, the whole R&D focus, the whole ability to move markets, to move business because of the openness to new technologies and new ideas is just tremendous. It's exciting, but... So you actually saw also that there's differences in different parts of the world from a cultural standpoint as a foundation.

Charlene Li:
Yes. What I found interesting is that culture is simply made of beliefs and behaviors. So if you want to change your culture, you change your beliefs and you change your behaviors and vice versa. What you find is that in different parts of the world, there are different beliefs about what's possible and how you think about the world. So one of the biggest differences like in China and Brazil, there've been huge amounts of change and so those countries are much more comfortable. The leaders from those countries are much more comfortable being disruptive and describing themselves as being disruptive and capable of driving that change. In Germany, somewhere in the middle, and then UK and the US by far the lowest in terms of their disruptive leadership capabilities. So I worry, a little bit, being an American citizen that, where is that belief that we can create that change, that exponential change? It's not necessarily embedded in our leadership, and absolutely embedded in the leaders of so many different countries.

Jim Marous:
Well, it's also becoming political. Every country I go to, be is South Africa, be it Europe, be it China and certainly in North America, the pushback [inaudible 00:20:51] to push back on moving forward is getting strong from a political perspective. What that does, it makes it even more difficult for governmental units to regulate change and to make it so it's more possible. In the banking industry, we see that the overall acceptance of new entries into the marketplace is the lowest in North America, in the United States and Canada. A lot of that, yes, it's partially based on trust of legacy organization, but a lot of that has to do with the fact that our regulators tend to be our oldest bankers, tend to be the people that have been in industry the longest, and the voice of the small business that doesn't want to change becomes louder and louder. It becomes very difficult when regulations even push back on disruption and change, isn't it?

Charlene Li:
Yes it is. But I would put this caveat, that... I use ING Bank as an example. They are in the EU, they are in European Union, which is highly regulated for banks, and they were able to do this. This is less to do with having regulations being removed and more about, given these regulations, how will you transform, truly transform your organization to be capable of understanding your customers better? That has less to do with what you offer, and more importantly with how you work, how you were entered into this relationship with customers.

Charlene Li:
I think in many ways, by acknowledging these are the constraints, these are the walls of the sandbox that you want to work in, let's be really clear of what those walls are. But within that sandbox, we can do anything. What we believe now, oftentimes, in regulated industries is that even though we know what the sandbox is, we think we can't do anything in that sandbox, and all we can do is just take that sand and dump it into the [inaudible 00:22:41] and that's it. As long as you stay within those regulations, you're good.

Jim Marous:
So what do you see as the biggest challenge that organizations have except in the concept of a disruption mindset and actually moving forward on disruption and transformation?

Charlene Li:
By far the biggest challenge, the belief that's holding them back is that, "I don't know what the future looks like, and I need to be sure. I have to be certain, I have to be perfect. I can't be wrong before I take that move forward." I think that's the most debilitating thing, because I don't think anybody's ever asked anybody to be perfect. Even businesses and organizations, especially in places like healthcare and banking, we know mistakes get made. We're asking you and requiring that you do your best, be excellent in everything that you do, but when things go wrong, be accountable for it, but keep moving us forward, because we know that if you don't keep taking those risks, taking those places where you're going to push the envelope, move out of your comfort zone, then we won't be able to benefit from that too as well. It keeps coming back to that relationship. How will you build that? How will you be open and transparent about what is going on in your relationship with your customers and your employees in your entire ecosystem? I think that's what people are asking for, not the fact that you're perfect.

Jim Marous:
See, your book was an excellent read. I really enjoyed it, and now I'm going to go back and read some of your previous books as well. But for people that are interested in your perspective on transformation, on disruption and on business and leadership in general, how do they reach you, and how do they pick up your books?

Charlene Li:
Sure. They can reach me at charleneli.com, and my email is [email protected]. You can follow me on all the usual social platforms with my name, Charlene Li. There's also one other thing, I realized how difficult this is, so I started a new community called Quantum Networks. So it's quantum-networks.com. The idea is to bring disruptors together so that we can support each other and our quest to create this kind of exponential change. Oftentimes, you may feel like you're the only person in your organization who's seeing this need for transformation needs to happen. So I'm really trying to bring people together, create content, community, and supporting each other in this quest.

Jim Marous:
I actually put in an application to join that last night and put you down as a reference. It's an app too, it's a digital app, that you can download to access that network. So it's a very strong point. So again, thank you very much for being on the show. I look forward to seeing your research come out [inaudible 00:25:38] in the financial brand as well as talk to you in the future.

Charlene Li:
Thank you so much for having me.

Jim Marous:
Have a great day.

Charlene Li:
Thank you.

REFLECTION:

Jim:
So we're ending today's podcast a little differently than what we've done in the past. Actually, out of her recommendation, from Charlene, at the end of our roll this, on today's podcast... I'm going to start again. So we're going to end today's podcast a little differently than what we'd done in the past. This is based on a recommendation from Charlene Li where she said, "It might be good for you," meaning me, "to give a little bit of a perspective on what was just discussed and maybe a take." So in short, ending to the podcast, I want to look back on what Charlene said. And I think the most important takeaway of today's episode was really that in order for disruption to take place, in order to achieve a disruption mindset, you not only need leaders that have that mentality, the ability to look and say, "Who are my future customers going to be?"

Jim:
But then to take action on that. Because we all have heard the leaders had simply walked, talk the talk, but don't walk the walk. At the end of the day, those organizations that survive are going to be those that have leaders that have a disruption mindset, are able to transform their organizations culturally and down the organizational chart to move in that direction and really get a grasp of who their future customers are going to be. And not to rely just on making small iterative movements to improve the relationship or improve the profitability of your current customers. So until next time. This is Jim Marous. Have a good day.