The Theory of Comparative Advantage

Our remedy for the overwhelmed leader comes from an unlikely source: the 19th-century political economist David Ricardo. Business leaders most commonly allocate their time by lining up potential tasks according to absolute importance to the organization’s strategy and taking on the most crucial ones until they run out of time. Then they leave the rest to subordinates. Instead they should be guided by Ricardo’s 1817 theory of comparative advantage, still seen as the seminal theory in international trade, which asserts that a nation should export those goods (or services) for which it has a comparative advantage over its trading partners. In his classic example, Portugal exports wine to England because sunny weather gives it a comparative advantage in growing grapes. (But it doesn’t export wine to Italy because it has no comparative advantage over Italy on that front.) Meanwhile, England exports wool to Portugal because its weather is perfect for raising sheep.

A similar logic holds here. Leaders shouldn’t spend their scarce time on activities simply because they are very important. They should do only the things that nobody else in the organization can do nearly as well—if at all. And they should spend as much of their time as possible on them.

That is our definition of leading to win. It was an essential part of the strategic logic that guided us in turning around the organizations we led. When A.G. was appointed CEO of Procter & Gamble, in June 2000, P&G was a company in crisis. It had had two consecutive quarterly earnings misses, and its stock price had halved since the beginning of the year. A.G. led a turnaround during his 2000–2009 tenure, and the board asked him to come back and do it again from 2013 to 2015. His transformation of P&G made him one of the most successful CEOs of his generation.

Roger faced a similarly daunting task in 1998, when he became the dean of the Rotman School of Management at the University of Toronto. Rotman was hemorrhaging both cash and professors and was derisively referred to as the “Faculty of Mismanagement.” During his tenure he transformed Rotman from an underperforming and largely irrelevant business school to a global leader. In 2013 he was recognized by Poets&Quants as Dean of the Year and described in the citation as “one of a handful of the most successful business school deans in the past quarter century.”

As we will demonstrate, both of us combined making choices about where to play and how to win with a relentless focus on the tasks that benefited from our comparative advantages. The concept of leading to win shapes the advice we now give the many leaders we advise.

For A.G. those include Trina Spear, a cofounder and the CEO of FIGS, a designer scrubs and medical apparel company that grew to more than $500 million in sales within a decade and went public in 2021. A.G. serves on the board of FIGS and provides advice to Spear in that capacity. In addition, at her request, he coaches and mentors her on specific issues she’s wrestling with.

For Roger they include Jørgen Vig Knudstorp, the highly successful CEO of the Lego Group from 2004 through 2016, who saved the company from imminent bankruptcy and made it the biggest, most profitable, and most respected toy company in the world, with sales that have grown by a multiple of 10. In 2017 Knudstorp became executive chairman, coheading Lego Brand Group with the fourth-generation owner, Thomas Kristiansen, to coordinate the various Lego branded assets, including the core business, Lego Foundation, Lego Digital, Lego Education, the giant Lego House project in the company’s hometown, and Legoland Parks (which were owned and operated by Merlin Entertainments).

We suggest that overwhelmed leaders follow a four-step process in making choices. The first two steps involve getting tasks off their calendars; the second two, putting tasks on.

[Here is the first step.]

1. Remove all tasks for which you lack any absolute advantage.

When Roger arrived at the Rotman School, he was informed that the dean’s most important job was to hire tenure-stream faculty members and that he, like his predecessors, should be heavily involved in every aspect of the hiring process. That’s an example of what we often see as a should do. Leaders are told they should do something in part because that’s how it has always been done.

But Roger knew he faced a big transformational task and couldn’t spend his time the way his predecessors had. They had devoted approximately 50 days a year to faculty selection and recruiting activities. Furthermore, he realized that he would be no better at it than his associate dean, Peter Pauly, who was a stellar academic with a great eye for young talent and superb skills in faculty hiring. But to put Pauly in charge, Roger needed to do two things: He had to persuade the provost—the university’s chief academic officer and the boss of all the deans—to allow Pauly to take over that job. And he had to achieve a meeting of the minds with Pauly on how to carry out the task—which would involve some small but important differences from past practices.

A.G. came to a similar realization when he returned for his second stint as CEO of P&G. He had engineered a remarkable turnaround during his first stint, but the momentum had been lost under his successor, and it was clear that he needed to reassure investors that the company could regain it. Managing relationships with key investors was typically regarded at P&G and elsewhere as the CEO’s job. But A.G. could see that his CFO, Jon Moeller, with whom he had worked closely during his entire first term as CEO, would be just as good at interacting with investors and analysts at quarterly earnings releases. As a result, Moeller gained invaluable experience that served him well when he became P&G’s CEO, in 2021—and A.G. was saved many should do days.