Lafley’s Playing to Win details the importance of creating and developing a sound strategy for every business. He raises 5 critical questions that every organization must be able to answer with confidence.
Playing to Win: Takeaway # 1: Winning IS Strategy
A relatively new field in business management, strategy is defined as “an integrated set of choices that uniquely positions the firm in its industry … to create sustainable advantage and superior value relative to the competition.”
Michael Porter, author of Competitive Strategy, writes that a firm creates sustainable competitive advantage over its rivals by “deliberately choosing a different set of activities to deliver unique value.”
Strategy, at its basic level, is making choices. It is not irrelevant, even with the fast-paced environment of consumer business, where changes are constant. It is also not a vision, a plan, a set of tactics, best practices, or optimization of the status quo. All are important parts of strategy, but they are not the same as strategy itself.
Strategies are not guarantees against failure and must grow as times change. Effective strategies offer a company a competitive advantage. Lack of strategy is detrimental to any organization.
Strategy is about making integrated choices to help a company win in the marketplace. Winning, or succeeding, and the intention to do so are the cornerstones of strategy. The authors present five strategic choices that play into a framework process applicable to any organization or function. These choices can be combined to form a “strategy playbook,” called a “strategic choice cascade.”
Playing to Win – Key Takeaway #2 – What is winning
- Aspirations guide an enterprise, providing a framework for why it exists, what it wants to be, and what winning looks like. They may be translated into mission statements.
- For example, the mission of Starbucks is “to inspire and nurture the human spirit—one person, one cup, and one neighborhood at a time,” while Nike seeks “to bring inspiration and innovation to every athlete in the world.”
- It is P&G’s mission to deliver valuable brands that improve consumers’ lives in every category in which it competes.
- Missions are not strategies. However, defining an organization’s purpose leads to the first question in the strategic choice cascade: “What is our winning aspiration?”
- Defining winning for a corporation is essential to beginning the strategic planning process. Corporations must break down what winning—or achieving an ideal goal—means for their specific brand, category, and function in the marketplace.
- “Playing to play” occurs when strategic choices are not made to follow through on winning aspirations. For example, General Motors (GM) made a major strategic gamble and failed in trying to capitalize on the small-car, young-buyer market.
- The company launched Saturn as a new brand to appeal to this population who were buying Japanese imports. However, GM didn’t play to win. They instead played to play—to be somewhere in the market rather than at the top—and subsequently lost tens of billions of dollars.
- “Playing to win,” on the other hand, focuses on two questions: What choice will help the company win? and How can that choice create sustainable competitive advantage?
- A.G. Lafley and Roger L. Martin provide the example of P&G’s global business services (GBS), which needed to decide whether to continue running internally or outsource to another firm.
- Using the strategic cascade, P&G needed to determine which method would help them win, rather than merely find a “good-enough solution.”
- Seeking economy of scale and flexibility, P&G ultimately created an entirely new approach by selecting the best partners for each GBS area, rather than a single company to run the firm’s GBS. The partners could work together, creating efficiency, cost-effectiveness, and increased quality.
- This solution also freed P&G’s internal resources to focus on core capabilities.
- When defining winning aspiration, companies should focus on “those who matter most”: consider what is best for consumers and note what the strongest competitors are doing.
- Ideal winning aspirations focus on consumers rather than on a product or service. For example, P&G put the focus on making women’s lives better through skin-care products (consumer focus) rather than making skin-care products (product focus).
- Consider what the best, not necessarily the most obvious, competitors do better than you. Learn from them and improve on it. P&G often finds local, private-label companies are worthy of attention and learn from them.
- Winning Aspirations Dos and Don’ts
- Play to win, rather than just compete.
- Create meaningful and powerful aspirations—consider consumers and employees. Focusing on consumers over products means thinking about what it means to win.
- Don’t stop with aspirations. Follow the strategy cascade.
Playing to Win: Key Takeaway #3 : Where to Play
- Once winning aspirations are established, a company needs to consider where to play. The choices, when considering where to play, help narrow the competitive field. The company should consider in which market to compete, with which consumers, and in which categories and channels. These choices are critical because they will be the areas in which the organization must find ways to win.
- There are five “where to play” choices.
- Geography: Where will the organization compete (countries or regions)?
- Products: What products or services will it offer?
- Consumers: Who is the sales target?
- Distribution channels: What channels will the organization use to reach consumers?
- Vertical stage of production: Where will the organization enter the production or value chain?
- Individual considerations that go into where-to-play choices are the same no matter the size of the organization.
- Choosing where to play also means choosing where not to play. Keeping the status quo—choosing not to expand—may seem like the easy way out, but sometimes it’s a strategic choice that makes sense in the context of the larger strategic cascade. Where and where not to play choices can be narrow or broad, but if the choice isn’t made, resources may be stretched too thin and thus become ineffective.
- Avoid the pitfalls of failing to choose, buying your way out of an “unattractive” game through acquisition, and accepting an existing choice as unchangeable.
- Choosing a playing field includes several smaller choices, which must be examined from different angles.
- First, the organization needs to gain a deep understanding of the customer. P&G gets to know their customers intimately, even making home visits. This information lets the organization know what its customers need and want, providing insight into what issues it can solve.
- Sometimes a company must consider changes, either major or minor, to existing playing fields. For example, Olay simply identified a new target group within a current industry—a minor change. Other organizations may find they need to change their business model entirely in looking at where to play.
- Companies should avoid head-to-head competition with the strongest competitors or take on more than one challenge at a time. A better idea is to stagger difficult business challenges, focusing on one at a time. To take on the competition in a thriving industry, the company needs to make choices on where to play that determine whether to target the biggest competitor, expand the playing field, or eliminate weaker competitors first. Doing all at once is counterproductive.
- Consider attacking from unexpected angles with the least resistance from existing competitors. Take the example of P&G’s choosing the men’s fragrance path, a less inhabited space among serious competitors.
- Where to Play Dos and Don’ts
- Choose where you will play and where you will not play. Prioritize choices across all applicable dimensions in where to play.
- Don’t develop a strategy without making specific where choices.
- Look for unexpected, untested, and unsaturated markets with paths of least resistance. Still, also be knowledgeable and prudent about attacking what seems like white space, unencumbered by competition.
- Don’t try to acquire companies to solve your company’s issues. Instead dig deep to determine where it makes sense for your organization to play.
Playing to Win: Key Takeaway #4 -How to Win
- Where to play is the first part of a “one-two punch” in strategy. The second is how to win. Winning involves giving customers better value than competitors do—sustainably. There are two essential ways to doing that: “cost leadership and differentiation.”
- Low-cost strategies create profit by means of a lower cost structure than competitors have. This structure allows a low-cost “player” (organization) either to sell comparable goods or services for less than competitors do or to reinvest the margin differential for competitive advantage.
- An example of this is in the chocolate industry. Mars has lower production costs than Hershey’s, but it charges customers roughly the same. Therefore, it has extra funds to spend on promoting its product. It purchases better self-space and is more visible to customers than Hershey’s. To use this how to win strategy most effectively, the organization must aim to be the low-cost leader in that segment.
- The alternative to low cost is differentiation. In this method, the cost structure of the product is on a par with competitors, but its perceived value is higher.
- An organization differentiates its product by offering customers the value they need and want. Different offerings have specific “consumer value equations.” The job of the organization is to determine what value it can create for its customers and do everything possible to keep them happy.
- Differentiators are willing to spend more in production to increase value for customers and, therefore, can often ask a price premium through loyalty or superior service.
- All successful strategies use either cost leadership or differentiation. Both approaches give an organization a larger margin between revenue and costs than its competitors can match. It’s also possible to combine them, pricing higher than competitors and producing at lower cost than the same competitors. However, this practice is rare because markets are constantly changing and competitors are agile, finding new ways to deliver value. At present, the authors cite Google and eBay as companies that can do this. However, it’s difficult to use both approaches simultaneously because they are opposing in some ways.
- There are different ways to win, despite the winner-take-all mentality that suggests only one winning formula to take over any given market. Developing strategic capability helps an organization think its way out of difficult situations.
- Where to play and how to win choices, when developed in tandem, inform the basis of strategy. At times an organization may find that even digging deep doesn’t open up winning choices. At that point it may need to revisit where to play.
- P&G learned a strategic lesson from Pampers.
- In the 1960s P&G entered the disposable diaper market as a thought leader, addressing the needs of parents who were using mostly cloth diapers. Within a decade, Pampers had a 75 percent share of the market.
- P&G attempted to diversify by introducing Luvs as a premiere diaper brand. This product hurt the Pampers market share as Huggies (a Kimberly-Clark brand) gained traction with a similar strategy. Eventually P&G was able to recover market share with Ultra Pampers.
- The organization learned they should have applied the premier features to Pampers with a brand that was already winning, rather than lose customers to Huggies.
- How to Win Dos and Don’ts
- Create new how to win choices where none exist, and think of how to win and where to play as intertwined parts of strategy.
- If a credible how-to-win choice doesn’t exist, find a new place to play or stop competing in that area.
- Consider how to win strategy both internally and externally. Make choices with customers in mind but also for internal and support functions within an organization.
- Set rules when the organization is winning, and change rules if the organization is not.
Playing to Win: Key Takeaway #5 : What are your Strengths? Play to them!
- The next strategy decision revolves around an organization’s core capabilities that help it deliver winning results through its where to play and how to win choices. For example, Olay was able to play to P&G’s strengths in consumer understanding and brand building.
- Firms should develop a one-page activity system to visually represent core capabilities and the supporting activities needed to back them.
- Core capabilities are “those activities that, when performed at the highest level, enable the organization to bring its where-to-play and how-to-win choices to life.” The choices, which fit and reinforce each other, allow the organization to decide where to place emphasis, which investments to support more heavily, and which not to.
- Activity systems vary depending on company size. Large organizations like P&G often have different activity systems for different units, whereas a small company may have just one activity system.
- When A.G. Lafley became CEO of P&G in 2000, the company defined its playing field and how it planned to win. It needed to move these choices into its existing core capabilities. Company leaders first identified industry-specific capabilities and then voted on capabilities that met these criteria:
- Existing capabilities that could be expanded
- Capabilities that were relevant and vital to P&G’s business and brands
- Capabilities that heavily influenced whether P&G could win in the marketplace
- Leaders settled on five core capabilities at the corporate level:
- Consumer understanding
- Brand creation and building
- Go-to-market ability
- Global scale
- P&G’s teams then created specific action plans for each capability identified at different levels—corporate, category, and brand—and mapped them into activity systems to guide future strategic choices.
- Activity systems become successful when they meet three criteria in sequential order. If at any point issues arise, leaders must refine the activity system by revisiting where to play and how to win until the choices are those that can help the organization win. The three criteria are these:
- Feasibility in terms of building activity systems. Feasibility involves evaluating existing components, resources to devote to the activity system, and leadership to build them out.
- Distinctiveness of offer. An organization’s established capabilities should be unique as it competes in the marketplace.
- Defensibility against replication. A firm doesn’t want an easily replicated set of capabilities a competitor can emulate.
- In 2005 P&G acquired the razor company Gillette. Typically, acquisition and corporate mergers don’t create or increase value, but this was not the case for P&G because the merger followed the organization’s criteria for growth mergers. Gillette was
- capable of greater than average growth.
- structurally attractive, showing above-average margins.
- a good fit with the parent company’s strategy.
- After the merger, P&G defined the new strategic choices and identified the capabilities necessary to win at those choices.
- In a large corporation with multiple activity systems, shared capabilities create “reinforcing rods.” Like reinforcing rods in a building that link its stories and keep the structure standing, these reinforcing rods link organizations and units of organizations. Strengthening reinforcing rods can improve organizational integration.
- To strengthen integration, an organization must first start at the indivisible level, making improvements from the bottom up. Next, it adds value to the level below by strengthening reinforcing rods. Sharing skills and activities creates a positive knowledge and transfer of capabilities. Finally, it looks at the reinforcing rods throughout. It’s ideal to invest in businesses that use the same rods and to provide fewer resources to those that don’t.
- Building Capabilities Dos and Don’ts
- Create an activity system through revision, discussion, and debate while capturing the most important activities required to meet the goals set forth with where to play and how to win choices.
- Work to create an activity system that is specific and actionable, not generic to the industry. Reverse engineer the system to make your system distinctive from and better than your competitors’.
- Look for and strengthen reinforcing rods that extend to multiple activity systems throughout the organization. Build up from the lowest indivisible system, strengthening from the ground up.
- Test honestly for feasibility, distinctiveness, and defensibility.
Playing to Win: Key Takeaway #6 : Manage What Matters
- Companies need management systems and structures to thrive and ultimately win. Strategy in itself is not sufficient. Effective management systems, which leverage the organization’s capabilities, are required to complete the strategic choice cascade.
- The keys to successful strategy are collaborative communication and measurement of the deliverables in strategic choice. Organizations must bring leaders to the table to create and review strategy in honest, open sessions. They must have a systematic focus on strategic thinking and decision making with open-minded, constructive conversations.
- Assertive inquiry, the kind of dialogue that works best for discussing strategic issues, has a three-part approach in which participants
- present their views and open the floor to discussion.
- paraphrase their understanding of others’ views for clarity and comprehension.
- explain and clarify misunderstandings and/or differences in viewpoints.
- Communication is perhaps the most important part of executing a strategy. Focus on critical choices and communicate them clearly, showing employees at all levels of the organization how and why they are important. Create a “culture of inquiry.”
- P&G summarizes its various choice cascades into an “OGSM” document explaining objectives, goals, strategies, and measures of each brand or company. This living document allows employees to get a clear and easy-to-read impression of the strategy.
- P&G communicated its strategy to the entire organization by creating three core themes and explaining, in appropriately direct and clear language, their relevance across all sectors. These are the core themes that would ensure winning.
- Make the consumer the boss.
- Increase the game between value delivery and the cost of delivering value.
- Win the two crucial moments: the client’s first encounter with a product in the store and the first time the client uses it after purchase.
- Companies should not be afraid to invest in systems that support core capabilities and measure desired outcomes. Organizations that collect feedback to address performance gaps are able to increase their desired results. Furthermore, a focus on measurement motivates employees to concentrate on actual results against expected outcomes in multiple factors.
- Management Systems and Measures Dos and Don’ts
- Don’t stop at capabilities, but determine the management systems necessary to foster capabilities and how to measure effectiveness.
- Make strategic thinking the norm, revisiting strategic discussions often and keeping the choices in mind.
- Communicate clearly and simply so that all employees across the organization are on the same page.
- Define measures that reveal performance relative to the strategic choices on the strategy cascade, and build systems to support those choices.
Playing to Win: Key Takeway #7: Think Through Strategy
- Developing a strategy playbook begins with the choice cascade and combines it with strategy logic flow and reverse engineering to create a framework.
- First, establish a winning aspiration, but remember to revisit it as needed when proceeding down the cascade, specifically in the where to play and how to win choices.
- Several strategy tools are available for analysis. Among them are SWOT (strengths, weaknesses, opportunities, threats), the VRIN model (identifying the degree that capabilities are valuable, rare, inimitable, and nonsubstitutable), the Boston Consulting Group growth matrix, and General Electric–McKinsey nine-box matrix. A.G. Lafley and Roger L. Martin suggest the strategy logic flow and reverse engineering to make those where to play and how to win choices rather than analysis with an existing tool.
- The strategy logic flow has four key areas with questions that allow leaders to analyze an organization’s situation and determine where to play and how to win choices. The logic flow moves from one end to the other but, like all strategy frameworks, it is iterative with a good deal of back and forth. Considering all parts together allows strategic choices to emerge.
- The Industry—Analysis
- Segmentation: What strategic segments exist within the industry?
- Structure: How can these strategic segments be profitable?
- Customers—Value Analysis
- Channel: What do customers in a channel value?
- End consumer: What do end consumers (customers) value?
- Relative Position
- Capabilities: What capabilities does the organization have? How do they compare with the competition?
- Costs: What are the organization’s costs? How do they compare with the competition?
- Prediction: How might the competition react to the organization’s choices and actions?
- The Industry—Analysis
- After establishing choices for where to play and how to win, leaders can use reverse engineering to finalize choices toward winning. The strategy logic flow points to key areas for analysis needed to create sustainable competitive advantage.
- Look at the industry, its segments, and their attractiveness.
- Then look at customers to determine what they truly want, digging deep.
- Turn inward to determine what capabilities and costs you have relative to competition.
- Try to predict what your competition will do as you unfold your strategy.
- The framework takes imagination, patience, and teamwork. Diversity of ideas is ideal, and a collaborative experience with different perspectives is essential to success.
- Strategy Logic Flow Dos and Don’ts
- Deeply explore the critical dimensions of strategy choice: industry, customers, relative position, and competition, digging in for true understanding. Because each dimension is important, strategies that omit or place less consideration on one over another are fragile and unlikely to succeed.
- Explore many possibilities with an open mind, and ask in what conditions competitors could gain an upper hand.
Playing to Win: Key Takeway #8 : Shorten Your Odds
- Because strategy development is not immune to failure, strategy should be fluid to compete in a rapidly changing global landscape. Building strategy isn’t about finding a perfect solution: it’s about increasing the chances of winning.
- Generating acceptance for strategy choices is important, but the traditional way of doing it—finding a single “right answer” and supporting it—actually incites conflict, not agreement. Moreover, in starting with data analysis, rather than ideas, participants develop a “me versus them” mentality that ultimately generates a compromise strategy rather than one on which team members mutually agree. This approach is expensive, discourages creativity, and is largely unproductive.
- Instead, one key question must be asked: “What would have to be true?” This question allows leaders, together, to uncover the best option by using a seven-step process.
- Frame the choice: Develop at least two “mutually exclusive options” to solve the issues at hand. These choices should stand in opposition to one another—both could not be pursued at the same time.
- Generate strategic possibilities: Brainstorm to ensure a broad-ranging list of possible strategy choices. These should be as creative and diverse as possible. Think in terms of the best possible outcome.
- Specify conditions: Ask “What would have to be true?” for each strategic choice to be the best choice. This process exemplifies reverse engineering because the end result, or conclusion, is taken as valid. This is not a time for discussing whether it is actually true but rather to identify the conditions the organization would need to deliver for each potential choice. Eliminate nice-to-have conditions to ensure all remaining conditions are essential to the success of the strategy choice.
- Identify barriers to choices: After laying out the conditions, determine which are least likely to be barriers to success—an opposite approach from the previous one. Address all concerns, especially those of the most skeptical participant. Total buy-in is important, and skeptics often have unique insight.
- Design valid tests: Create tests for each key barrier to a choice. These can be actual developed tests, especially in large companies with significant resources, but they can be creative tests for those with fewer resources.
- Conduct tests: Run tests for each key barrier. Save time and resources by beginning with conditions that have the least amount of confidence. If these conditions fail, eliminate the choice. If they pass, move on to the next least-confident barrier.
- Choose: Compare test results and make an informed choice based on collaboration about the tests conducted. By using reverse engineering, decision makers have an easier time, for all the information is laid out and the decision process is narrowed down.
- Reverse Engineering Dos and Don’ts
- Don’t waste time or resources on the front end analyzing everything. Instead, ask the question, “What would have to be true?” to explore all options as narratives.
- Explore many options, omitting none. Allow the process to eliminate choices.
- Stay focused on the essential question.
- Listen to the skeptics. Encourage them to “express concerns at the specify-barriers stage.”
- Test the biggest barriers first to eliminate major issues.
- Consider using an outside facilitator committed to the process to work with the leadership team.
The world and global marketplace is a volatile, uncertain, complex, and ambiguous (VUCA) environment. It’s getting harder, not easier, to win. Strategy, however, can help an organization win and must evolve as the company, customers, competitors, and marketplace evolve and change.
Six strategy traps indicate an organization’s strategy may not be effective or winning:
- The do-it-all-strategy: An organization can’t make everything a priority. Strategy means choice.
- The Don Quixote strategy: Don’t attack all competitors or the strongest competitors all at once.
- The Waterloo strategy: Don’t start attacking in multiple segments or with multiple competitors all at once. If an organization tries to do everything, it will do everything weakly.
- The something-for-everyone strategy: Choose the channel, geographic, or category segments carefully. Choose whom to serve well and whom not to serve at all.
- The dreams-that-never-come-true strategy: Don’t develop high-level dreams at the expense of concrete where to playand how to win choices. Aspirations are not strategies.
- The program-of-the-month strategy: Don’t copy generic industry strategies.
Six signs of a winning strategy:
- Your activity system looks different from your competitor’s.
- Your customers love you and noncustomers don’t. You’ve chosen your target well.
- Your competitors make good profit in their segments. They won’t come after yours.
- You have resources to spend. You are winning the value equation between price and costs.
- Your competitors attack one another rather than you.
- Your customers look to you for “innovations, new products, and service enhancement.”