Author: Roger Martin

My dear friend AG Lafley and I have written a book called Playing to Win: How Strategy Really Works and we are gratified by all of the positive reviews — The Economist, the Financial Times, Fortune, etc. Even on Amazon.com, the reviews have been 100% 4’s and 5’s.

But sometimes those 4’s inspire a blog post.

One of the Amazon reviewers, ‘Greg’, said lovely, positive things about the book, but ranked it a 4 because: “I seriously question whether this is a strategy book or a marketing book. Yes, the word strategy pops up a lot, but the examples and the cases … belong to marketing.”

In his head, I am sure Greg has a definition of marketing and the book reflects his definition of marketing. But to make his point, he has to have a useful definition of strategy that is truly distinct from marketing. 

Therein lies the rub. As business thought and understanding has evolved, any useful definition of the difference between marketing and strategy has disappeared. That is why Greg could call a strategy book a marketing book. The dividing line between strategy and marketing has disappeared in practice.

It was not always so. Strategy and marketing emerged out of very different traditions.

Marketing came out of sales: given that a company wanted to sell stuff to customers, how could it think about doing that in an intellectually rigorous and planned way? The answer that emerged in the late 1940s was a thoughtful ‘marketing mix’ which gave rise in 1960 to the most famous concept in marketing history: the 4 Ps — Product, Price, Promotion, and Place.

The implicit notion behind this approach was this: if the company was going produce some kind of product (or service but this thinking really emerged in a products environment), it had better optimize the 4 Ps in order to sell as much of it as possible. The players explicitly considered in this equation were the company and the customer.

In stark contrast, business strategy emerged out of military theory: how could a company beat it is enemy? In the case of business, that meant its competition. Thus, the early business strategy thinking that emerged in the 1960s focused on the capabilities of the company relative to its competitors. Was the company farther down the experience curve than its competitors? Was it using the resources from its Cash Cows to fund its Stars to a greater extent than competitors could?

Unsurprisingly, the customer did not loom large in this early view of strategy. In military strategy, customer needs was a pretty simple notion. They — i.e., your citizens — wanted you — their military — to defend against or conquer the enemy. That is about it in terms of customer understanding.

Hence the roots of marketing involved the company and its customer while the roots of strategy involved the company and its competitors. And in that era, marketing and strategy looked a lot different.

But as the practice of each scrolled forward over time, they converged. Marketers figured out that the crux of the issue was product, price, promotion and place relative to competition and sometimes that meant completely changing every P in order to carve out a useful place relative to competitors with some set of customers. Strategists figured out that beating competition entailed having intimate knowledge of exactly what customers wanted so that the capabilities they invested in would actually meet a customer need in a way that would result in better performance than that of competitors.

When these two realizations manifested themselves, the line between marketing and strategy disappeared. Good marketing and good strategy are both about making choices that build and maintain a particular set of capabilities that enables the company to outperform its competitors with a particular set of customers.

Because business schools are generally dedicated to narrow knowledge fields and opposed to integrative knowledge, they have assiduously maintained two separate disciplines in marketing and strategy to the benefit of no one. And because companies have fallen in love with specialization in skill development and fragmentation of organizational structures, they have followed suit and generally maintain separate marketing and strategy departments. That is probably Greg’s organizational experience.

The very best companies in the world have eschewed this unproductive distinction between marketing and strategy, and P&G is one of them. That is one of the reasons why Playing to Win is co-written by its former CEO.

J.C. Penney’s disastrous 4th quarter 2012 loss of $2.51 per share, which capped off a year with a greater than 30% same-store sales decline, should have come as no surprise.

The key shareholder currently driving Penney’s decisions, Bill Ackman, is a savvy activist investor who knows how to agitate for quick capital market hits, like spin-offs of non-core assets, splitting up of companies, and forced mergers. But he shows almost no evidence of understanding enough about strategy to turnaround a company.

So when he takes on an investment that necessitates improving the core operations of the company in question, whether Borders, Target or J.C. Penney, the results are usually disastrous. (In fairness, not every time: his Canadian Pacific Railway turnaround effort seems to be gaining traction.)

The PowerPoint decks that he uses to lecture company management and investors on the brilliance of his plans illustrate the problem with his approach. They include lots of build-up charts that begin on the left side of the page with a low bar showing current earnings, a high bar on the right with the target earnings and then a series of building blocks that ladder from the pathetic performance on the left to the wonderful performance on the right. Better inventory management will produce 6₵/share. Higher sales/square foot will produce 11₵/share, and so on.

But the charts all assume that the base bar on the left is stable and secure. That’s where the problem begins. The base bar isn’t stable. No crummy company without a strategy is stable and secure and J.C. Penney demonstrates that in spades.

So while Ackman waxes eloquent about how CEO Ron Johnson has doubled the sales/square foot in the mini-store-within-a-store he has been installing within J.C. Penney stores, the so-called ‘new J.C. Penney’, overall store sales are plummeting dramatically. That, of course, means that for the approximately 90% of the store that isn’t the new J.C. Penney, the floor of sales/square foot hasn’t been a floor but rather quicksand.

The problem with J.C. Penney is that it serves no compelling customer purpose — and neither did Borders. It doesn’t have an aspiration for winning — just for improving from the current pathetic state. It hasn’t made a choice to pursue a distinctive where to play and how to win that makes it a must-have destination for some set of shoppers for some set of goods. This is the heart of strategy: a set of choices that aspires to win against all comers in a certain place by delivering a particular winning proposition.

Investments in improvements without a clear definition of strategy are simply a waste, whether or not the CEO came from a company with an awesome strategy or not. The only competitor against which the ‘new J.C. Penney’ is actually advantaged is the ‘old J.C. Penney’.

Customers are likely to walk through the ‘old J.C. Penney’ part of the store thinking “this is pretty bland” and then get to the ‘new J.C. Penney’ part and think “wow, the rest of the store is really a lot worse than I thought.” That is how sales per square foot in the ‘new J.C. Penney’ can be double the rest of the store and total store sales are down 30%. The tiny ‘new J.C. Penney’ part of the store is cannibalizing massive volumes of sales from the ‘old J.C. Penney’ part of the store for each customer who walks through the door.

Ackman publicly argues that as the ‘new J.C. Penney’ grows from about 10% of the store to 100% of the store, the whole store will have double the sales per square foot of the old J.C. Penney stores. But when the old J.C. Penney square footage disappears, the new J.C. Penney will actually have to compete against real competitors like Macy’s or Saks or Target and that isn’t going to be pretty. If ‘new J.C. Penney’ had shown itself to be capable of spurring sales by a magnitude that overcame the net cannibalization of ‘old J.C. Penney’ sales, there may be some hope. But that is so very far from the case that there is little or no hope that J.C. Penney will prosper, let alone survive.

If Ackman wants to actually turnaround ailing companies, he and his managers need to figure out strategy. They need to inspire to win, not just improve. They need to get adept at choosing a place to play and a way to win that makes the company distinctive against competitors in the eyes of customers. In the meantime, investing alongside Ackman in this sort of venture is an iffy proposition.

I have never seen anybody become good at strategy without practice. It may happen, but I have never seen it. I doubt that I will see it, because strategy is a discipline. Like any discipline, you have to believe in it and work at it to become skilled; both mindset and effort are required to make progress and become adept at the strategy.

The key to the strategy mindset is to view business life as not entirely random; stochastic but not random. While it may be absolutely necessary to revisit and revise choices more often than convenient, the assumption holds that effortful, determined, revisable strategy is better than simply letting happen whatever will happen.

By far the easiest thing to do is to see the future as so unpredictable and uncertain that you should keep all your options open and avoid choice-making entirely. The irony, of course, is that not choosing is every bit as much a choice, and every bit as impactful, as choosing to choose.

There is a bit of F. Scott Fitzgerald here: He wrote that “one should… be able to see that things are hopeless yet be determined to make them otherwise.” Businesses will evolve and change in ways that make last month’s or last year’s investment decisions look stupid. It will happen, no matter who you are and how smart you are. It happened to Warren Buffett with Salomon Brothers, Dexter Shoes, U.S. Airways and Conoco. But those are anomalies among the countless other bets that worked out largely as he thought they would. The mindset of a strategist is to hold that just because some bets turn out to be wrong doesn’t mean that the future is entirely unpredictable.

If the first necessary element to being an accomplished strategist is belief, the second is work, work, and work some more. This means making strategy choices, seeing how they work out, and then learning from them. Strategy is part art and part science; a heuristic, not an algorithm. As with most heuristics, you can learn the categories to think about: pay attention to customers, to competitors, to capabilities, to elements of industry evolution. But there isn’t a learnable formula about how to put them together in any given choice context.

That is what requires practice — and the form of that practice is really important. In golf, you might feel that going to the driving range and hitting a thousand balls is inherently good practice. It isn’t, though, if all you do is go up to the tee, pound the ball as hard as you can, and see whether it went straight and far. If some shots were great and others not so much, what did you learn? Just about nothing, unless you thought in advance about what you were trying to do and what you would pay attention to (e.g. head stillness, hip turn, hands leading, etc.). And still, in golf, you probably need a swing coach to watch what you actually do, versus what you hope you are doing, in order to learn something useful.

In strategy, helpful practice means setting out your logic about a choice in advance — e.g., I think consumers will react in this way, competitors will react that way, we will be able to deliver this and we achieve this outcome — and then watching what actually happens against this predicted logic. This is the only way you will learn; the only way you will figure out whether your logic was entirely sound or flawed in some way.

And when I say setting out your logic, I mean actually writing it down in advance, not just thinking it through. That is important because of our human capacity for ex-post rationalizing absolutely anything and everything. If you don’t write down in advance what your logic was, you will find that you will convince yourself that everything worked out the way you thought it would — and you will learn nothing. In golf, your swing coach can keep you honest — no, you didn’t lead with your hands through impact. But in strategy, you need to keep yourself honest.

Of course, you can’t ever eliminate chance. You may have made a bet that was a sound one, but didn’t pay off this time because you were unlucky. Perhaps the bet had an 80% chance of paying off, and you fell prey to the 20%. That is why lots of practice and experience is required — it builds up your repertoire of bet analysis and observation. And so the more you practice, the less exposed to chance you’ll be — though it never quite goes away.

Bottom line: If you believe that you can succeed more often than not in dealing with the inherent uncertainty of the future and you practice at laying out your logic, making strategic choices and assessing the outcomes, you will become an accomplished strategist.

I must have heard the words “we need to create a strategic plan” at least an order of magnitude more times than I have heard “we need to create a strategy.” This is because most people see strategy as an exercise in producing a planning document. In this conception, strategy is manifested as a long list of initiatives with timeframes associated and resources assigned.

Somewhat intriguingly, at least to me, the initiatives are themselves often called “strategies.” That is, each different initiative is a strategy and the plan is an organized list of the strategies.

But how does a strategic plan of this sort differ from a budget? Many people with whom I work find it hard to distinguish between the two and wonder why a company needs to have both. And I think they are right to wonder. The vast majority of strategic plans that I have seen over 30 years of working in the strategy realm are simply budgets with lots of explanatory words attached. This may be the case because the finance function is deeply involved in the strategy process in most organizations. But it is also the cause of the deep antipathy I see, especially amongst line executives, toward strategic planning. I know very few who look forward with joy to the commencement of the next strategic planning cycle.

To make strategy more interesting — and different from a budget — we need to break free of this obsession with planning. Strategy is not planning — it is the making of an integrated set of choices that collectively position the firm in its industry so as to create sustainable advantage relative to competition and deliver superior financial returns. I find that once this is made clear to line managers they recognize that strategy is not just fancily-worded budgeting and they get much more interested in it.

Obviously you can’t execute a strategy without initiatives, investments, and budgeting. But what you need to get managers focused on before you start on those things is the strategy that will make these initiatives coherent.

That strategy is a singular thing; there is one strategy for a given business — not a set of strategies. It is one integrated set of choices: what is our winning aspiration; where will we play; how will we win; what capabilities need to be in place; and what management systems must be instituted?

That strategy tells you what initiatives actually make sense and are likely to produce the result you actually want. Such a strategy actually makes planning easy. There are fewer fights about which initiatives should and should not make the list, because the strategy enables discernment of what is critical and what is not.

This conception of strategy also helps define the length of your strategic plan. The five questions can easily be answered on one page and if they take more than five pages (i.e. one page per question) then your strategy is probably morphing unhelpfully into a more classical strategic plan.

This definition of strategy can be disconcerting to those who have spent a lifetime generating traditional strategic plans. Not long ago I facilitated a day long strategy session with the senior team of a very successful $10 billion company with an outstanding CEO. By the end of the day (in part thanks to a goodly amount of pre-work by the head of strategy), we got to a nice set of integrated choices. I congratulated the group on its great thinking and working and affirmed what I judged to be an excellent strategy.

My enthusiasm notwithstanding, the CEO was troubled. I asked him why. “Is that all we have to do,” he asked, as if he thought he had cheated on an exam. I am sure he expected that he had to full binders and long lists of initiatives to feel that he had been thorough in this year’s strategic planning process. I reassured him that he had given strategy anything but short shrift. And that day strategy prevailed over planning. I suspect that CEO will never go back.

So if you pass the five-page mark is time to ask: Are we answering the five key questions or are we doing something else and calling it strategy? If it is the latter: eject, eject!

The World Economic Forum at Davos is known for a lot of things: its idyllic mountain setting, its overstuffed buffet of discourse and debate, its wide array of business leaders, politicians and policy-makers, plus its celebrity-studded parties and unmistakable undercurrent of exclusivity and elitism. I returned to Davos this year after a few years’ break, and saw all of that in full force.

A few newer trends stood out: a wider discussion of the threats to capitalism than I’d seen in the past; a good deal of fear and blame-mongering around the state of the global economy and some leavening optimism around technology and innovation. But the thing that struck me most clearly at Davos this year wasn’t about the content of the discussion; it was about the style.

Presenters and panelists alike fretted, enthused and expressed like mad, vividly sharing their fears, hopes and feelings about the state of the world. They were emoting all over the place. Emoting, according to the Free Dictionary, is ‘to express emotion, especially in an excessive or theatrical manner.’ I saw a lot of it.

Emoting isn’t unique to Davos, of course. It is a global trend (and Davos is better at picking up on trends than at almost anything else). It is hard to peg exactly when the emoting trend picked up steam. Perhaps it is rooted in the talk-show confessionals and reality show explosion of the past two decades. Or perhaps the massive growth of online content has created a context in which the mere expressions of ideas cannot break through the clutter unless accompanied by the emotional detritus of sobbing YouTube videos and sad-face emoticons.

Personally, I blame it on President Bubba. Bill Clinton made it acceptable and even cool for a guy, the most powerful man in the world, to emote. Emoting became, under Clinton, the mark of a caring leader and a powerful public speaker. Think of the scene in Primary Colors when John Travolta, playing presidential candidate Governor Jack Stanton, a proxy for Bill Clinton, spent hours in a Krispy Kreme donut shop emoting with the clerk and assorted other patrons. It was the peak advertisement for emoting-as-leadership.

Emoting is often confused with empathizing — ‘identification with and understanding of another’s situation, feelings, and motives.’ Clinton famously felt our pain and, to the extent that he did feel it, that’s empathy. But the words “I feel your pain” can have another meaning too: that is, I feel pain because I have to deal with the presence of someone who is in pain. That’s not empathy; that’s emoting.

The difference is important. Empathy is pretty much an unalloyed good. It opens us up to others and it makes us more mindful, more thoughtful, more kind. Empathy is not self-indulgent. Emoting, on the other hand, is most often a cry out for someone else to empathize with you. Feel my pain, please!

Over the past decade, I have noticed more and more emoting by members of governance bodies — boards and governing councils, for example. When management comes forward with a recommended initiative or investment, members of the governing body respond not with thoughtful critique and advice but by emoting: ‘this makes me nervous,’ ‘I worry about the employees,’ ‘this could create uproar in the capital markets.’ Simply emoting is now considered useful and appropriate behavior. There is no need to think about how to overcome the fretting; emoting is the only job. Such behavior sends a clear signal to management: “You have produced an unpleasant emotion and made me uncomfortable, which I have signaled by emoting. Now, it is your job to make me comfortable. Please don’t make me emote again.”

This was a dominant current at Davos. Lots and lots of emoting — about inequality, instability, inequity, inefficiency, inhumanity, insufficiency, etc. I think it provides comfort, but in an odd sort of way. The Davos crowd includes many power-brokers, world leaders and economic titans. Getting a chance to emote together in a big group is probably a relief from the day-to-day life of running an unruly world.

The big question to me is: Is that as good as it gets? Could a group like this, rather than mainly emoting to one another, focus more on creating breakthrough strategies for moving the world forward? Maybe I have strategy too much on the brain these days, but I tend to think that in the absence of a sense of strategy, problems feel overwhelming — and feeling overwhelmed leads to emoting. If on a number of the issues worrying the Davos participants there was a focus on where to play and how to win, I suspect emoting would decline and strategic breakthrough would blossom.

Contrary to popular opinion, strategy is not about turning uncertainty into certainty. Lots of bureaucratically inclined board members and corporate executives want and expect this to be the case. When reviewing strategies, you can hear them asking for proof that the strategy will be successful.

This kind of exchange is a terrible mistake on all sides. Advocates are promising something they can’t control and are setting themselves up for harsh punishment if things don’t turn out the way they hope. At the same time, making a guarantee in advance simply reinforces the mistaken belief that it is possible to be certain about any future outcome.

The reality is that strategy is about making choices under competition and uncertainty. No choice made today can make future uncertainty go away. The best that great strategy can do is shorten the odds of success. When crafting a strategy, all companies need to make bets about what customers will want in the future, what competitors will do in the future, what the company itself is capable of accomplishing in the future, what will happen in the economy generally. None of these bets can be guaranteed

Strategy means making the best possible choices you can make today and then being responsive when the bets do or do not come in as hoped. In essence, the strategist says “this is what I think will happen,” watches what does happen, and then updates the strategy and bets based on the newest information.

If strategy can’t eliminate uncertainty and needs repeated adjustments, why bother doing it at all? Why not just let the world play out and react accordingly? The reason is that strategy is the only way to figure out to what to pay attention to and how to get better.

The act of articulating a desired future state — a decision about where to play and how to win — enables the tracking of progress against the desired state. Stating the set of key bets about the future that have to come true for that desired state to happen allows the monitoring of how the key bets are playing out.

For example, a company looking to win on the basis of superior consumer service would have to bet that consumers would reward it for superior service and that it could deliver that service meaningfully better than could competitors. Having articulated the strategy and the bets, the company can develop measurement systems for both the outcome and the bets.

These systems should clearly point to the things that matter, the things the company must pay attention to. Without them, as the future plays out, the company won’t know what matters or how to make sense of the things that happen. In essence, articulating a strategy raises the signal-to-noise ratio of feedback from the market.

So strategy is not about getting rid of uncertainty, it is about knowing when the world is breaking against your bets — e.g., we thought customers wanted smaller screens but they really want bigger ones. This way of thinking about strategy is helpful in two ways.

First, the company can watch the key bets like a hawk, see deviations as early as possible and take action as appropriate. Without knowing what to watch for, the company is much slower to respond.

Second, the company gets a leg up on how to modify its strategy. The company has a logical structure to its existing strategy to which it can apply the new data, updating and enhancing the strategic logic. This is much more efficient than having to create the structure from scratch.

So rather than seeing strategy as a way to get rid of uncertainty, think about strategy as a way of dealing productively with life’s inevitable uncertainty, by continuously making and updating your bets about the future.