Is Strategy a Zero-Sum Game?

Only if you Don’t Play to Win

Source: Roger L. Martin, 2021

I get numerous questions about my insistence on organizations seeking to pursue a strategy of winning. Lots of commentators see it as being an inordinately zero-sum/win-lose stance. Others see it as an old-fashioned point of view in an era of collaboration, partnerships, ecosystems, and platforms. So, I have decided to dedicate my 8thYear II Playing to Win/Practitioner Insights piece on Is Strategy a Zero-Sum Game? You can find all previous PTW/PI here.

The Critiques

The first critique I get is that my insistence on pursuing a winning strategy is just too aggressive. The thought is that if the organization I am encouraging to win manages to figure out how to win, then someone else will lose in a zero-sum game in which society is no better off. Readers feel that this seems at odds with the more expansive views I provide in books like The Opposable Mind, The Design of Business, and When More is Not Better.

The other critique is that the focus on winning is old-fashioned. The argument goes that in the modern world of business, organizations must collaborate with others, not compete against them, in order to form productive partnerships and build ecosystems/platforms. Winning is so yesterday: collaborating is the new competing.

While both are trendy critiques, neither is a compelling critique for reasons that I will explain.

The Classical Economist View

In addition, I am out of step with the classical economist view on how to compete and what role is played by winning. Economists love ‘perfect competition.’ This is when numerous competitors compete in a given space — what I would call a particular Where-to-Play (WTP) — and due to the vigor of their competition, they drive prices down and volume up to the point at which the demand and supply curves cross — C on the above chart. Without competition, a monopoly provider would set price at B (the volume at which marginal revenue and marginal cost are equal) and the market would clear at a lower volume. Hence fewer customers would benefit from the offering, and all would pay a higher price than under vigorous competition. Thus, the absence of vigorous competition in this WTP results in a deadweight cost to society.

Thus, economists don’t like winning either! They dream of having competition in a given space look like this, in which (for example) six competitors duke it out in almost identical WTPs, approximating perfect competition. Nobody wins — they just play.

Source: Roger L. Martin, 2021

My Alternative View

As is often the case, the classical economist view and the zero-sum critique above represent a static mindset. Yes, perfect competition drives markets to lower prices and higher outputs: today. And a winner produces a loser: today. But that misses the important dynamic effects.

With perfect competition, prices are driven down to a level such that profits are just high enough to keep investors from exiting the business. That means that firms don’t have the additional resources necessary to innovate and improve their offerings. Instead, they continue to duke it out with one another, typically converging on both the features of the offering and the way of producing it. Such industries tend to commoditize even if they aren’t inherently commodities. This happens in industries as different as US scheduled air travel, dry pasta, and personal computers where the majority of the players compete in the same space in the same way, driving average prices down but causing stagnation of the industry.

With the one shining exception of Southwest Airlines, the US scheduled air travel competitors have competed in the same space in largely the same way over the past half-century. During that time, there have been numerous bankruptcies, tearing up of worker contracts, write-off of equity and debt, mergers with attendant lay-off of ‘redundant employees,’ etc. While real prices have gone down — which is the good thing that economists would expect and predict — service has gotten ever drearier.

That is the dark side of perfect competition and playing to play. When considered over time, not just statically, it isn’t good for workers or the communities in which they live, or investors. And it is a mixed bag for customers — low prices but absence of variety and innovation. Of course, there are exceptions, as with Southwest Airlines, that innovate on their business models and bring prosperity to workers, customers, communities and investors.

Importantly, the hallmark of all these exceptions is that they play to win with unique WTP/HTW combinations. The same was the case for Dell when it entered the personal computer business and for Apple in smartphones as it goes against the sea of Android-based drones.

My Dream is industries that evolve like the following:

Source: Roger L. Martin, 2021

Customers are heterogeneous and when I think about a company’s WTP, I think of it as a circle with the customer who thinks the company’s offering is absolutely perfect, and hence puts the highest value on it, at the center of the company’s WTP circle. For example, at the center of Toyota’s circle for compact SUVs are customers who think the Rav4 is the absolutely perfect vehicle for them. As you move away from the center of the circle, customers value the offering less and less, until you get to the boundary of the circle at which point, customers on the boundary are indifferent between the company’s offering and that of a competitor.

In the Economist’s Dream structure, the same central customers have the luxury of six providers, each of whom provides the perfect offering for them — an embarrassment of riches. But all the customers near the boundary have only offerings for which they are indifferent to choose from among because all six competitors have chosen to overlap each other. And the customers outside the largely overlapping boundaries of the six have no compelling offering to buy — because the Economist’s Dream suppresses variety.

In My Dream, rather than compete head-to-head with the same WTPs and same/similar HTWs, the six competitors spread out and reduce their overlap. Each competitor wins in a somewhat different WTP. Many more customers get an offering that is perfect for them. Competition happens — but it the boundary territories at the intersections of the individual WTPs, rather than across each competitor’s entire WTP. That ensures that while the competition won’t be as intense as in the Economist’s Dream, it will still be meaningful.

If each company pursues a winning strategy in its carefully defined WTP, each can prosper and achieve a level of profitability that enables it to innovate and move the market forward on behalf of its customers.

I think of Fidelity versus Vanguard as a good example. Jack Bogle, founder of Vanguard, viewed stock-picking by investment managers as a net negative for mutual fund customers. Ned Johnson, founder of Fidelity, viewed stock-picking by investment managers as the highest-value attribute his firm could provide to its mutual fund customers. Hence Vanguard offered only index mutual funds (and later ETFs) and Fidelity specialized in managed funds. Both have grown to spectacular size and have become the top two players in the growing industry.

Both sought to win. But it wasn’t a zero-sum game at all. By each seeking to win, they provided mutual fund investors with greater variety in offerings. By each seeking to win, they generated the resources to innovate and grow, providing great jobs for (at last count) approximately 60,000 employees between them, enriching Fidelity’s hometown of Boston and Vanguard’s of Valley Forge. By each seeking to win, they also enriched their shareholders. The Johnson family wealth is estimated at $60 billion. Bogle, in keeping with his philosophy of putting the interests of the fund investors first, organized Vanguard as a mutual company owned by those who invested in his funds, thus spreading broadly the wealth created.

Far from being a zero-sum game, playing to win is the biggest positive-sum game in business. Seeking to win powers productive dispersion rather than wasteful overlap in WTP/HTW strategies to the benefit of customers, employees, communities and investors. The greatest zero-sum game comes from playing to play, which if anything promotes a race to the bottom.

The second critique about winning being an obsolete concept in the new world of business is a quaint thought but there is nothing much to it. It is pretty obvious that the best way to be an attractive partner is to be a winner. Who does everyone want to partner with? Apple. Google. Facebook, Netflix. Amazon. Disney. Tesla. And that is not because they have eschewed winning in this collaborative world. It is because they are great winning companies. I am sure that many companies with no advantage but a collaborative mindset are keen to partner with winners. Unfortunately for them, they will find that the feeling isn’t mutual.

Does the modern company need to be more adept at collaboration than the average company of a half-century ago? Absolutely. But winning and collaborating are not mutually exclusive, or even conflictual. As I have argued previously, the key to partnering is figuring out how to win together.

Practitioner Insights

Don’t let yourself be badgered into aiming for anything less than winning. You will get lots of arguments from non-winners about how winning is too aggressive and is out of date. But the badgering is motivated more by envy than by sound logic.

Playing to win isn’t zero-sum or obsolete. It is the most positive sum thing that you can do. Winning sets up a competitive dynamic that makes customers, employees, communities, and investors better off over time and opens up possibilities for rather than works against productive partnerships.

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Professor Roger Martin is a writer, strategy advisor and in 2017 was named the #1 management thinker in world. He is also former Dean of the Rotman School.

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Roger Martin

Roger Martin

Professor Roger Martin is a writer, strategy advisor and in 2017 was named the #1 management thinker in world. He is also former Dean of the Rotman School.

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