The Digital Leader Newsletter — Strategies and Techniques for Change Agents, Strategists, and Innovators.
Innovators need a heavy dose of faith. They need to trust their intuition that they are working on a big idea. That faith need not be blind. — Clayton Christensen
I listened to a fast-paced, insightful, and actionable podcast conversation. The conversation is on The Learning Leader Podcast hosted by Ryan Hawk. His guest was Roger Martin, former Dean of the Rotman School of Management and co-author of Playing to Win: How Strategy Really Works.
I have edited the transcript for brevity and readability, bolded some of the key points, and put my own witty comments in brackets with [Rossman]. I hope you find this as insightful as I did.
(click on image to go to podcast)
RYAN: Roger Martin served as the dean of the Rotman School of Management for over 15 years. In 2013 he was named Global Dean of the Year. His best-selling book is titled Playing to Win, which he co-wrote with A.G. Lafley, the legendary leader from Procter and Gamble.
RYAN: What are some of the common themes you've found in those people who've sustained excellence over an extended period of time?
ROGER: Well, one of the features about them is that they relentlessly look at the future and ask questions about the future and take action on the answers that they come up with to those sorts of questions now, rather than waiting for the future to happen to them and then take action.
[Rossman: This is the habit and discipline of being able to envision — sometimes big things, often smaller capabilities. My thesis is that most leadership does not spend the time, resources, have a process/system or training for “envisioning” and asking future-oriented questions]
RYAN: What are some of the questions that A.G. would ask to understand or to grasp, to gain a better understanding if something might not go well in the far future?
ROGER: He always asked the question: “Is what we're doing sustainable?” Now he would ask that before sustainability in the more environmental sense became a popular question. He asked it to say, based on how customers think and act, based upon how the distribution channel thinks and acts or our competitors think and act about trends, is what we're doing sustainable into the future or not? For instance, one of the signature things he did long before becoming a CEO, was looking around the world seeing that Japanese detergent companies sold little boxes of detergent, packets of detergent, not being fluffy detergent, as was the case in the US at the time. Procter and Gamble dominated the business in the United States of selling powdered detergent that was fluffed up, they actually had factories that fluffed it up because it was perceived this is what consumers want — big boxes of fluffy detergent. Japanese houses and apartments are tiny in comparison, and they like their detergent as compact as possible. Japanese detergent companies gave them compact detergent. A.G. just asked the question, "What if those guys were to come over with that product?” Would US consumers say “why do we have huge boxes of detergent when you actually don't need a big box, so you can have a littler box take up less room in the car and the shopping cart, at home?” What would happen if that were the case? And then we had to respond. How would we feel about responding rather than leading? We wouldn't like that very much, and so let's preemptively launch this product formulation in the US," which stole a march on all of the US competitors and prevented the Japanese competitors from having a way to enter with a different unique product and the rest, as they say, is history. Tide has continued to go from strength to strength. That would be classic Lafley and a classic kind of great strategic leadership. Is what I'm doing now going to succeed in its current form, or do I have to think about other things to do now rather than in the future, to make that continue?
[Rossman: Brilliant example of questioning the current state and having humbleness to consider alternatives]
RYAN: It's almost like approaching your business as if thinking of yourself as a competitor of yourself and saying, “What would I do in order to beat me or how would I put myself out of business?”
ROGER: What you've described is good practice. It is the notion that if we can do it, probably somebody else can and will, and so would we rather be disrupted by somebody else or disrupt ourselves? The right answer is typically to disrupt ourselves because you can do it in a way that gives you an advantage over the competition being first to do something, rather than having to be responsive.
[Rossman: Assume competitive advantages are short-term. Now, what do you do? Keep innovating, differentiating, and improving the customer value proposition.]
RYAN: How do you view innovation when it comes to strategy and how do you marry those two together?
ROGER: It (innovation) is absolutely essential to strategy, and strategy should in some sense be centrally about innovating, about creating the next thing. The strategy function has ended up evolving in a way that is not at all helpful, which is sad, but it's true. It has evolved into a highly analytical exercise where people who go into strategy tend to be the really analytical powerhouses, really bright, analytical, and what they do is they crunch the data to determine what the right thing is to do. But I don't know if you've ever noticed this, but if I asked you what era does all data on the planet come from, the answer is “the past.”
[Rossman — Amen]
ROGER: We don't have data about the future yet. All data is from the past. You are making a gigantic enormous assumption. That assumption is the future will be identical to the past. And so to the extent that you make strategy an analytical exercise, it will drive out innovation entirely. So the two words that destroy innovation are “prove it.” “Prove it” in the modern lexicon, means using data analysis to demonstrate that a proposition is true.
[Rossman: A better question/request than “prove it” to ask is “why is this your hypothesis?”. This signals the recognition that this topic is inherently a concept, a guess. The question invites not just data, but customer insights, qualitative statements, experience and intuition to be part of the answer.]
ROGER: The only way to demonstrate a proposition is true is by assuming the future will be identical to the past. You can't actually, you cannot actually prove analytically any innovation in advance. So this is what makes it hard to have strategy and innovation together. It's not because they inherently can't go together, it's because the practice of strategy has become an analytical exercise and this violates that you have strategy-setting as a dry analytical process. It doesn't matter what you say on your corporate charter about innovation, how big your R & D department, whatever, you will destroy innovation, full stop. The only way to innovate is to use a different process, which is imagining possibilities and then choosing one for which you can, to the assembled group, make the most compelling argument. Only companies that accept that and accept the limitations of the analysis, will be innovative companies. The ones that exalt analysis to the highest level will never be innovative, full stop, never.
[Rossman: Wow!!! All corporate strategy wonks should take note. Be thoughtful about “asking the right questions but at the wrong time”. Questions like “what’s the revenue potential” or “what’s the target margin” (or some derivative of “prove it” are good questions if asked at the right time, but actually kill innovation if asked at the wrong time.
Bezos has a similar sentiment and was quoted in 2020 “I believe in the power of wandering. All of my best decisions in business and in life have been made with heart, intuition, guts… not analysis.”]
We don't have data about the future yet. All data is from the past. — Roger Smith
RYAN: When it comes to strategy, some people struggle to define what strategy is, and you talk about this, it's about making specific choices to win in the marketplace and it requires making explicit choices, choices is a big word there, to do some things and not do others. Can you expand on strategy as being a choice?
ROGER: You hit on the absolute central notion that it is a choice. Strategy isn't a document, a strategic plan is not necessarily a strategy. Strategy is the act of making choices, some things and not others. And in particular, what I think is the heart of strategy, are choices — about where to play and how to win. You want to think, if you're into sports, a playing field, where on the playing field are you going to play? Or if you're into military analogies, where on the battlefield are you going to set up shop and how are you going to win where you've chosen to play it? That's the absolute essence of strategy. If you can't say that specifically, then you don't have a strategy worth shaking a stick at. The other thing I'd say about strategy is that an important way to know whether you've made a real choice is to subject it to the following test - if the opposite of your strategy is stupid on its face, you haven't made a real choice. So if a company's strategy is “we're going to be customer-centric”, what's the opposite of being customer-centric?
RYAN: Being terrible with your customers.
ROGER: Yeah. And so other than regulated monopolies like the Department of Motor Vehicles, what real companies that have competitors, have succeeded by being terrible with their customers?
ROGER: None. So it's stupid on its face.
ROGER: So that isn't a choice. Now what is a choice is other people focus on satisfying customers over here, and we satisfy customers over there, or other people say we're going to satisfy customers by giving them a broad product line, we don't believe in that, we have a narrow product line but it's the actual products that they know, need and love most or their view of service is this, our view of service is that. It's not as though it's bad to care about your customers, but you've got to be able to say the opposite of what we've done is not stupid. I like the mutual fund industry. Vanguard and Fidelity are the two 800 pound gorillas. Jack Bogle, founder of Vanguard says, "My view on investment management, active investment management, is it just loses the investors’ money, so we don't do that." Fidelity says "We think investment managers who pick the portfolios and put them together with the most important assets and we invest lots in them, give them lots of responsibilities, etc." They're both making a real choice because there's not only somebody else doing the opposite, there's somebody else who's got over a trillion dollars of assets under management and makes huge amounts of money and has huge market share, doing the opposite. Then you know you've made a strategic choice. If nobody's done the opposite of what you're doing, you haven't made one and you won't have a strategy that is really worthwhile. You will be doing what everybody else does and you'll get the results that you deserve, not very good ones.
[Rossman: Great pressure test question for a strategy — “is the opposite of this strategy a real option?”. If not, you don’t really have a strategy.]
Yes, there is homework this week. The Super Bowl is in a week so you have time this weekend! Forward this newsletter to your CEO, head of strategy, and to your colleagues. Do we have a real strategy? Are we using data from the past to define the future? Are we killing innovation by asking questions like “can you prove it?”
About The Digital Leader Newsletter
This is a newsletter for change agents, strategists, and innovators. The Digital Leader Newsletter is a weekly coaching session focusing on customer-centricity, innovation, and strategy. We deliver practical theory, examples, tools, and techniques to help you build better strategies, better plans, better solutions — but most of all, to think and communicate better.