Executive Interview Series on Growth
Taking Innovation Outcomes to the Next Level — An Interview With Roger Martin
By Colin White, PhD, President Invetech
In many markets, innovation is less an impetus for growth and more of an imperative for survival. However, in surveys of senior management, innovation is often cited as the business process with the biggest gap between expectations and actual performance. Why is this? More importantly, what can be done about it?
To answer this question (and others), we turn to Roger Martin, father of "integrative thinking", a strategic business methology that facilitates long-term competitive advantage. In his many writings and books on business design, Roger reveals the ways in which we limit ourselves with our own thinking, and provides specific frameworks for breaking through to real innovation.
In addition to being an award-winning author, regular contributor to the Harvard Business Review, and one of the 27 most influential designers in the world (Business Week 2010), Roger is also the Institute Director of the Martin Prosperity Institute at the Rotman School of Management and a trusted advisor to the CEOs of companies worldwide, including Procter & Gamble, Lego, and Verizon.
As Roger is a preeminent thought leader on the global stage on the topic of innovation, I am delighted to be speaking with him today as part of Invetech's Executive Series on Growth.
Colin: Roger, good morning, and thank you for your time.
Roger: It is my pleasure. I'm looking forward to it.
Colin: Terrific. Roger, I would like to start by asking you about the dichotomy that I just teed up: innovation is a critical business process, yet the outcomes are frequently disappointing or below expectations. What is your sense of the level of executive satisfaction around innovation outcomes in business?
Roger: My sense is that you have hit it right on the head. When I am giving a talk on innovation or design, I'll ask the question "Who in the audience would describe themselves as satisfied with the level and pace of innovation in their organization?" Not a terribly high bar—just satisfied. And I've done that maybe a couple of hundred times in audiences from as small as a hundred to as big as five thousand, and the number of hands up is often zero. More than half the time, not a single person puts up their hand, and the biggest number is probably around 5%. This aspect of corporate life is the single most disappointing thing for executives. Note that I frame the question as "Are you satisfied?" Not are other people satisfied, are you satisfied?
Companies struggle to keep growth and innovation going but keep getting unseated by the two guys in their garage who coming up with something that destroys the industry.
Colin: I'm interested in your take on why that situation exists? Why are organizations not more effective in this area?
Roger: I think it is something hidden and subtle, but has a very profound effect. I look back over the last thirty-five years of consulting, one completely inexorable trend is towards greater use of analysis in management. I often joke that, thirty-five years ago when I was presenting to a board of directors, if you had a slide on it with an R²—indicating that the correlation between these things is high—board members would have thrown you out on your tail, saying "Don't give me this kind of highfalutin mumbo jumbo! That's not how we make decisions around here, on the basis of some statistical correlation."
If you go to the same board now and you don’t have an R², they would say, “Where is your R²? This is just your opinion. You haven’t proven anything.” There has been a sea change in the degree to which executives believe that if you don't have the analysis to prove that what you're doing is valid, you are not being a good manager and you shouldn't do it. If you are a good manager, you say, "Go back and get the analysis."
There is no data about the future. Data is exclusively found in the past.
Analysis has been good for some things, but what is analysis? It's the past.There is no data about the future. Data is exclusively found in the past. So if you actually wanted a new thing—something that has never been done before in a given context—there will be no data that can prove in advance that it is a good idea. Of course, what's in all the business magazines now as the biggest trend in the business world, what's the hottest topic? Big data analytics. We have a business world that is absolutely, positively obsessed with data analysis, and we just don't recognize the dark side of it. The dark side is that managerial processes insist that, in order to do something, we must prove it. What that means is truly new innovative ideas get weeded out during these many stage-gate processes. "We worked on this and now you have to prove it in order to get the next $100 million dollars, etc." And people who are innovative get discouraged, and either stop doing it in their existing companies or say, "The only way I can do this is out of this structure on my own."
Something I say is, in life, the sun shines brightly on your face, but there is a shadow behind you. Data and data analysis fits into this theory, that data is the sun shining, but it's leaving a dark shadow that simply destroys innovation. That's my only good explanation for why people can want it so much but they all say, "I want more innovation but get so little of it," because they are blind to this other thing that inadvertently destroys it.
Colin: I have seen that many times, where the data analysis and the endless amount of consideration leads to certain rigidity of mindset, which makes it very hard to change course. They always go back to the anchor, to the foundation of the data and the frame that they had for their innovation. You mentioned the two guys in the garage earlier; those guys often don't have that data and are far more agile and able to pivot and head in a different direction when they learn new things. It's more a process of learning than a process of dependency on historical data.
Roger: If you also just think about the fiduciary structure of their lives, they're typically working with their own money (or friends' and family's), so they don't have to go to somebody who has fiduciary responsibilities to say, "We want to do this, and we want to spend your resources doing this." There are no requirements for them to prove anything to anybody, so they just say, "I think this is going to work, let's try it". There has to be a balance, because we know the statistics: within eighteen months, nine out of ten of them have lost 100% of their investment and failed miserably. I can understand why there are people on boards or corporate organizations that say, "I don't want to be exercising my fiduciary obligations when nine of ten times, my company fails." While we can't be entirely like the two kids in the garage, we can't be the exactly the opposite of them either.
Colin: No indeed, the kids in the garage have a set of different problems, which bring different risks and challenges. In your book Playing To Win, you outlined a framework to help both groups of people based on five questions. The questions are meant to help with choices about where resources should go, and where they shouldn't go, to create competitive advantage and to get away from the risk profile that we've been talking about. Can you give a thumbnail sketch of that framework, and the benefits it brings to managing a more satisfactory outcome?
Roger: The idea behind the five questions is that each leads to a choice, and that strategy is about making a few key choices. I am a fan of strategy; I am not a fan of planning. Planning often obscures the choices that you are making, and great companies have made a set of choices that put them on a particular playing field in a position that enables them to succeed. The five questions pertain to answering a bigger question: what are the choices that would result in you being on—and performing well on—a playing field that you're happy with. From top to bottom:
What is a winning aspiration? Where will we play? How will we win? What capabilities are required? What management systems need to be put in place?
On the first question: you need to have a raison d'être. You need to know what you are doing, why you are doing it, and it should be about winning. About being better than anybody else in the field that you have chosen to play in. Now, somebody might say, "Well, everyone can't win, and why do you want to have strategy thinking about winning?" I would argue that the only reason why everybody can't win is because everybody thinks they can't win. If you are thoughtful about where you play, many people can actually win in the part of the industry they have chosen to play in.
Which is why the second question is so important with the question of where to play? I often find that companies just assume that their "where to play" is almost ordained by some higher power, like "God said we should be a newspaper company," and keep on being that, even if it tends to end up being a terrible place to play. I always encourage companies to say, "Where in this whole market do we want to play, and what price tier, what kind of customers and what geography, what distribution channel and what vertical stage?" Be explicit about keeping aware.
Mediocrity is punished faster and more harshly than it ever has been. If you have to play on a playing field where you aren't the best, you will just get blown out.
That is linked to the third question: how—in that place that you have chosen to play—do you attempt to win? What is your proposition to your customers, in that particular field of play, that would make it a more attractive value proposition than anyone else's? I would say that if you can't answer those first three questions, you are nowhere. You will be playing someplace where someone is distinctly better than you. Something about the business world that has changed is that mediocrity is punished faster and more harshly than it ever has been. If you have to play on a playing field where you aren't the best, you will just get blown out.
Lots of technology industries are good examples of that—look what's happening in the smart phone business. Companies are coming and going because they are mediocre. Android: we are going to produce an Android phone because Android is a popular operating system. How many companies do you think are cash-flow positive on their Android smart phone business in the world? One: Samsung. Everyone else is not cash-flow positive when producing Android phones. Why? Because when they think, "Android smartphones, that is a big and growing market, that's really attractive, let's throw one into that market place. Samsung has said, "Hey, we're highly integrated in the components, we have awesome scale, and we invested 30 years ago in design when we got tired of being beaten by Sony in televisions."
The fourth box is "What are the capabilities necessary?" I think of that as a check against whether or not you are delusional. If you are just imagining, "Wow, this is a great place and I think we can beat up everybody," but you don't have a set of capabilities that enables you to do that, then your strategy is hope, not a strategy. Often when you read a given organization's strategy, it specifies the capabilities that they must have. If they don't have them right now, but can build them fast enough that will be fine, that will enable them to win the field they've chosen to play in.
The final one is management systems. People will say, "Hey Roger, that is not really strategy, I beg to differ." What I say:
Unless you have a management system in place that enables you to build and maintain those capabilities so as to meet your winning aspiration, the whole thing falls apart.
Rather than concentrate on a big long plan, companies should focus on answering those five questions. If they do that, they have the best chance of winning and achieving a great aspiration. Many companies, if they did that, could win in the same arena because they have different places to play in that arena.
Colin: Yes, I really like that point that you just made about the separation of decisions. From where, what game are we playing? Where we are staking our ground, versus how are we going to win, what are the tactics that we are going to bring, and what's the competitive advantage once we have staked our claim within a particular market place.
Roger: I often think that the enemy of strategy is vagueness and conflation. People often have these grand strokes: "We're going to be an awesome company," and there is never an answer to where exactly are we playing and exactly how are we choosing to win. The good news is that anyone can do it. This is not rocket science. It does require commitment and thinking about commitment.
Colin: But many organizations must struggle to apply the framework, otherwise the outcomes would probably be better. Where do you see them struggling? Why is it so hard and what advice would you have to help folk overcome some of those challenges?
Roger: One thing that's a really a problem is "busy work." I honestly think that lots of companies make strategy into busy work. We need an analysis of this, and they busy themselves with putting together huge decks of analysis instead of stopping and saying, "Before we analyze, why don't we think what our hypothesis might be?" People try to be faux-scientific. Last time I checked, before you do analysis, you have this thing called a hypothesis. Then you analyze, based on the hypothesis. I find most strategy work is actually hypothesis-less analysis. Without the hypothesis, someone junior in the strategy area goes and assembles massive amounts of analysis that distracts people from thinking. Then they get handed the analysis and try to make sense of it, but what they don't realize is that that process traps them. It traps their thinking. They then get focused on thinking about what is then analyzed, on whether that stuff is relevant to the proverbial price of tea in China or not. It does not matter. Your mind will be drawn to what you have in front of you as the analysis.
That sort of distractedness is a big part of it. When I do strategy with companies, I say, I do not want analysis. I do not want a fact-base to be created, the binders to be created before we think. I want to think and frame the challenge that we have. Frame the problem, and ask ourselves the question: "What are some of the challenges here? We are not growing as fast as our competitors; we think there is a big opportunity here; our growth is slowing; our profitability; etc." Then to imagine the kinds of choices that we could consider that would make that problem go away.
I start strategy by saying, "Colin, tell me a happy story about Invetech five years from now, when the company's in a great place that would make you deliriously happy." Then I would turn to your colleague and say, "Colin's story is off limits, you have to tell me another happy story that doesn't look like his happy story, but it's got to be happy, and it can't be like his." After I have done that with Bill, I turn to Sally and I say, "This is getting harder, but no Colin, no Bill, tell me another happy story." Then I ask the question: "What would have to be true for those happy stories to come about?" Then we discuss whatever they are we worried about, things we actually don't know if they're true or not, and then why don't we go and think about and get whatever analysis we can have on that stuff.
Remember how I talked about conflation? Often in strategy processes, things are unhelpfully conflated. What I have done in the "tell me a story" question is to draw apart logic and data. Those two things tend to be merged together in a thing called analysis. Often when people say, "We're not very analytical here, we don't believe in taking forever in using this analysis-paralysis." What they are talking about is data, and I'm talking about logic. I'm really interested in Colin's logic, in Bill's logic, and Sally's logic, and then we will populate the logic with data to see the degree to which one logic is more sound than another's. We sort a little to make the best of what we thought, because that is what is driving you to shorten your odds. You never get it perfect if you shorten your odds, but if you start with analysis, the analysis is actually presupposed by a given logic.
The interesting thing is that you can't analyze anything without the reason for why you did it. What generally happens in strategy processes is that part gets farmed out to somebody in the strategy planning area, the finance area. Then you get the analysis, but you don't know the logic behind it—and it is often the most junior people in the organization, not the people with the most developed logic about the business—and then we use that. So we are constrained to an implicit logic that we don't even know or see, and we try to optimize the decision based on that. Now we understand why at least 85% of every strategy document I have ever seen in my life is not worth the paper that it was printed on! Some percentage has some utility, and the other 85% is somewhere between useless and severely damaging.
Colin: It's the structure and it's the hypothesis that you put down, and the assumptions that you have, that you try and prove with data. It's an ongoing process of evolution. But if you don't start with a hypothesis, then you just end up with a bunch of PowerPoints with interesting, unrelated facts.
Back to the five-question framework: what game are we playing? How does the data help us clarify our thinking or support our hypothesis in that area? How are we going to win?
Roger: Based on what I have now described, you can see why a lot of entrepreneurial, hands-on managers look so askance at strategy. Lots of them just hate it: "We've got to do this stupid strategy thing; the board wants this strategy; I'll just ship it out to whoever the most junior person I dislike the most and get them to do it." It's because they have a proper and healthy disrespect for it, because the way it's typically done is not conducive to getting good things out of it. What you don't want them to do is just recuse themselves emotionally from strategy processes. You want their best logic, because often that entrepreneurial CEO has got really cool logic. Some of it can be tested and analyzed to a better extent then it is now, but if you don't get it out of their heads, you will never benefit from it, and they will never see how your strategy work is relevant to them. That's why when I work with CEOs on strategy, I keep the data and the analysis out of it until such time as it can be usefully deployed on the problem or challenge.
Colin: Yes, a terrific insight and very practical guidance. Some of your more recent publications have been in the area of Design Thinking, a topic very close to my heart. How do you see the link between innovation and design thinking?
Roger: Well, I am glad you have asked that now, because there is a direct link to what I have just described in the creation of strategy that is more innovative: I believe that core principles of design need to be infused into business.
My reason for doing a deep dive into design is not that I want the whole world to shift over to designers. I want to take the very best of design behavior and infuse it into business behavior.
For example, the happy stories that I talked about previously, those come from design. Good designers would say, "Don't focus on one person. Don't ask Colin what his happy story is and then go and try and prove that happy story. Even though Colin is the boss, his happy story might not be the best." What's good? Diversity. Get a whole bunch of happy stories. That's a designerly notion. Even the best designer would never say, "I am going to think about this problem and then come up with the one design." A good designer says, "I've got a whole bunch of designers in my firm, and therefore I'm going to get us all together and come up with the top twenty five ideas." Not the top one idea, or the top five ideas. That's part of why I think design can help in innovation in business. It will change the business processes from being very convergent-focused to having a divergent focus.
Designers don't come up with options, they come up with possibilities.
The other thing I said is, tell me a happy story. Imagine a possibility. Don't be constrained by what if. Because you could never prove a new idea analytically in advance, so I want you to view the generation of possibilities as a legitimate activity—¦and I don't call them options. And that is influenced by design. Designers don't come up with options, they come up with possibilities. It might be a subtle semantic difference, but an "option" feels too weighty. You know, that option has to be proved out, it has to be really good, it has to be valid. A possibility is just a possibility. That's why I call then happy stories. Even to a gigantic company's CEO, I just say tell me a happy story. Designers think about possibilities.
How do designers prove ideas? They do rapid interactive prototypes. For an analytical person, the future counts for nothing because there is no data from the future, and all they care about is crunching the data. That's what an analytical person would do. If you think about it, the problem with the next six months for an analytical person is it's in the future and it counts for nothing. But what if you create a prototype and do a little pilot? Pilot that prototype and take it out to customers over the next six months. The good news is that in six months from now, the future has just turned into the past, and it is now data. Designers cleverly figure out how to turn the future into the past in a productive way. They say, "I think customers will like something that looks like this, they won't spend much money on this." They will do it in the cheapest, low-resolution way possible. Then they'll put it in front of the customers. After they put it in front of the customers, that experience of putting it in front of the customers is now in the past, and you can learn something from the past that you can actually analyse.
I've got an article in this month's Harvard Business Review called Design for Action, where we talk about intervention design and how you have to design an intervention to get action to happen. That is actually what designers do with rapid prototyping. Let's say you're the client, and you've hired this design firm, how much easier is it for you to greenlight a product if over a three-month period you've done ten increasing higher-resolution prototypes with real customers. By the end of the tenth, because you've gone back to them ten times, they say it's precisely what they wanted. You're sitting there with the client, telling them they'll have to invest $50 million dollars (or whatever is a big number of investment for them). And they're saying, "Of course we are going to invest." It's now obvious, whereas ten iterations before—which might have only been three months before—the board likely would not have backed the decision to spend $100 million dollars on it. That's another part of the designer toolbox that is really important to infuse into business.
Colin: Yes, that resonates from my own experiences; one of the things that I like about design thinking is that it does move the analytical person, from data and PowerPoints, rather to prototype and experimentation. As you describe, it moves people from "thinking about options" to "thinking about possibilities", which brings more vision. The other thing it does is bring the users—the people who are going to be interacting and paying for the service—into the strategic frame, so that you can get feedback and shape your own direction.
Roger: I was just down in Australia and gave a talk with BT Financial. They were telling me about this great, restructuring of the back-end technology to make the user experience just a step function better than it is now. Half a billion dollars they spent on investment on like plumbing, the stuff that's harder to get investments on. And how did they manage to do it? In part, by prototyping with the board, because in the end, the board has fiduciary responsibility, so it's not actually going to be the customer that determines whether this goes or not.
It's going to be a small group of people called the board of directors that give the green light to spending over half a billion dollars. What you have to do is get them more involved.
This idea of taking analytical people and getting them involved should extend all the way up to the board of the directors. Don't go to the board of directors and say, "We did all of this analysis and now we're sure, you should be to." They could say, "It sounds good, but it's new—who's ever done this before?" No one. "Well, why should we be the first?" Well, being the first is actually very usefully getting this thing called first-mover advantage. "Yes but isn't it risky?" They have legitimate right to ask those questions, but they are going to ask them in a much different way if they were involved in seeing with their own eyes what the customers said, thought and did when presented with this innovation.
Colin: I think that is the power of the approach of design thinking. I know many people tell me that design thinking is just a process, and if you understand the process, you will be effective. But I take a slightly different view, in that I see it as much more of a mindset and a culture.
What are your thoughts on design thinking, do you see this as a process or more of a mindset? But either way, how do individuals and organizations go about developing that mindset, culture and approach?
Anybody can become a better design thinker and apply that to business, but it only comes with practice, repetition, and learning how to tell happy stories, how to test that happy story with customers in a useful way that will get you useful feedback
Roger: One of my favourite lines is this Ralph Waldo Emerson's: "A foolish consistency is the hobgoblin of little minds." That is my reaction to your question. Which is, you're right when people just say no, it's a process and if you go through these seven steps, you will get great answers. That's foolish consistency. It's how you do it, it's the culture around it, it's the mindset and the deep skill sets. I don't say that somebody has to be necessarily trained as a designer, but they've got to do this a lot of times—you can't just say, "We've learnt a process, we are going to come back and do design thinking." Am I trying to say that only special people can do it? No. Anybody can become a better design thinker and apply that to business, but it only comes with practice, repetition, and learning how to tell happy stories, how to test that happy story with customers in a useful way that will get you useful feedback. All those things require some dedication.
I believe the business world—and the world of business education in which I live—gives people massive amounts of practice and reps in analysis. You come out of any first-year business school program and you've calculated the cost of equity a thousand times, and you've run the economic order quantities a thousand times, and figured out weighted leverage data and estimated value at risk. You're way, way down the learning curve on that. You're highly practiced at that, but how much practice do you have on any of the kind of stuff that you and I are talking about? The answer is very little, and it's a waiting problem in the modern economy.
Think about two fundamental skill sets. On one hand is the skill set that is necessary for high quality analysis, and that is a skill in the manipulation of quantities. To do analysis, you have learned all sorts of tools and techniques to manipulate quantities in a useful, productive way. Like when you were six years old, you were taught your first quantitative manipulation methodology, it was called addition. You just got taught three and five is eight, and then you can do addition, and then when you get good at that, you get taught subtraction, multiplication, algebra, and eventually calculus; then if you go to be an engineer you get taught fluid dynamics. All of those are skills that you develop, tools and techniques that enable you to manipulate quantities to produce good outcomes.
There's a whole other part of the world, which is the appreciation of qualities, being able to make fine distinctions in the qualitative elements of situations. A sommelier can make fine distinction between the qualities of wines. A good sommelier does not stick a measurement tool into a glass of wine and say the alcohol content is exactly this or that; no, they look at it, they taste it, they get the essence of it, and they make a qualitative assessment.
To make decisions about innovation, you need to marry manipulation of quantities with appreciation of qualities. We have a systematic means in business for developing your capabilities and your manipulation of quantities, and the appreciation of qualities is completely up to you. "You're on your own, baby" is what we say to people in business, and what do you always want of the CEO? We want our CEO to be really good at managing people and motivating people. Is that the manipulation of quantities or appreciation of qualities? It's the latter. We want them to be really in touch with our customer base. It means that a CEO should be able to visit a customer and get a real sense of what they really care about, and if you are doing a great job—or just an okay job, or do we have to pull up our bootstraps. Can you get that from just looking at the order book and assessing is there a 3% growth in our business? No.
What is the formal training that you ever got for any of those things? None. You had to do it on your own. You probably look back over mentors. But we have to think differently about how we, in an organizational systematic way, build those skills, rather than let them just either happen or not. It's like Tom Wolfe's book, The Right Stuff. The CEO is a step-function increase, a really big increase in the need for qualitative appreciation. Since we don't train it, and we don't measure it, what we do is exactly the same thing that Tom Wolfe described, what the U.S. Air Force did with test pilots: you put them in the seat, send them up in the air and if they crash, they didn't have the right stuff. If they fly, then they did. That is exactly what we do with CEOs, and why do you think so many of them crash?
Colin: Yes, I do feel like that from time to time. We started off by thinking about innovation and the challenges that it presents and troubles. For those who want to elevate their game and get better business outcomes, what would your advice be on where would they start, where would they put their energies to get the most leverage?
Roger: First, they need to recognize that to be innovative, they have to mix manipulation of quantities with appreciation of quantities. Two, they'll need to recognize that they'll have to make logical leaps of the mind. It is not going to be a linear thing. Then you have to think about—if you are making logical leaps of the mind, and you are using analysis—how can you reduce the risk of that. That necessitates dipping into the designers tool box of rapid prototyping, getting used to going out to the customer earlier in the process and saying, "I know this sucks, but just react to it so I can make it better." It's those three things, and maybe I would add the forth: have fun. Don't think of this as a chore, think of this as fun. Hopefully, then when you practice this and get used to it, you will think of it as the most fun part of your job. The most fun part of my job is making that logical leap of the mind that creates something new.
Colin: Yes, there is a definite correlation between the amount of fun the team is having and their likelihood of success. Roger, thank you for your time today. It has been terrific to talk to you.
Roger: It's a joy, I love the topic! So it was fun for me too.