EVERY SPOKEN WORD
65 min read · 13,037 words- AGAakash Gupta
Why do people have such a hard time with strategy?
- RMRoger Martin
Most people are taught strategy is planning, putting together a comprehensive and sensible list of initiatives and then going doing them. And the reason is, it's not strategy, it's planning, and you cannot plan your way to success. If the strategy for your product sucks, there's no real where to play and there's no real how to win. Suddenly, as if the shotgun goes on, or the starter pistol goes on and all of them are on the plane in like five minutes.
- AGAakash Gupta
Get more data, right? Like work with Cursor, work with GitHub Copilot, get the most coding data, get the most writing data.
- RMRoger Martin
Are your theories always gonna be right? No. The customer to say, "I'm gonna pull money out of my pocket and give it to you instead of somebody else."
- AGAakash Gupta
Can you walk us through how they made a bold where to play and how to win choice that others couldn't copy? Roger Martin is a global authority on strategy, the co-author of Playing to Win, and a former dean at the Rotman School of Management. He's advised Fortune 500 titans like Procter & Gamble, Lego, and Ford, and his 12 plus books have redefined how leaders approach strategy, myself included. So in today's episode, I'm honored to have him. We are going to cover everything you need to know to create a winning strategy. For my money, this is one of the most important skills for PMs and builders, so I hope you'll enjoy it as much as I did. Really quickly, I think a crazy stat is that more than 50% of you listening are not subscribed. If you can subscribe on YouTube, follow on Apple or Spotify podcasts, my commitment to you is that we'll continue to make this content better and better. And now on to today's episode. I'm super excited about this episode. Roger, I feel like you are one of the most important voices on strategy out there, and for product builders, for product managers, strategy is perhaps the most important skill. After 16 years in product management, that is the one thing that I saw really differentiating good from great is understanding strategy. And so today I wanna give people a masterclass in strategy. And I've heard you say most leaders aren't actually creating strategy, they're budgeting with extra steps. What do you mean by that?
- RMRoger Martin
Uh, that's cl- close to that. They're, uh, doing budgets with prose is, is what I say. So they're just putting together a financial plan and then their strategy, like notionally according to them, is that, is that they explain the budget with, with some prose and, and you know, that's, that's not a, a strategy. Uh, and, uh, the, the key thing about strategy that you have to understand as a s- as a strategy and, and, uh, Aakash, I'm sure you-- every good product manager you know does this, is strategy compels customers to take the desired action. So you do a bunch of things that cause the customer to say, "I'm gonna pull money out of my pocket and give it to you instead of somebody else." Um, when you put together a list of initiatives or a list of budget items or a list of projects and somehow think that's enough, um, there's a chance it might be. [chuckles] They might accidentally fit together and reinforce each other in a w- in a way that causes customers to, to say, "I'm gonna give you my business. I'm not gonna give it to somebody else." But generally they don't. They're-- And so strategy, at least 90% of strategy out in the world, if not 95% of strategy out in the world, is a list of laudable, uh, uh, initiatives. If you read down the list, build this factory, hire this many salespeople, install an ERP, you know, uh, kind of whatever, it's, uh, you could say, "Well, none of those are stupid." But if they don't fit together in a way that causes customers to say, "Oh, the offering from those people is better than all these other offerings," then you don't have a strategy. And so my pitch is to, to say, don't start with a list of initiatives. Start with the question of, you know, what are you trying to accomplish or what do you want customers to do? Uh, where are you gonna play therefore, and how are you gonna, uh, win while doing that? And the initiatives will fall out of that. The initiatives aren't the input to a strategic plan, they're the output of a strategy.
- AGAakash Gupta
And I think product managers are especially liable to fall into this trap because we're builders. We live and thrive off roadmaps. We've gotta create that list of initiatives, that list of roadmaps. We want it to be so hyper tactical that teams can feel it. That has to come as an output.
- RMRoger Martin
Yes.
- AGAakash Gupta
So what does the inputs look like? What are the steps that come before?
- RMRoger Martin
Yeah. Well, and you're right. If I c- if we can just go to product managers for, for a while now, uh, and then this is especially the case in Silicon Valley. I do a lot of work in Silicon Valley and, and in some sense, um, product managers are often treated as the silver bullet, the magic silver bullet. "I gotta get a good product manager, and they will, and they will make a success out of, out of this." And what the people saying that don't really understand is actually they need a strategist, right? And, and the great product managers are strategists, but, but they don't-- That, that's often not even acknowledged in companies. It's just, uh, "If I get a good product manager," they don't really know what one looks like other than they've succeeded, right? Um, so, so what, what are the, what are the inputs? Well, the, the inputs are a f- for starters, a framework in your head that says-What would cause a customer to, to be compelled to, to take the action, uh, we would wish? And I've come, come to the conclusion that it means having answers to five questions, and that those five question answers fit together with one and reinforce each other to create that sense of a compelling, uh, reason for a customer to buy from you. And the questions are, what's our winning aspiration? So what are we trying to win at? And why is winning so important, uh, to me? Some people think, "Oh, Roger, you're so zero-sum game," you know, "Isn't that, isn't that so old-fashioned?" No. The best way to win is to cause, cause competitors to decide to win somewhere else, right?
- AGAakash Gupta
Mm.
- RMRoger Martin
Right? That, that's the best, and Sun Tzu said this way ago. The be- the best, the best way to, to win is to not fight. Um, and, and if you're compelling enough in, in what you're doing, other companies will say, "Well, I don't want to do exactly that, uh, because they're really good at it, and that'll just be a bloody war. That's no fun." So you gotta have a aspiration for being the best at what? Best at in a certain place, that's your where to play. That's the choice. So on this particular playing field, or if you're militaristic, battlefield, um, that's where we're gonna play, and we're not gonna play anywhere else. There. And then you have to answer the how to win. What is my theory by... that tells me I will be better than any other player on that particular field? So if the particular field is a particular set of customers who want a particular product or service or offerings in a particular geography, right? On that playing field, we have a way of producing more value for those customers, right, than anybody else, therefore will win there. But you can't stop there. Often people stop there with strategy, uh, and I say... A- and then they blame it on, "Oh, we had bad execution." No, it's because they didn't answer the other two questions, which is, what are the must-have capabilities? If we're gonna win in the way we've chosen to win, in the place we've chosen to play, what capabilities do we have to have, right, that other competitors either can't build or won't build? Sometimes it's a won't, right? Right? Amazon's success is based on a won't, right? In the early days of Amazon, if Walmart had said, "This online thing, that is super-duper important," and would've spent, you know, $100 billion, say, in, in a short period of time, they could've crushed little Amazon like a bug, like a tiny little cockroach, right? But they didn't. Why not? Well, it was an irritating thing and a scary thought to think that your 4,500 stores that you'd spent hundreds of billions, uh, building were, mm, not gonna be as useful as they, as they, they used to be, right? So you say, "Maybe this thing won't really take off. Like, maybe that's not actually what customers want. Let's hope. Let's hope." So that was a won't. They didn't build the capabilities necessary to challenge how you were gonna win where you chose to play online retailing. Uh, a- and, and the rest is history. Then the final question of the five, so it's what's your winning aspiration? Where are you gonna play? How are you gonna win? What are the must-have c- uh, capabilities? And then what are the enabling management systems? How are you gonna build and maintain those capabilities on an ongoing basis to win where we've chosen to play to meet the winning aspiration? And I repeat that a couple times to say, to say they have to fit together and reinforce one another. You need a strategy that, that has those answers fitting together and reinforcing the where to play, right, is perfect for your how to win, and your how to win is perfect for your, your, uh, your where to play. Uh, and if you do that, um, you can compel those customers in your where to play to give you, uh, their hard-earned, uh, cash, uh, and not somebody else.
- AGAakash Gupta
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- RMRoger Martin
Yes.
- AGAakash Gupta
You've said that business schools aren't teaching this the right way. I myself worked an MBA, spent, I don't know, $200,000 in costs plus, I don't know, half a million dollars in sacrificed income to go there.
- RMRoger Martin
Yeah.
- AGAakash Gupta
So about three-quarters of a million dollars to do it. What didn't they teach me with that three-quarters of a million dollars that I spent?
- RMRoger Martin
Well, the acade- when did you graduate?
- AGAakash Gupta
Uh, 2017.
- RMRoger Martin
Yeah, yeah. So in the last 30 years, the business school world has gotten obsessed with something called the resource-based view of the firm. Uh, and it basically says, uh, you know, how you win is by, by, uh, having, uh, kind of these must-have res- uh, resources. Um, it's, it's just did you learn the resource-based view of the firm? 'Cause that's what's generally taught. You can't get a job in a top 50. You, you had a top three, uh, bus- business school, but you can't get a job in a top 50 business school in America, uh, if you don't bow down and pay homage to the resource-based view of the firm. The problem is nobody uses it out in the world. I've been consulting for 44 years now, uh, and I've only seen the resource-based view of the firm used once. Once. Uh, and it was by a junior Ford person who said, "I learned this at business school. Uh, could this be applicable?" And that's the only time I've heard it used. So it's gotten kind of theoretical and, and unhelpfully so, and so, uh, and so you're taught, and again, I think you can look back at your strategy courses, you were taught a bunch of tools, right? You were taught game theory, right? And you were, you were taught resource-based view of the firm. You might've been taught five forces from Mike, Mike Porter. You might've been taught blue ocean str- strategies. You're, you're taught a bunch of analytical tools, uh, as if that'll make you a strategist. But, you know, I don't, I don't see it doing that.
- AGAakash Gupta
So if you were constructing a curriculum for someone to learn strategy, what would be the things they needed to learn?
- RMRoger Martin
I, I mean, I, I literally would, would, uh, teach, uh, Playing to Win and, and use, as you probably know, I have this Playing to Win Practitioner Insight series that's been going for four and a half years now, and so there's 230 or so, uh, articles in that that make up about six books, and they're on how to practice strategy. And I would, I would just teach them, uh, teach them that, um, and get them to work on strategy, uh, uh, you know, assignments. Uh, take this company and ask what is its strategy now? And, and, and, uh, and don't believe what they say in their strategy documents, 'cause strategy is what you do, not what you say. That's one of my principles. And so, so I, I'd, I'd say based on observing what that company is doing, what's their strategy? And tell me what it is in, in those five boxes, because everybody's got one. Uh, and how would you make it better?
- AGAakash Gupta
So let's do that maybe together. Like, if the case study going deep on companies across the five questions is what's gonna get people going, go ahead and pause this podcast or pause this video because we're about to talk about Anthropic and reveal the answer. But I want you to go through the mental exercise first.
- RMRoger Martin
But I'm gonna give you the answer.
- AGAakash Gupta
And then-
- RMRoger Martin
I gave you the question
- AGAakash Gupta
... we'll hear from Roger how he might analyze Anthropic. So go ahead and hit pause, guys. And now let's hit play. Roger, tell us a little bit more. How would you analyze Anthropic?
- RMRoger Martin
Well, I, for, for me, I would be, uh, saying the quest- asking the question, okay, in the world of general, uh, LLM, LLM AI, let's just call it LLM, um, which you appear to be, have decided to play in. Your, it appears your where to play is not, uh, some vertical like, uh, like I'm, I'm an investor in, in a bunch of AI companies, so one is Blue J Legal, and it's in the vertical of, of, uh, uh, um, AI legal. I, I'm an investor in another one, Well- Wilson, it has AI in, uh, in for investments. So, so no, An- Anthropic is going up against ChatGPT, you know, uh, Google, uh, Ge- Gemini, et cetera, in the, uh, in general. So their where to play is in, in, uh, general LLM. Um, how you're gonna win, it seems unclear, uh, uh, to, to me. A bunch of its competitors are figuring out how to drive traffic to their AI with content, right? And so was it a absolute shock and surprise to me that X and X AI, uh, merged? No. That's a method of driving traffic to your LLM and therefore populating it with more data. Well, same with, same with, uh, Google, same with, uh, with, uh, Apple, same with, uh, Amazon. So it a- would appear that the theory of how to win is a little more sort of, it's part- partially this is going to be more human-friendlyWhich may be the case. I actually like Claude. I, I, I, I, uh, I, I use Claude for what it's worth. Um, um, and so then what, what capabilities are you depending on? It's presumably, um, we have the capability to make a most more humanistic, uh, kind of LLM. Um, and it's hardest from the outside to discern management systems. Sometimes you can, and I'm not sure there is anything to, to say on there. So for me, I, I go back to it and, and ask myself the question: what is the probability of Anthropic winning in general AI without a source of traffic, um, that will drive people to it when you're up against still better funding. They're well-funded, but still better funded, deep-pocketed competitors in the general AI, uh, general LLM AI, uh, uh, space. A- and so if I were, if I were at, at Anthropic, I would be saying, "Can I win in the big box?" If the big box is sort of general horizontal LLM AI, I'm up against folks with deeper pockets, with traffic. How am I gonna win in that battle? How am I gonna create an economic win? And for me, I'd be searching for ways to be narrower, to say, in this type of use, in this territory of knowledge, whatever, and it's, that's hard to tell, um, I am going to be better. Somebody else might end up being, and somebodies else might be, end up being bigger, um, but I'm going to be better. It's not unlike Blue J Legal, um, who is not attempting to, to, uh, outperform ChatGPT or any- anybody else, but ChatGPT is the, the, the f- you know, the, the favorite these, these days in everything, in knowledge, in being able to supply answers. It's attempting to do that in a narrow range of things pertaining to the law, where if you've got a user who cares deeply about that, right, they will value the fact that they don't have to deal with all sorts of other extraneous stuff, and their large language model will contain the stuff that is pertinent to their question and nothing else, and deeper stuff, uh, in that area than anywhere else. Now, is Blue J Legal ever gonna be worth $100 billion, $500 billion, a trillion dollars? No. Um, but I bet it's gonna be worth a decent amount, um, and that might be better than spending tens of billions of dollars attempting to build a LLM AI horizontal business where you'll never figure out how to monetize it because there are other people who have advantage. So that's, that's how I would at least think through, uh, Anthropic. Uh, it's, it's gotta figure out a where to play where there is a plausible how to win. For me, Blue J Legal has got a where to play that has a very pl- plausible how to win. In fact, it's, it is winning arguably, uh, in that narrow, uh, the, uh, narrow field. It gets back to, it get back to my... I was on the board of, of Thomson Reuters, uh, for many, uh, for many years, for 14 years. Um, and the best business in that fine company is Westlaw, uh, which provides legal search, uh, for mainly, it's mainly for US litigators, uh, is what it is. Um, and it's a multi-billion dollar business, super profitable. Um, and one of the concerns, and, and, and they ar- they arose out of being a, a, uh, law book publisher. So if you went into any legal library in North America, uh, uh, you would see a wh- a whole bunch of Westlaw, uh, books in the library. And they were smart enough, uh, in the '90s to say, "Hmm, you know, this is gonna go online," and instead of having a librarian go and pull out books and, and try and find the, the relevant, uh, cases, um, uh, and their-- And the reason people like their law books is they had a system, a numbering system that helped you figure out what the cases were about, and they would write a little head note on each case that allowed you to very quickly figure out what it's about. So the law librarians would go in there, follow the numbering system and, uh, uh, and come up with, with, uh, uh, with what cases their partner who they were working for, uh, needed. Some clever person in the '90s said, "You know what? We'll be able to put this all online. All of that stuff can be digitized and put online, and then you can... The law, the, the, uh, legal partner can search for him or herself, not ask the librarian to go and go in this, this thing." And they're brilliant, and they did itOkay. But then along came something called Google, right? And the question was, why would law firms pay big bucks, I mean, the subscription fees are big bucks, to Westlaw when they can do legal search on Google for free? The answer, as it turned out, and because it's been stable, stable business against Google, Google's, Google would love to have that, uh, that couple billion dollars of high margin revenue. But it turns out that, uh, when you do the same search on Google as you do on Westlaw, right? On Google, you come up with the 500 cases that maybe you should be reading and, and potentially referencing, and on Westlaw, you come up with seven that you really need to. And that difference between 500 or whatever it is, 200, 400, 500 and 7 amounts to so many hours of, of the, uh, the lawyer's time that they'll pay, they'll pay that fee for it. So who's the more powerful company, Google or Thomson Reuters' Westlaw sub? Google. Over a couple trilli- trillion bucks, because their where to play is huge. It's search. That's big. But, uh, I think if you wanted to buy Westlaw from, from, uh, Thomson Reuters, I suspect they'd charge you $25 or $30 billion for it. That's nice because they have a where to play with a matched how to win, which is we've got this database of cases that go back 100 years. We've got a proprietary numbering system. We've got 1,500 lawyers who every year, uh, create headnotes for them and, and that is of great value to, uh, uh, to customers. So that's... I would be thinking about the same thing for Anthropic. Do you wanna have a small probability of, of becoming a, a whatever, a trillion-dollar company or a high probability of becoming a $100 billion company?
- AGAakash Gupta
Yeah. I would say I went through the five steps myself as well, so I'd love to hear-
- RMRoger Martin
Yeah. Yeah, yeah
Episode duration: 1:20:18
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