FAC­ULTY FO­CUS

Rotman Management Magazine - - CONTENTS -

Roger Martin

know that I have THOSE WHO KNOW ME WELL a love/hate re­la­tion­ship with all things strate­gic. On the one hand, I hate ‘strate­gic plan­ning’ and tra­di­tional strate­gic plans; but on the other, I ab­so­lutely love strat­egy. At heart, I’m a ‘strat­egy guy’, but the prac­tices in­volved in strate­gic plan­ning leave me cold — and the rea­son is, the typ­i­cal strate­gic plan isn’t ter­ri­bly use­ful.

Most strate­gic plans have three sec­tions. The first is some lofty vi­sion or mis­sion state­ment, and the mid­dle sec­tion tends to be a list of ini­tia­tives: ‘Here are a bunch of things we’re go­ing to do’. Some­times that’s good, be­cause it is ac­tion-ori­en­tated, but if you look at most strate­gic plans — at least the ones I’ve seen — you can al­most see how the list of ini­tia­tives came to be. There is a lit­tle bit in there for mar­ket­ing and a lit­tle bit for man­u­fac­tur­ing and a lit­tle bit for fi­nance; it is ba­si­cally a list of com­pro­mises that were made by a bunch of peo­ple sit­ting around a ta­ble say­ing, ‘We want to do this’, and ‘We want to do that’. Then lastly, there are the fi­nan­cials, which I of­ten re­fer to as ‘a bud­get writ­ten in prose’. I don’t find any of this very help­ful in terms of lay­ing out the key choices that a firm needs to make.

The sec­ond as­pect of strate­gic plan­ning that I’m not nuts about is that it is so cost-driven. If you think about a typ­i­cal in­come state­ment, it in­di­cates rev­enues and then there are a bunch of cat­e­gories and ex­penses, cost of goods sold, R&D and de­pre­ci­a­tion, to get your profit-be­fore-taxes, and then taxes and net profit. Be­cause all of these cat­e­gories ap­pear on one state­ment, they are im­plic­itly thought of as ‘one thing’. But if you break it down, you come to re­al­ize some- thing very im­por­tant: Some of these items are com­pletely within the com­pany’s con­trol, while oth­ers are not — at all.

Ex­penses are com­pletely within a com­pany’s con­trol. A firm can de­cide ex­actly how much in the way of raw ma­te­ri­als to pur­chase, how many peo­ple to hire, how many square feet of of­fice space or man­u­fac­tur­ing space they need; all of those are com­pletely within the com­pany’s con­trol, so you can ac­tu­ally plan for these things. On the other hand, sales tar­gets are en­tirely de­pen­dent upon cus­tomers. You can hope for fu­ture sales. You can say, ‘We want to hit one bil­lion dol­lars in sales this year’, or $10 bil­lion — as much as you want; but that is not go­ing to make it hap­pen.

The prob­lem is, these ‘two sides’ of the in­come state­ment are treated sim­i­larly, as if we can plan for sales and ex­penses in the same way. But in re­al­ity, you can’t. Sales will come from mak­ing choices that com­pel cus­tomers to want to buy your prod­ucts. Yet we never see any men­tion of that in any strate­gic plan.

The last thing I’m not nuts about is the pop­u­lar­ity of a cou­ple of self-ref­er­en­tial frame­works for ‘do­ing’ strat­egy. One is ‘emer­gent strat­egy’. Henry Mintzberg — one of the finest man­age­ment schol­ars of all time — came up with the no­tion that strat­egy is more ‘emer­gent’ than we might like to think. What he ob­served was that with strat­egy, com­pa­nies may think that they’re go­ing to pre­dict and or­ga­nize the fu­ture, but of­ten, when you look back­wards, your ac­tual strat­egy changed and shifted, based on emer­gent con­di­tions in the mar­ket­place. This is a great in­sight.

Un­for­tu­nately, some strate­gic plan­ners have taken it to mean that ‘You shouldn’t bother plan­ning ahead’. That is not what Mintzberg meant, and it is an un­help­ful view of

the world. What he meant is that the world will for­ever be emer­gent, and as a re­sult, wait­ing un­til ‘what to do next’ be­comes crys­tal clear is like wait­ing for Godot. He will never show up. You have to make some choices.

The sec­ond the­ory that causes a lot of con­fu­sion is the re­source-based view of the firm that is cur­rently pop­u­lar among strat­egy schol­ars. This the­ory fo­cuses on ca­pa­bil­i­ties rather than cus­tomer-driven in­vest­ment. Sim­ply put, you iden­tify your ca­pa­bil­i­ties and say, ‘Hope­fully they are valu­able, rare and non-sub­sti­tutable, and there­fore we will be suc­cess­ful’. This mind­set makes it easy to think about in­vest­ing in ca­pa­bil­i­ties; but a ca­pa­bil­ity is only use­ful to the ex­tent that cus­tomers value it, and as a re­sult, this is un­help­ful.

It might make lead­ers feel very com­fort­able to be­lieve that they can or­ga­nize ev­ery­thing to their lik­ing and plan for fu­ture rev­enue. It feels good to think, ‘If we build re­sources, good things will hap­pen’ and ‘If we have a long-term strate­gic plan, we have a good strat­egy’. But in my ex­pe­ri­ence, that’s not how it works.

The first thing to keep in mind about strat­egy is that it is not all that com­plex. You should keep it sim­ple and al­ways re­mem­ber that, put sim­ply, strat­egy is about choices. Af­ter years of work­ing closely with lead­ers of large cor­po­ra­tions, I have come to the con­clu­sion that strat­egy is ac­tu­ally about a set of five choices that must be made:

1. What is our win­ning as­pi­ra­tion?

2. Where will we play?

3. How will we win?

4. What ca­pa­bil­i­ties must be in place?

5. What man­age­ment sys­tems are re­quired?

The very core of any strat­egy is the world of ques­tion #3 — the ‘how to win’ choices: Where are you go­ing to place your­self on the play­ing field, and how are you go­ing to win there? An­swer­ing that ques­tion is the hard­est part of strat­egy.

You don’t need a 100-page strate­gic plan. In fact, there is no good rea­son why your strat­egy can’t be writ­ten on one page. No amount of num­ber crunch­ing and fore­cast­ing will help if you don’t make these five choices. Only by mak­ing them will cus­tomers find them­selves com­pelled to give you their money; and if they don’t do that, you’ve got noth­ing.

My most im­por­tant rule around the five choices is this: If the op­po­site of your choice is patently stupid, then it isn’t a valu­able choice at all. For in­stance, if your choice is to ‘be cus­tomer-cen­tric’, the op­po­site of that would be to ‘ig­nore cus­tomers en­tirely’ — which is un­ques­tion­ably stupid. All you’ve re­ally done is made a choice to be non-stupid, and that is never a use­ful strat­egy choice.

How­ever, if you say, ‘We are go­ing to de­fine cus­tomer ser­vice in a new way that is en­tirely dif­fer­ent from our com­peti­tors, be­cause we be­lieve that an im­por­tant seg­ment of cus­tomers care very much about that’ — that is a real choice.

My sec­ond take­away is that strat­egy is not about per­fec­tion. It is not meant to be an an­a­lyt­i­cal ex­er­cise that gets you the facts, so that once you’ve an­a­lyzed ‘what is true’, you just have to do X and you will be suc­cess­ful. Strat­egy is about the fu­ture, and the fu­ture is never go­ing to be ex­actly the same as the past. That’s why you’ve got to com­bine an­a­lyt­i­cal rigour with creativ­ity to get to the best pos­si­ble answer.

Of course, there are still parts of the world where, as Aris­to­tle said 2,500 years ago, ‘things can­not be other than they are’. In these cases, it is true that the strate­gist’s job is only to an­a­lyze, be­cause things are not go­ing to be any dif­fer­ent next year than they are to­day. Wa­ter will con­tinue to flow down­hill — for­ever. You can make choices with cer­tainty when they are based on things that you know to be 100 per cent true.

How­ever, there is a whole other part of the world where things can — and likely will be — other than they cur­rently are. If you look around to­day, many of us are at­tached at the hip to our smart­phones. And yet, prior to 1999, there was no such thing. This is a prime ex­am­ple of the part of the world where things can be other than they are, and in this part of the world, you can­not an­a­lyze your way to a per­fect answer. You can’t say, ‘We have done the anal­y­sis, and we have come up with the right answer’.

What you can do is imag­ine pos­si­bil­i­ties and make choices that you be­lieve to be the most com­pelling you can make. Some­times you will be right, and some­times you will be wrong. That is the na­ture of strat­egy, be­cause that is the na­ture of life. If you in­sist on per­fect plan­ning, you are

Wait­ing un­til ‘what to do next’ be­comes crys­tal clear is like wait­ing for Godot.

de­lud­ing your­self into think­ing that the fu­ture will be the same as the past. Sadly, in my ex­pe­ri­ence, this is a mis­take that many com­pa­nies make.

My third take­away prin­ci­ple is to al­ways make your strate­gic logic ex­plicit. When you are look­ing at a few par­tic­u­lar pos­si­bil­i­ties, rather than ask­ing, ‘Which is most true?’, you should ask, ‘What would have to be true about the world in or­der for this to be a great idea?’ That is how to make your logic ex­plicit.

Anal­y­sis is all about ap­ply­ing facts or data to logic, and peo­ple of­ten think of strat­egy as be­ing mostly an­a­lyt­i­cal. But when they do, they of­ten for­get about test­ing their un­der­ly­ing logic. The chal­lenge is to fig­ure out ‘What 10 things must be true for this strat­egy to be a great one?’ Your an­swers might be things like, ‘Cus­tomers will have to be­have this way; the distri­bu­tion chan­nel will have to value X; com­peti­tors will have to not do Y’, etc.

Once you’ve com­pleted this ex­er­cise, you can then fig­ure out which of the things that ‘have to be true’ are the most wor­ri­some, and fig­ure out how to ad­dress them. How can you make it true that cus­tomers will value your prod­uct? Well, you could go out and work di­rectly with them, give them more in­for­ma­tion about the ben­e­fits, gather more data, etc.

One of my favourite as­sign­ments ever was work­ing with Her­man Miller when it launched the Aeron chair, which changed of­fice chairs for­ever. Ini­tially, when shown the chair, peo­ple hated it. The is­sue was, with its mesh back­ing and prom­i­nent ad­just­ment knobs, it didn’t re­ally look like a chair. The com­pany’s lead­ers re­al­ized that it was up to them to teach peo­ple to love this chair. And they did. It went on to be­come the best-selling of­fice chair in his­tory, and that came from ask­ing, ‘What would have to be true?’, and then fig­ur­ing out how to make it true.

So, stop aim­ing for per­fec­tion and cre­at­ing long strate­gic doc­u­ments, and fo­cus in­stead on the few key choices you need to make. Don’t try to be per­fect in a world where per­fec­tion is im­pos­si­ble. And ask the ques­tion, ‘What would have to be true?’ rather than ‘What is true?’. When you so these things, strat­egy is what it should be: sim­ple, en­joy­able and ef­fec­tive, rather than com­pli­cated, ar­du­ous and in­ef­fec­tive. Ranked #1 on the Thinkers50 list of the world’s most in­flu­en­tial man­age­ment thinkers, Roger L. Martin is the Premier’s Re­search Chair in Pro­duc­tiv­ity and Com­pet­i­tive­ness and Aca­demic Direc­tor of the Martin Pros­per­ity In­sti­tute at the Rot­man School of Man­age­ment. The former Dean of the Rot­man School (from 1998 through 2013), he is the au­thor of sev­eral best selling books, most re­cently, Cre­at­ing Great Choices: A Leader’s Guide to In­te­gra­tive Think­ing (Har­vard Busi­ness Re­view Press, 2017), co-au­thored with Jen­nifer Riel.

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