When more is not better | Strategyzer Webinar with Roger L. Martin

Where you are joining from in the meantime, so we can see a little bit, you know, where from which places in the world you're. You're joining. Okay. Vienna, Berlin, Zurich, Washington, Madrid, Leiden, Chicago. Okay. So good group.

And I don't know if I told you, Alex, my peeps are from Switzerland originally. Great.

So you.

I understand Swiss time. They left the US in the late 1600s.

Wow. Okay. All the way back. Wow.

Yeah. And then. Then went to Canada in the late 1700s. But I'm Swiss by. By origin.

Okay, okay. So you're a good tennis player, like Roger Federer, like, it all is all in our genes, right?

I wish. I wish. Okay, let's. People don't seem to think I float around the tennis court elegantly, Alex.

But I did read just before we get started, right. You had some influence on the Canadian Tennis association, right?

Absolutely. I was chair of Tennis Canada for three years, on the board for 12 years, and was the architect, with really three other people, of the strategy that's turned us into a leading tennis nation. So that is awesome. It is cool. It's cool to watch.

I'm sure not that many people know it. Yeah, let's. Let's get started. So we're about a minute in. I think a couple more people will trickle in. People are from Mexico, Amsterdam. Any peeps from Africa? I was speaking at the Africa Business Day today, so I'm curious. Anybody?

Dubai?

Okay, good. Okay. So we have a wonderful, wonderful guest today in our Strat chat, Roger Martin, who I'd admired for a very long time, read the books and really was an inspiration for Yves Pigner and myself for the work that we've done. I won't go too much into the bio, but you have originally consulting background, been in academia, really leading thinker, been at the top of the Thinkers50 list and on many company boards. So really seeing it also from the inside, what companies are doing and as we've just heard, even turned around associations like Tennis Canada. Roger, welcome to our show today.

Oh, thank you so much for having me, Alex. Any excuse to spend an hour with you is a good excuse as far as I'm concerned.

I always feel so good after talking to you. I learn every time, and you're such a nice person at the same time. So we're here today because Roger launched his new book, When More is Not Better. And we'll go deep into that. But just to get started, what allows us kind of to sponsor these Strat chats are the online courses we do the webinar Invincible Companies. So Take a screenshot gab who made this all possible. The webinar today will also share it in the chat window. And we have a second one together with David Bland about testing business ideas to decrease the risk of your ideas so you don't waste a lot of venture capital money and don't waste a lot of your time. And with that, we'll start with a very, very quick poll and let me see if I can elegantly switch the screen so you can use your mobile phone. You'll use it to tweet the awesome stuff that Roger and I are going to talk about. You can also use it now just to go to the poll there and we will switch, see how elegantly or not so elegantly. I can do that. Go over here and maybe launch. We already have people here joining our poll. So who's been to a strategizer webinar already? So I'm doing this because afterwards we're going to ask you a couple of questions. So this is kind of the warm up. So couple of you have been to most. Now we need more votes. We need more votes from the 250 people are here. Got a C. Because afterwards we're going to get to real work talking about real substance. So at least a couple of you more get some votes on top. You go to menti.com, type into menti the code and that will allow you to participate in our other polls. That we will do. Okay, so quite of an even group, very shy, timid. We only got about 40 people pulling out their phones, pulling out their browsers to vote. Hope we'll get a little bit more afterwards. Okay, but at least you now know where to go when we launch you on a poll. Roger, tell us maybe first to get started what motivated you to write this book and kind of, you know, what got you started because you know, you tackle really big ideas and you always have a real reason to write a book. So I'm curious about this one a little bit behind the scenes. What, what drove you to start this book?

Sure. So we have to go back to 2013, which is when I started the project that resulted in the book. And at that time I was worried about what I saw as this stagnation of middle incomes in the U.S. so the book studies the U.S. although I think it has broader applicability. But I was looking at US Median income and, and it had historically gone up kind of smartly. In almost all years there'd be the odd recession, but by and large it was advancing. In fact, Ever since they started measuring it up to 1976, it was growing at 2.4% per year, compound annual. What's meaningful about that is that means it doubles every 30 years. So, so essentially the American economy for that median family, that average family right in the middle of the distribution, could look forward to their children having twice the level of real income that they had. Pretty good, right? Makes for a good system that after 1976, which I pick, you could pick any year. In the mid-70s, I just picked the bicentennial year. After that, it had flattened out dramatically. In fact, 0.6 of 1%, so a quarter of the rate, which meant that median family who previously had doubled their income in one generation took 100 years to do so. That was the motivating factor. I said, what happens in a democratic capitalist country when the swing voter. Because I sort of said, hey, you know what? In some sense the median family is the swing voter. I mean, it's not actually them, but it's in that band. If the swing voter says, this isn't really working for me, what would happen to democratic capitalism? And so that motivated me to study it. And interesting enough, between 2013 and now, a bunch of the things that I worried about have kind of happened, right? There's more kind of ambivalence about capitalism. Young voters when polled say, ah, maybe socialism instead. So I kind of love the combination of democracy and capitalism. And so I wanted to study why. Why had things changed and could we get it to change back to this world of this ever advancing prosperity of average Americans?

And before we get to some of the solutions, how we actually can get there, let's dive a little bit into the challenge there, into the problem. Like, why actually did that happen? Like, did anything go wrong or was just kind of going the trajectory and somehow we got off the road. What are some of the challenges that led us to where we are today before we kind of get into how can we get out of this?

Sure. So it's a little bit different story than kind of lurching off the road or something. It's almost as though we sped up too much and then slowed down. I guess it's that we pushed something too hard and so hard that we made something that was a good thing. No longer a good thing. It's just like, as I say, more ice cream is generally a good thing, unless you end up eating ice cream all day long, in which case it turns out to be a bad thing. That is exactly what's happened. So America, like many other countries, but America I think of as the lead in this and not lead in a good way. It's sort of farthest along a problematic path. But embrace the idea that we must make the economy run more efficiently. Like it all goes back to 1776. Adam Smith a Wealth of nations pin factory it's more efficient, said Adam Smith, not to have each individual. Alex makes an entire pin, Roger makes an entire pin. Rather, you have some people making the stem, some people making the head, some people putting it together. Division of labor. That'll make it more efficient. And David ricardo came along 41 years later and said, you should trade comparative advantage. Portuguese should grow grapes, make wine and trade it with the uk that should raise sheep and make wool because they've got the natural conditions, climactic conditions that make it better for them to do the one thing in trade then. Frederick Renslow Taylor Scientific Management if you're analyzing scientifically, you can be more efficient. Edwards Deming Total quality. You can get waste out of the system and improve quality. There was this push for ever more efficiency, and that did power, lots of productivity gains that were behind that increase in income. But by 1976, we had pushed so hard to say, we're going to open trade, we're going to deregulate, we're going to offshore jobs, we're going to let companies merge to be more efficient. We're going to get capital markets to merge so that the bid ask spreads. We came with a cult of we need to reduce labor costs so that we can be more efficient. We pushed efficiency to such a point, to such a point that we started getting results that we didn't expect. We thought, it's a machine. Just make the various pieces of it more efficient, add them up, and we'll add up to something better that stopped happening.

And help me make the link and I'll be a bit provocative here. Yeah, efficiency is good, right? More productivity. Help me make the link where something got decoupled, Right? How was that productivity gain? Maybe even more income for people. Where did that go off the rails? Why doesn't that connect anymore with the income of a majority of people? Where did that gap open up? How did that piece happen? Right. To help our listeners kind of follow that one thing happened which was a good thing, and all of a sudden this decoupled with income. Right? So where did we get off the road there? Or again, maybe we didn't get off the road, but we somehow missed the sign somewhere.

Yes, yes, we missed the slow down sign. So it's I'll give You two different kinds of answers. One, how is it manifested? It's manifested in a delinking of productivity and wages. Up till 1976, actually. 73, 74 to be more precise, the correlation between productivity increase. Think of productivity and efficiency. Where we got more efficient, more productive, and wage growth was almost one to one, literally. You as a worker should have been incredibly enthusiastic about any effort to increase productivity because it would go right into your pocket. It completely changed. Productivity kept going up and wages stagnated almost entirely. So that was the manifestation of it. Why did that happen? Well, it turns out that what we know from complexity theory is if you take a system that is a normally distributed system, where the elements of the system are independent one from another, and increasingly put pressure on it, you will turn it into a different kind of distribution. It sort of naturally turns into a different kind of distribution. And complexity theorists, for what it's worth, often use a sand pile to illustrate this. So if you keep dropping sand grains on a pile, they keep landing on the pile, and the pile actually looks like a bell curve in shape. Think of a sand pile, it looks like sort of a bell curve. And then suddenly you drop one more grain of sand and. The curve turns out to. Or the sand pile collapses completely. And that's called a Pareto distribution. Excuse me for a second. I have to stop something that I didn't know was going to go on from going on.

That's the pandemic that happens to us all the time. I had actually a bad technology day today. Something happens all the time, which is okay, we're used to it by now, right? Babies over there got to be a little quiet.

Absolutely. So what happens is that it turns Pareto. So the sinking. The way to think about it is the only reason that the sand pile collapses is because of gravity. Right. If the dropping sand would drop to no gravity, you would never have that change. Right. And instead. And instead, because it hits the pile hard enough. So the more gravity you have, the harder the sand hits and the more likely that pressure is going to create this different distribution. Also, the other factor that fits in is decreasing cost of connection. So if you have a system where each pebble of sand is at its own little superstructure, the sandpile will never collapse. But because they're connected to one another, the sand pile collapses. So pressure and connection actually turns distributions where you have a more normal distribution. Think about incomes. Incomes are normally distributed. You apply more and more pressure to that, you decrease the cost of connection and turns into a Pareto distribution. That's what's happened in the US Economy. So incomes are turning out to be more Pareto distributed. The rich in the long tail, the few rich in the long tail, that tail is extending out more and more. The middle class is reducing. And so that's what's changed, is we got to a point where we in some sense made the sand pile, the sandpile collapse. And the problem with it is when that happens, there is no sort of balancing mechanism. So in a normal kind of distribution, you've got a normal distribution. We have something called the central limit theorem that says the more data points you add, the more it looks the same. Not so in these Pareto distributions. And in a Pareto distribution, the way to think about it, the metaphor for it is that when effects become the cause of more of the effect still, that you get these Pareto distributions. So think Instagram. The median Instagram user has between 100 and 150 followers. The number one Instagram person on Instagram, last time I checked, was Cristiano Ronaldo, football player with 216 million last time I checked. So when you go to Instagram to figure out who you're going to follow, what do you look at? How many followers do you have? So the effect, having followers is the cause of still more of that effect. And that then causes Cristiano Ronaldo to get more followers and more followers and more followers. That's what's happening because we have pressurized the economic system. Effects are being the cause of more the effect. We all know this. When you're asked, well, how do you make money? It's to have money. That's an example of it. And so the economy is going more Pareto and we've just pushed efficiency too far.

Yeah. One of the things I want to get back to a little bit deficiency and leadership also. Right. You've been working a lot with leaders in established companies, great successful companies, and there's this focus on managing what they have and getting better and better at it. Right. And getting more and more efficient at it. So, and what are some of that things? You know, because we both talk about innovation, that's actually the enemy of innovation, right? This pure focus of efficiency. What led to that? So what, you know, these are smart people managing these companies. What led to this drive to efficiency to a point where we actually didn't see the slowdown sign and didn't realize that more efficiency is actually going to have a very negative impact over the longer term? What happened there?

Well, I think it was. I mean, it's an interesting Question. I guess my theory on it again, during this whole period being consulting closely the senior executives, what I've observed is there's been an ever more sort of reductionist kind of, if you will, faux scientific approach to business. And we're in the middle of it right now. Everything is data analytics, big data, et cetera. It's sort of, the approach has been let's break things down into narrower and narrower pieces so that we can manage each piece with sort of ever more scientific precision. And not to worry, we can add it all back up in the end to the whole. And so that is just sort of when you do that, when you narrow it down, you are more inclined to think, I can make it perfect. And you hand off tasks, you say you're in charge of labor costs. Alex, labor costs, they're the enemy. We've got to get them. There are bigger variable costs. Alex, your job is to get those down. And then you go over to whatever Bill or Sally or something and say your job is to make sure customers are really satisfied. Now you go perfect. That and Alex, you go perfect kind of labor costs. And you go and say, okay, lowest possible labor. Well, that's easy. Let's bust the union or let's create a two tier wage structure where we pay ones and you're assiduously working away on, on being maximally efficient, driving all slack out. Well, how many people do we need? Let's have the minimum number of people, let's pay them in the minimum amount. And then poor Sally over there, who's trying to work on customer service, can't get the workers to deliver the kind of service she needs. But she's busily trying to perfect something too and saying, well, how could we be more efficient with our customer service? Well, let's spend less time with each customer and make sure we're just doing the bare minimum. And then when you add it up, you find out, wow, we may be efficient according to Sally and efficient according to Alex, but customers aren't showing up anymore. And it doesn't matter how efficient you are if you have no customers. That's the kind of thing that I see going on. So it's kind of inadvertent being drawn in through this narrow sort of perfectionism. We're narrow and we're going to perfect it to pushing that narrow efficiency and thinking that that's going to be good for you.

Roger and I prepared a couple of questions that we want you to think of in your business context. So one, please type into the chat window if you can think of one way, your business, your business is unhelpfully reductionist and let's see if anything comes up. So starting to see maybe some coming up. Siloed goals. Chris is talking about. Not unheard of, right?

Yeah. In this case, Sally and Alex had siloed goals that contributed to the behavior.

Pattern, lack of innovation mindset. Do you see that? Would that be it?

Yeah, absolutely. Because innovation is. I mean, you and I love innovation, but it's inefficient. Right. You don't know when it's going to come, at what pace, et cetera. And you have to sort of hang in there and in some sense waste time that ends up being incredibly valuable. But it doesn't feel efficient at the time. No collaboration. Yeah, exactly. People are encouraged in some sense. You have this piece, you optimize that, you have that piece, then their boss says, and why don't you work together? But there's actually no way of doing that. Incentives to do it. ET yeah. So personal interest.

Here's one that I think you have something to say about. Too much power to shareholders versus other stakeholders.

Absolutely. Although it's interesting, I think people assume shareholders want things that they don't really want. Actually, most shareholders. Let's take the US market. Almost half of US owners of US equities are retirement investors. They're either a pension fund that is de facto a retirement investor or they are holders of IRAs, individual retirement accounts. Are they actually interested in this quarter's earnings? They're just demonstrably not.

Actually.

Now there are these other intermediaries, analysts and whatever, who scream and shout about it, but they're interested in what the company is going to be doing 50 years, or not 50, but maybe 20 or 30 years from now. But we assume that they're incredibly interested in this quarter and then start behaving in that fashion. And as your chat person said, sort of obsessing about that. When I believe more in this, sort of comes all the way from Aristotle. Right. Aristotle said way back 2,500 years ago or 2,400 years ago, that if a person sets out in life to be happy, they won't necessarily end up happy. They're unlikely to end up happy if instead they set out to live a good life, by which he meant a life of servitude to others in your society, they're likely to end up happy. So often companies think that pursuing shareholder value will maximize shareholder value. It doesn't saying you're going to do that. What do you think is correlated with shareholder value, Alex? Absolutely. Business model, innovation, things like serving your customers and caring about your customers, it's an end product of that. So I think the chat person, whose name I now forget is correct, that we are obsessing about a narrow metric, today's shareholder value, and that is not at all helpful, even to the cause of increasing shareholder value. As I say in the book, what I advocate for executives is pursue multiple, often internally conflictual metrics because that's what's going to make you think harder and be more clever about how you operate.

Now, you have a couple of examples of companies that have overcome unhelpful reductionism. So I'm curious to hear some of them. And you know what? Maybe what our listeners, our participants can learn from that because they're really, really beautiful examples in the book. So I invite everybody already, if you're here, you got to go buy the book. But we'll already get a little bit of a teaser. It's really good stuff.

Perfect. Yeah. So I'll give a simple example and then maybe a longer one. The simple example on metrics is Southwest Airlines, the most successful airline in the US by far and the only one that's earned its cost of capital over the last 50 years. So shareholder value there has the following four goals and that they measure themselves rigorously on. We want to be the lowest cost airline in America, the highest employee satisfaction airline, the highest customer satisfaction airline, and the most profitable airline. And you could say, wow, that's crazy. Those people are nuts. How can you be the lowest cost and highest employee satisfaction? Because you've got to keep wage costs way down, manage that really tightly. And so employees are not going to particularly like that, but tough, because we want to be lowest cost and most profitable. But instead, when you have that set of goals, you have to get really clever, right? So you can't just get low cost on the backs of paying your employees badly, treating them badly, etc. Because then they won't be highest employee satisfaction. So how do you do it? Well, you create a completely different business system that says we're not going to have interline bag checking, we're not going to have advanced seat selection, we're going to have flexible labor force that can work on a lot of things. We're going to have only one kind of aircraft to make gates simpler, et cetera, et cetera, et cetera. All these things that result in you needing fewer employees per passenger seat mile, so you can pay them more than they'd make anywhere else in the industry and you're still the low cost per passenger seat mile and your employees love you. All the crazy. So that's an example of the opposite of reductionism. Saying all these things, these things link together. Another example that I go into in more detail is Joe Stone Crab, a restaurant in Miami beach that I recommend to everybody here on the call. It's a fabulous place, but they're the family that owned it. It's the number one grossing independent restaurant, single restaurant in America. And there they understand that they need to pay more. So they pay more because they understand that they need an atmosphere where you've got long term employees in that industry. Turnover is around 70%. So anybody that you see in a restaurant is on their way to a 16 month career. There's a. Their employees stay on average 10 years and so they need to pay more to get that. They've got to treat them better. They do all sorts of things that would be viewed as inefficient. They pay the highest rates for stone crabs because, as the current generation owner says, we want the children of our stone crab fishermen to think that stone crab fishing is a great occupation because it pays well. It pays well enough to put their kids through college, et cetera, et cetera, because that's what we're interested for the long haul. And they have one entree, stone crabs are an expensive entree. They have a half chicken entree for $6.99. That's been at $6.99, $6.99 for the longest time. In part because Joanne Bass, the third generation kind of owner, the mother of the owner now refuses to let it be increased. And she says the accountants come to her and say, Joanne, Ms. Bass, we're losing money on every order. And she says, that's what they think. But if we didn't have that on it, a whole bunch of people wouldn't come. We'd lose the flavor of the place, which is an open, inclusive place. It wouldn't really be Joe's Stone Crabs. And we'd stop selling a whole bunch of our expensive stone crab kind of entrees. So they think it loses us money, but I know it doesn't. So it ain't going anywhere and it ain't going up. That is sort of, if you will, anti reductionist. It's holistic thinking that says this thing that you might not imagine connects to that thing and that thing connects to that thing. And what do you end up with? You end up with literally the number one grossing restaurant in America. And it's kind of interesting, too, because it closes when you're out of the stone crab season. It's the number one grossing restaurant operating at now nine months a year.

That's amazing. Let us actually get everybody to participate a bit here and see who else can come up with companies that turned their back on reductionism. A couple were asking, which airline was that? That was Southwest Airlines. Which restaurant was Joe Stone Crab in? You said Miami, right?

Miami Beach.

Yep, Miami Beach. Okay, so let's.

Patagonia, of course. Patagonia is a great example. What a crazy, nutty idea that telling people not to buy a new Patagonia jacket, send their existing one in, and we'll fix it. How stupid is that? Well, it only has made them one of the most successful companies in their industry on the planet. So some of these things make no sense narrowly, but when you look at it broadly, it makes the world of sense.

And while people are inputting this. So please, everybody, think a little bit and go to menti.com, enter the code, participate. You got to think hard, right? But while we're leaving that up, Roger, this connects to strategy thinking, right? And I remember we had a conversation, right, which I found very refreshing, but also thought provoking, where you were saying, look, Alex, most companies, they don't actually do strategy. So this is clearly a connection to differentiation, new business models, real strategy. So when you say most companies don't do strategy in this context that we're discussing, what do you mean?

Well, what I mean when I say that is most people think of strategy as planning. And I'm all for planning. You should have a plan, you should have a budget. But for most people, strategy is a budget with pros. So it just explains all the cost items and the revenue items. Strategy is the act of making choices to do some things and not other things, and doing that so that you figure out a place that you're going to play and a way that you're going to win there. It's only companies that make choices like that that end up being on diagrams like this. They're the exemplary players. And I just kind of rue the fact that strategies become this very technical exercise where it involves analyzing the hell out of everything, crunching all sorts of numbers, and then saying, here are the sort of the 10 initiatives we're going to take. And you look at them and say, but why? For what reason? In what way is that going to provide a wonderful kind of solution for some customer set that makes you better than anybody else? I have my own way of doing that. You have a way of doing that. They're very consistent and compatible because I think that's where the business model canvas gets you to. It's a choice driving. Well, you can confirm or not. I see it as a choice driving vehicle. It drives you to make choices. And what we both, I think, try to do is show people the implications of the choices they're making. So both your canvas, my cascade, say, well, no, but really, if you did this, could you do this as well? Well, how would you have to do it? So it all coheres to a pattern of answers that produces something great.

We have a couple of interesting companies there, but instead of going a little bit deeper, there's some that come up, obviously Apple. And so I do want to make the connection to another theme that kind of in this context of strategy making and then measuring. You talk about surrogation. Right. I think it's a very important topic that we need to bring up in this context before we kind of look at what does this actually mean for our world, for capitalism and the world we view we have. I do think we should touch on surrogation a little bit. And you describe that really well in the book. What do you mean with that?

Yeah, it's not my concept. It's the concept of a couple of scholars that really struck me. So the notion is when we have a metric for something that we want, so we want something, and then in order to get it, we create a metric to measure our progress towards that. What we often forget is that the metric is just a metric. It's the best kind of way we can attempt to measure the thing we want. It becomes the thing. And so the classic current example of that, the cautionary tale, is Wells Fargo. Wells Fargo wants to have a very good thing, deep customer relationships. Because with a deep customer relationship, they'll stick around longer. We can serve them well, nothing wrong with that. They use a metric, which is accounts per customer. You can see accounts per customer isn't deep customer relationship. It's a facet of it. It's a measurement of it. But, Alex, you could have 12 accounts open with a given bank that you don't particularly like, and you do most of your actual real financial services somewhere else, but you just leave your accounts open. We know that number of accounts isn't equal to deep customer relationship, but if that's what you keep pounding, okay, we got to have more accounts per customer. More accounts per customer. People then surrogate it and say, well, that is now implicitly, they just Say, well, that is deep customer relationship. And so then chat GDP is another such metric. Yes, yes indeed. More GDP means a better economy. Not. But so what happens then is when you set up metrics, you then often set up incentive systems that are associated with those metrics and you set up an incentive system and punishment system for a number of accounts per customer and they start mailing Alex a credit card that he never asked for and opening a checking account that he never asked for and then they get sued for 10 billion and they're. Their reputation is in tatters for years, if not decades. We'll see. So that's what I call part of the chain of imperfection between a desired outcome, a model and then the metrics you use. So it's extremely dangerous. And what I would argue is that the danger increases when you focus on one metric because it's just easier to say if that's the only way we're going to measure the thing we want. It's very, very easy mentally for you to go from that. Oh, it is the thing. It is the thing that we want. Yep.

And there's a couple of comments also right around executive compensation and so etc. But I am curious what people think who are here. Is this something that they see in their organization? So I just threw up. Another quick mentee. How much do you agree with this question? In my company, proxy metrics are more important than creating value for customers and stakeholders. Where we have one metric that drives our organization but they're decoupled from are we really creating value for customers and stakeholders? So kind of interesting question.

And so any company, Alex, any company whose CEO will stand up and say our number one goal is increasing shareholder value is doing exactly this. They're saying that's the metric for our performance as a company.

And when you talk to leaders on the boards, you are the people you educate in talks, et cetera. What is kind of this reaction? Like they're brilliant people, so they get it, but when we look at their actions, is this changing? Can we see some change over time where this is, you know, we're kind of back to really this. We say customer focus, but do we actually really measure customer value, et cetera? Do you see a shift happening?

I do see some, Alex, and I'll give you an example. I was on a board of a very big NYSE company OR Medium Big 20, $25 billion company, so decent sized NYSE traded company. And when I got on the board I said, why on earth are we giving quarterly guidance? Seriously, why Walk me through how this works. Well, I just said, think of me as naive. Think of me, the little old grandmother investor. And you're just explaining to me why this is a good thing. And the answer was, well, Roger, you have to, everybody does, and you have to do. And I said, I made the bold thing that would have been in 1999 or maybe 2000. I said this is stupid and it's, it's going to be fine. Because all it is is, right, you're making a prediction about something that you actually can't predict. And then if you're falling short, you'll do things that are bad for the company to try and make up for it. If you do get above it, you'll take your foot off the pedal. They'll get mad at you for making more actually than your guidance because then they'll look silly as an analyst. So it's like all bad, it's all stupid, it's unsustainable and it's going to go away. And they were like, oh, yeah, yeah, yeah, you're silly. Kind of. Because by that time I'd become an academic, not a strategy consultant. So the minute I became an academic, I was called an academic. Right? Like somehow I'd forgotten everything I knew before and was a, quote, academic. The academics, by the way, the entire time I was there, said, well, you're a business guy. So it was, it was funny experience, but anyway, I digress. But I said it's going to go away. It's only a matter of time. You can be at the end of the line or the start of the line. And sure enough, now guidance is no longer de rigueur. Yes, there's still a lot of it around. The guidance tends to be more general, it tends to be ranges of top line growth, wider ranges, et cetera. So it's slowly but surely going away as people understand that it's stupid giving guidance. Let me be as crystal clear as possible. Giving guidance is in all fashions ways stupid. And it will be an extinct species in due course. It might take another 20 years to go as extinct as the dodo bird. So it's getting a little bit better. The Business Roundtable, as you probably know, Alex, a year now, a bit ago, issued this statement saying we're not into shareholder value maximization, we're into stakeholders. I don't think they've done anything really to back that up, but that's a step in the right direction. While the problem is large, I'm not completely morose about the possibilities of changes.

And if we look at the data there. Yeah, if we look at the data there, it doesn't look too bad, right? I mean it's kind of half, half. So that's very encouraging that at least our participants, which we usually, you know, think are in the more kind of innovative camp. Maybe that's, that's part of it. But then a lot of people in established companies trying to innovate but kind of held back. But if we just one last thing, maybe on the longer term perspective also not that quarterly view, Paul Polman, who, you know, who I really admire for actually the first thing kind of saying we're not going to do quarterly reporting because they took that long term view. That's really hard to do now. What can leaders do to move towards that? It's already our topic, right. We're trying to move towards solution a little bit. But just this particular case is such a driver. Right.

Well, see, I think what people don't understand about Paul and yeah, Paul is a friend of mine. Paul always is so sweet because he was a young P and G guy when I was consulting there. And so he tells people I taught him a strategy before he went to Nestle, good Swiss company and then Unilever. Anybody who thinks kind of basically all Pullman did is say I'm not going to do quarterly earnings is naive. So what Paul did was twin that with a campaign, a multi year campaign to swap out his investor base. They are another kind of customers. Investors are another kind of customers and you can have and nurture in fact CEOs who give detailed quarterly guidance and then try to as hard as possible, including engaging in illegal activities, hit their hit. Those numbers attract investors who want quarterly guidance and want this stupid capital markets dance to go on. Paul Polman said, here's what I'm going to do. I'm going to signal no quarterly items, whatever and then I'm going to go around the world and find investors who are really interested in us being long term, where I can show our plans for R and D spending going up, branding spending going up, environmental sustainability, our participation in that kind of going up. And those will be sovereign wealth funds, long term investors. And so over the course of the first few years there, he swapped out a bunch of short term shareholders for long term shareholders once again, what is this? Not an example of reductionism? He said, I will link the market for investors with the Unilever operating market and tie those together and that's what you have to do. I could make an argument that Paul Pullman and Herb Kelleher are birds of a feather. They're more similar than different. They both said, I'm going to link together a bunch of things that people aren't linking together to come up with a clever, a more clever solution. And so it would be a mistake, I think, for another CEO to stand up and do what Paul Pullman did and think it'll work if that's all he or she does. It only worked because he thought about it in this systemic, holistic way. And that's the real. I mean, Paul Pullman on his deathbed will be able to say, I made a real contribution to society. He's made a contribution and he made it. What people think he did was knock it off with this crazy guidance. But what he really did was create a system that made that sustainable. And how do I know it was sustainable? It's when 3G, the Brazilian takeover company, has failed once in a major takeover effort once, and that was with Unilever. Because in the other cases, when they go to the shareholders and say, listen, your management of your company now is doing a crummy job. If you side with us and our takeover, we'll take this over. We'll take a majority stake and we will get this company working well. 3G went to the Unilever shareholders and said, this Paul Polman, he's not doing. And the shareholders basically said, could you get out of my office, morons. And it apparently stunned the hell out of 3G. And they just bailed out of their offer within a matter of weeks because the shareholders weren't listening. Why? It's because Paul did the two things together, not just one.

And that's a prerequisite, this kind of long term view, to do any kind of really substantial innovation. Right. GAP just posted a blog post that we launched, I think yesterday, about how Paul Polman launched this sustainable living. And they couldn't have done it without this long term view. The existing investors would have just not let it happen. So he had to change that investor base. I think we're seeing this. A lot of CEOs I'm talking to are moving towards this understanding that they need to take this long term view. Roger, time is running so fast. Maybe one last big thing that you'd say a lot of innovators here in the room, but also entrepreneurs going back to when more is not better. You have a whole section on solutions for different categories, academics, citizens. But let's stick to the business category for a second. What would be that one big tip, that one big thing you'd like innovators, leaders and entrepreneurs who we have in the call today. What would you like them to take away to move towards a solution?

Well, one would be just kind of stick assiduously to fighting reductionism, especially for your, your entrepreneurs. I mean, I think often when they go probably to get funding, they go to their bank to try to get funding. They're going to be told in some sense to be reductionist. What about this little thing? What about this little thing? And I would just say stick to being able to explain how you see things fitting together. This fits together with that. That's why I'm doing this thing. That appears very strange to you if you're taking a narrow financial analysis. And you just have to stick with that because the minute you retreat to reductionism, if you retreat to reductionism in entrepreneurship and innovation, you are toast. There is no way back from that. You're down essentially to a cul de sac. When you can pull things together, it opens up possibilities. So that would be number one and number two that's utterly consistent with that is this always have multiple measures. Don't give your investors, measure us on this one thing alone because it's going to get you in trouble and it's going to take you in a reductionist direction. So that I think for your innovators and entrepreneurs, those would be the two things. There are some other things that I would advise if they're a corporate executive, but for the people I think on this call, those would be the ones I would say. And just like on things like, shouldn't you be minimizing your labor costs? No. Why are you paying these people so much? Because it's smart, not stupid. Right. You're just going to have to hold your ground. And I know, like, I'm an entrepreneur too. A bunch of us kind of bred and raised a company that grew quite large. I grew up at the feet of an entrepreneur. So I'm not sort of saying this like I'm a. I just understand that I'm going to be really powerful because I'm a corporate executive type. No, I've been an entrepreneur. And you just have to stick to those things.

And there was somebody, there was somebody. Actually there was somebody that mentioned, right. Do I, you know, what about user metrics? Do I focus on that? Again, it's about strategy. You know, take one metric. If you're in an Internet startup, users or user usage, that's too limiting. Right. But let's actually go back to the executives because we do have a lot of Executives on the call, some of them leaders of business units, some of them leaders of innovation. So let's also take that angle. Like what's one of the things that you would recommend? Of course, similarities beyond reductionism. But what would you specifically advise executives to do?

Well, just recognize that slack is not the enemy. We're in an environment now where you are rewarded for, for identifying and eliminating slack. So what tends to happen to the stock price of a NYSE traded company or LSE traded or Tokyo Stock Exchange big company that announces a 10,000 person reduction in staff? Typically stock goes up literally. And so there is a culture of slack reduction. Now, do I think that we should get rid of completely redundant kind of workers? Sure. But you have to remember the person who we're in some sense following the advice of, we don't want him rolling over in his grave. And that's W. Edwards Deming who showed how you got rid of waste in the system, but was super duper clear that that zero slack is never the right answer. Never the right answer. Like 0 slack in PPE coming into Covid was not a good answer. 0 slack in number of emergency nurses was not the right answer. There's a proper amount of slack. So for these executives who are in this pressurized environment that says you've got to keep trimming everything down and zero is the right answer. Zero is not the right answer. The right answer is some number above zero. And slack is not the enemy. Costco. Talk about in the book. Costco knows exactly how many people the staffing algorithm would say should be on the store floor at any given time, given the likely number of people in it. And they just take that number and add something to it. They just add something to it. Why? It's because they want it to be. They want it to be for customers to have an awesome experience. And they get the sales per square foot and the profit per square foot off the charts because they embrace productive slack.

Now people are asking where can they find more? Some people want to go a little bit deeper and listen maybe to some of your other talks. So where can they find more about your work beyond the book, your latest book, when More is not Better.

So here's what they should do. I have a website which is www.rogerlmartin. my middle initial is L. So like on the book cover. So remember, put that in the code and what you'll see is the ability to click on the book and then that page shows reviews of it. Video, audio, podcast. There's already probably there's 15 or 20 reviews that go into the book, and probably 20 either audio or video podcasts like this. And you can just sort of navigate through them and see what strikes your fancy. And I'm trying to keep it updated every week or so, but there would be plenty on there for people who want to dig deeper into it.

Awesome. In one sentence, I'll give you the most provocative question that you can never answer in a sentence. How do you feel? Are you positive about capitalism in particular? Talk about a lot in the book about American capitalism. Positive, negative, one sentence.

I'm positive. You know me, Alex. I am the eternal optimist. Here's what I believe. I believe in the tipping point of models. Once you adopt a model of some sort and people adopt it, generally that ends up producing enormous amounts of activity consistent with that model. If you're on a behead model, you can get enormous leverage by shifting that model. It's not just like you'll turn a little bit, a little bit. It's the tipping point, the Malcolm Gladwell way back when tipping point. So I believe if we can just achieve this tipping point of switching from the reductionist machine model to the holistic complex adaptive system model where we're tending the Amazon, not thinking about Amazon Inc. We could have an inflection point and a dramatic increase in the performance of democratic capitalism. That's a longer answer, but the short answer is I am optimistic if we can just get a model change.

That sounds like a good end. We have a lot of work to do. A lot of innovators in the room, a lot of leaders, a lot of work to do. Thank you, Roger. As usual, one hour just flies. I appreciate very much that you took the time. Thank you very much for being with us today.

It was absolutely my pleasure, Alex. As I say, an excuse to spend an hour with you is always a good excuse.

Excellent. Thank you, Gab, also for setting this up. Gab from our team behind the scenes putting this all together, of course. Thank you to everybody who joined today. And again, if you want to read more, hear more about Roger, you go get the book, that's for sure. And go to the website rogerlmartin.com thank you everybody and have a great evening. Morning, wherever you are. We have people joining sometimes at three in the morning, so have a good one. Bye. Bye everybody.

Take care.