Are You Playing to Win?

Named as one of the top management thinkers in the world, Roger Martin, the Dean of the Rotman School of Management in Toronto, talks about why so few of us understand good strategy and what we can do about it. Martin has written eight books, including his latest, which he co-wrote with A.G. Lafley (former CEO of Proctor &Gamble): Playing to Win –How Strategy Really Works(Harvard Business Review Press, 2013). Martin also contributes regularly to Harvard Business Review, the Financial Times and the Washington Post. He advises CEOs around the globe on strategy, design, innovation and integrative thinking. 

Q. Given all of your work over the years with leaders and organizations, what do you think makes a successful leader?

A. Good leaders recognize they have to make choices. Unfortunately many leaders take a wait and see approach to strategy, hoping that and when things become clear, they will make the choices they need to. But if things aren’t clear now, chances are they won’t be tomorrow. The great leaders that I’ve met say: “Yes there is uncertainty” and “Yes it is a complicated world,” but we have to take that and make choices. And that willingness to choose, and the recognition that you have to, is the cornerstone of great leadership. 

Q. Why is it that leaders have so much difficulty making choices? What’s holding them back?

A. Mostly it is fear of being wrong. So many people grow up in a culture that says you have to get an A+ on everything. So, leaders often want to be perfect. It is difficult to face up to the fact that they have to make strategic bets – some of which are not going to pay off.

Q. You recently wrote a blog about strategy versus planning? What’s the difference?

A. A lot of people like to plan because plans tend to be long lists of things we want to do. Planning absolves them from the need to choose implicitly. Strategy is all about choices and giving the rationale for your choice. 

Q. In the executive search business, it seems the hardest quality to find in senior leaders is strategic thinking. Is this consistent with what you see?

A. I think this concern is right. I would say only 10-15% of all chief executives I have ever met in my life know anything useful about strategy. And I underscore “useful.” They may have read a book about strategy, but that doesn’t mean they understand it. 

Q. That is a bit shocking. Why do you think the ability to do strategy is so rare in today’s leaders?

A. I would put the blame on two institutions – the first is an MBA education. The strategy that is generally taught in business schools mainly involves teaching concepts. So if a CEO says, “My business is losing market share and my profitability is going down,” using strategy concepts such as profit from the core, Blue Ocean and core competencies management will not provide the thinking process for getting you from a crummy strategy to one that works. You need an “end to end” approach. 

The second problem is a group of people called strategy consultants (of which I was one for many years). The vast majority of these consultants don’t actually want their clients to really understand how to do strategy. So leaders are left in the dark. 

Q. Are there people who are naturally good at strategy or is it mostly learned?

A. I do think that there are people who, for some reason, are good at strategy whether they even know what it is or not. Many entrepreneurs are great strategists. For instance, my father built the biggest animal feed manufacturing company in Ontario. When I asked him why he built a multi-million dollar, truck-cleaning facility when he wouldn’t spend the money to have his own office, he told me that every time a clean, well-maintained truck came down a farmer’s driveway, it gave the farmer confidence that my father’s company would always deliver. My dad understood, in intense detail, how the customer thought about their business, and how his company could meet their needs. This is strategy. 

Q. What about the 85% of leaders who are running organizations without a compelling strategy. How can they become more strategic?

A. Leaders need to practice being strategic. Start by writing down your key assumptions such as “I am doing this because I believe customers want and care about x, and my competitors won’t do y, and I can build the capabilities to z.” This way you can watch and see if your assumptions turn out to be true. If they are not true then you need to modify. Ask yourself, “What was my pattern of thinking that made me think that customers wanted x and they turned out not to?”You likely won’t get that perfect either, but you’ll start to learn. 

Q. If strategy is set by the CEO, then how can executives who are not in the C-suite influence strategy?

A. I think it is unhelpful to describe strategy as something that happens at the top and then the rest of the company executes. At the top there is a CEO responsible for making a certain set of choices, but under that person there is an EVP of a division or a head of marketing that also needs to make choices – asking where should we play and where can we win?

Q. So aren’t you really saying that good strategy is constantly thinking about and understanding why you are doing the things you are doing?

That is a very good insight. There is not a question I ever asked my Dad that he didn’t have an answer for why he did what he did. Everything was very conscious. It doesn’t mean it’s all going to be right, but it’s all very conscious.

Why CEOs Don't Focus On People - Even If They Say It's Important

Erika Andersen,  

I often lament the state of people management and leadership in the world today, and note how important it is to the future of business for executives to be better at leading and managing. And you may have heard me opine that poor management and leadership are a key factor in both the exodus of top talent and the failure to build successful companies.

And I often wonder aloud why executives aren’t better managers and leaders, given all the data that shows the connection between engaged employees and great business results.

This morning I got some insight. A post here on Forbes by Susan Adams discusses a new study, conducted by two groups at Stanford Graduate School and the Miles Group, a New York-based consulting company. I was so fascinated by the results that I went to the study itself to investigate further.

The study polled over 160 CEOs and directors of North American public and private companies, focusing on what they saw as the CEOs’ strengths and weaknesses, and asking what measures and weighting the boards used in evaluating the CEOs.

I wasn’t at all surprised by the strengths and weaknesses. Boards (and the CEOs themselves) say that the CEOs are excellent at “decision-making” and “planning,” for instance, and not so good at things like “mentoring and development skills,” “board engagement,” “listening,” and “conflict management.”  Sadly, that’s what I would have expected.

As I read further, however, I had my ‘ah-ha.’  It turns out that there’s a big gap between what boards are actually requiring of their CEOS, and what they think they’re requiring.

That is, while a large majority of board members believe their evaluation of their CEO is balanced between financial and non-financial metrics, it’s simply not true.  For example, the survey found that, on average, a CEO’s performance in the areas of talent development and succession planning was given only a 5% weighting, and only a 2.5% weighting was given to employee satisfaction/turnover. The most heavily weighted metrics were in accounting, operating, and stock price.  The study also found that supposedly important measures like product service and quality, customer service, workplace safety, and innovation aren’t included in more than 95% of CEO evaluations.

Something I’ve learned over the years about us human beings: if you want people to behave in certain ways, you have to make them feel those behaviors are easy, rewarding, and normal.  That is, they have to believe they know how to do the behavior and nothing will get in the way of them doing it (easy), that it will give them something they value (rewarding), and that their peers and/or people they admire do it (normal).

Given this, it makes sense that CEOs don’t focus enough on building a committed, engaged workforce, on creating great customer service, or on innovation: their boards are making it not-easy, not-normal, and definitely not-rewarding to do so.

If boards are giving lip service to the importance of leading and managing well – but are actually only holding CEOs accountable for stock price and growth metrics, then most CEOs will continue to drive financial value for the short-term, in ways that may not be sustainable.  They will read all the data that shows how employee engagement is a key (perhaps the key) driver of performance – nod sagely and agree…and then continue to behave as they’re being required and rewarded to behave by their boards.

Here’s one thing we can do to change this: if you’re a stockholder in a public company, write to your board and let them know how you’d like them to evaluate the CEO: that you’d like that person – and his or her team – held accountable for both great financial results, and how they achieve them.

I’d love any other ideas you have about how to change this state of affairs…
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Check out Erika Andersen’s latest book, Leading So People Will Follow, and discover how to be a followable leader. Booklist called it “a book to read more than once and to consult many times.”

What Is the Theory of Your Firm?

by Todd Zenger

Photography: Courtesy of Pace Gallery

Artwork:Tara Donovan,Untitled, 2008, polyester film

If asked to define strategy, most executives would probably come up with something like this: Strategy involves discovering and targeting attractive markets and then crafting positions that deliver sustained competitive advantage in them. Companies achieve these positions by configuring and arranging resources and activities to provide either unique value to customers or common value at a uniquely low cost. This view of strategy as position remains central in business school curricula around the globe: Valuable positions, protected from imitation and appropriation, provide sustained profit streams.

Unfortunately, investors don’t reward senior managers for simply occupying and defending positions. Equity markets are full of companies with powerful positions and sluggish stock prices. The retail giant Walmart is a case in point. Few people would dispute that it remains a remarkable firm. Its early focus on building a regionally dense network of stores in small towns delivered a strong positional advantage. Complementary choices regarding advertising, pricing, and information technology all continue to support its low-cost and flexibly merchandised stores.
 
Despite this strong position and a successful strategic rollout, Walmart’s equity price has seen little growth for most of the past 12 or 13 years. That’s because the ongoing rollout was anticipated long ago, and investors seek evidence of newly discovered value—value of compounding magnitude. Merely sustaining prior financial returns, even if they are outstanding, does not significantly increase share price; tomorrow’s positive surprises must be worth more than yesterday’s.

Not surprisingly, I consistently advise MBA students that if they’re confronted with a choice between leading a poorly run company and leading a well-run one, they should choose the former. Imagine assuming the reins of GE from Jack Welch in September 2001 with shareholders’ having enjoyed a 40-fold increase in value over the prior two decades. The expectations baked into the share price of a company like that are daunting, to say the least.
 
To make matters worse, attempts to grow often undermine a company’s current market position. As Michael Porter, the leading proponent of strategy as positioning, has argued, “Efforts to grow blur uniqueness, create compromises, reduce fit, and ultimately undermine competitive advantage. In fact, the growth imperative is hazardous to strategy.” Quite simply, the logic of this perspective not only provides little guidance about how to sustain value creation but also discourages growth that might in any way move a company away from its current strategic position. Though it recognizes the dilemma, it offers no real advice beyond “Dig in.”

Essentially, a leader’s most vexing strategic challenge is not how to obtain or sustain competitive advantage—which has been the field of strategy’s primary focus—but, rather, how to keep finding new, unexpected ways to create value. In the following pages I offer what I call the corporate theory, which reveals how a given company can continue to create value. It is more than a strategy, more than a map to a position—it is a guide to the selection of strategies. The better its theory, the more successful an organization will be at recognizing and composing strategic choices that fuel sustained growth in value.

The Greatest Theory Ever Told 
Value creation in all realms, from product development to strategy, involves recombining a large number of existing elements. But picking the right combinations out of a vast array is like being a blind explorer on a rugged mountain range. The strategist cannot see the topography of the surrounding landscape—the true value of various combinations. All he or she can do is try to imagine what it is like. 

Todd Zenger is the Robert and Barbara Frick Professor of Business Strategy at Washington University in St. Louis’s Olin Business School.