Strategy in 1,000 Words with Roger Martin

Strategy In 1,000 Words – with Roger Martin

A conversation between Roger Martin and ReD partners Iago Storgaard and Filip Lau

Professor Roger Martin is a writer, strategy advisor and in 2017 was named the #1 management thinker in the world. He is also former Dean and Institute Director of the Martin Prosperity Institute at the Rotman School of Management at the University of Toronto in Canada.

RED ASSOCIATES

ReD helps leaders create original strategies for the worlds of tomorrow. ReD Associates is a humanities and social science-based strategy consultancy. Since 2005, ReD has worked with global companies and foundations, C-suite, and boards to create meaningful change in corporate strategy, growth initiatives, product, sales, marketing and R&D.

PART I

The state of strategy today

The secret sauce of strategy

Strategy frameworks for tomorrow’s CEOs

PART IV

Strategy at human scale

The state of strategy today

Strategy has become a word that can be attached to almost anything in an organisation. Add the word to HR plans, communication timelines or sales force effectiveness, and it suggests shine, importance, a sense “we have a plan for this”. As a result, strategy as a term has been inflated to now mean almost anything, but more often than not, companies confuse strategy with strategic planning. In the first in our Strategy In 1,000 Words series, world-leading strategy expert Roger Martin explains what strategy really is, how it gets misused, and why real strategy is so hard to do in practice.

ReD ASSOCIATES Strategy is often mistaken to mean a lot of different things. What is your definition of strategy?

ROGER MARTIN First and foremost strategy is choices, an integrated set of choices that fit together and reinforce one another. The result positions the entity that is doing the strategy on a playing field in a way that it is the best on that playing field. That is a strategy: you want to have choices that produce an outcome.

ReD That sounds very simple. Our observation, however, is that that is not how strategy gets used in the world.

ROGER Your observation would be similar to my observation, and it is a minority view. The majority view of strategy is what I would describe as the technocratic view, which is that strategy means having a plan. That’s why it’s often called “strategic planning”. The most common implicit definition of strategy is that strategy is a sensible list of initiatives that we will lay out and then pursue. For example, “Our strategic plan says we’re going to do these eight initiatives and that’s our strategy.” Typically, the initiatives are all sensible: “We will build this new factory, or add these many salespeople, or enter Asia,” et cetera. But together they do not add up to the company doing well. In fact, often the result is the company does very badly. Then everybody says, “Gee, we did our strategic planning, and surprisingly, our company is not doing well.” The people saying that are typically technocrats who believe that as long as you have a plan, things will work out well.

ReD Why is it that the integrated part of the equation often gets lost?

ROGER Simply, because it’s hard. It’s much easier to plan individual initiatives. I encourage you to read strategic plans and you will see very little in them where you would say, “Well, that’s stupid.” It is quite easy to plan to do sensible things. An economist would say, “All else being equal, it’s good to build a plant. All else being equal, it’s good to add 200 sales people.” But it is much harder to say: “If we did this with our production system and this with our distribution system and this with our advertising, that would together add up to positioning us in this advantaged way against our competitors.” That is just harder. It is a much more creative act and it is something you cannot prove in advance. All you can say is, “If I do these things, I believe that customers will come.” That takes a leap of faith and the scariest thing for a technocrat is to take a leap of faith. They want to be sure that they can succeed. That is why I say the vast majority of strategic plans are followed to the letter, and also why the vast majority of strategic plans are not worth the paper they are written on.

ReD Who are the people that are not technocrats?

ReD Why does it end up this way?

ROGER Crucially, the plan does not specify how all these initiatives will link together to accomplish a given outcome. The essence of strategy is to compel the thing you do not control to do what you need it to do. If you think about a company, what does it control? It controls how many people it hires, how many capital dollars it puts in place, where it sells its products – all of those things are in its control. What is completely outside its control? Customers. What strategy is, is your way of compelling those people you do not control, the customers, to feel that buying your product or service is the best thing for them to do.

ROGER More entrepreneurially minded CEOs, whether they happen to be the CEO of a giant company or not. Technocrats want to take responsibility for inputs: “I built this factory, I did this and that.” The more entrepreneurially minded want to take responsibility for outcomes: “We did all of these things to produce this outcome.” But in the modern world of business there is more personal career risk to the latter than the former. If you get your strategic plan, which is a bunch of independent initiatives approved by the board, and then you do everything that is in that strategic plan, and the results are crummy, who do you blame? You blame the board for approving your strategic plan, not the person who came up with the strategic plan. If instead you go to the board with a strategy that says, “We are going to do all of these things, and together we think it is going to produce this outcome,” if you are wrong, they are more inclined to say you’ve got bad judgment. So, developing proper strategy is hard.

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The majority view of strategy is what I would describe as the technocratic view, which is that strategy means having a plan.”

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The vast majority of strategic plans are followed to the letter, and the vast majority of strategic plans are not worth the paper they are written on.”

The secret sauce of strategy creation

Being customer-oriented has become the norm for most companies over the past decade or two. But to what extent has this stance been absorbed into corporate strategy on the executive level?

According to world-leading strategist Roger Martin, customer insights must sit at the highest level of any organisation because deep customer understanding is core to successful strategy creation.

Not all business problems can be solved with the same approach.

Mystery

No hypothesis

No range of future outcomes

Range of possible future outcomes

Heuristic

Initial hypothesis

Limited set of future possible outcomes

Algorithm

Governing hypothesis

Single view of future outcomes

Humanities & social science

Management science

“ I think you have a heuristic for delving into mysteries. I suspect the people on the outside of ReD call it a name, the secret sauce. ”

Roger Martin’s knowledge framework

ReD ASSOCIATES We have seen companies become more customer-centric over the past 10 to 20 years. Many have got this right, but not all.

ROGER MARTIN I think the business world has moved a long way on customer-centricity. It is now embarrassing for an executive to say, “Oh gee, I don’t know what customers really want. I don’t talk to them much, I just deliver products.” That being said, the world of B2B is not there yet. Lots in B2B say, “No, you can’t do the same thing because you are selling to a corporation, not an individual.” I fundamentally disagree with that. Corporations are full of people, right? There are people in companies in the B2B sector that buy, and if you don’t understand the people in a B2B company, good luck to you.

ReD We actually see a pattern: we get a call from a CEO who wants to get closer to consumers or customers. We then work with them, spend a lot of time taking them out into the world, going into people’s homes, and really getting under the skin of the customer. That lays the foundation for moments of clarity and clear strategies. But then after a while, these kinds of customer insights get turned into a machine. All of a sudden, we have some insights department somewhere doing evaluations of advertisement campaigns and packaging design. And then out goes that more deep human relationship to your customer. Do you see that, too?

ROGER Absolutely. It’s the technocrats taking over, right? I wrote a book called The Design of Business about this. The technocrats want to take a heuristic and turn it into an algorithm, so they can quantify exactly what customers feel. They do this by sending out a statistically significant survey with quantitative measurements so they can add everything up. But then you look at the survey and say, “Well, those are stupid questions.” So you get a statistically significant stupid answer. If you gave me the choice of having a CEO go out and do 10 one-hour inperson interviews of customers versus a survey that goes out to 10,000 customers, I would take the former every day. If you outsource it to a market research firm you just get garbage, statistically significant, unbiased garbage. Which do you prefer? Garbage or potentially biased, statistically insignificant insight? I’ll take the insight over the garbage any day of the week. You can take anything in this world and make it quantifiable nonsense. And that is the modern state of business: turning as many things as possible into quantifiable nonsense.

ReD How do you rebel against this?

ROGER I expose my clients to what they’re getting. I take surveys that an organisation has produced and say, “Read it. Read what they’re asking people to do on a tenpoint scale.” The survey gives people this monumentally complicated, nuanced question and then asks them whether their answer is an eight or a seven. I say, “Do you really want to make decisions based on the answer to that question?” And often they get mad, asking, “Why are my people doing that?” And I say, “Don’t get mad at them. That is what quantitative consumer research is all about. You’ve hired a bunch of people who are trained in using nonsensical tools to get you garbage. They were trained in a business school to do that. You hired them to do that. They’re doing it. You just didn’t know what they were doing. And that’s the lesson. You should be figuring out how you’re creating insight in your organisation.”

ReD A lot of people working here in this firm are not in fact trained in business schools. Instead, they come from the worlds of the humanities and the social sciences.

ROGER That’s good. I think ReD as a firm is premised on the fact that the creation of ideas is not in the mystery category, it’s in the heuristic. It’s not in an algorithm either, you don’t have a view that you do these five steps and you will get a creative answer. But you can think in ways, do things that would be more likely to get the creative answer. I think in any given situation, you folks at ReD start with a mystery. But I think you have a heuristic for delving into mysteries. I suspect the people on the outside of ReD call it a name, the secret sauce. “Well, I don’t know exactly what they do in there, but they do something that’s sort of magical in that it consistently comes up with something useful.” If it didn’t, ReD would be long gone in history. The world is in desperate need of people who can run heuristics for them. And it happens in lots of fields: people hire Goldman Sachs to do mergers for them, because they have a heuristic for seeing that through a process. Great musicians have a heuristic. Brian Eno said there’s an algorithm: if you put the human heartbeat as the backbeat of a song, it will sell. It’s a secret sauce. So some things are algorithmic, but many of the most important and valuable things in life are heuristic.

“ If you gave me the choice of having a CEO go out and do 10 one-hour in-person interviews of customers versus a survey that goes out to 10,000 customers, I would take the former every day.”

Strategy frameworks for tomorrow’s CEOs

Strategy creation is becoming a lost art, claims world-leading strategy thinker Roger Martin. Business schools educate technocrats while management consultancies have stopped producing relevant strategy frameworks in favour of project management work. So whose job is it to create the next wave of strategy frameworks for tomorrow’s CEOs?

ReD ASSOCIATES In the 1960s and 70s, there were a set of firms called “strategy consulting firms” whose core business was creating strategy concepts. Why isn’t that happening today?

ROGER MARTIN The business schools of today put out technocrats. They are more inclined to teach strategy tools that are analytical tools, as if analysis will get you a good strategy. It will not. But it can be a component to the creative process of putting together a strategy. We have now had a couple of generations worth of business school students coming out into the world not having been trained in strategy in a useful way. In the 1960s and 70s, and even into the 80s, there were a set of firms called “strategy consulting firms” that, through their practice, created strategy concepts. Boston Consulting Group created the strategy consulting industry in 1963 and came up with many tools that are helpful to strategy. But those firms have all figured out that there are many businesses that are far bigger than strategy: post-merger integration, overhead cost reduction, salesforce reorganisation, all of those things. And so the firms that used to be leading in the production of useful techniques to help people do strategy, don’t do much strategy anymore, but do project management more than anything. So there just isn’t the production, there is no natural place anymore where strategists get produced. They don’t get produced in business schools, planners get produced in business schools. They don’t get produced by the strategy consulting firms to nearly the extent they used to, so it is a bit of a perplexing dilemma for me; where are these people going to come from?

ReD Do you think these non-strategy activities are more valuable than strategy creation? And is that why they are now the majority of the business in the consulting world?

ROGER They are not more valuable, they are more sellable. You phone up one of the usual suspects among management consultancies and they will say, “Yes, we can plan that postmerger integration for you. We can plan how you will take two IT departments and put them together, the two legal departments and put them together,” and so on. That is super straightforward work. If you have done 25 of these before, you would just say, “These are the 17 task forces you need, this is the time needed, these are the charters for each of the task forces.” So it is just easier to sell, bigger,

super straightforward, and it fits perfectly with technocratic excellence. In some sense, there is a really important strategic question to be asked whether these two companies should merge in the first place and what they should try to accomplish when they have merged. That is a tricky strategy question and 70% of the time they should not have merged, because it is a disaster. But that tends to be ignored. Then after that decision has been made, you have a bunch of technocrats running the post-merger integration. For the sake of argument, if you are thinking about two companies, you could do a strategy for the merged companies for ten million dollars, and the post-merger integration will cost two hundred million dollars. Which business would you rather be in if you are a giant consulting firm that has a giant pyramid of people that you need to deploy to be profitable? I think the answer is straightforward and easy for them, and that is where they have all gone.

ReD This covers it from the economic and from the supply side of consulting services. Is this also connected to changes in society, in culture?

ROGER I think the job of strategy has probably, if anything, become more complicated. There are things that any company is compelled to think about these days that it might not have thought about at all. I would say 20 years ago, not many companies in their strategy would have thought about their targeted carbon footprint: “If we were to head in this strategic direction, could we do it without worsening our carbon footprint?” Very few thought about that 20 years ago.

ReD The development of the practice of strategy, strategy creation, strategy development and thought – where’s that happening these days?

ROGER I am very worried about it. I think it’s becoming a lost art. I do not see lots of places where useful conversation, useful idea development in that domain takes place. To make a silly comparison, if your passion in life is pottery and all the pottery schools closed down, or if we were running out of clay or something – you’d be depressed, right? Because the thing you love is going away. I unfortunately feel that about strategy. I unfortunately have very little confidence in the strategy academy. I think it is headed in unhelpful kinds of theoretical directions. And there is this

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I think a philosopher is likely to be as good at strategy as a business trained person. ”

classic thing that is happening in the modern world where tribes are being created, and unless you pledge fealty to a tribe you are excluded. In the strategy academy you now have to pledge fealty to one conceptual framework for strategy, or you cannot get a job in that field. It is a closed shop and unfortunately, in my view, it is a supremely unhelpful closed shop. As long as that shop remains closed, you are only going to have professors from that tribe, and they are going to be training people in that tribe. In the old days the strategy consulting firms were real leaders in creating useful strategy concepts, because they were strategy firms. So we used to get lots of great stuff out of the academy. Michael Porter is a great example. My book Playing to Win, that qualifies as coming out of the strategy consulting firm world as well, because it all happened before I became an academic. Pretty much all of it was created while I was at Monitor between 1987 and 1995. So you have things that turn out to be valuable coming out of the academy and coming out of the strategy consulting firms in the 1980s and 90s. That has weakened and that is why strategy is becoming a lost art.

ReD We have a lot of social and political scientists employed here. And I often see that they come out with a strategic mindset of sorts, but not necessarily a business mindset. Do you think that strategy creation is confined or destined to come out of business schools and strategy firms?

ROGER I think having a background in ethnography, sociology, political science is as likely to produce a strategist. I like the humanities as a background. I think a philosopher is as likely to be good at strategy as a business trained person. The role of creativity in strategy creation is essential. Aristotle said you must do two things: you must A, imagine possibilities, and B, choose the one for which the most compelling argument can be made. You have a possibility, and I have a possibility. What needs to be taught in strategy classes is that your job is to imagine possibilities and choose the one for which the most compelling argument can be made, not the one for which there’s most data to prove. You have to imagine possibilities, and then you have to say “What would have to be true for that to be a good idea?” Different ideas compete on which things have to be true to be chosen. That’s a creative act. Is any of that taught in business school? No.

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The business schools of today put out technocrats. They are more inclined to teach strategy tools that are analytical tools, as if analysis will get you a good strategy. It will not.”

Strategy at human scale

In our post-lockdown landscape, organisations of all sizes are adjusting to new expectations and norms around work and the workplace. Introducing hybrid working and placing a greater emphasis on work-life balance at SMEs is simple enough, but how do you approach this as a mega-sized organisation such as Walmart or Amazon? World-leading strategic thinker Roger Martin speaks to ReD about building organisations at a human scale, winning the war for talent, and the need for meaning and purpose in jobs at all levels.

ReD ASSOCIATES There’s a theory that says that as society becomes larger, more complex, and more interconnected, there will be a greater need to standardise.

ROGER MARTIN This is the subject of my next book. The theory being the scale of organisations is just getting bigger and bigger and bigger. There is no limit to the scale of a company, as shown by the Walmarts of the world. There has been an increasing divergence between the scale of organisations and the scale of humans. And what the organisations that have scaled are doing to manage scale is three things, one of which you just talked about, standardisation. They say, “You are all customer service representatives, so your wages are this, and your hours are that.” The second is compartmentalisation. We hear all these complaints about companies being too siloed. A way of dealing with scale is to say that your finance, your marketing, whatever – we can organise within that. Third, we have subordination. As you get bigger, you get a taller pyramid. The result of that is that people have come to feel ever smaller because they’re in an ever bigger company that’s standardising to an ever greater extent, compartmentalising to an ever greater extent, and subordinating to an ever greater extent. And that’s why you have quiet quitting, low engagement scores, and people feeling the core of large companies is not a place where they want to be. This is a huge problem for the modern company. Because there are all sorts of reasons to scale, right? In many industries, unless you have scale, you can’t invest in the things you need to invest in to survive in an industry. So, I’m not saying you shouldn’t get big, nor am I saying you must not standardise, compartmentalise or subordinate. It’s the way that companies are doing those three things that are creating inhuman environments within them. What I think companies have to do is figure out how to do strategy at human scale, to figure out how to have an organisation that feels human-, not inhumanly, scaled.

ReD When you say human scale, does that refer to a proximity to humans in general as customers, as stakeholders, or more within the organisation internally?

ROGER What I mean by human scale is that the organisation will feel human, not foreign. The feeling will be, “I’m in a thing that is friendly to humans.” In my view, if you ask somebody whether the company that they work for feels friendly, comfortable and cosy, if they were answering honestly, they would probably say, “No, it feels strange and inhuman, cold and distant. But it’s my job.” And then if I asked them, “Well, where do you feel you’re in something that’s human scale?” They will probably say, “Oh, when I go to my bridge club, that feels human scale. When I go to church or synagogue or mosque, that feels human scale. If I go to my kids’ ballet class, that feels human scale.” So there’s lots around them that

creates this contrast between what feels comfortable to them as a human being and what does not. And increasingly, it’s their company that does not.

ReD What does human-scale strategy need to take into account?

ROGER In the knowledge economy organisations need knowledge workers. Remember what Peter Drucker said about knowledge workers: you should treat them as if they were volunteers. They are volunteering a part of their life to your cause. In the modern company, full of knowledge workers who you need to have volunteer their time to you, you need to have a way of working, and a way of organising what you do that makes them feel that they would want to volunteer their time. One of the great motivations for that, I believe – even though they wouldn’t articulate it that way – is that they want to work in a human-scale organisation. The war for talent is going to be fought between organisations that feel human scale and organisations that don’t. And in my view, the ones that are going to win are companies that can take advantage of scale to deliver their product or service better than they could at lower scale. The winning organisations will create an environment inside, that standardises, compartmentalises, and subordinates in a way that causes people to say, “Yes, I feel human, I feel comfortable, I feel the warmth of my organisation.”

ReD When you refer to workers as volunteers rather than employees, we see among some clients a greater desire to involve people within their organisations. That can be in many parts of developing the business. It can also be in strategy. But there are some dilemmas and some trade-offs in there. At least in our experience, it’s not easy to co-create a strategy with 4,000 people in a bottom-up process. But we do see that desire. What are your views on this kind of top-down, bottom-up co-creation, and so forth, when it comes to strategy?

ROGER Lots of people ask me this question. They say, should strategy come from the top and then work its way down, or come from the bottom and work its way up? And I give a very frustrating answer: it has to go back and forth. I am not, if you will, some kind of complete democrat on strategy. I think everybody at their level of the organisation has choices that they are responsible for making. What I am dead set against is the notion that the people at the top make strategy choices and then everybody else executes.

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What I am dead set against is the notion that the people at the top make strategy choices and then everybody else executes. ”