#97 Roger Martin: Forward Thinking

The former Dean of the Rotman School of Management at the University of Toronto, Roger Martin is one of the top management thinkering in the world. You’ll walk away from this conversation a better leader and decision maker as he discusses patterns of good leadership, the hardest skill to transfer when decision making, self-sabotage, overcoming fear and integrative thinking. -- Want even more? Members get early access, hand-edited transcripts, member-only episodes, and so much more. Learn more here: https://fs.blog/membership/ Every Sunday our Brain Food newsletter shares timeless insights and ideas that you can use at work and home. Add it to your inbox: https://fs.blog/newsletter/ Follow Shane on Twitter at: https://twitter.com/ShaneAParrish Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Speaker 00

  It feels as though all of this siloization of education has made people think that I can apply some narrow perspective on this, and it's the only perspective that is worthy. And if somebody applies a different perspective to it and comes to a different point of view, it's because they're either stupid or evil, right? Like, that's the explanation, rather than saying, "Now, that's interesting. What do they see that I don't see? Is there a way I could integrate some of what they see into what I see to come up with a better idea?" We don't seem to be taught the curiosity about that.

• 0:46Speaker 00

  We're taught to evaluate. Is my idea better than his or her idea? Yes, no. If it is, then I should beat them into submission, right? Or if it isn't, I should say, "Oh, dear. They're right and I'm wrong. I kind of feel all terrible about being wrong." There's just not enough curiosity about a better way.

• 1:23Shane Parrish?

  Hello and welcome. I'm Shane Parrish, and you're listening to another episode of The Knowledge Project. This podcast and our website, fs.blog, help you sharpen your mind by mastering the best of what other people have already figured out. If you enjoy this podcast, we've created a premium version that brings you even more. You'll get ad-free versions of the show, like you won't hear this, early access to episodes before anybody else, transcripts, and so much more. If you want to learn more now, head on over to fs.blog/podcast or check out the show notes for a link. My guest today is Roger Martin, who in 2017 was named the number one management thinker in the world. He's the former dean and institute director of the Martin Prosperity Institute at the Rotman School of Management at the University of Toronto in Canada. We talk

• 2:07Shane Parrish?

  about the hardest skill to transfer in decision-making, patterns of good leadership, and also self-sabotage, the role of narratives in taking bold actions, and integrative thinking. You'll walk away from this conversation a better leader, decision-maker, and have a more connected view of the world. It's time to listen and learn.

• 2:33Shane Parrish?

  You had an amazing mother growing up. What are some of the biggest lessons you learned from her? And how did you learn them?

• 2:39Speaker 00

  Well, it's maybe just by osmosis. She was an awesome, awesome lady. But I think the most striking thing about how I learned is she would answer almost no question. If you asked her a question, she would typically ask a question back. For example, if I'd asked her, "Mom, have you seen my..." I used to play with Tonka, those little metal Tonka trucks. "Have you seen my blue Tonka truck?" And instead of her answering, she would say, "Well, Roger, what's the last time you are absolutely sure that you can remember holding

• 3:22Speaker 00

  it in your hand?" And then I'd think a whole lot about it. And then she'd say, "Well, why don't you go to where you were when you last can remember having held it in your hand?" And sure enough, it would be there. But she didn't say, "Check your bedroom," or "Check this." She would always be a return fire with a question. So she taught me that you kind of have to think your way out of things, and you have the power to do that. And that may seem fairly simple, but as a four or five-year-old, it's sort of a powerful lesson.

• 4:01Shane Parrish?

  It's something that we're missing today in a lot of ways, don't you think?

• 4:05Speaker 00

  Yes, I think so. I mean, I think the education system has got a fundamental assumption that the job is to, you know, sit at the top of your head and pour knowledge in rather than to teach you how to think. Now, there are awesome teachers, and we work with a lot of awesome teachers in our I Think program, for example, who I think are attempting to teach students how to think. But there's just too much of it that is pouring in knowledge and assuming that that is, that somehow makes you more effective.

• 4:42Shane Parrish?

  And as the former dean of the Rockwell School, you're in a position to know that you oversaw some of the most significant changes there in a long time. What would you say is wrong with sort of like business education specifically?

• 4:55Speaker 00

  Well, yeah, that one, unfortunately, there's a big, big problem. And it's that business schools do not teach the fundamental problems of business. I mean, that's, that's pretty bad, right? What they teach are finance, what they teach is marketing, they teach us HR. And as the great, greatest management thinker of all time, Peter Drucker said, there are no marketing problems, there are no finance problems, there are no accounting problems, there are only business problems. And these are problems that sloppily span across a bunch

• 5:30Speaker 00

  of domains. And business education has abdicated, doesn't even try to, to teach how you think across domains. And that's really problematic. And it's consistent with, with a lot of the huge problems in the world, is thinking that you can decompose things into, into little pieces and somehow add them up together and they'll add up to the whole that you wish. Doesn't happen. And business education is, is a critical impediment to that as it currently stands.

• 6:09Shane Parrish?

  So is it right to say that part of teaching people to think better is trying to teach them that everything is connected to everything else in the world?

• 6:18Speaker 00

  Yes, it is. And that's a more daunting task. So like, I understand why business education abdicates that. That's a more daunting task and things are less easy to prove, right? It's much easier to prove, as you well know, Shane, right? You've heard that, all else being equal, this causes that, right? And you know, all those other things that you have to assume are equal are not. But if you do hold them all constant, then you can develop and prove a causal relationship between two things.

• 6:58Speaker 00

  So it's sort of easier to write a paper, do a study, all of those things, if you take a narrow, narrow lens. But that's just not helpful to the world. And so, you know, I think business education draws in lots of people who would have succeeded without it. They're the ones, that small percentage of people who can integrate, who just learned early on in their life, one way or another, long before they got to business school, how to think integratively. Then they go to business school, then they go out and think integratively, despite what business school taught them.

• 7:39Speaker 00

  And then the business school says, see, like, we made that person, right? And I just, I just don't think that's the case.

• 7:48Shane Parrish?

  Where should that start? That integrative sort of teaching? And what should it look like? You strike me as somebody who's thought about this a lot more than the average person.

• 7:55Speaker 00

  I think I have. And I've been taught things that I didn't, I for sure, didn't expect or understand. So as you may know, I introduced this concept of integrative thinking. I wrote a book on it and introduced the concept of it to business education, to the Rotman School. And I had a student, a wonderful student by the name of Ellie Avishai, who came from an unusual background, primary education. She was a schoolteacher before coming in doing an MBA. She loved integrative thinking and said to me, as she was graduating, hey, Roger, I think you can teach this to younger people than MBAs.

• 8:38Speaker 00

  And I said, okay, let's see. And we arranged through a friendly friendly person to test it out at an all girls high school called Bransum Hall. And it was spectacularly successful. And it was an eye opener to me because these girls who were grade 10 girls, so they had definitively six fewer years of formal education, right? Grade 11, grade 12, four years of undergrad compared to our MBAs. And our MBAs on average have about four and a half years of work experience. So they have 10 and a half less, yeah, fewer years of life experience. And their ability

• 9:19Speaker 00

  to come up with integrative answers was 100% as good as as the MBAs. That's interesting. I said, whoa, whoa, whoa, whoa, what does this mean? You kind of this means that that additional six years and 10 years of life experience is good for nothing in making making you better at doing doing this thing. So that was a real wake up call. Then we started teaching teachers, high school teachers, because we had this conception, you know, how foolish we were. We had this conception that, well, you know, high school was really pushing it, that your intellectual development was was just maybe barely ready. Now that wake up call was no

• 10:00Speaker 00

  your intellectual development is really ready. And some primary school teachers came to our our programs. And and our first reaction was, oh, no, no, no, that's silly. They you can't teach it to to kids like that. I mean, that they're just too young to really understand this complicated technique. And bless the the teachers, the teachers were, I think we'll be the judge of that. And they started doing it. And so we now have teachers in this in this school system in Ontario, teaching as young as as grade one and two students, how to do this. And here's the cool thing, they're really good at it. It is just charming actually to watch these these kids work on solving kind of either

• 10:44Speaker 00

  or challenges and and we have all sorts of fairs at the school they come in and I always get weepy listening to them. And the the bottom line is is that they don't need to be untaught anything, right? So that's their gigantic advantage. They're easily smart enough and they don't have a view already built up that life is full of either or choices where it's the devil or the deep blue sea and you know, you just have to suck it up and choose one bad choice over another. They don't understand that. So when when you say, okay, there's this, there's here's this choice, do we do this or do they do that? But here's a technique for figuring out something better. They're like, sure, let's go do it. And they're

• 11:29Speaker 00

  great at it, like really good at it.

• 11:31Shane Parrish?

  You had a four step methodology for teaching that. Can you walk us through that a bit?

• 11:36Speaker 00

  Sure. So you start with the notion of taking the two models, let's say, and and we often use the Toronto International Film Festival as as an example. You say, there are two models of running a film festival like Toronto, the community oriented film festival, anybody can go, there are not, you know, velvet ropes all over the place, there's not a jury, it's just a friendly community, a film festival, then there's Cannes on the on the on the other side. Rather than saying, let's think about something in in between right away, you say, let's push those to the extreme, the completely exclusive film festival, the completely inclusive film festival, right? And then you lay out

• 12:21Speaker 00

  how they work. How do do each of those work and produce the output that they produce? And we ask, how does it work for the various players involved? So how does it work for the community? How does it work for the film industry? How does it work for the festival itself? Right? And you lay that out and you say, okay, here's how here's how this one works. And here's here's how Cannes works. And here's how TIFF or Sundance or or Tribeca works. So that's one. And then you ask yourself the question, what about?

• 12:57Speaker 00

  These things do we love the most? What features, what mechanisms do we love of both? And then ask the question, third step is do what we call these integrative moves. Because what we've noticed is that there's three kinds of integrative moves. And in the case of the TIFF, it was what we call a double down. So Pierce Handling, who was running TIFF at the time, loved everything about the inclusive community oriented film festival. He loved what it did for the community, loved what it did for the industry. But he loved one thing about Cannes. And that is the buzz that it created

• 13:41Speaker 00

  that brought the attention of the international media, which made it a wonderful sponsorship opportunity. So Evian would pay a whole lot of money to make sure that a bottle of Evian's on the table when every starlet gets interviewed. Right? And so what Pierce did is say, has come up with this brilliant notion, which is we can make the inclusive film festival even more inclusive in a way that gets us the one thing we want from the other model. And that was the People's Choice Award, right? So the People's Choice Award said, we will create buzz around who's going to win the prize,

• 14:25Speaker 00

  but the prize won't be an exclusive prize of an exclusive jury that'll make the audience feel like, well, it's them, it's all about them. It's actually all about us. So it made the festival more inclusive and got the one thing he wanted from the other model. And now TIFF is the most important film festival in the world. That's the third step. The fourth step is you've got to try it, try it, experiment with it to see if it works. But that is indeed what they did. It's worked better and better every year. And now it's the most important film festival in the world. Maybe not the most famous, because Cannes has been around for so long and famous for so long. But anybody in the industry says Toronto is the most important film festival in the world.

• 15:10Speaker 00

  That's integrative thinking. And quite frankly, we've got no place in the world, it feels to me, where

• 15:18Speaker 00

  We're presented all the time with things that are either or. Look at US politics, right? You're either a Trumpian or a Biden guy. And we just take sides and, you know, battle and, you know, you know, fire missiles at one another. It feels as though all of this siloization of education has made people think that I can apply some narrow perspective on this and it's the only perspective that is worthy. And if somebody applies a different perspective to it and comes to a different point of view, it's because they're either stupid or evil, right? Like, that's the explanation.

• 16:02Speaker 00

  Rather than saying, now that's interesting. What do they see that I don't see? Is there a way I could integrate some of what they see into what I see to come up with a better, better idea? We don't seem to be taught the curiosity about that. We're taught to evaluate. Is my idea better than his or her idea? Yes, no. If it is, then I should beat them into submission, right? Or if it isn't, I should say, oh, dear, they're right and I'm wrong. I kind of feel all terrible about being, being wrong. It's, there's, there's just not enough curiosity about a better, a better way.

• 16:43Shane Parrish?

  Yeah, that's really interesting. I mean, one of the things that strikes me about that, I always ask myself when I see somebody doing something that I wouldn't do or strikes me as odd. I'm like, what would the world have to look like for that to be the option that I was engaging in? Right? So.

• 16:58Speaker 00

  Oh, that's good. That's good. That's, that's a, that's sort of a variant of the question I ask in strategy, which is the most powerful question in strategy is what would have to be true? Not what is true. What would have to be true for that to be a great idea? Cause that, that gets you noodling around another logic. And, and it is possible that by taking pieces of another logic structure, you can come up with a, with a better idea.

• 17:23Shane Parrish?

  I want to come to strategy in a second, but just before we leave integrative thinking here, are there limitations to this idea? I mean, it sounds very. Novel to be faced with a hard choice with trade offs and come up with an option that sort of like mixes this either or thinking and where do you see this falling apart? And where do you see it really under applied?

• 17:44Speaker 00

  Well, I'd see it under applied in the world in general, right? I guess is is is my view. Lots of people just ask me, you know, about limitations and should you do this all the time and the like? And I say, listen, if the choice is is between kind of lying on the beach or getting kicked in the groin, you don't need to use integrative thinking. I'll take lying on a beach, right? But it's when it's when you feel like, oh, I hate, I hate the fact that I have to, that I apparently have to choose here. So you don't love either option, either choice and and you and that's the time. That's that's when a little light should go off in your head and say, ah, ah, ah, stop,

• 18:29Speaker 00

  don't choose because you don't like either. But I mean, I use it all the time. I mean, I'm feeling all cheery these days about tennis Canada because this Monday in the rankings, the the men's rankings in this case, in this case, we're doing well on the women's side too, but in the men's ranking, Canada had three players in the top 20. Interesting fact is that this is the first time in Canadian history that we had the most players in the top 20. We were tied with Russia. Russia's got three, we've got three. U S, Spain, all these other powerhouses have have fewer.

• 19:11Speaker 00

  Before 2005, when we put in place the tennis Canada strategy that's resulted in this, we had zero in history. What was the magic solution that transformed us from a nothing country, literally a nothing country that was irrelevant to a leading tennis nation where everybody says, how is it that they've got so many great players from a little country that's got snow all the time? And and the answer is? We we looked at the French system, which is a more control oriented system and the US system, which is a, you know, Wild West kind of system and said, how can we rather than choose between them, come up with a better solution?

• 19:51Speaker 00

  So you can apply integrative thinking to create incredible outcomes left, right, center. I did it at the Rotman School, too. That was a product of integrative thinking choices. So I, I, you mean, maybe I have a hammer, so every darn thing looks like a nail, but I do eat the dog food, right? I apply this to all the tasks that that that I have, and it's proven to be extremely valuable.

• 20:20Shane Parrish?

  I, interesting backside, I mean, I sort of hit on this as well. I went to business school in 2007, and I almost dropped out because I was just so disappointed in what I was. I come from a world of like Charlie Munger and sort of like interdisciplinary thinking, and I got to business school and I was like, this is ridiculous, right? Like, none of these subjects are connected to each other.

• 20:41Speaker 00

  Oh, really? So that's good. I'm well, I'm glad you figured that out. Most people don't. They they they become indoctrinated into that notion, right? They come indoctrinated into the notion that my job as a businessperson is to figure out into what category this problem that I'm facing falls and then apply that tool. Ah, this is a finance problem, so I will apply the capital asset pricing model, or this is an HR problem, so I'll apply theory X, theory Y. They're they're a tool matcher, right? And that's and that's why MBAs are viewed widely as these incredibly narrow minded people.

• 21:19Shane Parrish?

  Oh, that's so fascinating. Have you seen, I want to come back to that in a second. Have you seen a lot of changes in terms of the incoming students? Like with these girls that you sort of went back to in grade 10 and you taught them integrative thinking, have they had like tangible or quantifiable sort of results that are different as a result?

• 21:38Speaker 00

  They, it's more anecdotal, but yeah, lots of them, lots of them, you know, come back to us and tell us, tell us stories of what they, what they've done and what they've been up to, or they'll go back to their teachers and and and tell them. I mean, it is something I'm encouraging the, I think, people to do is is start collecting more data to show the the effectiveness of it.

• 22:00Speaker 00

  But we have some great stories. There's one of our absolutely fave teachers teaches grade three and four, and she was teaching grade three in a big school, right, that has a bunch of classes of each. And the grade four teacher, you know, came up, came up to her at, you know, at, at lunch and said, you know, in the first week, let me name a bunch of names and you tell me whether they were in your section of grade three. And she goes, you know, A, B, C, D, E, F, G, H, M, and, and our, and our teacher is like, well, how do you, how do, how do you know that? And, and the grade four teacher

• 22:40Speaker 00

  just says, like, they behave completely differently. They ask a different set of questions. They do this, this, this, this. And, and our teacher was sort of like, hmm, you know, that's good. But she was 100% accurate without, without, without knowing. She was 100% accurate in identifying our, our teachers, our graduates. And then that teacher became a fanatic about it too, because she said that they're just better. They're just better.

• 23:08Shane Parrish?

  So good. We were talking a little bit while we were, before we started recording about sort of model matching in the MBA and how one of the problems that I have with the MBA is it was so siloed. And you're given these models. Here's a finance model. Here's a strategy model. Here's a decision making model. And we don't think of integrating those models. Can you sort of riff on that a little bit? And in terms of how that impacts education and the role of models being maybe the best model we have at the time, but not the only model?

• 23:36Speaker 00

  The way I think about business education is that it's, it's, you know, think of visualized like one of those little red toolboxes, right? You come in as a student with that empty. And, and you get a bunch of tools. You get a hammer and you get pliers and you get a screwdriver and whatever put in your, in your, in your toolbox. And you're taught to size up a problem and ask the question, is this, is a hammer best for this? Is a, is pliers best for this? Is a screwdriver best for this? Is a wrench best, best for this? And so it's this job of matching. A bunch of narrow models to real world problems. And that's why MBAs unfortunately get criticized for being the sort of,

• 24:21Speaker 00

  you know, we had an MBA here and he did this silly thing. And the silly thing, if you analyze what way the person criticized, what the MBA did, it typically falls into the category of they applied one narrow model to a broad question. And I understand why they do it. That's what they're taught. That's literally what they are taught. And you can recall this from your own MBA. You know, when you do a case study, the case has been written to illustrate a tool. Right? The answer comes from applying a given tool. Like, and we're made to think, oh, these are just general business situations.

• 25:04Speaker 00

  No, they're not. The writing of our business school cases has evolved to this art form, which is to write a case that illustrates one narrow tool. That's what the business school world spits out. And it spits it out into a world that's organized that way.

• 25:21Shane Parrish?

  I always found working with MBAs a bit sort of difficult afterwards because they want these packages, very much like case studies. And what you're sort of reinforcing without, you know, unconsciously, I think, is that all the information in the package is all the information that you need to make this decision or all the information that's relevant and pertinent. And that is so often in real life, it's not the case at all.

• 25:44Speaker 00

  We get absolutely what we educate for. There's no question in my mind. You know, same in economics, right? There are a thousand partial equilibrium economists for every single general equilibrium economist. And so we have economists who kind of know everything about.

• 26:06Speaker 00

  You know, whatever fiscal policy, but nothing about labor policy or labor economics or environmental policy or the like. And they do that, you know, I'm not going to think about all those things, but I'm gonna, I'm gonna think about the thing that my model covers. And it happens in medicine, too. We had a, we had a wonderful lady work with us on applying integrative thinking to the medical field, which has been very valuable and worked out well. And she was talking about her residency and when she was a resident, her attending, saying things like, could you check on the liver in room 217? Right? It's not check how Mrs.

• 26:48Speaker 00

  Smith, who has got a kind of liver problems and it's liver, check the liver, right? And she said, you know, it's, it's down to that sort of kind of narrowness. We're not even going to talk about the person. We're going to talk about, you know, one organ in, in the body. And so we're, we're sort of teaching from, from the word go, not to think holistically, to think, to think as narrowly as, as possible.

• 27:15Shane Parrish?

  And it causes blindness, right? Like we miss obvious things because we're just looking for something to fit this model. And then we, we want to apply this model that we know. And I found this with my, I had a computer science degree and then went into sort of the corporate world. And then, you know, you start managing people and all of a sudden, most of my computer science degrees are relevant, right? Computers do what they're told to do. You know, if there's a mistake, it's always with you. People are biological systems. They're much different. And I found a lot of the education that I had learned just didn't apply anymore. But the way that I tended to approach problems was very based on this comfort level with, this is how I was taught to approach problems in school and this is my experience. And then you carry that with you.

• 27:58Speaker 00

  Absolutely. And it's a very interesting thing on people and a huge difference. So our MBAs at the Rotman School have about four, four and a half years of work experience. Our executive MBAs have about 14 or 15 years of work experience. So the MBAs take on average, less than one second year course in the entire OB-HRM field. They just don't think that stuff is important at all, right? They load up on finance and strategy courses more so than any, any other courses.

• 28:36Speaker 00

  The MBAs have an insatiable desire for OB-HR courses because they, they have the learning that you, that you had when you got into the, into the real, real world. They've been working in the real world for 15 years and they realize that everything is a people, people issue. You know, I, I don't think we do a good enough job in, in business school and helping these students understand that taking courses in that field, understanding more about the people dynamics is important. But they, those courses, as you well know, from having taken it, are less replete with,

• 29:18Speaker 00

  with very formal models where you can calculate something, right? In finance, you can calculate yield curves or sharp ratios or whatever. And you can do a five forces analysis or a Nash equilibrium in your strategy course. So they feel more comfortable learning a model because they wish the world would behave according to models, like that quantitative sort of mechanical model. So they're more comfortable with, with that.

• 29:48Shane Parrish?

  We, we do that in the workplace too. And I noticed this with policies and procedures, right? Procedures are basically like an algorithm that you apply given a certain situation, certain inputs. And what I discovered is that it just eliminated thinking. Because people would go, oh, there's no procedure for the slight deviation from what would happen. And I can't respond because at first you can, but you lose that ability over time to actually apply judgment. Well, maybe I shouldn't apply this procedure in this particular case, and I have to do something different. And that's where this this teaching thinking and teaching judgment sort of comes in. And I find that when we get into organizations, we actually reinforce this modeled, siloed, predictable way of solving problems.

• 30:34Speaker 00

  Absolutely. And if we want to go on this vector, it gets even worse than what you've described.

• 30:41Shane Parrish?

  Oh, go on.

• 30:43Speaker 00

  Which is, which is we dramatically vastly overuse science. So what what business, what you were taught in business school, and you tell me if I'm wrong on this, is that a good businessman or woman, businessman in your case, if you're going to be a good businessman, Shane, you will make decisions based on analysis.

• 31:06Shane Parrish?

  Yeah.

• 31:07Speaker 00

  Right? You'll do the analysis and make a decision. You're some kind of a corporate floozy if you're just going making decisions without without the analysis behind it. So you can ask the question, where does analysis come from? And the answer is from Aristotle 2400 years ago. Fourth century B.C. Aristotle essentially created science. The book is called Analytica Postiore, where he where he sort of was the first man in the world to say, here's how you can determine, and what he used, the terms he used, here's how you can have a rigorous methodology for determining the cause of a given effect.

• 31:48Speaker 00

  Right? You experiment, experiment, watch, watch, collect data, and you can say, aha, this causes that. All of the the future of science is based based on Aristotle's understanding. We think that science came from the scientific revolution, Bacon, Newton, Descartes, Galileo. They formalized what Aristotle did 2000 years before them. So the guy who invented science, though, pointed out something about science. He said, he said, "Science, this methodology I've used is for the part of the world where things cannot be other than they are." So what does he mean by that?

• 32:30Speaker 00

  Well, if I let go of this pen, what'll happen? It'll fall. Yep. If I let go of this pen 10 years from now, what's gonna happen? It's gonna fall. If I let go of this pen in Antarctica, it's gonna fall. That's the part of the world where things cannot be other than they are. And so there, it makes a whole lot of sense, right? If I observe all pinfalls that have ever happened in the past, what's it a pretty damn good predictor of? Future. Pinfalls in the future, right? So that's the part of the world where things cannot be other than they are. And he said, that's what you need to use a scientific reasoning method to be rigorous about understanding.

• 33:13Speaker 00

  Because, you know, at one point, we thought it fell because all objects like to be closer to Mother Earth. And eventually, we figured out that no, there's a universal force called gravity that pushes everything down. That's the development of scientific knowledge. But the guy who invented science warned, do not use the scientific method. Why would he say that? In the part of the world where things cannot be other than they are, science, analyze data, collect as much data, analyze it rigorously to determine causes of effects. In this other part of the world, imagine possibilities and choose the one for which the most compelling argument can be made. And he said, the job of human beings in that former world

• 33:57Speaker 00

  is to understand the causes of the effects that we see so that we can optimize the world to that, right? We observe all these people who smoke getting lung cancer. So we can optimize against that by trying to stop people from smoking. He said, in the other part of the world, human beings' job is to be the cause of the effect they want to see. Right to change the world in a better way by imagining possibilities and making those those new things come true. What we've done is that that is for, you know, bad floozy type people. The good ones are the ones who always apply science.

• 34:40Shane Parrish?

  I like that that way of thinking in terms of like how you're explaining it. We are taught these models. We apply them as if they predict the future, but the reality is we're in a constantly evolving and changing environment and our ability to predict the future is more limited than we think it actually is. I mean, if we were able to predict the future, we would have seen COVID come in, we would have seen a whole bunch of things coming. And that sort of relates to your latest book about how we we hyper, we predict this, I almost think of it as this beam of light. We predict this beam of light into the future as if that's the only possible future. And then we optimize for that particular future. So we take away margins of safety in the supply chain. We I sort of think

• 35:25Shane Parrish?

  of it as, you know, we take margins of safety and we turn them into money, which is what business school in a way has traditionally taught us to do. Right? You know, you don't need just in time inventory is better because you have less inventory on the balance sheet. All these buffers and the slack that we sort of develop, but these buffers and the slack allow us to position for multiple possible futures. They allow us to easily pivot when the world doesn't work the way that we think it was. The problem I see with this and the pushback that I give myself when I think like this is that in the moment, being inefficient and positioning for multiple possible futures

• 36:06Shane Parrish?

  is always suboptimal to somebody who's hyper efficient for this one particular future. So in the short run, we're always looking like we're behind, but in the long run, we always win. And then we have to deal with this sort of like timeline difference. If you're the CEO of a company, I mean, what's your average tenure? It's a couple of years, right? So you have to sort of like get in, do your thing and get out and you're not thinking about it from a long term point of view. But I'd love to hear your riff on this.

• 36:37Speaker 00

  Well, I mean, I can't do much better riff than you, right? I mean, I think your diagnosis is bang on. And this is why I think a great CEO, and I've talked a lot, you probably know Paul Pullman, he's a friend of mine. He's always nice enough to say that I taught him a strategy when he used to be at Procter and Gamble. But we talk about it is that the part of the CEO's job is to create enough of that discretion so that they can do those things, right? That they know are going to be in the interests long term, like in your case, building up some slack for the bad times.

• 37:19Speaker 00

  Because if they don't build that up, they will be forced into the 100% efficiency now and that'll kill them sometime in the future. That may not kill them during the time they're CEO, but they won't have shown great stewardship for their organization. So I think you're right. And it's one of the challenges of the modern capital markets, right? Modern capital markets say, gimme, gimme, gimme, right? If you're not using some money, you know, buy back shares or dividend back to me, lever yourself up so you have a more efficient capital structure. All of those things are taking away that optimal amount of slack

• 38:03Speaker 00

  that that CEO has to make decisions that are good for the company for the long term, to invest in things for the future. That's one of the reasons why I think, right? That America had a huge advantage over the rest of the world for probably 30, 40, 50 years, somewhere between 1930 and 1980, where it had the best capital markets in the world for helping companies grow and prosper. I think in 2020 now, America has got a capital market that is a detriment to American competitiveness because it is causing companies to behave in ways that aren't good for the company,

• 38:47Speaker 00

  its employees, America overall.

• 38:50Shane Parrish?

  Oh, double click on that, go deeper. Talk to me about that.

• 38:54Speaker 00

  Well, I think what we're getting is this taking away of managerial slack, driving managers as much as they can to managing for the short term for this quarter. Now, you have CEOs who stand against that, but the pressure is in that direction. And it's dramatic pressure and it's causing all these bad things, right? There are, you know, studies that say CFOs, you know, 40% of CFOs freely admit that they will not make an investment that they know is NPV positive in order to make

• 39:38Speaker 00

  this quarter's guidance, right? So, all of that stuff is causing companies to perform less well than they could. And that's a capital market problem. That's why I think we're going to look back 2050, we'll look back on this period 1940-ish, 35, 40-ish to say 2020, 25 or 30 as this insane period where we thought the widely-held publicly-traded corporation was the optimal form. And we're going to look back and think, what were we idiots thinking? You know, that's crazy. It didn't work.

• 40:21Speaker 00

  It created all the wrong incentives and we're going to be into a world of more controlled companies.

• 40:30Shane Parrish?

  Yeah, doesn't this create like an arbitrage or almost competitive advantage for private companies or companies that are largely owned by one shareholder? When I look back and I look at Berkshire Hathaway's like track record, one of the things I ascribe that to is that Buffett and Munger controlled about 40% of the shares until recently so they could sit on cash and not do anything and not worry about an activist investor or, you know, and what they were really doing, I think personally, is their positioning for multiple possible futures because they don't know what to do. They have no degree of certainty in what the future looks like tomorrow. So, we're just going to sit here. Position for all of these possible futures. The same thing they did in March when people were like, why didn't you deploy all this money into the stock market?

• 41:11Shane Parrish?

  Well, that's easy to say, looking back with hindsight of what what the stock market has done since then. But at the time, it's like, well, cash might become the most valuable thing in the world. So we're going to sit on it and position for multiple possible outcomes, but it's always suboptimal. And so you need this control, which is comes from a private company often or family controlled. Or you could even probably get away with it with a super charismatic CEO. But these companies will actually, given what you're saying, if that's correct, they'll have more of an advantage over the next 30 years because they'll be able to build up the balance sheet because they have extra inventory and they can take advantage of sort of, call it the professionalization of management in terms of model thinking,

• 41:56Shane Parrish?

  which is eliminating slack, eliminating and preparing for this next quarter and being hyper efficient on this next quarter.

• 42:04Speaker 00

  I couldn't, I couldn't agree more. And, you know, I've, I've actually got an article on this subject coming out in the January, February, HBR on what I think is, is the, we're approaching the tail end of the domination of the widely held publicly traded corporation as the corporate model. It's just got too many problems that are arguably getting worse, not, not better. And, and, you know, it's one of these things is there are so many things in life where it's like, how, how on earth did the logic structure hold for so long? Right? So the view of a board of a widely held publicly traded professionally managed company, right?

• 42:48Speaker 00

  Is that we need to have the board, you know, and Mike Genton, as you, as I'm sure you know, wrote about this with agency, the agency theory that, that managers are imperfect agents, right? They have self-control problems. They are not necessarily going to manage on behalf of the shareholders. Right? And, and so we have to discipline them, right? To make sure that they, that the agency costs are not too high. What's our tool? Well, they report to a board of directors who represents, who represents shareholders in, and they can discipline them. Now, did anybody ask the question? What exactly are those board members?

• 43:32Speaker 00

  Would they not be agents? Just like management? And so what you're saying is that our solution to the agency problem is to put a fox in charge of the hen house. That's our solution. Yeah, yeah, yeah, that'll really work well. I mean, it's like, where, where on earth did this logic uh come from? Right? There either is an agency problem, in which case we have put foxes in charge of the, the hen house, or there isn't an agency problem, in which case we shouldn't be bothering with any of this, any of this crap.

• 44:10Speaker 00

  But the idea that, that a board will discipline management is, is just an absolute fantasy. Uh, and that's a core kind of element of the logical structure that guides the workings of the capital markets, the equity markets and, and the widely held publicly traded companies.

• 44:32Shane Parrish?

  It's just theater.

• 44:33Speaker 00

  It is theater. Oh, my God.

• 44:35Shane Parrish?

  But it gives us comfort because we're like, oh, the board's watching out for us. And, you know, like, yeah, I totally agree with you.

• 44:41Speaker 00

  Yeah, I mean, I, I, I think, I think of boards of directors as being uh like fire insurance that works, except when there's a fire.

• 44:48Shane Parrish?

  I think they can work there. Like if you have, um, I, I think what I love to see on boards is, it's not necessarily a large ownership of the company, but a high percentage of the person's net worth involve sort of like really invested people, but they don't meet all of these requirements that we're starting to see in terms of like the ideal board according to the stock exchange and the ideal board according to sort of i- if you're a person who, who might think and apply a little bit of judgment to it are often two very different things, right?

• 45:19Speaker 00

  I agree. I, I mean, I honestly think that. Good versus bad board members, the key criteria are kind of psychographic ones.

• 45:29Shane Parrish?

  Oh, expand on that.

• 45:31Speaker 00

  Well, they're attitudinal. They're, they're, what does the person think of his or her role in life? Right? It's things like that, not are they a sitting CEO or were they a CEO? Or do they have financial expertise or whatever? It's, it's how do they, how do they behave? How do they think about their job? You know, I've, I've written about this too. I think the only, the only useful reason for wanting to be on a board is, is that you think a well-functioning board is integral to the success of democratic capitalism. Now, how many people think that that's the reason for being on a board?

• 46:13Speaker 00

  Not, not many, like, and, and most of the reasons for wanting to be on a board are bad for the effectiveness of the board. Right? So one reason for being on the board is it's good pay. Well, if you think it's good pay, then you will not, you will not do anything to sacrifice good pay. Being on a board is prestigious. Well, you're not going to do anything that'll sacrifice the prestige. It's good camaraderie with other interesting people. Well, you're not going to do anything that sacrifices camaraderie. I mean, they're all, they're all bad reasons for being kind of on a board. Again, one of my theories in life is if you're putting something together, you have to think of what is it that would cause a person of the sort you need

• 46:58Speaker 00

  to fill the chair that you have designated? I, I, I talked about this in terms of bond, bond rating. Right? We, we said in the global financial crisis, what on earth were these bond raters doing, rating things triple A? Like, it's like, you know, a infinitesimal kind of probability of default. And, and they were defaulting a hundred percent, a hundred percent. You know, how can this possibly be? Well, You've got to ask the question, what would cause somebody to willingly sit in a chair called Bond Raider at Moody's or S and P?

• 47:42Speaker 00

  And I think the only logical answer you can come to is that they are, the only reason they would be in that chair is that they're not particularly good at rating bonds, right? Because if they had a skillset that made them good at rating bonds, what chair would they be sitting in?

• 47:58Shane Parrish?

  They'd be trading bonds.

• 47:59Speaker 00

  They'd be either sitting in a chair at Goldman or Morgan Stanley or their own, or Apollo or their own, their bond fund. So the only people who would, would think of being at Moody's or S and P, right? Rating bonds. The only people who'll do that are definitively less good at rating bonds than the people who are running the bond, the, the bond market. And, and sure enough, you know, they, they came up, they came up wanting, but that's, that's this fallacy of, of we identify jobs for people, create that chair, and then don't think about whether it is possible to get somebody to sit in that chair that can actually

• 48:44Speaker 00

  do the job that we need them, we need them to do. Like, think about stockbrokers, right? There, there's only one thing you can know absolutely positively without a shadow of a doubt about a, a stockbroker. The only thing that's for sure, you don't know if they're male or female, young or old, and, but what you know is that they're crummy at picking stocks.

• 49:05Shane Parrish?

  Cause if they were good, they wouldn't be a stockbroker.

• 49:07Speaker 00

  They would be a hedge fund.

• 49:09Shane Parrish?

  Yeah, but this is sort of why I like to see boards with significant personal ownership as a material amount of their wealth, because I think, you know, maybe it just gives me another narrative for why they're on the board, but I think it also gives them a lot of investment in terms of the success or failure of the business. And it takes us away from the short-term planning cycle of sort of thinking about it in quarter by quarter basis and start thinking in sort of like decades. And what you have to do and the investments you have to make to make this company not only sustainable, but position it for multiple possible futures as things change.

• 49:45Speaker 00

  Yeah, yeah, I mean, I'll give you an example from my own life. I was on the Thomson Reuters, Thomson and then Thomson Reuters board for 14 years and and a guy I'd love who was on for all the time I was on is Vance Opperman and the Opperman family owned West, their legal publishing company, the best, the best business in in Thomson, just a chest of

• 50:05Shane Parrish?

  Yeah, what a moat that has.

• 50:07Speaker 00

  Yes, a gorgeous business and and Vance, you know, A was in it for the long haul. Last time I checked, he's still on the board. I've been off the board for like six or seven years. So he'd been on the board for 20 or 25 years by now. And and I don't know how much the Opperman family has in Thomson stock, but I think it's still quite a, you know, quite a bit from from the from the original transaction. And yeah, he takes his job deadly seriously and thinks about the long haul and and and is an awesome director. You know, he's probably one of the best directors I've witnessed in action. So I

• 50:47Speaker 00

  agree, skin in the game is a good thing to be sure. You know, it's sort of like it's three times out, you know, they must own stock that's three times annual board fees. That's for those people. Unfortunately, that's trivial. That's trivial. That your desired desired outcome happens unfortunately, and only a small amount of the time.

• 51:10Shane Parrish?

  Totally agree. You you study, you've worked with, you've read a lot about leadership. Are there common patterns to success that you've seen across leaders other than integrative thinking?

• 51:21Speaker 00

  I mean, they they tend to relate to relate to integrative thinking. I mean, I think, you know, great leaders are, you know, have as a core characteristic when somebody says something to them that doesn't agree with where their head is now, the model that because we all we model everything and we say, I, you know, I'm running this company and, you know, and I think, you know, I think this is the best, the best product that we that we offer. And somebody, somebody comes up to you and says, Roger, that is going south. That sucks. I don't know why we're investing so much in

• 52:00Speaker 00

  that. A great leader's first reaction is, hmm, say more. Tell me more about why.

• 52:08Shane Parrish?

  I want to understand why you think that, what you see that I don't see.

• 52:12Speaker 00

  Yeah, yeah. And that's, that's because, you know, it has this like, super big knock-on effect, right? So, one, it causes your subordinates to all think that if you've got an interesting thought, I'm open to, open to hearing it. I don't, I'm not going to just shut that, shut that down because it disagrees with me. So, everybody kind of is more inclined to, to think about things and think about things differently and not be, not be afraid of that. And you just get more raw materials. Because what we've learned in integrative thinking is, is if we go back to that, that TIF example, unpacking how the inclusive

• 52:57Speaker 00

  festival works and unpacking how the exclusive festival works, all that unpacking gives raw materials, which you can kind of recombine in entirely new ways.

• 53:09Shane Parrish?

  And associative ways, right?

• 53:10Speaker 00

  Yeah, exactly, exactly. So, when I say, this is our best product and we are going to win on the basis of this, that's only a set of raw materials that relate to that theory. And if I can incorporate in a whole nother huge pile of raw materials, just another pile of raw materials I have access to, then, then I can, then I have a chance of coming up with a much better, much more powerful solution. And the person might be wrong, right? You know, that, that this is not, this is not a terrible product. Actually, there's a weakness in, in, in this product that by using that person's thinking, we can get rid of. And so, we end up going with the product anyway, but in a, in a, in a different

• 53:55Speaker 00

  way than before.

• 53:58Speaker 00

  That to me is key. I think another thing that is that is key is is and this this may this may sound a little funny, but is you could say it contrasts with my view of possibilities. But it the other thing is that they are kind of deterministic, right? So the great leaders are able to say if this happens and then this and then this and then this and then this, we're screwed. Or if this happens, this will be on will be in the kingpin's seat. Like the less good leaders sort of just say, well, we're just going to sort of bob and weave our way down the field and and see what see what happens. They're not they're not deterministic enough. I think stronger leaders are willing to have a hypothesis about how they think things are

• 54:43Speaker 00

  going to play out, then be open to seeing seeing changes in that. But that gives them the boldness to make decisions, right? Because you have to commit assets irrevocably to decisions to be great as a as a company. You can't just say, well, we'll do a little bit of this, a little bit of that, and we'll shift and change. You have to say at a certain points in time, this is worth investing in. And we won't be able to get the money back because it'll be invested in a building or invested in a piece of software, invested in these in these in these people. And so they they are willing to make those those choices because they say unless we

• 55:27Speaker 00

  do that, we're not going to get get to this place. And I guess the last the last one is just I I just don't know any what I think of as great, great leaders who don't love other people. I mean, if if you think people are annoying and you have to put up with them and put up with their foibles rather than you genuinely love them, then I I think you can only be so good of of a leader.

• 55:56Shane Parrish?

  I want to come back to sort of taking bold action here. And I think Fear often prevents us from taking bold action. We might do a little of something outside of the ordinary, but not too much, because if we fail and we do something that's far deviant from the norm, we're moving out of this Gaussian distribution and we're going to the fat tails. And we've been taught that we don't want to be in those fat tails unless we're extremely successful, right? But this way, if we're wrong, we're not too wrong. And one of the reasons I think that we we like to keep within this narrow, maybe call it one standard deviation band is fear. And I'm curious as to your view, but how we develop courage in the face of fear and the role of narratives in the story we tell ourselves and our employees.

• 56:39Speaker 00

  You're absolutely right. And, you know, I've just written a written a post on this, or the first first of us three part post on fear. I call it fear rules, because fear rules us and there are rules for managing managing fear. But it is, it does come to to telling ourselves stories. I mean, we we create fear or make fear go away, depending on what story we tell ourselves. And my my observation is that because people understand this and understand the debilitating aspect of fear. And that's why I that's why I argue that in Hollywood, the number one box office star of every era of movies played one character.

• 57:24Speaker 00

  And that is somebody who faced fear and didn't act fearfully.

• 57:29Shane Parrish?

  Charismatic, unblinking, well dressed James Bond sort of-esque.

• 57:35Speaker 00

  James Bond, yes. Or Tony Stark, right? Or Arnold Schwarzenegger, or or Humphrey Bogart. It's sort of they all play the same character, right? Which is, ha, ha, ha, I can wisecrack my way through this. And it's it is, and it resonates so deeply with people because they say, if I if only I could do that in the face of fear, I would be successful. And instead, I am ruled by by my fear. I think most fear we create ourselves, right? We produce it ourselves as a as a reaction. And trying to tell yourself a story of how

• 58:17Speaker 00

  you can sort of deal with that is important. And, you know, people think of my think of me as having been a successful dean at the Rotman School, bless him. But there are some things they don't, they don't know.

• 58:34Speaker 00

  Like what? Like, well, we created a completely different economic model that enabled the school to go from having a budget of thirteen million in the last year before I got there to a hundred and thirty million in the last year I was dean. We needed a new economic model because the University of Toronto economic models were nuts. And so you couldn't plan for the future. And I went to, to Rob Pritchard, the president, who hired me and Edel Cendro, the provost who hired me. And, and said after about three or four months, you know, you hired me to make this a great school. We can't, sorry, we can't with the current model. And the current model was every year the provost decides how much revenue you have, right?

• 59:18Speaker 00

  It's not, not things you can do that build revenue. It's like they allocate you, and I said, I just can't do that. I, here's what I'm gonna, I'm gonna do. I'm gonna double the size of the program, quadruple tuition, quintuple the endowment, quintuple executive education, and get this much money to spend and we'll have a, we can have a great business school. But in the current economic model, that money won't flow to the, to the business school. So we can't plan, plan for it. And I said, I'd be happy to be, pay you a tax. And right now, our tax is about, you know, two or three million dollars a year to the, to, of thirteen million. Under this plan, you can have a forty million dollar tax, but we need a different system. And they both said, okay, okay, okay.

• 1:00:03Speaker 00

  And let's, and, and we'll work on that. And, and I said, in the meantime, can I spend the way I, I was planning to spend? And they said, yes, but this was just verbally. And so I thought they were gonna work this through the governance process, maybe in six or nine months. It took four years. Yeah. And in those four years, I, because we had to go into massive deficit, fourteen million dollar accumulated deficit, which we then came, came out of completely, the whole plan had paying it back so that we were, that we were plus. But for each of those days, nights, for four years, I had to go to bed with the recognition

• 1:00:47Speaker 00

  that if Adal Cedra, the provost, lost faith in his ability to get this different system through governance, through governing council and all those people, and said, Roger is running an unauthorized fourteen million dollar deficit, my career in Canada would have been over. I would have been fired. I would have been on the front pages of the Globe and Mail as having kind of illicitly spent fourteen million dollars and I would have probably had to leave the country and go back to the States where I had been living. Not only that, I couldn't tell a soul this, because if I told anybody that and they started

• 1:01:31Speaker 00

  to act that way, it would encourage Adal to believe that I believed that he might not actually do it. So I had to live for four years with the Sword of Damocles, literally. I literally went to bed and the Sword of Damocles was above my head. But, I mean, I told myself a story, which is just, Roger, are you doing the right thing or the wrong thing? You know, is this good for the school, good for Canada, good for University of Toronto or not? Yes. Did you actually ask for permission and they gave it to you verbally? Yes. Could you go back to the States, go back to your old job and pick the pieces up? Maybe you could never come back to Canada again because you'd be such an embarrassment. But how bad

• 1:02:16Speaker 00

  is that? And I said, yeah, it's worth it. You know, this won't kill me. It's worth it.

• 1:02:23Shane Parrish?

  But that narrative is what gave you the power to sort of maintain the course?

• 1:02:27Speaker 00

  Yeah, yeah. But I could have told myself the story, you will be crushed. You're a Canadian, you're an Ontarian, this is your home. You would be embarrassed thoroughly, your family would be embarrassed, everybody would be embarrassed. And I could have focused on that and I would have probably. Caved and gone back to Adel and Rob and say, we've got to work our way out of this. And, you know, we'll change directions and I'll stop spending and, you know, I don't know whatever. And the Rotman School wouldn't be the Rotman School that is it is today.

• 1:03:04Shane Parrish?

  Well, luckily it all worked out, right? Like had it not worked out, I'm curious to see if he would have thrown you under the bus or sort of, I guess, only, only you would know that in him, but.

• 1:03:15Speaker 00

  Yes. And I gotta say, Adel, Adel, who then went on to be president of University of Waterloo, is a great man. And he didn't like I had, I had my faith properly, properly placed. He followed through and it was hard. He got a lot of pushback. Are you doing a special deal? And the thing that makes me happiest is, is then David Naylor, when he became a president of University of Toronto, he applied the Rotman system to the whole university. There's a better system for, for being able to plan for the long term. So, so I, yes, I wanted to make sure Adel stood 100% by me.

• 1:03:54Shane Parrish?

  Coming back to sort of the leaders that you've worked with, we talked about common patterns of success. Are there common patterns of failure or self sabotage that you see repeated over and over again in otherwise smart, decent people?

• 1:04:07Speaker 00

  Yeah, yeah. I mean, a lot of it has to do with this not being, not having a sort of a deterministic enough view. So the failure mode I see probably more than anything else is somebody who is what I think of as not strategic, right? Which is that, which is that they believe that they need to always keep all their options open, not make big choices.

• 1:04:34Speaker 00

  And sort of see what, see what evolves and, and then just react to what evolves. That's probably, that's probably failure mode number, number one. If that's connected to, and I don't really like people, that's a, that's a sure thing, right? That's a, that's a certain disaster. And, you know, it's the three things I talked about. And if they're just not curious, if somebody comes to them with disconfirming kind of data, they want to suppress it rather than, rather than absorb it and mine it for, for everything they can, they can get. Interesting enough, that tends to, you know, those two things tend to be linked. Like, it is a big system, right?

• 1:05:17Speaker 00

  Which is, you tend to like people if people are this repository of stuff you can't see.

• 1:05:24Shane Parrish?

  And you're constantly learning and, yeah, you're very curious.

• 1:05:27Speaker 00

  So then they're good, then they're good. But if instead they're a threat, then you just wish you didn't have these annoying people around who are, keep on threatening your, your prevailing point of view and the one you prefer to just keep and not be kind of messed with by, by anybody. So those two things, I think, end up being linked. And they're probably, I haven't thought about this, you, you raise a good, good question. Gets me thinking is probably it is linked to the, sort of the non-deterministic too. If your model is sort of impoverished because you aren't absorbing, building in other things, the chances are it'll be harder for you to come up with, with things that you can be confident in

• 1:06:09Speaker 00

  to say, you know what, I think it is time to invest here, go here, let's bet on, bet on this. So they probably, all those three things are, are either deficient together or, or there together and, and kind of self-reinforcing.

• 1:06:26Shane Parrish?

  You mentioned strategy. What is strategy and what's the difference between a good strategy and a bad strategy?

• 1:06:33Speaker 00

  Well, I think about strategy as a, a set of choices that enables you to invest in a given place to win, whether that's geography or business or whatever. So it, it's, it's that set of, set of choices. And what do I mean by winning? I mean, in the field of play that you choose, you have a better value proposition for the customers in that space than, than anybody else. And, you know, a good strategy is one that has a logic that holds up to that, that, that when, when you put it into, into action, you do.

• 1:07:16Speaker 00

  Get a better position where you've chosen to play than than any competitor.

• 1:07:21Shane Parrish?

  And a bad strategy is one where you're sort of is it you're chasing multiple things? You don't understand your sort of flywheel of success like.

• 1:07:32Speaker 00

  It can be any of those things. It's one kind of bad strategy is a little bit of everything. You know, we're going to do a little bit of here, a little bit of there. Another kind of crummy strategy would be one where where the economics don't enable you to continue it. Right? You can start on it, but it's not a remunerative enough model for you to be able to continue to invest behind it. So it sort of withers withers away. Another is is kind of bad strategy is just trying to do the same as everybody else and assume that you're going to win anyway. You know, that's, that's the, that's the great managerial conceit. We don't have to do anything unique or different and we will, and we will have unique success.

• 1:08:15Shane Parrish?

  I love that. It's, I often think of this quote from a friend of mine, which is if you do the same thing as everybody else, you're going to get the same results as everybody else. So you have to sort of deviate if you want to deviate results, but you need to create an advantageous divergence. You have to not only diverge from what everybody else is doing, but you have to be correct. And that's extremely difficult. And when you have it, you need to like go all in and run with it. A lot of companies today seem like they have a bit of innovation and like they want to be the one to create the iPhone or go zero to one and just create new markets like Facebook or Google. And there's billions and billions of dollars being thrown at these problems in R and D and hiring.

• 1:08:59Shane Parrish?

  And the results don't seem to be super effective. Do you have any thoughts on why?

• 1:09:05Speaker 00

  It gets back to what we talked about earlier, Shane, about science. Charles Sanders Purse, who's one of the great American pragmatist philosophers with John Dewey and that, that era. And William James pointed out that no new idea in the history of the world has been proven in advance analytically. Now just think about that for a second. No new idea in the history of the world has been proven in advance analytically. Why? It's linked to what Aristotle said, right? You can't prove something new and different that hasn't happened yet analytically.

• 1:09:39Speaker 00

  And most innovation processes in the world of big companies, right, insist on proof before doing something. This whole notion of like fintech and all this disruption by little, little technology firms is all kind of self-induced.

• 1:09:59Shane Parrish?

  And that comes back to sort of the models that we're taught, if you want, in school. And the way we look at the world, you come to somebody in an established business and you say, I need to spend, you know, $20 million to prove this idea. And, you know, 50% of the time, it's not going to work. And then, so you say, no, well, there's no proof that it's going to work because it doesn't fit these models. And then they go and start a startup and you end up acquiring them for like $2 billion, five years down the road. But you're, you're only seeing the successful results and you're not willing to tolerate the failure internally.

• 1:10:32Speaker 00

  Exactly, exactly. I mean, and, yeah, and in some sense, right, the, you know, the enemy, like there's an infinite number of enemy that just keeps pouring over the, over the, you know, your moat, right? And a bunch of them drown in the moat and whatever, but it only takes, it only takes kind of one to get across. And that's the problem. So that if, if you have an internal system that makes, that sets up that we won't do anything unless there's proof, right? Then you won't do any of those things and there will be an infinite number of these, these startups. And it's interesting, you know, James March is one of the greatest, I think, management thinkers. Yeah.

• 1:11:17Speaker 00

  And he, he wrote about, about the importance of delusion. And then, because he said, the economy is underpinned by delusion in, in that we do know that nine out of 10 kind of startups expire with 100% of the, the resources kind of wasted. If anybody thought those were the odds that they personally were facing, they wouldn't do it. But they, everybody is diluted, self diluted into thinking they're going to be the one, not the nine. And because of that, 10 people do try and the economy gets the one success. But it's only because, it's only because there's massive amounts of delusion.

• 1:12:02Speaker 00

  And so, so I mean, it is one of the cool things about, about the, the economy is all these diluted people who think they're going to be the one, keep trying and sure enough, that spits out enough successes to change and transform the economy. But I think the big companies sit there with their hands behind the, tied behind their back and say, we don't allow delusional people here.

• 1:12:26Shane Parrish?

  We actually actively try to eliminate them through the hiring process, through the promotion process, through everything.

• 1:12:32Speaker 00

  Absolutely.

• 1:12:33Shane Parrish?

  I, I call that, it's interesting. I think of that as the stormtrooper problem. And we saw this at the intelligence agencies where I used to work. And because post Bradley Manning and post Edward Snowden, what they really tightened up was sort of the hiring process. And then to get in.

• 1:12:48Speaker 00

  Oh, really?

• 1:12:49Shane Parrish?

  Well, to get into the agencies and to get a clearance, you sort of like increasingly, there's this narrow background you could have, right? You couldn't have, you couldn't have gotten in much trouble. You, you know, you generally went to a great school, got good grades. You didn't sort of stand out in any, you know, crazy way.

• 1:13:08Speaker 00

  Interesting.

• 1:13:09Shane Parrish?

  So they viewed this as the way to reduce security risk. And, and it might in fact be, but the problem is you get these people into an organization, a large organization, then you give them a checklist for promotions. You need to do these 10 things and then you'll get promoted. And then all of a sudden they wake up at 30 and they're given a problem that you can't Google, that there's no procedure for, that hasn't existed in the world before, and you're told to solve it. And the problem isn't any one particular person. It's the collective, because now what happens is the collective group of people in the room, look at that problem through very narrow lenses. And you're not getting sort of the, what I used to call the misfits, or the deviants, or the, the people that aren't necessarily a security risk, but might have more of a checkered past because they got in trouble,

• 1:13:53Shane Parrish?

  or they did something wrong when they were in high school, or. And once you eliminate those people, you can't creatively problem solve. And then you have to buy your problems. And I think we're witnessing that actually play out with intelligence agencies.

• 1:14:06Speaker 00

  Ah, that is so fascinating. That's fascinating. I had no idea, but I agree, I agree entirely with, with your, your hypothesis.

• 1:14:15Shane Parrish?

  The, the way that I think you can see this correct or like see this at like indicators of this being a correct view, if it is correct, or maybe that it's wrong, but the labor component is going up in intelligence agencies because you're requiring more and more people to solve a very similarly, these are scalable problems. Right. These are often one-off problems. And then the contracting budget, I bet you is getting much higher to outsourcing to the misfits, to the people that are solving the problems. But those would be interesting indicators that that is actually playing out.

• 1:14:51Speaker 00

  Yeah, yeah, no, that is, that's fascinating. And I mean, it's just such a good example too, of, of it is a complex adaptive system. And, and you think you can pull a lever.

• 1:15:02Shane Parrish?

  And, and just not affect anything else.

• 1:15:04Speaker 00

  Yeah, yeah. And yeah, and somehow, somehow everything else is going to be exactly, exactly what you want. No, you've got to, you've just got to think these things through. Now, some of them you can't think through and you just have to accept the fact that different things are going to happen than we think. And then be alert to those.

• 1:15:20Shane Parrish?

  Well, often they know what they're doing is probably not going to have the results they want. But it, that it's, it's sort of like doing what's defendable versus doing what's right. And especially in politics, you end up doing what's defendable versus what you know is right. Because you're, you're never going to fail if you do what's defendable.

• 1:15:40Speaker 00

  Yep. You don't get fired for buying IBM. That's a big universal thing.

• 1:15:44Shane Parrish?

  Yeah.

• 1:15:45Speaker 00

  And that's again. That comes back to fear, right? If you are motivated by fear of being fired, then that's gonna happen. I mean, I remember interviewing Ajay Laffley, you know, the famous CEO of Procter. I interviewed him for my work on integrative thinking. And I remember like one of the things that really sort of propelled his career, because it was such a big success, was going from, I don't know if you remember this, going from big fluffy detergent, Tide would be in a box fluffy detergent, to compact detergent, which he saw happening in Japan and said, hmm, we wouldn't want them coming here with that innovation.

• 1:16:28Speaker 00

  And so he led an effort to study whether to introduce it in the US. And he introduced it despite the fact that the data didn't support it. But the verbatims did, the qualitative stuff kind of was supportive enough. But he described the spending of 200, he got $250 million to do the first thing. And I'll always remember him describing it as a fireable offense. So he knew that if this didn't work, he was done. Because it was a straight up fireable offense. It wasn't a two to one blind winner. And he wanted to do it anyway.

• 1:17:12Speaker 00

  And it turned out to have made them just, I mean, it just was monumentally successful. It actually destroyed Unilever's US position so much that they exited. Like it was so monumentally successful, that propelled him. But he described it, whatever it was, 20 years later, as a fireable offense. He would not have objected to being fired. But he wasn't so overwhelmed by the fear of being fired that that would have stopped him from doing it.

• 1:17:42Shane Parrish?

  I love that sort of advantageous divergence, right? Let's talk a little bit about decision making. What's the most valuable thing that you've learned about decision making that's hard to transfer to other people?

• 1:17:54Speaker 00

  I guess I think it is patience. Giving yourself the time to roll ideas around as long as they need to be rolled around and not feel the premature need for closure.

• 1:18:10Speaker 00

  When I'm making a decision, imagining a variety of possibilities and not stopping until I have a good divergent set of them, then asking about each one of them, what would have to be true for that to be a good idea? And then asking each element of the things that would have to be true, how likely do I think they are true now? If they're not true, how could I, how could I maybe make them true? You know, it's part of the, part of the world where things can be other than they are. All those things tend to slow it down. It's not as though I want to be, have a whole lot of process, but I, because you can do it, it doesn't have to have many days elapsed. But I think people often have this, this real desire for closure fast.

• 1:18:52Speaker 00

  And, and I, I, I don't, though often I surprise people, like I, I say, if I had, if I had to make this, if I couldn't think anymore, I would do this. And they're like, oh my God, Roger, you've jumped to that conclusion. I said, I said, you know, sometimes you have to, right? Sometimes if, if, you know, it was, it was either decide now or, or I shoot you in the head, you decide, but then I'm still open. You know, tell me, tell me what about that is, is problematic and let's think about it some more. So I guess, I guess that's, that's it. I've learned, I guess, I mean, this is a very good question because I hadn't thought about this, but I would, I would say that I've taught myself a process of thinking

• 1:19:36Speaker 00

  that slows me down enough for me to absorb greater variety and greater, greater logical pieces. I think of little logical subroutines. A big decision is, is stacking together a bunch of logical little subroutines and, and I, I have a process for, for giving myself time to play around with those. Oh, I could put this one here and this one there, you know? And, and that helps me come up with, with what people often think of, of the things I do as, as wow, how do you ever come up with that creative solution, Roger? Well, I kind of slowed down is, is I think the answer. And I mean, I think I, I think I have a decent kind of track record of teaching.

• 1:20:21Speaker 00

  If anybody wants to learn it, I can teach people to do that.

• 1:20:24Shane Parrish?

  How do you teach them? How would you teach me?

• 1:20:27Speaker 00

  I would just work with you. I, I, I think practice is, is absolutely the best. That's what I've gone to with the companies that I work with. I just say, Shane, what's a choice that you think you're facing? And you say, oh, I really need to decide whether we're going to invest in this thing or that thing. I think, good, okay. And then I would just, I would just work you through, through a process the way I would, I would do it. And then, and you would learn by doing. Now I'd explain to you why, why are we doing this? Why, you know, you'd say, no, Roger, it's either this or this. And I'd say, no, it's not. That's not enough variety. I want variety. And if you can't come up with variety, that's no problem.

• 1:21:12Speaker 00

  Go ask 10 people in the organization and, and don't stop until you can come back with at least five, six, seven. That includes your two, but I want another three to, three to five. All right. And, and I'd explain to you why. I'd say, you don't have enough raw materials. I don't like either of your choices. And the reason you haven't made a choice now is because neither of them are that good. If one of them was awesome, you'd have already made the choice, you wouldn't be asking me. So Shane, we need more raw materials. So go, go get them. And then, then when you come back, I'd teach you how to play with the raw materials to make a better choice. And then hopefully you would, the next time without me involved in the room,

• 1:21:54Speaker 00

  you would have slowed yourself down in a similar, similar way, not thought those are the only two, to go for raw materials, to ask these what if, what would have to be true type questions.

• 1:22:06Shane Parrish?

  I have a friend, Randall Stutman, who gave me vocabulary around how I approach decisions. And I never had vocabulary around it, but he basically said, you decide as soon as possible or as late as possible, but never in between. And I was always known for sort of deciding at the last moment because I wanted to keep all my options open. And if I didn't have to decide, like, why would I force a decision? I can get more input, I can get more insight into the problem. I can see how the environment's changing and playing out. And I think that plays to the patient's answer that you gave, which I think is really an insightful sort of response because so many people just get stuck in the middle. They don't make the decision right away. They'll make it, you know, in the middle because they just want to get this sort of Damocles out of their head, or they want to stop thinking about it.

• 1:22:51Shane Parrish?

  And it's then when you make these really bad. Decisions, I think, because you you've made a premature decision. So you're missing all the input or you're clouding all the input that would come afterwards. And you're only doing it to get rid of it. You're not doing it because you need to make the decision at all. You're just doing it because you don't want to have to think about it again. And there there's also ways that you can do in your mind where you just sort of like put it down and suppress it, but you're constantly gathering new information about like, am I right? Will this prove me right? Where's the disconfirming evidence that, you know, my hypothesis on this is going to be wrong? And you can see the world through your actions too. So it also allows you to

• 1:23:31Shane Parrish?

  make a decision possibly, but not communicate it, which is you saying, I know what I would do if I had to decide right now. And then you can see the world through those eyes had you made that decision, which allows you feedback as well in terms of what that looks like. And I think that that's a really interesting way to frame it.

• 1:23:48Speaker 00

  Yeah, you know, I hadn't I hadn't really thought of it that way. That's a good, good insight in some sense. When you force yourself to say, this is what I would do if I had to choose now. That's the moral equivalent of putting a prototype out into the market. I hadn't thought of it that that way because then then you can and you can say, oh, this happened. That that would have made mine a clever decision. That happened. Oops, that wouldn't have been so clever. It's like a, it's like a prototype.

• 1:24:20Shane Parrish?

  And when you do that, all the information you receive at that point, you interpret through you having already made that decision, which allows you to see the world in this, you can sort of like take a step through this door and say, what does this look like?

• 1:24:34Speaker 00

  Yeah, no, no, no, that's, I mean, that's so powerful because otherwise, because again, you know, people talk about data as if data is sort of this sort of very kind of, you know, I don't know what intrinsic thing it's not. Data is only data. Like it floats straight by your head if you if if you're not looking for it. What I interpret you saying in part is you will actually create data out of nothingness, right? So stuff you would not have paid attention to and wouldn't have collected as data, you now collect as data because it's because your choice, your proto-choice, your proto-choice makes that that phenomenon relevant data and you collect it and then have the ability to use it

• 1:25:20Speaker 00

  that you wouldn't have before because it would have flowed. Right by your ear. That's very interesting thought, Shane. Gee, I learned something from this.

• 1:25:31Shane Parrish?

  I'm glad we're chatting. I've learned a lot. I want to finish up with one question. I'm experimenting with this question. So you can tell me your thoughts on it, which is when you're 90, what is it you want people to say about you?

• 1:25:46Speaker 00

  He was a voice that we will miss. Plain and simple.

• 1:25:51Shane Parrish?

  Thank you so much for an amazing conversation, Roger.

• 1:25:55Speaker 00

  Thank you. You're awesome at this. I would happily do this anytime, my friend.

• 1:25:59Shane Parrish?

  We'll do it again sometime, I'm sure.

• 1:26:05Shane Parrish?

  Hey, one more thing before we say goodbye. The Knowledge Project is produced by the team at Fernham Street. I want to make this the best podcast you listen to, and I'd love to get your feedback. If you have comments, ideas for future shows or topics, or just feedback in general, you can email me at [email protected] or follow me on Twitter at Shane A. Parrish. You can learn more about the show and find past episodes at fs.blog/podcast. If you want a transcript of this episode, go to fs.blog/tribe and join our learning community. If you found this episode valuable, share it online with the hashtag The Knowledge Project or leave a review. Until the next episode.