Playing to win: How strategy really works

by A.G. Lafley

Really, strategy is about making specific choices to win in the marketplace. According to Mike Porter, author of Competitive Strategy, perhaps the most widely respected book on strategy ever written, a firm creates a sustainable competitive advantage over its rivals by “deliberately choosing a different set of activities to deliver unique value.”1 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.

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.

awareness precedes trial.

Strategy can seem mystical and mysterious. It isn’t. It is easily defined. It is a set of choices about winning. Again, it 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.

Each company doesn’t just want to serve customers; it wants to win with them. And that is the single most crucial dimension of a company’s aspiration: a company must play to win. To play merely to participate is self-defeating. It is a recipe for mediocrity. Winning is what matters—and it is the ultimate criterion of a successful strategy.

Without explicit where-to-play and how-to-win choices connected to the aspiration, a vision is frustrating and ultimately unfulfilling for employees. The company needs where and how choices in order to act. Without them, it can’t win.

In my now forty-plus years in business, I have found that most leaders do not like to make choices. They’d rather keep their options open. Choices force their hands, pin them down, and generate an uncomfortable degree of personal risk. I’ve also found that few leaders can truly define winning. They generally speak of short-term financial measures or a simple share of a narrowly defined market. In effect, by thinking about options instead of choices and failing to define winning robustly, these leaders choose to play but not to win. They wind up settling for average industry results at best.

I was determined to get P&G’s strategy right. To me, right meant that P&G would focus on achievable ways to win with the consumers who mattered the most and against the very best competition. It meant leaders would make real strategic choices (identifying what they would do and not do, where they would play and not play, and how specifically they would create competitive advantage to win). And it meant that leaders at all levels of the company would become capable strategists as well as capable operators. I was going to teach strategy until P&G was excellent at it.

Choosing where to play is also about choosing where not to play.

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. Giving in to any one of these temptations leads to weak strategic choices and, often, to failure.

Focus is a crucial winning attribute. Attempting to be all things to all customers tends to result in underserving everyone. Even the strongest company or brand will be positioned to serve some customers better than others. If your customer segment is “everyone” or your geographic choice is “everywhere,” you haven’t truly come to grips with the need to choose.

The heart of strategy is the answer to two fundamental questions: where will you play, and how will you win there?

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. As Mike Porter first articulated more than three decades ago, there are just two generic ways of doing so: cost leadership and differentiation

In a successful differentiation strategy, the company offers products or services that are perceived to be distinctively more valuable to customers than are competitive offerings, and is able to do so with approximately the same cost structure that competitors use.

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.

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.

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.

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.

Competition will follow your technology, trying to at least match it and ideally beat it. Technical superiority alone is not sustainable.

As John Pepper recounts in his book What Really Matters, the decision not to invest in pull-ons in the late 1980s was made because P&G was still under intense pressure to get its Ultra Pampers product upgrade execution right.b The company succumbed to the first-things-first argument and put every available resource on fixing the current problem. It did not balance returns from the present with investing in the future.

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,

Typically, in an acquisition, all the focus is on integration, on synergies, and on getting the right leadership in place. But synergy is not strategy. Strategy mattered most.

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.

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.

The goal, then, is an integrated and mutually reinforcing set of capabilities that underpin the where-to-play and how-to-win choices and that are feasible, distinctive, and defensible.

The activity system should be feasible, distinctive, and defensible if it is to enable you to win. If the system is missing any of these three qualities, you need to return to the where-to-play and how-to-win choices, refining or even entirely changing those choices until they result in a distinctive and winning activity system.

Once upon a time, the strategy creation and review process at P&G was, as global home care president David Taylor describes it, “corporate theater at its best.”

It was important to reframe the task or, as Daley puts it, “to create a framework of what a strategy discussion is and isn’t. A strategy discussion is not an idea review. A strategy discussion is not a budget or a forecast review. A strategy discussion is how we are going to accomplish our growth objectives in the next three to five years. We really wanted to engage in a discussion.”

We changed the meeting completely. It went from a formal presentation (by the business to management) to a dialogue focused on a very few critical strategic issues identified in advance.

Whatever strategic issues the president wanted to discuss were delivered in writing in advance of the strategy review meeting. The senior team would review the submission and select the issues it wished to discuss (or propose alternative points of discussion). A one-paragraph note (and never more than a one-page letter) would go back to the president, highlighting those issues for discussion.

conversation about the key strategic issues in the business. The questions tended to press on a few key points: was P&G winning in this category? Was the business team sure? How did they really know? What were the opportunities related to unmet consumer needs? What were the most promising innovations and technologies? What were the threats to category or country or channel structural attractiveness? What core capabilities was the business lacking? What was its most troubling or threatening competitor? These reviews focused on very basic, very fundamental questions with the intent of helping the team make better strategic choices. The group would spend three or four hours chewing on the few critical issues together.

The meetings themselves, although A.G. tried to make them true work sessions—where we think through options, where we think through the business landscape and the choices we could make and why this alternative choice is better than the other and all that—they rarely got to that in-depth, true strategic conversation.

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.

“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. Individuals try to explain their own thinking—because they do have a view worth hearing. So, they advocate as clearly as possible for their own perspective. But because they remain open to the possibility that they may be missing something, two very important things happen. 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.

No individual, and certainly not the CEO, would try to craft and deliver a strategy alone. Creating a truly robust strategy takes the capabilities, knowledge, and experience of a diverse team—a close-knit group of talented and driven individuals, each aware of how his or her own effort contributes to the success of the group and all dedicated to winning as a collective.

Operating TSR is an amalgamated measure of three real operating performance measures—sales growth, profit margin improvement, and increase in capital efficiency.

“We created a metric that would look holistically at all of the components that made up product or brand preference. Our weighted purchase intent (WPI) measure looked at a number of product dimensions that included things like the aesthetic appeal, the design, the feel of the diaper, the look of the diaper in addition to technical performance; it also considered the brand proposition you were giving to the consumer and the price of the product.” The goal of WPI was to capture the complete picture, the full proposition as presented to consumers.

It was a lesson I had first learned in Asia, where I worked for eight years—three in the 1970s and five in the 1990s. Then, English was typically the second language of Asian employees. So, the simpler and clearer the language I used, the more likely it would be understood. The better the choices were understood, the more likely they would lead to action.

But remember that strategy is an iterative process, and you’ll need to return to refine your winning aspiration in the context of the subsequent choices. So, rather than dwell on crafting the perfect definition of winning, sketch a prototype, with the understanding that you will return to it later with the rest of the cascade in mind. Then consider the real work of strategy as beginning with where to play and how to win—the very heart of strategy. These are the choices that actually define what you will do, and where you will do it, so as to generate competitive advantage.

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?

The post-1999 focus on core customers—those who accounted for an overwhelming share of P&G sales and profits—helped redefine the role of these multifunctional customer teams. Their job was to understand their customer so well that they could work collaboratively to develop mutual business goals, joint value creation strategies, and shared action plans to win. The focus of the combined customer and P&G team was always on the how—whether it was identifying how to take costs out of the supply chain or how to better serve a customer’s shoppers to drive traffic and sales. This shared focus has resulted in joint value creation—creating strategic payoffs both for the customer and for P&G.

The question to address is this: is there some competitive response that could undermine or trump the where-to-play and how-to-win choices?

You don’t want to design and build a strategy that a competitor can copy in a heartbeat, or one that will prove ineffective against a simple defensive maneuver on a competitor’s part. A strategy that only works if competitors continue to do exactly what they are already doing is a dangerous strategy indeed.

Any new strategy is created in a social context—it isn’t devised by an individual sitting alone in an office, thinking his or her way through a complex situation. Rather, strategy requires a diverse team with the various members bringing their distinct perspectives to bear on the problem.

Don’t expect either the channel or the end consumers to tell you what constitutes value; that is your job to figure out.

building a strategy isn’t about achieving perfection; it’s about shortening your odds.

Asking a single question can change everything: what would have to be true? This question helpfully focuses the analysis on the things that matter. It creates room for inquiry into ideas, rather than advocacy of positions.

A standard process is characterized by arguments about what is true. By turning instead to exploring what would have to be true, teams go from battling one another to working together to explore ideas. Rather than attempting to bury real disagreements, this approach surfaces differences and resolves them, resulting in more-robust strategies and stronger commitment to them.

(Or, flipped around, by asking, under what conditions could we win with this possibility?)

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.