Strategy & Scale with Roger Martin

Roger Martin (00:00:00):

I think and write a lot about this and it sort of feel more and more like I’m going to go to my deathbed and not having made any headway with my argument. And my argument is I cannot identify something that is this thing called execution that is different from what I think of as the thing called strategy.

Alex Cleanthous (00:00:27):

Hey, this is Alex Cleanthous from the Growth Manifesto Podcast. In today’s episode, we speak with Roger L. Martin. He is the foremost thinker on strategy across the world. He’s the author of the book Playing to Win, how Strategy Really Works and a New Way to Think. And in this episode we talk through the strategy for scaling and what companies need to do to really win in today’s competitive landscape. We touch on strategy and execution and the blurring between the two, and we talk through how to predict the future success of a company without looking at their past performance. So I hope you enjoyed this episode. Make sure to subscribe and let’s get into it. Hey Roger, it’s good to have you back on the podcast. This is our third or fourth one so far.

Roger Martin (00:01:15):

Yeah, I think it is three or four, but it’s always been fun. So if you want me back, I’m always happy to come back.

Alex Cleanthous (00:01:22):

What’s interesting is that the episodes on the YouTube channel are some of the most popular ones, and so the content that you share is very highly valued and I know that my team as well has consumed all your books and the way you think about strategy is fantastic For this conversation today, I want to talk about scale scaling. So the first part is actually are the things which your company needs to achieve scale, and then once you achieve scale, actually how do you maintain it? So with that being said, how do you define scale? Let’s start with that.

Roger Martin (00:01:57):

Well, I mean I’m probably a little old fashioned. I’m a Bruce Henderson fan. The late Bruce Henderson was the founder of BCG, and he sort of was a first, even though it’s sort of a little bit maybe obvious, although many good ideas are obvious after the fact is that he referred to scale the most important dimension of scale being relative market share. So are you bigger than the next biggest company? If you are, your RMS is over one. If somebody else is bigger than you, your RMS is less than one and he sort of identified the downsides of an RMS of less than one, which means that somebody else can use scale against you, their superior scale against you. So I think it’s a good definition as your relative market share next to the biggest player who plays against you. And he would’ve said broadly, not kind of narrowly broadly, but that’s good that scale and the more the better it can be an RMS of Orex better than even 1.5 X.

Alex Cleanthous (00:03:05):

So market share is the factor there. And so as part of your book, and I’ll just show everyone this fantastic book here, you should absolutely be purchasing it if you haven’t. It’s how strategy really works. So it’s all about the where to play and how to win, right? And so the market share is dependent on the where to play, is that right?

Roger Martin (00:03:30):

Yes. I mean you should be thinking carefully about in what territory you’re going to play. And I often find actually that companies make a mistake in viewing it as too big. They’ll say We’re in, I don’t know what pharmaceuticals, and you’re not necessarily really in pharmaceuticals and it’s not at all clear. If you are in the business of again making and telling proprietary drugs that that’s the way to define it, it’s probably more likely that your scale in a given therapeutic area, art or obesity or which is kind of a popular one now or oncology that’s going to be more important to your ability to compete. And this is a mistake that conglomerates made. They said, well, we’re going to be in all sorts of businesses then we be really big. And in each one of them they weren’t big enough. So many of them from it t and the good old days on through to today, they’re getting broken up.

(00:04:48):

What you need to do is from a strategy standpoint is think of a where to play. That’s a legitimate where to play that you can get the biggest share of in that where to play so that you have the ability to define competition in that space. Now if it’s an illusionary where to play, it’s automobiles that start with T, then you may be Toyota and you might have a hundred percent market share or maybe somebody else has got automobiles, well maybe T one and some, but actually it’s not real in the sense that car companies that start with a letter other than T can take your customers. And so that’s a sort of a fake definition and companies will do definitions that become fake. IE were the biggest in America while America was a protected market for some reason. But then when global comes, you realise, oh, it’s market share of the global market.

(00:06:03):

But you have to have, if you will, all strategy since your viewers are interested in strategy, all strategy is about having a theory. You can’t be absolutely right or absolutely wrong. That’ll only be proven over time how right or wrong you are. You have to do theory that says, we think this is a definable market and if we get the biggest piece of that definable market, we’ll be able to set the terms of competition. And that theory might be wrong. The definable market is America. Oops, there are these people called Chinese people and French people and whatever coming into our market. So oops, that theory was wrong, proven wrong over time and we need a better theory of what’s our where to play.

Alex Cleanthous (00:06:48):

So the Boston Consulting Group, the growth share matrix, there’s the stars and the cows, which I think everyone is happy with. So let’s focus on those two for now. Is scaling stars is stars where you’re scaling or essentially is that the goal of scaling is to become a star? So for example, if we choose the right place to play and we figure out actually how to win, is the goal to be a star? Is that what the goal of achieving scale is? To become a star Because now you’re the number one company in a growing market. Is that a requirement or can a star be across any of the four quadrants?

Roger Martin (00:07:33):

Well, it can’t in the sense that they’ve defined a star as being in one quadrant, but you can certainly be a successful company in others. And I think it’s perfectly fine to be the leading market share company in a market that isn’t growing very fast. Now, and this is again, one of the fallacies that I see in companies, and this is one I probably partial to Proctor and Gamble since I’ve worked so long there. Lots of companies think of their industry as having an inherent growth rate. It can only grow this fast. So therefore we can only grow this fast and bless man p and g, that just isn’t the case. They say, well, if it is only growing X and that’s pretty slow, we can still grow our business two x three x five x by taking share from other people in that industry.

(00:08:30):

So don’t use that as an excuse for why we can’t grow. And then why is it growing at 1%? Industries don’t have an inherent growth rate that’s ordained by some higher power. It grows at that rate because that’s how much customers in that industry now feel compelled to spend, right? If you make it more compelling for them to spend more, you can take an that isn’t growing and make it grow more what they would call in p and g category growth. You can produce category growth out of non-growing businesses. If you say it turns out that even though it doesn’t seem like such a big deal, people doing laundry, do not love to have to open at least one bottle, sometimes two or three and pour the exact right dosage into their machine without spilling. And even though we give ’em great bottles that don’t spill easily and all of that, they still don’t like it.

(00:09:25):

Here’s a thought, let’s put it all in one little thing, which we call unit dose, a tide pod or gain fling for their two brands. And then all you do is heve it in. As fling says, you just fling it in. Well, that causes customers to pay 40% more per load for that privilege, 40% more. So was the market ordained by some higher power or only growing at such a rate? No, it was growing at the rate that was consistent with the value that folks felt. So I’m always interested in, so that’s where the gross share matrix was one of the very first tools in the strategy industries. And so it was great, and I love Bruce Anderson, he was awesome, but I don’t subscribe. The minute you say something is the cash cow, right? The high relative market share, low market growth. The minute you say that you create a self-fulfilling prophecy and it will be that. And it doesn’t have to be that in my view.

Alex Cleanthous (00:10:30):

So the world feels like it’s changing a lot and the cycles seem to be going faster and there seems to be more volatility across the markets. Is that what you are seeing across some of the consulting which you’re doing and are the companies that you work with?

Roger Martin (00:10:49):

There’s some, to me it doesn’t feel as sort of ubiquitous and consistent as people make it out to be. Everything’s all Luca now and all that kind of stuff. I think it’s always been kind of vuca. And so people focus on the aspects that make it particularly VUCA today and say, well, that’s different than it’s ever been. So some things kind of are moving faster. So you can set up companies thanks to the outsourcing of so many things, Amazon web services create you all the net infrastructure that you need for your business that fast, whereas it used to take some amount of time. So things like that are going faster, but things like regulatory approval for stuff, there’s no way that’s going faster, that’s going slower. If anything, want to build a runway in America to expand your airport, that’s a minimum. The absolutely fastest that could possibly happen is 12 years. So there are some things that are going faster and some going slower that having been said, I don’t think you’re making a giant mistake by saying, boy, things are going fast. We better be expeditious about whatever we do. But I don’t sort of subscribe to everything has changed kind of view and you didn’t say that, but some people are in the, everything’s changed. It’s not, oh, so that’s why we’ve got to do all these things different.

Alex Cleanthous (00:12:29):

So strategy and execution are kind of still the same, so you still need to pick the where to play and how to win. But what it seems to have changed in the recent times, let’s say 5, 10, 15, 20 years, especially with the internet and social media is the ability for most people to start something and to compete and to innovate is higher than ever, but there’s a lot more of them. So the competition is also higher than ever. And then the companies at the top, are they harder to knock off these days or are they easier to knock off these days? And I ask that just both just from the company that is looking to compete. And then once I become that company, how do I sustain it?

Roger Martin (00:13:12):

So for me it feels situational. Companies that don’t follow the customer and think how can I serve this customer better with each passing year are ripe for disruption. And it is as simple as the physics of it. Again, if your life depended on it and it depended on you hitting a enemy who’s stationary or an enemy who’s running quickly, which would you take if it was absolutely life and death, right? Stationary, right? Well, that’s the same thing for all these startups. If they see something stationary, they’ll say, well, I can at least focus on that and they’re stationary, they’re not moving fast and moving ahead I’ll disrupt them. So for what it’s worth, I do a decent amount of investing in startups in the Canadian financial services space. Why? Because it’s an oligopoly. There’s five big kind of quite self-satisfied banks. They’re good and everything, but they’re quite self-satisfied and they’re not trying to figure out how to move the ball forward for customers. And so I invested and made just crazy returns on an investment in wealth Simple. This company that’s doing robo-investing at a much lower fee than the banks are charging. And the banks are like, I’m not going to stop making money the way I’m making money now just because this is growing and it’s just now. Well, mills growing, growing, growing. One of the big insurance companies there has bought it and it’s scaling like crazy. It’s like fishing in a barrel.

(00:14:52):

So that having been said, it is not as though there are lots of startups that are challenging fast moving companies that are saying, we got to do better. We got to do better. We got to keep innovating. So I always used to say Clay Christensen was a friend and is literally the nicest man I’ve ever met. A great guy. And I always used to say to Clay, disruption isn’t an equal opportunity event. There are companies that set themselves up to be the targets of disruptions and others who cause the potential disruptors to say, I’m going to spend my disruption dollars elsewhere. And that’s essentially what you want to be in the modern economy because if you’re just sitting there, I mean what is I think kind of unarguable is that there is more money around to fund startups than there’s ever been before. And so there will be companies that will come after you.

(00:16:01):

And I say it’s like the Mongol hordes, right? It’s like you can stop 99% of the Mongols from getting inside the gates to your village, but if 1% of the Mongols of the Mongol hoard get inside, you’re all dead. So the problem for a stationary company that’s sort of like a village that’s protected by a wall and not doing anything other than hoping the wall protects them, the Mongol hoards are coming for you and they will get you, even if 99 out of a hundred of the startups has stupid ideas that are going to mount to nothing, there are just a stupid idea that’s going to mount to nothing. The one that gets through can kill you. It’s Amazon that can kill you.

Alex Cleanthous (00:16:48):

And the more people that are starting, and this is I guess the point earlier on, the more likelihood that there’s going to be a success in there. So if there’s a hundred people that are starting, alright, that’s going to be fraction lower. If there’s a hundred thousand people starting it bit lower. If there’s a hundred million people starting, okay, so now there’s going to be a much higher chance that somebody is going to be disrupted. Is that kind of the way to think about it?

Roger Martin (00:17:13):

Exactly. Because often all it needs is one really successful player that has a really great answer. If it’s in payments, all you need is PayPal to come along and say, well, here’s a thought, here’s an idea. If it’s classified advertising, all you need is eBay. And so there can be hoards and hoards of unsuccessful players. And I do think that if you look back and did the statistics on it 50 years ago, there just weren’t going to be that many players that were funded by something other than friends and family. There’s always friends and family. But now there’s this established kind of ought of money that is centred in San Francisco Bay area that says, come here, there from anywhere in the world. If you’ve got an idea, we may just give you money. And again, unlike, and I’ve written about this East coast and west coast capital, I could characterise ’em as East Coast Capital does not tolerate losses, right?

(00:18:23):

East Coast Capital says, please grow. It would be nice if you grew your top line faster than your bottom line. It would be nice if you grew faster than the industry, faster than GDP. But please don’t take any risks. Please, please, please, please, pretty please don’t take any risks. West Coast Capital says, okay, we’re going to invest in 10 of you, five of you are going to expire worthless. We’re not going to get a penny back. A few will get something back or maybe a little bit more, and a couple of them are going to be five baggers to a thousand baggers. And that capital is the nightmare for the companies that are funded by East Coast Capital because East Coast Capital basically says even though they would deny it, the people in charge of East Coast Capital, all the big money managers, the vast majority of the pension fund, they’ll say, oh, no, no, no, we want them to innovate and everything, but when they attempt to innovate and it shows up as a penny off their EPS, they say, well, that’s really problematic.

(00:19:37):

And it’s like, well, what’s more problematic is you will cease to exist because somebody disrupted you. But they’re like, well, it’s not on us, but it is. It is. And that’s the structure of capitalism today. Two different pools of capital with two different goals and one goal is deadly for the others. And East Coast Capital, in my view is not respond, not responded in any way being introspective about what they’re doing with their money and they outsource their thoughts on it to the proxy voting firms, which is one of the biggest jokes in the world. ISS and Glass Lewis, I mean just things that shouldn’t exist in space or time. Those would be near the top of my list.

Alex Cleanthous (00:20:38):

So you mentioned before that you do some investing in startups, and I just want to just quickly jump on that. I’m not going to ask you specifics around the startups unless that’s something that you want to share, but so what do you look for in a company to say, all right, this is a company, and this is especially, it comes from you who wrote the books on strategy, who’s the world’s kind of foremost expert on it, is now going to look at a company and say, that’s a company that I want to put some money behind. Yes. What do you look for? Because that’s the best example of the parts that are important for you specifically.

Roger Martin (00:21:15):

Sure, sure. Well, I eat the dog food. I ask five questions. What’s your winning aspiration? What’s your where to play? What’s your how to win? Your must have capabilities in your enabling management systems? I mean, I literally do that. And yes, I have an odd investment portfolio. My portfolio is cash or cash like things and early stage, nothing in between. Now, part of it is because of the business I’m in, investing in public stocks just as a recipe for getting into conflicts, even if you can give it to somebody to manage and you end up with a bunch of shares in a company that you are consulting to. So part of it is that, but part of it is I don’t have any advantage that because people say, Roger, you’re a strategy guy. You should know what public companies to invest in or not. No, that has nothing to do with what you should invest in or not.

(00:22:12):

What you need to be a successful investor is what be like Warren Buffett, which is to spend a hundred percent of your time in the market. And so the question for investing in a stock is not is it strategy great a public stock? It’s do other people in the market think it’s strategy is greater or worse than you think it is? And the only way to answer that question is for you to know what the other people in the market think about that. That takes enormous amounts of time and being in the market. That’s why insiders just outperform the market like crazy. And all of the people on the outside just get taken to the cleaners because it’s that that’s the Ben Graham from way back. When other people despair, that’s when you invest. So I have no advantage on that. Private companies, you have more advantage because there isn’t a market that’s doing that.

(00:23:10):

And I’m interested in two things, which is the strategy. Can they describe a strategy to me that I think makes sense? So do they have where to play that’s a set of customers that they have a particular way to win with? And is that compelling sounded to me? And do they have capabilities that others would find hard to replicate? Or are they saying, I got an idea, let’s sell pet food online. And I sort of say, well, the capabilities do you have that nobody else has. Oh, I don’t. And so that’s why there are 20 people selling pet food on the internet within a year of the first one doing so. It’s a strategy test and then it’s the person, do I believe in the person? Now you’ve noticed what is not included in that is a detailed analysis of their financials. In fact, I freak out. Lots of people come to me and say, can you invest in my company? And I typically don’t look at their financials. And so they want to take me through their financiers, my financials, and I’m like, I’m not interested. No, no, no. You’ve got to see them. You’ve got to see them and whatever. No, I’m not interested what a

Alex Cleanthous (00:24:28):

Strength conversation that would be for them as well. Yeah,

Roger Martin (00:24:31):

Yeah, yeah. I’m not interested and it’s not because I’m not interested in the company making money. I’m interested in making money, but whether or not they make money has nothing to do with their financial projections because as I always say, who’s in charge of decisions on your expenses? Answer is you. If you’re the CEO, so Alex, the CEO, you’re in charge of your expenses. Who’s in charge of your revenues? Customers, they decide whether they’re going to pull 20 bucks out of their pocket and hand it over to you or not. And so anything on the revenue side of an income statement is made up. It’s completely made up. So why would I care what you’ve made up? And whether that shows up or not, it’s completely a function of your strategy, where to play, how to win management systems capabilities. And I’ll judge on that whether revenues will show up or not. And so looking at your financial productions is like, I don’t care. I

Alex Cleanthous (00:25:49):

Was about to ask that question on projections. Everyone’s so interested in projections so they can forecast the future and it has to be based on past performance. But what you’re saying is past performance is not, it’s not an indicator of future performance, which is all of the disclaimers on every investment ever.

Roger Martin (00:26:06):

But it is in some things though, Alex, and here’s the distinction to

Alex Cleanthous (00:26:10):

Make, please, yes.

Roger Martin (00:26:11):

Okay, so I drop, I let go of this, right? What happens?

Alex Cleanthous (00:26:17):

It falls.

Roger Martin (00:26:18):

It falls. And if we did that for 10 straight years, we’d have past performance pens falling. Actually, that’s a really good predictor of future performance. And that’s because it’s in what my favourite philosopher Aristotle said is the part of the world. He said, there’s two parts of the world. There’s a part of the world where things cannot be other than they are. So he would declare that to be, there’s a universal force called gravity that pushes this down and causes it to accelerate. If it’s in America at 32 feet per second squared, everywhere else in the world, it’s 9.8 metres per second squared. And so we can fairly predict that and make decisions based on that. And so for Honeywell, we can design a really cool system that causes aeroplanes to fall out of the sky in a very organised way that keeps the passengers safe. And we can trust that that will kind of always work. But what he said is that there’s another part of the world, and I use this to illustrate it, right? How many smartphones were there in 1999? Do you know the answer? Zero. Zero,

Alex Cleanthous (00:27:37):

Yeah, I’m pretty sure because I remembered that

Roger Martin (00:27:39):

The first smartphone was a blackberry in 2000, that was 2000. So if we were analysing the past use of smartphones, interest in smartphones, whatever, we would’ve never, I don’t think any human being would’ve been capable of saying in 2024, that would be 5.5 billion of them in the hands of users and aerosol. Describe that as the part of the world where things can be other than they are. And so if you’re going to use past data for the future, you simply have to sit down and ask yourself the question, am I confident that this is a part of the world where things cannot be other than they are? And if so, you have to explain to yourself why that would be. And in this case, it’s universal force gravity. It’s everywhere. It turns out that if you study it, you find out that it’s everywhere, it’s in all continents, blah, blah, blah, blah, blah.

(00:28:38):

But you’d have to be able to say people are always going to be the same way they are. And so people are not going to get to the point where they can’t be more than an arm’s length away from this or they get the hives and they can’t organise their entire life in a completely different way because of this. So that’s why I’m so uninterested in future projections of things like revenues. You don’t know how consumers are going to react to this. You don’t know how competition is going to shake out, so that your idea that was good now will be blase later. Those things are different. So don’t worry about the numbers which are all fake anyway there. And you know what Aristotle said in that part of the world? He said in the part of the world where things cannot be other than they are, use my scientific method.

(00:29:37):

He invented the scientific method. It was formalised 2000 years later by Bacon Newton, Descartes, Galileo. But he said, use my scientific method, which is analyse the past, essentially do experiments, analyse the past to predict the future In the other part of the world, the father of science, the guy who invented science said, do not use my scientific method. Now the world has ignored. They’ve said, oh, your science thing was awesome, Aristotle, we’re not going to listen to you on anything else, and we’re going to apply it to things that you said never apply it to, but great on you. And so he said, in that part of the world, your job as a rigorous thinker is to imagine possibilities, what could happen, alternate paths of what could happen and choose the possibility for which the most compelling argument can be made. So he said, it’s a competing theories situation, not a competing data situation.

(00:30:38):

So have theories. And what he said is essentially the highest order of thinking is your ability to form an argument, make it in a compelling way, listen to other people’s arguments, and come to the conclusion which has the greatest level of validity to you, which is the most compelling to you. And we don’t do that. Now, Steve Jobs did. He spent his entire life imagining possibilities and choosing the one for which the most compelling argument can be made by him. And that was worth 3 trillion. But still we’d sort of say, no, no, no, that’s not the way to do it. The way to do it is to analyse the data and come to the database decision. That’s what you’re taught in business school. That’s what you’re taught in when you get to business. We ignore the guy who invented it. We ignore the practitioners who listen to Aristotle. And because we’re so sure that analysing past data to make decisions about the future is a good idea,

Alex Cleanthous (00:31:39):

Sad

Roger Martin (00:31:40):

Things in the modern world.

Alex Cleanthous (00:31:41):

So what it sounds like is it sounds like what we’re really looking for in companies that can become stars or that are going to scale is a level of innovation. And when you’re looking at innovation, it’s very hard to predict how the market is going to respond. I mean, there’s certain kind of processes in terms of design thinking and so on that you can test it out, but you don’t really know until it goes out into market. And I think is that the area that seems to be the hardest to predict is how an innovation is going to affect a company’s potential. Let’s call income or cash flows.

Roger Martin (00:32:20):

How

Alex Cleanthous (00:32:21):

Do you measure that? How do you measure then? Okay, so now it’s another company. It’s not you who’s doing it, it’s another company doing it, and now you’re looking at their potential innovation of value. How do you assess how good an innovation is?

Roger Martin (00:32:36):

Yeah. Well, again, I ask a question about how to win and must have capabilities. I say, in what way are they producing something that will cause customers who are now doing X to do the Y that they would need for them to be successful? So what is the argument that says they’ll start doing why? And what they might be doing now is not spending on it on anything in that business area, that industry, or they’re spending a lot already on something and you are going to provide something that is dramatically better, but then in that place, so that’s the way to play and the how to win. Then the must have capabilities and the must have capabilities pass. The camp won’t test, which is as soon as it shows up that this is really a successful, where to play, how to win, others won’t be able to just redeploy their assets to beat you. So it’s got to have those elements to it. They’ve targeted a set of customers, they have a way of adding distinct value to them that they’re not receiving today, and they have capabilities that aren’t easily replicable. That would be the heart of my judgement as to whether I’m interested in a company or as a potential investment or not.

Alex Cleanthous (00:34:12):

I like the fact that you invest in companies, and I’m going to keep this kind of story going because I like the application of how you think about it in terms of the investments that are made. So now as a company, you invested in it, it’s succeeding. So if it’s succeeding, it’s going to take a larger percentage of the pie just from the existing kind of market leaders. At some point it will have exhausted the way to play in terms of its size, and now it’s the market leader right Now at the point that it becomes a market leader basically within a smaller segment, it needs to continue to grow. How does a company at that point start to shift from the challenger to the leader? And how does it sustain the growth, right? Because it’s obviously easier to be hungry than to sustain the hunger as soon as all the food’s there. And so now I’m the best, I’m the biggest, I’m whatever. It’s hard to, well, I’ve seen that it’s challenging for companies to maintain that. And obviously all the tech companies are good examples of how a company actually can maintain it. But for everything else that is not a tech company, for example, how do you sustain or transition to hold onto your market share, especially because everyone else is doing the same thing as you, and somehow, so you’ve achieved it, but it’s a constant threat.

Roger Martin (00:35:35):

Yeah, no, I would affirm entirely that what you’re talking about is a kind of a big problem. And lots of companies expire. They get lazy because they are the market leader and the value proposition to customers keeps getting diminished, and that just creates more of an incentive for others to go after them. I mean, I keep thinking about Uber, I don’t know about you, but five years ago I used to assume that if it said six minutes, it would be six minutes. And now for Uber, just like cabs, when CAB said, oh yeah, we’ll be there in 15 minutes, I said, oh, that’s half an hour with Uber. And I would say, oh, they say six. Okay, that’ll be 12. Okay. So it just feels to me as though they’ve stopped delivering on one of the great benefits that got them where they got to, which is certainty, and it’s gone and it feels like they don’t care.

(00:36:48):

They certainly aren’t adjusting to say, oh, and under delivering, let’s stop. No, no, there seems no reaction. So I think the number one thing a company has to do is to keep saying, how can I continue to make customers happier? As with the laundry example I gave earlier, the p and g laundry example, tide’s been number one laundry detergent in America for 77 years, and they’ve gone from big boxes of powder detergent with phosphates in them to no phosphates in them, to compact detergent to liquid detergent to liquid detergent that has bleach and softener in it to pods. That’s the best way to have a good future. That having been said, you can run out of room in your existing industry. And then for me, I think the smartest thing you can do is follow or lead your customers into allied industries. I’m not a big fan of go and buy a company in another industry because that 70% of the time acquisitions fail and fail miserably.

(00:38:10):

And there Apple is a good example. It’s like, well, instead of having a screen size like this, which is my MacBook Pro, you give ’em a littler one like a tablet and how’s about to give them a little weeny teeny one that has a phone in it? And so you’re doing something that is sufficiently similar that you have a right to win when you come up with phone, you’ve had decades of experience in rendering websites on a smart screen. And so while the others are trying to figure out how to do that really well, you’re like, duh, that’s obvious. And so you can utilise the advantage from the existing industries in new industries and further promote your growth. So I’m very much into getting into businesses that your existing customers would like you to be in is the very best. If you can’t do that, get into a business that strongly is something that you’re already good at for a different set of customers. But if you can keep serving your customers better in new areas, that’s the best thing.

Alex Cleanthous (00:39:25):

I like the Amazon example, and I like how Jeff Bezos’s whole approach was essentially all health is innovation, was to make a product basically the cheapest on the market. Everything was all about just to pass on the savings. And it seems that the pricing strategy essentially to achieve scale, to become so cheap that it’s hard to compete is a solid approach to holding onto market share. Is that the right way to think about it? Because oftentimes it’s like, all right, of course I’ll get the market and then I’ll increase prices and then I’ll make more profit. But Amazon says, well expand the market and then I’ll pass on the scale pass onto customers. And it seems like that type of thinking of you are constantly trying to reduce the average order value or whatever so that it becomes harder to compete with because the cheaper it is, the more people are going to buy it essentially. Is that a good approach or think about it?

Roger Martin (00:40:26):

No, it is. It is. And yeah, I always say the best differentiators are really tough on costs so that they don’t have to charge too much for their differentiation and create a price umbrella for other people to sneak under. And I think Amazon has done a good job of that. I mean, I think Amazon is a fantastic company. I have one worry about Amazon and that is that I wish it took what I think of as more of an ecosystem approach. I think Amazon is to too satisfied, if not happy to destroy companies, say companies that supply it to do what you described, forcing those companies to be competitive and get their costs down. But do you have to be as ruthless about it? Do you have to have the European Union fine you for misleading searches, right? Is that necessary at your size to say, we take no responsibility for the ecosystem performing well over the long term. If we can get away with it, we will do.

(00:41:49):

It’s the only thing, and it’s not so much for me, it’s I’m not sort of trying to make some kind of big moral case. I’m just saying I’m not sure it’s as effective. There’s aspects of Alibaba’s strategy that I like better. It feels to me as though there’s a little more explicitly an ecosystem. We have to make sure we have vibrant suppliers who love supplying us, not who supply us gritting their teeth the entire time. And again, if I were investing in public stocks, I’d probably say I think that’s more sustainable over the long run.

Alex Cleanthous (00:42:26):

So they’re focusing on the customer, but they’re focusing the customer essentially above all else. And so what you’re saying is that there are secondary considerations in terms of the other stakeholders that contribute across the success of a company that you don’t want to be negatively affecting them if they’re part of the supply of the stock, right, exactly. And so what they do is they’re a bit too focused on the price to a customer at all other costs, and there’s maybe other considerations there.

Roger Martin (00:42:57):

And lying to the customer is not a good thing either. So they show care to one of the things that customers care about, which is a good price. But customers also want to be treated honestly. And who knows, I mean, maybe they settled cases where they weren’t really, really at fault, but they said it’s easier to pay a couple of billion dollars to make that go away. But it sure as heck sounds to me as though they’ve been found claiming that this was the most searched item when it wasn’t. I don’t know. I mean, you may know more about those cases than I do. I’ve just peripheral interested, but I don’t love that.

Alex Cleanthous (00:43:44):

I think companies actually have a lot of, I think what they do is very hard to uncover, but even their stories about how some companies, I’m not going to mention them, change some of the algorithms so that the advertisers would spend more so they would hit the quarterly earnings. And that’s not good for the advertisers. And so there’s all these different things, especially with tech web, it’s hard to see, but you can see the conflicting priorities between shareholder value and customer service and product delivery and so on. And there’s always this kind of push and pull. But I want to just talk quickly about the blurring of strategy and execution, right? Because again, I want to come back to the investments which you make. And so there’s a strategy, but there’s also the execution and from, I’d just love to know the thinking essentially just behind that. So how does it intersect and how does it overlap and how do you think about it?

Roger Martin (00:44:47):

Well, this is, I think and write a lot about this, and I kind of feel more and more like I’m going to go to my deathbed and not having made any headway with my argument. And my argument is I cannot identify something that is this thing called execution that is different from what I think of as the thing called strategy. So you have to have definitions of these terms to use them. And my definition of strategy, which is probably not different than most, is it’s choices. It’s choices to do some things and not other things. And I would say that everybody would also probably agree with me that you have to make those choices under uncertainty. We don’t know the future competition. We don’t get to make those choices. Not like chess where the other person doesn’t play their pieces and you can go get their king, they do it.

(00:45:52):

And constraints, no company, even the big tech companies that have billions and billions in the bank are completely unconstrained. So I don’t think I get many arguments from people who would say, no, Roger strategy is not making choices to do some things and not other things under uncertainty, constraints and competition. So if we have that definition of strategy, if we’re going to use another word to describe some other activity, it’s got to be pretty meaningfully different. Otherwise, in sort of linguistics generally when two things are the same, we kind of say economise and use one word for them. We don’t call them birds and whatever trops, we call them birds and birds because they’re all birds and they fly around. And then we have subc categorizations of kind of bird, but we still call ’em a bird. We don’t have two kind of names for them.

(00:46:51):

So then what we know execution must not be is making choices to do some things and not other things under uncertainty, constraints and competition. Because otherwise we’d call it strategy. So then I ask, well, what happens when you’re executing? So I hear this from everybody. It’s like you set strategy and then it’s super important. In fact, it’s the most important thing to execute that strategy. So execution can’t be about choices, otherwise it would be a strategy. So I guess it’s choiceless doing. It’s just so obvious what you’re supposed to do based on the strategy. The strategy is defined it so that the person you hand it off to makes no choice whatsoever. So if John Mueller’s, CEO of p and g sets the p and g strategy saying, well, we’re going to win on differentiation and r and d and scale and the like, and our go-to-market capability, that’s our strategy, and it’s going to be in consumer packaged goods delivered through the mass channels.

(00:48:07):

Then presumably he says to Sundar, who runs the laundry business, okay, execute that strategy. And he doesn’t make any decisions. There’s no decisions because it’s just so obvious and clear. He doesn’t say, well, I actually run a bunch of brands Tide and Gain, and we were actually in fabric softeners enhancements and whatever. And I don’t make any choices because John Moeller has set the strategy and my job is to just execute his strategy. And Alex Keith overrunning the beauty business is not saying, I guess I got to figure out how to divvy up my resources between skincare and haircare and Andy Perper and deodorants. And she’s not saying any of that. She’s saying, oh, it’s all clear. I just execute that strategy. That’s all I do. I don’t make any choices. That’s what the execution has to be unless you say execution is doing exactly what strategy did.

(00:49:27):

So Alex, Keith says, oh, okay, I’ve been told I’m beauty. That’s a 20 billion business that’s in a bunch of sub businesses with a whole bunch of billion dollar brands, and I need to make sure I decide how we’re going to win in shampoos and conditioners. We could win this way, this way or this way. And Andy per and deodorants, and I got to figure out how much money to spend in each. And then I get down to Pantene and head and shoulders and whatever, and I got to have my brand manager figure out how we’re going to win and compete in each of those.

(00:50:02):

I think that’s what happens. In fact, I know that’s what happens because I’ve been there and I do that with them. That’s exactly what happens. And so why on earth do we call it execution? And then some people give me this lamo argument that says, well, John Moer is completely unconstrained. He is the CEO. So he’s these unconstrained choices, and we’re going to call that strategy and we are going to call what Alex Keith does execution because it’s constrained by that. And I say, oh, well, we should go and interview John Moeller and see whether he exists under and no constraints.

(00:50:46):

So I think it’s completely useless, destructive distinction. Nobody, by the way believes me, right? I’m alone in the world virtually on this or maybe 10 people because everybody’s wedded to this notion. And I say they’re wedded to the notion because people are incredibly powerfully driven by metaphors. And the metaphor that we use for this is the human body. The brain decides and the body executes. Roger raised your arm, I raised my arm. And so we’ve done that as our metaphor, even though it isn’t close to the truth, I just say strategy happens at every level of the organisation and it’s nested. So if Alex does a strategy that isn’t consistent with John’s strategy, there’ll be hell to pay. She should be dismissed from that job. It has to be nested. John has to explain to Alex why his choices are what they are. He hopefully made them with consulting his business unit presidents, but made those choices and said, now I now commission you, I charter you, is what I call a choice chartering.

(00:52:08):

I charter you to make a set of choices that you think is optimal for how we win in beauty care. That’s consistent with my overall strategy for Proctor and Gamble. And she does that and then charters the choice to shampoos and conditioners the head of shampoos and conditioners and say, you got to go figure out how to win and consistent with what I’m trying to accomplish at beauty. And that person goes to the Pantene brand franchise leader, global brand franchise leader, and says, you got to figure out that. And so it is strategy, it’s done at multiple levels. It has to be carefully nested all the way down. And if we had that conception, we wouldn’t have people bitching, moaning, and complaining about execution. Oh, we don’t get execution. Well, you don’t get execution partially because you call it that and confuse people. And partially because it’s so demeaning. I made the strategy decisions. You’re a choiceless doer, you’re an automaton, you put one foot in front of the next foot and your job will be done. Oh, great. I love that job. It’s not a great job.

Alex Cleanthous (00:53:19):

So it sounds like strategy happens at every level, but the scope of the choices reduces potentially just based on their roles. So it’s not like, here’s what I’ve said, now you do it. All right, cool. So here’s the strategy I have, and here’s the part which you can contribute or the part which you have all the responsibility around, and I’d like you to come up with something similar. And it’s like a cycle. It flows between the two, right? It’s the thinking and doing at the same time. And there’s a kind of feedback loop because there are choices that have to be confirmed or not, and it either performs or not. And oftentimes it does what you think it does. And so then it has to be adjusted.

Roger Martin (00:54:02):

Or as the French philosopher said, it’s turtles all the way down.

Alex Cleanthous (00:54:08):

I think that to Dr. Seuss book as well.

Roger Martin (00:54:10):

Yeah. Oh yeah. It might well be, but it might be an apocryphal story of an old woman in the audience with, I forget which French philosopher. And she says, because she says her theory is that the world is sitting on top of a giant turtle. And the French philosopher says, ah, miss thinking he’s got her now. What’s that turtle standing on? And she says, oh, the back of another turtle. And then he says, oh, now I’ve got her, I got her, I got her. And what’s that turtle standing on? And she says, professor, it’s turtles all the way down. So I just sort of think of that, and I think business world would be a better place if we just got rid of the notion that there are people who do strategy and people who execute. And I think some of the greatest companies on the face of the planet understand that Four Seasons understands that they understand that a bellhop has to make strategic decisions, and a customer comes racing in and gets out of their car and says, I got to get to this meeting right away.

(00:55:21):

Can you just make this problem go away? They have to decide whether it’s a jerk and isn’t he actually even staying at the hotel and whatever? Or if that’s an important customer who we just got to do that, make that problem go away, and we will be justly rewarded if that decision isn’t made. Well, four Seasons doesn’t have its legendary reputation for service. And so they understand that you can’t tell people to be and follow the rule book, right? The rule says do this and don’t do that. No, the rule says, I mean, it’s like Pirates of the Caribbean. No, we don’t think of them as rules. We think of them as guidelines line. I always like that they have guidelines. They have a theory of what Four Seasons stands for and how that should be manifested in their choices. And they have lots of latitude for choices, and that’s why they have a 33% average revenue per room night premium over their next closest competitor.

(00:56:25):

It is because they understand that. And I also think, and again, I may be too much of a proctor file, but there was a recent article in the Cincinnati acquirer that had done the numbers and said, 10% of Fortune 500 CEOs are proctor graduates, 10%, sorry, the s and p 500, 10% of the s and p 500, the 500 largest market cap are from one company. How can that be? Literally? Literally. It’s almost inconceivable. How can that be? In my view, how it can be is that there are 30 now-ish billion dollar brands in the company way down the hierarchy. Pantene is below Shampoos and conditioners, which is below Beauty care, which is below CEO. And it’s always been just so obvious that that person has to make huge and important strategy decisions on where to play, how to win capabilities management system for Pantene. And they’re different than the guy or gal who’s sitting in the next office, who’s the head and shoulders one. It’s a completely different set of choices. And I believe there are so many CEOs is because there’s a view that at that level strategy is incredibly important, whereas in many other companies, they’re executing. And so they had the freedom to think and get great at their craft and all of that sort of thing.

Alex Cleanthous (00:58:05):

So would you say that a good thing for companies to do is to train people across their organisation in strategic thinking, in strategy development, and obviously to read your books because they’re the best way doing it? Yes,

Roger Martin (00:58:18):

Absolutely. Read the books, read my, and this is

Alex Cleanthous (00:58:21):

It does people understand it as well because it does help people understand how to think about it. And when you understand how to think, it changes the things that, it changes what you do if you understand how to think. And I think that’s the biggest. Absolutely.

Roger Martin (00:58:35):

Absolutely. And I think, yeah, too much of, not to sound like an old foggie, but it feels like too much of the modern world is sort of automatic. It’s people not thinking about what they’re doing. And I just think people are happier when they’re thinking. There is a reason why everybody in the hotel industry wants to work at Four Seasons because the Four Seasons people are happy having that agency, that personal agency that I make a decision, I am a waitress in the hotel restaurant and I dump soup on a customer and I make the decision to have a bottle of champagne delivered to their room with a note of apology. I’m a frigging server. But I have that sort of sense of agency I think makes a big difference as opposed to, I have a rule book that says, put one foot in front of the next foot, and it’s Charlie Chaplin. It’s modern times. Charlie Chaplin was more right than wrong. It is present. That’s a long time ago. That’s a hundred years ago. But he saw in my view, the soul destroying aspect of Choiceless doing, which is what execution must be.

Alex Cleanthous (00:59:54):

Something I’ll have said over the years is thinking is the one thing that the population does the least. If you look at a company, a lot of people just do, and not many people will just take half an hour to sit down at the beginning of the day and just think about their day. Just think about how you could make the day better, just have a set of choices again, like strategy of what you were going to do. And if you just spend 20 minutes, 10 minutes, 15 minutes, half an hour thinking, but actively thinking the whole day changes, the whole day becomes 10 times more productive because it’s a thought. And I think the conversation, I think you’re right, has led to this point here where strategic thinking, it gives you the process of how to think about it, but then you still have to do the thinking. And I think if people thought more better outcomes,

Roger Martin (01:00:40):

And I think that’s a good insight, you should write about it. And I would even go further to say that I think that there are a lot of people who conduct their lives in a way to prevent themselves from being in a position where they’ve got nothing to do so that they have to think, right? This is why many people, many people would be terrified by the prospect of being alone in a canoe on a lake at night watching the stars because they’d be forced to contemplate the universe. But if they can keep themselves busy from morning till light, I mean one of the CEOs of one of the very biggest companies I ever worked for who got sacked, and I should have, if you looked at his calendar and he got sacked, he got sacked explicitly for not being able to tell the board what his long-term strategy was.

(01:01:42):

And that required thinking. And so he filled up his schedule. If you looked at his diary from 7:00 AM to 7:00 PM every day full of meetings, back to back, to back, to back, to back, to back to back. And it was partially, I think to be able to go to the board and say, I’m working as hard as I can and I just don’t have time for this strategy thing. I know you want it. I’ll get to it at some point. But he needed an excuse not to think, and his excuse was to essentially make sure he had no time to do such a thing. That’s sort of sad, I think.

Alex Cleanthous (01:02:22):

Well, this is something I say a fair amount of time, just especially just to the people in my team. It’s like the person who’s the busiest person who’s just started. Why? Because they dunno how to prioritise and they don’t know how to make space to think about the things that are important. So the mark of someone who’s truly experienced and who’s truly exceptional is that they know how to make space to think, and then they choose the right things to do so they get a higher return on their time than other people. And so that ability to make space to think is critical in having the most amount of impact in the world. And I think also nobody cares how you feel about something in business. It’s obviously something that’s important just for HR and so on, but at the end of the day, it’s what you produce and strategic thinking and how to think is critical at every stage. And I think it does kind of answer a lot of the issues around conflicting priorities and so on. So I really like that kind of thinking as well.

Roger Martin (01:03:23):

No, again, I think you are right. And I would argue whatever success I’ve had in part comes from that, did more of that even when I was a monitor company than others. And I think they often ask, well, why is he thinking about how we should help clients think about strategy, not just doing it. She should just be doing it. And that’s how I created the model. It now monitor, it’s monitor. Deloitte still used 30 years later is the model from Plane to Win, and it saved hundreds of thousands or hundred thousand, maybe a million person hours of people not starting from scratch, but having a model. Well, that’s the product of carving out enough time to think. And it’s the same for my medium column. I carve out the time to write one 1500 to 2000 word piece every week and have for the last three and a half years, people would say that possible. Well, you have to allocate that priority to it, which could they do?

Alex Cleanthous (01:04:37):

Yeah. And I think also the first part is that you thought about it and you thought, all right, this is an important part and I need to be consistent with it, and I need to make space for it, and I’ve got all this other time. And so now you’re making strategic choices of how to spend your time just with a potential future goal. And it’s exactly what’s inside your books, and it’s exactly the conversation that we’ve been having, which is great. I’m conscious of time. I really appreciate this conversation. I could keep talking to you for so many hours, so I might get you on again in the future, but just be clear. Yes. Where can people potentially just find you and subscribe to you and just get more information about you?

Roger Martin (01:05:13):

Sure. Well, I mean, I’m on limited social media, but I’m on LinkedIn and I’m on whatever Twitter slash x, and I now write this regular column on Medium. And I also have a website, www roger l martin.com. Remember the middle initial, or you’ll get a really nice real estate guy in Houston who always sends me things that are rooted to him or on LinkedIn, and he’s so nice, so I send him my books, but I try to make sure people don’t bother ’em overly. So www roger l martin.com

Alex Cleanthous (01:05:58):

And I’ll put all the links in the show notes. Roger, as usual, it’s a pleasure to speak with you. You’re a fountain of knowledge. I’ve got so much more things that I’d like to ask you, so definitely. Yeah, it’s something that we should do again, but thank you so much for coming. We should

Roger Martin (01:06:13):

You do an awesome job about in creating a conversation. This is what I like. I like a conversation that kind of flows, and you do an awesome job at it. So I’d be happy to come back again.

Alex Cleanthous (01:06:22):

I really appreciate that. Thank you so much, Roger.

Roger Martin (01:06:25):

Not at all.

Alex Cleanthous (01:06:27):

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 growth manifesto.com/podcast. And if you need help driving growth for your company, please get in touch with [email protected].