The First Question to Ask of Any Strategy

• Roger L. Martin

MAY 5, 2015

The senior team of a large player in the global wealth management business recently asked me for my opinion on their strategy. They had worked long and hard at coming up with it. Their “Where to Play” choice was to target wealthy individuals who wanted and were willing to pay for comprehensive wealth management services. Their “How to Win” choice was to provide great customer service across the breadth of their wealth management needs. I pushed and probed, but that was it.

Sadly, like the majority of strategies that I read, this firm’s strategy failed my sniff test and for that reason I would bet overwhelmingly that it will fail in the market as well. The test I apply is quite simple. I look at the core strategy choices and ask myself if I could make the opposite choice without looking stupid. For my wealth managers, the opposite of their “where” choice was to target poor individuals who don’t want and aren’t willing to pay for comprehensive wealth management services. The opposite of their “how” is to provide crappy customer service.

The point is this: If the opposite of your core strategy choices looks stupid, then every competitor is going to have more or less the exact same strategy as you. That means that you are likely to be indistinguishable from your competitors and the only way you will make a decent return is if the industry currently happens to be highly attractive structurally. The wealth management company was targeting the exact same clients as every single global competitor and, like every other global competitor, they planned on giving them “great service.”

There are many, many such strategies. Perhaps the two most popular “strategies” are service excellence and operational effectiveness. All that can be said about them is that they are non-stupid and that is hardly an exemplary level of accomplishment.

The finest strategies are those in which other competitors do things largely, if not diametrically, opposed to what you do — and make money doing them. That means that you have made a distinctive choice. Vanguard made a real choice when it said it would not sell managed funds. We know it was a real choice because Fidelity focuses on selling managed funds, and makes enormous sums of money doing that.

It is not as though great service is a bad way to win. It is just that stated at that level of generality and abstraction, it is something that any company in the industry will strive for. Hence nobody does the opposite and it is really not a choice. Choosing to define service in a way that is different than others define it is a legitimate strategy. Four Seasons defines luxury as service that makes up for what you left at home or the office. Its luxury competitors define it as grand architecture and décor and obsequious service. Those are real choices because the opposites aren’t stupid; in fact other hotels do something that is reasonably close to the opposite of what Four Seasons does.

So do a little test of your strategy before committing to it. Ask: Is the opposite stupid on its face? Have most of my competitors made the same choice as me? If the answers are “yes,” you have more work to do to have a smart strategy rather than just a non-stupid one.