September 16, 2024 • 9 mins
A comprehensive plan—with goals, initiatives, and budgets–is comforting. But starting with a plan is a terrible way to make strategy. Roger Martin, former dean of the Rotman School of Management at the University of Toronto and one of the world’s leading thinkers on strategy, says developing strategy means going outside an organization’s comfort zone and escaping the common traps of strategic planning.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This thing called planning has been around for a long
long time. People would plan out the activities they're going
to engage in. More recently has been a discipline called strategy.
People have put those two things together to call something
strategic planning. Unfortunately, those things are not the same strategy
(00:23):
and planning, So just putting them together and calling it
strategic planning doesn't help. What most strategic planning is in
the world of business has nothing to do with strategy.
It's got the word, but it's not. It's a set
of activities that the company says it's going to do.
We're going to improve customer experience, we're going to open
(00:44):
this new plant, we're going to start a new talent
development program. A whole list of them, and they all
sound good, but the results of all of those are
not going to make the company happy because they didn't
have a strategy. So what's a strategy. A strategy is
(01:05):
an integrative set of choices that positions you on a
playing field of your choice in a way that you win.
So there's a theory. Strategy has a theory. Here's why
we should be on this playing field not this other one,
and here's how on that playing field. We're going to
be better than anybody else at serving the customers on
(01:29):
that playing field. That theory has to be coherent, it
has to be doable. You have to be able to
translate that into actions for it to be a great strategy.
Planning does not have to have any such coherence, and
it typically is what people in manufacturing want the few things.
They want to build a new plant, and the marketing
(01:50):
people want to launch a new brand, and the talent
people want to hire more people. That tends to be
a list that has no internal coherence to it and
no specification of a way that that is going to
accomplish collectively some goal for the company. See, planning is
(02:11):
quite comforting. Plans typically have to do with the resources
you're going to spend. So we're going to build a plan,
We're going to hire some people, We're going to launch
a new product. Those are all things that are on
the cost side of businesses. Who controls your costs? Who's
(02:33):
the customer of your costs? The answer is you are.
You decide how many square feet to leave, so many
raw materials to buy, how many people to hire? Those
are more comfortable because you control them. A strategy on
the other hand, specifies an outcome, a competitive outcome that
(02:53):
you wish to achieve, which involves customers wanting your product
or service enough that they will buy enough of it
to make the profitability that you'd like to make. The
tricky thing about that is that you don't control them.
(03:14):
You might wish you could, but you can't. They decide
not you. That's a harder trick. So that means putting
yourself out and saying here's what we believe will happen.
We can't prove it in advance, we can't guarantee it,
but this is what we want to have happened and
(03:36):
that we believe will happen. It's much easier to say
I'll build a factory, I will hire more people, etc.
Than I will have customers end up liking our offering
more than those of competitors. The tricky thing about planning
is that while you're planning, chances are at least one
(04:00):
competitor is figuring out how to win. When US air
carriers were busily planning, you know what routes to fly,
and there was this little company in Texas called Southwest
that had a strategy for winning, and you know at first,
(04:22):
that looked largely irrelevant because it was tiny. What Southwest
Airlines was aiming for was an outcome. What they wanted
to be is a substitute for Greyhound, a way more
convenient way to get around at a price that wasn't
extraordinarily much greater than a Greyhound bus. Southwest said, everybody
(04:48):
else is flying hub and spoke. They have hubs and
they fly hubbin spoke. We're going to fly point to
point so that we don't have aircraft waiting on the ground,
because you only make money when you're in the air.
We're going to only fly seven thirty sevens one kind
of aircraft, so that our gates are set up for those,
our systems are set up for those, our training, our
simulations are set up. We're not going to offer meals
(05:11):
on the flights because we're going to specialize in short flights.
We're not going to book through travel agents. We're going
to encourage people to book online because that's less expensive
for everybody and more convenient. So their strategy ended up
being having a substantially lower cost than any of the
major carriers, so that they could offer substantially lower prices
(05:33):
because it had a way of winning. It got bigger
and then bigger, and then bigger, and then bigger and
bigger and bigger and bigger until it flies the most
passenger seat miles in America. The major carriers were not
trying to win against one another. They were all playing
(05:54):
to play. As I say, they were playing to participate,
maybe by more planes, get more gates, maybe grow some
not having a theory of here's how we could be
better than our competitors. And that was fine until somebody
came along and said, here's a way to be better
(06:15):
than everybody else for this segment. And so that segment
then goes. It's gone, and the main plane to play
players have to share a smaller pie that's left over
after Southwest takes whatever share it wants. If you're trying
(06:36):
to escape this planning trap, this comfort trap of doing
something that's comfortable but not good for you, how do
you start? The most important thing to recognize is that
strategy will have angst associated with it. It'll make you
feel somewhat nervous because as a manager, chances are you've
(07:00):
been taught you should do things that you can prove
in advance. You can't prove in advance that your strategy
will succeed. You can look at a plan and say, well,
all of these things are doable. Let's just do those
because they're within our control, but they won't add up
too much. In strategy, you have to say, if our
(07:20):
theory is right about what we can do and how
the market will react, this will position us in an
excellent way. Just accept the fact that you can't be
perfect on that and you can't know for sure, and
that is not being a bad manager. That is being
a great leader, because you're giving your organization the chance
(07:43):
to do something great. The second thing I do is say,
lay out the logic of your strategy clearly, what would
have to be true about ourselves, about the industry, about competition,
about customers for this strategy to work. Why do you
do that? It's because you can then watch the world unfold,
(08:07):
and if something that you say is in the logic
that would have to be true for this to work
is not working out quite the way you hoped, it'll
allow you to tweak your strategy. And strategy is a journey.
What you want to have is a mechanism for tweaking it,
toning it, and refining it so it gets better and
better as you go along. Another thing that helps with
(08:29):
strategy is not letting it get over complicated. It's great
if you can write your strategy on a single page.
Here's where we're choosing to play, Here's how we're choosing
to win. Here the capabilities we need to have in place.
Here the management systems, and that's why it's going to
achieve this goal, this aspiration that we have. Then you
(08:53):
lay out the logic what must be true for that
all to work out the way we hope go do
it and watch and tweak as you go along. That
may feel somewhat more worry making, anks making than planning,
but I would tell you that if you plan, that's
(09:17):
a way to guarantee losing. If you do strategy, it
gives you the best possible chance of winning.
This thing called planning has been around for a long
long time. People would plan out the activities they're going
to engage in. More recently has been a discipline called strategy.
People have put those two things together to call something
strategic planning. Unfortunately, those things are not the same strategy
(00:23):
and planning, So just putting them together and calling it
strategic planning doesn't help. What most strategic planning is in
the world of business has nothing to do with strategy.
It's got the word, but it's not. It's a set
of activities that the company says it's going to do.
We're going to improve customer experience, we're going to open
(00:44):
this new plant, we're going to start a new talent
development program. A whole list of them, and they all
sound good, but the results of all of those are
not going to make the company happy because they didn't
have a strategy. So what's a strategy. A strategy is
(01:05):
an integrative set of choices that positions you on a
playing field of your choice in a way that you win.
So there's a theory. Strategy has a theory. Here's why
we should be on this playing field not this other one,
and here's how on that playing field. We're going to
be better than anybody else at serving the customers on
(01:29):
that playing field. That theory has to be coherent, it
has to be doable. You have to be able to
translate that into actions for it to be a great strategy.
Planning does not have to have any such coherence, and
it typically is what people in manufacturing want the few things.
They want to build a new plant, and the marketing
(01:50):
people want to launch a new brand, and the talent
people want to hire more people. That tends to be
a list that has no internal coherence to it and
no specification of a way that that is going to
accomplish collectively some goal for the company. See, planning is
(02:11):
quite comforting. Plans typically have to do with the resources
you're going to spend. So we're going to build a plan,
We're going to hire some people, We're going to launch
a new product. Those are all things that are on
the cost side of businesses. Who controls your costs? Who's
(02:33):
the customer of your costs? The answer is you are.
You decide how many square feet to leave, so many
raw materials to buy, how many people to hire? Those
are more comfortable because you control them. A strategy on
the other hand, specifies an outcome, a competitive outcome that
(02:53):
you wish to achieve, which involves customers wanting your product
or service enough that they will buy enough of it
to make the profitability that you'd like to make. The
tricky thing about that is that you don't control them.
(03:14):
You might wish you could, but you can't. They decide
not you. That's a harder trick. So that means putting
yourself out and saying here's what we believe will happen.
We can't prove it in advance, we can't guarantee it,
but this is what we want to have happened and
(03:36):
that we believe will happen. It's much easier to say
I'll build a factory, I will hire more people, etc.
Than I will have customers end up liking our offering
more than those of competitors. The tricky thing about planning
is that while you're planning, chances are at least one
(04:00):
competitor is figuring out how to win. When US air
carriers were busily planning, you know what routes to fly,
and there was this little company in Texas called Southwest
that had a strategy for winning, and you know at first,
(04:22):
that looked largely irrelevant because it was tiny. What Southwest
Airlines was aiming for was an outcome. What they wanted
to be is a substitute for Greyhound, a way more
convenient way to get around at a price that wasn't
extraordinarily much greater than a Greyhound bus. Southwest said, everybody
(04:48):
else is flying hub and spoke. They have hubs and
they fly hubbin spoke. We're going to fly point to
point so that we don't have aircraft waiting on the ground,
because you only make money when you're in the air.
We're going to only fly seven thirty sevens one kind
of aircraft, so that our gates are set up for those,
our systems are set up for those, our training, our
simulations are set up. We're not going to offer meals
(05:11):
on the flights because we're going to specialize in short flights.
We're not going to book through travel agents. We're going
to encourage people to book online because that's less expensive
for everybody and more convenient. So their strategy ended up
being having a substantially lower cost than any of the
major carriers, so that they could offer substantially lower prices
(05:33):
because it had a way of winning. It got bigger
and then bigger, and then bigger, and then bigger and
bigger and bigger and bigger until it flies the most
passenger seat miles in America. The major carriers were not
trying to win against one another. They were all playing
(05:54):
to play. As I say, they were playing to participate,
maybe by more planes, get more gates, maybe grow some
not having a theory of here's how we could be
better than our competitors. And that was fine until somebody
came along and said, here's a way to be better
(06:15):
than everybody else for this segment. And so that segment
then goes. It's gone, and the main plane to play
players have to share a smaller pie that's left over
after Southwest takes whatever share it wants. If you're trying
(06:36):
to escape this planning trap, this comfort trap of doing
something that's comfortable but not good for you, how do
you start? The most important thing to recognize is that
strategy will have angst associated with it. It'll make you
feel somewhat nervous because as a manager, chances are you've
(07:00):
been taught you should do things that you can prove
in advance. You can't prove in advance that your strategy
will succeed. You can look at a plan and say, well,
all of these things are doable. Let's just do those
because they're within our control, but they won't add up
too much. In strategy, you have to say, if our
(07:20):
theory is right about what we can do and how
the market will react, this will position us in an
excellent way. Just accept the fact that you can't be
perfect on that and you can't know for sure, and
that is not being a bad manager. That is being
a great leader, because you're giving your organization the chance
(07:43):
to do something great. The second thing I do is say,
lay out the logic of your strategy clearly, what would
have to be true about ourselves, about the industry, about competition,
about customers for this strategy to work. Why do you
do that? It's because you can then watch the world unfold,
(08:07):
and if something that you say is in the logic
that would have to be true for this to work
is not working out quite the way you hoped, it'll
allow you to tweak your strategy. And strategy is a journey.
What you want to have is a mechanism for tweaking it,
toning it, and refining it so it gets better and
better as you go along. Another thing that helps with
(08:29):
strategy is not letting it get over complicated. It's great
if you can write your strategy on a single page.
Here's where we're choosing to play, Here's how we're choosing
to win. Here the capabilities we need to have in place.
Here the management systems, and that's why it's going to
achieve this goal, this aspiration that we have. Then you
(08:53):
lay out the logic what must be true for that
all to work out the way we hope go do
it and watch and tweak as you go along. That
may feel somewhat more worry making, anks making than planning,
but I would tell you that if you plan, that's
(09:17):
a way to guarantee losing. If you do strategy, it
gives you the best possible chance of winning.
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