Roger L. Martin is one of the greatest business thinkers of our time. He is Professor Emeritus at the Rotman School of Management (University of Toronto), where he served as Dean till before leading the Martin Prosperity Institute. Martin was named by Thinkers50 as the world’s number one management thinker and has published 12 acclaimed books including When More is Not Better and Playing to Win. He is a trusted advisor to many of the world’s most successful CEOs.
In his new book, A New Way to Think: Your Guide to Superior Management Effectiveness, Roger L Martin argues that we are in the midst of a great reboot, with business leaders navigating the uncertainty of a world forever changed by the pandemic. He proposes that to solve the most pressing challenges, leaders must fundamentally rethink their models, frameworks, and ways of thinking.
In this interview, I speak to Professor Roger L. Martin about why we need to rethink management completely. We discuss competition, data, culture, knowledge work, talent, M&A and the fundamentals of how strategy is originated and executed
Q: Why do we need to rethink management?
[Roger L Martin]: An increasing amount of the world’s productive assets are in the hands of companies. This is a trend that has accelerated over the past half century through privatisation and democratisation (though there are signs we may be slipping now). Management matters a lot. If those assets are not being productively converted into goods and services that make the world a better place, it’s a missed opportunity.
Over the past half-century, we’ve standardised on a ‘way’ to do things – and that’s clearly flawed but continues. We need managers and leaders to up their game if we’re going to hope to tackle the environmental, inequality and other crises we face.
Q: How can our relationship with our business model be a diagnostic tool?
[Roger L Martin]: Let’s use the stock-based compensation mode (which maximises shareholder value) as a base for our discussion. Let’s say you deploy the model and give your executives and CEO lots of stock-based incentives, they’ll pursue shareholder value maximisation, and their interests will (largely) have been aligned. If they help the company create lots of shareholder value, they’ll get some of it. The test of course is whether this model- when held accountable- produces shareholder value at a greater clip than without the model. If the model isn’t creating value, but you continue using it, then it owns you. This is frighteningly common- I see a lot of cases where models own their managers, not the opposite.
Q: Do we need to flip our understanding of the direction of power?
[Roger L Martin]: Your customers matter, they have the last word, they hold money in their pocket and will either fork it over… or not… Historically, companies used to be small – but during the 20th century, companies started to get very big and became giant pyramids. Naturally, the idea then emerged that if we have a big sprawling empire, that we must control the levels below- so it hangs together, and the centrifugal force of the organisation won’t blow itself apart. So, the models we have aren’t exactly stupid however coordinate and control at this kind of scale can become impossible and can distance decisions from the customer. Think about a large retail chain. Your store manager is the coalface, they serve your customer, they are the gateway to your customer’s experience… the product. A national stores manager should not be trying to control what stores do and instead say, their job should be to help each store do better. What levers could the national leaders do to help individual stores do better? Could they give more budget? Could they improve logistics? Could they make product launches faster (such as fast fashion). That is the dominant job – helping not controlling.
Q: Do we need to rethink work around projects rather than jobs?
[Roger L Martin]: If you think about the typical businesses of the industrial era with those quintessential ‘factory jobs,’ and a manufacturing led economy, the jobs tended to be ‘flat’- you came in at the start of your shift, you worked your shift, went home, came in the next day and did it again, week after week, year after year. As corporations got larger, instead of factories, you had office towers full of people doing things that weren’t manufacturing. Instead of making widgets, they were making decisions. Corporations are decision factories. You have product factories, service factories and decision factories. In the decision factory, people have far more adaptable jobs – maybe they’re managing a brand one month, before being consumed with a product launch, a supply chain issue, or customer challenge. Life in the decision factory is based on projects and efficiency is about matching the people and skills to peak demand. Think about McKinsey, Deloitte, Accenture, or a typical Hollywood studio- they’re organised around projects. If you’re working on a film, you assemble a team of producers, camera people, sound people, cast… you go shoot a film… the team disbands and moves onto the next project. This is how large consulting and professional services work, and these are multi-billion-dollar companies, so it proves you can do this at scale. Thinking about work as projects and not as flat jobs allows your organisation to be more productive, more efficient, and a better place to work.
Q: Do we need to rethink the fundamentals around strategy itself?
[Roger L Martin]: The biggest mistake is thinking that some people at the top make strategy, while everybody else executes it. It feels intractable at this point, it’s so ingrained in our way of thinking. People at the top don’t make all the decisions; it’s not the case that people at the top make a strategy decision and then everyone just engages in that exact model. Think about our retailer; it’s fine if a national strategy manager lays out guidelines, but that store manager will be making hundreds of decisions every day about running that store within the consistency parameters set by the company- and those are real, hard, choices – every high street is different, the customer mix may be different, and each store will face unique day to day staff, customer, and supplier challenges. You don’t want people who sit there faithfully executing strategy, you want people who lead their part of the organisation and who engage in good communication.
Q: How does innovation fit into the notion of rethinking strategy?
[Roger L Martin]: Those proposing innovation and who are creating innovative ideas and concepts need to spend more of their time asking questions about how the intervention is designed, not just the artefact. The number one complaint of designers is, ‘…I had a great design, but I couldn’t get anyone to buy into it!’ We have an obsession about the artefact, that’s what designers are trained to do – you wouldn’t’ become an architect, for example, if you didn’t like designing buildings.
The greatest innovators spend a disproportionate amount of their time figuring out how to engage with the decision makers who need to green-light their work early so they can build confidence. Innovation can feel scary to a business- old and stable is less worrisome. Great innovators also include customers and partners early, they may take their low-risk prototypes to customers to get feedback, and to engage in iteration. This is how they get people to be as wildly enthusiastic as they are.
Innovation also requires you to overcome the modern craze about data and making decisions based on data. People may not realise, but it was Aristotle who invented data analytics. He was interested in cause and given effect and saw that if you collected enough data about a phenomenon, you could see whether X produces Y. We then had the dark-ages, and a terrible 2,000 years before the scientific revolution with Bacon, Newton, Descartes and Galileo who created what we now call the scientific method. In truth, they just formalised what Aristotle had said 2,0000 years earlier but without a crucial part of Aristotle’s formulation which was that the methodology should only be used on the part of the world where (as he said) things cannot be other than they are. If I have a ball in my hand, and I let go of it, it’s going to drop – it dropped last week, it will drop next week, it will drop 100 years from now, and will do so anywhere in the world. That is what Aristotle was referring to. However, he pointed out that there is another part of the world, where things can be other than they are, there can be ambiguity. The number of smartphones being used today, will be different to tomorrow, and was different yesterday. In the world of business however, data analytics has risen to become the heart of decision making and guess what, companies to an ever-greater extent are complaining about how hard it is to innovate, keep up, and fight disruptors. Forty years ago, the CEOs of big companies were worried about what the CEO in the next office tower was doing. Today they’re most worried about people and companies they don’t even know exist yet. They just know they’re out there somewhere in some garage inventing something. These big companies can’t see the future because strategy is built on rigorous analysis of the past. Data analytics tells you what the past looks like- and if the future looks like the past, that’s great- but then why innovate? The only way to innovate is to follow Aristotle’s prescription. To create a future that is different to the past is to imagine possibilities and choose the one for which the most compelling argument can be made, not the one for which there is the most data. If companies want to innovate, they need to realise that data analytics is killing innovation yet is lauded and used increasingly.
Right now, is the absolute best time in human history to be a disruptor. The world is awash with cash chasing disruptive ideas and most companies have one (if not both) hands tied behind their back.
Q: Do we need to rethink the nature of the corporation?
[Roger L Martin]: The structure of today’s corporations, together with the structure of the capital markets is disabling not enabling for good. Think about this. Fifty percent of all public equity investment in the USA comes from very long-term retirement dollars (pension fund holdings plus 401K/IRA personal retirement funds). The next biggest stakeholder in public companies? Employees. Today’s structures aren’t working for them either if you look at wage growth suppression for example.
Companies are managed quarter to quarter, they’ll lay off thousands of people to meet EPS targets and do so in very volatile capital markets. What we need is a structure that combines employee stock ownership and pension funds. Warren Buffet takes companies out of the public market so he can make long-term decisions about their future and growth- he looks at cash flow not stock price. In these models (like ESOPs) pension funds and employees do well – the pension fund provides capital, and employees own the means of production. They’re just very hard to structure. In the future, I think we will have publicly traded corporations replaced by pension fund and employee-owned businesses. I think these new structures will outperform – they will encourage better employees, and employees will share upside. We will see better wealth distribution combined with strong returns for pension funds!
For the past 50 years, the American capital markets were America’s biggest competitive advantage over the rest of the world. Europe was still fixing itself after World War 2, Japan was more cloistered and America operated as a big, vibrant, capital market that helped companies grow and compete. Today, American capital markets are a detriment for competitiveness. The private markets are doing well, but we need a new way forward for competitiveness that works better for companies and their employees.