Think:Act Magazine "The Circus of Transformation"
Roger Martin on the relevance of management models
The author of A New Way to Think asks if our current models are fit for tomorrow’s purpose
by Neelima Mahajan
Illustrations by Nigel Buchanan
Renowned for decades of incisive research into management practices, Roger Martin is convinced business leaders should jettison outdated models that no longer reflect economic or social realities.
In your latest book, A New Way to Think, you question our blind reliance on existing frameworks and models. Where are you coming from and why?
Models have various kinds of lineages and, in most cases, they were flawed models from the start. It takes a while to figure that out. All models that are dominant have some grain of truth, otherwise they would have never gotten to be dominant. The question, once you use them enough, is: Are they providing the results that you expected them to?
Is this also a function of models falling out of sync with changing realities?
Sometimes they do. A model that says we can recruit lots of people, and the cost of training them is totally justified because they're going to stay for 25 years, isn’t right. The modern workforce will stay two years, not 25. You need a new model that says: If I invest in these folks, I've also got to invest in their careers in a way that compels them to stay.
The model of "you should align the interests of management and shareholders with monetary incentive compensation" was flawed from the word go: It's just becoming more obvious over time how many problems there are with it. One of my principles of managerial life is that every game gets gamed. A bunch of Wall Street people are totally irresponsible about this ... they inside-trade, not realizing that in due course people will lose faith in the very capital markets they need to make their illicit profits. The parasite is going to kill the host.
Roger Martin is the former dean of the Rotman School of Management at the University of Toronto. He was named the world's top management thinker in 2017 by the Thinkers50. A trusted strategy advisor to the CEOs of companies including Procter & Gamble, Lego and Ford, he is also the author of 13 books including 2022's A New Way to Think: Your Guide to Superior Management Effectiveness. Martin spoke with Think:Act at the Global Peter Drucker Forum.
What does our blind reliance on existing management frameworks and models say about us as leaders? We are almost automatically geared to choose from a menu of options, rather than trying to create a better one.
In management education, you are taught tools and the context for using them. In design schools, however, you're taught to create tools that don't exist. I asked Airbnb co-founder Joe Gebbia: "When you look back at your time at design school, do you think it was an interesting education?" He answered: "It was critically important. I spent four years doing nothing but being thrown a challenge to create something that does not exist and then being critiqued on it." Would a Harvard MBA say that? No.
You've been dean of a business school and you've done a lot of pioneering work in design thinking. How do you think things will change?
I hate to sound pessimistic, but it feels to me as if the design thinking movement in business schools is waning more than waxing. Professors are not interested in the subject because it doesn't fit in any of the business school fields.
Does this have anything to do with how organizations are expected to be run and that practice is sort of perpetuating?
Yes. The modern business world reveres specialization and quantitative analysis. Peter Drucker once said that there are no marketing problems, tax problems, or accounting problems – just business problems. The business world says no. One of my clients spent a billion dollars to centralize their European employees in one tax jurisdiction. Then they realized: "Oh, but to not have this reversed by the local tax authorities where we do business, our people can't travel to those countries." It was a narrow tax decision that's bad for business. A super-duper tax specialist can baffle you to death: "You can’t do that – you know Section 38(B)…" I have no idea what Section 38(B) is. So, people earn linguistic control over a jurisdiction and then we have to say: "Do whatever you want." These tax people cost my client. Their salespeople can’t visit customers in those countries. But we got the tax savings!
How do you tell when an existing model doesn't make sense anymore? Can you judge that beforehand?
I don't think you can judge beforehand, but you can be explicit about what you expect. You should say: "I am using this model because I expect this outcome," and write it down. The human mind has an infinite capacity to ex-post rationalize. In war crimes trials, prison guards say: "I had no choice but to send those people to their death." That is profoundly false; but the guard's mind was able to rationalize his behavior after the fact. Because of that tendency of the human mind, it is very important to write down immediately what you think the results of the model are going to be so that when it happens, you have something to reference against. If it is the dominant model – and unless you come up with some awesome argument to explain why it's a bad idea – try it, but predict the results. If it doesn't work for you, try again. If it doesn't work for you again, ask yourself: Is this a good model?
As a leader, you have to make sure that the models are testable and tested. When there's a dominant model, it's hard for you to say in advance: "I think this is dumb." I ask the question: "As a real human being, how is it that this human being will make choices of the sort we want them to make? Let’s just play it through." When you play it through, you find a real human being in that position doing a set of things, not a theoretical conceptual human being.
If an idea seems too far outside of the box, consider what has to be true rather than what currently is. In other words, the goal is to create and test a novel cause-effect hypothesis and then to identify what would have to be different for that hypothesis to work.
This is why I do not like pay for performance, because if you have a pay for performance curve that goes straight up and to the right forever, then you say: "Well, that salesman arm-twisted the customer into buying too much inventory at the end of the year, so he can make his bonus." With a curve like that, how do you expect them to have a stopping mechanism? At what point is the salesman going to stop that is consistent with what you wish would happen? You have given them no stopping mechanism. You said "forever" is good and they're doing it forever. They are doing actually what you told them to do and by doing that, defrauding clients. So one problem of incentive structures is they work too well.
Do you think there is a need to reimagine the strategy-making process?
Absolutely. When it comes to strategy, I believe I do it differently than anybody else. There are strategies now in most organizations, but it's a highly analytical exercise that's designed to produce a plan, not a strategy. It's hard to understand how people think things like SWOT analysis [Strengths, Weaknesses, Opportunities and Threats] can produce something good. We should retire SWOT analysis forever because it's stupid. But it's still probably the most used way to start this strategic planning process in the world.
Detail advantages and their scope, but keep a broad view. Analyzing just one possibility will not lead to productive action.
A brainstorming team should be diverse and small enough to limit self-censorship. Make a lower-level insider team leader.
Brainstorming is not the time for skepticism. Reframe critiques as the conditions for an idea to work in the real world.
The pandemic has presented us with a situation for which we had no models to rely on. Do you see this as a major reset moment for management thinking?
It should be – whether or not it is going to be is a really open question. I would hope management has bigger error bars around every estimate they make. A second takeaway I wish for is the treatment of essential workers: It boggles my mind that we identify these people as essential when the economy is going into meltdown mode and then nonessential when things recover. A significant – if not vast – majority of these people are making something close to minimum wage and a bunch of them got danger pay, $1-2 per hour, during the pandemic and after it was over, it went away. What are we thinking? I hope there is a lot more rethinking of resilience, the right mix between efficiency and resilience.
I also believe we will have to change the way we think about in-person work. So many people came to the conclusion that it's better to be working from home than at the office, especially parents and people with long commutes. To me, the new rule should be "we will work in a way and from a place that is appropriate for the task at hand." If we were able to do the analysis, maybe 25% of work benefits from being in the presence of other workers.
Going back to resilience and efficiency: What kind of balance should companies be looking at in light of what happened during the pandemic?
We are going to look at 2019 as the point of the lowest buffers in, let’s say, the last 100 years. Buffers for everything – time, people, equipment – will never go back to that level. And there will be all sorts of new ones, like pharmaceutical factories in North America – a buffer against a war with China and having no pharma products. There will be a real push to engineer around rare earths because China has all of them. It's like World War II. When the Japanese took over Malaysia, they took over the world's rubber supply. Six months later the allies had invented artificial rubber because otherwise their planes wouldn't have been able to take off, their Jeeps wouldn't have run. When push comes to shove, the world figures stuff out. I think we will be more proactive and we will have a more resilient world, at least in these respects.