Ultimately, this is a story about choices, including the choice to create a discipline of strategic thinking and strategic practice within an organization. (Location 91)
Really, strategy is about making specific choices to win in the marketplace. (Location 103)
a firm creates a sustainable competitive advantage over its rivals by “deliberately choosing a different set of activities to deliver unique value.” (Location 105)
Strategy therefore requires making explicit choices—to do some things and not others—and building a business around those choices.2 In short, strategy is choice. More specifically, strategy is an integrated set of choices that uniquely positions the firm in its industry so as to create sustainable advantage and superior value relative to the competition. (Location 106)
Instead of working to develop a winning strategy, many leaders tend to approach strategy in one of the following ineffective ways: (Location 112)
They define strategy as a vision. Mission and vision statements are elements of strategy, but they aren’t enough. They offer no guide to productive action and no explicit road map to the desired future. They don’t include choices about what businesses to be in and not to be in. There’s no focus on sustainable competitive advantage or the building blocks of value creation. (Location 113)
They define strategy as a plan. Plans and tactics are also elements of strategy, but they aren’t enough either. A detailed plan that specifies what the firm will do (and when) does not imply that the things it will do add up to sustainable competitive advantage. (Location 116)
They deny that long-term (or even medium-term) strategy is possible. The world is changing so quickly, some leaders argue, that it’s impossible to think about strategy in advance and that, instead, a firm should respond to new threats and opportunities as they emerge. (Location 118)
They define strategy as the optimization of the status quo. Many leaders try to optimize what they are already doing in their current business. This can create efficiency and drive some value. But it isn’t strategy. The optimization of current practices does not address the very real possibility that the firm could be exhausting its assets and resources by optimizing the wrong activities, while more-strategic competitors pass it by. (Location 124)
They define strategy as following best practices. Every industry has tools and practices that become widespread and generic. Some organizations define strategy as benchmarking against competition and then doing the same set of activities but more effectively. Sameness isn’t strategy. It is a recipe for mediocrity. (Location 128)
Tags: strategy
But it is only through making and acting on choices that you can win. Yes, clear, tough choices force your hand and confine you to a path. But they also free you to focus on what matters. (Location 133)
Winning should be at the heart of any strategy. In our terms, a strategy is a coordinated and integrated set of five choices: a winning aspiration, where to play, how to win, core capabilities, and management systems. (Location 139)
The five choices make up the strategic choice cascade, the foundation of our strategy work and the core of this book. (Location 143)
First, Olay needed to convince skin-care-savvy women that the new Olay products were just as good as, or better than, higher-priced competitors. It began with advertising in the same magazines and on the same television shows as those populated by the more expensive brands; the idea was to put Olay into the same category in the consumer’s mind. (Location 222)
Olay had a strategic problem that many companies struggle with—a stagnant brand, aging consumers, uncompetitive products, strong competition, and momentum in the wrong direction. (Location 257)
Specifically, strategy is the answer to these five interrelated questions: What is your winning aspiration? The purpose of your enterprise, its motivating aspiration. Where will you play? A playing field where you can achieve that aspiration. How will you win? The way you will win on the chosen playing field. What capabilities must be in place? The set and configuration of capabilities required to win in the chosen way. What management systems are required? The systems and measures that enable the capabilities and support the choices. (Location 264)
Winning Aspirations The first question—what is our winning aspiration?—sets the frame for all the other choices. A company must seek to win in a particular place and in a particular way. (Location 311)
Aspirations are statements about the ideal future. At a later stage in the process, a company ties to those aspirations some specific benchmarks that measure progress toward them. (Location 315)
At Olay, the winning aspirations were defined as market share leadership in North America, $1 billion in sales, and a global share that put the brand among the market leaders. (Location 316)
The winning aspiration broadly defines the scope of the firm’s activities; where to play and how to win define the specific activities of the organization—what the firm will do, and where and how it will do this, to achieve its aspirations. (Location 333)
Where to play represents the set of choices that narrow the competitive field. The questions to be asked focus on where the company will compete—in which markets, with which customers and consumers, in which channels, in which product categories, and at which vertical stage or stages of the industry in question. (Location 335)
A firm can be narrow or broad. It can compete in any number of demographic segments (men ages eighteen to twenty-four, midlife urbanites, working moms) and geographies (local, national, international, developed world, economically fast-advancing countries like Brazil and China). It can compete in myriad services, product lines, and categories. It can participate in different channels (direct to consumer, online, mass merchandise, grocery, department store). (Location 339)
Corporately, when it came to where to play, the company needed to define which regions, categories, channels, and consumers would give P&G a sustainable competitive advantage. (Location 351)
How to Win Where to play selects the playing field; how to win defines the choices for winning on that field. It is the recipe for success in the chosen segments, categories, channels, geographies, and so on. The how-to-win choice is intimately tied to the where-to-play choice. Remember, it is not how to win generally, but how to win within the chosen where-to-play domains. (Location 388)
To determine how to win, an organization must decide what will enable it to create unique value and sustainably deliver that value to customers in a way that is distinct from the firm’s competitors. Michael Porter called it competitive advantage—the specific way a firm utilizes its advantages to create superior value for a consumer or a customer and in turn, superior returns for the firm. (Location 405)
Core Capabilities Two questions flow from and support the heart of strategy: (1) what capabilities must be in place to win, and (2) what management systems are required to support the strategic choices? (Location 431)
The first of these questions, the capabilities choice, relates to the range and quality of activities that will enable a company to win where it chooses to play. Capabilities are the map of activities and competencies that critically underpin specific where-to-play and how-to-win choices. (Location 432)
At P&G, a company with more than 125,000 employees worldwide, the range of capabilities is broad and diverse. But only a few capabilities are absolutely fundamental to winning in the places and manner that it has chosen: (Location 441)
Deep consumer understanding. This is the ability to truly know shoppers and end users. (Location 444)
Innovation. Innovation is P&G’s lifeblood. P&G seeks to translate deep understanding of consumer needs into new and continuously improved products. Innovation efforts may be applied to the product, to the packaging, to the way P&G serves its consumers and works with its trade customers, or even to its business models, core capabilities, and management systems. (Location 446)
Brand building. Branding has long been one of P&G’s strongest capabilities. (Location 450)
Go-to-market ability. wrelationships. P&G thrives on reaching its customers and consumers at the right time, in the right place, in the right way. By investing in unique partnerships with retailers, P&G can create new and breakthrough go-to-market strategies that allow it to deliver more value to consumers in the store and to retailers throughout the supply chain. (Location 453)
Global scale. P&G is a global, multicategory company. Rather than operate in distinct silos, its categories can increase the power of the whole by hiring together, learning together, buying together, researching and testing together, and going to market together. (Location 456)
Management Systems The final strategic choice in the cascade focuses on management systems. These are the systems that foster, support, and measure the strategy. To be truly effective, they must be purposefully designed to support the choices and capabilities. (Location 465)
In general, though, the systems need to ensure that choices are communicated to the whole company, employees are trained to deliver on choices and leverage capabilities, plans are made to invest in and sustain capabilities over time, and the efficacy of the choices and progress toward aspirations are measured. (Location 468)
created systems to partner with leading in-store marketing and design firms, to create Olay displays that were eye-catching and inviting to shop. (Location 475)
At the corporate level, management systems included strategy dialogues, innovation-program reviews, brand-equity reviews, budget and operating plan discussions, and talent assessment development reviews. (Location 478)
Strategy needn’t be the purview of a small set of experts. It can be demystified into a set of five important questions that can (and should) be asked at every level of the business: What is your winning aspiration? Where should you play? How can you win there? What capabilities do you need? What management systems would support it all? (Location 502)
Do remember that strategy is about winning choices. It is a coordinated and integrated set of five very specific choices. As you define your strategy, choose what you will do and what you will not do. (Location 511)
Do think of strategy as an iterative process; as you uncover insights at one stage in the cascade, you may well need to revisit choices elsewhere in the cascade. (Location 515)
What Is Winning Aspirations are the guiding purpose of an enterprise. (Location 522)
As a rule of thumb, though, start with people (consumers and customers) rather than money (stock price). (Location 531)
Winning is worthwhile; a significant proportion (and often a disproportionate share) of industry value-creation accrues to the industry leader. (Location 539)
A too-modest aspiration is far more dangerous than a too-lofty one. Too many companies eventually die a death of modest aspirations. (Location 543)
IT services were far from a core competency for most companies (including P&G), and the costs and complexities of providing IT services in-house were daunting. Fortunately, riding to the rescue was a new breed of service provider: the business process outsourcer (BPO). These companies (including IBM, EDS, Accenture, TCS, and Infosys) would provide a range of IT services from the outside, managing complexity for a fee. (Location 586)
The biggest danger of having a product lens is that it focuses you on the wrong things—on materials, engineering, and chemistry. It takes you away from the consumer. Winning aspirations should be crafted with the consumer explicitly in mind. (Location 661)
The push was to ask, “Who really is your best competitor? More importantly, what are they doing strategically and operationally that is better than you? Where and how do they outperform you? What could you learn from them and do differently?” Looking at the best competitor, no matter which company it might be, provides helpful insights into the multiple ways to win. (Location 677)
Unless winning is the ultimate aspiration, a firm is unlikely to invest the right resources in sufficient amounts to create sustainable advantage. (Location 684)
WINNING ASPIRATION DOS AND DON’TS Do play to win, rather than simply to compete. Define winning in your context, painting a picture of a brilliant, successful future for the organization. Do craft aspirations that will be meaningful and powerful to your employees and to your consumers; it isn’t about finding the perfect language or the consensus view, but is about connecting to a deeper idea of what the organization exists to do. Do start with consumers, rather than products, when thinking about what it means to win. Do set winning aspirations (and make the other four choices) for internal functions and outward-facing brands and business lines. Ask, what is winning for this function? Who are its customers, and what does it mean to win with them? Do think about winning relative to competition. Think about your traditional competitors, and look for unexpected “best” competitors too. Don’t stop here. Aspirations aren’t strategy; they are merely the first box in the choice cascade. (Location 690)
A strategy is a coordinated and integrated set of where-to-play, how-to-win, core capability, and management system choices that uniquely meet a consumer’s needs, thereby creating competitive advantage and superior value for a business. Strategy is a way to win—and nothing less. (Location 744)
Where to Play (Location 748)
Deep consumer understanding is at the heart of the strategy discussion. (Location 787)
In considering where to play among consumer segments, the Bounty team asked some critical questions: Who is the consumer? What is the job to be done? Why do consumers choose what they do, relative to the job to be done? (Location 788)
Where-to-play choices occur across a number of domains, notably these: Geography. In what countries or regions will you seek to compete? Product type. What kinds of products and services will you offer? Consumer segment. What groups of consumers will you target? In which price tier? Meeting which consumer needs? Distribution channel. How will you reach your customers? What channels will you use? Vertical stage of production. In what stages of production will you engage? Where along the value chain? How broadly or narrowly? (Location 831)
Choosing where to play is also about choosing where not to play. (Location 848)
At P&G, where to play choices start with the consumer: Who is she? What does the consumer want and need? (Location 858)
In particular, you should avoid three pitfalls when thinking about where to play. The first is to refuse to choose, attempting to play in every field all at once. The second is to attempt to buy your way out of an inherited and unattractive choice. The third is to accept a current choice as inevitable or unchangeable. (Location 890)
Failing to Choose Focus is a crucial winning attribute. Attempting to be all things to all customers tends to result in underserving everyone. (Location 893)
Trying to Buy Your Way Out of an Unattractive Game Companies often attempt to move out of an unattractive game and into an attractive one through acquisition. Unfortunately, it rarely works. A company that is unable to strategize its way out of a current challenging game will not necessarily excel at a different one—not without a thoughtful approach to building a strategy in both industries. Most often, an acquisition adds complexity to an already scattered and fragmented strategy, making it even harder to win overall. (Location 907)
Accepting an Existing Choice as Immutable It can also be tempting to view a where-to-play choice as a given, as having been made for you. But a company always has a choice of where to play. To return to a favorite example, Apple wasn’t bound entirely by its first where-to-play choice—which was desktop computers. Though it eventually established a comfortable niche in that world, as the desktop of choice for creative industries, Apple chose to change its playing field to move into the portable communication and entertainment space with the iPod, iTunes, iPhone, and iPad. (Location 920)
Where to play is about understanding the possible playing fields and choosing between them. It is about selecting regions, customers, products, channels, and stages of production that fit well together—that are mutually reinforcing and that marry well with real consumer needs. (Location 1043)
WHERE-TO-PLAY DOS AND DON’TS Do choose where you will play and where you will not play. Explicitly choose and prioritize choices across all relevant where dimensions (i.e., geographies, industry segments, consumers, customers, products, etc.). Do think long and hard before dismissing an entire industry as structurally unattractive; look for attractive segments in which you can compete and win. Don’t embark on a strategy without specific where choices. If everything is a priority, nothing is. There is no point in trying to capture all segments. You can’t. Don’t try. Do look for places to play that will enable you to attack from unexpected directions, along the lines of least resistance. Don’t attack walled cities or take on your strongest competitors head-to-head if you can help it. Don’t start wars on multiple fronts at once. Plan for your competitors’ reactions to your initial choices, and think multiple steps ahead. No single choice needs to last forever, but it should last long enough to confer the advantage you seek. Do be honest about the allure of white space. It is tempting to be the first mover into unoccupied white space. Unfortunately, there is only one true first mover (as there is only one low-cost player), and all too often, the imagined white space is already occupied by a formidable competitor you just don’t see or understand. (Location 1054)
Where to play is half of the one-two punch at the heart of strategy. The second is how to win. Winning means providing a better consumer and customer value equation than your competitors do, and providing it on a sustainable basis. (Location 1161)
As Mike Porter first articulated more than three decades ago, there are just two generic ways of doing so: cost leadership and differentiation (Location 1163)
The low-cost player doesn’t necessarily charge the lowest prices. Low-cost players have the option of underpricing competitors, but can also reinvest the margin differential in ways that create competitive advantage. (Location 1171)
Rather than selling its bars at a lower price (which is nearly impossible because of the dynamics of the convenience-store trade), Mars has chosen to buy the best shelf space in the candy bar rack in every convenience store in America. Hershey’s can’t effectively counter the Mars initiative; it simply doesn’t have the extra money to spend. (Location 1176)
While all companies make efforts to control costs, there is only one low-cost player in any industry—the competitor with the very lowest costs. Having lower costs than some but not all competitors can enable a firm to stick around and compete for a while. But it won’t win. Only the true low-cost player can win with a low-cost strategy. (Location 1185)
Tags: competition
Differentiation between products is driven by the activities of the firm: product design, product performance, quality, branding, advertising, distribution, and so on. (Location 1198)
Tags: product development, strategy
In other words, life inside a cost leader looks very different from life inside a differentiator. In a cost leader, managers are forever looking to better understand the drivers of costs and are modifying their operations accordingly. In a differentiator, managers are forever attempting to deepen their holistic understanding of customers to learn how to serve them more distinctively. In a cost leader, cost reduction is relentlessly pursued, while in a differentiator, the brand is relentlessly built. (Location 1225)
Customers are seen and treated very differently. At a cost leader, nonconforming customers—that is, customers who want something special and different from what the firm currently produces—are sacrificed to ensure standardization of the product or service, all in the pursuit of cost-effectiveness. (Location 1229)
At a differentiator, customers are jealously guarded. If customers indicate a desire for something different, the firm tries to design a new offering that the customers will adore. And if a customer leaves, the departure drives a stake in the heart of the firm, indicating a failure of the strategy with that customer. (Location 1231)
Many companies like to describe themselves as winning through operational effectiveness or customer intimacy. These sound like good ideas, but if they don’t translate into a genuinely lower cost structure or higher prices from customers, they aren’t really strategies worth having. Across its categories and markets, P&G pursues branded differentiation strategies that allow it to command price premiums. (Location 1244)
P&G fell into the fine-fragrance business through an acquisition, but once there, the company thought long and hard about how to win. Rather than accept the rules of the game (a highly seasonal business with a push-and-churn approach to brands and little opportunity to bring P&G’s consumer insights, brand building, and go-to-market capabilities to bear), the fine-fragrances team found new ways to win. Like the home-care team, it attacked in an area of least resistance—men’s fragrances and younger, sportier scents, rather than in the heart of the most intense competition in women’s prestige brands. The team found new ways to win by creating brands based on specific consumer needs and wants, partnering in distinctively successful ways with fragrance houses and designers. (Location 1292)
Where-to-play and how-to-win choices do not function independently; a strong where-to-play choice is only valuable if it is supported by a robust and actionable how-to-win choice. (Location 1324)
It would be a challenge. The Pampers diapers that were sold globally were simply too expensive to be sold in emerging markets. Traditionally, consumer goods companies have taken one of two approaches in such a situation. One is the trickle-down technology approach, basically taking a once cutting-edge but now largely obsolete product from the developed world and selling it in emerging markets. The other common approach is to take the existing premium product and strip out as many costs as possible. (Location 1338)
Summing Up In choosing where to play, you must consider a series of important dimensions, like geographies, products, consumer needs, and so on, to find a smart playing field. How-to-win choices determine what you will do on that playing field. Because contexts, like competitive dynamics and company capabilities, differ greatly, there is no single, simple taxonomy of how-to-win choices. At a high level, the choice is whether to be the low-cost player or a differentiator. But the how of each strategy will differ by context. (Location 1356)
Cost leaders can create advantage at many different points—sourcing, design, production, distribution, and so on. Differentiators can create a strong price premium on brand, on quality, on a particular kind of service, and so forth. Remember that there is no one single how-to-win choice for all companies. (Location 1360)
HOW-TO-WIN DOS AND DON’TS Do work to create new how-to-win choices where none currently exist. Just because there isn’t an obvious how-to-win choice given your current structure doesn’t mean it is impossible to create one (and worth it, if the prize is big enough). But don’t kid yourself either. If, after lots of searching, you can’t create a credible how-to-win choice, find a new playing field or get out of the game. Do consider how to win in concert with where to play. The choices should be mutually reinforcing, creating a strong strategic core for the company. Don’t assume that the dynamics of an industry are set and immutable. The choices of the players within those industries may be creating the dynamics. Industry dynamics might be changeable. Don’t reserve questions of where to play and how to win for only customer-facing functions. Internal and support functions can and should be making these choices too. Do set the rules of the game and play the game better if you’re winning. Change the rules of the game if you’re not. (Location 1373)
CEO Ed Artzt summarized the lessons of the Pampers story in a strategy class he taught in the early 1990s: Determine whether a product innovation is really brand specific or ultimately category generic. Never give your current brand user a product-based reason to switch away. By denying Pampers the hourglass shape and better-fit features for a decade, the brand lost five generations of new parents and new babies. Competition will follow your technology, trying to at least match it and ideally beat it. Technical superiority alone is not sustainable. (Location 1426)
As Clayt Daley, who retired as chief financial officer in 2009, explains, P&G had three relevant criteria for any acquisition. First, any acquisition had to be “growth accretive—in a market that was growing (and likely to continue growing) faster than the average in its space and in a category or segment, geography or channel where we thought that we could grow as fast as the market, if not faster.”3 This was the first, and most obvious, hurdle. Second, the acquisition had to be structurally attractive—a business “that tended to have gross and operating margins above the industry or company average. We were looking for businesses that could generate strong, free cash flow.” Free cash flow was an important driver of value creation for P&G corporately. Once those two hurdles were cleared, there was a final criterion—one that too few companies consider systematically: how the potential acquisition would fit with the company’s strategy—its winning aspiration, its choices about where to play and how to win, its capabilities, and its management systems. (Location 1474)
But there was still more to consider. “At the end of the day,” Daley continues, “it really comes down to, are you, as an acquirer, going to bring value to that acquisition or not? The acquisition is only really successful if you’re a better owner of the business than either the previous owner or the company as an independent company. That usually gets down to your capabilities, in our case, your consumer capabilities, your branding capabilities, your R&D capabilities, your go-to-market capabilities, your global infrastructure, your back office. Are the capabilities and strengths that you’re bringing to the business going to improve it, grow it faster, and create more value than it did before?” In short, strategic fit between the new business and P&G capabilities was critical. (Location 1490)
As discussed earlier, the five capabilities core to P&G’s where-to-play and how-to-win choices are consumer understanding, brand building, innovation, go-to-market ability, and global scale. (Location 1509)
Understanding Capabilities and Activity Systems An organization’s 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. (Location 1570)
In 2000, P&G’s where-to-play choices were coming together (i.e., grow from the core; extend into home, beauty, health, and personal care; and expand into emerging markets), and its how-to-win choices were also becoming clear (i.e., excellence in consumer-focused brand building; innovative product design; and leveraging global scale and retailer partnerships). These choices needed to be translated into the set of capabilities required to deliver. (Location 1587)
When thinking about capabilities, you may be tempted to simply ask what you are really good at and attempt to build a strategy from there. The danger of doing so is that the things you’re currently good at may actually be irrelevant to consumers and in no way confer a competitive advantage. Rather than starting with capabilities and looking for ways to win with those capabilities, you need to start with setting aspirations and determining where to play and how to win. Then, you can consider capabilities in light of those choices. Only in this way can you see what you should start doing, keep doing, and stop doing in order to win. (Location 1606)
The goal is to connect consumer needs with what is technologically possible. (Location 1635)
When you have a feasible activity system, you can ask more questions: is it distinctive? Is it similar to or different from competitors’ systems? This is an important point. Imagine that a competitor has a different where-to-play and how-to-win choice, but a very similar set of capabilities and supporting activities. In such a situation, the competitor could shift to your potentially superior where-to-play and how-to-win choices and begin to cut in to your competitive advantage. (Location 1655)
As Porter notes, not all of the elements need to be unique or impossible to replicate. It is the combination of capabilities, the activity system in its entirety, that must be inimitable. (Location 1659)
If you are in a business that has one product line or brand, you may well have a single set of core capabilities and one activity system for the whole company. In a corporation, though, with different brands, categories, and markets, each different business line makes its own where-to-play and how-to-win choices within the context of organizational choices. Logically, then, each unit must have an activity system that supports its choices, a system that is informed by the corporate-level map. In other words, layers of capabilities occur throughout the organization, and the activity systems look at least a little different in different parts of the company. (Location 1676)
Add Competitive Advantage to the Level Below All levels above the indivisible activity system are aggregations that must add net competitive advantage in some way. (Location 1721)
Since aggregation inevitably creates costs (financial and administrative) that wouldn’t exist if the indivisible activity systems existed as separate businesses, the strategy at all levels of aggregation must contribute a countervailing benefit to those below, somehow improving their competitiveness. (Location 1722)
level can contribute a net benefit in two ways—through two kinds of reinforcing rods. First, it can provide the benefit of a shared activity. For example, the hair-care category can have a research laboratory that does fundamental research on cleaning, conditioning, and styling, which, because of its massive scale across all the hair brands, performs at a fraction of the cost that it would take for Head & Shoulders to do on its own. The technology advantage that is enabled through shared activities can be powerful. The second way a higher level of aggregation can provide value is through skills and knowledge transfer. For example, if Head & Shoulders needs well-trained brand managers and R&D managers to work in its business, and those can be provided by the hair-care category, then this represents a valuable transfer of skills to Head & Shoulders. (Location 1724)
The aggregator’s primary job is to help the level below compete more effectively through shared activities and transfer of skills. (Location 1732)
While the first job of each aggregation level is to develop capabilities that support those levels below, the second job is to expand and prune the lower-level portfolio on the basis of fit to broader capabilities. (Location 1738)
Gillette: Reinforcing Rods (Location 1751)
advertisers. Given the sheer size of Gillette’s media budget, you could imagine that becoming part of P&G would have little effect on its advertising costs. But as it turned out, P&G could replicate Gillette’s premerger advertising program at 30 percent less, because of P&G’s additional size and spending advantage. As the largest advertiser in the world, P&G confers the costs savings that accrue from that position to Gillette. (Location 1755)
In terms of go-to-market capability, P&G was able to fold the Gillette brands into the multifunctional customer teams at the world’s largest retailers, gaining both cost efficiencies and additional leverage with the retailers. P&G also transferred its industry-leading joint value-creation practices to Gillette, wherein P&G works directly with retailers to design and implement customer programs and partnerships that benefit both the retailers and P&G. (Location 1759)
BUILDING CAPABILITIES DOS AND DON’TS Do discuss, debate, and refine your activity system; creating an activity system is hard work and may well take a few tries to capture everything in a meaningful way. Don’t obsess about whether something is a core capability or a supporting activity; try your best to capture the most important activities required to deliver on your where-to-play and how-to-win choices. Don’t settle for a generic activity system; work to create a distinctive system that reflects the choices you’ve made. Do play to your own, unique strengths. Reverse engineer the activity systems (and where-to-play and how-to-win choices) of your best competitors, and overlay them with yours. Ask how to make yours truly distinctive and value creating. Do keep the whole company in mind, looking for reinforcing rods that are strong and versatile enough to run through multiple layers of activity systems and keep the company aligned. Do be honest about the state of your capabilities, asking what will be required to keep and attain the capabilities you require. Do explicitly test for feasibility, distinctiveness, and defensibility. Assess the extent to which your activity system is doable, unique, and defendable in the face of competitive reaction. Do start building activity systems with the lowest indivisible system. For all levels above, systems should be geared to supporting the capabilities required to win. (Location 1785)
Manage What Matters (Location 1803)
Without supporting structures, systems, and measures, strategy remains a wish list, a set of goals that may or may not ever be achieved. (Location 1807)
To truly win in the marketplace, a company needs a robust process for creating, reviewing, and communicating about strategy; it needs structures to support its core capabilities; and it needs specific measures to ensure that the strategy is working. (Location 1808)
We had three reasons for the shift in process. First, we wanted to shift the culture of the organization to one that was more dialogue oriented. Second, we wanted to create a structure in which the business teams could truly benefit from the experience and cross-enterprise perspective of senior leaders. And finally, we wanted to build the strategic-thinking capabilities of P&G’s executives, asking them to practice thinking through strategic issues with others in real time. (Location 1854)
So, strategy reviews were redesigned to work individual and collective strategic muscles. (Location 1860)
The change created a good deal of angst at first. Slowly but surely, though, the review meeting became what we hoped it would be: an inquiry into the competitiveness, effectiveness, and robustness of a strategy. (Location 1861)
The kind of dialogue we wanted to foster is called assertive inquiry. Built on the work of organizational learning theorist Chris Argyris at Harvard Business School, this approach blends the explicit expression of your own thinking (advocacy) with a sincere exploration of the thinking of others (inquiry). In other words, it means clearly articulating your own ideas and sharing the data and reasoning behind them, while genuinely inquiring into the thoughts and reasoning of your peers. (Location 1905)
To do this effectively, individuals need to embrace a particular stance about their role in a discussion. The stance we tried to instill at P&G was a reasonably straightforward but traditionally underused one: “I have a view worth hearing, but I may be missing something.” It sounds simple, but this stance has a dramatic effect on group behavior if everyone in the room holds it. (Location 1908)
One, they advocate their view as a possibility, not as the single right answer. Two, they listen carefully and ask questions about alternative views. Why? Because, if they might be missing something, the best way to explore that possibility is to understand not what others see, but what they do not. (Location 1913)
We wanted to open dialogue and increase understanding through a balance of advocacy and inquiry. This approach includes three key tools: (1) advocating your own position and then inviting responses (e.g., “This is how I see the situation, and why; to what extent do you see it differently?”); (2) paraphrasing what you believe to be the other person’s view and inquiring as to the validity of your understanding (e.g., “It sounds to me like your argument is this; to what extent does that capture your argument accurately?”); and (3) explaining a gap in your understanding of the other person’s views, and asking for more information (e.g., “It sounds like you think this acquisition is a bad idea. I’m not sure I understand how you got there. Could you tell me more?”). These kinds of phrases, which blend advocacy and inquiry, can have a powerful effect on the group dynamic. (Location 1918)
The OGSM, new strategy review meeting structure, and inquiry culture were the foundations of P&G’s new system for creating, reviewing, and communicating strategy. (Location 1982)
The notion that there are two crucial moments of truth—when the consumer encounters the product in the store for the first time and when he or she first uses at home—was significant for P&G. (Location 2013)
Previously, the whole company had focused primarily on that second moment—the at-home, in-use moment. We wanted to highlight and elevate the significance of the first moment of truth, illustrating just how important that in-store experience is to winning. (Location 2014)
Is the product in stock? Is it prominently positioned on the shelf? Does the packaging help the consumer understand the performance promise and the value proposition? Is it merchandised in a way that reinforces the brand promise and builds on it? Does something in the merchandizing and in-store marketing compel the consumer to pick up that product, rather than the one right beside it or down the aisle? (Location 2016)
Every company needs systems to formulate, refine, and clearly communicate the essentials of the strategy choice cascade throughout the company. (Location 2174)
MANAGEMENT SYSTEMS AND MEASURES DOS AND DON’TS Don’t stop at capabilities; ask yourself which management systems are needed to foster those capabilities. Do continue strategic discussions throughout the year, building an internal rhythm that keeps focus on the choices that matter. Do think about clarity and simplicity when communicating key strategic choices to the organization. To get at the core, don’t overcomplicate things. Do build systems and measures that support both enterprise-wide capabilities and business-specific capabilities. Do define measures that will tell you, over the short and long run, how you are performing relative to your strategic choices. (Location 2186)
One of the biggest lessons I had learned in my years at P&G was the power of simplicity and clarity. I found that clearer, simpler strategies have the best chance of winning, because they can be best understood and internalized by the organization. (Location 2197)
Ultimately, there are four dimensions you need to think about to choose where to play and how to win: The industry. What is the structure of your industry and the attractiveness of its segments? Customers. What do your channel and end customers value? Relative position. How does your company fare, and how could it fare, relative to the competition? Competition. What will your competition do in reaction to your chosen course of action? (Location 2242)
These four dimensions can be understood through a framework we call the strategy logic flow, which poses seven questions across the four dimensions (Location 2247)
Industry Analysis The first component of the strategy logic flow is industry analysis. To determine where to play, you must assess the industry landscape. You must ask, what might be the distinct segments of the industry in question (geographically, by consumer preference, by distribution channel, etc.)? Which segmentation scheme makes the most sense for the given industry today, and what might make sense in the future? And what is the relative attractiveness of those segments, now and in the future? (Location 2255)
Segmentation Industry segments are distinctive subsets of the larger industry along lines such as geography, product or service type, channel, customer or consumer needs, and so on. (Location 2259)
Attractiveness Once you have articulated existing and new segments, you must understand the structural attractiveness of the different segments. Other things being equal, a firm would want to play in segments that have higher profit potential based on their structural characteristics. (Location 2281)
To understand structural attractiveness, we can turn to Mike Porter’s seminal five-forces analysis and ask about the bargaining power of suppliers, the bargaining power of buyers, the degree of rivalry, the threat of new entrants, and the threat of substitutes (Location 2283)
The five forces can be divided into two axes. The vertical axis—threat from new entrants and threat of substitute products—determines how much value is generated by the industry (and is therefore available to be split up among industry players). If it is very difficult for new players to enter the industry and there are no substitutes to the industry’s product or services to which buyers can turn, then the industry will generate high value. This is why the pharmaceutical industry was so profitable through the 1980s and 1990s; it took enormous capital and expertise to get into the business and the buyers generally had little choice but to pay up for the products, which had no substitutes. Contrast this to the airline industry. There, whenever profitability spiked, a slew of new competitors entered. Or, compare it to steel, where everything from plastic to aluminum to ceramics to titanium can be a substitute. (Location 2290)
Customer Value Analysis Armed with a map of the playing field and an analysis of the structural attractiveness of the individual segments, the strategist can move to the second major category in this framework: an analysis of customer value. (Location 2327)
Wherever there is an intermediary channel between the firm and the end consumer, that intermediate customer and what it values must be understood. Wherever there is no intermediate customer or channel (like a retail bank, for example, which offers services directly to its consumers), a direct-to-consumer or solely business-to-business firm can eliminate the channel box from the diagram. (Location 2336)
Channel For channel customers, profit margin, the ability to drive traffic, trade terms, and delivery consistency all tend to play into the value equation, along with many other variables that depend on the nature of the business. An understanding of the channel customer value equation can help inform both the businesses you should be in and how you can win there. (Location 2344)
The dynamics of channel value were also essential to the Olay choice to stay in mass retail rather than moving up to department stores. In department and specialty stores, the manufacturer staffs its own mini beauty store within a larger retail format. Such a structure adds considerable complexity and lots of costs as the numerous cosmetics and skin-care competitors ratchet up the grandeur of their space and their level of staffing. (Location 2356)
Analysis of Relative Position With an understanding of the industry and customers, the next step is to explore your own relative position on two levels: capabilities and costs. Capabilities In terms of relative capabilities, the question is, how do your capabilities stack up, and how could they stack up, against those of your competitors in meeting the identified needs of customers (both channel and end consumer)? (Location 2394)
STRATEGY LOGIC FLOW DOS AND DON’TS Do explore all four critical dimensions of strategy choice: industry, customers, relative position, and competition. Do look beyond your current understanding of the industry, pushing to generate new ways of segmenting the market. Don’t accept that entire industries are or must be unattractive; explore the drivers of different dynamics in different segments, and ask how the game could be changed. Do consider both channel and end consumer value equations; if only one of these constituents is happy, your strategy is a fragile one. A winning strategy is a win-win-win; it creates value for consumers, customers, and the company. Don’t expect either the channel or the end consumers to tell you what constitutes value; that is your job to figure out. Don’t be blasé about your relative capabilities or costs; compare them with those of your best competition, and really push to understand how you can win against them. Do explore a range of possible competitive reactions to your choices, and ask under what conditions competitors could block you from winning. (Location 2471)
In the end, building a strategy isn’t about achieving perfection; it’s about shortening your odds. (Location 2541)
Frame the Choice As a general rule, an issue—for example, declining sales or technology change in the industry—can’t be resolved until it is framed as a choice. Until a real choice (e.g., should the company go in this direction or that one?) is articulated, team members can’t understand cognitively or feel emotionally the consequences of the different ways to resolve the issue. (Location 2594)
The strategic choice cascade, the strategic logic flow, and the reverse-engineering process represent a strategic playbook for your organization. (Location 2923)