5 essential questions to craft a winning strategy | Roger Martin (author, advisor, speaker)

Roger’s background (0s)

• Roger Martin, a renowned strategy advisor and author of "Playing to Win," believes that traditional business school education fails to adequately prepare individuals for the complexities of strategy development. He argues that strategy is intellectually challenging and emotionally intimidating, requiring a deliberate approach.
• Martin emphasizes the importance of answering five key questions to craft a winning strategy: what is your winning aspiration, where will you play, how will you win, what capabilities do you need, and what enabling management systems are required?
• He challenges the conventional wisdom of pursuing either differentiation or low-cost strategies, suggesting that there are other viable paths to success. Martin emphasizes that great strategists are not born but rather develop their skills through consistent practice.

The importance of strategy (2m27s)

• The importance of strategy is often emphasized for leaders, but less so for individuals on the ground who are actually executing the strategy. This creates a disconnect, as those on the ground are making crucial strategic decisions that can significantly impact the success of a company.
• Procter & Gamble is an example of a company that recognizes the importance of strategic decision-making at all levels. They understand that even brand managers, who are several levels down in the organization, make critical choices that can determine the success or failure of a brand.
• The speaker advocates for a shift in mindset where everyone in a company, not just leaders, is empowered to make strategic decisions. This approach fosters a culture of ownership and accountability, leading to better outcomes for the company as a whole.

Challenges in developing strategy (7m3s)

• Developing a strategy is intellectually challenging because it requires integrating answers to various questions that must fit together and reinforce one another. This makes it more complex than simply answering a single question, like "What do you want for lunch?" Instead, it's like deciding on a complete diet plan that includes breakfast, lunch, dinner, and snacks, all of which must work together to achieve a specific goal.
• Strategy development can be intimidating because it involves making choices and committing to certain actions while rejecting others. This can be difficult because it requires making decisions that may have consequences and potentially lead to accountability.
• The emotional aspect of strategy development can also be challenging. It can be difficult to make tough choices and commit to a specific path, especially when it means forgoing other options.

Critique of modern strategy education (8m30s)

• Modern strategy education is flawed. Roger Martin criticizes the current approach to teaching strategy in business schools, particularly the dominance of the resource-based view of the firm. He argues that this theory is impractical and not widely used in the real world, leaving students unprepared for actual strategic challenges.
• The resource-based view of the firm is a flawed theory. Martin believes this theory emerged out of jealousy towards Michael Porter's influential work and is based on a flawed premise that building resources will automatically lead to success. He argues that it fails to address the crucial question of how to choose which resources to invest in and where.
• The strategy consulting industry is also failing to prepare students. Martin points out that strategy consulting firms have shifted away from traditional strategy work, focusing instead on areas like post-merger integration and digital transformation. This further contributes to the lack of practical strategy training for aspiring professionals.

Defining strategy and the choice cascade (17m40s)

• Defining Strategy: A strategy is a cohesive set of choices that compels desired customer action. It involves making decisions about controllable factors (e.g., factories, R&D, advertising, hiring) to influence customer behavior, ultimately leading them to choose your product or service over competitors.
• The Choice Cascade: The Choice Cascade is a framework for developing a winning strategy, consisting of five key questions:
  • Winning Aspiration: What are you trying to achieve? This sets the context for your strategic choices.
  • Where to Play: What specific market or segment will you focus on? This involves choosing a playing field where you can differentiate yourself or achieve lower costs.
  • How to Win: How will you create more value for customers or achieve lower costs than competitors in your chosen market?
  • Capabilities: What unique capabilities do you need to develop that your competitors lack to win in your chosen market?
  • Management Systems: What management systems are necessary to build and maintain the capabilities required for success?
• The Importance of the Choice Cascade: The Choice Cascade provides a structured approach to strategy development, ensuring that all key elements are considered and integrated. It helps companies move beyond simply identifying a desired outcome and provides a roadmap for achieving it.

Playing to win vs. playing to play (23m20s)

• Roger Martin emphasizes the distinction between "playing to win" and "playing to play" in business strategy. He argues that many companies, despite their intentions, are actually just "playing to play" the game, meaning they are not truly focused on winning.
• Martin suggests that customer feedback is a key indicator of whether a company is truly playing to win. If customers perceive a company's products or services as indistinguishable from competitors, or if they are willing to switch to a competitor at a lower price, it suggests that the company is not effectively playing to win.
• Martin uses the example of a company that claims to be the most innovative in its industry but whose products are perceived as equal to competitors by customers. This indicates that the company may not be truly winning in the market, despite its own perception.

Examples of strategic success (24m57s)

• Strategic success can be achieved through two main routes: being the lowest cost provider or being differentiated. Examples of companies that have achieved success through low cost include Vanguard, which has the lowest cost position in the asset management industry, and Southwest Airlines, which has consistently been the lowest cost airline in the United States. Examples of companies that have achieved success through differentiation include Lego, which has a strong brand and a price premium, and Proctor & Gamble, which has a wide range of differentiated products.
• If a company cannot achieve success through either low cost or differentiation, it should consider finding a different playing field. This is because companies that are not either low cost or differentiated are vulnerable to being bullied by competitors. For example, if a company is not the lowest cost provider or differentiated, it may be forced to accept lower prices or lose market share to competitors.
• Southwest Airlines is a prime example of a company that has successfully used a low-cost strategy to gain market share. Southwest was able to enter new markets and undercut the prices of its competitors, forcing them to accept lower margins or lose market share. This is because Southwest was able to offer a lower price due to its efficient operations and its focus on cost control.

Exploring differentiation and moats (31m4s)

• Understanding Differentiation and Moats: To achieve a winning strategy, it's crucial to understand your customers and find a way to differentiate yourself from competitors. This differentiation should be tied to your capabilities, meaning you need to be able to deliver on your promises. Simply being "better" isn't enough; you need a unique advantage that's difficult for others to replicate.
• The Importance of Capabilities: A company needs to be able to serve a specific customer need with capabilities that are hard for competitors to replicate. This could be due to the complexity of the capability, the cost of replicating it, or the fact that competitors simply won't invest in it. Examples include Amazon's early dominance in online retail due to Walmart's reluctance to invest in e-commerce, and Tesla's lead in electric vehicles because traditional automakers struggled to see a profitable path.
• Moats and Barriers to Entry: The concept of "moats" refers to barriers to entry that protect a company's competitive advantage. These moats can be created through various means, such as building a strong brand, developing unique technology, or establishing a network effect. Warren Buffett famously invests in companies with strong moats, and while there are various ways to categorize these barriers, it's important to remember that even the best strategists can make mistakes. Many startups overestimate their moats, especially in the early stages.

Applying strategy to real-world scenarios (40m23s)

• The conversation explores the application of the five essential strategy questions to a real-world scenario, using FigJam as an example. FigJam is a visual whiteboard collaboration tool that allows users to brainstorm and ideate using sticky notes, mocks, and cursors.
• The first question, "What are we trying to accomplish?", is discussed in detail. The speaker suggests that Figma's goal with FigJam might be to expand their market by targeting product teams, as there are existing tools in this space that are not considered ideal. However, the speaker emphasizes that a better reason for investing in FigJam would be to address a specific customer need or unmet demand.
• The speaker criticizes the rationale of entering a market simply because it is large. He argues that a more compelling reason for investing in a new product or service is to provide a solution to a problem that customers are facing. This approach, he believes, is more likely to lead to success than simply trying to capture a share of a large market.

Customer-centric strategy (43m39s)

• The speaker emphasizes the importance of framing a strategy in terms of how it benefits customers.
• This approach helps ensure that the strategy is customer-centric and aligns with the ultimate goal of compelling desired customer action.
• The speaker suggests that strategies are stronger when they are linked to customer benefits, as this reinforces the core purpose of strategy.

Defining the market and product (44m6s)

• When defining the market and product, it's crucial to identify the specific customer base, including their roles and functions (e.g., product managers, engineers).
• Understanding the distribution channels through which the product will reach the target customers is essential.
• Determining whether the product is a finished good or a component that integrates into other products is important, as it influences the marketing strategy and potential partnerships.

Value chain and distribution (45m31s)

• Value chain and distribution are crucial considerations when crafting a winning strategy. The text highlights how companies like Four Seasons Hotels made strategic choices about their position in the value chain, opting to focus on hotel management rather than real estate development or construction. This allowed them to specialize in their core competency and offer a premium service.
• The text emphasizes the importance of understanding where a company fits within the value chain and how it interacts with other players. The example of app developers and Apple's App Store illustrates how companies can make choices about their distribution channels and the potential consequences of those choices.
• The text suggests that companies should consider how they can differentiate themselves in the market by offering a lower cost solution, a more user-friendly experience, or a more integrated product. The example of Thompson Reuters highlights how a company can gain an advantage by seamlessly integrating its product into existing workflows, making it easier for users to adopt and utilize.

Cost leadership vs. differentiation (50m34s)

• Cost leadership and differentiation are both valid strategies, but they require different approaches. Cost leadership typically requires significant scale to achieve the lowest cost position. Examples include Vanguard in index mutual funds and Southwest Airlines in air travel. Differentiation, on the other hand, can be achieved at smaller scales, but the business world is becoming increasingly scale-sensitive, making it more difficult to differentiate effectively.
• Both cost leadership and differentiation are challenging paths to success. Building a profitable and sustainable business is difficult regardless of the chosen strategy. Many companies fail to achieve their strategic goals, highlighting the complexity and uncertainty of the business world.
• The success of a strategy depends on a variety of factors, including market conditions, competition, and execution. There is no single formula for success, and even well-designed strategies can fail due to unforeseen circumstances. This emphasizes the importance of adaptability and continuous improvement in business.

Capabilities and management systems (53m16s)

• Identifying Capabilities: To determine the necessary capabilities for success, consider factors like learning curves and customer service. For example, Fig Jam might ask if they can provide a better customer experience due to their early entry and accumulated experience. They might also assess if their customer service methods, like helplines, make customers feel more supported compared to competitors.
• Defining "How to Win": "How to win" is a theory about how customers will perceive a company as superior. This theory should be based on differentiation and translated into specific capabilities. For instance, if a company wants to be perceived as the easiest to deal with, they need capabilities to support that claim.
• Capabilities and Management Systems: Capabilities and management systems are crucial for both building and maintaining a company's "how to win" strategy. For example, Four Seasons Hotels defined luxury not by grand architecture but by providing a service that compensates for what guests left at home or work. To achieve this, they needed to develop capabilities in their staff, which involved addressing the high turnover rate in the hotel industry. They implemented a different approach to recruitment, onboarding, and career development, resulting in a 10% turnover rate and a more experienced workforce capable of delivering personalized service.
• Capabilities and Management Systems as "How to Win" MO: Capabilities and management systems are essential for building and maintaining a company's "how to win" strategy, which can be considered their "MO" (modus operandi). This MO should be difficult for competitors to replicate, making it a sustainable advantage.

Competitive advantage and market positioning (57m37s)

• Competitive advantage is not fleeting, but it is fragile. A company can maintain a long-term advantage if it has a unique and complex set of capabilities and management systems that are difficult for competitors to replicate. Simple advantages, like having the lowest cost, are easily copied and lead to a race to the bottom.
• The key to winning is to find a "where to play" that is difficult for competitors to enter. This means creating a unique value proposition that is difficult to copy and that appeals to a specific customer segment. Companies should avoid competing directly with rivals in the same market space.
• Counterposing is a powerful strategy for creating a sustainable advantage. This involves positioning your business in a way that makes it difficult for competitors to compete with you. For example, a company might choose to focus on a specific niche market or develop a unique product or service that is difficult for competitors to replicate.

Adapting to market changes (1h6m10s)

• Adapting to market changes is crucial for businesses, even those with established dominance. The speaker uses the example of car manufacturers struggling to adapt to the rise of electric vehicles and the difficulty of changing a core business model. He emphasizes that customers will ultimately dictate the market, and businesses must be willing to adapt to their preferences.
• The speaker advises against resisting market trends, even if they seem unfavorable. He uses the example of Vanguard, a mutual fund company, reluctantly embracing ETFs despite their founder's initial opposition. He argues that resisting change is like trying to hold back the tide, and ultimately, businesses must adapt to where their customers are going.
• The speaker highlights the importance of recognizing and responding to shifts in customer behavior. He uses Microsoft as an example, arguing that their dominance in PC operating systems did not translate to success in the mobile market. He emphasizes that businesses need to focus on the actual value they provide to customers, not just market share, and adapt to changing customer preferences.

Practical strategy tips (1h14m32s)

• Strategy is a problem-solving tool. It helps address the gap between desired outcomes and current outcomes. This gap arises from the choices made within the competitive environment.
• Focus on the most painful gap. Identify the most significant issue hindering progress and prioritize addressing it. This could involve customer needs, resource availability, distribution channels, or other critical areas.
• Continuously improve by addressing gaps. Instead of aiming for perfection, focus on making incremental improvements by tackling the most pressing issues. This iterative approach leads to ongoing betterment and ultimately, a more successful strategy.

Final thoughts on strategy (1h18m44s)

• There is no such thing as a natural strategist. Great strategists are not born, they are made through practice. Even those who are considered "strategy geniuses" have spent years honing their skills through experience and deliberate practice.
• Anyone can become a great strategist by practicing. The key is to actively work on making different choices to solve problems, even if those problems are not immediately apparent. Focus on areas where you feel a sense of "this could be better" and work on improving them.
• Don't wait to start practicing strategy. It's a mistake to put off developing your strategic thinking skills until you've dealt with all your operational concerns. The best time to start is now. By actively engaging in strategic thinking, you will become a better strategist and achieve greater success.