How to develop a strategy that wins in competitive markets | Roger Martin

so you ask the most important question in strategy which is not what is true but what would have to be true so you say of the first uh first uh option or possibility as i as i uh uh 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 asked that of each of the 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 uh not not quite i don't go there quite highly i i asked of the things that would have to be true which of the ones which 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 gonna

go and do that right okay so so it's 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 his former dean and institute director of the martian prosperity institute at the rockman 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 and 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 and i see it as an integrative set of choices uh that define uh where you're going to play and how are you going to win where you've chosen uh to play why it's misunderstood i think is it's become very much an exercise in planning and 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 and i've in my view because planning is is something you can be certain that you do right right as long as you're like 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 the present and that is not an easily doable thing and so most people most of the time default to planning and so there's very little great strategy done in the

world and this is a big one right because it is to choose like 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 create kind of a new where to play and they win by being the only player on that field so um that that sometimes happens now that's accidental there right that's accidental they accidentally

found a place where they could win right not necessarily i mean that's that's that's entrepreneurial beauty is sort of you know figuring out figuring out uh some some need that is not being met that you can uh you can meet and and uh now what tends to happen is that somebody will uh 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 if it's clever and it turns out that that 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 a monopoly um but i i i would just i would just say it's not by definition you have a you have a competitor in essence when when you're developing something entirely new right the competitor is doing without right that you know the very very first car did not have a direct competitor but it had doing without a horse-drawn uh carriage and what you had to do is convince consumers to forego uh the current product the current offering and

go with this entirely uh 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 um 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 though there are many sort of uh 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 uh consumers or american consumers um you could you could also uh say your where to play is as what stage of the if you will the value system you 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 wear choices that get into it but your idea of a segment is is not at all a bad uh description and i'm thinking where on the 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 it's again as you said it's misunderstood and done poorly generally yeah and so you talked before about um strategy and planning and i read in one of your posts on your 20 part series on medium which is highly recommended anyone just 25 25 now 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. uh 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 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 strategic plan and again as

i say in the piece you referred to you know 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 gonna do we're gonna call that our strategic uh plan but unless it adds up to here's where we're gonna play and here's how we're gonna win then then it doesn't deserve the modifier uh uh strategic uh because it isn't it isn't a strategy in the sense that i believe the the term was was uh coined uh i mean the the term originally came from

from the world of the military right which there's a long rich history from sun tzu to house of saying here's here's the kind of techniques for thinking about how to win a battle and we're going to call that military strategy and and that eventually got imported to business uh uh as a this is our 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 um 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 just to clarify them 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 um the second part um was like and this is just a quick a quick side note because i'm interested um specifically in this topic but how does the military definition of strategy relate to to the business definition and how closely related are they well i i i think there there's some kind of family resemblance but they aren't aren't uh the same thing and and in fact right the the uh strategies evolved from fr away from military strategy because if you

think about military strategy and you ask what what mattered in military strategy what really mattered is us so 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 if your military's strategy is to respond to an attack on your homeland then you're just going to assume the consumers would rather have you uh this is consumers who are the citizens 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 you just go do it uh do it or or if if you are the invading force it's because your citizens have some sense said well that's okay if you do that or we'd like you to do that or or or parliament uh you know approved approved it so so the consumer wasn't and customer was not very much in the in the equation uh but it was just assumed that you

were doing something good good uh uh for them and the question was can you beat the enemy how do you how do you go about uh doing that overwhelming force you're gonna be clever you're gonna flank them you know what uh whatever and so in the world of business that's how strategy in many respects started uh 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 and his his strategy was you know you

and you uh uh invest ahead of the learning curve price ahead of the learning curve below your your cost if necessary to get the dominant scale so that your costs will always be lower and you will win right that would that was it the con the customer wasn't in that equation kind of 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 the consumer the customer and that's where in some sense the where to play or at least

in my version of strategy to where of play comes it's like it like in the case of a country it's sort of for all citizens no it's for this set of customers uh uh we we want to tussle with the with the competition uh for oh and then what was they need how we can we serve their needs et cetera so so it's migrated away from from military strategy in in in that sense the other thing i would say about military strategy is it's a little more clear that there is a absolute winner and an

absolute loser right at the end of it and i see the evolution of business strategy more being more being i'm gonna head over here and these are my customers that i'm gonna 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 than i do and so i win but you go over there and serve those customers and and that's fine with me i'm i'm not i'm not gonna i'm i'm not gonna be up set with you i'm

not gonna battle you so there's a little more in business strategy of many uh companies succeeding but in different places and in different in different ways got it so it's far less adversarial and there's far less like damage at the end of it um for one side or for the other depending on yeah if people have really 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 uh and and they compete endlessly bashing each other over the over the head for no good 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 uh you win we lose yeah and it when it's world war one where you nobody has a decisive right and you just line up and keep shooting each other and killing killing each other for kind of no no particularly useful uh outcome yeah

sure i mean i think this goes to to the next part now which in um you just mentioned it um 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 um what do you need to create a winning strategy well i think you need uh a lot of understanding of the customer so that that you can figure out what capabilities you can build that would be hard to replicate to serve those customers in in a unique way and that that is kind

of the the the essence of this of the strategy you have to deploy build and deploy capabilities that are hard to replicate against a uh cert meeting a customer need in a particular way if you can do that you'll have a strategy that 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 we do some surveys with them but we interview them and so on or whatever like we do some um

other qualitative surveys right as we have an understanding now of the customer right so now with that information but what do we now what's the next step yeah like is it to see the size of the market is it to identify the like like what's the next step yeah it's it it's at this point this is this is the creative act it's it's to say what's a theory for how i might serve the that customer segment better than anybody uh else what are they missing right is there something that they long for that they that

they don't uh uh currently uh have or if they're getting stuff right now is it at is it at a cost to them a price that's so high that uh they buy less than they would otherwise and aren't particularly uh kind of thrilled with that and we could create a different economic structure that would enable us to sell it but it's it it is having a theory a theory of how we could serve them better and what i'd say is is and this is this 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 with a variety of theories don't just fixate very very quickly on one but come up with with an 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 of creating a win with that with that customer uh 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 yeah yes um and so just for the listeners could you just explain that sure sure so so what i say about strategy is strategy the problem-solving uh uh tool and and the the way you started is to say well what's the problem we'd like to solve and a good way to frame that problem is how might we question which is which comes from the world of of of of design which which is which is to say well um here's

a problem the customers are experiencing the following how might we make that better for the for the customers uh or or perhaps we used to have those customers you know 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 uh uh regain the kind of the position with the customers that we that we did before so you need that sort of motivating question that that imagines a better future that 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 solve the problem how many possibilities should should a strategist or should a strategy session come up with you know like like how many is a good minimum to be thinking about three three to five i think unless you unless you have a minimum of of three you've you've probably not not thought broadly enough and there's probably something that you're missing that's that's good i think five is a 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 i prefer them to be uh significantly different because because i think so let's imagine you five and they're they're you know then there's go east go west go north coast go go let's say four and um 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 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 you'll never get there you'll settle for north south or or uh east um so so that's why i i like kind of real variety in terms of really different ways of 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 uh 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 i was about to ask it like because there could be lots of different options and often there are absolutely one of the one of the things that that that i would say identify as got a great strategy is it was there there was that that kind of flexibility in both the the the heart of strategy i call the heart of strategy

the where to play how to win pair of choices and 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 what that does is sub-optimize it gets you to what people who talk about optimization theory says at a local peak right it's like you get to the top of the 10th tallest mountain in the himalayas not everest uh and 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 uh then you get a great strategy and we're going to go through this process through this chord but just i'm just trying to understand this 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 they 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 it depends on on whether the how to win is made stronger or weaker by going after all the segments so 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 your how to win to play across them so just to give a concrete example right procter gamble somebody have company i've worked with for kind of a long period of time big business and in this in australia yes 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 uh why is 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 uh uh do for you uh together uh they're all consumer branded uh goods and so you advertise in in the same places and you can have advertising uh uh 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 were they had a ethical pharmaceutical business right you know kind of of fda approved

drugs yes and they thought they thought they bought the company called norton they was 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 um don't do that right uh we have to build our own little sales source for our own little company and go against the sales forces of pfizer and glaxo and all these all those giants and oh by the way

there's this 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 uh 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 to that we're 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 uh yes they had advantage in branding when they had a product they were better at branding it than the pharma pharma uh 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 so 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 they compete that was not going to happen in our lifetime if ever and so so there would be a case where one segment too many got it or one segment that was too different for it to be a good thing so you just mentioned um 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 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 you will aspire to be number one in that in in in share now that does not mean that you utilize somebody else's categorization scheme right so so if somebody else says uh you know whoa you're not number one in you know kind of automobiles that may not be the right the right segment you may be you may be kind of number five

in that but in the luxury space of your mercedes right you know they're they're they're not maybe they're they're probably just barely top ten in market share in autumn you know automobiles but in the certain luxury space uh they are number one so so what you and now you can't have that be fake it's sort of like well i'm gonna call my space this when that's not really my space you have to 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 uh and and mercedes can be number one in uh 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 the same segments and in each 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 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 a big enough group of customers to make your business model work and so often times 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 but you're just kind of identifying a segment within a larger category um

which you can just kind of step into with better strategy marketing and so on um to win is that right like is that how to think about it no that's that's exactly right and and and it is a really really important part of of strategy because you have to have that that aspiration i i think so you know and part of the way i think about strategies you have a winning aspiration that that that uh helps you pick a where to play and how to win so you have that that team and then you build

the capabilities necessary to win where you've chosen to play to meet your running 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 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 than then military strategy you're not trying to kill

the competition you're trying to convince the competition to compete elsewhere that 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 and 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 they have

what they have real choice no it's not 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 you will have uh a real choice that's why that's why strategy in my view is 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 uh that earn enough for shareholders to keep wanting to invest in that and that creates jobs right and which

creates kind of uh people with with with money to the economy kind of uh grow so yeah bad strategy where everybody converges on doing the same thing and you get this sort of destructive competition commoditization whatever is just is 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 so we've done the how might we questions we've got five options now right now they could all be completely like in like 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 asked 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 first uh option or possibility as i as i uh 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 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 uh not not quite i don't go there quite yet i asked of the things that would have to be true which of the ones which 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 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 do you create some kind of a test that would enable you to assess can you overcome that barrier

right is 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 on how much testing you want to

do so coming up with how might we coming up with where to play how to win uh 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 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 uh you know telstra uh 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 or we'd like you to do this big modeling exercise on 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 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 for solving it what would have to be true what are the barriers that's the logical structure yeah 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 how much testing we need that'll determine how long we're willing to take on this and how much we're willing to to spend on it and and companies have kind of different uh 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 water line or above the water line so you 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 water line or did we take one above the above the water line and we can limp back to port and fix it up

and go back out to out to sea so part of it so that is a measure of of of risk part of it is how much is it all or nothing right could you test in 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 that and then learn from uh from that so a lot about it is is trying to figure out ways of of getting answers to your questions and this is where again i'd i like the practice of design

iterative prototyping i just you go out with a prototype and and and test it in the market get feedback improve it and prove it so that so that by the time you have to launch in full you have much more much more data and in insight into how customers are going to react to it so lots of that to me is is you know a skill at figuring out how you enable the world to be to be kind of de-risked for uh for you yeah and and i think that's what that's what clever entrepreneurs uh

do lots of people think of entrepreneurs these are incredibly wild-eyed people who jump off you know tall tall buildings with maybe a parachute and but maybe it was just a knapsack right and and uh that's not my experience uh uh at all um i helped the guy he's he's he's uh passed away now ted rogers is canada's sort of greatest tech entrepreneur in history uh and has built the you know not like telstra right he's built a competitor to bell canada that's now bigger than male canada just did a 28 billion dollar merger to become

the biggest wow is this entrepreneur and and the situation was uh getting the there was a going to be two national uh cellular licenses uh 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 bail canada the the historic monopoly and then the other was up for up for grabs and so here's ted rogers who had already was the uh uh fm radio he he brought fm radio to canada made a made of man cable tv made of mint uh so

he was already rich maybe i'm not sure if he's a billionaire yet but he was probably 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 in whatever 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 sent a millionaire and maybe a billionaire and 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 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 in the in us gigantic enormous uh company uh and sold 10 of the new license for 10 million dollars i remember saying to ted at the time i said head you know if this really takes off you're you're gonna have to buy that back and i shudder to think what you're

gonna have to buy that back for he's like roger like sort of roger you 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 in that 10 million dollars is gonna and it's gonna pay for the to pay for the build out to the initial and kind of network uh uh build out and everything i got nothing no skin left in in this in this game and i have and i have thirty percent uh kind of share like you know

third now down down the third of nine you 90 and sure enough i think he had to buy back that stake from america tech for i think 700 million dollars down the line but yeah rogers just made a 28 billion dollar acquisition of the the third biggest player in the country so i don't know what rogers is worth 20 or 30 billion dollars and the sell your license is probably worth two-thirds of that you know but did ted rogers act like an entrepreneur absolutely not like 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 uh 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 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 strategies and exercises and shortening your odds right if you just randomly went out

and did something let's say there would be 20 20 to one chance that you success succeed if you do strategy well it's let's say it's seven to four uh but is it going to succeed nobody knows the future no but uh and so there's always a risk that the future will not uh you know take shape the way you hoped it would you thought it would uh but if you can if you can shrink the the those odds against you uh then uh then if you do it enough times you will you will succeed and

that's what ted rogers uh did shrunk the odds against him enough and and he you know died with a net worth of 10 billion or 15 billion or or something in his family's now probably worth 20 million and like i look just to take the odds analogy it's um which i like it's the bigger the bet the lower the odds which you want to you know to be um like gambling with yeah like like if it's going to be a massive massive bet you don't want you know like um 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 um so that it's as safe a bit as possible yeah because even if you get a small percentage of it it's better than to to lose half or to lose all yeah though you know that 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 i'm i'm gonna go try this and that's 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 um and in that era if you ask most ceos of big companies you know dow jones 30 kind of like just becoming fortune 500 type companies um they'd be most worried about the competitor who kind of looked like them across this across the street of coming up with something really clever

to outflank them and they 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 uh dreaming up something that's gonna totally disrupt their uh 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

uh that will then disrupt you and kill and kill the big the the big guy right that could be google that that takes all of the advertising that that used to go to whatever time warner or or or or the new york times or whatever and and and so what's happened with the startup culture and the greater amount of financing available for this is there just more more kind of troops kind of just keep coming so you got the big castle and you got a moat around it because you're a big big company yeah but

they just keep they just keep coming and eventually the moat is full of full of dead bodies and they walk over 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 is is 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 and so i think that's 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 out after jp morgan 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's it is successful because at that point they'll say no you know 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 and but then they that could be 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 connect 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 it's the combination of those those two 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 in the past so should a large company then create a department a subsidiary um 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 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 i think it's a way to do it i

mean you're you're you're essentially giving as you 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 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 uh the only way though i mean i think the mainstream of of uh of a company can uh just obey some different rules than they than they have uh historically i think

i think you can do it 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 these players have 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 there are different ways i think of of uh dealing with the the challenge of uh small disruptors okay um so now we have our the options we choose one right and we're gonna go after that one and we've confirmed it it could be a subsidiary like it could be like a board it could be our own our company um 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 i think it's it's to deploy what you said you were gonna you're you're gonna do and then kind of watch and adjust um because so what i say is is that at that point you should take that little 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 up you go back and take that thing that what would have to be true you

stick it to 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 uh not really then you better go through that whole process again um strategy you should be you should be kind of comparing what your 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 is 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 them on the market so that you can get at it uh 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 um so you talk about like to ensure that uh 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 um and that's where planning comes in right now we're planning now yeah yeah so so you should you should have you know if if you are confident you can build the

capabilities confident enough to say we're gonna 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 whom here's how long it's going to take here's the kpis for 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 uh we

can build the capabilities necessary to have this kind of this kind of you know product or service that's an internal internal thing so some of them are external some of them are internal but you that you you have to be checking on those on those things because there's a logical structure to the strategy that has to be 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 my the the first step i would take in 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 i i would 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 then i would very much go back to okay we got to go back to square one and 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 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 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 the that's what a taylor would say yeah so just talking about that then of course and now you know um we have our capabilities and the plan

is in play right um 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 uh chain so it has a it has a a strategy of of giving a different form of

service so many people don't realize this but uh but four seasons izzy's founder is he sharp came to the conclusion that people staying in luxury hotels would rather not be there uh 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 uh and uh 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 our guests that's the capability we need here's the problem the problem is 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 izzy sharp says we can't deliver this kind of service we want that would earn us this great price premium and loyalty that that our strategy needs um doing that so we'll have a management system that is different or management systems that are different than our competitors uh when we hire we 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 a a the general manager of the hotel in question inviolate if a general manager ever hired somebody without interviewing

them you know bellhop and anybody and anything in four seasons they'd just be fired on the spot gone uh kind of that's the management system and when four seasons opens a hotel because there's such great employers they have on average 400 uh jobs to fill in an average hotel obviously there's bigger ones smaller 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 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 season system to get get each one of their 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 five percent so right that that means that that that means 20 new hires per year in that hotel that's no problem yeah that's that's that's that's easy and 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 five percent turnover equals 20 20-year career um 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 that's that's not a big so there that's a 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 and strategy there's all sorts of crazy stupid ass theories and 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 season strategy since the mid 80s okay it's a 40 year

old strategy 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 and shoulders in less 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 uh there nothing about the world has made those those advantages uh fleeting or or or short anyway enough of a rant on that no no no no no no arguments that have that have no basis in fact no 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 um 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 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's it really is it's it is like the plumbing but but you're you know you're very you're very perceptive right which is that yes it's that it's that sort of boring plumbing that often is absolutely at the heart of of competitive advantage uh and and four seasons as a is a good case uh 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 a very once again perceptive it's 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 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 this field of customization and hominess plus sort of the efficiency of being

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 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 uh does and then the person just sort of says well i could speculate with you

or get the real thing at four seasons uh you know do i have idiot written across my face so 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 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 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 um competitors that are trying to knock them down even outside of the airbnb experience you know that was something out completely from the side um absolutely absolutely which is a good example of how you know you can you know you've always got to be got to be kind of watching for for other kinds of competition right when you're the market leader like

four seasons you're probably if as long as you don't get you know lazy and arrogant uh 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 a customer need now the customer need that four seasons meets first and foremost is 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 same travelers who already love love four seasons so they're a little more insulated from airbnb than hilton or marriott or or or whatever i would i would argue but your point is a good one which is competition competition comes in all forms uh and as long as they want your customer you know the fact that they are the fact that they aren't like you does not mean that they can't make your customers happy in a different way than uh than you've made them i am conscious of time so i'm

gonna ask is 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 um how do you measure strategy is it just the um 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 is i i prefer so so i'll i'll answer this late slightly elliptically right the first box in 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 if you if your four seasons and your strategy uh means uh giving the guests an experience that makes up for what they left at home at the office you better have a goal to have customers kind of love your your 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 on that on that being your win so you got to figure out figure out what the strategy requires and have and have goals that are that are consistent with uh with that that having been said i i don't there's not a sort of particular this goal or that goal is is great other than i 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 where you've chosen uh uh 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 for so long why is four seasons successful for i i believe that 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 uh 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 uh with with respect those are all things that that i think make uh 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 uh who say i'd like to 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 it's it's a wonderful wonderful place their suppliers say they say the same things the places in which they operate uh say the same thing the people who own the hotels four seasons just manages them the people who owns them make a lot of money because they treat them with respect that's 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 good

luck to you on that this gets back to this gets back to aristotle my one of my favorite people peter drucker and aristotle are probably my favorite two thinkers in in the history of the world and aristotle way back 2400 years ago you know said that if if a no in those days they only talked about men but yeah this would apply to women as well but he said if a man sets out uh in life to be happy he's not likely to end up happy if instead a man sets uh sets out to lead

a a good life by which he meant sort of a life of servitude uh to his his fellow his fellow uh uh citizens he's likely to end up happy that's what i believe about 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 their only interest in life is creating shareholder value this is not motivational this does not help the company succeed being a a great company being costco right a retailer in the united states who for whom minimum wage is completely irrelevant right they the the lowest paid people at costco make over 20 bucks an hour about 22 dollars an hour when minimum wage and 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 there in the low 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 mccaskill would say easy easy right like i want i want my workers to not be worried about putting food on the table you know paying their paying their uh their 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 being the ceo of of 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 uh 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 having that more expansive view of how does a system work for everybody i think is is the key to having a great strategy i think that's a good point to finish on um because i haven't conscious of time i could keep talking about this um so if there was one thing that you would want the listeners to do like one side one book to look at uh subscribe somewhere uh what should they do um how about three things

if you're interested in in in in the subject here i did write a book with a.g lafley then ceo of png 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 to 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 so do that if you if if you're a

real nerd and after that you want more my medium series so i i i'm writing a series it i'm on my 26th straight week writing a medium piece uh called playing to win practitioners insights that are that are supposed to be for practitioner uh uh some insights on on strategy and just go on medium and and look for playing to win and you'll see you'll see it all they're all linked back to that and if you want steal more just go to my website which is www roger l martin my middle initial is l uh

dot com and there's a whole section on strategy there with probably oh geez there'd be over 100 articles i've written on on strategy uh there and you can just sort of leave through them and see what strikes your fancy so those would be the the things that i would i would say are nice follow-up follow-ups to this um and on that point um 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 um 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 um 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 you've uh

if you really know a lot about strategy and 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 forward slash podcast and if you need help driving growth for your company please get in touch with us at web profits dot io