Transcription
So you ask the most important question in strategy, which is not what is true, but what would have to be true.
You say of the first option or possibility, as I call it, what would it have to be true about the customer? What would have to be true about our capabilities? What would have to be true about the competition for that to be a great idea? You ask that of each of the possibilities, so you have a list of the important things that would have to be true for that to be the best idea.
Okay, and then you choose the one that has the highest number of things that are likely to be true. Not quite. I don't go there quite yet. I ask of the things that would have to be true, which of the ones are we most worried are not true? Ah, good one. And those are the barriers, what I call the barriers for choice. Because if there's something that would have to be true that you're saying, "I don't think that's true," you're never going to go and do that.
Okay, so then after you've identified those barriers, you figure out how you can test them.
[Music]
Today we're talking with Roger Martin, writer, strategy advisor, and in 2017 was named the number one management thinker in the world. He’s the former dean and institute director of the Martin Prosperity Institute at the Rotman School of Management at the University of Toronto in Canada. He’s a trusted strategy advisor to the CEOs of companies worldwide, including Procter & Gamble, Lego, and Ford. He’s the author of 12 books, including "Playing to Win: How Strategy Really Works."
Today we'll be talking about how to develop a strategy that wins in competitive markets. And just quickly before we get started, make sure to go ahead and hit that subscribe button so that you get the latest episodes as soon as they're released. Now, let's get into it.
Hey Roger, and welcome.
Hey, it's great to be with you. Thank you. I'm excited about this chat because it's all about strategy, which I would say is arguably the most misunderstood area in the world when it comes to business. So let's just get straight into it by defining strategy. How do you define strategy?
Sure, I define it as choices—making choices to do some things and not others. I see it as an integrative set of choices that define where you're going to play and how you're going to win where you've chosen to play.
Why it's misunderstood, I think, is it's become very much an exercise in planning. Strategy and planning are two different things. Right? You can plan to do a lot of things, and you can have very detailed plans to do a lot of things, and you can do all of those things, and it still won't end up being a winning strategy.
In my view, planning is something you can be certain that you do. Right? As long as you're dutiful and thorough, you'll have a plan. But to have a strategy that wins requires creativity. It requires trying to create a future that is better than the present, and that is not an easily doable thing.
So most people, most of the time, default to planning, and so there's very little great strategy done in the world. This is a big one, right? Because it is to choose where to play—that's a big one—and how to win.
Yeah, so it's those two things, right? And that's the very truth. But what's interesting about strategy is that it assumes a competitor, right? It assumes there's a competitive landscape. Is that right?
No, no. I mean, there are many entrepreneurs who create kind of a new where to play, and they win by being the only player on that field. So that sometimes happens.
Now, that's accidental, right? That's accidental. They accidentally found a place where they could win.
Right, not necessarily. I mean, that's entrepreneurial beauty—figuring out some need that is not being met that you can meet.
Now, what tends to happen is that somebody will enter that space. I mean, if it's a really stupid idea and nobody's buying it, they'll leave you to it until you run out of money. But if it's clever and it turns out that people buy and you make a lot of money, then you can be sure others will enter, and it will no longer be a monopoly.
But I would just say it's not by definition that you have a competitor in essence when you're developing something entirely new. Right? The competitor is doing without. Right? The very first car did not have a direct competitor, but it had doing without a horse-drawn carriage.
What you had to do is convince consumers to forego the current product, the current offering, and go with this entirely new thing, which is a challenge. It's a slightly different challenge than saying my car is better than your car, but it still requires you to have a value proposition for the user that causes them to choose it rather than something else.
So the where to play is the market segment, and the how to win is like how you're going to put all the resources together to focus on that segment. Is that the best way to think about it?
Absolutely. Though there are many attributes to that market segment, right? You would say it's this kind of consumer—high-end or low-end consumers. You could say it's Australian consumers or American consumers. You could also say your where to play is at what stage of the value system you're in. Are you going to be in the downstream part, so you're going to produce and market and distribute? Or maybe you're going to produce and sell through a different distribution channel? Or maybe you're going to backward integrate into the raw materials?
So there are a bunch of different kind of where choices that get into it, but your idea of a segment is not at all a bad description.
I'm thinking where on the entire possible playing field are you going to plop yourself down and say, "That is where I'm going to concentrate my efforts."
And we're going to get into all these parts, and I'm going to ask questions that may seem simple, but that's just how I work. I like to just constantly check, "Is it like this? Is it like that?" And if it's not, I'm not upset if you say, "No, it's not like that."
Okay, when it comes to strategy, getting specific like this is important because, again, as you said, it's misunderstood and done poorly generally.
Yeah, and so you talked before about strategy and planning. I read in one of your posts on your 25-part series on Medium, which is highly recommended—anyone?
Just 25?
25! Well, it was 20 parts, and then it was 25.
Excellent stuff. Sorry, it's once a week, so as of Monday, it'll be 26.
Okay, once a week. Well, that's going to be the 13th book.
You talked about there's a confusion between strategy and planning, and when people want to create a strategy, but it's a plan, they call it a strategic plan. Can you just kind of unpack that quickly? Because I know this will be happening everywhere.
Yes, yes. Well, I mean, there's a general view that strategy is some kind of a cool thing, and so it's often used as a modifier to make something sound cool. Right? Strategic sourcing, strategic procurement. And so planning sounds kind of boring, so call it a strategic plan.
And again, as I say in the piece you referred to, strategy and planning are complements, not substitutes. They're treated as substitutes as long as we have a plan that explains the stuff we're going to do, we're going to call that our strategic plan. But unless it adds up to, "Here's where we're going to play, and here's how we're going to win," then it doesn't deserve the modifier "strategic" because it isn't a strategy in the sense that I believe the term was coined.
I mean, the term originally came from the world of the military, right? There's a long, rich history from Sun Tzu to House of saying, "Here's the kind of techniques for thinking about how to win a battle," and we're going to call that military strategy. And that eventually got imported to business as, "This is our approach, our theory of the case that will enable us to achieve the thing we would like to achieve."
And that's right.
Yeah, sure. And so just to clarify the first point, which was a strategy is a selection of the place to play and how to win.
Yeah, so that's the first part. A plan is the list of things to do in sequential order to achieve something. And sometimes the confusion is just creating a list of things to do in sequential order does not mean it's a strategy because you haven't chosen the place to play and how to win in that specific area.
You got it. See, these are not simple questions.
Yeah, but I just want to clarify them to make sure I've got it and also just for the listeners as well.
Right.
And the second part—and this is giving you credit—thank you, I like credits.
The second part was like, and this is just a quick side note because I'm interested specifically in this topic, but how does the military definition of strategy relate to the business definition, and how closely related are they?
Well, I think there's some kind of family resemblance, but they aren't the same thing. And in fact, strategies evolved from military strategy because if you think about military strategy and you ask what mattered in military strategy, what really mattered is us—our capabilities versus that of the competitor and what we were going to do, what they were going to do, and how those two things were going to interact.
Now, there's a consumer, if you will, in the equation only to the extent that if your military strategy is to respond to an attack on your homeland, then you're just going to assume the consumers—who are the citizens—would rather have you repel the invader than not. You don't spend a lot of time thinking, "Well, do you really want, and what exactly would you like?" No, you just go do it.
Or if you are the invading force, it's because your citizens have some sense that said, "Well, that's okay if you do that," or "We'd like you to do that," or "Parliament approved it."
So the consumer wasn't and customer was not very much in the equation, but it was just assumed that you were doing something good for them. And the question was, "Can you beat the enemy? How do you go about doing that? Overwhelming force? You're going to be clever? You're going to flank them?" You know, whatever.
And so in the world of business, that's how strategy in many respects started—with very little concern for the customer. And it was how would you get—I mean, in some sense, the father of modern strategies, Bruce Henderson, the founder of Boston Consulting Group, and his strategy was, "You invest ahead of the learning curve, price ahead of the learning curve below your cost if necessary to get the dominant scale so that your costs will always be lower, and you will win."
Right? That was it. The customer wasn't in that equation at all. It was about you and the competitor and how you're going to get ahead of the competitor.
As it evolved, it became more interested in the consumer, the customer, and that's where, in some sense, the where to play—or at least in my version of strategy—the where to play comes. It's like, in the case of a country, it's sort of for all citizens. No, it's for this set of customers.
We want to tussle with the competition for, oh, and then what was their need? How can we serve their needs, et cetera? So it's migrated away from military strategy in that sense.
The other thing I would say about military strategy is it's a little more clear that there is an absolute winner and an absolute loser, right? At the end of it, and I see the evolution of business strategy being more about, "I'm going to head over here, and these are my customers that I'm going to serve better than anybody else, and that'll cause you to stay away from those customers because serving them does you no good because you serve them less well than I do, and so I win."
But you go over there and serve those customers, and that's fine with me. I'm not going to be upset with you. I'm not going to battle you.
So there's a little more in business strategy of many companies succeeding but in different places and in different ways.
Got it. So it's far less adversarial, and there's far less damage at the end of it for one side or for the other, depending on...
Yeah, if people have really clever strategies, where you get more moral equivalent of death and destruction, right? People just wasting their money on endless battles, whatever, is when companies don't really have a strategy for winning. They just have a strategy for competing, and they compete endlessly, bashing each other over the head for no good reason.
So the best strategy—now, great military strategists would say the best military strategies involve not much death and destruction either because you cleverly outflank your competitor, and they just say, "Oops, you win, we lose."
And when it's World War I, where nobody has a decisive victory, and you just line up and keep shooting each other and killing each other for kind of no particularly useful outcome.
Yeah, sure. I mean, I think this goes to the next part now, which you just mentioned, is how to create a strategy to win.
Strategy to win.
Yeah, and this is specifically for business. Again, let's get back to business. What do you need to create a winning strategy?
Well, I think you need a lot of understanding of the customer so that you can figure out what capabilities you can build that would be hard to replicate to serve those customers in a unique way. And that is kind of the essence of this strategy.
You have to build and deploy capabilities that are hard to replicate against a certain meeting a customer need in a particular way. If you can do that, you'll have a strategy that succeeds.
And how do you find that place? Say, for example, we're talking about the customer, right? And so we want to go into a specific segment. We know who the customer is. We do some surveys with them, but we interview them and so on, or whatever. Like we do some other qualitative surveys, right?
So we have an understanding now of the customer, right? So now with that information, what's the next step?
Yeah, it's at this point—this is the creative act. It's to say, "What's a theory for how I might serve that customer segment better than anybody else? What are they missing?" Right? Is there something that they long for that they don't currently have? Or if they're getting stuff right now, is it at a cost to them, a price that's so high that they buy less than they would otherwise and aren't particularly thrilled with that?
And we could create a different economic structure that would enable us to sell it. But it is having a theory—a theory of how we could serve them better.
And what I'd say is, and this is—I take a page out of the design world—come up with multiple theories. Right? Dream up, get a bunch of people to come up with a variety of theories. Don't just fixate very quickly on one, but come up with a number that you can then test out the logic of to say which of these do we think has the best chance of creating a win with that customer base.
And so this is not like planning, right? Planning, anybody can do. Anybody who's thorough can do it. Strategy requires you to be creative, to be inventive about how you come up with that theory.
And so these are the "how might we" questions. Is that right?
Yes.
And so just for the listeners, could you just explain that?
Sure, sure. So what I say about strategy is it's a problem-solving tool. And the way you start is to say, "Well, what's the problem we'd like to solve?" And a good way to frame that problem is a "how might we" question, which comes from the world of design.
Which is to say, "Well, here's a problem the customers are experiencing. How might we make that better for the customers?" Or perhaps we used to have those customers absolutely in our pocket. They used to love us, and now they seem to be loving somebody else. That's the problem. How might we regain the kind of position with the customers that we did before?
So you need that sort of motivating question that imagines a better future that provides, in some sense, the objective function, if you will, so that you can tell whether a theory will actually deliver, has the potential of delivering against your "how might we" question that would then solve the problem.
How many possibilities should a strategist or should a strategy session come up with? You know, like how many is a good minimum to be thinking about?
Three to five, I think. Unless you have a minimum of three, you've probably not thought broadly enough, and there's probably something that you're missing. That's good. I think five is a good number.
Those options are very different. Those five options are very different. They have to be completely different, but they can't be similar with a bit of a tweak, right? They need to be different.
I prefer them to be significantly different because I think—so let's imagine you have five, and they're, you know, then there's go east, go west, go north, go south.
Let's say four.
And I think that as you move through a process of evaluating them and get to the point of, you know, westerly looks good, that vector looks good, I think then you can say, "Oh, it's a couple degrees kind of northerly or a couple degrees southerly."
But if you never head west in the consideration set, you'll never get there. You'll settle for north, south, or east.
So that's why I like kind of real variety in terms of really different ways of winning, different ways of solving the problem that you've identified.
And you know that they are going to be our five solid choices if they outline basically where to play and how to win in the same statement. Is that correct?
That is correct. That is correct. And it does not have to be the same where to play for each of them.
That was my next question because there could be lots of different options, and often there are.
Absolutely. One of the things that I would say identifies a great strategy is that kind of flexibility in both the heart of strategy. I call the heart of strategy the where to play/how to win pair of choices.
And the worst strategy comes from saying, "We've decided on our where to play, and now let's see how could we win there," or "We've decided on a way to win; where could we play?"
What that does is sub-optimize. It gets you to what people who talk about optimization theory say is a local peak, right? It's like you get to the top of the tenth tallest mountain in the Himalayas, not Everest.
And if you allow the two to vary together so that you find, "Oh, this is a where to play that's perfect for how to win. This is how to win that's perfect for where to play," then you get a great strategy.
And we're going to go through this process through this chord, but I'm just trying to understand this selection criteria, you know, the how might we questions that are linked to where to play and how to win.
Now, a company could have five segments that they could go after, right? And they're going to be smaller segments where their strategy of the where to play and how to win would be different per segment. Should they just choose one segment to go after, or can they go after three, or could they go after all five because they're kind of like different segments themselves?
How do you think about this part?
Yeah, no, no. It depends on whether the how to win is made stronger or weaker by going after all the segments.
So if there are some similarities across the segments that allow you to invest in capabilities that can be used to serve all seven, then it may be the smartest possible thing to be in all seven.
Whereas if they're all quite different, then chances are it's weakening your how to win to play across them.
So just to give a concrete example, right? Procter & Gamble is a company I've worked with for a long period of time—a big business in Australia and New Zealand. They're in ten categories, right? From male shaving to female protection products to baby care to hair care to skin care, etc.
And I would argue they're stronger for it. Why? Because they tend to go through the same distribution channels, right? And so you can go to your distribution partner and say, "Hey, here's all the things that we can do for you together." They're all consumer branded goods, and so you advertise in the same places, and you can have advertising scale.
So there's a number of things that make it sensible for them to be in all of those. But not too long ago, they divested—they had an ethical pharmaceutical business, right? You know, kind of FDA-approved drugs.
Yes.
And they thought they bought the company called Norton. They paid a couple billion dollars for it because they thought, "Hey, you know, we can bring up all our consumer packaged goods branding experience to this."
But kind of what they found is it goes through a completely different distribution channel, right? Detailing doctors.
They don't do that, right? We have to build our own little sales force for our own little company and go against the sales forces of Pfizer and Glaxo and all these giants.
And oh, by the way, there's this step in the whole process of getting a drug in front of a customer that involves going through the FDA or the equivalent in Australia and Canada and in the EU.
And as our little relatively liberal pharma company, we do that once every couple of years, and Pfizer does it once a week.
You know, not quite one week, but with them, wow, they're really good at that because there's an art to that.
We're not so good. So even though Procter & Gamble had a theory about how this would be a good idea, it wasn't a strong enough theory.
Yes, they had an advantage in branding when they had a product. They were better at branding it than the pharma companies and the like, but on a bunch of other features, they were just not nearly as good.
And so they sold it. They sold it actually for a profit, right? They made some money on it because they did a pretty good job with it, but it wasn't something where they could be number one, which is what they want in each of their categories.
They want to be number one in every category in which they compete. That was not going to happen in our lifetime, if ever.
And so there would be a case where one segment was too many.
Got it.
Or one segment that was too different for it to be a good thing.
So you just mentioned to be number one in the category. Is that a checkpoint for the strategy?
That is a good strategy that you should be going for at least a large enough, I say, market share for that category for that to be a good strategy.
I'm more, you know, over time, as I've done this for 40 years now, I'm getting more and more convinced that you need to pick a where in which you will aspire to be number one in that share.
Now, that does not mean that you utilize somebody else's categorization scheme, right? So if somebody else says, "Whoa, you're not number one in automobiles," that may not be the right segment.
You may be kind of number five in that, but in the luxury space of your Mercedes, right? You know, they're probably just barely top ten in market share in automobiles, but in the certain luxury space, they are number one.
So what you—and now you can't have that be fake. It's sort of like, "Well, I'm going to call my space this when that's not really my space." You have to be realistic about it.
But I think there is a realistically defined luxury auto space that has its own set of competitors, competitive brands, and Mercedes can be number one in that.
I think you can even say, right, that for luxurious luxury automobiles, they're number one. For ultimate driving machines, right, BMW is.
Right? So those segments aren't exactly the same segments, and in each, I think it would be fair to say they have a right to say, "No, for those particular customers, we're it."
And that's what you should strive for in your strategy—that you can identify a set of customers that say you're better than others.
Are you like, "Would we never ever in a million years buy the other?" No, if it was cheap enough or whatever, but given our preference, we'd buy you.
You want to be able to say that for a big enough group of customers to make your business model work.
And so oftentimes, if it's a very large market, it's just going to a sub-segment of that market and finding what's important to them.
And you're not creating a category as such, but you're just kind of identifying a segment within a larger category, which you can just kind of step into with better strategy, marketing, and so on to win.
Is that right? Like, is that how to think about it?
No, that's exactly right. And it is a really, really important part of strategy because you have to have that aspiration.
I think so, you know, and part of the way I think about strategy is you have a winning aspiration that helps you pick a where to play and how to win.
So you have that team, and then you build the capabilities necessary to win where you've chosen to play to meet your winning aspiration.
And you develop a set of management systems that build and maintain those capabilities to win where you've chosen to play to meet your winning aspiration.
So it's a big part of strategy is just figuring out how you are going to follow through on an aspiration—not to just participate, but to win.
Yeah, but you see this relates back to what I said about business strategy being a little bit different than military strategy. You're not trying to kill the competition; you're trying to convince the competition to compete elsewhere.
That's what you want more than anything else—to have your competition say, "You know, I'm going to be the ultimate driving machine for people who really, really care about that style of performance."
Yeah, okay, leave to us this sort of more luxurious luxury German engineering for sort of this ultimate luxury. If you leave that alone, we'll leave you alone. We'll both coexist happy. We both make money. Everything's good.
And the good thing, right, is it's great for customers, right?
Yeah.
They have real choice. No, this is not the Soviet Union. This is not, "You will get this, and it'll all look the same." This is, "You will have a real choice."
That's why, in my view, strategy is and should be a positive force for humanity. Strategy should be a positive force in helping customers get served well, right?
And have resources deployed to create things that customers love that earn enough for shareholders to keep wanting to invest in that, and that creates jobs, right?
And which creates kind of people with money to the economy to grow.
So bad strategy, where everybody converges on doing the same thing, and you get this sort of destructive competition, commoditization, whatever, is just bad for the world.
Sure, I agree with that. I'm just trying to put it into a structure so that I, at the end of this, have created a good story for the listeners.
Now we've done the how might we questions. We've got five options now, right? Now they could all be completely like in separate directions.
Now how do we choose? How do we choose which is the best likelihood of success and that if we were to succeed, the winning would be worth it?
Sure. So you ask the most important question in the strategy, which is not what is true, but what would have to be true.
So you say of the first option or possibility, as I call it, what would it have to be true about the customer? What would have to be true about our capabilities? What would have to be true about the competition for that to be a great idea?
And you ask that of each of the possibilities, so you have a list of the important things that would have to be true for that to be the best idea.
Okay, and then you choose the one that has the highest number of things that are likely to be true.
Not quite. I don't go there quite yet. I ask of the things that would have to be true, which of the ones are we most worried are not true?
Ah, good one. And those are the barriers, what I call the barriers for choice. Because if there's something that would have to be true that you're saying, "I don't think that's true," you're never going to do that.
Right?
Okay, so it's then after you've identified those barriers, you figure out how you can test them.
How you can test them? How can you do some market research? Can you do some competitive analysis? Can you do some analysis of your capabilities and the like?
You create some kind of a test that would enable you to assess, "Can you overcome that barrier?" Right?
Is actually now that you've checked it, that that is okay? Or now that you've checked it, you think you could take this set of actions that would make that barrier go away?
And when you've done that for all the possibilities, you do choose the one that you feel most confident you can make true—the things that would need to be true for that to be the best idea.
That is your choice. That is the choice.
And so how long does this process typically take?
It depends on how much testing you want to do. So coming up with how might we, coming up with where to play, how to win possibilities is not terribly time-consuming.
There's no good reason why you couldn't go and do an offsite for a couple or three days and come up with those.
And to reverse engineer them to ask what would have to be true and identify what are the things that would have to be true, are we worried about might not be true? That doesn't take long. You can do that in a matter of days or at most weeks.
Then the question is how much time, money, resources, etc. do you want to spend on testing?
See, if it's just you and your buddy in a garage dreaming up a new business, you may say, "What the hell? We think this is a good enough possible chance of just succeeding. We're just going to go do it."
Right? If you're a large public company, you know, Telstra or something with a board of directors and all these shareholders, they will probably say, "We'd like you to do a bunch of consumer research."
Oh, and that'll take six months or nine months. Or, "We'd like you to do this big modeling exercise on what competitors might do and what we might be able to do."
Or, "We'd like you to build a prototype or something."
So what I try to do is take the process of creating a strategy and divide it into two parts: the logic part—that's what's the problem we want to solve, what are possibilities for solving it, what would have to be true, what are the barriers—that's the logical structure.
And I try to separate that from the analytical part so that the company in question can say, depending on how much demonstration we need, how much testing we need, that'll determine how long we're willing to take on this and how much we're willing to spend on it.
And companies have kind of different attitudes towards that.
It seems like the bigger the risk associated with it, the more time should be put into testing it out. Is that right? Or like the bigger the investment and the longer the execution is typically going to take?
Yeah, those would all be factors. I wouldn't say there's any one.
So yes, the bigger the risk, but it turns kind of what you mean by risk.
So what I often say is there's a difference between something that's below the waterline or above the waterline.
So I will always ask the question, "Well, if this fails, if we try possibility C and it fails, are we, you know, did we just take a torpedo below the waterline, or did we take one above the waterline, and we can limp back to port and fix it up and go back out to sea?"
So part of it is a measure of risk. Part of it is how much is it all or nothing, right? Could you test in small ways that wouldn't be terribly expensive and then, you know, kind of prototype it, try it out in one market segment again, and then learn from that?
So a lot about it is trying to figure out ways of getting answers to your questions.
And this is where, again, I like the practice of design—iterative prototyping. You just go out with a prototype and test it in the market, get feedback, improve it, and prove it so that by the time you have to launch in full, you have much more data and insight into how customers are going to react to it.
So lots of that to me is, you know, a skill at figuring out how you enable the world to be kind of de-risked for you.
Yeah, and I think that's what clever entrepreneurs do.
Lots of people think of entrepreneurs as these incredibly wild-eyed people who jump off, you know, tall buildings with maybe a parachute, but maybe it was just a knapsack, right?
And that's not my experience at all.
I helped the guy—he's passed away now—Ted Rogers, Canada's sort of greatest tech entrepreneur in history, and has built the, you know, not like Telstra, right? He's built a competitor to Bell Canada that's now bigger than Bell Canada.
Just did a 28 billion dollar merger to become the biggest.
Wow.
Is this entrepreneur? And the situation was getting the—there was going to be two national cellular licenses to be handed out. This was in the early 1980s, '82 as I recall, but it might have been '83.
And one was given to Bell Canada, the historic monopoly, and then the other was up for grabs.
And so here's Ted Rogers, who had already was the FM radio—he brought FM radio to Canada, made a mint in cable TV, made a mint.
So he was already rich—maybe I'm not sure if he's a billionaire yet, but he was probably pretty close.
And it was going to take about a million dollars in cash outlay to go through the process to put together all the studies that were required.
And whatever, a million dollars—what did Ted Rogers do? Went to two other wealthy families in Canada and split it three ways, right?
And you're saying, "Let me get this straight. This guy who's at least a millionaire and maybe a billionaire can't risk a million dollars on getting this national cellular license for a G7 country?"
Nope. Took it down to 333.
They were not favored, but they won the bid.
What did Ted Rogers do then? Turned around to Ameritech, which is one of those seven baby bells—they've all been known in the U.S.—gigantic, enormous company—and sold 10% of the new license for 10 million dollars.
I remember saying to Ted at the time, I said, "Ted, you know, if this really takes off, you're going to have to buy that back, and I shudder to think what you're going to have to buy that back for."
He's like, "Roger," like sort of Roger, the implied tone of it is sort of like, "Hey man, I'm now I'm not just playing with host money, man. I've paid this all back, and that 10 million dollars is going to pay for the build-out to the initial network build-out and everything. I got nothing, no skin left in this game."
And I have 30% kind of share, like, you know, a third now down the third of 90.
And sure enough, I think he had to buy back that stake from Ameritech for I think 700 million dollars down the line.
But Rogers just made a 28 billion dollar acquisition of the third biggest player in the country.
So I don't know what Rogers is worth—20 or 30 billion dollars or something.
And the sell your license is probably worth two-thirds of that, you know, but did Ted Rogers act like an entrepreneur? Absolutely not.
He acted more like a grandmother than an entrepreneur.
But I've seen that more often than not. They figure out how to de-risk the things they're doing so that they don't experience all of the downside and get enough of the upside that everything is just fine.
And this is where strategy comes into place, right? It's to do the thing that has the highest chance of success and the lowest risk of failure at the same time.
Like it? At the same time, is that right?
Absolutely. That's what I say. Strategy is an exercise in shortening your odds, right?
If you just randomly went out and did something, let's say there would be a 20 to one chance that you succeed. If you do strategy well, it's let's say it's seven to four.
But is it going to succeed? Nobody knows the future, no.
But, and so there's always a risk that the future will not take shape the way you hoped it would, you thought it would.
But if you can shrink those odds against you, then if you do it enough times, you will succeed.
And that's what Ted Rogers did—shrunk the odds against him enough.
And he, you know, died with a net worth of 10 billion or 15 billion or something, and his family's now probably worth 20 million.
And like, I look just to take the odds analogy, it's which I like. It's the bigger the bet, the lower the odds, which you want to, you know, to be like gambling with.
Yeah, like if it's going to be a massive, massive bet, you don't want, you know, like the odds to be so good that it's triple your money.
Like that, you want it to be super safe.
Yeah.
And so like you're trying to just kind of reduce those odds so that it's as safe a bet as possible.
Yeah, because even if you get a small percentage of it, it's better than to lose half or to lose all.
Yeah, though, you know, I would agree that most big public companies with the board would have exactly the thinking structure that you've described.
What they have to understand is it does leave them exposed, right? It leaves them exposed to somebody who says, "What the hell? I'm going to go try this."
And that is, you know, kind of what has changed about business.
If people ask me, you know, I started strategy consulting in 1981, if you can believe it, years ago.
And in that era, if you asked most CEOs of big companies—Dow Jones 30, kind of just becoming Fortune 500 type companies—they'd be most worried about the competitor who kind of looked like them across the street coming up with something really clever to outflank them, and that would keep them up at night.
Now, I don't see that at all. They are most worried about two kids in a garage dreaming up something that's going to totally disrupt their industry.
Now, the problem isn't two kids in a garage; the problem is two kids each in a hundred garages.
Because if 99 of them have got really dumb ideas and go belly up, lose all their money, who cares? It's the one that was doing the same thing the other 99 were doing but hit on the right idea that will then disrupt you and kill the big guy, right?
That could be Google that takes all of the advertising that used to go to whatever, Time Warner or the New York Times or whatever.
And so what's happened with the startup culture and the greater amount of financing available for this is there are just more troops kind of just keep coming.
So you got the big castle, and you got a moat around it because you're a big company.
Yeah.
But they just keep coming, and eventually the moat is full of dead bodies, and they walk over the moat, and then they start scaling the walls, and there are just too many of them.
And so that's the tricky thing that I think has created more of a necessity for companies—big companies—to say, "This may make us nervous, but if we don't do it, one of these little guys is going to do it."
And by the time we figure out that they're there, they're succeeding, it may be too late.
And so I think that's a tension in big business now because boards of directors don't like taking big bets, right?
But, you know, if there are going to be a thousand fintech companies coming after JPMorgan Chase, then some of them are going to figure out the answer.
And JPMorgan Chase isn't going to be able to buy them for a couple billion dollars by the time it is successful because at that point, they'll say, "No, you can buy us for 50 billion, not 2 billion."
And then the board of directors of JPMorgan Chase will say, "Well, we can't afford 50 billion dollars."
And then that could be their death now.
So it's a tricky time for big companies these days.
And digital would have just made it harder because the internet and all the connections—like that just changed the economics of business and the accessibility.
But then also, also not to be underestimated, the huge pools of capital that are now available for those people.
So it's the combination of those two things. There's a synergy between those two things that are making being a big established player, I think, more dangerous than it's been in the past.
So should a large company then create a department, a subsidiary that is made to disrupt that? The odds they can be higher because it's higher risk in terms of that investment, but it's a lower overall risk for the company because it's not an entire company shift.
It's a subsidiary, a segment, a department that is just responsible for the bigger wins. Is that...?
I think it's a way to do it. I mean, you're essentially giving, as you probably know, the how sadly late Clay Christensen argument of the skunk works.
You know, have a skunk works that's protected from all those tendencies of the big company to kind of, you know, "Oh, that's dangerous. That's worrisome."
You do it often a skunk works. I think that can work.
I don't think it's the only way, though. I mean, I think the mainstream of a company can just obey some different rules than they have historically.
I think you can do it both ways. I mean, I think it's up to the CEO to ask the question, "Can he or she create a set of procedures, rules, ways of operating that enable the mainstream businesses to do that kind of disruptive, disrupt ourselves kind of innovation?"
Or is that just a bridge too far, and so we have to set up some form of skunk works, whether that is unowned skunk works or we make seed investments in a bunch of these players, have a seat on the board, get to see what's going on, get early looks, if not a right of first refusal to buy them.
There are different ways, I think, of dealing with the challenge of small disruptors.
Okay, so now we have our options. We choose one, right? And we're going to go after that one, and we've confirmed it. It could be a subsidiary; it could be like a board; it could be our own company; it could be everything, right?
What is the next step now?
So now we need to go after this. What do we need to do to actually win? It's how to win now, right?
Is it?
Yeah, I think it's to deploy what you said you were going to do and then kind of watch and adjust.
Because what I say is that at that point, you should take that little what would have to be true chart that you made.
Yes.
So let's say it's option three. Yes, and you go back and take that thing, that what would have to be true, you stick it to a tack board in front of your desk, and every morning come to work and ask, "Are the things that would have to be true still looking like they're true?"
And if the answer is yes, just keep plowing ahead. And if the answer is, "Not really," then you better go through that whole process again.
Strategy—you should be kind of comparing what the logic of your strategy holds must be true to what is actually happening and assessing the degree to which there's a match.
And you should always do that. And that's why you shouldn't do strategy on sort of an annual basis. You know, it's September's when we do strategy.
No, you think about strategy every day, and you assess the degree to which there's a fit between your strategy and what's going on in the market so that you can get at it, get changing it sooner.
Because the biggest problem with kind of strategy tends to be that you get locked into it, and then you kind of ignore all the signals that say it's not working the way you thought it was working until it's too late to do anything about that.
So you talk about like to ensure that the capabilities are in place. You know, so sometimes in the where to play and how to win, you may not have all the capabilities yet.
And so now you need to start investing in creating capabilities that allow you to win in that segment.
Yep.
And that's where planning comes in, right? Now we're planning.
Now, yeah.
So you should have, you know, if you are confident you can build the capabilities—confident enough to say, "We're going to invest in a strategy for which we do not have all the capabilities."
Now we've got a bunch, but we've got a few that we have to build, and we think we can build them fast enough.
That's when you need to have a plan that says, "Okay, here's what we're going to do. Here's how much money we're going to spend. Here's who's going to do what. Here's how long it's going to take. Here's the KPIs for that."
You'll create a plan to build the capabilities necessary to win the way you've chosen to win, where you've chosen to play.
And you want to keep checking the what would need to be true daily when you're creating new capabilities to ensure that you're not too far down the path where you're stuck in the strategy, and then you realize it's not working, but you've already created or transitioned the organization.
And some of those things will be internal, and some will be external.
What would have to be true is customers will respond this way to the offering we're making—that's an external thing.
We can build the capabilities necessary to have this kind of product or service—that's an internal thing.
So some of them are external, some of them are internal, but you have to be checking on those things because there's a logical structure to the strategy that has to be confirmed by the world as it evolves, right?
Or you've got a strategy problem. You've got a fit problem, right? Which is your theory that doesn't fit with the way the world is evolving.
When that happens, do you adjust the current strategy, or do you go back like one step back to the whole process again?
Like where is the point where when I return almost, you know, like it's like we've gone this far?
Yeah, my—the first step I would take in that case is to ask, "Is there a minor alteration to this strategy that we could imagine that would take into account this evolution of the world that is in a different way than we thought?"
Yeah, so I would start there. But if the answer is not a very ready, "Yeah, yeah, no, we could make this adjustment, and things will be fine," then I would very much go back to, "Okay, we got to go back to square one and ask, 'Okay, what's the problem now that we've got to solve?'"
Yeah, it's this problem of a kind of a mismatch.
Okay, what would be possibilities? What where to play, how to win change? Could we make that actually the same thing?
And this is where that testing state is so important because it can save you from this part.
And like if you weren't sure how much to test, imagine if you had to get to this stage and then to realize that something that you thought was true was not, and now you have to go back a step or to unwind or to adjust.
And so that's the best argument for doing testing kind of ever—measure twice, cut once, right? Isn't that what a tailor would say?
Yeah.
So just talking about that then, of course, and now, you know, we have our capabilities, and the plan is in play, right?
You talk about having the management systems in place, and this was a little bit harder for me to get my head around about how strategy—I'm sorry—about how management systems help with strategy.
So could you just unpack that now?
And maybe, by the way, the only thing for me?
Yeah, sure. Maybe I'll just give an example.
So we all know Four Seasons hotel chain, right? The world's biggest and most successful luxury hotel chain.
So it has a strategy of giving a different form of service. So many people don't realize this, but Four Seasons' founder, Isadore Sharp, came to the conclusion that people staying in luxury hotels would rather not be there.
Where would they rather be? Number one, at home with their loved ones. Number two, at the office where they can be productive. And number three, in a luxury hotel.
And so what he said is, "We're going to have a form of service that makes up for what you left at home or the office."
Our competitors' former services—grand architecture and decor and more obsequious service—all of which makes you feel less at home, right?
No, and funnily enough, for that, we need to have frontline workers be able to kind of adjust on the fly and be able to deliver this very customized service to our guests.
That's the capability we need.
Here's the problem: there's a 70% turnover in the worldwide hotel industry—70% annual turnover. That means the average person that you meet in a hotel is on their way to a 16-month career in that hotel chain.
So the turnover is just extraordinary.
Yeah.
So Isadore Sharp says, "We can't deliver this kind of service we want that would earn us this great price premium and loyalty that our strategy needs."
Doing that, so we'll have a management system that is different or management systems that are different than our competitors.
When we hire, the only way you can get a job at a Four Seasons is to complete three successful in-person interviews, the last of which is with the general manager of the hotel in question.
Inviolate. If a general manager ever hired somebody without interviewing them—bellhop and anything in Four Seasons—they'd just be fired on the spot. Gone.
That's the management system.
And when Four Seasons opens a hotel, because they're such great employers, they have on average 400 jobs to fill in an average hotel. Obviously, there are bigger ones and smaller ones—400.
They get 40,000 applicants on average, and they in-person interview 4,000 of them to find the 400.
Right?
So how on earth can you spend that much time and effort? Your management system says you have to spend that much time and effort.
And then they have another management system that is career planning so that everybody knows exactly where they're going in their career in Four Seasons, and they get the training for that and all of that stuff—another management system.
Well, if you got 70% turnover, how can you invest like that?
It would be insane.
Like just think about it. If the competitor hotels have 400 people per year for 400 full-time positions, 70% turnover, that means they've got to hire 280 per year.
The general manager, and let's say they have to interview two or three people using a Four Seasons system to get each one of their 280.
The general manager would be doing nothing but interviewing employees their entire year.
So how on earth do you do that?
Well, the answer is Four Seasons' turnover is about 5%.
So that means that means 20 new hires per year in that hotel.
That's no problem.
Yeah, that's easy.
And all that investment that you made to figure out what the 400 words is totally worth it because they're on their way to what? A 20-year career.
They're worth investing in.
And the competitors are very daunted by this, right?
How long would it take us to treat people like Four Seasons treats them and pay them like Four Seasons pays them and have a track record of having great long careers for us to get it from 70% to 5%?
So that we could afford those unbelievably expensive management systems, but that aren't so terribly expensive for Four Seasons because, you know, doing that amount of interviewing for a 20-year employee who's going to give awesome service—that's not a big deal.
So there, that's a set of management systems that builds a distinctive capability that enables them to win where they've chosen to play and meet their winning aspiration to be gold standard in the hotel business worldwide.
And there's this whole theory in strategy—there's all sorts of crazy, stupid-ass theories in strategy. One is, "Oh, the end of competitive advantage."
There's no competitive advantage anymore. It's fleeting. It comes and goes easily.
This has been the Four Seasons strategy since the mid-'80s, okay? It's a 40-year-old strategy—a 40-year-old strategy that has produced the most successful and the largest luxury hotel chain in the world.
Wouldn't you think if there's the end of competitive advantage, you can't keep it anymore? It changes so fast that somebody would have knocked them off?
Yeah.
In four decades? No.
And somebody would have knocked off Head & Shoulders in less than 50 years.
Or, you know, I mean, it's just a stupid-ass argument about competitive advantages.
It cannot be long-lived. Competitive advantage can be long-lived if there are unique management systems that build unique capabilities that enable them to win in a particular way in a particular place.
Nothing about the world has made those advantages fleeting or short.
Anyway, enough of a rant on that.
No, no, no, no arguments that have no basis in fact.
No, no, like I love that.
And I think I was so—it seems that management systems is how you kind of implement the strategy across the company, and it's how you sustain the long-term competitive advantage because the systems will build upon themselves and will continue to grow that capability.
So by the time a competitor is actually even aware of it, it's too late because they've already been investing for so long.
And that's where management systems is almost—it almost seems like the hardest part because now you are now trying to put strategy throughout the organization by giving people kind of authority at certain stages to make certain types of decisions and ensuring that there are certain things that are just, "This is how it has to happen here."
Right?
And it's that combination between the two—like this is how it has to happen, but also there's this area where you can decide.
Yep.
And not only is it perhaps the hardest part, it's the most boring part.
Yeah, it really is.
It is like the plumbing.
But you're very perceptive, right? Which is that, yes, it's that sort of boring plumbing that often is absolutely at the heart of competitive advantage.
And Four Seasons is a good case in point.
And you'd think, right, you'd think that somebody would be able to say, "Oh no, we can do that too."
But it's quite daunting.
It's quite daunting because, because in part of, again, what you said, very once again perceptive, it's by the time they figure it out, in some sense, you've moved a long way.
So by the time competitors sort of figured out, "Wow, Four Seasons just has this built-in service advantage. Their guests just like their service way more."
And oh, it's because it's not sort of obsequious and great artwork backed by Granada.
It's this field of customization and hominess plus sort of the efficiency of being at the office.
And so we have to get employees like that too.
Oh dear, you know, Four Seasons has now got a track record of having these long-lived employees who have these long and productive careers and work up through the system.
And so we'd have to go out and convince people that even though we're not Four Seasons and we have no track record whatsoever at this, we are going to be able to treat you just like Four Seasons does.
And then the person just sort of says, "Well, I could speculate with you or get the real thing at Four Seasons."
You know, do I have idiot written across my face?
So it's not—Four Seasons is no longer where they were when they started.
They're 20 years down the path of having that system work and produce these outputs.
And so you're—the company that's going after them is not—does not have sort of a fair start.
Yeah.
They're literally running a race where they start 20 years behind you when they run, and they need their own strategy now to be able to compete against Four Seasons because now they're the market leader.
And now they're the one that have the moat, right?
And now they're the one that have to defend, you know, against the million or the hundreds of competitors that are trying to knock them down, even outside of the Airbnb experience.
You know, that was something completely from the side.
Absolutely, absolutely.
Which is a good example of how, you know, you can—you've always got to be kind of watching for other kinds of competition, right?
When you're the market leader, like Four Seasons, you're probably, as long as you don't get, you know, lazy and arrogant, it's going to be hard for somebody who's like you to catch up.
But what you have to be worried about is somebody who's got a very different way of delivering a customer need.
Now, the customer need that Four Seasons meets first and foremost is the busy high-end business traveler, and they're not going to be your Airbnb people.
Now, of course, Four Seasons has all sorts of resorts. It's hotels and resorts, but the people who stay at those resorts tend to be the same travelers who already love Four Seasons.
So they're a little more insulated from Airbnb than Hilton or Marriott or whatever, I would argue.
But your point is a good one, which is competition comes in all forms.
And as long as they want your customer, you know, the fact that they aren't like you does not mean that they can't make your customers happy in a different way than you've made them.
I am conscious of time, so I'm going to ask one more question of our strategy.
And I don't know if this is going to be a hard one or not, but like it could be a simple one, but let me just ask anyway.
How do you measure strategy? Is it just the business metrics? Is that how you measure strategy?
Is it just kind of the standard things that we see like in, you know, the financial reports?
I prefer—so I'll answer this slightly elliptically, right?
The first box in my choice cascade is what's your winning aspiration?
So what I say is in that box, you've got to say what your aspiration is and have that aspiration translated into goals that you will measure yourself by.
Now, there are good goals and bad goals. The good goals are goals that are consistent with the strategy, right?
So if your Four Seasons and your strategy means giving the guests an experience that makes up for what they left at home or the office, you better have a goal to have customers kind of love your experience and have high customer satisfaction.
If that isn't a way you're measuring yourself, then you're probably just fooling yourself on that being your win.
So you got to figure out what the strategy requires and have goals that are consistent with that.
That having been said, I don't—there's not a sort of particular this goal or that goal is great other than I do believe, as I said before, that where you've chosen to play, you don't want to be second, right?
You want to be more prominent than any of your competitors where you've chosen to play.
But if I step back and just ask, ask what do I think makes for a successful business long term?
Like why is Southwest Airlines successful? Very long term—50 years of success.
Why is Procter & Gamble successful for so long?
Why is Four Seasons successful for—I believe that it's because they have human-friendly systems.
By that, I mean there are no people in their system that are being exploited so that they're succeeding by exploiting someone.
Costco would be another example of a long term—they treat their customers with respect, their employees with care, their suppliers with a relationship kind of aspect, the environment with respect.
Those are all things that I think make a business strategy more resilient over the long term because there's nobody out there other than the competitors who would lust after their position who say, "I'd like to take those people down."
Right?
Their employees aren't saying, "I wish this company would start failing because they're beating me like crap."
Four Seasons, they're like, you know, crazy employees. They're like, "I love my company. This is great."
You know, it's a wonderful, wonderful place.
Their suppliers say the same things. The places in which they operate say the same thing.
The people who own the hotels—Four Seasons just manages them.
The people who own them make a lot of money because they treat them with respect.
That's a feature of strategy that I think gets underplayed.
And so people will say, "Oh, we're going to measure it by how much shareholder value we create."
Good luck to you on that.
This gets back to—this gets back to Aristotle.
One of my favorite people—Peter Drucker and Aristotle are probably my favorite two thinkers in the history of the world.
And Aristotle, way back 2400 years ago, you know, said that if a man sets out in life to be happy, he's not likely to end up happy.
If instead a man sets out to lead a good life, by which he meant sort of a life of servitude to his fellow citizens, he's likely to end up happy.
That's what I believe about companies.
Companies that are trying to make the world a better place by being good to the rest of humanity, I think, are more likely to create shareholder value than the companies that say, "Our job is to create shareholder value."
Because who jumps out of bed—who leaps out of bed in the morning, "I'm going to work to create shareholder value"?
What customer wants to be supplied by somebody who they know their only interest in life is creating shareholder value?
This is not motivational. This does not help the company succeed.
Being a great company—being Costco, right? A retailer in the United States, for whom minimum wage is completely irrelevant, right?
The lowest paid people at Costco make over 20 bucks an hour—about 22 dollars an hour—when minimum wage in some of their jurisdictions is nine or ten dollars an hour.
And you can say, "How could you possibly?"
And they're a club store, right? They're in the low price tier.
How could you just put like twice as much for all the people?
How can this possibly be?
You know, Jim Senegal, founder of Costco, would say, "Easy, easy."
Right? Like, "I want my workers to not be worried about putting food on the table, you know, paying their mortgage. I want them to come to work excited by life, excited by the possibilities."
That's, by the way, why I don't hire any outsiders into management.
They all can come up from within.
So anybody who starts at 22 bucks an hour can end up being the CEO of the company.
Like he's got a view of how to make the whole system work for everybody.
And guess what, right?
He's the most, you know, one of the very most successful retailers in the entire country doing things that people would say can't be done.
You cannot pay twice for your employees what it costs everybody.
This is retailing, guys. This is people's clerks, check-out cashiers.
You cannot do that.
Yes, I can.
Yes, I can.
And in fact, I haven't only been doing it for about 30 years and meeting all of you.
So having that more expansive view of how does a system work for everybody, I think, is the key to having a great strategy.
I think that's a good point to finish on because I haven't conscious of time.
I could keep talking about this.
So if there was one thing that you would want the listeners to do—like one site, one book to look at, subscribe somewhere—what should they do?
How about three things?
If you're interested in the subject here, I did write a book with A.G. Lafley, then CEO of P&G, called "Playing to Win."
I think that's a worthwhile book.
Fantastic book. I have to say that is such a good strategy book, and it's written in a way which is easy to read and understand because I also have the book "Competitive Strategy."
Complicated, technical.
Yeah, I really love your book because I was like, "Ah, all right, I get it."
Thank you.
Yeah, so do that. If you're a real nerd and after that you want more, my Medium series—so I'm writing a series. I'm on my 26th straight week writing a Medium piece called "Playing to Win: Practitioners Insights" that are supposed to be for practitioners—some insights on strategy.
And just go on Medium and look for "Playing to Win," and you'll see it all. They're all linked back to that.
And if you want to steal more, just go to my website, which is www.rogerlmartin.com. My middle initial is L.
.com, and there's a whole section on strategy there with probably, oh geez, there'd be over 100 articles I've written on strategy there, and you can just sort of leaf through them and see what strikes your fancy.
So those would be the things that I would say are nice follow-up follow-ups to this.
And on that point, the links will be in the show notes, and this content is highly recommended.
Yeah, like this is for anybody that wants to be better in business, understanding how to think about strategy, which is a thinking activity, is key.
And the content from Roger is fantastic.
Yeah, there's not many times where I'm saying it's such good content, but this is amazing stuff.
And the Medium series is free, so if you just want to get started, like super easy, just check it out.
There's some fantastic concepts in there as well.
Roger, thank you so much for coming on the podcast today. It's been fun talking about strategy and thinking about how to win.
Thank you so much for coming today.
Hey, it really was a pleasure. You've really know a lot about strategy, and it was fun to have the conversation.
Any time.
That means a lot to me coming from someone like you. Thank you so much, Roger.
Not at all. Take care.
Thank you.
Thanks for listening to the Growth Manifesto podcast. If you enjoyed the episode, please give us a five-star rating on iTunes. For more episodes, please visit growthmanifesto.com/podcast.
And if you need help driving growth for your company, please get in touch with us at webprofits.io.