Author Talks: A New Way to Think About Management by Mckinsey & Company

Rethinking Management Models

Author Talks: A new way to think about management with Roger M ... https://www.mckinsey.com/featured-insights/mckinsey-on-books/au ... Mckinsey & Company Author Talks: A new way to think about management June 2, 2022 | Interview Predicting the future is impossible, but traditional business models try anyway. Roger Martin says management leaders need to revisit the whiteboard.

n this edition of Author Talks, Mckinsey Global Publishing's Rama Ramaswami chats with Roger Martin, a thought leader in business management and former dean of the Rotman School of Management at the University of Toronto, about his new book, A New Way to Think: Your Guide to Superior Management Effectiveness (Harvard Business Review Press, May 2022). A cornerstone of business education is the idea that all decisions must be based on rigorous data analysis, but Martin says this framework is beginning to crumble under the weight of an uncertain future. Some traditional management models assume that future trends will mirror past ones, but in a rapidly changing world, this certainty is becoming less and less reliable. An edited version of the conversation follows.

Why Think Differently About Management?

Why do we need to think differently about the essentials of management? A New Way to Think is about how you can take more ownership of the models you use in order to be a more effective manager. This is a return to the mainstream of what I've always done, which is to write about management. I've become more and more interested over time in how many times a model becomes the accepted wisdom-regarded as "this is the way we think about this problem"-how many times it becomes so entrenched, so much so that even if it doesn't work and has a track record of not working, we still stick with it. 1 di 10 06/06/2022, 09:21Author Talks: A new way to think about management with Roger M ... https://www.mckinsey.com/featured-insights/mckinsey-on-books/ar ... What I wanted to do is write a book that hopefully made managers brave enough to throw off some of the models that don't work for them. It was an extension of my work on how managers think, and the patterns of thinking that guide their actions.

Problems with Traditional Frameworks

What is wrong with traditional frameworks, many of which have been around for decades? A number of them are crumbling under their own weight. For example, there is the idea that in order to maximize shareholder value you should provide your senior executives-and your CEO in particular-lots of stock-based compensation incentives. That's been around since the late '70s. It really accelerated, and I would say became the dominate model, by probably 1990. You'd think you'd see a market positive difference for people to keep doubling down on that model, but there's no evidence that it's worked for shareholders. You could argue that a bunch of things that are bad have happened since to get the stock price up so CEOs get compensated more. That's been the product of the model. Isn't it time we asked the question: Is there a better way to do that? I would say that's happened across a number of models.

Our model coming out of business education is that all decisions must be based on rigorous, fact-based analysis, and if they're not, it means you're not paying attention, you're lackadaisical, you're slack, you're old fashioned. In fact, the assumption under analysis is that the future must be identical to the past-otherwise, the analysis you did is based on a sample that isn't representative of the universe, and you were taught in Statistics 101 that that's a bad idea. If you went to business school or if you went to engineering school, you were taught that all decisions need to be made on the basis of fact-based, rigorous data analysis.

I would say we're doubling down on models that don't have the outcomes that we wish they did, and it is time to take a look at those models.

Designing Strategy for an Unsettled World

Our world is so unsettled these days. How can we design a strategy that works both now and in the future? I think it's a myth that you can design a strategy that will for sure work in the future. Last time | checked, nobody knows the future-maybe some higher power-but none of us regular humans know the future. It unfolds as it will. So all strategy can do is improve your odds or shorten your odds. You have to take into account the fact that things may evolve in a way 2 di 10 06/06/2022, 09:21Author Talks: A new way to think about management with Roger M ... https://www.mckinsey.com/featured-insights/mckinsey-on-books/au ... that's much different from what you expected, in which case you're going to have to look at your strategy and ask, "How do I have to tweak or modify it?"

My first view would be that you're setting completely unrealistic goals if your goal is to be certain that your strategy can be stable and work for the future. The other thing I'd say about strategies for the future is that, again, if you base your strategy on analyzing the past, then you are implicitly making the assumption that the future will be identical to the past. Because it's based on rigorous analysis-and you've been taught in business school that rigorous analysis is correct-then you will not be ready for the future to end up looking different than the past, and you're more likely to stick with your strategy for longer because it's "right," based on the analysis. As a result, you'll stick with the strategy longer and probably crash worse.

"If you base your strategy on analyzing the past, then you are implicitly making the assumption that the future will be identical to the past. Because it's based on rigorous analysis-and you've been taught in business school that rigorous analysis is correct- then you will not be ready for the future to end up looking different than the past, and you're more likely to stick with your strategy for longer because it's 'right,' based on the analysis."

If instead you take strategy as being an exercise in dealing with the future, then you will take Aristotle's advice. Many people are not taught this and don't realize this, but he invented the scientific method. It was formalized by Bacon, Newton, Descartes, and Galileo 2,000 years later during the Scientific Revolution, but he laid it out.

The father of science, Aristotle, warned that you shouldn't use this methodology when you're dealing with a part of the world where things can be other than they are. He said his methodology was strictly for one part of the world, the part of the world where things cannot be other than they are. Aristotle said in that part of the world, you can analyze the past and be entirely certain that whatever understanding you come to, you can be entirely confident that it will happen in the future.

He said there's another part of the world where the future can be different than the past. This is like the digital world, for example. In 1999, there were zero smartphones-zero. The first was the BlackBerry in 2002. The last time I checked, there were 4.4 billion smartphones in the 06/06/2022, 09:21 3 di 10Author Talks: A new way to think about management with Roger M ... https://www.mckinsey.com/featured-insights/mckinsey-on-books/al" ... world-that's the part of the world where things can be other than they are. What Aristotle said is, in that part of the world, never, ever, ever, ever use the scientific method. Isn't that interesting?

What he said is, you must imagine possibilities of that future and choose the one for which the most compelling argument can be made. So I think strategies will be more robust for the future when we stop imagining that we can analyze the past to determine our strategy and rather understand that it is an exercise in imagination-imagining a future and then testing out the logic to ask which possibility for the future is the most logically compelling.

Notice that it's about being logically compelling, not data based. It's "here's what would have to be true about our customers, here's what would have to be true about our competitors, here's what would have to be true about our capabilities." You lay out what would have to be true and ask which condition seems most compelling. If you do that, you can do what Aristotle said. I think that's the best way to deal with the uncertainty of the future-to shape it, not let it happen to you-but you have to have this imagination and a belief that you can shape the future rather than a belief that you can extrapolate the past. That'll make for better strategy.

Less Data, More Creativity

Imagination Over Data in Decision Making

You argue that making great choices requires more imagination than data. How do we put this into practice? It's mainly an exercise in freeing people up, in saying to them that in order to shape your strategy for the future, you don't have to go by what the data say. What you can do is imagine things that you think would be better for us, better for the consumer, better for the world, etcetera, and then we'll test those.

I think the world of business has put people in a straightjacket of strict, rigorous data analysis. Once freed from it, they are game to play. That having been said, when I work with companies and groups on that, I do encourage playfulness. If the ideas coming forward aren't crazy enough, I say, "I'm not stopping until I get at least one idea that all of you think is crazy. If everybody doesn't think it's crazy, then it doesn't count. We're going to keep going until we get one of those." 4 di 10 06/06/2022, 09:21Author Talks: A new way to think about management with Roger M ... https://www.mckinsey.com/featured-insights/mckinsey-on-books/au ... People are born with the ability to imagine; I think kids with their drawings can imagine anything. And then, policies and practices of organizations that people are involved with keep on hemming that in. This is why the book is about models. If the model is, "I am only going to believe it if it's backed with rigorous, statistically significant analytical data," I will just tell you sorry, that doesn't cut it.

There are many, many executives who are now practiced in the art of backward fitting data to the imagination they've set. They'll come up with an idea and say, "I want to do this thing," and then they'll tell their people, "Go put together a data pack that would support this." I've seen it, I understand why-because they need a legitimizing factor to do the thing that they really wanted to do in the first place, for which they cannot point to rigorous data. Is it that they don't have any data at all? No. They'll say, "Well, I saw this in this other industry, and I was talking to this set of consumers the other day on this, and it occurred to me that we could combine those two things into this."

So it's not illogical. Those were logical leaps. It's something that Charles Sanders Peirce, this great American philosopher, called abductive logic, which he called a logical leap of the mind. People are capable of that-they're generally just taught that it's not legitimate. Now, who is it legitimate for? Entrepreneurs. If I'm an entrepreneur and I say, "Here's my great idea," and you say, "That's crazy. What proof do you have of that?" What's the entrepreneur inclined to say? They're inclined to say, "I don't care that you think it's crazy. This is going to work, and just watch me." There's this entire class of businesspeople-entrepreneurs-who ignore those models, and they're the people who create the future by saying, "I'm going to make something right that isn't."

For example, Steve Jobs made a little white MP3 player with a little wheel on it and sold it for three times the going price of a similarly featured MP3 player that had been proven to be a solid piece of equipment. He soon had and kept over 50 percent market share of that business, at three times the price, and it's because he made something true that wasn't. What he said was, "Those little MP3 players would be way more valuable if we could create a really easy way to download songs from the internet onto that, one song at a time rather than an album at a time."

Did that exist? No. Did he make it exist? Yes. Did that make him famous? Yes. Did he dent the 5 di 10